Robert Peter Campbell ATF the Joan Macpherson Trust and the Banandra Pastoral Settlement Trust

1. [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. [2]

   Since 27 September 2013, pursuant to two deeds of appointment, the Trustee acted in the administration of two trusts:

2. [3]

   Ms Joan Macpherson was the mother of four children who are the beneficiaries of the JMS and BPS (‘Beneficiaries’):

3. [4]

   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).

4. [5]

   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.

5. [6]

   On or about 17 July 2014, the Trustee administered an initial distribution from the BPS and JMS, whereby:

6. [7]

   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.

7. [8]

   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.

8. [9]

   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.

9. [10]

   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.

10. [11]

    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.

11. [12]

    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:

12. [13]

    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.

13. [14]

    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.

14. [15]

    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.

15. [16]

    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. [17]

   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. [18]

   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. [19]

   The Trustee submits that the Court should answer both of these questions ‘Yes’.

2. [20]

   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. [21]

   Further, the Trustee submits that the Second Deed of Settlement is appropriate because it:

Relevant legal principles

1. [22]

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

2. [23]

   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].

3. [24]

   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]:

4. [25]

   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]:

5. [26]

   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]:

6. [27]

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

7. [28]

   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".

8. [29]

   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:

9. [30]

   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.

10. [31]

    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].

11. [32]

    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].

12. [33]

    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].

13. [34]

    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].

14. [35]

    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]):

15. [36]

    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].

16. [37]

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

17. [38]

    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. [39]

   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. [40]

   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. [41]

   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. [42]

   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. [43]

   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. [44]

   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.