Contents
Introduction
A recent court decision in Cardaci v Filippo Primo Cardaci as executor of the estate of Marco Antonio Cardaci [No 5] [2023] WASCA 158 has important lessons for anyone involved with a family trust, whether you are a trustee, a beneficiary, or considering setting up a trust. The High Court’s dismissal of the trustee’s appeal means that this case, although run in Western Australia, is likely to have significant application in other jurisdictions [1].
Facts of the Case
The case involved two trusts of which Marc Cardaci was the initial trustee. Upon his death, the primary beneficiary was Marc’s wife, Mae. The trustee became Marc’s brother, Philip. A personal dispute arose between Mae and Philip with Philip telling Mae that he would ‘never’ make a distribution to Mae and then offered to buy out her interest in the trust for a highly discounted sum.
The Court was highly critical of the trustee and found that the actions of Philip could be attributed to the corporate trustee solely controlled by Philip. The Court removed Philip’s entity as trustee of the trusts and held that the costs of the litigation could not be funded by trust assets. The legal costs in the dispute are said to have totalled over $7 million.
So, what does this mean for you?
Are you a Trustee?
If you’re a trustee, it’s a clear reminder that you can’t just rely on having broad powers under the trust deed. Trustees who fall short can be held personally liable or removed altogether [2].
As a trustee, the Court noted that you must:
- Act honestly and in good faith for the benefit of the beneficiaries;
- Not ignore a particular beneficiary;
- Ensure that you give ‘real and genuine’ consideration of beneficiaries rights; and
- Avoid conflicts of interests.
Risks for Trustees
Critically, as a trustee your right to be indemnified out of trust assets for any legal proceedings may not be upheld if you have resisted removal but been found unjustified in doing so.
The Court looked closely at the wording of the indemnity and exclusion of liability clauses in the Cardaci trusts and found that they did not entitle the trustee to be indemnified out of trust assets. The High Court refused the trustee’s appeal on this issue.
Consequences for Beneficiaries
If you’re a beneficiary, the Cardaci case reinforces your right to ask questions and receive information about how a trust is being managed.
Understand your options
We recommend that all trustees carefully consider their indemnity and exclusion of liability clauses in light of this decision.
If you are concerned about how a trust is being managed, or if you’re acting as a trustee and want to ensure you’re meeting your obligations, our experienced team can help.
Please do not hesitate to contact us on (02) 4288 0150 or email admin@pdclaw.au today!
References
[1] The case has already been cited with authority by the NSW Supreme Court see, eg, Rydzewski v Rydzewski (No 2) [2024] NSWSC 1074 and Hitchcock v Pratt Group Holdings Pty Ltd as trustee for the Pratt Family Holdings Trust [2024] NSWSC 1292.
[2] Section 70 of the Trustee Act 1925 (NSW)
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