Re Application of Macedonian Orthodox Community Church St Petka Inc (No 2)

[2005] NSWSC 558

Reported Decision: 63 NSWLR 441

New South Wales

Supreme Court

CITATION:	Application of Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2005] NSWSC 558
HEARING DATE(S):	2 June 2005
JUDGMENT DATE :	10 June 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Advice given in respect of admitted trust property but not otherwise; recourse may be had to trust assets for purpose of obtaining counsel's preliminary advice as to prospects.

CATCHWORDS:	TRUSTS AND TRUSTEES - JUDICIAL ADVICE - JURISDICTION - DISCRETION - COSTS OF LITIGATION - Whether the Court has jurisdiction under s.63 Trustee Act or under the general law to give judicial advice on the application of a party which denies that it is a trustee but seeks judicial advice to protect itself against costs if it is ultimately proved wrong - the nature and purpose of Counsel's advice as to a trustee's prospects of success in litigation - advice may be given in stages - a cap may be placed on authorised expenditure from trust assets.
LEGISLATION CITED:	Supreme Court Rules 1970 (NSW) - Pt 31 Trust Property Act 1862 - s.30 Trustee Act 1925 (NSW) - s.63(1), s.63(4)
CASES CITED:	- Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431 - Auspac Corporate Managers Pty Ltd v J. Noble Pty Ltd [2003] NSWSC 548 - Biddencare Ltd, In re [1994] 2 BCLC 160 - Dallaway (dec'd), Re [1982] 1 WLR 756 - Gardner v London Chatham & Dover Railway Company (No 1) (1867) LR 2 Ch App 201 - Harrison v Mills [1976] 1 NSWLR 42 - Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 - Medland; Eland v Medland, In re (1889) 41 Ch D 476 - Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Inc [2003] NSWSC 104 - Metropolitan Petar v Mitreski [2003] NSWSC 262 - Moritz (dec'd), In re [1960] Ch 251 - G.B. Nathan & Co Pty Ltd (in liq), Re (1991) 24 NSWLR 674 - Permanent Trustee Australia Ltd, Re (1994) 33 NSWLR 547 - Perpetual Trustee Co Ltd, Re Application of [2003] NSWSC 1185 - Public Trustee and Estate of T, Re [1999] NSWSC 1027 - Westdock Realisations Ltd, Re [1988] BCLC 354 - Ford & Lee "Principles of the Law of Trusts" - p.17-1054
PARTIES:	Macedonian Orthodox Community Church St Petka Incorporated - Applicant
FILE NUMBER(S):	SC 2451/04
COUNSEL:	G.O. Blake SC, Ms C. Sclavos - Applicant B.A.J. Coles EC, T.G.R. Parker, R.E. Steele - Objectors (Plaintiffs in 3369/97) R. Lancaster - Attorney General
SOLICITORS:	McConnell Jaffray - Applicant Sachs Gerace Lawyers - Objectors (Plaintiffs in Proceedings 3369 of 1997) I.V. Knight - Attorney General

LOWER COURT JURISDICTION:

Introduction

1 This is the second stage of the hearing of a summons for judicial advice under s.63 Trustee Act 1925 (NSW) filed by the Plaintiff (“the Association”) on 16 April 2004. This judgment must be read together with my judgment at the conclusion of the first stage of the hearing on 7 May 2004: [2004] NSWSC 388. I will assume that the reader is familiar with that judgment and with the background of the application by the Association for judicial advice. 2 In this stage of the application Mr Blake SC and Ms C. Sclavos appear for the Association, Mr Coles QC appears with Messrs Parker and Steele for the Objectors (who are the plaintiffs in the Main Proceedings), and Mr Lancaster appears for the Attorney General. 3 As in the first stage of the hearing, the Objectors and the Attorney General have been given notice of this application but not in accordance with the procedures for notice specified in s.63(8) and (9) Trustee Act , i.e. after the advice of the Court has been obtained. The reason is that the Objectors wished to make submissions as to whether the Court could, or should, give the advice sought at all. 4    The Association has not yet obtained the advice of Senior Counsel as to its prospects of success in the Main Proceedings. Since May last year, the parties in the Main Proceedings have been engaged in numerous applications before the Judge who is case managing the litigation, Hamilton J. The latest position is that on 25 May 2005 Hamilton J gave leave to the Objectors to file Version 7 of their Statement of Claim and the Objectors were to give some further particulars. 5    In a judgment delivered on 4 April 2003 in the Main Proceedings, Hamilton J decided as a separate question under Supreme Court Rules 1970 (NSW) Pt 31 that the Association held specified real property (called the “Schedule ‘A’ Assets”) upon trust, in general terms, for the promotion of the Macedonian Orthodox religion. The precise terms of the trust are in issue in the Main Proceedings. The Association has not appealed from the decision of Hamilton J that it holds the Schedule ‘A’ Assets as trustee. 6 The Association owns certain other property (“the Other Property”) which the Objectors allege is held upon trust upon certain terms: Statement of Claim, Version 7, para.19B. The Association denies that it holds the Other Property upon any trust. 7 In this stage of the application the Association seeks the following advice or direction of the Court:

“(1) That, for the purposes of paying:

(a) its further reasonable legal costs and disbursements to be incurred in procuring an opinion of counsel as to its prospects of success in the Main Proceedings (no 3369 of 1997) up to $166,875; and

(b) its reasonable legal costs and disbursements incurred to date in these proceedings;

the Association is justified in having recourse to:

(i) such funds as may be realised by disposing of or encumbering the [Schedule ‘A’ assets] and/or any other trust property it holds (other than the Holy Objects as defined in the Statement of Claim (version 7); and/or

(ii) such funds as comprise other trust property.

(2) That the foregoing directions are subject to, and may be revoked by, an order of the trial judge in the Main Proceedings or any direction or order made on further consideration of the Association’s summons for judicial advice.

(3) That the Association’s summons for advice stand over for further consideration on a date to be fixed, as soon as practicable after 3 August 2005.

(4) That there be liberty to apply to vary the amount referred to in paragraph 1(a) above.”
8    The funds referred to in order (1)(b)(ii) are the Other Property. In case it is ultimately held to be a trustee of the Other Property, the Association seeks the advice of the Court that it is justified in having recourse to that Property for the purpose of procuring an opinion as to prospects of success in the Main Proceedings. 9    The costs and disbursements referred to in order (1)(b) are the Association’s costs of this Summons for judicial advice only. Mr Blake has made it clear that order (1)(b) is not intended to include any costs of the Association incurred in the Main Proceedings except to the extent that costs and disbursements incurred in procuring counsel’s opinion as to the prospects of success, referred to in order (1)(a), may also be regarded as costs and disbursements incurred in the Main Proceedings. 10    I will deal with each of the submissions of the Objectors as to why the advice sought by the Association cannot, or should not, be given.


Jurisdiction and the meaning of “trustee” in s.63

11 Mr Coles QC submits that the Court has no jurisdiction under s.63(1) Trustee Act to give judicial advice to a person, such as the Association, who seeks such advice while denying that he or she is a trustee at all. Mr Coles says that the Association has always denied that it is a trustee of any property. 12 As I have noted, Hamilton J decided on 4 April 2003 that the Association is a trustee of the Schedule ‘A’ Assets. While Mr Blake says that the Association reserves the right to appeal from that decision, there has been no appeal so far. I must, therefore, act on the basis that as matters presently stand the Association is a trustee of the Schedule ‘A’ Assets and, as such, it has standing to seek advice under s.63 in relation to the management or administration of those assets. 13 The position is different in relation to the Other Property. The Association seeks advice under s.63 Trustee Act concerning that property but it denies that it holds that property on any trust. That issue is yet to be determined in the Main Proceedings. 14 Section 63 Trustee Act provides:

“ 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 counsel or solicitor, 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.”
15 Mr Blake SC says that s.63 is a beneficial provision and should be given a liberal construction. He points to the definition of “trustee” in s.5 of the Act, namely, “trustee … includes legal representative and the public trustee and a trustee company” . He says that by defining “trustee” in inclusive terms the legislature has left open for judicial interpretation in the circumstances of each case the scope of the word “trustee” for the purposes of the Act. 16 Mr Blake submits that there will be a substantial gap in the beneficial application of s.63 if “a trustee” as used therein is limited to a person who either admits to being a trustee or else is found to be so by a court. He says that “trustee” must include “alleged trustee”: a person who denies in good faith that he or she is a trustee should be able to guard against the costs consequences of being found to be wrong by seeking the advice of the Court that he or she is justified in defending the proceedings. 17 Alternatively, Mr Blake says, if s.63 applies only to a trustee so admitted or found, there is no such restriction on the general jurisdiction of the Equity Court to give judicial advice. 18 The researches of Counsel and my own researches have found no case in which the Court, in exercise of either its statutory jurisdiction or its general jurisdiction to give judicial advice, has given advice concerning a trust to a person who positively asserts that he or she is not a trustee. More to the point, no case can be found in which the Court has given advice to such a person as to whether he or she is justified in having recourse to the alleged trust assets for the purpose of funding a case in which he or she seeks to establish that there is no trust at all. 19 An examination of the antecedents of s.63 Trustee Act shows that the advisory jurisdiction of the Equity Court now encapsulated in this section was never intended to be exercised where there was any doubt as to whether the person applying for advice was a trustee administering a trust estate. 20    Formerly, under the old Chancery practice, if a trustee wished to obtain the direction or opinion of the court on a matter of administration or management or as to a question of construction of the trust instrument, the trustee had to commence an administration suit. The trustee would raise on the pleadings in the suit the particular point upon which the court’s advice was sought. Having obtained the court’s direction or advice on that point, the trustee would then obtain a stay of all further proceedings in the administration suit. To commence a general administration suit was, however, often a cumbersome and expensive exercise as all persons interested in the estate had to be brought before the court, accounts had to be taken and enquiries had to be ordered, none of which was necessary if all that was in question was a point of construction of the trust instrument or what should be done in the management or administration of the trust assets in a particular situation. 21    By Order LV , Rule 3 of the English Rules of the Supreme Court 1883, it was provided that the trustees under any deed or instrument “may take out, as of course, an originating summons returnable in the Chambers of a Judge of the Chancery Division for … the determination, without an administration of the estate or trust, of … any question arising in the administration of the estate or trust” . That Rule seems to reflect s.30 of the Trust Property Act 1862 . It is clear that this streamlined advisory jurisdiction, invoked by originating summons, was in substitution for an administration suit and that, of course, an administration suit could never have been contemplated unless it was first established that there was in existence a trust estate to be administered: see generally In re Medland; Eland v Medland (1889) 41 Ch D 476; Re Permanent Trustee Australia Ltd (1994) 33 NSWLR 547. 22 The course of the development of the advisory jurisdiction from its primitive origins has been outlined by Young CJ in Eq in Re Application of Perpetual Trustee Company Ltd [2003] NSWSC 1185. As his Honour points out, the procedure now has great flexibility and utility. Yet, it has its limits. 23 The advisory jurisdiction is an exception to the Court’s ordinary function of deciding disputes between competing litigants. An application for judicial advice, whether under s.63 or under the general jurisdiction of equity, is in nature essentially a request for private advice: see e.g. Harrison v Mills [1976] 1 NSWLR 42, at 45 per Needham J; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, at 440 per Sheller JA. This exceptional jurisdiction, which is derived from the practice of the Court of Chancery under the general law in giving directions to those entrusted with the administration of property under the control of the Court, may now be regarded as affording special assistance to those, such as trustees, liquidators, bankruptcy trustees and receivers, who have no direct pecuniary interest in a fund but have assumed the onerous obligation of administering it for the benefit of others: see e.g. Re G.B. Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, at 677; Gardner v London Chatham & Dover Railway Company (No 1) (1867) LR 2 Ch App 201, at 211. 24 To avail oneself of that special assistance from the Court, one has to show that one is entitled to it. In my opinion, the Court has no power to give judicial advice under s.63 Trustee Act to a person who does not establish to the Court’s satisfaction that he or she is, in fact, a trustee and that the advice sought relates to the management or administration of trust property or the interpretation of a trust instrument. 25 As the definition of “trust” in s.5 indicates, the trust in respect of which advice is sought may be an express trust created by instrument or the trustee may show that the trust is implied or constructive. If the trust is constructive, generally the trustee will show that the trust has been imposed as a result of proceedings in Court and that there is now doubt as to how the constructive trust should be administered. However, although that situation is theoretically possible, it is likely to be very rare indeed in reality as the Court, in imposing a constructive trust, usually provides in consequential orders how the trust is to be performed. If there is any remaining doubt, the Court may be approached to work out the orders further. 26 The words of s.63 and of the definitions of “trustee” and “trust” in s.5 do not naturally encompass “alleged trustee” and “alleged trust” and the historical origins of the advisory jurisdiction generally show that alleged trustees were never contemplated as being entitled to invoke that jurisdiction. I cannot see in the language of the Trustee Act or in the decisions of the Court relating to the advisory jurisdiction in general any justification for extending the meaning of the word “trustee” in s.63, or in the general law, so as to include “alleged trustee”. 27 What, then, is a person in the position of the Association to do when a case is brought against it claiming that it is a trustee? If the case cannot be defended except by recourse to the alleged trust assets, how can the defendant avoid the consequences of an honest, but mistaken, denial of trusteeship and an honest, but mistaken, recourse to trust assets? 28 I would begin by observing that, probably, in the vast majority of litigation the party who loses will honestly, but mistakenly, have believed that he or she ought to have won. An honest but mistaken belief that one ought to have won does not, in itself, usually avoid the consequences of losing nor does it alter the costs order which follows. Why should the situation be any different because the issue in a proceeding is whether or not the defendant is a trustee? Why should a defendant who wrongly denies that he is a trustee be better able to protect himself from the cost consequences than a defendant who wrongly denies that he has driven his car negligently? 29 What is to happen if a defendant alleged to be a trustee cannot defend himself without recourse to the alleged trust assets? The defendant says that the assets belong to him beneficially and that he can do what he likes with them. Surely, the best procedure to determine whether or not the defendant should be allowed to have recourse to the alleged trust assets is an application by the plaintiff for an interlocutory injunction restraining the defendant from having recourse to the assets pending a final determination of the proceedings. 30 In an interlocutory application the Court will have to consider, first, whether there is a serious question to be tried as to whether the defendant is a trustee. It will receive evidence and hear argument from both sides. It may even permit cross examination. It may be able to form a view about the strength of the defendant’s denial of trusteeship and that view may have a bearing on the exercise of discretion. 31 On the other hand, in an application for judicial advice the Court usually acts only upon the Statement of Facts provided by the applicant. It is rare for other parties to be heard at all before advice is actually given and it would be highly exceptional for the Court to permit any other party to adduce evidence or to cross examine. That is because, as I have noted, the nature of the procedure is essentially a request for the Court’s private advice. 32 Second, in an application for an interlocutory injunction the Court will have to consider where the balance of convenience lies in restraining or permitting the defendant’s recourse to the alleged trust assets. The Court will take into account the question of hardship and whether, for example, the defendant will be able to have a fair trial if he cannot fund his defence by recourse to the assets. 33 Again, evidence from both sides may be led on this issue. The defendant’s assertion of hardship may be tested by cross examination, if the Court permits. There will be a much fuller investigation of the justice of the defendant’s claim to have recourse to the alleged trust assets than would be the case in an application by the defendant for judicial advice. 34 In short, where an alleged trustee seeks to have recourse to alleged trust assets for the purpose of conducting his defence, by far the better procedure for determining that question is an application by the plaintiff for an interlocutory injunction. 35 That is the course which the Objectors have taken in the present case in relation to attempts by the Association to have recourse to alleged trust assets to pay legal costs already incurred in the Main Proceedings. If the Association indicates that it intends to have recourse to the Other Property to pay legal costs, whether already incurred or to be incurred, then the interlocutory battle already joined will have to be escalated. 36 It is well settled that the Court has a wide jurisdiction as to whether or not, in the particular circumstances of a case, it will give advice at all: see e.g. Re Application of Perpetual Trustee Co Ltd (supra); Auspac Corporate Managers Pty Ltd v J. Noble Pty Ltd [2003] NSWSC 548 (Gzell J); Harrison v Mills (supra). I think that the Court will be better able to do justice between the parties on the question whether the Association may have recourse to the Other Property in contested injunction proceedings rather than in an application for judicial advice. For this reason, if the Court had had jurisdiction to give judicial advice under s.63 or under the general law to an applicant who denies being a trustee, I would refuse, in the exercise of discretion, to give such advice to the Association in relation to the Other Property.

Delay

37    The Objectors say that although on 7 May last year I ordered that the Association was justified in having recourse to the Schedule ‘A’ Assets for the purpose of obtaining an opinion as to prospects no such advice has yet been obtained. The Objectors say that this is a culpable delay on the part of the Association and that the Association should not now be allowed another attempt at obtaining some sort of judicial advice. 38    I am unable to accept this submission. As Mr Blake points out, since 7 May 2004 the parties have been engaged in many interlocutory applications. There was an appeal by the Objectors from my decision of 7 May. That appeal was dismissed on 8 December 2004. 39    There have been twelve substantial interlocutory applications in the Main Proceedings which have been heard by Hamilton J since 7 May 2004. It has not been until 25 May 2005 that the Objectors’ case has been settled once and for all – hopefully – in the seventh version of the Statement of Claim. 40    I took the view on 7 May – and I remain of that view – that there is not much point in the Association obtaining Counsel’s opinion on its prospects of success in the Main Proceedings until the Objectors’ case in those proceedings emerges in a final Statement of Claim. Mr Parker, for the Objectors, agreed with that view in the course of a directions hearing on 11 February 2005: T5.31ff. 41    Mr Parker now says that a great deal of the debate about the Statement of Claim has been unnecessary and is the result of cavilling on the part of the Association. I cannot entertain that submission in these proceedings. The Main Proceedings are under the case management of Hamilton J: if the Objectors’ original Statement of Claim had been beyond reproach, they would not only recently have obtained the Court’s leave to file a seventh version. 42    This second application for advice also arises from changed circumstances. In the course of dismissing the Objectors’ appeal on 8 December 2004, the Court of Appeal suggested that a cap be placed on the amount which the Association could expend out of trust assets in accordance with the advice which I had given on 7 May 2004. In a subsequent directions hearing I placed a cap on such expenditure, which the Association now wishes to increase very substantially. 43    Finally, there is a question upon which the Association seeks advice which was not raised in the previous application: whether the Association should have the advice of the Court that it is justified in having recourse to the Other Property for the purposes of obtaining Counsel’s opinion as to prospects. 44    For all of these reasons, I see no proper ground to refuse the Association’s application for further advice on the ground of culpable delay.


Misconduct

45    The Objectors say that judicial advice should be refused as a matter of discretion because the Association’s solicitors misrepresented the effect of the advice which I gave on 7 May 2004 in a letter to the National Australia Bank sent on 23 March 2005. 46    I do not need to go into the detail of the alleged misrepresentation. The purpose of the letter was to place before the Bank a number of grounds supporting the capacity of the Association to enter into loan transactions. I am not persuaded that, in that context, the representations were misleading or were intended to be so. 47    In any event if, as I think is the case, there is utility in the Association obtaining the advice which it seeks from the Court, that advice should not be refused and the utility frustrated because of some conduct between the Association and a third party. Even a trustee guilty of wrongdoing in relation to a third party may come to the Court for advice about the administration of the trust: the Court gives the advice, not to condone the trustee’s wrongdoing, but for the benefit of the objects of the trust.


Unauthorised resort to trust property

48    The Objectors say that the Association has, without authority from the Court, had recourse to trust assets to pay legal expenses already incurred, so that as a matter of discretion it should be refused further advice now. 49    The Objectors’ allegation has been raised in a recent amendment to the Statement of Claim and will be one of the issues to be resolved by Hamilton J in the further hearing of an application by the Objectors for an injunction restraining the Association from paying its past legal costs and disbursements. It is inappropriate that I resolve that issue in this application. Accordingly, I do not take it into account in the exercise of discretion as to whether judicial advice should be given. 50    The Objectors allege further that a payment of $50,843.49 to the Association’s solicitors on 1 April 2005 appears to have been made in contempt of the interlocutory injunction granted by Hamilton J on 31 March 2005. Again, that is an issue to be determined by Hamilton J in the injunction proceedings, not in these proceedings and I do not take it into account in exercising the discretion as to whether judicial advice should be given..


Futility

51    The Objectors say that it would be futile for the Court to give the advice now sought because it is clear that the Association will never be able to litigate the Main Proceedings to finality due to endemic lack of funds. They point to the fact that the Schedule ‘A’ Assets to which recourse might possibly be had by the Association are worth some $1.5M whereas the Association has already incurred legal costs and disbursements of about $666,000 and estimates that it requires in excess of $400,000 for the costs of completing the proceedings. The latter sum does not include the amount of $167,000 which the Association estimates as the cost of obtaining Counsel’s advice as to prospects of success. 52    The Objectors say that it would never be reasonable for a trustee to expend virtually the whole of the trust fund in defending itself in contentious litigation. In any event, the Objectors say, the available trust assets in the present case will not meet the estimated costs of the proceedings. 53    In my view, it is far from clear what the parties’ costs and disbursements of the Main Proceedings are likely to be. The case is still in a relatively early stage of preparation. It may be that both sides of the litigation will come to exercise more restraint in litigious expenditure than has been evidenced so far. It may be that the Association will be able to find lawyers willing to assist it on a pro bono basis or, at least, at a reduced rate of remuneration. 54    I accept that the Association is unable to carry the Main Proceedings much further except by recourse to the Schedule ‘A’ Assets. However, it is no more than speculation to say at this stage that the Association will never be able to afford to litigate the Proceedings to finality.


Improper use of trust funds

55    The Objectors submit that it must be shown that recourse to the Schedule ‘A’ Assets for the purpose of defending the Main Proceedings is justified in the interests of the trust estate. They say that it cannot be in the interests of the trust estate for the Association to resist removal on the ground that it has committed breaches of trust. 56    I think that this submission is somewhat of an over-simplification. In the Main Proceedings the substantial contest is: what, precisely, are the terms of the trust upon which the Association holds the Schedule ‘A’ Assets and, possibly, the Other Property. If the terms of the trust are as the Objectors contend, a necessary pre-condition will exist for the Court to find that the Association has misappropriated the trust funds and that it ought to be removed as trustee. On the other hand, if the Court finds that the terms of the trust are as the Association contends, it will probably follow that applying the trust funds in the way in which the Objectors seek would be a misappropriation and that the Association, in defending the Main Proceedings, has been acting properly to preserve the trust fund from such misappropriation. 57    In these circumstances, I cannot say that the Association’s defence of the Main Proceedings could not possibly be in the interest of the trust of which it is presently trustee.


Pre-emptive costs order

58    The Objectors lay heavy emphasis on the very high hurdle which must be surmounted before a Court will make a pre-emptive costs order in favour of a trustee in any proceedings: see e.g. Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431, at 437; In re Biddencare Ltd [1994] 2 BCLC 160, at 170; Re Westdock Realisations Ltd [1988] BCLC 354, at 359-360. 59 The order which I made on 7 May 2004 was not a pre-emptive costs order in the sense referred to in the above authorities: it was an interlocutory order which expressly did not pre-empt the trial judge in the Main Proceedings from exercising to the full his or her discretion as to how the costs of those proceedings should be borne. Further, the terms of the order expressly envisaged that it might be revoked, either by myself or by any other Judge, on further consideration of the Association’s summons for judicial advice: see judgment 7 May 2004, paras.26, 27(3). 60 Accordingly, if the opinion of Counsel as to prospects which is to be obtained by the Association turns out not to warrant an advice from the Court that the Association is justified in continuing to defend the Main Proceedings, it will be open to the Objectors to submit that the Court should revoke all orders in these proceedings authorising the Association to have recourse to the Schedule ‘A’ Assets. If those orders are revoked and if the Objectors succeed on the substantial issues in the Main Proceedings, the trial judge will not be concerned at all with the costs effects of any judicial advice given in the present application. 61 On the other hand, the opinion as to prospects obtained by the Association may be strong enough to warrant further advice from the Court in this application that the Association will be justified in continuing to have recourse to the Schedule ‘A’ Assets for the purpose of funding the Main Proceedings. Such advice would be subject to the same conditions and would be of the same interlocutory character as the advice given on 7 May 2004. It would be open to the trial judge in the Main Proceedings to conclude that, despite the Association’s advice as to prospects and notwithstanding the judicial advice which the Association had obtained in this application on the basis of that advice, the facts which emerged at the trial showed that the Association’s defence was without substance and was unreasonable. For that reason, or for any other sufficient reason, the trial judge could revoke the orders made in this application and could make such consequential orders as he or she saw fit. 62 In my opinion, the principles upon which I should proceed in this stage of the Association’s application are as I have explained in my judgment of 7 May 2004 and are governed by cases such as Re Dallaway (dec’d) [1982] 1 WLR 756, and Metropolitan Local Aboriginal Land Council v Metropolitan Aboriginal Association Inc [2003] NSWSC 104.


The amount of the cap

63    The Association seeks authority to expend out of the Schedule ‘A’ Assets up to $166,875 in obtaining Counsel’s opinion as to its prospects of success in the Main Proceedings. It has prepared schedules showing the basis upon which it estimates that this is the amount which will be required. 64    Both the Objectors and the Attorney General say that the cap sought by the Association is far too high. I agree, for the following reasons. 65    I accept that the issues in the Main Proceedings are unusually complex and difficult. I accept that the issues will arise out of the history of the Association and its activities over many years. I accept also that the costs schedule prepared by the Association is an estimate and that at this stage of the proceedings it would be impossible to say with certainty how extensive will be the work necessary to enable Counsel’s opinion to be obtained. Yet, notwithstanding those considerations, it is possible to make a number of observations about the Association’s estimate of costs of obtaining the opinion. 66    The Association estimates that Mr Blake SC will need to spend ten days interviewing witnesses and preparing proofs of their evidence. For this work, $40,000 is allocated. It estimates that its solicitors will need to spend thirty-five hours collecting and reading relevant documents and that Mr Blake will need to spend a total of forty hours reading all of this material. All of this is in addition to an estimated further forty hours for Mr Blake to prepare a joint opinion on prospects together with Mr Rayment QC and a further forty hours for Mr Rayment to be involved in the preparation of that joint opinion. 67    Interviewing witnesses in order to prepare proofs of evidence is not usually regarded as the work of senior counsel. Nor is it usual that counsel providing an opinion as to prospects to trustees for the purpose of a judicial advice application is furnished with witness statements of all of the evidence to be led by the trustee at the trial. Such an opinion as to prospects is generally obtained at a fairly early stage of the proceedings because the trustee will rightly feel concerned about incurring any substantial expense in litigation without the Court’s advice. The trustee’s solicitors will have carried out an investigation of the facts, admittedly not exhaustive, and on the basis of that investigation will instruct counsel on the nature, extent and content of the evidence which the trustee expects to be able to adduce at the trial. 68    It is not usual for counsel preparing an opinion as to prospects, particularly senior counsel, to read every document which the instructing solicitors have collected and which may or may not be relevant. Again, the trustee’s solicitors usually provide counsel with the most important documents. 69    What is now sought to be done by the Association in the name of preparation for an advice on prospects seems to be an exhaustive investigation and preparation of all of its evidence for the trial itself. This is neither necessary nor appropriate in order to procure the sort of advice from counsel which the Court expects in a judicial advice application. As is said in Ford & Lee Principles of the Law of Trusts (p.17-1054, citations omitted)
“ (In applications for judicial advice as to whether a trustee is justified in undertaking litigation) the court must be fully informed of the nature of the litigation proposed and satisfied that it is clearly for the benefit of the beneficiaries. The court is not bound at this stage to investigate the evidence in order to make a finding that on the material before it the proposed proceedings will or will not be successful. It merely has to determine whether proceedings are justifiable, and that appears to mean that it should satisfy itself that the bringing or defence of the proceedings will not be fruitless.”
70    So, for example, it is not unusual for the Court to give judicial advice as to a trustee’s justification in conducting litigation, limited to a certain stage, for example, up to discovery: In re Moritz (dec’d) [1960] Ch 251, at 255. This is because opinions as to the trustee’s prospects of success may change as preparation of the trial proceeds: what may have seemed a reasonably good prospect of the trustee’s success on the basis of the limited information available at the commencement of the proceedings may have changed for the worse as the evidence on both sides is gathered. 71 A trustee is bound to act reasonably and prudently in every aspect of the administration of the trust – the conduct of litigation is no exception. Accordingly, the amount which the Association is authorised to expend from trust assets in procuring an opinion on prospects from counsel should be no greater than is reasonably necessary having regard to the nature and the purpose of such an opinion. A sum of $166,000 is an extraordinarily large amount to expend in procuring any opinion from counsel, let alone an opinion as to prospects for the purpose of a judicial advice application. Some sense of proportion must be exercised: after all, the subject matter of the dispute in the Main Proceedings does not exceed $3M. 72 I have reservations whether it is appropriate that two senior counsel be engaged in the preparation of the opinion. I have the impression at the moment that Mr Blake SC is undertaking a great deal of what might be called “the spade work” in the preparation of the Association’s case. While an ordinary litigant is perfectly free to spend as much money as he or she wishes on the conduct of litigation, even though little of it may be recoverable on an assessment of costs at the end of the day, a trustee litigant does not have that luxury when expending trust resources in litigation: as I have said, the trustee’s expenditure must be prudent and reasonable. 73 I query whether it is reasonable for the Association to engage senior counsel to do the work of a solicitor or junior counsel and to engage two senior counsel to prepare a preliminary opinion on prospects. 74 I do not think that it is necessary or appropriate that Counsel’s opinion as to the Association’s prospects of success in the Main Proceedings be obtained on a ‘once and for all’ basis now. It is a legitimate inference that after seven years of litigation between the parties, the Association’s solicitors must have a fairly good understanding of the issues and of the nature of the evidence which would be available to the Association – at least, a sufficiently good understanding to enable them to instruct counsel for the purposes of obtaining a preliminary opinion as to prospects. If the Association’s solicitors do not already have a sufficient understanding of the nature of the evidence which is available, then the Association has no justification even for having taken the proceedings thus far. 75 In my opinion, it is appropriate that the Association obtain a preliminary opinion from Counsel as to the prospects of the Main Proceedings on the basis of what is already known about the issues as raised by the Objectors’ Statement of Claim (version 7) and about the nature of the evidence which is available to the Association in rebuttal. 76 For all one knows, Counsel furnishing the preliminary opinion may come to the conclusion that there is some fatal legal flaw in the Association’s case which means that it is bound to lose, whatever the facts may be. Unthinkable as that prospect may be to the Association after seven years of what is obviously very hostile and emotionally driven litigation, it must be realised that the purpose of an advice on prospects given to a trustee in support of a judicial advice application is not to advance arguments why the trustee should win. The purpose of such an advice is to ensure that a trustee receives careful, dispassionate legal advice as to the realistic prospects of success in the litigation so that the trustee, and the Court, may give careful, dispassionate and prudent consideration to the question whether the trustee’s maintenance of the litigation is justified in the interests of the trust estate as a whole. 77 It would be imprudent, in my view, to authorise the Association to expend a very large sum out of trust assets in obtaining a “once and for all” opinion from Counsel as to prospects when a preliminary opinion may expose some reason for concluding that the Association’s prospects are not good. 78 To obtain a preliminary opinion from Counsel, I think that a cap of $60,000 in recourse to Schedule ‘A’ Assets should be imposed. That figure is, of course, no more than an impression as to what will be a reasonable sum. It is, nevertheless, a large sum to expend on obtaining Counsel’s opinion but I bear in mind the complexity of the dispute both in terms of factual issues and legal issues. 79 If it should prove that $60,000 is inadequate for the proper preparation of Counsel’s preliminary opinion, the Association will be at liberty to approach the Court to increase the cap. In such an application, the Association will be required to account for how $60,000 has already been expended and will have to show clearly why it is necessary and reasonable for any further recourse to trust assets to be allowed. 80 If the Association believes that the preliminary opinion of Counsel warrants it in continuing to defend the Main Proceedings, it may apply again for advice justifying further recourse to trust assets for that purpose. In other words, the Association will have to take its ability to have recourse to trust assets one step at a time.

Costs

81    In paragraph 1(b) of its proposed orders, the Association seeks an order that it is justified in having recourse to the Schedule ‘A’ Assets for the purpose of paying its costs to date incurred in this application for judicial advice. 82    I do not think that it is appropriate to make any costs orders or to give any judicial advice as to the costs of this Summons until all applications for judicial advice are finally determined, at the very earliest. Even then, it may be that the appropriate course is not to deal with the costs of this Summons until the Main Proceedings are finally determined. 83    Accordingly, I make no order as to costs of this Summons to date.


Orders

84    That, for the purposes of paying its further reasonable legal costs and disbursements to be incurred in procuring a preliminary opinion of counsel as to its prospects of success in the Main Proceedings (no 3369 of 1997) up to $60,000, the Association is justified in having recourse to such funds as may be realised by disposing of or encumbering the real estate set out in Schedule A in the judgment in Metropolitan Petar v Mitreski [2003] NSWSC 262 (other than the Church Land as defined in the Statement of Claim (version 7)). 85 That the foregoing directions are subject to, and may be revoked by, any order of the trial judge in the Main Proceedings or any direction or order made on further consideration of the Association’s summons for judicial advice. 86 That the Association’s summons for advice stand over for further consideration on a date to be fixed, as soon as practicable after 3 August 2005. 87 That there be liberty to apply to vary the amount referred to in paragraph 84 above.
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