Gregory Joseph Mills as trustee v Julie Elizabeth Mills and Ors

The nature of judicial advice

1. In previous judgments I have already set out my view of the law concerning the nature of judicial advice and the ability of a trustee to apply to the Court for an opinion, advice or direction concerning the management or administration of the trust property.
2. 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.
3. 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].
4. 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.
5. 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.
6. 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.
7. 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.
8. 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".
9. 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.
10. 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.
11. 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].
12. 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].
13. 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].
14. 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].
15. 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.
16. 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].
17. 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]).
18. 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.

Relevant principles of construction

1. As highlighted by the Plaintiff, the principles for construction of a testamentary trust are those for the construction of a will. As observed by Isaacs J in Fell v Fell (1922) 31 CLR 268 at 273-276 (references omitted): (1) Every will must by law be in writing, and it is a necessary consequence of that law that the meaning must be discovered from the writing itself, aided only by such extrinsic evidence, as is necessary in order to enable us to understand the words which the testator has used. (2) The instrument … must receive a construction according to the plain meaning of the words and sentences therein contained. But … you must look at the whole instrument, and, inasmuch as there may be inaccuracy and inconsistency, you must, if you can, ascertain what is the meaning of the instrument taken as a whole in order to give effect, if it be possible to do so, to the intention of the framer of it. (3) If the will shows that the testator must necessarily have intended an interest to be given which there are no words in the will expressly to devise, the Court is to supply the defect by implication, and thus to mould the language of the testator, so as to carry into effect, as far as possible, the intention which it is of opinion that the testator has on the whole will, sufficiently declared. (4) An inference cannot be made that did not necessarily result from all the will taken together. A necessary inference is one the probability of which is so strong that a contrary intention cannot reasonably be supposed. (5) We cannot give effect to any intention which is not expressed or plainly implied in the language of the will. You have no right to fancy or to imply, unless there be something within the four corners of the will which is not only consistent with the implication you make, but which could hardly stand, if at all, in the will, without that implication being made. That is what is called necessary implication, and legitimate implication, in contradistinction to gratuitous, groundless, fanciful implication. (6) If the contents of a will show that a word has been undesignedly omitted or undesignedly inserted, and demonstrate what addition by construction or what rejection by construction will fulfil the intention with which the document was written, the addition or rejection will by construction be made. (7) When the will is in itself incapable of bearing any meaning unless some words are supplied, so that the only choice is between an intestacy and supplying some words; but even there, as in every case, the Court can only supply words if it sees on the face of the will itself clearly and precisely what are omitted words, which may then be supplied upon what is called a necessary implication from the terms of the will, and in order to prevent an intestacy. (8) There are two modes of reading an instrument: where the one destroys and the other preserves, it is the rule of law, and of equity, following the law in this respect (for it is a rule of common sense...), that you should rather lean towards that construction which preserves, than towards that which destroys. Ut res magis valeat quam pereat is a rule of common law and common sense; and much the same principle ought surely to be adopted where the question is, not between two rival constructions of the same words appearing in the same instrument, but where the question is on so ready an instrument as that you may either take it verbally and literally, as it is, or with a somewhat larger and more liberal construction, and by so supplying words as to read it in the way in which you have every reason to believe that the maker of it intended it should stand; and thus again, according to the rule ut res magis valeat quam pereat, to supply, if you can safely and easily do it, that which he per incuriam omitted, and that which instead of destroying preserves the instrument; which, instead of putting an end to the instrument and defeating the intention of the maker of it, tends rather to keep alive and continue and give effect to that intention. (9) If on reading the will you can see some mistake must have happened, that is a legitimate ground in construing an instrument, because that is a reason derived not dehors the instrument, but one for which you have not to travel from the four corners of the instrument itself. (10) The mind never inclines towards intestacy; it is a dernier ressort in the construction of wills. In ascertaining the intention, I ought to a certain extent - we all know what the expression means - to lean against an intestacy, and not to presume that the testator meant to die intestate if, on a fair construction, there is reason for saying the contrary.
2. See also James v Douglas [2016] NSWCA 178 at [26] per Meagher JA; Australian Youth & Health Foundation v Perpetual Trustee Company Ltd [2017] NSWCA 127 at [34] per Bathurst CJ.
3. Section 32 of the Succession Act 2006 (NSW) provides: 32 Use of extrinsic evidence to construe wills (1) In proceedings to construe a will, evidence (including evidence of the testator's intention) is admissible to assist in the interpretation of the language used in the will if the language makes the will or any part of the will: (a) meaningless, or (b) ambiguous on the face of the will, or (c) ambiguous in the light of the surrounding circumstances. (2) Despite subsection (1), evidence of the testator's intention is not admissible to establish any of the circumstances mentioned in subsection (1) (c). (3) Despite subsection (2), nothing in this section prevents evidence that is otherwise admissible at law from being admissible in proceedings to construe a will.
4. The rules relating to intestacy are particularly important in this case. With respect to these rules, the presumption against intestacy is not a strong presumption, and the Court should not 'lean too heavily against a construction that produces an intestacy; and certainly cannot, in order to avoid that result, misconstrue the language of the instrument': In Re Wragg [1959] 1 WLR 922 and 929.
5. See also the observation of Young J in Marks v Pope [2001] NSWSC 105 at [17]: [17] This causes Mr Harris to say that there is an intestacy in respect of the one-half share of capital. He acknowledges that there are utterances such as those quoted in Fell v Fell (1922) 31 CLR 268, 275-6, that the Court leans against intestacy and does not presume that the testator meant to die intestate if, on a fair construction, there is reason for saying the contrary. See also Kirby-Smith v Parnell [1903] 1 Ch 483, 489-490. However, one must remember that this is not a strong presumption and the Court should not lean too heavily against a construction that produces an intestacy, particularly a partial intestacy: In Re Wragg [1959] 1 WLR 922, 929.
6. See the observation of Austin J in Hyde v Holland [2003] NSWSC 733 at [28]: [28] However, the presumption against intestacy is not a strong presumption, and the Court should not "lean too heavily against a construction that produces an intestacy; and certainly cannot, in order to avoid that result, misconstrue the language of the instrument": Re Wragg Dec'd [1959] 1 WLR 922, at 929 per Lord Evershed MR; Marks v Pope [2001] NSWSC 105 (5 March 2001), paragraph [17] per Young J. In Re Wragg a professionally drafted will provided that the trustees were to hold the estate on trust to pay a weekly sum to the widow, and another weekly sum to the deceased's brother, and "after the death of" the widow, and after setting aside a sufficient part of the estate to pay the brother's annuity, to divide the residuary estate into seven parts. Although Lord Evershed acknowledged a "natural inclination against a result that means that the draftsman left a lacuna in his draft", the Court held that, on the proper construction of the will, the surplus income was not disposed of during the wife's life.

Consideration

1. The first question that needs to be addressed is when does the Trust vest. As have been outlined in submissions on behalf of the plaintiff there are three possibilities. One is that the Trust may not vest at all. The second is that the Trust may vest on the death of the named beneficiary and thirdly the Trust may vest on the purchase of the property.
2. It should be observed immediately that the Will apportions the deceased's property in equal shares to his three children. This clearly gives rise to a suggestion of an intention to leave the property of equal value to each beneficiary. In my view this would exclude the notion of any life estate.
3. Clause 3(b) suggests an intention for the deceased's estate to continue through generations to his grandchildren. This would support the proposition that, although the subject of a Trust, the property which would vest arguably in Ms Murphy should be intended to become part of her estate for the benefit of any children.
4. It seems to me of the three alternative constructions the more sensible and more likely is that the trust property vests once used by the Trustee for the purposes of the trust. In other words once the funds which comprised one third of the estate are used to buy a house or home unit in which Ms Murphy is to live and the purchase completed, that property would then be in the name of Ms Murphy and would no longer be the property of the Trust.
5. In my view what the testator was doing in effect for whatever reason in the case of Ms Murphy was to discharge what he undoubtedly saw as his obligations to her to ensure that at least she had a roof over her head to start with. I do not believe that any future limits were intended to be placed on her use of the property, nor upon her leaving that to her children if she so wished.
6. I note that a number of affidavits were read in support and that strictly speaking under section 32 of the Succession Act 2006 (NSW) extrinsic material can be relied upon. Ms Murphy's evidence which is not contested is that the deceased told her that he asked the plaintiff as executor of his will to "make sure that the money will go towards buying a house". As I say, for whatever reason he was concerned if above all else that Ms Murphy be secure in her own home. He left to his other two children an entire discretion as to how they might use their third of his estate.
7. Although the evidence in totality is not clear, what I have just said I consider is the better view.
8. It follows therefore that the Will should be construed such that the Trust property vests when used by the Trustee for the purposes of the Trust. It follows that in respect of other questions posed, the trust property should be purchased in Ms Murphy's name. After purchase the property remains hers and she can do with it what she wishes. Further it would therefore become an asset that she could deal with in the event of her death and as part of her estate.
9. The remaining question of substance is what the Trustee can apply the trust funds towards. The Will refers to the Trust fund being used "in purchasing" either a house or a home unit.
10. A sensible construction in my view of the words "in purchasing" are supportive of the proposition that any costs directly associated with the purchase, such as the purchase price, stamp duty and legals should sensibly be regarded as part of the initial purchase. Were it to be the fact that there be any excess at the original purchase stage, it seems to me the Trustee would have an undoubted discretion consistent with both assisting and maintaining Ms Murphy's ownership of the property to contribute portions of the excess were it to exist towards rates, repairs and renovations.
11. Again that is consistent with some of the extrinsic evidence. Ms Murphy states for example that she was told by the deceased that if there was any money left after the purchase it could be used for whatever she needed. Further evidence from Ms Mills suggests that the deceased had made it clear to her at least that she could use portion of the proceeds to pay bills or buy furniture or white goods or indeed to have a holiday.
12. At the conclusion of the proceedings and having carefully considered the materials in advance I agreed that answers suggested in the submissions of Counsel to questions (a) through to (e) should be answered accordingly. I made Orders shortly after the hearing of the matter which were entered forthwith.
13. These are the reasons I indicated I would deliver at a later point, having made the Orders.

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