Judicial Advice - An Important Mechanism for Trustees

Wills and Estates: 18 March 2019

When acting as a Trustee of a Trust, including an executor or administrator of a deceased estate, you will often be confronted with questions concerning the administration, execution or management of the trust or questions regarding the interpretation of clauses within the trust instrument.

So, what do you do?

Applications for Judicial Advice, Direction or Approval

In Victoria, a proceeding may be brought under Order 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 which allows a Trustee to request the Court's determination of any question:

• arising in the administration of an estate or in the execution of a trust;
• as to the composition of any class of persons having a claim against an estate or a beneficial interest in an estate or in trust property;
• as to the rights or interests of a person claiming to be a creditor of an estate or be entitled under the Will of a deceased person (or on an intestacy of a deceased person) or to be beneficially entitled under a trust.

This provision also allow for Trustees to approach the Court seeking an order:

• approving a sale, purchase, compromise or other transaction by a Trustee in respect of trust property;
• directing an act to be done in the administration of an estate or execution of a trust.

It should be noted that a creditor or a beneficiary of an estate or trust can also utilise this provision for the same purposes and also to seek an order requiring an executor, administrator or trustee to furnish and verify accounts, pay funds into Court or do or abstain from doing something.

Recently, His Honour Justice Digby of the Supreme Court noted that the only precondition to the exercise of the Court's power under this rule is that an applicant must be able to point to the existence of a question in respect of the administration of the trust property or a point of interpretation of the trust instrument. Once it has been determined that this precondition has been met, there are no limitations on the factors in which the Court may take into account when exercising its discretion, just so long as the factors are relevant.

Recent Examples

Failure to make an application regarding a binding death benefit nomination

In 2013, in a case in which Aitken Partners acted for the successful Plaintiffs, the Supreme Court of Victoria made findings against the Trustee of a self-managed superannuation fund and commented that, in this case, the trustee should have, but failed to, seek judicial advice in two instances:

• before making a decision to refuse a binding death benefit nomination based upon the purported invalidity (which was held to be valid by the Court); and
• when defending litigation brought against it.

As a result of the Trustee's failure to make an application under Order 54, and for other reasons explained in the judgment, the Court ordered not only that the Trustee was liable to pay the Plaintiff's costs of the proceeding, but that it did not have a right of indemnity out of the trust assets to meet the judgment or pay its own fees. This case should serve as a warning to all trustees.

The citation for this case is Wooster & Anor v Morris & Ors [2013] VSC 594.

For more information on this case, please see Implications of Morris case on Self-Managed Super Funds and Binding Death Benefit Nominations

Application for approval of executors' sale of estate property

In 2012, in a case in which Aitken Partners acted for the successful Plaintiffs, an application was made by the executors of a deceased estate to the Supreme Court of Victoria for orders approving the sale of a property and motor vehicle belonging to the estate to meet the estate's liabilities. The Supreme Court of Victoria approved the sale and ordered that the First Defendant, who opposed the application, pay the costs of the Plaintiffs (and the Second Defendant) on an indemnity basis.

The citation for this case is Smoel v Morris [2013] VSC 291.

Application for approval of remuneration

In a NSW decision, an application was made by a trustee of a regulated super fund for the directors of the trustee to be remunerated because it was not specifically provided for in the superannuation trust deed. The Trustee sought judicial approval prior to paying the directors in order to avoid any suggestion of acting in a position of conflict. The Court found it was appropriate for directors to be remunerated but importantly agreed that this was a decision that could give rise to a question of conflict and it was therefore sensible to seek direction of the Court so the costs of the proceeding were ordered to be paid out of the trust fund.

The citation for this case in Re Retail Employees Superannuation Pty Ltd [2013] NSWSC 1681.

Application for direction as to participation in litigation

In late 2015, the Supreme Court of Victoria determined that it was appropriate, in the circumstances of that case, for the applicants (who were the executors / trustees of a deceased estate) to defend an appeal brought by two beneficiaries.

The citation for this case is Fast & Ors [2015] VSC 780.

For more information on this case, please see our blog titled Application for Judicial Direction - Court Approves Executors' Participation in Litigation

In February 2016, the Supreme Court of Victoria decided that a trustee was justified in defending litigation, however limited the scope in which the trustee was to participate.

The citation for this case is Olrey Pty Ltd (No 2) [2016] VSC 18.

For more information on this case, please see Indemnity out of trust assets for costs of engaging in litigation

More than one application may be appropriate

In January 2016 the Court of Appeal dismissed an appeal from a decision of the Supreme Court in relation to a judicial advice application, stating that it was more appropriate to be dealt with by way of a second judicial advice application.

The citation for this case is Olrey Pty Ltd (ATF FRG Investments Trust) [2016] VSCA 8.

For more information on this case, please see Leave to Appeal Refused - Further Application for Judicial Direction Considered Appropriate

Importance

As the Honourable Justice Digby commented in Fast & Ors, the intent of Order 54 is to enable the Court to assist in the administration of trusts by making practical and proportional orders well short of a general administration order. His Honour mentioned that the High Court has in fact described the advice given by the Court in this regard as private and personal advice, exceptional to the Court's ordinary function of deciding disputes.

It is evident from comments such as these, as well as the increasing use of Order 54 that the provision has an important role in protecting the interests of the trust by ensuring that appropriate action is being taken by a trustee as well as to protect trustees in respect of potential litigation and various cost ramifications in undertaking the administration, execution or management of the trust.