TRUSTS AND TRUSTEE - Judicial advice - Whether a considered opinion of counsel in support of the trustee's application is required - Re Permanent Trustee Australia Limited (1994) 33 NSWLR 547 - Re Beddoe; Downes v Cottam [1893] 1 Ch 547 - [Supreme Court

For Gallan Pty Ltd (the former trustee of the Gallan Trust) and Morrison Pty Ltd (as the trustee of the Gallan Trust)

For Sylvia Morrison, Leigh Morrison, Ian Morrison and Slalom Pty Ltd (persons interested in the proceeding and having notice of it)

**1 This application is brought by an Originating Motion dated 18 July 2013 whereby Perrot Mill Pty Ltd ("Perrot Mill"), in its capacity as trustee of the Perrot Mill Trust, applies to the Court for judicial advice and directions under order 54, paragraph 2, of the Supreme Court (General Civil Procedure) Rules 2005. In so doing it seeks orders that it would be justified to have recourse to the assets of the Perrot Mill Trust to pay its reasonable costs of; (a) this application; and (b) the defence of Supreme Court Proceeding SCI 2012 6939 ("the Proceeding"). Such further order as the Court deems fit is also requested by way of relief.

2 In my view, the cases indicate very clearly that in an application of this type a trustee will be expected to provide material to the court to demonstrate that it has taken proper legal advice.

3 In this respect, I refer particularly to Ford & Lee's text, The Law of Trusts,[1] and a passage which begins:[2]**

The 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. It merely has to determine whether proceedings are justifiable, and that appears to mean that it should satisfy itself that the bringing or defence of the proceedings will not be fruitless.[3] In Re Macedonian Orthodox Community Church St Petka Incorporated (No.4) [2007] NSWSC 254 it is said at [6] that an action would be fruitless if the available trust funds would be exhausted before the issue could be decided with finality. It is submitted that the principles upon which such a determination should rest are those debated in Jessup v Lawyers Private Mortgages Pty Ltd [2006] QSC 6.

In Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547 trustees seeking the advice of the court concerning proceeding to litigation were advised respecting what material, and in Re Application of Macedonian Orthodox Community Church St Petka Incorporated [2006] NSWSC 392 at [27] ff what confidential material, should be provided to the other parties to the litigation. In the latter case Young CJ in Eq said at [23]:

2. A trustee will be expected to provide material to the court to demonstrate:

that it has taken proper legal advice and, if need be, commercial advice, and that a reasonable trustee might well abide that advice;

that where the advice sought is in connection with litigation, the trustee must show not just that it has advice that it is more likely than not that it will be successful, but also that in pursuing the litigation it will be acting in the best interests of the trust. Thus, for instance, there may well be situations where counsel has advised that there is a good chance of success but that the costs of obtaining a verdict would be a million dollars and the outcome might be a verdict for $10,000. A reasonable trustee may well take the view that despite the assurance of success, it is not in the interests of the trustee to pursue the litigation.

...

It is highly advisable and is the usual practice that, before applying to the court, the trustees have counsel's opinion as to the likelihood of success of proposed litigation and whether costs out of the trust fund can be allowed to obtain it: Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Assoc Inc [2003] NSWSC 104; Application of Macedonian Orthodox Community Church St Petka Inc [2004] NSWSC 388. A trustee who acts without such advice may lose costs: Re Beddoe [1893] 1 Ch 547 per Lindley LJ at pp 557 and 558, quoted in 3 Individual Present Professional Trustees v Infant Prospective Beneficiary [2007] EWHC 1922 (Ch); [2007] WTLR 1631 per Lindsay J at paragraphs 3 and 4.

**4 The reason for this requirement in my view is clear - because unless the trustee does provide the court with such considered advice on the matters indicated by the authorities, including on the prospects of success, the court is, in effect, being asked to take on the role of counsel advising the trustee. The court would, in so doing, be advising, among other things, on the prospects of success. This is an entirely inappropriate role for a court in any event, but more so where the matter the subject of the Beddoe[4] application is or may be proceeding to trial in the same court, and where contrary findings of fact and law may be made.

5 The judgment of Young CJ (as he then was) in Re Permanent Trustee Australia Limited[5] illustrates the point where reference is made to a passage in the judgment of Wynn-Parry J in Re Moritz, decd,[6] where his Honour says:[7]

... The court in these circumstances is appealed to by the trustee to say "Aye," or "No," in view of the circumstances put before it, should the action proceed, and, if so, how far? ...

6 For these reasons, I am of the view that a considered opinion of counsel is required and this application, if it is to proceed, must proceed on that basis.**

[1] Ford and Lee, The Law of Trusts, (2011) Thompson Reuters.

[3] Re Brogden (1888) 38 Ch D 546; Fitzgerald v Smith [1889] VicLawRp 94; (1889) 15 VLR 467 at 473; Re Kay's Settlement [1939] Ch 329 at 339; Watson v Yore [2004] QSC 339; Re Application of Macedonian Orthodox Community Church St Petka Incorporated (No 2) (2005) 63 NSWLR 441; [2005] NSWSC 558 at [69].

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

[5] (1994) 33 NSWLR 547 at 549.

[6] [1960] Ch 251.