6451/05 IAN RICHARD CORISH & ANOR v THE ATTORNEY GENERAL'S DEPARTMENT OF NEW SOUTH WALES
JUDGMENT - Ex Tempore (Revised 15 November 2006)
1 HIS HONOUR: This is an application to settle an administrative scheme relating to a charitable trust known as the Ross Trust. The Trust was established by the late Nancy Ross Partridge and the late Jean Catherine Partridge. Those ladies were sisters, who had no children, and no close relative to whom they wished to leave the considerable wealth which they had acquired from their families. They joined in setting up the Ross Trust on 22 March 1991. The trust deed was executed at a time when the trust had no property at all, on the basis that it was intended that the trust would be fed with assets when the two settlors had died.
2 In 1991 those responsible for establishing the Trust inquired of the Australian Taxation Office about whether the Trust would have its income exempt from income tax, whether it would be free of capital gains tax, and whether any distributions it might make would be tax free in the hands of the recipients.
3 The Taxation Office at that time was not prepared to give a definitive answer, as the tax status of charitable trusts depended not only on the terms of the Trust Deed, but also on the actual activities that were carried out by the Trust and, of course, at that stage the Trust had carried out no activities. However, the advice of the Taxation Office was encouraging so far as the terms of the Trust Deed went.
4 Miss Jean Partridge died on 7 November 1991. Under her will, apart from some legacies totalling $36,000, her estate was left to her Trustees, upon trust to pay the income to her sister for life, and then to be held on the terms of the Ross Trust.
5 Miss Nancy Partridge died on 9 May 2002. By that time, there had been some changes in the law governing taxation of charities.
6 After the death of Miss Nancy Partridge the trustees approached the Taxation Office again, seeking a binding private ruling about the taxation status of the Trust. That advice was provided by the Taxation Office, on the basis of an assumption that certain amendments would be made to the Trust Deed, to bring the Trust Deed into line with the then requirements of the Taxation Office for the granting of tax relief to charitable trusts.
7 Without the Trust being administered on the basis of two amendments in particular that the Taxation Office was presented with, it would not accord tax-exempt status to the Trust's income.
8 The Trust Deed contains no power of variation. Thus, the Trustees have approached the Court, seeking the settling of an administrative scheme, to enable the Trust henceforth to be administered in the way in which the Taxation Office desires. They take the opportunity of also seeking some other provisions in the scheme.
9 There is a clear conceptual difference between a cy près scheme and an administrative scheme for a charitable trust. It is the difference between ends and means. A cy près scheme can be directed when it is impossible or impractical to carry out the objects of the trust in all the details the settlor stipulated. An administrative scheme supplements and/or clarifies any provisions the settlor has stipulated concerning the manner in which the objects of the trust are to be pursued, when practical circumstances show that the settlor's stipulation (if any) of the means is inadequate or impractical.
10 The Trust sets out its objects in Clause 10 of the Trust Deed, which provides:
"Objects of the Fund:
The general objects and purposes of the Fund for which it is established are:-
(i)(a) To use approximately 80% of the nett available income as hereinafter defined for the purpose of the support and endowment of medical and scientific research in New South Wales with emphasis on research directed at the improvement of the health and elimination or reduction of the incidence of disorders and diseases affecting infants and children.
(b) The Trustees may in their discretion support and endow medical and medical scientific research which has no direct relationship to infants and children if in their opinion it would be more appropriate to do so, whether by reason of the availability of other funds for the purposes set forth in this Deed or because they are of the view that such research in other fields of medical and medical scientific research is likely from time to time to prove more fruitful and beneficial to the community at large.
(ii) To use approximately 20% of the nett available income for the purpose of the sponsorship, support and endowment of students, scholars, artists and performers, engaged in the study, writing and performance and perfection of music and dance of all styles and varieties.
(iii) To regard such apportionment as an expression of the Settlors general intentions only and to exercise their discretion with regard thereto as they see fit from time to time.
(iv) It is the general wish of the Settlors that the endowments, scholarships and benefits made available by the Trustees shall be of a sufficient duration to maximise the prospect of a successful outcome."
11 Clause 6 is entitled "Management of the Fund". It provides, in Clause 6(ii):
"The Fund shall be managed by the Trustees with the general objective of carrying out the wishes of the Settlors and fulfilling the objects of the Trust."
12 The drafting style used by the scheme that the Trustees seek is an unusual one for an administrative scheme. It takes the form of requiring the Trustees to administer the trust as if the trust deed contained certain provisions. That form of drafting is influenced by the requirements of the Australian Taxation Office. It seems to me, though, that a scheme can be formulated using that drafting device, provided that what is achieved is in substance a direction concerning the mode of administration of the trust.
13 There is, it seems to me, some doubt about whether Clause 6(ii) as originally drafted related solely to the carrying out of charitable purposes.
14 Clause 6(ii) might, on one reading of it, be seen as setting out a separate object of the Trust, namely to carry out the wishes of the Settlors. The "wishes of the Settlors" as disclosed in the Trust Deed, include matters concerning the sort of qualifications that any replacement Trustees should have, the wish that the investment policy that had led to the accumulation of the family wealth (namely activities involving stocks and shares), should be continued, and the wish that I have already set out in Clause 10(iv) of the Trust Deed. Some, but not all, of those "wishes" are charitable. To the extent to which they are not charitable, and Clause 6(ii) thus provided for objects which were not charitable, it would be read down, pursuant to section 23 Charitable Trusts Act 1993.
15 As well, Clause 6(ii) in its original form required only a "general objective" to be aimed at in management of the Trust. As a matter of drafting, that form of words might leave open the possibility that something other than charitable objects could be pursued incidentally. If that were the correct construction, section 23 Charitable Trusts Act would read Clause 6(ii) down in that respect also, so that it related to charitable objects only.
16 It seems to me that it comes within the scope of an administrative scheme to direct the Trustees to administer the Trust on the basis that a provision of the Trust Deed, which is invalid, is treated as not being part of the Trust Deed. Thus, the order that will be made will include provision that the Trust should be administered as if Clause 6(ii) of the Trust Deed did not raise these possible problems.
17 There is a separate problem with the words "general objective" in Clause 6(ii). It is a requirement of current taxation law that there be a more definite statement of a charitable purpose than that. Tax-exempt status will not be accorded unless the Trust Deed is to be administered on the basis that its sole objective is to carry out the objects of the Trust.
18 In my view, achieving tax-exempt status for a fund like this is something which is of high importance for the practical operation of the fund. It is within the scope of an administrative scheme to restrict the activities of the Trustees to a manner of proceeding which would accord the Trust Fund significant benefits under the tax law. Thus, the scheme will include a provision directing the Trustees to manage the fund with the sole objective of carrying out the objects of the Trust.
19 There are some other provisions that the Trustees seek, which enable certain reasonable payments to Trustees to be made, on the basis that they are commercially reasonable, and that a payment to any one trustee is approved by the other. Those provisions are ones that are consistent with the manner in which the Trustees could remunerate themselves and recover their out of pocket expenditure under the Trust Deed, but the Taxation Office requires an explicit statement of the extent to which the income or property of the Trust may be paid, transferred or directed to any of the Trustees. In my view it is within the scope of the administrative scheme to direct the Trustees to administer the Trust Deed in accordance with such a statement of the circumstances in which they may themselves receive benefits from the Trust Deed.
20 Some other amendments were sought to the investment powers of the Trustees. The investment powers conferred by the Deed included an express provision entitling the Trustees to invest in any investment which is an authorised investment for Trustees according to the law of New South Wales, and also in certain other categories of investment.
21 Since the Trust Deed was entered, there has been a significant change in Trustees' powers of investment, arising from the incorporation of section 14 to 14DB inclusive into the Trustee Act 1925 by the Trustee Amendment (Discretionary Investments) Act 1997. Broadly, those amendments substitute a test of reasonable business judgment for the previous law, which restricted trustee investments to specific types of investment.
22 In these circumstances, the extra powers of investment that are sought - which are all specifications of particular types of investment - are not necessary, and I will not make a provision to that effect.
23 The Trust Deed as originally drafted contained an unfortunate drafting device, of referring to the people who would receive some benefit from the Trust, for advancement of the objects of the Trust, as "beneficiaries". The term "beneficiaries" in this Trust Deed does not have the same meaning that it ordinarily has in a Trust Deed. Rather, it has the meaning of a person whose activities are funded, for the purpose of advancing the objectives of the Deed.
24 There is a restriction in the Deed, in Clause 12(i):
"The beneficiaries shall be Australian citizens or have the status of permanent residents in the Commonwealth of Australia."
25 Clauses 14 and 15 of the Deed provide as follows:
"14. Nature of Endowment:
At the discretion of the Trustees they may advance moneys for or on behalf of any beneficiary on any one or more of the following bases:-
(i) Award, paid in a lump sum to the researcher, scientist, artist or performer.
(ii) An award on a periodic basis for a period to be determined by the Trustees at the time of making the endowment or later according to their assessment of the results, progress and outcome of the work of such researcher, scientist, artist or performer.
(iii) An award subject to such conditions as the Trustees see fit to impose.
(iv) An award for the purpose of employment of research, scientific, administrative or other staff to act with or to assist any other person.
(v) An award for the purchase and maintenance of plant and equipment for research purposes and for the purpose of acquisition of instruments including musical instruments, to be lent or given to the beneficiaries.
(vi) An award for travel within Australian and/or within foreign countries for the purpose of pursuing any of the objectives of this trust including research, instruction, study and training and observation.
(vii) Fees for schooling, tuition and training in Schools, Colleges, Universities and Institutes and other organisations and for accommodation and sustenance during such period in Australia and/or overseas.
15. The Trustees at their discretion may advance moneys or pay or give benefits to the beneficiary direct or to the University, Research Institute, Corporation, Enterprise, or Entity by which the beneficiary is employed, retained or contracted."
26 As a matter of construction, Clause 14 of the Deed is not an exhaustive statement of the way in which Trustees may advance the purposes contained in Clause 10. Nor is it a separate object of the Trust. Rather, it is an explicit statement of some of the means by which the objects of the Trust may be advanced.
27 The Trustees seek to have some additional powers, analogous to those in clauses 14 and 15, provided to them. There are some particular problems that they seek to cure by this. One of them is that a valid way of providing benefit to students and practitioners in the performing arts, particularly in music, is by arranging for world leaders to conduct masterclasses. Clause 14, as it presently stands, does not make explicit that the Trustees have such a power. In my view it is desirable for the administration of the Trust that it be made explicit that providing benefits in the form of payment of fees of such a person is a permitted manner of exercising the Trust powers. Clarification of the scope of the Trustees' powers is particularly desirable when this Trust is, on the face of the Deed, intended to be perpetual.
28 As well, the Trustees seek to have it made explicit that they can make payments direct to the governing bodies of institutions in which researchers work, or with which students or performers learn or engage in activities that will advance their skills. The Trustees also wish to have it made clear that they can advance the objects of the Trust in ways that recognise that the way in which performing artists in music and dance advance their skills is through practical experience, and practical training. Because of the phrase "performance and perfection" in Clause 10(ii), advancement of skills of such people is clearly part of the objectives of the fund. In my view it is appropriate to make provision for what the Trustees want in this respect.
29 They did seek, as well, power to give money to such institutions for the endowment or creation of prizes and awards. I am not satisfied that they presently have that power, or that it is appropriate to confer any such power on them. Prizes and awards are capable of being a retrospective recognition of merit, rather than a means of providing for future activities that involve research or development of skills of performing artists. It seems to me that the whole thrust of the objects of the Trust is directed to the funding of activities of particular people in ways that, in the future, will be beneficial. I am not persuaded that the provision of prizes and awards is a way of carrying out the objects of the Trust. Further, enabling money to be paid to institutions for endowment or creation of prizes, scholarships and awards involves, it seems to me, a potential that there will be a delegation to that institution of the power to decide who should receive the scholarship or the research grant. I do not think that that is within the scope of the purpose of the Settlors either, and hence no such provision will be included. It is appropriate, however, to make an explicit statement of the power of the Trustees to grant scholarships. Scholarships, in the field of performing arts, are capable of covering the provision of funds so that a student or performer has opportunities for practical training and skills development, of the kind I have earlier mentioned.
30 They also seek to have a clause included which reads:
"E.4. Money or benefits may be paid or provided to an organisation for the support and endowment of people provided:
(a) a majority of the recipients of any such support or endowments are Beneficiaries; and
(b) all of the recipients of any such support or endowments would have been Beneficiaries but for the fact that some of them are not Australian citizens or permanent residents of Australia."
31 The objective of including that provision was, it was said, that sometimes a medical research team doing valuable work will include people who are not Australian residents or citizens, and the research effort may, nonetheless, be a substantially Australian effort.
32 I can see the merit in that argument, if what one was doing was trying to work out, from scratch, a desirable way of funding medical research. However, it seems to me that the provisions of Clause 12(i) (para [24] above) of the Deed are an important limitation on objects of the trust. While in Clause 10(i)(a) the medical and scientific research is restricted to research in New South Wales, there is no geographical limitation on where the activities that are advanced under Clause 10(ii) take place. However, for both Clause 10(i) and (ii), Clause 12(i) limits the people whose activities are supported, to advance the objects, to Australian citizens or permanent residents. That seems to me to be more than a mere matter of administration. Except when the circumstances exist that would justify a cy près scheme, it is not possible to overcome such a limitation. Even if I were wrong in thinking that Clause 12(i) is in substance a limitation on the objects, it seems to me that overcoming that limitation would be beyond the scope of an administrative scheme, when there is no practical difficulty in complying with Clause 12. Thus, I will not include that particular provision.
33 Other provisions are aimed to at providing the Trustees with a mechanism for checking that the grants they make are properly spent. Another is designed to free the Trustees from a requirement to report to certain governmental authorities, at least some of whom no longer exist, and some of whom have no interest in receiving such reports. That objective is achieved by making the reporting obligations of the Trustees ones that they need perform only to the extent required by law. It is, it seems to me, within the scope of an administrative scheme to require the Trustees not to engage in pointless waste of the Trust's money.
34 The final amendment which is sought is one to the winding up provision of the Trust Deed. The original winding up provision said:
"In the event that the trust fund should be wound up for any reason whatsoever then all surplus funds and assets held by the trustees after payment of any outstanding debts and liabilities, together with the costs and fees of such winding up will be distributed by the trustees to the beneficiaries more particularly described and set forth in the tenth clause hereof."
35 Mr Singleton, for the Attorney General, submits to me that the winding up clause in a charitable trust is essentially an administrative matter. In the present case, I agree, as the winding up clause in the original Trust Deed sets out the way in which the purposes contained in Clause 10 can be advanced in circumstances where the existence of this particular trust is not to continue.
36 The Taxation Office requires, as a condition of tax exemption, that a more explicit statement should be made of the destination of trust funds on winding up. The Taxation Office's requirement is, it seems to me, one mode by which the general objectives in Clause 10 can be achieved. The particular drafting put before me is, I think, purely a matter of administration of the Trust. That the Trust be administered in this way is highly desirable, given the taxation benefits that will accrue.
37 I make orders as follows: