Plaintiffs v First to Fifth Defendants

CHARITABLE TRUST - Whether acquisition of Assembly Hall by Trustees for $4.5m was within power and authorised - Whether such acquisition was on separate trusts - If acquisition was in breach of trust and not on separate trusts what consequences follow - Is the Assembly Hall charged with repayment of the sum of $4.5m to the Trust.

CHARITABLE TRUST - Expenditure of about $6.9m on repairs and improvements to Assembly Hall in breach of trust and without authority - Whether Assembly Hall charged with repayment of the amount.

PRACTICE AND PROCEDURE - Parties agree that first stage of the proceeding best be dealt with by framing of seven questions relating to the power and authority of the Trustees and matters concerning the construction of the Trust Deed - Other matters deferred.

1 The critical issues in this case are whether the Trustees of the Scots' Church Property Trust ('SCPT' or 'the Trust') had authority to acquire, on behalf of the Trust, an Assembly Hall[1], and having acquired the Assembly Hall, whether they were authorised to incur substantial expenditure (in excess of $6m) - in the form of borrowings on security of assets of the Trust - in the upgrading and refurbishment of the Assembly Hall.

2 There are other issues associated with the operation of the Trust. Some are embraced by the questions that the parties have agreed be dealt with and answered first. Other remaining issues can, if necessary, be dealt with at a later stage.

3 In order to understand the issues in the case, and the factual and legal matters embraced by the questions, it is necessary and desirable to set out the relevant background facts and matters in some detail and then proceed to the questions.

4 The plaintiffs ('the PCV Trusts Corporation') bring this proceeding against the first to fifth defendants ('the Trustees'), both as trustees of the SCPT constituted under an 1891 Trust Deed ('the Trust Deed') by the Scots' Church Properties Act 1891 (Vic) and, in the circumstances referred to hereunder, as trustees of the property known as the Assembly Hall of the Presbyterian Church of Victoria.[2] The PCV Trusts Corporation is effectively a specified beneficiary of the SCPT. Douglas Sherman is joined as the sixth defendant as representative of the Board of Management of the Scots' Church Melbourne. The Board of Management is the other specified beneficiary of the SCPT.

5 The Trustees hold the Scots' Church, situated on the corner of Russell and Collins Streets Melbourne, on trust under specific provisions of the Trust Deed. They also hold various neighbouring commercial properties on trust under other provisions of the Trust Deed. The SCPT is a trust for charitable purposes that benefits, in equal shares, the following two charitable purposes, through the annual distribution of the net surplus, calculated under clause 7 of the Trust Deed -

(a) The Presbyterian Church of Victoria, to be used for the home mission and church extension activities, in Victoria of the Presbyterian Church of Victoria; and

(b) The Board of Management of the Scotch Church, to be used for the maintenance, improvement and enlargement of the church and towards building mission halls and premises in connection with the congregation and towards the maintenance, improvement and enlargement of the same and for any other purpose approved of by the Assembly.

6 The income from the commercial properties of the SCPT was about $3.2 million in 2014.

7 In 2002, the PCV Trusts Corporation sold to the then Trustees of the SCPT the Assembly Hall at 156 Collins Street. On settlement of the sale in 2008, the Trustees proceeded to redevelop, improve and refurbish the Assembly Hall and did so by effectively charging the expense (borrowings on security of the assets of SCPT) to the moneys that would otherwise have been distributable under clause 7 of the Trust Deed.

8 The plaintiffs complain that the Trustees have not complied with the trusts of the SCPT, in that they have not brought to account all distributable moneys under the Trust Deed and have deducted from those moneys;

(a) expenses and amounts associated with the redevelopment of the Assembly Hall totalling in excess of $6.9 million; and

(b) stipends, collegiate charges and sundry congregational expenses of about $1.4 million.

when they had no authority to do so. As a result, the Trustees failed to distribute, for the charitable purposes referred to above, the funds required to be distributed under clause 7 of the Trust Deed.[3]

9 The plaintiffs seek orders that the Trustees restore to the SCPT the funds so misapplied. The plaintiffs, therefore, seek restitution or recovery from the Trustees of the above amounts totalling $8,357,052 plus interest. This will, it was contended, ensure that the distributions of the net surplus, under clause 7 of the Trust Deed, are made in equal shares to both the Presbyterian Church of Victoria for home mission purposes and to the Board of Management of the congregation for the purposes specified in clause 7.

10 The PCV Trusts Corporation also alleges it has not been paid commission of $137,500 plus interest owed to it under the Trust Deed.

11 There are questions of construction of various provisions of the Trust Deed, in particular, the power to acquire the Assembly Hall and to provide security, the provisions purporting to authorise the distribution of income for stipends and collegiate grants to the Scots' Church congregation and to set aside moneys to a redevelopment fund.

12 The plaintiffs also complain that the Trustees have, in breach of clause 8 of the Trust Deed, failed to give proper accounting for the affairs of the Trust.

13 The plaintiffs also complain that the Trustees have, in breach of clause 11 of the Trust Deed, failed to obey the directions of the General Assembly of the Presbyterian Church of Victoria and the applicable laws of the Church by not furnishing the Assembly with the periodic reports it required by resolution in 1999.

14 Finally the plaintiffs complain that the Trustees, having purchased the Assembly Hall, have failed to acknowledge the trusts on which they in fact hold that property. There is a controversy as to the trusts on which the Assembly Hall is held.[4]

15 The Trustees have joined, their solicitor (at the time) Harry Hearn ('Hearn') as a third party. They allege that the critical decisions the subject of this proceeding were based on legal advice provided by Hearn.

16 The Attorney-General is a necessary plaintiff. He is the protector of property held in trust for charitable purposes.[5] He looks after the interests of the public in these trusts and, where a dispute concerns 'the conduct or management of the charity', this is 'necessarily a matter of public rather than private concern'.[6]

17 The PCV Trusts Corporation is a body corporate constituted under the Presbyterian Trusts Act 1890 (Vic), to hold property in trust for the Presbyterian Church of Victoria.

18 The Presbyterian Trusts Act 1890 (Vic) relevantly provides for certain property to be held on trust pursuant to Model Trusts Deeds.

19 In November 1891, the Scots' Church Properties Act 1891 ('the 1891 Act') was enacted to, '[C]onvert the existing Trusts relating to the Scots' Church Properties into one General Trust' and -

(a) revoked the trusts contained in the Crown grants and the statements of trusts allowed in 1873 and 1877 (s2);

(b) vested in certain named individuals (not the PCV Trusts Corporation), as trustees, the lands the subject of the above Crown grants and allowances and described in the schedule to the Trust Deed (s3); and

(c) provided (s4) for those lands to be held by the trustees and their successors;

upon the trusts to and for the ends intents and purposes and with and subject to the powers authorities provisos declarations and restrictions contained in the Scots' Church trust deed [dated 23 June 1891] of or concerning the same.

20 The 1891 Act and the Trust Deed were amended in 2003 by the Scots' Church Properties (Amendment) Act 2003. The Act effected amendments to the SCPT Trust Deed to authorise the grant of a lease for more than 50 years and to change the title boundaries to facilitate the development of the Russell Street property by a developer ('APN'). It is most unfortunate, as this case demonstrates, that the opportunity was not taken to make further necessary and desirable amendments to the Trust Deed at this time.

21 As at 2002, the Trust Deed of the SCPT was in its original form as adopted by the 1891 Act.

22 In 1891, the SCPT comprised the following properties -

(a) the Church at the corner of Collins and Russell Streets (Lot 8);

(b) the manse next door at 156 Collins Street (Lot 7);

(c) the commercial properties adjoining at 99 - 113 Russell Street (Lot 9);

(d) the commercial property at 162 Collins Street (the Georges building) (Lot 6).

The commercial properties therefore constitute a distinct part of the corpus of the SCPT which generates significant annual distributions for the benefit of the two classes of charitable purposes.

23 The Trust Deed includes the following provisions:

(a) the preamble (page 1), beginning "To all to whom these present shall come". The first recital foreshadows the 1891 Act. The second recital records the desire of the then trustees to declare the trusts on which the scheduled land will be held.

(b) the formal declaration of trust (page 1) beginning with "Now therefore know ye..."

(c) the 'firstly' clause, dealing with the Church.

(d) the 'secondly' clause dealing with the manse (the land on which now sits the Assembly Hall).

(e) the 'thirdly' clause dealing with the commercial properties, namely

(i) the properties at 99-113 Russell Street Melbourne; and

(ii) the property at 162 Collins Street Melbourne (formerly the Georges Building)

giving the power to lease with the consent of the Assembly.

(f) clause 4 -for payment of commission to the PCV Trusts Corporation of all rents received under the leases of the commercial properties.

(f) clause 5 - the power to borrow on mortgage of the scheduled land (other than the manse site) for the purposes there specified a sum not exceeding £20,000.

(g) clause 6 - the power with the consent of the Assembly to borrow on mortgage of that scheduled land in excess of £20,000.

(h) clause 7 - the application annually, of all moneys received under or by virtue of any leases now subsisting, or hereafter to be granted under the powers hereinbefore contained over any of the commercial properties (the lands and hereditaments described in the Schedule hereto (other than the manse site)), with the five provisions for deductions from the gross surplus -

Firstly, interest on moneys secured on the scheduled land;

Secondly, in payment of £1,000 in or towards the ministers' stipends etc;

Thirdly, in payment of rents taxes charges and outgoings and repairs and maintenance of the scheduled land;

Fourthly, for the debt reduction fund in respect of any mortgage or charge over the scheduled land;

Fifthly, to apply one third of the surplus but not exceeding £1,000 towards the stipend of a colleague or otherwise for congregational purposes below;

Sixthly, to distribute the net surplus, one half to the PCV and other half to the Board of Management to be applied as there stated.

(i) clause 8 - an accounting to the Assembly of receipts and payments.

(j) clause 9 - the power with the consent of the said congregation given in a meeting duly convened for that purpose to expend any moneys received by them for congregational purposes of the said Scots' Church or raised by them for such purpose under the power in that behalf hereinbefore contained in the purchase of land in Victoria with buildings thereon.

(k) clause 11 - a duty on the Trustees, as there expressed, to obey.

24 It is relevant to note at this stage that in 1925 in the case of Mackinnon v Borland,[7] McArthur J expressly ruled that the provisions of clause 7 of the Trust Deed, under the thirdly provision, authorised the Trustees to apply moneys received under or by virtue of leases of the lands described in that clause, in payment of rates repairs and maintenance of those lands (his Honour's emphasis) but those lands did not include the new manse directed to be purchased with the £5,000 from the sale of the old manse site.

25 The Trustees were, it appears, in no doubt that the Assembly Hall was not part of the scheduled land and as a consequence any repairs and maintenance did not fall within the third provision of clause 7 of the Trust Deed.[8]

26 By a contract of sale dated 18 March 2002, the then trustees of SCPT purchased the Assembly Hall at 156 Collins Street from the PCV Trusts Corporation for $4.5 million. It is common ground that they purchased the Assembly Hall as trustees. The controversy is whether the Assembly Hall is held for and on behalf of the SCPT or some other trust.

27 The Trustees contend they purchased as trustees of the SCPT. This is the expressed capacity in which they intended to purchase. The PCV Trusts Corporation dispute this and contend that the Trustees had no authority to purchase the Assembly Hall as trustees of the SCPT. They contend that the Trustees purchased the Assembly Hall as trustees on trusts separate from those of the SCPT. Neither party contend that the acquisition of the Assembly Hall was in breach of trust.

28 This controversy over the trusts then feeds into a second and equally significant controversy. Consistent with their position, the Trustees proceeded, it appears, after acquiring the Assembly Hall, to treat it as part of the commercial property portfolio of the SCPT, mortgaging the property, and using the revenue from the commercial properties to fund the refurbishment of the Assembly Hall. When, as was inevitable, the refurbishment generated a host of expenses and deductions and the Trustees treated the Assembly Hall in the manner stated, this impacted substantially on the net surplus which they distributed under clause 7 of the SCPT Trust Deed, to the detriment of the two designated classes of charitable purposes. The PCV Trusts Corporation complained on behalf of the Presbyterian Church of Victoria.

29 Whatever the trusts on which the Trustees hold the Assembly Hall, the plaintiffs' case is that the Trustees were not authorised to charge the revenue from the commercial properties, that was to be distributed in accordance with clause 7, with the costs, expenses, and deductions associated with the refurbishment of the Assembly Hall. In other words, the purchase did not mean that the Assembly Hall was thereby written into the schedule to the Trust Deed to make it part of the commercial properties portfolio of the SCPT and, as a result, altering the operation of clause 7 and the distributions under that section.[9]

30 The events of 2001 and 2002 have a significant bearing not only on that issue, but also on the issues that later arise as to whether the Trustees have properly distributed the annual surplus of the SPCT for the financial years from 2008 to date.

31 The PCV Trusts Corporation has insisted that the Trustees observe strictly their duties under the SCPT and at law.

32 The special conditions of the contract of sale of the Assembly Hall are also relevant. The contract was subject to and conditional upon, inter alia, the purchasers (the Trustees) entering into a ground lease of the specified Russell Street commercial properties and receipt by them of the premium payable pursuant to the said lease (special condition 6(a)).

33 It was contemplated that the lump sum to be paid by the developer at the beginning of the lease would enable the Trustees to effect a cash settlement of the purchase of the Assembly Hall. This in fact happened. On 7 April 2008, the SCPT granted the developer, APN, a 99 year ground lease of the Russell Street properties (including some land on which the old Church hall was built) and APN paid the SCPT a lease premium of $5.5 million ('the Lease Premium') pursuant to clause 3.1 of the ground lease.

34 The proposed ground lease and the Lease Premium were the subject of discussions and correspondence in the course of 2001. It was submitted by the plaintiffs that the correspondence and discussions were relevant to the questions and in particular the nature and characterisation of the purchase price of the Assembly Hall. A selection of the more relevant documents is set out below. It was submitted by the plaintiffs that those documents show an intention to both distribute the Lease Premium and acquire the Assembly Hall on trusts other than the SCPT. Whether the documents indeed have this effect is discussed later.

35 By letter from the SCPT to the PCV Trusts Corporation dated 18 October 2001, Mr Brodbeck, the then chairman of the SCPT, confirmed to the PCV Trusts Corporation the offer made for the Assembly Hall of $3 million.

36 By letter from Aitken Walker & Strachan to the SCPT dated 5 November 2001, Mr Hearn wrote to Mr Brodbeck concerning "a proposal by the congregation to buy the Assembly Hall" enclosing a draft response to the PCV Trusts Corporation's letter dated 26 October 2001. By a further letter of Aitken Walker & Strachan to the SCPT dated 7 November 2001, Mr Hearn wrote to Mr Brodbeck concerning the purchase of the Assembly Hall. This letter appears to have triggered the shift in thinking of the then Trustees as to how the Lease Premium to be received from the developer should be treated.

37 Mr Hearn explains in his 7 November letter that if they wish to treat the Lease Premium as revenue, and distribute it under clause 7, the Board of Management can apply its half share for 'any other purpose approved of by the Assembly', namely the purchase of the Assembly Hall. The Presbyterian Church of Victoria home mission would receive its half share of the distribution of the Lease Premium, plus the Board of Management's share being applied for the 'other purpose'. His reservation was whether the Lease Premium would be 'moneys received for congregational purposes' and therefore attracting clause 9 of the Trust Deed. This did not on the plaintiffs' case prevent the Trustees purchasing as trustees, independently of the SCPT.

38 On 12 November 2001 the Trustees met and settled various conditions on which a fresh offer to purchase the Assembly Hall for $4.5 million would be made, out of funds held by them prior to distribution of surplus income under the Trust Deed. The increase in price, it was suggested, reflected the change in thinking referred to above. By letter of the SCPT to the PCV Trusts Corporation dated 15 November 2001, the Trustees sent the PCV Trusts Corporation a copy of the minutes of the meeting of the Trustees.

39 On 18 November 2001, the Scots' Church Congregation passed a number of resolutions relating to the purchase of the Assembly Hall.

40 On 6 December 2001, the PCV Trusts Corporation met to consider the matter further. The minutes of the meeting record the substance of what was resolved. If the Assembly were minded to sell, the PCV Trusts Corporation recommended that the Assembly accept an offer from the SCPT of twice the valuation of $2,800,000 received by the PCV Trusts Corporation from Jones Lang LaSalle.

41 By letter from the PCV Trusts Corporation to the SCPT dated 9 December 2001, the PCV Trusts Corporation wrote to Mr Brodbeck to convey the terms of the resolutions passed at the meeting of the PCV Trusts Corporation.

42 Following its meeting, the PCV Trusts Corporation made its report to the General Assembly in relation to the proposal.

43 On 18 December 2001, at the meeting of the General Assembly, the Rev Douglas Robertson, the senior minister of the Scots' Church, tabled on behalf of the Trustees a detailed offer document entitled The Scots Church Properties Trust, Offer for the Purchase of The Assembly Hall and distributed copies to members of the Assembly. According to the plaintiffs the document is significant both in inducing the Assembly to agree to the sale of the Assembly Hall and in declaring the basis on which the Trustees were proceeding, and thus informing the trusts on which they were to acquire the Assembly Hall.

44 The General Assembly of the Presbyterian Church of Victoria considered and approved the sale of the Assembly Hall by the following resolution on 18 December 2001 -

That the General Assembly of the Presbyterian Church of Victoria agrees to the sale of the Assembly Hall, 156 Collins Street, Melbourne to the Scots Church Properties Trustees ("the Trustees") for the price of FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($4,500,000) payable in full within 14 days of the granting of Royal Assent to the Scots Church Properties Trust (Amendment) Act proposed to be presented shortly to the Parliament of Victoria by way of a Private Members Bill or the signing of the proposed Ground Lease of the commercial properties owned by the Trustees (whichever is the later) on the following terms and conditions-

1. The sum of FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($4,500,000) is to be paid by the Trustees out of funds held by them prior to distribution of surplus income under the Scots Church Properties Trust Deed 1891 ("the Deed").
2. Office space within the Assembly Hall sufficient for five members of the staff of the Presbyterian Church of Victoria is to be granted in perpetuity free of rent.
3. No allowance or compensation will be payable by the Trustees to the board of management of Scots' Church in respect of the Church Hall lands which are to be included in the new development.
4. Future costs for maintenance and repairs of the Assembly Hall are to be met as to 40 per cent per annum by the Trustees out of funds held by them prior to distribution of surplus income under the Trust Deed as to the balance of 60 per cent per annum by the Scots Church Board of Management.
5. The Trustees will treat the commercial rentals received by them from the Assembly Hall as part of the general rental income received from commercial properties owned by the Trust for the purposes of determining the annual commission payable under the Trust Deed to the Presbyterian Church of Victoria.
6. The sale is conditional upon execution of a Ground Lease of the commercial properties and receipt by Trustees of the premium payable under it.

The General Assembly directs the PCV Trusts Corporation to sign all documents and do all things necessary to give effect to the above agreement.

45 The events of 2001 to the date of the contract of sale inform the trusts on which the Court was invited to find the Trustees purchased the Assembly Hall.

B5 Trustees power to purchase the Assembly Hall

46 Clause 9 of the Trust Deed confers a limited power to purchase -

with the consent of the said congregation given in a meeting duly convened for that purpose to expend any moneys received by them for congregational purposes of the said Scots' Church or raised by them for such purpose under the power in that behalf hereinbefore contained in the purchase of land in Victoria with buildings thereon or in acquiring lands in Victoria and to erect thereon any building or buildings suitable for church offices for the said congregation or for a mission hall or mission halls and any such lands so purchased shall be assured to the said trustees or trustee their or his heirs and assigns and be held upon trust for the said congregation (emphasis added)

47 The plaintiffs' case is that the provisions of clause 9 of the Trust Deed did not authorise the Trustees to purchase the Assembly Hall, as the moneys used in the purchase of the Assembly Hall ('the purchase moneys') were not moneys received by them for congregational purposes of the Scots' Church within the meaning of that expression in clause 9 of the Trust Deed. Those purchase moneys were received by the Trustees as Lease Premium moneys as a result of the commercial exploitation of the properties in Russell Street that were held by the SCPT to derive moneys for annual distribution in accordance with clause 7 of the Trust Deed.

48 Even those moneys representing the Board of Management's half share and applied to the purchase as approved by the Assembly were not, it was submitted, moneys that could be characterised as received by them for congregational purposes of the Scots' Church. The Assembly Hall was to be held for purposes serving not only the congregation but the wider Presbyterian Church of Victoria, as the Offer Document presented to Assembly on 18 December 2001 and Assembly's resolution clearly show.

49 Mr Hearn in his letter dated 7 November 2001 expressed his reservations -

My only reservation relates to the words 'for congregational purposes' as normally this might be construed as meaning collections received at services etc. or general donations.

50 The plaintiffs' case is that the Lease Premium moneys do not answer the description of moneys received for congregational purposes. The Trustees disagree. The issues are relevant to the questions and are discussed further below.

51 On 7 April 2008, APN paid the Trustees the Lease Premium of $5.5 million pursuant to clause 3.1 of the Lease. That sum was payable on the commencement date of the Lease, namely, 7 April 2008.

52 As previously noted, special condition 7 of the contract of sale provides:

The said Purchase Price is to be paid by the Purchaser out of funds held by the Purchaser prior to the distribution of surplus income under the Trust Deed.

The special condition reflected the language of paragraph 1 of the Resolution of General Assembly on 18 December 2001 as set out above. The parties to the contract were, on the plaintiffs' case, treating the Lease Premium as distributable moneys under clause 7 of the Trust Deed.

53 The purpose of the special condition, according to the plaintiffs, was to stipulate the source of the payment of the purchase price of $4.5 million, to the effect that the Trustees were taken to have applied the residue in accordance with the provisions of clause 7 of the Trust Deed, one half to the Presbyterian Church of Victoria to be applied for home mission and church extension purposes in Victoria and the remaining half to the Board of Management, as stated above, for any other purpose approved of by the Assembly, in this case, for the purpose of the Trustees purchasing the Assembly Hall. This was the approach discussed by Mr Hearn in his letter to the SCPT dated 7 November 2001.

54 It is clear that the receipt of the Lease Premium was critical to funding the payment of the purchase price. This accounts for paragraph 6 of the resolution of the General Assembly and for special condition 6(a) of the contract of sale, which made the sale conditional on receipt of the Lease Premium.

55 The PCV Trusts Corporation asserts that it received the purchase price and applied one half as a distribution to the Presbyterian Church of Victoria to be applied (though its Ministry Development Committee and its Church Planting Committee) for home mission and church extension purposes in Victoria and the other half for the purposes of the Church generally. It was submitted by the plaintiffs that the Assembly by its resolution in 2001 had, in effect, approved the application of the half of the residue to the Board of Management of the Scots Church congregation, for the purpose of the Trustees purchasing the Assembly Hall. In purchasing the Assembly Hall, the Trustees were not, it was submitted and as previously noted, exercising the powers conferred by clause 9 of the Trust Deed.

56 There are issues, reflected in the questions, as to whether the Lease Premium was distributable irrespective of whether it was revenue or capital in nature and apart from and depending on the outcome of this construction issue, whether it was revenue in nature (and distributable on this basis) or capital in nature, in which event it would form part of the corpus of the SCPT.

57 The construction and characterisation arguments are referred to when dealing with the relevant question.

58 Clauses 5 and 6 of the Trust Deed set out the powers of the Trustee to mortgage. They do not confer authority on the Trustees to mortgage the Assembly Hall. These powers are confined to the scheduled land. On 24 February 2009, Mr Merralls QC provided the Trustees with his written opinion to that effect. He also advised that the Trustees did not otherwise have the power to mortgage the Assembly Hall.

59 It is common ground that on or about 2 June 2009, the Trustees granted to the Westpac Banking Corporation, in order to secure a loan facility of $5 million, a mortgage over the Assembly Hall.

60 The Trustees entered into a Business Finance Agreement with Westpac and also granted Westpac, without the consent of the Assembly, the other security identified in the solicitors' certificate dated 2 June 2009 as follows -

(a) the Irrevocable Direction regarding the rent from the Georges' Building; this was in effect a charge over the Georges' Building, given without the consent of the Assembly and in breach of the provisions of clause 6; and

(b) the Negative Pledge in favour of the lender.

B8 The use of the commercial properties income in the refurbishment of the Assembly Hall and other expenses

61 The thirdly provision of clause 7 of the Trust Deed authorised deductions as follows:

Thirdly - in payment of the rates taxes charges and outgoings payable in respect of all or any of the lands and hereditaments now or hereafter to be leased under the powers hereinbefore contained and of such expenses as the said trustees or trustee may think necessary or advantageous for the proper maintenance and reparation of such last-mentioned lands and hereditaments.

The authority was confined to the commercial properties and did not extend to the Assembly Hall.

62 It is common ground that in or about February 2009 the Trustees entered into a principal contract for the redevelopment and refurbishment of the Assembly Hall building involving substantial capital works. The contract was with Control Contract Services Pty Ltd.

63 In his affidavit sworn 15 April 2015, Michael Ellison has given evidence of the amounts that the Trustees deducted during the period from 1 July 2007 to 30 June 2013, together with interest, and also the total restitution amount sought. The Trustees have not filed evidence that takes issue with the quantum of amounts, as set out in the table below.

64 By his affidavit sworn 22 April 2015 and expert report, the independent expert retained by the plaintiffs, Darren Hockley of Grant Thornton provided updated figures from 1 July 2007 to 30 June 2014, a summary of which is as follows:

65 On 17 April 2009 Mr Merralls QC gave Mr Hearn his formal opinion, dated 17 April 2009, under cover of an email of the same date stating - "There are a few problems, I am sorry to say, because the Trust Deed is so inflexible."

66 In his opinion, Mr Merralls advised that the costs of renovations to the Assembly Hall could not be paid by the Trustees out of the income received by them before reaching the net residue available for distribution.

67 By letter dated 21 April 2009 to Rae Anstee, then Chairperson of the SCPT, Mr Hearn forwarded a copy of Mr Merralls' opinion, summarised the opinion, and gave further advice. He stated in the second last paragraph -

Mr Merralls canvasses the prospect of an application to the Supreme Court under the Trustee Act to obtain orders ratifying the arrangement or even seeking to have a private Act of Parliament passed. I understand from my discussions with you subsequent to my receiving this Opinion that neither of those courses of action are to be contemplated, nor are they thought to be necessary...

68 The Trustees submitted that special condition 8(b) of the contract of sale constituted lawful authority to the Trustees to deduct from annual monies distributable under clause 7 of the Trust Deed the amounts for the Assembly Hall works.

69 The plaintiffs submitted that, as a matter of law, special condition 8(b) of the contract of sale could not supply the Trustees of a charitable trust with a power they did not have. It certainly could not authorise trustees of a charitable trust to act in a manner that departed from strict compliance with the limited powers conferred under the Trust Deed, or by statute or by the general law.

70 In answer to a query from the PCV Trusts Corporation, by letter of the SCPT to the PCV Trusts Corporation dated 26 March 2009, Rae Anstee advised that the funding of the building works would be met from the following sources -

* SCPT Accounts

* SC- BMI Account

* Line of Credit provided by Westpac Banking Corporation, if required, secured by a charge over the Assembly Hall, which from our understanding of the Trust Deed does not require Assembly approval.

The reference above to 'SC-BMI Account' was a reference to the Scots' Church Building Maintenance and Improvement Fund ('the Scots' Church BMI Fund').

71 This did not happen. It is common ground that the Trustees deducted 100% of the costs and expenses of refurbishing the Assembly Hall from the commercial properties distributable moneys.

72 By email dated 10 February 2010 to Rae Anstee, Douglas Robertson referred to the opinion of Mr Merralls on the 60/40 funding clause in the contract of sale and said that the Assembly Hall, in his view, is both congregational and commercial, and as such is not provided for in the SCPT Trust Deed. Douglas Robertson also stated -

The FULL cost for all repairs, maintenance, etc fall to the Board of Management (after distribution), not to the SCPT (before distribution). The Trustees can only pay repair costs (etc) in relation to the commercial properties they operate.

73 By email dated 11 February 2010 of Rae Anstee sent at 7.59am, Rae Anstee sent Douglas Robertson, James Nuske and Paul Kerss the legal opinions about the Assembly Hall.

74 James Nuske (the second defendant) replied at 9.37am by email stating that "Douglas is over dramatizing the likely process that the law will take."

75 At 10.38am, Paul Kerss responded to Rae Anstee and James Nuske. He said 'we need to sit down with the PCV to discuss the matter in a calm and clear manner' -

To explain to them the reasoning behind getting the Merralls opinion, and to seek a way forward that means the Trustees are not acting outside the terms of the Trust Deed and that the capital works carried out were exactly that capital works and not repairs and maintenance, and discuss the position in relation to ongoing repairs and maintenance and see if there is a mutually agreeable outcome we can reach. This may mean that after the meetings(s) and an agreed upon solution we may have to run the outcome past our legal advisors to ensure that the terms of the Trust Deed are not compromised, who knows the end result may be an amendment to the Deed but we wont know that until we at least sit down with the PCV and put our case forward...

76 At 12.30pm Douglas Robertson wrote further to Rae Anstee concerning the opinion of Mr Merralls QC and the scope of the repair and maintenance clause.

77 At 3.45pm James Nuske indicated that he was in agreement with Paul Kerss in every respect.

78 The Trustees did not seek any discussion with the PCV Trusts Corporation or the PCV as foreshadowed by Paul Kerss and none took place.

79 The Trustees did not accept the views expressed by the Rev Douglas Robertson. By the letter dated 5 May 2010 sent to Andrew Slater, Rae Anstee advised the PCV Trusts Corporation that the full cost of the building refurbishment to the Assembly Hall had been charged to the SCPT, on the basis that the works carried out to date are of a capital nature and not repairs and maintenance. This was in clear disregard of the advice of Mr Merralls QC given in his opinion dated 17 April 2009, that the costs of renovations to the Assembly Hall could not be paid out of the income received before reaching the net residue available for distribution.

B9 Payment of stipends and collegiate charges

80 During the period from 1 July 2007 to 30 June 2014, the Trustees deducted from the annual moneys distributable under clause 7 amounts purporting to be in or towards the stipend of the Scots' Church minister or ministers or assistant minister of the congregation as set out below -

81 The table also shows the deductions for the Collegiate Charge about which the plaintiffs complain. The Trustees paid them to the Scots' Church General Fund, a fund operated by the Board of Management of the Scots' Church congregation. From 1 July 2015 the minimum remuneration approved under the PCV Committee Regulations, sec 17, Maintenance of the Ministry Committee, regulation 4, to 'meet the proper and reasonable requirements of the ministry at the current level of living costs' is $51,792 per annum.

"...Secondly-in payment of the yearly sum of one thousand pounds in or towards the stipend of the minister or ministers or assistant minister of the said congregation in manner following that is to say- To the minister while there is no assistant minister the sum of one thousand pounds and while there is such an assistant minister the sum of seven hundred and fifty pounds to the minister and two hundred and fifty pounds to the assistant minister

Provided that if any part of such sum of one thousand pounds be not used or required for such purpose in any year then the said trustees or trustee may apply such part not used or required as aforesaid for such congregational purposes or otherwise for the benefit of the said congregation as they or he may deem advisable..."

83 The relevant enquiry is, it was submitted, the following: What was the objective intention of the parties to the Trust Deed in the light of the language used and the context of the provisions?

84 The Trustees contend that the payment under the secondly clause of £1,000 is, on its proper construction, to be read as meaning the current day equivalent value of that amount.

85 The scheme of clause 7 was, it was submitted, to authorise specific deductions and apply the residue equally between the two classes of charitable purposes. One cannot discern from the secondly provisions an intention that the fund constituted by the gross surplus was to meet the annual cost from time to time of the minister and assistant minister, except to the extent of $2,000.

86 It was submitted further by the plaintiffs that the Trustees accepted that their contention was not correct. By letter dated 20 November 2012 to Lewis Holdway, marked without prejudice, Mr Hearn wrote concerning the proposed mediation, stating that in respect of the Minister's stipend -

the trustees accept that the reference to "1,000 pounds in or toward the Minister's stipend" in the directions commencing "Secondly" and "Fifthly" in clause 7 of the Trust Deed means $2,000 and not present equivalent of 1,000 pounds. They do contend, however, that until now the Trusts Corporation has acquiesced in the payment of the current equivalent of 1,000 pounds on the Minister's stipend.

87 The Trustees have sought in the proceeding exoneration from liability for paying the stipend amounts on the grounds that they acted honestly and reasonably and relied on legal advice. This letter, it was contended, contradicts that position when they continued afterwards to deduct the stipend amounts from the distributable income, albeit relying on their contention of acquiescence.

88 The opinion of Dr Clyde Croft (as his Honour then was) dated 28 September 1998 is to the effect it was at least reasonably arguable that the provisions should be construed to provide for an adequate payment of stipend from time to time, adequate meaning as adequate in current money values as a stipend of £1,000 was adequate in the money values of 1891. He said there are, naturally, contrary arguments to which reference has been made.

89 Dr Croft was not provided with either the judgment in Mackinnon v Borland[10] or the opinions of Mr W.A. Sanderson dated 29 January 1921 and 28 June 1924.

"...Fifthly-to apply one-third of the surplus remaining in each year (after providing for the foregoing purposes) but not exceeding in amount one thousand pounds per annum in or towards the stipend of a colleague to the minister for the time being of the said congregation if the Scots' Church be created a collegiate charge.

Provided that if any part of such sum be not used or required for such purpose in any year then the said trustees or trustee may apply such part not used or required as aforesaid for such congregational purposes or otherwise for the benefit of the said congregation as they or he may deem advisable..."

91 A 'collegiate charge' is defined in the Code Book ch 2 rules 4 and 5, and ch 4 rule 102.

1. A parish shall have the status of either a charge or an appointment parish as declared by the Presbytery. A mission field shall have the status of either a progressive mission station or a home mission station as declared by the Presbytery.

1. A charge is a sphere of pastoral duty consisting of a parish to which a minister is called by the congregation and duly inducted by the Presbytery. The minister has life tenure unless found by the Presbytery to be at fault in accordance with the rules of the church.

Associate, colleague or colleague and successor

1. The church recognises the following further ministerial positions:

1. An associate is a minister who has been called and inducted into a specially created associate position within a charge and is in every sense a minister of the charge except that the first inducted minister is considered to be the senior minister. 2. A colleague is a minister who has been called and inducted into a specially created collegiate position within a charge and is in every sense a minister of the charge and sharing equal standing with the first inducted minister.

1. A colleague and successor is a minister who has been called and inducted as in (b) above, but with the right to succeed as sole minister of the charge when the first inducted minister retires or is translated.

92 The Scots Church has not been paid a collegiate charge, although it does have assistant ministers. The absence of a charge does not appear to matter in the present case. In Mackinnon v Borland , McArthur J considered this clause 7 "fifthly" and the proviso that if any part of the sum is not used or required for this purpose, the unused sum or such unused part of it could be applied for congregational purposes.[11]

93 Again this gift was limited to £1,000 although it provided for abatement. It was never intended that the fifthly provision meet the whole of the cost of the stipend of a colleague to the minister. The plaintiffs make the same contentions as for stipends above.

94 The Trustees have an obligation under clause 8 of the Trust Deed to -

1. ... cause to be kept proper books of account of all receipts and payments of moneys by the said trustees or trustee and shall prior to the first day of October annually cause the same to be properly audited and shall deposit a statement of accounts when audited with the treasurer of the Assembly or such office as the Assembly shall in writing notify to the said trustees or trustee.

95 The plaintiffs contend that the obligation under the Trust Deed to account requires the financial statements of the SCPT to account in accordance with the steps required by the Trust Deed, in particular, clauses 4 and 7. As clause 8 indicates, that involves a statement of receipts and payments and takes precedence over any accounting standards. In its position paper in May 2012, the PCV Trusts Corporation had suggested to the Trustees a template for accounting to reflect this position.

96 The plaintiffs rely on the affidavit of Darren Hockley sworn 14 April 2015 and his expert report dated 10 April 2015. His conclusions are -

(a) at [77] of his report that the audited financial statements of the SCPT do not meet the requirements of clause 8 of the Trust Deed because they have not been prepared to reflect the ordinary meaning of receipts and payments;

(b) at [80] that they should have been prepared on a cash basis;

(c) at [84] the SCPT's statement of account is not required to comply with any accounting standards.

97 The auditor of the SCPT, Isabel Lefevre, acknowledged in an email dated 25 March 2011 that the proper interpretation of the Trust Deed has a substantial bearing on what the accounts should contain. If the Assembly Hall is not scheduled land, or treated as such, the trust would require a new calculation of the distribution.

98 In an email dated 19 May 2011, she stated that the surplus can be calculated and distributed under clause 7 of the Trust Deed, which is a different basis from the audited accounts where it is calculated under accounting policies.

99 In 2011 and 2012, the Trustees supplemented the audited financial statements of the SCPT with 'pro-forma' statements and purported to make an additional distribution. In those pro-forma statements, the Trustees purported to acknowledge and concede that certain costs and expenses in connection with the Assembly Hall and certain other sundry expenses ought not to be taken in account in calculating the moneys distributable under clause 7 of the Trust Deed.

100 These did not meet the concerns of the PCV Trusts Corporation to rectify the matters about which it complained.

B11 Commission due to PCV's Trusts Corporation

1. AND IT IS FURTHER DECLARED that the said trustees or trustee shall pay to the said Corporation a yearly sum calculated at the rate of two pounds ten shillings per cent upon the net amount after deducting the cost not exceeding five per cent of collecting the same of all rents received by the said trustees or trustee under any leases from time to time subsisting over any of the said lands and hereditaments described in the Schedule hereto (other than the church and manse sites). [emphasis added]

102 The plaintiffs submitted that the Lease Premium received by the Trustees from APN;

(a) represented a gain and a profit, derived by the Trustees from the commercial properties in Russell Street; and

(b) was the product of the commercial exploitation of those properties.

103 By reason of the nature of the Lease Premium and the circumstances in which APN came to pay the same to the Trustees under the lease;

(a) on the proper construction of the Trust Deed, the Lease Premium as received by the Trustees had the character of rent received under the lease to APN; and

(b) the Trustees became liable to pay the PCV Trusts Corporation an amount calculated at the rate of 2.5% upon the amount of $5.5 million, namely $137,500.

104 The Trustees have failed or refused to pay the PCV Trusts Corporation commission on the Lease Premium received by them.

105 Clause 11 of the Trust Deed relevantly states (with formatting and emphasis added for ease of reference):

"AND IT IS HEREBY FURTHER DECLARED ... And further that the said trustees or trustee shall be bound to obey and give effect to the orders rules decisions and appointments made and to be made by the Assembly or by the Presbytery of the Presbyterian Church of Victoria within the bounds of which the said congregation may be and of the office-bearers thereof relating to or concerning the admission or removal of the minister and office-bearers of the said congregation and the rights or privileges belonging to him them or any of them in virtue of his or their office

and concerning every other matter or thing whereon the Assembly or such Presbytery as aforesaid may or shall by these presents or the constitution of the said Church be declared to have authority and shall furnish to the Assembly and to such Presbytery as aforesaid such returns reports and other information as may be required,"

The plaintiffs contend that in breach of these provisions, the Trustees have not complied with the requirements of a resolution passed by General Assembly, details of which appear below.

106 The Code of the Presbyterian Church of Victoria states in Rule 1:6;

1. As a constituent part of the Presbyterian Church of Australia, the Presbyterian Church of Victoria has and exercises the powers, discharges the duties, and enjoys the rights and privileges as are provided for in the Basis of Union and the Articles of Agreement of the Deed of Union of 24 July 1901, and in subsequent competent amendments to them.

The Presbyterian Church of Victoria has full autonomy in all matters, except when power in any particular matter has been given to the General Assembly of the Presbyterian Church of Australia under the Basis of Union and the Articles of Agreement of the Deed of Union. The Presbyterian Church of Victoria's powers which are modified to a greater or lesser degree by those of the Presbyterian Church of Australia are:

the doctrine, worship and discipline of the church, world mission, the training of students for the ministry, the reception of ministers from other churches, welfare of youth, and home missions.

Power relating to other matters may by amendment of the Articles of Agreement be assigned by the state churches to the Presbyterian Church of Australia. [emphasis added]

107 The Articles of Agreement which form part of the Constitution, Procedure and Practice of the Presbyterian Church of Australia, prescribe in article 2.1 the powers legislative, administrative and judicial of the General Assembly of the National Church with respect to specific matters which do not touch on the matters raised in the present case.

1. The General Assembly is the supreme court of the Presbyterian Church of Victoria. It has and exercises the power to consider and deal with all matters of doctrine, worship, discipline and government, and generally with all matters affecting the well-being of the church, the moral and religious condition of society, and the extension of the kingdom of Christ in the world.

1. the surrender or qualification of supreme power in specified matters as provided in the Basis of Union and Articles of Agreement of the Deed of Union of 24 July 1901 and in subsequent lawful amendments.

The General Assembly may exercise its powers by means of the ordinary Commission of Assembly, or by special commissions or committees, as from time to time they are established for particular purposes.

The General Assembly may deal with and dispose of any matter before it for which there is no precise and sufficient legal provision, but only in respect of those matters in which it is the supreme court.

109 The General Assembly of the Presbyterian Church of Victoria at its proceedings on 6 October 1999 resolved (Minute 60.10) as follows;

In accordance with the provisions of the Scots' Church Properties Trust Deed, require the Trustees of the Scots' Church Properties Trust to:

1. Provide annually to the General Assembly for inclusion in the White Book a detailed report of the state of the Trust and the actions of the Trustees during the preceding year together with a copy of the fully audited financial statements of the Scots' Church Properties Trust.
2. Provide to the Board of Investment and Finance and the PCV Trusts Corporation the following:
   1. Quarterly statements of receipts and payments providing sufficient detail to determine expenses deducted prior to the calculation of the surplus to comply with the provisions of the Trust Deed, no later than one month in arrears;
   2. A schedule of the commercial properties showing the name of the tenant, the term and expiry date of the lease, the amount of rent and any for which the tenant is responsible, the rent review date, and the lease renewal options available to the tenant. This is to be provided as at 30 June annually and within thirty days of that date;
   3. A copy of the fully audited annual financial statements of the Scots' Church Properties Trust within one hundred and twenty days of its financial year end;

and the Board of Investment and Finance to report on these matters to the General Assembly.[12]

110 The Trustees stated in correspondence dated 29 September 2010:

The trustees were not party to the 1999 resolutions of the General Assembly. Under the terms of the Trust Deed the Trustees are not required to provide the information specified in the resolutions. The SCPT is an independent autonomous legal entity.

The Trustees did not comply with the resolution of the General Assembly.

111 The Trustees are elders of the Scots' Church congregation, which is within the denomination of the Presbyterian Church of Victoria. The Trust Deed, it was submitted, makes them accountable to the Presbytery and the General Assembly of the Presbyterian Church of Victoria. A trustee of a charitable trust must strictly adhere to the provisions of the trust.

112 The questions, at this stage, do not require consideration of the issue of Obedience set out in this section.

113 At the conclusion of opening submissions, the parties agreed that it was desirable that if the matter did not resolve at mediation the following questions be answered first;

1. Was the payment of $5.5 million (or $4.5 million of the same) received on 7 April 2008 by the Trustees from APN DF2 Project 2 Pty Ltd ('APN') under the ground lease between the Trustees and APN of the Commercial Properties distributable pursuant to clause 7 of the Trust Deed?

2. If the moneys were distributable pursuant to clause 7;

(a) was the $4.5 million used to pay the purchase price of the Assembly Hall distributed pursuant to clause 7 of the Trust Deed?

(b) If it was not so distributed, what is the consequence in law?

1. If the $4.5 million was distributed pursuant to clause 7 of the Trust Deed, did the Trustees, in using that $4.5 million to pay the purchase price of the Assembly Hall, purchase the Assembly Hall;

(a) pursuant to any provisions of the Trust Deed, including clause 9, conferring a power on them to do so? or

(b) on separate express trusts independent of the SCPT Deed.

1. If that payment of $4.5 million was not distributable pursuant to clause 7, did the Trustees, in using that $4.5 million to pay the purchase price of the Assembly Hall, purchase the Assembly Hall pursuant to any provisions of the Trust Deed, including clause 9, conferring a power on them to do so?
2. If that payment of $4.5 million was not so distributable and the Trustees did not purchase the Assembly Hall pursuant to any provisions of the Trust Deed, including clause 9, is the Assembly Hall charged with the repayment of that $4.5 million to the SCPT or otherwise held on a constructive trust on what terms?
3. Were the Trustees authorised to deduct all or part of the sum of $6,902,419.64 from the annual moneys distributable under clause 7 of the Trust Deed the items referred to in paragraph 73 of the Amended Statement of Claim, what is the consequence in law?
4. If the Trustees were not authorised to deduct all of part of the sum of $6,902,419.64 from the annual moneys distributable under clause 7 of the Trust Deed the items referred to in paragraph 73 of the Amended Statement of Claim, what is the consequence in law?
5. On the proper construction of the secondly and fifthly provisions of clause 7 of the Trust Deed, are the Trustees authorised to deduct an annual amount of;

(a) no more than $2,000; or

(b) the modern day equivalent of £1,000 in 1891?

114 The questions are mainly legal questions. The critical facts are not in dispute. Issues associated with the Trustees' right of exoneration or indemnification and the Trustees' conduct generally, and the third party claim, have been deferred as have issues relating to consent, acquiescence and estoppel. These matters involve substantial factual and legal issues and have in my view sensibly and reasonably been deferred. The relevant background facts extend well beyond the questions and will be relevant to subsequent issues.

115 In my opinion, there is a short path through questions 1-7. The acquisition of the Assembly Hall was not authorised by the SCPT. The acquisition constitutes an unauthorised investment. I do not accept, as submitted by the Trustees, that such acquisition was permitted by clause 9 of the Trust Deed (Question 3(a) and 4). I also do not accept, as submitted by the PCV Trusts Corporation, that the acquisition is held on separate trusts apart from SCPT (Question 3(b)). The remaining question (Question 5) relates to the consequences.

116 Accordingly, save in perhaps one respect, it does not matter whether the sum of $5.5m (or $4.4m) was distributable (question 1) and if so whether it was in fact distributed (question 2). The simple fact is that the purported acquisition of the Assembly Hall by the SCPT was not permitted. The consequences are discussed later.

117 Further, it is common ground that the Trustees were not permitted to deduct the sum of about $6.9m in order to effect repairs and improvements to the Assembly Hall (Question 6). The remaining matter is the consequence (Question 7).

118 The answer to questions 5 and 7 must be that the Assembly Hall is, at the very least, charged with repayment of the relevant amounts.

119 So far as may be relevant my answer to the questions is as follows;

(a) Question 1 - The Lease Premium was distributable. It was clearly moneys received under or by virtue of a lease.

(b) Question 2(a) - The Lease Premium was not distributed. It was, by agreement, paid out prior to distribution. The fact that the structure of the transaction was premised on how a distribution would have taken place, merely provides an explanation but does not make it a distribution.

(c) Question 2(b) - The consequence is that there was a breach of trust.

(d) Question 3(a) - No. The SCPT does not permit the acquisition of the Assembly Hall and clause 9 does not provide such authority.

(e) Question 3(b) - The purported acquisition of the Assembly Hall was not acquired on separate trusts.

(f) Question 4 - No. See answer to question 3(a).

(g) Question 5 - Yes, the Assembly Hall is charged with the repayment.

(i) Question 7 - The consequence is that the Assembly Hall is charged with the repayment of this amount.

120 Each question is considered in detail below. I have decided to defer consideration of question 8 until a later stage.

1. **Question 1 - **
   1. Was the payment of $5.5 million (or $4.5 million of the same) received on 7 April 2008 by the Trustees from APN DF2 Project 2 Pty Ltd ('APN') under the ground lease between the Trustees and APN of the Commercial Properties distributable pursuant to clause 7 of the Trust Deed?

121 Part B6 of the background is relevant to this question. For convenience and where appropriate some of the background facts and matters are repeated.

122 The plaintiffs submitted that on a proper construction of the Trust Deed the amount was distributable. Clause 7 of the Trust Deed required the Trustees, after payment of Commission to the PCV Trusts Corporation, to 'apply all moneys received under or by virtue of any leases' in the manner and order contemplated by clause 7.

123 On 7 April 2008, the Trustees and APN executed the Ground Lease of the Russell Street properties. In the section of covenants, clause 1.1 of the lease contains the defined terms, including the term 'Premium' and clause 3 contains the relevant provisions concerning the payment of the Lease Premium and rental. On 7 April 2008, APN paid the Lease Premium moneys to the Trustees.

124 Relevantly as pointed out, clause 7 of the Trust Deed of the SCPT directed the Trustees to annually apply 'all moneys received under or by virtue of any leases' subsisting over the commercial properties. The language, it was submitted, is of the widest import. The distribution provision refers to 'all moneys received':

(a) The word 'under', in the context in which it appears, refers to an obligation created by, in accordance with, pursuant to, or under the authority of, the lease.[13]

(b) The reference to 'or by virtue of' extends the relevant class of moneys received as a consequence or incident of the lease.[14] Otherwise, the additional words 'or by virtue of' would, it was submitted, have no work to do.

125 The intention of the Trust Deed, it was submitted, was to empower the Trustees to exploit those properties to produce distributable moneys, the net surplus of which, after authorised deductions, was to be distributed for the purposes stipulated in clause 7.

126 The reference in the sixthly provision of clause 7 to 'the entire surplus of the said rents remaining in any year' yields, it was submitted, to the wider reference in the body of clause 7 to 'all moneys received'; the intended scheme of the clause being that all the fruits of the commercial exploitation of the properties are distributable. This is whether or not the moneys were strictly of a capital or income character, so long as they answer the description of 'moneys received under or by virtue of any leases'.

127 In any event, the plaintiffs submitted, by reference to authority, that the Lease Premium was in the nature of income.

128 The Trustees contended that the words 'moneys received under or by virtue of any leases over any of the Scheduled Land' pick up rent and not sums received as capital.

129 An important contextual matter, it was submitted, is that by the preamble to the Trust Deed the corpus of the SCPT is held expressly for and on behalf of the members and adherents of the congregation of the Presbyterian Church of Victoria known as the Scots' Church. The Trust Deed, unsurprisingly, distinguishes between trusts as to capital and trusts as to income. Prima facie therefore, it was submitted that gains on capital account from permitted dealings with the Scheduled land are not distributable as income via the scheme set out in clause 7.

130 Clause 4 of the Trust Deed obliges the Trustees to pay to the PCV Trusts Corporation a commission on 2.4% on the 'net amounts of rent' received by the Trustees 'under any lease' from time to time subsisting over the Scheduled Land. Given that the Trust Deed dates from 1891, 'rents' in this clause almost certainly, it was submitted, bears its well established common law meaning, as a thing issuing out of the land, rather than its much more recent contractual meaning (as a payment for the use of the land).[15]

131 Clause 7 uses the expression 'said rents' in the sixthly provision when it provides that the surplus after applying the preceding provisions is to be distributed equally to the Board of Management and the Presbyterian Church of Victoria for home mission and church extension purposes. The 'said rents' must, it was submitted, pick up the common law concept of rent, and must also be a reference back to the expression 'moneys received under or by virtue of any leases over any of the Scheduled Land' in the first sentence of clause 7 for two reasons.

132 First, it was contended that the expression 'rents' appears nowhere else in clause 7, so as a matter of language the words 'said' and 'entire surplus' can only be referring back to, and confirming the character of 'moneys received under or by virtue of any leases over any of the Scheduled Land' as rents.

133 Second, it was contended as a matter of practicality, it is scarcely to be supposed that the drafters of these trusts of income intended to leave undistributed some part of the subject income, which would be the case if 'moneys received under or by virtue of any leases' comprised more than 'rents'. Thus, clause 7, in declaring the trusts with respect to the rental income from the Scheduled Land complements the trusts as to corpus in the preamble. Clause 7 is, it was submitted, naturally to be read with clause 3, as dealing with the income which results from the exercise of the leasing power in clause 3.

134 Clause 3.1 of the Ground Lease provides for a 'Premium' payable by the lessee of $5.5 million, payable 'on the Commencement Date'. 'Premium' is defined in the Ground Lease as the 'premium for this lease'. As a matter of construction, the Lease Premium it was submitted is a one-off payment for the grant of the lease, and it is not repayable in some or other circumstance. Clause 3.2 of the Ground Lease then provides that the tenant must pay the 'Rent' to the landlord 'from the Commencement Date'. 'Rent' is defined by the Ground Lease to mean the rent for the Premises.

135 The Lease Premium and the Rent are, it was submitted, concerned with two conceptually different things. The Lease Premium is a payment made on the commencement date for the lease - in other words for the grant of the estate. It is payable at the outset, regardless of whether and to what extent the tenant uses the premises. By contrast, the rent is a recurrent payment tied to the period of enjoyment of the Premises and reviewable as to amount with the passage of time. The rent payable under the Ground Lease answers the modern contractual notion of rent as a payment for the use of the premises. There seems no reason to doubt, it was submitted, that the rent provisions would also answer the common law notion of a payment reserved out of the demised for the benefit of the lessor.

136 In my opinion the Lease Premium was distributable substantially for the reasons given by the plaintiffs.

137 Clause 7 of the Trust Deed of the SCPT directed the Trustees -

after payment to the said Corporation of two pounds ten shillings per centum per annum as hereinbefore provided

annually apply all moneys received under or by virtue of any leases now subsisting or hereafter to be granted under the powers hereinbefore contained over any of the lands and hereditaments described in the Schedule hereto (other than the manse site) in the manner and in the order and priority following that is to say - ....

Sixthly - in payment of the entire surplus of the said rents remaining in each year after providing for the five foregoing purposes in equal proportions as follows... [emphasis added].

138 The introductory paragraph to clause 7, is critical and has primacy. It is the relevant clause that informs and directs the Trustees obligations. It deals with and specifically identifies the source and nature of the funds or moneys that are to be used for the specified priority distribution. It does not identify and refer to rents received in the sense of something issuing out of the land. It is self-evidently wider than that. It refers to 'all moneys'. This deliberate choice of words is a clear indication that the source of funds available for distribution was intended to go beyond rent. It is, in my view, neither necessary nor desirable to endeavour to identify what these moneys - beyond rent - received by the Trustees might be. Suffice it to say that the Lease Premium obviously constitutes moneys received. The fact that other moneys received may, given their peculiar nature (for example insurance payments), not be suitable or desirable for distribution, does not detract from the analysis or require the clear words to be read down to only one component, namely rent.

139 The next and related point, is that it is not all moneys issuing out of the land, but 'under or by virtue of any leases'. Even if this is a composite phrase, it is a phrase of wide import and includes moneys - whether rental or not - connected with a lease. The Lease Premium is connected with the lease. It is a term of the lease and the Lease Premium is received under the lease agreement. I am not prepared to give the word 'lease' the more restricted meaning, as contended by the Trustees. The preceding words, namely 'all moneys' suggests a meaning beyond and wider than that contended.

140 It follows that I do not regard the unfortunate use of the words 'said rents' in the sixthly provision of clause 7 as controlling the identification of the source of funds to be applied in the distribution. It is intended to and must as a matter of construction and consistency refer to the source, character and identification clearly set out in the enabling paragraph or preamble that governs the distribution.

141 It follows further that in my opinion it is not relevant or determinative, whether the Lease Premium is income or capital. Looking at the Trust Deed as a whole, and on a proper construction thereof, there is no reason why, even if capital, the Lease Premium could not be distributed. It clearly falls within the definition of moneys that are distributable.

142 Finally, in my opinion, although not strictly relevant for the purpose of the answer to this question, the better view is that, for the reasons set out hereunder, the Lease Premium constitutes income in the hands of the Trustees.

143 First, the Trustees approved financial statements which acknowledged that the Lease Premium of $5.5 million was an income receipt. The financial statements of the SCPT for 2008 contained the following matters;

(a) The 2008 audited accounts, page 15 ("Note 6 - Deferred Lease Premium Income" and "Cash Flow Statement") show a lease premium of $5.5 million being received.

(b) The 2008 audited accounts, page 11, note 1(f) Revenue, state "The trustees deem it is appropriate to recognise lease premium for the lease to APN DF2 PROJECT 2 PTY LTD over the first 20 years of the lease being the initial set period prior to market review."

(c) The Income and Expenditure statement of the 2008 audited accounts shows as income a "Lease premium" of $68,75041.[16] Note 6 of those accounts shows a reduction of the Deferred Lease Premium of $68,750 described as "Less Accumulated Amortization".

(d) The Statement of Trust Funds in the 2008 audited accounts shows $5,431,250 as a liability under the narrative "Deferred Lease Premium Income".

(e) Only later in June 2009 in revised accounts did the Trustees change their position.

144 Second, the Lease Premium represented a gain and a profit from the commercial properties in Russell Street, derived by the Trustees for the benefit of the SCPT, from those commercial properties. The Lease Premium was the product of the commercial exploitation of those properties. Given the nature of the SCPT, the primary duty of the Trustees in relation to the commercial properties was to exploit them to produce distributable moneys, hence the power in clause 3 to lease those properties and the duty in clause 7 annually to apply all moneys received under the leases for the charitable purposes stipulated. The authorities establish, as was in my view correctly submitted, a sound basis for treating the receipt as revenue.[17]

145 Third, the Lease Premium, represented an upfront payment of rental; it was an integral part of the negotiations leading to the fixing by agreement of the actual rent payable under the Lease to APN:

(a) By letter dated 11 May 2001, the Chairman of the Trustees advised the PCV Trusts Corporation that the initial payment for the church ground rent could be in two ways, one including a payment up front.

(b) The offer document dated 18 December 2001 presented to the General Assembly stated that as the payment of the lease premium was "rental income to the trust it would ordinarily be available for the end of year distribution".

146 Fourth, the singularity of the Lease Premium, that is to say, that it was a once-only payment is not determinative of the question of its character. It still represented a profit and gain from the commercial properties in Russell Street and was intended as such. It was part of the wider activities of the Trustees in seeking to make a profit from the commercial exploitation of those properties.

147 By email dated 2 April 2009 from Rev Douglas Robertson (the Senior Minister) to Rae Anstee, Douglas Robertson stated that the $5.5 million received from APN by the Trustees was -

"in fact also rental income. If I remember correctly, it was calculated as the net-present equivalent of a small portion off the top of future rent, and the grading of rents over the first 20 years of the lease was adjusted down accordingly".

148 The response of Paul Kerss dated 2 April 2009 stated (it would appear for the first time) that the acquisition of the Assembly Hall was a capital acquisition:

"Anyway, the acquisition of the Assembly Hall is a capital acquisition and the price paid for the Assembly Hall to the PCV and the amount of the premium paid by APN are not really related transactions, (although they occurred at the same time) and we don't want to go down the path of calling the $5.5 million received from APN as rent (in light of our discussions with Harry Hearn last week, we want to call this a capital payment and change the Trusts Financial Statements to reflect this..."

149 By email dated 16 April 2009, Paul Kerss gave instructions to the accountant preparing the financial statements of the SCPT asking him to reverse the entries that brought the Lease Premium to account including the first year's amortisation.

150 If, contrary to my view, the Lease Premium was a capital receipt derived from the disposal of an interest in the commercial properties, the Trustees were not authorised under the Trust Deed to use those moneys for the purchase or redevelopment of the Assembly Hall. They would have been obliged to hold that amount as part of the corpus constituted by the commercial properties and distribute the interest earned from those moneys in accordance with clause 7 of the Trust Deed. Accordingly, any acquisition in these circumstances was not authorised and would constitute a breach of trust.

151 The plaintiffs' alternative claim, that if the Lease Premium was a capital receipt the Trustees hold the Assembly Hall on a separate resulting or constructive trust on like terms to those in clauses 4 and 7 in the Trust Deed of the SCPT, is rejected for reasons set out below.

1. If the moneys were distributable pursuant to clause 7;

(a) was the $4.5 million used to pay the purchase price of the Assembly Hall distributed pursuant to clause 7 of the Trust Deed?

(b) If it was not so distributed, what is the consequence in law?

152 Again, Part B6 of the background is relevant to this question.

153 It was not contended by the plaintiffs that the Trustees actually went through the distribution exercise contemplated by clause 7 and, upon reaching the sixthly provision, physically or electronically and after doing the relevant calculation actually paid one-half of the premium (or the amounts distributed from time to time which would include the premium) to each of the Presbyterian Church of Victoria and the Board of Management, being the identified beneficiaries. Rather, it was contended that there was a distribution, in effect, but for reasons of convenience the full amount of $4.5m was simply paid over to the PCV Trusts Corporations as the purchase price for the Assembly Hall, as specifically agreed by all parties. This may not be without some significance when the topic of remedies is considered.

154 The gravamen of the plaintiffs' submission is that the payment of the $4.5 million by the Trustees was, to the extent of $2.25 million, a special distribution for a 'purpose approved by the Assembly' within the meaning of clause 7 and, to the extent of the remaining $2.25 million, a distribution to the PCV as usual through the PCV Trusts Corporation for home mission purposes. The payment to the extent of the first $2.25 million was a distribution, notwithstanding that the payment was not actually made to the Board of Management but rather to a third party (the PCV Trusts Corporation) with the approval of the Board of Management and the congregation.[18]

155 By its resolution of 18 December 2001, the General Assembly approved the payment of $4.5 million to the PCV Trusts Corporation (as vendor of the Assembly Hall). The General Assembly acknowledged that moneys distributable under clause 7 were being used because it stipulated in paragraph 1 of the resolution that the $4.5 million was to be paid by the Trustees out of the funds held by them prior to the distribution of surplus income under the SCPT Trust Deed. This meant, it was submitted, before the usual distribution of net surplus under clause 7, that is to say, one half to the PCV and one half to the Board of Management for building maintenance and improvement ('the BMI Fund'). Special condition 8(b) of the contract of sale concerning repairs and maintenance used the same language of 'paid out of funds held by the purchaser prior to distribution of surplus income'.

156 The Trustees acted, it was contended, consistently with the view that they were distributing $4.5 million pursuant to clause 7 of the Trust Deed. At their meeting on 12 November 2001, they resolved to increase their offer from the $3 million (confirmed by letter dated 18 October 2001) to $4.5 million expressly on the basis that it would be paid out of funds held by them prior to distribution of surplus income held by them under the Trust Deed. The increased price was to reflect, broadly, twice the then valuation of the Assembly Hall.[19]

157 The Court can reasonably infer, it was submitted, that in raising the offer to $4.5 million, the Trustees were influenced by the letter of Aitken Walker & Strachan to the board of the SCPT dated 7 November 2001, in which Mr Hearn explains to the Trustees that if they wish to treat the Lease Premium as revenue, and distribute it under clause 7, the Board of Management can apply its half share for 'any other purpose approved of by the Assembly', namely the purchase of the Assembly Hall.[20]

158 The congregation had, on 18 November 2001, resolved to approve the purchase of the Assembly Hall. The Board of Management and the congregation consented to or approved the purchase of the Assembly Hall and the use of the $4.5 million to pay the purchase price direct to the PCV Trusts Corporation.[21]

159 Under the paradigm contemplated by the Hearn letter dated 7 November 2001, any distribution had to be in equal shares to the PCV and the Board of Management. For this reason, the Trustees had to 'gross up' the purchase price to ensure that the amount foregone by the Board of Management in favour of the Trusts Corporation reflected the actual value at the time of the Assembly Hall. The Senior Minister explained this in the Trustees' offer document of 18 December 2001 to the General Assembly. The Trustees did this, grossing up the offer price to broadly twice the valuation.

160 The PCV Trusts Corporation also recognised at the time that the purchase price was being paid out of distributable moneys. The plaintiffs referred to the minutes of its meeting on 6 December 2001 and to their report to General Assembly in December 2001.

161 The Trustees contended that neither the $4.5 million, nor the balance of the amount of the Lease Premium of which it formed part, was distributed pursuant to clause 7 of the Trust Deed. If that course had been followed, the Lease Premium together with the rents from the Scheduled Land would have been dealt with as one fund applied in accordance with the cascading provisions of clause 7, with any balance remaining after the first to fifth dispositions in that clause divided and paid by the Trustees to the PCV and the Board of Management as to half each. The documents in the Court Book, it was submitted, provide examples of such accounting and payments made by the Trustees in respect of particular accounting periods. Here, however, the parties' agreement - the contract of sale - was conditional on the premium under the Ground Lease having been paid by the tenant to the Trustees,[22] and provided for the payment of the purchase price for the Assembly Hall of $4.5 million 'to be paid by the [Trustees] out of funds held by the [Trustees] prior to the distribution of surplus income under the Trust Deed'.[23] The Scheduled Land comprised the only income generating assets in the SCPT fund; the income was the rents therefrom, which under the Trust Deed had to be applied each year in accordance with clause 7. Accordingly, if the Lease Premium was distributable under clause 7 of the Trust Deed, performing the obligation under clause 7 of the contract of sale required the Trustees to commit a breach of trust (as the PCV Trusts Corporation well knew). The fact that following settlement of the contract of sale on 15 May 2008, the PCV Trusts Corporation gave the PCV for home mission and church extension purposes half the sale price ($2.25 million) does not, it was submitted, change the situation.[24]

162 The answer to question 2(a) is, in my view, clear. There was no distribution of the Lease Premium as contemplated by clause 7, substantively for the reasons given by the Trustees.

163 All of the relevant documentation, and in particular the resolution of the General Assembly and the Contract of Sale, refer to the payment of $4.5m prior to distribution. This means that it was not considered to form part of the distribution and was not to be dealt with, and was not in fact dealt with, in accordance with the cascading provisions of clause 7. Put simply, but accurately, the Lease Premium was received by the Trustees and the sum of $4.5m was paid over to the PCV Trusts Corporation for the acquisition of the Assembly Hall. It was specifically intended to be dealt with in this way. The fact that the increased purchase price and structure of the acquisition is partly and perhaps explicable by reference to the amount that each party would have received had a distribution taken place does not mean that it did take place or should be deemed to have taken place. This is all the more so when all parties agree that it did not take place.

164 It has not been suggested that the acquisition of the Assembly Hall was a sham. The purchase price was stated as $4.5 m and not some lesser amount. The amount could have been divided up to record the various components, but it was not. The contract of sale and the purchase price recorded therein is clear and unambiguous and should be read accordingly. Finally, even if the purchase price could be broken up, as alleged by the plaintiffs, the acquisition was in any event, as referred to below, unauthorised.

165 The obvious consequence is that there has been a breach of trust. The nature and extent of any remedy is discussed below in relation to question 5.

1. If the $4.5 million was distributed pursuant to clause 7 of the Trust Deed, did the Trustees, in using that $4.5 million to pay the purchase price of the Assembly Hall, purchase the Assembly Hall -

(a) pursuant to any provisions of the Trust Deed, including clause 9, conferring a power on them to do so? or

(b) on separate express trusts independent of the SCPT Deed.

1. If that payment of $4.5 million was not distributable pursuant to clause 7, did the Trustees, in using that $4.5 million to pay the purchase price of the Assembly Hall, purchase the Assembly Hall pursuant to any provisions of the Trust Deed, including clause 9, conferring a power on them to do so?

166 These questions are conveniently dealt with together. The relevant background facts are set out in B4 and B5 of the background.

167 Whether the funds were distributed (question 3) or not distributable (questions 4 and 5) the question remains as to whether the acquisition of the Assembly Hall itself, whatever the source or distributable status of the funds, was authorised. Although these questions are of course themselves relevant, they also relate to the consequences (if any) of the breach of trust associated with (if this be the case) the non-distribution of the Lease Premium.

168 The plaintiffs contend that the acquisition was not permitted under clause 9 of the Trust Deed and was an acquisition (using distributed funds) on separate trusts.

169 The Trustees contend that the acquisition was permitted under clause 9 of the Trust Deed and that the Assembly Hall was not acquired on separate trusts.

170 It is not without relevance or significance to note that neither party contends that the acquisition of the Assembly Hall was in breach of trust. However, if both parties are wrong and the acquisition was in breach of trust, it will be necessary to discuss whether, in the circumstances, any relief is available. This is the intent of question 5.

with the consent of the said congregation given in a meeting duly convened for that purpose to expend any moneys received by them for congregational purposes of the said Scots' Church ... in the purchase of land in Victoria with buildings thereon...

172 The plaintiffs submitted that the Assembly Hall was not purchased pursuant to the power conferred by clause 9, because the moneys used were not moneys received by the Trustees for congregational purposes of the Scots' Church.

173 The reference to moneys received "for congregational purposes" is to be construed, it was submitted, as meaning collections received at services etc. or general donations;[25] the Trustees conceded that if the lease premium moneys were distributable, they were not moneys received for congregational purposes.[26] The same conclusion would apply, it was submitted, to capital moneys held on the same trusts as the commercial properties.

174 The Trustees received the Lease Premium, it was submitted, as a result of the commercial exploitation of the properties in Russell Street; the moneys were received to apply in accordance with clause 7 of the Trust Deed.

175 It was submitted that no other provisions of the Trust Deed relevantly empowered the Trustees to purchase the Assembly Hall.

176 However, the plaintiffs submitted further that it was clear that the then Trustees intended to acquire the Assembly Hall in a trustee capacity. It was submitted that the enquiry for the Court as to the relevant trusts is an objective one[27] informed by all the relevant circumstances including the SCPT Trust Deed, the Trustees' offer document of 18 December 2001, the resolution of General Assembly of that date, the contract of sale and the model trust deeds. The fact that in the contract of sale the then Trustees declared that they were acting as trustees of the SCPT is not, it was submitted, determinative of the question whether they acted pursuant to the provisions of the Trust Deed of the SCPT or whether they acquired their interest subject to those or like provisions.

177 The Trustees submitted that the meaning of 'congregational purposes' is not defined by the SCPT Trust Deed and is not a term of art. There are two instances within the SCPT Trust Deed where the purpose for which moneys may be applied in connection with the congregation are identified. The first is in clause 5 and the second is in the sixthly provision of clause 7. Both clauses 5 and 7 speak of a purpose (amongst others) of using funds, whether raised by mortgage or by way of the distributions received from the income of the SCPT, for acquiring land with buildings or erecting thereon to be used as a mission hall or halls or as church offices 'in connection with' the congregation of the Scots Church. Another purpose which is identified by clause 7 is the maintenance of the Church Site and maintenance of mission halls and church offices 'in connection with' the congregation of the Scots Church. It seems clear enough, it was submitted, that the purposes for which funds may be raised on security under clauses 5 and 6 are also congregational purposes under clause 9, given the affirmation in clause 9 that the Trustees may raise money 'for such purpose under the power hereinbefore contained', which can only be a reference to the mortgage power in cluses 5 and 6.

178 The Trustees submitted that what is meant by the expression 'congregational purposes' in clause 9 is purposes 'connected with' the congregation (which is a term defined in the preamble). The purpose for which the power may be used, and the outcome of its exercise, illuminate what are congregational purposes, it was submitted. The power is for 'the purchase of land in Victoria with buildings thereon or in acquiring and in Victoria and to erect buildings or buildings suitable for church offices for the said congregation or for a mission hall or halls'. The outcome of the exercise of the power is an acquisition which is held on trust for the congregation.

179 Accordingly it was contended that clause 9 authorises and makes lawful the Trustees, with the prior consent of the congregation of the Scots' Church, expending moneys held by or on behalf of the congregation of the Scots Church for the purpose of acquiring land with buildings or erecting thereon to be used as a mission hall or halls or as church offices 'in connection with' the congregation of the Scots Church. Without that express power, any such acquisition would be in breach of the terms of the SCPT and an unauthorised investment.

180 By the meeting held on 18 November 2001, the congregation, it was contended, consented to the purchase of the Assembly Hall out of funds which, as capital forming part of the corpus of the SCPT, were to be held on trust for the congregation. If the construction advanced by the Trustees is accepted, then in the events that occurred and by the operation of clause 9 of the SCPT Trust Deed, the Trustees hold the Assembly Hall in trust for the congregation. The trusts on which the Assembly Hall is held are those specified in clause 9: for use as church offices or a mission hall, with a power to let, to sell, and to make another investment of the kind described. There is no scope it was submitted to piece together some other trust as the PCV Trusts Corporation has sought to do. The Assembly Hall was either purchased under clause 9 and is held for the congregation on the trusts therein referred to, or the Trustees were not entitled to purchase it at all, and the use of SCPT capital or income to that end was a breach of trust induced, it was submitted, by the PCV Trusts Corporation.

181 In my opinion clause 9 does not provide the necessary authority to acquire the Assembly Hall. If, as I have found, the funds were distributable, clause 9 does not apply and neither party argued to the contrary.

182 However, even if the Lease Premium was not distributable, for the reasons given by the plaintiffs, I do not consider that the Lease Premium was received for congregational purposes. Rather, in such circumstances the Lease Premium would be held on the same trusts, that is pursuant to the SCPT.

183 Further, I do not consider that the Assembly Hall was acquired on separate trusts, as contended by the plaintiffs. The acquisition of the Assembly Hall was expressly and specifically intended to be an acquisition by SCPT. This was the intention of all parties as expressed in the relevant documentation. The fact that the acquisition was not authorised or permitted, does not mean, ipso facto, that it was made and held on some other trust because, as is obvious, the Trustees did not intend to acquire beneficially. This type of reverse engineering involves impermissible reasoning and logic and is rejected.

184 The consequences will be discussed in tandem with question 7. This is the core of the case, namely the appropriate relief in the circumstances.

1. Were the Trustees authorised to deduct all or part of the sum of $6,902,419.64 from the annual moneys distributable under clause 7 of the Trust Deed the items referred to in paragraph 73 of the Amended Statement of Claim, what is the consequence in law?

185 The relevant background facts are set out in item B8 of the relevant background.

186 The parties agree that on a proper construction of clause 7 the Trustees were not authorised to deduct the sum of $6,902,419.64 for the renovations and improvements to the Assembly Hall. The consequences are discussed below.

1. If that payment of $4.5 million was not so distributable and the Trustees did not purchase the Assembly Hall pursuant to any provisions of the Trust Deed, including clause 9, is the Assembly Hall charged with the repayment of that $4.5 million to the SCPT or otherwise held on a constructive trust on what terms?
2. If the Trustees were not authorised to deduct all of part of the sum of $6,902,419.64 from the annual moneys distributable under clause 7 of the Trust Deed the items referred to in paragraph 73 of the Amended Statement of Claim, what is the consequence in law?

187 This is the crux of the case. The factual and legal matters are complex. The answers however will inform the basis for the way forward.

188 The fact is the sum of $11,402,419.64 ($4.5m + $6,902,419.64) used to acquire, develop and improve the Assembly Hall has been used or applied by the Trustees in breach of trust.

189 At present, the Assembly Hall is purportedly held pursuant to the SCPT. Should this continue? Should the Assembly Hall be charged with the repayment of this amount? Is the Assembly Hall held on constructive trust? Should the Assembly Hall be sold? Further, do the answers to these questions depend on the other defences raised by the Trustees?

190 In the leading case of Hallett's Estate, In re; Knatchbull v Hallett,[28] Sir George Jessell, M.R. said -

I will, first of all, take his position when the purchase is clearly made with what I will call, for shortness, the trust money, although it is not confined, as I will shew presently, to express trusts. In that case, according to the now well-established doctrine of Equity, the beneficial owner has a right to elect either to take the property purchased, or to hold it as a security for the amount of the trust money laid out in the purchase; or, as we generally express it, he is entitled at his election either to take the property, or to have a charge on the property for the amount of the trust money.

191 In Scott v Scott,[29] the High Court of Australia (McTiernan, Taylor and Owen JJ) said -

But where the expenditure of moneys constitutes a breach of trust the remedies may overlap for the beneficiaries may have both a proprietary and personal remedy and, of course, if they choose to pursue the former this will be the full measure of the relief available to them.

There is, of course, abundant authority for the proposition that if trust moneys have been exclusively used in the purchase of property the beneficiary may elect to take the property itself.

192 In Target Holdings Ltd v Redferns,[30] Lord Browne-Wilkinson said -

The basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law. Thus, in relation to a traditional trust where the fund is held in trust for a number of beneficiaries having different, usually successive, equitable interests, (e.g. A for life with remainder to B), the right of each beneficiary is to have the whole fund vested in the trustees so as to be available to satisfy his equitable interest when, and if, it falls into possession. Accordingly, in the case of a breach of such a trust involving the wrongful paying away of trust assets, the liability of the trustee is to restore to the trust fund, often called 'the trust estate', what ought to have been there.

The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all beneficiaries' rights can be protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate: see Nocton v. Lord Ashburton [1914] A.C. 932, 952, 958, per Viscount Haldane L.C. If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed: Caffrey v. Darby [1801] EngR 484; (1801) 6 Ves. 488; Clough v. Bond (1838) 3 M. & C. 490. Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred.

...

A trustee who wrongly pays away trust money, like a trustee who makes an unauthorised investment, commits a breach of trust and comes under an immediate duty to remedy such breach. If immediate proceedings are brought, the court will make an immediate order requiring restoration to the trust fund of the assets wrongly distributed or, in the case of an unauthorised investment, will order the sale of the unauthorised investment and the payment of compensation for any loss suffered. But the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for 'stopping the clock' immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered.

193 In Foskett v McKeown,[31] Lord Millett said -

The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. He will normally exercise the option in the way most advantageous to himself. If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself. There is nothing unfair in this. The trustee cannot be permitted to keep any profit resulting from his misappropriation for himself, and his donees cannot obtain a better title than their donor. If the traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option. He will take the whole of the proceeds on either basis. This is why it is not possible to identify the basis on which the claim succeeded in some of the cases.

194 In Youyang Pty Ltd v Minter Ellison[32] ('Youyang') the High Court of Australia referred extensively, with approval, to Target Holdings, including the second passage of Lord Browne-Wilkinson cited above. The High Court referred extensively to subsequent events in assessing the position of the beneficiary, Youyang. However unlike Target Holdings, where the House of Lords held that in relation to a breach of trust the client benefiting is in exactly the same position as if there had been no breach, this was not the case with Youyang.

195 It is unnecessary to refer to any further authority or academic writings at this stage. The principle derived from Target Holdings and Youyang is clear. Any compensation or other relief is assessed at the time of trial with the full benefit of hindsight.[33]

196 Unfortunately, as discussed below, there is still much to do in this case, in the event that it does not resolve following these reasons.

197 The starting point, so far as relief is concerned, is that the SCPT (and more particularly the identified beneficiaries) has been impoverished through various breaches of trust by the Trustees in relation to unauthorised expenditure of the sum of over $11m, putting both the value or increased value of the acquisition of the Assembly Hall and interest to one side. Under the SCPT this amount (or such lesser amount after taking into account other prior required distributions) should have been distributed as to one-half to the Presbyterian Church of Victoria and as to the other half to the Board of Management. These parties or entities are the beneficiaries entitled to beneficial ownership of the funds.

198 They, or any of them, are entitled to bring (as indeed the plaintiffs have) a personal claim against the Trustees for breach of trust and in aid of or part of this claim they are entitled to assert an equitable lien or charge over the Assembly Hall. Alternatively, the beneficiaries may assert beneficial ownership (as indeed they have) in the asset acquired in breach of trust, in this case the Assembly Hall.

199 Although the remedies are alternative, both are available at this stage, subject to the matters that may be the subject of the further hearing of this case. The beneficiary, in this case, the Presbyterian Church of Victoria, is not required to make any election.

200 The final remedies will depend upon resolution of the next and final part of the case, which must of necessity include a consideration of any relief under the Trustee Act 1958, the subject of the related proceeding.

201 Unfortunately, these are the real issues in the case, namely given the obvious breaches of trust, what remedies flow in the peculiar circumstances of this charitable trust with specific beneficiaries. This, with respect, should have been the starting point of the case.

202 The relief will need to reflect what the parties would have received but for the diversion or unauthorised use of the identified funds. However, in order to identify the true loss, a beneficiary will, on the accepted authority of Target Holdings and Youyang, be required to account for gains that would not have been made but for the breach of duty. This in turn may affect the extent to which the Assembly Hall is held on (constructive) trust and whether it will need to be sold.

203 Accordingly, on the footing that there have been breaches of trust as identified, and that at the very least the Assembly Hall is charged with repayment of a sum in excess of $11m plus interest, the following matters need to be decided in order to determine what final relief should be granted.

204 First, matters relating to whether any relief is available -

• Estoppel.
• Acquiescence, consent and condoning.

205 Second, matters associated with the personal liability of the Trustees -

• Excused from liability for acting honestly.
• Third party claim.
• Right of indemnity.

206 Third, matters associated with proprietary relief -

• Assembly Hall constructive trust - the extent of the beneficiaries interest.
• Knowing participation.
• Sale of Assembly Hall.
• Section 63 Trustee Act.

207 In my opinion the real issue so far as remedy is concerned is the third matter. It will involve complex accounting and legal issues.

208 I will hear from the parties as to the further disposition of the proceeding.

[1] A related question is whether, in the event that they did not have such power under the SCPT they acquired the Assembly Hall on some other Trusts.

[3] No party contends that the acquisition of the Assembly Hall was in breach of trust. The Trustees contend that they had the power under clause 9 of the Trust Deed to acquire the Assembly Hall and the plaintiffs contend that the acquisition was on other trusts and not on behalf of the SCPT.

[5] Solicitor-General v Wylde [1945] NSWStRp 28; (1945) 46 SR (NSW) 83 at 105-10. Metropolitan Petar v Mitreski [2001] NSWSC 976 at [10]- [17]. Tomasevic v Jovetic [2011] VSC 131.

[6] Num-Hoi. Pon-Yu, Soon-duc Society Inc v Num Pon Soon Inc [2001] VSC 363; (2001) 4 VR 527 at [29] and [37].

[7] (1925) Supreme Court No 266 unreported.

[8] On 24 February 2009, Mr Merralls QC provided the Trustees with his written opinion of that date. His advice was to the effect that the Assembly Hall was not scheduled land under the Trust Deed and therefore the consent of the Assembly to a mortgage of the Assembly Hall was not required. He also advised that the Trustees did not have the power to mortgage the Assembly Hall and "an unauthorised mortgage would be in breach of trust and the Trustees would be potentially liable to make good to the Trust any loss sustained as a consequence of their breach".

[9] See footnote 8 above. The thirdly provision of clause 7 permits expenditure in relation to 'repairs and maintenance of the scheduled land'. The refurbishment went beyond repairs and maintenance.

[10] (1925) Supreme Court No 266 unreported.

[11] (1925) Supreme Court No 266 unreported, page 8.

[12] Assembly has previously in 1994 resolved to request the Trustees to adhere to the requirements of their Trust and report on their activities annually to the General Assembly and provide suitable statements of accounts: Minute 26.3 of the October 1994 General Assembly (CB 697)

[13] Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 at [14].

[14] Chief Commissioner of Land Tax v MRC Developments Pty Ltd (1995) 95 ATC 4313 at 4316; Denby (as Trustee in Bankruptcy of Estate of SS Wing Tam) v Shum [2002] QSC 117 at [10]- [15].

[15] See Commissioner of State Revenue v Price Brent Services Pty Ltd [1995] VicRp 77; [1995] 2 VR 582 per Brooking J at 585-586.

[16] This appears to be the amortization over 20 years, pro rata for the period from 7 April to 30 June 2008 consistent with Note 1(f) of the accounts.

[17] Commissioner of Taxation v Montgomery [1999] HCA 34; (1999) 198 CLR 639.

[18] The law recognizes that a payment can be effected on behalf of a payer, with their authority or ratification: Re Emanuel (1997) 24 ACSR 292 at 298.

[19] See also the affidavit of James Nuske at [32]: CB 7136.

[20] It also explains why the Senior Minister stated to the meeting of the congregation on 18 November 2001 that "an offer of $3 million was anticipated" (CB 1713). This was after the resolution of the Trustees of 12 November 2001 to offer $4.5 million.

[21] See the further affidavit of Michael Ellison sworn 5 November 2015 exhibiting annual reports of the Trustees, the Senior Minister and the board of management.

[25] Compare Mr Hearn's letter dated 7 November 2001 (CB 1658).

[27] Dal Pont, Equity and Trusts in Australia (5th ed), Thomson Reuters (Professional) Australia, 2011, 17.35.

[28] (1880) 13 Ch D 234, CA (Hallett's Estate).

[29] [1963] HCA 65; [1963] 109 CLR 649.

[30] [1995] UKHL 10; [1996] 1 AC 421 (HL) (Target Holdings).

[31] [2000] UKHL 29; [2001] 1 AC 102 (HL).

[32] [2003] HCA 15; [2003] 212 CLR 484.

[33] See also Ollie v Merlaw Nominees Pty Ltd (In Liq) [2003] VSCA 40, [23]. McCrohon v Harith [2010] NSWCA 67, [60]-[63]. Nicholas & Ors v Michael Wilson & Partners Ltd [2012] NSWCA 383 [124].