ROBERT PETER GERARCHI as Executor of the Estate of PETER PASQUALE GERARCHI -v- GERARCHI [2023] WASC 242 (30 June 2023)

I devise and bequeath my messuage and premises at 11 Lombardy Street, Woodlands, aforesaid and my furniture and effects of household use or ornament therein or belonging thereto to my trustees upon trust for my said wife MARIA GRACE GERARCHI during her life so long as she remains my widow and after her death or remarriage which ever shall first happen I declare that my trustees shall stand possessed of the said premises upon the trusts and subject to the powers and provisions hereinafter declared and contained concerning my residuary estate And I direct that my wife shall during her life or widowhood at her own expense keep the said messuage and premises and effects in good repair and condition and insured so far as is practicable against fire and burglary to the full value thereof in some office or repute.

1. Although couched in somewhat archaic language, the intent of this clause is clear. The first defendant has a life interest in the Lombardy Street property. Neither she nor the plaintiff in his capacity as executor is authorised by the will to dispose of the property. The clause does not require the first defendant to reside in the Lombardy Street property. There would be no impediment to the plaintiff (who is also the guardian of the first defendant) renting the property and using the proceeds to benefit the first defendant. It is not entirely clear what consequences would flow from the first defendant's failure to maintain the premises in good repair and condition. Apart from noting that difficulty with the drafting, I need say nothing more about that issue.
2. Turning to the statutory provisions relied upon by the plaintiff, s 92(1) of the Trustees Act 1962 (WA) reads as follows:

Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee.

1. Section 89(1) of the Trustees Act reads as follows:

Where in the opinion of the Court any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, retention, expenditure or other transaction is expedient in the management or administration of any property vested in a trustee, or would be in the best interests of the persons, or the majority of the persons, beneficially interested under the trust, but it is inexpedient or difficult or impracticable to effect the disposition or transaction without the assistance of the Court, or it or they cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument (if any) or by law, the Court may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions (if any) as the Court may think fit, and may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne, and as to the incidence thereof between capital and income.

1. Section 45(1) of the Administration Act 1903 (WA) reads as follows:

The Court may make such order with reference to any question arising in respect of any will or administration, or with reference to the distribution or application of any real and personal estate which an executor or administrator or Public Trustee may have in hand, or as to the residue of the estate, as the circumstances of the case may require.

1. There is no doubt s 92(1) of the Trustees Act authorises an application such as this to be made. The second defendant did not argue to the contrary. The second defendant's primary argument was that neither s 89(1) of the Trustees Act or s 45(1) of the Administration Act allowed the court to make an order authorising the sale of a property in circumstances where the beneficiary had a life interest and sale of the property was not authorised under the terms of the trust. In other words, it was the second defendant's position s 89(1) did not bite in the circumstances of this case, and no order should be made. If the second defendant's argument was to be accepted, the application would be dismissed. If the plaintiff's argument was accepted, the second defendant said the material put before the court was not sufficient to allow a proper determination as to whether the sale should be authorised. If that argument was accepted, the second defendant agreed the application would not be dismissed. Rather, it would be adjourned to allow the plaintiff, if he chose to do so, to put further evidence before the court.
2. There appears to be no decision in this State as to the proper interpretation of s 89(1). By way of overall comment, it is clear the discretion embodied in the section is wide. Apart from saying that the discretion must be exercised judicially, there is no warrant for limiting the powers of the court. But there are certain steps that must be taken or certain requirements which must be satisfied before the discretion can be exercised. These can be summarised as follows:

(1) The court is required to form an 'opinion'. It is only possible to form an opinion based upon evidence put before the court. In this case, the second defendant is a contradictor and has raised matters which he says warrant an order being refused. But even where an application is uncontested, it is encumbered upon the party seeking the assistance of the court to provide a full and frank disclosure of all relevant facts. The court is entitled to examine the facts presented to ensure the opinion is formed after consideration of all relevant matters. Where as here the orders sought are opposed, there is no reason why all of the material put before the court by the contradictor should not be considered;

(2) The section authorises the 'disposition' of the trust property. The power to order the disposition is not conditioned in any way - that is to say there is nothing in the section which prevents an order for disposition of the property even where it is subject to a life interest. The second defendant argued to the contrary. It was his submission that to allow the sale of the Lombardy Street property, when it was subject to a life interest, would 'turn the will on its head'. In arguing the application ought be dismissed, this issue was central. I will discuss it in more detail below;

(3) The section authorises orders being made when it is 'expedient' to do so. This expediency must relate to the 'management or administration of any property vested in the trustee'. The Australian Concise Oxford Dictionary defines the word 'expedient' as 'advantageous' or 'suitable'. Properly read then this provision is about what the trustee determines should be done with the property. It may be in certain circumstances a trustee and a beneficiary would disagree about the disposition of property. Be that as it may, the section specifically authorises the court to make orders with respect to the property if it is satisfied the evidence discloses the trustee regards the disposition as 'expedient';

(4) An order can be made if it is in the best interests of the beneficiary. The section does not require the court be satisfied the disposition was expedient (in the opinion of the trustee) and in the best interests (of the beneficiary). It would seem then an order can be made even if that order was not in the best interests of the beneficiary. (Whether circumstances would ever arise where an order was made when the court was satisfied it was not in the best interests of the beneficiary is open to question). Nonetheless, on a proper construction of the section, there is no doubt that one or the other of the two requirements must be satisfied but not both;

(5) The court may make an order when it is 'inexpedient or difficult or impractical' to effect a disposition. This was the second plank of the second defendant's argument. It was submitted that here because of the terms of the life interest granted to the first defendant, it was in fact impossible to sell the Lombardy Street property. It was submitted that the word 'difficult' did not cover the situation. There may be circumstances where a sale was difficult but not impossible but this was not such a case;

(6) Orders can be made if there is a lack of power in the trust instrument to deal with the trust property. It would have been open to the testator to have drafted the will in such a way that if the first defendant by reason of incapacity was forced to vacate the Lombardy Street premises, the property could be sold and the proceeds of sale could be vested and the income used for the benefit of the first defendant. It was the plaintiff's position this was a clear case where there was a lack of power (as that phrase is used in the section) and the court could make the necessary orders; and

(7) the court is given a wide discretion as to the terms upon which orders might be made.

1. During the course of argument, reference was made to the decision of Ellis v Ellis (2012) NSWSC 1414. That case concerned s 81 of the Trustees Act 1925 (NSW) which is the analogue of s 89 of the Trustees Act. The plaintiff submitted the case was authority for the making of orders in circumstances such as the present. For the second defendant it was said the case could be distinguished on the facts. In Ellis, there were two parcels of land. The deceased's widow was absolutely entitled in relation to the first parcel of land (Lot 1) and was entitled to a life estate in relation to the second parcel of land (Lot 2).
2. Separate agreements had been made for the sale of both parcels above market value. The contractual arrangements provided for the deceased's widow to surrender her life interest and the sale of the land would confer on her financial advantages that she would not otherwise receive. She was to be financially compensated for the surrender of her life interest. At the time the sale was to be effected, the relevant property was not encumbered by the deceased's widow's life interest. The sale was for the benefit of all beneficiaries.
3. Having regard to the relevant facts in Ellis, I have not found it of particular assistance. Perhaps all that can be said is it does support the proposition that s 89(1) can in certain circumstances allow the court to order the sale of a property over which a party holds a life interest. In Ellis, at the time of sale of Lot 2, the widow did not actually hold a life interest. In this case, were the first defendant to surrender her life interest, she would have no right and entitlement to any income derived from the proceeds of the sale of Lombardy Street. Those proceeds would simply fall into the residuary estate and she would not benefit.
4. On balance, I am satisfied s 89(1) allows the court in certain circumstances to make an order for the sale of trust property over which a party holds a life interest. Of course, the court must form an 'opinion'. That seems to me to embody the same type of requirements as are necessary to satisfy an application for judicial advice either under the Trustees Act or the Administration Act. In this case, the trustee has formed the view it is expedient for the property to be sold. There is nothing in the evidence to show the trustee was not entitled to form that opinion. The will itself does not contain a power of sale but it could have done so had it been differently drafted. So in this case, the proper question to be asked can be expressed in this way: is the court of the opinion the sale of the Lombardy Street property is expedient in the administration of the trust or in the best interests of the beneficiary and does the trustee lack the power to effect sale?
5. Without reference to the evidence, the last issue can be simply dealt with. There is a lack of power. So then the question is whether it is expedient for the trustee to sell the Lombardy Street property or whether it is in the best interests of the first defendant. It may also be relevant to consider whether sale of the property is in the best interests of the plaintiff and the second defendant in their capacity as residuary beneficiaries - they could be said to have a beneficial interest in the property under the terms of the trust. Neither party led evidence in relation to that issue and for present purposes, it can be put to one side.
6. In his affidavit, the second defendant notes that the plaintiff and the first defendant are the registered proprietors of a property in Joseph Street, West Leederville. They hold their registered interests in that property as joint tenants. The second defendant also maintains that prior to the plaintiff's appointment as the first defendant's attorney, the first defendant held a portfolio of shares including shares in the Westpac Group and the Commonwealth Bank. There is no indication in the plaintiff's affidavit what became of this shareholding.
7. Further, the second defendant says the plaintiff resides at 62 Paramatta Road, Doubleview. This property was owned by the deceased and the first defendant as joint tenants prior to the deceased's death. On 17 August 2017, the plaintiff and the first defendant executed a transfer of land for the Paramatta Road property in favour of the plaintiff. The transfer document recorded the consideration given by the plaintiff for the transfer was $650,000. There is no indication as to what became of that $650,000 and whether that sum is still outstanding. It is true that a refundable accommodation deposit was paid to the nursing home provider when the first defendant was admitted to care. But even allowing for this, it is not entirely clear what the present asset position of the first defendant is. Nor is it clear why the Lombardy Street property has been allowed to deteriorate to the point where it is not available for rent.
8. The second defendant also queries what the investment strategy of the plaintiff will be. He points out there is no indication of precisely what ongoing expenses may be incurred on behalf of the first defendant and how those expenses will be defrayed by income received on the capital available consequent upon the sale of the Lombardy Street property. It is legitimate to raise these questions.
9. As the evidence stands at present, I am not satisfied the plaintiff has produced sufficient evidence to allow me to form an opinion that the Lombardy Street property ought be sold. That does not mean to say the evidence is not available. At present, it is not before the court. The reason why I allowed the second defendant's affidavit to stand and declined to strike out any of its paragraphs is that it raised questions as to the adequacy of the information provided by the plaintiff. It was not for the second defendant to prove anything. But he was entitled to raise issues and to submit to the court that the evidence led by the plaintiff was inadequate. That being the purpose of his affidavit, there was no warrant for striking out any parts of it.
10. Accordingly, I will adjourn the plaintiff's application to provide him with the opportunity to produce further evidence. The costs of this present application ought be reserved and determined when the application is finally resolved.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.