Gregory Joseph Mills as trustee v Julie Elizabeth Mills and Ors

1. [1]

   In this matter the deceased’s executor and trustee seeks judicial advice. The advice turns upon the construction of a number of clauses of what is a very short Will. I will return to these clauses shortly.

Background Facts

1. [2]

   Mr Trevor Albert Gander (the deceased) passed away leaving a Will dated 30 November 2013 (the Will).

2. [3]

   The executor and trustee obtained a grant of probate for the Will from the Supreme Court on 11 October 2017.

3. [4]

   The deceased had three children all of whom survived him, however he survived his wife. Each of the children, Ms Julie Elizabeth Mills, Mr Darren Trevor Gander and Ms Leisa Gaye Murphy were named as defendants to these proceedings. They were served with the process but have sought to take no active part in the proceedings, but nonetheless provided submitting appearances.

4. [5]

   The executor of the deceased’s estate is in fact the husband of Ms Mills.

5. [6]

   The Will directed that after payment of reasonable funeral and testamentary expenses the estate was to be divided into three parts. Ms Mills and Mr Gander were each left one part of the estate for their “sole use and benefit” (Clause 4 of the Will).

6. [7]

   Ms Murphy on the other hand was left the third of the estate but in the form of a trust. Clause 4 of the Will relevantly stated:

7. [8]

   Whilst Clause 4 does not expressly reference who the trustee of that trust is to be, Clause 3(a) of the Will states:

8. [9]

   The Will does not reference any other trustee.

9. [10]

   The Will has a number of ambiguities about it, hence the perceived need for judicial advice.

10. [11]

    The Executor and Trustee has recently purchased a property for and on behalf of Ms Murphy, utilising approximately one third of the deceased’s estate. He urgently seeks Judicial Advice as to the appropriate approach he should take in relation to a number of issues. A number of questions have been posed, six in number. They are as follows:

Legal Principles

1. [12]

   In previous judgments I have already set out my view of the law concerning the nature of judicial advice and the ability of a trustee to apply to the Court for an opinion, advice or direction concerning the management or administration of the trust property.

2. [13]

   Section 63 of the Trustee Act 1925 (NSW) provides:

3. [14]

   The plurality of the High Court in 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) 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].

4. [15]

   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]:

5. [16]

   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]:

6. [17]

   In Macedonian Orthodox at [69], Gummow ACJ, Kirby, Hayne and Heydon JJ noted 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]:

7. [18]

   In Northey v Juul [2014] NSWSC 464, Slattery J stated at [105]:

8. [19]

   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:

9. [20]

   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:

10. [21]

    It is therefore clear the High Court’s remarks in Macedonian Orthodox have not been taken to imply a trustee who embarks upon litigation having not obtained judicial advice loses any right of indemnity.

11. [22]

    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].

12. [23]

    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].

13. [24]

    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].

14. [25]

    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].

15. [26]

    Again the plurality of the High Court in Macedonian Orthodox cited without disapproval the following remarks of Palmer J in Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 at [80]:

16. [27]

    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].

17. [28]

    In Re Rosewood Research Pty Ltd (No 2) [2014] NSWSC 1226, Darke J remarked that:

18. [29]

    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.

19. [30]

    As highlighted by the Plaintiff, the principles for construction of a testamentary trust are those for the construction of a will. As observed by Isaacs J in Fell v Fell (1922) 31 CLR 268 at 273-276 (references omitted):

20. [31]

    See also James v Douglas [2016] NSWCA 178 at [26] per Meagher JA; Australian Youth & Health Foundation v Perpetual Trustee Company Ltd [2017] NSWCA 127 at [34] per Bathurst CJ.

21. [32]

    Section 32 of the Succession Act 2006 (NSW) provides:

22. [33]

    The rules relating to intestacy are particularly important in this case. With respect to these rules, the presumption against intestacy is not a strong presumption, and the Court should not ‘lean too heavily against a construction that produces an intestacy; and certainly cannot, in order to avoid that result, misconstrue the language of the instrument’: In Re Wragg [1959] 1 WLR 922 and 929.

23. [34]

    See also the observation of Young J in Marks v Pope [2001] NSWSC 105 at [17]:

24. [35]

    See the observation of Austin J in Hyde v Holland [2003] NSWSC 733 at [28]:

Consideration

1. [36]

   The first question that needs to be addressed is when does the Trust vest. As have been outlined in submissions on behalf of the plaintiff there are three possibilities. One is that the Trust may not vest at all. The second is that the Trust may vest on the death of the named beneficiary and thirdly the Trust may vest on the purchase of the property.

2. [37]

   It should be observed immediately that the Will apportions the deceased’s property in equal shares to his three children. This clearly gives rise to a suggestion of an intention to leave the property of equal value to each beneficiary. In my view this would exclude the notion of any life estate.

3. [38]

   Clause 3(b) suggests an intention for the deceased’s estate to continue through generations to his grandchildren. This would support the proposition that, although the subject of a Trust, the property which would vest arguably in Ms Murphy should be intended to become part of her estate for the benefit of any children.

4. [39]

   It seems to me of the three alternative constructions the more sensible and more likely is that the trust property vests once used by the Trustee for the purposes of the trust. In other words once the funds which comprised one third of the estate are used to buy a house or home unit in which Ms Murphy is to live and the purchase completed, that property would then be in the name of Ms Murphy and would no longer be the property of the Trust.

5. [40]

   In my view what the testator was doing in effect for whatever reason in the case of Ms Murphy was to discharge what he undoubtedly saw as his obligations to her to ensure that at least she had a roof over her head to start with. I do not believe that any future limits were intended to be placed on her use of the property, nor upon her leaving that to her children if she so wished.

6. [41]

   I note that a number of affidavits were read in support and that strictly speaking under section 32 of the Succession Act 2006 (NSW) extrinsic material can be relied upon. Ms Murphy’s evidence which is not contested is that the deceased told her that he asked the plaintiff as executor of his will to “make sure that the money will go towards buying a house”. As I say, for whatever reason he was concerned if above all else that Ms Murphy be secure in her own home. He left to his other two children an entire discretion as to how they might use their third of his estate.

7. [42]

   Although the evidence in totality is not clear, what I have just said I consider is the better view.

8. [43]

   It follows therefore that the Will should be construed such that the Trust property vests when used by the Trustee for the purposes of the Trust. It follows that in respect of other questions posed, the trust property should be purchased in Ms Murphy’s name. After purchase the property remains hers and she can do with it what she wishes. Further it would therefore become an asset that she could deal with in the event of her death and as part of her estate.

9. [44]

   The remaining question of substance is what the Trustee can apply the trust funds towards. The Will refers to the Trust fund being used “in purchasing” either a house or a home unit.

10. [45]

    A sensible construction in my view of the words “in purchasing” are supportive of the proposition that any costs directly associated with the purchase, such as the purchase price, stamp duty and legals should sensibly be regarded as part of the initial purchase. Were it to be the fact that there be any excess at the original purchase stage, it seems to me the Trustee would have an undoubted discretion consistent with both assisting and maintaining Ms Murphy’s ownership of the property to contribute portions of the excess were it to exist towards rates, repairs and renovations.

11. [46]

    Again that is consistent with some of the extrinsic evidence. Ms Murphy states for example that she was told by the deceased that if there was any money left after the purchase it could be used for whatever she needed. Further evidence from Ms Mills suggests that the deceased had made it clear to her at least that she could use portion of the proceeds to pay bills or buy furniture or white goods or indeed to have a holiday.

12. [47]

    At the conclusion of the proceedings and having carefully considered the materials in advance I agreed that answers suggested in the submissions of Counsel to questions (a) through to (e) should be answered accordingly. I made Orders shortly after the hearing of the matter which were entered forthwith.

13. [48]

    These are the reasons I indicated I would deliver at a later point, having made the Orders.