Application for orders excusing the plaintiffs and the present and past trustees
86 The plaintiffs seek an order pursuant to s.85 of the Trustee Act that they be relieved from any liability for "any breach of trust when dealing with any assets of the [Masonic Youth Fund] in accordance with the constitution of the said Fund as purportedly in force from time to time".
87 Section 85 is in the following terms:-
"85. Excusable breaches of trust
(1) Where a trustee is or may be personally liable for any breach of trust, the Court may relieve the trustee either wholly or partly from personal liability for the breach.
(2) The relief may not be given unless it appears to the Court that the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court in the matter in which the trustee committed the breach.
(3) Repealed.
(4) This section applies whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act."
88 On 17 February 2010, the fourth defendant to the proceedings that he intended to seek a similar order under s.85 in the following terms:-
"(1) An order pursuant to section 85 of the Trustee Act 1925 (NSW) that all past and present Members of the Executive of the NSW Masonic Schools Welfare Fund (also known as the Masonic Youth Welfare Fund of NSW & ACT) be relieved from any personal liability they may have or may have incurred for any breach of trust in permitting the plaintiffs to hold the assets of the said Fund in accordance with the constitution of the Fund as purportedly in force from time to time."
89 In his written submissions (paragraph [33]), Mr Whittle observed:-
"33. While a trust deed son tort is not liable for breach of trust if he, she or it stays within the terms of the trust, it is plain on the whole of the evidence that the Fund has been dealt with for many years in accordance with supposed objects adopted from time to time which were markedly different from the true terms of the trust. It follows that in so dealing with the Fund:-
(a) the individual trustees prior to 21 November, 1972 were in breach of trust;
and
(b) the plaintiffs, as their successors, have administered the Fund in breach of its true objects."
90 Mr Whittle submitted that the relief sought by the plaintiffs under s.85 is required even if orders are made that they be appointed trustees of the Fund and the trust property is vested in them and the orders are made to take effect from 21 November 1972. It was noted that any cy pres order varying the objects of the trust could only take effect from the day the order was made and not operate retrospectively so as to validate actions already taken by the plaintiffs.
91 It was submitted that a trustee de son tort is always a constructive trustee for the true trustee and, therefore, falls within the definition of "trustee" as contained in s.5 of the Act. As a consequence, a trustee de son tort has standing to seek relief under s.85.
92 In the present case, Mr Whittle emphasised that the plaintiffs only sought partial relief from liability for their actions whilst they had been administering the Fund. It was submitted:-
"37. Put shortly, they seek relief where they have acted in accordance with the constitution of the Fund as purportedly in force from time to time, but not when they have stepped outside the constitution.
38. There is no dispute that the plaintiffs have acted honestly in dealing with the assets of the Fund. It is also submitted they have acted reasonably. They have, from time to time, taken the advice of senior and experienced practitioners as to aspects of the trust, but were never alerted until recently to the problems which had been before the Court in the present proceedings. When they became aware of those problems, they sought the Attorney-General's leave to bring the proceedings. In the interim, they continued to administer the Fund as set out in the affidavit of Mr Bergstrom made on 12 February, 2010.
39. Further, the plaintiffs had no reason to think that the successive objects of the Fund had not been validly adopted until the original constituting document was submitted to legal scrutiny and the absence of a power to amend objects identified as a potential problem. So also, it was not appreciated by any party, including the Attorney-General, that the plaintiffs might not be the true trustees of the Fund until the Attorney-General's submissions were filed just before the hearing began.
40. If the Court accepts the plaintiffs have acted honestly and reasonably, then it is submitted that the partial relief ought to be granted. The effect of such relief will be that the trustees will be protected wherever they acted within the supposed objects of the Fund from time to time, but if and where they acted in a way which stepped outside those objects, they will remain liable for breach of trust. If they wish to seek further relief where they have acted outside the terms of the constitution of the Fund as from time to time supposedly in force, they will need to show in the specific case why it should be granted."
93 In his oral submissions, Mr Whittle identified the three elements to be satisfied before an order can be made under s.85. The first is the requirement that the trustee(s) have acted honestly. The second is that they have acted reasonably. The third is that they ought fairly be excused for the breach of trust and for omitting to obtain a direction of the Court in the matter in which the trustee committed a breach.
94 In the present case, it was said there was no evidence to suggest other than that the plaintiffs genuinely acted on what they considered was the constitution of the Fund from time to time and nothing in the case has been put forward which in any way impugns their honesty.
95 The legal advice received by the trustees as referred to in Mr Whittle's submissions was said to be evidence that went a long way in showing that they also acted "reasonably".
96 Mr Whittle acknowledged that if an order were made in terms of the partial relief referred to in paragraph [92], it could absolve the trustees who acted within the constitution but were in breach of trust for other reasons. Accordingly, the relief sought in terms of paragraph 3E was framed so as to provide absolution from breach of trust but only insofar as acts undertaken in relation to the constitution - not so as to absolve for breaches otherwise committed during the period as, for example, wrongful investment.
97 Mr Free, in his written submissions (paragraph [14]), observed that the desire of the plaintiffs and the members of the Executive for some type of formal excuse is understandable, given the history of the Fund and the long undiscovered miscarriage of the various amendments.
98 However, it was submitted that it was not appropriate for the Court to make "excusing orders" of the kind sought by the plaintiffs and the fourth defendant. In this respect, it was stated (Written submissions, paragraph [14]):-
"… The present proceedings were instituted for the purpose of regularising the future management of the Masonic Youth Fund, primarily with a view to clarifying and, if necessary, varying the charitable objects of the Fund. The proceedings have not been concerned with the question of any past breaches of trust. The evidence and submissions before the Court have not been directed towards questions of breach. While the historical material before the Court may permit some inferences to be drawn about past management of the Trust, that has not been the subject of close attention and appropriately directed evidence."
99 Accordingly, Mr Free submitted that there was an insufficient basis for the Court to make the orders sought which were effectively in the nature of "blanket orders" (albeit, directed to a particular class of breach) without the circumstances of any particular alleged breach being the subject of evidence and scrutiny.
100 Mr Free contended that an application for relief under s.85 needs to be considered in the context of the particular breach or breaches of trust sought to be excused. In this respect, it was observed that s.85(2) provides that an order under s.85(1) may not be made unless it appears to the Court that "the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the direction of the Court in the matter in which the trustee committed a breach". Satisfaction of these pre-conditions, Mr Free argued, requires close consideration of the circumstances of the particular breach or breaches sought to be covered by the order.
101 In particular, it was observed that, in the unlikely event (having regard to the facts presently known to the Court and the Attorney-General), that proceedings are brought involving allegations of past breaches of trust in respect of the Masonic Youth Fund, the circumstances would then be ripe for any application for relief under s.85. The relief under that provision presently being sought ought not be granted in what was described as "relatively abstract terms sought by the plaintiffs and the fourth defendant": Written Submissions, paragraph [15].
102 Finally, Mr Free recorded that the Attorney-General's opposition to the orders sought under s.85 should not be construed as suggesting any past or present impropriety on the part of either the plaintiffs or the past and present members of the Executive: Written submissions, paragraph [16].
103 In reply, Mr Whittle on the question of what Mr Free termed "blanket approval", acknowledged that the present application was an unusual one. He drew attention to the commentary from Ford & Lee on the Principles of the Law of Trust, paragraph 18.410.
104 Unlike a number of the cases referred to by the learned authors in the passage to which attention was drawn where actual losses had occurred, the present case was distinguishable. Indeed, it was observed that the trustees had increased funds to a marked degree.
105 A further point of distinction was said to be that many of the other cases have concerned private trusts whereas the present case is concerned with a charitable trust. Mr Whittle observed that s.85 had not commonly been applied in the case of charitable trusts.
106 He also emphasised that the whole of the evidence, including the principal affidavits in the proceedings, establish honesty and it was contended they also show "reasonableness".
107 Mr Whittle additionally relied upon the fact that the trustee plaintiffs have acted gratuitously. In accordance with the approach taken by the courts in the past, such trustees are looked upon more leniently than a trustee who has been remunerated. Further, there was no question involved in the present case of a profit making company.
108 Mr Whittle submitted that Mr Free's submissions, in effect, attributed a width of operation to the orders sought under s.85, which the plaintiff had sought to avoid by formulating proposed orders in precise terms, emphasising that the relief was only sought in respect of the trustees' actions within the constitution as purportedly in force and not otherwise amounting to a breach of trust.
109 Finally, Mr Whittle stated that if I were inclined to refuse or decline relief under s.85, then that should be done without prejudice to any further applications that may be made (t.44).
110 Mr Waugh adopted Mr Whittle's submissions made in paragraph [32] of the plaintiffs' written submissions concerning the relief sought in paragraph 3E of the Third Amended Summons.
111 The relief sought in the Cross-Summons, Mr Waugh submitted, was framed in a limited form. The limiting words restricted the relief sought from about 27 November 1972 and not earlier. Accordingly, a general release was not sought but specific relief only as sought in the Cross-Summons.
112 Mr Waugh drew attention to the discussion in relation to the power to grant relief to trustees from liability as discussed in Jacobs, Law of Trust in Australia, 7th ed, paragraph 2223. There, reference was made to the decision in Ray McKay [1911] 1 Ch 300. As that case illustrated, it is not necessary for a court to find that there has, in fact, been a breach of trust. It is enough that there are circumstances which constitute a suspicion of breach.
113 Mr Waugh submitted that, though relief was sought back to 1972, the reality is that the provisions of the Limitation Act 1969 would restrict the right of persons to sue for breach of contract (s.47 to s.50). Accordingly, the provisions of that Act would operate so as to prevent claims being made going as far back as 1972.