Charles Pearson Pty Ltd v Attorney-General for the State of Victoria

[2006] VSC 260

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

PRACTICE COURT

No. 7021 of 2006

CHARLES PEARSON PTY LTD	Plaintiff
v
THE ATTORNEY-GENERAL FOR THE STATE OF VICTORIA	Defendant

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JUDGE:	GILLARD J
WHERE HELD:	Melbourne
DATE OF HEARING:	7 July 2006
DATE OF JUDGMENT:	7 July 2006
CASE MAY BE CITED AS:	Charles Pearson Pty Ltd v A-G for the State of Victoria
MEDIUM NEUTRAL CITATION:	[2006] VSC 260

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Charities Act 1978 – Application by Trustees for order that Part 1A of the Act applies – Definition of trust property – Includes later acquired trust property – Purpose of Part 1A – Order made to overcome equitable principle precluding intermingling of separate trust funds.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr G. Garde Q.C. with Mr R. Weil	Aitken Walker and Strachan
For the Defendant	Mr K. Gregory	Victorian Government Solicitor

HIS HONOUR:

1. Before the Court is an originating motion brought by a company, Charles Pearson Pty Ltd, against the Attorney-General for the State of Victoria, seeking certain relief under the Charities Act 1978.

1. The background that has brought the proceeding to the Court can be briefly summarised.  The plaintiff, Charles Pearson Pty Ltd, is a company that is wholly owned by the Presbyterian Ladies College, which itself is a company limited by guarantee.  The College conducts a school for primary and secondary students in Burwood.

1. The directors of the plaintiff are appointed by the Council of the College.  The sole function of the plaintiff is to act as a trustee of funds associated with the College, and all funds held by the plaintiff are administered by it on behalf of the College. 

1. On 7 January 2002 and 22 October 2003, the College received from the Presbyterian Church of Victoria Trust Corporation funds representing the capital and accumulation of trust funds related to the College held by the Trust Corporation.  In addition to those funds, the College held funds in its own right given to it or paid to it for various purposes associated with the College. 

1. By deed dated 26 August 2004 between the Trust Corporation and the College, the College was confirmed as trustee of the trust funds transferred to it by the Trust Corporation.  By deed stated 18 March 2005, the College appointed the plaintiff to be trustee in its place of the trust funds transferred to it by the Trust Corporation and those held by it in its own right.  As at May 2006, the plaintiff held a total sum of moneys slightly in excess of $3 million upon trust for the College.

1. By reason of s.4 of the Charities Act 1978 as recently amended, an application was made to the Attorney‑General by the plaintiff, and a scheme was approved by the sanction of the Attorney‑General in respect of 72 of the trusts upon which funds were held by the plaintiff, permitting the use of those funds for the support of scholarships, bursaries and concessions for pupils attending the College. So it means that there are 72 trusts administered by the plaintiff which now have a common charitable purpose. In addition, the College periodically receives gifts and bequests to be held on trust.

1. If one looks back at the laws relating to trustees, there is a principle that has been the law for many hundreds of years which precludes a trustee from intermingling trust property belonging to more than one trust with another trust.  This can constitute a breach of trust unless authorised in some way.  Reference to the 6^th edition of Jacobs’ Law of Trusts in Australia makes it clear that one of the well-established principles relating to dealing with trust funds is that trustees must not mix trust funds with their own or other funds.[1]  The authorities go back to the beginning of the 19^th century.  It is only necessary to refer to Lupton v White.[2]

   [1]see p.435.

   [2][1808] 15 Ves 432; 33 ER 817.

1. This principle over the years has created problems, and indeed if this application had not been made and accepted, its operation would create problems.  As Mr Garde QC, who appears with Mr Richard Weil on behalf of the plaintiff, has pointed out in submissions which were forwarded to the Court, “the effect of the position now is that the plaintiff is required to separately invest and administer some 77 individual funds ranging in size from amounts less then $1,000 to funds in excess of $1.7 million”.  I do not think I have to say much more as to the difficulties involved in seeking to deal separately with 77 individual funds and the difficulties involved in investing and the inefficiencies that flow therefrom, including the loss of income. 

1. The Charities Act was amended in 2005 by the enactment of what is now Part 1A, which is headed “Approval For Investment in Common Funds”.[3]  It is quite clear that the purpose of the legislation was to overcome the difficulties involved because of the strict operation of the principles of equity.  This is made clear by what the Attorney‑General Mr Hulls said in the Second Reading Speech on 24 February 2005.  He stated that the purpose of the Bill was to address two particular difficulties, and in respect of the second one he noted:

“The inefficiencies caused by the rule that prevents trustees mingling the funds of two or more trusts in a common investment fund.”

[3]See Act 4011/2005.

1. He expanded on that later in the speech in this way:

“The second difficulty faced by trustees administering a number of charitable trusts is the common law rule against mixing the funds of two or more trusts – this prevents investment in a common fund.  Where there are a number of small trusts, the efficiencies and advantages of being able to invest in common funds, thereby having a larger pool of funds, are not available, unless there is a statutory provision permitting such investment.  Powers of investment in common funds have been given by Act to trustee companies, to some universities and to some other bodies.  This bill makes provision for the approval of schemes for the investment of charitable funds in common funds.  The procedure is similar to that applying to applications for variation of charitable trusts.”

1. Section 7D deals with the application to the Court. It is necessary in certain circumstances for an application to be made to the Court. The Act does empower the Attorney‑General to deal with some applications, but there is a limit and that explains why the present application is made in this Court.

1. Section 7D(1) empowers the trustees of property given for charitable purposes to apply to this Court for an order under Part 1A in respect of certain property. The section requires that the application must specify the property and sub-s.(3) deals with what the Court has to consider. Section 7D(3) provides:

“On an application under this section, the court, if satisfied that it is appropriate in the circumstances for this Part to apply to those trustees in respect of that property, may make an order that this part applies, subject to any provisions or conditions in that order that the court considers appropriate.”

1. It follows that the Court has to be satisfied that it is “appropriate in the circumstances for this Part to apply to those trustees”. 

1. Reference back to the purposes of the amendment to the legislation gives some indication of circumstances which would be appropriate. One set of circumstances would be to overcome the inefficiencies of having to deal separately with multiple trust funds when investing the funds. It would be unwise to attempt in any way to define what are appropriate circumstances, save to say that clearly this present application falls within those words, and I am satisfied that it is appropriate that Part 1A of the Charities Act 1978 should apply to these trustees in respect of the trust funds which have been identified. They are identified in Exhibit S5 to the affidavit sworn by John Frederick Shelton on 6 June 2006. Exhibit S5 is the approval granted by the Attorney‑General in respect of an application under s.4 of the Charities Act 1978, and the schedule to that approval sets out the particular funds in question, which total 75.

1. In the circumstances, I am satisfied that this is an appropriate case to make the order and I will make the order. I have had some discussion with Mr Garde QC as to the form of the order and I think it is unnecessary to particularise certain matters as envisaged in paragraph 2 of the originating motion. I think it is far better to give all the powers under s.7B of the Act to the trustees without seeking to enumerate them, just in case that hereafter there may be some difficulties with trying to specify what is already in the section.

1. Paragraph 1 of the originating motion sought an order that under s.7D of the Act “the provisions of Part 1A of the Act apply to the property now and from time to time held or administered by the plaintiff on behalf of the Presbyterian Ladies College.”

1. The question has arisen whether it is appropriate for an order to be made in respect not only of identified property as at this date, but also property from time to time held or administered by the plaintiff as a trustee on behalf of the Presbyterian Ladies College. 

1. Section 7B empowers the trustees of any property given for charitable purposes in respect of which Part 1A applies, to establish one or more investment common funds for the collective investment of that property. The powers given under s.7B according to s.7C must be exercised in accordance with the order of this Court or the Attorney‑General’s approval, which can be given in certain circumstances. It is clear from s.7D that the property must be identified. But it appears to me open to this Court to make an order in respect of property later acquired by a trustee, as long as it is identified as property to be held or administered by the trustee on behalf of another. Accordingly, I am prepared to make an order that the provisions of Part 1A of the Act apply to property now held and also from time to time held or administered by the plaintiff on behalf of the Presbyterian Ladies College. I am satisfied that the order does define the property even though it does relate to future property held or administered by the plaintiff in trust for the beneficiary.

1. The Attorney‑General for the State of Victoria has sought costs of this application on an indemnity basis and in my view it is appropriate that the full costs of both the plaintiff and the Attorney‑General for the State of Victoria should be paid out of the trust funds.  Accordingly I make the following orders –

1.An order under s.7D of the Charities Act 1978 (“the Act”) that the provisions of Part 1BA of the Act apply to the property now and from time to time held or administered by the plaintiff on behalf of Presbyterian Ladies College.

2.That the plaintiff from time to time may exercise the powers granted by s.7B of the Act in connection with the property to which Part 1A of the Act applies.

3.An order that the plaintiff’s and defendant’s full costs of and incidental to this proceeding be paid or retained out of the trust funds.

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