Supreme Court New South Wales Medium Neutral Citation: Robert Peter Campbell ATF the Joan Macpherson Trust and the Banandra Pastoral Settlement Trust [2016] NSWSC 1751 Hearing dates: 1 December 2016 Decision date: 08 December 2016 Before: Sackar J Decision: Judicial Advice Given Catchwords: EQUITY – trusts – judicial advice – section 63 of the Trustee Act 1925 (NSW) – principles relating to judicial advice – the necessity of judicial advice Legislation Cited: Trustee Act 1925 (NSW) Cases Cited: In Re Beddoe (1893) 1 Ch D 547 Jax Quickfit Franchising Systems Pty Ltd as Trustee for the Jax Quickfit Franchising Systems Unit Trust [2012] NSWSC 1114 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 Northey v Juul [2014] NSWSC 464 Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons [2014] NSWSC 784 Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226 Re: Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13 Category: Principal judgment Parties: Robert Peter Campbell atf the Joan Macpherson Trust and the Banandra Pastoral Settlement Trust (plaintiff) Representation: Counsel: A McInerney SC (plaintiff) Solicitors: MJF Legal (plaintiff) File Number(s): 2016/290822 Publication restriction: N/A Judgment 1. This is an application for judicial advice by Mr Robert Peter Campbell ('Trustee') pursuant to section 63 of the Trustee Act 1925 (NSW) ('Act'). The plaintiff also seeks an order that the court awards costs on an indemnity basis. Background of facts 1. Since 27 September 2013, pursuant to two deeds of appointment, the Trustee acted in the administration of two trusts: * The Banandra Pastoral Settlement Trust ('BPS'), established by a Deed of Settlement dated 29 June 1977, executed between John Campbell Macpherson and Joan Macpherson, as trustees, and Malcolm Hosking Scott, as settlor; and * The Joan Macpherson Settlement Trust ('JMS'), established by a Deed of Settlement dated 29 June 1977, executed between John Campbell Macpherson and Joan Macpherson, as trustees, and Malcolm Hosking Scott, as settlor. 1. Ms Joan Macpherson was the mother of four children who are the beneficiaries of the JMS and BPS ('Beneficiaries'): * Andrew Campbell Macpherson ('Andrew'); * Anna Margaret Campbell Williams ('Anna'); * Sandra Campbell Dick-Smith ('Sandra'); and * Robert John Campbell Macpherson ('Robert'). 1. On 16 December 2013, the Beneficiaries, a company known as Aandra Pastoral Company Pty Ltd ('Aandra') and the Trustee entered into a deed of settlement ('First Deed of Settlement'). The First Deed of Settlement sought to resolve all of the parties' claims in respect of the estate of the late Joan Macpherson, the estate of the late John Campbell Macpherson (to the extent that estate remained unadministered), BPS, JMS and Aandra, including the family provision proceedings commenced on 1 February 2013 by Robert, as the plaintiff, in the NSW Supreme Court under the Succession Act 2006 (NSW). 2. Another dispute then arose between the Trustee and Andrew as to the proper construction of the First Deed of Settlement. There was particular disagreement about the proper construction of clauses 2.1-2.4 (inclusive) of the First Deed of Settlement. 3. On or about 17 July 2014, the Trustee administered an initial distribution from the BPS and JMS, whereby: * Andrew received $141,687; * Anna received $400,000; * Sandra received $400,000; and * Robert received $400,000. 1. There were disputes as to whether an amount of $258,313 loaned to Andrew ('Andrew Loan') formed part of the trust assets. Therefore, Andrew only received $141,687 of his specified $400,000 entitlement at the time, with $258,313 held on trust in the Trustee's trust account pending resolution of the dispute regarding the Andrew Loan. 2. On 12 November 2015, Mr McInerney of Senior Counsel provided a confidential memorandum of advice ('First Counsel Advice') to the Trustee's Solicitor, Mr Michael Fitzgerald. 3. On 24 November 2015, the Trustee commenced proceedings for judicial advice under section 63 of the Act by filing a Summons in Equity Division proceedings 2015/345898 ('First Judicial Advice'). The First Judicial Advice was sought to determine whether the Trustee would be justified in commencing proceedings with respect to the proper interpretation of the First Deed of Settlement. 4. On 31 March 2016, in an ex tempore judgment, Justice Pembroke gave judicial advice to the Trustee to the effect that the Trustee was justified in commencing proceedings seeking declaratory relief with respect to the proper construction of the First Deed of Settlement. 5. On 22 July 2016, upon this advice, the Trustee filed the Summons in Equity Proceedings 2016/221762 seeking declaratory relief against the Beneficiaries with respect to the proper construction of the First Deed of Settlement. Andrew also filed a cross-summons seeking declaratory relief as to the proper construction of the First Deed of Settlement and also an accounting as to whether there had been a wilful default or simply a provision of accounts. 6. On 6 October 2016, the Trustee's solicitor, Mr Fitzgerald, received correspondence indicating that three of the four beneficiaries (Andrew, Anna and Sandra) had agreed in principle to resolve Equity Proceedings 2016/221762 on the basis that: * Andrew would be paid the sum of $129,156.88 (rather than the disputed amount of $258,313.76); * After payment of all outstanding liabilities, the trust fund would be held equally for the Beneficiaries in equal shares; * The Trustee would attend to winding up of the trusts; and * The parties would enter into an appropriate deed. 1. Robert was not legally represented and did not consent to the settlement of these proceedings. However, on or about 13 October 2016, the Trustee's solicitor, Mr Fitzgerald, received correspondence indicating that the final Beneficiary Robert also agreed in principle to resolve Equity Proceedings 2016/221762 on the same basis as that proposed by the other three Beneficiaries. 2. Under this Second Deed of Settlement (as above), the Beneficiaries believed that they could simply direct the Trustee to distribute $129,156.50 (half of the Andrew loan) to Andrew and then make a final distribution of all remaining trust assets to the Beneficiaries in four equal shares. However, the Trustee had concerns because such a direction did not accord with the proper construction of the First Deed of Settlement and sought advice in relation to this. 3. On 28 November 2016, Mr McInerney of Senior Counsel provided another Confidential Memorandum of Advice ('Second Counsel Advice') to the Trustee's Solicitor, Mr Michael Fitzgerald. 4. The Beneficiaries have consented to the compromise of proceedings 2016/221762 and entered into a deed of settlement along with the Trustee ('Second Deed of Settlement'). The legal and binding effect of this Second Deed of Settlement is contingent on the judicial advice sought before this Court in the current proceedings. The advice and orders sought 1. The Trustee seeks judicial advice as to whether he is justified in settling the proceedings 2016/221762 and whether the terms of settlement in the Second Deed of Settlement are appropriate. 2. The Trustee also seeks the Court to order that costs be awarded on an indemnity basis and paid out of the BPS and JMS funds. The submissions 1. The Trustee submits that the Court should answer both of these questions 'Yes'. 2. The Trustee has submitted that the settlement of proceedings 2016/221762 will achieve a certain outcome for the Beneficiaries, avoid further legal costs of future litigation and achieve a distribution of the remaining fund (and the winding up of the trust) within a relatively short time. 3. Further, the Trustee submits that the Second Deed of Settlement is appropriate because it: * Gives effect to the stated wishes of each of the Beneficiaries; * Avoids the uncertainty and risk associated with the Trustee continuing to litigate proceedings to a conclusion; * Ensures that the Trustee can distribute the residue of the fund to the Beneficiaries without further delay; and * Brings to an end the litigation between the Trustee and the Beneficiaries; and * Protects the Trustee and Beneficiaries from the risk of further litigation, by the terms of the releases and indemnities it contains. Relevant legal principles The nature of judicial advice 1. Section 63 of the Trustee Act 1925 (NSW) provides: (1) 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. (2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction. 1. The plurality of the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 ('Macedonian Orthodox') at [59]-[60] described section 63 as a discretionary power that is confined only by the "subject matter, scope and purpose" of the Act. At [55], their Honours also explained that no implications should be read into section 63 and that the section must only be taken for its express words. The only "jurisdictional bar" to be satisfied is that the applicant must point to a "question respecting the management or administration of the trust property or a question respecting the interpretation of the trust instrument": Macedonian Orthodox at [56]-[58]. 2. The plurality in Macedonian Orthodox also indicated that the application of section 63 "will tend to vary with the type of trust involved". Their Honours remarked at [67]-[68]: … Where there is a non-charitable private trust involving a conflict between beneficiaries, or between beneficiaries alleging a breach of trust out of which a trustee has profited and that trustee, and where the defendants in those proceedings have a personal capacity to fund the defence, it might not be correct to give the trustee an opinion, advice or direction. The position is not necessarily the same where the trust is for a charitable purpose, where the public interest is involved since ex hypothesi the trust is beneficial to the public, where none of the contestants in the litigation about the trust is suing or defending in order to augment, defend or seek the restoration of personal assets, and where a crucial question is the precise terms of the purpose for which the trust exists. Nor is the position necessarily the same where the charitable trust is for religious purposes: since religious controversies do not commonly come before the courts unless they involve disputes about property rights they will often take the form of an allegation of breach of trust and a claim that the trustee be removed. That circumstance may have less weight against the grant of the opinion, advice or direction than it would in disputes about a private trust. 1. The plurality also noted that, where a trustee seeks judicial advice as to the conduct of litigation, the stage that the litigation has reached may be a relevant consideration. Their Honours remarked at [106]: [W]hile the time and cost involved in giving judicial advice at an early stage of litigation, when the issues involved in disputes about rights may not be fully sharpened and it may not be possible for the factual position to be as efficiently exposed as in a trial, may be factors relevant to a decision not to grant judicial advice but to let the matter be examined in conventional litigation, they are not factors which either automatically bar judicial advice or are so weighty as generally to compel the court not to grant the advice. 1. In Macedonian Orthodox at [69], Gummow ACJ, Kirby, Hayne and Heydon JJ noted that a purpose of section 63 is to enable trustees "to take advice before embarking on any course which might carry a risk of incurring costs that might be outside the indemnity". Their Honours continued at [71] and [74]: [71] 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 a 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. … [74] 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. 1. In Northey v Juul [2014] NSWSC 464, Slattery J stated at [105]: [A]lthough the High Court has said in clear terms that "a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice as to whether it is proper to defend the proceedings: Macedonian Orthodox at [74], (2008) 237 CLR 66, at 94 [74], this in my view is not to be read as overturning existing authority that would allow indemnity to successful trustees after the conclusion of litigation. 1. His Honour referred in particular to Lindley LJ's remarks in In Re Beddoe (1893) 1 Ch D 547 at 557-558 to the effect that "a trustee who without the sanction of the Court …unsuccessfully defends an action, does so at his own risk", that risk being the risk of the trustee's costs of unsuccessfully litigating for which the indemnity is being sought having been "improperly incurred". 2. Similarly, in Perpetual Investment Management Ltd as Responsible Entity for 10 Schemes listed in the Summons [2014] NSWSC 784, Robb J considered Macedonian Orthodox and remarked that: [54] The plurality also recognised at [106] that there may be factors that justify a decision not to grant judicial advice, but to let the matter be examined in conventional litigation. [55] If it is true that there are cases when advice under s 63 should not be given to a trustee in respect of the trustee's position in litigation, it must follow that there are cases when a trustee is not required to seek judicial advice before it takes a step in defence of a suit against it … [65] I strongly doubt that Perpetual in the present case was obliged by its duties as responsible entity to make the present application for judicial advice, or that anything said in the Macedonian Bank case was intended to have a contrary effect, given the context outlined above. 1. It is therefore clear that the High Court's remarks in Macedonian Orthodox have not been taken to imply that a trustee who embarks upon litigation having not obtained judicial advice loses any right of indemnity. 2. In my opinion, the better view of the authorities, importantly Macedonian Orthodox, is that a trustee is not obliged to first seek judicial advice before bringing or defending a claim. The comments of the High Court in Macedonian Orthodox make it clear that it is simply desirable for a trustee to seek judicial advice before making any judgment about a problematic cause of action, rather than rely on section 85 of the Act after the event: Macedonian Orthodox at [36]. 3. That the facts alleged in an application under s 63 are contested does not mean those alleged facts should be disregarded; instead, s 63(2) provides a safeguard in that the trustee will lose the protection of any opinion, advice or direction if guilty of any fraud or wilful concealment or misrepresentation: Macedonian Orthodox [79]-[80]. 4. Where the application is supported by an opinion of Counsel that is confidential, it may be difficult for a judge to provide reasons that are as full as would otherwise be given: Macedonian Orthodox [161]. 5. While there is a distinction between the questions as to whether, on the one hand, it is in the best interests for the trust estate for litigation to be conducted, and on the other hand, whether the trustee should be entitled to indemnity out of the trust property for its reasonable costs of litigation, the two questions are interrelated. As noted by the plurality in Macedonian Orthodox, where the conduct of litigation is in the best interests of the trust, how those proceedings are to be conducted "as a matter of practicality" must be considered. The financial capacity of the applicant is relevant in determining whether the applicant is entitled to be indemnified out of the trust property with respect to reasonable costs of litigation: Macedonian Orthodox [82]-[85]. 6. Again the plurality of the High Court in Macedonian Orthodox cited without disapproval the following remarks of Palmer J (Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 at [80]): 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 suffıcient 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 'suffıcient' 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." 1. The plurality noted that Palmer J's remarks should not be interpreted as drawing a distinction between mere "sufficiency" and "strength" and emphasised that Palmer J had considered the "merits and strengths of the claim" as a relevant factor: Macedonian Orthodox [162]-[164]. 2. In Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226, Darke J remarked that: [17] There was no hint of disapproval of any aspect of Palmer J's statement, but I do not think that the High Court, by its reference to the passage, was intending to state that in all cases where a trustee seeks advice as to whether it should defend proceedings, it is essential that the opinion of counsel must satisfy the requirements suggested by Palmer J, and the Court reach a view, based upon the considerations identified by Palmer J, that there are sufficient prospects of success to warrant the Trustee proceeding to defend. [18] Undoubtedly, the matters referred to by Palmer J are relevant matters to consider in such a case. Nonetheless, it would be a mistake to read his statement as if it prescribed the manner in which the power to give advice under s 63 of the Trustee Act 1925 (NSW) is to be exercised in all such cases. As was stated in the joint judgment in the Macedonian Church case at [59] (and see also Kiefel J at [196]) the discretion to give advice under s 63 is confined only by the subject matter, scope and purpose of the legislation. It is clear, however, that the interests of the trust estate is always of cardinal significance (see the Macedonian Church case at [104], [105], [107], [125], [196] and [197]). 1. In Re: Application of the Anglican Property Trust Diocese of Bathurst [2016] NSWSC 13 at [10]-[13], Slattery J also appeared to cite the remarks of Palmer J without disapproval and Palmer J's comments were similarly cited by Davies J in Jax Quickfit Franchising Systems Pty Ltd as Trustee for the Jax Quickfit Franchising Systems Unit Trust [2012] NSWSC 1114 at [26], seemingly without disapproval. Consideration 1. Having carefully considered all of the materials prior to the hearing before me on 1 December 2016, I indicated at the hearing, having heard from Senior Counsel, that I was prepared to make the orders sought and I made them accordingly. 2. However, Pembroke J had earlier given advice to the effect that it was appropriate for the construction suit to be commenced. That was a clear indication that there was or were serious questions requiring independent determination. 3. It is obvious that any litigation will usually provide a risk to both sides. As Pembroke J briefly described the issues raised in the proceedings, they included the meaning of the phrase "2010 Account", (clauses 2.1-2.4 inclusive), the proper construction of cl 9.5 of the Deed of Settlement dealing with a dispute resolution mechanism and an issue as to whether the debt said to be owing by Mr Andrew Macpherson was time barred. 4. However, it is only when the Second Counsel Advice is considered that the full extent and potential complexity of those issues is fully appreciated. 5. Wisely, the parties entered discussions and arrived at a resolution of the Equity proceedings 2016/221762. An antecedent issue which the parties considered was whether a Trustee could compromise litigation. Clearly a Trustee has such a power pursuant to section 49(d) of the Act. Clearly it was also in everyone's interest that the proceedings be resolved. The saving of costs and removal of uncertainty were legitimate aims and more importantly, each of the beneficiaries consented to the terms of the compromise. 6. In my view, the compromise was an entirely reasonable and appropriate course for the Trustee to initiate and/or participate in. Having also reviewed the settlement documentation, I regard the documentation again as entirely reasonable and appropriate and I advise accordingly. ********* Amendments 12 December 2016 - Paragraph [26], first sentence (referring to High Court's decision) [93] to [69] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 December 2016