Federal Court of Australia

Mawson v AVet Health Pty Limited [2023] FCA 742

ORDERS

THE COURT ORDERS THAT:

1.    The application for judicial advice is refused.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

JACKMAN J

1    These proceedings were commenced on 20 April 2022 by originating application and concise statement seeking relief pursuant to the Fair Work Act 2009 (Cth). By consent, orders were made on 6 February 2023 by the docket judge, including an order that the applicant file and serve a statement of claim by 17 March 2023. At a case management hearing on 3 April 2023, Mr Wood SC, counsel for the applicant, said that the matter had gone slightly off track, largely because of his involvement.

2    The wrinkle was said to be that there are some shares that were part of the applicant’s, Ms Mawson’s, employment remuneration. One of the complaints that Ms Mawson wishes to make when the claim is pleaded is that the dealing with those shares was oppressive and therefore, claims are proposed to be made in respect of that share property. Counsel pointed out that the shares are held on trust and that the trustee, being Ms Mawson, was making an application in respect of trust property. Counsel then referred to High Court authority which suggests that it is desirable in those circumstances for the trustee to get judicial advice before commencing or defending a proceeding in respect of trust property: see Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [70]-[74] (the Macedonian Church Case).

3    Mr Wood SC then referred to a timetable for a judicial advice application and later said that it was prudent for the trustee to seek judicial advice wherever the trustee proceeds with litigation because, without the benefit of judicial advice, the trustee might not have the benefit of the indemnity against trust property for its expenditure. Mr Wood SC pointed out that he would tender a confidential opinion by counsel on the judicial advice application and therefore, the application should be heard by a different judge from the docket judge. I note that the docket judge was not taken to the terms of the relevant trust deed. I also emphasise that the docket judge did nothing to initiate or encourage this application, and, indeed, questioned whether it was necessary (T3.30-31).

4    Against that background, the matter has come before me today on the application of Ms Mawson as trustee of the discretionary trust known, with an engaging lack of solemnity, as the LaLa Trust, for judicial advice on the question whether she, as the applicant and as the trustee of the LaLa Trust, is justified in filing the statement of claim attached to the affidavit of Leonard Lozina sworn 20 June 2023, and in prosecuting that claim. The application is supported by the affidavit of Mr Leonard Lozina of 20 June 2023, a statement of facts dated 28 June 2023 and a confidential memorandum of advice by senior counsel dated 28 June 2023.

5    I am satisfied that the Court has accrued jurisdiction to give advice pursuant to s 63 of the Trustee Act 1925 (NSW) (Trustee Act) in the circumstances of this case. The application for judicial advice is an aspect of the overall controversy constituting the relevant “matter” within the meaning of that word in s 76(ii) of the Constitution: see the discussion in Australian Securities and Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1; (2001) 204 CLR 559 at [50]-[55] (Gleeson CJ, Gaudron and Gummow JJ). Once seised with jurisdiction, the Court has power to make orders of such kinds, including interlocutory orders, as the Court thinks appropriate: s 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act).

6    I have referred above to counsel’s reliance on the Macedonian Church Case as to the desirability of a trustee seeking judicial advice before incurring the costs and expenses of prosecuting or defending litigation. The statements made by the High Court in that case were not a statute. Rather, they comprised judicial reasoning referable to the case before the Court, as the Full Court observed in QB4 Capital Pty Limited v Guardian Securities Limited [2023] FCAFC 72 at [110].

7    There are potentially two grounds of distinction with the present case. First, cl 7.12 of the trust deed for the LaLa Trust (Trust Deed) provides as follows:

A Trustee shall not be liable for acting in accordance with the advice of a legal practitioner, of at least six years standing, with respect to the Trust. The Trustee may in particular conduct legal proceedings in accordance with such advice without obtaining a court order. A Trustee may use (or reimburse itself from) the Trust Fund for any expenses incurred in acting in accordance with such legal advice.

8    Considered on its own, it is relatively common to find in a trust deed a provision enabling the trustee to rely on legal advice and to be exonerated from liability in doing so. However, cl 7.13 provides that:

Clause 7.12 does not apply:

…

(b)    if proceedings are pending to obtain the decision of the court on the matter; [or]

(c)     in relation to a Trustee who has a personal interest in the subject matter of the advice ...

9    In QB4 Capital, the Full Court expressed doubt at [110] as to whether the statements in the Macedonian Church Case would apply to trustees who have the benefit of an express clause in the trust deed enabling the trustee to rely upon legal advice given by counsel or solicitors and to be exonerated from liability in doing so. Such clauses typically offer as much protection to the trustee as judicial advice pursuant to s 63 of the Trustee Act. In the present case, taking cl 7.12 of the Trust Deed on its own, it has the advantage of expressly referring to the specific matter for which the trustee sought protection, that is, the right of reimbursement from trust assets for the costs and expenses of litigation.

10    Further, there does not appear to be any difficulty with other parties who derive their rights from the terms of the trust being bound by the trustee’s reliance on legal advice pursuant to cl 7.12, whereas, pursuant to s 63(11) of the Trustee Act, the trustee would have to notify other persons in order to have them bound to the outcome of the application for judicial advice. There is no evidence before me of any other person having been notified, and I note that there is reference in the material to the discretionary objects including minors. Further, as is usual, the discretionary objects comprise open-ended classes of potential discretionary objects and it would not be practicable to give notice to all potential discretionary objects of such an application.

11    Accordingly, cl 7.12 would appear to provide at least as much, if not more, protection to the trustee than advice pursuant to s 63 of the Trustee Act. I will return in a moment to consider the operation of the exceptions in cl 7.13.

12    The second ground of distinction with the Macedonian Church Case is that s 37M of the FCA Act now requires the Court to apply the civil practice and procedure provisions in the way that best promotes the overriding purpose of facilitating the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. The civil practice and procedure provisions include the Federal Court Rules 2011 (Cth) and the provisions of the FCA Act with respect to the practice and procedure of the court, including s 23 of the FCA Act. The High Court’s reasoning in the Macedonian Church Case made no reference to the cognate provision in s 56 of the Civil Procedure Act 2005 (NSW) as to the overarching purpose of that Act being to facilitate the just, quick and cheap resolution of the real issues in the proceedings (noting the comma between “just” and “quick”). Section 37M is paramount to any judge-made principle pertaining to the practice and procedure of civil litigation involving trustees.

13    As a general rule, in my view, it is contrary to the overriding purpose of s 37M (and the associated duty under s 37N for the parties to conduct the proceedings consistently with the overarching purpose) for a trustee to seek judicial advice as to whether it should prosecute or defend proceedings in circumstances where it has the benefit of a clause permitting the trustee to rely on legal advice and to be exonerated from liability in doing so. The advice of a solicitor or counsel is typically sufficient and, as I have said, offers just as much protection as, if not more than, judicial advice, without the attendant delay and cost to the trustee or the use of scarce judicial resources. In making those remarks, I am dealing only with judicial advice as to whether or not to prosecute or defend litigation, and I should not be taken to be discouraging applications for judicial advice in other circumstances (for example, in relation to “trust schemes” by analogy with members’ schemes of arrangement under s 411 of the Corporations Act 2001 (Cth)).

14    However, there will be exceptional cases where the trustee may not be able to rely on such a clause. In the present case, cl 7.12 is subject to the highly unusual exception in cl 7.13 (c) where the trustee has a personal interest in the subject matter of the advice. Ms Mawson is one of the discretionary objects and, indeed, is nominated as the primary beneficiary. She may well benefit personally from any success she enjoys in her capacity as trustee, by way of a favourable distribution of income or capital from the LaLa Trust. Clause 14 of the Trust Deed expressly permits Ms Mawson, as trustee, to confer benefits on herself. Accordingly, it appears to me doubtful whether Ms Mawson would be able to rely on legal advice pursuant to cl 7.12. In those highly exceptional circumstances, there seems to me to be a practical point to the application for judicial advice, which may well have justified the time and cost involved.

15    I note also that cl 7.13(b) provides that clause 7.12 does not apply if proceedings are pending to obtain the decision of the Court on the matter. The “matter” in the present case is whether the statement of claim should be filed and the claim prosecuted. That obstacle would probably fall away if I dismissed the application for judicial advice, because it is not a question which seems to me to be a matter on which the underlying main proceedings seek the decision of the Court. In any event, that is a problem of the trustee’s own making by filing the application for judicial advice.

16    The highly unusual provision in clause 7.13(c) could readily be resolved, given the wide power of variation which the trustee enjoys pursuant to cl 16.1 of the Trust Deed, which is subject only to obtaining the consent of the appointor, who also happens to be Ms Mawson herself. It is difficult to see any justification for cl 7.13(c) and I have not come across such a provision before, qualifying the ability of the trustee to rely on legal advice. In terms of the present application, the Court must take the trust deed as it finds it, but this is a question which would have to be addressed on any future application for judicial advice. Ms Mawson as trustee might also give consideration to whether cl 7.13(b) should be deleted in the interests of clarity and certainty.

17    Turning then to the merits of the judicial advice application, there is a fundamental flaw in the application. While the statement of claim which is proposed deals with claims for oppression pursuant to ss 232 and 233 of the Corporations Act 2001 (Cth), it does not set out any remedy which is sought if those claims are successful, nor is any remedy for the oppression claims sought in the originating application. I do not have before me any proposed amendment to the originating application. Accordingly, on the face of the current and proposed pleadings, the claims for oppression in the statement of claim run into the sand and are completely pointless. Counsel has referred to a potential controversy as to whether the remedy of compensation is available in cases of oppression, being a matter on which judicial opinion is divided, but I am unable to proceed with the application in circumstances where no relief at all, and no relief by way of compensation, has actually been propounded in the statement of claim on which the Court’s advice is sought.

18    Accordingly, I refuse the application for judicial advice. Whether there is to be any different application made in the future is a matter for the trustee to consider, but as I have said, it will be a matter for the trustee to persuade me that I should grant judicial advice on any future application in light of the terms of cl 7.12 of the Trust Deed, which could readily be rendered available to the trustee by the trustee varying the terms of the trust so as to delete cl 7.13(c). Accordingly, the order which I make is that the application for judicial advice is refused.

Associate:

Dated:    3 July 2023