University of New South Wales International House Ltd v University of New South Wales

The issues

1. The parties agreed (to a great extent) on the issues that arose for decision on the pleadings. I set out, with some minor and non-substantive changes, the statement of issues that the parties produced: 1. Does the University of New South Wales (the University) hold the International House Building (including the land on which the building stands) as trustee of a trust: (a) which requires the building to be used to house the International House residential college (the College) operated by University of New South Wales International House Limited (IHL); or (b) that requires it to use the building and land to accommodate and operate the International House residential college? 2. Is the trust a valid charitable trust? 3. Is it a term of the trust that International House should be managed and controlled by an independent Board of Management constituted by the Governing Body of the University. IHL is a body corporate, and IHL's constitution no longer permits the University to nominate a majority of its directors. (a) was IHL a "Board of Management" constituted by the Council of the University of New South Wales when International House commenced to operate? (b) is it still? 4. Does the trust referred to in paragraph 1 above: (a) require that IHL be, and remain, the only manager of International House? (b) limit the University's ability to appoint and to remove a person or entity to manage International House? (c) allow the University to terminate the appointment of any manager - and the concomitant right to occupy and use the International House building - either at will, or on reasonable notice: i. at the University's pleasure; or ii. if the University Council considers it desirable for the good administration of the University or International House to do so? (d) permit the University: i. at the University's pleasure; or ii. if the University Council considers it desirable for the good administration of the University or International House to do so, to terminate, upon the expiry of a period of reasonable notice, the occupation of the International House building by IHL? 5. Did the University Council form the opinion alleged in paragraph 19 of the University's amended cross-claim, other than in good faith and on reasonable grounds in the Wednesbury sense? 6. If the University has the power to terminate IHL's occupation of the International House building, was the University's purported termination a breach of trust? 7. If the University would otherwise have the right to terminate IHL's occupation of the International House building, is it estopped form doing so? 8. If the University is entitled to terminate IHL's occupation of the International House building: (a) are monies held by IHL which it derived from the operation of the College subject to the trust; and (b) to what extent, if at all, is the University entitled to have IHL account to it for such monies? 9. Can, and should, the Court empower or authorise the University to terminate IHL's occupation of the International House building pursuant to the Trustee Act 1925, s 81? NOTATION The first defendant propounds 3, 4(a), (b) and (c). The plaintiff contends that 3 is not relevant to the relief now claimed, and 4(a), (b) and (c) do not arise on the pleadings.
2. The first issue needs a little explanation. Para (a) propounds IHL's view: namely, that the terms of what I will call the 1967 Trust require that it be the "Board of Management" referred to in the Deed of Trust constituting an earlier trust, which I will call the 1962 Trust. What I mean by those references will (I hope) become clear when I turn to the facts.
3. IHL accepts that the third issue arises on the University's defence to FASOC. However, IHL contends that the issue goes nowhere either in terms of the relief that it seeks on its FASOC or in terms of the relief that the University seeks on its FASOCC.
4. There is some dispute as to the extent to which the fourth issue is raised on the pleadings (as the note to the statement of issues makes clear).
5. The fifth issue is stated compendiously, but does not make much sense unless regard is had to para 19 of FASOCC. That paragraph reads: 19. In 2016, the University lost trust and confidence in IHL as manager of International House and formed the opinion that it was no longer desirable for the good administration of the University of International House, or both, that the agreement or arrangement delegating day-to-day control and management of International House to IHL, and the implied licence to use and occupy International House for that purpose, continue, for the following reasons: (a) On 12 May 2012, without notice to or consultation with the University, IHL amended its constitution so as to prevent the Council of the University appointing to the board of IHL members of the academic or non-academic staff of the University, or under-graduate or post-graduate students of the University. IHL did not inform the University of the change until 14 August 2012; (b) On 24 May 2014, without notice to or consultation with the University, IHL amended its constitution so as to remove reference to the University as the body that would receive any surplus on the winding-up of the company. IHL did no [sic] inform the University of the change; (c) On 20 December 2014, without notice to or consultation with the University, IHL amended its constitution so as to reduce the representation of the University on its board. The University is not a member of IHL and its entitlement to nominate directors to the board of IHL is based solely on IHL's constitution. The board formerly comprised eleven directors, including the Vice-Chancellor or nominee and five other persons appointed by the Council of the University. The board was reduced to eight directors, including the Vice-Chancellor or nominee and two other persons appointed by the Council of the University. IHL did not inform the University of the change; (d) Negotiations between IHL and the University over, variously, a lease and a management agreement have continued over a substantial period of time since October 2012 and the parties have been unable to reach an agreement; (e) The University's auditor, the NSW Audit Office, requires that the University either put in place a formal agreement with IHL or exercise control over IHL as a controlled entity of the University. Given the matters pleaded in paragraphs (a), (b), (c), and (d) above, the University was unable to comply with its auditor's requirements; (f) In late May 2014, without notice to or consultation with the University, IHL made a successful submission to the National Trust of Australia (New South Wales) to have the International House building listed on the National Trust register. IHL did not inform the University of its submission before making it, even though the University is the owner of the International House building; (g) A food safety audit of the kitchen of International House, arranged by the University, and subsequent inspection by Randwick City Council in late 2015 disclosed non-compliance with the Food Standards Code, the Food Act 2003, evidence of cockroach infestation, the use of out of date products, the generally unsatisfactory state of food preparation and food storage and the use of staff without the necessary food-handling training or accreditation. The kitchen of International House is used to prepare and serve food to the 166 residents of the college every day. Following the Randwick City Council inspections, the kitchen was closed to allow remedial measures and training of staff and it was necessary for the University to make urgent arrangements to feed the 166 residents at alternative premises. For a period of months, IHL refused to provide the University with copies of the reports of Randwick City Council's inspections, despite repeated written requests being made by the University; and (h) An independent Building Code of Australia compliance audit of International House, arranged by the University in late 2015, identified numerous non-compliances with the fire safety provisions of the Building Code of Australia and made twenty-four recommendations for fire-safety upgrade works. Many of these have been undertaken, or are scheduled to be undertaken, by the University. IHL repeatedly refused, over many months, the University's multiple requests for documentation evidencing the fire safety compliance measures taken by IHL prior to the audit.
6. IHL contends, among other things, that the assigned grounds for the loss of trust and confidence, and the opinion that is pleaded, do not satisfy the requirements inherent in the "in good faith and on reasonable grounds in the Wednesbury sense" qualification (see Associated Provincial Picture Houses Ltd v Wednesbury Corp (1947) 45 LGR 635).
7. The University's notice of 4 April 2016 requires IHL to stop acting as manager, and vacate International House, from 9 December 2016. The hearing was expedited. It is desirable that a decision be given before 9 December 2016. In those circumstances, I shall deal with the issues only to the extent that it is necessary to do so to decide the ultimate outcome of the litigation.
8. I have had the benefit of very detailed submissions from Counsel. Again, bearing in mind the need for a speedy decision, I shall refer to those submissions only to the extent that it is necessary to do so to enable these reasons to be understood. I should however make it plain that I have taken into account everything canvassed in the submissions.

Background facts

1. The facts relating to the 1962 Trust and the creation of the 1967 Trust are not substantially in dispute.
2. In about 1962, a group of prominent Sydney business and professional men, all of whom were Rotarians, decided to raise funds from the public for the purpose of constructing International Houses at the University and at the University of Sydney. They established a committee known as The Universities International House Appeal Executive Committee. That Committee launched the public appeal for funds, and established a trust to hold the funds raised.
3. The trust (which is what I have called the 1962 Trust) was established by deed (the Trust Deed) made on 24 August 1962. The trustees were: Mr N B (later Sir Bernard) Freeman; Mr E S Shaw; Dr G L Howe; Mr W T (later Sir Theo) Kelly; Dr M G Mackay; and Mr W H Maze. Dr Mackay was at the time the Principal of Basser College at the University, and Mr Maze was at the time the Vice-Principal of the University of Sydney. As is probably obvious, the Universities had been heavily involved in establishing the appeal.
4. I shall return to the terms of the Trust Deed. It is important however to note at this point that the deed recited that each International House "shall be managed and controlled by an independent Board of Management constituted by the Governing Body of each respective University … and … shall be managed separately and apart from the University …".
5. In the second half of 1963, there were discussions between the Trustees and the University as to how the Board of Management should be constituted. The University proposed that the manager should be a company limited by guarantee, as apparently was the way in which other residential colleges at the University were managed. The Trustees appear to have agreed.
6. Thereafter, the Trustees and the University nominated people who would be members of the company when formed, and its "provisional directors". IHL was in fact incorporated on 26 October 1964. The subscribers to the memorandum of association included Mr Freeman, Mr Shaw and Mr H W Shephard (who appears to have been the Trustees' solicitor, for the purposes of the appeal).
7. The provisional directors nominated for IHL comprised four nominated by the University, and two (Mr Freeman and Mr Shephard) nominated by Rotary.
8. The Trust Deed provided in effect that the Trustees should not pay over the funds raised to the Universities, without first obtaining from the Universities an undertaking to apply the funds to the erection, establishment and administration of their respective International Houses. It is apparent that the University gave such an undertaking, but the actual document is not in evidence. However, it seems, the undertaking was given in about July 1965.
9. Work proceeded. On 22 May 1967, the University's share of the funds raised by the appeal was paid over to it. That sum would be later augmented by substantially equal contributions from the Commonwealth and State Governments.
10. International House was opened on 14 June 1968.
11. When IHL was incorporated, its articles of association provided (cl 8) that its board should comprise six directors: the Vice-Chancellor of the University; three appointed by the Council of the University; and two to be elected at the annual general meeting of the company.
12. In May 1995, IHL adopted new articles of association, the relevant effect of which was to provide for a board of eight comprising the Vice-Chancellor or his nominee; three appointed by the Council of the University; three elected by members; and one elected by residents.
13. In May 1999, IHL adopted a new constitution. Under that constitution, its board was to comprise eleven people: the Vice-Chancellor or his nominee; five appointed by the Council; four elected by members; and one elected by residents.
14. In May 2012, IHL amended its constitution to provide that the Council's nominees to the board could not be members of the academic or non-academic staff, or undergraduate or post-graduate students, of the University.
15. In December 2014, IHL amended its constitution yet again. The effect of the amendment was to reduce the board from eleven to eight: the Vice-Chancellor or his nominee; two appointed by the Council; four elected by the members; and one elected by residents.
16. As will be seen, the effect of those various changes was to ensure that the University (or the Council) could not control the board of IHL.
17. When IHL was incorporated, its memorandum of association provided (cl 8) that on the winding up or dissolution of the company, any surplus should not be paid to or distributed among members, but should be given or transferred to the University. In May 2014, IHL amended its constitution to provide that, on winding up, any surplus should not be distributed to members, but should be given to an institution (or institutions) that had similar objects, that had the like prohibition on distribution to members in its constitution, and was a tax exempt charity.
18. From about mid 2010, there was debate as to whether IHL was a "controlled entity" of the University. That debate seems to have been sparked by the Audit Office of New South Wales, the University's auditor. That debate continued, somewhat inconclusively, for many months.
19. The Audit Office proposed that the relationship between the University and IHL should be formalised in appropriate documentation. The University and IHL sought to negotiate the terms of a lease and a deed of management. The negotiations foundered on what each side apparently regarded as fundamental (and totally inconsistent) issues of principle.
20. In the second half of 2014, Dr Robert Lundy, the Master of the College and Chief Executive Officer of IHL, discussed with representatives of the National Trust of Australia (NSW) the possibility of listing International House on the Heritage Register of the National Trust. IHL's board considered that proposal in November 2014. They noted among other things that: … such a listing might have advantages re more difficult to demolish the building, but also increased restrictions on renovations / extensions … .
21. The building (International House) was in fact listed on the National Trust's Heritage Register in March 2015. That (and the preceding discussions) happened without the knowledge of the University.
22. As is apparent from para 19 of FASOCC (see [9] above), there were problems with hygiene in the kitchen of International House, and with fire safety requirements under the Building Code of Australia.
23. Matters came to a head on 1 February 2016. The University provided a draft management deed to IHL, and said that if IHL did not accept it, the University would terminate IHL's management of International House. IHL was not prepared to accept some aspects of the proposed deed, and said so. It did however prepare and execute a deed poll in favour of the University, which incorporated the terms of the deed to the extent that they were acceptable to IHL. The University was not prepared to accept the deed poll. Accordingly, on 30 March 2016, the Council resolved that the University should terminate its arrangements with IHL, and IHL's management of International House and the College. The letter of 4 April 2016 conveyed that decision to IHL.

Relevant terms of the Trust Deed

1. The deed recited that the purpose of the appeal was to raise funds "with a view to promoting the tertiary education of certain students in New South Wales and with a view to promoting goodwill and understanding among such students …". It stated (by way of recital): [T]hat the objective of the Appeal would be to establish International Houses as places of residents for Overseas and Australian students of the Universities of Sydney and New South Wales and that such Houses should be completely self-contained … and that when erected and established each House should aim to become a self-supporting entity.
2. The deed stated further, again by way of recital, that: [E]ach House shall be managed and controlled by an independent Board of Management constituted by the Governing Body of each respective University in which shall rest the ultimate responsibility for each House and that such House shall be managed separately and apart from the University upon whose grounds each House shall be established and … that the personnel of the Board of Management for each House shall include representatives nominated by the Trustees in their discretion to the Governing Body …".
3. After some further recitals, the operative provisions of the deed stated: NOW THIS DEED WITNESSETH that in pursuance of the promises the Trustees DO HEREBY COVENANT AND DECLARE that they shall stand possessed of the said sums and of any further sums contributed to the Appeal and Fund and after payment of moneys specifically allocated to any particular University at the request of certain donors and after payment of all necessary expenses incurred in and about the Appeal shall pay and apply the residue of such sums to the said Universities in equal shares for the specific purpose of the erection and establishment of the said International Houses to be erected on land belonging to each University in furtherance of the declared objective of the Appeal and of the said Committee and the Trustees DO HEREBY FURTHER COVENANT AND DECLARE that prior to making such payment out of such residue it shall be their duty to obtain an undertaking from the Senate Council or other governing body for the time being of such Universities that all sums paid to each University will be specifically applied in the erection establishment and administration as aforesaid of the International House in such University and in the event of the Trustees being unable to obtain such an undertaking to their satisfaction on behalf of any one University they shall in their absolute discretion be at liberty to pay and apply all sums allocated by way of the Appeal wholly to whichever University shall have given the required undertaking AND FURTHER in the event of no such undertaking being given on behalf of either University the Trustees shall pay and apply such sum or sums to either of such Universities for such other similar charitable purpose as the Trustees shall in their absolute discretion determine …
4. As I have said, the Trustees received from each University an acceptable form of undertaking, and paid over to each University its share of the proceeds of the appeal. Once that was done, the Trustees of the 1962 Trust had discharged all their obligations as Trustees (subject to formal matters of winding up, accounting and the like).

The 1967 Trust

1. The parties agreed that the 1967 Trust came into existence when the University received its share of the proceeds of the appeal. In principle, the parties agreed, that happened when the University gave the Trustees the undertaking they required, and received in exchange the funds. There was some disagreement as to whether the relevant circumstances from which the purposes of the 1967 Trust might be inferred were limited to those matters, or (as was submitted for IHL) went further.
2. The signed undertaking that was given is not in evidence. However, the evidence does show that on 2 April 1965, the Trustees (through Mr Freeman) sent to the Vice-Chancellor a draft undertaking. The letter stated, among other things: Under the terms of the relevant Trust Deed defining the purposes to which the funds are to be applied, it is the duty of the Trustees to obtain an undertaking from the Senate, Council or other governing body for the time being of each University that all sums paid to it will be specifically applied in the erection, establishment, and administration of the International House within the University, in accordance with the terms of the Trust Deed. The Honorary Solicitors for the Trustees have prepared a draft of such an undertaking, which has been submitted to and approved by eminent Senior Counsel. … It should be appreciated if you would advise me accordingly, at your earliest convenience, so that the Trustees may be in a position to perform the duties imposed by the Trust Deed, and divest themselves of the funds in accordance with the requirements.
3. The draft undertaking was in the following terms: I advise that the contents of the Trust Deed governing the Fund of the Universities International House Appeal have been brought to the attention of the Council of the University of New South Wales and particularly the provision requiring the Trustees of the Fund to obtain a specific undertaking from the Council before moneys from the Appeal are paid over to such University by the Trustees. I am directed by the Council of this University to inform you that the Council undertakes that all sums paid to this University by the Trustees will be specifically applied in the erection, establishment and administration of the International House in this University as specified by the terms of the Trust Deed.
4. On 12 July 1965, the Executive Committee of the University's Council considered the letter and draft undertaking. The Committee recommended to the Council "that the Vice-Chancellor be authorised to sign the undertaking referred to in the letter, on behalf of the Council". The Council resolved accordingly on 12 July 1965.
5. On 17 May 1967, the Trustees wrote to the University noting that the appeal was closed and the Trust had been audited. The letter then stated: The Trustees have since met and approved of the payment to the universities of the amounts shown in the auditors' report subject to clearances from the universities that they receive the amounts in full settlement of all moneys due in the terms of the Appeal and subject to undertakings that the funds will be applied in the manner which was agreed upon in earlier correspondence. It would be appreciated if you would let me have a reply in these terms, whereupon the necessary payments will be made.
6. The University replied on 22 May 1967. The reply stated, among other things: This University receives the sum of $203,265.94 in full settlement of all moneys due in terms of the appeal and subject to the undertakings that the funds will be applied in the manner which has been agreed upon in earlier correspondence. Also we will honour the undertakings given by the Appeal Committee in relation to the placing of plaques on rooms to commemorate certain gifts.

The University's statutes

1. The University was established, by the name "New South Wales University of Technology", by s 16 of the Technical Education and New South Wales University of Technology Act 1949 (NSW). Section 16(2) provided that the University should be a body corporate. Section 16(3) gave the University "power to take, purchase, hold, grant, alienate, demise or otherwise dispose of real and personal property".
2. Section 19 provided that there should be "a Council of the University" and for the membership of the Council. The powers of the Council included, by s 25(c), "the entire control and management of the affairs, concerns and property of the University".
3. By s 45(1), the University was given "power to acquire by gift, bequest or devise any property for the purposes of this Part of this Act, and to agree to and carry out the conditions of any such gift, bequest or devise".
4. The 1949 Act was amended, but not in any relevant way, by the Technical Education and New South Wales University of Technology (Amendment) Act 1955 (NSW). A further amendment, by the University of New South Wales Act 1958 (NSW), changed the name of the University to "University of New South Wales", and made other changes of no present relevance. There was a further amending Act in 1961, on which nothing of present relevance turns.
5. The legislation was consolidated and amended by the University of New South Wales Act 1968 (NSW). No one referred to that Act in submissions.
6. Finally, for present purposes, the University was reconstituted (if that is the correct term) by the University of New South Wales Act 1989 (NSW). As one might expect, the savings and transitional provisions set out in Schedule 3 to that Act provided, among other things, that the University remained the same legal entity as had been earlier established, and preserved the effect of things done under the previous legislative regime.
7. Section 7 of the 1989 Act provided: 7 Facilities for students, staff and others The University may, for the purposes of or in connection with the exercise of its functions, provide such facilities for its students and staff and other members of the university community as the University considers desirable.
8. Section 8A provided that there should be a Council of the University, to be its "governing authority". The functions of the Council are stated in s 15. It is enough to set out subs (1A): 15 Functions of Council (1A) The Council: (a) acts for and on behalf of the University in the exercise of the University's functions, and (b) has the control and management of the affairs and concerns of the University, and (c) may act in all matters concerning the University in such manner as appears to the Council to be best calculated to promote the object and interests of the University.
9. Section 17 conferred upon the Council powers relating to property. I set it out, so far as it is relevant: 17 Powers of Council relating to property (1) The Council: (a) may acquire (whether by purchase, gift, grant, bequest, devise or otherwise) any property for the purposes of this Act and may agree to carry out the conditions of any such acquisition, and (b) has the control and management of all property at any time vested in or acquired by the University and may, subject to this section, dispose of property in the name and on behalf of the University. (2) The Council may, subject to this section, alienate, mortgage, charge or demise any lands of the University.
10. Mr Murr of Senior Counsel, who appeared Ms Wong of Counsel for the University, contended, in substance, that in considering the scope of the Council's "ultimate responsibility for" International House, it was legitimate - indeed necessary - to take into account the powers of the Council under the legislation in force from time to time, and (more broadly) the powers of the University which were at all times exercisable by the Council. Mr Parker of Senior Counsel, who appeared with Mr Simpkins and Mr Habashy of Counsel for IHL, contended that the legislative scheme was irrelevant to the question of construction of the 1967 Trust.

The submissions

1. Mr Murr contended that the terms of the 1967 Trust were to be found in the undertaking and in those provisions of the Trust Deed that were picked up by the undertaking. Mr El-Hage of Counsel, who appeared for the Attorney-General, took a similar position, although he added that the terms of the trust might also be inferred from "the purpose for which public donations were made, as discerned from the 1962 Deed".
2. Mr Parker accepted that those matters were relevant sources from which the terms or purpose of the 1967 Trust could be inferred. However, Mr Parker submitted, the circumstances included also, as relevant background, the history of the International House movement both in Australia and overseas.
3. Mr Parker's submissions relied heavily on the negotiations between the University and the Trustees in 1965, as a result of which the Trustees accepted that a company to be incorporated (which became IHL) should be the "independent Board of Management" for International House. Mr Parker submitted that it could be inferred from those negotiations, and from the fact that the Trustees had nominated persons to be members and directors of IHL, that the Trustees had impressed that requirement onto the 1967 Trust.
4. Mr Murr submitted that the powers of the Trustees (of the 1962 Trust) were limited to those set out in the Trust Deed, and that they had no power to impose such a condition on the University. Mr Parker submitted that the relevant question was not whether the Trustees had that power but, rather, whether it could be inferred from all the circumstances that it was their intention (as the "donors" to the University) that International House should be managed in that way, as a term of the trust on which the monies were given and were to be held and applied.

Decision

1. In summary, I conclude that: 1. the University received its share of the proceeds of the appeal on trust to apply it for the purposes set out in the Trust Deed as acknowledged in the University's undertaking; 2. to the extent that it matters, the University received funds from the Commonwealth and State Governments on the same basis; 3. those funds (from all sources) having been applied in the construction and establishment of International House, that building (including the land on which it is erected) is held on trust; 4. the trust on which the monies were received was, and the trust on which the building and lands are held is, a charitable trust; and 5. it is no part of the terms or purpose of either trust that IHL should be the manager (or "independent Board of Management") of International House.
2. Each of the first four conclusions may be explained very simply. The funds gathered by the Trustees of the 1962 Trust, pursuant to the appeal, were not theirs to do with as they pleased. They were held on trust, for the purposes specified in the Trust Deed. When the University's share of those funds was paid over to it, it was upon the express undertaking given by the University to apply those funds for the purposes set out in the Trust Deed, so far as those purposes were applicable to the University.
3. Thus, the University was required, by the terms of its undertaking, to hold the funds and apply them "in the erection, establishment and administration … of … International House …". The funds were not paid to the University to do with as it pleased. They were paid to it for the relevant purposes that were set out in the Trust Deed and acknowledged by the University in its undertaking. Thus, the funds were held by the University on trust.
4. The funds were indeed applied specifically to the erection, establishment and administration of International House. International House was constructed on the University's Kensington Campus: that is to say, on land owned by the University. The University was obliged, by the terms of its undertaking, to ensure that International House, once constructed and open for business, was used as a place of residence for overseas and Australian students undertaking courses of study at the University.
5. In those circumstances, in my view, it is clear that the trust attaching to the appeal proceeds, with which the University's share of those proceeds was impressed, is impressed upon the building and land, as the product of the use of those proceeds. See Jacobs J, with whom Stephen, Mason and (seemingly) Murphy JJ agreed, in Attorney General for the State of Queensland (at the relation of Nye & Ors) v The Corporation of the Lesser Chapter of The Cathedral Church of Brisbane (1977) 136 CLR 353 at 371 - 372. Further, it is clear that the purposes of the trust included not only the construction of International House but also its use for the purpose stated in the Trust Deed (see, again, Jacobs J in Nye, at 372).
6. A trust to provide accommodation for students of an educational institution is a trust for the advancement of education. See Long Innes J in Re MacGregor; Thompson v Ashton (1932) 32 SR (NSW) 483 at 497, citing In re Lopes; Bence-Jones v Zoological Society of London [1931] 2 Ch 130. It has been settled for very many years indeed that charity, in its legal signification, includes trusts for the advancement of education. See, for example, the celebrated speech of Lord Macnaghten (with whom Lord Watson and Lord Morris agreed) in The Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531 at 583. It may be noted that the dissentients, Lord Halsbury LC and Lord Bramwell, had no different view; their Lordships dissented because they thought that this technical meaning could not be ascribed to the legislation in question in the particular circumstances of that case.
7. Those conclusions are sufficient to dispose of the second issue. As to the first issue, they leave unresolved only the question, whether the terms or purposes of the 1967 Trust required that IHL be the "independent Board of Management" of International House.
8. In dealing with that remaining question, it is necessary to keep the sequence of events in mind. First, the 1962 Trust was established. Next, the Trustees of that Trust discussed with the University the way in which International House might be managed when it was constructed and opened. In doing so, the Trustees acceded to the University's proposition that International House should be managed by a company limited by guarantee, and agreed to participate in the affairs of that company (by providing two of the original members, and two of the proposed, and later original, directors).
9. Next (and even before the foundation stone of International House was set), IHL was incorporated. Next again, the terms of the undertaking were settled as between the Trustees and the University, and the signed undertaking was provided to the Trustees (this is a matter of inference rather than direct proof, but no one contended for a contrary inference).
10. It was only after all those things happened that the University received its share of the appeal funds. It did so, among other things, "subject to undertakings that the funds will be applied in the manner which was agreed upon in earlier correspondence". The reference to "earlier correspondence" is, quite clearly, a reference to the letter of 2 April 1965 proposing the undertaking (see at [41] above) and to the letter that must have been written, but which is not in evidence, forwarding the signed undertaking to the Trustees. The evidence does not disclose that there is any other letter that could be included within the phrase "earlier correspondence".
11. It is clear, from the events of 1964 (in particular, those concerning the agreed proposal that a company to be incorporated as a company limited by guarantee should be the manager of International House), that the Trustees of the 1962 Trust both understood and accepted that the company would be the manager. It is clear also that the Trustees understood and accepted that by those means, the obligation of the University's General Council to constitute "an independent Board of Management" for International House would be satisfied. However, it does not follow that the Trustees required (were it open to them to do so), as a term of the trusts upon which the University would be paid its share of the appeal funds, that IHL would be the manager of International House. Still less does it follow that the Trustees intended that IHL should be that manager effectively in perpetuity.
12. First of all, the Trustees' primary obligation under the Trust Deed was to apply the trust funds in accordance with the terms of the 1962 Trust. The satisfaction of that obligation required them to pay the trust funds to the Universities, upon receipt of an undertaking from each of them that the sum to be paid to it "will be specifically applied in the erection establishment and administration as aforesaid of the International House in such University". The words "administration as aforesaid" must have been intended to pick up: 1. the requirement for there to be "an independent Board of Management"; and 2. the requirement for "the ultimate responsibility for each House" to "rest" in the relevant "Governing Body".
13. As a matter of language, then, it was the Trustees' obligation to obtain an undertaking, satisfactory to them, that the Universities would apply the proceeds of the appeal in the manner specified by the Trust Deed. It was the obligation of the Universities to "constitute" an appropriate form of management for each International House. The Trustees had a right - more accurately a discretion - to nominate representatives to be included among "the personnel of [each] Board of Management". That no doubt explains why the Trustees and the University thought it expedient to discuss and settle upon the form of management that the University intended to impose. But it is one thing to agree upon a form of management, and quite another to require that the form of management so agreed, and no other, should subsist indefinitely, for the life of International House.
14. There was a question agitated in submissions as to whether a company (whether limited by guarantee or otherwise) could be a "Board of Management" for the purposes of the Trust Deed. To my mind, a purposive reading of the Trust Deed requires that the words "Board of Management" be read as descriptive of the functions to be performed, and not as prescribing the kind of entity by which those functions may be performed. Thus, although I accept that in their ordinary usage the words might signify a collection of individuals, nonetheless, I think, they are capable of applying to a corporate manager. If it were otherwise, I add, there would be the inconvenient consequence of a breach of trust having persisted ever since International House opened, with IHL as a manager: that is, for more than 48 years.
15. But, regardless, I think that objectively, the clear mutual intention of the parties, through the wording of the undertaking that was sought and given, was to emphasise and acknowledge that the money was paid over on the relevant terms appearing in the Trust Deed. Those terms, I repeat, included that the University should constitute something that answered the description of "an independent Board of Management"; that the Board so constituted should manage and control International House; but that the University (more accurately, its Council) should retain "the ultimate responsibility for" International House. Further, the terms of the undertaking reinforce this conclusion, because they refer specifically to "the erection, establishment and administration of … International House".
16. In my view, it would be inconsistent with that form of undertaking for the University to cede the management of International House in perpetuity, or indefinitely. How could the University retain "the ultimate responsibility for" International House if it did so? Mr Parker's submission did not provide an answer to that question.
17. The Trustees and the University may well have thought that IHL would be an appropriately independent Board of Management, and appropriate to manage and control the affairs of International House. But they must also have acknowledged that the ultimate responsibility for International House that was vested in the Council of the University, might require it to bring the appointment of IHL to an end, and appoint some other entity in its place. In that context, I think, the requirement that the University should "constitute" the Board of Management must be read as a power to constitute, or establish, it afresh, or from time to time, as circumstances might require.
18. I accept that if IHL (or any other manager) could be removed at the will of the Council, there would be a serious question as to whether it could properly be described as, in any way, "independent". It could be thought that such a Manager would be "independent" only to the extent that it did nothing inconsistent with the wishes of the Council. But that is no reason for saying that an exercise, on proper grounds, of "ultimate responsibility" for International House could never either entitle or require the Council to remove IHL as manager and appoint some other entity in its place.
19. Although Mr Murr relied on various provisions of the University's enabling legislation to support the conclusion that there was no term or purpose of the 1967 Trust to the effect that IHL be the manager in perpetuity, or indefinitely, I have not thought it necessary to go to that legislation in support of the conclusion that I have expressed.

Issue 3

1. It is an express requirement of the Trust Deed that International House: … shall be managed and controlled by an independent Board of Management constituted by the [Council] of [the University] … and that [International] House shall be managed separately and apart from the University.
2. For the reasons I have given at [73] above, I think that the better view of the words "independent Board of Management" is that, in the context of the Trust Deed, they describe the functions to be performed by the entity that, the Council decides, should perform them. Thus, I think, the better view of those words is that a body corporate, such as IHL, may be an "independent Board of Management" for the purposes of the Trust Deed.
3. The requirement that the Council "constitute" that entity requires no more than that the Council should establish, or appoint, or nominate the entity that is to function as the Board of Management. On that basis, the Council's decision (taken with the concurrence of the Trustees of the 1962 Trust) that IHL should be the manager of International House would satisfy the requirement that the independent Board of Management be "constituted" by the Council.
4. Mr Murr submitted that it could be inferred from the Trust Deed (in particular, the requirement that the Trustees might nominate to the Council representatives to be among "the personnel of the Board of Management" - see at [37] above) that it was the Council that had the right to decide who should constitute the Board of Management. It followed from this, Mr Murr submitted, that when the Council decided that the Board of Management should be IHL (or, in the words of the Trust Deed, when the Council constituted IHL as that Board of Management), the Council had the right to nominate the board of IHL. As I understand it, Mr Murr built on this submission to argue that it followed that the Council's nominees should constitute a majority of that board.
5. For the reasons I have given, it is correct to say that: 1. the "Board of Management" may be a corporation; 2. in this case, the Council constituted IHL as that Board of Management; and 3. accordingly, the Trustees' right to nominate "representatives" should be understood as a right to nominate either members of IHL or directors of IHL (or, perhaps, both).
6. The Trustees exercised that right (and it is a right, not a duty) when IHL was incorporated. There is no evidence that the Trustees have sought to exercise it again since that time. Regardless, I do not think that it follows from the existence of the right that the ultimate conclusion for which Mr Murr argued is correct.
7. There is nothing in the Trust Deed that, in my view, requires that the Council (or for that matter the University) should control the board of a corporate manager. On the contrary, I think, if that were the case, it would conflict with the requirements that the manager be "independent", and that International House "be managed separately and apart from the University".
8. Issue 3(a) inquires whether IHL was a "Board of Management" constituted by the Council when it was incorporated. That does not seem to me to have any particular relevance. However, to the extent that there is a real issue, I conclude that IHL was an "independent Board of Management" constituted by the Council, for the purposes of the Trust Deed, when it commenced to manage and control International House.
9. Mr Murr submitted (following on from his submission set out at [82] above) that if IHL ever was a Board of Management for the purposes of the Trust Deed, it ceased to be so once the Council lost control of its board of directors. Once it is realised that ultimate responsibility, for the purposes of the Trust Deed, flows from the ability of the Council to remove a corporate manager, the fact that the University may no longer nominate a majority of directors is irrelevant, for the reasons I have given.
10. The answer to issue 3(b) must be: Yes, subject to the efficacy of the notice of termination.

Issue 4

1. For the reasons I have given, the answer to issue 4(a) must be "no".
2. As to issues 4(b), (c) and (d), it seems to me that the Council's ultimate responsibility for International House requires it to have the power to terminate the appointment of a manager of International House in appropriate circumstances. However, the exercise of that power must take into account the fact that the University holds International House on trust for the purposes inferred from its undertaking given to the Trustees in 1965. Further, any exercise of the power must take into account that, subject to the Council's ultimate responsibility for International House, the manager is to have the right of management and control, and is to exercise those rights independently of the University.
3. It follows, in my view, that: 1. the Council does have a right to terminate the appointment of a manager (or, in terms of the Trust Deed, of "the independent Board of Management") from time to time in office; but 2. that power is one to be exercised only for the purposes of the 1967 Trust; that is to say, when its exercise is required in the interests of, and in the furtherance of the purposes of, that Trust.
4. It follows, in turn, that the power to terminate the appointment of a manager, and to appoint another manager, is one that can be exercised only where the Council (as the governing body of the University) considers that both the occasion and the mode of exercise is in the best interests of the Trust and best suited to achieve the purposes of the Trust.
5. I do not think that it is possible to say any more at this stage. For example, whether some period of notice should be allowed is a matter to be considered on a case by case basis, rather than something capable of a priori answer applicable to all circumstances. I should say that in my view, any exercise of the power must be focused on the interests of the Trust, as opposed to the interests of the University in its own right (not as trustee).

Issue 5

1. The University's records show that the Council did form the opinion alleged in para 19 of FASOCC, and that as a result it resolved to approve the signature and sending of the notice of termination (a draft of which had been laid before the Council). Those records show, further, that the eight matters assigned as "reasons" in para 19 of FASOCC were before the Council, in the form of a report from the Vice-Chancellor, Professor Ian Jacob.
2. The question of termination of IHL's management was in fact considered several times. No member of the Council gave evidence. Nonetheless, I would infer that the Council took into consideration the matters referred to in Professor Jacob's report.
3. Mr Neil Morris, who describes his occupation as Vice-President, Campus Life and Community Engagement of the University, did give evidence. He said that his responsibilities included "a number of business units and departments at the University, including Student Accommodation". Accordingly, he said, he acted "as the primary liaison between [IHL] and the University". Mr Morris was cross-examined at length on a number of matters, including the various topics referred to in Professor Jacob's report to the board that are encapsulated in the grounds stated in para 19 of FASOCC. Mr Parker relied on that cross-examination to show that in fact some of the grounds had not been matters of concern to the University.
4. Mr Murr did not accept that the views of Mr Morris were relevant. He pointed out, correctly, that Mr Morris was not the decision-maker (nor had he made any recommendation to the decision-maker, so far as the evidence shows). In any event, Mr Murr submitted, it was not appropriate to consider the matters one by one and assess their significance (or otherwise) in isolation. Rather, he submitted, the matters should all be considered together.
5. For reasons that will become apparent, I do not find it necessary to resolve the controversy as to the significance of Mr Morris' concessions in cross-examination.
6. Grounds, or "reasons", (a) and (c) refer to changes to the constitution of IHL which had the effects of: 1. limiting the classes of those whom the Council could appoint to the board of IHL; and 2. reducing the number of Council appointees so that the Council no longer had (theoretical, or numerical) control of the board of IHL.
7. Those grounds rely also on IHL's failure to inform the Council or the University of those proposed changes before they were made, and for some time after they were made, although this seems to me to be a secondary consideration.
8. The second ground refers to the change to IHL's constitution so as to direct any surplus on winding up away from the University and to some other "not for profit" tax exempt charity having objects similar to IHL's.
9. Those three grounds are allied with the fourth: the inability of IHL and the University to reach agreement over a lease and management agreement.
10. Those four grounds in turn lead to the fifth: the University's asserted inability to satisfy the Audit Office as to the University's legal right of control of IHL as a "controlled entity".
11. I do not regard those changes to the constitution as having any significance, at least in a way relevant to the decision to terminate. The significance of the changes to the board is that they first diminished and then removed the ability of the University, through the Council's nominations, to exercise (in theory at least) some degree of control over the board.
12. For the reasons I have given in dealing with the first three issues, there is nothing in the Trust Deed that requires the University (or more accurately, the Council) to have, and to be able to exercise, control over the board of a corporate manager. Indeed, as I have said, if the University did have such control (through its Council), that could well be seen as antithetical to the Trust Deed's repeated requirement that the manager act independently of the University. What the Trust Deed does require is that the Council have ultimate responsibility for International House.
13. On the view to which I have come, the Council has that ultimate responsibility (perhaps more accurately, the ability to enforce that ultimate responsibility) because it is able to remove IHL (or any other manager) if the best interests of the 1967 Trust require it to do so.
14. Accordingly, considered on their own as reasons that might justify termination, the first and third grounds go nowhere.
15. Likewise, in my view, the second ground, considered on its own as a reason justifying termination, goes nowhere. That is because, for the reasons I give below when dealing with the eighth issue, the reserves of IHL are not its own beneficially, but are part of the property of the 1967 Trust. Hence, on a winding up of IHL, its liquidator would be required to account to the University, as trustee of the 1967 Trust, for those reserves.
16. The fourth ground presents, in part by silence, a distorted view of what was actually happening in the negotiations. That distortion is apparent in Professor Jacob's report to the Council, which suggested that the fault, in relation to the failure to reach agreement, was attributable to IHL. Again, the submissions that Mr Murr put strongly supported that conclusion.
17. In fact, in my view, responsibility for the failure to reach agreement be attributed to both parties. The University insisted on imposing a definite term of years of management, coupled with a leasehold interest for that term, on IHL; and insisted, as well, on a right to terminate without cause should circumstances require it. It was clear that the "circumstances" that, in the University's view, might require termination without cause related not so much to the affairs of the 1967 Trust as to the efficient and economical operation of the University overall.
18. For its part, IHL insisted that the University should acknowledge, and undertake to perform, its obligations as trustee of the 1967 Trust. It is difficult to see what interest IHL had in requiring such a covenant.
19. To my mind, if it were necessary to assign proportions of responsibility, for the failure to reach agreement, the greater proportion would lie with the University. The University's fundamental position appears to have been that it should be able to terminate the use of International House for the purposes of the 1967 Trust if the overall efficient and economical administration of the University required that to happen. But in my view, it was and is not open to the University to do that.
20. The University is bound by the terms of the 1967 Trust. Those terms require International House to be made available for the purposes stated in the Trust Deed, at least until those purposes cease to provide a suitable and effective method of using the trust property, having regard to the spirit of the trust. If that happened, it would be open to the University, calling in aid s 9 of the Charitable Trusts Act 1993 (NSW), to apply to the Court for an order enabling it to apply the trust property cy pres. I express no view as to whether the circumstances proved would fall within s 9. The point is, rather, that it is not for the University to decide to vary terms of the trust. Unless and until the purposes of the Trust are varied by an order cy pres, the University, so long as it remains the trustee, must perform them.
21. Again for the moment considering the matter in isolation, the fourth reason does not seem to me to be one that could have justified forming the opinion stated in para 19 of FASOCC.
22. However, as I have said, the first four reasons are said to feed into the fifth. I have to say that I have very considerable difficulty in understanding how it could be said that IHL is a "controlled entity" of the University.
23. Mr Stephen Rees, the University's Director of Finance, swore an affidavit in which he deposed, among other things, that: 1. since 1 January 2014 (I interpose that the University's financial year ends on 31 December every year), the University has been required to prepare its accounts in accordance with AASB 10; and 2. before then, the University was required to prepare its accounts in accordance with AASB 127.
24. Although AASB 127 was in evidence, the parties addressed no submissions to its requirements. Perhaps that reflected a tacit acknowledgment of its irrelevance for this and the two preceding financial years. Regardless, I should note that, looking at AASB 127, it is difficult to understand why the University would have been required to consolidate IHL's results in its own accounts. That difficulty is not eased by the fact that, as regards International House, the University is a trustee; and IHL has no beneficial interest in any profits that may be generated by the operation of International House.
25. When one turns to AASB 10, the first thing to note is that its stated objective (para 1) "is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities". Where that control is present, the parent entity is required to consolidate its accounts with those of the subsidiary entities.
26. The question of what is meant by "control" is dealt with in paras 5 and following of AASB 10. For present purposes, it is necessary to set out only paras 5, 6 and 7: Control 5 An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee. 6 An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. 7 Thus, an investor controls an investee if and only if the investor has all the following: (a) power over the investee (see paragraphs 10-14); (b) exposure, or rights, to variable returns from its involvement with the investee (see paragraphs 15 and 16); and (c) the ability to use its power over the investee to affect the amount of the investor's returns (see paragraphs 17 and 18).
27. It is not necessary to go to the explanatory paragraphs that are cross-referenced in para 7.
28. It is obvious that the University is not exposed to, nor does it have any right to, variable returns from its involvement with IHL. It is equally obvious that the University has no ability to affect those returns through whatever power it has over IHL. Quite frankly, in the absence of some explanation from the Audit Office (and its correspondence on the topic was singularly unilluminating), I do not understand the argument that IHL was (or since 1 January 2014 has been) a "controlled entity" of the University. I add that this conclusion applies a fortiori after 20 December 2014, when the amendments to IHL's constitution removed the ability of the Council to appoint a majority of directors to the board of IHL.
29. In short, considered individually or together, the first five reasons could not in my view justify the loss of trust and confidence alleged. On the contrary, in my view, when the Council (as I infer it did) took those matters into account in deciding to terminate IHL's appointment, it took into account irrelevant considerations.
30. Mr Murr submitted that the Court could overturn the Council's decision to terminate the appointment of IHL only if that decision were outside jurisdiction, made in bad faith, and relevantly unreasonable (that is to say, made arbitrarily or capriciously). Although in terms those requirements were submitted to be cumulative, I think the better view is that they must be alternatives: it would be enough if any one of them were satisfied.
31. Mr Murr did not in terms accept that the Court could overturn the decision if it were made taking into account irrelevant considerations. The difference may be semantic only. It could be said that a decision that was made taking into account irrelevant considerations was outside the limits of the jurisdiction entrusted to the decision-maker. Alternatively, it could be said to be one that was arbitrary or capricious, and thus relevantly unreasonable.
32. In my view, a decision made on the basis of irrelevant grounds (whether or not those grounds are the sole grounds of the decision) cannot be said to be reasonable. It is contrary to reason that an appointment of the kind under consideration could be terminated for reasons that, objectively, are irrelevant to the exercise of the power of termination, and to the purpose for which (objectively) that power was given. Thus, I conclude, the Council's decision to terminate the appointment of IHL as manager cannot be justified as a proper exercise of the power to terminate that, in my view, is inherent in the Council's "ultimate responsibility" for International House.
33. Having reached that conclusion, it is unnecessary to consider the remaining grounds. In addition, I think, it is undesirable to do so. Whether those grounds, standing alone, could justify termination was not the subject of any submissions. Nor is the Court in a position to make its own assessment of their significance, particularly bearing in mind Mr Murr's submission that it was the cumulative effect of all grounds that must be considered. When (as I have concluded, in effect, should happen) five of the grounds are discarded, the significance of the remaining three would require further evaluation.
34. The Council may wish to reconsider the matter taking into account whatever is relevant to the question of termination. If any of the three remaining grounds is capable of justifying loss of confidence so as to lead to termination (and I express no view either way), the Council should consider them uninfluenced by anything that I have said.

Issue 6

1. It follows from my conclusion on the fifth issue that the Council's decision to terminate IHL's management of International House was and is of no effect, because the Council took into account irrelevant matters. That response to the issue might be thought to avoid the "breach of trust" aspect of the sixth issue. However, in my view, it is implicit in the requirement that the power of termination be exercised only where so required by the proper interests of the 1967 Trust, that a purported exercise based on irrelevant grounds could not be so characterised.

Issue 7

1. On the view to which I have come, it is not necessary to express a view on the question of estoppel. However, I should note that the argument on estoppel was based on the proposition that IHL had spent a lot of money (of necessity, derived from the operation of International House) on the improvement and maintenance of International House. Since, for the reasons I give in considering the eighth issue, the reserves of IHL are trust property, it would seem to follow that IHL suffered no detriment in applying what would otherwise have been trust property to the extension and maintenance of the core item of trust property: International House itself. Nor is it necessary to consider Mr Murr's submissions as to the extent to which those reserves reflect the University's assistance to the ongoing profitable operation of International House.

Issue 8

1. In my view, any profits generated by the operation of International House are trust property. I accept that those profits may be applied not just to day-to-day operational expenses and maintenance, but also to longer term, including capital, works. However, to the extent that there are reserves left over after all proper requirements for extension, maintenance and the like have been met, those reserves are trust property.
2. That conclusion seems to me to follow inevitably from the decision in Nye. In that case, the respondent (which I will call "the Cathedral") acquired land upon which a hospital had been erected. The land was let to a religious order which conducted the hospital. The Cathedral later acquired further parcels of land. Using in part monies raised by public subscription and in part borrowed funds, the Cathedral reconstructed the hospital.
3. The principal question in issue concerned the use of the various parcels of land. However, there was also a question as to the profits that had been generated by the operation of the hospital. The religious order that had run the hospital claimed no interest in the profits, and paid them into court.
4. Jacobs J held at 376 that the purposes of the trust included not only the building of the hospital, but also carrying it on once built. In those circumstances, his Honour concluded, the accumulated profits generated by operation of the hospital formed part of the assets of the charitable trust.
5. Mr Parker submitted that there had been no contest as to the accumulated profits, because the religious order claimed no interest in them. Thus, he argued, there had been no decision to that effect. Whether or not there was a decision on a contested question, it is quite clear from what Jacobs J said at 376 that the assets of the charitable trust included the monies paid into court by the religious order. It is a little difficult to imagine that Jacobs J would have expressed that conclusion unless he thought it were correct; and even more difficult to imagine that his conclusion would have attracted the support of three other Justices of the High Court, were it not.
6. As I have said, I conclude that IHL, having derived profits (which have been taken to reserves) from the operation of International House, holds those profits (or reserves) for the purposes of International House.
7. In principle, so it seems to me, on the termination of IHL's management or on a winding up of IHL, those reserves would be held for the University as trustee of the 1967 Trust, and IHL would be accountable accordingly.

Issue 9

1. The University relied on s 81(1) of the Trustee Act, but only in the event that the Court held that IHL had no other power to remove IHL as manager. Since in my view the University (or more accurately the Council) does have power, there is no need to resort to s 81(1).

Conclusions and orders

1. I have concluded, on a narrow basis, that the University's notice of termination dated 4 April 2016 was and is of no effect. It follows that I should make an order restraining the University from acting upon it. That order will not prevent the University or its Council from reconsidering the question of termination and, if it decides that termination is justified, seeking to give effect to it.
2. There will no doubt be questions of costs, and accordingly I shall give directions for those to be ventilated in written submissions. My present inclination is that costs questions should be decided on the papers.
3. I make the following orders: 1. order that the first defendant be restrained from, by itself, its servants or agents or otherwise, giving effect to its notice dated 4 April 2016 purporting to terminate the agreement between the first defendant and the plaintiff in its entirety, and any and all rights or interests of the plaintiff under or in relation to that agreement in relation to the use and occupation of International House on the first defendant's campus. 2. Direct each party to deliver to my Associate and serve on the other parties, by 12 December 2016, a draft of the orders that it seeks in relation to costs, any affidavit or other evidence in support of those orders, and written submissions not exceeding 10 pages in length. 3. Direct each party to deliver to my Associate and serve, by 16 December 2016, written submissions in reply not exceeding 10 pages in length together with any further affidavit or other evidence. 4. Reserve costs. 5. Reserve liberty to apply on five days' notice.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 December 2016