AXA Trustees Limited v Attorney-General for the State of Victoria

[2000] VSC 530

SUPREME COURT OF VICTORIA
AT MELBOURNE COMMERCIAL AND EQUITY DIVISION	Not Restricted

No. 5578 of 2000

In the Matter of the Will and Codicil of Henry Brough Smith
late of 19 Birdwood Avenue, Elwood in the State of Victoria,
Merchant, deceased

and

In the Matter of s.63 of the Trustee Act 1958

AXA TRUSTEES LIMITED (formerly called NATIONAL MUTUAL TRUSTEES LIMITED) (ACN 004 029 841) (which is and sues as the Trustee of the Henry Brough Smith Charitable Trust)	Plaintiff
v
THE ATTORNEY-GENERAL FOR THE STATE OF VICTORIA	Defendant

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JUDGE:	Byrne J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 December 2000
DATE OF JUDGMENT:	15 December 2000
CASE MAY BE CITED AS:	AXA Trustees Ltd v Attorney-General
MEDIUM NEUTRAL CITATION:	[2000] VSC 530

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Trusts – trustee’s power of investment – whether trust contains express prohibition against certain investments – construction of the trust instrument – effect of statutory enlargement of trustee’s investment powers.

Trustee Act 1958, s. 5

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Dr I.J. Hardingham with Mr S.G.E. McLeish	Arthur Robinson & Hedderwicks
For the Defendant	Mr K. Gregory	Acting Victorian Government Solicitor

HIS HONOUR:

1. On 20 March 1969 Henry Brough Smith died, leaving a will dated 16 September 1966 and a codicil dated 5 December 1967. Under these testamentary documents the deceased established a perpetual charitable trust called the Henry Brough Smith Charitable Trust. The plaintiff, as trustee of the trust, seeks a response to certain questions as to the meaning and effect of cl. 10 of the will, a clause which deals with the trustee’s powers of investment. Alternatively, the trustee seeks orders pursuant to s. 63 of the Trustee Act 1958 conferring upon it wider powers of investment than are permitted by cl. 10.

1. The scheme of the will is to establish a charitable trust in favour of 15 named charities.  The present value of the trust fund is a little over $13M, yielding an income in the year 1998-9 of $714,670.

1. The investment powers of the trustee are set out principally in cl. 10 of the will as modified by the codicil in the following terms: 

“10.Moneys liable to be invested under this will may be invested in or upon any of the following:

(a)investments authorised by law for the investment of trust funds in the Commonwealth of Australia or any State thereof;

(b)land or any estate or interest in land or any rights or privileges in relation to land (including any residence held under a system of owner tenancy, whether or not the same shall be a lot on a stratum plan of subdivision);

(c)deposit at interest or otherwise with any Bank;

(d)shares stock or debentures of any Company in which I may be a shareholder or stockholder at the date or my death or in which my trustees may after my death acquire shares or stock pursuant to any power conferred by this will or by law or of any other company which upon a reconstruction or amalgamation or otherwise of any such company may be formed to acquire or may in fact acquire the business or undertaking or any part thereof carried on by such company or a majority of the issued shares or stock of such company or a majority of the class or classes of issued shares or stock of such company which confer full voting rights upon the holders thereof;

(e)fully paid or partly paid shares stock obligations or debentures of any company (other than a company principally engaged in the business of drilling or searching for oil or mining) which is officially listed on the Stock Exchange of Melbourne.”

1. The trustee seeks the opinion of the court that its powers of investment would permit it to invest the trust fund in shares, stock, obligations and debentures of any company irrespective of whether or not that company is –

(a)       principally engaged in the business of drilling or searching for oil;

(b)      principally engaged in the business of mining; or

(c)       not officially listed on the Melbourne Stock Exchange.

1. The named charities have been given notice of this application but none has indicated any opposition to the relief sought.  The Attorney-General representing the charities has indicated that he does not oppose the application. 

1. The powers of trustee investment are now very wide. Section 5 of the Trustee Act 1958, which was introduced by an amendment which came into force on 1 January 1996, provides as follows:

“5.      Investment of Trust Funds

A trustee may, unless expressly prohibited by the instrument creating the trust –

(a)       invest trust funds in any form of investment; and

(b)      at any time, vary an investment.”

1. This section is, by s. 4, applicable to trusts created before 1996 including the present trust. It follows from this that, subject to an express prohibition in the present will or codicil, the trustee may invest the trust fund in any of the ways which it presently desires. I use the word “may” because we are here concerned with the power of investment. The manner of exercising this power and the prudential constraints to which it may be subject, as for example under s. 6, are not the subject of present debate.

1. The first question is, therefore, whether cl. 10 contains an express prohibition as mentioned in s. 5.

1. Clause 10 was drafted in 1966, at a time when the powers of trustee investment were more limited. By s. 4 of the Trustee Act 1958 as it then stood, a trustee was permitted to invest trust funds in any of a list of investments which included government securities and stocks, real securities, debentures in various public and semi-government authorities, on first mortgage subject to strict limitations and the like. Given these restraints, it was not uncommon for a trustee, particularly an institutional trustee, to include in the trust instrument wider powers. I read cl. 10 as an example of this.

1. In sub-cl. (a) of cl. 10 the will states the then existing legal position, perhaps enlarging it by reference to the powers of investment which may be lawful in the Commonwealth or in any State other than the State of Victoria.  Since 1996, the breadth of authorised trustee investments is such that no further enlargement by any of the sub-clauses of cl. 10 would be necessary.  I pass over sub-cll. (b) and (c) noting only that they are investments not permitted under the statute as it stood prior to 1996. 

1. Sub-clause (d) deals with one form of investment, namely shares, stock or debentures, but only those in the following types of company: 

(i)       a company in which the testator held stock or shares at the date of his death;

(ii)a company in which the trustee may, after the death of the testator acquire shares or stock pursuant to any power conferred by the will;

(iii)a company in which the trustee may, after the death of the testator, acquire shares or stock pursuant to any power conferred by law;

(iv)any other company which by a restructure fell within the permitted class. 

1. Bearing in mind the terms of cl. 10(e) and the concerns of the trustee, the type (i) company was not limited in terms of whether it be a public or private company, a listed or unlisted company or whatever be its area of commercial interest or activity.  It is sufficient that, at the date of his death, the testator had shown some confidence in it by choosing it as an appropriate investment.  If this requirement be satisfied there is no question of any constraint upon the power of investment imposed by sub‑cl. (e).  Indeed, in this case the testator at the date of his death held certain shares in companies whose principal business included that of mining and oil exploration.

1. An example of the type (ii) company is to be found in cl. 11(c) of the will.  This is a company which, it may be assumed, does not satisfy cl. 10(a) but is a company to which the trustee has sold property or business forming part of the estate.  Again, the power to invest in shares, stock or debentures permitted by cl. 11(c) is not constrained by cl. 10(e). 

1. It is not easy to understand the function of the type (iii) company, even as things stood before the 1996 amendment to the Trustee Act. This part of the sub-clause seems to contemplate an investment in a company which is not an investment authorised by law in terms of sub-cl. (a), but which is, nonetheless, an investment in shares or stock authorised by law. It may be that the words “or by law” were inserted as an abundance of caution.

1. I pass by the type (iv) company to come to sub-cl.(e).  Again, this sub-clause contains an enlargement of the trustee’s investment powers as things stood prior to 1996 because shares, stock, obligations or debentures in listed companies were not then authorised trustee investments.  The sub-clause, therefore, permits the trust funds to be invested in these companies.  So understood, the sub-clause is an enabling or enlarging provision; it is not restrictive or prohibitory.

1. The sub-clause contains, however, a qualified enlargement because it does not authorise the trustee to invest in shares listed in a stock exchange other than the Melbourne Stock Exchange.  The Melbourne Stock Exchange is now part of the Australian Stock Exchange but this is beside the point.  The trustee is not prohibited by the sub-clause from investing in stock listed, for example, on the Hong Kong Stock Exchange.  Such a limitation upon the trustee’s investment power was, prior to 1996, imposed by the law.  When in 1996 the law changed, it meant that cl. 10(e) had no work to do.  It was an outdated and otiose enlargement of an investment power whose legal limitations had been swept away by statute.  Likewise, the qualification upon that enlargement ceased to be of importance in defining the trustee’s investment powers.

1. The enlargement of the power of investment conferred on the trustee by sub-cl. (e) has a second qualification. It does not extend to an investment in a company “principally engaged in the business of drilling or searching for oil or mining”. I approach this qualification in the same way. With the amendment of the Trustee Act in 1996, the constraints upon trustee investments disappeared. In the context of the present trusts, the testamentary enlargements ceased to have any role to play and, with them, disappeared the qualifications upon those enlargements.

1. I conclude, therefore, that, upon the commencement of the Trustee and Trustee Companies (Amendment) Act 1995 the powers of investment of the trustee of the Henry Brough Smith Charitable Trust were those contained in s. 5 of the amended Trustee Act 1958. Clause 10 and, in particular sub-cl. (e), contains no prohibition upon its statutory power to invest the trust funds in companies not listed on the Melbourne Stock Exchange or in companies principally engaged in the business of drilling or searching for oil or mining. I will therefore answer the questions put to me in the manner proposed by the trustee.

1. It is not, therefore, necessary that I consider the alternative relief sought under s. 63 of the Trustee Act 1958.

1. I will, therefore, make orders in terms of the minute submitted to me at the hearing.  I will answer the trustee’s questions as follows:

In the events that have happened and having regard to the provisions of cl.10 of the Will of Henry Brough Smith deceased, is the trustee of the Henry Brough Smith Charitable Trust permitted to invest in fully paid or partly paid shares, stock, obligations or debentures of any company:	Answer:
(a)  principally engaged in the business of drilling or searching for oil or mining; or	(a)  yes;
(b)  not officially listed on the Australian Stock Exchange?	(b)  yes.

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