Financial Services Regulation

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Unravelled: Seeking judicial advice on whether to seek judicial advice

9 December 2016

Written by Partner Malcolm Stephens

For more than 150 years trustees have been able to obtain advice from courts on matters affecting the management or administration of trust property and on matters respecting the interpretation of trust deeds. Trustees would usually only seek such advice, however, if they had doubts about a proposed course of action.

In 2008 the High Court (in Macedonian Orthodox Community Church) caused considerable consternation by appearing to suggest that trustees should always obtain judicial advice before commencing or defending court proceedings. It is not clear if the High Court intended to make such a far-reaching pronouncement, but the language which it used was quite clear. There has therefore been a considerable increase in the number of applications for judicial advice brought by trustees involved in litigation.

An unusual twist on this issue arose in the recent case of Bideena Pty Ltd ([2016] NSWSC 735). The decision arose out of an application for security for costs by defendants against a plaintiff trustee. The defendants argued that, because the trustee had not obtained judicial advice before bringing the proceedings, the trustee would not be entitled to apply trust assets towards any adverse costs order. The defendants argued that, in the absence of such an entitlement, the trustee would not be able to meet any adverse costs order and should therefore be obliged to provide security for costs.

In response to this application, the trustee sought judicial advice on whether it was required to seek judicial advice in order to be entitled to an indemnity from the trust assets. The trustee hedged its bets by also seeking advice on whether it should bring the proceedings.

Encouragingly, if somewhat redundantly, the court did provide advice that it was not necessary to seek its advice – and also advised that the trustee was entitled to bring the proceedings. Justice Sackar followed a number of recent Supreme Court cases which have concluded that, notwithstanding the decision of the High Court in Macedonian Orthodox Community Church, obtaining judicial advice is not a pre-requisite to being indemnified from trust assets for the costs of litigation.

Although this is welcome news for trustees, there is (unfortunately) still much to recommend a cautious approach in seeking judicial advice before commencing or defending court proceedings. Unless and until the High Court 'clarifies' its judgment in Macedonian Orthodox Community Church, there will be a risk for trustees that, in the absence of obtaining judicial advice, they be personally responsible for the costs of the proceedings or for any adverse costs order.

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