Important High Court decision for trustees commencing or defending legal proceedings

The High Court decision in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand & Anor [2008] HCA 42 (4 September 2008) is important for trustees who propose to commence legal proceedings or defend legal proceedings against them.

The Facts

The background facts are complex and involve a number of legal proceedings commenced in the NSW Supreme Court concerning the Macedonian Orthodox Church (Church).

The main proceedings in the NSW Supreme Court are pursuant to the Charitable Trusts Act 1993 (NSW). They were commenced by a Bishop and a former parish priest of the Church. The defendants are the Macedonian Orthodox Community Church St Petka Incorporated (Association) and others. It is alleged amongst other things, that the Association holds land upon trust for the Church and the Association by its actions had repudiated the trust. The hearing of the main proceedings is fixed to commence on 17 November 2008.

The proceedings in the High Court stem from proceedings initiated in the NSW Supreme Court by the Association to obtain judicial advice under s 63 of the Trustee Act 1925 (NSW) as to how the Association should conduct the main proceedings.

At first instance, Justice Palmer of the NSW Supreme Court made certain orders in response to the judicial advice application. The Court of Appeal set aside those orders and dismissed the Association's judicial advice application. The Association appealed to the High Court. On 7 August 2008 the High Court allowed the appeal and restored the orders of Justice Palmer.

Relevant Law

The High Court considered, amongst other things, sections 63 and 85 of the Trustee Act 1925 (NSW). Part of s 63 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.

(2) If the trustee acts in accordance with the opinion advice or direction, the trustee shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the application, provided that the trustee has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion advice or direction.

Section 85 provides that the Court may relieve a trustee, in whole or part, from personal liability for breach of trust. This will only happen if it appears to the Court that the trustee has acted honestly and reasonably and ought fairly be excused for the breach and for omitting to obtain the direction of the Court in relation to the matter which is the subject of the breach of trust.

High Court Guidance On Judicial Advice Applications

The High Court made eight general points about s 63. They were:

• It is inappropriate to read implications or impose limitations on the operation of s 63 which are not found in the express words of the section.
• There is nothing in s 63 which limits its application to "non-adversarial" proceedings.
• There is nothing in s 63 or implied from s 63 that makes some discretionary factors always more significant or controlling than others. The fact that proceedings are "adversarial" does not make it a discretionary factor of such significance that would prompt the court to exercise its discretion against granting judicial advice under s 63.
• Proceedings under s 63 have a summary character. They assist the court's administration of trusts by allowing it to make orders that are less extreme than orders that might otherwise be made in more expensive general administration proceedings.
• Section 63 allows a trustee to obtain private and personal advice from the court. It is private advice because the function of the advice is to give personal protection to the trustee. The section operates as "an exception to the Court's ordinary function of deciding disputes between competing litigants".
• The role of s 63 will vary with the type of trust involved. Different considerations apply for a non-charitable private trust as opposed to a trust for a charitable purpose that may have public interest considerations. The position may also vary where the charitable trust is for religious purposes.
• One purpose of s 63 is to allow a trustee to obtain judicial advice about commencing or defending legal proceedings in recognition of the fact that the office of trustee is ordinarily a gratuitous office. A trustee is only entitled to be indemnified for costs and expenses properly incurred in acting as trustee. Judicial advice allows a trustee to be certain that it is proper to incur costs and expenses in legal proceedings. The option of s 63 judicial advice allows the interests of the trust to be protected and not "subordinated to the trustee's fear of personal liability for costs".
• The NSW Court of Appeal stated general principles about s 63. The High Court has said in relation to those general principles that, "Not all the propositions so stated represent sound guides in relation to applications under s 63".

The High Court made it clear that classifying legal proceedings as "adversarial proceedings" was not useful in determining whether advice should be given under s 63.

The Message

Trustees should always keep in mind their responsibility to protect the interests of the trust when commencing or defending legal proceedings. If possible personal liability for costs is an issue of concern for trustees, they should either obtain judicial advice under s63 or seek to retire as trustees.

Author: Gerard Basha