Plaintiff v Defendant

2 The plaintiff, Ross Jeffrey Norman, is named in the will as executor and trustee of the estate and brings this proceeding in that capacity.

3 The defendant, the Australasian Conference Association Ltd, is an incorporated body administering the Seventh - day Adventist Church. The defendant was not represented, although Robert Ellison, a director and the secretary of the defendant, was present in court.

4 This matter came before the judge in the Practice Court on 22 August 2007 and was adjourned to enable notice to be given to the Attorney-General. The Attorney-General, who appeared by counsel and made submissions, does not appose the application.

5 The plaintiff's application is made pursuant to s 63 of the Trustee Act 1958 for approval to pay the whole of the capital comprising the trust fund to the defendant 16 years earlier than contemplated under the will. If the rule in Saunders v Vautier[1] were to apply to the trust, the defendant would be entitled to call upon the plaintiff to do the very thing the plaintiff now submits should be done.

6 Unique to Victoria, however, is s 163 of the Property Law Act 1958 which was intended, so it would seem, to interrupt the operation of the rule in Saunders v Vautier in relation to charitable trusts. Thus, the issues for determination in this proceeding are:

(1) Notwithstanding s 163 of the Property Law Act, has the court power to make an order of the kind sought by the plaintiff; and

DISPOSITION OF ESTATE:

- Subject to the payment of my testamentary liabilities I give my entire estate to my Trustee to be held UPON TRUST to be dealt with as follows:

(1) The capital of my entire estate to be held IN TRUST for Twenty (20) years and the income to be divided into TWO (2) equal parts to be dealt with as follows:

(a) One (1) part to Australasian Conference Association Limited of 148 Fox Valley Road, Wahroonga, New South Wales to be applied under the direction of the Executive Committee of the South Pacific Division of the Seventh-day Adventist Church in consultation with my Executor and Trustee for Educational purposes within the Seventh-day Adventist Church in the South Pacific Region and the Southern Asia Division.

(b) One (1) part to Australasian Conference Association Limited of 148 Fox Valley Road Wahroonga, New South Wales to be applied under the direction of the Executive Committee of the South Pacific Division of the Seventh-day Adventist Church in consultation with my Executor and Trustee for Evangelism within the South Pacific Region and the Southern Asia Division

(2) If the trusts of any part under the previous subclause fail or determine then that part shall be added to the other parts in the proportion which those parts bear to each other.

(3) At the termination and completion of the Twenty (20) years, the balance of the Capital and Income be dealt with as in Clause 4(1)a and b.

(4) If the trusts of any part under the previous subclause fail or determine then that part shall be added to the other parts in the proportion which those parts bear to each other.

8 It is common ground that the will establishes charitable trusts. The structure of cl 4 is unusual because there is no apparent explanation for the delay of 20 years in the gift of capital. The plaintiff submits that it is expedient to transfer the capital immediately. While he is willing to continue as trustee and consult with the defendant on the application of the funds the plaintiff acknowledges his advancing age. He will be 73 years of age by the time the will authorises payment of the capital to the defendant.

9 The statement of the rule in Saunders v Vautier is that where a legacy is directed to accumulate for a certain period, or where the payment is postponed, the legatee, if he has an absolute indefeasible interest in the legacy, is not bound to wait until the expiration of that period, but may require payment the moment he is competent to give a valid discharge.[2] In such circumstances the legatee does not require the assistance of the court, but may call upon a trustee to make the payment. The rule has been found to apply to charitable trusts,[3] although in many such cases its application may be limited.

10 The trusts established under the will prescribe, in identical terms, the purposes for which the income and capital must be applied. While the incorporated defendant is the immediate beneficiary under the primary trust, of which the plaintiff is trustee, it does not take the gifts unconditionally. It is not entitled to do as it pleases with the money. It is bound to apply the funds for the charitable purposes.

Property Law Act

11 In 1934 the Victorian Parliament enacted the Property Law (Charitable Bequests) Act. Section 2 is now re-enacted in s 163 of the Property Law Act 1958. Section 2 provided,

Where the will of any person who dies after the commencement of this Act contains a bequest to or a trust for the benefit of a charity or a number of charities or a class of charities and directs or purports to direct that the time of payment of the corpus bequeathed to or to be held in trust for the benefit of such charity charities or class of charities be postponed and that in the meantime the income arising from such corpus be paid to or distributed among such charity or charities or class of charities, such bequest trust and direction shall notwithstanding any rule of law or equity or any rule of construction be construed and take effect according to the tenor thereof.

The sidenotes to s 2 refer to Saunders v Vautier,[4] Wharton v Masterman[5] and Re Wright.[6] Wharton v Masterman decided that the rule in Saunders v Vautier applied to charitable trusts. The majority of the full court of the Supreme Court of Victoria (A'Beckett and Hood JJ) in Re Wright, distinguished Saunders v Vautier and Wharton v Masterman as cases in which the beneficiary's right to capital was never in doubt, holding that the rule of construction under consideration was not to be extended to an unlimited gift of income to a charity because considerations on which the rule was founded in the case of individuals, such as avoiding an intestacy or a perpetuity, had no reference to charities.[7]

12 In his second reading speech, the Attorney-General, described the bill as,

... rendered necessary by certain decisions in the Courts affecting charitable bequests and devises. The effect of those decisions is that if there is a bequest or devise to a charity or charities and only the income of the sum bequeathed or property devised is given to the charity or charities for a period, and the corpus is held in suspense until the end of that period, the charity, or the charities concerned by combining, can at once demand that the corpus be handed over to them. That is defeating the intention of the testator.

A case has been brought under the notice of the Government of a gentleman, the fortunate possessor of a very large estate, who proposes and is willing to make a will the effect of which, if the Bill were passed, would be that the income would go to charities for a certain period, after which they would receive the corpus. If the law remains as it is, that will will not be made, and it is vital to the charities concerned that this particular testator should be able to feel that his intention will be carried into effect. The Bill deals with a merely artificial difficulty in the law...

If testators cannot feel that their intentions will be put into effect in accordance with their will, there is a grave risk that charities will suffer in consequence. The particular case to which I have eluded is authentic, and it illustrates what might happen if the law were allowed to remain as it is. So the purpose of the Bill is that, where it is intended that the income only shall go to a charity for a period, and that at the end of that period the corpus of the estate shall also go to the charity, the latter cannot at once march into possession of the whole of the corpus.

13 Section 2 of the Property Law (Charitable Bequests) Act 1934 was re-enacted in the 1958 consolidation, as s 163 of the Property Law Act. The section has received little attention in decided cases or text books. In Halsbury's Laws of Australia the learned authors noted that the position in Victoria is different to that in other jurisdictions. Passing attention was given to the section in Re Kagen[8] although dismissed because its application did not arise.

14 It is common ground that s 163 of the Property Law Act applies to the primary trust established under the will. Accordingly, the defendant is not entitled to immediately call upon the plaintiff to transfer the capital and the plaintiff is not authorised to do so for 16 years. Importantly, however, s 163 does not purport to limit the range of powers conferred on a court under s. 63 of the Trustee Act 1958.

Trustee Act

15 Section 63 of the Trustee Act 1958 provides:

Power of Court to authorize dealings with trust property

(1) Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.

(2) The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.

(3) An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.[9]

16 The breadth of the power conferred on the court by that provision is emphasised by the use of the phrases, "or other disposition" and "or other transaction", which point to an intention to confer very wide powers provided, in the opinion of the court, it is expedient to authorise that which is not authorised under the will or by law. Counsel for the plaintiff and the Attorney-General both submitted that s 63 empowered the court to grant the plaintiff's application, authorising him to immediately pay the capital to the defendant.

17 It may be argued that the power conferred by s 63 of the Trustee Act was not intended to have the effect of terminating or collapsing a trust, but should be confined to the "management or administration of any property vested in trustees", during the continuation of the trust. But in my opinion the provision, when read as a whole, is not so limited. There are decided cases in which courts have exercised similar powers resulting in the effective termination of a trust[10] or the distribution of capital, when the distribution of income only was authorised.[11]

18 In Riddle v Riddle[12] the High Court considered the scope and exercise of the power conferred under s 81 of the Trustee Act 1925 - 1942 (NSW) which was similar in form to s 63 of the Trustee Act 1958. Dixon J said of the requirement of expediency that,

Expediency means expediency in the interests of the beneficiaries.[13]

Section 81 is a provision conferring very large and important powers upon the Court which depend upon the Court's opinion of what is expedient, a criterion of the widest and most flexible kind. The power necessarily carries with it responsibilities of equal extent. The responsibilities imposed involve business and financial considerations, but responsibilities of that description have always fallen on courts of administration.[14]

I do not think that the powers given by s. 81 were intended to be restricted by any implications.[15]

19 In any event, in the present case, the immediate payment of the capital by the plaintiff to the defendant does not bring an end to the charitable trusts. The capital must be applied by the defendant for the same charitable purposes as the income. It is not as if the court is denied supervisory jurisdiction over the application of the fund. In my view, the contemplated payment may be properly characterised as "a disposition" or "other transaction" in the management or administration of the fund in the hands of the plaintiff.

20 There is no express limitation in s 163 of the Property Law Act or s 63 of the Trustee Act excluding the exercise of the power under s 63 of the Trustee Act when the trust is one to which s 163 of the Property Law Act applies.

21 Section 63 of the Trustee Act was first enacted in Victoria as s 57 of the Trustee Act 1928, reproducing s 57 of the Trustee Act 1925 of England. I was informed by counsel that their research did not reveal any mention of the Trustee Bill in the parliamentary debates in Victoria in 1927 or 1928.

22 Section 57 of the 1928 Act included sub-s (4) which provided,

This section does not apply to trustees of a settlement for the purposes of the Settled Land Act 1928.

When re-enacted as s 63 of the Trustee Act 1953, at the time of the 1953 consolidation and amendment of the law relating to trustees, sub-s (4) was not included. Thus, an express limitation, introduced in 1928, had been removed.

23 By the time of the 1953 consolidation and amendment of the law relating to trustees, the High Court, in Congregational Union of New South Wales v Thistlethwayte,[16] had expressly disapproved of the decision in Re Wright. In the majority judgment (Dixon CJ, McTiernan, Williams and Fullagar JJ) the court held,

In the Will of Wright; Westley v. Melbourne Hospital [1917] VicLawRp 21; (1917) VLR 127 it was held that the rule of construction under consideration is not to be extended to an unlimited gift of income to a charity. According to Hood J. this was because considerations on which the rule was founded in the case of individuals such as avoiding an intestacy or a perpetuity had no reference to charities. No such distinction occurred to Stirling J. in In re Morgan; Morgan v. Morgan (1893) 3 Ch 222 . The will in that case, after directing that certain annuities should be paid out of the interest and rents, directed that the residue of the interest and rents should be given in one-tenths to certain charities. His Lordship held that these were gifts of one-tenths of the capital of residue. His judgment is reported in (1893) 69 LT 407, at pp 407, 409 . He said: "It is not open to question that under the words 'the residue of the interest and rents' given in tenths in favour of charities the corpus of the residuary estate passes" (1893) 69 LT, at p 407 . We cannot agree that this distinction exists. In our opinion the rule is the same whether the gift of income is to an individual or to a charity consisting of a body capable of holding property. The beneficiary is entitled to the capital unless there is a clear intention expressed or implied from the will that the beneficiary is not to take more than the income. In the present case such an intention is manifest.[17]

24 Thus, in 1953, the parliament must be taken to have been aware of the decision when consolidating and amending the law relating to trusts, but did not seek to introduce any express limitation.

25 The Trustee Act 1958 formed part of the 1958 consolidation, as did the Property Law Act 1958. It was submitted on behalf of the Attorney-General that, against the background to the legislative history and decided cases mentioned above, the court may confidently conclude that had the parliament intended any such limitation it would have used clear words. There is force in that submission. The 1928 Act contained an express limitation in relation to trustees under the Settled Land Act 1928. That limitation was removed and there is no express limitation of power in relation to trusts to which s. 163 of the Property Law Act applies.

26 Such elaborate reasoning is not, however, necessary. Section 63 of the Trustee Act 1958 does not in terms purport to so limit the power of the court. Moreover, that provision presupposes the absence of power in a trustee because of the trust instrument or by law. I accept the submission made on behalf of the Attorney - General that this court has power under s. 63 of the Trustee Act to approve the proposed transfer.

27 In my opinion the proposed payment of capital to the defendant is expedient for the administration and management by the defendant of the fund for the charitable purposes prescribed in the will. Since obtaining the grant of probate of the will, the plaintiff has called in the estate and converted it to cash. The last remaining asset, a property in Gore Street, Fitzroy, was sold and settlement took place on 25 January 2007. A sum of approximately $847,488.25 constitutes the trust capital.

28 The plaintiff was a personal friend of the deceased during his lifetime and deposed that he is not aware of any reason why the early transfer of the capital to the defendant would undermine the wishes of the deceased. While he is a member of the Seventh - day Adventist Church, he deposed that he has no direct financial interest in the defendant and does not expect to benefit personally, financially or otherwise, from an early distribution of the capital to the defendant.

29 I do not overlook, as a relevant matter, the legislative intent expressed in s 163 of the Property Law Act. It is, however, a prerequisite for the exercise of power under s 63 of the Trustee Act that the trustee is not authorised to dispose of the property because of the trust instrument or by operation of the law. In the present case, the disability is brought about by the operation of that very law. I accept, however, that had parliament intended to limit the power by reference to s.163, it would have used clear words. Although relevant, the legislative intent expressed in s.163 is not a proper basis to refuse to exercise the power when all other conditions are satisfied.

30 There is precise identity of purpose in the application of income and capital. The defendant carries on the charitable activities to which the funds are to be applied and remains bound to apply the funds for the charitable purposes. The size of the estate is relatively modest. It would become burdensome to the plaintiff to expect him to continue to administer the estate for the next 16 years when, in practical terms, his role in relation to the achievement of the charitable purposes by the defendant can at best only be supervisory. This is because the gifts to the defendant are conditional. There is no practical benefit in duplicating management. He will be consulted in any event. These matters, when considered as a whole, make it expedient that the plaintiff be authorised to transfer the capital to the defendant.

[1] [1841] EngR 629; (1841) 4 Beav. 115.

[2] Saunders v Vautier [1841] EngR 629; (1841) 4 Beav. 115, 116.

[3] Wharton v Masterton [1895] AC 186, 193, 195 and 199.

[4] [1841] EngR 629; (1841) 4 Beav. 115.

[5] [1895] AC 186.

[6] [1917] VicLawRp 21; [1917] VLR 127.

[7] Congregational Union of New South Wales v Thistlethwayte [1952] HCA 48; (1952) 87 CLR 375, 439.

[8] [1966] VicRp 75; [1966] VR 538, 545.

[10] Re Harvey, Westminster Bank Ltd v Asquith [1941] 3 All ER 284.

[11] Colonial Foundation Limited v Attorney-General of the State of Victoria [2007] VSC 344.

[12] [1952] HCA 12; (1952) 85 CLR 202.

[16] [1952] HCA 48; (1952) 87 CLR 375, 439-440.