Before the Court is an application for judicial advice under the Trustee Act 1925 (NSW), s 63, concerning the administration of a deceased estate. The executors have brought separate proceedings in the Court against a beneficiary of the estate and a company associated with him. They seek advice which would permit them to continue to pursue the proceedings on behalf of the estate.
The applicants, Peter Graeme Baldwin and Stephanie Ann Van Hilten, are the executors of the estate of the late Denise Melane who died in July 2019. Probate of the deceased's will (which had been made in November 2018) was granted in November 2019. Ms Van Hilten was the deceased's goddaughter. Mr Baldwin was described in the deceased's will as a friend, and is Ms Van Hilten's brother. I will refer to them as "the Executors".
The deceased's husband pre-deceased her. It appears that she left no immediate family. Under the will, most of the estate was to be shared between Julian Gary Field, who was a friend of the deceased; Ms Van Hilten; and Robert Edward Rye, presumably also a friend of the deceased.
Specifically, the deceased's will provided that Mr Field might choose to retain for himself any of the deceased's antiques, furniture, paintings, oriental rugs and heirlooms, with any items which Mr Field did not wish to retain to be shared between Ms Van Hilten and Mr Rye. The residue of the estate was to be divided between Mr Field (50%), Ms Van Hilten (20%), Mr Rye (20%) and a charity, Guide Dogs NSW/ACT (10%). According to the valuations obtained for the purposes of the probate application, the value of the residue was then about $2.1 million.
Mr Field became friendly with the deceased in about 2001. He was, or was believed by the deceased to be, experienced in the field of information technology. He apparently operates in his own name and also through a company which he controls, Lokdown Pty Limited ("Lokdown").
The deceased was a Christian Scientist. Following her death, the Executors identified that the deceased had made substantial payments to Mr Field and Lokdown, apparently to establish and maintain a website for members of Christian Science Australia to post information about their activities. The website was called "Christian Science Australia.org Online Directory" and was referred to in the evidence before me as the "CSA website".
The Executors formed the view that Mr Field and Lokdown had grossly overcharged the deceased for the work done on the CSA website. In the course of the proceedings, to which I will refer in a moment, the Executors have obtained an opinion from an independent computing expert which supports these conclusions. According to the expert, the proper cost of establishing and setting up such a website would have been a fraction of the amounts apparently paid. Furthermore, the expert criticised the lack of security on the website and it appears that there were times where it was not operating at all.
Last year, the Executors brought proceedings in this Court concerning the matter ("the 2020 proceedings"). According to the advice from counsel which was before the Court on this application, the proceedings were commenced by summons in November 2020.
The 2020 proceedings were initially constituted as an application for judicial advice by the Executors. They sought advice that they would be justified in requiring Mr Field and Lokdown to repay certain payments allegedly made for the establishment and maintenance of the CSA website, and for this purpose to set off the repayments against Mr Field's entitlement to the residue of the estate pursuant to the rule in Cherry v Boultbee (1839) 41 ER 171.
Lokdown was not a beneficiary of the estate. Therefore, no question of satisfying any obligation it had to repay money pursuant to the rule in Cherry v Boultbee could, strictly speaking, arise. However, this point does not seem to have been adverted to. The payments were identified as having taken place between 5 June 2015 and 27 June 2019 and to have totalled $438,000.
Although Mr Field and Lokdown were not named as defendants in the proceedings at that stage, they were given notice of the application and appeared at the hearing which took place before Lindsay J on 16 April this year. They indicated that they contested the claim. Lindsay J therefore made orders for the 2020 proceedings to continue as adversarial proceedings between the Executors as plaintiffs and Mr Field and Lokdown as defendants.
The Executors' statement of claim was filed in May. This resulted in the scope of the claim being somewhat reduced. The statement of claim referred to payments made between 7 August 2015 and 27 June 2019, totalling $409,000.
Mr Field, as a beneficiary of the estate, then brought a cross-claim against the Executors. It is this cross-claim which has resulted in the application before me.
In his cross-claim Mr Field makes allegations of maladministration against the Executors, including but not limited to the pursuit of the claim against himself and Lokdown. He seeks orders removing the Executors from office, to be replaced by Mr Field himself. He also seeks orders requiring the Executors to account for estate monies allegedly misapplied, including in particular for the payment of legal costs.
Specifically, Mr Field makes five complaints. First, he alleges that the Executors failed to provide "copies of accounts" when requested. Second, they allegedly failed to administer the estate in a timely manner. In particular he claims that the Executors unnecessarily retained monies in the estate which should have been distributed to the beneficiaries.
Third, Mr Field complains about the bringing of the 2020 proceedings. He alleges that the Executors have persisted in prosecuting baseless claims against him "in an effort to diminish the gifts" to which he was entitled under the deceased's will.
Fourth, there is a dispute about the clause of the will concerning Mr Field's entitlement to retain antiques etc. Mr Field alleges that the Executors failed to administer the estate in accordance with the terms of the will. He says they preferred their own interests (presumably a reference to Ms Van Hilten's entitlement to a share of the antiques etc not required by Mr Field).
Finally, Mr Field makes further claims concerning the initiation of the 2020 proceedings. Mr Field's allegation appears to be that an application for judicial advice was misconceived because the issue was always a matter of adversarial dispute. He alleges that the 2020 proceedings were commenced without prior written advice from counsel and (correctly) that the Executors have never obtained judicial advice that they are justified in bringing the claims against Mr Field and Lokdown. Mr Field alleges that the costs of the proceedings have been wasted and should not be borne by the estate.
[2]
Prosecution of claims against Mr Field and Lokdown
It is convenient to deal first with the existing allegations concerning the website payments. In the 2020 proceedings, Mr Field denies that he exploited the deceased. But counsel has, in the opinion that he has written for the purpose of this application, analysed the evidence and Mr Field's response. Counsel considers that the claims still have a substantial probability of success. Counsel's conclusion is that it is in the interests of the estate to continue to pursue them.
I accept counsel's conclusion. If the claims succeed the recovery will appreciably increase the size of the estate. Mr Field has a fifty per cent share of the residue and therefore half of the recovery (less costs) will flow back to him. But the recovery is still worth pursuing in the interests of the other beneficiaries.
In accepting counsel's conclusion, I am not of course finding the claims will necessarily succeed. That is not the role of the Court in an application of this type. It is enough to say that counsel's opinion is apparently the product of careful and responsible analysis of the facts and applicable legal principles: Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 at [80] per Palmer J.
It follows that, subject to one complication to be mentioned shortly, the Executors should be authorised to pursue the existing claims.
In his opinion, counsel has raised the possibility of recovery claims for a further group of payments to Mr Field or Lokdown. Those payments were, according to the evidence summarised by counsel, ostensibly made for legal services to be provided to the deceased. They total $71,400. The basis of the proposed claim is that Mr Field had no legal qualifications. It is unclear what he in fact spent the money on.
Adding this claim will require an amendment but I am satisfied that there is a reasonable basis for it. I will accordingly authorise the Executors to pursue this claim also, in the first instance by making an application for leave to amend.
The complication I mentioned earlier concerns the identity of the recipient of some of the website payments. I raised this issue with counsel, who has prepared a schedule of payments taken from the records available to the Executors. Most of the payments have been identified as going to accounts in the names of either Mr Field or Lokdown. Counsel proposes that in the amendments to the statement of claim, that will be specifically pleaded. At present, the statement of claim does not identify clearly who the monies were paid to.
The process has, however, identified payments totalling approximately $150,000 which were paid to an account with Macquarie Bank. The account is, according to the information provided to the Court, styled "CSA". It is unclear who the legal holder of this account was and how funds may have flowed through it to Mr Field and Lokdown. The Executors have attempted to obtain this information from Macquarie Bank, but without success and are now proposing to pursue further enquiries by way of subpoena.
Clearly the issue is worth pursuing as part of the overall claim concerning the website payments, but it will be necessary to establish more clearly how the monies passed to Mr Field and Lokdown, if they did. Counsel accepted that pursuing these claims will require further information, and, in due course, amendment. Accordingly, I propose to reserve advice on the pursuit of these amounts until that information is available.
[3]
Defence of Mr Field's cross-claim
There is an important difference between the claims made by the Executors against Mr Field and Lokdown on the one hand, and the defence of the cross-claim on the other. The claims made by Mr Field against the Executors are not claims against the trust estate by an outsider. They are claims of maladministration brought by Mr Field in his capacity as a beneficiary of the trust. If successful, they would result in a reduction of expenses which the Executors can charge to the estate, or, possibly, orders for compensation which would require monies already paid out to be repaid to the estate. In either event they would swell the estate assets.
Where a claim is made against trustees of breach of trust, trustees who are successful in defeating the claim will generally be allowed their costs out of the trust estate, even if in defending the proceedings they have also been defending their own interests: National Trustees Executors & Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268 at 279. Even if breach of trust is established, there may still be circumstances in which the trustees will be permitted to recover their costs out of the estate. But trustees who are found guilty of maladministration are most unlikely to receive an order in their favour: 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 at 116 [152].
Given that the outcome cannot be known in advance, it is usual for the trustees' entitlement to recover their costs from the estate to be dealt with at the end of the proceedings. But this leaves them in a state of uncertainty, and obliges them to fund the defence of the proceedings out of their own assets in the meantime. There may be a risk that the trustees are not prepared to defend the proceedings in such circumstances, so that the claim may succeed by default.
Such a situation arose in the Macedonian Orthodox Church case. In that case the trustee obtained judicial advice that it was justified in defending certain claims by the plaintiffs of breach of trust. Those claims included a claim that using the trust funds for the purpose of defending the proceedings was itself a breach of trust.
The consequence of obtaining such advice was that, unless the trustee has been guilty of fraud, wilful concealment or misrepresentation (see Trustee Act, s 63(2)), the trustee would be entitled to recover the costs of defending the claims (including any costs awarded in favour of the plaintiffs) out of the trust estate, even if the trustee's defence failed and breach of trust were ultimately established. Any contention that the defence of the proceedings was a breach of trust would effectively be foreclosed without being considered on the merits.
This, however, made no difference. At 93-94 [69]-[74] the High Court emphasised that the purpose of s 63 is to protect the interests of the trust. Giving the trustee protection against a claim for breach of trust benefited the trustee, but it also benefited the trust by giving the trustee the confidence it needed to defend the claims, which were found to be in the trust's interest to have them determined on the merits. In such circumstances, the court should not be dissuaded from giving advice by the impact such advice would have on the maintainability of the plaintiff's claims.
When the present application first came before me, an order was sought that the Executors would be justified in defending Mr Field's cross-claim against them. Counsel's advice canvassed the merits of Mr Field's claims and argued that the Executors had good defences to those claims.
The case thus brings the principles in the Macedonian Orthodox Church case into play. But in my view, the High Court's logic depended upon the finding that the defence of the claims in question was the interests of the trusts. The order of Palmer J upheld in the High Court only authorised defence of the proceedings on limited grounds. These were grounds relating to the terms of the trust, which it was in the interests of the trust (and in the public interest) to have determined. Other claims alleging that the trustee had expended trust funds on the defence its own position (see Application of Macedonian Orthodox Community Church St Petka Inc [2004] NSWSC 388 at [9]) were excluded. The pursuit of those claims was therefore not foreclosed by the grant of judicial advice.
The same distinction can be discerned in the present case. One of the allegations against the Executors is that the claims against Mr Field and Lokdown are groundless and the pursuit of them is not in the interests of the trust. The effect of my order giving judicial advice to the trustees will be for practical purposes to foreclose any claim against the Executors which may arise from their pursuit of those claims in future. But in my view, this is justified in the interests of the trust.
Mr Field's cross-claim expressly takes the point that the Executors have so far failed to obtain judicial advice. Faced with this allegation, the Executors have no alternative but to make the application so as to know where they stand. The interests of the estate demand an answer and the fact that giving the answer will shut Mr Field out from making any further complaint about the issue is an unavoidable consequence of the giving of advice which is justified in the interests of the estate.
However, the same logic does not apply to the defence of the cross-claim generally, which involves allegations of past maladministration and of maladministration separate from the pursuit of the claim against Mr Field and Lokdown. At the hearing on 1 November, I put this conclusion to counsel, who accepted it.
Thus the Executors will be able to plead by way of defence to the cross-claim that they have sought judicial advice and obtained advice to pursue the website payment claims. That will presumably make any further complaint about the pursuit of those claims in future untenable. But I will not grant any advice authorising the defence of the cross-claim. The remaining claims of breach of trust by Mr Field will be dealt with in the ordinary way, and whether the Executors should receive a costs order out of the estate for those claims will be dealt with once the cross-claim has been determined. I note in passing that there may be an argument in these circumstances for the cross-claim to be deferred until after the claims by the Executors against Mr Field and Lokdown have been determined. It will be a matter for the Executors to consider in due course whether to make any application to this effect.
[4]
Orders
The orders of the Court are:
1. Order that the plaintiffs as executors of the estate of the late Denise Melane would be justified in taking all reasonable steps to pursue claims against Justin Field and Lokdown Pty Limited to recover the payments set out in the schedule attached to counsel's second supplementary confidential advice (other than those described as payments to the "CSA Macquarie Account"), or compensation for loss to the estate from those payments; and in particular that they would be justified in making any application reasonably required to amend their statement of claim in proceedings 2020/333933 so as to plead, or more fully plead, such claims.
2. Reserve for further consideration any advice to the plaintiffs on claims to recover payments made to the CSA Macquarie Account.
[5]
Amendments
10 November 2021 - italicise case name
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Decision last updated: 10 November 2021