BaptistCare Community Housing Ltd in its capacity as trustee of the Kitty Doyle Home Units Trust ACN 667330065 v Attorney General of New South Wales

Representation: Counsel:
M Izzo SC / S Gerber (Plaintiff)
T Glover SC (Defendant)
Solicitors:
Corrs Chambers Westgarth (Plaintiff)
Crown Solicitor’s Office (Defendant)

File Number(s): 2025/00056873

Publication restriction: Nil

JUDGMENT

1. Before the Court is an amended summons seeking judicial advice under s 63 or, in the alternative, orders pursuant to s 81 of the Trustee Act 1925 (NSW). The question for judicial advice is whether the plaintiff, BaptistCare Community Housing Ltd (BCHL), as trustee of a charitable trust called the Kitty Doyle Home Units Trust (Trust), would be justified in proceeding on the basis that it is empowered, under the Amended Scheme referred to below, to grant security over the Trust’s property to secure borrowings made for the purposes of the Trust.

2. Relief under s 81 of the Trustee Act will only arise if the answer to that question is ‘no’. In that event, BCHL seeks an order which, in essence, confers the relevant power in general terms or, in the alternative, an order authorising it to give the particular form of security identified in the proposed order.

3. The Attorney General of New South Wales authorised these proceedings under s 6 of the Charitable Trusts Act 1993 (NSW) and, while acting in the role of contradictor, did not oppose BCHL having the power to make borrowings secured against Trust assets.

Background

4. BCHL relies on two affidavits of Neville Zammit, Chief Financial Officer of BaptistCare NSW & ACT (BaptistCare), setting out in some detail the history of the Trust and the proposed transaction which has led to this application. By way of background, it is sufficient to note the following facts in order to understand the issues which arise.

5. The Trust’s constituent document is contained in the orders made by Young AJ on 3 May 2013 establishing a scheme to administer the Trust known as the ‘Amended Scheme’: Baptist Community Services v Attorney General of New South Wales [2013] NSWSC 500. At the time those orders were made BaptistCare (then called ‘Baptist Community Services – NSW & ACT’) was the trustee of the Trust. One of the reasons why orders establishing the Amended Scheme were made was that if changes were not made to the Trust’s administration, it would become necessary to sell some or all of the Trust’s real property. Young AJ said in his reasons at [6]:

… The situation now is that the annual expenses exceed the income and it is quite clear that this situation cannot continue because if it does the properties would need to be sold and a cy pres scheme put in for the moneys that would be generated.

6. As BCHL notes, the reference to a cy-près scheme in this passage appears to reflect an assumption that, in this scenario, the remaining proceeds of sale, after the Trust’s liabilities were satisfied, would be insufficient to purchase alternative housing suitable for the existing purposes of the Trust.

7. BaptistCare is a large and established charitable organisation that provides a range of care, accommodation and support services for seniors and people living with disadvantage. The current trustee of the Trust, BCHL, is a subsidiary of BaptistCare and is a special purpose vehicle, established in 2023, which now owns and operates BaptistCare’s social and affordable housing assets. Among those assets is a 79-dwelling complex at Five Dock (Five Dock site) which is the principal asset of the Trust.

8. At the time the Amended Scheme was established, the assets of the Trust comprised 32 bedsit style units and two cottages at the Five Dock site as well as cash. As some units were located on the second storey of the building, without lift access, they were becoming unsuitable for accommodating seniors. In 2017 BaptistCare (the then trustee of the Trust) was awarded a social and affordable housing contract by the New South Wales Government, a requirement of which was that BaptistCare redevelop the Five Dock site. It did so over the following three years by demolishing the two cottages and 32 bedsit units and creating a new apartment complex comprising 79 dwellings across two blocks. The new dwellings have been occupied since 7 September 2020 and as at 30 June 2024 housed 89 social and affordable housing tenants over the age of 55.

9. Finance for the redevelopment was initially provided by a loan from the Commonwealth Bank of Australia, which was then refinanced with Housing Australia, an entity established by the Australian Government in 2018, which was able to offer BaptistCare finance at a reduced cost as well as greater flexibility for its future borrowing requirements. Under the refinancing with Housing Australia, BaptistCare granted security over the Trust’s assets in the form of a general security agreement and a real property mortgage over the Five Dock site.

10. In 2023, BaptistCare began taking steps to transfer its community housing portfolio, including the Five Dock site, to BCHL, with the intent that BCHL would serve as a special purpose vehicle to hold those assets. The purpose of this restructure was to ensure an appropriate separation of BaptistCare’s community housing assets from its other operating divisions (such as aged care and retirement living) for capital risk management and regulatory purposes, and to provide greater opportunities to finance the growth of the community housing portfolio by creating a ring-fenced community housing vehicle. This required a novation to BCHL of the existing indebtedness of BaptistCare to Housing Australia. The aggregate amount of the debt novated to BCHL is significant, reflecting the significant cost incurred to redevelop the Five Dock site.

11. In addition, it is necessary for BCHL to provide new securities to Housing Australia (which has not yet occurred). The form of these new securities has been agreed, but they will not be granted until the outcome of this application is known. The new securities will comprise a general security agreement and a real property mortgage over the Five Dock site.

12. The proposed securities are in substantially the same form as the existing securities granted to Housing Australia, the only material difference being that the definition of ‘secured money’ in the new security documents makes clear that the money secured is only that relating to the facilities extended by Housing Australia to BCHL as trustee of the Trust.

13. I note the following points regarding the Trust’s debt to Housing Australia to be secured over the assets of the Trust. First, while the amount of that debt is significant, it is less than the Trust’s debt to Housing Australia before the restructure for the reasons Mr Zammit explains in his second affidavit of 26 March 2025 at paragraphs [30]-[31]. Second, the management accounts of the Trust indicate that, since 2023, it has been operating profitably and generated an overall operating surplus over the period from June 2013 to December 2024 despite the operating losses incurred during the period of construction of the 79 dwellings (which were covered by BaptistCare from its general funds). Third, based on the financial modelling undertaken by BCHL and BaptistCare, there is expected to be a sufficient level of cashflow in the Trust to service its debt to Housing Australia going forward.

Power to grant security

14. The Amended Scheme does not, in terms, state that the trustee may borrow or grant security. Nonetheless, it contains a number of general provisions on which BCHL relies as conferring the relevant power.

15. The key provisions of the Amended Scheme are as follows:

16. Clause 2 provides that ‘The Trust shall be administered by the Trustee in accordance with the terms of this Scheme’.

17. Clause 5(a)-(d) describes the Trust’s assets ‘[a]t the date of the Order establishing this Scheme’. Those assets comprised land containing the 32 bedsit units and two cottages then located at the Five Dock site, and cash.

18. Clause 6 sets out the objects of the Trust (and, to some extent, the powers of the Trustee), as follows:

The objects of the Trust shall be as follows:

(a) to allow the use of the Trust properties referred to in item 5(a) above and to acquire by purchase or otherwise such other home, homes or home units for the residence, use and enjoyment of BCS-approved single Senior Persons (who meet the social housing criteria as prescribed by Housing NSW) (“Eligible Residents”), with preference to be given to applicants who reside in the City of Canada Bay;

(b) to construct, set up and manage such home, homes or home units;

(c) to provide, endow, furnish and fit out such home, homes or home units with all necessary furniture, equipment and other facilities;

(d) to cater for the needs and generally to promote the welfare of the Eligible Residents in such manner as the Trustee from time to time deems necessary;

(e) to acquire or deal with any property and assets or do any other act or thing for the furtherance of these objects; and

(f) to do all such other acts, matters and things as may appear to be incidental or conducive to the attainment of the above objects or any of them or any objects of a like or similar nature.

BCHL notes that clause 6(a) refers only to the property in clause 5(a), which has the 32 bedsit units, and not to the two cottages. At the time the Amended Scheme was made, the two cottages were let at commercial rents to supplement the income of the Trust, and this fact was in evidence before Young AJ. This shows that real work was intended to be done by the powers in clause 6(e) and (f): they permit significant portions of the Trust property (at that time, two-thirds of its land) to be used to raise funds commercially for the Trust’s primary object of providing accommodation to Eligible Residents.

4. Clauses 8 and 9 deal with the integration of the Trust assets and BaptistCare’s community housing assets, which was the principal object of the scheme. Of particular relevance are:

(a) Clause 8, which states: (b) The capital and income of the Trust after payment of the expenses of establishing and administering this Scheme shall be applied by the Trustee for the provision of housing and accommodation for Eligible Residents and for the other objects referred to in item 6 above. The Trustee will pool the assets of the Trust with the other [BaptistCare] Community Housing Assets and manage them in conjunction with the [BaptistCare] Community Housing program. (c) Clause 9(a), which permits the Trustee to:

…draw on the general funds of [BaptistCare], mainly sourced from its other social housing projects where possible (including any surplus money it may hold from time to time from subsidies received from government funding such as under the National Rental Affordability Scheme (NRAS) for its community housing complexes), and apply them to the expenditure requirements of the Trust (including, without limitation, building upgrades and maintenance) as it may consider appropriate from time to time…

BCHL notes that this was a new power (not found in the then existing trust instrument) which appears to have been added by way of clarification only because it is implicit in the reasoning of Young AJ in the passage set out earlier that the trustee had a power of sale. That power of sale was presumably the catch-all power found in the provision in the existing trust instrument equivalent to clause 6(e) above.

(d) Clause 9(h), which permits the Trustee to:

…whenever in the opinion of the Trustee, any building, property or other asset of the Trust has ceased to be suitable for the accommodation of Eligible Residents, sell or otherwise dispose of all or any part of such building, property or other asset and to renew, replace or rebuild all or any part of such building, property or other asset in addition to or in substitution therefor…

(e) Clause 9(i), which, similar to object (f), permits the Trustee to:

…do any other act, matter or thing in furtherance of the administration and management of the affairs of the Trust as the Trustee considers appropriate from time to time.

(f) Clause 11, which provides:

The costs, fees, charges and expenses of the Trustee in connection with the administration of the Trust may be paid and provided for out of [BaptistCare’s] ordinary operational budget. This does not affect the Trustee’s rights of reimbursement, indemnity, exoneration or any other similar rights whether at general law or under statute.

16. BCHL notes that clauses 8 and 9 make it clear that, at the time of the Amended Scheme, BaptistCare’s general funds were available as a source of funding for the Trust. However, clause 11, by expressly preserving the trustee’s right of indemnity or exoneration, shows that the Trust was still expected to remain, at least in the longer term, economically independent. Its operations and activities would need to be supported by its own assets.

17. BCHL submits that, by applying the ordinary principles of contractual construction applicable to trust deeds (Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [17], [53]-[55], [59], [102]-[105]), an express power to borrow and grant security for such borrowing is found in clauses 6(e), 6(f), 8 and 9(i) of the Amended Scheme. I agree. In particular, clause 6(e) confers a power to acquire or deal with any property for the furtherance of the objects of the Trust (relevantly, use of the Five Dock site for social housing). A borrowing for that purpose involves an ‘acquisition’ of property by the Trust (the borrowed money) and the granting of security for the borrowing involves a ‘dealing’ with property of the Trust: Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367 at [88]-[90].

18. The broad residual power in clause 6(f) is consistent with that conclusion. It suggests that clause 6(e) should not be read narrowly and, in any event, clause 6(f) is sufficiently broad, when read with clause 9(i), to confer a power to borrow and give security where necessary to attain or further the objects of the Trust.

19. Further, clause 8, which requires the capital and income of the Trust to be applied for the provision of housing and accommodation for Eligible Residents and other objects specified in clause 6, encompasses the granting of a mortgage or other security over the trust capital (which includes the Five Dock site) for the purpose of advancing those objects: Re Bellinger [1898] 2 Ch 534.

20. Accordingly, the answer to the question on which judicial advice is sought is ‘yes’.

21. It follows from this conclusion that the alternative relief under s 81 of the Trustee Act does not arise because that provision is only engaged where the relevant power does not exist under the trust instrument. Notwithstanding this, it was proposed at the hearing that it would be sensible for the Court to make orders altering the terms of the Amended Scheme to incorporate an express power to provide security along the lines of the alternative relief sought under s 81. I note that this proposal is not to suggest that the provisions of the Amended Scheme mentioned above do not confer the requisite power; rather, it is a ‘belts and braces’ approach designed to ensure that third parties, including potential lenders, do not raise doubts in the future regarding the powers of the trustee of the kind which led to the making of this application.

22. The Court has power pursuant to its inherent jurisdiction to make an alteration to an administrative scheme originally settled by the court where, because of a change in circumstances, the interests of the charity can be better promoted by the alteration: Estate of Bower (deceased) (1980) 25 SASR 161 at 164; GE Dal Pont, Law of Charity (3rd Edition, 2021, LexisNexis) at [14.14]. There has been a change in the circumstances of the Trust since the Amended Scheme was established (in particular the redevelopment of the Five Dock site and the significant debt which has resulted from it), and I am satisfied that the proposed alteration will be in the interests of the Trust. Senior counsel for both parties indicated that they would settle a form of agreed orders to make the necessary alteration to the Amended Scheme and provide them to the Court.

23. I will also make an order in accordance with prayer 5 of the amended summons that the costs of and incidental to these proceedings and to the grant of security (including costs incurred by the former plaintiff, BaptistCare) be payable out of the assets of the Trust.

Conclusion

24. I direct that by 5pm on 7 May 2025, the parties exchange and deliver to my associate short minutes of order to give effect to these reasons. I will stand the matter over to 9:30am on a day convenient to the parties for the purposes of making final orders, unless the parties indicate to my associate beforehand that they are content for the relevant orders to be made in chambers.

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