Supreme Court New South Wales Medium Neutral Citation: Perpetual Trustee Company Ltd (No 3) [2017] NSWSC 1216 Hearing dates: 7 September 2017 Decision date: 12 September 2017 Jurisdiction: Equity Before: Stevenson J Decision: Advice given that Trustee justified in concluding that it should distribute to beneficiary income for the years ended 30 June 2014, 2015 and 2016, and should distribute such income for the year ended 30 June 2017 unless it positively forms an opinion prior to 30 September 2017 that beneficiary will not apply those funds for the relevant charitable purpose Catchwords: TRUST AND TRUSTEES – JUDICIAL ADVICE – charitable trust in a will – proper construction of the will – whether trustee must form opinion that beneficiary shall not in the future apply funds for the charitable purpose within three months of the end of the financial year – whether trustee justified in forming the opinion that beneficiary will not apply income for that charitable purpose Legislation Cited: Trustee Act 1925 (NSW) Cases Cited: Australian Youth & Health Foundation v Perpetual Trustee Company Ltd [2017] NSWCA 127 Australian Youth & Health Foundation v Perpetual Trustee Company Ltd (No 2) [2017] NSWCA 165 Crook v Hill (1871) L.R. 6 Ch., 311 Fell v Fell (1922) 31 CLR 268; HCA 55 Finch v Telstra Super Pty Ltd (2010) 242 CLR 254; HCA 36 Langston v Langston (1834) 2 C1. & F., 194 Perpetual Trustee Company Ltd [2016] NSWSC 1273 Scale v Rawlins (1892) A.C., 342 Upton v Lord Ferrers (1801) 5 Ves., 801 Category: Principal judgment Parties: Perpetual Trustee Company Limited (Plaintiff) Australian Youth and Health Foundation (Interested Party) Representation: Counsel: B A Coles QC with S Robertson (Plaintiff) N A Cotman SC with D D Knoll (Interested Party) Solicitors: Church & Grace Solicitors (Plaintiff) Pavuk Legal Pty Ltd (Interested Party) File Number(s): SC 2016/107692 Judgment 1. The background to this matter is set out in my judgment of 13 September 2016 (Perpetual Trustee Company Ltd [2016] NSWSC 1273) and in the judgment of the Court of Appeal of 6 June 2017 in Australian Youth & Health Foundation v Perpetual Trustee Company Ltd [2017] NSWCA 127. 2. These reasons assume familiarity with those judgments. 3. I shall use the same abbreviations as in my judgment of 13 September 2016. 4. On 6 July 2017, the Court of Appeal ordered that these proceedings be remitted to me for further consideration in the light of that Court's reasons of 6 June 2017: Australian Youth & Health Foundation v Perpetual Trustee Company Ltd (No 2) [2017] NSWCA 165. 5. I heard argument on the remitter on 7 September 2017. 6. By an amended summons filed in Court on that day, the Trustee now seeks advice pursuant to s 63 of the Trustee Act 1925 (NSW) that: 1. on the proper construction of the will of the late Eric Storm, the phrase "shall not apply" in the Proviso to cll 7(a) to (d) of the will means "shall not, in the future, apply"; 2. in the circumstances which have occurred, the Trustee is obliged to apply 44 per cent of the net income of The Eric Storm Charitable Trust for the years ending 30 June 2014, 2015 and 2016 to the Foundation forthwith even though the Trustee is not satisfied that the Foundation shall in the future apply those funds for the purposes of the promotion of natural health in accordance with the philosophy and practices of the Hopewood Health Centre at Wallacia; 3. that the Trustee is obliged to apply 44 per cent of the net income of the Trust during the year ending 30 June 2017 to the Foundation by 30 September 2017 unless it positively forms an opinion prior to 30 September 2017 to the effect that the Foundation shall not in the future apply those funds for the purposes of the promotion of natural health in accordance with the philosophy and practices of the Hopewood Health Centre at Wallacia (as those philosophies and practices were as at the date of the will); 4. in the alternative to subparagraphs (b) and (c) (subject to further order of the Court) it would be justified in not applying 44 per cent of the net income of the Trust during the years ending 30 June 2014, 2015, 2016 and 2017 to the Foundation until such time as it is in a position to conclude whether or not it should form one or more of the opinions in the Proviso; 5. in the alternative to: 1. subparagraphs (b) and (d), an order that it would be justified in forming an opinion for the purposes of the Proviso to the effect that the Foundation shall not in the future apply the net income of the Trust for the years ending 30 June 2014, 2015, 2016 and 2017 for the purposes of the promotion of natural health in accordance with the philosophy and practices of the Hopewood Health Centre at Wallacia as at the date of the will; 2. subparagraphs (c) and (d), an order that it would be justified in forming an opinion for the purposes of the Proviso to the effect that the Foundation shall not in the future apply the net income of the Trust for the year ending 30 June 2017 for the purposes of the promotion of natural health in accordance with the philosophy and practices of the Hopewood Health Centre at Wallacia as at the date of the will. 1. It is common ground that, in view of the decision of the Court of Appeal, I should give advice to the Trustee in accordance with [6(a)]. 2. Otherwise, the conclusion to which I have come is that I should give the Trustee advice that it would be justified in reaching the conclusion that it is obliged to act as set out at [6(b) and (c)]; but not the advice sought by the Trustee in the alternative, as set out at [6(d) or (e)]. The will as construed by the Court of Appeal 1. The relevant parts of cl 7 of Mr Storm's will are (with "[in the future]" added to reflect the reasons of the Court of Appeal): "7. MY TRUSTEE shall invest The Eric Storm Charitable Trust in the manner hereinafter authorised and apply the nett income arising from such investments during any year ending on 30 June (hereinafter referred to as the 'nett income') in the following manner:- (a) as to forty-four (44%) to [the Foundation] to be applied for the promotion of natural health in accordance with the present philosophy and practices of the Hopewood Health Centre at Wallacia; (b) as to twenty-two percent (22%) to MISSION AUSTRALIA for the use of Sydney City Mission; (c) as to twenty-two percent (22%) to THE SALVATION ARMY (NSW) PROPERTY TRUST to be applied for the benefit of young people; (d) as to two percent (2%) to MAMRE PLAINS LTD of Lot 1 Mamre Road, St Marys; PROVIDED ALWAYS that if in the opinion of my Trustee any of the said organisations shall either cease to exist or cease to operate under their respective fundamental objects and purposes as at the date of this my Will or shall not [in the future] apply the funds for the charitable purposes set out above then my Trustee shall apply the income which such organisation would otherwise have received to such well-established and well organised charities as my Trustee shall select in equal proportions but so that no individual charity receives in excess of TEN THOUSAND DOLLARS ($10,000.00) per annum; … (e) as to the remaining ten percent (10%) of the nett income, my Trustee shall accumulate same as an accretion to the capital of The Eric Storm Charitable Trust; (f) I DIRECT that all income to be paid in accordance with this clause shall be paid within three (3) months of the 30th June each year." [Emphasis in original] Application in the future of the income from the Trust for the relevant charitable purpose 1. The will obliges the Trustee to apply 44 per cent of the net income arising from the investments of the Trust to the Foundation unless the Trustee forms one of the opinions referred to in the proviso that appears at cl 7 (d). 2. The opinion relevant to the debate before me is that concerning the application by the Foundation in the future of the relevant funds for the charitable purpose ("the Purpose") set out in the will. The parties referred to this as "the Proviso Opinion". 3. In order to form the Proviso Opinion, the Trustee must form the opinion that the Foundation shall (in the sense of will) not in the future apply the trust funds for the Purpose. 4. As Mr Cotman SC, who appeared with Mr Knoll for the Foundation, submitted: "While holding an opinion that funds will be used in a particular way is inconsistent with holding the Proviso opinion, not holding that opinion does not mean that the opinion held is that the income share will not be so applied. … The relevant question is whether the Trustee properly can and does hold the opinion that the Foundation shall not so apply the funds. Not being 'satisfied', to some unknown standard, that the funds will be applied as described, is not, with respect, the same as being satisfied to the standard required by law that they will not be so applied." [Emphasis in original] 1. Mr Coles QC, who appeared with Mr Robertson for the Trustee, informed me that the Trustee has not formed the Proviso Opinion. 2. Thus, the Trustee's written submissions stated: "The Trustee is left in a position where it is not satisfied that [the Foundation] will apply the funds to which it is conditionally required to be paid (some $1.4M) in respect of the years ended 30 June 2014, 2015, 2016 and 2017 [for the Purpose]". [Emphasis in original] 1. The Trustee's written submissions suggested that the Trustee has "concerns (unanswered by [the Foundation]) as to whether the Trust Funds will be applied as [Mr Storm] intended". 2. The Trustee's lack of satisfaction arises from the following circumstances. 3. On 27 June 2017, shortly after the Court of Appeal delivered its judgment, the Trustee wrote to the Foundation in the following terms: "The Trustee is presently considering whether or not, in its opinion, the proviso summarised above…applies to [the Foundation]. To assist with this exercise, can you please do the following: 1. Provide a detailed explanation as to how the Foundation proposes to apply the funds to which it is conditionally entitled under the Will including as to how it intends to ensure that those funds are so applied…". 1. On 9 August 2017, the Foundation (by its solicitor) responded as follows: "CURRENT SITUATION While the Hopewood Centre was closed on 9 June 2015, for reasons that have already been outlined by [the Foundation], including the Trustee's failure to pay the bequest, the following activities have been continued by [the Foundation], using [the Foundation's] funds from the date the bequest was 'suspended' in 2013: 1. Maintaining and updating Hopewood website 2. Publishing and promoting the Cook Book 3. Engaging one staff member to attend to the above activities 4. Engaging marketing group to maintain, support and assist with selling the Cook Book and promote the Hopewood brand in gyms and other health and fitness venues. Had the bequest funds been made available they would have been spent on the expense of those activities as they were incurred. FUTURE PLANS The following resolutions were made by [the Foundation's] Board of Directors in relation to how to utilise the bequest monies for the promotion of natural health in accordance with the philosophy and practices of the Hopewood Health Centre at Wallacia. Subject to payment being made by the Trustee of the Will of the Late Eric Storm in accordance with the Will: 1. to maintain and update the Hopewood website, as an information and promotion site for natural health principles and practices and the activities of the Foundation and others in that regard; 2. to publish and promote the Cook Book; 3. to continue to employ at least one staff member to attend to the above activities and to work in and coordinate the activities described below; 4. to seek professional advice as to how [the Foundation] can most efficiently and effectively undertake the activities of promotion of natural health in accordance with the philosophies and practices of the Hopewood Wallacia Centre, having regard to closure of the operations at Hopewood Centre in Wallacia and having regard to the extent of any uncertainty as to the amount of monies to be distributed from the Storm Bequest in the future; 5. to secure and operate one or more non-residential facilities, for the housing and undertaking of activities for the promotion of natural health as were previously conducted at Wallacia by natural health practitioners and educators working from the centre; 6. to seek real estate advice in respect of purchasing or leasing a suitable venue or venues to be adapted to pursue the above activities; 7. to increase the emphasis on the conduct of educational activities and extending the work previously done at the Hopewood Health Centre in the promotion of natural health practices to the public, to health professionals serving the public, to educators and to individuals of influence in the community, to increase awareness of natural health practices, particularly in relation to nutrition, recreation and the prevention of illness and obesity; 8. to fund the activities of other not-for-profit organisations with effective and efficient existing programs for the promotion of natural health in accordance with the philosophy and practices of the Hopewood Health Centre at Wallacia; 9. to separate, hold and invest monies received from the Storm Bequest until the principal and income from the investment is required for expenditure on cost or other expenditure associated with the above activities and to so expend it; and 10. for the combination of some or all of the above from time to time as are administratively and financially able to be responsibly carried out." 1. Further, as I recorded in my judgment of 13 September 2016 at [43], the accommodation centre at Wallacia ceased operating in 2015 (evidently in June of that year). The centre is now on the market for sale. The construction question 1. There was debate before me as to whether, on the proper construction of cl 7 of Mr Storm's will, the Trustee was obliged to form the Proviso Opinion within the period referred to in cl 7(f) (within three months of 30 June each year: that is, by 30 September each year). 2. Mr Coles submitted that Mr Storm must be assumed to have intended that his will have the effect found by the Court of Appeal. 3. Mr Coles also submitted that Mr Storm must be assumed to have: 1. contemplated that the Trustee would each year be obliged to consider whether to form the Proviso Opinion: that is whether the Foundation would in the future cease to apply the funds for the Purpose; 2. contemplated that the three month period referred to in cl 7(f) (that is, from 1 July to 30 September each year) would normally be enough to consider whether to form the Proviso Opinion; 3. understood, however, that the Trustee had no power to compel the Foundation to provide it with any information; 4. thus contemplated that there may be circumstances where the Trustee did not, within that three month period, have sufficient information to enable it to exercise its duty as Trustee and give proper and genuine consideration to the "key question" of whether or not to form the Proviso Opinion. 1. Accordingly, Mr Coles submitted when read together, cll 7(d) and (f) should be construed so as to permit the Trustee to defer consideration of whether to form the Proviso Opinion if it considered it did not have sufficient information to do so. 2. I considered this question at [105] to [114] of my judgment of 13 September 2016 and expressed the tentative view (in obiter) that cl 7 should not be so construed. 3. More importantly, the Court of Appeal has expressed views that are inconsistent with Mr Coles's propositions. 4. Thus, at [35] the Chief Justice said: "Subject to the proviso, the obligation on the Trustee is to apply 90% of the income arising from the Trust during each year ending 30 June to the nominated beneficiaries within three months following the end of the year in question. The Trust envisaged that, subject to the trust for accumulation contained in cl 7(e) of the will, the whole of the income in each year should be distributed." 1. And at [40]: "I do not think that any difficulty the Trustee has in ascertaining how distributed monies would be used affects the position. It is a matter for the Trustee to form the requisite opinion in good faith and upon real and genuine consideration properly informed: Finch v Telstra Super Pty Ltd (2010) 242 CLR 254; [2010] HCA 36 at [28], [66]. In doing so the Trustee would be able to take into account in the formation of its opinion that monies in preceding years had not been applied for the requisite purpose." 1. Further, Meagher JA said, at [52]: "Clause 6 of the will creates the Eric Storm Charitable Trust of Mr Storm's residuary estate. Clause 7 requires the Trustee to invest that trust property and apply 90% of the net income during any year ending 30 June by paying it to four named charitable organisations in the percentages specified. That distribution is to be made within three months of the respective year end." 1. Further, as Mr Cotman pointed out, the provision made by Mr Storm in cl 7(e) of the will (that the 10 per cent of net income not allocated to the particular beneficiaries accumulate to capital) suggests that Mr Storm did apply his mind to the circumstances in which income might not be distributed in accordance with the earlier provisions of cl 7; and yet made the unqualified direction in cl 7(f). 2. Acceptance of Mr Coles's submission involves reading into cl 7(f) of the will words of qualification which do not appear in terms. 3. In the judgment of 6 June 2017, the Chief Justice set out two of the principles referred to by Isaacs J in Fell v Fell (1922) 31 CLR 268; HCA 55 at 273-276. 4. Two further principles set out by Isaacs J (at 274) were that, when construing a will: "(4) An inference cannot be made 'that did not necessarily result from all the will taken together' (Sir R P Arden, M.R, in Upton v Lord Ferrers, 5 Ves Jun 801 at p 804). A necessary inference is one the probability of which is so strong that a contrary intention cannot reasonably be supposed (James, LJ, in Crook v Hill, 6 Ch App p 311). (5) 'We cannot give effect to any intention which is not expressed or plainly implied in the language of' the 'will' (Lord Watson, in Scale v Rawlins, (1892) AC 342 at pp 344–345). 'You have no right to fancy or to imply, unless there be something within the four corners of the will, which is not only consistent with the implication you make, but which could hardly stand, if at all, in the will without that implication being made. That is what is called necessary implication, and legitimate implication, in contradistinction to gratuitous, groundless, fanciful implication' (Lord Brougham, L.C, in Langston v Langston, 2 Cl & F. 194 at p 237)." [Emphasis in original] 1. I see nothing in the "four corners" of Mr Storm's will which is "only consistent with the implication" for which Mr Coles contended. Nor do I see that the will "can hardly stand, if at all" without the implication for which Mr Coles contended. 2. I see the language that Mr Storm has used in cl 7 to be clear, and to compel the conclusion that, no matter what information the Trustee has, unless it is able to form the Proviso Opinion by 30 September in each year, it must apply the funds to the Foundation in accordance with cl 7(a) of the will. 3. For those reasons I propose to advise the Trustee that it would be justified in concluding that it is obliged to act as set out at [6(b)] and [6(c)] above, and am not prepared to give the Trustee the advice referred to at [6(d)] above. The 9 August 2017 letter 1. Mr Coles submitted that the 9 August 2017 letter was capable of justifying the Trustee coming to the positive conclusion that the Foundation would not in the future apply the trust funds for the Purpose and that, accordingly, the Trustee should be given the advice set out in [6(e)] above. 2. Mr Coles submitted that the letter showed that, except in minor respects, the Foundation was not proposing to apply the funds to be paid to it under the will for the Purpose and that the Foundation had no coherent plan to do so in the future. 3. I do not agree. 4. What the letter reveals is that in addition to maintaining the Hopewood website, publishing and promoting the cook book identified, and employing a staff member to attend to those activities, the Foundation proposed to seek advice as to how to apply the trust funds for the Purpose, and as to how it should operate non-residential (or day) facilities in lieu of the Wallacia premises. 5. Mr Coles directed particular criticism to the Foundation's stated intention to fund other not-for-profit organisations that had programs that promoted the Purpose and to separate, hold and invest monies received from the trust under the Foundation until it had decided how best to apply those funds for the Purpose. 6. However, even if the letter can be read to bespeak the Foundation's intention not immediately to apply the trust funds for the Purpose, I do not think it is a fair conclusion from the letter that the Foundation "shall not in the future" (after receiving advice and giving that advice consideration) apply the funds for the Purpose. 7. Accordingly, I decline to give the Trustee the advice set forth at [6(e)] above. ********** 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: 12 September 2017