Dulhunty v Dulhunty

[2010] NSWSC 1465

CITATION:	Dulhunty v Dulhunty [2010] NSWSC 1465
HEARING DATE(S):	15 November 2010
JUDGMENT DATE :	17 December 2010
JUDGMENT OF:	Slattery J at 1
CATCHWORDS:	EQUITY - Trusts and trustees - applications to the Court for advice - proceedings between trustees and beneficiaries or third parties - power in trust deed of discretionary trust for trustees to act by majority - agreement between trustees to distribute trust assets and wind up trust - majority of trustees seek orders against minority to enforce agreement - minority trustee obtains Trustee Act, s 63 judicial advice that he is entitled to defend the proceedings and to do so using trust assets - judicial advice obtained without notice to majority - majority refuse to authorise disbursement of trust funds - minority seeks orders for disbursement from trust - whether all trustees should be joined on Trustee Act, s 63 application for advice - whether majority can and should now be ordered to disburse funds - HELD - order for disbursement made - costs on present application reserved.
LEGISLATION CITED:	Civil Procedure Act 2005, ss 14, 26 Trustee Act 1925 (NSW), ss 59(4), 63 Uniform Civil Procedure Rules 2005, Rule 7.11(2)
CATEGORY:	Principal judgment
CASES CITED:	Dulhunty v Dulhunty [2010] NSWSC 1307 Fay v Moramba Services Pty Ltd [2008] NSWSC 424 In the Estate of William Just, Deceased (No. 1) (1973) 7 SASR 508 Lewis v Nobbs (1878) 8 Ch. D 591 Luke v South Kensington Hotel Company (1879) 11 Ch D 121 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 Pelham v Pelham & Braybrook (1955) SASR 53 Re Billington (deceased); Union Trustee Company of Australia Ltd v Billington [1949] St. R. Qd. 102 Re Butlin’s Settlement Trusts; Butin v Butlin [1976] Ch 251 Re Mayo [1943] Ch 302 Re Stephenson’s Settled Estates (1906) 6 SR (NSW) 420 Re Whiteley; Bishop of London v Whiteley [1910] 1 Ch 600 Sky v Body & Anor (1970) 92 WN (NSW) 934 Watsons Bay & South Shore Ferry Co Ltd v Whitfeld (1919) 27 CLR 268
TEXTS CITED:	Heydon J D and Leeming M J Jacobs’ Law of Trusts in Australia, (7th edition), Lexis Nexis, Butterworths, 2006, at paragraph 1614
PARTIES:	First Plaintiff-Peter Wellesley Dulhunty Second Plaintiff- Jinks Amber Dulhunty Defendant- Roger Venour Dulhunty
FILE NUMBER(S):	SC 2010/269851
COUNSEL:	Plaintiffs- Mr S. Epstein SC Defenadnt- Mr J.E. Lazarus
SOLICITORS:	Plaintiffs- Peter Richard James, James Legal Pty Ltd Defendant-Andrew Bruce Thorpe, McLachlan Thorpe Partners

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SLATTERY J

FRIDAY, 17 DECEMBER 2010

2010/269851 PETER WELLESLEY DULHUNTY & ANOR v ROGER VENOUR DULHUNTY

JUDGMENT

1 HIS HONOUR: The point at issue in these reasons arises from an adjournment application. The parties, the three siblings Peter Wellesley Dulhunty, Jinks Amber Dulhunty and Roger Venour Dulhunty, are all the co-trustees of the Alina Dulhunty Family Trust (“the Trust”). Without any disrespect to any of the parties, for convenience I will refer to them all by their first names.

2 Peter and Jinks seek by Summons to enforce an April 2008 agreement to wind up the Trust and distribute the Trust assets. Roger, the defendant, resists this relief arguing that the April 2008 agreement is unenforceable as a fetter on the trustees’ discretion or an agreement the trustees entered into whilst in a position of conflict of interest.

3 Roger seeks orders by Cross Summons for indemnity out of Trust assets in respect of his defence costs of the proceedings and his costs of seeking certain Trustee Act, 1925 (NSW), s 63 advice from this Court in September this year. He seeks the same relief on an interim basis by motion. The immediate procedural contest is whether, as Roger contends, the Court should now make orders on this motion. Peter and Jinks argue the Cross Summons relief should be adjourned and determined at the same time as the principal relief sought on the Summons.

The Alina Dulhunty Family Trust

4 The Trust is a discretionary trust created on 23 July 1970. The settlor of the Trust under the original trust deed was Ezekiel Solomon. The first trustees were Ezekiel Solomon, Neville Baron Powell and Alina Dulhunty. The Trust was to make provision for the then living children of Alina Dulhunty and any issue of such children who may be born before the vesting date. The class of persons potentially benefiting under the Trust is presently constituted by the children of Alina Delhunty, namely Roger, Peter and Jinks, and her grandchildren, namely Emmeline, Annabel, Coco and Clark Dulhunty. Annabel and Emmeline are Peter’s children. Roger’s children, Clark and Coco, have not yet reached the age of 18 years. No grandchildren are parties to these proceedings.

5 Alina Dulhunty conducted her business affairs during her lifetime, through two companies, Kurnell Lodge Pty Ltd (“Kurnell Lodge”) and Tarim Pty Ltd (“Tarim”). She died on 20 February 2005. After her death the assets of the Trust were the equity shares in Tarim, which is not in liquidation.

6 Alina Dulhunty bequeathed her shares in Kurnell Lodge to Peter, Jinks and Roger and the grandchildren in various proportions. But shortly after Alina Delhunty’s death disagreements among Alina’s children led to litigation in the Federal Court of Australia. On 11 May 2006 Jinks commenced proceedings for the uplift of certain documents (“the Uplift Proceedings”). On 22 May 2007 she commenced winding up proceedings against Kurnell Lodge (“the Winding Up proceedings”).

7 Upon Alina’s death the sole surviving trustee of the Trust was Ezekiel Solomon.

8 The Winding Up proceedings provided a platform for the mediation of all the disputes among Peter, Jinks and Roger. The mediation had some success. It resulted in the execution of a settlement agreement (“the April 2008 agreement”) among the parties Kurnell Lodge, Tarim, Jinks, Roger and Peter on 14 April 2008. No representative of the grandchildren was a party to the April 2008 agreement, which has itself now become a source of contention among the parties.

9 The issues raised by the Summons in the proceedings arise out of the form of clauses 14 to 17 of the April 2008 deed. Those clauses are the following:

“14. Jinks, Roger and Peter agree:

(a) to be appointed Trustees of the Trust jointly and to replace Zeke as the surviving trustee of the Trust;

(b) to take all reasonable steps to effect this appointment and Zeke’s retirement as soon as possible.

15. In the event of their appointment as Trustees of the Trust, Jinks, Peter and Roger acknowledge and agree that they will resolve to exercise their powers as Trustees of the Trust, to wind up the Trust and distribute the net assets of the Trust as follows:

(a) 30% to Jinks;

(b) 30 % to Roger;

(c) 30% to Peter;

(d) 2.5% to each of Annabel and Emmeline;

(e) 2.5% to each of Clark and Coco, which share shall be held for each of them by their parents, Roger and Julie Clark (Julie) as trustees until each attains the age of 21 years and in respect of which Roger and Julie shall have the powers and discretions under the Trustee Act (NSW).
16. In the event that Roger, Peter and Jinks are not appointed Trustees of the Trust they will notify Zeke (or who ever may be the Trustees of the Trust at that time) in writing that it is their unanimous agreement that the net assets of the Trust be distributed in the proportions set out in paragraph 15(a) to (e) above and further that such distribution of the net assets is an appropriate exercise of discretion by the Trustees.
17. Roger, Peter and Jinks acknowledge and agree that in forming their view that distribution of the net assets of the Trust in accordance with paragraph 15(a) to (e) above is an appropriate exercise of discretion by the Trustees of the Trust (whether Zeke remains the surviving trustee, they are appointed Trustees or some other persons or entity becomes the Trustees), they have taken into account:

(a) all of the issues and disputes that have arisen since Alina’s death and which are generally dealt with in the Uplift Proceedings and the Winding Up Proceedings;

(b) the total legal costs expended to date in those proceedings;

(c) the likely future legal costs had the Winding Up Proceedings continued;

(d) the real prospect of disputes in Tarim and in the Trust, and the expenditure of legal costs on those matters;

(e) the continuing and ever increasing depletion of the net assets of Alina’s Estate occasioned by such disputes to the detriment of Roger, Peter and Jinks and the Grandchildren.”

10 As Clause 14 of the April deed contemplated, Jinks, Roger and Peter were appointed as trustees of the Trust jointly to replace Ezekiel Solomon, the sole surviving trustee. It seems that the Winding Up proceedings and the Uplift proceedings came to an end but the April 2008 agreement was not fully carried into effect. Nothing was done to implement clauses 15, 16 and 17, until 4 June 2010.

11 This was in part because Roger, after changing solicitors, formed the view, as his counsel said “[not] in his own personal interest” but as “part of his duties as trustee” that the settlement was not in the interest of all parties, and in particular the grandchildren. His point is one of some financial significance to the grandchildren. Under the April 2008 agreement they would each receive 2.5% of the distribution of net Trust assets. The correspondence before the Court shows that some of them who are now independently represented are now asking for 6.5%.

12 The parties could not resolve their differences about clauses 15 to 17 of the April 2008 deed. Roger’s contention is that clause 15 of the April 2008 deed involves a fetter by the trustees on the exercise of a power by the undertaking beforehand as to the mode in which the power would be exercised in futuro contrary to their general duties: Re Stephenson’s Settled Estates (1906) 6 SR (NSW) 420 and Watsons Bay & South Shore Ferry Co Ltd v Whitfeld (1919) 27 CLR 268 and Heydon J D and Leeming M J, Jacobs’ Law of Trusts in Australia, (7^th edition), Lexis Nexis, Butterworths, 2006, at paragraph [1614]. Roger’s other contention is that it is not appropriate for all three trustees without obtaining the consent of all the discretionary objects to agree to any distribution of the trust assets, when those same trustees are themselves also discretionary objects of the trust, and competing for the assets of the class of grandchildren, not represented in the settlement. Roger’s contention is that their position as deciding trustees and potential beneficiaries stands in an impermissible conflict of interest and duty.

13 Roger’s position against the April 2008 agreement did not change. The trustees voted by majority at a meeting on 4 June 2010 to implement clause 15 of the April 2008 agreement. Roger dissented from this course. Peter and Jinks then commenced these proceedings by Summons on 13 August 2010 seeking declarations that the April 2008 agreement is binding among Tarim, Kurnell Lodge and the parties to these proceedings. The Summons also seeks a declaration that Roger is bound to exercise his powers as trustee of the Trust to wind up the Trust and to distribute its net assets in accordance with clause 15 of the April 2008 agreement. To give effect to those declarations the Summons also seeks an order that Roger sign forms with the Bendigo Bank, the Trust’s banker, to give effect to clause 15 of the April 2008 deed. The Summons does not join the grandchildren as parties.

The Judicial Advice Proceedings

14 One of Roger’s responses to the Summons was to seek judicial advice under the Trustee Act, s 63 that he was entitled to defend the proceedings and to have recourse to Trust assets in his defence (“the judicial advice proceedings”). Roger’s application became before Hamilton AJ on 3 September 2010.

15 Hamilton AJ advised Roger in the judicial advice proceedings that he “would be justified in defending [these] proceedings”. His Honour also advised that Roger “is entitled to have recourse to the assets of the Alina Dulhunty Family Trust for the purpose of paying his reasonable legal costs of defending those proceedings”. Hamilton AJ also made an order paying the plaintiff’s costs of these proceedings out of the Trust.

16 Two features of the judicial advice proceedings led directly to the present contest. The first is that Roger did not serve any notice of these judicial advice proceedings on Peter or Jinks, a course open to him under Trustee Act, s 63(4). The other feature of the judicial advice proceedings is that they did not anticipate that Peter and Jinks would not agree to authorise the payment of Roger’s defence costs or judicial advice proceedings costs out of Trust assets.

17 Peter and Jinks sought the Statement of facts and other non-confidential materials that Roger used in the judicial advice proceedings but Roger declined to provide them until the hearing before me.

Trust Assets

18 The Trust has substantial liquid assets. A sum of the order of $4 million now stands to the Trust’s credit with the Bendigo Bank. Access to Trust assets is governed by two resolutions of the trustees of 19 March 2010, which resolutions were said to be “in accordance with clause 10 of the Trust Deed”. Those resolutions were:

“It was resolved that Roger Venour Dulhunty and Peter Wellesley Dulhunty be authorised to open and operate a bank account in their names jointly as trustees of the Alina Dulhunty Family Trust (‘the Trust bank account’).
It was resolved that Roger Dulhunty and Peter Dulhunty whose signatures appear below are authorised to sign jointly any document to operate such an account.”

19 There were no other signatories. Roger and Peter’s co-operation was required to write a cheque on the Trust bank account. Peter refused to co-sign cheques for Roger’s legal fees in the sum of $32,503.26, being his defence costs so far and his costs of the judicial advice proceedings.

Joining the Grandchildren

20 Roger has taken other procedural steps in these proceedings. By motion on 28 September 2010 he applied before Brereton J, sitting in the Equity Duty list, for orders that Annabel, Emmeline, Coco and Clark be joined as the second, third, fourth and fifth defendants in the proceedings. Peter and Jinks opposed their joinder. The grandchildren did not oppose being joined as parties, provided their costs were paid out of the Trust.

21 The outcome of the application before Brereton J turned on the operation of Uniform Civil Procedure Rules, Rule 7.12(2), which provides that all persons having a beneficial interest under a trust need not be parties but the plaintiff may join as parties such of those persons as he or she thinks fit. The appropriateness of joining the beneficiaries will usually depend on the extent to which their interests are likely to be adequately represented by existing parties to the proceedings. Brereton J reasoned that the argument that could be advanced on behalf of the grandchildren that clause 15 of the April 2008 agreement is void, will actually be advanced by Roger, one of the trustees, and “as a result of the judicial advice already given, he will be advancing that argument at the cost of the Trust”: Dulhunty v Dulhunty [2010] NSWSC 1307.

22 His Honour concluded in those circumstances that it was unnecessary to join the grandchildren because Roger would be the proper contradictor and because it would in any event be undesirable to visit another set of costs on the Trust estate. Thus the contest before Brereton J in the duty list proceeded on the basis that Roger’s costs would be paid out of the estate.

The Cross Summons and Motion

23 Further correspondence passed between the parties during October 2010 in an attempt to resolve the issue as to the payment of Roger’s defence costs. No agreement resulted from these exchanges. Roger filed his Cross-Summons on 12 November 2010. The Cross Summons sought declaratory relief on a final basis for the payment of Roger’s defence costs and judicial advice proceedings costs out of Trust assets. But Roger also sought to have these costs paid before the conclusion of the proceedings. On 15 November 2010, the day of the hearing, he filed a Notice of Motion seeking similar relief. Both the Cross Summons and the Notice of Motion came before me on 15 November 2010.

24 At that hearing Mr Lazarus appeared for Roger and Mr Epstein SC appeared for Peter and Jinks.

The Issues

25 In the hearing on 15 November 2010 the argument focused on a limited number of issues. Roger acknowledged that his decision not to give notice to Peter and Jinks of the judicial advice proceedings under Trustee Act, s 63(4), meant that Peter and Jinks were not bound by the “opinion, advice, direction or order given or made under this section”: Trustee Act, s 63(11). The question was whether they should even now be required to co-operate in implementing that advice.

26 Peter and Jinks argued that they should not be required to expend Trust assets on Roger’s defence costs without having access to the Statement of Facts and other materials (excluding confidential legal opinions) that were put before Hamilton AJ in the judicial advice proceedings. Until 15 November 2010 Roger had refused to provide these materials.

27 But in response to these submissions Roger began to reformulate the precise orders he wished to obtain. The Court directed that he do so with precision. The orders sought on 15 November 2010 were put (in MFI 1) in the following terms:

“1. The defendant’s costs of Supreme Court of NSW proceedings 2010/290309 be paid out of the assets of the Trust.
2. The defendant’s costs of these proceedings be paid out of the assets of the Trust, upon the defendant’s undertaking to provide to the plaintiffs the Statement of Facts and Bundle of Documents relief upon in Supreme Court of NSW proceedings 2010/290309, in the event that the defendant is unsuccessful in these proceedings and the plaintiffs apply to the trial judge for revocation of the orders made.
3. The plaintiffs take all necessary steps to give effect to Orders 1 and 2.
4. The foregoing orders are subject to, and may be revoked by, an order of the trial judge in these proceedings.”

Applicable Principles

28 The issues in these proceedings engage the principles of a number of areas of trust law. These principles have been either assessed or articulated by the parties in the course of their arguments. The principles relate to the following areas:

(a) Trustees’ Decision- the trustees disagree about payment of Roger’s defence costs but the Trust deed allows decisions by majority;
(b) Trustees’ Indemnity- Roger is seeking indemnity for defence costs from Trust assets, and
(c) Trustee Act, s 63 Applications with multiple trustees- Peter and Jinks challenge the form in which Roger constituted the judicial advice proceedings.

29 A statement of the relevant principles at the outset of my analysis is useful.

Trustees’ Decisions

30 It is useful to examine the principles of law applicable to the decision making of co-trustees, then briefly to examine the operation of clause 10 of the Trust deed.

31 Where there is more than one trustee the trustees’ decision must be unanimous: Luke v South Kensington Hotel Company (1879) 11 Ch D 121, per Jessel MR at 125. The principle that trustees’ decisions must be unanimous is implied from the duty of trustees to act personally rather than through others. The object of having two trustees is to double control over the trust property, so that when one trustee thinks fit to give the other the sole power of dealing with the trust property that trustee defeats that object and himself becomes responsible: Lewis v Nobbs (1878) 8 Ch. D 591. Sometimes one of several trustees is spoken of as “the active trustee”. The Court knows of no such distinction. All who accept the office are in the eyes of the law active trustees; so that if one trustee refuses to join in an act or is incapable of doing so, it is not competent for the others to proceed without the non involved trustee and in those circumstances the administration must devolve upon the Court: In the Estate of William Just, Deceased (No. 1) (1973) 7 SASR 508. No trustee is put in the position where the trustee may be permitted to be in a minority who is bound to act against the trustees’ wishes in accordance with the vote of the majority: Re Mayo [1943] Ch 302; [1943] 2 All ER 440. After trustees decide unanimously upon a course of conduct it is not improper for them to authorise a suitably qualified trustee to implement their decision as their agent: Re Billington (deceased); Union Trustee Company of Australia Ltd v Billington [1949] St. R. Qd. 102 at 155.

32 The principle and its consequences have been clearly stated in recent years by Street J, as his Honour then was, in Sky v Body & Anor (1970) 92 WN (NSW) 934 at 935G –936A:

“Inherent in this basic system of trusts is the principle that trustees must act unanimously. They do not hold several offices – they hold a single, joint, inseparable office. If conflicting business considerations lead to such a divergence that the trustes are not able to act unanimously, then the simple position is that they cannot act. Whether or not the Court should then interfere by appointing a receiver or otherwise making some adjustment in the personnel of the trusts is another matter. For present purposes it is sufficient to state that if the trustees are unable to agree upon a course of action then it is not open for the majority – if there be more than two – or for the shareholder whose name stands first on the register in circumstances such as the present, to make the executive decision.”

33 When trustees continue to disagree Jacobs J explained in In the Estate of William Just, Deceased (No. 1) (1973) 7 SASR 508 at 514 what can be done:

“In these circumstances, it seems to me that the proper course is for the court to intervene upon principles analogous to those upon which a court acts when trustees of an imperative power by reason of disagreement among themselves as to the mode of execution, find it impossible to act. In such circumstances, the court will substitute itself in the place of the trustees and will exercise the power by the most reasonable rule. The court in such circumstances will take up the trust, for it, if the trust can by any possibly be executed by the court, the non-execution by the trustee shall not prejudice the cestui que trust (see per Lord Kenyon in Brown v Higgs (1800) 5 Ves 495, at p 505 (31 E.R. 700, at p 705)). This is, in reality, an example of the equitable principle that a trust shall not fail for want of a trustee.”

34 The court may intervene where there is disagreement by trustees. For example, it may order property to be recovered where one trustee other trustee has acted without the consent of their co-trustee to allow a third party to enter into possession of a trust property: Pelham v Pelham (1955) SASR 53. Where one trustee refuses, is incapable to join, or is incompetent for the other trustee to act without them (and a new trustee cannot be appointed) the administration of a trust may devolve upon the Court: In the Estate of William Just, Deceased (No. 1) (1973) 7 SASR 508.

Decisions by Majority

35 But the Trust deed here permits Peter, Jinks and Roger to make decisions by majority. Clause 10 of the trust deed provides:

“10. ALL or any of the powers of discretions and authorities hereby vested in the Trustees may if there are more than two Trustees be exercised by a majority of the Trustees without concurrence of the others or other of them PROVIDED THAT so long as Alina Dulhunty is a Trustee none of the powers discretions and authorities hereby vested in the Trustees may be exercised without her concurrence. Subject as aforesaid every exercise of such powers discretions and authorities by a majority of the Trustees shall be binding on the others or other of them and on all persons interested hereunder in all respects as if all the Trustees had concurred therein but not so as to render any of the Trustees liable for any act or thing done or omitted by virtue of the provisions of this clause without his knowledge or approval.”

36 The principle that trustees of private trust must agree unanimously to a course of action may be displaced if the trust instrument provides otherwise, as it does here: Re Butlin’s Settlement Trusts; Butin v Butlin [1976] Ch 251. The principle of unanimity of trustees does not apply in the case of public or charitable trusts, where the rule is that a majority may act: Re Whiteley; Bishop of London v Whiteley [1910] 1 Ch 600.

37 One consequence of the operation of a settlor providing that trustees may act by majority rather than unanimously upon the terms of a clause such as clause 10 is that the dissenting minority trustee will bound by the course determined upon by the majority. But under clause 10 a dissenting trustee is not liable for the acts or omissions of the majority acting under clause 10 “without his knowledge or approval”. Just what the words “without his knowledge or approval” mean in clause 10 has not been debated before me on this application. It may mean that a dissenting trustee is not liable for a course taken by the majority even if he is aware of it but it may have a narrower meaning than that. The evidence in this case demonstrates that Roger is sensitive to the possibility that he may become liable to breach of trust at the suit of the grandchildren if the April 2008 agreement is implemented, notwithstanding his disagreement with that course.

Trustees’ Indemnity

38 Roger seeks indemnity for his defence costs of the proceedings and the cost of the judicial advice proceedings. Roger’s right of indemnity has several sources.

39 The trust deed made on 23 July 1970, clause 5 provides:

“5. THE Trustees shall be indemnified out of the capital and income of the Settled Fund for and against all payments claims demands suits actions compromises fees expenses rates taxes and duties arising out of or pursuant to the Settled Fund or the administration thereof.

40 Roger points to other sources of power to grant his entitlement of indemnity out of Trust assets such as Trustee Act, s 59(4).

41 But Peter and Jinks submit that references to both clause 5 of the Trust deed and Trustee Act, s 59(4) do not assist Roger. This is because clause 5 is framed in respect of “expenses…arising out of or pursuant to the settled fund or the administration thereof” and Trustee Act, s 59 is framed in terms of reimbursement for expenses “incurred in or about the execution of trustees’ trusts or powers”. Peter and Jinks’ submission is that Roger’s sole decision to engage solicitors without consulting his fellow trustees is not the product of majority action under clause 10 of the deed and is therefore not an exercise of powers under the Trust and does not engage either the Trust deed or the statutory rights of indemnity.

42 I agree with Mr Epstein SC’s submission. Pointing to these rights of an indemnity begs the principal question at issue as to whether the Court should now order Roger’s costs to be paid out of Trust assets notwithstanding his failure to notify Peter and Jinks of his intention to take the judicial advice proceedings. In my view that question is not resolved merely by pointing trustees’ rights of indemnity.

Trustees in disagreement and Trustee Act, s 63

43 Trustee Act, s 63 advice to co-trustees in disagreement raises special issues.

44 In considering the orders that he says should be made now, Roger urges on the Court the appropriateness of his initiating the judicial advice proceedings in the manner that he did, without notice to Peter and Jinks. He submits he was entitled to obtain Trustee Act, s 63 advice as a minority trustee to protect himself against liability to the beneficiaries. A consideration in what steps the Court should take now is what access to Trustee Act, s 63 advice is available to a dissenting trustee in Roger’s position. In my opinion such a trustee may approach the Court for Trustee Act, s 63 advice notwithstanding that the trustee is in an adversarial position with the majority of trustees. As the High Court recently explained 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] HCA 42; (2008) 237 CLR 66 (“the Macedonian Church case”); [2008] HCA 42 at [102]-[107] some forms of advice about adversarial cases may be in the best interests of the trust estate. The Court’s sole purpose in giving advice is to determine what should be done in the best interests of the trust estate:

“[104] The Privy Council. The Court of Appeal also referred to Marley v Mutual Security Merchant Bank and Trust Co Ltd . The Court of Appeal attributed to the Privy Council in that case the proposition that "in exercising its jurisdiction to give directions on a trustee's application, the court is not engaged 'in determining the rights of adversarial parties'." What the Privy Council actually said, and this had been quoted by Palmer J, was:
[I]n exercising its jurisdiction to give directions on a trustee's application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties.


[105] While accepting that it was not beyond power to give judicial advice that determined substantive rights in contested proceedings, the Court of Appeal appeared to think that it was so powerful a discretionary factor that generally this should not be done, and that this was decisive in the present case. The Attorney-General that the Privy Council in Marley's case was not establishing a dichotomy, as the Court of Appeal appears to have thought, between ascertaining the best interests of the trust on the one hand and not determining adversarial rights on the other, the former function being permissible and the latter not. Rather the Privy Council was concerned to make the point that the court's sole purpose in giving judicial advice is to determine what ought to be done in the best interests of the trust estate, and that while it was not the court's purpose to determine the rights of adversaries, that could be done as a necessary incident of determining what course ought to be followed in the best interests of the trust estate.

[106] In the present context, that conclusion would appear to be supported by s 63(3)-(4) of the Act, which contemplate the use of evidence in some cases, by the notice procedures in s 63(4) and (8)-(10), and by the possibility of appeal contemplated by s 63(11) — all steps which could be material if there were a risk that the judicial advice given might affect the rights of adversaries. That is, while the time and cost involved in giving judicial advice at an early stage of litigation, when the issues involved in disputes about rights may not be fully sharpened and it may not be possible for the factual position to be as efficiently exposed as in a trial, may be factors relevant to a decision not to grant judicial advice but to let the matter be examined in conventional litigation, they are not factors which either automatically bar judicial advice or are so weighty as generally to compel the court not to grant the advice. If they were, the consequence would be that advice would either never, or only very exceptionally, be given on the issue whether trustees should defend proceedings instituted against them for breach of trust. Nothing in the language of s 63 suggests this outcome.

[107] Further, some forms of advice about adversarial cases may be in the best interests of the trust estate. An approach that treats an adversarial character as being always, or at least very often, fatal to the success of a judicial advice application, contradicts what the Privy Council saw as the sole function of the court. That consequence would be the more acute because a plaintiff desiring to prevent a trustee whom that plaintiff is suing from having access to the trust property to fund the defence could effectuate that desire by pleading that to use the trust property for that purpose would be a breach of trust.”

45 In my view, this statement of principle from the Macedonian Church case shows that a dissenting trustee in Roger’s position is not precluded from seeking Trustee Act, s 63 advice. The question in this case is whether the trustee should use the procedural apparatus of Trustee Act, s 63(4) and give notice to co-trustees.

Consideration

Constitution of the Judicial Advice proceedings

46 The discretionary course that should now be taken is partly influenced by whether or not Roger proceeded correctly in the judicial advice proceedings. Roger submitted that he had. Mr Lazarus pointed to Trustee Act, s 63(4) which provides:

“(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.”

Roger submitted that it was not necessary to serve notice of the application for judicial advice on Peter and Jinks.

47 I accept Peter and Jinks’ submission that “the rules of Court otherwise provide”. The plaintiffs rely upon Uniform Civil Procedure Rules, Rule 7.11(2) that states “in proceedings relating to a trust, all trustees must be parties”. Peter and Jinks submitted that Roger disregarded the requirements of this rule in the way he constituted the Trustee Act, proceedings. Peter and Jinks submit because of that failure there is no basis now to bind the plaintiffs to the orders of Hamilton AJ. They say this is not a case where retrospectively the Courts should attempt to treat the result of the proceedings before Hamilton AJ as if Trustee Act, s 63(11) had been engaged, thus binding Peter and Jinks now to Hamilton AJ’s advice.

48 Peter and Jinks’ submissions on this issue are generally persuasive.

49 First, UCPR, Rule 7.11(2) does apply to Trustee Act, s 63 applications. Such applications are “proceedings relating to a trust”, with the consequence that “all trustees must be parties” unless there are grounds to relieve from the strict application of the rule. In my view the existence of UCPR, rule 7.11(2) is a rule of Court which necessarily implies that all trustees should either apply together for judicial advice or if they disagree then the trustee applying should at least consider giving notice to the other trustees.

50 Second, whether or not the Trust deed contains a clause such as clause 10, all trustees should still be parties to a Trustee Act, s 63 applications if they can be persuaded to apply toegther. In a private trust, if there is no clause 10 equivalent, unless all trustees are parties the Court would ordinarily direct that all trustees be present so that they act in a body in accordance with general law. Even if a private trust does contain the equivalent of clause 10 all trustees should be joined as plaintiffs. Such co-operation could perhaps even have occurred in this case had it been attempted, to avoid the kind of practical problems which have occurred in this case. Dissenting minorities may decide they do not wish to be bound to a course decided on by a majority. If they do not agree to become co-plaintiffs notice may have to be given to them under Trustee Act, s 63(4). They should be so bound for certainty in the future operation of a trust. A fortiori a minority should usually give notice to a majority for the same reason.

51 Roger sought to defeat this conclusion by arguing that persons served with notice of the application pursuant to Trustee Act, s 64(4) are not parties to the proceedings; there is no defendant to such proceedings; and, the plaintiffs’ construction of UCPR, rule 7.11(2) would have the consequence that a single trustee (out of two or more) could never obtain judicial advice without the others, because to do so would infringe UCPR, rule 7.11(2). Roger submitted that would be contrary to the express words of Trustee Act, s 63(1).

52 I disagree with this last submission. Roger is correct insofar as he submits that Trustee Act, s 63(1) does authorise a single trustee to apply to the Court. For good reason one of a number of trustees must be able to make use of the section. For example, one trustee may suspect his fellow trustees of misappropriation of trust funds and wish to approach the Court independently of co-trustees under suspicion. A co-trustee may suffering a mental illness which is adversely affecting that trustee’s capacity to administer the trust but the trustee may deny such an illness. There are reasons why one of several trustees may wish to approach the Court without notifying co-trustees. But they are exceptional cases. Particular justification would be required to dispense with UCPR, rule 7.11(2). Roger submits that to the extent necessary the Court should exercise its power to dispense with UCPR, rule 7.11(2) pursuant to Civil Procedure Act, s 14: cf Fay v Moramba Services Pty Ltd [2008] NSWSC 424 at [2]. But I am not reconsidering now the procedure adopted before Hamilton AJ. That is a matter for appeal. Had the rule been complied with at the time had Roger given notice to Peter and Jinks it is to be expected that all the present issues would have been resolved before Hamilton AJ. A separate application would probably not have been necessary.

Present Relief

53 The question is what is to be done now. Under UCPR, rule 54(3)(d) the Court can make orders for the trustee “to do or abstain from doing any act” without an order for administration. Although I find in this case that Roger should have notified Peter and Jinks of his application to allow them the opportunity to participate. I will nevertheless make the orders Roger now seeks for these reasons.

54 First, even though Roger’s engagement of solicitors to defend the proceedings and initiate the judicial advice proceedings was not authorised by a majority, the Court can authorise this expenditure now. Provided this expenditure is confined within a budget of the order of $150,000 as suggested by Roger, this is the course most likely to ensure that the best interests of the Trust estate are served in resolving the contested issues. I am not prepared to require Roger to defend this litigation at his own expense.

55 Second, the proceedings before Brereton J were conducted on the basis that Roger’s costs of the litigation would be paid out of the estate. I do not think that should be disturbed now. To do otherwise would be to invite further applications for joinder of parties to these proceedings.

56 Third, it seems to me that Roger should have provided the statement of facts and other materials on the judicial advice application when requested and that should now be made a term of the order for payment of his costs out of the Trust assets as he now proposes.

57 Both sides have had a measure of success on this application, so I will hear submissions on costs at a date to be appointed.

Mediation

58 The principal issues upon the Summons have not yet been determined. Now that these interlocutory issues have been resolved the question arises whether or not a final opportunity to mediate the proceedings should be taken.

59 Disputes about implementing the first Federal Court mediation provide an argument against the parties being required to engage in another. This is counterbalanced though by the fact that both parties are now favourably disposed to the idea of another mediation. Civil Procedure Act 2005, s 26 gives the Court the discretionary power “if it considers the circumstances appropriate” to refer any proceedings to mediation “with or without the consent of the parties to the proceedings concerned”.

60 The circumstances are now appropriate to refer the proceedings to mediation. This is the first time that mediation of the current proceedings has been considered. There is a risk of further interlocutory disputes breaking out between the parties before the issues raised by the Summons come on for hearing. Given that the parties have already reached one consensus and that the remaining disputes relate to the precise share to be received by the grandchildren, the depletion of the Trust estate, sizeable though it is, by legal costs might impair the opportunity for a later settlement. The majority decision-making clause has already generated practical difficulties in the administration of the Trust which can be expected to continue.

61 The opportunity to reduce family disharmony among Peter, Jinks and Roger is desirable. They have all indicated a lack of opposition to such mediation orders. Further delay to their access to and their creative use of Trust assets is undesirable. These circumstances make such an order now appropriate. Accordingly, in addition to the other orders to be made I will make an order for the mediation of these proceedings.

Conclusions and Orders

62 I direct the parties to bring in short minutes of order to give effect to these reasons by 5pm on Monday 20 December 2010 otherwise the Court will make orders.

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