Clarke v Ebdon - [2020] SASC 67

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
CLARKE v EBDON
[2020] SASC 67
Judgment of The Honourable Justice Blue
29 April 2020
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - MISCELLANEOUS OTHER POWERS, DUTIES AND LIABILITIES - POWER TO AMEND TRUST DEED
The plaintiffs are the trustees of the Fairfax Foundation. The defendant is a representative of the actual and potential beneficiaries of the Foundation (including himself).
The plaintiffs apply for orders under section 59C of the Trustee Act 1936 (SA) varying the trust deed of the Foundation to provide that the proper law of the Foundation is the law of South Australia; provide that the trustees may distribute capital and either distribute or accumulate income; simplify and generalise the purpose for which benefits may be paid or provided to employees or dependants; modify the provision exempting the trustees from personal liability; modify the provision for amending the trust deed; and make drafting and minor modifications to modernise the language and style of the trust deed.
Held:
1. The Foundation is not invalid as offending the common law rule against perpetuities because it is protected by section 346 of the Companies Act 1936 (NSW) and its counterpart provisions (at [61]).
2. The criteria for the Court to exercise jurisdiction and vary the trust deed under section 59C of the Trustee Act 1936 are satisfied in respect of each of the modifications and when considered as a whole (at [83], [91], [101], [108] and [110]).
3. It was appropriate to exercise a discretion under section 59C of the Trustee Act 1936 to vary the terms of the trust deed (at [113]-[117]).
Companies Act 1934 (SA) s 402; Companies Act 1936 (NSW) s 346; Companies Act 1961 (NSW) s 382; Companies Act 1962 (SA) s 386; Companies Act 1981 (Cth); Companies (Application of Laws) Act 1981 (NSW); Companies (Application of Laws) Act 1982 (SA); Corporations Act 1989 (Cth) s 82; Corporations (New South Wales) Act 1990 (NSW); Corporations (South Australia) Act 1990 (SA); Corporations Act 2001 (Cth) s 1346; Corporations (Commonwealth Powers) Act 2001 (NSW); Corporations (Commonwealth Powers) Act 2001 (SA); Law of Property Act 1936 (SA) s 61; Perpetuities Act 1984 (NSW) s 13; Trustee Act 1936 (SA) ss 59C & 35B, referred to.
Hancock v Watson [1902] AC 14; Oesterlin v Sands (1969) 120 CLR 346, discussed.
Faye v Faye [1973] WAR 66; In re Ker’s Settlement Trusts [1963] Ch 553; In re Paget’s Settlement [1965] 1 WLR 1046; Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121; Salkeld v Salkeld (No 2) [2000] SASC 296; Thomas Hare Investments Limited v Hare (2012) 34 VR 656, considered.

CLARKE v EBDON
[2020] SASC 67
Civil
BLUE J:

The plaintiffs Jon Clarke, Kylie Boyle, Bernadette Courtney, Lawrence Cowen, Kylie Dennis, Susanne Hall, Stephen Hopkin and Janice Smith (the Trustees) are the trustees of a trust called the Fairfax Foundation (the Foundation). The defendant Kasey Ebdon is…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Clarke v Ebdon

Details

AGLC: Clarke v Ebdon [2020] SASC 67
Case: [2020] SASC 67
Decision Date: 29 April 2020

CaseChat Overview and Summary

Clarke v Ebdon is a case in which the Supreme Court of South Australia considered an application to vary the terms of a trust deed. The application was brought by the trustees of the Fairfax Foundation, a trust established to benefit employees, former employees, and their dependents. The primary legal issue before the court was whether the proposed variations to the trust deed were in the best interests of the beneficiaries and aligned with the spirit of the trust. The court had to determine if the modifications would unfairly advantage one class of beneficiaries over another and if they would unduly disrupt the trust.

The court examined the requirements under section 59C of the Trustee Act 1936 (SA), which governs the court's power to vary trusts. This section stipulates that the application must not be motivated by tax avoidance, must not unfairly benefit one class of beneficiaries, and must align with the spirit of the trust. The court found that the proposed changes, which included new rules for the categories of benefits, investment strategies, and the composition of the trustees, were reasonable and in the best interests of the beneficiaries. The court concluded that the modifications did not unfairly advantage any group and were necessary to give effect to the reasons justifying the exercise of the powers.

In light of these findings, the court granted the application to vary the trust deed. The variations included obligations for the trustees to review the categories of benefits and investment strategies and to ensure that there were eight trustees, four appointed by the Publishing Company and four elected by employees of the eligible companies. The court held that the variations were in line with the spirit of the trust and did not disturb the trust beyond what was necessary. The order made under section 59C of the Act was binding on all present and future trustees and beneficiaries of the trust.

Orders

Orders of the court

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Background

Background to the litigation

Following the conclusion of the hearing of the application, I was satisfied that it was appropriate to make orders varying the trust deed and made those orders. These are my reasons for doing so.Background In 1959 the Sydney Morning Herald was published by John Fairfax & Sons Pty Ltd (John Fairfax & Sons), which was owned by the Fairfax family. Warwick Fairfax was the governing director. A new public company, John Fairfax Limited (John Fairfax), was formed to purchase the shares of John Fairfax & Sons. The Fairfax family decided to establish the Foundation for the benefit of employees, former employees or wives, widows and dependants of employees or former employees (collectively employees or dependants) of John Fairfax & Sons or any other company that might become the publisher of the Sydney Morning Herald or any subsidiary of John Fairfax & Sons or John Fairfax. They contributed money and property (being part of the consideration paid by John Fairfax for its shares in John Fairfax & Sons) of the value of approximately £100,000 to the Foundation. On 9 April 1959 John Fairfax was incorporated. On 20 July 1959 four members of the Fairfax family (including Warwick Fairfax) as “the Founders” and five persons (including Warwick Fairfax) as “the Trustees” executed a trust deed (the Trust Deed) to define and declare the trusts upon which the fund to be known as the Fairfax Foundation was and was to be held and the manner in which it was and was to be administered. The primary class of eligible beneficiaries was defined as:employees of the company known as John Fairfax & Sons Pty Limited or of any other company which may hereafter publish the newspaper known as the “Sydney Morning Herald” or of the former employees of any such company or the wives widows or dependants of any of such employees as aforesaid…but the trustees, with the consent of the board of directors of John Fairfax, were empowered by clause 4(a) to make rules declaring that: employees or former employees or wives widows or dependants of employees or former employees of any company being a subsidiary company (including a subsidiary of a subsidiary) of John Fairfax & Sons Pty Limited or of John Fairfax Limited shall be eligible as beneficiaries of the foundation. Clause 3 of the Trust Deed provided that income of the Foundation was to be applied for the benefit of such eligible employees or dependants as were selected by the trustees:in the form of payments of gratuities pensions or allowances or by way of loan or otherwise for the benefit of the person in whose respect the payment is made including without prejudice to the generality, retirement allowances and payments to assist in the maintenance education or advancement of any of the children of such person or for the relief of distress whether caused by bereavement sickness unemployment or other misfortune or for the alleviation of hardship howsoever arising. Clause 7 empowered a majority of the trustees and the directors of John Fairfax to amend the deed in any respect which in their opinion was calculated to benefit past present or future employees of any company publishing the Sydney Morning Herald or of any company associated with any such company.

Evidence

Evidence Before The Court

On 26 February 2019 the Trustees gave notice to the Attorneys-General for South Australia and New South Wales of their application. On 29 April and 6 June 2019 respectively the Attorneys-General indicated that they did not seek to be joined as parties to, or participate in, the action.Evidence Kelly Cook was the executive officer of the Foundation between July 2011 and May 2018. Affidavits by Ms Cook affirmed on 12 December 2018, 11 April 2019 and 6 June 2019 were tendered. Ms Cook also gave oral evidence. The various documents exhibited to Ms Cook’s affidavits were tendered, together with a separate tender bundle of documents. An affidavit by the Trustees’ solicitor Thomas Dachs sworn on 7 June 2019 exhibiting the response sent on behalf of the Attorney-General for New South Wales was also tendered.Section 59C Section 59C of the Act provides:59C—Power of Court to authorise variations of trust(1)The Supreme Court may, on the application of a trustee, or of any person who has a vested, future, or contingent interest in property held on trust—(a) vary or revoke all or any of the trusts; or(b) where trusts are revoked—(i)distribute the trust property in such manner as the Court considers just; or(ii)resettle the trust property upon such trusts as the Court thinks fit; or(c)enlarge or otherwise vary the powers of the trustees to manage or administer the trust property.(2)In any proceedings under this section the interests of all actual and potential beneficiaries of the trust must be represented, and the Court may appoint counsel to represent the interests of any class of beneficiaries who are at the date of the proceedings unborn or unascertained.(3)Before the Court exercises its powers under this section, the Court must be satisfied—(a)that the application to the court is not substantially motivated by a desire to avoid, or reduce the incidence of tax; and(b)that the proposed exercise of powers would be in the interests of beneficiaries of the trust and would not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class; and(c)that the proposed exercise of powers would not disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the powers; and(d)that the proposed exercise of powers accords as far as reasonably practicable with the spirit of the trust.(4)An order made by the Supreme Court in the exercise of powers conferred by this section is binding upon all present and future trustees and beneficiaries of the trust.(5) This section does not apply to—(a) a trust affecting property settled by an Act; or(b) a charitable trust.(6)This section does not derogate from any other power of the Supreme Court to vary or revoke a trust, or to enlarge or otherwise vary the powers of trustees. This Court’s jurisdiction to entertain an application to vary a trust is conditioned on satisfaction of three[1] prerequisites:1the existence of a trust;2an application by a trustee of the trust or person with an interest in property held on trust;[2] and3the interests of all actual and potential beneficiaries being represented in the proceeding.[3][1] There is also a negative requirement imposed by section 59C(5) that the trust not be a charitable trust or a trust affecting property settled by an Act but there is no suggestion that this applies in the present case and it can be ignored.[2] Trustee Act 1936 (SA) s 59C(1).[3] Trustee Act 1936 (SA) s 59C(2).

Decision

Reasons for decision

I am satisfied that these modifications are in the interests of beneficiaries.Conclusion Ultimately, as observed above, it is necessary to consider holistically whether it is appropriate to make an order for variation of the Trust Deed. The Trustees produced a revised set of rules which they undertook to make by way of replacement for the existing rules within 14 days of an order varying the trust. Those rules include:·an obligation on the trustees to formulate or review the processes, policies or guidelines identifying the categories of benefits intended to be available; the manner in which the Eligible Beneficiaries may apply for such benefits (if applicable); and the proposed strategies concerning the approximate extent of the accumulation or distribution of income or capital of the Trust Fund (rule 1.1);·an obligation on the trustees to adopt an investment strategy for the Trust Fund and review the performance against the strategy and review the strategy itself in respect of each accounting period (rule 2(a)); and·a provision that there be eight trustees, comprising four trustees appointed by the Publishing Company and four trustees who are Employees of and are elected by Employees of any of the Eligible Companies (rule 3.1(a)). Considered as a whole, I am satisfied that it is in the interests of beneficiaries to make the variations sought by the Trustees. There is good reason to make the variations; they are in the interests of beneficiaries; they will not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class; they accord as far as reasonably practicable with the spirit of the trust and they will not disturb the trust beyond what is necessary to give effect to the reasons for the variations. I am satisfied holistically that the application is not substantially motivated by a desire to avoid or reduce the incidence of tax and the variations considered as a whole could not have that effect. There is no jurisdictional requirement under section 59C of the Act that there be any connection between the trust and South Australia.[24] However, the Court has a discretion to decline to entertain an application if it considers that the connection with South Australia is too tenuous.[25][24] See In re Ker’s Settlement Trusts [1963] Ch 553 at 556 per Ungoed-Thomas J; In re Paget’s Settlement [1965] 1 WLR 1046 at 1050 per Cross J; Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [181]-[182] per Blue J.[25] In re Paget’s Settlement [1965] 1 WLR 1046 at 1050 per Cross J; Faye v Faye [1973] WAR 66 at 70 per Lavan J; Salkeld v Salkeld (No 2) [2000] SASC 296 at [26] per Perry J; Thomas Hare Investments Limited v Hare (2012) 34 VR 656 at [33] per Habersberger J; Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 at [182] per Blue J. There is a substantial connection between the Foundation and South Australia. Associated companies of Fairfax Media Publications operate throughout Australia, including South Australia. They include Fairfax Media Publications Pty Ltd; Fairfax Media Events Pty Ltd; Agricultural Publishers Pty Ltd; Rural Press Printing Pty Ltd; Rural Press Pty Ltd; SA Regional Media Pty Ltd and Stock Journal Publishers Pty Ltd; each of which employ employees based in South Australia. There is no reason to decline jurisdiction on the ground that the connection with South Australia is too tenuous.

Ratio Decidendi

Legal Principle Established

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