[2021] NSWCA 256
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Dioscesan Bishop (2008) 237 CLR 66
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Catchwords
[2021] NSWCA 256
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Dioscesan Bishop (2008) 237 CLR 66
Judgment (6 paragraphs)
[1]
The application for judicial advice that Mr Nespolon and Mr Dickson would be justified in defending Ms van Camp's claims relating to the Nomination and prosecuting the cross-claim in the main proceedings
The judicial advice sought in rolled up terms includes advice sought by Mr Nespolon and Mr Dickson that they would be justified in defending Ms van Camp's claims in relation to the Nomination in the main proceedings and in prosecuting the cross-claim in the main proceedings and in paying the costs thereby incurred from the deceased's estate.
The applicants submitted that the deceased was an object of the Fund and that his right to enforce due administration of Fund is part of his "personal estate" as defined in s 3 of the Probate and Administration Act 1898 (NSW) vested in his executors upon the grant of probate of his will pursuant to s 44 of that Act and is "property" as defined in s 5 of the Trustee Act. The applicants further submitted that the executors themselves are objects of the Fund, at least insofar as Rule 13.5 applies, and therefore have a right to compel due administration of the Fund and a right to be considered for the exercise of Bellahealth's discretion concerning the payment of the death benefit in the event that the Nomination is not effective and valid. The applicants submitted that these rights of the executors are also "property" and the executors are "trustees" within the meaning of s 5 of the Trustee Act.
I accept that the deceased had, and the executors have, a right to compel due administration of the Fund and that the executors also have a right to be considered for the exercise of the discretion under Rule 13.5(a) if it applies: Lewin On Trusts (20th ed, 2020) at [1-061] and the authorities there referred to. I proceed on the assumption (without deciding) that the rights referred to above are "property" within the meaning of the Trustee Act. However, I reject the applicants' submission that the question whether Mr Nespolon and Mr Dickson would be justified in defending Ms van Camp's claims in relation to the Nomination and prosecuting the cross-claim in the main proceedings is a question respecting the management or administration of that property. That is because there is no suggestion that Bellahealth is failing to attend to the due administration of the Fund or that it will not exercise the discretion under Rule 13.5(a) if the Nomination is held to be invalid or is set aside. Bellahealth is defending Ms van Camp's claims relating to the Nomination and prosecuting the cross-claim in the main proceedings. There are no special circumstances that would warrant any object of Fund taking the defence of Ms van Camp's claim and the prosecution of the cross-claim into their own hands: Alexander v Perpetual Trustees WA Ltd (2003) 216 CLR 109; [2004] HCA 7 at [55] (Gleeson Cj, Gummow and Hayne JJ); Gillespie Cranes Nominees Pty Ltd v Gillespie [2022] NSWSC 1184 at [41]-[54]; J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016) at [23-03] and the authorities there cited. Whatever Mr Nespolon and Mr Dickson may be doing or wishing to do in relation to Ms van Camp's claim concerning the Nomination and the cross-claim in the main proceedings, it does not involve enforcement of the deceased's rights vested in them as executors or their rights as the deceased's legal personal representatives to be considered for the exercise of the discretion under Rule 13.5(a). They are not taking action against Bellahealth to enforce those rights.
For those reasons, s 63 of the Trustee Act does not confer jurisdiction on the Court to provide judicial advice to Mr Nespolon and Mr Dickson as to whether they would be justified in defending Ms van Camp's claims in relation to the Nomination in the main proceedings and in prosecuting the cross-claim in the main proceedings and in paying the costs thereby incurred from the deceased's estate.
Even if the Court had jurisdiction, I would have declined to give the judicial advice sought in circumstances where Bellahealth is defending that claim and prosecuting the cross-claim consistently with its obligations as trustee of the Fund, as referred to below.
[2]
The application for judicial advice that Bellahealth would be justified in defending Ms van Camp's claims relating to the Nomination and prosecuting the cross-claim in the main proceedings
The rolled up terms of the judicial advice sought also include advice that Bellahealth would be justified in defending Ms van Camp's claims in relation to the Nomination in the main proceedings and in prosecuting the cross-claim in the main proceedings and in paying the costs thereby incurred from the Fund.
I reject the submission made on behalf of Ms van Camp that, since the death benefit must be paid out of the Fund either in accordance with the Nomination or otherwise in accordance with Rule 13.5(a), Bellahealth has no interest in the question to whom the death benefit is to be paid and should simply pay the death benefit into Court in the main proceedings so as to avoid burdening the Fund with the costs of defending Ms van Camp's claims and the costs of prosecuting the cross-claim.
Bellahealth has an interest in discharging its duty as trustee of the Fund by paying the death benefit in accordance with Rule 13.5(b) if the Nomination is effective and valid and otherwise in accordance with Rule 13.5(a). Bellahealth is on notice of the matters referred to in the amended statement of facts that give rise to properly arguable questions about whether the Nomination is effective and valid. In those circumstances, by defending Ms van Camp's claims relating to the Nomination and by prosecuting the cross-claim in the main proceedings, Bellahealth is seeking to discharge its duties as trustee of the Fund by ensuring that it pays the death benefit in accordance with the applicable provisions of Rule 13.5. As the applicants submitted, the question whether Bellahealth is justified in doing so is a question respecting the management or administration of the property of the Fund. The Court has jurisdiction under s 63 of the Trustee Act to give judicial advice to Bellahealth as trustee of the Fund in respect of that question.
For completeness, I should add that it would be wholly inappropriate in my view for Bellahealth to simply pay the death benefit into Court. If the Nomination is held to be unenforceable or is set aside, Bellahealth will be required to exercise the discretion under Rule 13.5(a) and pay the death benefit accordingly. It is not entitled to abrogate that responsibility by paying the death benefit into Court.
For the reasons that I have already explained, I am satisfied that the cross-claim and the defence of Ms van Camp's claims in relation to the Nomination are properly arguable. The outcome will determine whether Rule 13.5(a) or Rule 13.5(b) applies and that will facilitate Bellahealth discharging its obligation to pay the death benefit of $4,401,422 in accordance with the applicable Rule. Despite having some misgivings about the estimated costs of the main proceedings, to which I will return below, the information presently before the Court indicates that the costs of defending Ms van Camp's claims relating to the Nomination and prosecuting the cross-claim will not be disproportionate to the importance of Bellahealth discharging its duty as trustee of the Fund to pay the death benefit of $4,401,422 in accordance with the applicable provision of the Rules. Having regard to all of those matters, I consider that the prospects of success are sufficient to warrant Bellahealth defending Ms van Camp's claims in relation to the Nomination and prosecuting the cross-claim in the main proceedings.
For those reasons, the Court will give judicial advice to Bellahealth in its capacity as trustee of the Fund that it would be justified in defending Ms van Camp's claims relating to the Nomination and in prosecuting the cross-claim in the main proceedings and in paying the reasonable costs properly incurred in doing so out of the Fund.
I consider that it is appropriate to record my misgivings in relation to costs. According to an affidavit sworn by the applicants' solicitor on 24 August 2022, the estimated legal costs of Bellahealth defending the main proceedings and prosecuting the cross-claim (including costs incurred to date) are some proportion of $215,000. That amount is an estimate of the total legal costs (past and future) of Mr Nespolon, Mr Dickson and Bellahealth of the main proceedings, including the family provision claim. Mr Nespolon, Mr Dickson and Bellahealth have common legal representation in the main proceedings and expect to continue to do so. The amount of costs seems to me to be high for what is expected to be a four day trial. The estimate is not supported by a detailed breakdown, but it is broken down into categories of solicitors, counsel, experts and disbursements. The counsel and expert components are relatively modest, but the solicitors' past fees and estimated future fees are double the fees of counsel. I do not understand why that should be so, particularly in relation to the future fees where one would expect that the majority of the work required to prepare for and conduct the trial will be undertaken by counsel. In any event, Bellahealth will only be entitled to pay its reasonable legal costs out of the Fund. Even assuming that the reasonable costs do turn out to be a total amount of $215,000, the non-family provision claim component of those costs would not be disproportionate to the importance of Bellahealth complying with its obligations in respect of the payment of the $4,401,422 death benefit.
[3]
The application for judicial advice insofar as it concerns the family provision claim
I now turn to Mr Nespolon's and Mr Dickson's application for judicial advice that they would be justified in defending Ms van Camp's family provision claim in the main proceedings.
The executor of a deceased estate is the proper defendant to a family provision claim in respect of the estate. The executor's duty is to either compromise the claim or to contest it and seek to uphold the provisions of the will. If the executor contests the claim, it is to be expected that they will adduce evidence that is relevant to the issues raised by the claim: see Bartlett v Coomber [2008] NSWCA 100 at [70]-[71] (Hodgson JA) and the authorities there referred to.
Contrary to Ms van Camp's submissions, it does not follow that there is no question enlivening the Court's jurisdiction under s 63 of the Trustee Act. There is a question as to whether to defend the claim, as opposed to compromising it, and defending the claim will necessarily commit some of the assets of the estate to pay the reasonable legal costs of the defence. That involves a question concerning the management or administration of the estate: see Wilcox v Chapple [2020] NSWSC 1859 at [23] (Rees J).
However, there is insufficient information before the Court to give the advice sought. The amended statement of facts does not specify the quantum of provision claimed by Ms van Camp and provides no information about many of the matters in s 60 of the Succession Act that are likely to be relevant to the fact-specific evaluative exercise that will ultimately determine the outcome of the family provision claim. There is some vague and inconsistent information about her past income and it is clear that she is now the sole parent of her two young daughters. However, the amended statement of facts is silent about many relevant matters. By way of example only, the amended statement of facts contains no information about Ms van Camp's age, health and life expectancy. Nor does it contain any information about her assets and financial position (other than the assets bequeathed to her in the will) or her skills, qualifications, employment (if any) and future earning capacity. The Court therefore lacks a proper basis to consider whether counsel's confidential opinion establishes sufficient prospects of successfully defending the family provision claim to warrant the defence of that claim in the main proceedings.
For those reasons, the Court will not give the judicial advice sought by Mr Nespolon and Mr Dickson in relation to the defence of Ms van Camp's family provision claim and the costs of that defence.
The rolled up terms of the judicial advice sought extends to advice that Bellahealth would be justified in defending Ms van Camp's family provision claim in the main proceedings.
The defence of Ms van Camp's family provision claim is a matter for Mr Nespolon and Mr Dickson. Bellahealth may be entitled to be heard in relation to discrete issues concerning whether the death benefit should be designated as notional estate and, if so, questions about whether the burden of any provision ordered in favour of Ms van Camp should fall on the estate or the notional estate. However, the defence of the family provision claim is not a matter for Bellahealth. I raised this matter with counsel for the applicants during the hearing. Counsel for the applicants directed submissions to Bellahealth being entitled to be heard in relation to notional estate issues but did not seek advice in narrower terms that Bellahealth would reflect a limited role for Bellahealth in relation to the family provision claim.
For those reasons, the Court will not give the judicial advice sought by Bellahealth insofar as it relates to the defence of Ms van Camp's family provision claim in the main proceedings.
[4]
Costs of the advice proceedings
The advice proceedings are not adversarial litigation but an application by a trustee for private advice. Ms van Camp was a defendant to the proceedings only because she was entitled to be joined as a co-executor of the deceased's estate. Although the applicants have not succeeded in obtaining all of the judicial advice sought, the application was properly made. I note that most of the amended statement of facts and submissions were directed to the defence of the Nomination claims and the prosecution of the cross-claim in the main proceedings. Bellahealth has succeeded in obtaining the judicial advice sought in relation to those aspects of the main proceedings.
Mr Nespolon and Mr Dickson are entitled to be indemnified out of the deceased's estate for their reasonable legal costs of the advice proceedings. Bellahealth is entitled to be indemnified out of the Fund for its reasonable legal costs of the advice proceedings. According to the affidavit of the applicants' solicitor, their estimated total legal costs of the advice proceedings are $18,191.80 (including GST). The Court has no information about those costs other than the total amount. Before paying any costs out of the deceased's estate and the Fund (respectively), Mr Nespolon and Mr Dickson and Bellahealth will need to scrutinise the costs and satisfy themselves as to the reasonableness of the amount and the propriety of the apportionment of the reasonable costs between them.
Ms van Camp did not seek any order in relation to her costs of the advice proceedings.
[5]
Conclusion and orders
For all of the foregoing reasons, the orders of the Court are as follows:
1. On the basis of the facts set out in the amended statement of facts filed in these proceedings on 8 June 2022 and the confidential opinion of counsel for the plaintiffs in these proceedings dated 22 August 2022, order pursuant to s 63 of the Trustee Act 1925 (NSW) that the third plaintiff (Bellahealth Pty Ltd) in its capacity as trustee of the Nespolon Superannuation Fund would be justified in:
1. defending the claims made by the plaintiff in proceedings 2021/200360 in prayers 1 and 2 and paragraphs 1 to 6 of the statement of claim filed on 19 November 2021; and
2. prosecuting the first cross-claim as pleaded in the statement of cross-claim filed on 13 December 2021 in proceedings 2021/200360; and
3. in paying its reasonable costs incurred in defending those claims and prosecuting that cross-claim out of the assets of the Nespolon Superannuation Fund.
1. Order that the summons filed in these proceedings is otherwise dismissed.
2. Order that the first and second plaintiffs (Mr Nespolon and Mr Dickson) in their capacity as executors of the estate of the late Dr Harry Nespolon would be justified in paying their reasonable costs of these proceedings out of the assets of the deceased's estate.
3. Order that the third plaintiff (Bellahealth Pty Ltd) in its capacity as trustee of the Nespolon Superannuation Fund would be justified in paying its reasonable costs of these proceedings out of the assets of the Nespolon Superannuation Fund.
[6]
Endnotes
Re Application of Macedonian Orthodox Community Church St Petkar Inc (No. 3) [2006] NSWSC 1247 at [80].
Re Application of Macedonian Orthodox Community Church St Petkar Inc (No. 3) [2006] NSWSC 1247 at [62].
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Decision last updated: 06 September 2022
Section 63(1) of the Trustee Act provides that 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".
As Gummow ACJ, Kirby, Hayne and Heydon JJ said in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Dioscesan Bishop (2008) 237 CLR 66; [2008] HCA 42 at [58]:
"Only one jurisdictional bar to s 63 relief exists: the applicant must point to the existence of a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument."
Their Honours went on to say (at [71]-[72], emphasis in original):
"In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that the trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs.
It is, therefore, not right to see a trustee's application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust."
At [74], their Honours said:
"A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. In deciding that question a judge must determine whether, on the material then available, it would be proper for the trustee to defend the proceedings. But deciding whether it would be proper for a trustee to defend proceedings instituted about the trust is radically different from deciding the issues that are to be agitated in the principal proceeding. The two steps are not to be elided. In particular, the judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings."
The New South Wales Court of Appeal has held that the passage extracted immediately above is not to be understood as imposing a legal obligation on a trustee to seek judicial advice before commencing or defending proceedings. Rather, it is prudent for a trustee to do so because, if the trustee's prosecution or defence of legal proceedings is unsuccessful, the trustee may be deprived of its entitlement to be indemnified out of the trust assets for the costs of the proceedings if the trustee did not act reasonably in prosecuting or defending them. The rationale for seeking judicial advice as to whether the trustee would be justified in prosecuting or defending the proceedings is to avoid that argument at the end of the day after the costs have already been incurred: Ludwig v Jeffrey (2021) 394 ALR 360; [2021] NSWCA 256 at [82]-[84] (Emmett AJA, Meagher and Brereton JJA agreeing).
At [162], Gummow ACJ, Kirby, Hayne and Heydon JJ cited with approval the following passage from the judgment of Palmer J at first instance: [1]
"In a judicial advice application in which the trustee asks whether it is justified in prosecuting or defending litigation, all the Court does is to reach a view as to whether the Opinion of Counsel satisfies it that there are sufficient prospects of success to warrant the trustee in proceeding with the litigation. Counsel's Opinion must address the facts necessary to support the legal conclusions reached and must demonstrate that the propositions of law relied upon for those conclusions are properly arguable. Whether, in the light of Counsel's Opinion, there are 'sufficient' prospects of success calls for another judgment, founded upon such considerations as:
- the nature of the case and the issues raised;
- the amounts involved, including likely costs;
- whether the likely costs to be incurred by the trustee are proportionate to the issues and [the] significance of the case;
- the consequences of the litigation to the parties concerned;
- in the case of a charitable trust, any relevant public interest factors."
Their Honours referred with approval at [163] to Palmer J's distinction between the question whether propositions were properly arguable and the question whether there were "sufficient" prospects of success.
At [84], their Honours referred approvingly to the following further passage from the judgment of Palmer J: [2]
"Where a trustee seeks an order that it is justified in defending a claim against the 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; and
- if the trust is a charitable trust rather than a private trust, what, if any, are the considerations of public interest."