Application by Marilyn Joy Cottee; Estate of Gwenyth Shirley Smith
[2013] NSWSC 47
•06 February 2013
Supreme Court
New South Wales
Medium Neutral Citation: Application by Marilyn Joy Cottee; Estate of Gwenyth Shirley Smith [2013] NSWSC 47 Hearing dates: 31 January 2013 Decision date: 06 February 2013 Jurisdiction: Equity Division Before: Hallen J Decision: 1. In answer to the questions posed, and based on the material read in the proceedings, make the following orders:
The Plaintiffs, as trustees, would be justified:
1. In making an advance of maintenance from the trusts held for the beneficiaries, Sarah Elizabeth Waldron-Jones, Robert Arthur Lucas Waldron-Jones and Emma Joy-Anne Waldron-Jones to the second plaintiff and Garry Waldron-Jones:
a. in their capacity as parents and guardians of the three beneficiaries in accordance with Clause 4 (a) of the Deceased's will; and
b. notwithstanding the second Plaintiff's appointment as an executrix and trustee of the will.
2. In securing the interests of each of the three beneficiaries in the maintenance advanced to the second plaintiff and Garry Waldron-Jones by a mortgage:
a. in the form of Ex. "A" in these proceedings;
b. registered on the title of the property situate at and known as xx xxxx xxxx, xxxxx in the State of New South Wales, folio identifier xxx/xxxxxx.
3. In using the following amounts to calculate the maintenance to be advanced to the second plaintiff and Garry Waldron-Jones and secured by the mortgage referred to:
a. $100 per week for each beneficiary between the ages of 8 and 15 years;
b. $170 per week for each beneficiary between the ages of 15 and 19 years;
c. $200 per week for each beneficiary between the ages of 19 and 25 years.
2. That one half of the Plaintiffs' costs of the proceedings, calculated on the indemnity basis, be paid out of the estate of the deceased.
3. Note the agreement of the second Plaintiff that she and her husband, Garry Waldron-Jones, will bear the other one-half of the Plaintiffs' costs of the proceedings.
4. That the Court Book be returned.
5. That the mention date of 8 February 2013 be vacated.
Catchwords: TRUSTS AND TRUSTEES - judicial advice - Application by Plaintiff trustees for judicial advice pursuant to s 63 of the Trustee Act 1925 - Administration of trust property - Whether the trustees would be justified in exercising their discretion in a particular manner with the effect that a benefit is given to second Plaintiff trustee - HELD - judicial advice given Legislation Cited: Trustee Act 1925
Uniform Civil Procedure RulesCases Cited: Application of Gnitekram Marketing Pty Limited [2010] NSWSC 1328
Application of Perpetual Trustee Company Limited, Re [2003] NSWSC 1185
Atkinson, Re (dec'd) [1971] VR 612
Australian Pipeline Ltd, Re [2006] NSWSC 1316; (2006) 60 ACSR 625
CWK Nominees Pty Ltd [2012] NSWSC 665
Dulhunty v Dulhunty [2010] NSWSC 1465
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2006] NSWCA 160; (2006) 66 NSWLR 112
Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198
Perpetual Trustee Company Ltd v Cheyne [2011] WASC 225, (2011) 42 WAR 209
Perpetual Investment Management Limited, Re [2011] NSWSC 133
Stein v Sybmore Holdings [2006] NSWSC 1004
White, Re [1959] VR 661; [1959] ALR 1177Texts Cited: Dal Pont and Chambers, Equity and Trusts in Australia and New Zealand, 2nd ed Category: Principal judgment Parties: Marilyn Joy Cottee (first Plaintiff)
Leanne Elizabeth Waldron-Jones (second Plaintiff)Representation: Counsel:
Ms M Pringle (Plaintiffs)
Solicitors:
Willis Bowring Solicitors (Plaintiffs)
File Number(s): 2012/366746
Judgment
The Application
HIS HONOUR: The Plaintiffs, Marilyn Joy Cottee and Leanne Elizabeth Waldron-Jones, in a Summons filed on 26 November 2012, seek the Court's opinion, advice and direction, pursuant to s 63 of the Trustee Act 1925, or pursuant to the Court's inherent jurisdiction, on the following questions:
"...
16. ...would the trustees be justified:
1. In making an advance of maintenance from the trusts held for the beneficiaries Sarah Elizabeth Waldron-Jones, Robert Arthur Lucas Waldron-Jones and Emma Joy-Anne Waldron to the second plaintiff and Garry Waldron-Jones:
a. in their capacity as parents and guardians of the beneficiaries in accordance with Clause 4 (a) of the Deceased's will; and
b. notwithstanding the second plaintiff's appointment as an executrix and trustee of the will.
2. If the answer to questions 16.1 (a) and 16.1 (b) is "yes":
In securing the interests of the beneficiaries in the maintenance advanced to the second plaintiff and Garry Waldron-Jones by a mortgage:
a. in the form annexed ... and marked "I";
b. registered on the title of the property situate at and known as xx xxxx xxxx, xxxxx in the State of New South Wales, folio identifier xxx/xxxxxx.
3. If the answer to questions 16.2 (a) and 16.2 (b) is "yes":
In using the following amounts to calculate the maintenance to be advanced to the second plaintiff and Garry Waldron-Jones and secured by the mortgage referred to...:
a. $100.00 per week for each beneficiary between the ages of 8 and 15 years;
b. $170.00 per week for each beneficiary between the ages of 15 and 19 years;
c. $200.00 per week for each beneficiary between the ages of 19 and 25 years."
They also seek the costs of the proceedings.
At the hearing, following discussion with the Bench, counsel for the Plaintiff sought to amend the form of the mortgage referred to in order to reflect the instructions that each of the three children of the second Plaintiff and Mr Waldron-Jones would contribute an equal part of $175,000.
A copy of the amended form of the mortgage was subsequently tendered as Ex. A in the proceedings. It follows that Paragraph 16(2)(a) of the Summons should be amended to make reference to Ex. A rather than to "marked 'I'". I shall read the question posed for advice in this way.
The Background Facts
Gwenyth Shirley Smith ("the deceased") died on 7 March 2010.
The deceased left a Will that she made on 1 September 2005, probate of which was granted to her daughters, the Plaintiffs, on 23 March 2010.
So far as is relevant, the deceased's Will provided:
"...
2. I GIVE the whole of my estate of whatsoever kind and wheresoever situate as follows:
(a) as to a one third (1/3) share to my grandson JOHN PHILLIP EDWARD COTTEE;
(b) as to a one sixth (1/6) share to my grandson MICHAEL JAMES KEVIN COTTEE;
(c) as to a one sixth (1/6) share to my granddaughter SARAH ELIZABETH WALDRON-JONES;
(d) as to a one sixth (1/6) share to my grandson ROBERT ARTHUR LUCAS WALDRON-JONES;
(e) as to a one sixth (1/6) share to my granddaughter EMMA JOY-ANNE WALDRON-JONES.
Each of my above grandchildren shall be entitled to their respective share on attaining the age of twenty five (25) years.
3. In the event of any one of my above grandchildren predeceasing me or failing to attain the age of twenty five (25) years I GIVE the share which that grandchild would have otherwise taken to the above surviving grandchildren in equal shares upon them attaining the age of twenty five (25) years.
4. I GIVE my Trustees the following powers in addition to those implied by law:
a. power in their absolute discretion to apply the whole or any part or parts of the income or capital of the expectant presumptive or vested share of any person whose entitlement is contingent upon that person attaining a certain age under this my Will for or towards his or her maintenance education benefit or advancement either directly or by paying the same to that person with whom such person is residing without being responsible to see to the application thereof."
In the Inventory of Property attached to, and placed inside, the Probate document, the deceased's estate was disclosed as having an estimated value of $839,893. The estate was said to consist of real estate at Miranda ($625,000), cash held ($50) and money in current accounts and in financial institutions on deposit ($214,843). (I have omitted, and shall continue to omit, any reference to cents in amounts referred to.)
The estate has been fully administered, debts, funeral and testamentary expenses have been paid, and the share of the net residuary estate to which each of Sarah, Robert and Emma will be entitled to receive has been calculated to be about $132,505 (as at 29 September 2012).
Of the five beneficiaries referred to in the Will, only Sarah, Robert and Emma are under the age of 25 years. Sarah was born in June 1992 and is currently aged 20 years; Robert was born in August 1995 and is currently aged 17 years; and Emma was born in July 2003 and is currently aged 9 years. Each is not entitled to receive, immediately, the one-sixth share of the net distributable estate of the deceased.
(I have not specifically referred to the fact that a son of the deceased, Stephen James Clifford-Smith, commenced proceedings for a family provision order which proceedings were resolved upon the basis that his costs, calculated to be $21,000, was paid from the share to which John Phillip Edward Cottee and Michael James Kevin Cottee was entitled. As well, the present Plaintiffs' costs, the amount of which I do not know, were paid out of the deceased's estate).
I assume that each of Phillip and Michael has received the share of the net residuary estate to which he was entitled after the payment of the amounts referred to in the previous paragraph.
Sarah, Robert and Emma is each a child of the second Plaintiff and her husband, Garry Waldron-Jones. Each lives with her or his parents in a property situated at Menai, which property is owned by their parents.
The second Plaintiff and her husband have, together, sworn an affidavit on 23 November 2012, in which they state the following facts:
"...
3. On 5 December 2011 we borrowed $160,000.00 from the QANTAS Staff Credit Union secured by a mortgage registered on the title of the Menai house.
4. In December 2011 we entered into a contract with Rossmark Pty Ltd to undertake the renovation of the Menai house. Rossmark Pty Ltd quoted the total cost of the renovations at $175,005.90.
5. The loan amount of $160,000.00 has been drawn down in full. The funds have been used for renovation and improvements to the Menai house.
6. We paid the difference between Rossmark's quoted price for the renovation and the loan from QANTAS Staff Credit Union from our savings.
7. The renovation to the Menai house included the addition of an upper story [sic] consisting of 3 rooms and a bathroom ...
8. The renovation of the Menai house provided enough rooms to give each of the beneficiaries their own bedroom. The Menai house also has a study for the beneficiaries to use.
9. The renovation of the Menai house was completed in May 2012 ...
10 The improvements to the Menai house included painting, carpeting, installing blinds, light fittings, power points and window tinting in the new rooms.
11. We paid for the improvements to the Menai house from our savings.
12. Our total expenditure to complete the renovation and improvements to the Menai house is:
1.
Loan from QANTAS Staff Credit Union
$160,000
2.
Difference between Rossmark quote and QANTAS loan
$ 15,005.90
3.
Carpets
$ 3,966
4.
Paint
$ 658
5.
Curtains and blinds
$ 3,084
6.
Installation of fans and power points
$ 981
7.
Window tinting
$ 845
TOTAL
$184,539.90
13. The renovation and improvements to the Menai house were necessary to enable us to comfortably house the beneficiaries and meet their needs as they grow to maturity."
It was, initially, suggested that the amounts to be advanced from each trust was to be:
a.
Sarah Elizabeth Waldron-Jones:
i.
17 weeks, 3 days from 1 February 2013 to 2 June 2013 (age 21) = $3,485.71; plus
ii.
104 weeks to age 23 = $20,800.00;
iii.
Total $24,285.71
b.
Robert Arthur Lucas Waldron-Jones:
i.
26 weeks, 4 days from 1 February 2013 to 5 August 2013 (age 18) = $4,517.14; plus
ii.
52 weeks to age 19 = $4,250.00; plus
iii.
208 weeks at $200.00 per week to age 23 = $41,600.00
iv.
Total $50,367.14
c.
Emma Joy-Anne Waldron-Jones:
i.
23 weeks, 1 day to 12 July 2013 (age 10) = $2,314.29; plus
ii.
260 weeks to age 15 = $26,000.00; plus
iii.
208 weeks at $170.00 per week to age 19 = $35,360.00; plus
iv.
182 weeks at $200.00 per week to age 22 years, 6 months = $36,400.00;
v.
Total: $100,074.29
However, subject to the repayment to which I shall refer later, from each child's share will be deducted an equal amount to make up the total advance to their parents, or about $58,333.
There is also evidence from Peter Jessep, a solicitor, who interviewed the three children of the second Plaintiff and Mr Waldron-Jones, in July 2011, and then the two older children again, on 30 August 2012 and the two older children, individually, on 17 September 2012. (He did not interview Emma again because of her age and the complexity of the concepts involved.)
Mr Jessep gave evidence that:
"...
5. During my interview with each beneficiary I explained to the beneficiaries:
a. The provisions of their grandmother's will;
b. That they are entitled to certain funds which must be held in trust by the executors until each beneficiary attains the age of 25 years;
c. The trust provisions of their grandmother's will include powers allowing the executors to use the trust funds for the benefit of each beneficiary including the payment of maintenance to the beneficiaries' parents who are also their guardians;
d. This Honourable Court would be asked to approve of any arrangement to use an infant beneficiary's funds;
e. The present proposal is to use part of each beneficiary's trust to improve the house owned by their parents by the addition of 2 bedrooms and a bathroom;
f. Their parents would benefit from the improvements to the house because the improvements would increase the value of their parents' house;
g. The increased value of the house would belong to their parents;
h. The beneficiaries would benefit from the extra facilities added to their parents' house by the improvements and the continued care they received from their parents.
...
6. I also discussed the proposal to secure the repayment of the trust funds by their parents in certain situations."
Subsequently, in his meeting of 17 September 2012, with Sarah and Robert, he discussed with them:
"11. ...
a. The total amount to be advanced from the trusts would be $175,000.00;
b. The amount would be characterised as maintenance, meaning the cost of looking after them;
c. The loan continues while the beneficiaries are under the age of 25 and live in their parents' house;
d. The loan reduces each week the beneficiaries live in their parents' house by the amount of maintenance their parents would be entitled to receive from the trust;
e. If they leave the house before the loan expires or a beneficiary dies before they reach the age of 25 their parents' [sic] must repay their proportion of the loan to the trust."
Each of Sarah and Robert stated that she and he was happy with the proposed mortgage and provided the following information:
"...
14. Sarah is at University studying in 2nd year of a 4 year course at Sydney University. She intends to stay living at home. She receives Youth Allowance of $143 per fortnight which is used up fully in books, materials and travel to University. She relies on her parents for all other living expenses including use of the car. The figure proposed for maintenance of $200 per week out of her trust whilst she lives at home was discussed with her. She understands and agreed with the proposal for the funds to be used in an interest free loan and the deductions for maintenance.
15. Robert is a student at Menai High School in Year 11. He is studying maths and science at 2 unit level and is interested in software development. He plans to undertake tertiary education and is working to get to University. Robert relies entirely on his parents for living expenses. It was discussed with him the figure proposed for maintenance while living at home of $170 per week until 19 years of age then increasing to $200 per week. He appeared to understand the proposal and stated that he agreed with the use of his funds for an interest free loan for the building and deduction for maintenance."
Finally, Mr Jessep, stated:
"17. I have reviewed the terms of the draft mortgage intended to be registered by the executors to secure the advance of maintenance from the trusts and recommend the mortgage."
The mortgage provides that the repayable capital would be reduced each week by the amounts which Mr and Mrs Waldron-Jones would be entitled to notionally claim for maintenance of each of the beneficiaries while the beneficiaries reside with them.
The mortgage would also secure the repayment of any part of the amount advanced to which Mr and Mrs Waldron-Jones might subsequently be disentitled, for example, if one of their children left home before her or his contribution had been fully expended.
The amendment to the question posed referred to earlier does not require further advice to be given to Sarah or Robert since each will be protected by the terms of the mortgage and in the event that more is contributed than should have been, each will be repaid if necessary. (No doubt, each of Sarah and Robert will be informed, in any event, of the amendment to the proposed mortgage. In relation to Emma, her contribution has been reduced, at least for the time being.)
There is no affidavit or witness statement from either of Sarah or Robert read in these proceedings. However, there is no need to reject the evidence of Mr Jessep or require the Plaintiffs to now obtain such an affidavit or witness statement.
There is no evidence from the first Plaintiff either, but I assume that she is content to agree with the course proposed provided the court provides the necessary advice or direction.
In support of the application, I have read a detailed Statement of Facts, filed on 26 November 2012, which includes, as an annexure, a copy of a Memorandum of Advice from counsel as well as documentation relating to the costs of children in Australia.
The second Plaintiff accepts that the use of the trust funds to pay for the extension to the Waldron-Jones's home would result in a benefit to the second Plaintiff and her husband. She says, however, that the provision of the additional accommodation will also benefit each of their children whilst she and he remains living in the Menai property.
Determination
Section 63 of the Trustee Act enables trustees to 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 section provides:
"63 Advice
(1) 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.
(2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction.
(3) Rules of court may provide for the use, on an application under this section, of a written statement signed by the trustee or the trustee's Australian legal practitioner, or for the use of other material, instead of evidence.
(4) Unless the rules of court otherwise provide, or the Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application.
[(5) - (7) Repealed]
(8) Where the question is who are the beneficiaries or what are their rights as between themselves, the trustee before conveying or distributing any property in accordance with the opinion advice or direction shall, unless the Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution.
(9) The notice shall state shortly the opinion advice or direction, and the intention of the trustee to convey or distribute in accordance therewith.
(10) 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.
(11) Subject to subsection (10), and subject to any appeal, any person on whom notice of any application under this section is served, or to whom notice is given in accordance with subsection (8), shall be bound by any opinion advice direction or order given or made under this section as if the opinion advice direction or order had been given or made in proceedings to which the person was a party."
In relation to an application by a trustee for the direction of the court, Gillard J, in Re Atkinson (dec'd) [1971] VR 612, at 615, said:
"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 entitled to apply to the court for directions on the matter: see Halsbury's Laws of England, 3rd ed, Vol 38, pp 946 and 1023-1024; in Re Brogden (1888), 38 Ch D 546 at p 556; [1886-90] All ER Rep 927; Chettiar v Chettiar (No 2) [1962] UKPC 1; [1962] 2 All ER 238, at p 245. If the executor or the trustee then followed the direction of the court, it would be protected from any claim by a beneficiary or creditor arising from its action or inaction in accordance with the court's direction: see Underwood v Hatton [1842] EngR 371; (1842), 5 Beav 36; 49 ER 490; Smith v Smith (1861) 1 Dr & Sm 384; 62 ER 426."
See also Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66, at [61] - [74].
In Dal Pont and Chambers, Equity and Trusts in Australia and New Zealand, 2nd ed, at p 668, the learned authors describe this statutory jurisdiction in the following terms:
"This statutory jurisdiction is intended essentially for private advice by the court to trustees as to what course of action they should follow where they are in doubt as to the propriety of the action contemplated. The applicant must place before the court all relevant evidence such that the court is fully informed as to the matter in issue. Three situations in which approach to the court is particularly useful are where (a) the issue is whether legal proceedings ought to be instituted or defended; (b) it is desired to effect an early distribution of an estate; and (c) the trustee is in doubt as to the extent of her or his powers under the trust instrument.
Types of advice which may be sought include questions in connection with the rights and interests of beneficiaries or creditors, jurisdictional queries, whether further inquiries should be made in certain circumstances, the ascertainment of any class of beneficiaries or creditors, the furnishing of accounts, the settling of minor administration problems, and the approval of dealings with the trust property.
The procedure should not be used to determine substantive issues, such as issues of interpretation of the trust document which involve the question of breach of trust by any of the trustees; for the purpose of securing additional powers for the trustees; and for resolving a contest between the trustees or other parties to a trust. Nor should it be used to determine respective rights of beneficiaries. These are matters in respect of which beneficiaries are entitled to initiate proceedings. [footnotes omitted]"
As stated, the proper purpose for seeking judicial advice includes relief aimed at resolving a legitimate doubt held by the trustees as to the proper course of action and at protecting the trust and those entitled to it. In Re Perpetual Investment Management Limited [2011] NSWSC 133, White J, at [46], described the section as "beneficial legislation for the protection of trustees and should not be narrowly construed".
In Re Australian Pipeline Ltd [2006] NSWSC 1316; (2006) 60 ACSR 625 at [17], Barrett J (as his Honour then was) cited Marley v Mutual Security Merchant Bank & Trust Co Ltd [1991] 3 All ER 198 where Lord Oliver of Aylmerton (at 201) said:
"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."
However, the court is not bound to give advice: see Re Application of Perpetual Trustee Company Limited [2003] NSWSC 1185 per Young CJ in Eq, at [8].
Only one jurisdictional bar to providing relief under s 63 of the Trustee Act exists. The Plaintiffs 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. Whether to exercise the discretion is confined only by the subject-matter, scope and purpose of the legislation: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand, at [58] - [59]. The Court's sole purpose in giving advice is to determine what should be done in the best interests of the trust estate: Dulhunty v Dulhunty [2010] NSWSC 1465, at [44].
"Management or administration of property" includes taking steps to preserve the property, and taking steps to make the property financially productive. The words refer to both the manner in which trust property is managed, administered, handled, directed or controlled, and the actual carrying out of those functions. In addition, the words include transferring part, or all, of the trust property, as required, to those who have become entitled to it. The words are not confined to the continued holding of the property in question: Stein v Sybmore Holdings [2006] NSWSC 1004 at [59]; Application of Gnitekram Marketing Pty Limited [2010] NSWSC 1328 at [13].
Importantly, the trustees may seek the Court's opinion, advice or directions so as to obtain personal protection. Section 63(2) of the Trustee Act precludes any trustee, who acts in accordance with the opinion, advice or direction, from being held liable for breach of trust in the event that in conventional proceedings it is later held that the legal position does not correspond with the advice given, so long as the proviso to s 63(2) is satisfied.
I mention, also, that both trustees are plaintiffs so that Uniform Civil Procedure Rules, rule 7.11(2) has been complied with.
UCPR, rule 55.1, provides:
"55.1 Statement
(1) A statement under section 63 of the Trustee Act 1925:
(a) must be divided into consecutively numbered paragraphs, and
(b) must state the facts concisely, and
(c) must state the question for opinion, advice or direction.
(2) Despite rule 6.12 (2), the originating process in proceedings under section 63 of the Trustee Act 1925 need not state the question for opinion, advice or direction."
UCPR rule 55.2 provides that an opinion, advice or direction given under s 63 "must be given by order". However, such an order is permissive in nature, its usual form being that the trustee "would be justified" in taking certain action. As such, the order does not carry with it the usual consequences of an order made by the Court in adversarial proceedings, regardless of whether parties have been given notice of the application under s 63(4). Thus, it does not create a res judicata. It does not finally determine the rights of parties. Indeed, it does not, of itself, determine any rights, although, it has the potential to affect the rights of the parties given notice under s 63(4). It does not carry with it the consequences of breach, including, e.g. the exposure to contempt proceedings should an order be disobeyed: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2006] NSWCA 160; (2006) 66 NSWLR 112, at [41].
UCPR r 55.4 provides that an appeal lies to the Court of Appeal from an opinion, advice, direction or order given or made by the Supreme Court under s 63.
In Application of Gnitekram Marketing Pty Limited, I referred to the procedure to be followed in an application under s 63. I wrote:
"17 Subject to the Rules referred to above, the way in which the application should be presented to the court, may be summarised as follows (see: for example, Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185 per Young CJ in Eq (as his Honour then was) and on appeal, Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand & Anor [2006] NSWCA 160; (2006) 66 NSWLR 112; and also [2007] NSWCA 150):
(a) The procedure pursuant to s 63 is summary in character. However, the application of the section will tend to vary with the type of trust involved and, as a consequence, the context of the application for advice will be important.
(b) The trustee's evidence should be given by witness statement. In order to ensure that, if directions are given, the trustee is properly protected by the order, it must ensure full disclosure of relevant matters, even if the case is to proceed with the participation of beneficiaries as defendants. It is not necessary for the trustee must "prove" facts according to a certain standard of proof to enable findings of fact to be made as would be the case in adversarial litigation (Crnjanin v Loos; Loos v Crnjanin [2010] NSWSC 750, per Lindgren AJ, at [28]).
(c) The evidence should include the advice of an appropriately qualified lawyer as to the prospects of success and other matters relevant to be taken into account, including a cost estimate for the proceedings and any known facts concerning the means of the opposite party to the proceedings, a draft of any proposed statement of case, the value of the trust assets, the significance of the proposed litigation, or other course of action for the trust, and why the court's directions are needed.
(d) It is not the role of a Statement of Facts necessarily to set out the arguments relied upon in favour of, or against, any particular advice or direction sought. Ultimately, it is a matter for submission and argument and not the Statement of Facts to set out the competing arguments as to what advice should be given.
(e) A person served with documents under s 63 is not a party to the proceedings.
(f) If a beneficiary of the trust is a party to the litigation about which directions are sought, with an interest opposed to that of the trustees, that beneficiary should be a defendant to the trustees' application, but any material which would be privileged as regards that beneficiary in the litigation should be put in evidence as an exhibit to the trustee's witness statement, and should not be served on the beneficiary. However if the trustee's legal representatives consider that no harm would be done by the disclosure of all, or some part, of the material, then that material should be served on that defendant. That defendant may also be excluded from part of the hearing, including that which is devoted to discussion of the material withheld.
(g) There is nothing in s 63 that deals with the manner in which material is to be put before the court and where the rules of court do not expressly or impliedly abrogate the privilege (assuming, without deciding, that a procedural rule could do so). It follows that there is nothing in a s 63 application that can, or does, undermine the substantive right of legal professional privilege.
(h) Ordinarily, the provision to a trustee of an indemnity from trust assets must be determined on the final adjudication of the litigation. An indemnity should not be provided in advance under colour of private judicial advice."
In this case, the Plaintiffs are not seeking the Court's opinion advice or direction upon the respective rights of beneficiaries or their identity, or upon a question raised as to the trustees' powers or the construction of the relevant Will, but advice upon whether the trustees would be justified in exercising a discretionary power in a particular manner.
I have, therefore, considered whether the Court's opinion, advice or direction should be given. On this question, I refer to what was said by Ward J (as her Honour then was) in CWK Nominees Pty Ltd [2012] NSWSC 665 at [57] - [60]:
"As noted earlier, the advice sought is as to the proposed exercise by the trustee of a discretionary power ... I note that in Jacobs' Law of Trusts in Australia (7th ed, 2006) at [1606], the learned authors considered in relation to the exercise of purely discretionary powers by trustees:
The court will not control trustees in the exercise of their purely discretionary powers unless they are acting mala fide, or have misconceived the nature of their discretion and acted on that misconception. In the case of a duty the trustees commit a breach of trust if they fail to do or refrain from doing the thing prescribed; in the case of powers, they commit a breach of trust if they fail honestly to exercise their judgment as to whether they should do the particular act or not.
and following at [1608]-[1609]:
What, then, are the duties of trustee with a discretionary power? Their first duty is to act honestly and in good faith. There is no distinction between 'honestly' and 'good faith'. Moreover, mere carelessness or honest blundering will not negative 'good faith'. Nor need they observe the rules of natural justice: they may exercise a power to the disadvantage of a beneficiary without seeking that beneficiary's views. Their second duty is to act ' upon genuine consideration', that is, to take an informed view of whether or not to exercise their discretion, and not to act irresponsibly, capriciously or wantonly. Their third duty is to exercise their power with due consideration for the purpose for which it was conferred, and not for some ulterior purpose. While it is irrelevant whether or not their decision proves beneficial or prudent, and equally irrelevant whether the court would exercise the power in the same way, a grotesquely unreasonable result may be evidence of a miscarriage of duty.
Conversely, it may be asked what is meant by mala fides in this context? It obviously includes fraud, but is much wider than that. It also includes a refusal to recognise that the discretion exists, and a refusal to make an informed decision. It also includes making a decision for an ulterior motive or purpose; for example, where a trustee exercised a power of advancement with the real object of benefiting the cestui que trust's father. It also includes the taking into account of irrelevant considerations, as where the trustees' discretion was not to pay an annuity if it was 'unnecessary, inexpedient and impracticable' but they had declined to pay it for reasons which had nothing to do with those criteria. It also includes a refusal to take relevant considerations in account.
Thomas on Powers notes the tension between the considerable and seemingly unlimited width of an absolute and uncontrolled discretion (of the kind here conferred on CWK Nominees) and the duties that a trustee has when exercising fiduciary power (at [10-02]). The duties of a trustee in such a position include the duties recognised above. Thomas notes the principle expressed in Re Hastings-Bass [1975] Ch 25, in the context of a power of advancement, applied in Mettoy Pension Trustee Ltd v Evans [1990] 1 WLR 1587 at 1622-1626, namely that:
Where by the terms of a trust a trustee is given a discretion as to some matter under which he acts in good faith, the Court should not interfere with his action notwithstanding that it does not have the full effect which he intended unless
1 what he has achieved is unauthorised by the power conferred upon him or
2 It is clear that he would not have acted as he did
(a) had he not taken into account considerations which he should not have taken into account; or
(b) had he not failed to take into account considerations which he ought to have taken into account.
In Karger v Paul [1984] VR 163, McGarvie J, considering the exercise of an absolute and unfettered discretion, similarly noted that the Court will not review the exercise of discretion if it has been in good faith upon genuine consideration and in accordance with the purposes for which the discretion is conferred and not some ulterior purpose.
The above authorities and academic writings indicate the manner in which the trustee should approach the task of considering the exercise of discretion: in good faith and upon real and genuine consideration in accordance with the purpose for which the power was conferred. Those principles therefore guide the determination of whether, in the present case, the trustee would be justified in exercising the discretion conferred under the Trust Deed ..."
In that case, Ward J provided the advice to the trustee.
In my view, this case, too, is an appropriate one in which to give advice to the Plaintiffs since there are competing principles in play (as identified in the advice of counsel for the Plaintiffs, which advice I have read) relating to the exercise of their discretion. As well, the presumptive rights of two minors are involved.
The deceased's Will provides for the Plaintiffs, as trustees, to have a complete discretion to apply the whole, or any part, of the income or capital of the expectant, presumptive, or vested, share of any of the beneficiaries whose entitlement is contingent upon that person attaining a certain age for, or towards, his or her "maintenance, education, benefit or advancement" and that such application may be directly, or by paying the same to that person or to the person or persons with whom that person is residing.
This Clause empowers the Plaintiffs, at their absolute discretion, to use the whole or any part of the income or capital to which any "person is presumptively entitled". This is a discretionary power given to the Plaintiffs to be applied by them towards any person with a presumptive entitlement under the Will until that person reaches the age qualification applicable to that person. It confirms the deceased's intention that each beneficiary's interest in the residuary estate vests only upon her, or him, attaining the age qualification.
It is this Clause of the deceased's Will upon which the Plaintiffs seek to rely to do what they are proposing to do, but because one of them (a trustee) would be the recipient of funds from the deceased's estate, caution is required.
There are several parts to the relevant Clause in the deceased's Will.
"Apply" in the Clause, means no more than "devote to" or "employ for the purpose of'": Re White [1959] VR 661, per Smith J, at 665; Perpetual Trustee Company Ltd v Cheyne [2011] WASC 225, (2011) 42 WAR 209 at [41].
The term "benefit" is to be "construed very widely": Re White, at 665.
It has been submitted, and I agree, that the provision of a separate bedroom for each of the three beneficiaries will indirectly provide for her, and his, benefit so long as she, and he, remains living in the Menai property, as each will do, at least for the foreseeable future.
However, each of the beneficiaries will not receive any interest in the Menai property itself and any capital appreciation which does occur will pass to the registered proprietors, who are their parents, despite the fact that part of the amount to which each might ultimately be entitled will be used for capital works on the Menai property.
Yet, what is proposed is, in effect, that a capital amount for the maintenance of each child, will be paid, in advance, to her, or his, parents who will then have the responsibility to maintain each child until such time as she, or he, leaves the Menai property, or attains the age of 25 years, at which time any part of the amount advanced, not in effect calculated as having been "used" for the maintenance of that child, will be repaid to that child.
Of course, bearing in mind their respective ages, the likelihood is that Sarah, and perhaps, Robert, will not reside in the Menai property for a sufficiently long period to exhaust the amount advanced out of her and his share. However, then, each will receive back, as it were, that part not so used.
To protect the position of each child until that time, the mortgage, in the form proposed, will exist. A legal practitioner independently representing the interests of the children has indicated, under oath, that he is satisfied with the terms of the mortgage.
In answer to the questions posed, and based on the material before me, I make the following orders:
"The Plaintiffs, as trustees, would be justified:
1. In making an advance of maintenance from the trusts held for the beneficiaries Sarah Elizabeth Waldron-Jones, Robert Arthur Lucas Waldron-Jones and Emma Joy-Anne Waldron-Jones to the second plaintiff and Garry Waldron-Jones:
a. in their capacity as parents and guardians of the three beneficiaries in accordance with Clause 4 (a) of the Deceased's will; and
b. notwithstanding the second Plaintiff's appointment as an executrix and trustee of the will.
2. In securing the interests of the three beneficiaries in the maintenance advanced to the second plaintiff and Garry Waldron-Jones by a mortgage:
a. in the form of Ex. "A" in these proceedings;
b. registered on the title of the property situate at and known as xx xxxx xxxx, xxxxx in the State of New South Wales, folio identifier xxx/xxxxxx.
3. In using the following amounts to calculate the maintenance to be advanced to the second plaintiff and Garry Waldron-Jones and secured by the mortgage referred to:
a. $100 per week for each beneficiary between the ages of 8 and 15 years;
b. $170 per week for each beneficiary between the ages of 15 and 19 years;
c. $200 per week for each beneficiary between the ages of 19 and 25 years."
Although the Plaintiffs sought an order that their costs be paid out of the estate of the deceased, following discussion and obtaining further instructions, I was informed that the second Plaintiff and Mr Waldron-Jones are prepared to pay, personally, one half of the costs of the proceedings. That is most reasonable and appropriate in all the circumstances of the case.
Accordingly, I order that one half of the Plaintiffs' costs of the proceedings, calculated on the indemnity basis, be paid out of the estate of the deceased. I note the agreement of the second Plaintiff that she and her husband, Garry Waldron-Jones will bear the other one-half of the Plaintiffs' costs of the proceedings.
I order that the Court Book be returned.
I order that the mention date of 8 February 2013 be vacated.
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Decision last updated: 06 February 2013
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