Yes, it’s true.  Non-adversarial litigation does exist. In this bulletin, we will consider proceedings commenced by a trustee seeking judicial advice under section 63 of theTrustee Act 1925 (NSW) (Trustee Act). 

This section allows a trustee, who may also be an executor or administrator of a deceased estate, to apply to the Court for advice or direction on a question respecting the management or administration of trust property, or interpretation of a trust instrument.

The recent Supreme Court of New South Wales decision of Rosewood Research Pty Limited (No. 2) [2014] NSWSC 1226 emphasises that judicial advice proceedings are non-adversarial in nature and the Court should be wary of allowing third parties to participate in such proceedings.  The participation of a third party is sometimes unavoidable as section 63 may require a trustee to give notice to a person that may be affected by the advice.  Nevertheless, the Court expects that a non-adversarial approach be taken by the parties.

Why seek judicial advice?

There are many circumstances when judicial advice proceedings may need to be obtained by a trustee of a trust.  The advice sought must relate to the management or administration of the trust property or concern the interpretation of a trust instrument such as a deed of trust or will.

Some examples of circumstances include:

  • If an executed copy of a trust deed cannot be located and the terms of the trust are unclear.
  • If a trustee wants to amend a trust deed but it is unclear from the terms of the deed whether it has the power to do so.
  • Where a trustee is uncertain about the interpretation of a term of a trust deed or if a number of interpretations of a term in the trust deed are available.
  • When a trustee wishes to commence proceedings or defend proceedings that are commenced against it.

Advantages of obtaining judicial advice

If judicial advice is obtained pursuant to the Trustee Act and the trustee acts in accordance with the advice, then the trustee will be deemed to have discharged its duty as trustee if it follows the advice.  This gives the trustee protection from personal liability, and access to trust funds, for actions taken in discharging trustee obligations.

However, the trustee must not have been guilty of any fraud or wilful concealment or misrepresentation in obtaining the judicial advice to obtain this protection.

The Rosewood case

The Rosewood case serves as a reminder that judicial advice proceedings are non-adversarial in character.

The case involved a trustee of a charitable trust that had sought, amongst other orders, judicial advice that it was justified in defending proceedings commenced against it by third parties alleging that the trustee had committed various breaches of trust, and using trust funds to pay legal costs of the judicial advice and the third parties’ proceedings.

The third parties’ proceedings commenced against the trustee had been authorised by the Attorney General for New South Wales, in the exercise of the Attorney General’s supervisory jurisdiction over charitable trusts. Those proceedings were postponed until the trustee had obtained judicial advice.

The third parties objected to the judicial advice being given to the trustee and, although not a party to the judicial advice proceedings, were granted leave to provide material and submissions to the Court to support their objections to the judicial advice sought to be given by the Court.  The involvement of the third parties in the judicial advice proceedings added considerably to the time and cost of the proceedings.

The third parties also sought that their costs be paid out of the trust assets.

In deciding to give the judicial advice, notwithstanding the objections of the third parties, the Court declined to order that the third parties’ costs be paid out of the trust assets as the Court identified that their opposition had been “largely unsuccessful” and they “appeared to take a decidedly adversarial approach to these proceedings”.  The Court’s advice also entitled the trustee to take certain steps in the third party proceedings, and to apply trust funds to pay its legal costs of both sets of proceedings.

The Court emphasised that an adversarial approach to judicial advice proceedings under section 63 of the Trustee Act was “not something that should be encouraged” and that where a trustee seeks advice about defending proceedings commenced for breach of trust, the Court should be “wary” of permitting a complainant to participate.

Conclusion

Judicial advice proceedings can be utilised by trustees to provide protection for intended actions in the exercise of their powers as trustees.  In circumstances where proceedings have been commenced against a trustee, the obtaining of judicial advice can usefully place those proceedings on hold and provide the trustee with certainty in respect of steps it can take, including whether it is entitled to use trust funds to pay for expenses related to the proceedings.

If objection is to be taken to the obtaining of judicial advice by a trustee, care should be taken to ensure that an adversarial approach is not adopted.  On the assumption that the Court will allow a party to object, there is a real risk that an overly adversarial approach could expose the objecting party to an adverse costs order.