Alsop Wilkinson (a firm) v Neary

LEGISLATION CITED : Trustee Act 1925 (NSW) - s.63(1), s.63(2), s.63(8), s.63(11)

• Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 - Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441 - Brogden, In re (1888) 38 Ch D 546 - Dallaway (dec'd), Re [1982] 1 WLR 756 - Evans v Evans [1985] 3 All ER 289 - Harrison v Mills [1976] 1 NSWLR 42 - Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419 CASES CITED : - Kay's Settlement, In re [1939] Ch 329 - Macedonian Orthodox Community Church St Petka Inc v Petar [2006] NSWCA 160 - Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 - Metropolitan Petar v Macedonian Orthodox Community Church St Petka Inc [2006] NSWCA 277 - National Trustees Executors & Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 - Schroder's Wills Trusts, Re [2004] 1 NZLR 695 - Sennar (No 2), The [1985] 2 All ER 104 - Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347

PARTIES : Macedonian Orthodox Community Church St Petka Incorporated - Applicant

G.O. Blake SC - Applicant COUNSEL : T.G.R. Parker SC, R.E. Steele - Objectors (Plaintiffs in 3369/97) R.P.L. Lancaster - Attorney General

McConnell Jaffray - Applicant SOLICITORS : Sachs Gerace Lawyers - Objectors (Plaintiffs in Proceedings 3369 of 1997) I.V. Knight - Attorney General

2451/04 Application of Macedonian Orthodox Community Church St Petka Inc (No 3)

1 This application for judicial advice under s.63(1) Trustee Act 1925 (NSW) is part of long running litigation, the principal protagonists of which are His Eminence Metropolitan Petar, the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand ("the Bishop") and the Macedonian Orthodox Community Church St Petka Incorporated ("the Association"). By this application, the Association seeks the Court's advice as a trustee as to whether it is justified in having recourse to certain trust assets in order to fund its conduct of that litigation. The Bishop opposes the giving of any such advice. 2 The litigation between the parties has been the subject of very many judgments of the Court, at least three of which are judgments of the Court of Appeal. There is currently on foot an application for special leave to the High Court. I will assume that the reader of this judgment is generally familiar with the history of the matter and I will refer to the facts only so far as they are necessary for determination of this application or are otherwise necessary to place the decision in context. 3 The Association is the registered proprietor of land previously held upon trust by trustees appointed under a deed of trust pursuant to a constitution adopted by the parishioners of the St Petka Parish in 1977. Upon incorporation of the Association in 1992, the property the subject of the trust deed was transferred to it. Disputes arose between the Bishop and the Association. In very broad summary, the Association denies the authority of the Bishop to dismiss as parish priest of St Petka a priest who has the support of the Association. 4 In 1997, the Bishop and a priest appointed by him as parish priest of St Petka commenced proceedings against the Association claiming, amongst other things, that the property which the Association holds is held upon trust for the Macedonian Orthodox Church and is, consequently, subject to the control of the Bishop ("the Main Proceedings"). The plaintiffs allege that the Association, in dealing with the property contrary to the directions of the Bishop, has committed numerous breaches of trust so that it should be removed as trustee and should be compelled to restore the trust property. 5 As the trust the subject of the proceedings is a charitable trust, the Attorney General has been joined as a defendant in the suit. 6 The Association denies that its property is held upon trust at all. Alternatively, it says that if the property is held upon trust, the terms of the trust are subject to the terms of the Association's constitution so that the Association may use that property as it has done, without breach of trust. 7 The property held by the Association has been divided by the parties into two categories for the purposes of this application: Schedule A property and non-Schedule A property. The Schedule A property was acquired before the incorporation of the Association and comprises the land upon which stand the Church of St Petka and the Church Hall ("the Church Land"). Also included in Schedule A are premises at Arncliffe used as a child care centre (with a land value between $850,000 and $900,000) and two home units in Rockdale held as investments, valued between $205,000 and $210,000. 8 The non-Schedule A property comprises three other home units at Rockdale, also held as investments, two of which are valued between $165,000 and $170,000 and one of which is valued between $205,000 and $210,000, liquid funds in various bank accounts and deposit accounts, and objects of veneration within St Petka Church ("the Holy Objects"). 9 In the course of case management, Hamilton J ordered the trial of the following questions as separate questions: "(a) Whether the property referred to in Schedule A and any other property referred to in paragraph 11 of the Further Amended Statement of Claim ('the Property') was, prior to it being vested in the Sixth Defendant, held upon any and if so what trust,

(i) for the purposes of the Macedonian Orthodox Church (as that term is defined in the Further Amended Statement of Claim);

(ii) for some other purpose or beneficiary, and if so what purpose or beneficiary.

(b) Whether any trust found under (a) above is a valid charity.

(c) Whether effect of the vesting of the Property in the Sixth Defendant was that the Sixth Defendant thereafter held the Property free of either trust." 10 In a judgment delivered on 4 April 2003 ([2003] NSWSC 262), Hamilton J answered the questions as follows: "(a)(i) & (ii) The property referred to in Schedule A was prior to the transfer of the legal titles to the sixth defendant held upon trust to permit the trust property to be used by The Macedonian Orthodox Church St Petka Rockdale as a site for a church of the Macedonian Orthodox Religion and for other buildings and activities concerned with or ancillary to the encouragement, practice and promotion of the Macedonian Orthodox Religion. I am unable on the evidence to answer the question as to other property.

(c) No." 11 At the request of the parties, his Honour did not make a declaration in terms of the answers to the questions. So far, there has been no appeal from his Honour's decision answering these separate questions. For present purposes, therefore, I must treat the Schedule A property as trust property; the status of the non-Schedule A property is yet to be determined in the Main Proceedings. 12 Also to be determined in the Main Proceedings are the particular terms of the trust upon which the Schedule A property is held. 13 Following determination of the separate questions, by Summons filed on 30 April 2004 the Association made an application to the Court under s.63 of the Trustee Act in which it sought the advice of the Court as to whether, amongst other things, it would be justified in using the Schedule A property, other than the Church Land for payment of its reasonable costs in defending the Main Proceedings. For the sake of convenience I will refer hereafter to Schedule A property on the understanding that that expression does not include the Church Land. 14 On 7 May 2004, I gave an advice in response to the application: Application of Macedonian Orthodox Community Church of St Petka Incorporated [2004] NSWSC 388. I directed that the Association was justified in having recourse to the real estate in the Schedule A property for the purpose of paying its reasonable legal costs incurred in:

• complying with existing directions of the Court and in preparation of its case up to 9 July 2004, when it was expected that the interlocutory applications would have been completed;

• procuring an Opinion of Counsel as to its prospects of success in the Main Proceedings. 15 Following in this regard the course adopted by Sir Robert Megarry VC in Re Dallaway (dec'd) [1982] 1 WLR 756, I directed that those directions were subject to, and might be revoked by, an order of the trial judge in the Main Proceedings, or by a direction or order made on further consideration of the Association's Summons for judicial advice. 16 Following this judgment, there was a considerable number of interlocutory applications in the Main Proceedings. A further application by the Association for judicial advice was heard on 2 June 2005. On 10 June 2005, I directed that, for the purpose of paying its further reasonable legal costs and expenses in procuring a preliminary Opinion of Counsel as to its prospects of success in the Main Proceedings up to an amount of $60,000, the Association was justified in having recourse to the Schedule A property. As in the case of the earlier judicial advice application, that direction was made subject to the order of the trial judge in the Main Proceedings or to any order made on further consideration of the Association's application for judicial advice: Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441. 17 By their Amended Statement of Claim, now in its seventh version, the plaintiffs allege that the expenditure by the Association on the costs of defending the Main Proceedings by recourse to the Schedule A property and the non-Schedule A property is a breach of trust. In March 2005, the plaintiffs applied to Hamilton J for an interlocutory injunction restraining the Association from having recourse either to Schedule A property or non-Schedule A property for the purpose of paying its costs and expenses in defending the Main Proceedings. His Honour refused injunctive relief in relation to the non-Schedule A property and made the following orders in relation to the Schedule A property: "1. Upon the plaintiffs by their counsel giving to the Court the usual undertaking as to damages the sixth defendant be restrained until the further order of the Court from paying any legal costs of the first to sixth and eighth defendants or any of them:

(i) incurred after 7 May 2004 in conducting these proceedings; or

(ii) incurred in conducting the proceedings referred to in paragraphs 29L (the Judicial Advice Proceedings) and 29P (the Judicial Advice Appeal Proceedings) of the Statement of Claim (Version 7) filed on 27 May 2005

out of any of the property set out in Schedule A to this order or any proceeds of the sale or any moneys raised by giving security over any of that property other than:

(a) costs the payment of which is authorised under judicial advice given by the Court in the Judicial Advice Proceedings;

(b) reasonable legal costs of opposing the relief claimed by the plaintiffs in their Notice of Motion filed on 14 March 2005.

2. The plaintiffs' Notice of Motion filed on 14 March 2005 be otherwise dismissed." 18 In other words, as far as concerned recourse to Schedule A property, his Honour permitted only such expenditure by the Association as was authorised under any judicial advice given, or yet to be given, in these proceedings. 19 On 13 December 2005, Senior Counsel for the Association, Mr G. Blake SC, provided to the Association an Opinion as to its prospects of success in the Main Proceedings. Mr Blake provided a very short Supplementary Opinion on 27 February 2006. 20 This application came on for hearing on 14 July 2006. Mr Blake SC appeared for the Association and Mr T.G.R. Parker SC and Mr Steele appeared for the Bishop. There was no appearance for the Attorney General, who had previously stated that he did not wish to participate. 21 Mr Parker, wishing to preserve his position in the High Court, sought access to Mr Blake's Opinions notwithstanding the decision of the Court of Appeal that the whole of the Opinions should not be disclosed: Macedonian Orthodox Community Church St Petka Inc v Petar [2006] NSWCA 160. In accordance with the decision of the Court of Appeal, I declined access and I declined to permit the Bishop's legal representatives to be present in Court while Mr Blake made submissions as to the content of his Opinions. 22 At the conclusion of argument I reserved my decision. While judgment was still reserved, the Court of Appeal on 6 October 2006 allowed an appeal from the decision of Hamilton J refusing an injunction preventing the Association from having recourse to the non-Schedule A assets for payment of legal costs in the Main Proceedings: Metropolitan Petar v Macedonian Orthodox Community Church St Petka Inc [2006] NSWCA 277. In lieu of the orders made by Hamilton J, the Court of Appeal restrained the Association from: "… paying any legal fees of the first to sixth and eighth defendants or any of them:

(i) incurred in conducting the proceedings no. 3369 of 1197 after 4 April 2003; and

(ii) incurred in conducting the proceedings referred to in paras 29L (the Judicial Advice Proceedings) and 29P (Judicial Advice Appeal Proceedings) of the statement of claim (Version 7) filed on 7 May 2005;

(iii) incurred in conducting proceedings No CA 40928/06 and CA 40313/06

out of any of its property or the proceeds of the sale or any moneys raised by giving security over any property other than:

(a) costs the payment of which is authorised under judicial advice given or order made by the Court in the Judicial Advice Proceedings;

(b) reasonable legal costs of opposing the relief claimed by the appellants in their Notice of Motion for injunctive relief in the proceedings filed on 14 March 2005;

(c) reasonable legal costs of proceedings no. CA 40313 of 2006 (being reasonable legal costs of the summons for leave to appeal and the appeal herein);

(e) payment of reasonable legal costs incurred in the period between 3 May 2006 and 7 June 2006 out of property other than the property set out in Schedule A to this order ('non-Schedule A property') or any proceeds of the sale of or any moneys raised by giving security over any of the non-Schedule A property." 23 This order makes no distinction between Schedule A property and non-Schedule A property. Paragraph (a) excludes from the prohibition costs authorised by judicial advice in this application; however, the advice in this application is sought only in respect of payment out of Schedule A property. The effect of the order is, therefore, to restrain payment of costs by the Association out of non-Schedule A property except for those costs referred to in paragraphs (b), (c) and (e) and to permit payment of any costs, both incurred and yet to be incurred, out of Schedule A property if such expenditure is authorised by judicial advice in this application. 24 On 6 November 2006, when judgment in this matter had been prepared and was about to be delivered, the Association filed an Application for Special Leave to Appeal to the High Court from the judgment of the Court of Appeal. The judicial advice application was, by request, listed before me for further argument on 9 November. 25 The Association now seeks that I delay giving judgment in this application until the result of the special leave application is known and, if it is successful, until the appeal to the High Court is determined. The Bishop opposes any delay in the giving of this advice.

26 The advice which the Association seeks from the Court is as follows: "(1) That the plaintiff would be justified in defending the Main Proceedings as to the allegations in Statement of Claim (version 7) apart from the following allegations in Statement of Claim (version 7):

(a) those that have been determined in Metropolitan Petar v Mitreski [2003] NSWSC 262; and

(b) those in paragraphs 15A(a) and (b), 16(c) to the extent that they relate to the Original Holy Objects and the Original Parish Funds referred to therein, 19B, 19C so far as the Further Parish Property referred to therein, and 20 to 36 inclusive and the relief claimed in paragraphs 1 to 7 inclusive so far as they relate to the Original Holy Objects and the Original Parish Funds referred to in paragraph 16(c) and the Further Parish Property as defined in paragraph 19B.

(2) That the plaintiff be entitled to have recourse to the property in Schedule A in the judgment Metropolitan Petar v Mitreski [2003] NSWSC 262, other than the Church Land for the purpose of paying its reasonable costs of defending the Main Proceedings as to the Schedule A Property Issues and substantially the same allegations in earlier pleadings to Statement of Claim (version 7) incurred since 9 July 2004 or alternatively as to the Schedule A Property Issues from the date of this order, in addition to the costs previously ordered by the Court on 7 May 2004. … (7) That the foregoing orders are subject to, and may be revoked by, an order of the trial judge in the Main Proceedings." 27 Paragraphs 19B, 19C and 20 to 30 inclusive of the latest Amended Statement of Claim in the Main Proceedings relate to matters other than the identification of the terms of the trust upon which the Schedule A property is held. Accordingly, as paragraph 2 of the orders makes apparent and as was explained by Mr Blake, the Association does not seek advice that it is justified in having recourse to Schedule A property to litigate all issues in the Main Proceedings; rather, the advice is confined to funding of the issue: what are the precise terms of the trust upon which the Schedule A property is held. This issue has been identified as the "Schedule A Property Issue". 28 When the matter was re-listed before me on 9 November 2006, the Association sought the following additional advice: "(1) That the plaintiff be entitled to have recourse to the property in Schedule A in the judgment Metropolitan Petar v Mitreski [2003] NSWSC 262, other than the Church Land for the purpose of paying its reasonable legal costs incurred in participating in settlement negotiations initiated by the ninth defendant in the Main Proceedings and undertaking work ancillary to that participation.

(2) That the plaintiff be entitled to have recourse to the property in Schedule A in the judgment Metropolitan Petar v Mitreski [2003] NSWSC 262, other than the Church Land for the purpose of paying its reasonable legal costs obtaining an assessment of its costs ordered to be paid by the opponents in Macedonian Orthodox Community St Petka Inc v His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand [2006] NSWCA 160." 29 The Bishop's position is that the Court should, for a variety of reasons, decline to give any of the advice sought.

• whether the giving of advice in this application should be delayed pending, at least, the determination of the special leave application to the High Court;

• whether any of the advice sought by the Association should be given at all. This question raises the issues:

whether the giving of any such advice is in the interests of the trust estate;

whether revocable orders as to costs can, or should be, made;

• if any advice is to be given, what is that advice.

31 The orders made by the Court of Appeal in [2006] NSWCA 277, in so far as they prevent the Association from having recourse to non-Schedule A property for the purpose of paying past legal costs incurred, result in the Association being unable to fund the whole of the Main Proceedings to completion. The Association says that the discretion of the Court of Appeal in granting the injunction miscarried because the decision was founded upon material errors of fact which the Court made. 32 In paragraph 81 of the judgment of the Court of Appeal, the Court, after referring to the Schedule A assets and the non-Schedule A assets, their values and the liabilities of the Association secured over the assets, concludes that: "… on the broad estimation appropriate and possible at this time it is most unlikely that [the Main Proceedings] would continue with legal assistance." 33 At paragraph 83 of the judgment, the Court says: "There is therefore considerable force in the submission, as to the balance of convenience, that it would be pointless to permit payment of the past costs out of the non-Schedule A property - that it would be a waste of alleged trust funds to no purpose because the defence could not be funded to completion." 34 The Association says, and the Bishop concedes, that the Court of Appeal has made two factual errors: it has omitted from its calculation of the value of Schedule A property the Arncliffe child care centre (land value between $850,000 and $900,000) and it has wrongly taken $750,000 as the amount of the Association's secured liability to its bank instead of the correct amount of $655,000. The Association says that if recourse to the Schedule A assets including the Arncliffe child care centre and the two investment units were allowed, it would be able to discharge its bank indebtedness of $655,000. If the appeal to the High Court were successful and the injunction granted by the Court of Appeal dissolved, there would then be sufficient left in the Schedule A assets and the non-Schedule A assets to pay outstanding legal costs already incurred and to fund future legal costs to completion of the proceedings. The Association says that this Court should delay giving judicial advice until the fate of the proceedings in the High Court is known. 35 I do not think that I should delay the giving of judicial advice any further. What I have to decide in this application are, essentially, two broad questions of principle:

• is the nature of the Main Proceedings and of the Association's defence such that it is in the interests of the Schedule A property trust that the defence of the Schedule A Property Issue be funded by recourse to Schedule A property;

• do Counsel's Opinions demonstrate sufficient prospects of success to warrant the Association funding its defence of the Schedule A Property Issue.

If the answer to both of these questions is yes, there is still a practical question to be resolved: if recourse to Schedule A property is authorised, will sufficient money be realised to meet all costs necessary to carry the Association's defence of the Schedule A Property Issue to conclusion. 36 The answer to that practical question depends upon many variables, none of which can be ascertained now. They include the following:

• what will the future costs of the Schedule A Property Issue actually amount to;

• will recourse to non-Schedule A assets ultimately be permitted and, if so, to what extent;

• what will various assets actually produce on realisation;

• will the Association's legal advisers continue to act for the Association to finality of the Main Proceedings if some, but not all, of their outstanding costs are paid or secured. 37 Mr Blake points out that if the Schedule A property, presently valued at a minimum of $1,260,000, is permitted to be used to pay past and future costs there will be sufficient to discharge the Association's secured debt of $655,000 and to pay a substantial part of, if not all of, past costs. There will then be sufficient in the non-Schedule A assets to fund the Main Proceedings to completion on present estimates of future costs. However, it should be noted that the figure of slightly in excess of $600,000 for past costs and the estimate of $400,000 for future costs so far given relate to the costs of all issues in the Main Proceedings and not just to the costs of the Schedule A Property Issue. 38 If the giving of judicial advice in this application had to be withheld until these practical questions were answered, it would never be given at all because the questions cannot be answered unless the advice is given so that the conduct of the Association's defence is permitted to move forward and answers to the questions can begin to emerge. 39 It seems to me that advice on questions of principle should be given now so that the litigation between the parties may move forward, even if only by a little. There are no shortcuts in this litigation: one can only proceed by small stages. But an advance by a small stage is still an advance and any advance through this veritable Sargasso Sea of litigation is to be encouraged. 40 To what extent the advice now given can be implemented will depend upon what happens in the future, particularly as to whether recourse is permitted to the non-Schedule A assets. Unless and until it becomes clear to the Association that such recourse to assets as is permitted will be sufficient to fund the defence of the Schedule A Property Issue to finality, then the Association will not be justified in relying upon judicial advice given in this application to pay any costs out of the Schedule A property. It must be clear that expenditure from trust resources will not be futile. The following advice must be read as subject to this over-riding proviso.

Whether giving advice is in the interests of the trust estate

41 Mr Parker's submissions start with the proposition that in a judicial advice application "the Court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties" : Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198, at 201g. Mr Blake does not dispute that proposition of law. The parties part company on the question whether it is in the best interests of the trust of which the Schedule A property is the fund that the advice sought by the Association be given or withheld. 42 The Association contends that it is in the best interests of the trust that it defend the Schedule A Property Issue by recourse to Schedule A property because:

• its defence will determine the precise terms of the trust upon which the Schedule A property is held and there will be an end to the disputation between the parties which has caused great disruption in the administration of those assets;

• by its defence of the Schedule A Property Issue the Association will fulfil its duty to protect the Schedule A property from being used for purposes which are not essential elements of the trust, as such elements are found by the Court in the Main Proceedings. 43 Much of Mr Parker's submission in his first outline of argument and at the hearing was directed to the form of the orders sought as appearing in a document prepared by the Association and dated 14 July 2006. After the close of oral argument, the Association delivered an amended set of orders sought, which I have set out in paragraph 26 above. Mr Parker has made further written submissions addressed to those orders. 44 Mr Parker's attack on the orders originally sought by the Association was that they could have permitted the Association to have recourse to Schedule A property to defend issues other than the Schedule A Property Issue. As I have noted, Mr Blake has made it clear in his oral submissions that the orders sought by the Association are intended to authorise expenditure from Schedule A property only upon the Schedule A Property Issue. However, as Mr Parker points out, it could be difficult in practice to draw the line between costs expended on the Schedule A Property Issue and some other issue. Because of this difficulty, Mr Parker says, the advice sought should be refused because otherwise there is a risk that the Schedule A property will be expended on defending an issue in the Main Proceedings not relevant to the administration of the Schedule A property trust. 45 The choice is between, on the one hand, giving advice which would permit the Association to have recourse to Schedule A property to defend the Schedule A Property Issue, with an attendant risk of unauthorised expenditure, and, on the other hand, avoiding that risk by refusing any advice and thereby denying the Association the means of defending the Schedule A Property Issue at all. 46 In my opinion, the choice should be resolved by permitting the Association to defend the Schedule A Property Issue by recourse to the Schedule A property and leaving the risk of unauthorised expenditure on the shoulders of the Association and its legal representatives. If the Bishop succeeds in the Main Proceedings in his contentions as to what are the precise terms of the trust upon which Schedule A property is held, and if it becomes apparent, on an assessment of costs or the taking of accounts, that the Association and its lawyers have expended Schedule A property on issues clearly not authorised by the Court's judicial advice, then the Association, its responsible officers and its legal representatives will leave themselves open to personal liability to restore the assets of the trust by reason of procuring or participating in a breach of trust or receiving trust property with knowledge of the facts which make the payments a breach of trust. I have little doubt that the Association, its responsible officers and its lawyers will be well aware of their exposure to such personal liability and will act accordingly in the way in which Schedule A property realisations are expended on costs in the Main Proceedings. 47 Mr Parker next submits that, in considering whether the best interests of the trust estate are served by giving the advice sought, the Court must bear in mind the consequences to the trust estate of the success or failure of the Association's defences. Often, says Mr Parker, trustees seek to have recourse to trust assets to prosecute a claim for the benefit of the estate or to defend a claim which, if successful, would deplete the trust funds. In such cases, it is readily apparent that the trust will benefit from the trustees' prosecution or defence of the claim by recourse to trust assets. But this is not the present case, Mr Parker says. 48 Here, if the Association succeeds on the Schedule A Property Issue, there will be no financial gain to the trust funds. On the other hand, Mr Parker says, if the Association fails on the Schedule A Property Issue, there will be a considerable benefit to the trust estate because the Court will have found that the Association and its responsible officers will have committed breaches of trust in expending money of the trust fund for unauthorised purposes and the Association, its responsible officers and many, if not all, of the recipients of the misapplied trust property will be compelled to restore the trust property so that the trust fund will be considerably augmented. In other words, Mr Parker submits, it is clearly in the best interests of the trust estate that the Association not defend the Schedule A Property Issue at all, let alone by recourse to the Schedule A property. 49 I am unable to accept Mr Parker's submission. Taken to its logical conclusion, the submission means that if a claim is made against a trustee for breach of trust and for restoration of the trust fund, it is always the duty of the trustee, even though entirely innocent of any wrongdoing, to surrender to the claim without a fight because surrender and a consequent payment to the trust fund will result in an increase in the trust fund. An increase in the trust fund is in the interest of the trust and a trustee who does not act in the interest of the trust is in breach of trust. It follows that an innocent trustee who defends a claim to restore the fund, by that very act becomes a guilty trustee and a claim for breach of trust which should fail if it were not defended will succeed only because it is defended. It is a pretty paradox - but it is not the law: see e.g. National Trustees Executors & Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268, at 278-279. 50 In the present case, as Mr Blake submits, the benefit to the Schedule A property trust which will result from the Association defending the Schedule A Property Issue is that the terms of that trust will be resolved once and for all and the disputes as to the administration of the trust property will be ended. It must not be forgotten that the trust in the present case is a charitable trust. Its purpose is not the preservation or accumulation of wealth for the financial advantage of a class of beneficiaries but, rather, is the promotion of religious worship. 51 In my opinion, the final settlement of disputes as to how the objects of a charitable trust are to be achieved by use of the trust property is an important benefit of the administration of the trust and the value of that benefit is not measured only according to who pays the costs of the proceedings and whether the assets of the trust are increased by the proceedings: see e.g. National Trustees Executors & Agency Co of Australasia Ltd v Barnes (supra) at 275 per Starke J. 52 Whether the judicial advice sought by the Association is given or not, the most important trust property, i.e. the Church Lands, will be preserved and the Church, presumably, will continue indefinitely to be used as a place of public worship. It is in the public interest and for the benefit of the trust estate that there be an end to the disputes as to the terms of the trust under which the Church may be used. 53 Mr Parker's other submissions as to why it is contrary to the best interests of the trust to give any judicial advice to the Association are numerous but they are variations on the same theme, namely, that it is financially in the best interests of the trust that the Association not defend the Schedule A Property Issue. I do not think that I need to answer each of these submissions individually. In my opinion, it is in the best interests of the Schedule A property trust that there be a trial which will resolve the dispute as to the terms of the trust under which the Schedule A property is held. There is no point in a trial of that issue unless the trial is a fair one, that is, the Association has a fair opportunity to present its case with legal representation. It can do so only by recourse to the Schedule A property.

54 Mr Parker submits that the Court should not make an order as sought in paragraph 7 of the Association's draft orders. 55 An order reserving to the trial judge the power to revoke judicial advice authorising a trustee to have recourse to trust assets to defend a claim was made in Re Dallaway dec'd [1982] 1 WLR 756. In that case, one of ten beneficiaries of a testamentary estate claimed the whole of the estate; the other beneficiaries desired the executor to resist the claim. Clearly, if the claimant was entitled to the whole estate and received it, and if the other beneficiaries were unable to pay the executor's costs of the litigation, as appeared likely, there would be no fund from which the executor could indemnify itself. The executor was faced with the choice of taking the risk of having to pay the costs of the litigation from its own pocket or refusing to defend the claim at all. 56 The executor sought directions as to whether it was justified in defending the claim and an order that, even if the claim were successful, it was entitled to take its costs of the litigation out of the estate. 57 Sir Robert Megarry directed that the executor was justified in defending the claim and added, at 761-762: "In giving that direction, I propose to include a provision that, subject to any order made by the trial judge, the bank will be entitled to be indemnified out of the estate for all costs for which it is liable, even if the defence or counterclaim, or both, are unsuccessful. It seems to me to be necessary to make this provision subject to any order of the trial judge because although as matters stand the bank, on the material before me, is fully justified in defending and counterclaiming, it is possible that material may emerge subsequently which will make it unreasonable for the bank to continue to defend or counterclaim; and if, despite that, the bank continued with the litigation, no order that I make now ought to protect it in relation to subsequent costs. In view of this possibility I propose that my order should take effect only until further order, giving all parties liberty to apply, and authorising the master to consider and deal with any such application." 58 The facts in Re Dallaway were very close to those in Evans v Evans [1985] 3 All ER 289. There, one of the testator's beneficiaries claimed the whole of the estate; the remaining beneficiaries wished the administrator of the estate to defend the claim. The administrator sought orders of the kind made in Re Dallaway . The judge at first instance made the orders. The claimant to the estate successfully appealed to the Court of Appeal, the result being that if the claim were to be defended, the defence would have to be funded by the beneficiaries. 59 The Court of Appeal did not quite say that Re Dallaway was wrongly decided; however, it distinguished the case on three grounds. First, the Court of Appeal said that Re Dallaway was a decision on its own facts; second, the Court noted that in Re Dallaway Megarry VC had serious reservations about the prospects of the claimant's success against the estate; third, the Court of Appeal observed that in Re Dallaway the alternative to an order that the executor have its costs out of the estate was that the other beneficiaries indemnify the executor for the costs of the litigation, which was "clearly unworkable" , whereas in Evans the other beneficiaries could be joined as defendants, which was, apparently, a practicable means of providing for the claimant's costs if the claimant were successful. 60 At p.293e, Nourse LJ said: "In my view, in a case where the beneficiaries are all adult and sui juris and can make up their own minds whether the claim should be resisted or not, there must be countervailing considerations of some weight before it is right for the action to be pursued or defended at the cost of the estate. I would not wish to curtail the discretion of the court in any future case but, as already indicated, those considerations might include the merits of the action. I emphasise that these remarks are directed only to cases where all the beneficiaries are adult and sui juris. The position might be entirely different if, for example, one of the beneficiaries was under age." 61 In Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, Lightman J went further than the Court of Appeal in Evans in qualifying, perhaps to the point of disapproving, the course followed in Re Dallaway . At 1225, his Lordship said: "In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and (in the absence of any Court direction to the contrary …) offer to submit to the Court's directions, leaving it to the rivals to fight their battles."

See also Re Schroder's Wills Trusts [2004] 1 NZLR 695, at paras 39-44, per Nicholson J. 62 I think that the development of the law in this area has now reached the point where I may state the following proposition.

Where a trustee seeks an order that it is justified in defending a claim against the trust estate by recourse to the trust assets for the costs of the litigation, the question will be whether it is more practical, and fairer, to leave the competing claimants to the beneficial interest in the trust estate to fight the litigation out amongst themselves, at their own risk as to costs and leaving the trustee as a necessary but inactive party in the proceedings, or whether it is more practical, and fairer, that the trustee be the active litigant with recourse to the trust fund for the costs of the litigation. What is "practical and fair" will depend on the particular circumstances of each case and will include:

• whether the beneficiaries of the trust estate have a substantial financial interest in defending the claim;

• what are the financial means of the beneficiaries to fund the defence;

• the merits and strengths of the claim against the trust estate;

• the extent to which recourse to the trust estate for defence costs would deprive the successful claimant of the fruits of the litigation;

• if the trust is a charitable trust rather than a private trust, what, if any, are the considerations of public interest. 63 Mr Parker says that the proper course in this case is for the Association to take a neutral stance, or retire as trustee, and that the defence of the Main Proceedings be undertaken by the "real claimants" out of their own resources. In my view, this course is neither practical nor fair, for the following reasons. 64 In Re Dallaway , Evans , Alsop and Schroder the trusts were private trusts and the competitors for the trust estate were identified beneficiaries on the one hand and a particular claimant on the other. The present is not such a case. The trust is a charitable trust. No person is a beneficiary of the trust - neither the Bishop nor the Association nor any member of the Association. None of the contestants in this case is claiming or defending in order to augment or defend personal assets. 65 As a matter of practicality, the Association cannot find the financial resources to contest the Schedule A Property Issue without recourse to the Schedule A property. I cannot appreciate the fairness of requiring the Association to take a neutral position as trustee in the litigation, or to retire, leaving it to individuals, who are not beneficiaries of the trust and have no financial interest in the trust property, to fund the litigation at their own expense and at risk as to costs generally. 66 For these reasons, the facts of the present case are strongly distinguishable from the facts in Evans v Evans . I do not think that the considerations which moved the Court's discretion in that case are present in this case.

Whether revocable costs orders can or should be made

67 Mr Parker urges that to make a pre-emptive costs order in this case of the kind made in Re Dallaway would be to pre-judge an issue in the Main Proceedings, namely, whether or not expenditure out of the Schedule A property on the costs of defending the Schedule A Property Issue is itself a breach of trust. I do not agree. 68 First, an order of the kind made in Re Dallaway is not a pre-emptive costs order, as it is sometimes erroneously described. A pre-emptive costs order is one which prevents an inconsistent costs order being made later. But a revocable order such as that made in Re Dallaway expressly contemplates that an inconsistent costs order may later be made, if the trial judge thinks fit. It is not a pre-emptive order; it is merely an interim order. 69 Second, an interim costs order in a judicial advice application cannot create an issue estoppel or res judicata in other proceedings. There is no "issue" or "res" between the parties in a judicial advice application in the sense in which those terms are understood in adversarial proceedings. A judicial advice application is an application by a trustee to the Court for private advice and is founded upon facts stated to the Court by the trustee, untested by adversarial procedure, and assumed by the Court to be true only for the purpose of the application. If other persons are given notice of the application under s.63(8) of the Trustee Act so that they become bound by the advice or order of the Court in accordance with s.63(11), they are bound only to the extent that the trustee is protected from claims by them if the trustee has followed the judicial advice and if the facts stated to the Court by the trustee in obtaining the advice are accurate. There is no finding by the Court in a judicial advice application that the facts stated by the trustee are accurate. No person bound by the advice is prevented from litigating as to the accuracy of those facts in other proceedings. If the facts found in other proceedings are not as stated by the trustee to the Court in the judicial advice application, the trustee is not protected by the Court's advice: see the general discussion by Needham J in Harrison v Mills [1976] 1 NSWLR 42, at 45-46. 70 Further, because the interim costs order is revocable it cannot be a final order so that it cannot give rise to an issue estoppel or res judicata: see e.g. The Sennar (No 2) [1985] 2 All ER 104, at 106. 71 Nothing done in this application will inhibit the trial judge in any way in dealing with the issues raised on the pleadings in the Main Proceedings. If the trial judge finds in favour of the Bishop on the Schedule A Property Issue, and that the Association's expenditure of Schedule A property in defending that issue was a breach of trust, the question will then arise whether the Association ought fairly to be excused from the consequences of that breach under s.63(2) of the Trustee Act because it obtained and relied upon judicial advice in this application. 72 Section 63(2) provides: "If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction." 73 Mr Parker says that it will be impossible for the Bishop ever to know whether the Association, in obtaining judicial advice in this application, has been guilty of conduct disentitling it from reliance thereon under s.63(2) because the Bishop's legal representatives will never see Mr Blake's Opinions as to prospects: they have been given the protection of confidentiality. Mr Parker says that, rather than place the Bishop in this unfair position, the Court should simply refuse to give the judicial advice sought by the Association. 74 I am unable to accept this submission. If the Bishop succeeds in the trial of the Main Proceedings on the Schedule A Property Issue and believes that the facts, as they have emerged, could not reasonably have supported Mr Blake's Opinions as to prospects, then the Bishop may make an application to the trial judge for the revocation of the orders which have been made on an interim basis in this application. A central issue in that contest would be what was communicated to Mr Blake by the Association's instructing solicitors and how Mr Blake relied upon those communications in forming his opinion as to prospects. 75 For the purposes of such an application by the Bishop to the trial judge, the Association and its lawyers, in asserting that it had not been guilty of concealment or misrepresentation in obtaining Mr Blake's Opinion, could hardly seek to rely upon legal professional privilege to prevent disclosure of their communications to Mr Blake and of his Opinions as to prospects. Those communications and Mr Blake's reliance upon them would be the subject matter of the application itself: see e.g. Thomason v Campbelltown Municipal Council (1939) 39 SR (NSW) 347; Hongkong Bank of Australia Ltd v Murphy [1993] 2 VR 419. 76 The Association and its legal representatives fully appreciate the impossibility of keeping Mr Blake's Opinions as to prospects confidential in such circumstances. They have proffered to the Court, as the price of obtaining judicial advice, an undertaking that if the Association is unsuccessful in the Main Proceedings and the Bishop applies to the trial judge for revocation of the orders made in this application, Mr Blake's Opinions will be disclosed if the trial judge thinks it expedient for the purpose of dealing with that application. I accept that undertaking.

77 The questions which I have discussed so far relate to Mr Parker's submissions that, on discretionary grounds, the Court should simply refuse to give the Association any judicial advice. For the reasons which I have set out above, I do not accept those submissions. 78 The question remains, of course, whether Mr Blake's Opinions demonstrate sufficient prospects of success on the Schedule A Property Issue to warrant the Association defending that issue and expending Schedule A property in that defence. 79 In these reasons for judgment, I cannot engage in any analysis of Mr Blake's Opinions. To do so would destroy their confidentiality. Further, as the statements of fact recounted in the Opinions are as yet untested and as there has been no argument as to the law, it would be manifestly inappropriate to say anything at this stage to indicate my views as to the strength of the Association's case, as propounded in the Opinions. 80 In a judicial advice application in which the trustee asks whether it is justified in prosecuting or defending litigation, all the Court does is to reach a view as to whether the Opinion of Counsel satisfies it that there are sufficient prospects of success to warrant the trustee in proceeding with the litigation. Counsel's Opinion must address the facts necessary to support the legal conclusions reached and must demonstrate that the propositions of law relied upon for those conclusions are properly arguable. Whether, in the light of Counsel's Opinion, there are "sufficient" prospects of success calls for another judgment, founded upon such considerations as:

• whether the likely costs to be incurred by the trustee are proportionate to the issues and the significance of the case;

• the consequences of the litigation to the parties concerned;

• in the case of a charitable trust, any relevant public interest factors:

see e.g. In re Brogden (1888) 38 Ch D 546; In re Kay's Settlement [1939] Ch 329. 81 I have read Mr Blake's Opinions carefully. The substantive Opinion, dated 13 December 2005, is 185 pages in length. It is, as one would expect from Mr Blake, carefully considered and thorough. It specifically addresses the facts relating to the Schedule A Property Issue, amongst other issues. The propositions of law relied upon are properly arguable. I have considered the factors referred to above. While the cost of the litigation is very great, so also is the importance of the litigation to a section of the community. As I have said, the final settlement of the dispute as to the use of the Church, which has already divided the community so bitterly for such a long time, is in the public interest. 82 I am satisfied that the Opinions demonstrate sufficient prospects of success to warrant the Association defending the Schedule A Property Issue and, for that purpose, having recourse to the Schedule A property.

83 I turn now to the additional advice sought by the Association on 9 November 2006. 84 I decline to give advice at this stage that the Association is justified in having recourse to the Schedule A property to fund the mediation referred to. From the material provided by the Association, it appears that the mediation is limited to one matter, namely, achieving a temporary modus vivendi enabling the Church to be used for church services pending final determination of the Main Proceedings. The mediation will not, apparently, attempt to resolve finally any issue in the Main Proceedings, let alone the Schedule A Property Issue. 85 I do not consider that the Schedule A property should be expended for a purpose not directly connected with the final resolution of the Schedule A Property Issue. 86 The Bishop opposes the advice sought as to costs of an assessment of the Association's costs in the appeal in [2006] NSWCA 160. The Bishop says that it is premature to provide for the enforcement of any costs order when set offs of costs orders as between the parties may be made in various proceedings. 87 However, before the Association's costs may be set off, the amount of those costs must be ascertained by assessment. It is not premature to provide the means of procuring that assessment; the recovery of those costs, by set off or otherwise, will be for the benefit of the trust estate. I will make the order sought.

88 As I have discussed earlier, the Association is not justified in acting in accordance with the advice to be given in this judgment unless and until it becomes clear to the Association that recourse to such trust assets as is ultimately permitted will be sufficient to fund its defence of the Schedule A Property Issue to finality. 89 The Association has not made any estimate of its future costs confined to the Schedule A Property Issue. Neither has it shown what costs incurred to date are attributable to the Schedule A Property Issue as distinct from other issues in the Main Proceedings. I do not think it appropriate to permit, by means of this advice, recourse to Schedule A property either in an unlimited amount or to fund issues which are clearly distinct from the Schedule A Property Issue. It seems to me that, with a little more consideration, the Association should be able to give a more refined estimate of its costs, past and future, limited to the Schedule A Property Issue. I think it appropriate to give the advice sought, limited to past costs referable to the Schedule A Property Issue and to future costs referable to that issue but capped, at this stage, to a certain amount. The Court should be satisfied, so far as is possible, by further information from the Association as to what costs, past and future, are properly attributable to the Schedule A Property Issue. I appreciate, however, that it is almost inevitable that the Schedule A Property Issue will overlap to some extent with other issues in the Main Proceedings. 90 The form of the order sought in paragraph 1 of the Association's draft orders dated 19 July 2006 is, I think, apt to confuse. The order seeks to define the Schedule A Property Issue by a process of excluding other issues raised by specified paragraphs in the latest Statement of Claim. I think that the better way of defining the Schedule A Property Issue is to state exactly what it is, and I would prefer that order 1 be reformulated accordingly. 91 I will defer making orders until the Association is able to provide the Court with a more precise statement of past and future costs referable to the Schedule A Property Issue, as that issue is defined in a reformulation of proposed order 1. The order will cap costs which may be expended in future by recourse to Schedule A property to a certain amount but there will be liberty to approach the Court to have that amount varied, if necessary. 92 The Association's costs of procuring Mr Blake's Opinions have already been provided for in my orders made on 7 May and 10 June 2005. Costs of complying with the Court's directions in the Main Proceedings up to 9 July 2004 were also provided for in those orders. Those orders stand, subject to the possibility of revocation or variation by the trial judge in the Main Proceedings or by subsequent order in this application. The orders now to be made should cover costs incurred in relation to the Schedule A Property Issue since 9 July 2004, and up to and including the conclusion of the trial in the Main Proceedings. If the Association is justified in having recourse to Schedule A property to pay any of its proper costs relating to the Schedule A Property Issue then it is entitled to have recourse to that property to pay all of such costs, at least from the time it first sought judicial advice. 93 I will stand this application over for a short time to enable the Association to file a further Statement of Facts as to the past and future costs incurred and to be incurred in relation to the Schedule A Property Issue alone. Short Minutes of Order should then be brought in reflecting these reasons for judgment. 94 The Further Statement of Facts and the proposed Short Minutes of Order should be served on the other parties. I will fix a date for the bringing in of Short Minutes of Order. I note that no order for the costs of this application is sought at this stage. - oOo -

24/11/2006 - Substitute "the" for "that" before "significance" in third dash point of paragraph 80. - Paragraph(s) 80

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.