In the Estate of Murdoch Stanley McLeod Deceased: Re the Trusts of Will Julia Farr Centre v University of Adelaide

[1993] SASC 4116

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA MILLHOUSE J

CWDS
Trusts and trustees - applications to the court for advice and authority - Saunders v Vautier (1841) 4 Beav 115, 49 ER 282, applied. Re Birtwhistle
(1935) DLR 137, not followed. Warton v Masterman (1895) AC 186, discussed.

HRNG ADELAIDE, 4-6 August 1993 #DATE 16:9:1993
Counsel for plaintiff Julia Farr Centre:             Mr Tom Gray QC and Ms
   Melissa Perry
Solicitors for plaintiff:    Lempriere Abbott Mcleod
Counsel for plaintiffs     Mr Robert Lawson QC with University Of Adelaide and     Dr Robert Baxter Adelaide Women's And Children's Hospital:
Solicitors for plaintiffs: Finlaysons
Counsel for defendants Roy Frederick Rhodes Scragg; Henry Knoyle Cross and Donald Hugh Collier:         Mr D Bleby QC and Mr Dean Jarvis
Solicitors for defendants: Kelly and Co
Counsel for defendant AG for SA:   Mr Andrew Hall
Solicitors for defendant:    Crown Solicitor

ORDER
Both questions answered 'Yes'.

JUDGE1 MILLHOUSE J Murdoch Stanley McLeod died on 24 April 1981, testate. 2. His will, of which probate was granted on 30 June 1981, contained a quite complex scheme for the disposition of his estate. 3. After making comparatively modest provision for his wife and family - in 1986 I made an order, by consent, subsequent to a Deed of Settlement, the effect of which was to increase the benefits to the widow and family - the testator set out a scheme which would tie up the remainder of his estate until well into the second half of the 21st century - according to the actuaries until after the year 2070. The apparent object of the scheme is to allow the trustees of the estate to retain control of M S McLeod Limited, almost to the limit of time allowed by law. 4. I shall describe the scheme with the aid of extracts from the Statement of Agreed Facts and by reference to the will. 5. Extracts from the Statement of Agreed Facts:-
     "6. The deceased's principal asset at the time of his
    death was his holding of 5,000 A class shares in Outer Hebrides
    Pty Ltd which comprised 89.27% of its issued capital. Outer
    Hebrides itself held 3,640,211 ordinary shares in M S McLeod
    Limited, being 47.25% of the issued ordinary shares of that
    company.
     ...
     8. The deceased was the founder and for many years the
    Chairman of Directors of the said M S McLeod Limited which
    carried on business principally as a tyre wholesaler, retailer
    and retreader, and traced its origins to a bicycle repair
    business purchased by the deceased in 1916.
     9. At the date of death of the deceased M S McLeod Limited
    was a public company and its issued capital comprised 7,703,867
    ordinary shares of fifty (50) cents each which were listed on
    the Stock Exchange of Adelaide, 379,300 employee shares of 50
    cents each and 600,000 8% cumulative preference shares of $2.00
    each. 6. By paragraph 1 of the will a sum of $95 000 was set aside to pay the income thereof to Henry Knoyle Cross during his lifetime. Mr Cross is still alive and is, of course, one of the defendants. 7. The relevant parts of the will:-
    " 6. As to all my shares of whatever class or description
    in OUTER HEBRIDES PTY. LIMITED together with all dividends and
    income accruing thereon respectively at my death (hereinafter
    referred to as 'the said shares') to hold the same upon the
    trusts following that is to say :
     (a) during the period from the date of my death and until the
    expiration of twenty one years after the death of the last
    survivor of my grandchildren who shall be living at my death the
    income arising from the said shares shall be deemed to form part
    of and from time to time be an accretion to the income of my
    residuary estate and my Trustees shall pay or apply or
    accumulate the same accordingly
     (b) after the expiration of the period mentioned in paragraph
    (a) hereof to hold the said shares and the future income thereof
    UPON TRUST for THE ADELAIDE CHILDREN'S HOSPITAL INCORPORATED of
    King William Road North Adelaide in the said State (hereinafter
    called 'the said Hospital') to be held by the said Hospital UPON
    TRUST to apply the same in augmentation of and for the same
    purposes as the M.S. McLEOD RESEARCH FUND herein referred to
    AND I EXPRESSLY DECLARE that the powers of sale and conversion
    and investment and varying investments conferred herein upon my
    Trustees shall not apply to or be exercisable in respect of my
    said shares in the said OUTER HEBRIDES PTY. LIMITED my
    intention being that the said shares shall be retained by my
    Trustees until such time as under the trusts herein declared the
    Hospital shall become absolutely entitled in possession to the
    said shares when the same shares shall be transferred to the
    Hospital in specie.
     ...
     9. As to the balance of any income from my residuary estate
    (such balance to be determined by my Trustees in their absolute
    discretion taking any period of twelve months adopted for
    accountancy purposes for the administration of my estate after
    providing for such reserve or reserves to cover future
    fluctuations of future income and expenses of administration and
    after determining what accretions of capital may be treated as
    income for this purpose) such balance shall during the period of
    twenty one years from my death be accumulated and invested by my
    Trustees and the same and the resulting income thereof shall be
    treated as an accretion to the corpus of my residuary estate AND
     10. As to the balance of any income from my residuary estate
    (such balance to be determined by my Trustees in the same manner
    as provided in paragraph 9 hereof) during the period from the
    expiration of twenty one years from my death until the
    expiration of twenty one years from the death of the last
    survivor of my grandchildren who shall be living at my death
    UPON TRUST subject to the directions hereinafter appearing for
    THE UNIVERSITY OF ADELAIDE of North Terrace Adelaide aforesaid
    and the HOME FOR INCURABLES INCORPORATED of 103 Fisher Street
    Fullarton in the said State as Tenants in Common in equal
    shares..... AND I DIRECT that the said THE UNIVERSITY OF
    ADELAIDE shall apply the same for the general purposes of the
    Waite Agricultural Institute at Urrbrae and that the said HOME
    FOR INCURABLES INCORPORATED shall apply the same for the general
    purposes of that institution.........
     11. As to the remainder of my residuary estate after the
    expiration of twenty one years from the death of the last
    survivor of my said grandchildren living at my death UPON TRUST
    subject to the provisions hereunder for the said THE ADELAIDE
    CHILDREN'S HOSPITAL INCORPORATED to apply the same in the
    establishment of a fund to be called the 'M.S. McLeod Research
    Fund' and to apply the income of the said fund in perpetuity in
    such manner as the Board of Management or other the governing
    body for the time being of the said Hospital shall from time to
    time think fit in furtherance of research in the field of
    pediatrics and health of children AND
     12. Notwithstanding anything herein contained if at any time
    after the 31st day of December 2015 none of the annuities
    secured ......... and none of the trusts ...... are still
    subsisting my Trustees may at any time thereafter and in their
    absolute and unfettered discretion offer to transfer to the said
    Hospital or a trustee for such Hospital the whole of the assets
    comprised in the said trusts ....... AND A. WHEREAS I am the
    holder of a majority of the issued shares of the said OUTER
    HEBRIDES PTY. LIMITED and the said OUTER HEBRIDES PTY. LIMITED
    is the holder of shares in the said M.S. McLEOD LIMITED a
    company incorporated in South Australia and having its
    registered office at 176 Pulteney Street Adelaide aforesaid AND
    WHEREAS it is provided by the Articles of Association of the
    said OUTER HEBRIDES PTY. LIMITED that the directors of that
    company shall not have power to sell or otherwise dispose of any
    shares in companies or any other asset of the company without
    the prior approval of the company in general meeting AND WHEREAS
    I am of the opinion that it will be in the best interests of my
    estate that the said OUTER HEBRIDES PTY. LIMITED shall continue
    to hold its shares in the said M.S. McLEOD LIMITED NOW I direct
    my Trustees that if at any time or from time to time a
    resolution shall be proposed at a general meeting of the members
    of the said OUTER HEBRIDES PTY. LIMITED to authorise or approve
    a sale or other disposition of any shares in the said M.S.
    McLEOD LIMITED held by the said OUTER HEBRIDES PTY. LIMITED my
    Trustees shall exercise the votes to which they shall be
    entitled against such resolution unless they shall be
    unanimously of opinion that it will be in the best interests of
    my estate that the proposed sale or other disposition be
    approved ......" 8. It will be seen that the scheme involves the trustees hanging on to the Outer Hebrides shares until what was called during argument "the final date": probably some time about the year 2070, being twenty-one years after the death of Annabel McLeod Giles, born 23 October 1963, the youngest of the testator's grandchildren living at the time of his death. 9. In the meantime, for twenty-one years after the testator's death, that is until 24 April 2002, the income from the estate, subject to the provisions for his widow who died in 1991 and his family and Mr Cross, is to accumulate. Thereafter from the year 2002 until the final date the income is to be shared equally between the University of Adelaide for the Waite Institute and what is called in the will the Home for Incurables but which is now known as the Julia Farr Centre. Thereafter, at the final date, the lot is to go to what is called in the will the Children's Hospital but which is now part of the Adelaide Medical Centre for Women and Children, for the establishment of the M S McLeod Research Fund. 10. The Statement of Agreed Facts sets out:-
    "11. As at 30 June 1992 the assets and liabilities of the
    estate of the deceased were as follows:-
    5,101 shares in Outer Hebrides Pty Ltd         $9,496,552
    681,152 shares in M S McLeod Holdings Ltd        $ 320,144
    Deposits with ANZ and Esanda   $ 922,853
    Cash on hand   $ 16,085
    Amount owing by Outer Hebrides Unit Trust
    (distributions due to estate)                 $2,128,616
    136,230 convertible notes in M S McLeod
    Holdings Ltd   $81,738
   $12,965,988
    Liability:
    H K Cross   $ 10,035
   $12,976,023" 11. The value of the estate varies with fluctuations in the price of the shares in M S McLeod Holdings. I was told that the price has fluctuated this year between 23 cents and 80 cents per share. 12. The three plaintiffs, believing themselves to be the only entities left entitled to benefit under the will subject to the personal interest of Mr Cross, have proposed to enter into a Deed of Arrangement which will allow them to enjoy now the residue of the estate in proportions which they have agreed amongst themselves, on actuarial advice but subject to the trusts imposed under the will. 13. The trustees, the three personal defendants, have demurred and the plaintiffs will not execute the Deed without the approval of the Court. 14. Accordingly the plaintiffs have taken out a summons pursuant to Rule 63.04 for the determination of these questions:
    " (a) Whether, upon the true construction of the will of
    the testator and in the events which have happened, the
    interests of the beneficiaries named in clauses 1, 6, 10 and 11
    of the said will together constitute the entirety of the
    beneficial interests in the estate of the testator.
     (b) Whether the rule in Saunders v Vautier is applicable to
    the trusts of the testator's will so as to permit the
    beneficiaries to require the present trustees of the will of the
    testator to forthwith transfer to the beneficiaries the corpus
    of the estate (save for assets sufficient to answer the annuity
    in favour of the defendant Henry Knoyle Cross) and accumulated
income thereon." 15. The Attorney-General has, properly, been added to the Trustees as a defendant. 16. Mr Tom Gray QC, with Miss Melissa Perry appeared for the Julia Farr Centre, Mr Robert Lawson QC with Dr Robert Baxter for the University of Adelaide and the Medical Centre, Mr David Bleby QC with Mr Dean Jarvis for the Trustees and Mr Andrew Hall for the Attorney-General. 17. As I am satisfied that the answer to the first question is yes - no party argued to the contrary - the short point is whether the Rule in Saunders v Vautier applies to this situation or not. 18. Lord Davey in his speech in Wharton v Masterman ((1895) AC 186 at 198-9) described the Rule (he called it a "principle"):-
    " That principle is this: that where there is an absolute
    vested gift made payable at a future event, with direction to
    accumulate the income in the meantime, and pay it with the
    principal, the Court will not enforce the trust for accumulation
    in which no person has any interest but the legatee, or (in
    other words) the Court holds that a legatee may put an end to an
    accumulation which is exclusively for his benefit. The
    principle is stated, as well as elsewhere, by Lord Hatherley in
    the passage from his judgment in Gosling v. Gosling which was
    read by Lindley LJ in the Court of Appeal. There is no
    condition precedent to happen or to be performed in order to
    perfect the title of the legatees, and there is no other person
    who has any interest in the execution of the trust for
    accumulation, or who can complain of its non-execution. The
    reason for the rule has been variously stated. It may be
    observed, however, that the Court of Chancery always leant
    against the postponement of vesting or possession, or the
    imposition of restrictions on the enjoyment of an absolute
vested interest." 19. The rationale for the Rule is, as Mr Gray put it, "where no other person has an interest in the property given to a person in a will, the court will not in general permit the gift of that property to be delayed." Saunders v Vautier (4 Beav 115, 49 ER 282) was decided by the Master of the Rolls, Lord Langdale, in 1841. The legatee was an individual. 20. Wharton v Masterman applied the Rule to a charity. The three Lords who spoke, Lord Herschell LC, Lord Macnaghten and Lord Davey were all agreed. Lord Macnaghten put it in this way (at 194):
    " Now if the residuary legatees were individuals, there
    could not be the slightest doubt that they would be entitled to
    call upon the trustees to hand over to them at the end of each
    year the surplus income of the testator's residuary estate.
    Does the fact that the residuary legatees are charities make any
    difference? Notwithstanding the doubt expressed by Wickens VC,
    when the case was before him in 1871, I do not think that it
    does. The charities alone are interested in the surplus income
    accruing from year to year. Their interest is vested and
    indefeasible. And they may legally apply what they take under
the bequest either as capital or as income." 21. Does the Rule apply here? The three plaintiffs are charities: they have agreed amongst themselves the proportions each should take. There is none other with a relevant interest in the estate. Messrs Gray and Lawson argue that the Rule applies. So far so good. Not so, says Mr Bleby (and Mr Hall was inclined to support him). 22. Mr Bleby argued that the fund will not be ascertained until the final date: until then it is simply accumulating (subject to the interests of the University and the Julia Farr Centre): no one can tell how much the fund will be in about eighty years time. Furthermore, it is not, at the final date, an outright gift to the Hospital: the Medical Centre is not entitled to the corpus: it is simply to be the trustee of the capital in place of the present trustees and their successors, with the duty of applying the income for the M S McLeod Research Fund "in furtherance of research in the field of pediatrics and health of children". To do what the plaintiffs wish would be contrary to the testator's plain intention. 23. The plaintiffs reply that the size of the Fund is of no consequence: on actuarial advice the plaintiffs have come to an agreement to split up the assets as they now stand, the split being made on the assumption of what would be the proportions at the final date if the testator's scheme were carried out to the end. 24. As for the trusts for which the Research Fund is to be set up, every charitable body receives money upon trust - not, as Mr Lawson put it, to allow members of the Board to bet with them on the races on a Saturday afternoon but that does not mean the interest is not "vested and indefeasible": that the testator has required the Hospital to apply the corpus in a particular way is irrelevant: there is no distinction between a gift of property for a specified charitable purpose, as here and one for general charitable purposes. The rule applies to charities: it follows from the nature of charities that trusts will be involved. 25. A number of cases were cited, the more significant being: Congregational Union of NSW v Thistlethwayte (1952) 87 CLR 375 Re Levy (1960) 1 Ch 346, Roberts v University of Sydney (1960) NSWR 702, Sir Moses Montefiore Jewish Home v Howell and Co. (No. 7) Pty. Ltd. (1984) 2 NSWLR 406. 26. An Ontario case, Re Birtwhistle, a decision of Rose CJHC seems to be quite in the defendants' favour. However I do not propose to follow it. Apparently the decision was not subject to appeal because no appeal was possible. Counsel told me that their researches have not shewn Re Birtwhistle ever to have been followed and Professor D.W.M. Waters in his "Law of Trusts in Canada" Second Edition (at p976) criticizes it. Amongst the authorities, I was referred to Jacobs' Law of Trusts in Australia, fifth edition, by Meagher and Gummow. 27. Counsel conceded that we are here breaking new ground: the Rule in Saunders v Vautier has not been considered in quite these circumstances. If I am wrong in my decision, I am sure that others, abler and far more learned than I, will be quick to correct me. 28. For myself, I have come to the conclusion that the Rule in Saunders v Vautier does apply. I do not think there is any significance in the impossibility now of knowing the size of the fund at the final date or that the gift to the Hospital is subject to trusts. Of course the application of the Rule will defeat the testator's intention: the application of the Rule must always do that but the testator's intention is not relevant to the application. 29. I have no doubt either, that the eventual gift to the Hospital is of both corpus and income: the words of paragraph 6 of the will (the transfer of the Outer Hebrides shares "in specie") and of paragraph 11 to apply "the remainder of my residuary estate" and "to apply the income of the said Fund in perpetuity") make that clear. 30. I therefore answer both questions "yes". 31. Having done so, I may say that I am glad to have been able to come to this conclusion. Several times counsel for the plaintiffs complained that the testator is trying "to rule from the grave" - and indeed he is. Not only is this to be discouraged as a matter of policy but it is against commonsense. 32. As I was told during the hearing (Mr Bleby complaining and saying it was not relevant - but I knew it pretty well anyway - it's common knowledge) already M S McLeod Limited the company of which the testator must have been so proud and the business of which he wanted to guard, has gone out of existence, to be replaced by M S McLeod Holdings, a company which has entered into some quite different business ventures and not always with good results. As well, two of the plaintiffs have already had changes of name. Only The Lord knows whether any of these entities will even exist by the year 2070. On the other hand - again it is common knowledge - the plaintiffs could all do with the money now. 33. The answer to each question asked in the Summons is Yes.