MATTER : The TRUSTEES ACT 1962 (WA)

BETWEEN : MARIA SCAFFIDI (by her next friend THE PUBLIC TRUSTEE)

BETWEEN : MONTEVENTO HOLDINGS PTY LTD (ACN 123 626 884)

MARIA SCAFFIDI (by her guardian ad litem THE PUBLIC TRUSTEE)

Trusts and trustees - Applications to remove trustee and appoint a new trustee - Entitlement of new trustee to documents, instruments of title and other records of former trustee - Trustee's right of exoneration from trust assets protected by change

CIV 1450 of 2009 dismissed by consent of Public Trustee

Declaration that Montevento Holdings Pty Ltd is the current trustee of the Scaffidi Family Trustee and that Eugenio Scaffidi is the appointor of that trust

Orders for Scaffidi Holdings Pty Ltd and Giuseppe Diego Scaffidi to deliver to the trustee all documents of title, bank records and other documents and property of the trustee without prejudice to any due entitlement of the former trustee to any proper right of indemnity from the trust property.

Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360

1 EM HEENAN J: There are two originating summonses before the court seeking relief concerning the control and administration of what is known as the Scaffidi Family Trust. The first in time is CIV 1450 of 2009, which is instituted by the Public Trustee as the next friend of Mrs Maria Scaffidi. The first defendant is Scaffidi Holdings Pty Ltd, a one-time trustee of the Scaffidi Family Trust. The second defendant is Mr Giuseppe Diego Scaffidi, one of the sons of Mrs Maria Scaffidi and a director of Scaffidi Holdings Pty Ltd. The third defendant is his brother Mr Eugenio Scaffidi, a co-director of Scaffidi Holdings Pty Ltd. The fourth defendant is a company, Montevento Holdings Pty Ltd, of which Mr Eugenio Scaffidi is the sole director and shareholder.

2 In those proceedings the Public Trustee on behalf of Mrs Maria Scaffidi is seeking orders that the Public Trustee on behalf of Mrs Maria Scaffidi should be appointed as trustee of the Scaffidi Family Trust in lieu of whomever is the current trustee. It had been envisaged that there was some doubt as to whether the current trustee is Scaffidi Holdings Pty Ltd or Montevento Holdings Pty Ltd, which claims to be the current trustee. For reasons which I will address a little later, the Public Trustee does not now wish to proceed with that application.

3 The second proceeding is CIV 1487 of 2009 in which Montevento Holdings Pty Ltd is the plaintiff, asserting its rights as the present trustee of the Scaffidi Family Trust. The first defendant is the alleged former trustee, Scaffidi Holdings Pty Ltd. The second defendant is Mr Giuseppe Diego Scaffidi. The third defendant is Mrs Maria Scaffidi by her guardian ad litem, the Public Trustee.

4 The Scaffidi Family Trust, to which both proceedings relate, is a family trust constituted by a deed dated 2 May 1977, as subsequently varied by a deed of variation which makes amendments which are not material for present circumstances. That deed of settlement creates a discretionary trust of a kind which is typical of estate planning from the 1970s onwards. The trust fund was established by the settlement of a small sum of money by a settlor whose identity is not important and who takes no role in these proceedings. It appointed a corporate trustee to be the trustee of the trust as so established.

5 That trustee was another company, Scaffidi Nominees Pty Ltd. The deed also appointed a person called the appointor, who initially was Mr Antonio Scaffidi, since deceased.

6 It also appointed a guardian, also Mr Antonio Scaffidi. The specified classes of beneficiaries were the two sons of the appointor, namely, Mr Giuseppe Diego Scaffidi and his brother Mr Eugenio Scaffidi. There are other potential beneficiaries defined by the deed in cl 8. It is unnecessary to elaborate on them.

7 The duration of the trust is for a lengthy period. It appears to provide that the termination date, unless there is an earlier vesting, is 2030. The typescript is a little difficult to read but it appears to be 1 May 2030, unless earlier vested.

8 There are ample powers to appoint capital and income, and to distribute or set aside capital or income, by the trustee during the life of the trust to any of the beneficiaries. These are exercisable at the general discretion of the trustee. Other facilitative powers, including wide powers of investment, trading, borrowing and so on, are contained in the trust deed.

9 I should say a little about the Scaffidi family so far as it relates to these proceedings. The appointor, Mr Antonio Scaffidi, was married to Mrs Maria Scaffidi, whom the Public Trustee is presently representing. They had two children, the older being Mr Giuseppe Diego Scaffidi and his brother, Mr Eugenio Scaffidi. Mr Antonio Scaffidi, as he has been called in these proceedings, although his full name appears to be Abate Antonino Scaffidi, died on 29 August 2004, leaving a will by which he appointed his eldest son, Mr Giuseppe Diego Scaffidi, his executor.

10 Mr Giuseppe Diego Scaffidi accepted that appointment and applied for and was granted probate of the will. The father's estate is still in the course of administration, there being some complications arising in the administration because there is property located not only in Western Australia but also in Italy.

11 Mrs Maria Scaffidi, by order of 7 November 2008, was declared to be a person in need of representation under the provisions of the guardianship laws. The Public Trustee was appointed her plenary administrator by order of the State Administrative Tribunal on 7 November 2008 and, hence, the Public Trustee represents her as plaintiff in the first proceeding and as third defendant in the second proceeding.

12 The two brothers, Giuseppe and Eugenio, are unable to agree upon the conduct of the family trust affairs. There seems to be a degree of dissension, even animosity, between them which is, unfortunately, not uncommon in some families.

13 Mr Giuseppe Scaffidi is also a director and, directly or indirectly, a shareholder in a company known as Central City Pty Ltd, which has valuable property interests in the City of Perth. I will come back to the role of Central City Pty Ltd in a moment. Mr Eugenio Scaffidi is the sole director and shareholder of the company Montevento Holdings Pty Ltd which, as I have already said, is the company claiming to be the present trustee of the Scaffidi Family Trust. The evidence establishes that it was a shelf company acquired for the purpose of becoming a corporate trustee, has about $1,000 in assets and is being funded by other interests associated with Mr Eugenio Scaffidi.

14 Returning to the history of the Scaffidi Family Trust, I have already mentioned that it was established by the deed of settlement of 2 May 1977. On 15 August 1995, when Mr Antonio Scaffidi was still alive, by a deed of that date he, as appointor, removed Scaffidi Nominees Pty Ltd as the corporate trustee and replaced it with a new trustee, Scaffidi Holdings Pty Ltd, which has already been mentioned. He later died, as already mentioned, on 29 August 2004 without exercising any testamentary or inter vivos power of appointment to replace himself as appointor. Under the provisions of the deed of settlement this meant that his widow, Mrs Maria Scaffidi, became the appointor.

15 Then by a deed of variation dated 30 June 2006 the appointor, then Mrs Maria Scaffidi, modified the deed of settlement to allow the trustee to exercise the powers, rights and duties without reference to the guardian as so appointed. Nothing turns on the variation effected by that deed.

16 By a second deed, also of 30 June 2006, Mrs Maria Scaffidi, as appointor, resigned as appointor of the trust but, before doing so, appointed her younger son, Mr Eugenio Scaffidi, as appointor in her stead. This meant that Eugenio, from that point on, had all the powers and rights of the appointor conferred by the deed of settlement as varied.

17 Then by a deed dated 18 February 2009, Mr Eugenio Scaffidi, as appointor, removed Scaffidi Holdings Pty Ltd as trustee and appointed, in its stead, Montevento Holdings Pty Ltd as trustee. Upon the efficacy of that chain of deeds being accepted, the present position is that Montevento Holdings Pty Ltd is the duly appointed trustee of the Scaffidi Family Trust and Mr Eugenio Scaffidi is the appointor in succession to his mother and earlier to his father.

18 In the first set of proceedings, CIV 1450 of 2009, the Public Trustee originally sought to have Montevento Holdings Pty Ltd removed as the trustee and for Mrs Maria Scaffidi, by the Public Trustee, to be appointed in lieu, on the grounds of alleged conflicts of interest arising in relation to the administration of the trust, because of financial difficulties concerning the administration of the trust estate and also because of the need for the satisfaction of certain secured iabilities which I will mention in more detail soon. However, as already noted, the Public Trustee no longer seeks to pursue that claim and asks that those proceedings be dismissed, subject only to an order that the Public Trustee on behalf of the estate of Mrs Maria Scaffidi should pay the second defendant, Mr Giuseppe Diego Scaffidi, his taxed costs, if any, of those proceedings. For reasons which will appear, I am satisfied that that should be done and that orders to that effect should be made. I will make orders to that effect.

19 This brings me to the second set of proceedings, CIV 1487 of 2009, by Montevento Holdings Pty Ltd against the parties named. Essentially, Montevento Holdings Pty Ltd is asserting its rights and powers as the duly appointed trustee. It is seeking orders that the previous trustee, Scaffidi Holdings Pty Ltd, should be obliged to do all things necessary to transfer the trust records, documents, property and associated materials to the new trustee and join in doing all things necessary to accomplish the transfer of the legal interests in the trust and estate property to the newly appointed trustee.

20 I now come to address, somewhat briefly, the position of the assets of the Scaffidi Family Trust. The assets comprise, or did comprise, certain real estate, a bank account or accounts, and shares in the company, Central City Pty Ltd. The real estate comprised certain industrial property in Gladstone Street, East Perth which had been leased by the former trustee, Scaffidi Holdings Pty Ltd, to tenants under a long-term lease with options to renew and where the tenants were in possession. However, the properties were heavily mortgaged and Scaffidi Holdings Pty Ltd was in default in making repayments due under the mortgage. Very recently the mortgagee has exercised its powers in default and pursuant to the powers in the mortgage has sold those properties. The completion of the final series of those sales is to take place in early February 2010.

21 The detailed results describing the exact nature of the liabilities, the extent of mortgage defaults and the proceeds payable upon the sale are contained in the affidavits which are before me but it is sufficient, for present purposes, to say that the mortgagee's sales will discharge in full the liability of the former trustee to the mortgagee and leave a relatively small surplus which will be payable to the trustee so entitled.

22 There are some other properties subject to mortgage not owned by the trust or company but, in which, it is alleged part of the proceeds of the loan derived from the mortgage to the trustee were applied. These are the subject of separate proceedings in this court, leading to a conditional settlement between that mortgagee and the creditor subject to approval by the court, which may free up some money for the trustee, but again not a great deal turns on that.

23 There is also some money in a Bendigo Bank account held in the name of the former trustee, Scaffidi Holdings Pty Ltd.

24 The situation was that the extent of the liabilities accruing for interest on the mortgage of the property at Gladstone Street meant that the trustee was incurring recurrent losses over the period for which accounts are available in the evidence. The accounts which are in evidence cover the period from 1 June 2006 to 30 June 2007 and substantial losses were being incurred as a result of that mortgage. The effect of this sale is that the mortgage debt will be repaid. Interest will no longer continue to accrue but the loss of the properties mentioned means that the principal source of income for the trustee has also disappeared.

25 That leaves, as I have indicated, the Bendigo Bank account and the shares in Central City Pty Ltd as the remaining significant assets of the Scaffidi Family Trust. The shares in Central City Pty Ltd amount to 25% of the issued capital of that company but the evidence before the court does not allow any value to be placed on those shares; although the suggestion is that the real property, which is the principal asset of that company, is of substantial capital value. Just what the value of the shares might be will depend upon the net equity of the company, having regard to its borrowings and other liabilities which are unknown. There is a concern that they may be large, which would diminish the value of the shareholding, but just what the extent of the value of those shares is cannot be said.

26 It is also contended on behalf of Montevento Holdings Pty Ltd, as present trustee, that Central City Pty Ltd is indebted to the Scaffidi Family Trust in an amount of $1 million or more and a demand for repayment of that alleged debt has been made, resulting in a statutory demand being served upon Central City Pty Ltd. There are separate proceedings before this court, in which Central City Pty Ltd has sought to restrain or stay progress of that demand on the basis that proceedings were on foot to have Montevento Holdings Pty Ltd removed as trustee. Those proceedings, obviously enough, were CIV 1450 of 2009 in which the Public Trustee is the plaintiff but, of course, they are now no longer proceeding, so that obstacle, if it was one, to the resolution of Montevento Holdings Pty Ltd's claim, as trustee, against Central City Pty Ltd will now disappear. Whether that debt is recoverable or, if recoverable, what effect it may have on the company, and hence the value of the shares, are other matters which remain unknown.

27 Montevento Holdings Pty Ltd's position is that, despite its due appointment as current trustee of the Scaffidi Family Trust, the former trustee, Scaffidi Holdings Pty Ltd, will not take steps to transfer to it effective control or possession of the trust property. It seeks a compendious set of orders requiring Scaffidi Holdings Pty Ltd to do this. Control and conduct of Scaffidi Holdings Pty Ltd are effectively deadlocked because of the disagreements which exist between Mr Giuseppe Diego Scaffidi and his brother, Mr Eugenio Scaffidi, and it is evident that there is no prospect, at least in the immediate future, of any resolution of that deadlock.

28 This has led to other proceedings in this court (corporation file number 150 of 2008) in which Mr Giuseppe Diego Scaffidi has sought the winding up of Scaffidi Holdings Pty Ltd on the basis of that deadlock and perhaps other grounds but those proceedings, after an initial flurry of activity, have made no substantial progress since January 2009 and, although still current, show no prospect of immediate resolution. If the case is that control of Scaffidi Holdings Pty Ltd, because of its role as trustee of the Scaffidi Family Trust, is no longer a significant issue because of the appointment of Montevento Holdings Pty Ltd to that role, it can readily be anticipated that those winding-up proceedings have lost almost all, if not all, of their potential significance and are not likely to lead to any substantial resolution of the major disputes between the parties. So they can be put to one side.

29 The situation is that earlier in the life of this litigation, Scaffidi Holdings Pty Ltd was advised and represented by solicitors but those solicitors have obtained leave to go off the record and no longer appear because of inability to obtain satisfactory instructions or to have professional obligations satisfied. The result is that Scaffidi Holdings Pty Ltd is no longer represented and has not been heard today.

30 Mr Giuseppe Diego Scaffidi, however, has initially attempted to speak on behalf of Scaffidi Holdings Pty Ltd but I did not permit him to do so. Nevertheless, he has quite capably outlined the position which he advances on his own behalf as a potential beneficiary in the Scaffidi Family Trust.

31 Essentially, he is opposed to Montevento Holdings Pty Ltd acting as the trustee of the family trust. Initially, his position was that he sought to oppose Montevento Holdings Pty Ltd being appointed to that position, but that stance did not recognise the efficacy of the appointments by deed which I have already described. When it was pointed out that those documents established, at least at a prima facie level, that Montevento Holdings Pty Ltd was the duly appointed trustee and that his brother, Mr Eugenio Scaffidi, was now the appointor, his position altered to indicate that he foreshadowed an application in which he desired to challenge the effectiveness and the suitability of the appointment of Montevento Holdings Pty Ltd to that position. There is no evidence to support any of these allegations but the contention effectively was that the disability which led to Mrs Maria Scaffidi having the Public Trustee appointed to represent her interests in November 2008 was also present and operative at the time when she appointed his brother as appointor and when his brother removed Scaffidi Holdings Pty Ltd and appointed Montevento Holdings Pty Ltd as the trustee by deed of 18 February 2009.

32 I hasten to add that there is no evidence to support that allegation and the Public Trustee, who initially sought the removal of Montevento Holdings Pty Ltd on behalf of Mrs Maria Scaffidi, expressly did not adopt that contention or submission and, on its counsel being directly asked this question, indicated that the considered decision of the Public Trustee was that there were no grounds to challenge the validity of the appointment of Montevento Holdings Pty Ltd.

33 In those circumstances, I have no choice, nor do I have any inclination, to do otherwise than treat Montevento Holdings Pty Ltd as the validly appointed trustee of the Scaffidi Family Trust and Mr Eugenio Scaffidi as its appointor.

34 This being the case, the matters that require further decision become quite straightforward. As trustee, Montevento Holdings Pty Ltd is entitled to possession and control of the estate assets and to be provided with all indicia of title, all trust records and other documents formerly held by Scaffidi Holdings Pty Ltd. Orders should be made to give effect to that entitlement. I will make orders to that effect.

35 Montevento Holdings Pty Ltd also seeks orders that both the legal and beneficial interest in the estate assets should immediately vest in Montevento Holdings Pty Ltd, subject to the trust and the deed of settlement, so depriving Scaffidi Holdings Pty Ltd of any beneficial interest in any of the trust assets. I am also satisfied that an order to that effect should be made.

36 However, there is the potentiality that Scaffidi Holdings Pty Ltd may have incurred obligations and liabilities while properly discharging the office of trustee of the Scaffidi Family Trust for which it is personally responsible but, in respect of which, it has a right of recourse or indemnity to trust assets to reimburse itself for that liability. Should that be the case, it is recognised in the series of authorities discussed by the High Court in Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 and in Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 that equity will recognise a charge over the assets in favour of the actual or former trustee to protect that right of indemnity, subject always to the trustee not being in default.

37 One example where this might arise is if there were any outstanding taxation liabilities associated with the Scaffidi Family Trust during the period in which Scaffidi Holdings Pty Ltd was trustee and, in respect of which, it would be primarily responsible to the commissioner. To cater for that contingency I have suggested, and counsel for Montevento Holdings Pty Ltd has accepted, that there should be terms in the orders proposed to protect, according to its due priorities, that right of indemnity and the accompanying charge.

38 Mr Giuseppe Diego Scaffidi, who, as I have already indicated, has appeared in person and without the benefit of legal advice, sought during the course of these proceedings an adjournment of the proceedings to allow him to assemble evidence and present a different facet of the case which, according to him, should lead to the removal of Montevento Holdings Pty Ltd as trustee or to decisions effectively denying its due appointment as trustee.

39 Mr Giuseppe Diego Scaffidi supported this application for an adjournment by explaining, and I fully accept this explanation, that he did not learn until either yesterday or first thing this morning that the Public Trustee was no longer going to pursue the relief sought in the first proceedings, CIV 1450 of 2009, to have Mrs Maria Scaffidi appointed as trustee in the place of whoever the correct trustee was, even assuming that that was Montevento Holdings Pty Ltd, as I am satisfied is the case.

40 His initiative until now had been to encourage the Public Trustee to protect the interests of his mother, as he saw them, by denying any powers or influence of Montevento Holdings Pty Ltd or of his brother, Mr Eugenio Scaffidi, in the administration of the family trust. Had the Public Trustee succeeded in its application, that end would have, in part, been accomplished. He claimed to be surprised, although he did not use the word, I think I may fairly say that he considered himself to be wrong-footed, by the course that the proceedings had taken by the withdrawal of the claim by the Public Trustee.

41 It was for that reason that I asked counsel for the Public Trustee to remain present until the ultimate resolution of these proceedings but I am satisfied, as a result of submissions and assurances which I have received on behalf of the Public Trustee, that it too is satisfied, that there are no grounds to impugn the appointment of Montevento Holdings Pty Ltd, nor any grounds to oppose the relief which Montevento Holdings Pty Ltd is presently seeking as the duly appointed trustee.

42 It is quite clear, however, that Mr Giuseppe Diego Scaffidi does not accept that view of affairs and it is equally obvious that he entertains, rightly or wrongly, but conscientiously, the view that Montevento Holdings Pty Ltd and his brother, Mr Eugenio Scaffidi, ought not have the role of controlling, as trustee and appointor, respectively, the affairs of the Scaffidi Family Trust. He sought an adjournment to bring proceedings or to adduce evidence which would, at least in his view, seek to establish that Montevento Holdings Pty Ltd was either not properly appointed or should be removed.

43 I refused that adjournment, first of all, because there was no evidence before the court to support, even at a prima facie level, the contention that Montevento Holdings Pty Ltd had not been validly appointed or was not a suitable trustee. Secondly, however, if I had acceded to such an adjournment, it would have meant that Montevento Holdings Pty Ltd, although nominally the duly appointed trustee, would not have been able to exercise its powers and duties as trustee because of lack of access to, or control of, the trust assets for such period as this hiatus continued. That is an unsatisfactory state of affairs, particularly having regard to the recent developments. The forced sale of the Gladstone Street property has meant that the trustee is deprived of its major source of income and, in view of that development, attention needs to be directed to ascertaining the value of the 25% shareholding in Central City Pty Ltd and the question of whether or not there is a debt due by Central City Pty Ltd to the trustee which can be pursued and enforced. The longer those matters are left unresolved, the greater is the jeopardy for the interests of the Scaffidi Family Trust. I do not consider that I should endorse a situation which would leave those matters incapable of resolution for a period of three months or more, which I estimate to be the minimum period in which the allegations which Mr Giuseppe Diego Scaffidi wishes to advance could possibly be identified, answered and determined.

44 A third reason for declining the adjournment is that there does not appear to be any real prejudice associated with refusing the adjournment in that nothing said or decided in the current proceedings would prevent any person with an interest in this trust estate, whether that be Scaffidi Holdings Pty Ltd which claims to be a former trustee improperly removed, or Mr Giuseppe Diego Scaffidi as a potential beneficiary, from challenging in independent proceedings the validity of the appointment of Montevento Holdings Pty Ltd or its suitability to continue as trustee. In making those observations I do not suggest that there is, nor do I recognise, any evidence justifying the pursuit of such allegations but if evidence to that effect were to emerge, there is nothing to prevent an interested party from advancing such claims.

45 That being the case, there seems to be every reason to make orders which will put Montevento Holdings Pty Ltd properly in the enjoyment of its rights and obligations as trustee and in possession of the trust records, instruments of title and other documents.

46 Accordingly, I am satisfied that the orders as sought by Montevento Holdings Pty Ltd in the terms of the minute of revised orders of 13 January 2010 should be made.