Boord as Executrix of the Estate of Roman Iwankiw v Iwankiw

[2021] WASC 13

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

CITATION:   BOORD AS EXECUTRIX OF THE ESTATE OF ROMAN IWANKIW -v- IWANKIW [2021] WASC 13

CORAM:   MASTER SANDERSON

HEARD:   3 NOVEMBER 2020

DELIVERED          :   19 JANUARY 2021

PUBLISHED           :   19 JANUARY 2021

FILE NO/S:   TRU 5 of 2020

BETWEEN:   JUTTA BOORD AS EXECUTRIX OF THE ESTATE OF ROMAN IWANKIW

Applicant

AND

JOHN IWANKIW

Respondent

Catchwords:

Trusts - Application for judicial advice - Turns on own facts

Legislation:

Property Law Act 1969 (WA)
Trustees Act 1962 (WA)

Result:

Application dismissed

Category:    B

Representation:

Counsel:

Applicant	:	M P Bruce
Respondent	:	C S Williams

Solicitors:

Applicant	:	Kitto & Kitto
Respondent	:	Solomon Brothers

Case(s) referred to in decision(s):

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

Plan B Trustees Ltd v Parker [No 2] [2013] WASC 216

Re Australian Pipeline Ltd (2006) 60 ACSR 625; [2006] NSWSC 1316

The application of Eurolinx Pty Ltd in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306

Wood (as co‑executor and trustee of the will of the deceased) v Wood [No 4] [2014] WASC 393

MASTER SANDERSON:

1. By originating summons filed 1 September 2020 the applicant sought the following orders:

   1. The applicant is authorised and justified in defending Supreme Court action CIV 1726 of 2020, including by:

   a. raising by way of defence the terms of the settlement reached between the parties in Supreme Court proceedings CIV 2902 of 2017 (Settlement Defence) and seeking to have the proceedings struck out on the grounds that they are an abuse of process;

   b. applying to have the Settlement Defence determined as a preliminary issue in CIV 1726 of 2020.

   2. The applicant be entitled to have recourse to the assets of the estate of Roman Iwankiw to meet the legal costs:

   a. of and incidental to this application;

   b. in the defence of CIV 1726 of 2020.

   3. Such further or other orders and directions as the Court considers appropriate, including as to the costs of the application.

1. It is to be noted the application really is in two parts.  Paragraph 1, as a direction, relates to the mechanics of the proceeding.  As I will explain below, the respondent took the view there was no impediment to the applicant acting in accordance with legal advice and taking the steps referred to in that paragraph.  Of course if an order was obtained in terms of par 1, then the applicant would be protected against any allegations of breach of trust.  But really it was par 2 which was important.  Pursuant to that order, if the applicant took the steps referred to in par 1, her costs would be met out of the estate of Roman Iwankiw and she would not be personally at risk.  It was in relation to this paragraph that the parties were at issue.

2. The application was supported by an affidavit of the applicant sworn 21 September 2020.  Taken from that affidavit the relevant facts can be summarised as follows.  The applicant is the executrix of her late father, Roman Iwankiw's, estate.[1]  The respondent is the applicant's older brother.  The applicant and the respondent are their father's only children.[2]  By his will, their father left his estate to be held by the applicant as the sole executrix on trust for the applicant and the respondent as tenants in common in equal shares.[3]  The deceased died on 20 October 1995,[4] leaving a substantial amount of partially developed and undeveloped land in Kalgoorlie.[5]  Since his death almost all of the land has been subdivided into vacant lots and sold.[6]  The proceeds of sale, amounting to approximately $12 million, have been distributed equally between the applicant and the respondent.[7]

   [1] Affidavit of Jutta Boord sworn 21 September 2020 [1], [3]; Annexure JB1.

   [2] Affidavit of Jutta Boord sworn 21 September 2020 [5].

   [3] Affidavit of Jutta Boord sworn 21 September 2020 [11]; Annexure JB2 p 15, cl 4.

   [4] Affidavit of Jutta Boord sworn 21 September 2020 [3]; Annexure JB1.

   [5] Affidavit of Jutta Boord sworn 21 September 2020 [13] – [14].

   [6] Affidavit of Jutta Boord sworn 21 September 2020 [17].

   [7] Affidavit of Jutta Boord sworn 21 September 2020 [18].

3. On the deceased's death, all of the land was transferred to the applicant's name as executrix.  In 2002, Mr Chris Fyson, a real estate agent assisting in the subdivision of the land, recommended that in order to minimise land tax a one‑one thousandth interest in some of the lots should be transferred to family members.[8]  The applicant's family relevantly comprises her husband, Mr Robert Boord, and four children – Robert (Junior), Anna‑Marie, Simone and Andrew.[9]  The respondent's family relevantly comprises his wife, Gwendolyn and their two children – Katherine and Matthew.[10]  Following Mr Fyson's advice a one‑one thousandth interest in some of the lots was transferred to some of the family members.[11]

   [8] Affidavit of Jutta Boord sworn 21 September 2020 [9], [27].

   [9] Affidavit of Jutta Boord sworn 21 September 2020 [6].

   [10] Affidavit of Jutta Boord sworn 21 September 2020 [7].

   [11] Affidavit of Jutta Boord sworn 21 September 2020 [30].

4. On 9 November 2017, the applicant commenced proceedings against the respondent and his wife seeking a mandatory injunction to compel them to reconvey their one‑one thousandth interest in those lots in which they held that interest.  This was to facilitate the sale of the lots.[12]  The respondent and his wife defended those proceedings and they settled in December 2019.[13]  I will examine the terms of that settlement below.  In May and June 2017 and August 2018, prior to settlement of the previous proceedings, the estate and the holders of the relevant one‑one thousandth interest sold their interest in six lots at what the respondent, both in the previous proceedings and now in the main proceedings, alleges was undervalue.  On 30 June 2020, the respondent commenced proceedings (referred to as the 'main proceedings') against the applicant claiming an account alleging the applicant breached her duties in selling the six lots.[14]

   [12] Supreme Court proceedings CIV 2902 of 2017, Affidavit of Jutta Boord sworn 21 September 2020 [31]; Annexure JB5.

   [13] Affidavit of Jutta Boord sworn 21 September 2020 [40]; Annexure JB13.

   [14] Supreme Court proceedings CIV 1726 of 2017, Affidavit of Jutta Boord sworn 21 September 2020 [44]; Annexure JB15.

5. On 22 July 2020, the applicant enquired of the respondent as to his attitude to the grant of judicial advice.  The applicant asked the respondent to agree to two matters.  First, the applicant was authorised and justified in defending the main proceedings by raising by way of defence the terms of the settlement or, in the alternative, arguing the main proceedings were an abuse of process.  Second, she asked the respondent to agree to having the settlement defence determined by way of preliminary issue.[15]  The respondent responded by saying he opposed both applications.[16]  Two directions hearings were held, one in August 2020, the other in September 2020.  Over the respondent's objections the main proceedings were adjourned pending the hearing and determination of this application.[17]  The applicant accepts that an application for judicial advice is not the appropriate forum to consider the merits of the applicant's defence in the main proceedings.[18]  But the applicant submits it is necessary to canvass, at least in broad terms, the merits of that defence to ascertain whether there is a prima facie case.  Without that prima facie case, the direction which is being sought would not be given.  As an aside, counsel notes that no opinion of senior counsel has been provided as to the merits of the applicant's defence.  This is frequently done in New South Wales.[19]  In this State the preponderance of opinion is that provision of such an opinion is not appropriate:  see Plan B Trustees Ltd v Parker [No 2] [2013] WASC 216 and Wood (as co‑executor and trustee of the will of the deceased) v Wood [No 4] [2014] WASC 393. Based on those authorities and given the relatively straightforward nature of the applicant's defence in the main action, I accept provision of counsel's opinion was unnecessary and would not adversely affect the applicant's application.

   [15] Affidavit of Jutta Boord sworn 21 September 2020 [71]; Annexure JB24.

   [16] Affidavit of Jutta Boord sworn 21 September 2020 [72]; Annexure JB25.

   [17] Affidavit of Jutta Boord sworn 21 September 2020 [46]; Annexure JB16.

   [18] Applicant's submissions filed 23 October 2020 [23] – [24].

   [19] Applicant's submissions filed 23 October 2020 [25].

6. The terms upon which the previous proceedings were settled are contained in two documents comprising what counsel for the applicant describes as 'the offer' and 'the acceptance'.  The offer was by letter from Solomon Brothers to Kitto & Kitto dated 15 November 2019.  It appears as attachment JB12 to the applicant's affidavit.  Counsel notes the letter from Solomon Brothers offered to settle 'the subject matter of the Supreme Court proceedings by the taking of two steps'.  First, by reconveying to the applicant in her capacity as executrix of the estate the one‑one thousandth interest in the lots the subject matter of the estate held by the respondent and his wife.  This was conditional on the applicant no less than 14 days before any estate lot was transferred, giving to the respondent written notice of the applicant's intention to sell the lot and a copy of any contract of sale entered into in respect of the lot.[20]  The offer was accepted.  A copy of the letter of acceptance appears as attachment JB13 to the applicant's affidavit.  A consent minute was filed with the court.  The applicant says it is then necessary to analyse just what was the subject matter of the previous proceedings.[21]

   [20] Applicant's submissions filed 23 October 2020 [32].

   [21] Applicant's submissions filed 23 October 2020 [36].

7. The applicant submits that by her further amended statement of claim, she alleged the respondent and his wife had become registered proprietors of their one‑one thousandth interest on certain terms.  Those terms required the respondent and his wife to reconvey their interest in the lots to her so she could sell them and wind up the estate.  Alternatively, the applicant said the obligation arose as a matter of law.[22]  The respondent and his wife denied they were under any obligation to reconvey the interests to the applicant.[23] Counsel for the applicant referred to par 13.2 of the respondent's amended defence which pleaded that if an order for sale was to be made under s 126 of the Property Law Act 1969 (WA) then:

   … any order should not provide for the plaintiff to have conduct of the sale, further or alternatively should require Court approval of any sale and/or notice to the defendants of any sale, by reason that the plaintiff, acting in her capacity as executrix of the Estate, entered into contracts to sell the land to related parties the following properties for prices less than that at which those properties were being marketed for sale, what the plaintiff had been advised as the market values of those properties and the market values of those properties.

   [22] Applicant's submissions filed 23 October 2020 [39].

   [23] Applicant's submissions filed 23 October 2020 [41].

8. The defence listed six properties – lots 41, 42, 49, 50, 51 and 52.  These six lots are the same six lots which in the main proceedings, the respondent alleges the applicant, in breach of her duties, sold at undervalue.[24]  In the previous proceedings, the applicant denied the allegations of breach of duty.  It would seem not to be in contest the lots were in fact sold undervalue.  It is the applicant's position he (the respondent) knew the lots were sold undervalue and consented to such sale.  In his written submissions, counsel for the applicant went into some detail as to the mechanics of the transactions involving the six lots and the way in which it was alleged the respondent consented to each sale.  It is unnecessary to repeat those details here.  Three factors are important.  First, the respondent alleged six lots were sold undervalue.  Second, the applicant admitted (apparently) the sale at undervalue.  Third, the respondent, on the applicant's case, consented to the sales – that is to say, consented to the lots being sold at undervalue.

   [24] Applicant's submissions filed 23 October 2020 [43].

9. There was a further plea by the applicant. She alleged, in reliance on s 75 of the Trustees Act 1962 (WA) that she acted honestly and reasonably and ought fairly be excused for any breach of trust and for omitting to obtain the directions of the court.[25]

   [25] Applicant's submissions filed 23 October 2020 [67].

10. For present purposes, it is unnecessary for me to say anything further about the present dispute between the parties.  It was the respondent's position that it was inappropriate for judicial advice to be provided on a question of whether a trustee should defend proceedings concerning only allegations of past misconduct by the trustee.  Counsel submitted that a matter on which judicial advice is sought must be one that involves some aspect of the trustee's duty as trustee as it relates to the future conduct of the trust.[26]  It was submitted here, the question confronting the applicant was how she should deal with allegations of past misconduct which, if established, would result in a personal liability to be met by the applicant.  On that basis, the estate property would in no way be protected or enhanced by defence of the main action.[27]

    [26] Respondent's submissions in opposition filed 20 October 2020 [14].

    [27] Respondent's submissions in opposition filed 20 October 2020 [15].

11. In making these submissions, counsel for the respondent relied primarily on two decisions.  First, the decision of Barrett J in Re Australian Pipeline Ltd (2006) 60 ACSR 625; [2006] NSWSC 1316. Second, the decision of Emmett AJA in The application of Eurolinx Pty Ltd in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306.

12. Dealing first with the Australian Pipeline decision, Barrett J said at [23] – [24]:

    23 The concluding words of this passage are of particular importance.  The pre-occupation of the court is with those who have the stewardship of property for the benefit of others.  In terms of s.63, the court's role, consistently with that pre‑occupation, is concerned with 'the management or administration of the trust property' and 'the interpretation of the trust instrument'.  It follows that, if a trustee is minded to seek judicial advice on a question related to the bringing or defending of legal proceedings, the trustee may properly do so only if the legal proceedings are themselves concerned with the management or administration of the trust property or the interpretation of the trust instrument.

    24 The case before me is not of that kind. The trustee's concern, upon the present application, is with the question of potential exposure of the trustee personally because of past acts and a completed course of conduct of the trustee.  Determination of the question whether the Federal Court proceedings should or should not be defended by APL will not contribute to any particular outcome related to the management or administration of the assets of the Trust.  The question now confronting APL is how it should deal with an allegation of past misconduct which, if established, will entail personal liability for breach of trust or statutory wrongdoing.  The trust property of which APL has stewardship will in no way be protected or enhanced by defence of the claim.  If the beneficiaries, as plaintiffs in the Federal Court, are fully successful, the trust property will be seen to have been dealt with in the past in an impermissible way and the trustee will be brought to account accordingly.  If the beneficiaries, as plaintiffs, are unsuccessful, the trust property will be seen not to have been misapplied by the trustee in the past.  Either way, the result, so far as the trust estate is concerned, will do no more than reveal an historical position.  The only consequence of an immediate kind having future implications will be as to the liability of the trustee (or the absence of liability).

13. In the Eurolinx decision, Emmett AJA referred to the Australian Pipeline decision with approval and said at [25]:

    An application under s 63 of the Trustee Act must concern the management or administration of the trust property or the interpretation of the trust instrument or both.  If a trustee is minded to seek judicial advice on a question related to the defending of legal proceedings, the trustee may properly do so only if the legal proceedings are themselves concerned with those matters.  Where the concern of a trustee is with the question of potential personal exposure of the trustee because of past acts and a completed course of conduct on the part of the trustee, that requirement will not be satisfied.  If the determination of the question of whether particular proceedings should be defended will not contribute to any particular outcome related to the management or administration of the assets of the relevant trust, there will be no basis for the Court to give judicial advice under s 63.  Where the question confronting a trustee is how it should deal with an allegation of past misconduct that, if established, will entail personal liability for breach of trust, it would not be appropriate for advice to be given under s 63.  Section 63 assumes that the matter on which judicial advice is sought would involve some aspect of a trustee's duty as trustee, as it relates to the future conduct of that trustee in relation to the relevant trust.  A trustee who is alleged by a beneficiary to have committed a breach of trust or statutory wrong, and who defends legal proceedings in which that allegation is advanced, is not performing a duty as trustee.  The decision by a trustee accused of a breach of trust whether to contest the allegation is not related to any aspect of that trustee's duty as trustee.  Rather, the matter at stake is the personal liability of the individual trustee.

14. What the respondent says then can be summarised in this way.  What is at issue in the main proceedings is the past conduct of the applicant in her capacity as trustee.  It has nothing whatever to do with the way the trust is to operate nor does it involve the future discharge of the trustee's duties in a way which will affect the assets of the trust.  Rather, if the applicant is found to be personally liable for past breaches of trust then the trust property will be enhanced because the applicant will have to account.  Put simply, defence of the main proceedings will not in any way benefit the trust either now or into the future. 

15. In support of her position, the applicant relied heavily on the decision 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. Two points should be noted at the outset in relation to this decision. First, it concerned a charitable trust. While that in no way affects the statement of general principle found in the decision, it does skew slightly the way in which the court approached the matters in issue. Second, the case concerned the Trustees Act 1925 (NSW).  In all respects, the Western Australian legislation mirrors the New South Wales legislation.  However, the sections referred to in the judgment are not numbered the same as in our Act. 

16. In the judgment the court set out eight general points concerning judicial advice.  Their Honours noted there was only one jurisdictional bar to the giving of advice:  the applicant 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.  Under the sub‑heading 'Relationship of s 63 to rights of indemnity' their Honours had this to say:

    71.In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties.  Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation.  No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs.

    72It is, therefore, not right to see a trustee's application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee.  Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust.

1. In the course of his submissions, counsel for the applicant focused on the following passage from their Honours' judgment:

   74.A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings.  In deciding that question a judge must determine whether, on the material then available, it would be proper for the trustee to defend the proceedings.  But deciding whether it would be proper for a trustee to defend proceedings instituted about the trust is radically different from deciding the issues that are to be agitated in the principal proceeding.  The two steps are not to be elided.  In particular, the judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings.

2. While the Australian Pipeline decision was decided prior to the High Court's decision in Macedonian Orthodox Community, the Eurolinx decision was decided after the High Court case and is reference by Emmett AJA.  This case fits squarely within the principles his Honour set out in the judgment.  There is, in this case, no question relating to the proper administration of the trust.  There is no trust instrument and the trust must be administered according to law.  A determination of the issues in the main proceedings, one way or another, will not affect the assets of the trust.  In summary then, there is no basis for the making of the orders sought by the applicant.

3. That being so, there is no question of the applicant being entitled to an indemnity from the trust.  Of course, if the matter proceeds and the respondent successfully defends the action then it may be the applicant could obtain an order for an indemnity from the trust assets.  But that is a matter to be determined at a later date.  These reasons should not be taken as in any way reflecting upon that issue. 

4. The applicant's application will be dismissed.  Within 7 days of the publication of these reasons the parties should either agree a minute of orders or submit competing minutes.  If no agreement is reached as to costs there should be short submissions dealing with that question.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CB

Associate to Master Sanderson

19 JANUARY 2021