Ms Amorosi was in the media last year regarding a dispute with her mother, Joy Robinson, over a property in Narre Warren North (the property) in a case which was intriguing with the circumstances concerning the acrimonious dispute involving the well known singer. In fact, my barrister and I were almost ambushed by the media when we left our own Supreme Court trial which was running at the same time!! The relevant issue which arose from this case was the entitlement of a Trustee of a trust to be indemnified for certain expenses from the trust’s assets. The Trust Deed will usually provide a right of indemnity but there is significant case law on the issue, particularly where there is a dispute as to the entitlement to rely on the right of indemnity and the extent to whether those expenses were properly incurred. This case provides some insight into the circumstances where a right of indemnity may be refused by a Court.

The brief background to the original dispute is relevant:

• Ms Amorosi and her mother were registered as tenants in common in equal shares on the title to the property;
• Ms Amorosi argued that the interest which was held by Mrs Robinson in the property was held on constructive trust for her. Mrs Robinson claimed that her interest on title arose pursuant to a purported oral agreement reached between them about a week before the purchase of the property – this agreement was denied by Ms Amorosi;
• The second defendant to the proceeding was Llama Investments Holdings Pty Ltd (Llama) as Trustee for the Llama Investment Trust (the Trust) and which was specifically set up to hold assets of Ms Amorosi – all properties owned by the Trust were for the sole benefit of Ms Amorosi. Mrs Robinson was sole director and sole shareholder until 2014 when Ms Amorosi’s stepfather became director;
• Interestingly, a claim by Mrs Robinson for adverse possession of the property also failed;
• Ms Amorosi was successful with her claim and subject to her assuming liability for the mortgage, she was entitled to possession of the property within 60 days of the order;
• A counterclaim was filed by Mrs Robinson who asserted that Ms Amorosi owed her the sum of $650,000 by reason of an amount paid by Mrs Robinson at the time of purchase and in consideration of her interest in the property and it was paid on a consideration which had failed;
• Part of the counterclaim was successful and Ms Amorosi was required to make restitution to Mrs Robinson in the amount of $650,000 as well as interest on that amount in the amount of $219,486.33;
• There were other issues for determination by the Court including other properties in the United States which were purchased by Llama as Trustee for the Trust and held on trust for Ms Amorosi, one of which was sold and the other which was held by Llama as Trustee on trust for Ms Amorosi. Ms Amorosi was also substituted in place of Llama as the Trustee of the Trust.

In the judgment handed down in December 2024 in Amorosi v Robinson (No 2) [2024] VSC 806 (which deal with costs as a well as the right of indemnity), Mrs Robinson and Llama argued that Llama had properly incurred costs as a defendant to the proceeding and despite its removal as Trustee of the Trust, those costs should be reimbursed to it pursuant to its right of indemnity. However, at the trial, it became clear that there was no proper basis for Llama’s denial of Ms Amorosi’s sole interest in the property of the Trust. The Court determined that Llama knew that the position which it adopted in the proceedings did not accord with the true beneficial ownership of the Trust, which was established for Ms Amorosi’s sole benefit. This conduct which was engaged in by Llama was sufficient for the Court to reach its decision in respect of Llama’s right of indemnity.

In determining whether Llama was entitled to rely on its right of indemnity, Justice Moore referred to several cases setting out the principles concerning a Trustee’s right of indemnity.

1. One case was the Court of Appeal decision in Di Benedetto v Kilton Grange Pty Ltd¹ where the principles relating to a trustee’s right of indemnity included these considerations:
   
   • A trustee is not entitled to an indemnity for costs and expenses which have been improperly incurred;
   • If the trustee has acted beyond its power, in bad faith or without the care and diligence of a person of ordinary good judgment, its right of indemnity will be lost;
   • Mere error of judgment may not be sufficient to demonstrate improper conduct.
2. Another case was Hopkins v Edwards², where Lyons J (as he then was) set out several principles regarding a trustee’s right to indemnity:
   
   • the trustee is entitled to an indemnity for costs, expenses and liabilities which have not been improperly incurred by it;
   • the question as to whether a cost, expense or liability was not improperly incurred will depend on the duty upon, or power in, the trustee which resulted in the cost being incurred by it;
   • as to the costs of litigation, the relevant issue is whether the trustee failed to exercise the care and diligence that a person of ordinary prudence or good judgment would exercise by allowing it to incur the cost, expense or liability;
   • a Court must be cautious before reaching a conclusion that certain costs, expenses or liabilities were improperly incurred and which will deprive a trustee of its right of indemnity.

Accordingly, after a consideration of those principles, Justice Moore was satisfied that:

“in exercising its powers in relation to the conduct of this proceeding, Llama acted unreasonably by failing to execute the trust with reasonable diligence and care. There accordingly exists circumstances which are sufficient to deny Llama its right of indemnity against the property of the Llama trust on the basis that any expenses and liabilities it incurred in relation to the legal costs of the proceeding were improperly incurred.”

Catherine Pulverman of FCW Lawyers has considerable experience in this area concerning trusts and trust disputes. She has acted for a range of parties including making applications to the Supreme Court for the removal of a trustee of a trust based on misconduct or breaches of duty resulting in loss and damage to beneficiaries, dealing with a Trustee’s right of indemnity from trust assets (whether on behalf of the Trustee or on behalf of another party disputing the Trustee’s entitlement to indemnity), providing the necessary advice or taking the relevant action as required on behalf of a relevant party concerning specific conduct in relation to a trust. If you require advice in relation to issues concerning a trust, Catherine and her team would be happy to provide assistance.