Tschirn v Australian Executor Trustees Ltd - [2016] SASC 149

SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
TSCHIRN v AUSTRALIAN EXECUTOR TRUSTEES LIMITED
[2016] SASC 149
Judgment of The Honourable Justice Doyle
16 September 2016
SUCCESSION - CONSTRUCTION AND EFFECT OF TESTAMENTARY DISPOSITIONS - CONSTRUCTION GENERALLY - PRINCIPLES OR RULES OF CONSTRUCTION
The respondent and first appellant are the executors and trustees of the estate of the deceased. Until 2007, the deceased lived in a property in Erindale. Following this, for approximately two and a half years prior to her death, the deceased lived with the appellants, and the Erindale property was leased to generate rental income. The deceased’s Will contained a number of specific bequests of various items of her property, including a specific devise of the Erindale Property to the first appellant.
Whilst the respondent was investigating the estate after the deceased’s death, it discovered that in excess of $600,000 had been withdrawn from the deceased’s bank accounts in the period she had been living with the appellants. As a result of this, the respondent sought and obtained judicial advice to the effect that it was appropriate to commence proceedings against the appellants and for its costs to be paid out of the residue of the estate.
The funds that were set aside from the residue of the estate to pursue the ligation have been exhausted. The respondent brought an application seeking a declaration that on the proper construction of the Will the rental income generated from the Erindale property since the deceased’s death fell within the residue of the estate. It also sought judicial advice and directions to the effect that it is appropriate that the respondent use the rental income to fund the respondent’s costs of the proceedings. A Master of the Court made this declaration and granted the judicial advice sought.
On appeal, the appellants contended that the Master erred in finding that on the proper construction of the Will the rental income fell within the residue of the estate. Accordingly, they contended that the Court should re-exercise its discretion to give judicial advice.
Held per Doyle J, allowing the appeal:
1. On the proper construction of the Will, the rental income from the property does not form part of the residue of the Estate.
2. It is not appropriate to give the judicial advice and directions sought.
Administration and Probate Act 1919 (SA) s 69; Supreme Court Civil Rules 2006 (SA) r 17(2), referred to.
Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66, applied.
O’Brien v McCormick [2005] NSWSC 619; Re Atkinson [1971] VR 612, discussed.

TSCHIRN v AUSTRALIAN EXECUTOR TRUSTEES LIMITED
[2016] SASC 149
Magistrates Appeal: Civil
DOYLE J:

The plaintiff is an executor and trustee of the estate of Joyce Atkinson (the deceased), who died on 1 November 2009 at the age of 95.
The deceased’s Will nominated her late husband’s godson (Mr Tschirn, the first defendant) as the other executor and trustee. Probate was granted on 11 June 2010 in favour of the plaintiff and the first defendant.
Until 2007, the deceased lived in a property at 18 Lockwood Road, Erindale (the Erindale property). Following this, for a period of approximately two and a half years prior to her death, the deceased lived with the first defendant and his wife (the second defendant). During this period the defendants acted as the deceased’s carers. The Erindale property was leased so as to generate rental income.
Whilst the plaintiff was investigating the estate after the deceased’s death, it discovered that in excess of $600,000 had been withdrawn from the deceased’s bank accounts in the period she was living with the defendants.
In November 2012, this Court gave the plaintiff advice and directions under s 69 of the Administration and Probate Act 1919 (SA) to the effect that it would be reasonable for the plaintiff to commence proceedings against the defendants, and for it to meet the costs of those proceedings from the residue of the estate.
In 2013, the plaintiff commenced the within proceedings, making allegations of undue influence, unconscionable conduct and breach of fiduciary duty by the defendants in relation to the withdrawal of funds. The first defendant has agreed not to act as a joint executor of the deceased estate while these proceedings are on foot.
The proceedings have progressed slowly, with a series of interlocutory disputes between the parties. It is now anticipated that they will proceed to trial in early 2017. However, by late 2015 the plaintiff had exhausted the funds from the residue of the estate that it had anticipated using in the pursuit of these proceedings.
In November 2015, the plaintiff brought an application seeking both a declaration that the rental income generated from the Erindale property fell within the residue of the estate, and judicial advice and directions to the effect that it is appropriate that the plaintiff use that rental income to fund the plaintiff’s costs of these proceedings.
The application was heard by a Master of this Court, who made a declaration, and gave judicial advice, in the terms sought by the plaintiff.
The defendant has appealed the declaratory order made, and the judicial advice given, by the Master. While the declaratory order made by the Master was a final order, such that an appeal would ordinarily go to the Full Court, the parties have consented to me hearing the appeal under r 17(2) of the Supreme Court Civil Rules 2006 (SA).
Background
As mentioned, the deceased died on 1 November 2009. On 11 June 2010, probate was granted in respect of the deceased’s Will executed on 7 March 2005. The statement of assets and liabilities prepared at the time of probate disclosed an estate worth slightly in excess of $1 million. This included the Erindale property which was valued at $600,000.
Terms of the Will
The deceased’s Will contains a number of specific legacies or bequests of various items of her personal property. Clause 11 then contains a specific devise of the Erindale property to the first defendant. It is in the following terms:
11AS to my property at 18 Lockwood Road Erindale and the balance of my furniture and effects for my late husband’s God-son GRANTLEY COE TSCHIRN as shall survive me.
Clause 12 provides that as to the remainder of the deceased’s estate, her trustees are to pay her debts, funeral and testamentary expenses and any duties payable in respect of her estate without any adjustment or apportionment of such duties. It also provides for payment of pecuniary legacies of $1,000 to various named people.
Clause 12 then provides for the balance remaining (the residuary estate) to be divided into six equal parts, to be held as to two parts for her goddaughter Ms Sutherland (or her children, if she did not survive the plaintiff), as to two parts for the first defendant (or his children), and as to one part each for her late husband’s nephew and niece Mr and Ms Kuseff (or their named survivors).
Next, in clauses 13 and 14, the Will provides:
13    I GIVE to my Trustees the following powers:-
(a)     TO SELL such parts of my residuary estate as my Trustees shall think fit -
(b)     TO RETAIN the whole or any part of my estate in the same state of investment as at the date of my death but without my Trustees being in any way responsible for any loss occasioned thereby -
(c)     TO INVEST any monies requiring investment in any manner in which my Trustees shall think fit with the power to vary investments and with the authority to acquire shares or securities in Australian Executor Trustees Limited or any related corporate body -
(d)     TO APPROPRIATE any parts of my residuary estate towards the share of any beneficiary of mine and for such purpose to fix the value of such share as my Trustees shall think fit AND TO CHARGE any such share with such sum by way of equality or adjustment as my Trustees shall think fit.
14I DIRECT that no income received shall be apportioned or treated as capital and that no apportionment of the income of any part of my estate shall take place and that no rules of apportionment whether legal or equitable between capital and income shall be applicable in my estate.
The 2012 application for judicial advice and directions
On 4 May 2012, the plaintiff filed proceedings by which it sought judicial advice and directions pursuant to s 69 of the Administration and Probate Act relating to the proposed litigation against the defendants.
In support of that application the plaintiff’s relevant officer deposed that the value of the estate was $853,454.20. Two portfolios statements were exhibited. They disclosed that as at 2 May 2012 the estate held:
·    the Erindale property, valued at $600,000;
·    three cash accounts, comprising a total of $100,029.95;
·    two further cash accounts under the heading “Devise of 18 Lockwood Road” with balances of $110,000 and $38,424.25, giving a total of $148,424.25; and
·    other assets valued at $5,000.
Although apparently not disclosed or explained to the Court on the 2012 application for judicial advice, the plaintiff had earlier made some distributions from the estate. In particular, on 8 November 2010 the plaintiff had distributed the minor pecuniary legacies under the Will, totalling about $5,000, and had distributed $55,000 to each of Mr and Ms Kuseffs as a partial distribution of the residue of the estate. On 11 January 2011, the plaintiff had distributed $110,000 to Ms Sutherland as a partial distribution of the residue estate. The plaintiff had also already paid itself $36,962.03 in remuneration.
As for the two cash accounts of $110,000 and $38,424.25, it is now clear that the first of these amounts represented a sum set aside in a “contingency account” in favour of the first defendant, to reflect the residue monies that would need to be paid to the first defendant to equalise the distributions made to the other residuary beneficiaries. The second of these amounts was the amount of the net rental income that had been received by the plaintiff from the Erindale property. By the second half of 2015, the amount of rental income received was $69,613.69, although I am told it has continued to accumulate.
At the time of the 2012 application for judicial advice, the plaintiff estimated that the proceedings would cost between about $20,000 and $30,000 (exclusive of GST and disbursements (including barrister’s fees), and subject to the usual delays and conduct of the parties). However, as noted, there was approximately $100,000 in three cash accounts that formed part of the residue and would be available to fund the proceedings.
The application for judicial advice was heard by a Judge of this Court. On 5 November 2012, her Honour gave judicial advice to the plaintiff in the following terms:
1.   It is reasonable for the plaintiff to commence proceedings in the form of the draft Statement of Claim filed with the application to recover the moneys allegedly owed by the defendants to the estate the late Joyce Phyllis Beryle Atkinson.
2.   The plaintiff’s costs of and incidental to the proceedings are to be paid out of the residue of the estate on an indemnity basis up to the point where the action is ready to be listed for trial. This costs order will be reviewed at the time when the matter is certified by both parties as ready to be listed for trial.
3.   Liberty to either party to apply.
The progress of the proceedings
In June 2013, the plaintiff filed its summons and statement of claim in terms of the draft approved by the Court in the 2012 application for judicial advice.
In December 2013, the defendants brought an application seeking summary judgment, an order striking out the statement of claim or in the alternative an order that further particulars of the claim be provided. In February 2014, the plaintiff filed a second statement of claim, and in May 2014 the defendants filed a second interlocutory application in similar terms to the first. In August 2014, the defendants’ second application was dismissed, save for an order requiring that the plaintiff provide further particulars of some paragraphs of the statement of claim. The defendants appealed this refusal to order summary judgment or strike out the statement of claim to a single judge of this Court. The appeal was unsuccessful. The defendants’ application for permission to appeal to the Full Court was also unsuccessful. The defendants filed their defence on 16 September 2015.
While there were some further interlocutory disputes between the parties, the proceedings have now progressed to the point that the matter should be ready for trial in early next year. However, the plaintiff is now in the position that virtually all of the funds it had set aside from the residue of the estate to pursue this litigation (approximately $100,000) have been spent on legal fees and disbursements. While the plaintiff retains control of the so called contingency account of $110,000 and the account with the rental income from the Erindale property (which totalled $69,613.69 in the second half of 2015), it does not have any other funds from which to resource these proceedings.[1]
[1] Beyond a cash balance of $6,174.57 which it had as at November 2015.
It is in this context that the plaintiff brought the application the subject of this appeal, seeking both a declaration that on the proper construction of the Will the rental income from the Erindale property formed part of the residue of the estate, and judicial advice to the effect that it is appropriate to use these funds in prosecuting these proceedings. The plaintiff claims that if it does not receive judicial advice to this effect, then the result will be to stultify the proceedings. It says it is not prepared to use its own funds, and does not have other residue funds available to it from which to resource the litigation.
The construction issue
The first issue for consideration on the plaintiff’s application was whether, on the proper construction of the deceased’s Will, the rental income formed part of the specific devise of the Erindale property to the first defendant, or whether it fell into the residue of the estate.
In support of its contention that the Will should be construed as intending that the rental income form part of the specific devise to the first defendant rather than part of the residue of the estate, the defendants relied upon a series of text book references in support of a general convention or principle governing the construction of Wills to the effect that a specific devise carries with it the income generated by the devised asset from the date of the testator’s death.
In response, the plaintiff’s submission was that even if there exists such a principle of construction, the issue must ultimately be determined by reference to the terms of the particular Will and so must yield to any contrary intention or construction apparent from the terms of the particular Will. In support of a contrary intention or construction in the circumstances of this case, the plaintiff relied upon the fact that in this case the Erindale property was being rented out for a period prior to the deceased’s death while she was living with the defendants. It also relied upon clauses 13 and 14 as recognising, and giving effect to, a distinction between the estate assets and the income earned on those assets, and hence supporting a construction of the specific devise in clause 11 confining it to the Erindale property itself and excluding the rental income earned from that property.
The Master accepted the plaintiff’s submission. Her Honour reasoned:
Ultimately, the answer to this question lies in the construction of the will. In my view, the rental income forms part of the residue of the estate and not part of the specific devise to the first defendant. This is on the basis that the property was earning income at the time of the deceased’s death, and income is specifically dealt with in the will. Thus, the will contemplates that any income earned by the estate at the date of death will be dealt with differently to any income which may be earned following investment of an asset by the executor after death and prior to final distribution. As the property had been rented out and earning income for some years prior to her death, the deceased could have made express provision for this income to go to the first defendant if she chose to do so. The fact that she did not indicates that any income being generated at the time of her death was to be treated in accordance with the existing provisions of the will, ie clause 14.[2]
[2] The concluding reference was initially to clause 13, but the Master later amended her reasons to make it plain that she intended to refer to clause 14.
For the reasons which follow, I have reached a different conclusion on the construction issue.
I commence by observing that the task in construing in a Will is to ascertain the testator’s intentions, whether expressed or implied. As with any construction exercise, the task is one to be undertaken by reference to the words used in the relevant instrument, and by reference to the context of those words in that instrument as a whole.[3]
[3] Fell v Fell (1922) 31 CLR 268 at 273-276.
While the words used thus govern the construction task, the Courts have nevertheless developed several general principles or conventions governing the construction of Wills to which recourse is often had, at least in attempting to resolve any ambiguity as to the testator’s intention.
In this case, as mentioned, the defendants asserted the existence of a principle to the effect that a specific devise or legacy carries with it all of the income which may accrue upon it after the testator’s death.
In support of the existence of this principle, the defendants rely upon the following passage from the reasons of Campbell J in O’Brien v McCormick[4] (an authority which, I note, was not brought to the attention of the Master):
Income arising after the date of death on property which is left as an unconditional and immediate gift by a specific legacy or devise goes to the specific legatee or devisee: Hasluck v Pedley (1874) 19 LR (Eq) 271; In Re Buckley’s Trusts (1883) 22 Ch D 583; In Re Marten; Shaw v Marten [1901] 1 Ch 370; In Re West; West v Roberts [1909] 2 Ch 180; Jarman on Wills, 8th ed p 1079, Theobald on Wills, 10th ed p 130, Williams, Mortimer and Sunnucks Executors, Administrators and Probate, (16th edition) p 930. … The intermediate income which goes with the specific legacy or devise is that which accrues from the date of death, regardless of when the income comes to hand: section 144 Conveyancing Act 1919. The right to the intermediate income arises from the fact that, once an executor assents to a specific legacy or devise, the assent relates back to the date of the deceased’s death: In Re Pearce; Crutchley v Wells [1909] 1 Ch 819 at 821; In Re West; West v Roberts [1909] 2 Ch 180 at 185; In Re Rooke; Jeans v Gatehouse [1933] 1 Ch 970 at 972.
This state of affairs is consistent with the rule that the expenses of upkeep, care and preservation of specifically bequeathed or devised property, from the time of death until the time of the executor’s assent, and the cost of transporting or transferring that property to the specific legatee or devisee, are payable by the specific legatee or devisee, unless the proper construction of the gift is that the legatee or devisee is to receive the gift free of such expenses: In Re Pearce; Crutchley v Wells [1909] 1 Ch 819 at 821; Lloyd v Frape (1922) 23 SR (NSW) 11; In Re Rooke; Jeans v Gatehouse [1933] 1 Ch 970.
In this respect a specific legacy or devise differs from a pecuniary legacy not subject to any contingency, which prima facie carries interest at the rate the Court allows, from a date one year after the date of death: Walford v Walford [1912] AC 658 at 662; Permanent Trustee Co of NSW Ltd v Royal Prince Alfred Hospital (1944) 45 SR (NSW) 339; In Re Tankard [1942] Ch 69.
[4] O’Brien v McCormick [2005] NSWSC 619 at [38]-[40].

The defendants also rely upon references to the principle upon which they rely in various texts,[5] and the authorities cited in those texts.[6]
[5] Theobald on Wills, 16^th ed, 2001, para [22-01]; Williams on Wills, 9^th ed, 2008, para [32.2]; Williams, Mortimer and Sunnucks; Executors, Administrators and Probate, 20^th ed, 2013, para [79-02].
[6] Including Clive v Clive (1854) Kay 600; Re Marten [1901] 1 Ch 370; Re Buxton [1930] 1 Ch 648.
In addition to the authorities cited in those texts, my attention was also drawn during the hearing of the appeal to the decision of the Full Court of this Court in Re William MacPherson.[7]In that case, Way CJ referred to and applied the principle expressed in the following terms in Jarman on Wills:[8]
A specific bequest, if vested in possession, and if the subject matter is income bearing, entitles the legatee to the income from the testator’s death, and also all accretions which arise after the death.
[7] ReWilliam MacPherson [1913] SALR 207.
[8] Jarman on Wills, 6^th ed, 1910, p 1103.
The decisions in Re West[9] and Re Marten[10], cited in the above passage from O’Brien v McCormick, were also relied upon by Forrest J in the relatively recent decision of Re Blake[11] in support of a principle to the effect that a specific legacy of an asset creates a legal right on the part of the legatee to the income earned on that asset from the testator’s death.
[9] Re West [1909] 2 Ch 180.
[10] Re Marten [1901] 1 Ch 370.
[11] Re Blake (2009) 25 VR 27 at [58].
On appeal, counsel for the plaintiff acknowledged the existence of the general principle relied upon by the defendants, but noted the absence of any explanation for its existence, or of its rationale, in the authorities. In the passage extracted above from the reasons of Campbell J in O’Brien v McCormick, it was suggested that the principle arises from the fact that once an executor assents to a specific legacy or devise, that assent dates back to the date of the deceased’s death. It was also noted that it ensures consistency with the general position in relation to expenses on specifically bequeathed or devised assets. While not expressly adverted to in the authorities it seems to me that the principle also reflects a likely intention of a testator making a bequest or devise of an income generating asset, in the absence of anything to indicate a contrary intention. In any event, regardless of its rationale, it is a well accepted principle or convention of construction.
That said, as the construction task is ultimately one of ascertaining the testator’s objective intention by reference to the words used in the Will as a whole, it is clear that this principle must yield to any indication of a contrary intention in the Will. The issue here is whether the testator has either expressly or impliedly evinced any such intention.
Clause 11 contains a specific devise of the Erindale property to the first defendant. The plaintiff’s contention is that the absence of any reference to the rental income in that clause, combined with the separate recognition and treatment of income and capital in clauses 13 and 14, evinces an intention that the testator intended that the rental income be treated as separate, and fall into the residue rather than form part of the specific devise to the first defendant.
In my opinion this involves a misunderstanding of the meaning of, and work to be done by, clauses 13 and 14. Those clause are neither expressly nor impliedly directed to the specific devise in clause 11, or the issue of whether the rental income forms part of the devise or falls into the residue. They are standard clauses which are more general in their intended operation.
As the defendants contended, clause 13 is an empowering and protective provision. Paragraphs (a) and (d) of that clause grant the trustees powers of sale and appropriation in relation to the residuary estate. They say nothing as to what falls within the residue. Paragraph (b) permits the trustees to hold any part of the estate in the same state of investment as at the testator’s death without incurring any liability. While this does presuppose the existence of income generated from estate assets, it says nothing about whether that income forms part of the specific devise from which it is generated or falls into the residue of the estate. In particular, the fact that paragraph (b) would entitle the executors to leave the Erindale property the subject of the specific devise in clause 11 invested as a rental property says nothing about whether the rental income thereby generated forms part of the specific devise or falls into the residue. Similarly, paragraph (c) grants the executors power to invest monies without saying anything about to whom the monies belong. Thus, while this paragraph would empower the executors to invest the rental income, it again says nothing about whether the rental income forms part of the specific devise or falls into the residue.
In summary, while clause 13 recognises the separate existence of income earned from assets in the estate (which would include the rental income earned from the Erindale property the subject of the specific devise in clause 11) its role is a general one, empowering and protecting the executors in their dealings with those assets and the income they generate. It does not bear upon the classification of the income as part of a specific devise or part of the residue.
Similarly, clause 14 does not address, and does not in my view assist in determining, whether the rent falls within the residue. It appears intended to address two issues. First, it provides that no income received shall be apportioned or treated as capital for the purposes of the distinction between income and capital.[12] While this recognises that the income from a devise or legacy is not to be treated as part of the “capital” of that devise or legacy, it does not mean that the income does not form part of that devise or legacy, or that it falls into the residue. Secondly, it provides that the equitable and statutory rules of apportionment do not apply. It is common to include a provision to this effect in professionally drafted wills and trust.[13] Again, while clause 14 recognises a distinction between assets and income, it does not address the issue of whether the income forms part of a specific devise or legacy, or falls into the residue.
[12] Kessler and Flynn, Drafting Trusts and Will Trusts in Australia, 2008, para [16.180].
[13] Kessler and Flynn, Drafting Trusts and Will Trusts in Australia, paras [16.205], [16.320].
In summary, it is my view that it does not follow from the recognition of the separate existence of income in clauses 13 and 14, and the absence of any express reference to the rental income in the clause 11 devise, that the testator has evinced an intention that the rental income form part of the residue. Once the more general effect and operation of clauses 13 and 14 are properly understood, it is apparent that they do not bear on the issue of construction to be decided in this case.
There is nothing else that in my view suggests an intention that the rental income from the Erindale property form part of the residue. In particular, I do not consider the fact that the Erindale property was being used to generate income for a period of approximately two and a half years prior to the testator’s death has any bearing on the issue. Even if extrinsic evidence of this nature is admissible on the construction issue, there is a difficulty here in that the Will was drafted in 2005 and the rental income did not commence until approximately two years later. In any event, I do not accept that the mere fact that an asset the subject of a specific devise is generating income prior to the testator’s death assists in determining the testator’s intention in relation to whether that income is to form part of a specific devise or fall into the residue.
It follows in my view that there is nothing in the terms of the testator’s Will that evinces an express or implied intention that the rental income from the Erindale property fall into the residue. To the contrary, I am satisfied that the proper construction of the Will, consistent with the general principle or convention of construction relied upon by the defendants, is that the testator intended that the specific devise of the Erindale property carry with it the rental income accrued from the date of the testator’s death. That rental income therefore forms part of the specific devise to the first defendant and does not form part of the residue of the estate.
The Master erred in reaching a contrary construction. I would thus set aside the declaration as to the construction of the Will made by her Honour.
Judicial advice
The Master gave judicial advice to the plaintiff under s 69 of the Administration and Probate Act in terms that it is appropriate that the plaintiff use and draw upon the rental proceeds received in respect of the Erindale property to fund the plaintiff’s litigation costs of the within proceedings.
This judicial advice was premised upon the Master’s conclusion that the rental income formed part of the residue. On this premise, her Honour’s order went no further, and merely confirmed or gave effect to, the judicial advice given by this Court back in November 2012.
However, in circumstances where I have reached a different conclusion on the construction issue, the parties are agreed that it is appropriate that I consider afresh the Court’s discretion to give the judicial advice sought.
Through its notice of alternative contention, the plaintiff seeks advice to the effect that it is appropriate that it fund these proceedings from the rental income from the Erindale property, even if (as I have held) that rental income forms part of the specific devise to the first defendant. The defendants, on the other hand, oppose any such advice or direction. They contend that in the circumstances in which the plaintiff now finds itself, it is not appropriate that it be entitled to fund the proceedings against the defendants out of a specific devise to the first defendant, or at least that the Court cannot be so satisfied and so should decline to give the judicial advice sought.
Before addressing in more detail the relevant circumstances, and the parties’ competing contentions, it is appropriate to commence with some matters of general principle.
General principles
There are a number of authorities considering the courts’ power to give executors and trustees judicial advice. The leading authority is the decision of the High Court in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (the Macedonian Church case).[14] As the Court in that case explained, the procedure for obtaining judicial advice is one which operates to protect an executor or trustee from later complaint that he or she should have acted otherwise, and to protect the trustee from personal liability for the costs incurred in taking the course the subject to judicial advice.[15] Further, the Court confirmed that the guiding consideration in giving judicial advice is to determine what ought to be done in the best interests of the relevant estate or trust.[16]
[14] The Macedonian Church case (2008) 237 CLR 66.
[15] The Macedonian Church case (2008) 237 CLR 66 at [45].
[16] The Macedonian Church case (2008) 237 CLR 66 at [105].
There is an obvious relationship between judicial advice and an executor’s or trustee’s right of indemnity. Executors and trustees, both at general law and under statute, are entitled to be indemnified out of the estate or trust assets for expenses properly incurred in performance of their duties in administering the relevant estate or trust. In the case of a deceased estate, the right of indemnity would ordinarily be exercised first against the residue of the estate. Certainly that is so in a case such as the present where the Will contains a provision to the effect that testamentary expenses[17] are to be paid from the residue. However, in circumstances where the residue has been exhausted, the right of indemnity is ultimately exercisable against all of the assets in the estate, including those the subject of a specific legacy or devise.
[17] The expression “testamentary expenses” is generally understood as encompassing all expenses necessarily incurred by a personal representative in the proper performance of the duties of that office, including the costs of getting in the estate: Halsbury’s Laws of Australia, at [395-4260].
The benefit of seeking judicial advice is to give the executor or trustee some certainty as to the appropriateness of their proposed course and hence their entitlement to expend monies in the estate or trust, or otherwise exercise their right of indemnity. The uncertain nature of litigation and the unknown extent of the costs to be incurred mean that it will often be prudent for an executor or trustee to seek judicial advice before commencing or defending legal proceedings.
The provision of judicial advice in such circumstances serves not only to protect the executor or trustee, and their right of indemnity in respect of estate or trust assets, but also to protect the interests of the estate or trust. As the plurality in the Macedonian Church case explained:[18]
In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs.
[18] The Macedonian Church case (2008) 237 CLR 66 at [71].
When considering an application for judicial advice by an executor, the starting point is that the principal duties of an executor are to get in any assets of the deceased, to pay the debts, to the pay the legacies given by the Will, and to distribute the assets. As an aspect of this first duty, the executor may be required to enforce, by legal proceedings if necessary, any right, title or interest of the testator in particular assets.[19]
[19] Re Atkinson [1971] VR 612 at 616.
While accepting that this duty will on occasion extend to commencing legal proceedings in order to recover assets or monies said to form part of the deceased estate, the authorities also recognise, at least where those proceedings are likely to be controversial or contested, that the executor is not bound to use their own funds to pursue those legal proceedings. If there are no trust assets from which to fund the proceedings, and no indemnity from a beneficiary or beneficiaries is forthcoming, then it would generally be appropriate for the executor to refrain from commencing the contemplated proceedings.[20] As Gillard J explained in Re Atkinson:[21]
In the circumstances of this case the trustee company was under a duty to get in the trust estate, and, prima facie, it would be bound to enforce any right, title or interest which the testator might have possessed in relation to “Spray Farm” … If, without this application to the Court, it had failed to do so, then it would have been required to justify its inaction by showing that any proceedings taken would have been fruitless … But where there are competing claims (as arises in this present case from the widow’s assertion based upon her survivorship), then, in my opinion, the trustee company was and is not bound to use its own funds to vindicate the testator’s rights, if any … If it had obtained an indemnity from the beneficiaries, other considerations might well have applied. But in the absence of any such indemnity and no trust estate to fall back upon, then, in my view, the trustee company would not be bound to commence proceedings at its own expense.
[20] Re Atkinson [1971] VR 612 at 616; Re Burbidge (No 2) (Supreme Court of New South Wales, Young J, 25 June 1993, unreported); Spillane v Hall [2013] NSWSC 229 at [22].
[21] Re Atkinson [1971] VR 612 at 616 (omitting citations).
An application for judicial advice in respect of contemplated legal proceedings is often referred to as a Beddoe application after the authority Re Beddoe; Downes v Cottam.[22]
[22] Re Beddoe; Downes v Cottam [1893] 1 Ch 547.
Such applications are usually made in proceedings separate from the substantive litigation, and heard by a judge other than the one seized of that substantive litigation. They are usually supported by advice from counsel as to the prospects of success, an estimate of the costs likely to be incurred and evidence as to the value and composition of the estate. The applications are usually heard in the absence of the other party to the substantive litigation, or at least with that other party not being provided with the advice as to the merits (and being excluded from the Court during any submissions that might disclose the content of this advice).[23]
[23] Salmi v Sinivuori [2008] QSC 321 at [14]-[15].
The role of the court, in determining what judicial advice should be given in the best interest of the estate on a Beddoe application, is not to undertake an investigation of the evidence with a view to determining whether the proceedings will succeed, or otherwise to make any fine or detailed assessment of the merits. However, as Gillard J observed in Re Atkinson,[24] in determining whether it is appropriate that the proceedings be taken, “the matter should be sufficiently investigated to determine whether or not the proceedings would be fruitless”.
[24] Re Atkinson [1971] VR 612 at 616.
In the ordinary course, a Beddoe application is brought before the executor embarks upon the commencement or defence of the relevant legal proceedings. Further, the application usually seeks advice as to the appropriateness of the expenditure of, or indemnification from, funds in the residue of the relevant estate. That was the situation when the initial application for judicial advice in the proceedings was determined by this Court in November 2012. However, different considerations arise on the present application given first that the proceedings are already well advanced, and secondly that the executor seeks to use funds forming part of a specific devise rather than the residue.
As to the first of these matters, and the relevance of an application being brought some time after commencement of the relevant litigation, the reasons of Anderson J in Public Trustee v Carew-Reid[25] are of some assistance. In that case the public trustee had been involved in defending and prosecuting various actions between it (in its capacity as trustee of the deceased’s estate) and the deceased’s son. Having exhausted the funds in the residuary estate in the prosecution and defence of those various pieces of litigation, the liquid funds in the residue were exhausted. While there were still some substantial unencumbered net assets in the estate, there appears to have been a dispute over those assets. In any event, on the basis that there were no liquid assets available to meet fees, and that the public trustee was not prepared to meet the cost of the litigation itself, it applied for judicial advice to the effect that it was appropriate not to take any further step in the pursuit or defence of the various actions. Anderson J said:
It is not unusual for directions to be sought by a trustee who is contemplating litigation or against whom litigation has been commenced. He may wish to have directions for a number of reasons. It may be that he is uncertain whether the litigation ought to be commenced or continued because of its uncertain outcome and the likely cost to the estate should the litigation be unsuccessful. In that kind of case and to protect himself from the consequences of a finding by a court at some later date that the costs were not properly incurred, the trustee or personal representative will usually seek the court's decision as to whether or not the action should be brought or continued: Re Beddoe; Downes v Cottam [1893] 1 Ch 547 …
…
However, it is, I think, one thing to give directions relieving a trustee of the obligation to commence or defend an action on the ground that there is no useful indemnity available to him or that in the particular circumstances it is inappropriate that the estate should bear the costs. It is quite another thing to give such directions in a case where a trustee has elected to contest litigation at the expense of the estate and has done so to the point at which the assets of the estate have been exhausted and to then seek to wash his hands of the matter. An application for directions in such circumstances gives rise to other considerations, not the least of them being the conduct of the trustee in and about that litigation. As was pointed out by Sir Robert Megarry VC in Re Dallaway (supra) and by Nourse LJ in Re Evans (1986) 1 WLR 101 at 106, every application of this kind depends on its own facts. Should the court come to the conclusion that a trustee had not conducted litigation as well as it might have been conducted, or has become involved in inappropriate litigation, or has failed to take some step that might have put an end to the proceedings or brought them to a conclusion long before the available assets of the estate had been used up on legal fees, then the court might be very reluctant to make any order in favour of the trustee simply because the trust fund has been exhausted. To do so might impose an injustice on the beneficiaries.
…
As I have observed, there are many actions on foot. It would be quite wrong for me to make a general order in respect of them all without even looking at them. I do not know enough about them. It may be that a dispensation can be given in respect of one case but that it would be inappropriate to give dispensation to the trustee in another case. In general, however, I would have thought that a trustee who has embarked upon litigation either as plaintiff or defendant and has expended much of the trust fund on it, must see it through, unless he is able to show, in any particular case, that it is unjust or clearly not in the interests of the estate to require him to do so. I do not think it is enough that he has expended all of the liquid assets of the estate in legal fees in litigation which has been going on for some years.
[25] Public Trustee v Carew-Reid (Supreme Court of Western Australia, Anderson J, 13 August 1993, unreported).

As to the significance of the application relating to funds from a specific devise, neither counsel was aware of any authority involving a Beddoe application considering this issue. However, it seems to me that there is no conceptual barrier to judicial advice being given to the effect that it is appropriate to use funds the subject of a specific devise or legacy to fund legal proceedings. I have already mentioned that an executor’s right of indemnity is able to be exercised against all of the assets in the estate, including those the subject of a specific bequest or device. It follows in my view that there may be circumstances where it will be appropriate for an executor to use (or seek indemnification from) assets the subject of a specific bequest in meeting costs associated with at least defending (and perhaps commencing) legal proceedings. Accepting that this is so, it follows that there may be cases in which judicial advice may be given to the effect that it is appropriate to proceed in this way.
However, in considering a Beddoe application in respect of proceedings to be funded from a specific devise or legacy, it will in my view be relevant to take account of where the benefit and burden of the contemplated proceedings will fall. While the executor’s duties are owed to the estate as a whole, and it is sometimes said that the executor must hold the scales equally between the beneficiaries,[26] a consideration of the benefit and burden remains relevant. It is one thing to approve the funding from the residue of the estate of proceedings which, if successful, will benefit the residuary beneficiaries. In my view, it is quite another thing to approve the funding of proceedings for the benefit of the residuary beneficiaries from a specific bequest or devise.
[26] Re Burbidge (No 2) (Supreme Court of New South Wales, Young J, 25 June 1993, unreported).
In support of the relevance of a consideration of the likely benefit and burden of the contemplated proceedings, and the nature of the various beneficiaries’ interests in the same, there are several decisions suggesting that it may not always be appropriate for the executor to pursue or defend litigation using estate funds where the dispute, in substance, is one between competing interests of beneficiaries. The solution in such cases will sometimes lie in the executor requiring that it be funded or indemnified by the beneficiary or beneficiaries who stand to gain from the litigation, or alternatively in the executor stepping back and allowing the competing interested parties to fight out the litigation, with the executor being a party in name only.
For example, in Evans v Evans,[27] the Court was concerned with proceedings in which one beneficiary and his wife claimed to be entitled to the whole estate, and the other beneficiaries wished the administrator to defend that claim. Nourse LJ said:[28]
In my view, in a case where the beneficiaries are all adult and sui juris and can make up their own minds as to whether the claim should be resisted or not, there must be countervailing considerations of some weight before it is right for the action to be pursued or defended at the cost of the estate. I would not wish to curtail the discretion of the court in any future case but, as already indicated, those considerations might include the merits of the action. I emphasise that these remarks are directed only to cases where all the beneficiaries are adult and sui juris. The position might be entirely different if, for example, one of the beneficiaries was under age.
[27] Evans v Evans [1986] 1 WLR 101. See also Re Dallaway [1982] 1 WLR 756.
[28] Evans v Evans [1986] 1 WLR 101 at 107.
Similarly, in Alsop Wilkinson v Neary,[29] Lightman J said:
In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and (in the absence of any court direction to the contrary …) offer to submit to the court’s directions leaving it to the rivals to fight their battles.
[29] Alsop Wilkinson v Neary [1996] 1 WLR 1220 at 1225.
Observations to like effect were made by Lyons J in Salmi v Sinivuori.[30] Further, in the first instance decision in the Macedonian Church case, Palmer J said:[31]
Where a trustee seeks an order that it is justified in defending a claim against the trust estate by recourse to the trust assets for the costs of the litigation, the question will be whether it is more practical, and fairer, to leave the competing claimants to the beneficial interest in the trust estate to fight the litigation out amongst themselves, at their own risk as to costs and leaving the trustee as a necessary but inactive party in the proceedings, or whether it is more practical, and fairer, that the trustee be the active litigant with recourse to the trust fund for the costs of the litigation. What is “practical and fair” will depend on the particular circumstances of each case and will include:
-     whether the beneficiaries of the trust estate have a substantial financial interest in defending the claim;
-     what are the financial means of the beneficiaries to fund the defence;
-     the merits and strengths of the claim against the trust estate;
-     the extent to which recourse to the trust estate for defence costs would deprive the successful claimant of the fruits of the litigation;
-     if the trust is a charitable trust rather than a private trust, what, if any, are the considerations of public interest.
[30] Salmi v Sinivuori [2008] QSC 321 at [19]-[24].
[31] Application of Macedonian Orthodox Community Church St Petka Inc (No 3) [2006] NSWSC 1247 at [62].
It is thus apparent that different considerations arise on a Beddoe application when the opposing party in the contemplated litigation is a beneficiary (or potential beneficiary) of the trust, rather than an outsider or stranger to the trust.
Further, as Palmer J pointed out, it was notable in Evans v Evans and Alsop Wilkinson v Neary that not only were the rival claimants competitors for the trust estate, but also the trusts were private trusts. On the other hand, the trust under consideration in the Macedonian Church case was a charitable trust with no person a beneficiary, and where no one was claiming or defending with a view to augmenting or defending their personal assets or interests.[32] In upholding Palmer J’s decision to give judicial advice to the effect that it was appropriate to use trust funds to defend the relevant litigation, the High Court in the Macedonian Church case also attached some significance to the public interest associated with the contemplated litigation. As the plurality observed:[33]
Where there is a non-charitable private trust involving a conflict between beneficiaries, or between beneficiaries alleging a breach of trust out of which a trustee has profited and that trustee, and where the defendants in those proceedings have a personal capacity to fund the defence, it might not be correct to give the trustee an opinion, advice or direction. The position is not necessarily the same where the trust is for a charitable purpose, where the public interest is involved since ex hypothesi the trust is beneficial to the public, when none of the contestants in the litigation about the trust is suing or defending in order to augment, defend or seek the restoration of personal assets, and where a crucial question is the precise terms of the purpose for which the trust exists.
[32] See also Bovaird v Frost [2009] NSWSC 917 at [42]-[44].
[33] The Macedonian Church case at [67].
Analysis
Based on my review of the authorities set out above, there are a number of relevant considerations in determining whether to give the judicial advice sought by the plaintiff. They include matters which, broadly speaking, fall under the headings of the merits of the proceedings, the nature of the proceedings, the likely cost of the proceedings, the likely benefit and burden of the proceedings, and the alternative options open to the plaintiff and the residuary beneficiaries standing to benefit from the proceedings.
Merits of the proceedings
As mentioned, in the ordinary course a Beddoe application would be supported by counsel’s opinion as to the merits of the proceedings that the executor intends to pursue. Here, I have been given no information beyond the pleadings.
The plaintiff relies upon the Court’s satisfaction on previous occasions as to the merit of the proceedings, namely through the decision of this Court on the initial application for judicial advice, and the subsequent decisions of a single judge and Full Court of this Court in dismissing the defendants’ application for a summary dismissal or strike out, and in refusing permission to appeal from that dismissal.
It would have been preferable had the present application been supported by some up to date information as to, and analysis of, the merits of the proceedings. A significant period of time has passed since the Court’s earlier considerations of the merits. I assume those considerations proceeded on the basis of limited information given their early timing. In light of the parties’ expectation that the matter will proceed to trial early next year, and the plaintiff’s assurance to me that its trial preparation is well progressed, the plaintiff ought to have been in a position to provide the Court (through its counsel) with a more up to date and informed analysis of the merits. No doubt, as usually occurs on such applications, this information could have been provided on a confidential basis without the defendants having the opportunity to view it.
I appreciate that it is not the function of the Court on a Beddoe application to undertake a detailed investigation or assessment of the evidence. Nothing I have said should be understood as suggesting otherwise. The updated information as to the merits need only have been short, and to the point. But it is preferable that the Court act upon the basis of an up to date assessment by counsel of the merits of the proceedings taking into account the apparently significant work that has been undertaken since the previous assessments by this Court of the merits of the proceedings.
Given the procedural background to the present application and appeal, and the fact that the defendants have not contested the merits of the proceedings on the hearing of the present application or appeal, I am prepared to proceed on the basis that the claim continues to have reasonable prospects of success. But I am not in a position to be any more precise than this about the merits of the proceedings, and hence as to the degree of risk associated with the continuation of the litigation.
The nature of the proceedings and allegations
The plaintiff relies upon the serious nature of the allegations made against the defendants, involving as they do allegations of undue influence, unconscionability and breach of fiduciary duty by the defendants in relation to the dissipation of some $600,000 of the deceased’s monies.
I accept that it is relevant to understand the nature of the proceedings so as to understand the likely outcome if they are successful. It is thus relevant that these proceedings, if entirely successful, would result in up to about $600,000 coming into the estate. However, beyond this, and putting the merits of the proceedings to one side, I do not consider the nature of the proceedings to be of much, if any, relevance.
Unlike, for example, the situation of the charitable trust under consideration in the Macedonian Church case, the present application and appeal do not in my view require consideration of any more general or public interest, for example in holding fiduciaries to their obligations or in otherwise scrutinising the conduct of the defendants. The application for judicial advice falls to be considered solely by reference to an assessment of the interests of the deceased’s estate. While this involves a consideration of the interests of the various beneficiaries, it does not involve consideration of any greater public interest.
Likely cost of the proceedings
It is relevant to understand the likely costs associated with the course proposed by the executor, both in assessing the nature and extent of the risk, benefit and burden associated with the proceedings, and in assessing the likelihood of the plaintiff being in a position to see the proceedings through to their conclusion.
It appears that the initial application for judicial advice proceeded upon the basis of an optimistic assessment, or assumption, as to the likely cost of these proceedings. While accepting that the plaintiff might not reasonably have foreseen the extent of the interlocutory activity that in fact eventuated, it was foreseeable that the proceedings might exhaust the funds then available in the residue of the estate. That said, I do not suggest that anything much turns on this, other than by way of partial explanation for the position in which the plaintiff, and residuary beneficiaries, now find themselves.
It is of some relevance, however, that I have not been given any information as to the likelihood of the plaintiff having sufficient funds to complete these proceedings. The plaintiff points to the $69,613 that was available by way of rental income from the Erindale property as at the second half of 2015, and to the fact that this income has and will continue to accumulate. While it may be implicit in its application that the plaintiff is of the view that the monies available will likely be sufficient, I have not been provided with any information as to the basis for, or analysis supporting, the plaintiff’s formation of this view.
My own, necessarily broad brush, estimate suggests that it may well be sufficient to fund what the parties have estimated will be an approximately five day trial early next year. However, I make two related observations. The first observation is that it is not entirely satisfactory that I am required to rely upon my own estimate, unassisted by any detailed knowledge of the progress and state of the proceedings, or of the plaintiff’s preparations for trial. As mentioned earlier, in the ordinary course a Beddoe application should be supported by information as to the costs likely to be incurred in the proceedings to be prosecuted or defended. The second observation is that I am not in a position to make any informed estimate of the likelihood of, or appropriate allowance for the potential cost implications of, any further interlocutory or pre-trial issues that might arise between the parties, or the trial running longer than the five days predicted. There is also the possibility of an appeal. Given the history of these proceedings, greater attention should have been paid to this issue for the purposes of the present application and appeal. It would be unsatisfactory were I to give the advice sought, but the plaintiff subsequently run out of funds to complete the litigation against the defendants, or be required to return to Court to seek judicial advice approving some other method of funding the balance of the litigation. If these are realistic possibilities, which it seems to me they may well be, then they are matters that ought to be taken into account, at least in a general way, at this point in time.
I note that in the decision at first instance in the Macedonian Church case, Palmer J required an undertaking from the plaintiff that it had satisfied itself that it would be able to see the proceedings through to the end before it embark upon the proposed course of defending the relevant proceedings. If I were otherwise minded to give judicial advice that it is appropriate to use the rental income to fund the proceedings, I would likely require an undertaking to this effect in the absence of further information on this issue.
Likely benefit and burden of the proceedings
Putting to one side the earning of professional fees by lawyers, and management fees by the plaintiff, the only persons likely to benefit from success in the proceedings are the residuary beneficiaries. Further, given that the first defendant is a residuary beneficiary to the extent of one-third of the residue, the real beneficiaries of any success in the litigation are likely to be the other residuary beneficiaries (namely, Ms Sutherland as to one-third of the residue, and Mr and Ms Kuseff as to the final third of the residue) (referred to collectively in these reasons as “the other residuary beneficiaries”).
The dollar sum sought is large enough to expect that the proceedings, if entirely successful, will result in some net proceeds falling into the residue. That said, given the lack of information available to me as to the merits of the proceedings, I have no understanding as to whether it is realistic to think that the claim might, for example, only succeed as to some lesser amount. I also have no information as to the defendants’ likely ability to meet any judgment ordered against them even after paying their own legal fees – although the fact of the devise to the first defendant (and the $110,000 set aside from the residue) gives some comfort in this respect.
The burden of the litigation to this point has been borne by the residuary beneficiaries. By using the approximately $100,000 that was available from the residue at the commencement of the proceedings, the plaintiff has ensured that the burden has to this point been borne proportionately by the residuary beneficiaries. This was appropriate given that it is the residuary beneficiaries who stand to benefit from the litigation.
However, the effect of advice being given in the terms sought by the plaintiff in the present application and appeal would be to require that the burden of the litigation be borne solely by the first defendant from this point forward. The first defendant would be required to fund litigation which would (as to two-thirds of the net proceeds, after the professional and management fees of the lawyers and plaintiff) be for the benefit of the other residuary benefits. Not only will this result in a discrepancy between those likely to benefit from the litigation and those bearing the burden of the litigation, but also the effect of this discrepancy upon the first defendant will be exacerbated by the fact that he is a defendant in the proceedings. While the consequences of this discrepancy will be felt by the first defendant partly in his capacity as a beneficiary of the estate and partly in his capacity as a person being sued for his alleged wrongdoing against the estate, I consider that the discrepancy in the benefit and burden of the litigation, and the consequential unfairness so far as the first defendant is concerned, is relevant.
While I accept that the plaintiff must, in its determination of what it ought to do in the proper discharge of its duties as executor, take account of the interests of the estate as a whole, and hence of all beneficiaries, at the same time I do not think the discrepancy between the benefit and burden can be ignored where it produces an unfairness for one beneficiary or class of beneficiaries relative to another beneficiary or class of beneficiaries.
This view is supported not only by the authorities I have mentioned earlier as to the relevance of the benefit and burden of the contemplated litigation, but also by the approach taken in the recent decision of McMurdo J in Stephens v Chee.[34] In that case the plaintiff trustees sought judicial advice from the Court to the effect that it was appropriate for them to bring proceedings against one of the beneficiaries of that trust (the defendant, Mr Chee). McMurdo J noted a distinction between that case and the earlier decisions in Re Dallaway, Evans v Evans, Alsop Wilkinson v Neary and Salmi v Sinivuori (to which I have referred earlier in these reasons). Unlike in those cases, the opposing litigant was not going so far as to contend that they were wholly entitled to the trust fund, nevertheless his Honour considered that the reasoning in those cases, and of Palmer J in the first instance decision in the Macedonia Church case, was relevant in considering the Beddoe application in that case. McMurdo J explained:[35]
The reason is that although the proposed adversary here (Timothy Chee) could not claim to be entitled to all of the property held by the trustees from which they could seek to be indemnified for the costs of the litigation, still he, as a beneficiary, has an interest in that property. If the claims against him were unsuccessful, nevertheless some of the property which could be applied for his benefit or which would vest in him upon the vesting date of this trust, would be instead applied for the trustees’ costs. It is the potential unfairness of that outcome which is a basis for his argument that the proposed litigation should not be funded from trust assets. More generally, it is submitted that where the dispute is in essence one between the beneficiaries, the trustees should remain neutral and should not litigate for the benefit of one group against the other.
[34] Stephens v Chee [2015] QSC 138.
[35] Stephens v Chee [2015] QSC 138 at [26].

In declining to give the judicial advice sought McMurdo J reasoned:[36]
Nevertheless, the prosecution of these claims with an indemnity in favour of the trustees from the trust assets has a potential unfairness to Timothy Chee. If the proposed claims succeed, it will be Timothy Chee’s sisters who will ultimately enjoy the fruits of the action, and without their having to fund the litigation or having a direct exposure to an order for costs. On the other hand, should the proposed litigation be unsuccessful, there will be an ultimate detriment to Timothy Chee from the diminution in the assets of the trust in indemnifying the trustees, a detriment which is as great as that to the other beneficiaries. The potential unfairness exists although Timothy Chee would not be sued as a beneficiary. This unfairness could be avoided by the claims being prosecuted either by the other beneficiaries or by the trustees but with an indemnity from the other beneficiaries rather than from the trust fund.
On any view, the proposed litigation will be expensive. …
The costs of the litigation may not be disproportionately high compared with the amounts which would be sought from the defendants. But the present question is whether the costs should come from the trust assets, in which Timothy Chee has a substantial interest, regardless of the outcome of the litigation. In my view, it would be preferable for the cost burden to fall upon the parties who stand to gain from the litigation.
Further, the essential neutrality of the trustees could be compromised by the trustees being active participants in this litigation even if indemnified by the other beneficiaries rather than from the trust fund. It must be remembered that the trustees have a discretion in relation to the distribution of the income of the fund.
It unclear whether the other beneficiaries would be prepared to bring these proceedings at their own cost, rather than leaving it to the trustees to do so at the cost of the trust fund. If the trustees had wished to argue that the only practicable means for the pursuit of these claims was by the trustees prosecuting them, it was incumbent upon the trustees to lead evidence to that effect. It may be noted in this respect that the net assets of the trust as at 30 June 2013, exceeded $4 million and that each of the beneficiaries has received substantial distributions of income over many years.
[36] Stephens v Chee [2015] QSC 138 at [32]-[36].
In my view, the relevance of the discrepancy between the benefit and burden in this case is enhanced by two additional considerations.
The first is that the other residuary beneficiaries have already received distributions of the residue to a combined total of $220,000. I am not in a position to, and do not, make any criticism of the plaintiff for making what can now be seen to have been premature distributions to those other residuary beneficiaries. The decision to distribute may have been entirely reasonable and appropriate when it was made, some five years ago. However, the fact remains that the other beneficiaries have had the benefit of significant distributions of the residue, and hence of funds that might otherwise have been used in the pursuit of these proceedings for their benefit.
The second is that the first defendant’s proportionate share of the distributed residue ($110,000) remains in an account under the plaintiff’s control. In that sense, the funds remain available to be used by the plaintiff in pursuing this litigation. Indeed, as the first defendant concedes, the plaintiff could do so under the judicial advice obtained in November 2012 and hence without the judicial advice sought in these proceedings. I infer that the plaintiff is disinclined to use these funds because to do so might, in due course, expose it to a claim by the first defendant on the basis of a differential or disproportionate distribution of the residue.
In my view, the combination of the above matters (i.e. the discrepancy between the benefit and burden of the proceedings, the earlier distribution to the other residuary beneficiaries, and the $110,000 in residue funds that the plaintiff still has on hand) requires that I consider the alternative options that might be available to the plaintiff or residuary beneficiaries in pursuing the claim against the defendants.
Alternative options open to the plaintiff or other residuary beneficiaries
Given the stage the proceedings have reached, and the time, effort and costs spent in advancing the proceedings to this stage, and the parties’ acceptance that there is at least reasonable merit in the proceedings, I would be reluctant to countenance the proceedings being abandoned.
However, there are other options which may be open to the plaintiff. The plaintiff could seek two-thirds of the funds necessary to complete the proceedings from the other residuary beneficiaries (with the remaining one-third to come from the $110,000 of residue funds allocated to the first defendant). The plaintiff could fund the proceedings out of the $110,000 but seek an indemnity from the other residuary beneficiaries as to two-thirds of the funds required. Alternatively, the plaintiff could leave it to the other residuary beneficiaries to apply to take over the proceedings themselves.
Given the interest of the other residuary beneficiaries in the continuation of the proceedings, it is appropriate that there be some exploration of their attitude to the proceedings, and their ability and preparedness to fund it (either by providing two-thirds of the funds required, or by providing the plaintiff with an indemnity as to two-thirds of the costs of the litigation).
I have not been given any information or evidence as to the other beneficiaries’ attitude to the proceedings against the defendants, or their ability and preparedness to fund them. It may be inferred from the plaintiff’s position, to the effect that it will not pursue the proceedings if the judicial advice sought is not given, that the other residuary beneficiaries have not volunteered to fund the proceedings. But this inference only takes the matter so far.
In circumstances where the other residuary beneficiaries are the only persons likely to benefit from the proceedings, and have received substantial earlier distributions, there would be some obvious fairness in those persons providing their proportion of the required funding or indemnity. At the very least, I would require some satisfaction that the possibility of those other residuary beneficiaries bearing their proportion of the balance of the costs of the litigation has been explored, and exhausted, before determining that it is appropriate in all the circumstances that the plaintiff be entitled to fund the litigation from the rental income from the Erindale property.
If the other residuary beneficiaries cannot, or will not, fund or indemnify the plaintiff as to two-thirds of its costs going forward, I would need some explanation and persuasion as to why it is appropriate that the first defendant’s devise be used to fund the litigation. On the other hand, if the other residuary beneficiaries do not wish the proceedings to continue, or otherwise have no proper explanation as to why they cannot or will not fund or indemnify the plaintiff, then I am not presently satisfied that it would be appropriate that the plaintiff fund these proceedings through the use of the rental income devised to the first defendant. To do so would be to visit an unfairness on the first defendant and to prefer the interests of the residuary beneficiaries (who stand to benefit from the proceedings) over the specific devise (who will bear the burden of the proceedings).
Determination of the application for judicial advice
In summary, and while leaving open the possibility of a future application for judicial advice and directions on further information, on the information presently available to me, I am not prepared to give the judicial advice and directions sought.
Conclusion
For the reasons I have set out, I allow the appeal, set aside the declaration made by the Master, and decline to give the judicial advice and directions sought. I leave open the possibility of a further or renewed application for judicial advice and directions.