Supreme Court New South Wales Medium Neutral Citation: Smolonogov v Our Lady of Kazan Russian Community of Lidcombe Inc [2020] NSWSC 1484 Hearing dates: 18 August 2020 Date of orders: 30 September 2020 Decision date: 30 September 2020 Jurisdiction: Equity Before: Rein J Decision: See [28]-[29] Catchwords: CHARITIES AND NOT-FOR-PROFITS – Charitable gifts and trusts – Cy-près scheme – Trust property – Dispute between two rival factions within the Russian Orthodox Church over use of charitable trust property; the church administering the trust property was originally controlled by the plaintiffs' faction, but the church later came under the control of the defendants' faction; the statement of claim and cross claim were substantially resolved at mediation but the Court was required to consider whether to approve a cy-près scheme which would allow the trust property to be administered by the church under the control of the new faction – Where it was agreed before the Court that the trust was a charitable trust – Where the need for a cy-près scheme was agreed between the parties, including the Attorney-General, and where the text of the cy-près scheme had been agreed – Where the Court was satisfied that the trust was charitable and that a cy-près scheme was justified given that the original purposes of the trust had ceased to provide a suitable and effective method of using the trust property, having regard to the spirit of the trust – Where the Court required some amendments to be made to the cy-près scheme to make it more workable. CHARITIES AND NOT-FOR-PROFITS – Administration and control by the court – Attorney-General's role as protector of charities – Joinder – Where the parties agreed that the trust was charitable and that the Attorney-General should be joined. Legislation Cited: Charitable Trusts Act 1993 (NSW) Cases Cited: Attorney General for New South Wales v Fred Fulham [2002] NSWSC 629 Estate of Polykarpou; Re a Charity [2016] NSWSC 409; (2016) 16 ASTLR 400 Forrest v Attorney-General (Vic) [1986] VR 187 Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic [2017] NSWCA 28; (2017) 94 NSWLR 340 Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531 National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31 Perpetual Trustee Company Ltd v Attorney General for the State of New South Wales (The Will of the Hon George Nesbitt) [2018] NSWSC 1456; (2018) 17 ASTLR 126 Re Lepton's Charity [1972] Ch 276 Roman Catholic Archbishop of Melbourne v Lawlor [1934] HCA 14; (1934) 51 CLR 1 Ubiparipovic v Vucicevic [2018] NSWSC 1583 Texts Cited: Nil Category: Principal judgment Parties: Mark Smolonogov (First Plaintiff / First Cross-Defendant) Father Sergii Medetskyi (Second Plaintiff) Archbishop Tikhon Pasechnik (Second Cross-Defendant) Our Lady of Kazan Russian Community of Lidcombe Incorporated (Inc 9892165) (First Defendant / First Cross-Claimant) Vladimir Leschev (Second Defendant) Nonna Yachmennikov (Third Defendant) Alexis Olson (Fifth Defendant / Second Cross-Claimant) Elisabeth Leschev (Sixth Defendant / Third Cross-Claimant) Vera Shulgin (Seventh Defendant / Fourth Cross-Claimant) Representation: Counsel: Dr G. O'Shea (Plaintiffs) Mr S. Y. Reuben (Defendants) Mr H. El-Hage (NSW Attorney-General) Solicitors: Richard Cummins Solicitor (Plaintiffs) Hunt & Hunt (Defendants) Crown Solicitor (NSW Attorney-General) File Number(s): 2019/66567 Publication restriction: Nil Judgment 1. The background to these proceedings is a factional dispute within a Russian Orthodox Church congregation in Lidcombe NSW known as Our Lady of Kazan Cathedral. The dispute has been substantially resolved following mediation between the parties and the Court must now consider whether it should approve the cy-près scheme for administration of the Church's trust property which has been agreed between the parties and which the Attorney-General has approved. 2. By way of background, the Court has been informed that there are various divisions within the Russian Orthodox Church globally, some of which trace their origins back to the time of the Russian Revolution and the Soviet era. The First Plaintiff, Mark Smolonogov, and the Second Plaintiff, Father Sergii Medetskyi, are part of what has been described as the Russian True Orthodox Church Abroad ("RTOCA"), which differentiates itself from the Russian Orthodox Church Abroad ("ROCA"), this being the Defendants' current affiliation. The key difference appears to be that the ROCA is, or is associated with, the successor to the Soviet era Russian Orthodox Church, whereas the RTOCA associates itself with the original pre-Soviet era Church. 3. In 2008 the First Plaintiff and a number of other persons of Russian Orthodox background decided to establish an RTOCA congregation in Lidcombe NSW, which became known as the Cathedral of Our Lady of Kazan. The congregation acquired a property at 4 Yarram St, Lidcombe NSW and in 2018 they acquired additional land nearby at 2 Cooba St, Lidcombe NSW. The Yarram St property was originally acquired in the name of Ms Spomenka Karachony, but in 2011 a trust deed ("the Trust Deed") was executed and the following persons were appointed trustees of the property and became its registered proprietors: Mark Smolonogov, Alexis Olson, Elisabeth Leschev, Vera Shulgin and Paul Yachmennikov. Smolonogov and Yachmennikov resigned as trustees in 2018 and have not been replaced, so the only current trustees are Olson, Leschev and Shulgin. In 2009 the congregation set up an incorporated association called Our Lady of Kazan Russian Community of Lidcombe Inc ("the Incorporated Association"). 4. The proceedings began on 1 March 2019 in the Duty List before Lindsay J. Smolonogov sought an injunction to stop an annual general meeting ("AGM") of the Incorporated Association from taking place on 3 March 2019 due to concerns about the validity of the meeting, its proposed agenda and other associated issues. Smolonogov's case was that the congregation had always been governed by the RTOCA's by-laws, which were administered by the congregation's Parish Council, and that the President and Secretary of the Incorporated Association were using the Incorporated Association (which had hitherto been responsible for collecting membership fees and, on Smolonogov's case, not much else) to usurp the Parish Council and hijack the administration of the Church. Among the agenda items was a proposal to change the congregation's denominational alignment from the RTOCA to the ROCA. Smolonogov considered the AGM to be invalid, inter alia, due to a lack of compliance with the by-laws administered by the Parish Council. 5. The Defendants (who include various members of the Church, as well as the Incorporated Association itself) disputed the authority and legal status of the Parish Council and by-laws, and considered the Incorporated Association to be the true governing body of the congregation. Lindsay J declined to injunct the Defendants from holding the AGM but ordered a regime for production of relevant documents and set a timetable for early return of the matter. At the AGM on 3 March 2019, the motion to switch the Church's denominational alignment to the ROCA was carried by 39 out of 50 members. At the next listing before Lindsay J on 6 March 2019, the documents were produced, a further timetable was ordered for filing of pleadings and Lindsay J suggested the parties consider mediation. 6. Following a mediation on 14 June 2019 with the Hon Keith Mason AC QC as mediator, the parties agreed in principle to settle the matter, but subject to a cy-près scheme being approved by the Attorney-General and the Court for administration of the trust property by the congregation under its new denominational alignment. The Court was advised that under the terms of the proposed settlement, the Plaintiffs are to receive $200,000 and a further $50,000 for legal costs in exchange for relinquishing any claim to the properties or against the Defendants. The parties confirmed by email on 14 August 2020, in advance of the hearing, that the Deed of Settlement has been signed by all parties. 7. When the matter was before Lindsay J, his Honour encouraged the parties to consider the implications of the Charitable Trusts Act 1993 (NSW) ("the CTA") and whether the Attorney-General, in his capacity as the protector of charities (as for which, see Estate of Polykarpou; Re a Charity [2016] NSWSC 409 at [32]; (2016) 16 ASTLR 400 per Lindsay J), should be joined to the proceedings. The parties eventually agreed that the CTA applied and that the Attorney-General should be joined, and a representative of the Attorney-General was present at the mediation. I agreed with this course of action and at the hearing on 18 August 2020 I formally ordered that the Attorney-General should be joined to the proceedings. 8. At the hearing on 18 August 2020, Dr G. O'Shea of Counsel appeared for the Plaintiffs, Mr S. Y. Reuben of Counsel appeared for the Defendants and Mr H. El-Hage of Counsel appeared on behalf of the Attorney-General. I received written submissions from the Plaintiffs ("PWS"), the Defendants ("DWS") and from the Attorney-General ("AGWS"). The parties prepared a one volume Court Book, to which I shall refer in these reasons as "CB". 9. The parties provided the Court with proposed consent orders which included a draft of the proposed cy-près scheme ("the Scheme") as Annexure A. Threshold Issues with the Scheme 1. There are a number of matters the Court needs to consider before approving the Scheme, including the threshold questions of whether the trust in question is a charitable trust and whether the need for a cy-près scheme is justified. 2. Despite some earlier differences of opinion, the parties and the Attorney-General now agree that the trust in this matter is a charitable trust that exists for a public benefit, falling within the third category identified in Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531, i.e. a trust for the advancement of religion. The AGWS note that, ordinarily, the purchase of a church to facilitate religious worship constitutes the advancement of religion (see Roman Catholic Archbishop of Melbourne v Lawlor [1934] HCA 14; (1934) 51 CLR 1 at 32 per Dixon J, as his Honour then was) and that there is a rebuttable presumption that trusts within the first three categories in Pemsel exist for the public benefit: see National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31 at 65). Having read the material before me and having regard to these authorities and the parties' agreement, I hold that the trust (which includes both the Yarram St property and the Cooba St property) is a charitable trust and that these proceedings are "charitable trust proceedings" within the meaning of s 5 of the CTA. 3. As for whether a cy-près scheme is needed, I note that the CTA introduces a lower threshold than that which existed at general law – rather than a requirement that it be "impossible" to comply with the original terms of the charitable trust, it is now enough that the original terms no longer provide a suitable and effective means of using the trust property: see Attorney General for New South Wales v Fred Fulham [2002] NSWSC 629 at [16]-[17] per Bryson J and Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Bishop Irinej Dobrijevic [2017] NSWCA 28; (2017) 94 NSWLR 340 at [196]-[197] per Payne JA. 4. Section 9 of the CTA is as follows: "9 Extension of the occasions for applying trust property cy près (1) The circumstances in which the original purposes of a charitable trust can be altered to allow the trust property or any part of it to be applied cy près include circumstances in which the original purposes, wholly or in part, have since they were laid down ceased to provide a suitable and effective method of using the trust property, having regard to the spirit of the trust. (2) References in this section to the original purposes of a charitable trust are to be construed, if the application of the trust property or any part of it has been altered or regulated by a scheme or otherwise, as references to the purposes for which the trust property are for the time being applicable." 1. Before the mediation, the Plaintiffs disputed whether a ROCA aligned congregation could utilise the trust property when the trust, on the Plaintiffs' case, was established exclusively for use by an RTOCA congregation. Having reviewed the Trust Deed and the other material, I agree with the AGWS at paragraph 3.16 that the evidence on this issue is somewhat ambiguous – some factors support the Plaintiffs' original position, whereas other factors cast doubt on that position. The Trust Deed identifies the "Parish of Our Lady of Kazan" as the "beneficiary" of the trust and recital D of the Trust Deed states that the beneficiary: "is part of the Diocese of the RUSSIAN TRUE ORTHODOX CHURCH and subject to the by-laws of PARISH OF OUR LADY OF KAZAN as approved by its Parish members." This seems to support the Plaintiff's original position in these proceedings that the trust property can only be utilised by an RTOCA aligned church. However, the AGWS at paragraph 3.16 and the DWS at paragraph 12 point out that it is not established that there is such a thing as the "diocese" of the RTOCA or that the congregation has formally joined such a body, and nor is it clear that the congregation ever formally adopted the by-laws referred to in recital D. 1. In any event, following the mediation, the parties accept that there is a need for a cy-près scheme and have negotiated a proposed document, which has been approved by the Attorney-General. In consenting to the need for a cy-près scheme, the Defendants appear to have accepted that there is sufficient ambiguity about their current entitlement under the Trust Deed to make use of the property as to warrant a cy-près scheme that will put the matter beyond doubt, and the Plaintiffs (in light of the settlement) no longer oppose the trust property being utilised by a ROCA congregation – indeed, Dr O'Shea informed the Court that Smolonogov and other followers of the RTOCA have since set up an RTOCA congregation elsewhere and are no longer involved with Our Lady of Kazan Cathedral: see T7.21-23. The purpose of the trust, as stated in the Scheme, now reads as follows: "The Trust is a charitable trust established for the purpose of parishioners practicing the Russian Orthodox Faith in Australia." 1. The new purpose is stated in sufficiently general terms as to ensure a ROCA congregation can make use of the trust property, thereby overcoming the limitation of the Trust Deed. Furthermore, cl 4.2 of the Scheme implies that priests or clergy conducting services on the premises forming part of the trust property will normally be ordained clergy of the ROCA, although clergy who have not been ordained in the ROCA can still conduct occasional services on the premises forming part of the trust property with permission. At the hearing, Mr El-Hage and Mr Rueben explained that, in the process of drafting the Scheme, it was thought best to ensure that the purpose was stated broadly without necessarily linking it to a particular faction or denomination within the wider Russian Orthodox tradition, so that if in future the congregation wishes to adopt a different alignment it will be able to do so without necessarily having to revise the Scheme: see T5.23 – T6.15. 2. There are other aspects of the Trust Deed that would pose difficulties for the Church going forward if a cy-près scheme was not approved. 3. One of these is that the Trust Deed states that the "Parish of Our Lady of Kazan" is the beneficiary of the trust, whereas the parties now agree that the trust is a charitable trust which has a charitable purpose instead of a specific beneficiary in the way non-charitable trusts have. This difference is reflected in the structure of the Trust Deed in that the Trust Deed contains a number of references to "the Beneficiary" performing certain functions, such as giving "instructions", or providing "funds", to the trustees: see cls 3.2 and 4.1 of the Trust Deed at CB 225-226. It would be problematic for the congregation going forward if such references were to remain in the trust's governing document as it is now agreed that the "beneficiary", as it were, is a charitable purpose rather than a specific entity. It is also unclear which body constitutes "the Parish" (in its capacity as the beneficiary under the Trust Deed) for the purposes of giving instructions, or providing funds, to the trustees. 4. A second issue is that the only stated means by which the Trust Deed can be amended is by way of a resolution of the beneficiary (being the "Parish of Our Lady of Kazan", the identity of which body is in dispute) pursuant to the by-laws: see cl 6.1 of the Trust Deed at CB 227. This is clearly an unsuitable arrangement in light of the uncertainty about which body constitutes "the Parish" and the applicability of the by-laws, as well as the change in denominational alignment. The Scheme agreed between the parties provides a new procedure for amending the terms of the trust which includes submitting proposed amendments to the Attorney-General for consideration: see cl 9 of the Scheme. 5. Given the congregation's change in alignment to the ROCA, the Plaintiffs' acquiescence following the mediation and the problems with the Trust Deed that I have outlined, I consider that the current terms of the trust are no longer a suitable and effective means of using the trust property and that a cy-près scheme is justified, provided it accords with the spirit of the original trust, being to facilitate religious worship in the Russian Orthodox tradition broadly understood. Specific Issues with the Scheme 1. I reviewed the proposed cy-près scheme and raised a number of issues with the parties at the hearing. Of these issues, some were minor problems of a typographical or terminological nature, whilst others were more substantial. 2. After discussion of these issues at the hearing, it was agreed that the Scheme would need to be redrafted. I ordered the parties to provide a copy of the amended Scheme to the Court by 4:00 pm on Tuesday 15 September 2020, with the intention that I would consider in Chambers whether the Court should approve it. I also made orders in accordance with paragraphs 1-5 of the proposed consent orders, which included a number of procedural orders to formally join the Attorney-General, Father Sergii Medetskyi and Archbishop Tikhon Pasechnik to the proceedings. 3. Following a one week extension to the original due date, the Court was provided with a copy of the redrafted Scheme on Monday 21 September 2020, the text of which has been agreed between the parties, including the Attorney-General. 4. In dealing with the issues I raised with the parties at the hearing on 18 August 2020, the parties have not necessarily taken up every suggestion I made, but in their own way they have, with one exception, done something to address the problems that were identified. 5. The one exception is in relation to cl 6 of the Scheme, which originally read as follows: "6. Procedure for the Commemoration or Termination of a Bishop The Incorporated Association is empowered to appoint or terminate a Bishop for the purposes of his Commemoration in services conducted in the Trust Property for the Parish provided that any procedures and a decision to appoint or terminate a bishop for the purpose of Commemoration must be; (a) consistent with the Trust Purpose set out in Clause 2 of this Scheme; and (b) be approved by a special resolution of the Incorporated Association; and (c) in accordance with the Schedule." 1. The main issue with this clause is that it bestows a power on the Incorporated Association to do something rather than on the trustees, which is a rather odd clause to find in a cy-près scheme as opposed to the constitution of the Incorporated Association (if it had one, which I am informed it does not). The clause is also arguably inconsistent with cl 5 of the Scheme, which provides that the trustees "may" appoint the Incorporated Association to manage the trust property – "may" implies that it is not a given that the trustees will appoint the Incorporated Association to manage the trust property and that, even if the trustees are likely to do so, they must at least give formal approval of that appointment before the Incorporated Association can take up its management role, but the language of cl 6 does not reflect this. At the hearing I suggested to the parties that cl 6 needed to be revised, perhaps by rephrasing it in terms of the trustees being empowered to allow the Incorporated Association (should it be appointed to manage the trust property pursuant to cl 5) to appoint or terminate a bishop and have that bishop conduct services on the premises forming part of the trust property, or words to like effect. 2. In the redrafted Scheme, the parties did not satisfactorily deal with the issues I raised in relation to cl 6. For that reason, I proposed an alternative wording for cl 6 as follows: "6. Procedure for the Commemoration or Termination of a Bishop In the event that the Incorporated Association appoints or terminates a Bishop for the purposes of his Commemoration in services for the Parish to be conducted in premises forming part of the Trust Property, the Trustees shall accept such appointment or termination, provided that any procedures and a decision to appoint or terminate a Bishop for the purpose of Commemoration are: (a) consistent with the Trust Purpose set out in Clause 2 of this Scheme; (b) have been approved by a special resolution of the Incorporated Association; and (c) are in accordance with the Schedule." A copy of this alternative wording was emailed to the parties on Friday 25 September 2020. By 29 September 2020, all parties had indicated that they consent to my proposed wording for cl 6. Conclusion 1. Given the changes to the Scheme that have been made, including the changes to cl 6, I am satisfied that it is a suitable scheme that accords with the "spirit of the trust", as that term has been understood in the case law, as for which, I draw on the comments of Leeming JA in Perpetual Trustee Company Ltd v Attorney General for the State of New South Wales (The Will of the Hon George Nesbitt) [2018] NSWSC 1456; (2018) 17 ASTLR 126 at [56]-[70] where his Honour, inter alia, cites the observation of Pennycuick VC that "the spirit" of the trust is equivalent to the "basic intention underlying the gift" (see Re Lepton's Charity [1972] Ch 276 at 284-285) and Nathan J's observation in Forrest v Attorney-General (Vic) [1986] VR 187 at 191-192 that "the spirit" of the trust is equivalent to the trust's "fundamental purpose and objective". The Scheme is not a radical re-working of the original charitable intention – rather, it rephrases the trust's stated purpose slightly and refines the means of administering the trust property in a way that I consider suitable and effective. I take comfort from the fact that the parties consent to the Scheme and that the Attorney-General has approved it, the significance of which was noted by Slattery J in Ubiparipovic v Vucicevic [2018] NSWSC 1583 at [4] and [6]-[9]. 2. I therefore propose to make the remaining orders in the parties' proposed consent orders, namely paragraphs 6-13. ********** 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: 23 October 2020