Carger v Paul

The nature of judicial advice

1. Section 63 of the Trustee Act 1925 (NSW) provides: (1) A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument. (2) 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.
2. The plurality of the High Court in 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 ('Macedonian Orthodox') at [59]-[60] described section 63 as a discretionary power that is confined only by the "subject matter, scope and purpose" of the Act. At [55], their Honours also explained that no implications should be read into section 63 and that the section must only be taken for its express words. The only "jurisdictional bar" to be satisfied is that the applicant must point to a "question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument": Macedonian Orthodox at [56]-[58].
3. The plurality in Macedonian Orthodox also indicated that the application of section 63 "will tend to vary with the type of trust involved". Their Honours remarked at [67]-[68]: … Where there is a non-charitable private trust involving a conflict between beneficiaries, or between beneficiaries alleging a breach of trust out of which a trustee has profited and that trustee, and where the defendants in those proceedings have a personal capacity to fund the defence, it might not be correct to give the trustee an opinion, advice or direction. The position is not necessarily the same where the trust is for a charitable purpose, where the public interest is involved since ex hypothesi the trust is beneficial to the public, where none of the contestants in the litigation about the trust is suing or defending in order to augment, defend or seek the restoration of personal assets, and where a crucial question is the precise terms of the purpose for which the trust exists. Nor is the position necessarily the same where the charitable trust is for religious purposes: since religious controversies do not commonly come before the courts unless they involve disputes about property rights they will often take the form of an allegation of breach of trust and a claim that the trustee be removed. That circumstance may have less weight against the grant of the opinion, advice or direction than it would in disputes about a private trust.
4. The plurality also noted that, where a trustee seeks judicial advice as to the conduct of litigation, the stage that the litigation has reached may be a relevant consideration. Their Honours remarked at [106]: [W]hile the time and cost involved in giving judicial advice at an early stage of litigation, when the issues involved in disputes about rights may not be fully sharpened and it may not be possible for the factual position to be as efficiently exposed as in a trial, may be factors relevant to a decision not to grant judicial advice but to let the matter be examined in conventional litigation, they are not factors which either automatically bar judicial advice or are so weighty as generally to compel the court not to grant the advice.
5. In Macedonian Orthodox at [69], Gummow ACJ, Kirby, Hayne and Heydon JJ noted a purpose of section 63 is to enable trustees "to take advice before embarking on any course which might carry a risk of incurring costs that might be outside the indemnity". Their Honours continued at [71] and [74]: [71] In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs. … [74] A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. In deciding that question a judge must determine whether, on the material then available, it would be proper for the trustee to defend the proceedings. But deciding whether it would be proper for a trustee to defend proceedings instituted about the trust is radically different from deciding the issues that are to be agitated in the principal proceeding. The two steps are not to be elided. In particular, the judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings.
6. In Northey v Juul [2014] NSWSC 464, Slattery J stated at [105]: [A]lthough the High Court has said in clear terms that "a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice as to whether it is proper to defend the proceedings: Macedonian Orthodox at [74], (2008) 237 CLR 66, at 94 [74], this in my view is not to be read as overturning existing authority that would allow indemnity to successful trustees after the conclusion of litigation.
7. His Honour referred in particular to Lindley LJ's remarks in In Re Beddoe (1893) 1 Ch D 547 at 557-558 to the effect that: a trustee who without the sanction of the Court …unsuccessfully defends an action, does so at his own risk", that risk being the risk of the trustee's costs of unsuccessfully litigating for which the indemnity is being sought having been "improperly incurred".
8. Similarly, in Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons [2014] NSWSC 784, Robb J considered Macedonian Orthodox and remarked that: [54] The plurality also recognised at [106] that there may be factors that justify a decision not to grant judicial advice, but to let the matter be examined in conventional litigation. [55] If it is true that there are cases when advice under s 63 should not be given to a trustee in respect of the trustee's position in litigation, it must follow that there are cases when a trustee is not required to seek judicial advice before it takes a step in defence of a suit against it … [65] I strongly doubt that Perpetual in the present case was obliged by its duties as responsible entity to make the present application for judicial advice, or that anything said in the Macedonian Bank case was intended to have a contrary effect, given the context outlined above.
9. It is therefore clear the High Court's remarks in Macedonian Orthodox have not been taken to imply a trustee who embarks upon litigation having not obtained judicial advice loses any right of indemnity.
10. In my opinion, the better view of the authorities, importantly Macedonian Orthodox, is that a trustee is not obliged to first seek judicial advice before bringing or defending a claim. The comments of the High Court in Macedonian Orthodox make it clear that it is simply desirable for a trustee to seek judicial advice before making any judgment about a problematic cause of action, rather than rely on section 85 of the Act after the event: Macedonian Orthodox at [36].
11. That the facts alleged in an application under s 63 are contested does not mean those alleged facts should be disregarded; instead, s 63(2) provides a safeguard in that the trustee will lose the protection of any opinion, advice or direction if guilty of any fraud or wilful concealment or misrepresentation: Macedonian Orthodox [79]-[80].
12. Where the application is supported by an opinion of Counsel that is confidential, it may be difficult for a judge to provide reasons that are as full as would otherwise be given: Macedonian Orthodox [161].
13. While there is a distinction between the 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. As noted by the plurality in Macedonian Orthodox, where the conduct of litigation is in the best interests of the trust, how those proceedings are to be conducted "as a matter of practicality" must be considered. The financial capacity of the applicant is relevant in determining whether the applicant is entitled to be indemnified out of the trust property with respect to reasonable costs of litigation: Macedonian Orthodox [82]-[85].
14. Again the plurality of the High Court in Macedonian Orthodox cited without disapproval the following remarks of Palmer J in Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 at [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 suffıcient 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 'suffıcient' prospects of success calls for another judgment, founded upon such considerations as: - the nature of the case and the issues raised; - the amounts involved, including likely costs - 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."
15. The plurality noted that Palmer J's remarks should not be interpreted as drawing a distinction between mere "sufficiency" and "strength" and emphasised that Palmer J had considered the "merits and strengths of the claim" as a relevant factor: Macedonian Orthodox [162]-[164].
16. In Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226, Darke J remarked that: [17] There was no hint of disapproval of any aspect of Palmer J's statement, but I do not think that the High Court, by its reference to the passage, was intending to state that in all cases where a trustee seeks advice as to whether it should defend proceedings, it is essential that the opinion of counsel must satisfy the requirements suggested by Palmer J, and the Court reach a view, based upon the considerations identified by Palmer J, that there are sufficient prospects of success to warrant the Trustee proceeding to defend. [18] Undoubtedly, the matters referred to by Palmer J are relevant matters to consider in such a case. Nonetheless, it would be a mistake to read his statement as if it prescribed the manner in which the power to give advice under s 63 of the Trustee Act 1925 (NSW) is to be exercised in all such cases. As was stated in the joint judgment in the Macedonian Church case at [59] (and see also Kiefel J at [196]) the discretion to give advice under s 63 is confined only by the subject matter, scope and purpose of the legislation. It is clear, however, that the interests of the trust estate is always of cardinal significance (see the Macedonian Church case at [104], [105], [107], [125], [196] and [197]).
17. In Re: Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13 at [10]-[13], Slattery J also appeared to cite the remarks of Palmer J without disapproval and Palmer J's comments were similarly cited by Davies J in Jax Quickfit Franchising Systems Pty Ltd as Trustee for the Jax Quickfit Franchising Systems Unit Trust [2012] NSWSC 1114 at [26], seemingly without disapproval.

The Trust Deed

1. Pursuant to clause 2.1 "Unit Holders" means the person or persons, firm or firms, corporation or corporations registered from time to time in the Register of Unitholders.
2. Clause 2.2(a) provides the beneficial interest in the Trust Fund will be divided into Units.
3. Clause 3.1(b) provides the Trustees may in their absolute discretion refuse any application for Units and they will not be required to assign any reason or ground for such refusal.
4. Clause 4.1(a) provides that the Trustees must keep a Register of Unitholders in which various details are to be entered.
5. Clause 4. 2 provides there will be issued to the Original Unitholders in respect of the original number of Units and to every other person who is to become a Unitholder in respect of the Units of which he is registered a certificate evidencing the appropriate entry in the Register of Unitholders. Unit certificates are to be in the form and contain such information as the Trustees from time to time determine.
6. Clause 4.3 provides each person who becomes registered as a Unitholder will be deemed to have agreed to become a party in the Deed and any supplementary Deed and will be entitled to the benefit or and will be bound by the terms and conditions of the Deed of any supplementary Deed.
7. Clause 5 deals with the transfer and transmission of Units. Clause 5.1(a) provides Unitholders may request the Trustees to register transfers of all or any of the Units held by them. The Trustees may in their absolute discretion refuse to register a transfer (whether voluntary or by operation of law) of Units without being bound to assign any reason for such refusal.
8. Clauses 5.1(b)(i) deals with the sale or transfer by a Unitholder of a Unit. Clause 5.1(b)(ii) deals with the form of transfer notice. Clause 5.1(b)(iii) deals with the question of fair value of the Units being transferred or sold. Clause 5.1(b)(iv) and (v), (vi), (vii), (viii), and (ix) deals with the methodology and/or process of transfer. Clause 5.1(c) deals with the registration of any transfer of Units.
9. Clause 5.1(d) deals with the requirement or not of a written instrument of transfer and the Trustee's discretion in relation to such a document. Clause 5.1(e) deals with the form of written transfer if executed on behalf of the Transferor and Transferee. Clause 5.1(f) permits the Transferee to make appropriate entries in the Register of Unitholders. Clause 5.2 is in the following form:
10. Clause 5.2 of the Trust Deed is the starting point with respect to the consequences upon the death of a Unitholder.
11. Paragraph 5.2(a) of the Trust Deed provides that: In the event of the death of Unitholder, the survivor or survivors where the deceased was a joint holder and the legal personal representatives of the deceased was a joint holder and the legal personal representatives of the deceased in all other cases will be the only persons recognised by the Trustees as having any title to his interest in the Units.
12. Paragraph 5.2(b) of the Trust Deed provides as follows: Any person becoming entitled to Units in consequences of the death, lunacy, liquidation or bankruptcy of any Unitholder may upon such evidence being produced as may from time to time be required by the Trustees, elect either to be registered as the transferee thereof but the Trustees will, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the Units of that holder prior to such death, lunacy, liquidation or bankruptcy.
13. Paragraph 5.2(c) of the Trust Deed extends the scope of paragraph 5.2(b) of the Trust Deed, and provides as follows: If a person so becoming entitled elects to be registered himself he must deliver or send to the Trustees a notice in writing signed by him stating that he so elects. If he elects to have another person registered, he must testify his election by executing a transfer of the Units to that person. All provisions of this Deed relating to the right to transfer Units and the registration of transfers of Units must be applicable to any such notice or transfer as aforesaid as if the death, lunacy, liquidation or bankruptcy of the Unitholder had not occurred and the notice of transfer were a transfer executed by that holder.
14. Paragraph 5.2(d) of the Trust Deed provides that: A person entitled to Units by transmission will be entitled to receive any may give a good discharge for all moneys payable in respect of the Units but except as otherwise provided by this Deed will not be entitled to any of the rights or privileges of a Unitholder unless and until he becomes registered in respect of the Units.
15. Clause 12 deals with meetings of Unitholders and entitlements to vote. Clause 14 deals with notices which may from time to time be given.

Consideration

1. It is clear clause 5.2 is a provision which deals expressly with the situation where a Unitholder has died, which is the case here. Clause 5.2(a) provides expressly that unless the deceased Unitholder held Units jointly with another person (described in the provision as the survivor), then the legal personal representative of the deceased will be the only person or persons recognised by the Trustees as having any title to the deceased person's interest in the Units.
2. Further pursuant to clause 5.2(b) the Legal Personal Representative being a person "becoming entitled to Units in consequence of the death… of any Unitholder" may elect either to become registered as the holder of the Units or nominate another person to be registered as the transferee. In either case the Trustees do have a right to decline or suspend registration as they would have had in the case of a transfer of the Unit of that holder prior to such death.
3. Clause 5.2(c) provides that if the person "entitled" elects to become registered they must deliver a notice in writing signed by that person and stating that person has so elected. The sub clause then provides that "all provisions" of the Deed relating to the right to transfer Units and the registration of those Units will be applicable. In my view this provision affords the right and the methodology of a legal personal representative to become in due course the registered Unit holder.
4. It is clear that the "provisions" of the Deed relating to the right to transfer and register such Unit requires recourse to clause 5. It is apparent on the face of clause 5 that not all of the provisions can have application where the Unitholder is deceased. In my view all of the sub provisions of clause 5.1(d) and (f) which may be described as generic will not apply in the case of a legal personal representative seeking to become a registered Unitholder.
5. In my view, the other provisions in clause 5 other than those I have just mentioned clearly refer to existing Unitholders seeking to sell or transfer their Units and the methodology and process to be adopted when such transfer or sale is to take place. Therefore the reference in my view in clause 5.2(c) to "all provisions" properly construed means those provisions contained in clause 5.1 that are relevant for the purposes of clause 5.2. I should also observe as far as clause 14 (notices) is concerned again there is a distinction in the provisions between Unitholders and persons entitled to a Unit in consequence of death (clause 14.1(c) and 14.2(d)(ii)). These provisions require a trustee to provide the requisite notices to such persons and in this case it means the legal personal representatives of the deceased.
6. In a number of places in the Trust Deed, but importantly in relation to the Trustee's discretion to refuse registration, the discretion is said to be "absolute discretion". For example in my view clauses 5.2(b) and 5.1(a) gives the Trustees in circumstances where a legal personal representative applies for registration to exercise the same discretion (to decline) as would be the case if the Unitholder had made such application prior to his death. That discretion is to be found of course in clause 5.1(a).
7. I agree with the supplementary opinion of counsel that the power, as it were, provided to the Trustee pursuant to paragraph 5.1(a) is not merely administrative in nature and rather more a dispositive power as outlined in that opinion. Pursuant therefore to the authority in Carger v Paul [1984] V.R 161 (as approved by the High Court in Finch v Telstra Super Pty Ltd (2011) 242 CLR 254) the Trustee may exercise a discretion and refuse the registration without disclosing any reasons for doing so. That discretion will not be examined except where it can be shown the Trustee has failed to act honestly and in good faith, failed to act upon a genuine consideration, or failed to exercise the power with due consideration for its proper purpose or having given reasons, reasons disclosed that it is a decision that no reasonable trustee could have made on the materials before it. It would follow that although there is discretion on the part of the Trustee, that discretion is appropriately circumscribed by the qualifications just mentioned.
8. When the matter came back before me on 16 November 2017, having carefully read the supplementary Opinion and the materials again, I was satisfied the questions should be answered in accordance with those proposed minutes and made orders accordingly.

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