Du Maurier v Wechsler No 2

The jurisdictional question 13The present defendant submitted that with the exception of one of the heads of claim, namely the dispute about the gravestone, the proceedings are not concerned with the "management or administration of the trust property" or the " interpretation of the trust instrument" and therefore judicial advice should not be provided. 14They relied upon the decision of Barrett J in Australian Pipeline Limited [2006] NSWSC 1316; (2006) 60 ACSR 625. His Honour there dealt with an application for judicial advice on the question whether the defendant was justified, as a trustee, in defending proceedings against it in which the plaintiff raised allegations of breach of trust. His Honour said: "23 ... The pre-occupation of the court is with those who have the stewardship of property for the benefit of others. In terms of s.63, the court's role, consistently with that pre-occupation, is concerned with 'the management or administration of the trust property' and 'the interpretation of the trust instrument'. It follows that, if a trustee is minded to seek judicial advice on a question related to the bringing or defending of legal proceedings, the trustee may properly do so only if the legal proceedings are themselves concerned with the management or administration of the trust property or the interpretation of the trust instrument. 24 The case before me is not of that kind. The trustee's concern, upon the present application, is with the question of potential exposure of the trustee personally because of past acts and a completed course of conduct of the trustee. Determination of the question whether the Federal Court proceedings should or should not be defended by APL will not contribute to any particular outcome related to the management or administration of the assets of the Trust. The question now confronting APL is how it should deal with an allegation of past misconduct which, if established, will entail personal liability for breach of trust or statutory wrongdoing. The trust property of which APL has stewardship will in no way be protected or enhanced by defence of the claim. If the beneficiaries, as plaintiffs in the Federal Court, are fully successful, the trust property will be seen to have been dealt with in the past in an impermissible way and the trustee will be brought to account accordingly. If the beneficiaries, as plaintiffs, are unsuccessful, the trust property will be seen not to have been misapplied by the trustee in the past. Either way, the result, so far as the trust estate is concerned, will do no more than reveal an historical position. The only consequence of an immediate kind having future implications will be as to the liability of the trustee (or the absence of liability). 25 It is necessary to bear in mind that an order under s.63 of the Trustee Act by which the court gives to a trustee its opinion, advice or direction produces the statutory consequence stated in s.63(2). If the trustee, having received judicial advice, acts in accordance with it, the trustee is 'deemed to have discharged the trustee's duty as trustee in the subject matter of the application'. The statute thus assumes that the matter on which judicial advice is sought will be one that involves some aspect of 'the trustee's duty as trustee' as it relates to future conduct of the trustee. A trustee who is alleged by a beneficiary to have committed a breach of trust or statutory wrong and who defends legal proceedings in which that allegation is advanced does not thereby perform any 'duty as trustee'. A decision by a trustee accused of breach of trust whether to contest the allegation is unrelated to any aspect of 'the trustee's duty as trustee'. The matter at stake is the personal liability of the individual; and the course the individual follows will be dictated by a personal decision regarding the individual's own interests. 26 To the extent that the question on which APL seeks guidance includes an inquiry whether money of the Trust may properly be applied in defending the Federal Court proceedings, it accentuates the incompatibility of the question with the s.63 jurisdiction. If APL is found to have committed the breaches of trust alleged against it in the Federal Court, it could not expect to be indemnified out of trust property for the expenses incurred in defending the claims. Whether the indemnity is available will depend on the final adjudication of the inter partes proceedings. This court could not properly attempt, in advance, some form of pale substitute for such final adjudication by way of determination of a trustee's ex parte application for judicial advice. It is possible that the position would be different if notice of the application had been given to beneficiaries in such a way as to give them a status akin to that of parties and to cause them to be bound by the judicial advice pursuant to s.63(11): see, in particular, the observations of Hodgson JA in the Macedonian Orthodox Community Church case (above) at [66] to [68]. But even so, the fact that fully constituted and pleaded proceedings were pending elsewhere in which the subject matter was fully ventilated would most probably cause the court to take the view that a s.63 application, even with the involvement of the beneficiaries, was an inappropriate vehicle for consideration of the question of past breach of trust. 27 Although the question on which APL seeks the opinion, advice and direction of the court is, in the time-honoured way, framed as a question whether APL, as trustee, is justified in defending particular legal proceedings, those proceedings are not of such a kind as to make the s.63 jurisdiction exercisable. 28 The application for the opinion, advice or direction of the court on the question set out in paragraph 74(c) of the amended statement of facts filed on 1 December 2006 is refused." 15It was suggested that this decision was binding on me, as an appeal would be to a single judge of the court. That in fact is not the case as the appeal on these matters is to the Court of Appeal. See Uniform Civil Procedure Rules 2005 Rule 55.4 16The main debate before me was the effect of the High Court's judgment in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar, the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66. The present defendant submitted that: Macedonian Church establishes that a question respecting the management or administration of trust property will not be deprived of that character merely by the superaddition of an allegation that the trustee has breached his duty in relation to that question. However, it by no means establishes that an allegation of breach of trust is necessarily a question respecting the management or administration of the trust property. In that respect, the observations of Barrett J in Australian Pipeline at [25] were referred to by the High Court in Macedonian Church at [109-110] without criticism. Moreover, in distinguishing Australian Pipeline, the High Court in Macedonian Church at [114] referred to the different finding in that case by Palmer J at first instance that "the principal issue between the parties in the Main Proceedings centres upon the terms of the trust on which the property is held, and the primary judge concluded that it was in the interests of the trust that the uncertainty about those terms should be resolved...". Australian Pipeline has, since Macedonian Church, been referred to with approval by Hallen As-J in Application of Gnitekram Marketing Pty Ltd [2010] NSWSC 1328 at [12]. 17It should be remembered that the Macedonian church case was concerned with a charitable trust. The court noted this difference at [67] in these terms: ' 67 Role of context in applying s 63 . Sixthly, the application of s 63 will tend to vary with the type of trust involved. 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. 18Another important general proposition noted by the court was the effect of a failure to apply for advice in these terms: 70 In particular, trustees who are sued, particularly for breach of trust, may sometimes experience uncertainty about whether they will be able to obtain indemnity as to the costs of their defence under s 59(4) in any event. Perhaps they will if their breach is excused under s 85(2); but they cannot be sure, in advance, that the court's discretionary power to excuse the breach will be exercised in their favour, and one of the matters to be excused is their failure to obtain the court's direction under s 63 or otherwise. This points strongly to the conclusion that an application under s 63 by a trustee sued for breach of trust (including a breach of trust alleged to arise in the very defence of the proceedings) is not to be seen as one which should rarely if ever succeed. Instead it should be seen as a standard instance to which s 63 can in appropriate circumstances apply. 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. 72 It is, therefore, not right to see a trustee's application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust. 19The High court was concerned with the Court of Appeal's use of the tag "adversarial" and the distinction the court of appeal drew between the use of a section 63 proceeding for adversarial and it use for non adversarial purposes. It was in the context of this discussion that it referred to Barrett J's comments at [25] in Australian pipeline . At [110] and [111] the High Court said the following: 110 In understanding that passage, it must be remembered that Barrett J had earlier said in his reasons that a trustee could properly seek judicial advice relating to defending legal proceedings "if the legal proceedings are themselves concerned with the management or administration of the trust property or the interpretation of the trust instrument" (as the Main Proceedings are). It is also necessary to remember that Barrett J found support for that last statement in an observation by Palmer J in Judgment No 2, which, in turn, had in part been approved by Beazley and Giles JJA. 111 The Court of Appeal referred to earlier decisions of that Court as establishing that judicial advice proceedings should not be used to settle disputes between parties to a trust. Stated in that way, the proposition is not controversial. It recognises the distinction to which reference is made earlier in these reasons between deciding whether it would be proper for a trustee to sue or defend and deciding the issues tendered in the proceedings that it is proposed to institute or defend. 20The court next pointed out that the Court of Appeal had not identified any criterion as marking what are adversarial proceedings. It went on to say: 114 Much emphasis was given in the Court of Appeal to the fact that, in the Main Proceedings, the plaintiffs claim that the Association had acted in breach of trust and that it should be removed as trustee. But as the primary judge pointed out, the principal issue between the parties in the Main Proceedings centres upon the terms of the trust on which the property is held, and the primary judge concluded that it was in the interests of the trust that the uncertainty about those terms should be resolved. Where, as here, the trust is a charitable purpose trust, identifying the dispute between the parties as centring upon allegations of breach of trust and claims for removal of a trustee is an incomplete description of the issues that are tendered in the litigation. It is an incomplete description because describing the dispute in this way suggests that the trustee has no more than a personal pecuniary interest in the outcome of the litigation. That may be the case where a trustee of a private trust is sued for breach of trust in managing the trust fund and beneficiaries claim compensation for losses allegedly sustained as a consequence. But in this litigation the interests at stake are larger and more complex than whether a defaulting trustee should make good the financial consequences allegedly flowing from mismanagement of a trust fund. There is a public aspect to those interests because they concern the administration of a charitable purpose trust. 115 If the expression "adversarial proceedings" was intended to refer to the fact that allegations of breach of trust are made in the Main Proceedings and a claim is made for removal of the Association as trustee, it is an expression which provides no assistance in resolving the question tendered by the Association in the judicial advice proceedings. 116 Classification of the proceedings in respect of which a trustee asks advice about the propriety of instituting or defending, as "adversarial proceedings", is not useful in deciding whether advice should be given under s 63 that instituting or defending the proceedings is proper. 21This concluded the courts discussion of this issue at a general level and it is apparent that the court has not pronounced upon the jurisdiction question, which was the core of Barrett J's decision. In this case the present defendant concedes that at least one of the matters tendered for decision in the principal proceedings, namely the question of the headstone, does concern the administration of the trust. The jurisdiction point is thus not an answer to the whole application although as the High court points out in its discussion at [114] the distinction between private and charitable or public trusts has important consequences in this area. 22It is necessary to come to the various discretionary considerations as to whether the court should give the relief sought. The first concerns the issues tendered in these proceedings, which concern a private trust. 23I have set out above at paragraphs 6 and 7 the substance of the equity proceedings. In respect of what I have described in paragraph 6 as the primary relief in the statement of claim it is plain that these claims are for breach by the trustee in managing the trust fund with the beneficiary claiming compensation for the losses allegedly sustained as consequence. That there has been an over-distribution to one of the residuary beneficiaries namely, the trustee's wife, is conceded as indicated in an affidavit of 6 February 2012 of Louise Jane Massey the solicitor for the present plaintiff. Mrs du Maurier repaid the estate $420,000 which had previously been distributed to her under the will on 9 November 2011. There were also further distributions after commencement of the equity proceedings on 14 August 2011 and 16 November 2011 of $500,000 and $300,000 to the present defendant. The situation is now that the estate holds the sum of $1,342,579.91 in two accounts. The first account is $651,643.42 in a distribution account for Mrs Wechsler, which is earning interest and $690,936.49 in a general estate account which is also earning interest. 24I wish to make it plain that the trustee claims that the retention of funds from the present defendant was done on advice and no doubt he will wish to rely on that advice in his defence of the principal proceedings. 25In respect of the failure to account it appears from what was said in court with both parties present that the accounts from the date of death until 30 June 2010 were made available on 5 February 2011 with electronic copies three days later. Plainly having regard to various admissions in the defence there are serious questions as to why there had been no earlier accounting. 26The other claims which are set out in paragraph 7 I think can be truly said to be minor claims in terms of the proceedings. 27The claim in respect of the headstone for the deceased plainly concerns the administration of the estate and it is a claim that the executor remediate the headstone. Two immediate points can be made about this. The first is why common sense has not prevailed with the executor on his own initiative taking steps to have the headstone altered. 28The second question is the question of costs. It is hard to see that the interests of the trust will be promoted by incurring costs in defending this issue when a more sensible response would be to attend to the matter. 29So far as the jewellery is concerned clause 3(a) of the will provided, in the events that have happened, that the deceased's jewellery is to be divided between Mrs Du Maurier and Mrs Wechsler equally and equitably. There was a further proviso that in the event that they were unable to agree on a division then the executor, "Otto Slazenger, should divide the same between my daughters in his absolute discretion". Mr Slazenger did not take out probate. 30The plaintiff's defence seems to be that the deceased made the decision on the distribution before her death, which is inconsistent with the terms of the will. This is also a matter where a common sense solution such as requesting Mr Slazenger or if not him, someone else who is acceptable to both parties to make a selection and divide the jewellery in accordance with the will. To visit the costs of litigation in respect of this issue on the estate would seem to be foolish and not in the trust's interests. However, no doubt if the present defendant wishes to perpetuate the claim and not agree to anything at this stage which might alleviate the problem, the trustee may wish to continue his defence in the equity proceedings. 31The subject matter of the dispute is one, which in my view concerns the management and administration of the trust. 32The dispute about the Krugerrands arises in that in the principal proceedings the present defendant claims 50 gold Krugerrands were held by the deceased in trust for her following a gift of 110 Krugerrands to her daughters equally in 1994. The present plaintiff as trustee or executor realised the Krugerrands in 2007 and they have presumably been included in the residuary pool, which was distributed as to 60% to his wife. This distribution occurred ten years after the death of the deceased and many years after notice of the claim. This matter will involve contested issues of fact to determine whether the Krugerrands were trust assets. It thus concerns the administration of the trust. 33One of the matters normally considered on an application for advice is the costs involved in defending the proceedings. See Application of Gnitekram Marketing Pty Limited [2010] NSWSC 1328 at [17(c)]. In this case there has been no information provided to the court about costs involved in defending the proceedings and in particular how much will be involved in defending the matters which can truly be described as relating to the management and administration of the trust in contrast to the trustee's own private defences of past breaches of trust. 34As mentioned above the estate presently has funds presumably being residue of some $690,000. 35On this aspect another important consideration is the question as to whether the failure to provide an indemnity at this stage will mean that the trustee would not be able to defend the proceedings at his own expense. There is no suggestion in the material before me that the trustee could not defend the proceedings himself if he were not given his indemnity from the trust assets. It is merely put that he would wish to avail himself to his right to indemnity in respect of costs properly incurred and seeks the court's approval to do so at this stage. 36This submission was coupled with a submission that it is always possible to reserve the right to the trial judge to revisit the decision to be now made on costs and indemnity after the conclusion of the principal proceedings. 37In the Macedonian Church case Palmer J had made an order allowing the order to be revoked by the trial judge. This was considered at [89] to [96] of the High Court's judgment, the conclusion being that it would be extraordinary that such a revocation could be made to operate retrospectively as such an outcome would give very little protection to a trustee. The court suggested that very specific language would be needed before that construction of the act could be adopted. See at [95] and [96]. In my view, any order of the nature contemplated could only affect costs in the future and would be no answer to the defendant's reasons for suggesting that on discretionary grounds an order should not be made giving a right to enjoy the trustee's indemnity at this stage. 38Another important matter is the conduct of the trustee in respect of this application. There are two bases put forward for this the first being the timing of the application and the second being the failure to supply information to the present defendant in the course of the application. 39On the first matter the application for advice was made only after the trustee was sued for breach of trust. A substantial matter in the proceedings was the decision not to distribute the appropriate shares but to retain some of the present defendant's share from distributions. This decision which the trustee says was based upon advice received is the normal situation where the trustee should have obtained advice in what was at that stage a matter of administration and management of the trust. He did not do so and took his own course. The same could be said about deciding in full knowledge of the contrary claim to sell the Krugerrands. He could well have sought advice prior to taking that step. 40The other matter concerns the decision made by the present plaintiff not to make available to the present defendant any of the affidavit evidence and the opinion of counsel relied upon in support of the application. 41It will be noted that the orders I made on 1 March 2012 provided for disclosure of an opinion of Mr C Hodgson of counsel, which was obtained during the course of the administration of the estate. It gave advice in respect of what steps should be taken in respect of a possible transfer of the George street property to the present defendant. When the matter came back before me after that advice had been disclosed there was filed evidence by Mr and Mrs Wechsler dealing with the circumstances of the offer to transfer part of the George Street property to Mrs Wechsler. It was suggested that this demonstrated Mr Hodgson's advice was not followed. 42I do not think that the advice was not followed. All that happened was that after following his initial advice the matter descended into accusations between the parties. 43It was also pointed out that the defence did not refer to this advice as something upon which the present plaintiff had relied. Although these circumstances do not suggest that the court was assisted by what further material was put forward by Mr and Mrs Wechsler on this aspect it shows their willingness to put further material forward. 44There is, of course, a good reason for material not being made available to an opponent to litigation as it enables the opponent to see the strengths and weaknesses of the defendant's case. In this case, however, there was much information which was common to both parties they having been involved in so much litigation between themselves over the years leading up to the present principal proceedings. The voluntary production of some information to the present defendant might produce a response, which would have an impact upon the conclusions of a confidential opinion of counsel supplied to the court in support of the application for advice. 45In the circumstances of this case I would have thought that a lot more could have been made available by the trustee to the present defendant so that the court could be assisted on these aspects. 46Apart from these factors to which I have referred it is of course necessary to balance these factors against the benefits of giving advice to the trustee. The trustee undertakes substantial obligations in the office and his services are gratuitous. There is, however, another problem and that is whether the subject matter of advice falls within the provision, which gives the court jurisdiction to deal with the matter. 47The three minor matters in this case in my view attract jurisdiction whereas the main claim summarised in paragraph 6 above is not a matter arising in the administration and management of the trust or the construction of the trust instrument. The High Court points out this is not necessarily conclusive in a situation where a trustee is sued for breach of trust but instead it should be seen as a standard instance to which s 63 can in appropriate circumstances apply. 48The question is whether appropriate circumstances apply. The main claim is one that concerns the present plaintiff's personal pecuniary interest in the outcome. The decision on that claim will simply reveal an historical position in respect of the trust. 49Although advice could be given on the three minor matters, given the absence of any estimates of cost including their separate costs, no useful order could be made as to the extent to which any indemnity should be allowed on those minor aspects of the equity proceedings. 50Although the court has been provided with a confidential advice on the prospects of success in defending the claim, the usefulness of that advice must suffer from the consequences of the nature of the process and the trustee's refusal to give the present defendant information so she can put appropriate submissions and evidence before the court.

Orders 51In the circumstances I decline to give advice and I dismiss the summons. 52I will hear the parties on 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: 20 March 2012