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[2007] NSWCA 150
Court of Appeal (NSW)
2007-06-22
Giles JA, Hodgson JA, Ipp JA, Palmer J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Appeal Outcome: Special leave application granted by the High Court - 7 March 2008; Appeal allowed - 3 September 2008 - Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42
New South Wales
Court of Appeal
CITATION: His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor v The Macedonian Orthodox Community Church St Petka Inc [2007] NSWCA 150
HEARING DATE(S): 22 May 2007
JUDGMENT DATE:
22 June 2007
JUDGMENT OF: Giles JA at 1; Hodgson JA at 5; Ipp JA at 9
DECISION: (a) In relation to the appeal against orders two to eight of 20 March 2007: (i) leave to appeal is granted; (ii) the appeal is upheld; (iii) the orders are set aside; and (iv) the Association’s summons for judicial advice is dismissed; (b) Leave to appeal against the orders of 7 May 2004 and 10 June 2005 is refused; (c) Bishop Petar and Father Mitrev are ordered to file written submissions in regard to the costs issues that arise (and which are identified in these reasons) within 21 days from the delivery of judgment and the Association is ordered to file its submissions within 21 days from the filing of the first-mentioned submissions.
CATCHWORDS: TRUSTS AND TRUSTEES – judicial advice – jurisdiction – power of trial judge to give judicial advice as to the management or administration of trust property and the interpretation of the trust instrument under s 63(1) of the Trustee Act 1925 (NSW) – exercise of discretion –– whether trial judge erred in exercising his discretion to give judicial advice by failing to take into consideration the fact that the principal issue on which such advice was sought related to a contested question in the Main Proceedings (that is, whether the opponent had breached the trust and should be removed as trustee), thereby rendering the advice essentially adversarial in nature – whether judicial advice is an appropriate means by which to determine the substantive rights of parties in adversarial proceedings – whether trial judge erred by not weighing the potential benefit to the trust of authorising the opponent to obtain funds from the trust assets to defend the Main Proceedings, and affording it protection under s 63(2), against the potential detriment to the trust that, in the event the claimants are successful in the Main Proceedings, the total amount of trust assets would significantly be reduced – whether s 63(2) empowers a court to make orders as to judicial advice subject to revocation – whether, if the trial judge erred in exercising his discretion, the Court of Appeal should exercise afresh the discretion
LEGISLATION CITED: Trustee Act 1925 (NSW), ss 63(1), 63(2), 63(4), 63(11), 93(3)
Uniform Civil Procedure Rules 2005 (NSW), Pt 42, r 42.25
CASES CITED: Alcock v The Public Trustee (1936) 53 WN (NSW) 192
Application of Macedonian Orthodox Community Church St Petka Incorporated [2004] NSWSC 388
Application of Macedonian Orthodox Community Church St Petka Incorporated (No 2) (2005) 63 NSWLR 441
Application of Macedonian Orthodox Community Church St Petka Incorporated (No 3) [2006] NSWSC 1247
Application of Macedonian Orthodox Community Church St Petka Incorporated (No 4) [2007] NSWSC 254
Attorney-General for the State of New South Wales v Grant (1976) 135 CLR 587
Australian Pipeline Limited (2006) 60 ACSR 625; [2006] NSWSC 1316
Beddoe; Downes v Cottam, In re [1892] 1 Ch 547
Dallaway (dec’d), Re [1982] 1 WLR 756
Evans (dec’d), In re [1986] 1 WLR 101
General Assembly of Free Church of Scotland v Lord Overtoun [1904] AC 515
Harrison v Mills [1976] 1 NSWLR 42
Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405
His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor v The Macedonian Orthodox Community Church St Petka Incorporated & Anor [2006] NSWCA 277
Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Metropolitan Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor (2006) 66 NSWLR 112; [2006] NSWCA 160
Marley v Mutual Security Merchant Bank Trust Company Ltd [1991] 3 All ER 198
Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Incorporated [2003] NSWSC 104
Metropolitan Petar v Mitreski [2003] NSWSC 262
Mitchell, Re (1913) 30 WN (NSW) 137
Neagle v Rimmington [2002] 3 NZLR 826
Perkins v Williams (1905) 22 WN (NSW) 107
Sinnamon, Re [1940] QWN 41
Titterton v Oates (1998) 113 FLR 467
Trusts of the Will of Gilchrist, Re (1867) 6 SCR (NSW) Eq 74
PARTIES: His Eminence, Patar, the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand - 1st Claimant
Very Reverend Father Mitko Mitrev - 2nd Claimant
Macedonian Orthodox Community Church St Petka Incorporated - Opponent
FILE NUMBER(S): CA 40159/07
COUNSEL: TGR Parker SC, with RE Steele - Claimants
GO Blake SC - Opponent
RPL Lancaster appearing for Attorney General
SOLICITORS: McConnell Jaffray Lawyers - Claimants
Sachs Gerace Lawyers - Opponent
LOWER COURT JURISDICTION: Supreme Court
LOWER COURT FILE NUMBER(S): 2451/04
LOWER COURT JUDICIAL OFFICER: Palmer J
LOWER COURT DATE OF DECISION: 20 March 2007
LOWER COURT MEDIUM NEUTRAL CITATION: Application of Macedonian Orthodox Community Church St Petka Incorporated (No 4) [2007] NSWSC 254
His Eminence, Metropolitan Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor v The Macedonian Orthodox Community Church of St Petka Inc
HEADNOTE
Facts
The first claimant, his Eminence, Metropolitan Petar, is the diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand. The second claimant, the Very Reverend Father Mitko Mitrev, is his appointee as the parish priest of the Macedonian Orthodox Community Church of St Petka in the suburb of Rockdale, New South Wales. The opponent, the Macedonian Orthodox Community Church of St Petka Inc, is an incorporated association that, since 1992, has held all property associated with the church.
Bishop Petar appointed Father Mitrev in April 1996. In July 1997, the Association dismissed him as the parish priest. The first and second claimants contend that, since July 1997, the Association has refused to recognise them as having any authority at St Petka and has excluded them from the conduct of the affairs of the church. As a consequence, they launched proceedings (the Main Proceedings) against a number of defendants, including the Association. The Main Proceedings concern whether the Association had used the church property (which, according to Bishop Petar and Father Mitrev, was held on trust) for the purposes of the Macedonian Orthodox Church and whether the Association should be removed as trustee. The question whether the church property was held on trust and the correct terms of the trust are issues raised in the Main Proceedings.
Following a number of separate hearings regarding issues ancillary to the Main Proceedings, the Association sought, from Palmer J, judicial advice, pursuant to s 63 of the Trustee Act 1925 (NSW), as to the management or administration of trust property, or the interpretation of the trust instrument, as follows:
(i) that the Association would be justified in defending the Main Proceedings, save in a number of respects;
(ii) that the Association should have recourse to property known as the Schedule A property (which consisted of the church land, a child-care centre and three investment properties), other than the church land, in order to pay its costs of defending, inter alia, the Main Proceedings; and
(iii) that the foregoing orders may be revoked by an order of the trial judge in the Main Proceedings.
The claimants, in the court below, contended that the judge should not give any of the advice sought.
The judge held that the nub of the advice sought was the determination of the terms of the trust upon which the Schedule A property was held. His Honour, ultimately, gave the judicial advice sought. The advice was encompassed in orders his Honour made. In addition, Palmer J ordered that the orders in question were subject to, and could be revoked by, further order.
Bishop Petar and Father Mitrev appealed from Palmer J’s decision.
Issues for Determination by the New South Wales Court of Appeal
The principal issues for determination by the Court of Appeal were as follows:
(i) to ascertain the scope of the power of a court to give judicial advice pursuant to s 63 of the Trustee Act 1925 (NSW);
(ii) whether Palmer J had the power, in this case, to give judicial advice;
(iii) whether Palmer J erred in the exercise of his discretion to give judicial advice; and
(iv) whether the Court of Appeal should exercise the discretion (of the trial judge to give judicial advice) afresh.
HELD per Ipp JA (Giles and Hodgson JJA agreeing)
In relation to (i):
Advice given under s 63 of the Trustee Act 1925 (NSW) is intended for those who hold property on trust for the benefit of others. The court is merely concerned with the management or administration of trust property and the interpretation of the trust instrument.
Section 63 assumes that the matter with respect to which judicial advice is sought will be one involving some aspect of the trustee’s duty as trustee as it relates to future conduct of the trustee.
Section 63 does not empower advice in connection with litigation that concerns whether the trustee has, in the past, committed a breach of trust such that the trustee should be removed. Australian Pipeline Limited (2006) 60 ACSR 625; [2006] NSWSC 1316 (applied)
Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Incorporated [2003] NSWSC 104; Re Dallaway (dec’d) [1982] 1 WLR 756 (distinguished)
In relation to (ii):
Australian Pipeline Limited (2006) 60 ACSR 625; [2006] NSWSC 1316 (distinguished)
In relation to (iii):
The judge, in exercising his discretion to give judicial advice, should have had regard to the fact that the primary issue on which judicial advice was sought related to an important contested question in the Main Proceedings, namely, whether the trustee has breached the trust. This type of advice affects, to a substantial extent, the rights of the claimants and the Association.
Judicial advice is not an appropriate vehicle by which to determine the substantive rights of parties in adversarial proceedings.
Harrison v Mills [1976] 1 NSWLR 42; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405; Marley v Mutual Security Merchant Bank and Trust Company Limited [1991] 3 All ER 198 (considered)
Re Trusts of the Will of Gilchrist (1867) 6 SCR (NSW) Eq 74; Re Mitchell (1913) 30 WN (NSW) 137; Alcock v The Public Trustee (1936) 53 WN (NSW) 192; Re Sinnamon (1940) QWN 67; Neagle v Rimmington [2002] 3 NZLR 826; Australian Pipeline Limited (2006) 60 ACSR 625; [2006] NSWSC 1316 (cited)
The issues before Palmer J were adversarial in nature, as the principal motivation for the Association’s desire to have the terms of the trust determined by the court was to prove that it had not committed a breach of trust and should not be removed as trustee. Consequently, the Association was not a disinterested observer seeking advice as to what course of conduct it should follow in discharging its duties as trustee.
In exercising his discretion as to whether judicial advice should be given to the Association, Palmer J should have weighed the potential benefits to the trust of authorising the Association to defend the Main Proceedings and to obtain funds from the trust property for such purposes, and affording it protection under s 63(2), against the potential disadvantages to the trust that, in the event the claimants are successful in the Main Proceedings, costs would be lost and the claimants would seek to recover their costs from the trust, thereby leading to a reduction of at least about one third of the Schedule A property (other than the church land). His Honour did not undertake this balancing exercise and, thus, erred in the exercise of his discretion.
The trial judge erred in holding that he had the power to make revocable orders as regards the judicial advice he had given. There is nothing in s 63(2) that empowers a court to attach a condition to the deemed discharge of a trustee’s duty as trustee (once the trustee acts in accordance with judicial advice given under s 63(1)) and to make it subject to revocation by a judge at a later stage. Making the orders revocable was not permitted by s 63, and his Honour, therefore, erred in the exercise of his discretion.
His Honour’s reliance on Re Dallaway (dec’d) [1982] 1 WLR 756 in making his orders revocable was misplaced. The legal matrix against which Re Dallaway (dec’d) was decided does not exist in the State of New South Wales. Re Dallaway (dec’d) [1982] 1 WLR 756 (not followed)
In relation to (iv):
As the judge had erred in principle in exercising his discretion to give judicial advice, it is for the Court of Appeal to exercise afresh his discretion.
The Court should refuse to give the judicial advice sought.
Orders
(a) leave to appeal is granted;
(b) the appeal is upheld;
(c) the orders are set aside; and
(d) the Association’s summons for judicial advice is dismissed.
Bishop Petar and Father Mitrev are ordered to file written submissions in regard to the costs issues that arise (and which are identified in these reasons) within 21 days from the delivery of judgment and the Association is ordered to file its submissions within 21 days from the filing of the first-mentioned submissions.
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL 40159/07
GILES JA
HODGSON JA
IPP JA
Friday 22 June 2007
His Eminence, Metropolitan Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor v Macedonian Orthodox Community Church of St Petka Incorporated
Judgment
1 GILES JA: Subject to one matter, I agree with the reasons of Ipp JA.
2 That matter is his Honour’s reference to the decision of this Court in Metropolitan Petar v Macedonian Orthodox Community Church St Petka Inc (2006) 66 NSWLR 112. Beazley JA and I considered that an application under s 63 of the Trustee Act 1925 is not an adversarial proceeding, even though the trustee (the Association) and the parties served (Metropolitan Petar and Father Mitrev) were adversaries in other proceedings, and that the application did not become adversarial because the trustee and the parties served were adversaries: at [42], [54]-[56]. Hodgson JA considered that in the circumstances the s 63 proceedings were in substance adversarial: at [68].
3 The important distinction is between the nature of the s 63 proceedings and their use in the particular circumstances, and use as adversarial proceedings to determine rights as between adversaries is not appropriate to s 63 proceedings: Harrison v Mills [1976] 1 NSWLR 42; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405; and other cases cited by Ipp JA. On the view taken by Beazley JA and myself, seeking judicial advice on the use of trust property to pay the costs of defending an adversarial claim to remedies for breach of trust and removal of the trustee by reason of misuse of the trust property is foreign to the non-adversarial nature of s 63 proceedings. It is no less so because determining the precise terms of the trust is part of resolving the adversarial claim. In this respect, any divergence between our view and that of Hodgson JA does not favour the Association in the present appeal. On the contrary, it underlines that it is inappropriate to give judicial advice.
4 I agree with the orders proposed by Ipp JA.
5 HODGSON JA: I agree with the orders proposed by Ipp JA and with his reasons.
6 It is true that in any case where a trustee seeks judicial advice concerning the bringing or defending of legal proceedings, and a beneficiary given notice pursuant to s.63(4) of the Trustee Act 1925 argues for advice different from that sought by the trustee, there is an element of contest and an element of determination of rights, because s.63(11) has the effect of protecting the trustee who acts in accordance with the advice from liability to the beneficiary for so doing. However, the majority judgment in Macedonian Orthodox Community Church St. Petka Inc. v. His Eminence Petar [2006] NSWCA 160, (2006) 66 NSWLR 112, indicates that this does not necessarily make the proceedings adversarial proceedings inappropriate to be dealt with under s.63.
However, par.[42] of that judgment makes it clear that the contest in s.63 proceedings may be or become such that it is inappropriate for the Court to resolve that contest in s.63 proceedings, in which case the Court should decline to give judicial advice. As shown by Ipp JA, the contest in the proceedings before the primary judge did have a substantially adversarial character, in the following respects: (a) The trustee was seeking to use trust property to defend itself against allegations of breaches of trust. (b) The trustee was not disinterestedly asking the Court’s guidance on what course to take and/or what were the true terms of the trust, but seeking to advance a particular version for the trust that would protect it from findings of breach of trust. (c) The effect of the advice sought by the trustee would be that a very substantial portion of trust assets would be used up, with little if any prospect of recovery if the decision went against the trustee, thereby to a significant extent pre-empting the decision in the substantive litigation.
I agree with Ipp JA that these considerations were not taken into account by the primary judge; and that, having regard to them, the Court should decline to give judicial advice in non-adversarial proceedings.
IPP JA: The events leading to the giving of judicial advice, the subject of the appeal
This application for leave to appeal and appeal were heard concurrently. They concern judicial advice given by Palmer J under s 63(1) of the Trustee Act 1925 (NSW). The claimants challenge decisions by his Honour to give advice.
The first claimant, Bishop Petar, is the diocesan Bishop of the Macedonian Orthodox Church for Australia and New Zealand. The second claimant, Father Mitrev, is the Bishop’s appointee as the parish priest of the Macedonian Orthodox Church of St Petka at Rockdale. The opponent is the Macedonian Orthodox Community Church of St Petka Inc (the “Association”). The Association is an incorporated association that, since 1992, has held all the property associated with the Church of St Petka.
In April 1996, Father Mitrev was appointed and took up his duties as parish priest of St Petka. In July 1997, however, the Association dismissed him as parish priest. Bishop Petar and Father Mitrev contend that, since then, the Association has refused to recognise them as having any authority at St Petka and has excluded them from the conduct of St Petka’s affairs. The Association has employed others to act as the parish priest.
Bishop Petar and Father Mitrev are plaintiffs in proceedings (referred to by the parties as the “Main Proceedings”) against a number of defendants concerning the affairs of the Macedonian Orthodox Church of St Petka at Rockdale. The Association is a defendant in the Main Proceedings.
The litigation has endured for nearly ten years and has been bitterly fought. There have been many interlocutory disputes and decisions and many have been taken on appeal. The factual background is set out in detail in His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor v The Macedonian Orthodox Community Church St Petka Incorporated & Anor [2006] NSWCA 277.
In the Main Proceedings, Bishop Petar and Father Mitrev contend: (a) the church property is held upon a charitable trust; the terms of the trust require the church property to be used for the purposes of the Macedonian Orthodox Church; (b) the Association has, since 1997, used the property contrary to the purposes of the Macedonian Orthodox Church and, thereby, has breached the trust (and an account is sought in relation to monetary breaches); and (c) the Association should be removed as trustee and a new trustee appointed in its place.
These issues, so stated, mask the fact that the essence of the dispute is whether the Association or Bishop Petar and his supporters are to have control over the Macedonian Orthodox Church of St Petka at Rockdale, its affairs, including the appointment of priests, its land, its religious objects and other assets, and its doctrinal approach.
In 2002, the Association filed a defence in the Main Proceedings denying that the property vested in it on its incorporation was held on trust for the purposes of the Macedonian Orthodox Church. The Association alleged that that property vested in it as to both the legal and the equitable estate. The Association further pleaded that, if it held property on trust for the purposes of the Macedonian Orthodox Church, “then the terms of such trust were subject to the terms of the constitution of the [Association] or in the alternative, were terms that were consistent with and subject to the powers, objects and purposes of the [Association]”.
The property associated with the Church of St Petka consists of the church building and the land upon which it stands (“the Church Land”), a child-care centre at Arncliffe, several home units held as investments, icons and other religious items, money derived principally from donations from parishioners and income from the investment properties.
In 2002, a separate hearing was held before Hamilton J to determine certain preliminary questions. The questions were: “(a) Whether the property referred to in Schedule A … (“the Property”) was, prior to it being invested in the [Association], held upon any and if so what trust, (i) for the purposes of the Macedonian Orthodox Church … (ii) for some other purpose or beneficiary, and if so what purpose or beneficiary.
(b) Whether any trust found under (a) above is a valid charity.
(c) Whether [sic] effect of the vesting of the Property in the [Association] was that the [Association] thereafter held the Property free of either trust.”
The Schedule A property (the subject of the questions before Hamilton J) consisted of the Church Land, the child-care centre and the three investment properties. The status of the other property held by the Association was left for later determination.
Hamilton J answered the questions as follows: “(a)(i) & (ii) The property referred to in Schedule A was prior to the transfer of the legal titles to the [Association] held upon trust to permit the trust property to be used by The Macedonian Orthodox Church St Petka Rockdale as a site for a church of the Macedonian Orthodox Religion and for other buildings and activities concerned with or ancillary to the encouragement, practice and promotion of the Macedonian Orthodox Religion. … (b) Yes. (c) No.”
The remaining issues in the Main Proceedings were listed for hearing in March 2004. The hearing, however, was vacated and a timetable fixed to enable various procedural steps to be taken. Prior to the completion of those steps, the Association commenced proceedings for judicial advice relating to the obtaining of counsel’s opinion. On 6 May 2004, Palmer J heard the application for that judicial advice.
On 7 May 2004, Palmer J gave advice in response to the Association’s application (Application of Macedonian Orthodox Community Church St Petka Incorporated [2004] NSWSC 388) by directing that the Association was justified in having recourse to the Schedule A property for the purpose of paying its reasonable legal costs incurred in:
· complying with existing directions of the Court and in preparation of its case up to 9 July 2004, when it was expected that the interlocutory applications would have been completed; and
· procuring an opinion of counsel as to its prospects of success in the Main Proceedings.
His Honour directed that his directions were subject to, and might be revoked by, an order of the trial judge in the Main Proceedings, or by a direction or order made on further consideration of the Association’s summons for judicial advice.
On 10 June 2005, Palmer J directed that, for the purpose of paying its further reasonable legal costs and expenses (up to an amount of $60,000) in procuring a preliminary opinion of counsel, the Association was justified in having recourse to the Schedule A property. As in the case of the earlier judicial advice application, that direction was made subject to the order of the trial judge in the Main Proceedings or to any order made on further consideration of the Association’s application for judicial advice: see Application of Macedonian Orthodox Community Church St Petka Incorporated (No 2) (2005) 63 NSWLR 441.
By their seventh Amended Statement of Claim, Bishop Petar and Father Mitrev alleged that the expenditure by the Association on the costs of defending the Main Proceedings by recourse to the Schedule A property and the non-Schedule A property was a breach of trust.
In March 2005, Bishop Petar and Father Mitrev applied to Hamilton J for an interlocutory injunction restraining the Association from having recourse either to Schedule A property or non-Schedule A property for the purpose of paying its costs and expenses in defending the Main Proceedings. His Honour refused injunctive relief in relation to the non-Schedule A property but made orders limiting the Association’s right to have recourse to Schedule A property to such expenditure by the Association as was authorised under any judicial advice given, or yet to be given, in these proceedings.
On 13 December 2005, Mr G Blake SC provided to the Association an opinion as to its prospects of success in the Main Proceedings. Mr Blake provided a supplementary opinion on 27 February 2006.
On 6 October 2006, this Court allowed an appeal from the orders made by Hamilton J. The effect of the Court’s orders was to restrain payment of costs by the Association out of non-Schedule A property except for certain costs that had already been incurred. The Court permitted payment of costs, both incurred and yet to be incurred, out of Schedule A property if such expenditure was authorised by judicial advice.
The Association, thereupon, sought further judicial advice from Palmer J: Application of Macedonian Orthodox Community Church St Petka Incorporated (No 3) [2006] NSWSC 1247. His Honour observed (at [27]): “[A]s paragraph 2 of the orders makes apparent and as was explained by Mr Blake, the Association does not seek advice that it is justified in having recourse to Schedule A property to litigate all issues in the Main Proceedings; rather, the advice is confined to funding of the issue: what are the precise terms of the trust upon which the Schedule A property is held. This issue has been identified as the ‘Schedule A Property Issue’”.
The principal advice which the Association initially sought from the court, in summary form, was as follows: (a) that the Association would be justified in defending the Main Proceedings, save in stipulated respects;
(b) that the Association be entitled to have recourse to the Schedule A property, other than the Church Land, “for the purpose of paying its reasonable costs of defending the Main Proceedings as to the Schedule A Property Issues and substantially the same allegations in earlier pleadings to Statement of Claim (version 7) incurred since 9 July 2004 or alternatively as to the Schedule A Property Issues from the date of this order, in addition to the costs previously ordered by the Court on 7 May 2004” (see [26]); and
(c) that the foregoing orders be subject to, and may be revoked by, an order of the trial judge in the Main Proceedings.
Bishop Petar’s position was that the Court should, for a variety of reasons, decline to give any of the advice sought.
Palmer J (at [30]) summarised the issues before him, relevantly, as being: “Whether any of the advice sought by the Association should be given at all. This question raises the issues:
· whether the giving of any such advice is in the interests of the trust estate;
· whether revocable orders as to costs can, or should be, made;
If any advice is to be given, what is that advice.”
On 20 March 2007, Palmer J made orders to the effect that the Association would be justified in defending the Main Proceedings, and that it was entitled to have recourse to the Schedule A property “in paying its reasonable costs of defending the Main Proceedings as to the Schedule A issue…” and related relief. Amongst the related orders his Honour made was an order (order five) declaring that the Association was entitled to have recourse to the Schedule A property for the purpose of obtaining an assessment of its costs that, on 6 October 2006, this Court ordered Bishop Petar and Father Mitrev to pay (that is, when it allowed the appeal from the orders made by Hamilton J). His Honour also ordered that the orders he made (on 20 March 2007) could be revoked by the trial judge in the Main Proceedings “or by subsequent order”. The precise terms of the orders are set out below. The relief sought
The principal relief sought by Bishop Petar and Father Mitrev in the present proceedings is the setting aside of the orders made on 20 March 2007.
They also seek to have the orders made on 7 May 2004 and 10 June 2005 set aside. The judge’s reasoning and the orders made on 20 March 2007
Palmer J observed that the Association was not seeking advice that it was justified in having recourse to Schedule A property to litigate all issues in the Main Proceedings. His Honour stated (at [27]) that the advice was confined to the issue: “what are the precise terms of the trust upon which the Schedule A property was held”. His Honour described this issue as “the Schedule A Property Issue”.
Palmer J observed that it was common ground that the statement by the Privy Council in Marley v Mutual Security Merchant Bank Trust Company Ltd [1991] 3 All ER 198 at 201 was applicable: “[I]n exercising its jurisdiction to give directions on a trustee’s application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties.”
Palmer J accepted that the trust would benefit if the Association defended the Schedule A Property Issue as the terms of the trust would be resolved once and for all “and the disputes as to the administration of the trust property [would] be ended” (at [50]). His Honour stated (at [50]): “It must not be forgotten that the trust in the present case is a charitable trust. Its purpose is not the preservation or accumulation of wealth for the financial advantage of a class of beneficiaries, but, rather, is the promotion of religious worship.”
His Honour observed (at [52]): “Whether the judicial advice sought by the Association is given or not, the most important trust property, i.e. the Church Lands, will be preserved and the Church, presumably, will continue indefinitely to be used as a place of public worship. It is in the public interest and for the benefit of the trust estate that there be an end to the disputes as to the terms of the trust under which the Church may be used.”
His Honour considered (at [53]) that it would be in the best interests of the Schedule A property trust that there be a trial: “which will resolve the dispute as to the terms of the trust under which the Schedule A property is held. There is no point in a trial of that issue unless the trial is a fair one, that is, the Association has a fair opportunity to present its case with legal representation. It can do so only by recourse to the Schedule A property.”
His Honour then turned to the question of whether he should make “revocable” orders. He referred to Re Dallaway (dec’d) [1982] 1 WLR 756. In that case, Megarry VC directed that the executor was justified in defending the claim and added (at 761 to 762): “In giving that direction, I propose to include a provision that, subject to any order made by the trial judge, the bank will be entitled to be indemnified out of the estate for all costs for which it is liable, even if the defence or counterclaim, or both, are unsuccessful. It seems to me to be necessary to make this provision subject to any order of the trial judge because although as matters stand the bank, on the material before me, is fully justified in defending and counterclaiming, it is possible that material may emerge subsequently which will make it unreasonable for the bank to continue to defend or counterclaim; and if, despite that, the bank continued with the litigation, no order that I make now ought to protect them in relation to subsequent costs. In view of this possibility I propose that my order should take effect only until further order, giving all parties liberty to apply, and authorising the master to consider and deal with any such application.”
A similar order was sought in In re Evans (dec’d) [1986] 1 WLR 101. While the judge at first instance made revocable orders, the English Court of Appeal overturned them. In doing so, the English Court of Appeal distinguished Re Dallaway on three grounds. These were described by Palmer J (at [59]) as follows: “First, the Court of Appeal said that Re Dallaway was a decision on its own facts; second, the court noted that in Re Dallaway Megarry VC had serious reservations about the prospects of the claimant’s success against the estate; third, the Court of Appeal observed that in Re Dallaway the alternative to an order that the executor have its costs out of the estate was that the other beneficiaries indemnify the executor for the costs of the litigation, which was ‘clearly unworkable’, whereas in Evans the other beneficiaries [who were contesting the claim of another beneficiary] could be joined as defendants.”
His Honour referred to other authorities and concluded (at [62]): “Where a trustee seeks an order that it is justified in defending a claim against a trust estate by recourse to the trust assets for the costs of the litigation, the question will be whether it is more practical, and fairer, to leave the competing claimants to the beneficial interest in the trust estate to fight the litigation out amongst themselves, at their own risk as to costs and leaving the trustee as a necessary but inactive party in the proceedings, or whether it is more practical, and fairer, that the trustee be the active litigant with recourse to the trust fund for the costs of the litigation. What is ‘practical and fair’ will depend on the particular circumstances of each case and will include: · whether the beneficiaries of the trust estate have a substantial financial interest in defending the claim; · what are the financial means of the beneficiaries to fund the defence; · the merits and strengths of the claim against the trust estate; · the extent to which recourse to the trust estate for defence costs would deprive the successful claimant of the fruits of the litigation; · if the trust is a charitable trust rather than a private trust, what, if any, are the considerations of public interest.”
His Honour pointed out that the trust in the present case is a charitable trust and no person is a beneficiary of it. His Honour observed that none of the contestants in the case was claiming or defending in order to augment or defend personal assets. His Honour concluded (at [65]): “As a matter of practicality, the Association cannot find the financial resources to contest the Schedule A Property Issue without recourse to the Schedule A property. I cannot appreciate the fairness of requiring the Association to take a neutral position as trustee in the litigation, or to retire, leaving it to individuals, who are not beneficiaries of the trust and have no financial interest in the trust property, to fund the litigation at their own expense and at risk as to costs generally.”
His Honour turned to the question of whether revocable costs orders should be made. His Honour said that an order of the kind made in Re Dallaway was not a pre-emptive costs order. He said (at [68]): “A pre-emptive costs order is one which prevents an inconsistent costs order being made later. But a revocable order such as that made in Re Dallaway expressly contemplates that an inconsistent costs order may later be made, if the trial judge thinks fit.”
He described a revocable costs order as “merely an interim order”.
His Honour had regard to the opinions given to the Association by Mr Blake, the Association’s senior counsel. Those opinions were held by a majority of this Court (in a decision involving the same parties, the citation of which is Macedonian Orthodox Community Church St Petka Inc v His Eminence Metropolitan Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor (2006) 66 NSWLR 112; [2006] NSWCA 160) to be protected by legal professional privilege in an application for judicial advice brought under s 63 of the Trustee Act. They were, therefore, not disclosed to Bishop Petar and Father Mitrev. Palmer J said (at [81]) that the propositions of law relied upon in Mr Blake’s opinions were “properly arguable”. His Honour concluded (at [82]) that “the Opinions demonstrate sufficient prospects of success to warrant the Association defending the Schedule A Property Issue and, for that purpose, having recourse to the Schedule A property.”
On the strength of this reasoning, in a separate judgment, delivered on 20 March 2007 (Application of Macedonian Orthodox Community Church St Petka Incorporated (No 4) [2007] NSWSC 254), his Honour stated (at [15]): “The orders I make are as follows:
The Court notes the undertaking to the Court by the Association by its Counsel that:
a) if the Association is unsuccessful in proceedings number 3369 of 1997 (“the Main Proceedings”);
b) the Bishop applies to the trial judge in the Main Proceedings for revocation of the interim costs orders affecting the Main Proceedings which have been made in these proceedings;
c) the trial judge thinks it just and expedient for the purpose of dealing with that application to make a direction in accordance with this undertaking;
the Association will disclose to the Bishop and his legal advisers, to the extent deemed necessary by the trial judge, the Opinions of the Association's Counsel, Mr G. Blake SC, as to its prospects of success in the Main Proceedings which have been provided to the Court on a confidential basis in these proceedings.
(a) the allegations in paragraphs 7 and 22 of the Statement of Claim (version 7);
(b) the allegations that are raised by the Association by way of defence to the allegations in paragraphs 7 and 22 of the Statement of Claim (version 7);
(Schedule A Property Issue) .
(a) $78,666.01 for the period from 9 July 2004 to 9 February 2007;
(b) up to $216,295.00 for future costs.
The directions and orders in paragraphs 2 and 3 are subject to the proviso that expenditure by recourse to the Schedule A Property is justified only if the Association is reasonably of the opinion at the time of making the expenditure that, if the expenditure is made, the Association will have sufficient funds remaining from which it can properly pay the costs of defending the Schedule A Property Issue to finality.
The Association be entitled to have recourse to the property in Schedule A in the judgment Metropolitan Petar v Mitreski [2003] NSWSC 262, other than the Church Land for the purpose of paying its reasonable legal costs of obtaining an assessment of its costs ordered to be paid by the opponents in Macedonian Orthodox Community St Petka Inc v His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand [2006] NSWCA 160.
The Association have liberty to apply to vary the amounts in paragraph 3 above.
The foregoing orders are subject to, and may be revoked by, an order of the trial judge in the Main Proceedings, or by a subsequent order in these proceedings.
Costs of the proceedings to date reserved.”
The financial effect of the 20 March 2007 judicial advice
By order three of the orders made by Palmer J, the Association became entitled to have recourse to the Schedule A property, other than the Church Land, for paying its reasonable costs of defending the Schedule A Property Issue. His Honour capped those costs at $78,666.01 for the period from 9 July 2004 to 9 February 2007 and up to $216,295.00 for future costs.
On the evidence before Palmer J, the value of the Schedule A property, excluding the Church Land, was between $1,750,000.00 and $1,760,000.00. This was made up of $1,350,000.00 for the child-care centre, and $400,000.00 to $410,000.00 being the aggregate value of two investment properties.
The evidence revealed that the National Australia Bank Ltd had a mortgage of $582,804.65 over the Schedule A property, excluding the Church Land. In addition, in November 2006, a mortgage was registered in favour of the Association’s solicitors over the child-care centre apparently “to secure the payment of outstanding legal fees”.
The effect of these matters was that, without taking into account the mortgage in favour of the Association’s solicitors, the value of the Schedule A property, other than the Church Land, less the amount of the mortgage in favour of the bank, was about $1,175,000.00.
The evidence was that the future costs of the Association are likely to be about $200,000.00. It is to be borne in mind that, according to order three, past costs amount to over $78,000.00, and up to $216,295.00 of the Schedule A property, other than the Church Land, can be used for future costs. It is reasonable to infer that the reasonable costs of Bishop Petar and Father Mitrev in the future will also be in the region of at least $200,000.00.
Section 93(3) of the Trustee Act provides that, in proceedings such as the Main Proceedings, the court may order any costs to be paid out of “such part of the property [subject to the trust] as in the opinion of the Court is the real subject matter of the proceedings”. A person interested in the trust fund who successfully institutes proceedings for removal will, ordinarily, be awarded costs from the fund: Perkins v Williams (1905) 22 WN (NSW) 107; Titterton v Oates (1998) 113 FLR 467 at 483 to 484. Thus, should Bishop Petar and Father Mitrev be successful in the Main Proceedings, it is likely that recourse would be had to the Schedule A property in an amount of not less than about $400,000.00.
According to a judgment given by this Court in proceedings between the same parties on 6 October 2006 (His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor v The Macedonian Orthodox Community Church St Petka Incorporated & Anor [2006] NSWCA 277), it was said that the land value (alone) of the church and church hall was $1,200,000.00.
Apart from the Church Land, should Bishop Petar and Father Mitrev succeed in the Main Proceedings, it is likely that at least about one third of the Schedule A property (other than the Church Land) will be lost. The statutory power to give judicial advice
The judicial advice was sought under s 63(1) of the Trustee Act which 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.”
Judicial advice under s 63(1) has significant consequences in regard to a trustee’s potential liability for acts performed in accordance with the advice. These consequences stem from s 63(2), which provides: “(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.”
I would emphasise that the provision of judicial advice to a trustee in New South Wales is governed by the Trustee Act. For this reason, decisions in other jurisdictions, in which different, or even no, legislation applies, are of limited assistance. During the course of argument, there was much reference, for example, to In re Beddoe; Downes v Cottam [1892] 1 Ch 547, which is the origin of much English learning on the question of judicial advice to a trustee, and a long line of cases that have followed it. While some of what is said in these cases may be of some relevance, the key to the issues raised in this case is to be found in the New South Wales statute. No legislation was relevant to the Beddoe decision.
Barrett J gave careful consideration to s 63 in Australian Pipeline Limited (2006) 60 ACSR 625; [2006] NSWSC 1316. His Honour there dealt with an application by Australian Pipeline Ltd (“APL”) for judicial advice under s 63. The advice sought was whether APL was justified, as a trustee, in defending proceedings against it in which the plaintiff raised allegations of breach of trust against APL.
The application for judicial advice did not pose directly the question whether APL had acted in accordance with its duties and obligations as trustee. Barrett J referred to Needham J’s observation in Harrison v Mills [1976] 1 NSWLR 42 at 45 that s 63 was a provision entailing “advice by the Court to a trustee who is in doubt as to the propriety of a course of action which he proposes to take”, and said: “17 This element of guidance for the future as the proper province of judicial advice is emphasised in the case law. In Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198, Lord Oliver of Aylmerton said (at p.201): ‘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.’" [emphasis added]
18 Also apposite is the observation of Paterson J of the High Court of New Zealand in Neagle v Rimmington [2002] 3 NZLR 826 at p.835:
‘Directions should direct trustees on how to proceed in a contemplated situation, where the facts are clear and no breach of trust is alleged.’”
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.”
· The proper province of judicial advice is guidance for the future.
· A paradigm example of circumstances where judicial advice will be given is where a trustee is in genuine doubt about the propriety of any contemplated course of action in the exercise of his or her fiduciary duties and discretions.
· Advice will ordinarily be given as to how trustees should proceed in a contemplated situation when the facts are clear and no breach of trust is alleged.
· Section 63 is intended to empower advice to be given to those who have the stewardship of property for the benefit of others. As the section provides, the court is concerned with “the management or administration of the trust property” and “the interpretation of the trust instrument”.
· If a trustee wishes 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 and if those proceedings are being undertaken for the benefit of the trust and the beneficiaries.
· Section 63 does not empower advice in connection with litigation that concerns merely whether the trustee has, in the past, committed breaches of trust (even if the litigation – to establish the alleged breach of trust – necessarily involves the proper construction of the trust instrument).
· Section 63 does not empower advice in connection with litigation that involves merely allegations of past misconduct on the part of the trustee that, if established, will entail personal liability for breach of trust or statutory wrongdoing (and where the trust property will, in no way, be protected or enhanced by defence of the claim).
· Section 63 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, then, 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 – not by considerations of stewardship.
· 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.
The Association claimed support from Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Incorporated [2003] NSWSC 104. In this case, the trustee, MAAI, sought a direction that it would be justified in using trust money that might in equity belong to a third party, MLALC, to pay for its costs of proceedings whereby MLALC claimed that it had lent the money and sought return of it. Austin J observed at [24]: “If MLALC were to succeed in its claims based upon trust, the consequence would be that almost all of the assets held by MAAI as trustee of the Eora Trust would belong in equity to MLALC. If, in that event, MAAI were allowed to deduct its costs and disbursements in the proceedings from trust funds, the practical effect would be as if MLALC were the [sic] required to pay MAAI's costs, notwithstanding that it had succeeded in the litigation.”
Austin J, in deciding to give the advice sought, was substantially persuaded by the fact that “without the orders the trustee may be left without funds to conduct litigation for the purpose of protecting the trust fund”: at [33]. His Honour observed that a like consideration had persuaded Megarry VC to make similar orders in Re Dallaway.
In Re Dallaway, Megarry VC said (at 759 to 760): “I take it to be axiomatic that, acting with proper prudence, executors should take proper steps to protect their testator's estate against adverse claims. However, when there is an adverse claim not merely to a small part of the estate, but to the whole of it, the executors are in a difficult position; for if the claim succeeds, the decision establishes that nothing is theirs, and so they hold nothing out of which they can indemnify themselves for the costs of defending what they believed to be their estate. Executors who have an estate which is held to consist of nothing can have nothing out of which they can take their costs. However, in the parallel case of trustees of courts have tempered this icy logic. It has been held that where a settlement is set aside and so there is no property out of which the trustees can take their costs as of right, the court nevertheless has a discretion to allow the trustees to take their costs out of the fund before handing it over to the successful litigants."
Megarry VC gave a direction authorising the executor to continue to defend and raise a counter-claim, adding a provision that, subject to any order made by the trial judge, the executor would be entitled to be indemnified out of the estate for the costs for which it was liable, even if the defence or counter-claim, or both, were unsuccessful.
In my opinion, Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Incorporated and Re Dallaway are distinguishable from Australian Pipeline Limited. In neither of the first-mentioned two cases was advice sought concerning proceedings where it was alleged that there had been a breach of trust by the trustee. In neither of those cases was the trustee’s position as trustee under challenge. In both cases, advice was sought as to whether the trustee might finance its costs of proceedings that were brought to increase the patrimony of the trust. The litigation did not concern the issue whether past conduct of the trustee amounted to a breach of trust such that the trustee should be removed. The matter on which judicial advice was sought involved some aspect of "the trustee's duty as trustee” (namely, the pursuit of litigation for the financial benefit of the trust).
I accept that the effect of the advice in Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Incorporated and Re Dallaway was to diminish the assets of the trust, and that meant that the assets available to the opposing party, in each case, would be diminished should it eventually succeed in the litigation. But that is a matter that would affect the discretion of the judge whether or not to give advice. It would not go to the power to give advice.
I do not regard Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Incorporated as departing in substance from the principles expressed in Australian Pipeline Limited, which I consider to be correct. Did the Court have power to give the judicial advice?
The Association submitted that it was seeking guidance for the future by asking the Court whether it would be justified, as trustee, in defending the Main Proceedings on the Schedule A Property Issue and whether it would be entitled to have recourse to the property in Schedule A.
Bishop Petar and Father Mitrev submitted that the Association’s principal concern was how it should deal with allegations of past misconduct that, if established, would entail personal liability for breach of trust. On that basis, the giving of judicial advice might be outside the Court’s power.
The trust was established for religious purposes and a fundamental question in the Main Proceedings is whether it has used the church property for the purposes of the Macedonian Orthodox Church. Compare General Assembly of Free Church of Scotland v Lord Overtoun [1904] AC 515 at 645 per Lord Davey; see also Attorney-General for the State of New South Wales v Grant (1976) 135 CLR 587 at 600 to 601.
An important issue in the Main Proceedings is whether the Association, as trustee, has acted in accordance with the doctrines and tenets of the Church. Bishop Petar and Father Mitrev contend that the Association has not so acted and the Association contends to the contrary. The allegations of breach of trust turn largely on this question.
This is not the kind of breach of trust that is usually involved where misuse of trust assets leading to financial loss to the trust is alleged. In the latter kind of case it is, ordinarily, not possible to argue (as Barrett J pointed out in Australian Pipeline Limited) that judicial advice as to whether there has been a breach of trust will assist the trustee in the course of its duties as trustee. But where the breach of trust involves the question whether the trustee is administering the trust in accordance with the true doctrines and tenets of a religious body (as the trust requires), the considerations are different. In such circumstances, it is not difficult for the trustee to argue that judicial advice is required (with the concomitant protection afforded by s 63) to enable the trustee to protect the trust from takeover by those who are not true followers of the religious body. This is, indeed, the argument that the Association, in effect, maintains.
In my view, these circumstances are valid considerations that distinguish this case from Australian Pipeline Limited (where the litigation could, in no way, benefit the trust).
Bishop Petar and Father Mitrev did not raise the question of the Court’s power to give judicial advice. The question arises as an adjunct to their main argument that Palmer J erred in his discretion in giving judicial advice. In the circumstances, and having regard to the matters to which I have referred that tend to support the proposition that the advice is being sought by the Association as trustee to benefit the trust, I would not decide that the giving of advice by Palmer J was beyond power. Judicial advice as to issues in contest between parties to the trust
Bishop Petar and Father Mitrev contended that Palmer J erred in the exercise of his discretion to give advice by failing to have regard to a number of considerations.
The first is the omission by his Honour to take into account the fact that the principal issue on which advice was sought essentially related to an important contested question in the Main Proceedings.
This argument commences by reference to what was said by this Court in its decision reported at (2006) 66 NSWLR 112; [2006] NSWCA 160. In his dissenting judgment, Hodgson JA said (at 127 to 128): “65 It has been held that s 63 proceedings are inappropriate to resolve disputes between trustees ( Harrison v Mills [1976] 1 NSWLR 42), and that advice under s 63 is generally not an appropriate resolution of disputes between parties to a trust ( Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405). However, if a trustee does seek to resolve what is in substance a dispute with a beneficiary or other claimant to trust property by making an application for advice under s 63, then, unless and until the Court dismisses the application because it is an inappropriate procedure, the proceedings are not prevented from being adversarial proceedings simply because the trustee has chosen to bring them in that way.
66 The judicial advice sought in this case is to the effect that the trustee would be justified in using trust property in defending proceedings in which a claim is made to the effect that the trust requires this very property to be used, not as it is used by the trustee, but rather in accordance with decisions of the plaintiffs. Plainly, part of the plaintiffs' claim is that any use of the property to defend their claim would be a breach of trust.
67 In these circumstances, judicial advice to the effect that the trustee is justified in using the property for the purpose of defending this claim, which bound the plaintiffs pursuant to s 63(11), would protect the trustee against a subsequent claim by the plaintiffs that property actually used for that purpose, pursuant to the judicial advice, was so used in breach of trust, at least unless the plaintiffs could show that the judicial advice was given on the basis of facts that were incorrect or incomplete in some material respect. In that way, particularly having regard to the extent of trust property that could be thus affected, in my opinion the judicial advice would affect the rights of the trustee and the rights of the plaintiffs to a very substantial degree. It would do this to a far greater extent than in the more usual case where advice is sought about bringing or defending legal proceedings, in which the advice sought relates to claims by or against parties not associated with the trust itself.
68 So considered, in my opinion, despite these proceedings being s 63 proceedings, they are in substance adversarial. Provision for revocation of the advice does not alter this, in my opinion, as use of the property in reliance on the advice before revocation occurred would be protected, again unless its factual basis was impugned. This view is strongly confirmed by the circumstance that an interlocutory injunction has been granted that restrains the trustee from using the trust property for defending the proceedings except in accordance with such judicial advice.”
I do not understand the decision of the majority (Beazley and Giles JJA) to be, in any way, inconsistent with the observations of Hodgson JA that I have quoted. See, in particular, 123 [42] of the majority judgment where their Honours stated: “Section 63(4) and s 63(11) do not convert non-adversarial proceedings into adversarial ones. Whilst an order does have the binding effect provided for by s 63(11), that provision merely underscores the ultimate protective nature of the advice, should the trustee act upon it. We should add however, that a court is not bound to accede to an application to give judicial advice. As Hodgson JA has pointed out (at 127 [65] infra), s 63 proceedings have been held to be inappropriate to resolve disputes between trustees: see Harrison v Mills [1976] 1 NSWLR 42; nor are they an appropriate vehicle by which to settle disputes between parties to a trust: see Hartigan Nominees Pty Ltd v Rydge . Thus, if a court, on an application for judicial advice, came to the view that it was inappropriate to do so because it would otherwise be determining a dispute between the trustee and those to whom notice is or should be given under s 63(4), it may refuse the application. Indeed, that underscores that judicial advice proceedings are not adversarial.”
The essentially adversarial nature of the advice sought in the present case is further demonstrated by the fact that the Association did not ask for the advice as a neutral party, disinterested in the outcome. On the contrary, it urged the court to make an order that would protect its interests against the interests of Bishop Petar and Father Mitrev. So much so that it insisted upon relying on its claim of legal professional privilege to prevent Bishop Petar and Father Mitrev from seeing the opinions of Mr Blake.
There is a basic problem with the court, in s 63 proceedings, authorising a trustee to have recourse to trust property in order to defend legal proceedings brought to have the trustee dismissed for breach of trust. Should the case against the trustee succeed, the trustee would have used trust property to defend his or her own position in circumstances under which – had the issue been determined in appropriate adversarial proceedings – the trustee would not have been entitled to any indemnity from the trust property. In this sense, judicial advice would trump the result of adversarial proceedings. Whether this is determinative of an exercise of judicial discretion relating to the giving of judicial advice of this kind may depend on matters of degree.
I agree with Hodgson JA that, having regard to the extent of trust property that in this case could be affected by the judicial advice, the advice would affect the rights of the trustee and the rights of Bishop Petar and Father Mitrev to a very substantial extent.
Another major problem with the advice sought is that it involves legal proceedings where the fundamental issue is whether the trustee has breached the trust. As Beazley and Giles JJA observed, judicial advice is not “an appropriate vehicle by which to settle disputes between parties to a trust.”
The point was put aptly by Needham J in Harrison v Mills at 45: “I do not think it is a function of the Court sitting to hear a summons under s. 63 to determine matters of such basic controversy between trustees. There are many reasons for this. The first reason is that, essentially, proceedings under s. 63 are ex parte proceedings and, essentially, they are private advice given by the Court to a trustee or trustees upon information supplied by that trustee or those trustees.”
Later, on the same page, his Honour said: “I would think it extremely doubtful whether any dispute between trustees—and I do not include within that designation a bona fide difference between trustees as to the proper construction of a document—would be entertained by a court under s. 63. Certainly questions of interpretation of the document, if they involve the question of breach of trust by any of the trustees, would not be determined under s. 63, where the basic facts upon which the Court acts are not, in any sense, proved or tested.”
His Honour went on to say (at 46): “It is, in my opinion, quite undesirable that the rights of the parties should depend to any degree upon facts which have not been established in the normal manner.”
In Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, Sheller JA made the same point at 440: “Where there is a contest between parties to a trust it is generally inappropriate for the contest to be resolved by judicial advice under s 63; Harrison v Mills [1976] 1 NSWLR 42 at 44-45. Judicial advice is essentially private advice by the court to the trustee.”
In Marley v Mutual Security Merchant Bank and Trust Company Limited, it was said (at 201) that, in exercising its jurisdiction to give directions on a trustee’s application, the court is not engaged “in determining the rights of adversarial parties.”
It is, indeed, well-established that judicial advice is generally an inappropriate mechanism for determining substantive rights in contested proceedings. Other cases where the same point is made are: Re Trusts of the Will of Gilchrist (1867) 6 SCR (NSW) Eq 74; Re Mitchell (1913) 30 WN (NSW) 137; Alcock v The Public Trustee (1936) 53 WN (NSW) 192; Re Sinnamon [1940] QWN 41; Neagle v Rimmington [2002] 3 NZLR 826 at 833 to 835 and Australian Pipeline Limited at [25].
We were not referred to, and I have not been able to find, any case in which judicial advice was given to a trustee in connection with legal proceedings brought for the trustee’s removal for breach of trust.
The Association argued that the issues before Palmer J were not adversarial. The proposition advanced was that the fundamental question before his Honour was the terms of the trust.
I do not accept this submission. The main reason for the Association being interested in the terms of the trust is to prove that it has not breached the trust. Knowledge of the true terms of the trust would, undoubtedly, be of benefit to the Association as trustee. But there can be no doubt that the principal motivation for the Association’s desire to have the terms of the trust determined is to prove that it has not breached the terms of the trust and should not be removed as trustee. As I have pointed out, the Association is not a disinterested observer seeking advice as to whether it should follow one course of conduct or another. It strongly propounds its views and asks that the court endorse them.
As I have observed, the Association contends that, because it seeks in the Main Proceedings to prove that it has followed the true doctrines of the Church (and that Bishop Petar and Father Mitrev are not propounders of the true doctrine) it is in the interests of the trust that the Association be financially supported by the trust so that its true purposes can be fulfilled. While I accept this proposition in general terms, it is, by no means, conclusive to the exercise of discretion. The question as to which of the parties is applying true doctrine is very much in contest in the Main Proceedings. And that, as I have attempted to demonstrate, is of fundamental importance in deciding whether judicial advice should be given.
Palmer J did not expressly address these matters which, in my view, were crucial to the discretion his Honour was required to exercise. I consider, with respect, that his Honour erred in this regard. The need to carry out a balancing exercise
In the particular circumstances of this case, the discretion as to whether advice should be given should have involved a balancing exercise. The potential benefits to the trust of authorising the Association to defend the Main Proceedings, to obtain the wherewithal from the trust property, and affording it protection under s 63, should have been weighed against the potential disadvantages that, should the Association be unsuccessful, costs would be lost and Bishop Petar and Father Mitrev would seek to recover their costs from the trust.
The judge did not expressly undertake such an exercise. His Honour did not refer to the fact that, should Bishop Petar and Father Mitrev be successful in the Main Proceedings, it is likely that recourse would be had to the Schedule A property in an amount of not less than about $400,000.00 and that, apart from the Church Land, at least about one third of the Schedule A land (other than the Church Land) would, probably, be lost.
The Schedule A property is, obviously, important to the trust. It seems plain that that property is used in financing the affairs of the trust and in contributing, generally, to its purposes. A significant reduction in the Schedule A property will be to the prejudice of the church and contrary to the interests of the trust.
In my view, his Honour must be taken to have omitted to carry out the balancing exercise to which I have referred. In my view, that omission amounts to an error in the exercise of discretion. Making the orders revocable
The third error contended for by Bishop Petar and Father Mitrev is that his Honour made the orders, involving the judicial advice he gave, revocable. Order seven provided that the previous orders his Honour made were “subject to, and may be revoked by, an order of the trial judge in the Main Proceedings, or by a subsequent order in these proceedings”: see [2007] NSWSC 254 at [15].
In making this order, Palmer J noted (at [15]) an undertaking given to the court by the Association in the following terms: “(a) If the Association were to be unsuccessful in [the Main Proceedings]; [and]
(b) the [first claimant] applies to the trial judge in the Main Proceedings for revocation of the interim costs orders affecting the Main Proceedings…; [and]
(c) the trial judge thinks it just and expedient for the purpose of dealing with that application to make a direction in accordance with this undertaking;
the Association will disclose to the Bishop and his legal advisers, to the extent deemed necessary by the trial judge, the Opinions of the Association’s Counsel, Mr G. Blake SC, as to its prospects of success in the Main Proceedings which have been provided to the Court on a confidential basis in these proceedings.”
After Palmer J had made the orders in question, Bishop Petar and Father Mitrev appealed on the ground that his Honour had erred in making the orders revocable. The day before the hearing, Bishop Petar and Father Mitrev took the view that their appeal was incompetent and invited this Court to dismiss the appeal on that ground which it did.
Nevertheless, Bishop Petar and Father Mitrev submitted, in this appeal, that Palmer J’s decision should be overturned because he was mistaken as to the effect of revocation and this affected the exercise of his discretion. Bishop Petar and Father Mitrev submitted that Palmer J, in giving judicial advice, took into account his understanding that, were the trial judge or some other judge, at a later stage, to revoke the orders, the Association would have to repay to the trust any money that it had obtained from it to pay costs, as authorised by Palmer J’s orders.
In the course of his judgment, Palmer J said ([2006] NSWSC 1247 at [68]): “[A] revocable order such as that made in Re Dallaway expressly contemplates that an inconsistent costs order may later be made, if the trial judge thinks fit”. For that reason, his Honour described the revocable orders he made as “interim orders”. He explained (at [70]) that, “because the interim costs order is revocable it cannot be a final order so that it cannot give rise to an issue estoppel or res judicata”. He said (at [71]): “Nothing done in this application will inhibit the trial judge in any way in dealing with the issues raised on the pleadings in the Main Proceedings. If the trial judge finds in favour of the Bishop on the Schedule A Property Issue, and that the Association’s expenditure of Schedule A property in defending that issue was a breach of trust, the question will then arise whether the association ought fairly to be excused from the consequences of that breach under s.63(2) of the Trustee Act because it obtained and relied upon judicial advice in this application.”
I understand the judge’s remarks to mean that if, at a later time, a proper case were to be made out to revoke, ab initio, the orders that had been made, the judge hearing the matter would be entitled, by virtue of the orders having been revocable, to revoke them with the consequence that the Association would not be deemed to have discharged its duty as trustee.
In my opinion, his Honour’s reliance on Re Dallaway was misplaced. As I have pointed out, the Trustee Act applies in New South Wales and no legislation of any kind applied to the situation in Re Dallaway and the orders that Megarry VC made in that case. The legal matrix against which Re Dallaway was decided does not exist in New South Wales.
Section 63(2) of the Trustee Act provides, in express terms, that, if the trustee acts in accordance with judicial advice given under s 63(1), the trustee shall be deemed to have discharged the trustee’s duty as trustee in the subject matter of the application (subject to the proviso set out therein). Section 63(2) does not empower the court to attach a condition to the deemed discharge and to make it subject to revocation, on unspecified grounds, by a judge at a later time.
The proviso to s 63(2) sets out the circumstances under which the trustee shall not be deemed to have discharged the trustee’s duty even if the trustee acts in accordance with the advice. That is, there will be no deemed discharge if the trustee has been guilty of any fraud or wilful concealment or misrepresentation in obtaining the advice.
Mr Blake submitted that the effect of the order made by his Honour was that, at a later time, a judge might revoke the advice given under s 63(1) on grounds other than those contained in the proviso. In my opinion, however, there is nothing in s 63 that grants a court power to make such an order and a revocable order is contrary to s 63.
I infer from order seven that his Honour was, to an extent, uncertain as to whether the orders should be made or, at least, was not sufficiently confident in the facts before him to make the order in absolute terms. He wished to leave it open to another judge at a later time, on good cause shown, to revoke the orders on grounds other than those set out in the proviso to s 63(2). This, however, was not permitted by s 63.
In my opinion, his Honour erred in holding that he was empowered to make revocable orders in respect of the judicial advice he gave and his view that he was so empowered affected the exercise of discretion that he undertook. Was the correct principle applied?
Bishop Petar and Father Mitrev contended that the judge failed to apply the correct principle in determining whether to give judicial advice. They drew attention to the fact that it was common ground, as the judge noted, that the correct approach was that expressed in Marley v Mutual Security Merchant Bank Trust Company Ltd at 201. That involved having regard solely to the best interests of the trust estate. They submitted that his Honour, however, did not follow this precept. They relied particularly on his observations referred to in [33] above where his Honour said that what was “more practical, and fairer” included a number of considerations that were capable of extending beyond the interests of the trust alone.
In my view, however, on examining Palmer J’s reasons as a whole, I do not think that his Honour, impermissibly, went beyond the criteria relevant to a proper exercise of his discretion (save in the respects mentioned above under the other headings where I have dealt with the exercise of discretion). A fresh exercise of discretion
As, in my view, Palmer J erred in principle (in the respects I have indicated) in exercising his discretion to give judicial advice, it falls to this Court to exercise the discretion afresh.
Palmer J laid great stress on the trust’s interest in having a trial that would resolve the dispute as to the terms of the trust under which the Schedule A property is held. I accept that that is a laudatory and important objective. I also take into account that the judicial advice sought is capable of advancing the religious purposes of the trust and would materially assist the Association in pursuing the litigation, thereby promoting the finalisation of the religious dispute that is bedevilling the achievement of the objects of the trust.
In my view, however, the essentially adversarial nature of the dispute and the fact that advice is being sought on issues hotly disputed in the Main Proceedings are of paramount and overriding importance. I have explained why these matters make the judicial advice sought inappropriate.
There are additional matters that militate against giving judicial advice; some are related to the last-mentioned factor.
It is not possible, in these proceedings for judicial advice, to determine objectively whether the Association, by defending the Main Proceedings, is discharging its duty as trustee.
To a substantial degree, the Main Proceedings involve allegations of past misconduct that, if established, will entail personal liability for breach of trust (and where the trust property will in no way be protected or enhanced by defence of the claim).
There are potentially substantial disadvantages to the trust should Bishop Petar and Father Mitrev be successful in the Main Proceedings and be in a position to seek costs from the trust.
The statement of claim in the Main Proceedings does not claim a declaration as to the terms of the trust and the principal relief is for an order that a new trustee be appointed in the place of the Association. It is open to question whether the trial will resolve all disputes as to the terms of the trust.
I should mention that, to the extent that order three relates to the past costs of $78,666.01, in addition to the reasoning set out above, it does not constitute guidance for the future.
In my opinion, having regard to the importance of the issues relating to the orders of 20 October 2007 and the injustice that would otherwise arise, it is appropriate to grant leave to appeal in respect of the relief sought in connection with those orders. I would uphold the appeal relating to those orders and would refuse to give the legal advice sought. The orders of 7 May 2004 and 10 June 2005, and order five of 20 March 2007
Bishop Petar and Farther Mitrev, for the first time, sought, in Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247, to have the orders of 7 May 2004 and 10 June 2005 revoked (pursuant to the orders Palmer J had made making them revocable by subsequent order). His Honour refused that application. By then, the Association had acted upon those orders and had obtained Mr Blake’s opinions on the strength thereof. The Association has not previously sought leave to appeal against those orders on any of the grounds I have discussed when dealing with the judicial advice given on 20 March 2007.
In my opinion, it would be unjust to grant leave to appeal so late in the proceedings and I would refuse leave to appeal against those orders.
In my opinion, order five of 20 March 2007 (entitling the Association to have recourse to Schedule A property to pay the costs of assessing the costs to which it became entitled when this Court, on 6 October 2006, allowed the appeal from the orders made by Hamilton J) should be set aside if for no other reason than that it was made revocable. Costs
A number of questions concerning the costs of these proceedings arise. They may not be straightforward. The first question that arises concerns the costs of all the parties in the proceedings before Palmer J. Should the Association pay the costs of Bishop Petar and Father Mitrev in those proceedings (because costs should follow the event)? If the Association is unable to pay, should Bishop Petar and Father Mitrev be entitled to have recourse to the trust estate? And, if the latter, what part of the trust estate? Should the Association be entitled to have recourse to the trust for its own costs?
It has to be borne in mind that what is at issue is the costs of a failed application by a trustee for advice on whether it is entitled to have recourse to trust property, where a principal reason is that advice was required for adversarial purposes. Regard must also be had to Pt 42, r 42.25 of the Uniform Civil Procedure Rules 2005 (NSW).
The second question concerns the costs of the appeal and it concerns not dissimilar issues.
The parties have not had an opportunity to address these issues in the light of the Court’s reasons and I propose that appropriate directions be made in this regard. Conclusion
I would, accordingly, propose the following orders: (a) In relation to the appeal against orders two to eight of 20 March 2007:
(i) leave to appeal is granted;
(ii) the appeal is upheld;
(iii) the orders are set aside; and
(iv) the Association’s summons for judicial advice is dismissed.
(b) Leave to appeal against the orders of 7 May 2004 and 10 June 2005 is refused.
(c) Bishop Petar and Father Mitrev are ordered to file written submissions in regard to the costs issues that arise (and which are identified in these reasons) within 21 days from the delivery of judgment and the Association is ordered to file its submissions within 21 days from the filing of the first-mentioned submissions.
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His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor
The Macedonian Orthodox Community Church St Petka Inc [2007] NSWCA 150
(2005) 63 NSWLR 441
(1976) 135 CLR 587
(1992) 29 NSWLR 405
(2006) 66 NSWLR 112
(1998) 113 FLR 467