Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association

1 This is a Summons for judicial advice under s.63(1) Trustee Act 1925 (NSW). The application arises out of ongoing litigation between Metropolitan Petar, Bishop of the Macedonian Orthodox Church, Diocese of Australia and New Zealand, and an incorporated association which owns the property upon which is situated the church of St Petka at Rockdale. The Metropolitan and a priest appointed by him as parish priest of St Petka are the plaintiffs in proceedings number 3369 of 1997 and the Macedonian Orthodox Community Church St Petka Incorporated ("the Association") is the Sixth Defendant in the proceedings. The First to Fifth Defendants were members of the Executive Council of the Association. The Attorney General has been joined to give proper constitution to a suit concerning the existence and terms of a charitable trust. I will refer to these proceedings as "the Main Proceedings". 2 In the Main Proceedings, the Plaintiffs claim a declaration that the Association holds specified property, including real estate and interests in real estate, upon trust for the purposes of the Macedonian Orthodox Church. In paragraphs 24 to 29G of a Fifth Amended Statement of Claim, to be filed in accordance with leave granted by the Court, the Plaintiffs allege certain acts of the Association which, in paragraph 30, are said to be breaches of the terms of the trust upon which the Association holds the property, so that the Association ought to be removed as trustee. The relief claimed by the Plaintiffs includes orders for the appointment of new trustees to the trust property and the taking of accounts. 3 The Association and the First to Fifth Defendants have filed a Defence which denies that the subject property is held by the Association upon trust at all. Alternatively, they allege that if the property was held on trust the terms of the trust were subject to the terms of the Association's constitution. Otherwise, the Defence does little more than deny or not admit the critical allegations of breach of trust in the Statement of Claim. 4 On 23 August 2002, Hamilton J made an order under Pt 31 Supreme Court Rules for the trial of the following separate questions: "(a) Whether the property referred to in Schedule A and any other property referred to in paragraph 11 of the Further Amended Statement of Claim ('the Property') was, prior to it being vested in the Sixth Defendant, held upon any and if so what trust,

(i) for the purposes of the Macedonian Orthodox Church (as that term is defined in the Further Amended Statement of Claim);

(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 effect of the vesting of the Property in the Sixth Defendant was that the Sixth Defendant thereafter held the Property free of either trust." 5 By judgment delivered on 4 April 2003, his Honour 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 sixth defendant 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. I am unable on the evidence to answer the question as to other property.

(c) No." 6 By his Honour's answers to the separate questions, it has been determined that the Association is a trustee of certain real estate which his Honour identified in Schedule A to the judgment. Whether the other property of the Association is trust property has not yet been decided. 7 On 10 March 2004, Hamilton J fixed the hearing of the remaining issues in the Main Proceedings for three weeks commencing on 9 August 2004. 8 The Association's solicitors have estimated that the costs of preparation and conduct of the hearing will be in excess of $400,000. The Association says that it has no means of paying those costs and therefore of conducting its defence unless it has recourse to the property which Hamilton J has held to be trust property. 9 By paragraphs 29E and 29F of the proposed Fifth Amended Statement of Claim, the Plaintiffs in the Main Proceedings allege that the expenditure of any money of the Association which is property of the trust in conducting a defence of the Main Proceedings is, in itself, a breach of trust because that money will not have been applied either for the purposes of the trust or otherwise in the proper administration of the trust. 10 In those circumstances, the Association, by its Summons under s.63(1) Trustee Act seeks the opinion, advice and direction of the Court as to whether it would be justified: "(a) in defending the proceedings or alternatively in defending the proceedings until 9 July 2004 or such other time as the Court determines;

(b) in seeking relief under s.85 of the Trustee Act 1925 (NSW) in respect of any breach of trust;

(c) in disposing or encumbering the real estate in schedule A of Metropolitan Petar v Mitreski [2003] NSWSC 262 other than the property known as 66 Railway Stret, Rockdale and/or any other property it holds and applying monies thereby obtained or monies comprising such property in payment of its reasonable costs (including fees and disbursements charged by legal practitioners) of the Proceedings." 11 Further, the Association seeks an order that its costs of this Summons be paid out of the proceeds of sale of the real estate referred to in Schedule A , upon terms set out in paragraph 2 of the Summons. 12 Notice of the Summons has been served on the Plaintiffs in the Main Proceedings and on the Attorney General in accordance with a direction given under s.63(4) Trustee Act . The Attorney General has informed the Court that he does not wish to take part in this application. When the Summons was called on for hearing, Mr Blake SC appeared for the Association and Mr Parker of counsel appeared for the Plaintiffs in the Main Proceedings. 13 As I explained to counsel at the conclusion of submissions, I am compelled to give a decision in this matter with a considerable degree of urgency. Directions have been given by Hamilton J to prepare the Main Proceedings for trial by 9 August; it is clear that a great deal remains to be done, not the least of which is the giving of discovery by 21 May. Unfortunately, I will be absent on leave for two weeks commencing on 8 May. Unless a decision is given today, the hearing of a much protracted piece of litigation, fixed for three weeks, may well be delayed for a further considerable time. In those pressing circumstances, I must give a decision in a difficult matter without such time for reflection as I would have wished. 14 At the outset, however, I should say that Mr Blake SC, while urging that the advice sought in the Summons should be given, has nevertheless drawn my attention to the relevant authorities and to the facts and circumstances, both supporting and adverse to his client's case, as counsel for a trustee seeking the advice of the Court ought to do. I am indebted to Mr Blake for this careful assistance, which has been given in exemplary fashion. 15 Mr Blake's essential points are that:

• if the Association is not permitted to have recourse to funds of the trust for the defence of the Main Proceedings, it will not have a fair trial because it has no resources otherwise to conduct its defence;

• the Association's defence of the Main Proceedings is properly to be regarded as a defence of the trust's assets because, notwithstanding the answers given by Hamilton J to the separate questions, the precise terms of the trust are still in issue in that the Association wishes to contend that the terms of the trust propounded by the Plaintiffs are not in fact the terms of the trust at all;

• there is well established authority that a court may make a pre-emptive or anticipatory costs order such as is now sought where a trustee has no means of defending a claim except out of trust property: see e.g. Re Dallaway, Dec'd [1982] 1 WLR 757; Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association [2003] NSWSC 104;

• in such an application the Court must always consider whether the trustee has sufficient prospects of success to justify using trust money to pay for the cost of the proceedings, particularly where the trustee is defending a challenge to its own administration of the trust: Metropolitan Local Aboriginal Land Council at para.22ff;

• although an opinion of counsel as to prospects of success is usually obtained for this purpose and, in the present case, the Association has not been able to produce such an opinion at present, there is nevertheless material to show that there is a prima facie defence and this is sufficient to justify the advice sought, at least to the extent of enabling the Association to prepare its case up until the conclusion of interlocutory steps on 9 July 2004, in accordance with the directions given by Hamilton J. 16 Mr Parker's essential points are that:

• the Association, having denied that it is a trustee at all and having reserved the right to appeal against the decision given by Hamilton J to the separate questions, has no standing now as a trustee to make the present application;

• the giving of advice in the terms sought would resolve a critical issue to be determined in the Main Proceedings: it would determine that the expenditure of trust property in defence of the Main Proceedings was not a breach of trust, as alleged in paragraphs 29E and 29F of the proposed Fifth Further Amended Statement of Claim;

• there is nothing to support the proposition that the Association has any prospect of success at all in the Main Proceedings;

• the Association's defence of the Main Proceedings is not concerned with preservation of the trust property from adverse claims, as was the case in Re Dallaway and Metropolitan Local Aboriginal Land Council : rather, it is concerned with defending itself against allegations of misconduct and from removal as trustee. 17 My conclusions are as follows. 18 I am unable to accept Mr Parker's submission that the Association does not have standing as a trustee to make this application. Although no formal declaration in terms of the answers to the separate questions has yet been made by Hamilton J, his Honour has made a formal determination that the Association is a trustee. A declaration in accordance with the answers given by Hamilton J would not, in itself, constitute the Association as a trustee; it would simply declare what is already the position in law. For the purposes of this application, I must, and do, accept his Honour's conclusion as to the status of the Association. 19 I accept that the Association has endeavoured to raise money for the further conduct of its defence of the Main Proceedings from its supporters in the Parish of St Petkar, and that it has not achieved any significant success. I accept that without recourse to the trust property the Association will be without the means of conducting its defence in the Main Proceedings. 20 I accept that the main thrust of the Plaintiffs' allegations in the Main Proceedings is that the Association is guilty of breaches of the trust which has been found to exist by Hamilton J and that the Association should, therefore, be removed as trustee. 21 I am not satisfied, however, that resolution of these issues does not depend on a far more precise identification of the terms of the trust than Hamilton J was asked to make for the purposes of deciding the separate questions. It seems to me that problems in identifying essential and non-essential elements of trusts for religious purposes, such as were discussed by Young CJ in Eq in Radmanovich v Nedeljkovic (2001) 52 NSWLR 641, at para.147ff, may well arise in the Main Proceedings in the case of the present trust. If the Plaintiffs were seeking to appoint new trustees in order to implement purposes which were ultimately found by the Court not to be essential elements of the trust, it might be said that the Association's defence was in aid of preserving the trust assets for the purposes which were in fact the essential elements of the trust. 22 I am concerned that the Association has not been able to procure an opinion of counsel which supports the proposition that it has such prospects of success in the Main Proceedings as justify it either in continuing to defend the proceedings or in expending trust funds in that defence. However, I accept that this circumstance is due to lack of the Association's resources, particularly at a time when this application for advice became necessary, and to the fact that interlocutory steps, such as discovery, are far from complete. Nevertheless, in the absence of an opinion of counsel, given upon proper consideration, as to the Association's prospects I do not think that it is right to give advice in unqualified or unlimited terms that the Association will be justified in defending the Main Proceedings and in utilising trust property for that purpose. 23 I have taken into account an analysis of the claims made in the Fifth Amended Statement of Claim and the answers proposed in rebuttal of those claims which has been made by the Association's solicitor in a confidential document provided to the Court. Mr Parker sought access to that document but I declined to afford it on the ground that it was rightly to be regarded as confidential, being a communication from the Association's solicitor to its counsel, and that the disclosure of the document to the Plaintiffs could only be for the purpose of enabling them to attack the Association's case in the Main Proceedings in this application - a course which the Court does not permit in applications for judicial advice. Authority for withholding confidential information from an objector who appears on a summons for judicial advice is to be found in the decision of Young J (as his Honour then was) in Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547. 24 On the basis of the analysis carried out by the Association's solicitor in the confidential document provided to the Court, I have come to the conclusion that sufficient has been shown by the Association to warrant it using trust funds for the purpose of preparing its case in accordance with the directions of Hamilton J up to and including the conclusion of interlocutory steps on 9 July 2004, and for the purpose of obtaining an opinion from counsel as to its prospects of success in defending the Main Proceedings, as they appear at that stage. 25 I do not think that it would be proper to justify the Association's expenditure of trust funds beyond that point without further consideration by the Court pursuant to the Association's summons for advice. The costs of a three week trial will be very substantial and the Court should be satisfied, by an opinion of counsel, that the Association's prospects of success are sufficient to warrant a further expenditure of trust funds in the conduct of that trial. I do not mean to say, of course, that further consideration of the Association's summons for advice will be limited to counsel's opinion as to prospects of success: that will be a major question, but there may well be others. 26 Because the conduct of the Association as trustee is very much a central issue of the Main Proceedings, I think that it is appropriate to include a proviso in the advice which I propose to give, as was done by Sir Robert Megarry VC in Re Dallaway at 761, namely, that the Association will be justified in utilising trust funds for the conduct of its defence, subject to any order made by the trial judge or to any order made upon reconsideration of this summons for advice when it next comes before the Court after 9 July 2004. 27 In the result, therefore, I give the following directions:

(1) Direct that the Association is justified in taking such steps as are necessary to comply with the directions of the Court in Proceedings 3369 of 1997 and to prepare its case for trial, up to and including 9 July 2004.

(2) Direct that, for the purposes of paying its reasonable legal costs and disbursements to be incurred in accordance with paragraph (1) and to be incurred in procuring an opinion of counsel as to its prospects of success in the said proceedings, the Association is justified in having recourse to such funds as may be realised by disposing of or encumbering the real estate set out in Schedule A in the judgment in Metropolitan Petar v Mitreski [2003] NSWSC 262 other than the property known as 66 Railway Street, Rockdale, and/or any other property it holds.

(3) Direct that the foregoing directions are subject to, and may be revoked by, an order of the trial judge in Proceedings 3369 of 1997 or any direction or order made on further consideration of the Association's summons for judicial advice.

(4) Direct that the Association's summons for advice stand over for further consideration on a date to be fixed, as soon as practicable after 9 July 2004.

(5) Costs of this summons to date are reserved. - oOo -

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