Conti Case Appeal

The appeal in one of the most widely-read SMSF cases of recent years - Ioppolo v Conti [2015] WASCA 45 – has been handed down by the Western Australian Court of Appeal.  The Court of Appeal has dismissed the appeal by the executors/children of the deceased member (Mrs Conti) and, consequently, the Trustee’s decision to appoint the entire benefit to Mr Conti (the second husband of the deceased member) has been upheld.

The Court of Appeal held that s17A of the SIS Act is merely facultative – it does not require the executor of the deceased member to be appointed as trustee or as director of the corporate trustee.  The Court held (affirming the decision at first instance) that the section merely provides that if the executor of the deceased member is appointed as trustee or director – this appointment will not (in the period from the date of death to the time when the death benefits are paid out) cause the fund to fail to satisfy the definition of “self managed superannuation fund”.

In relation to the Trustee appointing the entire benefit to Mr Conti (the Trustee was a corporate Trustee of which Mr Conti was the sole director and which company was appointed as trustee by Mr Conti in his capacity as sole surviving Trustee) the Court held that there was no evidence provided by the executors which was capable of sustaining the conclusion that the appointment by the trustee was defective.  The Court also held that there was no evidence to suggest that the Trustee did not consider the interest of the children when making its decision to appoint the entire benefit to Mr Conti.

The Court held that the conflicts rule (which applies to fiduciaries such as trustees) was expressly excluded by the terms of the trust deed and, therefore, the appointment of the entire death benefit to Mr Conti by the Trustee (which was Mr Conti in a different capacity) was not ineffective by reason of the self-interested appointment.

The Court did note that the judge at first instance may have gone too far to conclude that simply obtaining legal advice from a specialist SMSF legal firm was sufficient to rebut the inference that there was no vitiating element in the decision of the Trustee.

The case does not set any new law or break new ground.  It is simply a good example of the issues that arose.  It is also a reminder to trustees and advisers to check the trust deed to ensure the 3-year rule (requiring a binding death benefit nomination to be renewed every 3 years – a rule that applies to public offer funds but not SMSFs) has not been unnecessarily imported into the SMSF deed by poor drafting.  In Conti’s case, had the deed not imported the rule the binding death benefit nomination in favour of the children would have stood and the actions of the executor would not have been possible.