Right to Seek Court Direction

If a Trustee is unsure of the meaning of the Trust Instrument or what the Trust Instrument provides or a question arises in relation to a question of administration, the proper course is to apply to the Supreme Court in the state where the trust was established by originating summons in which the court is asked the relevant questions. Usually in such proceedings the costs of all parties will be ordered to be paid out of trust property. The trustee’s costs will be on an indemnity basis while the costs of the other parties will be on the basis of solicitor and client.

The right to seek the opinion, advice or direction of the court on any question respecting the management or administration of trust property is vested in the trustees by the trustee legislation in each jurisdiction except the Northern Territory, Tasmania and Victoria.

The right is recognised by the general law (Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547 at 548) where Young J explained that the trustee’s foregoing statutory entitlement is an embodiment of the “general principles of equity entitling a trustee to approach the Court for directions“.

The general principles relating to the trustee’s right to seek advice and directions of the court were stated in the Privy Council in Marley v Mutual Security Merchant Bank [1991] 3 All ER 198.

Lord Oliver stated: “ 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 is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court. If however he seeks the approval of the court to an exercise of his discretion and thus surrenders his discretion to the court, he has always to bear in mind that it is of the highest importance that the court should be put in possession of all the material necessary to enable that discretion to be exercised.”

Lord Oliver continued: “Secondly, it should be borne in mind that in exercising its jurisdiction to give directions on a trustee’s application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties“.

 

The appropriate use of this right was discussed in Harrison v Mills [1976] 1 NSWLR 42

The importance of seeking judicial advice as a prerequisite to relief under the State Trustee Acts was emphasised on the High Court of Australia in Macedonian Orthodox Community Church Saint Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand & Anor [2008] HCA 42; (2008) 237 CLR 66 at [36].

“The legislative scheme, then, is that it is desirable that trustees in doubt as to a course of action should not proceed with it and seek relief under s 85 afterwards, but rather seek s 63 advice first. That is because one of the things which a trustee invoking s 85 requires to be excused from is failure to seek s 63 advice.”

The High Court observed at [56]: referring to the Trustee Act 1925 (NSW):

“There is nothing in s 63 which limits its application to “non-adversarial” proceedings, or proceedings other than those in which the trustee is being sued for breach of trust, or proceedings other than those in which one remedy sought is the removal of the trustee from office.”

The High Court emphasised at [58]:

“Only one jurisdictional bar to s 63 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.”

The High Court added at [74]:

“A necessary consequence of the provisions of s63 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 available, it would be proper for the trustee to defend the proceedings.”

In AON Pension Trustees Ltd v MCP Pension Trustees Ltd [2010] EWCA Civ 377 the UK Appeal Court stated:

It is always open to a trustee who is in doubt as to his position to apply to the court for directions”.

Trustees are entitled to seek guidance from the court as to the nature and extent of their duties {Re Buckton [1907] 2 Ch 406; McDonald v Horn [1995] 1 All ER 961,970} as to the effect of the Trust Instrument {Re Berens [1888] WN 95; Re Freme’s Contract [1895] 2 Ch 256} and to generally insure that the Trustee does not commit a Breach of Trust

Equally beneficiaries may make an application to prevent or require the doing of some act by the Trustee {Suffolk v Lawrence (1884) 32 WR 899}.

The beneficiaries also have recourse to the court when a question arises as to a question of construction of the Trust Instrument (the Trust Deed and Rules) or a question of administration. Again an originating summons can be taken out to address these questions for the benefit of all the beneficiaries and a similar order will be made for the costs of all parties to be paid out of trust property.

In Victoria Section 54.02 of the Supreme Court (General Civil Procedure) Rules 2005 are applicable to the seeking of a direction. Similar provision are included in the Trustee Acts of other States. {NSW Section 63 of the Trustee Act 1925}

If trustees have brought the full relevant facts to the attention of the court an order directing them to take particular action will protect them against a action that relied on that direction.     It is particularly important to secure directions where a lay trustee relies on a professional trustee’s advice; if a breach of trust is found to have been committed, the professional will be liable to indemnify the lay trustee as in Wohlleben v Canada Permanent Trust Company (1976) 70 DLR (3rd) 257.

The facility to refer to the court for directions tends to be under used.    In re Buckton [1907] Ch 406 Kekewich J indicated that the court will be lenient towards over cautious trustees.

Beneficiaries may also make an application to the court asking the court to direct the proper administration of the trust {Talbot v Earl of Radnor (1834) 3 My & K 252; Re Gyhon (1885) 29 Ch D 834); Re Blake (1885) 29 Ch D 913}.

An Originating Motion under Order 54 (Victoria) is used by Trustees who seek specific directions from the courts about how they should execute the trust (fund) or about the construction of a trust instrument (ie Trust Deed and Rules) {see Gapes v Haeberle [2003] VSC 461; Hornsby v Palyoust (no.2) [2005] VSC 125; Reid v Brett [2005] VSC 18; Tindon Pty Ltd v Adams [2006] VSC 172}

Also see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar, The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42 at para 37

The origins of s 63. Trustee Act 1925 (NSW). Leaving aside the role of the inherent or implied jurisdiction of the Supreme Court, the origins of the first limb of s 63(1), relating to questions respecting the management or administration of the trust property, lie in s 30 of the Law of Property Amendment Act 1859 (UK) (“Lord St Leonards’ Act“) and s 9 of the Law of Property Amendment Act 1860 (UK)[43]. Section 30 provided:

“Any Trustee, Executor, or Administrator shall be at liberty, without the institution of a Suit, to apply by petition to any Judge of the High Court of Chancery, or by summons upon a written Statement to any such Judge at Chambers, for the Opinion, Advice, or Direction of such Judge on any Question respecting the Management or Administration of the Trust Property or the Assets of any Testator or Intestate, such Application to be served upon or the Hearing thereof to be attended by all Persons interested in such Application, or such of them as the said Judge shall think expedient; and the Trustee, Executor, or Administrator acting upon the Opinion, Advice, or Direction given by the said Judge shall be deemed, so far as regards his own Responsibility, to have discharged his Duty as such Trustee, Executor, or Administrator in the Subject Matter of the said Application; provided nevertheless, that this Act shall not extend to indemnify any Trustee, Executor, or Administrator in respect of any Act done in accordance with such Opinion, Advice or Direction as aforesaid, if such Trustee, Executor, or Administrator shall have been guilty of any Fraud or wilful Concealment or Misrepresentation in obtaining such Opinion, Advice, or Direction; and the Costs of such Application as aforesaid shall be in the discretion of the Judge to whom the said Application shall be made.” (emphasis added)

The emphasised words are significant: they highlighted the summary character of the new procedure.

An alternative to s 63. In England another means by which judicial advice could be given to trustees without an administration order was developed, which now appear in the Uniform Civil Procedure Rules 2005 (NSW), Pt 54.

Where a Trustee is faced with the possibility of legal proceedings Gillard J in Re Atkinson (dec’d) [1971] VR 612 at 615 stated:

“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. If in doubt as to whether or not it should take legal proceedings, then it is enttiled to apply to the court for directions on the matter; see Halisbury’s Laws of England, 3rd ed. vol 38, pp946 and 1023-1024; in Re Brogen (1888) 38 CH D 546, at p 556; [1886-90] all ER Rep 927; Chettiar v Chettiar (No. 2), [1962] 2 All ER 238 at p 245. If the executor or the trustee then follows the direction of the court, it will be protected from any claim by a beneficiary or ceditor arising from its action or inaction in accordance with the court’s direction; see Underwood v Hatton (1842) 5 Beav 36; 49 ER 490; Smith v Smith (1861) 1 Dr and Sm 384; 62 ER 426. In cases of real doubt, the proper course for a personal representative or trustee to adopt is to seek the court’s decision as to whether or not an action should be brought otherwise the representative or trustee might find itself paying the cost of any proceedings which the court might subsequently say were not “properly incurred“; see Re Beddoe; Downs v Cottam [1893] 1 Ch 547 at pp 558 and 562. On an originating summons seeking such direction, however the court is not bound to investigate the evidence in order to make a finding on the material before the proposed proceedings will or will not be successful. It has merely to determine whether or not the proceedings should be taken; Fitzgerald v Smith (1889) 15 VLR 467, at p 473; Re Kay’s Settlement [1939] Ch 329, at p 339; [1939] 1 All ER 245. On the other hand the matter should be sufficiently investigated to determine whether or not the proceedings would be fruitless. See also Re Brogden (1888) 38 Ch D 546 [1886-90] All ER Rep 927.

The availability of a Trustee to seek directions from the court in part justifies the rule that it is not a defence to an action for Breach of Trust that the Trustee has acted on counsel’s opinion {Re Knights Trusts (1859) 27 Beav 45; 54 E.R. 18; Re Cull’s Trusts (1875) L.R. 20 Eq 561}, as it is if the trustee has acted in accordance with the advice, opinion or directions of the court properly obtained { Harrison, Jones and Devlin Ltd v Union Bank of Australia Ltd (1909) 10 S.R. (N.S.W.) 266 at 280}.

In Re Green, Deceased [1972] V.R. 848 in an Originating Summons to determine the proper construction of the deceased’s will, Crockett, J ordered that the costs and expenses of the plaintiffs (the Trustees), and incidental to, the application to be paid or retained out of the estate; the costs of all other parties (the beneficiaries) to be taxed as between solicitor and client, and when taxed paid out of the estate.

If a Trustee seeks relief from personal liability for a Breach of Trust under Section 67 of the Trustee Act 1958 (Vic) then the Trustee must be able to explain to the court why the Trustee “omitted to obtain the directions of the Court in the matter in which the Trustee committed such a breach

A similar provision applies in Section 85 of the Trustee Act 1925 (NSW).

In seeking a “true construction” of the Trust Instrument the court can resolve uncertainties surrounding the wording used in the Trust Instrument.

Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28; 1 All ER 98; [1998] 1 WLR 986

Smithson & Ors v Hamilton [2007] EWHC 2900 (Ch) (10 December 2007)

Lansing Linde Ltd  v Alber and others [1999] EWCH 848 (Ch)

Gallaher Ltd v Gallaher Pensions Ltd [2005] EWHC 42 (Ch)

In Re Mirvac Ltd; Re Mirvac Funds Ltd [1999] NSWSC 457; (1999) ACSR 107 Austin J ruled that the Court had jurisdiction to provide judicial advice to responsible entities not withstanding that the trust instrument provided that the governing law was elsewhere than NSW. Austin J also gave judicial advice that the responsible entities would be justified in taking certain action: at [34]-[49].

Austin J states at [39]:

If it were necessary to do so, I would rely on the Jurisdiction of Courts (Cross-Vesting) Acts of the Commonwealth and New South Wales as a source of jurisdiction.

Judicial Relief for a Breach of Trust.

In England Section 3(1) of the Judicial Trustees Act 1896 was the first step in providing an opportunity for the protection of Trustees. It was in the following terms:

(1)    If it appears to the Court that a trustee, whether appointed under this act or not, is or may be personally liable for any breach of trust, but has acted honestly and reasonably, and ought to be fairly excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve the trustee either wholly or partly from personal liability for the same.”

In Re Second East Dulwich 745th Starr Bowkett Building Society; Miall v Pearce (1899) 79 L.T. 726 Kekewich J explained the expression “honest and reasonable”. He said:

“A trustee is honest if he has not done anything dishonest…………. It seems to me that a man who accepts such trusteeship, and does nothing, swallows wholesale what is aid by his co-trustee, never asks for an explanation, and accepts flimsy explanations, is dishonest.”

In 1902 introduced a provision equivalent to section 3(1) of the Judicial Trustees Act in Section 9(1) of the Trustee Act Amendment Act 1902 (NSW).

In Section 85 of the Trustee Act 1925 (NSW) the position changed from a positive statutory power to grant relief in the 1902 Act to a prohibition on the granting of relief unless the pre-requisites to relief were found to be present. The trustee bears the onus of establishing the elements of honesty and reasonableness and the circumstances upon which the trustee ought fairly to be excused {Re Turner [1897] 1 Ch 536 at 541}.

Section 85 of the Trustee Act 1925 (NSW) states:

(1)    Where a trustee is or may be personally liable for any breach of trust, the Court may relieve the trustee either wholly or partly from personal liability for the breach.

(2)    The relief may not be given unless it appears to the Court that the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court in the matter in which he committed the breach.

Section 56 of the Trustee Act 1936 (SA) states:

If it appears to the Supreme Court-

(a)         that a trustee is, or may be, personally liable for any breach of trust(whether the transaction alleged to be a breach of trustoccurred before or after the passing of this Act); but

(b)         that the trustee has acted honestly and reasonably and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the said court in the matter in which he has committed such breach,

then the said court may relieve the trustee, either wholly or partly, from personal liability for the breach of trust.

Section 67 of the Trustee Act 1958 (Vic) states:

If it appears to the Court that a trustee, whether appointed by the Court or
otherwise, is or may be personally liable for any breach of trust, whether the
transaction alleged to be a breach of trust occurred before or after the
commencement of this Act, but has 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 such breach, then
the Court may relieve him either wholly or partly from personal liability for
the same.

 

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