New South Wales Supreme Court CITATION : Cunliffe & Ors v The Attorney General in and for the state of New South Wales [2009] NSWSC 1450 HEARING DATE(S) : 06.11.09 JUDGMENT DATE : 21 December 2009 JUDGMENT OF : Nicholas J CATCHWORDS : TRUSTS AND TRUSTEES - land held on trust for charitable purposes of hospital - proposal to enter project agreement and lease land for term greater than allowed by applicable statute - clear benefits to medical research and charitable purpose - benefit in participation exceeds value of ability to put land to alternative use during lease term LEGISLATION CITED : Saint Vincent's Hospital Act 1912 Trustee Act 1925 CATEGORY : Principal judgment Clarke v Attorney General (unreported, NSWSC 28 November 1994 CASES CITED : Concut Pty Ltd v Worrell [2000] HCA 64 Dodds v Attorney General for NSW [2003] NSWSC 1189 Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202 Annette Julie Cunliffe - first plaintiff PARTIES : Helen Anne Clarke - second plaintiff Peter James Ferris - third plaintiff Attorney General in and for the State of New South Wales - defendant FILE NUMBER(S) : SC 4842/09 COUNSEL : Ms T L Wong - plaintiffs Mr C Mantziaris - defendant SOLICITORS : Thomson Playford Cutlers - plaintiffs I V Knight Crown Solicitor - defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Nicholas J 21 December 2009 4842/09 Cunliffe & Ors v The Attorney General in and for the State of New South Wales JUDGMENT 1 His Honour: On 6 November 2009 I made an order pursuant to s 81 Trustee Act 1925 (the Act) authorising: (a) the plaintiffs' entry into the Project Agreement dated 17th August as set out in Exhibit PJF1 to the affidavit of Peter James Ferris sworn 6th October 2009; and (b) the plaintiffs' entry into the lease of the land substantially on the terms and conditions set out in Attachment 1 of the Project Agreement, subject to the terms of the Project Agreement and provided that the words "Lessor's own funds" in line 8 of clause 6.1 of Annexure A to the lease be amended to "Lessees own funds". These are my reasons. 2 The Attorney General, the defendant, did not oppose the making of the orders. The benefits of the proposed transaction were accepted. Nevertheless, the court was greatly assisted by the written and oral submissions made by Mr Mantziaris, counsel for the defendant, as to the significance of potential detriments, including analysis of relevant legal principles. 3 The plaintiffs are the trustees of the St Vincent's Hospital (the trustees). They hold lands upon trust for the purposes of St Vincent's Hospital Darlinghurst (the hospital), pursuant to the Saint Vincent's Hospital Act 1912 (the SVH Act). The land together with other land owned by companies within the St Vincent's Health Australia Group is collectively known as St Vincent's Campus. The St Vincent's Campus is occupied by: "(a) the Hospital (b) St Vincent's Private Hospital (c) the Sacred Heart Hospice (d) St Vincent's Clinic (e) Victor Chang Cardiac Research Ltd (VCCRI) (f) Garvan Institute of Medical Research (the Garvan); (g) The Sisters of Charity Outreach, a service of the Sisters of Charity Australia." 4 During the hearing it was agreed that the following description of entities involved in the operation of the hospital be recorded (Ex D): "The Hospital is conducted by St Vincent's Hospital Sydney Limited (SVHS), a company limited by guarantee, which is the entity authorized under the Health Services Act 1997 (NSW) for that purpose. The sole member of that company is St Vincent's Health Australia Limited (SVHA), also a company limited by guarantee. St Vincents & Mater Health Sydney Limited (SVMHS) is also a company limited by guarantee. The sole member of that company is also SVHA. SVMHS provides management services (including finance and administration) for various entities in the SVHA Group, including SVHS. The Trustees own the land and buildings which house the Hospital. The Trustees as the owners of the land and buildings have allowed SVHS to occupy and use the land and buildings for the conduct of the Hospital." 5 On 17 August 2009 the trustees, SVHS and the Garvan executed a project agreement for the design and construction of a new cancer centre on a portion of the land held by the trustees. The cancer centre is to be known as the Garvan St Vincent's Cancer Centre (the GSVCC). 6 The site on which the GSVCC is to be built is held on trust for the benefit of the hospital under s 2 of the SVH Act. The land is not part of the land in either schedule to the SVH Act, but is part of the land that was later acquired by the trustees, and therefore falls within s 2 thereof, being land acquired for use in connection with the hospital. It is within the research precinct of the St Vincent's Campus and comprises lot 22 of DP 867249 and lots 24 to 28 and part lot 29 of DP 881417. 7 Under the project agreement the parties have agreed that SVHS and the Garvan must enter into a long-term lease to obtain joint occupation of the GSVCC building. Consequently, the issue which arises is whether the trustees have power to lease the land for the required term under s 6 of the SVH Act which provides: "6. Power to lease land (1) The trustees may, for any purpose of or connected with the hospital, from time to time lease any portion of the land described in the First or Second Schedule or acquired at any time by the trustees: (a) for a term not exceeding 21 years, to a public or local authority constituted by or under an Act, or (b) for a term not exceeding 10 years, to any other person. (2) The trustees may give to the lessee of any lease under subsection (1) an option of renewal if the aggregate duration of the lease and any such renewal does not exceed the maximum term for which the lease might have been granted to the lessee under that subsection. (3) Where land is not immediately required for use for any purpose of or connected with the hospital, the trustees may lease the land under subsection (1) for any other use. (4) The trustees are not required to obtain a fair market rental in respect of any lease under subsection (1) to a public or local authority constituted by or under an Act." 8 As the proposed lease is for a term, including options to renew, of about 82 years, it is evident that the grant of a lease for such a term is beyond power under s 6(1). Hence the trustees' application under s 81 of the Act to the court to authorise the proposed dealings if, in its opinion, it is expedient to do so. 9 Under a funding agreement made 24 June 2009 between the Commonwealth Government and the Garvan, the Commonwealth agreed to grant $70 million towards the cost of the project. It is expected that the balance of the funding for the GSVCC will come from private donations, and some fundraising has already been undertaken. By cl 6.3(a) of the funding agreement the organisation by which the project was to be undertaken was required to have tenure of the land by way of fee simple, lease, or otherwise, within 20 business days of the date of the funding agreement. Mindful of this requirement the project agreement was executed by the parties on 17 August 2009. 10 A brief description of the proposed GSVCC follows. Much of it is taken from the comprehensive written submissions of the trustees' counsel, Ms Wong, and is supported by the evidence to which she referred. The hospital provides a range of services for the treatment of cancer. They are provided as part of its cancer program which includes medical, radiation and surgical oncology, haematology and bone marrow transplantation, and out-patient clinics for cancer patients. The Garvan has undertaken cancer research for about 30 years, and researchers collaborate closely with the hospital particularly in the area of clinical trials. 11 The GSVCC, the proposed cancer centre, is intended to bring together in a single location the cancer services and facilities of the hospital with the research initiatives of the Garvan Cancer Research Program so as to realise the hospital's aim of providing integrated multidisciplinary care to patients, and to enable research to be readily translated into clinical outcomes. 12 It is intended that the GSVCC will be a multi-storey building containing a range of facilities relating to cancer care and research. It will include retail and consulting room spaces, which will provide an income stream to SVHS and the Garvan which will support rent payable to the trustees, and will enable the hospital to attract specialist medical practitioners. The centre will also include below ground car parking facilities. 13 Improvements and facilities presently on the GSVCC site include a medical centre, the resident medical officers' residence, and out-patient drug and alcohol services. These will be relocated prior to the commencement of building, the cost of which will be met from the project budget. 14 It is presently estimated that the project will cost a total of $90.6 million not including the cost of the site. The project agreement 15 Under the project agreement the trustees agreed to grant a lease of the land to SVHS and the Garvan as joint tenants in the form set out in Attachment 1 thereto. Clause 2.1 provided, in effect, that it was a condition precedent to the entry into the demolition contract by the parties concerned that the trustees' application under s 81 of the Act be granted. Thus, no work may commence on site until the court has authorised the grant of the lease by the trustees. As earlier indicated, the term of the lease, including options to renew, is for about 82 years. 16 It is unnecessary to detail all the provisions of the project agreement which the trustees wish to enter. Shortly stated, it governs the design and construction of the GSVCC, and the continuing obligations of the parties in respect of its operation. The project agreement envisages a staged development. The first stage involves gaining the necessary approvals, demolition of the existing buildings on the site, and the subdivision and consolidation of the parcels of land which contain the site. The trustees have consented to applications for approvals and for subdivision. The second stage involves the construction of the GSVCC. The third stage is the leasing by the trustees of the newly constructed GSVCC to SVHS and the Garvan. 17 The project agreement requires the trustees to make the site available by: (a) granting a licence to SVHS and the Garvan to permit them to demolish the existing buildings, construct the GSVCC, and otherwise manage the project (cl 5.1); and (b) granting a lease to SVHS and the Garvan in the form set out in Attachment 1 (cl 5.2). 18 SVHS and the Garvan are responsible for the demolition and construction process, as well as the funding cost of the project. They are required to obtain the written consent of the trustees to significant operational matters, including the appointment of the builder, and material variations to the project (cl 6.2, cl 6.8, cl 9). Upon completion, they are required to enter into agreements which specify their respective rights and responsibilities concerning their shared use and occupation of the building, and the management and operation of the GSVCC (cl 13). 19 During the demolition and construction stage, SVHS and the Garvan will occupy the site under a licence, the terms of which are set out in Attachment 8. The licence terminates either upon practical completion of the GSVCC building or 1 January 2015, whichever is the earlier. Although no fee is payable during the term of the licence, after completion has been achieved SVHS and the Garvan are required to pay the trustees an amount of $91,667 per month as rent compensation from the time of occupation of the site until the date of completion, less adjustments for amounts received by the trustees in lieu of rent. The licence contains a number of provisions for the protection of the trustees from liability during the demolition and construction stage. 20 The leases are to be granted by the trustees to SVHS and the Garvan upon completion of the project. Its terms will require SVHS and the Garvan to pay rent of $1.1 million per annum, adjusted to take into account changes in the relevant consumer price index. SVHS and the Garvan will meet their obligations to pay rent primarily from the revenues to be generated from car parking facilities and the commercial and retail premises within the GSVCC building, and will make up any shortfall equally (cl 5.8(a), (b)). The rent payable under the lease will largely replace the income of about $1.179 million currently received by the trustees from existing improvements on the site and the trustees will be relieved of the burden of maintaining the buildings to be replaced by the GSVCC. 21 Upon execution of the lease, SVHS and the Garvan are required to provide various protections and indemnities to the trustees including the payment of all rates and outgoings in respect of the GSVCC, the obtaining of relevant insurances, and the provision of general releases and indemnities against claims arising from their use and occupation of the premises, and specifically in relation to occupational health and safety risks. 22 In this context, it is apt to refer to recital N in the project agreement which states: "N In developing the GSVCC both parties are committed to ensuring that the Trustees are held cost neutral, and to this end, funding the relocation of any existing services on the Land to alternate accommodation and reimbursing the Trustees for any loss in actual net revenue occasioned by the development". 23 According to the valuation evidence in the Consultancy Report of Colliers International of 25 November 2008, the site with its various existing improvements is presently undercapitalised. The improvements will be replaced by the GSVCC building consisting of 11 above-ground medical research facilities and associated offices, and four basement levels of car parking. 24 Professor Allan David Spigelman is the director of the Cancer Program and Cancer Services at St Vincent's & Mater Health Sydney Limited. In his affidavit of 30 September 2009 he deposed that, when constructed, the GSVCC will contain state of the art research laboratories for 120 scientists, core facilities for molecular genetics and molecular pathology; cutting-edge microscopy and experimental imaging technologies; a good manufacturing practice laboratory for the development of novel cell and antibody-based therapies; purpose-designed bioinformatics and clinical data management facilities to provide high-level analyses of clinical information; specially equipped multidisciplinary review suites where researchers and clinicians will meet to review individual cancer cases; clinical trial co-ordination to increase the number of cancer patients taking part in clinical trials with new treatments; and facilities for holistic patient coordination and care, patient education and support groups (a "Wellness Centre"). 25 He also said: "13 Bringing together the services and facilities of the Hospital with the research initiatives of the Garvan Cancer Research Program provides an unprecedented opportunity to realise the Hospital's aim of providing integrated multidisciplinary care to patients and a multidisciplinary research approach focusing on ready and easy translation of research to clinical outcomes … 17. The GSVCC will provide an ideal environment for the development of creative and novel approaches to improved cancer management as well as being a natural application of the hospital's existing holistic and collaborate model for individual patient care". 26 The trustees identified as the only detriment resulting from their participation in the project an inability to use the site for any other purpose for the anticipated term of the lease, 82 years. However, they argued that this consideration is significantly outweighed by the advantages of the GSVCC for the hospital and its patients, a submission which I accept. 27 The defendant submitted that in weighing the benefits and detriments, the court should consider whether or not the trustees' termination rights under the project agreement were significantly less than those available to the other parties. Clause 15.5 is the relevant provision. It is in the following terms: "15.5 The Trustees may not give a Default Notice or Termination Notice. Only St Vincent's or Garvan may give a Default Notice or Termination Notice. The Trustees may not give a Default Notice or Termination Notice unless Garvan or St Vincent's commits an Insolvency Event or is in breach of paragraph (h) or (i) of the definition of Event of Default. Any Default Notice or Termination Notice that the Trustees claim to give in the absence of an Insolvency Event or a breach of paragraph (h) or (i) of the definition of Event of Default by either Garvan or St Vincent's is not valid and is of no effect." "Event of Default" is defined to include: "(h) if the predominant purpose for which the GSVCCC Building is used is other than for cancer research and clinical care, or (i) The GSVCCC Building is not completed by 31 December 2014". 28 It was put that as the trustees may not issue a default or termination notice upon other events of default, it may be thought they were at a disadvantage to the other parties which were not so limited. 29 On the other hand, the trustees argued that although cl 15.5 limited termination rights to certain events of default, nevertheless, upon its proper construction, it did not operate to exclude rights of termination at common law having regard to the principles in Concut Pty Ltd v Worrell [2000] HCA 64, pars 22, 23. Furthermore, reference was made to the trustees' right to terminate the licence and take possession of the site under cl 7.3 of the licence, upon the grounds of default specified in cl 7.1(b) including under subpar (iii) the licensees' failure to comply with any essential term of the project agreement. 30 The defendant accepted that even if the limitation under cl 15.5 was found to be detrimental to the interests of the trustees, it would not justify refusing relief. 31 In my opinion the issue whether, under s 81 of the Act, it is expedient to authorise the trustees' entry into the agreement and the lease must be determined with regard to the transaction as a whole and the evidence of the probable consequences of the trustees' participation in it. On that approach, my conclusion is that if, without deciding, cl 15.5 limits the trustees' termination rights such limitation in the context of the whole of the project agreement including the licence, is a factor to which little weight should be given, and I have proceeded accordingly. 32 Relevantly, s 81 of the Act provides: 81 Advantageous dealings (1) Where 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, is in the opinion of the Court expedient, but the same 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, the Court: (a) may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and 33 The principles which guide a court in the exercise of its jurisdiction under s 81 are discussed in Riddle v Riddle [1952] HCA 12; (1952) 85 CLR 202. Dixon J (p 214) described expediency to mean "… expediency in the interests of the beneficiaries … a criterion of the widest and most flexible kind". Williams J (p 220) said: "The section is couched in the widest possible terms. The sole question is whether it is expedient in the interest of the trust property as a whole that such an order should be made" and (pp 221-222): "… The ordinary natural grammatical meaning of 'expedient' is 'advantageous', 'desirable', 'suitable to the circumstances of the case'". 34 These principles have been considered and applied in earlier applications by trustees of the land the subject of the SVH Act in Dodds v Attorney General for NSW [2003] NSWSC 1189 and Clarke v Attorney General (unreported, NSWSC 28 November 1994). 35 In my opinion, the project agreement evidences the achievement of an appropriate balance between the interests of the Garvan and SVHS which bear the financial burden of the project, and the interests of the trustees who contribute no funds to the project and are not obliged to do so. The costs of the project and related risks are to be borne by the other parties (cl 7.2, cl 7.5, cl 9). As earlier noted, the terms of the licence and the lease provide a range of protections to the trustees against potentially adverse events. I am satisfied that the loss of the trustees' ability to use the land for the term of the lease in some other way is vastly outweighed by their commitment to a project which will generate the benefits described by Professor Spigelman. 36 The public importance of the project is plainly established by the fact that the Commonwealth Government is to make a financial contribution of $70 million towards it. 37 I am satisfied that the evidence in support of this application, taken overall, establishes a sound basis for the finding, which I make, that it is expedient to confer on the trustees the power they seek. Their entry into the project agreement and the granting of the necessary lease will, in my opinion, achieve immeasurable advantages for the hospital consistent with the proper discharge of the trustees' responsibilities to further its charitable purposes. The evidence considered in light of the relevant principles establishes the trustees' entitlement to the relief sought in the amended summons filed 6 November 2009. 38 Accordingly, orders were made: (1) Pursuant to section 81 of the Trustee Act 1925 authorising: (a) the plaintiffs' entry into the Project Agreement dated 17th August as set out in Exhibit PJF1 to the affidavit of Peter James Ferris sworn 6th October 2009; (b) the plaintiffs' entry into the lease of the land substantially on the terms and conditions set out in Attachment 1 of the Project Agreement, subject to the terms of the Project Agreement and provided that the words "Lessor's own funds" in line 8 of clause 6.1 of Annexure A to the lease be amended to "Lessees own funds"; and (2) that the plaintiffs pay the defendant's costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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