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Judicial advice
A fiduciary has a thankless task. Usually unpaid, the fiduciary has risk that its actions will attract personal liability. So, for instance, a legal personal representative[1] (LPR) is at risk of loosing the indemnity that their costs be paid from the estate (or trust) if, viewed objectively[2], the LPR unreasonably pursues litigation[3]. But a LPR is also at risk of personal liability if it doesn’t take appropriate action to collect assets of the estate[4]. Another fiduciary, an attorney, could have similar dilemmas.
In this conundrum, before taking action, or deciding against doing so, a fiduciary[5] may wish to obtain some protection from personal liability[6]. This protection cannot be obtained by simply acting in accordance with “skilled legal advice”[7]. It can be achieved by a LPR seeking judicial advice under Trustee Act, s.63[8]. An attorney can do the same by virtue of Powers of Attorney Act, s38. Subject to compliance with the statutory requirements, this approach is available wherever the LPR or attorney needs “clear and risk free guidance about the future discharge of their functions”[9].
This article[10] considers the general principles involved in this jurisdiction[11]:
1. Judicial advice is available for, but is not limited to:
- non-adversarial proceedings,
- proceedings in which a fiduciary is being sued for breach of trust, or
- proceedings seeking the removal of a fiduciary from office[12], or
- proceedings where there is not a contest[13].
2. For a ‘trustee’ the judicial advice must concern:
- the management or administration of trust property[14] or
- the interpretation of a trust instrument[15].
For an attorney, there must be a matter relating to:
- the scope of the attorney’s appointment or
- the exercise of function by the attorney.
3. The benefit of judicial advice is that a fiduciary who acts in accordance with the advice “will be deemed to have discharged [the fiduciary’s] duties notwithstanding that the order giving the direction is subsequently “invalidated, overruled, set aside or otherwise rendered of no effect, or varied”. Indeed, the only circumstances where such a direction will not have that effect are where the fiduciary is guilty of fraud, wilful concealment or misrepresentation in “obtaining the direction or in acquiescing in the court making the order giving the direction””[16].
4. The legislation allows a relevant fiduciary to obtain judicial advice in recognition of the facts that the office of LPR is ordinarily a gratuitous office, and that a fiduciary is entitled to an indemnity for all costs and expenses properly incurred in performance of the fiduciary’s duties. Obtaining judicial advice resolves doubt about whether, for instance, it is proper for a fiduciary to incur the costs and expenses of litigation[17].
5. A relevant fiduciary is encouraged to make an application whenever confronted by an element of doubt about steps to be taken in the due administration of a trust, and the like. Similarly, courts have been encouraged to exercise the jurisdiction liberally. Courts should not “withhold judicial advice by adopting a restricted view of the operation of”[18] the jurisdiction.
6. “[A relevant fiduciary] is not obliged to first seek judicial advice before bringing or defending a claim…it is simply desirable for [the fiduciary] to seek judicial advice before making any judgment about a problematic cause of action, rather than rely on [provisions which allow a court to excuse a fiduciary’s personal liability] after the event”[19]. So, usually, the application is brought before the fiduciary embarks upon the commencement or defence of the relevant legal action[20]. However, judicial advice can be obtained after the legal action is commenced or taken[21].
7. The Court’s sole purpose in giving advice is to determine what should be done in the best interests of the trust or principal’s estate[22].
8. Whilst the court has jurisdiction to do so, as a matter of discretion the court is reluctant to resolve questions concerning the respective rights of beneficiaries[23]. Similarly with a contested construction suit[24]. Similarly, as a matter of discretion, the court will usually not give advice where the issue is:
Darryl Browne[27]
[1] This includes a trustee, executor and administrator.
[2] Re Mangan [2016] VSC 480, [14], [17].
[3] Warton v Yeo [2015] NSWCA 115( where an executor was found to have acted unreasonably in adopting an adversarial stance and incurring costs in the Court of Appeal); James –v- Douglas [2016] NSWCA 178 (where the Court of Appeal upheld a decision that an appointor be deprived of an indemnity for his costs and be ordered to pay the indemnity costs of displaced trustees when the appointor had displayed delinquency in the performance of his duties); Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133, [11]; Parsons –v- Davison [2016] NSWSC 1491 and Istvan –v- Molnar [2016] SASC 159.
[4] See, for instance, Bird v Bird [2013] NSWCA 262.
[5] The protection is only available to an executor or administrator once the grant of representation has been made: Joel Lewis Hubbard, Re the Estate of the late John Gordon Ross [2011] NSWSC 617.
[6] The protection is only as good as the adequacy of the assets in the estate: Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319; Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 367.
[7] Dunn v Flood (1885) 28 Ch D 586; Perrins v Bellamy [1899] 1 Ch 797; National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373; Futter v The Commissioners for Her Majesty’s Revenue and Customs [2013] 2 AC 108, [2013] UKSC 26, [78].
[8] A superior court also has a general equitable jurisdiction to give such advice: Application of Macedonian and Orthodox Community Church St Petka Inc (No. 2) (2005) 63 NSWLR 441; [2005] NSWSC 558, per Palmer J at [23]; Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547; Auspac Corporate Managers Pty Ltd v J Noble Pty Ltd [2003] NSWSC 548, [19]; Application of Perpetual Trustee Company Ltd; Re: Estate of the late Evelyn Mary Dempsey [2016] NSWSC 159, [5]. Also, a superior court has inherent jurisdiction to see that trusts are properly executed: Letterstedt v Broers [1884] App Cas 371; Crowle Foundation v NSW Trustee and Guardian [2010] NSWSC 647, [41]. This includes estates: Re Kilby [2016] NSWSC 1433, [20].
[9] Parker v Higgins [2012] NSWSC 1516, [50] concerning judicial advice pursuant to Powers of Attorney Act, s38, but equally applicable to judicial advice pursuant to the Trustee Act.: Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844, [190]. See also Yule –v- Irwin (No2) [2016] SASC 178, [58]; Underwood v Hatton [1842] EngR 371; (1842) 5 Beav 36, 49 ER 490; Smith v Smith (1861) 1 Dr & Sm 384, 62 ER 426; Re Atkinson [1971] VicRp 73; [1971] VR 612, 615; The Application of Eurolinx Pty Limited in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306, [25].
[10] A later article will consider the process involved in seeking judicial advice.
[11] These comments are largely based on the reasons of Lindsay J in Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844. However, other significant commentary on this jurisdiction appear in Application by Marilyn Joy Cottee; Estate of Gwenyth Shirley Smith [2013] NSWSC 47, [29] – [42] (repeated in Application by Karellas Investments Pty Ltd [2016] NSWSC 1578).
[12] [2013] NSWSC 844, [185] referring to Macedonian Orthodox Community Church St Petka Incorporated v Bishop Petar [2008] HCA 42; (2008) 237 CLR 66, [55] – [57].
[13] Ibid at [188].
[14] In Australian Pipeline v Hastings [2013] NSWSC 1657 the court decided that it did not have jurisdiction under s63 Trustee Act to give judicial advice as the issue concerned the trustee’s exposure to personal liability for past misconduct. In Application of Gnitekram Marketing Pty Limited [2010] NSWSC 1328, [13] it was said: “”Management or administration of property” includes taking steps to preserve the property, and taking steps to make the property financially productive. The words refer to both the manner in which trust property is managed, administered, handled, directed or controlled, and the actual carrying out of those functions. In addition, the words include transferring part, or all, of it, as required, to those who have become entitled to it. The words are not confined to the continued holding of the property in question: Stein v Sybmore Holdings [2006] NSWSC 1004, [59]”. The remarks were repeated in Application by John William Kellert [2017] NSWSC 897, [7].
[15] Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844, [186]; The Application of Eurolinx Pty Limited in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306, [22].
[16] Corbiere v Dulley [2016] QSC 134, [2]; The Application of Eurolinx Pty Limited in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306, [22].
[17] Re Estate Late Chow Cho-Poon; Application for judicial advice [2013] NSWSC 844, [192] with emphasis in the judgement, citing Macedonian Orthodox Community Church [2008] HCA 42; (2008) 237 CLR 91, [71].
[18] Ibid at [196] citing Macedonian and Orthodox Community Church [2008] HCA 42; (2008) 237 CLR 91, [63], 93 [69]-[70] and 94 [74].
[19] Robert Peter Campbell ATF the Joan Macpherson Trust and the Banandra Pastoral Settlement Trust [2016] NSWSC 1751 citing Macedonian and Orthodox Community Church [2008] HCA 42; (2008) 237 CLR 91, [36].
[20] Tschirn v Australian Executor Trustees Ltd [2016] SASC 149, [63].
[21] Application of Gordon Albert Salier [2017] NSWSC 473, [7] where advice was not sought before commencement of proceedings because of a concern about the imminent expiry of a limitation period.
[22] Dulhunty v Dulhunty [2010] NSWSC 1465, [44]; Application by Marilyn Joy Cottee; Estate of Gwenyth Shirley Smith [2013] NSWSC 47, [29] – [42] (repeated in Application by Karellas Investments Pty Ltd [2016] NSWSC 1578); Tschirn v Australian Executor Trustees Ltd [2016] SASC 149, [54]. In Attorney General in and for the State of New South Wales v Homeland Community Ltd [2013] NSWSC 723 the court declined to give advice where it appeared that the trustee was proposing to use the trust’s funds for the benefit of one class of beneficiary rather than the trust as a whole: [41].
[23] Brown as executor of the estate of the late Petar Vezmar (aka Peter Vezmar) (No 2) [2016] NSWSC 1752, [7] – [8]; the matter of International Art Holdings Pty Ltd (admin apptd); International Art Holdings Pty Ltd (admin apptd) v Adams [2011] NSWSC 164, [138]; Application of Willoughby City Council (as manager of the Talus Reserve Trust) [2016] NSWSC 1717, [85] – [86].
[24] The Application of Eurolinx Pty Limited in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306, [26]; Re Estate of Cow Cho-Poon [2013] NSWSC 844, [43] – [44].
[25] Application by Perpetual Trust Services Limited as responsible entity of the Momentum AllWeather (A$) Absolute Return Fund [2012] NSWSC 758.
[26] Application of NSW Trustee & Guardian [2014] NSWSC 1857, [26].
[27] Darryl Browne is the principal of BROWNE. Linkenbagh Legal Services. He is an Accredited Specialist in Wills and Estates. He is the Chair of the Law Society’s Elder Law, Capacity and Succession Committee and facilitates the Law Society’s Elder Abuse Working Group. He is a Councillor of the Law Society and a member of the Specialist Accreditation Board. He is a member of the State government’s Prevention of Elder Abuse Steering Committee, the Law Council of Australia’s Elder Law and Succession Committee, the Legal Aid Commission Board and the University of Sydney’s Law Extension Committee. He writes monthly Case Notes on wills and estates for LSJ and occasional other articles for that and other journals. He facilitates the Law Society’s online Wills and Probate Procedures for Solicitors. He designed and presents the Masterclass on Powers of Attorney. He is a member of STEP and SMSF Association. The opinions expressed in this article are his own.
