Application of Macedonian Orthodox Community Church St Petka Inc [2023] NSWSC 918

Solicitors: Piper Alderman (Plaintiff) McPherson Kelly (Defendants) File Number(s): 2022/47531

Introduction

1. HIS HONOUR: The application before the Court is an application by the plaintiff (Association) who was a trustee of a charitable trust for an order pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act) that it would be justified in: 1. settling these proceedings which it has brought against the defendants (solicitors) on terms which are set out in a deed dated 3 March 2023 (deed); 2. paying the settlement sum under the terms of the deed from the assets of the charitable trust; and 3. being indemnified from the assets of the charitable trust for its costs of these proceedings.
2. I note at the outset that I have been considerably assisted by the submissions of counsel for the Association and the solicitors. I have been able to move directly to providing advice and giving reasons for judgment with the assistance of such submissions on which I have drawn to a large extent and, in addition, on my part, other caselaw and principles to which I will refer.
3. Counsel for the solicitors supports the application for advice.
4. The materials in support of the application for advice included an Opinion given by Mr Andrew Fernon SC (Opinion). The parties have confirmed that the Opinion is not to be regarded as confidential and may be referred to in these reasons.
5. The solicitors are partners of the firm McConnell Jaffray and are the solicitors who formally acted for the Association from approximately March 1999 to 2014 in complex and long running proceedings between the Association and the Bishop for the Australian and New Zealand diocese of the Macedonian Orthodox Church (main proceedings).

Main proceedings - some relevant details

1. The main proceedings were commenced in 1997. They continued for more than 20 years. Counsel has indicated that there are some 98 judgments that have been delivered in relation to the main proceedings.
2. One of those judgments is the landmark decision of the High Court in which the High Court reviewed the statutory power under s 63 Trustee Act to give judicial advice: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 (Macedonian Church Case (HCA)). The decision became, in effect, a watershed moment in which the High Court construed the statutory provision by reference to text, context and purpose, and reset the legal community's understanding of s 63 on a proper footing untrammelled by limitations expressed in caselaw but not found in the statutory provisions.
3. The nature of the claims in the main proceedings was described by the High Court in the following terms at [4] (footnotes omitted): 4. The statement of claim which was extant at the time of the orders which led to this appeal is "statement of claim (version 8)". It alleges that the first five defendants (Lambe Mitreski, Pero Damcevski, Boris Minovski, Eftim Eftimov and Mile Marcevski) were members of the executive committee of the sixth defendant, the Macedonian Orthodox Community Church St Petka Inc. The sixth defendant is the appellant in this Court, but for the most part it is convenient to call it "the Association". 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, that land was transferred to it. The Association is alleged to hold that property, and property acquired since 1992, upon trust for the purposes of the Macedonian Orthodox Church. The eighth defendant (Naum Despotoski) is alleged to be acting unlawfully as parish priest of the St Petka Parish in place of the second plaintiff, who, it is alleged, has been wrongly dismissed by the Association. The Attorney-General for the State of New South Wales is the ninth defendant. It is alleged that the Association has contravened the doctrine and law of the Macedonian Orthodox Church in dismissing the second plaintiff, appointing other persons in his place, making changes to the building used as the parish church and in other ways. It is alleged that the Association has broken its trust in various respects, and ought to be removed as trustee.
4. Mr Walker summarised the primary issue in the main proceedings as being in substance the role of the Association as custodian of the property.
5. In 2003, the Association was held to be trustee of a charitable trust pursuant to which it held property for the use by the Macedonian Orthodox Church St Petka as a site for a church of the Macedonian Orthodox religion and for other buildings and activities associated with or ancillary to, the encouragement, practice or promotion of the Macedonian Orthodox religion: Metropolitan Petar v Mitreski [2003] NSWSC 262 (Hamilton J decision).
6. Throughout the course of the main proceedings, various issues arose and were debated. These included the terms and objects of the charitable trust, identification of, and questions arising out of the property held on trust and whether the Association had acted in breach of its duties as trustee of a charitable trust. Further, there were applications by the Association as noted above for judicial advice and questions as to the availability of trust assets to indemnify the Association for its costs.
7. Importantly, for the purposes of this application, the Hamilton J decision in April 2003 determined that the property the Association held as trustee of the charitable trust included land at Arncliffe (land or the Arncliffe property).

The solicitors seek to secure payment of costs

1. On 8 June 2006, the solicitors sought from the Association and were granted a mortgage over the land to secure payment of their fees for acting for the Association (mortgage).
2. In 2014, the solicitors had their costs of acting for the Association assessed. The assessment resulted in certification by a costs assessor which required the Association to pay approximately $985,650 to the solicitors.
3. The solicitors exercised the power of sale under the mortgage and transferred the land to a third party on or about 11 March 2016.
4. In 2018, the solicitors had further costs of acting for the Association assessed. Those costs were also certified by a costs assessor and a determination required the Association to pay an additional approximately $783,000 to the solicitors.

2018 Proceedings

1. In 2018, the proceedings which were already complicated became more vexed.
2. The Association, relying upon what was said to be false evidence given in proceedings heard by Stevenson J (His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand v Kotevich [2014] NSWSC 1215), asserted that orders made in the main proceedings had been procured by fraud and ought to be set aside.
3. The Attorney General authorised the Association to seek judicial advice in respect of proceedings to set aside the orders made in the main proceedings on the basis of the alleged fraud. The Association obtained judicial advice that it was justified in commencing such proceedings.
4. In December 2018, such proceedings were commenced by a statement of claim (2018 proceedings).
5. Those 2018 proceedings were never determined by the Court because, in 2020, a settlement was reached which finalised the decades-long litigation (Church settlement deed).
6. The materials before the Court contain consent orders in a number of proceedings by which this occurred.
7. In the main proceedings, by consent the Court made orders (see CB 655) that the balance of the proceedings be dismissed with no further order as to costs (with the intention that all declarations and orders previously made in the proceedings and the appeal therefrom (Macedonian Orthodox Community Church St Petka Incorporated v Metropolitan Petar [2013] NSWCA 223) remained undisturbed).
8. The 2018 proceedings were by consent dismissed with no orders as to costs with the intention that each party pay his or its own costs of the proceedings.
9. In addition, proceedings in the (then) Federal Circuit Court of Australia were by consent dismissed with no order as to costs.
10. On 13 December 2021, orders were made by Slattery J which brought the main proceedings to an end. Notably, when making those orders, his Honour recorded that the previous orders remained undisturbed.

These proceedings

1. On 17 February 2022, these proceedings were commenced by the Association by a summons supported by an affidavit from its solicitor, Thomas Russell.
2. Subsequently, the Association sought authorisation from the Attorney General pursuant to the provisions of s 6 of the Charitable Trusts Act 1993 (NSW) for leave for the proceedings.
3. In the course of seeking the Attorney General's approval and at the request of the Attorney General the Association prepared a statement of claim pleading its case against the solicitors.
4. In the proceedings the Association seeks to recover from the solicitors a sum of money which represents the amount received from the sale of land in excess of a sum approved by the Court in 2007 for payment of the Association's legal costs. The excess sum has been calculated as being either approximately $1.442 million or $1.29 million.
5. The progression of the proceedings saw a draft statement of claim prepared which has never been filed.
6. In the draft statement of claim, the Association's claims may be summarised as follows: 1. that it granted the mortgage in breach of its duties as trustee given the finding in the main proceedings that it held the land as trustee of the charitable trust; 2. that the solicitors knew at the time the mortgage was granted that the land was held by the Association as trustee of such trust and assisted the Association to breach its duties thereby holding their interest in the land as mortgagee and any benefit derived from that interest on a constructive trust under the principles from Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy); and 3. the solicitors breached their duties as solicitors for the Association to avoid a conflict with the Association's interest and to act in the interest of the Association at all times by seeking that the mortgage be given in circumstances that would have resulted in a breach of duty by the Association and in other respects such as not advising the Association of that result, executing the mortgage and exercising the power of sale and retaining the impugned sum from the sale of the land.
7. The solicitors for their part strongly opposed the proceedings being authorised by the Attorney General.
8. Notwithstanding that they had no at least direct opportunity to file a verified defence to a filed statement of claim (because no such claim was ever formerly filed), they provided to the Attorney General detailed submissions setting out their position supported by a chronology.
9. It is not necessary to go deeply into the detailed submissions which set out the chapter and verse of their opposition. However, some salient aspects of it may be summarised as follows: 1. the Association was not improperly defending the main proceedings which were brought against it on the basis that it was a trustee and therefore the Association was entitled to have resort to trust property to fund its costs; 2. the solicitors advised the Association to obtain independent legal advice, which they say they did; and 3. the solicitors did not have knowledge of a dishonest or fraudulent design on the part of the Association nor did it assist the Association with such knowledge or with the intention of furthering a breach of trust and so they therefore could not, they say, be held liable as an accessory under Barnes v Addy principles.
10. By reason of the Association's admission of breach of trust the solicitors indicated that they would, to the extent that they were held liable, seek contribution by way of cross-claim against the Association.
11. The solicitors also relied on other matters such as the principle that the Association was approbating and reprobating in its assertions that the claim was statute-barred and that there was a conventional estoppel and a lack of clean hands in respect of seeking equitable relief.
12. On 25 July 2022, the Attorney General authorised the continuation of the proceedings.
13. However, the Attorney General strongly recommended that the Association and its solicitors participate in a mediation at the earliest opportunity.

A settlement is reached

1. On 27 September 2022, the parties did attend a mediation.
2. At the time of a mediation between the Association and the solicitors, the solicitors claimed to have a sum of approximately $891,437 owing to them in respect of the costs assessments after accounting for the sale of the land and including accrued interest.
3. Whilst at that time no statement of claim or defence or cross‑claim had been filed, the position and arguments of the solicitors were well understood. The solicitors prepared a position paper for the purposes of the mediation which reflected their prior detailed submissions to the Attorney General.
4. It may be noted that often a position paper can set out a defence and cross-claim with more clarity than a pleading can sometimes do.
5. At the mediation, the Association and solicitors entered into a non‑binding heads of agreement setting out terms of settlement which were subject to Court approval and on the basis that terms of settlement would be recorded ultimately in a deed as between them.
6. On 3 March 2023, a deed was entered into. The deed expressly indicates that if this application is unsuccessful, it terminates and the parties are left with their rights against each other, which they would have had if the deed had never been entered into.
7. The settlement recorded in the deed requires the Association to pay to the solicitors the sum of $367,500 by instalments and upon orders being made by the Court justifying the settlement on the terms in the deed, these proceedings will be dismissed with no order as to costs. The deed also contains provision for mutual release as between the parties.
8. On 13 July 2023, I directed that notice of this application be brought to the attention of the Attorney General. That has been done. On the hearing of the matter this morning, Mr Walker adduced further evidence being an affidavit from Michael Mournehis sworn 21 July 2023 providing evidence that the Crown Solicitor's Office has indicated that the Attorney General does not wish to be heard on the application.

General principles

1. In Application of Doolan [2023] NSWSC 320 (Application of Doolan), I addressed the power of the Court to give judicial advice. I stated as follows (at [287]-[308]): Inherent equitable and statutory jurisdiction 287. The Court has an inherent equitable jurisdiction to give advice: Macedonian Court Case at 81 n 47; Application of Macedonian Orthodox Community Church St Petka Inc (No 2) (2005) 63 NSWLR 441; [2005] NSWSC 558 (Macedonian No 2) at [23] per Palmer J. 288. There is also statutory jurisdiction pursuant to s 63 Trustee Act. 289. The High Court in the Macedonian Court Case at least expressly did not consider how far this Court may have jurisdiction to give judicial advice by reason of the inherent jurisdiction of a court of equity, or by reason of s 22 or s 23 Supreme Court Act 1970 (NSW): Cho-Poon at [172] citing Macedonian Court Case at 81 n 47, though cf Cho-Poon at [177]-[179]. 290. The jurisdictional power under s 63 is enlivened where there is a question respecting the management or administration of the trust property or respecting the interpretation of the trust instrument: Macedonian Church Case at [58]. 291. The inherent equitable jurisdiction allows for private advice to trustees. It is derived from the practice of the Court of Chancery under the general law in giving directions to those entrusted with the administration of property under the control of the Court - affording special assistance to those, such as trustees, who have no direct pecuniary interest in a fund but have assumed the onerous obligation of administering it for the benefit of others: Macedonian No 2 at [23]. 292. The Court in a s 63 application is not bound to give judicial advice merely because a trustee has a right to apply for it: Cho-Poon at [43] per Lindsay J citing Application of Perpetual at [8]-[9] per Young CJ in Eq. Ultimately, the Court in dealing with such applications whether as to the form of the application or in the decision as to whether to give advice or not must be guided by what it perceives to be in the best interests of the trust estate: Macedonian Church Case at [72]; Cho-Poon at [45] citing Application by Marilyn Joy Cottee [2003] NSWSC 47 at [35] per Hallen J. Purposes served by the jurisdiction 293. The primary purpose of judicial advice is to enable trustees to ascertain in advance whether particular conduct that they contemplate will be in accordance with their duties as trustees. 294. Applications by LPRs for advice under s 63 Trustee Act lay a foundation for an application to the Court: (1) under s 85 Trustee Act, to be granted relief against liability for a breach of trust: Cho-Poon at [120] citing National Trustees Company of Australasia Limited v General Finance Company of Australasia Limited [1905] AC 373; Re Investa Properties Limited [2001] NSWSC 1089; 187 ALR 462 at [39]-[43]; and (2) as evidence persuasive of an absence of any "wilful default" on the part of the trustee personally that, if present, could expose the trustee to liability Cho-Poon at [120] citing Perpetual Trustee Co v Watson (No 2) (1927) 28 SR (NSW) 43 at 46-47; Ah Toy v Registrar of Companies (Northern Territory) (1986) 10 ACLR 630 at 646. 295. In relation to the first matter, the High Court has indicated that it is desirable that trustees in doubt as to a course of action should not proceed with it and then seek s 85 relief, but rather seek s 63 relief first because one of the things which a trustee invoking s 85 requires to be excused from is his failure to seek s 63 advice: Macedonian Church Case at [36]. 296. If trustees then act on the advice, they will have discharged their responsibility, and subject to the proviso in s 63(2) will not be liable for breach of trust. See also Australian Legion of Ex-Servicemen & Women [2021] NSWSC 149 at [44] per Robb J. 297. A related purpose concerns the right of a trustee to be indemnified from the trust fund for the trustee's costs of performing the trustee's duties. 298. In many cases, a trustee can obtain effective protection by acting upon the Opinion or advice of a lawyer: Cho-Poon at [110] per Lindsay J. 299. Wills or trust provisions might provide a facility for the executor or trustee to rely upon counsel's advice or even other exemptive provisions. However, absent such an exemptive provision in the trust instrument, even though a trustee may be assisted by the provision of the Opinion or advice of a lawyer, the intervention of a lawyer in this respect provides no guarantee of protection if a Court subsequently perceives that the Opinion or advice was wrong or it was unreasonable for the trustee to have acted upon it: Cho-Poon at [110]. Application procedure 300. There is no precise form as to how an application for an order for judicial advice ought to be framed. A usual form of provision of advice is to the effect that the trustee "would be justified in [doing or omitting to do something] on the basis [assumption] that et cetera": Cho-Poon at [31]; Perpetual Trustee Co Ltd v Attorney General (NSW) [2018] NSWSC 1456; (2018) 17 ASTLR 126 at [7(2)] per Leeming JA. 301. The provisions of the Trustee Act do not mandate that the application be supported by an Opinion: Cho-Poon at [109]. However, the practical reality is that the Court places considerable importance upon the availability of an Opinion of counsel: Cho-Poon at [107]-[121]. 302. The procedural objectives of speed and efficiency served by judicial advice proceedings are facilitated by and in many cases cannot be achieved unless the Court is presented with the assistance of a memorandum of Opinion by an independently-minded lawyer who, out of court, has studied the problem to be solved, examined the factual context critically, analysed competing contentions in a comprehensive legal context, and worked out a solution that commends itself to his or her professional judgement: Cho-Poon at [113]. Section 63 procedure for binding beneficiaries 303. An application for judicial advice pursuant to s 63 Trustee Act is normally ex parte and not adversarial. However, subject to the nature of the question in issue the advice might impact beneficiaries' rights. Thus, where the question is who the beneficiaries are or what their rights are as between themselves, the LPR before conveying or distributing any property in accordance with the Opinion, advice or direction of the Court shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution: s 63(8) Trustee Act. 304. A beneficiary who claims he or she will be prejudiced by the conveyance or distribution may apply to the Court for such order or directions as the circumstances may require: s 63(10) Trustee Act. Any person on whom notice of any s 63 advice application is served, or to whom notice (under 63(9)) is given in accordance with s 63(8), is bound by any Opinion, advice, direction or order given as if the Opinion, advice, direction or order had been given or made in proceedings to which the person was a party: s 63(11) Trustee Act. Status of facts stated 305. The facts stated to the Court by the trustee are (ordinarily) untested by adversarial procedure and are assumed by the Court to be true only for the purpose of the application: Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 (Macedonian No 3) at [69] per Palmer J. It is not the Court's purpose to determine the rights of adversaries although that might sometimes occur as a necessary incident of determining what course ought to be followed in the best interests of the trust estate: Macedonian Church Case at [104]-[105]; Macedonian No 3 at [41] referring to Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 (Marley) at 201g per Lord Oliver of Aylmerton for the Board. 306. There is no finding by the Court that the facts stated by the trustee are accurate. It has been said that no person bound by the advice is prevented from litigating as to the accuracy of those facts in other proceedings: Macedonian No 3 at [70]. 307. However, that is not to say that the Court on judicial advice applications unquestioningly determines the application without some reflection on the materials presented. 308. The Court is cautious where it is presented with statements of fact which refer to trustees' (including LPRs') beliefs and lack of awareness of matters, which invite the Court to proceed on the basis of an unexamined state of mind of the trustees potentially without elaboration of any objective, underlying facts and potentially without any assurance that the trustees have made inquiries, let alone reasonable inquiries, about facts which they implicitly invite the Court to assume to be true: Cho-Poon at [141]-[142].
2. I further addressed the question of the protection afforded pursuant to s 63(2) Trustee Act in Application of Doolan at [332]-[379].
3. I concluded regarding that protection as follows (at [380]-[388]): Conclusions on s 63(2) protection 380. Qualification on the protection that is afforded to a trustee who acts in accordance with s 63 advice is best expressed in the statutory language as being effective so long as the proviso to s 63(2) is satisfied: Macedonian Church Case at [65]; PILT Nominees at [74] per Ward J (as her Honour then was). 381. The protection afforded to trustees under s 63(2) is qualified by a proviso that focuses attention on the state of mind of a trustee: Cho-Poon at [142]. 382. The text, context and purpose of the statutory provisions indicate that the nature of any conduct of the LPR in obtaining s 63 advice which precludes protection is of a graver nature than mere innocent misrepresentation or omission of some facts. 383. Put another way, protection is seemingly afforded by s 63(2) to a LPR who seeks judicial advice pursuant to s 63, notwithstanding some form of innocent misrepresentation or innocent omission of the facts. 384. Thus, there would appear to be at least some greater degree of tolerance for the accuracy or completeness of factual material placed before the Court afforded by the terms of s 63(2), than some pre-Macedonian Church Case descriptions of the advice jurisdiction, which suggest that any misdescription or incompleteness of facts placed before the Court will render the advice useless or preclude a LPR relying upon such advice. 385. Other than making that observation, this judgment is not the occasion to explore the extent of tolerance afforded by s 63(2) in LPRs obtaining advice as there is not the slightest suggestion that the plaintiffs have at each stage of this application attempted to act other than in a careful manner in progressing the application for advice. 386. What can be said is that as a practical matter what the above discussion and analysis point to is that some degree of rigour and care should be taken by LPRs (for their own sake and the sake of those who will be affected by Court advice acted upon by LPRs) in providing to the Court a sufficiently satisfactory base of stated facts (whether by statement evidence or other materials) which thus enables the Court to properly exercise the statutory jurisdiction with a degree of confidence. Facts that are unknown or of a speculative nature 387. Noting as I have that the terms of the judicial advice jurisdiction will vary as between jurisdictions, it has been said that an absence of information, if it is as a result of a matter which is unknown or of a speculative nature, will not necessarily amount to a breach of the obligation to place information before the Court: Ryan v The Public Trustee of Queensland [1998] 1 Qd R 679 at 685 per Williams J (Fitzgerald P and McKenzie J agreeing). 388. If the Court is requested to act upon incomplete information, an available and proper course for the Court is to adjourn the matter until such information is provided: see Estate L H Hall [1999] NSWSC 1297 (Estate Hall) at [12] per Austin J; see also Marley at 201.

Advice as to settlement of proceedings

1. The question of whether proceedings may be appropriately settled is a well-recognised category of judicial advice.
2. Mr Walker, in his detailed and helpful submissions, drew my attention to the decision of Sackar J in Robert Peter Campbell ATF the Joan Macpherson Trust and the Banandra Pastoral Settlement Trust [2016] NSWSC 1751.
3. His Honour there considered whether the trustee was justified in settling proceedings commenced by him on terms contained in a deed of settlement.
4. Sackar J noted that while there is a distinction between questions as to whether, on the one hand, it is in the best interests for the trust estate for litigation to be conducted and, on the other hand, whether the trustee should be entitled to indemnity out of the trust property for its reasonable costs of litigation, the two questions are interrelated: at [34].
5. In addressing questions regarding settlement of litigation, Sackar J drew upon the decision of Palmer J in Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247. Palmer J there addressed the issue as to whether a trustee was justified in proceeding with litigation.
6. The considerations referred to by Palmer J which were cited by his Honour included the following matters (at [35]): 1. the nature of the case and the issues raised; 2. the amounts involved, including likely costs; 3. whether the likely costs to be incurred by the trustee are proportionate to the issues and the significance of the case; 4. the consequences of the litigation to the parties concerned; and 5. in the case of a charitable trust, any relevant public interest matters.
7. Clearly, those matters and other matters are also applicable to the question of whether a trustee ought to be advised that the trustee is justified in settling litigation. I accept the submissions of Mr Walker in this regard.

Effect of previous orders

1. Mr Walker properly in relation to the matter drew my attention to previous orders that had been made in respect of the main proceedings.
2. He submitted that as the orders sought in the application would justify the use by the Association of trust assets to pay the settlement sum to the solicitors and to meet its costs of the proceedings that regard should be had to the Opinion of senior counsel regarding the importance of considering the orders previously made and judgments previously given which affect the use of trust assets and the payment of the Association's legal costs.
3. Mr Walker noted that Mr Fernon SC's Opinion contained a lengthy and detailed analysis of the history of issues in judgments recorded and orders made in the main proceedings.
4. It is unnecessary to delve into detail regarding that history. However, Mr Walker, in particular, drew to my attention orders that had been made by Brereton J (as his Honour then was) in Metropolitan Petar v Mitreski [2012] NSWSC 167 in which his Honour made orders (Brereton J orders) as follows: 7. RESERVE for separate and later determination as between the Plaintiffs and the Sixth Defendant: (a) what orders should be made granting or denying the Association a right of indemnity out of the assets of the Declared Trust for any of the costs incurred by it in the proceedings (including the costs the subject of the referral orders made by the Court of Appeal on 19 June 2007 in CA 40313/06 and on 11 July 2008 in CA 40187/08); (b) the Plaintiffs' claims of breach of trust in respect of the Sixth Defendant's payment out of Trust Property of, or encumbrance of Trust Property as security for, its costs of the defence of these proceedings (including its defence or prosecution, as the case may be, of any related judicial advice or appellate proceedings), including the Sixth Defendant's defence to those claims under the Trustee Act, s 63. 8. ORDER that until further order, or pending the determination of the questions reserved under order 7, the Sixth Defendant, by itself, its servants and agents, be restrained from: (a) encumbering any Trust Property as security for; or (b) making payment out of any Trust Property (including any proceeds of sale of Trust Property or any moneys raised by giving security over Trust Property) of, any of its costs of the defence of these proceedings (including its defence or prosecution, as the case may be, of any related judicial advice or appellate proceedings), save insofar as such expenditure is in accordance with judicial advice given to it.
5. In respect of order 7 of the Brereton J orders, Brereton J noted that the question of indemnity is a complex one which would require some days of court time but may well not have to be determined: at [21].
6. Mr Walker, in particular, directed my attention to the provisions of the injunctive relief in order 8 of the Brereton J orders (Brereton J order 8).
7. Mr Walker explained the concern regarding the Brereton J orders in part by reference to comments made by Slattery J in a subsequent decision. On 29 January 2018, Slattery J, in His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand v Lambe Mitreski [2018] NSWSC 13 noted at [24] that the Association's delay in taking steps to resolve the question of indemnity from trust assets was explained by the plaintiff in the main proceedings not having taken steps to enforce costs orders.
8. In particular, his Honour recorded at [27] the following: 27. The issue of the Association's right of indemnity out of trust assets has continued to trouble the parties in these proceedings. The first plaintiff's submissions (said in [29]) that "the first plaintiff does not wish to enforce the costs orders in his favour against trust assets". This statement led to a degree of misunderstanding between the parties. What that sentence was clarified to mean is that the first plaintiff himself is not going to apply to the Court to claim that he was entitled to be indemnified for his costs out of trust assets but the first plaintiff does not wish to deny the Association the right to be paid out of trust assets. That the Association is entitled to be so paid may not ultimately be contentious.
9. Further, his Honour noted in substance that the Association would now be able to claim an indemnity out of trust assets. His Honour stated as follows (at [52]): 52. But the individual executive council members have the benefit of a written indemnity as to their costs from the Association. This indemnity represents one of the Association's costs liabilities of the proceedings, in respect of which it would be arguably able to claim an indemnity out of trust assets. Whether or not the stay is lifted against the executive council members, it is logical that their ability for their costs to be paid out of trust assets be considered first. There seems no rational basis for separating out the pursuit of costs orders against the individuals from enforcement against the Association. The stay will remain in place in respect of them as well.
10. My understanding of the matter, which both counsel agreed with, is that the provisions of Brereton J order 8 constitute an interlocutory injunction. I am informed that in the history of the litigation, which was resolved, the injunction was never formally discharged or set aside.
11. There is some question about whether it continues to have any effect.
12. The nature of Brereton J order 8 was termed as being until further order or pending the determination of questions reserved.
13. Mr Walker noted there was a question whether Brereton J order 8 was still operative in a context in which (using the wording of the order) there was: 1. no formal "further order" in respect of the injunction itself; and 2. there was no determination of the questions reserved.
14. However, as a matter of construction, a dismissal of the proceedings, in my opinion, is a "further order" for the purposes of Brereton J order 8.
15. The inherent character of the injunctive relief dealt with by Brereton J is such that it was provisional and would not be a form of permanent injunction.
16. Sometimes, interlocutory injunctions are made early in proceedings which on the final hearing of proceedings are by orders made permanent. The injunction ordered by Brereton J is not of this character.
17. Whilst senior counsel, in his Opinion, was properly concerned to address the question of whether the orders of Brereton J, in particular, order 8, had a continuing effect, I am comfortably satisfied that it does not bear that character.

Right of indemnity

1. Senior counsel, in his Opinion, addressed a series of matters which are said to be relevant to the question of the availability of an indemnity from trust assets.
2. This was addressed in [114] of the advice and following. Matters senior counsel referred to included the fact that many orders had been made and advice given permitting recourse to trust property to pay legal costs and disbursements.

General principles regarding indemnity

1. There are statutory provisions for indemnity and also general law provisions.
2. A trustee is personally liable for both debts and liabilities incurred in the administration of a trust and those incurred in its personal capacity; eg ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (2014) 89 NSWLR 209; [2014] NSWCA 402 at [16] per Leeming JA (Beazley P - as her Excellency then was - and Macfarlan JA agreeing).
3. If a trustee, acting within its powers, incurs a liability to a third party in the course of the administration of the trust, although the trustee is generally personally liable to the third party, it is entitled to have recourse to trust assets by way of an indemnity; Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [47].
4. A trustee's right to indemnity was the subject of further examination by the High Court in Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524; [2019] HCA 20 (CCHWA) at [40], [44] per Kiefel CJ, Keane and Edelman JJ, at [92] per Bell, Gageler and Nettle JJ and at [155], [156] per Gordon J.
5. It has been said that the purpose of the power of exoneration is not to exonerate the trustee's personal state unconditionally. Rather, it is to exonerate the trustee's estate only from authorised liabilities incurred in the course of the business or administration of the trust: CCHWA at [40] per Kiefel CJ, Keane and Edelman JJ.
6. Whether a trustee has incurred a liability in the performance of the trust depends upon that being the correct legal characterisation of what occurred. The characterisation cannot be determined by the label or description given to the relevant conduct by the parties to it, rather, it depends upon whether the conduct or action was, or must be taken to have been, undertaken in the proper execution of the trust: TFML Ltd v MacarthurCook Fund Management Ltd [2013] NSWCA 291; (2013) 31 ACLC 13-046 at [70] per Meagher JA (McColl and Macfarlan JJA agreeing).
7. In his Opinion, senior counsel referred to the provisions of r 42.25 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) addressing the costs of a trustee noting that the rule provides that unless the Court orders that a trustee's costs not be paid, the costs are entitled to be paid. Of course, the provisions of r 42.25 are subject to the Court's overriding discretion in relation to the question of costs.

Does the existence of allegations of breach regarding the trustee preclude the giving of advice?

1. There is an interesting question as to whether the existence of allegations against a trustee precludes the giving of advice.
2. There is no necessary implication that excludes a question from the ambit of the power of the Court to give advice because the subject of the question is the liability of the trustee for a breach of trust, when the potential basis for that liability is a matter of the management or administration of the trust property; Re Perpetual Trustee Company Limited as trustee for the Joseph Babington Davis Settlement [2020] NSWSC 1574 (Davis Settlement) at [89] per Robb J citing Macedonian Church Case (HCA) at [55]-[58].
3. Whilst it is possible to find conflicting caselaw statements regarding the issue as to whether a trustee is precluded from seeking judicial advice in circumstances where the subject of the question is the liability of the trustee for a breach of trust, it is important not to approach the provisions of s 63 with implied limitations on power: Macedonian Church Case (HCA) at [55]-[57].
4. In particular, the fact that the conduct allegedly constituting the breach of trust has already occurred is not a definitive answer to the question as to whether the Court ought to give advice: Davis Settlement at [85], [91].
5. It has been recognised that a trustee is (or may be) entitled to be paid its costs out of a trust estate in a proper case where the trustee has defended the suit for the benefit of the trust estate even though at the same time the trustee has defended his, her or its own conduct or character: Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ASCR 21 at [430] per Young CJ in Eq.
6. The potential for a trustee to have personal liability for a breach of trust does not mean that advice cannot be given. The trustee may be entitled to an indemnity for its costs out of trust assets if it wins and also, potentially, if it loses. That is because the trustee has accepted an onerous liability to manage and administer the trust and the circumstances of the breach might be such that the Court does not consider it sufficiently serious or blameworthy to warrant the loss of the trustee's indemnity: Davis Settlement at [94].
7. There is also the possibility that a trustee may be excused under s 85 Trustee Act in cases where there has been a failure to seek judicial advice under s 63.
8. Until the Court makes a decision that denies to the trustee the ordinary right of indemnity, the possibility that a trustee's costs will be paid out of the assets of the trust means that the conclusion of the suit against the trustee will not generally conclude the administration of the trust. That is so even if all that remains to be done by the trustee is to transfer the assets to beneficiaries who are entitled to those assets: Davis Settlement at [94].
9. Of course, in the case of charitable trusts there are no beneficiaries. Nonetheless, the general principle regarding the decision the Court makes is applicable.
10. Ultimately, the question as to whether a trustee is given advice permitting access to trust funds will depend upon the particular circumstances of the case and whether it is in the interests of the trust as a whole.
11. One approach to judicial advice is to characterise the type of the dispute before the Court and there may be nuances of approach that the Court takes depending on the type of dispute.
12. Where there is no challenge to a trustee's conduct, or, in the case of what is described as a type of "third party dispute", a trustee has a prima facie right to indemnity from the trust estate: Frost v Bovaird (2012) 203 FCR 95; [2012] FCAFC 60 (Frost v Bovaird) at [53]-[55] per Jacobson, Siopis and Nicholas JJ citing Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 at 1223-1224 per Lightman J.
13. However, where there is a challenge to a trustee's conduct, the position is said to be different and, subject to what is noted below, it is said that there is no prima facie right to indemnity: see Frost v Bovaird at [69]-[70].
14. However, that does not mean that there are no circumstances where a trustee against whom this conduct is alleged will be entitled to rely upon the right of indemnity to have its legal costs paid from the estate.
15. In disputes where misconduct is alleged, judicial advice provides a means by which a trustee pending the determination of the claim may be able to have resort to trust funds in order to pay the legal costs incurred in defending the claim or parts of the claim without fear of being found liable for breach of trust in doing that: Frost v Bovaird at [74].
16. Such advice may be on terms that the orders are subject to being revoked either by subsequent advice or by the judge in the main proceedings: Macedonian Church Case (HCA) at [89].
17. Indeed, the Court may, in cases involving alleged misconduct, order that the trustee has a right to indemnity after the claim has been dismissed or discontinued against the trustee: Frost v Bovaird at [73] citing Armitage v Nurse [1998] Ch 241.
18. In Hodges v Waters (No 7) (2015) 232 FCR 97; [2015] FCA 264 (Hodges v Waters), Perram J dealt with an application for judicial advice where the trustee asked the Court to approve settlement of proceedings.
19. As is evident from the principles I have outlined above, his Honour noted that the discretion under s 63 is not expressed to be subject to limitations and what will be germane to its exercise will depend upon the context. His Honour noted that the sole purpose in giving judicial advice is to determine what ought to be done in the best interests of the trust estate citing Macedonian Church Case (HCA) at [105]: Hodges v Waters at [69].
20. His Honour noted that in cases where a trustee approaches the Court for advice regarding settlement of proceedings, there may be a number of issues, but two basic issues arise. One is whether the terms of the settlement are of such a kind that it is in the best interests of the trust to settle on those terms rather than pursuing the litigation further and two is whether the settlement is in the best interests of the trust notwithstanding (relevantly here) the issues raised in the litigation: Hodges v Waters at [69].
21. In particular, in giving judicial advice, the enquiry at hand is not into whether a breach of trust has occurred or would occur. The enquiry is instead into whether it would be reasonable to take a suggested step of settlement. The point made is a narrower one, namely, the Court would not give judicial advice knowing that the suggested step was a breach of trust. This is not to say that in deciding whether to grant judicial advice the Court is positively enquiring into whether there will be a breach. That is not the point of the procedure: Hodges v Waters at [78].
22. There are times in litigation in which difficult or hotly contested questions are never resolved even if the matter is unsettled and goes through to a contested hearing. A case might, for example, have various factual issues (A, B and C) that are contested but issues B and C are not determined at the hearing because a finding on factual issue A determines the matter.
23. Thus, disputed factual questions B and C remain never directly determined but there is a practical finality arising from the Court's judgment, including principles of res judicata, which ends dispute about them.
24. It would be surprising and arguably detrimental to the interests of a trust if the Court were precluded from advising that trust funds could be used to settle the dispute, merely because an issue is raised regarding the trustee's conduct. There is no requirement in providing judicial advice that questions regarding a trustee's conduct must necessarily be litigated.
25. That there is a power to give advice under s 63 without making findings regarding allegations should not be surprising.
26. There are powers of the Court under s 63 and also under r 54.3 UCPR where the Court in other circumstances involving trusts may permit, for example, distribution of property where there are factual uncertainties or remote contingencies which impact the administration of an estate. In those circumstances, the Court permits a distribution without determining the legal or equitable rights of the potentially affected parties. Rather, it acts in the convenient administration of trusts in which the Court having addressed or assessed the competing interests makes a determination as to what is best in relation to the trust estate and, in cases where there are beneficial interests involved (different to cases involving charitable trusts), the Court may favour an early distribution of property so that those apparently entitled can enjoy the benefits of such trust rather than have the estate or trust tied up for lengthy periods: Application of Doolan at [196] citing Macrae v Walsh (1927) 27 SR (NSW) 290 at 294-295 per Long Innes J; Wilcox v Poole [1974] 2 NSWLR 693 at 697 per Mahoney J (as his Honour then was) citing Sydney Williams and Frank Guthrie-Smith, Daniell's Chancery Practice (8th ed, 1914, Stevens & Sons Ltd) 1539-1540; Bullas v Public Trustee [1981] 1 NSWLR 641 at 643 per Kearney J; Gonzales v Claridades (2003) 58 NSWLR 188; [2003] NSWSC 508 at [75]-[76] per Campbell J (as his Honour then was), unaffected by the appeal which was dismissed in Gonzales v Claridades (2003) 58 NSWLR 211; [2003] NSWCA 227; Simpson v Trust Company Fiduciary Services Limited [2009] NSWSC 912 at [27]-[32] per Ward J (as her Honour then was).
27. After referring to the various orders, senior counsel noted that the costs the subject of the proposed settlement were incurred during the period between 1 February 2006 and 12 December 2014, and it seemed that such costs had the benefit of the orders arising from the 2006 judicial advice of Palmer J, the 2007 Court of Appeal proceedings and the 2008 High Court proceedings. He further noted that such costs would include the conduct of the substantive proceedings before Young CJ in Eq (as his Honour then was) and Brereton J (as his Honour then was).
28. Senior counsel, however, observed that it is not possible to know whether the Palmer J judicial advice is of assistance as it was subject to the proviso of the Association being satisfied that the costs permitted were sufficient to meet the costs to finality. Senior counsel observed that it would seem that if the Palmer J advice does apply then such costs were recovered by the defendants' sale of the Arncliffe property and the recovery of costs from it.
29. He stated that, nevertheless, it is apparent that there was an acceptance by Palmer J in the circumstances that the Association was properly acting as trustee in defending the proceedings insofar as they related to determining the terms of the trust and that those terms were determined in the proceedings before Young CJ in Eq.
30. There was further doubt raised by senior counsel in the sense that it was not possible to know if the costs that had been previously permitted to be paid from trust assets (or, specifically, what in the litigation has been described as "Schedule A property") have not already been paid, including from sale proceeds of the Arncliffe property.
31. The issues before Brereton J included determining the scope of the charitable trust, specifically, what further property was the subject of the trust. His Honour found that all assets of the Association were trust assets save for any funds received as part of a litigation fund.
32. Apart from the effect of the costs orders senior counsel addressed, there existed further factors regarding the availability of an indemnity from trust assets to meet the Association's defence costs of the main proceedings. He set these out in [121] of his Opinion as follows: (a) The Court determined the scope of the trust and the trust assets in the Main Proceedings (including by Hamilton J, Young CJ in Eq and Brereton J). (b) The Association was found guilty of various breaches of trust by Brereton J. (c) Some of those breaches were ultimately held by the Court of Appeal to be excused under s. 85 of the Trustee Act. (d) Other breaches identified were the subject of challenge by the 2018 Proceedings based on fraud. If such a challenge was upheld, the Association could assert it was justified in defending the allegations of breach. (e) Bishop Petar appears to no longer oppose the Association utilising Trust Assets to pay its Defence Costs. Father Mitrev appears to have had no further involvement. I understand that Bishop Petar has been replaced by a new Bishop for the Australian diocese of the Church. (f) The 2018 Proceedings and all other proceedings were resolved by dismissal. At the time of the dismissal, there was no determination of any alleged breach arising from the payment by the Association of its defence costs from the Trust Assets. That of course, has no sway on the payment of the Proposed Settlement from Trust Assets.
33. In this case, in light of the principles that I have outlined above, I am of the view that the Court can act and can give advice which has the effect of ending disputation without findings being made over the contested issues regarding the right to indemnity.

Is the Association justified in settling the proceedings?

1. Mr Walker submits that several factors need to be borne in mind insofar as the Association seeks orders justifying it having resort to trust assets to settle on the terms of the deed and meet its costs of the proceedings.
2. The factors include the following: 1. that these proceedings which sought to recover trust assets for the benefit of the charitable trust were brought for the benefit of the trust; 2. the proceedings had the authorisation of the Attorney General; 3. the proceedings were able to be resolved at an early stage; 4. the proceedings will be complex having regard to the issues set out above and would take considerable court time to run to a hearing and would be costly; and 5. the settlement recorded in the deed results in payment to the solicitors of a substantially lesser sum than the approximately $891,437 claimed to be owing, thereby benefiting the charitable trust to the extent of the solicitors' compromise.
3. Mr Walker refers to the opinion expressed by senior counsel regarding considerations of settlement of the matter.
4. It is appropriate to set out the relevant part of senior counsel's Opinion: 132. The difficulty in this case is that whilst breaches of trust were found against the Association, some were excused by reason of s. 85 of the Trustee Act (so the defence of such allegations were justified) and others were the subject of further challenge based on fraud. If the fraud could be established, it is difficult to see the Court finding that defence of claims underpinned by fraudulent evidence could not be justified. Judicial Advice was given in 2018 that the Association was justified in making such challenge in the 2018 Proceedings. The 2018 Proceedings were resolved by dismissal, but that did not involve any finding as to the merits of the challenge. It was part of a commercial resolution of the Main Proceedings. 133. Accordingly, despite the findings of breach of the Charitable Trust made by Brereton J, in the context of the findings by Stevenson J offalse evidence given by Father Mitrev, the approval of the 2018 Proceedings by Rein J, and the commercial settlement of the Main Proceedings and the 2018 Proceedings, in my Opinion, given the scope of the indemnity described above and in UCPR 42.25, the Association is justified in contending that the Court should not and could not find that the costs that are the subject of the Settlement Proposal were incurred in a manner that was unreasonable or for its own benefit. 134. The Settlement Proposal involves a substantial compromise of the costs of the Main Proceedings, being a reduction of $523,937.61 of the inclusive of interest sum and a reduction of $329,292.11 and the principal costs alone. 135. It is not possible, without substantial additional costs, which Brereton J considered would need to require several days of hearing, to provide a complete account of the costs incurred and for what purposes they were incurred. It is readily apparent that a substantial portion was incurred in determining the terms of the Charitable Trust, the property of the Charitable Trust and in successfully defending some of the alleged breaches of the Charitable Trust. Based on the above principles, in my Opinion, such costs were properly incurred by the Association in its position as trustee. At the very least, they were not incurred unreasonably or for its own benefit. 136. I note that Bishop Petar (or his replacement) apparently no longer opposes the Association having recourse to the Trust Assets to meet such costs. 137. In respect of the settlement of the Proceedings, a substantial compromise of the outstanding costs owed by the Association to the Defendants has been achieved by the Settlement Proposal. This was achieved at an early stage of the Proceedings without the incurrence of substantial costs in conducting the Proceedings. 138. Whilst the Proceedings were approved by the Attorney General, such approval was given subject to request that the parties mediate to settle such Proceedings. The Proceedings, of their nature, involve substantial uncertainties and risks. In this case, the Proceedings were premised on the Defendants being knowingly concerned in the Association breaching its trustee duties in permitting the mortgaging and then sale of Arncliffe. 139. Such assertions were to be vigorously defended.
5. As Mr Walker observes, senior counsel expressed the opinion that the Association would be justified in settling the proceedings on terms of the settlement proposal and in having resort to trust assets in meeting its costs of the proceedings.
6. Mr Walker submits that the Court should give the advice under s 63 for various reasons. These included the following: 1. the Court has jurisdiction under s 63; 2. the matter involves the administration and management of the trust; 3. the fact that the Opinion of senior counsel supports the proposition that the advice should be given; 4. the fact that the solicitors support the advice being given; and 5. the fact that the application is not opposed by the Attorney General.
7. Mr Walker, in particular, notes that the issues in the proceedings are complex and provide a risk to the Association having regard to the defences the solicitors have said that they will propound and the fact that they have the benefit of costs already certified in their favour.
8. Mr Walker submits, and I am satisfied, that significant costs in running the proceedings to a hearing will be avoided, that the events and prior orders made in the course of the main proceedings do not prevent these orders currently sought by the Association being made and that the compromise on legal costs will give rise to a benefit to the trust in a sense that under the terms of the deed the amount required to be paid is over $500,000 less than the solicitors' claim they are entitled to payment of.
9. In his Opinion, senior counsel, just prior to his concluding remarks, suggested that the application for advice should be supported by direct evidence from Bishop Petar or his replacement that no opposition was made to the application. For my part, I am not persuaded that that is necessary.
10. My sense of the advice is that senior counsel was concerned that Brereton J's orders were made in the context of a substantial challenge in the main proceedings to the use of trust assets to fund litigation costs and that he may have been concerned regarding the effect of the injunction which has never formally been, at least in express terms, dissolved or set aside.
11. As I have noted above, in my opinion, a further order was made by the orders dismissing the proceedings.
12. Lastly, Mr Walker submits that it would be relieving to the parties, the public, the parishioners of the Macedonian Orthodox Church St Petka and the Court that it might be hoped for or expected that the settlement of the proceedings will finally bring to an end the decades of litigation in, and in relation to, the main proceedings.
13. Time will tell whether that hope is realised.

Orders

1. The Court orders that: 1. The plaintiff, as the trustee of a charitable trust upon which it holds property for use by the Macedonian Orthodox Church St Petka 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, or promotion of the Macedonian Orthodox Religion (Charitable Trust), would be justified in: 1. Settling the claim for relief sought in these proceedings as identified in the draft statement of claim the Attorney-General authorised the Association to bring on 25 July 2022 on the terms set out in the deed between the plaintiff and defendant in the proceedings dated 3 March 2023 (Deed); 2. Paying the 'Settlement Sum' identified in the Deed from the assets of the Charitable Trust; and 3. Being indemnified from the assets of the Charitable Trust for its costs of bringing these proceedings, including the costs of this motion. 1. These proceedings be dismissed. 2. There be no order as to costs.

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. Decision last updated: 07 August 2023