Application of Peter Hodges

By Summons filed on 7 September 2020, the applicant solicitor, Mr Peter Hodges, seeks judicial advice in the form frequently sought by trustees. However, Mr Hodges is not a trustee.

By order of this Court made on 24 February 2020, Mr Hodges was appointed tutor for Mr Eric Darley. Mr Darley is the defendant in proceedings (the “Primary Proceedings”) brought by Mr Darley’s daughter, Mrs Jillian Links, and her husband, Mr Colin Links (the “Links”). Mr Darley has been diagnosed by his general practitioner with “severe cognitive impairment because of dementia”.

Mr Hodges’ summons, which names no defendant, seeks this relief:

In the Primary Proceedings, the Links allege that Mr Darley and his late wife agreed to lend them up to $250,000 to purchase a property at Kariong (the “Property”) on which the Links would live, but which would be held by Mr and Mrs Darley for the benefit of the Links. The Links seek relief in the Primary Proceedings to the effect that, subject to their obligation to do equity by repaying what they borrowed, Mr Darley holds the Property on trust for them. They also claim alternative and ancillary relief, all of which depends upon the basic allegation of the agreement to which I have just referred.

The Links have filed their evidence in the Primary Proceedings. Having made all reasonable inquiries, but fundamentally hampered by being unable to take instructions from Mr Darley due to Mr Darley’s dementia, Mr Hodges finds himself in the unusual situation where he is unable to advance a defence to the Links’ claim that, in accordance with his professional ethical duties, he is able to say has a proper basis.

Furthermore, the Links have made an offer to settle the Primary Proceedings (the “Settlement Offer”). Mr M Gunning of Counsel, who appeared for Mr Hodges on today’s application, has provided to Mr Hodges a careful and thorough opinion (which I admitted into evidence as Confidential Exhibit 2P and is an opinion of the kind common in trustees’ applications for judicial advice) to the effect that it would be reasonable and justified in the circumstances for Mr Hodges to accept the Settlement Offer.

Because Mr Hodges is not a trustee, the Court has concluded that this is not a case where the advice sought by Mr Hodges can be given either pursuant to s 63 of the Trustee Act 1925 (NSW) (the “TA”) or the Court’s inherent jurisdiction to advise trustees. However, while I am of the view that the more orthodox vehicle for consideration of the issues which Mr Hodges has raised would have been an application for approval of a settlement after acceptance of the Settlement Offer (under s 76(3) of the Civil Procedure Act 2005 (NSW) (the “CP Act”)), I am satisfied that the Court has power to advise Mr Hodges that he would be justified in settling the Primary Proceedings on terms no less favourable than those contained in the Settlement Offer in exercise of its power to give directions to a tutor under s 80 of the CP Act. While that advice will be given, any settlement of the Primary Proceedings will still require the Court’s approval pursuant to s 76(3) of the CP Act.

It is convenient to begin by setting out the relevant statutory provisions. In doing so, I do not overlook the inherent jurisdiction of the Court as an alternative source of power.

UCPR Part 7, r 7 includes:

The CP Act includes:

The TA includes:

Section 63 of the TA can only be invoked by a “trustee” as defined in the TA. On any view, Mr Hodges is not a trustee. As a tutor, Mr Hodges may owe fiduciary duties to Mr Darley, but that does not make him a trustee of any property.

Nor can Mr Hodges prove that Mr Darley is a trustee so as to obtain standing in some derivative or representative way, if that were possible. If Mr Darley was a trustee under incapacity, an application for judicial advice could conceivably be brought by Mr Darley by his tutor Mr Hodges. However, the present application is brought by Mr Hodges in his own right as a tutor, and not on behalf of Mr Darley

In any event, Mr Darley is at best only an “alleged trustee” and there is clear and persuasive authority that s 63 is not available to an “alleged trustee”. Although her Honour was considering the issue of a former trustee, I respectfully adopt what fell from Ward CJ in Equity in Hancock v Rinehart [2019] NSWSC 1451 (“Hancock”):

Insofar as the inherent jurisdiction of the Court is concerned, I respectfully agree with the view of Palmer J to which her Honour refers (at paragraph [193] of Hancock), that the inherent jurisdiction does not extend to advise a non-trustee, which I take to mean someone who has never been a trustee of the trust in issue.

In A v A [2015] NSWSC 1778, Lindsay J summarised the Court’s powers in relation to tutors:

As a tutor, Mr Hodges is undoubtedly entitled to approach the Court under s 80 of the CP Act for directions “with respect to [his] conduct of [the Primary Proceedings]”. “Conduct” of proceedings includes both defending and settling proceedings. If authority for this is required, I respectfully adopt what Hallen J said in Rappard v Williams [2013] NSWSC 1279 when considering the meaning of “in relation to the conduct of legal proceedings”:

Mr Gunning’s helpful written submissions properly — and correctly — accepted that there were difficulties for his client in relying on s 63 of the TA. Mr Gunning identified other potential sources of power for the present application, including s 80 of the CP Act. I accept that s 80 is the most obvious source of power and I will proceed accordingly. It is unnecessary to consider the Court’s inherent jurisdiction.

While there may be superficial similarities between a trustee’s application for advice under s 63 of the TA and a tutor’s application for directions under s 80 of the CP Act, there are important distinctions to be made.

In providing judicial advice to a trustee, the Court is primarily concerned with what is in the interests of the trust and, as an incident of that, the interests of the trustee: see Hancock paragraph [181] quoted in paragraph [14] above.

An example of an incidental benefit for a trustee is the protection conferred on the trustee by s 63(2) of the TA: see paragraph [11] above.

The Court’s jurisdiction in relation to tutors is quite different. It is a manifestation of the Court’s protective jurisdiction where the Court’s paramount consideration is what is in the best interests of the protected person: AC v OC [2014] NSWSC 53 at [37].

That consideration must govern the Court’s approach in giving the tutor directions under s 80. Unlike the benefit a trustee may obtain under s 63(2) of the TA, there is no express statutory benefit for the tutor in obtaining those directions, although, for example, obtaining and acting in accordance with such directions would normally demonstrate that a tutor has acted bona fide so as to be entitled to recoup his or her expenses from the protected person’s estate.

During the course of the hearing, further evidence emerged regarding the current state of the Settlement Offer. This was that the Settlement Offer was crystallised by the Links' solicitors in a letter of 21 September 2020. That put the offer both as an offer of compromise under the Uniform Civil Procedure Rules and, in the alternative, as an offer in accordance with the principles in Calderbank v Calderbank [1976] Fam Law 93. That offer was said to be open for acceptance until 3 December 2020. Obviously, it was not accepted and has now lapsed in accordance with its terms.

I raised this with Mr Gunning. He now has instructions that Mr Hodges has spoken to Senior Counsel for the Links, who has confirmed that an offer in terms of the letter of 21 September 2020 is now again open for acceptance for seven days. This development means that any advice I give will not be purely hypothetical, insofar as there is now an offer which Mr Hodges may accept if he so chooses.

In the circumstances referred to in paragraph [5] above, it is clear that Mr Hodges cannot ethically defend the Primary Proceedings. For this and other reasons set out in Mr Gunning’s opinion (Confidential Exhibit 2P), the Court is satisfied that it is in Mr Darley’s best interests that Mr Hodges settle the primary proceedings on terms no less favourable to Mr Darley than the terms of the reopened Settlement Offer. I propose to give the advice in those terms because I regard it as a matter for Mr Hodges' judgement, in the proper exercise of his role as tutor, whether he thinks he should attempt to negotiate better terms for Mr Darley than those contained in the reopened Settlement Offer.

Because there can be no doubt that the present application has been brought by Mr Hodges bona fide in the exercise of his role as a Court appointed tutor, there will also be an order that Mr Hodges have his costs of the summons on the indemnity basis.

Especially since the decision of the High Court in the Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand & Anor (2008) 237 CLR 66; [2008] HCA 42, applications to this Court by trustees for judicial advice in relation to the conduct of litigation (and more generally) have increased markedly. Although the Court has dealt with the present application, any perceived similarity between trustees and tutors should not lead to a similar increase in applications for directions by tutors, especially in relation to potential — as opposed to concluded — settlements.

In my respectful view, while it is legally open to Mr Hodges to have made the present application, it represents an unnecessary departure from what should be the normal practice in relation to settlements involving parties under a legal incapacity. This is because of s 76(3) of the CP Act (set out in paragraph [10] above).

Notwithstanding the advice I will give today, any settlement in the Primary Proceedings by reason of the acceptance of the Settlement Offer or any other terms which Mr Hodges is able to negotiate will still require the Court’s approval under s 76(3). That application will have to be made in the Primary Proceedings and not by a separate application such as that currently before the Court.

In terms of the matters to be considered by the Court, the only material difference between this application and a future application under s 76(3) to approve the settlement of the Primary Proceedings is that in this application there is a settlement offer, whereas the future application will concern the agreement created by acceptance of the Settlement Offer, albeit presumably on terms that the agreement is conditional upon the Court approving the settlement. Issues such as the difficulty of advancing a defence, the terms of the Settlement Offer, and the risks and benefits of settling the Primary Proceedings will all inform the Court’s consideration of whether approval of the settlement is in Mr Darley’s best interests. The same evidence upon which the Court has relied today will serve (and should serve) equally well for the approval application, updated only to prove the fact of the parties having agreed to settle the Primary Proceedings on whatever terms.

In other words, and with respect to those involved in the present case, in my view anticipatory applications by tutors for directions as to whether they are justified in settling proceedings should be very much the exception and not the norm. The rather unusual circumstances in which Mr Hodges finds himself are a sufficient explanation for why this application has been made. Nevertheless, such applications are undesirable for at least three reasons.

First, in nearly all — if not all — cases, such voluntary anticipatory applications will do no more than unnecessarily duplicate the mandatory application for approval required under s 76(3). Such duplication is not in accordance with the overriding purpose in s 56 of the CP Act.

Second, applications of this kind may require the Court to consider whether the particular settlement offer is likely to be the best the offeree is going to get. That is quintessentially a matter for the tutor to decide rather than something to be second guessed by the Court.

Third, to the extent a tutor is concerned to obtain some kind of protection, approval of a settlement under s 76(3) necessarily means that the Court is satisfied that settlement is in the best interests of the protected person and that, therefore, the tutor has properly discharged her or his role in bringing about that settlement.

The orders of the Court are: