A trustee in doubt about whether to take a particular course of action may want to consider making an application to the Supreme Court for judicial advice.
In New South Wales, s 63(1) of the Trustee Act 1925 (the 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 advantage to a trustee in obtaining judicial advice under s 63 of the Act is that, if the trustee acts in accordance with the advice, then under s 63(2), the trustee will be deemed to have discharged its duty as trustee in the subject matter of the application (and therefore, cannot be guilty of breach of trust), provided it has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the judicial advice.
Judicial advice is therefore a mechanism by which a trustee may obtain protection from potential exposure to a subsequent finding of breach of trust. However, the requirement that there be no fraud or wilful concealment or misrepresentation in obtaining the advice emphasises the need to ensure that all relevant facts are disclosed to the court when making the application. Judicial advice is private advice which is given to a trustee and the option of seeking it is something of which all trustees should be mindful in performing their duties.
There is an equivalent provision to s 63(1) of the Trustee Act in the Australian Capital Territory and materially similar provisions in Queensland, South Australia and Western Australia, some with varying scope and procedural elements. There are also some differences between those jurisdictions in terms of the level of protection which is afforded to a trustee who obtains judicial advice.
When should judicial advice be sought?
Judicial advice has commonly been sought by a trustee in the following situations:
- where a trustee is in doubt about the proper interpretation of a provision in the trust instrument;
- where a trustee wishes to amend the trust instrument and seeks the additional comfort from the court that the amendments are within the trustee's power;
- where beneficiaries of the trust are in dispute with each other or with the trustee; and
- when a trustee wishes to commence proceedings or defend proceedings that are brought against it.
In relation to a trustee who wishes to commence or defend proceedings, guidance can be drawn from the High Court decision in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand.1
The High Court confirmed that:
- section 63 of the Trustee Act is to be interpreted broadly; and
- the only jurisdictional bar to the provision of judicial advice under s 63 is that which is stated expressly in the section - that is, whether the question on which advice is sought relates to the management or administration of the trust property, or concerns the interpretation of the trust instrument.
The High Court in the Macedonian decision has made it clear that additional limitations should not be "read into" the section. In this regard, the High Court has indicated that the following factors do not preclude the giving of advice:
- the adversarial nature of the proceedings about which the advice is sought;
- the tendency for the advice to foreclose an issue in those proceedings; or
- the fact that the trustee seeking the advice is being sued for breach of trust.
In particular, none of the above discretionary factors is any more significant than the others in the context of determining whether judicial advice ought to be given.
Ultimately, a court will decline to provide judicial advice if the "jurisdictional bar" referred to above is not met. Accordingly, it is necessary to consider carefully the question on which judicial advice will be sought before embarking on an application for judicial advice.
It is also important to note that s 63 of the Act does not permit a court to exercise a trustee's discretion in the place of the trustee but rather, having formed the view that a discretion should be exercised in a particular way, s 63 enables a trustee to obtain advice from the court as to whether the course it proposes to undertake would be a valid exercise of its discretion.
Commencing or defending proceedings
In the context of a question as to whether a trustee can commence or defend proceedings, the advice that will typically be sought is advice to the effect that the trustee would be justified in commencing or defending the proceedings (as the case may be) and in using the assets of the trust to fund its costs of the proceedings.
In the Macedonian case, the High Court stated:
... a necessary consequence of the provisions of section 63 of the [Trustee] Act is that a trustee who is sued for breach of trust should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings.
In light of what the High Court has said, there is a good argument that a trustee who is sued for breach of trust is, in fact, obliged to seek judicial advice before taking substantive steps to defend the proceedings. Further, if the judicial advice is obtained in the form suggested above, it will resolve, from the outset, the question of whether it is proper for a trustee to fund the costs of the proceedings from the assets of the trust.
How can s 63 be utilised outside the context of commencing or defending proceedings?
The NSW Supreme Court decision of Re Perpetual Investment Management Limited as responsible entity for Perpetual's Monthly Income Fund and Perpetual's Wholesale Monthly Income Fund2 (in which the authors acted for Perpetual) demonstrates the flexibility of s 63 of the Act.
After obtaining a copy of the register of unitholders for two of Perpetual's funds, Direct Share Purchasing Corporation Pty Ltd ("DSPC") mailed offers to unitholders to buy their units. DSPC informed unitholders that a "fair" price was $1 per unit, but offered to buy the units for 50c each. Perpetual repeatedly warned the unitholders against accepting the offers. Nonetheless, a number of unitholders completed the forms accepting DSPC's offer.
DSPC subsequently presented signed transfers to Perpetual and requested that it process the transfers into DSPC's name. Upon receipt of those transfers, Perpetualwrote to the relevant unitholders to ask them if they wanted to proceed with the transfer of their units to DSPC. Most did not. Perpetual then sought the guidance of the court under s 63 of the Act as to whether it would be justified in registering (or in not registering) those transfers to DSPC.
Although the proceedings were commenced on an ex-parte basis, DSPC appeared in court and expressed a number of objections to the court giving the judicial advice which was sought by Perpetual. Those objections included that:
- this was not a question of the management or administration of the trust property, or the inter¬pretation of the trust deed, so the court did not have power to give advice under the Trustee Act; and
- as DSPC might seek to enforce the registration of the transfers by suing under s 1071F of the Corporations Act, any guidance the court gave to Perpetual would be pre-judging that issue.
The court rejected all of DSPC's objections and provided Perpetual with judicial advice.
How can an application for judicial advice be made?
Pursuant to the Uniform Civil Procedure Rules 2005 (NSW), an application for judicial advice is to be commenced by a Summons and is accompanied by a Statement of Facts. It is not usually necessary to prepare affidavit evidence in support of such an application. An application for judicial advice is usually an ex-parte application. As such, the making of the application is within the trustee's discretion and does not require the consent of the beneficiaries, or any third parties.
While the court may direct a trustee to serve notice of its application for judicial advice on any person, in the absence of such an order there is no requirement that the trustee serve notice of the application for judicial advice on affected parties, including beneficiaries of the trust.
Having said that, where the question is who are the beneficiaries or what are their rights as between themselves, s 63(8) of the Act requires the trustee to give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution before conveying or distributing any property in accordance with the opinion advice or direction (unless otherwise ordered by the court). The notice must state shortly the opinion advice or direction, and the intention of the trustee to convey or distribute property in accordance with it. Relevantly, s 63(10) states:
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.
Any person on whom notice of any application under s 63 is served, or to whom notice is given in accordance with s 63(8), shall be bound by any opinion, advice, direction or order given or made under s 63 of the Act as if the opinion, advice, direction or order had been given or made in proceedings to which the person was a party (subject to s 63(10) of the Act and subject to any appeal).
Notwithstanding that there is no requirement to serve notice of an application for judicial advice on the beneficiaries of the trust or third parties, there may be reasons why a trustee would want to provide those parties with notice. In particular, there may be a question in relation to beneficiaries of the trust as to whether s 63(11) adds to the protection provided to a trustee by s 63(2); however, in relation to third parties who may wish to bring a claim, there is at least the potential for s 63(11) to provide additional protection to a trustee against such claims.
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) 237 CLR 66; 249 ALR 250;  HCA 42; BC200807738.
2 Re Perpetual Investment Management Ltd as responsible entity for Perpetual's Monthly Income Fund and Perpetual's Wholesale Monthly Income Fund  NSWSC 133; BC201103261.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.