Plaintiff v Objector

1 This application is brought by an Originating Motion dated 14 June 2017 whereby Charlesworth Nominees Pty Ltd ("the Trustee"), in its capacity as trustee of the Charlesworth Family Trust ("the Trust") applies to the Court for judicial advice and directions under O 54, paragraph 2, of the Supreme Court (General Civil Procedure) Rules 2015. In so doing, it seeks orders that it is justified in: (i) defending Supreme Court Proceeding S ECI 2015/000466 ("the Primary Proceeding"); and (ii) in paying or retaining out of the Trust: (1) all of the costs (on a full indemnity basis) of and incidental to defending the Primary Proceeding; and (2) any costs that the Trustee may be ordered to be paid to another party in the Primary Proceeding. Additionally, the Trustee seeks orders that all of the costs of the Trustee of and incidental to this application be paid or retained out of the Trust on a full indemnity basis. Such further order as the Court deems fit is also requested by way of relief.

2 As observed at the outset in my judgment in Re Perrot Mill Pty Ltd (No 2)[1] in relation to applications of this type, I repeat by way of background the observations of Gillard J in Re Atkinson,[2] where his Honour said:[3]

On an originating summons seeking such direction, the court is not bound to investigate the evidence in order to make a finding that on the material before it the proposed proceedings will or will not be successful, it is merely to determine whether or not the proceedings should be taken.

His Honour referred then to Fitzgerald v Smith[4] and Re Kay's Settlement:[5]

On the other hand the matter should be sufficiently investigated to determine whether or not the proceedings would be fruitless.

His Honour also referred to Re Brogden.[6]

3 Prior to the hearing of this application, application was made by Ian Geoffrey Earle Charlesworth ("the Objector") to be heard in opposition to the Trustee's application. The Objector is the first plaintiff in the Primary Proceeding and is also one of the three directors of the Trustee in addition to being one of the three beneficiaries of the Trust. The other two directors of the Trustee are the Objector's siblings, Helen Marie Charlesworth and Murray Albert Charlesworth ("Helen and Murray"), who are the first and second defendants in the Primary Proceeding and the other two beneficiaries of the Trust. It is now admitted by all relevant parties - by way of pleadings in the Primary Proceeding[7] - that the Trust actually vested over 25 years ago and, as such, that the Trustee merely holds the Trust assets on a bare trust for each of Ian (the Objector), and Helen and Murray as tenants in common. It is common ground that the Trust has substantial assets.

4 In spite of the Objector's clear interest in both the present application and the Primary Proceeding, the Trustee, apparently on the instruction of Helen and Murray, did not agree to the Objector being heard in this proceeding. As a result, the Objector made application to the Court to be heard with respect to this present application.

5 As I said at the hearing of the Objector's application to be heard on 19 July 2017, I am of the opinion that the Trustee's position with respect to the Objector's application is contrary to well settled principle.

6 In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand ("Macedonian Orthodox"),[8] the High Court, in considering s 63(1) of the Trustee Act 1925 (NSW), provisions which relevantly fulfil essentially the same role as r 54.02, confirmed that although a trustee may apply to the court for the giving of "private advice", other parties may be heard in respect of that application:[9]

1. ... Even if notice of the application for private advice is given to other persons (by reason of rules of court, or a court direction under s 63(4), or by reason of s 63(8)), those persons are not strictly speaking "parties" to "proceedings" by reason of the closing words of s 63(11), although they are able to participate in the proceedings to some extent. Section 63 reflects a compromise between a procedure for affording private advice to trustees and the need for affected persons to be given a hearing in some cases.

7 Similarly in the New South Wales Supreme Court in Re Estate of Chow Cho-Poon, Lindsay J said that:[10]

1. However, if the jurisdiction of the Court to aid the due administration of trusts is to be exercised fairly, efficiently and beneficially, care needs to be taken to ensure that an application to the Court is not made unnecessarily, prematurely or without due engagement of persons who may have an interest in the outcome of a s 63 application.
2. That is so for at least two reasons. First, s 63 reflects a compromise between a procedure for affording private advice to trustees and the need for affected persons to be given a hearing in some cases: 237 CLR 92 [65]. Second, even if (as s 63 contemplates) the rights of a person potentially affected by a provision of judicial advice will not necessarily be affected without notice of the advice or of pending s 63 proceedings, the ability of the court to provide well measured advice may be affected to the extent that it is not given the benefit of a full appreciation of what competing interest might say if allowed an opportunity to inform the Court of a perspective different from that presented by a trustee appearing ex parte.

8 Indeed, there have been numerous cases in which interested parties have been heard in respect of applications by trustees for judicial advice.[11]

9 At the hearing of the Objector's application to be heard, the Trustee could not point to any prejudice in the Court permitting this course and, additionally, could not explain why allowing the Objector to be heard would not have the real potential of assisting the Court with respect to the Trustee's application. The present application is not of a type that might be characterised as an application for declaratory relief in respect of which a court may be concerned to have a contradictor but, nevertheless, in an important application such as the present application, it is difficult to see why it would not be desirable for the Court to have the advantage of alternative views and submissions put by an objector; quite apart from considerations of procedural fairness that may arise with respect to an objector who has a real interest in the outcome of an application of this type. In any event, the desirability of hearing objectors in applications of this type, on one or both of these bases or considerations, is supported by the authorities.

10 Moreover, in the present circumstances, the Objector is a beneficiary of a vested trust and therefore has a direct and not merely a contingent interest in the funds of that Trust and a similar, and obvious, interest in preserving them. It is, thus, in my view, entirely appropriate that he be heard in respect of an application regarding the expenditure of those funds, particularly in circumstances where an inference might be drawn that if the funds of the Trust are expended in the Primary Proceeding, they may be expended in favour of Helen and Murray, who effectively control the Trustee in their dispute with the Objector, and thus cause him prejudice.

11 For the preceding reasons, I acceded to the application of the Objector to be heard at the substantive hearing of this application.

12 In broad and general terms, the principles applicable to an application such as this are summarised in the Trustee's submissions, as follows:[12]

1. On an application such as this (often referred to as a Re Beddoe application[13]), where a court is asked to authorise a trustee to defend court proceedings, the court's task is to determine whether, on the material then available, it would be proper for the trustee to defend the proceedings: Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand[14]; Re Perrot Mill Pty Ltd (No. 2)[15].
2. A court is not bound at this stage to investigate the evidence in order to make a finding that on the material before it the proposed proceedings will or will not be successful or to determine the issues in the "principal" proceedings: Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand[16]; Re Perrot Mill Pty Ltd (No. 2)[17].
3. The court's role is to determine whether proceedings are justifiable, and that appears to mean that it should satisfy itself that defence of the proceedings will not be fruitless: Re Perrot Mill Pty Ltd (No. 2)[18].
4. The court is entitled to make its determination based on legal advice obtained by the trustee: Re Perrot Mill Pty Ltd[19].
5. That advice should canvass the prospects of success in the litigation as well as whether the likely costs to be incurred are proportionate to the issues and the significance of the case: Re Macedonian Orthodox Community Church St Petka Incorporated (No 4)[20].

13 Stated in general terms, these applicable principles are uncontroversial. The issue, however, with respect to applications of this kind, both in the present context and more generally, is whether, in any particular case, the trustee seeking the advice of the court does have a legitimate interest in defending the proceeding to which the application relates. The answer to this critical question depends upon the nature of that proceeding and the circumstances of the particular case. It is, therefore, necessary to examine the nature of the Primary Proceeding to which the present application relates for the purpose of answering this fundamental question.

Nature of the Primary Proceeding and relief sought

14 The Trustee's application is supported by a detailed written advice from the Trustee's solicitors.[21] This advice, which remains confidential, has been described in the Trustee's open submission as advice which analyses both the factual circumstances and the legal arguments likely to arise in the Primary Proceeding insofar as it concerns the Trustee.[22] Continuing, the Trustee submits that the claims made against it in the Primary Proceeding can be conveniently summarised in the following terms:[23]

1. the Trustee breached the terms of the Charlesworth Family Trust (CF Trust) settled by deed dated 23 February 1971 (CF Trust Deed) by failing to transfer the assets of the CF Trust to the First Plaintiff (Ian), the First Defendant (Helen) and the Second Defendant (Murray) as tenants in common in equal shares following a demand made by Ian on 20 October 2016 (Refusal Claim);[24] and
2. the Trustee distributed income to various persons or entities in the period after 7 October 1991 in breach of trust (Distribution Claim).[25]

15 On this characterisation of the claims, the Trustee submits that the advice canvasses the defences that are available to it in respect of both these claims. It submits that a consideration of the analysis contained in the advice reveals that there is no basis for any suggestion that the Trustee's proposed defence of the Primary Proceeding is fruitless, referring in this respect to Re Perrot Mill Pty Ltd (No 2).[26] Moreover, the Trustee says that the advice also addresses its likely costs of defending the Primary Proceeding. In this respect, it also says that while the plaintiffs do not seek any payment from the Trustee per se in respect of the claims, the cost of defending the claims is likely to be comparatively minimal in the context of the worth of the Trust property; alleged by the plaintiffs to be in excess of $40 million. Thus, the Trustee submits that it is appropriate that it be permitted to defend the claims made against it by the plaintiffs in circumstances where:[27]

1. the Trustee invited the plaintiffs to withdraw paragraphs 61(a) and 71(b) of the Statement of Claim giving rise to the Refusal and Distribution Claims in order to avoid the need for the Trustee to file a defence. This invitation was subsequently declined;
2. the plaintiffs specifically seek substantive relief against the Trustee, and that relief would have dire consequences for the Trustee's role as the trustee of the Trust and also for the Trustee's own continued existence: Prayer for Relief in the Statement of Claim at relief items FA, FD and G;

1. the allegations made against the Trustee are material to the final determination of the issues in the Primary Proceeding (and in their own right constitute significant allegations of impropriety against the Trustee); and

1. the claims made by the plaintiffs fail to recognise properly the separate legal personalities of the defendant parties and their distinct liabilities.

16 Before turning to the submissions of the Objector with respect to the Primary Proceeding, it is important to observe that the position on the pleadings in the Primary Proceeding and as reaffirmed by the Trustee and the Objector in this application is that no relief is sought against the Trustee personally in relation to the administration of the Trust even though, in this respect, allegations are made of a breach or breaches of trust. It is true that, for a variety of reasons, the plaintiff in the Primary Proceeding seeks removal of the Trustee, but there is, nevertheless, no relief sought against it as might be expected were there allegations of wilful breach of trust of the kind which may invite substantive pecuniary and other equitable relief against it. Rather, the claims against the Trustee in the Primary Proceeding only allege a breach or breaches of trust in the relatively long history of the administration of this Trust in the context of a process of now reconciling the past history of its administration and the making of appropriate orders for the disposition of the Trust fund; the Trust having vested a considerable time ago. It is against this general and important position that I now turn to consider the detail of the submissions of the Objector with respect to the Primary Proceeding.

17 The Objector submits that, in summary, the remaining controversies in the Primary Proceeding constitute a "beneficiaries dispute" between three siblings[28] in which the assets of the Trust are not at risk and where the plaintiff is a "bare" trustee (or functus officio)[29] holding the assets on trust for Ian (the Objector), Helen and Murray, in equal shares as tenants in common. Moreover, it is said that this is a circumstance where the Trustee has no active duty to defend claims against the Trust, and in respect of which the Trustee's only residual interest is whether it remains trustee of the Trust as the initial "controversy" over the terms of the Trust have been admitted in the principal proceeding.[30] Thus it is said that the siblings' quarrel[31] is over how and when to distribute wealth their father created during his lifetime. The Objector's position as plaintiff in the Primary Proceeding is that, the father having died six years ago, and the siblings' relationship having irretrievably broken down, the delay should be ended, independent persons should be appointed to administer the trusts and companies - whether pursuant to the Trustee Act 1958, or by a liquidator or receiver - the real estate assets should be liquidated and all funds distributed. Consequently, it is submitted that whatever the personal motivations of Helen and Murray may be for resisting this course, the Trustee has no proper basis for taking any active part in the Primary Proceeding.

18 It is clear on the evidence that the Trustee is a corporate vehicle of the siblings as they comprise all of its directors/secretaries, and all its - ultimate - shareholders, in equal parts.[32] This control and ownership structure is replicated through the group of "companies"[33] party to the Primary Proceeding.[34] Thus, I accept that as the Objector submits, the attempt by Helen and Murray to emphasise the distinct legal personality of the Trustee as a basis for the Court giving the advice sought does, indeed, ring hollow when regard is had to these circumstances.[35]

19 Additionally, the evidence indicates[36] that Helen and Murray, acting together - and over the Objector's protestations - control the Companies, including the Trustee, and by such control have been able to create or maintain or achieve the following:[37]

1. in November 2016, regular payments that had been being made to Ian since May 2015 ceased, notwithstanding Ian making clear that he was reliant upon such payments and Murray and Helen's refusal/inability to provide any advice justifying such cessation;
2. no interim distributions have been made since the Primary Proceeding was commenced, despite the Honourable Associate Justice Randall suggesting such distributions be made and Ian formally requesting it.

20 Thus, the Objector submits that the effect of the Trustee's application would, if granted, allow Helen and Murray to resist the attempts by the Objector, as plaintiff in the Primary Proceedings, to "wrest control" of their Father's companies and trusts - including the Trustee - with the aid of funds in respect of which the Objector has a one-third beneficial interest, and yet compel him to prosecute such an action with his own, said to be, dwindling personal resources.

Application of principles to the Primary Proceeding and the relief sought

21 The question whether judicial advice is appropriately provided in an application of the present kind depends, in addition to the particular circumstances which provide the context of the application, upon the character of the dispute the subject of the primary proceeding to which the application relates. In Alsop Wilkinson v Neary,[38] Lightman J observed, in general terms, that trustees may be involved in various kinds of dispute and, in so doing, provided a classification of three kinds of dispute. Thus, his Lordship said:[39]

Trustees may be involved in three kinds of dispute. (1) The first (which I shall call "a trust dispute") is a dispute as to the trusts on which they hold the subject matter of the settlement. This may be "friendly" litigation involving e.g. the true construction of the trust instrument or some other question arising in the course of the administration of the trust; or "hostile" litigation e.g. a challenge in whole or in part to the validity of the settlement by the settlor on grounds of undue influence or by a trustee in bankruptcy or a defrauded creditor of the settlor, in which case the claim is that the trustees hold the trust funds as trustees for the settlor, the trustee in bankruptcy or creditor in place of or in addition to the beneficiaries specified in the settlement. The line between friendly and hostile litigation, which is relevant as to the incidence of costs, is not always easy to draw: see In Re Buckton; Buckton v. Buckton [1907] 2 Ch. 406). (2) The second (which I shall call "a beneficiaries dispute") is a dispute with one or more of the beneficiaries as to the propriety of any action which the trustees have taken or omitted to take or may or may not take in the future. This may take the form of proceedings by a beneficiary alleging breach of trust by the trustees and seeking removal of the trustees and/or damages for breach of trust. (3) The third (which I shall call "a third party dispute") is a dispute with persons, otherwise than in the capacity of beneficiaries, in respect of rights and liabilities e.g. in contract or tort assumed by the trustees as such in the course of administration of the trust.

Continuing, and in general terms, Lightman J said:[40]

Trustees (express and constructive) are entitled to an indemnity against all costs, expenses and liabilities properly incurred in administering the trust and have a lien on the trust assets to secure such indemnity. Trustees have a duty to protect and preserve the trust estate for the benefit of the beneficiaries and accordingly to represent the trust in a third party dispute. Accordingly their right to an indemnity and lien extends in the case of a third party dispute to the costs of proceedings properly brought or defended for the benefit of the trust estate. Views may vary whether proceedings are properly brought or defended, and to avoid the risk of a challenge to their entitlement to the indemnity, (a beneficiary dispute), trustees are well advised to seek court authorisation before they sue or defend. The right to an indemnity and lien will ordinarily extend to the costs of such an application. The form of application is a separate action to which all the beneficiaries are parties (either in person or by a representative defendant). With the benefit of their views the judge thereupon exercising his discretion determines what course the interests of justice require to be taken in the proceedings: see In re Evans, decd. [1986] 1 W.L.R. 101 considered by Hoffmann LJ in McDonald v. Horn [1995] I.C.R. 685. So long as the trustees make full disclosure of the strengths and weaknesses of their case, if the trustees act as authorised by the court, their entitlement to an indemnity and lien is secure.

22 Particularly apposite in the present circumstances is the statement of his Lordship which follows:[41]

A beneficiaries dispute is regarded as ordinary hostile litigation in which costs follow the event and do not come out of the trust estate: see per Hoffmann L.J. in McDonald v. Horn [1995] I.C.R. 685, 696.

23 His Lordship then considered a number of authorities, including a decision of Kekewich J in Ideal Bedding Co Ltd v Holland,[42] in relation to which Lightman J said:[43]

I do not think that the view expressed by Kekewich J in the Ideal Bedding case that in case of a trust dispute (as was the dispute in that case) a trustee has a duty to defend the trust is correct or in accordance with modern authority. In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and (in the absence of any court direction to the contrary and substantially as happened in _Merry'_s case [1898] 1 Ch. 306) offer to submit to the court's directions leaving it to the rivals to fight their battles. If this stance is adopted, in respect of the costs necessarily and properly incurred e.g. in serving a defence agreeing to submit to the court's direction and in making discovery, the trustees will be entitled to an indemnity and lien. If the trustees do actively defend the trust and succeed e.g. in challenging a claim by the settlor to set aside for undue influence, they may be entitled to their costs out of the trust, for they have preserved the interests of the beneficiaries under the trust: consider In re Holden, Ex parte Official Receiver (1887) 20 Q.B.D. 43. But if they fail, then in particular in the case of hostile litigation although in an exceptional case the court may consider that the trustees should have their costs (see Bullock v Lloyds Bank Ltd [1955] 1 Ch 317) ordinarily the trustees will not be entitled to any indemnity, for they have incurred expenditure and liabilities in an unsuccessful effort to prefer one class of beneficiaries e.g. the express beneficiaries specified in the trust instrument, over another e.g. the trustees in bankruptcy or creditors, and so have acted unreasonably and otherwise than for the benefit of the trust estate: consider R.S.C., Ord. 62, r. 6; and see National Anti-Vivisection Society v Duddington, The Times, 23 November 1989 and Snell's Equity, 29th ed. (1990), p. 258.

24 In my opinion, the Primary Proceeding is, as contended by the Objector, plainly not a "third party dispute". Moreover, given that it is now admitted by all relevant parties that the Trust vested over 25 years ago and that the Trustee merely holds the Trust's assets on "bare" trust for each of Ian (the Objector), and Helen and Murray as tenants in common, nor is it a "trust dispute". Rather, it is, in my view, a "beneficiaries dispute". Consequently, the interests of the Trust as a whole are unaffected, and the duty of the Trustee is to remain neutral.[44]

25 Helen and Murray, through the Trustee, seek to emphasise that Ian (the Objector) seeks relief in the Primary Proceeding that: (1) the assets of the Trust, having vested, be distributed; (2) the plaintiff be replaced as a trustee of the other trusts it acts as trustee of (the Father's Charitable Trust and the PL Discretionary Trust);[45] and (3) the plaintiff be wound up.[46] In the written submissions these are described as "... dire consequences for the Trustee's role as the trustee of the Trust and also for the Trustee's own continued existence".[47] I am, however, of the view that the relief sought in the Primary Proceeding is, as described by the Objector, "entirely unremarkable" for a beneficiaries dispute. As the authorities make clear, it is important for the Court in circumstances such as those which bear on the present application, to keep in mind, when asked to exercise its equitable supervisory jurisdiction, that no aspect of the relief sought by the Objector as plaintiff in the Primary Proceeding will threaten any Trust assets - only the identity of the Trustee. Whilst it is true that the relief sought clearly affects the Trustee's personal role and status as trustee, this is a separate and distinct matter from the interests of the Trust as a whole. In this respect, the ancient equitable maxim that a trust will not fail for want of a trustee looms large. In the present circumstances, it "translates" to the effect that the identity of the trustee is not a matter affecting the due administration of the Trust and not a matter with which equity is concerned, save to ensure that, if necessary, a new trustee is appointed to ensure the due, and in this case, neutral administration of the Trust.

26 In the course of the hearing of this application, counsel for the Trustee was invited to identify any prejudice or legitimate interest in the Trustee in preserving its status and position as trustee. Submissions were made to the effect that removal of the Trustee would result in further costs and expense to the Trust because appointment of a third party private trustee would necessarily cost more. There was, however, no evidence provided in this respect, and whether or not this would in any event be a serious consideration having regard to the extent and value of the property of the Trust is, in my view, mere speculation. The other prejudice sought to be identified appeared to be that the Trustee would suffer reputational damage on being removed as the trustee.

27 In the present circumstances, I do not accept the latter as a relevant consideration, even if it could be said that there was some reputational damage likely to be suffered. Rather, I am of the view that the suggestion that a private corporate trustee which is not offering its services beyond a family corporate and trusts structure would suffer any significant reputational damage is entirely fanciful. The position may be different with a trustee company offering services to the public, but that is not the position here.

28 Against this background, I now come to the critical question for the purposes of this application, which is whether the Trustee does have any legitimate interest to defend the Primary Proceeding and, if so, whether or not it should be advised to do so.

29 Having regard to the matters canvassed thus far, I am of the opinion that the Trustee could not be advised by the Court to defend the Primary Proceeding for the reasons which follow.

30 First, contrary to the position put by the Trustee, I am of the view that, to the extent that the Objector, the plaintiff in the Primary Proceeding, seeks the removal of the Trustee from its role as trustee of the Trust - or the other trusts - it does not have any legitimate interest in defending this claim in the Primary Proceeding. In this context, it is helpful to make reference to the judgment of Brereton J in Uncle's Joint, where his Honour addressed the question, "Should advice be given?".[48] Discussing, more generally, the proper approach of the court to this question in light of the authorities, Brereton J said:[49]

1. The substantive proceedings are analogous to the second class of trustee litigation described by Lightman J in Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 at 1223-1224, namely disputes between the trustee and one or more of the beneficiaries (although, in this case, not with respect to the propriety of the trustee's actions as such, but as to whether the trustee was validly appointed in the first place). In this class of case, the trustee is not litigating to defend or enhance the trust assets, but only in his or her personal interests. While there is authority that in such a case the trustee is not entitled to invoke the right of indemnity in respect of legal costs incurred (Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572 at 578-579; cf Alsop Wilkinson v Neary (at 1224); Frost v Bovaird [2012] FCAFC 60; (2012) 203 FCR 95 at [70], [106]), the prevailing view is that a trustee who is exonerated or has acted properly in defending a claim made by a beneficiary against him or her is entitled to be indemnified out of the trust estate to the extent that a party/party costs order does not afford an adequate indemnity (National Trustees Executors & Agency Co of A/asia Ltd v Barnes [1941] HCA 3; (1941) 64 CLR 268 at 278-279; Fay v Moramba Services Pty Ltd [2010] NSWSC 725 at [4]; Arena Management Pty Ltd (Receiver and Manager Appointed) v Campbell Street Theatre Pty Ltd [2011] NSWCA 128; (2011) 80 NSWLR 652; Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336 at [213]; Re Frost (2011) 6 ASTLR 487 at [66]).
2. Typically, as in National Trustees Executors & Agency Co of A/asia Ltd v Barnes, trustees will be allowed their costs out of the estate in this type of case only after the proceedings against them have been resolved in their favour. Thus in Armitage v Nurse [1998] Ch 241, Millett LJ, with the concurrence of the other members of the court, said (at 263):

In my judgment the respondents should have the right to recoup themselves out of the trust fund but only if and when the action against them is discontinued or dismissed.

1. In Frost v Bovaird, the full Federal Court rejected (at [79]) the submission that in the case of beneficiaries disputes the trustee was, pending the determination of the claim and without more, entitled to use the trust funds to meet legal costs incurred in defending the claim, the prima facie position being, as stated by Lightman J, that a trustee's legal costs incurred in defending a beneficiaries dispute do not come out of the estate. However, the court acknowledged (at [75]) that the judgment of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66; 1 ASTLR 1 (St Petka) recognised that it was open to trustees faced with an allegation of misconduct by a beneficiary to apply for judicial advice, pursuant to which they might be entitled to resort to trust assets for their defence.

Concluding, on the basis of the authorities considered and discussed, his Honour said:[50]

First, while I accept, conformably with counsels' opinion, that there are sufficient prospects of success to warrant defending the trust proceedings, that is not the same thing as concluding that it is in the interests of the trust that the proceedings be defended. The interests of the trust as a whole are not significantly affected by the identity of the trustee, although the separate interests of various of the beneficiaries may be affected. The trustee has, or should have, no particular interest in being trustee. In this case (unlike a removal suit) the trustee's conduct is not impugned, so it does not have even the interest that a trustee whose conduct is impugned has in resisting allegations of impropriety made against it. In substance and reality, those who have an interest in upholding the appointment of the applicants as trustees are the appointors who appointed them, and those members of the class of objects of the trusts who wish them to remain in office. Accordingly, in contradistinction to the position in St Petka, I am not satisfied that it is in the interests of the trust as a whole that the trust proceedings be defended.

31 With respect to the concluding paragraph of these passages from the judgment in Uncle's Joint, the Trustee emphasises the passage, "(unlike a removal suit) the trustee's conduct is not impugned, so it does not have even the interest that a trustee whose conduct is impugned has in resisting allegations of impropriety made against it". The Objector, on the other hand, emphasises the reference to a trustee having "no particular interest in being trustee" and that it is only the appointors who appointed the trustees who have an interest in upholding the appointment and "who wish them [the trustees] to remain in office".

32 Taking these emphasised passages in turn, I am of the opinion that having regard to the nature of the Primary Proceeding and the preceding statements in the judgment of Brereton J in Uncle's Joint, the Trustee can derive no support for its position from this decision and the authorities to which reference is made by his Honour. More particularly, it should be emphasised that the Trustee's conduct is not impugned in any relevant sense in the Primary Proceeding as there is no suggestion of anything in the nature of "wilful default" or a breach of trust sounding in any claim against it. The position, as indicated previously, is that the Trustee seeks to retain its position as the trustee of the Trust. Moreover, as Brereton J makes clear in reasons which precede the emphasised passage relied upon by the Trustee, the proper approach for a trustee defending alleged impugned conduct on its part is to defend itself and seek exoneration and indemnity out of the trust estate.[51]

33 More significant are the emphasised passages in the judgment of Brereton J to which reference has been made which are relied upon by the Objector. In the first of these, the point is emphasised that a trustee should have no particular interest in being trustee and that, rather, in the second passage emphasised, that the interest of maintaining a person or company as trustee is likely to be an interest in the appointor in upholding the appointment. In this respect, I accept that this second emphasised passage is particularly apposite in the present circumstances and that it is a fair inference, as submitted by the Objector, that it is Helen and Murray who, for their own reasons, seek the maintenance of the status quo and that it is only through their control of the Trustee that it seeks to partake in the Primary Proceeding and thereby have the advantage of utilising the assets of the Trust in doing so. I also agree that it is implicit in this passage in the judgment of Brereton J that if this is Helen's and Murray's desire, then they ought to fund this strategy themselves personally - as the Objector must in respect of the contrary position - noting also that Helen and Murray are named as defendants and are playing an active role in defence of the Primary Proceeding; or at least have the opportunity for so doing, in spite of the present position they have now taken in their defensive pleadings.

34 Secondly, as indicated previously, it is clear that the Primary Proceeding involves an ongoing dispute between members of the Charlesworth family; with Ian (the Objector) on one side, Helen and Murray on the other, with their Mother remaining neutral. It is also clear, in my view, that contrary to the way in which Helen and Murray have directed the Trustee to act so far in relation to this application - for example, opposing the Objector's right even to be heard - it is recognised that the duty of the Trustee in such circumstances is to remain neutral and to submit to any orders made in the Primary Proceeding. As Brereton J said in Uncle's Joint:[52]

1. ... [I]n substance, the trust proceedings are one element of a wider dispute between the children of the deceased, who are the beneficiaries of the trust, the probate proceedings and the family provision proceedings being other aspects of that wider dispute. In such a case, to borrow the words of Lightman J in Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 at 1225, the duty of the trustee is to remain neutral and, in the absence of any court direction to the contrary, offer to submit to the court's directions, leaving it to the rivals to fight their battles.

In response to this position, the Trustee makes reference to the judgment of Lightman J in Alsop Wilkinson v Neary,[53] where his Lordship said[54] in the following passage (which has already been set out but which I set out again because of the significance, in terms of the Trustee's submissions, of the passages which it emphasises):

... In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and (in the absence of any court direction to the contrary and substantially as happened in Merry's case [1898] 1 Ch. 306) offer to submit to the court's directions leaving it to the rivals to fight their battles. If this stance is adopted, in respect of the costs necessarily and properly incurred e.g. in serving a defence agreeing to submit to the court's direction and in making discovery, the trustees will be entitled to an indemnity and lien. If the trustees do actively defend the trust and succeed, e.g. in challenging a claim by the settlor to set aside for undue influence, they may be entitled to their costs out of the trust, for they have preserved the interests of the beneficiaries under the trust: consider In re Holden, Ex parte Official Receiver (1887) 20 Q.B.D. 43. But if they fail, then in particular in the case of hostile litigation although in an exceptional case the court may consider that the trustees should have their costs (see Bullock v. Lloyds Bank Ltd [1955] 1 Ch. 317) ordinarily the trustees will not be entitled to any indemnity, for they have incurred expenditure and liabilities in an unsuccessful effort to prefer one class of beneficiaries e.g. the express beneficiaries specified in the trust instrument, over another e.g. the trustees in bankruptcy or creditors, and so have acted unreasonably and otherwise than for the benefit of the trust estate...

[Trustee's emphasis]

Having regard to the preceding parts of his Lordship's reasons, the critical parts of which have already been set out,[55] it must be said that these emphasised passages are taken out of the context of his Lordship's reasons even if they are to be regarded as supporting the proposition for which the Trustee contends, namely, that a trustee may shed his, her or its neutral cloak in circumstances where it might be expected to be retained and become involved in what is, in substance, a dispute between beneficiaries. Moreover, the passage relied upon by the Trustee omits the critical opening sentence which makes reference to the view expressed by Kekewich J in the Ideal Bedding case, a view with which Lightman J disagrees. Clearly, if, which, is in my view, what his Lordship intended, the emphasised passages are read as a reference to defence of the trust property as a whole which might otherwise be lost to all beneficiaries, regardless of the particular entitlements of beneficiaries to that trust property as between themselves, then this is merely a reference to what might be described as a "third party dispute", adopting the reasoning of Lightman J. It follows, for the reasons already indicated, that I do not accept that a proper characterisation of the Primary Proceeding is that there are no competing claims for the assets of the Trust as between beneficiaries, even though the ultimate proportionate shares as between the beneficiaries are not in dispute. Even if it is the case, as the Trustee contends, that it is seeking to defend only the allegations of breach of trust made against it - and therefore cannot be said that it will be seeking to prefer the interests of one beneficiary over that of another - there is, as indicated previously, no relevant interest in the present context in the Trustee pursuing this course with the benefit of judicial advice and, consequently, the ability to draw on the Trust fund for the purpose of so doing.

35 Thirdly, there is no risk that the relief sought against the Trustee will be obtained by way of quasi default judgment in the event that it does not participate in the Primary Proceeding. Helen and Murray have already filed a defence disputing the Objector's right, as plaintiff, to the relief as it applies to him, and the plaintiff's solicitors in the Primary Proceeding have confirmed that no application will be made for default judgment.[56] Accordingly, it follows that this is a case where "some other party will act as contradictor", such that "the burden of defending the suit" need not fall on the plaintiff,[57] as the trustee. Thus, as Brereton J noted in Uncle's Joint:[58]

1. [I]f this results in the trust proceedings being undefended by the applicants, that does not mean that there will be no proper contradictor. The appointors who appointed the applicants, and/or a representative of the class of discretionary beneficiaries who wish the applicants to remain in office, would be appropriate contradictors ...

In the circumstances, I accept that the emphasised text is apposite here as applying to Helen and Murray.

36 Fourthly, I accept that this is not a case in which the Trustee is seeking judicial advice as to the management or administration of the Trust, or of any other trust. On the contrary, this is a case in which the Trustee is seeking to deploy trust assets in defence of allegations concerning the appropriateness of the Trustee continuing in a role of trustee and its historical conduct - through Helen and Murray - in breach of the terms of the Trust in failing to distribute upon its vesting and demand by Ian (the Objector)[59] and, alternatively distributions post vesting.[60] Also of relevance in this respect is the judgment of Barrett J in Re Australian Pipeline Limited, where his Honour refused to give judicial advice:[61]

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.

[Emphasis added]

The emphasised passage stresses the historical conduct aspect considered in Australian Pipeline Limited and is, with respect, entirely consistent with the authorities to which reference has been made and the discussion, particularly, by Brereton J in Uncle's Joint with respect to exoneration and indemnification of a trustee in relation to defence of a claim made by a beneficiary against that trustee.[62]

37 It is apposite at this point to make reference to an aspect of the Trustee's submission in reply where it is submitted that:[63]

It is also not correct for the Objector to in effect argue that the interests of the Trust as a whole would be unaffected by the outcome in the Principal Proceeding.[64] That is because the allegation of breach of trust made in paragraph 61(a) of the Statement of Claim will require the Court to determine the correctness of the Trustee's decision not to distribute the assets of the Trust pending the ascertainment of the actual assets and liabilities of the Trust. If the Court finds in favour of the Objector on this allegation (there being no other party contesting the allegation), it will arguably result in the assets of the Trust being (prematurely) disbursed to the detriment of the Trust overall.

These submissions do, however, conflate what might be described as historical conduct with what might be described as "trust disputes" concerning the terms of the trust or its very creation with a claim between the trustee and one or more of the beneficiaries with respect to the propriety of a trustee's actions where such a claim sounds in substantive relief and may leave the trustee who is exonerated or found to have acted properly in defending the claim seeking costs and/or adequate indemnity from the trust fund itself. As indicated in the preceding reasons, that is not, in my view, the proper characterisation of the Primary Proceeding and the nature of the claims made concerning the Trustee.

38 Fifthly, the Objector contends that the "... amounts involved, including likely costs"[65] tend against the Trustee defending the Primary Proceeding. The High Court in Macedonian Orthodox confirmed that this is a relevant consideration to the question whether judicial advice should be given.[66] It is clear that the Primary Proceeding involves a complex set of allegations and structures. It is also clear that the costs of the Primary Proceeding are likely to be substantial and, as such, it can be assumed that the costs of the Trustee actively participating will be substantial as well; particularly if the defensive pleadings of Helen and Murray remain as they presently stand. The position they have taken in these defensive pleadings does, in my view, support the inference which the Objector would have the Court draw; namely, that these beneficiaries, as defendants, will seek to prosecute their case substantially through the Trustee and seek, thereby, to fund what are, in effect, their defensive proceedings out of the Trust property itself. It follows that the consequence of the Trustee participating in the Primary Proceeding will be that the assets of the Trust will be depleted in defence of claims which already have proper contradictors, should they choose to contradict.

39 Moreover, Helen and Murray, through the Trustee, point to no benefit to the Trustee playing an active part in the Primary Proceeding beyond it advocating for the maintenance of its status as trustee; which, as indicated previously, is, on the authorities, an irrelevant consideration.[67] In my view, there is no benefit to the Trust in the Trustee participating in the Primary Proceeding.[68] On the contrary, the invariable implication is that the Trustee's active participation will be used by Helen and Murray to fund, or at least subsidise, their personal involvement and strategies in the Primary Proceeding.[69] In this respect, it is, as the Objector submits, telling that the Trustee's written submissions confuse the "significant allegations of impropriety" as being against the plaintiff/Trustee,[70] when in fact the allegations made by Ian (the Objector) of conscious wrongdoing are made against Murray and, to a lesser extent Helen,[71] while the "Refusal Claim" and the "Distribution Claim"[72] are expressly alleged to have been: (a) committed by the Trustee "by reason of the acts or omissions of Murray and Helen";[73] and (b) premised upon a mistaken belief that the relevant trust deed had been lost,[74] respectively - though the Trustee's written submissions do, as indicated previously, correctly concede that Ian (the Objector) seeks no payment from the Trustee "per se" in the Primary Proceeding.[75]

Trustee should not have recourse to the assets of the Trust

40 The Objector maintains that even if the Trustee takes an active part in the Primary Proceeding, it ought not to have recourse to the assets of the Trust to do so. He submits that in circumstances where the Primary Proceeding involves a dispute between members of the Charlesworth family, who are beneficiaries of the Trust, it would be quite inappropriate for the plaintiff, whom the evidence before the Court establishes is controlled by Helen and Murray (over the protests of its other director, Ian (the Objector)), to have recourse to the assets of that Trust in defending the Primary Proceedings. In these circumstances I accept that to permit the Trustee to have recourse to the assets of the Trust would be tantamount to permitting one side of the family dispute to fund the litigation at the expense of the other. By analogy with the reasoning of Brereton J in Uncle's Joint, I am of the opinion that this should not be countenanced. As Brereton J held in Uncle's Joint:[76]

The plaintiffs, ..., must rely on their own resources to fund the litigation, subject to the possibility of receiving a costs order, if successful, in due course. I see no justice or fairness in permitting their opponents to have recourse to the trust assets to fund the litigation, while the plaintiffs do not.

[And of particular relevance here, given Ian's reliance also upon ss 232/233 of the Corporations Act (2001) in the Primary Proceeding] ... The position is analogous to that of a majority having recourse to company funds to defend an oppression suit brought by the minority, which the law regards as [being itself] oppressive (cf Re DG Brims & Sons Pty Ltd (1995) 16 ACSR 599 (Byrne J); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 2) [1998] NSWSC 413; (1998) 28 ACSR 688).

[I]n the context of a family dispute, where the trustees ought to be neutral, and those with a real interest in defending the appointment of the applicants are the appointors who appointed them and/or those of the beneficiaries who wish them to retain office, it would be unjust to permit the applicants to have recourse to the trust fund for the purposes of funding their defence before the conclusion of the proceedings.

[Emphasis added]

41 For the preceding reasons, the Court will give directions that:

The plaintiff is not required to defend the Primary Proceeding and that if it does, it should not be permitted to have recourse to the assets of the Trust (or any other assets held on trust by it).

42 In relation to the question of costs, I will hear further submissions, but on the basis of the preceding reasons, my preliminary view is that neither the costs of the Trustee nor the costs of the Objector should be paid out of the Trust funds, but instead should be borne by Helen and Murray personally. In this respect, the Objector submits that the Court's discretion to make orders as to costs is vast and absolute: pursuant to s 24 of the Supreme Court Act 1986, s 65C of the Civil Procedure Act 2010 and/or the Court's inherent jurisdiction. It is certainly permitted to take into account the conduct by Helen and Murray: "There is only one immutable rule in relation to costs, and that is that there are no immutable rules";[77] and it is open for the Court to make a costs order against them notwithstanding that they are not named parties (although Ian (the Objector) accepts that such orders are "exceptional").[78] Moreover, for the preceding reasons I am also of the preliminary view that in the present circumstances there is no basis for ordering indemnification of the Trustee out of the assets of the Trust as was urged upon the Court on the basis of the orders and reasoning of Palmer J in Application of Macedonian Orthodox Community Church St Petar Incorporated.[79]

43 The parties are to bring in orders to give effect to these reasons, subject to resolution of the costs issue either by agreement or the result of a further hearing and submissions.

[1] [2013] VSC 428, [2].

[2] [1971] VicRp 73; [1971] VR 612.

[3] [1971] VicRp 73; [1971] VR 612 at 615.

[4] [1889] VicLawRp 94; (1889) 15 VLR 467 at 473.

[5] [1939] Ch 329 at 339.

[6] [1888] Ch D 546.

[7] See Statement of Claim (7 March 2017) [55]-[57] and the corresponding paragraphs in the Defence of Helen and Murray (7 June 2017).

[8] [2008] HCA 42; (2008) 237 CLR 66 at 91-2 [64]-[66].

[9] [2008] HCA 42; (2008) 237 CLR 66 at 91-2 [65].

[10] (2013) 10 ASTLR 251 at 282-3 [198]-[199].

[11] See, by way of non-exhaustive example: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Discesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66; Plan B Trustees Ltd v Parker (No 2) (2013) 11 ASTLR 242; Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226; Elders Forestry Management Ltd v Seels [2012] VSC 287; (2012) 90 ACSR 573; and Re Plator Nominees [2012] VSC 284.

[12] Trustee's Revised Outline of Submissions (19 July 2017), [3]-[7].

[13] Re Beddoe; Downes v Cottam [1893] 1 Ch 547.

[14] [2008] HCA 42; (2008) 237 CLR 66 at 94 [74].

[15] [2013] VSC 428 at [2]-[5].

[16] [2008] HCA 42; (2008) 237 CLR 66 at 94 [74].

[17] [2013] VSC 428, [2].

[18] [2013] VSC 428, [2], [4]-[5].

[19] [2013] VSC 427, [3]-[6].

[20] [2007] NSWSC 254, [6].

[21] Confidential Exhibit TMM-1 to the Affidavit of Thomas Maitland McMahon (14 June 2017).

[22] Trustee's Revised Outline of Submissions (19 July 2017), [14].

[23] Trustee's Revised Outline of Submissions (19 July 2017), [14].

[24] Statement of Claim (7 March 2017), [61(a)].

[25] Statement of Claim (7 March 2017), [71(b)].

[26] Trustee's Revised Outline of Submissions (19 July 2017), [15] (referring to Re Perrot Mill Pty Ltd (No 2) [2013] VSC 428, [5]).

[27] Trustee's Revised Outline of Submissions (19 July 2017), [17].

[28] Applying the classification of trustee disputes from Alsop v Wilkinson [1996] 1 WLR 1220, considered below.

[29] See P Young, C Croft & M Smith, On Equity (Lawbook Company, 2009) at [6.1450] and Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd [1999] FCA 1820; (1999) 96 FCR 217 at 234 [65] (there cited).

[30] See paragraph 55 to 57 of the Statement of Claim and corresponding in the Defence of Helen and Murray.

[31] Their mother is also a beneficiary of certain trusts and holder of certain shares within the group, and she too has been joined. She is not, however, playing an active part in the Primary Proceeding and, importantly, she is not a beneficiary of Trust of which the plaintiff in this proceeding is trustee.

[32] See the Affidavit of Stuart Graeme Walter (sworn 24 July 2017) ("the Walter affidavit").

[33] As that term is defined in the Statement of Claim.

[34] See Statement of Claim (7 March 2017), [9] - the "Father's Companies".

[35] See, in this respect, Trustee's Revised Outline of Submissions (19 July 2017), [17(d)].

[37] Submissions of Objector (24 July 2017), [6].

[38] [1996] 1 WLR 1220 (Ch).

[39] [1996] 1 WLR 1220 at 1223-4.

[40] [1996] 1 WLR 1220 at 1224.

[41] [1996] 1 WLR 1220 at 1224.

[42] [1907] 2 Ch 157.

[43] [1996] 1 WLR 1220 at 1225.

[44] Alsop Wilkinson v Neary [1996] 1 WLR 1220 at 1225; Re Uncle's Joint Pty Ltd (2014) 12 ASTLR 487 at 495 [31] ("Uncle's Joint").

[45] Statement of Claim (7 March 2017) [D], [E] and [FD].

[46] Statement of Claim (7 March 2017) [FA], [FB], [FC] and [G].

[47] Trustee's Revised Outline of Submissions (19 July 2017), [17(b)].

[48] (2014) 12 ASTLR 487 at 493-6 [22]-[33].

[49] (2014) 12 ASTLR 487 at 493-4 [23]-[25].

[50] (2014) 12 ASTLR 487 at 495 [30].

[51] See (2014) 12 ASTLR 487 at 493-4 [23] (which is set out above at [30]).

[52] (2014) 12 ASTLR 487 at 495 [31].

[53] [1996] 1 WLR 1220.

[54] [1996] 1 WLR 1220 at 1225.

[56] Exhibit TMM-2 to the affidavit of Thomas Maitland McMahon (sworn 14 June 2017).

[57] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at 94 [73]. See also: AMP Capital Investors Ltd as Responsible Entity for the KSC Trust [2010] NSWSC 1259 at [15].

[58] (2014) 12 ASTLR 487 at 495-6 [32].

[59] See Statement of Claim (7 March 2017), [61(a)]: "CN Co [the plaintiff], by reason of the acts or omissions of Murray and Helen, is in breach of the terms of the CF Trust [the Trust]".

[60] See Statement of Claim (7 March 2017), [71(b)].

[61] [2006] NSWSC 1316; (2006) 60 ACSR 625 at 632 [24].

[62] See Uncle's Joint (2014) 12 ASTLR 487 at 493-4 [23] (which is set out above at [30]).

[63] Trustee's Outline of Submissions in Reply (25 July 2017), [11].

[64] Objector's Submissions at paragraphs 10 and 12.

[65] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at 119 [162], citing the reasoning of the trial judge.

[66] [2008] HCA 42; (2008) 237 CLR 66 at 119 [162].

[67] To the extent relevant, Ian notes that he seeks the plaintiff be replaced with an independent trustee, and neither Murray nor Helen have (or could) put forward evidence of any unique skills they or the plaintiff possess that the Trust would be denied the benefit of if the trustee were replaced.

[68] Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at 119 [162], citing the reasoning of the trial judge.

[69] See Statement of Claim (7 March 2017), [88], [89].

[70] See Trustee's Revised Outline of Submissions (19 July 2017), [17(c)].

[71] See Statement of Claim (7 March 2017), [88]-[98].

[72] As defined in Trustee's Revised Outline of Submissions (19 July 2017), [14].

[73] See Statement of Claim (7 March 2017), [61(a)].

[74] See Statement of Claim (7 March 2017), [62]-[67].

[75] See Trustee's Revised Outline of Submissions (19 July 2017), [16].

[76] (2014) 12 ASTLR 487 at 495 [31], 496 [37].

[77] Taylor v Pace Developments Pty Ltd [1991] BCC 406 at 408.

[78] Permark International Interiors v Amoveo Pty Ltd [2013] VSC 563, [30]-[35].

[79] [2004] NSWSC 388.