Under the various states’ legislation, trustees and responsible entities (REs) can apply to the court for advice or directions about the management or administration of a trust or registered scheme, including any exercise of power or discretion.  

The advice, if followed, has the benefit of protecting the trustee or RE from claims of breach of trust and entitles them to rely on their indemnification from the assets of the trust associated with following the advice.

The ability to seek judicial advice is a valuable protective mechanism which should be considered as part of a trustee’s risk mitigation strategy in any decision, particularly if the action is significant or potentially contentious. Here, lawyer Sarah Sherman explains.

Key takeaways

1. Judicial advice is an important risk management tool for trustees and REs.
2. It can provide protection to trustees and REs from claims of breach of trust where there is some uncertainty as to whether a particular course of action should be taken.
3. It provides certainty as to the ability for legal costs of commencing or defending proceedings to be indemnified from trust assets. 

When to seek judicial advice?

Common circumstances where a trustee may elect to seek judicial advice include where the trustee— 

• intends to either commence or defend legal proceedings
• wishes to amend the trust instrument (such as a trust deed or constitution), but is unsure as to whether such amendments are within its power
• is uncertain as to the correct interpretation of the trust instrument
• is making a decision which it believes has the potential to give rise to a dispute between it and the beneficiaries of the trust.

Benefits of judicial advice

Judicial advice can be beneficial to both the trustee and the beneficiaries of the trust. 

Where a trustee acts in accordance with a direction obtained from the court, it is taken to have discharged its duty as trustee and not be liable for breach of trust in relation to that action. 

This is very significant for trustees seeking judicial advice regarding commencing or defending litigation, as following the judicial advice will ensure the trustee’s costs are indemnified from the trust’s assets. The High Court has previously indicated trustees should seek judicial advice before taking any steps in proceedings, although it is not compulsory in order to be indemnified from the assets of the trust. 

The trustee seeking judicial advice also serves to protect beneficiaries by ensuring the trustee is acting in their best interests, properly incurring costs, and without breaching their duties as trustee (whether knowingly or not).

How to seek judicial advice

Each state Supreme Court has slightly different processes for obtaining judicial advice. In theory, the process is supposed to be a cheap and simple mechanism for determining questions relating to the trust.

To obtain judicial advice, an application is made to the court alongside a statement of facts, and in some states, written advice from counsel (which remains confidential and subject to privilege). Often the trustee is the only party to the application (especially in non-litigious matters). 

There is an onerous obligation on the trustee to make full disclosure to the court. In addition, the court may also defer a decision until all parties affected by the proposed advice have been given notice of the application and an opportunity to be heard in opposition. This can extend the timeframe for obtaining the judicial advice.

Whether it is worthwhile depends on the nature of the decision, and the risk to which the trustee is exposed.

Our team can explain how and when a trustee or RE should seek judicial advice and answer your queries.