Chianti Pty Ltd v Leume Pty Ltd

The Statutory Framework and Legal Principles

I have previously set out the relevant principles to be applied in an application for judicial advice in Application by Marilyn Joy Cottee; Estate of Gwenyth Shirley Smith [2013] NSWSC 47 at [29]-[42]. In that case, I wrote: "Section 63 of the Trustee Act enables trustees to 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. The section provides: "63 Advice (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. (3) Rules of court may provide for the use, on an application under this section, of a written statement signed by the trustee or the trustee's Australian legal practitioner, or for the use of other material, instead of evidence. (4) Unless the rules of court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application. [(5) - (7) Repealed] (8) Where the question is who are the beneficiaries or what are their rights as between themselves, the trustee before conveying or distributing any property in accordance with the opinion advice or direction shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution. (9) The notice shall state shortly the opinion advice or direction, and the intention of the trustee to convey or distribute in accordance therewith. (10) Any person who claims that the person's rights as beneficiary will be prejudiced by the conveyance or distribution may within such time as may be prescribed by rules of court, or as may be fixed by the Court, apply to the Court for such order or directions as the circumstances may require, and during such time and while the application is pending, the trustee shall abstain from making the conveyance or distribution. (11) Subject to subsection (10), and subject to any appeal, any person on whom notice of any application under this section is served, or to whom notice is given in accordance with subsection (8), shall be bound by any opinion advice direction or order given or made under this section as if the opinion advice direction or order had been given or made in proceedings to which the person was a party." In relation to an application by a trustee for the direction of the court, Gillard J, in Re Atkinson (dec'd) [1971] VR 612, at 615, said: "Where an executor or trustee is in doubt as to the course of action it should adopt, it is always entitled to take the opinion of the court as to what it should do. If in doubt as to whether or not it should take legal proceedings, then it is entitled to apply to the court for directions on the matter: see Halsbury's Laws of England, 3rd ed, Vol 38, pp 946 and 1023-1024; in Re Brogden (1888), 38 Ch D 546 at p 556; [1886-90] All ER Rep 927; Chettiar v Chettiar (No 2) [1962] UKPC 1; [1962] 2 All ER 238, at p 245. If the executor or the trustee then followed the direction of the court, it would be protected from any claim by a beneficiary or creditor arising from its action or inaction in accordance with the court's direction: see Underwood v Hatton [1842] EngR 371; (1842), 5 Beav 36; 49 ER 490; Smith v Smith (1861) 1 Dr & Sm 384; 62 ER 426." See also Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66, at [61] - [74]. In Dal Pont and Chambers, Equity and Trusts in Australia and New Zealand, 2nd ed, at p 668, the learned authors describe this statutory jurisdiction in the following terms: "This statutory jurisdiction is intended essentially for private advice by the court to trustees as to what course of action they should follow where they are in doubt as to the propriety of the action contemplated. The applicant must place before the court all relevant evidence such that the court is fully informed as to the matter in issue. Three situations in which approach to the court is particularly useful are where (a) the issue is whether legal proceedings ought to be instituted or defended; (b) it is desired to effect an early distribution of an estate; and (c) the trustee is in doubt as to the extent of her or his powers under the trust instrument. Types of advice which may be sought include questions in connection with the rights and interests of beneficiaries or creditors, jurisdictional queries, whether further inquiries should be made in certain circumstances, the ascertainment of any class of beneficiaries or creditors, the furnishing of accounts, the settling of minor administration problems, and the approval of dealings with the trust property. The procedure should not be used to determine substantive issues, such as issues of interpretation of the trust document which involve the question of breach of trust by any of the trustees; for the purpose of securing additional powers for the trustees; and for resolving a contest between the trustees or other parties to a trust. Nor should it be used to determine respective rights of beneficiaries. These are matters in respect of which beneficiaries are entitled to initiate proceedings. [footnotes omitted]" As stated, the proper purpose for seeking judicial advice includes relief aimed at resolving a legitimate doubt held by the trustees as to the proper course of action and at protecting the trust and those entitled to it. In Re Perpetual Investment Management Limited [2011] NSWSC 133, White J, at [46], described the section as "beneficial legislation for the protection of trustees and should not be narrowly construed". In Re Australian Pipeline Ltd [2006] NSWSC 1316; (2006) 60 ACSR 625 at [17], Barrett J (as his Honour then was) cited Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 where Lord Oliver of Aylmerton (at 201) said: "A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court." However, the court is not bound to give advice: see Re Application of Perpetual Trustee Company Limited [2003] NSWSC 1185 per Young CJ in Eq, at [8]. Only one jurisdictional bar to providing relief under s 63 of the Trustee Act exists. The Plaintiffs must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument. Whether to exercise the discretion is confined only by the subject-matter, scope and purpose of the legislation: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand, at [58] - [59]. The Court's sole purpose in giving advice is to determine what should be done in the best interests of the trust estate: Dulhunty v Dulhunty [2010] NSWSC 1465, at [44]. "Management or administration of property" includes taking steps to preserve the property, and taking steps to make the property financially productive. The words refer to both the manner in which trust property is managed, administered, handled, directed or controlled, and the actual carrying out of those functions. In addition, the words include transferring part, or all, of the trust property, as required, to those who have become entitled to it. The words are not confined to the continued holding of the property in question: Stein v Sybmore Holdings [2006] NSWSC 1004 at [59]; Application of Gnitekram Marketing Pty Limited [2010] NSWSC 1328 at [13]. Importantly, the trustees may seek the Court's opinion, advice or directions so as to obtain personal protection. Section 63(2) of the Trustee Act precludes any trustee, who acts in accordance with the opinion, advice or direction, from being held liable for breach of trust in the event that in conventional proceedings it is later held that the legal position does not correspond with the advice given, so long as the proviso to s 63(2) is satisfied. I mention, also, that both trustees are plaintiffs so that Uniform Civil Procedure Rules, rule 7.11(2) has been complied with. UCPR, rule 55.1, provides: "55.1 Statement (1) A statement under section 63 of the Trustee Act 1925: (a) must be divided into consecutively numbered paragraphs, and (b) must state the facts concisely, and (c) must state the question for opinion, advice or direction. (2) Despite rule 6.12 (2), the originating process in proceedings under section 63 of the Trustee Act 1925 need not state the question for opinion, advice or direction." UCPR rule 55.2 provides that an opinion, advice or direction given under s 63 "must be given by order". However, such an order is permissive in nature, its usual form being that the trustee "would be justified" in taking certain action. As such, the order does not carry with it the usual consequences of an order made by the Court in adversarial proceedings, regardless of whether parties have been given notice of the application under s 63(4). Thus, it does not create a res judicata. It does not finally determine the rights of parties. Indeed, it does not, of itself, determine any rights, although, it has the potential to affect the rights of the parties given notice under s 63(4). It does not carry with it the consequences of breach, including, e.g. the exposure to contempt proceedings should an order be disobeyed: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2006] NSWCA 160; (2006) 66 NSWLR 112, at [41]. UCPR r 55.4 provides that an appeal lies to the Court of Appeal from an opinion, advice, direction or order given or made by the Supreme Court under s 63. In Application of Gnitekram Marketing Pty Limited, I referred to the procedure to be followed in an application under s 63. I wrote: "17 Subject to the Rules referred to above, the way in which the application should be presented to the court, may be summarised as follows (see: for example, Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185 per Young CJ in Eq (as his Honour then was) and on appeal, Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor [2006] NSWCA 160; (2006) 66 NSWLR 112; and also [2007] NSWCA 150): (a) The procedure pursuant to s 63 is summary in character. However, the application of the section will tend to vary with the type of trust involved and, as a consequence, the context of the application for advice will be important. (b) The trustee's evidence should be given by witness statement. In order to ensure that, if directions are given, the trustee is properly protected by the order, it must ensure full disclosure of relevant matters, even if the case is to proceed with the participation of beneficiaries as defendants. It is not necessary for the trustee must "prove" facts according to a certain standard of proof to enable findings of fact to be made as would be the case in adversarial litigation (Crnjanin v Loos; Loos v Crnjanin [2010] NSWSC 750, per Lindgren AJ, at [28]). (c) The evidence should include the advice of an appropriately qualified lawyer as to the prospects of success and other matters relevant to be taken into account, including a cost estimate for the proceedings and any known facts concerning the means of the opposite party to the proceedings, a draft of any proposed statement of case, the value of the trust assets, the significance of the proposed litigation, or other course of action for the trust, and why the court's directions are needed. (d) It is not the role of a Statement of Facts necessarily to set out the arguments relied upon in favour of, or against, any particular advice or direction sought. Ultimately, it is a matter for submission and argument and not the Statement of Facts to set out the competing arguments as to what advice should be given. (e) A person served with documents under s 63 is not a party to the proceedings. (f) If a beneficiary of the trust is a party to the litigation about which directions are sought, with an interest opposed to that of the trustees, that beneficiary should be a defendant to the trustees' application, but any material which would be privileged as regards that beneficiary in the litigation should be put in evidence as an exhibit to the trustee's witness statement, and should not be served on the beneficiary. However if the trustee's legal representatives consider that no harm would be done by the disclosure of all, or some part, of the material, then that material should be served on that defendant. That defendant may also be excluded from part of the hearing, including that which is devoted to discussion of the material withheld. (g) There is nothing in s 63 that deals with the manner in which material is to be put before the court and where the rules of court do not expressly or impliedly abrogate the privilege (assuming, without deciding, that a procedural rule could do so). It follows that there is nothing in a s 63 application that can, or does, undermine the substantive right of legal professional privilege. (h) Ordinarily, the provision to a trustee of an indemnity from trust assets must be determined on the final adjudication of the litigation. An indemnity should not be provided in advance under colour of private judicial advice."
It can be seen, from the above, that a trustee's application for judicial advice about whether to defend proceedings is not only directed to the personal protection of the trustee, by resolving doubt about whether it is proper for a trustee to incur associated costs and expenses, but also to the no less important purpose of protecting the interests of the trust by ensuring that those interests are not subordinated to the trustee's fear of personal liability for costs. It satisfies the jurisdictional bar required, namely, "the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument": Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand at [58].
In In the application of NSW Trustee & Guardian [2014] NSWSC 423, Kunc J stated, at [2], that he was going "to summarise and restate some important aspects of practice and procedure in relation to applications for judicial advice, in particular the role of the trustee prior to the making of such an application and the function of counsel's opinion that almost inevitably must accompany such an application".
Relevantly to this application, his Honour then wrote, at [3]: "The trustee …with the assistance of such advice as it may think appropriate, must first decide what it is going to do in a given situation and then, if it wishes, seek judicial advice as to whether it is justified in acting in accordance with that decision. In almost all circumstances any application for judicial advice should be accompanied by counsel's opinion fully dealing with all the facts known to the trustee, all of the relevant legal issues and expressing a reasoned opinion in support of the particular decision which the trustee has made. It is inappropriate and arguably in dereliction of the trustee's duties to make an application for judicial advice where the trustee's consideration of the issue (whether or not reflected in counsel's opinion), has gone no further than identifying the problem, observing that it is difficult and then asking the Court what the trustee should do."
His Honour also dealt with the necessity for the application to be accompanied by the opinion of a suitably qualified legal practitioner, noting at [27] that "[t]he content of that opinion will be a significant matter which the Court will take into account in determining whether or not to give the advice sought", and at [28] that the "advice can be the opinion relied upon by the trustee in deciding upon its provisional course of action … or an opinion especially prepared for the purposes of the application".
His Honour then referred to the utility of the opinion, referring to the decision of Lindsay J in Re Estate Late Chow Cho-Poon [2013] NSWSC 844 at [108] - [110] and [113] - [120] (which I shall not repeat).
Kunc J, then, stated, at [30]: "Insofar as the contents of counsel's opinion are concerned, those will be determined by the nature of the problem and the facts which give rise to it. The only general comment that can be made is that all relevant facts should be identified and considered, along with the application of the relevant legal principles and authorities to those facts. A reasoned conclusion as to the course to be followed by the trustee must be expressed."
In Bideena Pty Ltd as trustee for the Bideena Pty Ltd Superannuation Fund (2016) 334 ALR 146; [2016] NSWSC 735, Sackar J noted, at [40], that "[w]here 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". That is the position in these proceedings.
Finally, I should refer to Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand, 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."
In relation to the advice sought as to the nature of the defences and whether such advice should be given about the appropriateness of those defences, I refer to the 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."
His Honour's remarks were referred to, without apparent disapproval by the plurality of the High Court, at [161]. At [162] - [164], the plurality noted that Palmer J's remarks should not be interpreted as drawing a distinction between mere "sufficiency" and "strength" and emphasised that his Honour had considered the "merits and strengths of the claim" as a relevant factor.
The remarks of Palmer J have also been referred to, with approval, by Davies J in Quickfit Franchising Systems Pty Ltd as Trustee for the Jax Quickfit Franchising Systems Unit Trust [2012] NSWSC 1114, by Darke J in Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226, by Slattery J in Re Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13, and by Sackar J in Bideena Pty Ltd as trustee for the Bideena Pty Ltd Superannuation Fund.
I should note that Brereton J in Lenyco Pty Ltd; In the matter of the Daquino Family Trust [2009] NSWSC 846 did provide advice that a trustee "would be justified in doing all things necessary or reasonably incidental to conduct the defence of proceedings … in which it is the first defendant in relation to all defences raised by it set out in the draft defence to be filed in those proceedings, a copy of which is PX03 herein, and on such other bases as it may be advised from time to time".

Determination

At the outset, it should be noted that the allegations of a breach of trust do not concern the personal interests of the Trustee. It is not being sued in proceedings in which there are criticisms of its conduct as trustee and no relief is being sought in the District Court proceedings against it, personally, because of its past acts and course of conduct (other than in respect of it not paying the amount which it is said ought to have been paid to Marzena).
The matter at stake is not the personal liability of the Trustee and it has no direct pecuniary interest in defending the allegations. To the contrary, the allegations concern the duty owed by it, as Trustee of the Trust, to pay the amount claimed by Marzena, or any part of it, to her, out of the property of the Trust. Whilst the trust is a private one, the Trustee has no financial interest in the property of the trust.
I am satisfied that the determination of the proceedings concerns the administration and management of the Trust.
I am also satisfied, in the circumstances of this case, that it is appropriate to give judicial advice to the Trustee at this stage of the District Court proceedings. I am also of the view that, on the materials before the Court, it is in the best interests of the Trust to provide the advice.
The practical effect of the questions upon which judicial advice is sought is to see whether the Trustee is justified in defending the District Court proceedings in order to establish the existence of any amount that is to be paid out of the property of the Trust by the Trustee to a person who claims such amount. If the Trustee does not defend the proceedings then the Trust Fund will necessarily be deprived of the value of the amount claimed.
As stated, the Trustee is the proper party to resist Marzena's claim in the District Court proceedings. It is the natural and proper contradictor in respect of most, if not all, of the relief claimed in the District Court proceedings.
There is no suggestion in what I have read that the Trustee is acting otherwise than in good faith.
Marzena asserts in Paragraph 8 of the amended Statement of Claim that no part of the monies have been paid to her "or applied to her maintenance education, benefit or advancement in life".
The Trustee proposes to defend the District Court Proceedings on the basis that it has, in fact, applied the relevant sums for her "maintenance, education, benefit or advancement in life" as an Eligible Beneficiary, on the basis that: 1. During the course of each financial year the Trust made loans to Marzena in respect of her tax, living and personal expenses; and 2. At the end of each financial year, the Trustee determined what distribution (if any) it would make to Marzena and then applied the relevant distribution to discharge the loan.
There may be a question whether the distributions proved to have been made were for Marzena's "maintenance, education, benefit or advancement in life", but that will be for determination in the substantive proceedings.
Having read confidential Ex. B, I am satisfied that in relation to the first question posed, the answer should be "Yes". I consider that too much time should not be spent on the question whether Marzena's claim, which principally alleges a breach of trust, comes within the jurisdiction of the District Court, and that it would be open to the Trustee to apply to have the proceedings remitted to the Supreme Court.
Reference need only be made to s 144 of the Civil Procedure Act 2005 (NSW) and s 134(1)(e) and (1)(h) of the District Court Act 1973 (NSW) to be satisfied that it is arguable that the District Court does not have jurisdiction to grant the relief sought by Marzena. Also see, Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488; [2007] WASCA 270, per Martin CJ, at [4].
Although these reasons for judgment are in the nature of a private advice to the Trustee from the Court, "it is neither necessary nor appropriate for the Court to recount or consider the reasoning in counsels' opinion in detail, as that opinion remains subject to legal professional privilege" in the Trustee: Loblay and Loblay [2013] NSWSC 1195, per Robb J, at [29].
Whether the Trustee will succeed in the defence of the claims made may involve questions of fact and of law, including what distributions were made to, or on behalf of, Marzena, and whether each of those distributions fall within the meaning of the term "maintenance, education, benefit or advancement in life". Those issues should be determined at trial rather than on this application.
The Court is of the opinion that the Trustee may act upon the contents of confidential Ex. B to defend the District Court proceedings. The Court has carefully considered that Exhibit and is of the view, without affirming the necessary correctness of the joint opinion of counsel, that the reasoning in concluding that the Trustee appears to have a good defence to the proceedings is sufficiently sound to warrant the Trustee prosecuting the defence.
The joint opinion of counsel is an important factor inclining the Court to the view that the Trustee would be justified in defending the District Court proceedings. Whether the Trustee does so, solely on the terms identified, or otherwise, as it may be advised from time to time, is a matter for advice from its legal advisers.
In the circumstances, I do not propose to provide judicial advice on the precise terms of the Trustee's defence other than in answering the third question in the way proposed. In other words, the Trustee would be justified in not raising the estoppel argument as a defence.
In the circumstances, pursuant to s 63 of the Trustee Act, I order that the Trustee: 1. Would be justified in applying for an order under s 144 of the Civil Procedure Act that the proceedings be transferred from the District Court to the Supreme Court on the basis that the District Court lacks, or may lack, jurisdiction to determine the claims made. 2. Would be justified in conducting a defence of the District Court proceedings on such bases as it may be advised from time to time. 3. Would not be justified in defending the District Court proceedings on the ground that the orders made in the Family Court give rise to any res judicata or estoppel in favour of the Trustee against Marzena. 4. Should be paid its costs, calculated on the indemnity basis, of the application for judicial advice, out of the property of the Trust.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (7 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (26)