GRASS TREE INCORPORATED AS TRUSTEE OF THE ADELAIDE CLUB TRUST - [2015] SASC 60

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
GRASS TREE INCORPORATED AS TRUSTEE OF THE ADELAIDE CLUB TRUST
[2015] SASC 60
Reasons of Judge Withers a Master of the Supreme Court
23 April 2015
EQUITY - TRUSTS AND TRUSTEES - GENERALLY
Application to vary a Trust Deed pursuant to Section 59C of the Trustee Act 1936 (SA) to provide a borrowing and amending power. Jurisdiction of a Supreme Court Master to make orders under Section 59C of the Act.
Held:
(1) A Supreme Court Master has jurisdiction to make orders under Section 59C of the Trustee Act.
(2) Proposed variations to Trust Deed approved.
Trustee Act 1936 (SA) ss 4(1), 59C, 90, 91 and 92; Trustee Act 1985 (NSW) s 81; Supreme Court Civil Rules 2006 (SA) rr 15 and 206; Supreme Court Act 1935 (SA) ss 5 and 7; Administration and Probate Act 1919 (SA) s 69, referred to.
Re Downshire Settled Estates [1953] Ch 218; Chapman v Chapman [1954] AC 429; Benzija v Adriatic Fisheries Pty Ltd & Cubelic (1984) 37 SASR 545; Re Dion Investments Pty Ltd [2013] NSWSC 1941; Principles of the Law of Trusts, Ford & Lee [15.230], considered.

GRASS TREE INCORPORATED AS TRUSTEE OF THE ADELAIDE CLUB TRUST
[2015] SASC 60

JUDGE WITHERS. By a summons issued on 23 December 2014 the applicant, Grass Tree Incorporated (“Grass Tree”) as trustee of the Adelaide Club Trust, sought the following orders:
1.That the Court vary the trust pursuant to Indenture dated 21 August 1935 constituting the Adelaide Club Trust (Indenture) in the terms of the Deed of Amendment exhibited as CMPR3 to the Affidavit of Christopher McMichael sworn 22 December 2014.
2.Directions pursuant to sections 90 to 92 of the Trustee Act 1936 (SA), section 69 of the Administration and Probate Act 1919 (SA) and Rule 206(1) of the Supreme Court Civil Rules 2006 that the Applicant may properly and justifiably exercise the borrowing power pursuant to the Indenture as varied.
That application was supported by an affidavit of Peter Douglas Robertson, who is the Chairman of the Committee of Management of the applicant. Mr Robertson attested that he had been a member of the Adelaide Club since 1 December 1975 and had served on the Club’s Committee and held offices of Chairman of that Committee and President of the Club. He attested that the applicant Grass Tree was the trustee of the property of the Adelaide Club. That property, including the Club House on North Terrace, Adelaide, was vested in Grass Tree as the sole trustee on trusts set out in a Deed of Trust dated 21 August 1935.
Exhibited to Mr Robertson’s affidavit (FDN 2) as Exhibit “PDR2” is a copy of the current Rules of Grass Tree. Grass Tree is an incorporated association under the Associations Incorporation Act 1985 (SA). Grass Tree is required by its Rules to act as the corporate trustee of the Trust established by the 1935 Trust Deed. It was, and is required, to hold the property of the members of the Club for their sport, recreation and amusement. The affairs of Grass Tree are managed by a Committee of Management which is authorised to exercise all of its powers to effect the objects of Grass Tree. In 1991 Grass Tree was appointed as the sole trustee of the Adelaide Club Trust.
Mr Robertson attested that the Adelaide Club was an unincorporated association of its members governed by its Rules and the 1935 Trust Deed. Rule 30 of its Rules provides that all of the property of the Club, both real and personal, is vested in Grass Tree as sole trustee. He attested that during the course of its business operations and development, it had become apparent to Grass Tree and to the Adelaide Club and its members that the Deed governing their operation was deficient in the sense that it did not provide for any capacity to borrow funds and provide security for that borrowing, nor did it provide for any method of varying the Deed other than by application to the Court.
Mr Robertson attested that for a considerable period of time the Club’s Committee had been involved in planning to refurbish its facilities at its Club House at North Terrace, Adelaide, for the benefit of its staff and members. Part of the plan is to create an informal dining area in the basement of the Club House. The project is called the “Basement First Floor Project” (the BFF Project). As part of the cost of undertaking this development would need to be met by borrowed funds, the Adelaide Club had sought advice in relation to its capacity to borrow. It was advised that its 1935 Trust Deed was deficient in the sense that it did not provide the trustee with a power to borrow through bank debt, to grant security for such borrowings, to provide for the trustee to guarantee a liability, and to perform incidental activities. The advice received by the Club was that any bank that was considering advancing funds for the purpose of the contemplated construction project would need to be satisfied that the trustee had the power to borrow and grant security. The advice received was that the Deed did not have that effect.
Mr Robertson attested that it was commercially important to the ongoing health of the Club that it have access to finance to develop the Club House in a manner that the Committee believed to be necessary to keep it attractive to ongoing and new members. For that reason a decision had been made to seek variations to the Trust Deed and Rules to enable the Club to manage these issues and to add a mechanism to the 1935 Trust Deed which would enable it to be varied in the future without it being necessary to apply to the Court.
It was argued in support of this application that a modern Trust Deed routinely contains such amendment clauses, that it was expensive and inefficient for the Club and the applicant Grass Tree to have to apply to the Court to vary the Deed to meet what might be contemporary needs, and that such variations of an essentially internal and domestic nature would not normally call for the intervention or supervision of the Court. He noted that the proposed amending provisions required the same support as an amendment to the Rules, namely a two-thirds majority resolution of members present in person or by proxy at a duly convened meeting. Additionally there would be a requirement that both the trustee and the Club Committee agree on the form and substance of the amendment before it went to a member vote. Accordingly, it was argued that ample protection was built into the proposal to ensure that any variation to the Deed would only occur with the robust support of the membership and the management.
Following its preliminary investigations, the Committee of the Adelaide Club resolved that the proposed amendments to the Rules and the Trust Deed of the Club were to be considered by members for approval at its Annual General Meeting to be held on 25 March 2015, and that thereafter the proposed amendment to the Trust Deed be submitted to the Supreme Court for approval pursuant to Section 59C of the Trustee Act.
A further affidavit was filed on 23 December 2014 in support of the application by Christopher Murray Verco McMichael (FDN 3). He attested that he had been a member of the Adelaide Club since February 1987 and that he had served on its Committee and as Chairman of the Club Committee. He exhibited as Exhibit “CMVM1” a true copy of the Club’s Rules. Exhibit “CMVM2” to his affidavit is a copy of the 1935 Trust Deed which the applicant seeks to amend. Some of the history of the Adelaide Club was provided in his affidavit at paragraphs 10-21 thereof. He noted that at the date of his affidavit there were 1,352 members. While the great majority of those members lived in South Australia, there were as many as 140 that lived outside of South Australia and in various countries in the world.
Mr McMichael attested that the Club Committee had been planning a refurbishment of the facilities at its North Terrace Club House for some years. He described the BFF Project that had been described by Mr Robertson. He set out a history of steps taken by the Club and by the applicant Grass Tree to obtain advice and guidance in terms of necessary Rule and Deed changes to meet the desired outcome.
At paragraph 31 of his affidavit he noted that the Committee of the Club had considered the various advices and had determined that it was appropriate for the trustee to apply to the Court under Section 59C of the Trustee Act for permission to vary the 1935 Deed to provide a borrowing and security power, and to seek approval of the proposed amendments to remove the need for repeated future applications to the Court for permission to amend. He attested that the Committee regarded the proposed amendments provided to them as suitable for achieving those purposes.
An interlocutory application was filed on the same day by which the applicant sought that a second affidavit of Christopher Murray Verco McMichael be maintained in a sealed envelope and not be available for inspection without prior order of the Court. That application was not pursued. That second affidavit of Mr McMichael was not filed until 30 March 2015. The interlocutory application also sought directions as to the procedure to be adopted in determining the application.
The matter came before the Court on 16 January 2015 when directions were given about the provision of notice of the proceedings to each member of the Adelaide Club in a timely fashion and in a form approved by the Court. Any member who requested a copy of the relevant documents was to be provided with same by the applicant. The secretary of the applicant, who is also the general manager of the Club, was required to assist any member who wished to be heard by the Court with information as to how that could be effected. The application was listed for hearing initially on 7 April 2015 but that was changed to 2 April 2015. This accommodated the Annual General Meeting of the Club on 25 March 2015 at which the proposed action and the proposed variations were to be put to a vote of the members. As all members were required to have been informed in detail of the proposals their vote at that Annual General Meeting would be given in an informed manner.
On 30 March 2015 a second affidavit of Peter Douglas Robertson was filed. Exhibit “PDR4” to that affidavit was a slightly amended proposed draft Deed of Variation. It was that proposed Deed in respect of which the applicant sought the Court’s approval. Also exhibited to that affidavit was a copy of an advice received from the Club’s solicitors dated 13 January 2015. That is Exhibit “PDR5”. The applicant sought that exhibit be sealed as it wished to maintain legal professional privilege. There will be an order sealing Exhibit “PDR5” of the second affidavit of Peter Douglas Robertson, which exhibit is not to be opened other than on an order of a Judge or Master of this Court.
A second affidavit of Christopher Murray Verco McMichael was also filed on 30 March 2015. In this affidavit Mr McMichael exhibited a brochure as Exhibit “CMVM5”, which was headed “The Next Stage in the Adelaide Club’s Evolution”, and which related to the BFF Project. He set out in his affidavit the anticipated cost of the development and source of funds. It was noted that the proposed lending bank had by letter of 11 February 2015 expressed concern that the current Trust Deed did not contain express powers to borrow and provide security and the Adelaide Club was requested to amend the Deed to include such powers – see Exhibit “CMVM6”.
Mr McMichael attested that requisite notices of the 2015 Annual General Meeting had been posted in the foyer of the Club on 24 February 2015 and by post to each member on 25 February 2015. This material included an explanatory note in relation to the two proposed amendments to the 1935 Trust Deed, an annexure setting out the proposed new clauses, and an annexure setting out the proposed changes to the Deed. It also contained the notice that had been ordered and endorsed by this Court on 16 January 2015.
Mr McMichael attested that the BFF Project proposal had unanimous and enthusiastic support from all those Club Committee members who had been involved in its development over a number of years and that there had been a uniformally positive response from senior members approached about the development. He did attest to one member expressing concern about bank borrowing and giving security. He and Mr Robertson had spoken with that member on 29 January 2015. Thereafter the member made a contribution to the financing of the BFF Project and raised no further concerns or issues in relation to the proposal. The general manager of the Club had informed Mr McMichael that no other member had raised issues or concerns about the proposal.
One hundred and twenty-seven members attended the Annual General Meeting on 25 March 2015. He provided a presentation to members about the BFF Project. A copy of that presentation and a slideshow is Exhibit “CMVM9” to his affidavit. The members were informed of the funding requirements. The proposed resolutions were explained and put to the vote. Each resolution was carried unanimously. Accordingly, the Club endorsed both proposals, namely the proposal to vary the Trust Deed to enable the trustee to borrow and provide security and, secondly, to enable the Trust Deed to be varied by resolution of the members and management rather than by application to the Court.
One further affidavit was filed, being that of Jonathan Charles Clarke. He attested that he had been a member of the Club since 1999. He indicated that he was prepared to act as a representative of the beneficiaries of the Club if so ordered. He was present at the Annual General Meeting and observed the voting on both Resolution One and Resolution Two. He confirmed that the voting was unanimously in favour of each resolution. He confirmed as a member having received the notices to which earlier reference has been made. On 2 April 2015 the Court appointed Mr Clarke to represent the interests of the beneficiaries pursuant to Section 59C(2).
Section 59C of the Trustee Act provides as follows:
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.
A preliminary question is whether a Master falls within the definition of “Supreme Court” as used in the Trustee Act and as such has power to make orders under Section 59C.
In Section 4(1) of the Trustee Act “Supreme Court” is defined as follows:
Supreme Court includes a judge of the Supreme Court;
That definition is of an inclusive nature rather than an exclusive nature.
Section 5 of the Supreme Court Act 1935 (SA) defines a “judge” as follows:
judge includes the Chief Justice and any puisne judge of the court;
A “master” is therein defined as follows:
master means a person holding the office of master of the court;
Section 7 of the Supreme Court Act provides as follows:
[SCA s 7] Constituent members of the court
7 (1) The court shall be constituted of the Chief Justice, the puisne judges and the masters appointed, and for the time being holding office, under this Act.
(2) Subject to any express provision in this or any other Act, all the judges shall have, in all respects, equal power, authority and jurisdiction and the masters shall have power, authority and jurisdiction to the extent authorised by this or any other Act or by rules of court made under this or any other Act.
(3) The puisne judges shall be styled “Justices of the Supreme Court of South Australia”.
(4) A Master is, while holding that office, also a District Court Judge.
Rule 15 of the Supreme Court Civil Rules 2006 (SA) provides as follows:
[6SCR 15] Jurisdiction of Masters [Supreme Court only]
15    (1) Subject to this rule, a Master may exercise the same jurisdiction as a single Judge of the Court.
(2)     An action involving the liberty of the subject cannot be tried by a Master.
(3)     An action (other than one involving the liberty of the subject) can only be tried by a Master if—
(a)the Chief Justice (or a Judge nominated by the Chief Justice to give directions under this paragraph) directs that it is to be tried by a Master; or
(b)the action involves only the assessment of damages (or damages and interest) and incidental or consequential questions; or
(c)all parties consent to trial by a Master.
(4)     A Master cannot punish a contempt of the Court.
The definition of “Supreme Court” in the Trustee Act and its use of the words “includes a judge” is inclusive in its nature rather than limiting. Had Parliament intended that the jurisdiction to be exercised by the Court under the Trustee Act was to be limited to Judges, it would have so said in the definition section by use of the conventional description “means”, thus making it exclusive in nature rather than inclusive. Accordingly, there is in the Trustee Act no “express provision” within the meaning of Section 7(2) of the Supreme Court Act that would exclude the ordinary operation of Section 7 of that Act and Rule 15 of the Supreme Court Rules.
In all the circumstances I am satisfied that a Master has jurisdiction under the Trustee Act and, accordingly, can proceed to determine this application.
In written submissions the applicant set out something of the history of trusts and the powers of the Court in respect thereof. It was put that outside any express statutory power the Court historically had no power to change a trust which a settlor or testator had created. Reference was made to various authorities which it is not necessary to traverse for the purpose of this application. This was the position that applied prior to the enactment in South Australia of Section 59C of the Trustee Act.

The applicant referred to a decision in Re Downshire Settled Estates [1953] Ch 218, which was later affirmed by the House of Lords in Chapman v Chapman [1954] AC 429. In that matter the Court dealt with a scheme of arrangements proposed on behalf of infant beneficiaries to three settlements. The object of the scheme was to avoid losses to the beneficiaries by reason of inheritance tax. The court rejected the contention that it had an inherent jurisdiction to vary the beneficial interests in a trust fund designated by the settlor.
In Re Downshire the Court considered the English equivalent to Section 81 of the Trustee Act 1985 (NSW), which provides a power to the Court to approve advantageous dealings. The Court held that in those circumstances (as is the case in New South Wales, Western Australia and Queensland) if the power to be given to the trustee was not a specific power for a particular dealing but rather a wide discretionary power to alter the terms of the trust then the case did not fall within the section.
Sir Francis Evershed MR in a joint judgment with Sir Charles Romer LJ said (at 247-248):
… We have already pointed out that neither trustees nor the court itself at any time, before 1925, had any general power to depart from the precise directions (provided that they were within the law) that a settlor thought proper to declare. If Parliament, in enacting section 57, had intended to confer this power on the court it is, in our view, inconceivable that it would not have done so in express terms, having regard not only to the novelty but also to the width of the jurisdiction that it was creating; and it is equally incredible that it should have done so without imposing any kind of limit, other than expediencey [sic], upon the extent to which, or the manner in which, the court was to exercise its powers. …
This decision led to remedial legislation in Australia. In Victoria, Western Australia and Queensland the legislation empowered the Court to approve a specific arrangement between beneficiaries. However, that legislation did not provide a power to vary trusts more generally. In South Australia Section 59C of the Trustee Act differed in that it provided the Court with a wide discretionary power to alter the terms of the trust limited by factors that it had to take into account which were set out in sub-section (3) of the section.
Ford and Lee in Principles of the Law of Trusts at [15.230] in describing Section 59C explained:
… The jurisdiction to vary or revoke may be exercised not only on the application of a person who has a vested future or contingent interest in property held on trust, but also on the application of “a trustee”. There is therefore no limitation on the persons upon whose behalf a trustee may apply. …
The requirement that the exercise of the powers given should be in the interests of beneficiaries of the trust and should not result in one class of beneficiaries being unfairly advantaged to the prejudice of some other class represents a rather different approach from the English because it requires benefit and fairness with respect to classes of beneficiaries, whereas the English precedent requires benefit to each individual beneficiary. The requirements that the exercise of the powers given should not disturb the trust unnecessarily, and should accord as far as reasonably practicable with the spirit of the trust merely place a restraining hand upon the court.
The learned authors then refer to the limiting provisions of sub-section (3) of Section 59C pointing out that there have been relatively few applications in South Australia in the absence of inheritance taxes. They said:
… Without that incentive it would seem that the provision will be utilised in South Australia comparatively rarely, perhaps in cases where the circumstances, other than the tax circumstances, that led to the creation of the trust no longer obtain, so that it becomes desirable to negotiate fresh terms for the trust in the interests of all the beneficiaries. …
This last comment is very apposite to the case at hand.
Bollen J in the matter of Benzija v Adriatic Fisheries Pty Ltd & Cubelic (1984) 37 SASR 545 considered a matter where revocation of the trust was sought as an alternative to a replacement of the trustee of the trust. There was a dispute between unit holders as to the value of the trust continuing. The factual circumstances are very different from those at bar.
His Honour said (at 559):
... There are no positive criteria stating the possible circumstances in which orders may be made. There are stated circumstances in which the Court should not exercise powers given by the section. One is that the exercise of the powers must not “disturb the trusts beyond what is necessary to give effect to the reasons justifying the exercise of the power”. Yet there is no hint in the section of what reasons Parliament might think adequate for the exercise of the jurisdiction.
… there must be some weighty reasons proved before I contemplate varying or revoking. Even if weighty reasons exist I must still consider the matters mentioned in s 59C(3). The power to vary or revoke is discretionary. I must exercise that discretion judicially. …
Having regard to the contest before his Honour, his reference to “weighty reasons” is understandable. However, the language of the section and the remedial nature of the legislation must provide primary guidance for its use.
As to the applicant’s claim to introduce a borrowing power into the trust, the Court was referred to a decision of Re Dion Investments Pty Ltd [2013] NSWSC 1941 at [65] where Young AJ held that the conferral of such a power was within Section 81 of the New South Wales Act as it did not radically alter the rights of the beneficiaries, and the power was given.
Sub-section (3) of Section 59C describes various limiting factors that must be considered by the Court. In this matter there is no question of a motivation to avoid or reduce the incidence of tax. There is nothing within the material that suggests that the proposed variation would be other than in the interests of the beneficiaries of the trust. It would not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class. All beneficiaries have been given notice of the proposal together with explanations in support, and there has been no opposition to the application from any beneficiary or group of beneficiaries. The only expression of the beneficiaries’ interest has been positive support. The proposed variations would not disturb the trust beyond what is necessary to give effect to the reasons for those variations. There is the introduction of a borrowing power and the introduction of an amendment power. The control ultimately remains in the hands of the beneficiaries, being the members of the Club. The Club will still have power to control the trustee’s powers in the interests of the members.
All of these factors support the Court exercising its power to authorise the trust to be varied as sought. An order will be so made.
The applicant then sought direction from the Court pursuant to Section 69 of the Administration and Probate Act 1919 (SA) and pursuant to Sections 90, 91 and 92 of the Trustee Act.
Section 69 of the Administration and Probate Act enables trustees when in difficulty or doubt to apply to a Judge for advice and directions about matters connected with the administration of the trust. Such applications are generally made ex parte. The Judge can provide directions thereafter. The effect of obtaining directions from the Court is to protect the trustee from later complaint. It also protects the trustee from any liability associated with the action. In giving such directions the Court in the absence of an adversarial contest must assume the factual situation put to the Court by the applicant is true. If that was subsequently proved not to be the case then any protection given by judicial advice is lost. Sections 90, 91 and 92 of the Trustee Act extend that process to trustees generally and provide a right to apply to the Court. Rule 206 of the Supreme Court Rules is of similar effect.
In this matter the Court has already by its findings approved the action taken by the trustee in bringing this application. The directions sought by the applicant are to the effect that it is authorised and justified in executing the 2015 Amending Deed as will be permitted by Court order, and, secondly, that it is authorised and justified to exercise the borrowing power to pursue the BFF Project described in the second affidavit of Mr McMichael filed on 30 March 2015. I am satisfied that it is appropriate to give the first of these directions sought.
There is sufficient evidence before the Court to justify the Court providing the second direction sought. It would be an appropriate exercise by the applicant of its new powers as a trustee to borrow funds and pursue the realisation of the BFF Project having regard to the support of the Club, its members and the trustee for that project. The commercial judgement of the trustee is a matter for it, but it is appropriate for the Court to approve the exercise of this new power by the trustee and for the Court to therefore give a direction and authorisation to that effect.
For the foregoing reasons, the orders of the Court will be:
1.That the trust created by indenture dated 21 August 1935 constituting the Adelaide Club Trust (Indenture) be varied pursuant to Section 59C of the Trustee Act 1936 (SA) in terms of the Schedule to the 2015 Amending Deed exhibited as “PDR4” to the second affidavit of Peter Douglas Robertson filed on 30 March 2015 (2015 Amending Deed).
2.The applicant is to execute the 2015 Amending Deed in furtherance of order 1 herein.
3.That Exhibit “PDR5” to the second affidavit of Peter Douglas Robertson be sealed and not accessed by any person, save upon the order of a Judge or Master of this Court.
4.That the applicant is authorised and justified in executing the 2015 Amending Deed in furtherance of order 2 herein.
5.That the applicant is authorised and justified in exercising the borrowing power pursuant to the Indenture as varied in terms of the 2015 Amending Deed in entering into, and performing under, any bank borrowing facility entered into by the applicant for the purpose of the alterations and/or additions to the Club House of the Adelaide Club in accordance with the BFF Project referred to in the second affidavit of Christopher Murray Verco McMichael filed on 30 March 2015.
6.Liberty to apply.