New South Wales Supreme Court CITATION : Armidale Dumaresq Council v Attorney-General (NSW) (No 2) [2007] NSWSC 558 HEARING DATE(S) : 22/05/07 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 22 May 2007 DECISION : Application for order under s 81 of Trustee Act 1925 refused at this stage. CATCHWORDS : EQUITY [207]- Trusts and trustees- Applications to court for authority- Trustees wishing to sell half interest in significant item of trust property- No power to sell under trust deed- Whether court should authorise sale under s 81 of Trustee Act 1925- Sale not consistent with purpose and objects of trust- Ambit of s 81 discussed. LEGISLATION CITED : Trustee Act 1925, ss 63, 81 Burnside City Council v Attorney-General (South Australia) (1993) 61 SASR 107 CASES CITED : Freeman v Attorney-General (NSW) [1973] 1 NSWLR 729 RSL Veterans' Retirement Villages Ltd v NSW Minister for Lands [2006] NSWSC 1161 Armidale Dumaresq Council (P) PARTIES : Attorney-General for the State of New South Wales (D1) Friends of the Old Teachers' College Armidale Inc (D2) FILE NUMBER(S) : SC 5553/06 G Mahony (P) COUNSEL : C Mantziaris (D1) M Cashion SC (D2) Moin & Associates Pty Limited (P) SOLICITORS : I V Knight, Crown Solicitor (D1) Henry Davis York (D2) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Tuesday 22 May 2007 5553/06 – ARMIDALE DUMARESQ COUNCIL v ATTORNEY-GENERAL (NSW) (NO 2) JUDGMENT 1 HIS HONOUR: This is an application under s 81 of the Trustee Act 1925. The application is brought by the plaintiff, which is trustee of various trusts operating in the Armidale area. The trust with which I am principally concerned is the trust which was set up by a deed bearing date 14 July 1933 between Howard Hinton, described therein in as the donor, His Late Majesty King George V and the Council of the City of Armidale. 2 The purport of the deed was that the donor give to His Majesty, and Sir Phillip Game as Governor accepted it, "all … the pictures paintings and works of art referred to in the Schedule hereto". The items donated were to be used: "as a collection in and at connection with the said Teachers Training College of His Majesty at Armidale for the purposes thereof and in the event of His Majesty ceasing to carry on at Armidale the said Teachers Training College either permanently or temporarily for a period exceeding one year to hold the said pictures paintings and works of art to be delivered to the Council as trustee to be used by them at Armidale as a collection for public educational purposes until the said Teachers Training College shall be again carried on by His Majesty at Armidale and in the event of His Majesty again carrying on at Armidale the said Teachers Training College to be delivered to His Majesty to be used as a collection at and in connection with the said Teachers Training College of His Majesty at Armidale for the purposes thereof." 3 The schedule contained about 40 works of art including an oil painting "Mosman's Bay" by one Tom Roberts. 4 The Armidale Teachers' College ceased to be in 1974 following its absorption into a college of advanced education. There is no indication that His Majesty or Her Majesty may not, at some stage in the future, decide to re-establish a teachers' college in Armidale. There is just no evidence of this at all. If there is no realistic possibility of such a college being re-established, the case would need to be dealt with under the cy pres doctrine. 5 he modern rule against perpetuities would not, it would seem to me, apply because one applies the modern rule against perpetuities as against 1933 and that did not affect a gift over from one charity to another. So then, the council's trust involves it being a temporary repository for the property and the ultimate trust is that if and when a new teachers' college is established at Armidale, the beneficial interest in the whole of the trust property will then shift back to a trust for public education in connection with the teachers' college. 6 This would suggest that unless there is absolutely no other alternative, the trust property, the collection of paintings in the schedule, or at the very least the major works, are to be retained in specie. 7 The proposal is that the painting by Tom Roberts be sold to The Art Gallery of New South Wales for a figure that has been obtained on valuation. If I was not told that the matter is so urgent that a decision had to be made by 1 June, I think I would have directed that a Court expert be appointed to give the Court a full reasoned valuation of the painting, but time does not permit that so I can not do it and have to act on the basis that the painting has the value ascribed to it in the valuation. It is rather singular that, in what appears to be a rising art market, it has retained exactly its same value for so long. 8 The proposal is that the property be transferred out of the name of the trustee into the name of a new trustee company, and that that trustee company will hold the whole of the property on trust as to one moiety for the Art Gallery of New South Wales and the other moiety on trust for the plaintiff, who will then hold it on sub-trust in accordance with the 1933 deed. Under the arrangement, the plaintiff would have custody of the painting for twelve months and then the Art Gallery for twelve months and thereafter year and year about. 9 There is to be equal sharing of the expenses and there was a covenant that neither party is entitled to sell, assign, lease, encumber or create any interest or benefit in the painting without the prior written consent of the other. However, there does not appear to be any covenant preventing an agreement between the trustee and the Art Gallery despite a lack of power in the trustee to sell the painting altogether or to make an application for sale under s 36A of the Conveyancing Act 1919. In other words, the painting is at risk of forever departing out of the Armidale area and forever being removed from the collection of the revivified teachers' college. 10 The Court did consider an application in this trust on 5 June 1992 in proceedings number 3300/92. When McLelland J heard those proceedings he does not appear to have given any reasoned judgment and the application was made ex parte in Court by the summons being filed in Court on the day of the hearing. There was no notification, it would seem, to anybody, though the Attorney-General was a party but did not appear. 11 His Honour authorised the sale of two paintings reckoned to bring in some $800,000 and ordered that: "The net proceeds of any such sale be held on trust to use such part of the income therefrom, or the capital thereof, as the trustee may from time to time determine, for the purpose of insuring, preserving, restoring, presenting or displaying any of the remaining art works held on terms of the said trust." 12 The evidence as to what happened to the proceeds is very unsatisfactory. The present trustee was then the trustee. It would seem that $300,000 was spent "to help finance extensions to NERAM". NERAM is the acronym for the New England Regional Art Museum. This is a charity of which the plaintiff is also the trustee which receives some government funding and some funding from the rate payers of the Armidale Dumaresq district. 13 How paying $300,000 to finance extensions for the New England Art Museum was for the purposes of preserving, restoring, presenting or displaying the paintings in the Hinton collection has not been explained except that Miss Mahony, who appeared for the trustee, said it was after counsel's advice. Of course counsel's advice does not protect the trustee. The only protection it can get is from judicial advice under s 63 of the Trustee Act. The evidence on behalf of the plaintiff by affidavit was that: "My enquiries and research of NERAM records have not been able to determine precisely where the remaining $500,000 was expended." 14 I drew attention to what I called the "missing half million dollars" during the evidence, but that was not taken up until closing addresses. At that stage an application was made to reopen the case and I allowed further evidence which suggested that although nothing too precise could be said because Mr Waters (who presented the evidence) was not involved in the art world in Armidale in 1992 or thereabouts, he thought that the remaining half million dollars was used to air condition and extend the NERAM premises. 15 This is very disturbing because whilst there is some suggestion in the evidence that the only place in which the Hinton collection can presently be displayed in the Armidale district is in the New England Regional Art Museum, there is very little actual evidence of that. There are no details as to what facilities the regional art museum provides and there is in evidence an agency agreement of 2000 which seems to smack of a delegation of the trustee's responsibilities in favour of NERAM, but it would seem that the paintings currently are not insured even to their full value. 16 There is also a commixing, on the evidence so far, of the trust funds of NERAM and the trust funds of the Hinton trust. This appears to be quite irregular, but it may be that that is quite justified because there is no provision made in the Hinton trust for the costs of keeping the collection and everyone knows that any collection must be protected, maintained and restored and funds for that have to come from somewhere. 17 Up to date it would seem that someone has taken the view, though there is little evidence as to who that someone is, that the best thing to do is to leave the collection in NERAM's custody and to loan moneys to NERAM so that it might continue to operate. However, the debt of NERAM is now in excess of half a million dollars and it would seem that the council and rate payers of the Armidale Dumaresq district are unwilling to maintain that for very much longer. 18 The trustee's proposal for sale would mean that $1.75 million or thereabouts would flow in to the trustee and the trustee would then pay off the whole of the NERAM debt to itself so that NERAM could continue. There is a strong suggestion that unless that happened NERAM would close and there would be no way in which these paintings could be displayed in the Armidale district. However, as I have said, there is no firm evidence of this vital point. 19 Furthermore, when one is making an order under s 81 of the Trustee Act one must be very careful not to exceed the legislative authority conferred by that section on the Court. The Court has given the construction of the section a very wide interpretation but there is a limit and the limit, as was well expressed by Palmer J in RSL Veterans' Retirement Villages Ltd v NSW Minister for Lands [2006] NSWSC 1161, is that the order made under s 81 must not subvert the trust. There are other ways of dealing with an application which does not come within s 81, including an application for a cy pres scheme. 20 However, there is not in this case, as there are in many cases, a back-up application for cy pres and indeed, even if there were, the evidence at present would not indicate that the trust needs to be adjusted because it is no longer capable of being carried out in accordance with the deed. There is certainly some suggestion that might be the case unless a radical adjustment is made in the near future. 21 In Freeman v Attorney-General (NSW) [1973] 1 NSWLR 729 Helsham J said at p 735 that s 81 of the Trustee Act applies to charitable trusts but then he said: "In its application to charitable trusts there is still, of course, a requirement of jurisdiction that the transaction in question must be one arising in the management or administration of property vested in trustees. And in connection with such trusts expediency must be determined by reference to the purpose or objects of the particular trust. The section would not permit an order to be made that enabled a use of trust property which went outside the confines of the purpose or objects to benefit of achieve which the trust was constituted, but would permit an order which enabled use of trust property to be directed towards furthering such purpose or objects. If the purpose or objects of a charitable trust, although initially possible, had ceased to be possible of achievement with the means at the disposal of the trustees...then the situation might not be appropriate for an advantageous dealing to be empowered under s 81." 22 The core assets of this trust are the paintings and other works of art. The core purpose of this trust is that they be displayed in the Armidale area. It would seem to me that whilst there may, in very rare cases, be authority under s 81 if there is no other way of dealing with the matter to authorise the sale of some of the core assets (see eg Burnside City Council v Attorney-General (South Australia) (1993) 61 SASR 107), such an order would not ordinarily be made. 23 In this case, over the opposition of the plaintiff, I gave leave to add as a second defendant the Friends of the Old Teachers' College Armidale Inc, for whom Mr Cashion SC appeared. That group put forward some objections to the order which the plaintiff sought. However, with great respect, there was very little from their material which suggested that there was any real hope of any other solution. There was ephemeral evidence of possible pledges, the possible pledges only going to come into effect if this particular painting stayed in Armidale. That was really too nebulous to warrant serious consideration. However, in view of what I am about to say, it may be that in the next few months real cold, hard cash can come into some trust fund which may provide some viable alternative. 24 The Court is always wary of people who are objecting to a viable proposal who are not prepared to put in cold, hard cash themselves to provide a viable alternative. However, I thank Mr Cashion for his helpful submissions and also for the very helpful suggestions of Mr Mantziaris, counsel on behalf of the Attorney-General. The Attorney-General gave leave to these proceedings to be continued, but did not make any submissions for or against. 25 The position I have reached is that I have very great doubt as to whether the matter comes within s 81 of the Trustee Act and I have very great doubt whether on the evidence I presently have if it does come within s 81 I should make any order. Accordingly, I will either dismiss the proceedings with costs so that an appeal can be put on, or alternatively, if I am requested to, stand them over for a period so that consideration may be given to amending the summons or otherwise. [Short Adjournment] 26 Upon the application of the plaintiff the matter will stand over for mention before me on 21 August 2007 at 9.50 am. I direct that any draft amended summons and any further material intended to be relied on by the plaintiff be filed and served no later than 4 pm on 7 August 2007. I will reserve the costs to date. ************************ 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.