Plaintiff v Defendant

2 Helen McPherson Schutt died on 19 April 1951, leaving will dated 21 February 1936, and a codicil dated 26 February 1936. Probate of her will was granted in March 1952. By her will, a charitable trust was established. The capital value at that date was some 275,000 pounds.

3 The will provided for the setting up of three separate funds, under each of which two-thirds of the income was to be accumulated for 21 years, and one-third of the income was to be distributed each year. As a result of that direction, and the careful and wise investments by the trustees, the capital sum of the trust has increased to over $96 million, as at 30 June 2008, notwithstanding that grants totalling nearly $70 million have been distributed over the years to a wide range of charities and other worthy institutions. As I commented during argument, the trust is a fantastic success story and the community of Victoria is indebted to all of the trustees, past and present, for their hard work in the past.

4 Mr Brett, senior counsel, appeared on behalf of the trustees and Mr McInnes appeared on behalf of the Attorney-General for the State of Victoria. Mr McInnes informed me that the Attorney-General did not oppose the orders sought and did not have any objections to any part of the proposed scheme.

5 Mr Hutchinson, who has been a trustee since 1964, swore an affidavit on 2 October 2009 exhibiting the proposed scheme and deposing to the background to the application and the reasons for the various provisions. Mr Hutchinson then swore a supplementary affidavit today exhibiting a slightly amended scheme which was now the form of the scheme sought to be approved.

6 Mr Brett submitted that the power of the Court to grant the approval sought was to be found in s.63(1) of the Trustee Act 1958 and in order 54.02(c)(ii) of the Supreme Court (General Civil Procedure) Rules 2005. I will not read out the full terms of s.63(1) but it should be noted that the Court is given the power to direct certain matters in respect of a number of events including a "transaction".

7 In the New South Wales decision of James N. Kirby Foundation Ltd v Attorney-General,[1] White J made an order under s.81 of the Trustee Act 1925 (NSW) approving the complete replacement of the governing trust deed of the James N. Kirby Foundation with a model deed prepared by the Australian Tax Office so that the foundation could qualify as a prescribed private fund and be able to have donations made to it tax deductible. Mr Brett pointed out that s.81 of the New South Wales Act is in slightly broader terms than s.63. Nevertheless, he submitted that White J's decision that the amendment of the trust deed was a "transaction" within the meaning of the New South Wales legislation, was a decision that should be followed in this more limited situation.

8 In Hornsby v Playoust,[2] a case concerning the Tattersalls Trust, Mandie J considered s.63 and referred to the Kirby case with approval.

9 Mr Brett also referred me to the Court of Appeal decision in Royal Melbourne Hospital v Equity Trustees Limited,[3] where Bell AJA also referred with approval to the Kirby case. All three Judges in that case held that s.63 was a provision that conferred on the Court a very large power and should be liberally construed. I am therefore satisfied that the Court has power under s.63 to give the trustees the powers that they have sought in this application with respect to the proposed scheme.

10 With respect to order 52.02(c)(ii), which was the particular provision in the rules relied on by Mr Brett, he submitted, and I agree, that the provisions there empowering a court to make an order directing any act to be done in the administration of the estate or in the execution of a trust were appropriate for the various governance provisions being set out in the scheme.

11 I have read the proposed scheme and the proposed amended scheme and Mr Brett has taken me carefully through the provisions. I am satisfied that the proposed amended scheme is an appropriate change to the situation under which the trust is to continue to be carried on.

12 However, it is appropriate that I refer to some parts of the proposed amended scheme where I particularly sought responses from Mr Brett.

13 I should have stated earlier that the basic reason for the proposal of the scheme, as set out by Mr Hutchinson in his affidavits, is that under the will, there were only to be three trustees. Obviously, the task of looking after the investment of some $96 million and the decision-making and consideration that would be involved in distributing grants of approximately $5 million each year in recent years must have been an extremely onerous one for the three trustees.

14 Under the scheme it is proposed that there be a maximum of nine trustees, with five as the desired number. In addition, the scheme provides for the way in which the trustees are to be rotated and places limits on their length of service. I consider all of these to be appropriate provisions.

15 I have mentioned that there were three different funds. One issue of some substance is that it is proposed under the scheme that the three funds would be consolidated into one for ease of administration. The rationale for this no doubt speaks for itself.

16 Under clauses 5 and 6(a) of the will, one-half of the proceeds of the sale of certain property over which the testatrix was given a power of appointment by her father's will, was to constitute the first of these three funds. The trustees were given the power in their absolute discretion to distribute the income in such proportions as they should think fit among charitable institutions situated in Victoria as they should, from time to time, select, but special consideration was to be given by the trustees to two named charitable institutions.

17 The other half of the those funds, under clauses 5 and 6(b), constituted the second fund and there was a slight variation in the wording of the will. The trustees in their absolute discretion were given the power to divide the income in such proportions as they might think fit, amongst four named institutions, different from the first two, plus:

Such charitable institutions in the State of Victoria as they shall from time to time select.

18 Thirdly, under clause 8 of the will, the trustees were given power in their absolute discretion to divide the income from the residue of the estate from time to time in such proportions as they shall think fit amongst charitable institutions in Victoria as they may from time to time select.

19 Therefore, there are slight variations in the provisions with respect to the three funds. What is proposed under the scheme is that the funds would be consolidated and that the net income would be divided between the three funds in the proportions 2 per cent to the 6(a) fund, 5 per cent to the 6(b) fund, and 93 per cent to the clause 8 fund. The percentages were obtained from a calculation of an averaging of the quantum of the funds over the last five years.

20 I raised with Mr Brett the question that as the percentages adopted were a rounding and given that the division of the net income in these percentages would all be done by electronic means, would it have not been more appropriate to be more precise in the division. He had two answers which persuaded me that my point was not of substance. The first was that the particular named charities, which arguably might have been prejudiced by the proposed form of the scheme, can be considered under the consolidated fund or more accurately under all three funds, in any event. Secondly, he pointed out that the percentages had been obtained by an averaging over five years and that they were only an approximation. Different percentages might have been calculated if the averaging had been carried out over ten or 15 years. In the circumstances, I think the rounding proposed is an appropriate method because all of those named charities are able to look to all parts of the consolidated fund for any grants to one or other of them in any particular year.

21 Next, there is the issue of accumulation of income. As I have mentioned, initially under the wills, two-thirds of the income was to be accumulated for a period of 21 years. Since then, all of the income has been distributed. What is proposed in the scheme is that the trustees should have the power to accumulate and retain as part of the capital of the estate an amount not exceeding 15 per cent of the net income in any one year. That is not a fixed requirement. It just gives the power to the trustees to make that accumulation if they think the circumstances warrant it.

22 An affidavit by an investment consultant, Anthony Martin Nicholas Goss, has been filed exhibiting a report that he prepared in support of the suggestion that it was an appropriate step to give the trustees power to accumulate up to 15 per cent of the trust income.

23 Mr Hutchinson and Mr Goss both explained that in the particular areas where the trust has directed the large proportion of its funds, such as capital works rather than day-to-day living expenses, the CPI Index is not an accurate reflection of the increasing costs, such as building costs, and that therefore in order to make appropriate provision for the future, it was necessary for the trustees to have this power. I am persuaded that the change is an appropriate one.

24 The next point that I think I should touch on briefly was that whilst the scheme will place an age limit of 75 years on trustees in the future, there is to be an exception with respect to Mr Hutchinson who is known, under the scheme, as the interim trustee. Mr Hutchinson is presently 79 and under the provisions it is possible that he could continue as a trustee until 2014 although he may retire in 2011. Under the scheme, of course, he can also choose to make his own decisions with respect to his future position as a trustee.

25 I queried this provision merely because of the fact that otherwise trustees were going to be required to retire when they reached the venerable age of 75. Mr Brett explained that Mr Hutchinson, through his 45 years as a trustee, has extraordinary accumulated experience and that the trustees, as a group, had decided that it was appropriate and desirable to keep his experience during this time of change. Once again, I am persuaded by the merit of that submission.

26 The only other provisions that I think I should comment on are the provisions about what I might call reliance on legal advice. Paragraph 27 of the scheme allows the trustees to act on the opinion of a barrister practising in Victoria

in relation to the interpretation or effect of the will or this scheme or any of the trusts or powers of the will or this scheme without responsibility for any loss or error resulting from doing so ...

The trustees can, however, still apply to a court for directions on the issue.

27 Under paragraph 36 of the scheme not less than three-quarters of the trustees may, by deed, revoke, add to or vary any of the provisions of this scheme, other than paragraphs 4, 5 and 6, if senior counsel practising in Victoria certified that it was his or her opinion that a court of competent jurisdiction would be more likely than that to order the revocation, addition or variation if an application were made to it, and the Attorney-General approved the revocation, addition or variation. Paragraphs 4, 5, and 6 deal with the joint administration of funds, the accumulation of income and increasing the number of trustees.

28 Under the heading "Opinions", paragraph 37 provided that if the trustees act in accordance with the opinion of senior counsel, they shall be deemed, as regards their responsibility for so acting, to have acted in accordance with the trust of the Estate unless when they did so they knew or had reasonable cause to suspect that the opinion or advice or approval of the Attorney-General was given in ignorance of material facts or that a decision of a court of competent jurisdiction had been obtained on the matter or proceedings were pending to obtain a decision. Paragraph 38 provided for the Attorney-General to make investigations, inquiries as he or she thought fit.

29 In his written submissions, Mr Brett accepted that it was perhaps slightly unusual to make provision for further variations or additions to the scheme without coming back to Court. But, he submitted that the protection was provided by the fact that the Attorney-General had to give his approval. I am satisfied that, as Mr Brett submitted, the Attorney-General in the past and in the future, in dealing with this important part of his or her ministerial responsibilities, has not and will not give approval carelessly or without full investigation.

30 In those circumstances, it seems to me that there is more than sufficient protection provided in the scheme. If a significant change were to be made, there would be a number of ways in which the matter would be required to come back to Court, if anyone considered that to be appropriate.

31 Therefore, in conclusion, without having analysed each and every one of the particular paragraphs of the scheme in this judgment, I am of the view that the application should be granted. The form of order submitted by Mr Brett is, it seems to me, an appropriate one in which to deal with the particular application. I will make an order in accordance with proposed minutes.

[1] [2004] NSWSC 1153; (2004) 62 NSWLR 276.

[2] [2005] VSC 107; (2005) 11 VR 522.

[3] [2007] VSCA 162; (2007) 18 VR 469.