Performing your Duties as a Trustee:  When can the Court provide guidance? 

Rebecca Hegarty

Do you, or a corporate entity of which you are a director act in the capacity of trustee?
Have you ever been faced with a difficult decision in the performance of your duties as a trustee?

Whilst trusts have historically been utilised in the managing of family assets or philanthropic funds, over the years the use of trusts has expanded into the business and investment world.

A trust is an arrangement wherein a trustee holds assets (known as trust property) as the nominal owner for the benefit of one or more beneficiaries.  In turn, a trustee - whether a person or corporate entity, is given control over the administration of the trust property.  The trustee has a legal obligation to administer the trust in accordance with the purpose specified in the trust agreement.

The Court can sometimes provide guidance or advice for a trustee faced with a difficult decision in the course of administering its duties.  However, there are parameters around when the Court will provide such advice, and similarly when it will decline to do so.

Trustee Duties

A trustee has a number of key duties in the performance of its role - including:

  1. To act honestly, reasonably and in good faith;
  2. To act in accordance with the terms of the trust;
  3. To  avoid conflicts of interest;
  4. To act with care and diligence;
  5. To maintain proper accounting;
  6. To maintain and distribute income and capital as per the trust deed; and
  7. To preserve the value of trust assets.

Occasionally, a trustee can be faced with a dilemma in performing these duties - particularly where the prospect of personal liability for the trustee looms in the face of a decision that may be seen as not being in the best interests of the trust and its beneficiaries.

So, how can the Court assist a trustee?

Each state and territory in Australia has its own Trustee legislation.  In New South Wales, Section 63 of the Trustee Act 1925 (NSW) provides recourse for a trustee to approach the Court for opinion advice or direction on any question relating to either the management or administration of trust property, or the interpretation of a trust document.

In the Macedonian Church case [1] The High Court made a number of key observations regarding Section 63.  These included:
 

  1. It is not appropriate to read implications and impose limitations on the operation of Section 63 which are not found in the words of the section;
  2. There is nothing in the section that makes certain discretionary factors necessarily more important than others;
  3. An application under this section is summary in nature.  This means that the Court is able to assist the administration of trusts by allowing orders to be made in a less expensive and easier way than if they had to be obtained by expensive, protracted proceedings;
  4. Section 63 allows a trustee to obtain private and personal advice from the Court, as this provides the trustee with some personal protection against being held liable for breach of trust by being able to rely on that Court advice as validation for a decision or action;
  5. The role of section 63 will vary depending on the type of trust involved - so it may not always be appropriate for the Court to provide the advice for every type of trust;
  6. Section 63 gives more certainty to a trustee with regard to being able to obtain indemnity from trust assets, especially where its decision is contingent upon whether costs of the action or proceedings taken or defended by the trustee were properly incurred.6.    Any advice under

Recent examples of Section 63 applications

In the case of Camperdown Prime Pty Ltd [2018] NSWSC 106, a trustee sought judicial advice from the court under Section 63 as to whether to let a call option expire or be sold for value, and failing this - asked what other course to follow.  However, the judicial advice sought was essentially relating to commercial choices the trustee could have made.  In this circumstance, the court declined to provide advice, recognising that it is inappropriate for a court to give commercial advice in these types of applications.

In contrast, in Application by John William Kellert (no 2) [2018] NSWSC 94, executors of a deceased estate sought advice on whether they would be justified in giving effect to a Deed of Settlement & Release, or if whether commencing certain proceedings would be more appropriate.  The Court was willing to provide advice, and also noted that the application was supported by two confidential opinions of senior counsel which had indicated some of the likely issues to confront the trustees.  The Court considered what would be in the best interests of the beneficiaries.

Conclusion

The ability to make an application for judicial advice or direction is useful for a trustee when grappling with a decision which it believes may raise possible claims of breach of trust.  Section 63 of the Trustee Act 1925 (NSW) certainly provides some comfort for a trustee. In making an application for opinion advice or direction from the Court, a trustee should do so without 'fraud or willful concealment or misrepresentation'. Once having obtained the advice or direction, if the trustee acts accordingly, it will be deemed to have discharged its responsibility.


[1] 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 [20087] HCA 42 (4 September 2008)

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