The following article was published by Lexology on 26 November 2021:
A trustee may seek an opinion, advice or direction from the Court if it is in doubt in relation to a particular course of action it proposes to take.
Section 63(1) of the Trustee Act 1925 (NSW) (Act) provides:
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.
The principal purpose of section 63(1) of the Act is the protection of the trust (and its beneficiaries). In circumstances where a trustee may be personally liable for a breach of trust, obtaining judicial advice may also assist a trustee to manage its financial and reputational risk.
While the above is NSW legislation, judicial advice can be obtained in jurisdictions other than NSW. The below article focuses on NSW provisions. However, Western Australia, Queensland and South Australia are examples of jurisdictions where similar (although not uniform) provisions operate. For example, see s92 of the Trustees Act 1962 (WA) and s96 of the Trusts Act 1973 (QLD).
A major advantage of making an application under section 63(1) of the Act is found in section 63(2) of the Act. Under section 63(2) of the Act, if a trustee acts in accordance with the opinion, advice or direction it has obtained from the Court, provided it has not been guilty of any fraud, willful concealment or misrepresentation in obtaining that opinion, advice or direction, then the trustee will be taken to have discharged its duty as trustee in relation to the subject matter of the application. This is significant because a trustee that is taken to have discharged its duty in relation to a particular matter will not have engaged in a breach of trust. There are many contexts in which a trustee may seek the opinion, advice or direction of the Court. These include:
- whether to commence or defend legal proceedings;
- where there is uncertainty in relation to the proper interpretation of a trust instrument (such as a trust deed) or whether a variation or amendment to the trust deed is within the power of the trustee; or
- where a course of action which a trustee proposes to take is contentious or may give rise to a dispute between the trustee and one or more beneficiaries of the trust (in circumstances where a trustee has a duty to act in the best interests of the beneficiaries and one or more beneficiaries may disagree with the proposed course of action).
A trustee is able to seek the opinion, advice or direction of the Court provided the jurisdictional threshold is met. The threshold is found in the section itself. That is to say, the opinion, advice or direction must be sought on a question respecting the management or administration of the trust property or respecting the interpretation of the trust instrument. That is the only jurisdictional bar which exists.
The High Court has spoken
In the decision of Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) [2008] HCA 42, the High Court made a number of general observations in relation to section 63 of the Act.
In particular, the High Court observed that:
- There are no implied limitations on the power to give advice. For example, there is nothing in section 63 of the Act which limits its application to “non-adversarial” proceedings, or proceedings other than those in which the trustee is being sued for breach of trust.
- There is only jurisdictional bar to s63 and that is the one referred to above; namely, the trustee 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.
- There are no implied limitations on discretionary factors. That is to say, there are no express words and no implications from the express words which make some discretionary factors more significant or controlling than others. In particular, the adversarial nature of the proceedings about which advice is sought, the tendency of the advice to foreclose an issue in those proceedings, or the fact that the trustee seeking advice is being sued for breach of trust are not of special significance.
- Judicial advice is private and personal advice. Section 63 operates as “an exception to the Court’s ordinary function of deciding disputes between competing litigants”. The advice is private because its function is to give personal protection to the trustee.
Commencing or defending proceedings and the right of indemnity
A question that is often asked is whether judicial advice to commence or defend proceedings should be sought in circumstances where a trustee is generally entitled to an indemnity out of trust assets for expenses incurred in administering the trust.
It is important to be aware that the commencement or defence of litigation may carry a risk that a trustee will incur costs that might be outside the indemnity. Importantly, the High Court clarified the relationship between judicial advice under section 63 of the Act and a trustee’s right of indemnity pursuant to the trust deed.
In this respect, the High Court observed:
“In particular, trustees who are sued, particularly for breach of trust, may sometimes experience uncertainty about whether they will be able to obtain indemnity as to the costs of their defence under s 59(4) of the Act. Perhaps they will if their breach is excused under s 85(2); but they cannot be sure, in advance, that the court’s discretionary power to excuse the breach will be exercised in their favour, and one of the matters to be excused is their failure to obtain the court’s direction under s 63 or otherwise. This points strongly to the conclusion that an application under s 63 by a trustee sued for breach of trust (including a breach of trust alleged to arise in the very defence of the proceedings) is not to be seen as one which should rarely if ever succeed. Instead it should be seen as a standard instance to which s 63 can in appropriate circumstances apply”.[1]
It is clear from the above that the protection which is afforded by judicial advice may be significant for a trustee which is ultimately unsuccessful in the underlying litigation. It is therefore prudent for any trustee, prior to commencing or defending litigation, to consider seeking judicial advice on the question of whether it would be justified in taking such steps (and typically, on whether it would be justified in funding the proposed litigation from the assets of the trust).
Judicial advice in other contexts
While the commencement or defence of litigation is one context in which judicial advice may be sought, there are many other circumstances in which trustees can (and do) seek advice from the Court.
By way of example, judicial advice has been sought in the following contexts:
- where a trustee was in doubt about whether to proceed to register transfers of units in a trust;[2]
- where a trustee required clarification as to the distribution of proceeds under a trust deed and in particular, whether funds could be distributed more broadly than the prescribed purpose under a trust deed[3]; and
- where a corporate trustee could not locate the original executed trust deed and sought judicial advice to administer a trust in accordance with an unexecuted trust deed.[4]
Practical checklist for judicial advice applications
- The application for judicial advice must concern a question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument. If it does not do so, it can be expected that the Court will refuse to provide advice.
- An application under s 63(1) of the Act is commenced by way of a Summons. The Summons is ordinarily accompanied by a Statement of Facts (rather than an affidavit), which:
- must be divided into consecutively numbered paragraphs;
- must state the facts concisely; and
- must state the question for opinion, advice or direction.
- The usual form of order in the Summons is that the trustee would be justified in taking a particular course of action.
- The application should also be supported by a confidential opinion of Counsel.
- As part of the preparation process, a trustee should not overlook the question of whether it would be appropriate to involve the beneficiaries of the trust.
- That said, a trustee does not require the consent of any beneficiaries in making an application for judicial advice. In particular:
- under section 63(4) of the Act, unless the Court otherwise directs, it is not necessary to serve notice of the application on any person;
- under section 63(8) of the Act, where the question is who are the beneficiaries or what are their rights as between themselves, the trustee, before conveying or distributing any property in accordance with the opinion advice or direction shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution;
- pursuant to section 63(9) of the Act, the notice shall state shortly the opinion advice or direction, and the intention of the trustee to convey or distribute in accordance with it;
- under section 63(10), any person who claims that the person’s rights as beneficiary will be prejudiced by the conveyance or distribution may within such time as may be prescribed by rules of court, or as may be fixed by the Court, apply to the Court for such order or directions as the circumstances may require, and during such time and while the application is pending, the trustee shall abstain from making the conveyance or distribution; and
- under section 63(11), anyone on whom notice of any application under the section is served or to whom notice is given in accordance with subsection (8), shall be bound by the opinion, advice or direction of the Court, or by the order and directions of the Court, as the case may be, as if the opinion, advice or direction, or the order and directions, had been given or made upon the hearing of an application to which they were a party.
- It follows that there are circumstances where the serving of notice of judicial advice on beneficiaries of the trust may be useful, for strategic or other reasons.
In summary, an application for judicial advice is in many instances a streamlined and relatively inexpensive process, when compared with the risk that a trustee may otherwise be sued for breach of trust (and may ultimately be held liable).
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[1] 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 [70].
[2] Re Perpetual Investment Management Ltd as responsible entity for Perpetual’s Monthly Income Fund and Perpetual’s Wholesale Monthly Income Fund [2011] NSWSC 133.
[3] In the matter of the New South Wales Rural Fire Service & Brigades Donations Fund; Application of Macdonald & Ors [2020] NSWSC 604.
[4] The application of M & L Richardson Pty Limited [2021] NSWSC 105.
