Re Mary Donald Nominees Pty Ltd as trustee for The D.J. MacCormick Family Trust - [2024] WASC 284

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   RE MARY DONALD NOMINEES PTY LTD as trustee for THE D.J. MACCORMICK FAMILY TRUST; EX PARTE MARY DONALD NOMINEES PTY LTD as trustee for THE D.J. MACCORMICK FAMILY TRUST [2024] WASC 284
CORAM:   SOLOMON J
HEARD:   31 JULY 2024
DELIVERED          :   31 JULY 2024
FILE NO/S:   TRU 14 of 2023
MATTER:   IN THE MATTER OF MARY DONALD NOMINEES PTY LTD as trustee for THE D.J. MACCORMICK FAMILY TRUST

EX PARTE
MARY DONALD NOMINEES PTY LTD as trustee for THE D.J. MACCORMICK FAMILY TRUST
Applicant

Catchwords:

Trusts - Trustees - Judicial advice - s 92 Trustees Act 1962 (WA) - Recourse to trust funds - Costs of defending action against trustee - Declaration of justification in defending action - Indemnity

Legislation:

Rules of the Supreme Court 1971 (WA)
Trustees Act 1962 (WA) s 77, s 92
Trustee Act 1925 (NSW) s 63

Result:

Application granted in part

Category: B

Representation:

Counsel:

Applicant	:	Mr P Mendelow
Marie MacCormick	:	Mr M Blandford

Solicitors:

Applicant	:	Jackson McDonald
Marie MacCormick	:	Hammond Legal

Cases referred to in decision:

Application of Uncle's Joint Pty Ltd [2014] NSWSC 321
Australian Pipeline Limited [2006] NSWSC 1316
Cardaci v Cardaci [2022] WASC 166
Ian Torrington Blatchford as administrator of the estate of the late Voitto Tapio Laine v Tapio Harry Laine & Ors [2018] WASC 207
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; (2008) 249 ALR 250; (2008) 82 ALJR 1425; (2008) 1 ASTLR 1; [2008] HCA 42
National Trustees Executors and Agency Company of Australasia Ltd v Barnes (1941) VLR 133
Northey v Juul [2014] NSWSC 464
Pascoe (in his capacity as administrator of the Estate of the Late Kut Sze Tu and as constructive trustee) [2024] NSWSC 738
Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247
Re Perpetual Trustee Company as trustee for the Joseph Babington Davis Settlement [2020] NSWSC 1574
The Application of Eurolinx Pty Limited in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306

SOLOMON J:

(This judgment was delivered extemporaneously on 31 July 2024 and has been edited from the transcript.)

The plaintiff in this matter is the trustee (the Trustee) of the DJ MacCormick Family Trust (the Trust). In this application, the Trustee seeks a direction under s 2 of the Trustees Act 1962 (WA) (Trustees Act) that, in its capacity as trustee, it is justified in defending a claim commenced by Marie Margaret MacCormick (Ms MacCormick) in this court in proceedings CIV 2360 of 2022 (the substantive proceedings).
In support of its application, the Trustee filed a number of affidavits that I shall set out shortly. Some of these were the subject of confidentiality orders because, as is the usual course, they contained privileged legal advice in respect of the Trustee's prospects in the substantive proceedings. Another affidavit was the subject of different confidentiality orders. It contained without-prejudice communications between the Trustee and Ms MacCormick in respect of this application.
The affidavits filed on behalf of the Trustee were:
(a)an affidavit of Mr Malcolm John MacCormick sworn 16 November 2023;
(b)an affidavit of Malcolm John MacCormick sworn 24 November 2023, which is the subject of confidentiality orders and contains privileged advice;
(c)an affidavit of Malcolm John MacCormick sworn 22 January 2024, which was also the subject of confidentiality orders;
(d)a further affidavit of Malcolm John MacCormick sworn 22 January 2024 which was also subject to confidentiality orders but a different form of confidentiality orders;
(e)an affidavit of Malcolm John MacCormick sworn 23 April 2024;
(f)an affidavit of Malcolm John MacCormick sworn 9 July 2024; and
(g)an affidavit of Jordan Lawrence Hurley sworn 30 July 2024, which contained privileged legal advice and was also the subject of confidentiality orders.
In addition to seeking advice that it is justified in defending the substantive proceedings, the Trustee also seeks an order in various alternative forms that it be entitled to have recourse to the trust funds for the costs of defending the substantive proceedings. Although not strictly a party to this application, Ms MacCormick is the respondent to and opposes the application.
The background circumstances are as follows. Donald James MacCormick (Mr MacCormick Sr), and Mary Bridget MacCormick (Mrs Mary MacCormick) were born in the United Kingdom in the 1940s, and they migrated to Australia in 1969. They had three children: Malcolm John MacCormick (Mr MacCormick); Donald MacCormick (Donald); and Ms MacCormick.
In 1976, Mr MacCormick Sr and Mrs Mary MacCormick established the Trust. The specified beneficiaries included the children of Mr MacCormick Sr and Mrs Mary MacCormick. Mr MacCormick Sr was the guardian and appointor, with Mrs Mary MacCormick to occupy those roles upon his death. At that same time, the plaintiff company, Mary Donald Nominees Pty Ltd, was incorporated and was appointed the Trustee of the Trust. Mrs Mary MacCormick and Mr MacCormick Sr were initially appointed directors of the Trustee. Donald and Mr MacCormick were added as directors in January 2000. In August 2001, Mr MacCormick Sr passed away, and Mrs Mary MacCormick became the guardian and appointor of the Trust.
Mrs Mary MacCormick, Donald and Mr MacCormick remained the directors of the Trustee. In 2003, following the death of Mr Don MacCormick Sr, the Trustee began operating a business known as Ground Support Systems Australia (GSS), which provided dewatering, water treatment, propping and other services to the construction, mining and infrastructure industries.
In 2005, the Trustee commenced a land development business called the DJ MacCormick Property Group (the Property Group), which was named in honour of Mr MacCormick Sr. Mrs Mary MacCormick ceased to be a director of the Trustee company in August 2011. Donald and Mr MacCormick then managed both GSS and the Property Group, that is, the businesses operated by the Trustee company, together on a full-time basis from 2003 until June 2022. On the evidence, the business of the Trust has been very successful and has generated very significant income. The evidence also shows that Mr MacCormick and Donald were central to the success of the business operated by the Trust. The Trustee continues to conduct both GSS and the Property Group to the present day.
A Mr Michael Dunstan has occupied senior roles within the Trustee company for some years, including as Chief Financial Officer of the Property Group and General Manager of GSS. Mr Dunstan also has held and holds senior positions in several other companies of which Mr MacCormick is a director. At the end of each financial year, in recent years at least, Mr Dunstan would work with the Trustee's accounting services provider, KPMG, to prepare resolutions regarding distributions to be made that year.
As directors, Donald and Mr MacCormick were required to formally resolve those distributions. In the financial year ending 30 June 2021, the Trust earned a net income of $9,403,485.
Donald tragically passed away unexpectedly after a brief illness on 9 June 2022. This left the Trustee company with one director, Mr MacCormick. The circumstances relating to the resolution of the Trustee company in respect of the distributions for the year ending 30 June 2022 form the basis of the substantive proceedings.
To a large degree, what occurred is uncontroversial in terms of the documents and the communications that passed between the parties. It is set out in some detail in the plaintiff's submissions at [59] - [72] (citations omitted):
The events leading up to the signing of the 2022 Resolution include:
(a)There was an exchange of email communications between 1 June 2022 and 3 June 2022 between Claire Selsmark (Selsmark) Director of Tax, Transactions and Accounting at KPMG and Dunstan setting up a meeting to discuss the proposed end of financial year distributions.
(b)Dunstan met with Selsmark or other representatives of KPMG on 14 June 2022 to discuss the end of financial year resolutions for the various companies forming part of the MacCormick Group of Companies inclusive of the Trustee's.
(c)At this meeting, Dunstan instructed KPMG to prepare distribution resolutions for the financial year ending 30 June 2022 in similar terms to the resolutions for the prior year in relation to the Trustee's.
Selsmark is a Director at KPMG Enterprise Business and Tax Advisory in charge of handling the financial and accounting affairs of the Trust financial year ending 30 June 2021.
On 23 June 2022, KPMG sent a draft resolution for the Trustee for the financial year ended 30 June 2022 to Dunstan.
The substance of the draft resolutions for the Trustee was the same as the previous financial year, save that the capital gains and dividends were to be distributed to Malcolm rather than to both Malcolm and Donald Junior.
The final value of the distributions which would have been the subject of the 2022 Resolution (if valid) were yet to be calculated. As it so happens the proposed distribution of capital gains on shares and income from dividends was in fact relatively modest, amounting to a total of $34,193.75.
The Trustee received professional advice from either KPMG and/or the Trustee's lawyers that the Trustee required a second director to be appointed to replace Donald Junior to complete the end of financial year processes. However, the document prepared by KPMG referred to a meeting even though Malcolm was the only director of the Trustee at that time.
On 27 June 2022, Malcolm received advice by email from Jim O'Donnell of Jackson McDonald that the Trustee's Constitution required two directors for certain decisions. In respect of Mary Donald Nominees Pty Ltd such advice included the words: "... Malcolm should sign a resolution appointing a second director (prior to 30 June). Both directors can then sign the EOFY distribution resolutions as trustee of the family trust."
On 27 June 2022, Michael Dunstan sent an email to Selsmark of KPMG stating: "... As a result of the passing of Donald MacCormick, we understand that Mary Donald Nominees Pty Ltd will need to appoint another Director before the 30th of June. This is in the process of being arranged and I'll advise you in due course."
On 29 June 2022 at 8:46 am, Malcolm forwarded Mr O'Donnell's email referred to in paragraph 65 above to Michael and Marie and wrote: "Michael, can you forward the resolutions noted below. Where two directors Marie to be appointed."
On 29 June 2022 at 8.47 am, Malcolm also forwarded a thread of emails to Marie which included an email from Jim O'Donnell foreshadowing the possibility that another director needed to be appointed to Mary Donald Nominees Pty Ltd.
On 29 June 2022 at 8:59am, Michael Dunstan responded to Malcolm, copying in Marie, stating that: "I'll get Claire [at KPMG] to arrange [the necessary documents] and forward them to you."
That email included an email from Jim O'Donnell to Dunstan saying that the director resolutions for Mary Donald Nominees Pty Ltd would need to be signed by two directors (prior to 30 June of that year).
On 29 June 2022 at 9.19am, Malcolm replied to Dunstan by, copying in Marie, stating that: "Notes below required back by tomorrow".
On 29 June 2022 at 9.31am, Selsmark sent an email to Dunstan stating: "As discussed, please find attached the updated resolutions... Please ensure these are signed before tomorrow."
Mr MacCormick gave evidence of the circumstances in relation to his conduct. Those matters are set out in evidence by Mr MacCormick in his affidavit sworn 16 November 2023.[1] The critical document for the purposes of the substantive proceedings and the dispute between the parties is a set of purported minutes of a meeting dated 29 June 2022, which purported to record a resolution of the Trustee in relation to the distribution of trust income for the year ending 30 June 2022.
[1] Affidavit of Malcolm John MacCormick sworn 16 November 2023 [58] - [64].
The minutes of that meeting record that Mr MacCormick and Ms MacCormick were both present at a meeting held at 9.00 am that day. The minutes were signed as a true and correct record of the meeting by Mr MacCormick and dated 29 June 2022. The purported minutes state that it was resolved to set aside 100% of the capital gains and dividend income to Mr MacCormick, and to set aside 100% of the balance of the dividend income to the trustee of a different trust, the 228 DJM Trust. The purported minutes further state that, pending any payments owed to beneficiaries, the Trustee would set aside such amounts and hold them in trust for the beneficiaries in accordance with their respective entitlements. The purported minutes of 29 June 2022 are consistent with the equivalent minutes of previous years, save that in respect of the capital gains and dividend in previous years, they were divided between Mr MacCormick and Donald. Mr MacCormick's unchallenged evidence is, however, that the capital gains and dividend income was a small fraction of the income of the Trust and that, in each relevant year, overwhelmingly, the income was distributed to the trustee of the 228 DJM Trust, not to either Donald or Mr MacCormick personally.
The purported minute of the meeting of 29 June 2022 is, to adopt a neutral term, incorrect and was not a reflection of what occurred. There was no meeting. Ms MacCormick was not present and, indeed, was not a director at that time. On 10 November 2022, lawyers for Ms MacCormick wrote to the lawyers for the Trustee, alleging that the purported resolution of 29 June 2022 was invalid.
On 24 November 2022, lawyers for the Trustee responded to the lawyers for Ms MacCormick. In that letter, the Trustee accepted that the resolution was invalid. The Trustee advised that it would strike through a copy of the resolution in its records, marking it as invalid, and advised that no money had been paid out pursuant to the resolution. Later, in 2023, the lawyers for the Trustee also advised Ms MacCormick's lawyers that, under the default provisions of the deed governing the Trust, Ms MacCormick was entitled to half of the income of the Trust for the year ending 30 June 2022 as there had been no valid resolution in respect of the distributions. In accordance with that position, the Trustee paid Ms MacCormick the sum of $4,182,731 and then, some weeks later, a further $102,700.
As I have said, it is not in dispute that the purported resolution was, other than in respect of Donald, consistent with the resolution of previous years. The unchallenged evidence of Mr MacCormick was that, under the purported resolution, Mr MacCormick would have received a sum of $34,193, whereas, under the default provisions that applied in the absence of a valid resolution, he received the same sum as Ms MacCormick, that is, in excess of $4 million.
On the evidence before me, it does not appear that the Trust suffered any loss by reason of the invalid resolution or that the invalid resolution would have provided Mr MacCormick with a material benefit, or certainly not a benefit anywhere near the benefit he personally received as a result of the purported resolution being invalid.
Ms MacCormick contends in the substantive proceedings and in this application that the purported resolution in the minutes of the meeting of 29 June 2022 was signed by Mr MacCormick dishonestly. Ms MacCormick contends that that is plain on the face of the document, as Mr MacCormick must have known there was no meeting. Mr MacCormick was aware and, indeed, had engaged in communications about the fact that two directors were required. He must have known that Ms MacCormick was not a director at that time. In all the circumstances, Ms MacCormick contends that there is an irresistible inference that Mr MacCormick signed the minutes as a true record dishonestly.
Mr MacCormick denies that he signed the minutes dishonestly. He said that he signed the document that had been prepared by professional advisers without going through its content, other than to check that the principal distribution was being made in accordance with previous years, that is, to the trustee of the 228 DJM Trust.
Ms MacCormick issued the substantive proceedings on 21 December 2022. In those proceedings, Mr MacCormick is the first defendant, the Trustee is the second defendant and Mrs Mary MacCormick is the third defendant.
In the statement of claim dated 7 February 2023, Ms MacCormick alleges that the signing of the resolutions on 29 June 2022 by Mr MacCormick constituted a breach of trust by the Trustee. She further contends that the conduct of Mr MacCormick and the Trustee were part of a fraudulent and dishonest design by the Trustee. It need hardly be said that that is a very serious allegation. In the substantive proceedings, Ms MacCormick further alleges that the Trustee acted in breach of trust by the purported resolution; that as a result of the Trustee's breaches of trust, Mr MacCormick received interests that had accrued pursuant to that purported resolution; and that Mr MacCormick had actual knowledge at the time that he received those interests, that they were received as a result of the Trustee's breaches of trust because Mr MacCormick caused the Trustee to purport to pass that resolution. It is pleaded by Ms MacCormick that Mr MacCormick assisted the Trustee in the alleged dishonest and fraudulent design.
Ms MacCormick seeks various forms of relief against Mr MacCormick and against the Trustee. Against Mr MacCormick, an order is sought under s 65 of the Trustees Act that Mr MacCormick restore to the trust the amount set aside in favour of Mr MacCormick in breach of trust and, further and alternatively, a series of declarations relating to holding that interest on trust and a liability to account, and for equitable compensation arising from breach of trust and participation in the dishonest and fraudulent design.
Of particular significance to this application is the relief sought by Ms MacCormick against the Trustee. That includes a declaration that the meeting of 29 June was invalid or void and that the resolutions pursuant to that purported meeting are void. Further relief includes a declaration that the Trustee is liable to account for its breaches, setting aside or distributing amounts in accordance with the purported resolution; that the matter be referred to a registrar for the taking of an account; an order that the Trustee make good the loss to the Trust; an order that the Trustee pay equitable compensation to the Trust; and of particular significance, an order that the Trustee be removed as the trustee of the Trust pursuant to s 77 of the Trustees Act.
Mr MacCormick and the Trustee are jointly represented in the substantive proceedings by the same law firm, Jackson McDonald, and the same counsel, Mr Mendelow. Mr MacCormick and the Trustee filed a joint defence on 28 March 2023, denying the matters alleged by Ms MacCormick. It appears from the evidence that, to date, the Trust has funded the Trustee's defence of the substantive proceedings. However, the substantive proceedings, which are managed by a different judge, have effectively been put on hold pending the outcome of this application. It is for that reason that I considered it necessary to give an urgent decision in relation to this application.
I turn now to the substance of the application and the competing contentions. Section 92 (1) of the Trustees Act provides:
Any trustee may apply to the Court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the Trustee.

The relevant applicable principles and circumstances where a trustee seeks an order that it is justified in defending proceedings against it were summarised by Vaughan J in Blatchford v Laine[2] at [57]:
Otherwise, in the context of an application for directions as to the position a trustee should take in relation to litigation, the relevant principles may be summarised as follows:
There is a 'jurisdictional bar' under s 92(1). However, that is simply that the applicant must point to a question respecting the management or administration of trust property or a question respecting the interpretation of a trust instrument. The jurisdiction is enlivened when the question raised for directions is whether the Trustee is justified in prosecuting or defending a particular claim.
The court has a discretion as to whether to provide a direction under s 92(1). Advice does not have to be provided.
The key question is to determine whether, on the material available, it would be proper for the Trustee to prosecute or defend the proceedings. That in turn involves two issues. First, whether the legal issues are properly arguable. Second, whether there are sufficient prospects of success to warrant the Trustee in proceeding with the litigation. These enquiries necessitate 'sufficient investigation' of the underlying issues.
The judicial advice proceedings are not to be treated as a trial of the issues that are to be agitated in the principal proceedings. The process is meant to be a summary one.
The court is not bound to investigate the evidence and make a finding as to whether the proposed proceedings would be successful. The question is whether the litigation is justified. The court is not finally resolving the merits of the underlying proceedings.
Relevant overlapping considerations include: (a) the prospects of success; (b) the means of the other party to satisfy any judgment; (c) the potential for the litigation to deplete the trust estate; (d) the likely adverse costs if the litigation is unsuccessful and whether those costs are likely to be proportionate; (e) the likely irrecoverable costs; and (f) the nature of the case and issues raised and what will be gained if the Trustee succeeds in the action.
[2] Ian Torrington Blatchford as administrator of the estate of the late Voitto Tapio Laine v Tapio Harry Laine & Ors [2018] WASC 207.
I observe that a key question, as explained by Vaughan J, is not whether the Trustee will succeed in the substantive proceedings, but whether the legal issues are properly arguable and whether there are sufficient prospects of success to warrant the Trustee in proceeding with the defence. This does not require me to investigate the evidence or make any findings.
In order for the court to make an order, two issues arise, at least at the first stage. The first is whether the court is empowered to make the order, that is, whether the matter comes within the terms of s 92. If it does, the court maintains a discretion as to whether it ought to exercise its power to provide the advice sought. The first issue, a matter of power, has been described as a jurisdictional bar. Vaughan J framed that bar in terms of a question respecting the management or administration of trust property or a question respecting the interpretation of a trust instrument.
Vaughan J took that wording from cases that ultimately derived from the High Court decision in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; (2008) 249 ALR 250; (2008) 82 ALJR 1425; (2008) 1 ASTLR 1; [2008] HCA 42; BC200807738 (Macedonian Orthodox Community) at [58]:
Only one jurisdictional bar to s 63 relief exists: 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. The Court of Appeal did not deny that both kinds of question existed in the present case. Hence, as the Court of Appeal recognised and as the plaintiffs accept, the dispute in this appeal relates only to the question whether Palmer J erred in the exercise of his discretion.
That case, and many other cases that adopt it, concern s 63(1) of the New South Wales legislation,[3] which provides:
(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.
[3] Trustee Act 1925 (NSW) s 63.
It is plain that the New South Wales section is not identical to the Western Australian provision, which is in somewhat wider terms, because it includes matters respecting the exercise of any power or discretion vested in the Trustee. The jurisdictional bar in this jurisdiction is, to that extent, somewhat wider.
Counsel for Ms MacCormick opposed the application on the following bases. It was first contended that the matter did not meet the jurisdictional bar because it was not a matter respecting the management or administration of trust property. It was then said that, even if it did meet the jurisdictional bar, the Trustee's defence to the substantive proceedings was so implausible, and the plaintiff's case in the substantive proceedings was so overwhelmingly compelling, that the court's discretion should not be exercised in favour of the Trustee in the manner sought.
Thirdly, counsel for Ms MacCormick said there were other factors that weighed fatally against the favourable exercise of the court's discretion, particularly the failure of the Trustee to disclose relevant matters in its application. I turn, first, to the jurisdictional bar.
Counsel for Ms MacCormick relied primarily on two decisions of the Supreme Court of New South Wales. The first was Australian Pipeline Limited [2006] NSWSC 1316 at [24]:
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).
The second decision was The Application of Eurolinx Pty Limited in its capacity as trustee for the Colbert Security Trust [2017] NSWSC 1306 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.
(emphases added)
Counsel for Ms MacCormick submitted that the relevant principle was approved and adopted in this jurisdiction by Allanson J in Cardaci vCardaci [2022] WASC 166. In my view, although Allanson J cited the relevant paragraphs,[4] he did not cite them for the proposition advanced by Ms MacCormick in this application but rather for a fairly uncontroversial proposition, which is the one that was footnoted.[5]
[4] Cardaci v Cardaci [2022] WASC 166 [62] (Cardaci).
[5] Cardaci [62] footnote 27.
Relying on those NSW decisions, counsel for Ms MacCormick contended that the application does not meet the jurisdictional bar because the substantive proceedings, in respect of which relief is sought, relate to allegations of breach of trust by the Trustee and not the management or administration of property of the Trust.
A number of decisions in the Supreme Court of New South Wales, including more recent decisions, have taken a contrary view to the position adopted in the decisions referred to by Ms MacCormick's counsel. I should first point out that the High Court in Macedonian Orthodox Community at [70] stated the following (citations omitted):
In particular, trustees who are sued, particularly for breach of trust, may sometimes experience uncertainty about whether they will be able to obtain indemnity as to the costs of their defence under s 59(4) in any event. Perhaps they will if their breach is excused under s 85(2); but they cannot be sure, in advance, that the court's discretionary power to excuse the breach will be exercised in their favour, and one of the matters to be excused is their failure to obtain the court's direction under s 63 or otherwise. This points strongly to the conclusion that an application under s 63 by a trustee sued for breach of trust (including a breach of trust alleged to arise in the very defence of the proceedings) is not to be seen as one which should rarely if ever succeed.
Instead it should be seen as a standard instance to which s 63 can in appropriate circumstances apply.
Slattery J, in Northey v Juul [2014] NSWSC 464 at [107], took a view contrary to that of the decisions relied upon by Ms MacCormick's counsel. Robb J, in Re Perpetual Trustee Company as trustee for the Joseph Babington Davis Settlement [2020] NSWSC 1574, analysed the position.[6] It is sufficient to say that Robb J preferred the position adopted by Slattery J.[7]
[6] Re Perpetual Trustee Company as trustee for the Joseph Babington Davis Settlement [2020] NSWSC 1574 [84].
[7] Re Perpetual Trustee Company as trustee for the Joseph Babington Davis Settlement [2020] NSWSC 1574 [86].
The issue was comprehensively and very recently considered by the Chief Judge in Equity of the Supreme Court of New South Wales, Hammerschlag CJ, in Pascoe (in his capacity as administrator of the Estate of the Late Kut Sze Tu and as constructive trustee) [2024] NSWSC 738 at [62] - [68], [74] - [90] and [94] ‑ [97]. The Chief Judge in Equity concluded unambiguously that:
...whether a trustee charged with a breach of duty in that capacity by misusing trust property should defend the charge is a question respecting the management and administration of that property.
I should add that, in this jurisdiction, it seems to me that the issue may also be a matter of 'respecting the exercise of any power or discretion vested in the Trustee.' For those reasons, I am satisfied that the court has power to make the orders sought in the application. That, of course, however, does not answer the question as to whether the court should, in the exercise of its discretion, exercise its power in favour of the Trustee's application. In that respect, as I have observed, counsel for Ms MacCormick relies on the contention that the defence in the substantive proceedings of the Trustee is not plausible for the reasons I have outlined. In my view, I am not in a position to conclude, on the evidence before me, that the defence of the Trustee in the substantive proceedings is implausible; certainly not so obviously implausible that I ought to conclude that Ms MacCormick has an overwhelmingly compelling case in the substantive proceedings.
It seems to me there are any number of circumstances that might bear upon the characterisation of Mr MacCormick's conduct, and I am in no position to accept that the defence is implausible. Accordingly, I do not accept that that is a discretionary factor weighing against the grant of the application.
Counsel for Ms MacCormick also pointed to certain failures to disclose information. I do not intend to descend into the detail of what is said not to have been disclosed. It is sufficient for me to observe that the submission related to what Ms MacCormick's counsel characterised as an inference available that monies had been paid out, or possibly paid out, pursuant to the purported resolution, and then repaid to correct the position once the invalidity of the resolution came to light. Counsel contended that the details relating to what happened in that regard have not been disclosed.
Mr MacCormick's affidavit sworn 16 November 2023 annexed a letter, which I infer was written on his instruction from his lawyers, dated 24 November 2022, in which the Trustee's lawyers advised Ms MacCormick's lawyers:
For the avoidance of doubt, no money has been paid out pursuant to the resolution.
Those words are put in bold in the letter.
Counsel for Ms MacCormick, however, directed attention to Mr MacCormick's explanation of the position in his affidavit sworn 9 July 2024, where Mr MacCormick's evidence was that:
The Trustee did not credit any amount in favour of me or the 228 DJM Trust pursuant to the invalid 2022 resolution.
It was submitted that that was a rather carefully crafted sentence and does not foreclose the possibility that money was, in fact, paid and then reversed. Counsel for Ms MacCormick contended that if that is what, in fact, happened, then they are matters that ought to have been disclosed in the Trustee's duty of full and frank disclosure on this application. In addition, counsel for Ms MacCormick pointed to loans disclosed in the financial statements, for which no explanation has been given.
In my view, to the extent that any issues arise from those matters, they are matters to be explored, if appropriate, in the substantive proceedings. In light of the letter annexed to Mr MacCormick's affidavit sworn 16 November 2023 from his lawyers, and his statement in his affidavit sworn 9 July 2024, I am not prepared to infer that there is a basis to assert that there were movements of monies such as to impose upon the Trustee a duty of full disclosure in respect of those matters on this application.
Nor do I see, on the evidence before me, any basis for an inference that the records of loans provide a foundation for a credible assertion that there has been a relevant failure of full and frank disclosure. In the context of this application, that is particularly so where the unchallenged evidence appears to me to be, on the evidence, that the Trustee has suffered no loss and that, on the evidence before me, when the invalidity was drawn to the Trustee's attention, it took almost immediate action to rectify the position.
In those circumstances, I am not prepared to infer that the Trustee has failed to make sufficiently full and frank disclosure for the purposes of this application. Ms MacCormick's counsel also contended that there had been some lack of candour in terms of the manner in which the Trustee has funded its defence of the substantive proceedings to date. Counsel for Mr MacCormick directed my attention to Mr MacCormick's affidavit sworn 16 November 2023, in which his evidence was that if the Trustee was unable to fund its legal expenses in defending the substantive proceedings from the assets of the Trust, he is not presently sure how the Trustee would defend these proceedings.[8] That is to be contrasted with the affidavit of Mr MacCormick sworn some months later on 23 April 2024, in which he discloses that, to date, the Trustee has been billed and has paid $220,503.34 in relation to the substantive proceedings and other work undertaken prior of the commencement of the substantive proceedings. Ms MacCormick's counsel was critical of the earlier lack of disclosure in relation to those matters. Ms MacCormick's counsel invited me to draw certain inferences about that.
[8] Affidavit of Malcolm John MacCormick sworn 16 November 2023 [94].
There is, I think, some force in the submission that there was late disclosure about the manner in which the Trustee has funded its defence of the substantive proceedings to date. At the end of the day, however, the Trustee has made that disclosure. It seems to me that the most plausible inference arising from that evidence is that the Trustee used Trust assets to fund its defence of the substantive proceedings. It plainly did so at its own risk. And then it considered that it ought to get judicial advice under s 92 before proceeding further. Hence, the substantive proceedings were put on hold pending the outcome of this application.
On the evidence before me, I would not draw any adverse inference in relation to the Trustee's conduct arising from that, but whether the Trustee was so justified in having recourse to those funds is a matter that might be better assessed in the determination of the substantive proceedings. The upshot of those observations is that I do not accept that there has been a material failure of disclosure by the Trustee so as to disentitle the Trustee to the favourable exercise of the court's discretion.
In the circumstances, I have concluded the court has power to make the order sought. I have not accepted Ms MacCormick's submissions about the discretionary factors against the exercise of that power. The substantive proceedings include an application for the removal of the Trustee where, on the evidence before me, the personalities behind the Trustee are central to the success of the Trustee's business. On the question of whether the legal issues are properly arguable, with sufficient prospects of success to warrant the Trustee in proceeding with the defence, having reviewed the privileged information and the evidence in this application, I am satisfied that standard is met. I consider it is appropriate that I make the order sought by the Trustee that it is justified in defending the substantive proceedings.
As I mentioned at the outset, however, the Trustee seeks additional orders in relation to being able to have recourse to the Trust assets, effectively, immediately to fund those proceedings. The parties referred me to the decision both of Allanson J and the Court of Appeal on the Cardaci matter, in which principles in relation to the Trustee's entitlement to the trust fund for costs of the proceedings was considered. However, the circumstances of those cases were applications that arose after the event, that is, the Trustee sought reimbursement, effectively, for the costs that it had incurred.

Were the substantive proceedings already concluded, I would be in a much better position, I think, then, to apply well-known principles to determine whether the Trustee is justified in being reimbursed from Trust assets for the costs incurred. The present circumstances, however, are different. I have had regard to a decision of Brereton J in Application of Uncle's Joint Pty Ltd [2014] NSWSC 321. In that decision, Brereton J considers, at some length, the authorities in precisely these and other circumstances. At [24], Brereton J refers to the case of National Trustees Executors and Agency Company of Australasia Ltd v Barnes (1941) VLR 133 and says that, typically:
...trustees will be allowed their costs out of the estate in this type of case only after the proceedings against them have been resolved in their favour.
Now, the case being considered there was not on all fours with this, but Brereton J goes on to consider various other instances where the matter was considered.[9] Quoting Palmer J at first instance in St Petka,[10] the precursor of the High Court decision in Macedonian Orthodox Community, Brereton J says at [26]:
...where a trustee seeks advice that it is justified in defending a claim against the trust estate by recourse to the trust assets for the costs of litigation, the question is whether it is more practical and fair to leave the competing claimants to the beneficial interest to contest the litigation among themselves at their own risk as to costs, with the Trustee a necessary but inactive party, or whether it is more practical and fair that the Trustee be the active litigant, with recourse to the trust fund for the costs of the litigation. This judgment will depend on the particular circumstances of each case, and relevant considerations may include whether the beneficiaries have a substantial financial interest in the defence of the proceedings, the financial means of the beneficiaries to fund it, the merits and the strengths of the claim against the trust estate and various other matters.
[9] Application of Uncle's Joint Pty Ltd [2014] NSWSC 321 [24] - [26].
[10] Re Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247.
Further considerations are referred to by Brereton J at [27] - [28]. At [28], his Honour says:
...the financial capacity of the parties in trust estate litigation was central to what is practical and fair.
There is further consideration at [30] - [33]. I note that at [32], his Honour says:
A possible solution may be to make a distribution among the beneficiaries such that each would receive the same amount, which could be applied at that beneficiary's discretion to fund the litigation.
I observe that that is almost, in effect, what has happened here already. One of the important differences between the considerations considered by Brereton J and this matter is that the substantive proceedings here include a removal suit, that is, an application for the removal of the Trustee. That is a factor that weighs in favour of the orders sought by the Trustee. Were this a mere removal suit only against the Trustee, I think I would, in the circumstances, have had little hesitation in granting the orders sought by the Trustee.
The matter is finely balanced, but in these circumstances, the Trustee is not the only defendant to the substantive proceedings. Mr MacCormick is the first defendant to those proceedings, and there is a significant overlap of interest, certainly in the factual contest, between Mr MacCormick as first defendant and the Trustee as second defendant. Moreover, Mr MacCormick and the Trustee are represented by the same firm of solicitors and the same counsel.
In all the circumstances, it seems to me that the fair and practical thing to do is to leave the question of costs to the judge who will determine the substantive proceedings on the understanding that if the Trustee's position in respect of the application for removal is upheld, then it may well be that the judge in the substantive proceedings will be minded to order that to the extent that the Trustee has incurred costs in relation to the substantive proceedings, it ought to have recourse to the Trust for the reimbursement of those funds. However, there seem to me to be too many imponderables for me to consider the various contingencies as to what might occur. And as I say, in circumstances where Mr MacCormick, who, on the evidence before me at least, is not without substantial funds, and the Trustee are jointly represented and, in fact, have filed precisely the same joint defence, the fair and practical thing is, in my view, to defer the question of whether the Trustee is entitled to have recourse to the Trust fund to the judge in the substantive proceedings.
For those reasons, I will make orders that the Trustee is justified in defending the substantive proceedings, but that the issue of the Trustee's costs will be determined by the trial judge in the substantive proceedings.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
YM
Associate to the Honourable Justice Solomon
8 AUGUST 2024