Supreme Court of WA|2003-03-26|Before: Mr P, Pullin J, Wheeler J, Ashley J, Barker J

Angelina Vagliviello (by her next friend The Public Trustee in and for the State of Western Australia) v Vagliviello & Anor [2003] WASC 61 (26 March 2003)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : ANGELINA VAGLIVIELLO (by her next friend THE PUBLIC TRUSTEE in and for the State of Western Australia) -v- VAGLIVIELLO & ANOR [2003] WASC 61

BETWEEN : ANGELINA VAGLIVIELLO (by her next friend THE PUBLIC TRUSTEE in and for the State of Western Australia)

Trust and trustees - Statutory and inherent jurisdiction to appoint a new trustee in substitution for an existing trustee - Test of "expediency" - Interests of the beneficiaries

1 BARKER J: By originating summons dated 6 August 2002, the plaintiff, by her next friend, the Public Trustee seeks orders to the following substantive effect -

(1) The removal of the first defendant (Mr Vagliviello) as trustee and guardian of the Vagliviello Investment Trust (the Trust).

(2) The removal of the second defendant (Mrs Vagliviello) as Appointor of the Trust.

(3) The appointment of the Public Trustee as Trustee, Guardian and Appointor of the Trust.

2 By order made 7 August 2002, by Pullin J in chambers, extended by order of Wheeler J in chambers on 12 August 2002, an interlocutory order by way of injunction was granted restraining the defendants, in essence, from dealing with the assets of the Trust, or making certain payments out of Trust monies, save on terms specified in the order.

3 This Court has power to remove a trustee in certain circumstances under a statutory jurisdiction provided by the Trustees Act 1962 and under its inherent jurisdiction.

4 Section 77 of the Trustees Act 1962 relevantly provides that:

"77. New trustees, Court may appoint

(1) The Court may, whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient, difficult or impracticable so to do without the assistance of the Court, make an order for the appointment of a new trustee or new trustees, either in substitution for, or in addition to, any existing trustee or trustees, or although there is no existing trustee.

(2) In particular, and without limiting the generality of the provisions of subsection (1), the Court may make an order appointing a new trustee in substitution for a trustee who -

(a) desires to be discharged;

(b) has been held by the Court to have misconducted himself in the administration of the trust;

(c) is convicted of felony or misdemeanour;

(d) is a person of unsound mind;

(e) is bankrupt_;_ or

(f) is a corporation that has ceased to carry on business, or is in liquidation, or has been dissolved.

(3) ...

(4) ...

(5) ... "

5 This statutory jurisdiction appears to reflect the inherent jurisdiction of the Court to remove a trustee.

6 In Monty Financial Services Ltd v Delmo [1996] VicRp 7; [1996] 1 VR 65 at 76, Ashley J noted the interrelationship between the inherent power of the Victorian Supreme Court to deal with trustees and the statutory power of the Victorian Supreme Court, in these terms:

"The Court of Chancery in England had an inherent jurisdiction to remove trustees, whether the same were willing or not. It also had power to appoint new trustees, where this was considered expedient. A part of this jurisdiction has been brought into Victorian statute law by s 48(1) of the Trustee Act, which had its beginnings in 13 and 14 Vict c 60, s 32 (the Trustee Act 1850 (Vic)). The inherent jurisdiction which this court possesses remains important, however, where the trustee is able to continue and opposes his removal. In such a situation, it seems, s 48(1) will not ordinarily have application: Re Blanchard (1861) 3 De GF and J 131; Re Combs (1884) 54 LT 45; Re Hodson's Settlement (1851) 20 LJ Ch 551; compare In Re Henderson; [1940] Ch 764."

7 Section 77(1) of the Trustees Act in Western Australia permits the exercise of the statutory power in a wider set of circumstances than does s 48(1) of the Victorian Trustee Act, to which Ashley J was referring. In a case such as the present, where Mr Vagliviello is not prepared to cease acting as the trustee of the trust, both the statutory power of the Court under s 77 of the Act and the inherent power of the Court to remove a trustee are relevant. The same test of expediency underlies the exercise of the power in each case.

8 In Porteous v Rinehart (1998) 19 WAR 495 at 507, White J accepted what O'Leary J in Re Estate of Roberts (1983) 20 NTR 13 at 17 said of the word "expedient" that appeared in s 27(1) of the Trustee Act 1980 (NT):

" 'Expedient' here, I think, may be taken to mean 'conducive to advantage in general, or to a definite purpose; fit, proper, or suitable to the circumstances of the case' : OED, vol III, v 426. In the context of appointing a new trustee in substitution for an existing one, I take it to mean then conducive to, or fit or proper or suitable having regard to, 'the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trusts and a faithful and sound exercise of the powers conferred upon the trustee' . . . "

"Apart from the provisions of the Trustees Act, the Court has an inherent jurisdiction to remove trustees and the dominant consideration in exercising either the statutory or inherent jurisdiction to remove trustees must be the welfare of the beneficiaries: Letterstedt v Broers (1884) 9 AC 371; Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572; Re Matheson; Ex parte Worrell v Matheson [1994] FCA 1021; (1994) 121 ALR 605; Gava v Grljusich, unreported; Supreme Court, WA; No 3031 of 1991, Library No 960010; 11 January 1996. This is a power which will be exercised cautiously."

10 As White J further pointed out, in Passingham v Sherborn (1846) 9 Beav 424; 50 ER 407 trustees were removed without misconduct on their part in circumstances where a conflict of interest arose from the fact that a trustee was also, pursuant to the authority of testator, a lessee of property being a farm belonging to the deceased's estate. The lessee's co-trustee had been inactive in the administration of the estate and had left matters to the lessee-trustee.

11 Equity will not permit a party to place himself in a situation in which his interest conflicts with his duty. As White J pointed out, while not necessarily applicable to the case of a testamentary executor, this rule does operate in relation to a trustee: Hobkirk v Ritchie (1934) 29 Tas LR 14 at 47.

12 In Hunter v Hunter [1938] NZLR 520, it was held that the jurisdiction of the Court to remove a trustee is ancillary to its principal duty to see that the trusts are properly executed and, if the Court is satisfied that the continuance of the trustee would prevent the trust being properly executed, the trustee may be removed. The main guide in the exercise of the jurisdiction must be, not whether the trustee has committed breaches of trust, but the welfare of the beneficiaries. Myers CJ said at 530:

"As I understand the principle, it is sufficient if the evidence shows, (i) that there is a conflict between interest and duty; (ii) that the trustees have failed to recognise this conflict and to take steps to ensure that their interest should not prevail as against their duty, and have disregarded the interests of the infant cestui que trust; and (iii) that a state of hostility exists between the trustees and the immediate possessor of the trust estate which is calculated to work against the true interests of the estate. In my opinion, that is the position in this case irrespective of any other grounds, though there are here other grounds found by the learned trial Judge which make all the more necessary the removal of the trustees from their office."

13 On behalf of the plaintiff, it is also submitted that the Court has the power to remove a trustee under its parens patriae jurisdiction in order to protect the interests of a person under a legal disability. There is no doubting the parens patriae jurisdiction of this Court: see, for example, Carseldine v Director of Department of Children's Services [1974] HCA 33; (1974) 133 CLR 345; Johnson v Director-General of Social Welfare (Vic) [1976] HCA 19; (1976) 135 CLR 92; T'Hart v Director-General of the Department of Community Development [2002] WASC 245 per McLure J; Jones v Moylan (1997) 18 WAR 492 at 505 - 6 per Wallwork J. However, I doubt that this Court should rely upon the parens patriae jurisdiction for its power to remove a trustee. I think the statutory power of the Court to remove trustees in all expedient circumstances, including where vulnerable persons are concerned, is that which should ordinarily be relied upon, together with the inherent power.

14 In this case, the Public Trustee acts as the next friend of the plaintiff. In the proceedings, the plaintiff was referred to as "Angelina" or "Angie". Angelina is 42 years of age. She suffers from cerebral palsy. The first defendant (Mr Vagliviello) is the brother of Angelina, and the second defendant (Mrs Vagliviello) is Mr Vagliviello's wife.

15 On 20 April 1998, by an Administration Order of that date made pursuant to the Guardianship and Administration Act 1990 (WA), Mr Vagliviello was appointed to represent Angelina in relation to her estate (the 1998 Administration Order). The 1998 Administration Order was reviewed and subsequently revoked and substituted by a further Administration Order made on or about 29 June 1999 (the 1999 Administration Order). By the 1999 Administration Order, Mr Vagliviello was appointed administrator of the estate of Angelina and was directed to:

"(i) enter into an appropriate written agreement in respect to the represented person's equity in the property at 22 Scarcliffe Way, Carine.

(ii) ensure that a caveat is lodged against the property at 22 Scarcliffe Way, Carine, protecting the represented person's interest to the property to the extent of the value of the alterations."

(The evidence discloses that Mr Vagliviello resides at 22 Scarcliffe Way, Carine, but does not otherwise address the circumstances in which these directions were made.)

16 As of about 30 June 1999, Angelina's financial position could be summarised as follows. She was registered as the proprietor of 94 Riseley Street, Ardross and lived in a home on the land (the Riseley Street property), which was free from encumbrances. She earned income from her work at Goodwill Industries, operated by the Cerebral Palsy Association. She was also receiving a pension from the Commonwealth government through Centrelink. She also had in excess of $13,000 invested in the Public Trustee's common fund. Her only liability was in respect of water rates, which as of 30 June 2000, was in the sum of $251.

17 The 1999 Administration Order was reviewed and subsequently revoked by a further Administration Order made 14 January 2002 (the 2002 Administration Order). As a result of this order the Public Trustee was appointed the administrator of Angelina's estate. The 2002 Administration Order was apparently made because the Guardianship and Administration Board was satisfied that Angelina:

"(a) remains unable, by reason of mental disability to make reasonable judgments in respect of matters relating to all of her estate; and

(b) is in need of an administrator of her estate; and

(c) cannot have such need met by other means less restrictive of her freedom of decision and action."

18 Paragraph 4 of the 2002 Administration Order provides as follows:

"4. The administrator to examine the validity of the creation of the Discretionary Trust, and when the final account is filed by the former administrator, the validity of payments by the former administrator which benefit others in addition to the representative person such as the borrowing of funds for the Discretionary Trust, the purchase of the 4 wheel drive vehicle and the investment of monies in the former administrator's business."

The former administrator, Mr Vagliviello, was obliged to file accounts in respect of the period of administration from 1 July 1999 to 14 January 2002.

19 The circumstances in which the Public Trustee became the administrator of Angelina's estate and the terms of the 2002 Administration Order are explained by the following events. The Vagliviello Investment Trust (the Trust) was established by a deed dated 13 April 2000. The "Primary Beneficiaries" of the Trust were (and are) Angelina, Mrs Vagliviello and Emma Vagliviello, a sister of Mr Vagliviello and Angelina. Mr Vagliviello was the trustee of the Trust and Mrs Vagliviello was the appointor.

20 On or about 15 May 2000, Mr Vagliviello, in his capacity as Angelina's administrator under the 1999 Administration Order, borrowed $86,000 from the Bank of Western Australia (BankWest). BankWest secured the loan by registering a mortgage over the Riseley Street property. After deduction of related costs and disbursements, the net proceeds of the loan, some $85,199.50, were paid into BankWest cash management account number 073-060026-6 maintained in the name "The Trustee, Vagliviello Investment Trust".

21 Mr Vagliviello acknowledges that he used the money from the BankWest loan to buy a Nissan Patrol motor vehicle (the four-wheel drive). He says he did this as Angelina's administrator in order to assist in her transportation. He paid $46,306 for the four-wheel drive.

22 As to the balance of the loan - a little less than $40,000 - Mr Vagliviello acknowledges that he used this to make advances to a business called "Charles Alexander & Associates", which provides financial services. At the time of the hearing of this application, Mrs Vagliviello and the Trust were said by Mr Vagliviello to operate the business in partnership, with the Trust holding a 20 per cent interest in the partnership. Mr Vagliviello says that he acts as the "marketing agent" of the business. The business does not employ any other sales person and it appears that it relies entirely on the endeavours of Mr Vagliviello to earn income. According to Mr Vagliviello, the business has only minor expenses on account of vehicle expenses and stationery.

23 In about August 2000, Mr Vagliviello, again in his capacity as Angelina's administrator under the 1999 Administration Order, sold the Riseley Street property. Settlement of the sale occurred on about 31 August 2000. The net proceeds of sale, after discharge of the monies owing to BankWest pursuant to the loan and mortgage registered against the property, were in the sum of $139,696.10. It appears this sum was paid into the same BankWest cash management account referred to above, maintained in the name of the trustee. It is unclear how Mr Vagliviello, as administrator, accounts for this transaction. From what Mr Vagliviello says, it appears the proceeds effectively constituted a loan made by him as Angelina's administrator to the Trust. However, there is nothing in writing recording the loan or indicating whether interest is payable on the loan, or any other terms governing the repayment of the loan. It may well be, although it is not something I need finally to determine on this application, that the loan acknowledged to have been made by Mr Vagliviello, as Angelina's administrator, to the Trust is repayable on demand and subject to an obligation to pay interest at prevailing overdraft rates, as the plaintiff suggests.

24 In any event, on 20 February 2001, Mr Vagliviello, as trustee of the Trust, purchased a house and land at 19 Hartington Way, Carine (the Hartington Way property) for $315,000. The purchase was financed in part by a loan from BankWest, which registered mortgage number H683814 on 6 March 2001 in respect of the loan, and in part by the proceeds of sale of Angelina's Riseley Street property. According to Mr Vagliviello, approximately $103,000 of her funds were applied to this end. By consumer guarantee and indemnity dated on or about 23 February 2001, Mrs Vagliviello, Emma Vagliviello and Angelina unconditionally guaranteed payment of all monies due under the loan agreement with BankWest secured by the mortgage.

25 Since the purchase of the Hartington Way property, Angelina has resided in the house. Emma Vagliviello has also lived in the house since that time. Additionally, Mr Vagliviello has used the upstairs loft of the house as an office without paying any rent for the privilege. He does not dispute that this is so. It appears that Mr Vagliviello, as trustee of the Trust, determined that the repayment instalments due under the mortgage could be met by an agreement with Angelina and Emma Vagliviello that each should pay rent of about $150 per week. This arrangement appears to have been struck notwithstanding that Angelina's funds had been used to facilitate the purchase of the property.

26 At the time of hearing this application in December 2002 and March 2003, it appeared that Angelina's financial position could generally be described as follows. She no longer owned her own home. Rather, she appeared to be entitled to demand repayment of an unsecured loan to the Trust in the principal sum of $139,696.10 (possibly with interest). She also appeared to be entitled to require the payment on demand of a loan made on her behalf to either the Trust, or to the partnership of Charles Alexander & Associates, made to assist that business, although the evidence concerning this transaction is presently unclear. Nonetheless, Mr Vagliviello appeared to acknowledge that the Trust is presently indebted to Angelina in the total sum of approximately $224,000. Angelina also continues to receive a pension from the Commonwealth government through Centrelink. However, the evidence suggests that Centrelink has reduced her pension, under its rules, on the basis that (notionally) she receives income (interest) on the proceeds of sale of the Riseley Street property.

27 In relation to the loans that Angelina appears to have made to the trust, the Public Trustee, as administrator for Angelina, has demanded that Mr Vagliviello repay the sums referred to above, namely, $85,199.50 and $139.696.10, plus interest, or provide a plan for repayment.

28 For some time prior to the commencement of these proceedings, Mr Vagliviello and the Public Trustee have been engaged in proceedings in the Guardianship and Administration Board, in compliance with the conditions on the 2002 Administration Order. Those proceedings are continuing. In the proceedings in the board, Mr Vagliviello has attempted to account for his financial dealings on behalf of Angelina. In that regard, a document headed "Vagliviello Investment Trust, Balance Sheet, June 2001" has been produced. It was also put in evidence in these proceedings. Mr Vagliviello was extensively cross-examined by reference to the information set out in this "balance sheet". He indicated in his evidence that it should not be treated as an audited balance sheet and that it was very much a draft document by which he had intended to assist the proceedings in the Guardianship and Administration Board. He says it was not intended by him to be treated as a final account of the matters referred to in it. In a further affidavit of Mr Vagliviello dated 6 January 2003, upon which Mr Vagliviello was cross-examined on 18 March 2003, he attached additional accounts of the assets and liabilities of the Trust as at 30 June 2000, 30 June 2002 and 15 January 2003. Those were said by him to constitute only general, not specific statements of account.

29 It seems that, by reason of the proceedings in the Guardianship and Administration Board and the institution of these proceedings, the relationship between Mr Vagliviello and the Public Trustee has become acrimonious. That much was evident from exchanges between Mr Vagliviello and counsel for the plaintiff before me, counsel for the plaintiff also appearing for the Public Trustee in the proceedings in the Board. Indeed, the position has developed whereby the Trust has not maintained the instalments due under the loan agreement secured by the mortgage to BankWest in respect of the Hartington Way property and the bank has threatened to take possession of the property. The bank says that, as at 11 December 2002, a total of $9,939.71 in respect of principal, interest, fees and charges is in arrears under the mortgage. (The total amount remaining due under the loan agreement and guarantee is $231,080.47.) The bank has served a notice of demand on the Public Trustee, as administrator, requiring that the administrator remedy the default under the loan agreement with Angelina by paying the arrears within 31 days of 10 October 2002. Additionally, the bank has, by notice served on 21 November 2002, required the occupiers of the Hartington Way property to vacate the property.

30 Mr Vagliviello says that he (as trustee) made a conscious decision to stop paying the instalments due under the loan agreement and mortgage in about June or July of 2002. His reasons for so doing appear to be based on his view of the inadequacies of the conduct of the Public Trustee as administrator of Angelina's affairs. He complains that, when the Public Trustee took over as administrator, it at first continued to pay $150 per week to cover Angelina's rent at the Hartington Way property, but later stopped paying the rent. He says that, in March 2002, the Public Trustee paid only a portion of monies due to Angelina into an account to cover the mortgage. As a result, he stopped paying the mortgage instalments. He says that the Public Trustee's last payment of rent on behalf of Angelina was on 6 June 2002. Counsel for Mr Vagliviello submits that the evidence shows that since the Public Trustee was appointed administrator, only $300 has been paid to the trustee by way of "actual rent". The Public Trustee denies the substance of this allegation and says that Mr Vagliviello has always had access to sufficient funds to meet the mortgage payments.

31 The bank says that it received a partial repayment of instalment due on 2 May 2002, but since then has not received any instalment payments. This evidence appears to be undisputed.

32 Mr Vagliviello said that he has continued to receive the regular rent payments of $150 per week from Emma Vagliviello. Apparently, he is putting these into a holding account. He says he is accumulating funds in that account until "she is asked to pay her arrears", that is to say, asked by him as trustee so to do. In other words, Mr Vagliviello has determined not to pass on the rent payments received by the Trust from Emma Vagliviello to BankWest in reduction of the instalments due. His conduct in this regard roughly coincides with the commencement of these proceedings by the Public Trustee and the granting of the injunction in August 2002.

33 The Public Trustee contends that, having regard to the financial circumstances described above, it is in the interests of the Primary Beneficiaries, particularly Angelina, under the Trust that Mr Vagliviello be replaced as trustee of the Trust. While she is only one of three Primary Beneficiaries of the Trust, it is her money that effectively financed and finances the activities of the Trust.

34 The Public Trustee says that, in the present circumstances where Mr Vagliviello as trustee of the Trust has failed to make instalments due under the mortgage over the Hartington Way property, Mr Vagliviello should not be allowed to continue as trustee. The Public Trustee submits that Mr Vagliviello's complaints about the problems in meeting such instalment repayments, due to the litigation commenced by the Public Trustee, are without any real foundation.

35 Additionally, the Public Trustee submits that Mr Vagliviello has not offered any acceptable explanation for his failure to account for Angelina's funds handled by him as administrator and the subject of loans to the Trust and/or Charles Alexander & Associates and that his conduct in this regard is an additional reason why he should not be permitted to remain as trustee of the Trust.

36 The Public Trustee says that, if it were trustee of the Trust, it would sell the four-wheel drive, pay arrears due under the mortgage and meet Angelina's immediate day-to-day needs. Further decisions may well need to be made concerning the Hartington Way property in the event that there are insufficient funds available from Angelina's income and other sources to meet the instalment repayments due to BankWest under the mortgage.

37 In short, the Public Trustee says Mr Vagliviello has had ample opportunity to explain his actions, his default and his management of the Trust in relation to the beneficiary, Angelina, and it is now expedient that he should be replaced.

38 Counsel for Mr Vagliviello, on the other hand, says that much in the circumstances raised against Mr Vagliviello depend on innuendo and not on facts. He contends that it is for the Public Trustee to prove that Mr Vagliviello has acted with "bad faith" before the Court should act on its application.

39 Counsel for Mr Vagliviello said that the decisions relating to the sale of the Riseley Street property and the acquisition of the Hartington Way property, in the name of the Trust, are explicable. There was a desire for the family members to be living in closer proximity than they were, so that Mr Vagliviello and his wife could continue to administer to the day-to-day care of Angelina.

40 Mr Vagliviello submits, in effect, that it has been the conduct of the Public Trustee in relation to the administration of the affairs of Angelina that had forced him, as trustee of the Trust, to fall into arrears under the BankWest mortgage.

41 As to the loans made to Charles Alexander & Associates, counsel submits that there is no evidence that Mr Vagliviello obtains any benefit from the loans made. To this end, reliance is placed on the legal structure of the business in question and the statement made in evidence that Mr Vagliviello merely acts as an "agent" of the partnership and is not himself involved in it.

42 Counsel submits that the Public Trustee has not proved its case sufficiently for orders to be made. It is submitted there is no evidence of actual dishonesty or bad faith.

43 At the conclusion of the hearing on 17 December 2002, I requested the Public Trustee to file a schedule outlining the evidence of the funds it had received on behalf of Angelina, as administrator, and the application of those funds, particularly in relation to the period in dispute during 2002. This is when Mr Vagliviello says he received insufficient funds from the Public Trustee to meet the mortgage instalments due to BankWest in respect of the Hartington Way property. Schedule 1 of the plaintiff's schedules filed 7 January 2003 set out the Centrelink payments received, allowances paid to Angelina, other amounts paid and amounts reserved. Schedule 1 discloses that, in the period 10 April to 17 June 2002, a fortnightly payment of $530 was made by way of allowance to Angelina. It further discloses that, in the period 18 June to 10 September 2002, a fortnightly allowance of between $300 and $396 was paid each fortnight to Angelina. The figures provided do not include wages from Goodwill Industries, which are paid directly to Angelina.

44 The plaintiff's schedules filed on 7 January 2003, also include a schedule 2, described as "Payments of BankWest mortgage with respect to 9 Hartington Way, Carine". In providing schedule 2, the solicitor for the Public Trustee stated that some of the information in schedule 2 was not based on evidence in court because the Court had effectively requested some information on which no evidence had been led.

45 Both the plaintiff and Mr Vagliviello were provided with the opportunity to adduce any further evidence in respect of information in schedule 2 and this occurred on 18 March 2003. Schedule 2 sets out the total of the monthly allowance paid by the Public Trustee to Angelina, effectively for the months of April, May, June, July, August 2002, as well as the rent said by Mr Vagliviello to have been paid by Emma Vagliviello during that same period (based on assumed payment of $650 per month - the monthly equivalent of $150 per week over 52 weeks). The purpose of schedule 2, as I apprehend it, is to demonstrate that there were always sufficient monies in the hands of Mr Vagliviello, by virtue of what was being paid to Angelina as an allowance and what he was receiving from Emma Vagliviello by way of rental, to cover the monthly instalments due under the mortgage to BankWest. There is no reason to consider this account to be other than accurate, and I accept it.

46 When this evidence is viewed as a whole, it can only be said that Mr Vagliviello has taken liberties with Angelina's assets. First, he raised a loan on the security of her Riseley Street property. The loan was used partly to purchase the Nissan Patrol motor vehicle and partly to provide financial support to the business of Charles Alexander and Associates in which Mrs Vagliviello and the Trust are in partnership. So far as this business is concerned, all the evidence suggests that Mr Vagliviello is its sole guiding mind, even though he does not, on the face of it, hold any legal interest in it. He is its sole agent. It can only be concluded that any revenue the business generates is due to his exertions and no-one else's.

47 Next Mr Vagliviello caused the sale of the Riseley Street property and proceeded as administrator of Angelina's estate to loan the proceeds of sale to the Trust. The Trust, which he caused to be established, was not solely for the benefit of Angelina, but for the benefit of Angelina, Mrs Vagliviello and Emma Vagliviello.

48 Following the sale of the Riseley Street property, Mr Vagliviello caused the acquisition of the Hartington Way property in the name of the Trust, using a significant portion of the proceeds of sale of the Risely Street property to facilitate the purchase. Angelina, together with Emma Vagliviello, commenced residing in the house. To a lesser extent Mr Vagliviello gained commercial benefit by operating a rent-free office in the house.

49 Financial statements presented by Mr Vagliviello to the Court, and before that to the Guardianship and Administration Board, to explain and account for these various transactions are far from satisfactory. Mr Vagliviello has never fully accounted for the manner in which he applied the initial loan of $85,199.50 from BankWest or the subsequent proceeds of sale of the Riseley Street property in the sum of $139,696.10. The statements of assets and liabilities presented to the Court by Mr Vagliviello in his affidavit sworn 16 January 2003 are particularly unsatisfactory. They represent some attempt to make a more precise accounting than he had achieved on the 2001 "balance sheet". However, they merely serve to emphasise that additional transactions have occurred involving the Trust and affecting Angelina's interests that are not properly explained.

50 For example, in a summary statement of assets and liabilities as of June 2000, a beneficiaries' account of $4100 is shown. This is said to be a loan payable to the Trust by Angelina. In a summary of assets and liabilities as of June 2001, a year later, the beneficiaries' account has risen to $10,300. Mr Vagliviello says this includes advances made to Mrs Vagliviello and possibly (he says he is not sure) includes the earlier loan of $4100 payable by Angelina. He did not give any evidence that the loan of $4100 had been repaid between the two dates. Then in a summary statement of assets and liabilities as of June 2002 the beneficiaries' account is shown as reduced to $10,050. That sum remains the same in a summary of assets and liabilities as of 15 January 2003. Mr Vagliviello was unable to explain what loan or loans or advancement or advancements were made on behalf of Angelina for which she is now said to be indebted to the Trust in the manner suggested by these summary statements.

51 On behalf of the Public Trustee it is submitted that the evidence discloses a $24,000 shortfall between the $224,000 approximately derived from the Riseley Street property and what has been spent ostensibly on behalf of Angelina. Mr Vagliviello suggests that $17,624 worth of expenses are not included in this calculation. This suggests an acceptance of a shortfall of about $6500. I am far from satisfied with the accounting provided by Mr Vagliviello either way.

52 Mr Vagliviello displayed a significant lack of understanding of the financial circumstances of the Trust and of the business of Charles Alexander and Associates, as well as of Angelina. In the summary statement of assets and liabilities as of June 2000 an asset of the Trust is identified as a loan to Charles Alexander and Associates in the sum of $6527.39. In the summary statement of assets and liabilities as of June 2001 this loan does not appear. In its place appears an entry described as "Investment - CA and A $41,046.44". He explained that the initial loan made to Charles Alexander and Associates by the Trust had been increased and then "converted" into "an investment". He insisted that the earlier loan was not to be equated with the present investment and did not seem to accept that there could be no real difference between a "loan" and an "investment" in the terms that he had characterised them. He was unable to explain when the "investment" would be realised, whether it carried interest or any other relevant terms concerning it. It was not the subject of any written agreement or arrangements between the Trust and Charles Alexander and Associates.

53 In the end, Mr Vagliviello accepted that the Trust is indebted to Angelina in a sum of approximately $224,000. He also accepted that Charles Alexander and Associates is not in a position to repay its indebtedness to the Trust.

54 All this evidence simply goes to emphasise that Mr Vagliviello has treated the interests of the Trust, Charles Alexander and Associates and his sister Angelina as if they were intermingled, if not one and the same.

55 The Court is left with the overriding concern that Mr Vagliviello is not capable of properly administering the Trust in the interests of Angelina. His past conduct leading to the acquisition of the Hartington Way property and his inability to satisfactorily account for monies he has handled on behalf of Angelina and the Trust, discloses a fundamental inability to distinguish between Angelina's interests and those of others with whom he has a close association, as well as his own interests.

56 Insofar as Mr Vagliviello authorised the $41,046.44 "investment" in Charles Alexander and Associates, it is fair to observe he paid little if any regard to s 20(1)(g) and (h) of the Trustees Act, which provides that, when exercising the power of investment, a trustee shall have regard to:

"(g) the likely income return and the timing of income

return; and

(h) the length of the term of the proposed investment".

In this case, the "investment" is not the subject of any written agreement or terms governing its income return or duration.

57 Mr Vagliviello's subsequent conduct, when faced with the proceedings in the Guardianship and Administration Board and in this Court, in failing to meet the mortgage instalments due to BankWest in respect of the Hartington Way property on behalf of the Trust, compound the view of the Court that Mr Vagliviello should not be permitted to continue as the trustee of the Trust. Much evidence was led to deal with the contention of Mr Vagliviello that he was not receiving sufficient funds from the Public Trustee's Office on behalf of Angelina by way of her "allowance" in order to meet the mortgage payments due to BankWest. I am not satisfied on the evidence which has been put before me that this is correct. Indeed, when pressed on the point in cross-examination, Mr Vagliviello said that he would not need to sell the Nissan Patrol motor vehicle in order to pay the arrears presently due to the bank under the mortgage as he was in a position, if he wished to do so, to meet that deficiency. Yet he chose not to do so to the point that BankWest have issued a default notice under the mortgage and have demanded possession of the Hartington Way property.

58 I am satisfied that this is a case where the conduct of Mr Vagliviello, as trustee of the Trust, when taken in context with his earlier conduct as administrator of Angelina's estate, and the less than complete accounting he has given in respect of transactions conducted on behalf of Angelina, whether as administrator or trustee under the Trust, should lead to the Court removing him as trustee of the Trust.

59 Whether one has regard to the statutory power of the Court to replace a trustee under s 77(1) of the Trustees Act, or the Court's inherent power to so act, the test is whether it is expedient to appoint a new trustee in any given case. While the Court, under s 77(2), may make an order in circumstances, for example, where a trustee has been held by the Court to have misconducted himself in the administration of a trust, the factors set out in subs (2) do not limit the generality of the power of the Court under subs (1).

60 As noted above, the test of expediency is taken to mean "conducive to advantage in general, or to a definite purpose; fit, proper or suitable to the circumstances of the case". In the context of this application, the question is whether it is conducive to or fit and proper or suitable having regard to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the Trust and a faithful and sound exercise of the powers conferred upon the trustee, to replace Mr Vagliviello as trustee. I am satisfied that it is and that this power should be exercised on this occasion.

61 Section 77 of the Trustees Act and the inherent power permit the Court to replace a trustee. They do not, however, empower the Court to replace the appointor under the Trust or the guardian. However, it follows in my view that upon the exercise of the Court's power to replace the trustee, it is not open to the appointer to purport thereafter to remove the court-appointed trustee.

62 In these circumstances, I consider it is expedient to order, and do order that the Public Trustee be appointed as trustee of the Vagliviello Investment Trust in substitution for Alessandro Vagliviello. I will hear the parties on the appropriate terms of the order and any consequential orders.

Administration Act 1990

Angelina Vagliviello (by her next friend The Public Trustee in and for the State of Western Australia) v Vagliviello & Anor [2003] WASC 61

At a glance

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Judgment (86 paragraphs)

Angelina Vagliviello (by her next friend The Public Trustee in and for the State of Western Australia) v Vagliviello & Anor [2003] WASC 61 (26 March 2003)

Parties

Legislation Cited (1)

Cases Cited (6)