Seeking Judical Advice

Every citizen having business with the court has the right to approach it and statutes and provisions of long standing deriving from the Law of Property and Trustees’ Relief (Lord St Leonard’s) Act 1858 22 & 23 Vic C 35 and from s 9 of the Law of Property Act 1860 23 & 24 Vic C 38 allow and regulate that right and also enable trustees to seek the advice and directions of the court.

In Marley v Mutual Security Merchant Bank & Trust Co Ltd [1990] UKPC 44; [1991] 3 All ER 198 at 201 Lord Oliver of Aylmerton referred to the entitlement of “a trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions” to seek judicial advice. See also Re Australian Pipeline Ltd [2006] NSWSC 1316; (2006) 60 ACSR 625 at [17]; Re Application by Perpetual Trust Services Ltd (as responsible entity of the Momentum Allweather (A$) Absolute Return Fund) [2012] NSWSC 758 at [37] to [50]; and Re Creditors’ Trust Deed Established in the administration of Beviesta Pty Ltd [2013] NSWSC 1258 at [5] and Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons [2014] NSWSC 784.

Trustees may approach the court if they are in doubt as to any course of action they contemplate, whether it concerns the rights of beneficiaries, the performance of any duty or the exercise of any discretion; and sometimes it is their duty to do so. In Re Atkinson (dec’d) [1971] VR 612 at 615 Gillard J said:

“Where an executor or trustee is in doubt as to the course of action it should adopt, it is always entitled to take the opinion of the court as to what it should do.”

Also see Re Perrot Mill Pty Ltd (No. 2) [2013] VSC 428

Ref: [17.160] The Trustees’ right, and duty when necessary, to approach the court – Ford & Lee The Law of Trusts.

A trustee has the right at any time to seek advise and directions from the Court should the need arise in the administration of the trust.

In Jacob’s Law of Trusts in Australian 7th Edition the following is stated at [2132]:

“A trustee is not obliged to take any risk by deciding in a doubtful case what are the respective rights of the beneficiaries, or by performing any act which, however advantageous t the trust, is strictly in breach of trust, or even exercising a power or discretion where there is a possibility that the propriety of such exercise might be afterwards called into question by the beneficiaries. In all these cases, the trustee is entitled to approach the court and to ask it to determine the beneficiary’s rights, or to authorise him or her to perform the necessary act, or to advise him or her upon the exercise of the power or discretion as the case may be.”

Under the next section “Construction of the Trust Instrument” – [2132A} the following is stated:

” Where the trustee is in doubt as to the rights or interest of any person claiming to be a …..cestui que trust, the trustee may take out process in the nature of an originating summons (motion) in the equitable jurisdiction of the Supreme Court of the State concerned for the determination of the question or questions. The originating summons is served upon all persons whose rights or interests are sought to be affected and the hearing of the matter is determined after all such persons have been heard or have had the right to be heard, with the result that the question becomes res justicata and all persons interested are estopped from litigation the question again1. The trustee may then safely deal with the estate upon the basis of the court’s decision and is completely protected.””

Note: (1) Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653.

This right to seek Judicial Advice is part of the inherent jurisdiction of the Court in the administration of trusts and this is also a statutory right pursuant to Section 91 of the Trustee Act 1936 (SA).

The Supreme Court Civil Rules also provide a statutory means of seeking Judicial Advice.

Similar provisions exist in other States. In Victoria Regulation 54.02 of the Supreme Court (General Civil Procedure) Rules provides a means of seeking Judicial Advice.

Details can be found on the following link:

Regulation 54.02 – Supreme Court (General Civil Procedure Rules) 2005 (Vic)

If a trustee seeks advice and direct, then the Court has the power to relieve a trustee of a personal liability in a Breach of Trust action in relation to the matter for which advice and directions were sought.

The High Court of Australia has emphasised the importance of a trustee seeking advice and directions before seeking relief from the Court. The comments of the High Court are included below and further comments by the High Court can be found  here.

The various state Trustee Acts include provisions to relieve a Trustee from personal liability for Breach of Trust, however the trustee is expected to seek the advice of the court before seeking relief from liability for a Breach of Trust.

In South Australia the provisions are to be found in Section 56 of the Trustee Act 1936 (SA)

In Green v Wilden Pty Ltd [2005] WASC 83, Hasluck J sated at [504]:

504 Section 75 of the Trustees Act (WA) is to this effect. If it appears to the Court that a trustee may be personally liable for any breach of trust, but acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed the breach, then the Court may relieve him wholly or partly from personal liability for that breach.

505    The High Court had occasion to consider a provision in essentially those terms in Partridge v Equity Trustees Executors & Agency Co Ltd[1947] HCA 42; (1947) 75 CLR 149. In that case an executor was subject to an imperative trust to sell, call in and convert the estate into money. The High Court concluded that, as the trustee company had failed to insist upon payment of a large outstanding debt the loss in question was due to a wilful default or breach of trust on the part of the trustee and it was not able to rely on the protective provisions.

506    Starke, Dixon and Williams JJ observed at 165 that a professional trustee should be particularly careful to act strictly within the line of its duty and would have to establish a strong case before the Court would apply the statutory provision in its favour. In the instant case, the defendant company had acted honestly but it was disputed that it had acted reasonably. The decided cases showed that in considering whether a trustee has acted reasonably the terms of the instrument creating the trust ought to be taken into consideration. If an ordinary businessman might reasonably entertain a particular view of the construction of the instrument, and the action of a trustee would have been justified if that view had been the true one, the trustee cannot be said to have acted unreasonably merely because this view of the construction of the instrument was wrong.

507    Their Honours went on to observe that each case must be decided on its own facts. However, in the instant case, any businessman reading the Will would have concluded that his dominant duty was to get in the debt. The defendant did not do so and did not appear even to have sought advice from counsel or its solicitors. It placed its own construction on the clause and acted accordingly. In all the circumstances, their Honours were unable to hold that the defendant acted reasonably.

508    It seems that the trustee allegedly in default bears the onus of proving that his or her conduct was honest and reasonable and that in all the circumstances of the case, he or she ought fairly to be excused. Craven-Sands v Koch (2000) 34 ACSR 341. The criterion of “honestly” means the trustees must have acted in good faith and for the welfare of the Trust. Cotton v Dempster (1918) 20 WALR 14.Reasonably” means reasonably in the interests of the estate, not in the interest of the trustees themselves. Re Morish (1939) SASR 305 at 309. It also means acting with a degree of prudence that a person of ordinary intelligence and diligence can be expected to exhibit in the conduct of one’s own affairs. Fouche v Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609 at 641

509    Conduct that has been held as unreasonable includes conduct that is negligent or careless, acting in an unauthorised manner without taking steps to ascertain whether the conduct was or was not authorised, doing nothing and simply accepting without enquiry what co-trustees have done and placing a co-trustee in a position to handle the Trust fund when he or she suspect that the co-trustee may misappropriate the Trust funds. Dalrymple v Melville (1932) 32 SR (NSW) 596.

510    Relief from breach of trust does not follow as a matter of course simply because the trustee proves that he or she has acted honestly and reasonably. The Court must look at all the circumstances to ascertain whether the trustee ought fairly to be excused for the breach. The term “ought fairly be excused” means in fairness to the trustee and to the other persons who may be affected. Marsden v Regan [1954] 1 All ER 475 at 481.”

The Chancellor of the High Court in State Street Bank and Trust Company v Sompo Japan Insurance Inc & Ors [2010] EWHC 1461 (Ch) stated:

Nevertheless I remain concerned that the duties of a trustee in seeking the assistance of the court should be properly understood. In the case of a private trust, including a pension scheme, the trustee has been likened to a watchdog for unrepresented interests, see Re Druce [1962] 1 All ER 563, 568, [1962] 1 WLR 363. The trustee is expected to assist the court in the varied circumstances indicated in paragraph 21.81 Lewin on Trusts 18th Edition and the cases there cited. Of course there are differences between those trustees and the Trustee in this case but those differences do not, in my view, lead to any difference in the duty of the Trustee to the Court. If a trustee, of any description, applies to the court he is expected to assist the court by bringing to the court’s attention any relevant legal proposition or argument affecting the position of unrepresented beneficiaries or parties. This is, in my view, but a specific application of the general duty to which Lord Birkenhead LC referred in Glebe Sugar Refining Company Ltd v Trustees of the Port and Harbours of Greenock [1921] WN 85 to the case of particular fiduciaries.

Costs for Seeking Advice

The costs for seeking judicial advice were review by the the Victorian Supreme Court in Re Steiner [No 2] [2013] VSC 357

McMillan J stated at [19]:

“Counsel also relied on Drummond v Drummond [1999] NSWSC 923, in which Austin J stated:

In Miller v Cameron [1936] HCA 13; (1936) 54 CLR 572, 578, Latham CJ explained that ‘as a rule, a trustee is allowed his costs out of the trust estate if his conduct has been honest, even though it may have been mistaken.’ In Re Weall; Andrews v Weall (1889) 42 Ch D 674, 677, Kekewich J spoke of the ‘tenderness which the Court is anxious to exhibit towards trustees honestly exercising discretion in discharge of their duties, often difficult and still more often thankless.’ In Re Jones; Christmas v Jones [1897] 2 Ch 190, 197 the same judge said that ‘a man who fulfils the difficult duties of an administrator, executor or trustee is, in common sense and common justice, entitled to be recouped to the very last penny everything that he has expended properly — that is to say, without impropriety — in his character of administrator, executor or trustee …’. Thus it is normally the case that an executor who commences or defends an action in the capacity of executor is entitled to be indemnified out of the estate for the costs incurred in doing so, even if the litigation is unsuccessful, the executor’s conduct is found to have been mistaken, and the other party in the litigation is held to be entitled to an order for costs.

The transcript of Re Steiner [No 2] can be found here.

Appropriate Procedure

Wicks J in Re IOOF Australia Trustees Limited and The Australian Tourist Property Trust (1999) 75 SASR 290 provided guidance on the appropriate procedure for seeking Judicial Advice in South Australia.

Wicks J held:

The Trustee must elect whether it will seek advice and directions pursuant to s 69 Administration and Probate Act 1919 (SA) and s 91 Trustee Act 1936 or issue a summons pursuant to Supreme Court Rules 1987 (SA) , r 63.04 or r 103. Proceedings under s 91 Trustee Act 1936 (SA) are in the nature of a case stated in which advice and direction is sought. Such a procedure is inappropriate where the respective rights of beneficiaries or creditors is in issue. In such a case proceedings should be commenced pursuant to the Supreme Court Rules set out above. Such a proceeding would lead to a binding declaration of rights amongst all parties, including any brought into the proceedings under a representation order.”

Another example of a Trustee seeking judicial advice in South Australia is Blue Sky Private Equity Limited v Crawford Giles Pty Ltd [2012] SASC 28.

A transcript of this case can be found here.

At paragraph 135 reference was made to:

Sheller JA in the Full Court of the New South Wales Supreme Court in Hughes v NM Superannuation Pty Ltd,(1993) 29 NSWLR 653, 671 where his Honour observed:

…It is I think well-established that, where the terms of a trust document in the context of events which have happened reasonably lead to a trustee to seek administrative advice from the Court as to its meaning and how it should be administered, all parties properly joined should have their appropriate costs out of the Fund.

Details of Section 63.04 of the Supreme Court Rules 1987 (SA) can be found on the following link:

Section 63.04 – Supreme Court Rules 1987 (SA)

Details of Section 103 of the Supreme Court Rules 1987 (SA) can be found on the following link:

Section 103 – Supreme Court Rules 1987 (SA)

The relevant provision of the Supreme Court Civil Rules 2006 (SA), Section 206, can be fund on the following link:

Part 7 – Supreme Court Civil Rules 2006 (SA)

Beneficiaries also have a statutory right to approach the Court by way of summons for the determination of any question concerning the construction or administration of the trust

Failure to Seek Judicial Advice

The Court has the power to relieve a trustee of a personal liability for a Breach of Trust if a trustee has acted honestly, reasonably and out to be excuses withoout having obtained advice and directions from the Court in relation to the matter giving rise to the Breach of Trust.

Jacob’s Law of Trusts in Australia (7th Edition) at [2218] notes:

But a Trustee does not act reasonably when he or she acts in plain breach of the trust instrument even though the trustee’s solicitor advises such a course1.

“However, if a trustee acts on the advice of counsel on a matter not arising directly out of the interpretation of the trust instrument, he or she will be entitled to relief.2

(1) Re Dive [1909] 1 Ch 328.

(2) Perpetual Trustees Co v Watson (no. 2) (1927) 28 SR (NSW) 43; Dundee General Hospitals Board v Walker [1952] 1 All ER 896.

The High Court of Australia in Partridge v Equity Trustees Executors & Agency Co Ltd (1947) 75 CLR 149 stated at page 165 in relation to the power of the court to relieve a Trustee from a personal liability for Breach of Trust:

“We are of opinion that a professional trustee like the defendant is not beyond the protection of the section: see National Trustees Executors & Agency Co of Australia Ltd v Dwyer (63 CLR 1 at pp 30-31}. But such a trustee should be particularly careful to act strictly with its line of duty and would have to establish a strong case before the court would apply the section in its favour.”

In Wendt & Ors [2004] WASC 28 the court stated at [241]:

“It is well established that there can be a failure to act honestly or reasonably if a trustee fails to obtain legal advice or seek directions from a court: Chapman v Browne [1902] 1 Ch 785 at 805-806.”

In Re Windsor Steam Coal Co (1901) Limited [1929] 1 Ch 151, Laurence LJ at pp 164-165 said that a trustee in business to make profits who is paid to its services from the trust fund should not be excused for breach of trust even had it “taken the best possible advice”.

In Re Whitely (1886) 33 Ch D 347 at 356 Lindley LJ was assiduous in laying down the proposition that because a trustee’s duty of care was an inherently personal duty, the trustee was not permitted to delegate that duty to another person, saying:

“The trustees acted bona fide, and obtained and acted on the advice of a solicitor and valuer who were apparently competent men in their respective professions. It was contended on behalf of the trustees, that this circumstance alone was enough to exonerate the trustees from liability. But this contention goes too far. If it were to prevail the Court would in effect decide that trustees could delegate their trust to any competent persons, and so terminate their own responsibility. This however, trustees cannot do. They may and must seek advice on matters they do not themselves understand; but acting on advice given to them they must act with that prudence which I have already endeavoured to describe.”

Issues of Construction

Ford and Lee in The Law of Trusts at [17.200] provide an overview of seeking advice with respect to the construction of the trust instrument.

“The advice of the court is often sought by trustees who are uncertain as to the construction of the trust instrument. To the extent that the advice may affect beneficiaries’ interests the matter is seen as of substance. Cases include Re Petersen (dec’d) [1920] St R Qd 42; Re Kirkegaard (dec’d) [1950] St R Qd 144; Re Atkinson (dec’d) [1971] 612 per Gillard J at 615; Re Pegasus Securities Ltd [1999] SASC 306; Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (220) 174 FLR 1;[2002] VSC 576 (construction of superannuation trust deed); Re Niliant (2004) 28 WAR 81; 204 ALR 674; [2004] WASC 7.”

High Court of Australia

The leading case on the trustee’s right to seek legal advice is as follows:

[2008] HCA 42 p66

[2008] HCA 42 p67

[2008] HCA 42 p250

[2008] HCA 42 p251

Reference to the High Court decision was made by the Victorian Court of Appeal in Wales & Ors v Wales & Ors [2014] VSCA 101 at [83-86] {Link}. :

83 In Macedonian, the trustee was sued for breach of trust. It did seek advice whether it would be justified in defending the proceeding — and, if so, whether it would be entitled to recoup its costs out of trust assets. A judge answered both questions in the affirmative. On appeal, the decision was reversed on the basis, inter alia, that it was generally inappropriate for a court to give advice in respect of adversarial proceedings. The trustee’s appeal in the High Court succeeded.

84 The matter turned, substantially, on s 63(1) of the Trustee Act 1925 (NSW). That section was said to serve a similar function to Pt 54 of the Uniform Civil Procedure Rules 2005 (NSW), which is expressed in similar language to Order 54 of Chapter 1 of the Rules.

85 In the course of their joint judgment, Gummow A-CJ, Kirby, Hayne and Heydon JJ made the observations noted by the judge at [20] in her costs reasons. They were not crucial to the determination of the appeal, because the trustees had in fact sought the Court’s advice. But they were, no doubt, considered dicta.

86 It is, however, the fact that their Honours made other observations in less prescriptive language. So, in the passage immediately preceding the second passage cited by the judge, their Honours said that an application under s 63 by a trustee sued for breach of trust should be seen as a standard instance to which s 63 ‘can in appropriate cases apply.’[46] Further, in the second passage cited by the judge, their Honours stated that ‘a trustee who is sued should take no step … without first obtaining judicial advice’.[47] Earlier on, their Honours had stated that the legislative scheme ‘is that it is desirable that trustees in doubt as to a course of action … should seek s 63 advice first’;[48] and that it was understandable that the legislature should enact provisions enabling trustees to take advice before embarking on a course which might carry a risk of incurring costs outside the indemnity.[49]

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