Succession: Emerging Issues

An executor’s duty

The relationship between an executor and beneficiary of an estate is similar to the relationship between a trustee and beneficiary. In Lee’s Manual of Queensland Succession Law [1] the learned author states:

“… [i]n addition to the fact that the Trusts Act 1973 defines the word “trustee” as including personal representatives, there can be no doubt that personal representatives’ obligations are quite as compelling as trustees’ obligations. There is property and there are persons entitled to it, namely the creditors of the deceased and those entitled to benefit under the will or intestacy. It may well be that a particular beneficiary cannot claim a proprietary right to any given property during the administration period and has only personal rights of action. However, that does not differ markedly from the case of a beneficiary under a discretionary trust, who likewise has no proprietary rights, but merely personal rights against the trustee.”

As such, the relationship between executor and beneficiary is one of the archetypal fiduciary relationships. [2] While Australian Courts generally agree on the nature of fiduciary duties, a comprehensive and accepted statement of those hallmarks or indicia of a relationship that attracts fiduciary duties has proven so elusive that the former Chief Justice of the High Court, Sir Anthony Mason, described the fiduciary relationship as “a concept in search of a principle”. [3] There is no doubt that the relationship between the executor and the beneficiary is nevertheless one which attracts the broadly described duties of trust and confidence.

CONFLICT OF DUTY AND INTEREST OF THE EXECUTOR / BENEFICIARY

Collett v Knox [2010] QSC 132

Recent cases evidence that the conflict of duty and interest for an executor who is also a beneficiary, is becoming an increasing source of litigation. The examples are numerous, but a particularly good example is found in the decision of Justice McMeekin in Collett v Knox [2010] QSC 132.

The applicant [4] made a claim for further and better provision out of the estate of his deceased’s defacto. At the time of trial he was wheelchair bound, partially blind and deaf, and aged 100 years. Essentially the point of dispute was whether the applicant was the defacto partner of the deceased. The estate was extremely modest comprising effectively of $1,100 in cash and otherwise a property valued at about $500,000 where the deceased and her defacto had lived for about 34 years prior to the deceased’s death. The applicant was seeking to be given a life interest in that property.

The issue of whether the applicant was the deceased’s defacto comprised a significant amount of evidence at the trial. Ultimately his Honour concluded that the applicant was a defacto.

The respondent executors to the application were the deceased’s son and his wife. They were also the remainder beneficiaries of the estate.

The executors contended that the applicant was merely a boarder in the deceased’s home throughout the course of the 34 years during which they lived together. The respondents forcefully advanced a case to demonstrate that the applicant was not the deceased’s de facto.

Having found that the applicant was in fact the deceased’s defacto spouse, the court turned to consider the executors conduct in the defence of the proceedings. The legal fees incurred by the executors was said to total over $70,000 whilst the applicants own costs were estimated at between $25,000 and $30,000.

The executors maintained at the hearing that irrespective of the outcome of the proceedings, the property (being the one in which the applicant sought a life interest) would need to be sold to meet the estate’s legal costs and outlays.

Underlying that proposition, the court concluded, was the assumption by the executors that they had the right to tie the courts hands by incurring whatever costs they desired in the defence of the litigation, and in doing so, they were able to defeat the very order which the applicant sought, being the life interest in the house.

In considering this position his Honour reiterated the guiding principles that applied to executors in this context:

1. The executors had a duty to preserve the estate until the claim was resolved; [5]
2. Resort to generalisations that executors are entitled or obligated to uphold the will provide no guidance at all in some cases; [6]
3. Before embarking on expensive litigation the executors need to give careful consideration to what amounts they will expend and how best they should discharge their duties; [7]
4. Executors have a fiduciary duty to which they must have regard in conducting litigation affecting the estate; [8]
5. Executors have an obligation to objectively assess the evidence, impartially assess the merits of that application, and if necessary compromise the suit; [9]
6. Where executors are not disinterested bystanders (ie where self interest and duty potentially conflict) then there needs to be careful consideration of the options available and the wisdom of pursuing litigation regardless of the impact on the estate; [10]
7. The principle that ordinarily a trustee or executor is entitled as of right to be indemnified for expenses incurred before paying out the trust funds to anyone else only applies where the expenses have been reasonably and properly incurred; [11]
8. A trustee who, without the sanction of the Court [12] , commences an action or defends an action unsuccessfully, does so at his own risk as regards costs; [13]
9. Executors are not entitled to hide behind their appointment and claim that they have no choice but to litigate as hard as they can, incurring whatever expense they desire, and force their opponent to do the same, in an effort to defeat his claim and preserve their own interest. [14]

The important principle which is to be remembered from Collett’s case is that executors must be careful not to simply argue a case that propounds their own interests, but rather they must consider the interests of the estate as a whole. In other words, executors who find themselves in the position of defending an application for further and better provision which also affects their own personal interests because they are residuary beneficiaries cannot simply defend an applicant’s case on the thinly disguised basis that their own interests will be affected. Rather they must carefully weigh an applicant’s prospect of success when considering the reasonableness of their defence to the claim.

Costs consequences of executor’s breach of duty and interest

The determination of the question of costs in Collett’s case is particularly telling. The costs argument proceeded on the papers [15] . His Honour’s criticism of the executors’ conduct did not diminish with the passage of time. The evidence demonstrated that the applicant had made numerous offers of settlement which involved him receiving a life interest in the deceased’s property, all of which the executors rejected.

In finding that the executors had acted unreasonably in their defence of the proceedings, his Honour said:

1. The executors had failed to properly consider independent material which ought have influenced the decision to settle the applicant’s claim; [16]
2. That by the time of the mediation the executor’s ought to have formed a decision to compromise the claim, but it did not necessarily follow that all costs that the executors incurred up to that point in time were reasonably incurred; [17]
3. The executors had a fiduciary duty to discharge, and in dealing with such a small estate, they must have been conscious that they were substantially eroding that estate. [18]
4. Where executors effectively seek to protect their own interests by litigation it was “entirely appropriate” that the costs they incur come from their own share of the estate and not the other beneficiaries. [19]

Ultimately his Honour ordered:

1. That the applicant de facto have his indemnity costs out of the estate;
2. To the extent that those costs exceed $30,000, the payment of them be deferred until the expiration of the life interest;
3. The executors personally reimburse the estate for the moneys expended by them on litigation costs to the extent necessary to meet the cost order in favour of the applicant and to meet the administration costs;
4. The executors recovered their costs to the extent of $10,000 (their actual costs estimated at $70,000), payment of such indemnity recoverable only after the expiration of the life interest;
5. Otherwise the executors to bear their own costs.

Collett v Knox is a classic example of an executor faced with a conflict of duty and interest when he or she is both executor and beneficiary. As executors, they failed to:

1. Properly place all relevant material before the court both in support of the claim and against it;
2. Objectively asses the applicant’s prospects of success; and
3. Take reasonable steps to minimize the costs incurred by reaching a timely and proper settlement of the claim.

The executors’ defence of the proceeding appeared to be influenced by the executor’s interest as a beneficiary, and premised on the widely held misconception in estate matters that costs will always come out of the estate. It is simply not the law that whenever there is an argument about a will that the estate must pay everyone’s costs, including the executors’ own. Collett’s case demonstrates the incorrectness of this approach.

A similar view was more recently expressed by Peter Lyons J in Richards v Augustine (No 2) [2012] QSC 278 where in respect of an executors’ conduct of the defence of their sisters’ family provision application against their deceased’s father’s estate his Honour said:

“It is sometimes said that the primary duty of the person or representative is to uphold the will. [20] However, it has also been said over many years that it is the duty of executors either to compromise a claim for further provision out of an estate, or to contest it and to seek to uphold the provisions of the will. [21] In the present case, the respondents went well beyond what they were required to do by their duty to uphold the will. They had an obvious personal interest in opposing the applicant’s application. They appeared quite unwilling to recognise any merit in the applicant’s claim, though there seems to me to have been obvious reason for them to have done so. The fact that the costs of the proceedings have eaten up so much of the estate seems to me to be in no small part due to the approach taken by them to these proceedings. …”

Herrod & Ors v Johnston & Anor [22]

The Queensland Court of Appeal recently upheld an award of equitable compensation and compound interest [23] against executors in a case of an executor’s conflict of duty and interest in Herrod & Ors v Johnston & Anor. [24]

The deceased owned a leasehold interest in a property at Moonoomoo and ran a cattle business in partnership with the first and second defendants which comprised cattle, plant and equipment.

By the deceased’s will his sons, Harel and Robert, were to receive certain land as tenants in common in equal shares and daughters Harella, Leah and Rachael, were to receive deceased’s interest in partnership, together with residue of estate, as tenants in common in equal shares.

Harel and Rachael were appointed executors of will.

The plaintiffs, Harella and Leah, claimed that shortly after the death of the deceased, their brothers told them (incorrectly) that their interest in the partnership was worth $50,000 and pressed them to enter agreements surrendering interests for $55,000. Both plaintiffs agreed to the proposal after significant pressure was exerted over them by their brothers, however only one plaintiff entered into a formal written agreement.

In addition, funds that ought to have been treated as residue in which the plaintiffs were entitled to share were instead paid out to the widow. The brothers transferred the deceased’s share in the partnership to themselves in 1999 for payment of a specified sum, without complying with the notice requirements of the partnership agreement, and without actually paying any money to the estate for the value of the land. The brothers, after dissolving the partnership sold the property for a significant profit ($2.7M).

The plaintiffs alleged that the defendants acted in breach of trust and breach of fiduciary duty by engaging in self-dealing and a conflict transaction; engaging in transactions in order to benefit themselves to the detriment of the plaintiffs; misleading the plaintiffs by failing to account properly to them as trustees or fiduciaries; receiving trust property in breach of trust; and profiting from that property.

The defendants claimed that the plaintiffs were bound by their earlier agreements, which they contended were not vitiated or rendered unenforceable by any misrepresentation, undue influence or unconscionability. They contend that the agreements amounted to no more than a convenient way of administering the estate.

After a trial of the matter [25] which appears to have been primarily concerned with valuation evidence, the Chief Justice found that the value of the share of each of the plaintiffs in the estate was actually $159,475.54.

As to the agreement by the plaintiffs to forgo their interest in the estate for $55,000, his Honour the Chief Justice found the agreements were unenforceable on the grounds of both unconscionability and misrepresentation.

Specifically, His Honour found that each of the plaintiffs was in a special position of disadvantage vis-à-vis the defendants throughout the dealings which preceded the making of the agreements and the defendants acted unconscionably. This was because, amongst other things:

• The brothers were the only ones with the means to fully ascertain the value of the estate/partnership (eg number of cattle etc);
• The brothers stood to benefit financially and failed to advise the plaintiffs to seek independent advice;
• The parties religion (they were Jehovah’s Witness) meant men were the primary decision makers and in a position of dominance;
• The plaintiffs were still grieving;
• The brothers pressured that the matters had to be resolved urgently as they had to return to running the business.

His Honour also found that the brothers had misrepresented the value of the estate (namely number and value of cattle) and knew the information to be false.

It was held that the first and third defendants owed fiduciary duties in their capacities as executors of estate and the first and second defendants owed fiduciary duties to the estate and plaintiffs as partners and that all defendants had breached their fiduciary duties.

The first defendant breached his fiduciary duty:

• by purporting to transfer trust property to himself in the absence of fully informed consent of the beneficiaries (being the estate’s share of the partnership). That is, he failed to inform the plaintiffs of the value of the estate, give them a copy of the will or partnership agreement and they were not counselled to seek, and did not have, independent legal advice.
• (as executor) paying funds to the widow which ought to have been paid to the estate, not making payment to the plaintiffs under the agreement, and not meeting reasonable requests for information.

The second defendant breached his fiduciary duty by joining in with the first defendant in misrepresenting the value of the partnership assets and knowingly receiving trust property.

The third defendant breached her fiduciary duty as executor by joining with the first defendant in paying funds to the widow which ought to have been paid to the estate, acquiescing in her brothers’ taking the partnership interest; not making payment to the plaintiffs under the agreement, and not meeting reasonable requests for information.

The plaintiffs were found to be entitled to by election, to equitable compensation assessed in amount of $433,709.67 or account of profits.

Each of the plaintiffs swore to the use that she would have made of the monies had they been distributed to her properly from the estate by the executors. The chief Justice found that each of the plaintiffs would have put those monies to the best profitable use. Each had led a particularly frugal life with no inclination to waste financial resources when they became available. The intended uses were not advanced by the plaintiffs to found a claim for a loss of profits in particular ventures which were intended but not pursued, but as the basis for a computation of compensation in equity on a basis which surpasses the nominal.

His Honour held that the court had a discretion in computing equitable compensation to allow compound interest on the primary loss. That was on the basis of the default of the defendants as fiduciaries in improperly generating profits utilizing trust property to the detriment of the plaintiffs as beneficiaries.

His Honour considered the case was a prime one for an award of compound interest because the defendants invoked, as justification for their failure to discharge their fiduciary duties as executors or trustees, an agreement induced by fraudulent misrepresentation and tainted by unconscionability.

His Honour found that the brothers transferred the deceased ’ s interest in the partnership to themselves, without return to the estate, and Rachael (the sister executor) at the very least acquiesced in that. The brothers effectively took the benefits intended by the testator for his daughters and used them as a springboard for the acquisition of assets now of substantial worth.

The plaintiffs were entitled to elect therefore either equitable compensation with compound interest in a sum of over $430,000 or an account of profits. They elected equitable compensation.

The defendants appealed. Although there were a number of grounds of appeal, for the purpose of this paper, I propose only to deal with those that arise from the conflict of duty and interest of the executor beneficiary.

Muir JA [26] held that the strong findings of breach of duty and contumelious disregard of the interests of the beneficiaries supported an award of compound interest against the executors personally. His Honour observed that the orders for compound interest which were made by the primary judge were not imposed as a penalty, but with a view to ensuring that the respondent/plaintiffs were properly compensated and that no profit from the executors’ gross breach of trust remained in their hands [27] .

The Court of Appeal rejected the appellant’s contention that the primary judge has misapplied relevant principles by basing the award on what the respondents would have done with the subject monies had the estate been fully administered instead of focusing on the profits that the respondents made or were assumed to have made. Whilst the Court recognised that there were limited bases on which compound interest was traditionally awarded [28] the Court rejected that the authorities did not support the conclusion that the power to award compound interest was restricted, citing Hungerfords v Walker [29] where Mason CJ and Wilson observed:

“Equity has adopted a broad approach to the award of interest. It has long been accepted that the equitable right to interest exists independently of statute: Wallersteiner v. Moir [No. 2]. Equity courts have regularly awarded interest, including not only simple interest but also compound interest, when justice so demanded, e.g., money obtained and retained by fraud and money withheld or misapplied by a trustee or fiduciary: La Pintada. In admiralty, simple interest has been awarded in a variety of cases standing outside the authority conferred by statute. As Sir Robert Phillimore said in The Northumbria:

‘The principle adopted by the Admiralty Court has been that of the civil law, that interest was always due to the obligee when payment was not made, ex mora of the obligor; and that, whether the obligation arose ex contractu or ex delicto.’” ‖ (citations omitted)

Further, the Court referred to The Commonwealth v SCI Operations Pty Ltd [30] where McHugh and Gummow JJ referred to the passage in Hungerfords and said:

“It is true that in the administration of its remedies, equity followed a different path to the common law with respect to the award of interest. In cases of money obtained and retained by fraud and money withheld or misapplied by a trustee or fiduciary, the decree might require payment of compound interest.”

The judgment is a thorough consideration of the principles in relation to an award of compound interest. In the present context the important implication arising from executors who breach their fiduciary duties is the finding that the executors acting in breach of their fiduciary duty to the beneficiaries can be liable for both equitable compensation and compound interest. The appellants had a small win insofar as the Court of Appeal varied the rate of compound interest of 8% applied by his Honour the Chief Justice to 5%. [31]

Practice Point

What are the practical implications of the failure of the executor beneficiary, or even the executor who is aligned by blood, marriage or financial interest, to one of the beneficiaries, in failing to place all relevant evidence before the Court, both positive and negative? It is a rare case indeed to see an executor place all relevant evidence in their affidavit material in defence of a family provision application, let alone the evidence that it is positively in support of the applicant’s case. Rather it is the common circumstances in practice to find the executor who deliberately withholds information which he or she knows is favourable to the applicant’s case. Collett’s case provides a good basis for arguing against an executor’s entitlement to indemnity costs out of an estate in circumstances where it can be demonstrated that the executor has failed to faithfully discharge that obligation to place all relevant information before the court.

EXECUTOR’S DUTY TO INFANTS AND THE UNBORN

According to the learned authors de Groot and Nickel [32] it is appropriate in all cases where persons under a disability are beneficiaries that a litigation guardian be appointed to protect their interests. The authors express the opinion that during the period before appointment of litigation guardian, the personal representative has the responsibility which would otherwise repose in the litigation guardian themselves [33] .

Further, the learned authors at para 7.28 say:

“Where there is no one willing and capable of acting as a litigation guardian/guardian ad litem or tutor, it may be that the personal representative is under a duty to do so. There is no doubt that, where the personal representative cannot obtain effective direction, it is his or her responsibility to protect the interests of the infant to the full and a court should not put the personal representative in a position where he or she cannot do so.”

Respectfully, this must be the correct position, but it is surprising the frequency with which a personal representative not only does not seek to appoint a litigation guardian to protect the interests of infants, those under some other disability, or the unborn, let alone purport to protect those interests themselves.

An example which I encountered in recent years was the case of a man who died leaving behind his de facto spouse and a child only a few weeks old. The deceased had made a will in favour of his siblings and parents shortly before he knew his de facto was pregnant, and did not get around to changing it before his death. The executors were members of the deceased’s family so knew of the birth of his child only weeks before his death. Despite this, and knowing that no provision was made for the de facto or the child in the will, the executors commenced transmitting the deceased’s assets to his siblings and parents immediately after the expiration of the six month period from the deceased’s death [34] but before the expiration of the nine month period within which a family provision application might be brought [35] on behalf of the infant.

The solicitors acting for the executors sought to justify the executors’ actions on the basis that they had waited until six months after the date of death before commencing to transfer assets out of the deceased’s estate, and that they were under no obligation to protect the interests of the infant.

Plainly in my view, and consistently with the views of the learned authors de Groot and Nickel, the personal representative was under a duty to act in the interests of the infant and, knowing of the infant’s existence, and that no provision had been made for the child, it was incumbent upon them to have appointed a person to act as litigation guardian on the infant’s behalf for the purpose of bringing a claim or, at the very least, sought a direction from the Court as to whether they should or should not appoint someone to represent the infant’s interests. I have little doubt that in all but the most unusual cases, a Court would order an executor to appoint someone to represent the infant’s interest.

This of course is but one example; there are many such examples where executors, often motivated by self-interest, choose to ignore the rights of disabled beneficiaries, infants, the unborn or those without capacity so as to proceed to administer the estate in the interests of other beneficiaries, often the executors themselves.

Counsel’s role in being alert to the possible existence and rights of such a beneficiary as without capacity is important. The executor is in a fiduciary relationship with these beneficiaries without capacity and it is incumbent upon Counsel acting for executors to understand their professional responsibility in giving advice to those executors.

The other related area of concern in relation to the protection of infants and the unborn is in the question of proper construction of the terms of the will. Often it is the case that a will is capable of a number of different constructions, some of which would then benefit the interests of infants and the unborn while an alternative construction would be against their interests. The proper procedure in relation to those cases is again to ensure that a litigation guardian is appointed on behalf of all of the infants or unborns (assuming that their interests are the same), and that party then appears on the construction application to advance arguments of construction that would favour the infants. Ordinarily, this procedure is best served by the appointment of a specialist independent solicitor as the litigation guardian.

As a matter of course the litigation guardian so appointed is indemnified out of the estate for the costs of so appearing on behalf of the infants. [36]

EXECUTORS DEALING WITH DISAGREEMENTS WITH OR AMONGST BENEFICIARIES

It is not infrequently the case that executors have to deal with disagreements with beneficiaries. The classic circumstance is where the executor is a disinterested third party, often a solicitor, accountant or family friend, and the beneficiaries are the members of the deceased’s family. An executor may wish, for example, to compromise an applicant’s claim for further and better provision out of the deceased’s estate against the wishes of the beneficiaries. Alternatively, the executors may have a certain view about the proper construction of the will and the beneficiaries do not share that view. The executor however has a fiduciary duty to which they must have regard in conducting litigation affecting the estate [37] and they must act in accordance with that duty.

Two recent cases highlight the importance of taking steps early to protect the position of the executor who finds him or herself in disagreement with beneficiaries by applying to the Court pursuant to section 96 of the Trusts Act 1973 or pursuant to section 6 of the Succession Act 1981 for directions.

Section 96 of the Trusts Act provides:

“96 Right of trustee to apply to court for directions

(1) Any trustee may apply upon a written statement of facts 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.

(2) Every application made under this section shall be served upon, and the hearing thereof may be attended by, all persons interested in the application or such of them as the court thinks expedient.”

Section 6 of the Succession Act provides:

6 Jurisdiction

(1) Subject to this Act, the court has jurisdiction in every respect as may be convenient to grant and revoke probate of the will or letters of administration of the estate of any deceased person, to hear and determine all testamentary matters and to hear and determine all matters relating to the estate and the administration of the estate of any deceased person; and has jurisdiction to make all such declarations and to make and enforce all such orders as may be necessary or convenient in every such respect.

(2) The court may in its discretion grant probate of the will or letters of administration of the estate of a deceased person notwithstanding that the deceased person left no estate in Queensland or elsewhere or that the person to whom the grant is made is not resident or domiciled in Queensland.

(3) A grant may be made to such person and subject to such provisions, including conditions or limitations, as the court may think fit.

(4) Without restricting the generality of subsections (1) to (3) the court has jurisdiction to make, for the more convenient administration of any property comprised in the estate of a deceased person, any order which it has jurisdiction to make in relation to the administration of trust property under the provisions of the Trusts Act 1973.

(5) This section applies whether the death has occurred before or after the commencement of this Act.”

Effectively both section 6 of the Succession Act and section 96 of the Trusts Act provides the executor/trustee with an opportunity to make an application for directions concerning any property subject to a trust, or respecting the management or administration of the property, or respecting the exercise of any power or discretion invested in the trustee [38] .

The legislative scheme is founded on the premise that it is desirable that a trustee (or executor) in doubt as to a course of action should not proceed with it and seek relief later, but should seek advice first. [39]

Two such examples came before McMeekin J in Rockhampton in 2011.

In Public Trustee of Queensland v MacPherson [2011] QSC 169 the Public Trustee was the administrator of the estate of the deceased and he applied pursuant to section 134 of the Public Trustee Act 1978 for the opinion and direction of the Court as to whether he should settle family provision proceedings which were pending in the District Court.

The deceased had died leaving three adult children Eric, Pamela and David. Pamela and David brought family provision applications which were opposed by their brother Eric. The evidence demonstrated that the Public Trustee was having difficulty in obtaining instructions from Eric to enable it to file an affidavit or to comprise the proceedings.

The Public Trustee convened a settlement conference in which agreement was reached, in principle, to settle the family provision applications subject to the advice of the Court as to whether he ought to compromise the applications on the terms offered or whether he should require the proceedings to be tried. The estate was a very modest one, worth a little over half a million dollars at the date of death and comprising, substantially, the value of a house property gifted to Eric in the deceased’s will. The costs incurred had been substantial and the Public Trustee’s concern was that the costs were eroding the estate. Furthermore, the compromise which had been reached was very modest. David was prepared to withdraw his application whilst Pamela was to receive a 15% increase in her entitlement which amounted to about $15,000.00. This would have had the effect of reducing the respondent’s share of the residue by the similar sum.

His Honour accepted that the Public Trustee was right to be concerned about the ongoing litigation. He observed that in circumstances where the compromise suggested was eminently reasonable then it was likely that the Court would make an order altering the terms of the deceased’s will and, if that occurred, then it was unlikely that the respondent’s position could be any better than the terms proposed and was likely to be considerably worse given the probable costs of a trial. [40]

Referring to section 134 of the Public Trustee Act 1978 (Qld) his Honour observed that the High Court had emphasised that the provision:

“operates as ‘an exception to the Court’s ordinary function of deciding disputes between competing litigants’; it affords the facility for giving ‘private advice’. It is private advice because it’s function is to give personal protection to the trustee.” [41]

The Court therefore was not balancing two competing arguments of litigating parties but rather was being asked to provide advice and direction to enable the Public Trustee to properly discharge the duties of his office including the duty to protect the interests of Eric as best as could be done in the circumstances. His Honour went on:

“[21] A further point made by the High Court in Macedonian Orthodox Community Church is relevant here. While the Public Trustee seeks to be personally protected he also seeks to protect the estate which he has the task of administering. The plurality said:

“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.

It is, therefore, not right to see a trustee’s application for judicial advice about whether to sue or defend proceedings as directed only to the personal protection of the trustee. Proceedings for judicial advice have another and no less important purpose of protecting the interests of the trust.” [42]

In the circumstances, McMeekin J concluded that there was “little doubt” that the interests of the estate were protected by proceeding with the proposed compromise. That approach accorded with the statement of the High Court and the fundamental principle identified by the Privy Council in Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201:

“In exercising its jurisdiction to give directions on a trustee’s application the Court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties.”

A further similar such application was heard by McMeekin J in Kowalski v Public Trustee & Ors [2011] QSC 323.

Naturally the application for directions can, and should, be brought in a range of other different factual circumstances such as whether to prosecute or defend a proceeding. [43]

However the procedure is an important one to remember in the context of estate litigation, particularly family provision applications, where it is commonly seen that there is a beneficiary who brings an intransigent and unreasonable approach to settlement negotiations and who cannot be encouraged to reach a reasonable compromise in circumstances where it is the interests of the estate as a whole.

R.M.TRESTON

Footnotes

1. Sixth Edition at [9.20].
2. Equity and Trusts in Australia, Dal Pont and Chalmers (Third Edition) at [4.65].
3. Themes and Prospects in Finn (Ed, Essays in Equity, Law Book Company, 1985) page 246.
4. There were in fact two applicants, but this paper focuses solely on the defacto husband
5. Per McMeekin J at [165].
6. Per McMeekin J at [166].
7. Per McMeekin J at [166].
8. Per McMeekin J at [166].
9. Per McMeekin J at [167].
10. Per McMeekin J at [170].
11. Per McMeekin J at [174].
12. Section 96 Trusts Act direction of the court.
13. Per McMeekin J at [175].
14. Per McMeekin J at [180].
15. Collettt v Knox (No 2) [2010] QSC unreported, delivered 29 June 2010.
16. Collettt v Knox (No 2) p er McMeekin at [33].
17. Collettt v Knox (No 2) p er McMeekin at [38].
18. Collettt v Knox (No 2) p er McMeekin at [40].
19. Collettt v Knox (No 2) p er McMeekin at [40].
20. See for example De Groot and Nickel Family Provision in Australia (4th ed) para 6.6.
21. Re Lanfear (1940) 57 WN (NSW) 181, 183; Re Hall (1959) 59 SRNSW 219, 226-227; Vasiljev v Public Trustee [1974] 2 NSWLR 497, 503; see also Szlazko v Travini [2004] NSWSC 610 at [11]; Re Scali [2010] NSWSC 1254 at [10].
22.  [2012] QCA 360, decision of Muir, Gotterson JJA and Applegarth J.
23. Although the rate of interest was reduced from 8% to 5%.
24. [2012] QCA 360.
25.   [2010] QSC 98 per de Jersey CJ.
26.   At [50].
27. At [50] .
28. Per Muir JA at [29] and the authorities referred to therein.
29. (1989) 171 CLR 125 at 148.
30. (1998) 192 CLR 285 at 316.
31. Per Muir JA at [55].
32. “Family Provision in Australia” Third Edition para 6.13.
33. Vasiljev v Public Trustee [1974] 2 NSWLR 497 at 504, where this duty is implied at line D.
34. Section 44(3) Succession Act.
35. Section 41(8) Succession Act.
36. For examples see Trust Company Ltd v Zdilar [2011] QSC 5; Simpson v Simpson & Ors [2011] QSC 196.
37. Underwood v Sheppard [2010] QCA 76 per Holmes JA at [16].
38. Macedonian Orthodox Community Church St Petkainc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66.
39. In re Beddoe; Downes v Cottam [1893] 1 Ch 547.
40. Per McMeekin J at [8].
41. Macedonian Community Church case per Gummow ACJ, Kirby, Hayne and Heydon JJ at [64].
42. At [71]-[72].
43. Loughnan v McConnell [2006] QSC 359 ; Thomas Nominees Pty Ltd v Thomas and Ors [2010] QSC 417; Glassock v The Trust Company (Australia) Pty Ltd [2012] QSC 15.