University of New South Wales v Attorney General for the State of New South Wales

Background

1. The following background which I propose to set out in full from the Plaintiff's submissions is not controversial.

The 1962 Trust

1. In 1962, a group of Rotarians sought to raise moneys by public appeal to build two International Houses, one at the University of New South Wales and the other at the University of Sydney. The trustees of the appeal held the money received from the appeal under a trust (1962 Trust), the terms of which were set out in a deed dated 24 August 1962 (Trust Deed).
2. The Recitals to the Trust Deed stated that the Committee formed for the purposes of the appeal was (emphasis added): [D]esirous of raising money by public subscription and establishing a Fund for the purpose of erecting and establishing International Houses for the University of Sydney and for the University of New South Wales 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 as shall be occupying such Houses from time to time.
3. The Trust Deed required each House to be (emphasis added): [M]anaged 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 the House shall be managed separately and apart from the University upon whose grounds each House shall be established.
4. The Trust Deed further provided that the sums contributed to the appeal, after payment of all necessary expenses, should be paid to the 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".
5. Prior to making any payment, the Trust Deed required the trustees to obtain an undertaking from the governing bodies of each University that "all sums paid to each University will be specifically applied in the erection establishment and administration as aforesaid".

The Undertaking

1. On 2 April 1965, Mr Freeman, the chairman of the trustees, sent a letter to the Vice Chancellor of the University, noting that under the Trust Deed, it was the duty of the trustees to obtain an undertaking from the governing body of the University. The letter attached a draft undertaking which "had been prepared by the solicitors for the trustees and submitted to and approved by eminent Senior Counsel". The draft undertaking stated (emphasis added): I advise that the contents of the Trust Deed governing the Fund of the University's 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 monies 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.
2. 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.
3. On 22 May 1967, the University received its portion of the funds raised under the Trust Deed, on the terms of the undertaking given by the University to the trustees of the 1962 Trust. A letter of 22 May 1967 sent by Mr Davis, the Bursar of the University, to the trustees of the 1962 Trust relevantly states (emphasis added): This University receives the sum of $203,265.94 in full settlement of all monies due in terms of the appeal and subject to the undertakings that the funds will be applied in a manner which has been agreed upon in earlier correspondence.
4. The IH Trust is therefore comprised of the undertaking given by the University, in the form attached to the letter of Mr Freeman of 2 April 1965 (Undertaking), which expressly incorporates the terms of the Trust Deed by requiring the University to apply the monies in the "erection, establishment and administration of the International House … as specified by the terms of the Trust Deed". As explained by McDougall J in University of New South Wales International House Ltd v University of New South Wales [2016] NSWSC 1709 at [63]: 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. The purposes of the IH Trust included not only the construction of International House, but also the continuing use of the College building and land upon which the building is constructed for the purposes stated in the Trust Deed. The IH Trust is therefore impressed upon the building and land upon which the International House College is constructed, from time to time (University of New South Wales International House Ltd v University of New South Wales [2016] NSWSC 1709 at [60]-[64]).

The termination proceedings

1. On 26 October 1964, IHL was incorporated for the purpose of managing the College. On 4 April 2016, the University served a notice of termination on IHL in respect of its occupation of the International House building and its management of the College, on a number of grounds, including food and fire safety violations.
2. In June 2016, IHL commenced proceedings in this Court seeking an injunction against the University in respect of the notice of termination and other relief. In the judgment University of New South Wales International House Ltd v University of New South Wales [2016] NSWSC 1709 delivered on 5 December 2016, McDougall J explained that terms of the IH Trust included (at [71]): 1. The requirement that there be an "independent Board of Management" constituted by the University Council; and 2. The requirement for "the ultimate responsibility for each House" to "rest" in the relevant "Governing Body", being the University Council.
3. His Honour determined (at [76]) that the requirement that the University constitute the "Independent Board of Management" must be read as a "power to constitute, or establish, it afresh, or from time to time, as circumstances might require", and that (at [91]): 1. The University Council had a right to terminate the appointment of a manager from time to time in office; but 2. That power was one to be exercised only for the purposes of the IH Trust; that is, when its exercise was required in the interests of, and in the furtherance of the purposes of, the IH Trust.
4. While the Court agreed with the University that it had the power to terminate the manager, the Court held that the power had not been validly exercised, as the University had taken into account irrelevant considerations, such as changes to the Constitution of IHL and the failure of the University and IHL to reach agreement on the terms of a lease and management agreement. IHL was therefore entitled to injunctive relief against the University (University of New South Wales International House Ltd v University of New South Wales [2016] NSWSC 1709 at [138]).
5. On 31 March 2017, the Court delivered a further judgment dealing with the issue of costs and declared that the reserves of money accumulated by IHL formed part of the assets of the IH Trust (University of New South Wales International House Ltd v University of New South Wales (No 2) [2017] NSWSC 306).

Recent events

1. The University issued a second notice of termination to IHL on 9 June 2017, with effect on and from 4 December 2017, which relied upon the following grounds (Plaintiff's Submissions [21]): (a) Unsatisfactory conditions in the College kitchen. During a food safety inspection conducted by officers from Randwick City Council in October 2015, it was found that a number of food safety standards had not been complied with. The situation was remedied quickly, however it is unknown for what period prior to the inspection these conditions had persisted; (b) Failure to ensure that the College building was compliant with fire safety regulations. In November 2015, IHL commissioned a study of essential fire safety measures, which noted deficiencies in a number of essential fire safety measures in the building; (c) Failure to respond to requests for information regarding the operations of the College. In particular, IHL refused to provide to the University copies of: i) Insurance policies currently in force; ii) A report prepared by Randwick Council of a food safety inspection conducted on 11 April 2017; iii) The management structure and organisation chart of IHL, which precluded the University from being satisfied as to whether or not the College's operations were adequately or appropriately staffed; and iv) Operational plans, policies and/or procedures for managing student misconduct and welfare.
2. On 6 September 2017, Robyn Duggan and Morgan Kelly were appointed as joint and several administrators of IHL under section 436A of the Corporations Act 2001 (Cth). At a meeting of creditors held on 12 October 2017, the creditors (which included the University in its capacity as trustee of the IH Trust) resolved that IHL be wound up under section 439C(c) of the Corporations Act 2001 (Cth) and Robyn Duggan and Morgan Kelly were appointed liquidators of IHL.
3. On 30 November 2017, the transfer of the operations of the College to the University was completed. Since this date, the University's Student Accommodation division (UNSW SA) has undertaken the management and control of the College. UNSW SA is highly experienced in the provision of student accommodation. At full capacity, approximately 2,000 students reside in residences managed by UNSW SA, which include: 1. UNSW Colleges, which are all located on the University's Kensington campus and comprise Basser College, Goldstein College, Philip Baxter College, Fig Tree Hall, Colombo House and UNSW Hall; and 2. UNSW Apartments, which comprise University Terraces, Barker Street Apartments, Mulwarree Apartments and 46 High Street Apartments.

Legal principles

1. In Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367 at [87]-[92], Barrett JA commented: [87] It may readily be accepted that "transaction" is a word of wide import and that, as referred to in Riddle v Riddle, s 81(1) is a provision which is "not intended to be restricted by implications" (per Dixon J at 214) and is "couched in the widest possible terms" (per Williams J at 220). It is nevertheless clear that the section does not authorise the court to confer every conceivable power on a trustee. Powers may be conferred only to the extent that the words of the section allow. [88] The court may, under s 81(1), "confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose" of effecting, "in the management or administration of any property vested in trustees", "any sale, lease, mortgage, surrender, release or disposition, or any purchase, investment, acquisition, expenditure or transaction" that cannot be effected "by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law". [89] The dealings that may thus be facilitated fall into two classes, each of which is introduced by the word "any". The first class consists of "any sale, lease, mortgage, surrender, release, or disposition". Each of these words describes a dispositive act of an owner of property by which the property or some interest in it passes or accrues to another person. Dealings within the first class are thus, of their nature, dealings of a kind engaged in by an owner of property or, as the section recognises, trustees in whom property is vested. [90] The second class of dealings is defined or delineated by the words "any purchase, investment, acquisition, expenditure, or transaction". Ignoring, for the moment, "transaction", these words concentrate principally on ways of deploying money. That is certainly the case in relation to "purchase", "investment" and "expenditure" and will very often be the case in relation to "acquisition" (for example, subscription for shares or other securities). [91] "Transaction", of itself, does not imply an outlay of money. Nor should any such limitation be taken to be indicated by the fact that the reference to "transaction" comes immediately after references to "purchase", "investment", "acquisition" and "expenditure". A "transaction" that in fact involves an outlay of money is certainly in contemplation. But so too, in my view, is one that does not. Justice White, writing extra judicially, has suggested in relation to s 81(1) that "transaction" should be "construed eiusdem generis, that is, the preceding words would naturally limit its meaning" but notes, referring to Re Bowmil Nominees Pty Ltd and his own decision in James N Kirby Foundation Ltd v Attorney-General (NSW), that that has not been how the courts have construed it: R W White, "Trusts - an Australian perspective", [2010] NSWJSchol 10. [92] Although "transaction" is a very wide expression, power for a trustee to effect a particular "transaction" may be supplied by the court only if, in the management or administration of any property vested in the trustee, the "transaction" is, in the court's opinion, "expedient" - that is, according to Dixon J in Riddle v Riddle (at 214), expedient "in the interests of the beneficiaries" or, according to Williams J (at 222), "advantageous", "desirable" or "suitable to the circumstances of the case" but, in every case, with expediency tied to management or administration of trust property. A wider criterion of the Queensland kind, based solely on what is in the best interests of the beneficiaries, does not play any part under the New South Wales legislation.
2. In Riddle v Riddle (1952) 85 CLR 202 at 214 (Dixon J); [1952] HCA 12 also relevantly commented: Section 81 is a provision conferring very large and important powers upon the Court which depend upon the Court's opinion of what is expedient, a criterion of the widest and most flexible kind. The power necessarily carries with it responsibilities of equal extent. The responsibilities imposed involve business and financial considerations, but responsibilities of that description have always fallen on courts of administration. I do not think that the powers given by s 81 were intended to be restricted by any implications.
3. The history of section 81 and the width of the statutory powers as opposed to inherent jurisdiction has also recently been discussed at some length by Parker J in Cisera v Cisera Holdings Pty Ltd [2017] NSWSC 960 at [20]-[40]. I acknowledge His Honour's consideration was in the context of a discretionary family trust.

The issues before the Court

1. The Attorney rightly identifies a central issue in this application as to whether the requirements of section 81 of the Trustee Act 1925 (NSW) are satisfied. The Plaintiff and the Defendant agree that there are four matters which arise for consideration under section 81 of the Trustee Act 1925 (NSW). They are as follows: 1. Identification of the proposed "sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure or transaction" for which the power is needed; 2. Whether the proposed dealing is one that "cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust"; 3. Whether a question has arisen "in the management or administration of any property vested in trustees"; and 4. Whether the proposed dealing, in the court's opinion, is "expedient" in the management or administration of any property vested in the trustee.
2. The Attorney agrees that neither the IH Trust Deed nor the Undertaking confer any express power on the University to enter into transactions, act as manager or to make expenditures. The Attorney also agrees that a question arises in the "management or administration" of the IH Trust. That concession is clearly correct.

The submissions of the parties

1. The University in its capacity as trustee of the IH Trust submits that it is impractical for the College to be managed and controlled by an "independent Board of Management" as specified under the terms of the IH Trust. There are numerous arguments advanced as to why that is so. First the concept of independence it is submitted does not have a clear meaning and has been operationally problematic. It has provided a source of disagreement in the past between IHL and the University regarding the extent of IHL's duties and powers and the duties and powers of the University as trustee.
2. The College building which is owned by the University as trustee is located on the University's land and is connected to the University's utilities. The "independent" operation of the College has led to difficulties in relation to key responsibilities such as fire safety compliance and accountability for general compliance activities.
3. The residents of the College are all students of the University to whom the University owes obligations regarding matters of health and safety, student welfare and pastoral care. The notion of independent management of the College by reason of the ambiguity of that term it is submitted creates risks to the framework of consistent and legally compliant care of the University students.
4. Clearly the University as trustee must ensure that the assets of the IH Trust including the building and accumulated reserves are properly spent and/or used and/or accounted for.
5. In the light of these difficulties the University intends to make an application to the Court for orders establishing cy-prés and administrative schemes which would have the effect of varying the terms of the IH Trust to enable the direct management of the College by the University with oversight by an external advisory committee. The University proposes to discuss the proposed scheme with the Attorney General and hopes to file the application within twelve weeks allowing the Attorney time to properly consider the application and discuss with the University any concerns it may have.
6. The University wishes to continue to manage the College on an interim basis until that application can be heard and determined.
7. In oral argument the University clarified the basis upon which it sought to satisfy the requirements of section 81(1) of the Trustee Act 1925 (NSW). This was made on three alternative grounds.
8. First, the University contends that the appointment of a manager to the College is itself a "transaction" or "a piece of business" (T7/50-T8/5).
9. Secondly, the University submits that in undertaking the management of the College it is required to engage in a series of transactions, expenditures and acquisitions. The University therefore argues granting the University the power to manage the College is simply a method of summarising its authority to undertake the individual transactions in operating the college (T8/6-15).
10. Thirdly, the University submits on any view there is a substantial body of transactions in respect of which it seeks the power to undertake under section 81(1) of the Trustee Act 1925 (NSW). It argues it is expedient for the Court to grant the power to engage in those transactions, and any further activities that would not be empowered by section 81(1) can be authorised by section 81(2) (T8/16-23).
11. In oral argument the Attorney did not take issue with the University's submissions, except to qualify the first proposition of the University that the appointment of a manager to the College is itself a "transaction" or "a piece of business". The Attorney accepted that the appointment of a manager itself is a "transaction". However, the Attorney noted that the fact of appointing a manager may be a "transaction" which says nothing about the exercise of management powers (T13/44-49).
12. The University submits correctly that the interim management of the College by the University involves "expenditure" of trust monies by the University not only to provide services to the student residents but also to maintain the land and buildings upon which the College is constructed.
13. In addition the University again in my view correctly submits that the management of the College requires it to engage in a multitude of "transactions" including dealing with individual students regarding their accommodation as well as "purchases" and "acquisitions" of goods and services.
14. The Attorney raises for consideration whether a power to "manage and control" the College amounts to "sale, lease, mortgage, surrender, release or disposition or any purchase investment, acquisition, expenditure or transaction" within section 81(1) of the Trustee Act 1925 (NSW). In my view it does.
15. The Attorney however accepts that management of the College would in some instances involve the University entering into "transactions" and "expenditure" of funds.

Consideration of section 81

1. The authorities make plain the word "transaction" is to be given wide import and as I have already indicated it is not restricted to dealings which involve the outlay of money. The legislation in my view permits a Court to give a trustee the widest possible powers it otherwise would not possess. Indeed, it has been observed that the statutory jurisdiction under section 81 is much more extensive than the Court's inherent jurisdiction. It need not be shown for example that the case is one of emergency and that action is needed to prevent injury to the trust property or interest to the beneficiaries.
2. The Attorney also submits that as a matter of ordinary meaning and in the context of section 81(1) "management" and "control" is broader than entering in "transactions" and making "expenditures". It is further submitted on behalf of the Attorney that section 81(1), which is concerned with matters arising "in the management or administration of any property", appears to be premised on "transactions" and "expenditure" being aspects or facets of the "management" of the property. I think that is correct. But I think again correctly the Attorney points out that section 81(2) does not expand the power of the Court under section 81(1).
3. I am satisfied that the power to enter into "transactions" and undertake "expenditures" clearly is part of the power to "manage and control the College".
4. It does seem to me that for the University to manage and control the College it must engage in a broad set of activities not limited to the expenditures and transactions already identified. I am in agreement with the second and third propositions advanced by the University referred to at [38] and [39]. I have some doubts about the proposition set out at [37] to the effect that I (with the Attorney) doubt whether "transaction" says anything about the exercise of management powers beyond the appointment of a manager, but that will not affect the outcome of the application.

Consideration of expediency

1. Upon the Court being satisfied that requirements of section 81(1) are met in relation to those expenditures and transactions, under section 81(2) the Court can authorise the University "to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Court or the consent of the beneficiaries would be a breach of trust".
2. Ultimately the test is one of expediency, which is itself a concept of wide import. Necessity would certainly amount to expediency, whereas mere convenience may not. The Court however must be satisfied that the question is expedient for the trust as a whole and not merely in the interest of one beneficiary. It is however not necessary for the transaction to be advantageous to every beneficiary or possible beneficiary.
3. The University in my view correctly raises the question of what benefits and detriments arise in relation to International House that would result from the interim management of the College by the University.
4. The principal benefit it is submitted to the IH Trust is avoiding a detriment namely the costs and inconvenience associated with putting in place a temporary "independent Board of Management" in circumstances where the University will shortly be applying for orders that will have the effect that the Board of Management will no longer be required in that form.
5. The University again rightly indicates a number of steps which theoretically would need to be taken to ensure that the Board of Management was set up and consistent with the notion of independence (Plaintiff's Submissions [36]-[37]).
6. The University submits that the only apparent detriment to the IH Trust resulting from the interim management of the College by the University is the absence of input from any persons "independent" of the University into the management and control of the College. It is submitted that there is no historical documents that can illuminate precisely what the notion of independence was meant to involve. It is submitted that it can be inferred that the requirement was intended to enable the Board of Management to focus exclusively on the needs of the College rather than the needs of the College in the context of the University as a whole.
7. In addition the University submits that it has every obligation and incentive to ensure the safety and wellbeing of its students residing at the College. In my view that cannot be gainsaid.
8. Ultimately the University submits that the power to manage and operate the College on an interim basis will avoid the unnecessary expenditure of trust assets and minimise disruption to the students of the College as well as ensure that the students are provided with access to at least the same level of services and pastoral care as others currently residing in the University operated student accommodation.
9. The Attorney submits that on the question of expediency the Court should take into account that McDougall J has already concluded at [76] and [91] that under the terms of the IH Trust the University has power to "terminate" and "constitute" a Board of Management for the College from time to time: University of New South Wales International House Ltd v University of New South Wales [2016] NSWSC 1709. The Attorney submits therefore that the Court has already accepted that the University may "appoint" a Board of Management from time to time. It submits that this matter should be taken into account on deciding the issue of expediency.
10. Even accepting his Honour's views which are somewhat qualified when one looks at [91] that does not in my view detract from the course sought by the Plaintiff being expedient in the circumstances. The practical problems adverted to by the University in its submissions at [36]-[37] highlight the somewhat cumbersome and protracted nature of the process especially in light of the circumstances that a further application is to be made to the Court in the near future to vary the IH Trust by way of cy-prés and administrative schemes.
11. In my view in all the circumstances it is appropriate to make the Orders sought in paragraphs 1 and 2 of the Summons.

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: 30 April 2018