Public Trustee (the Community Foundation of South Australia) v Attorney-General (SA)
[2019] SASC 172
•4 October 2019
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
PUBLIC TRUSTEE (THE COMMUNITY FOUNDATION OF SOUTH AUSTRALIA) v ATTORNEY-GENERAL (SA)
[2019] SASC 172
Judgment of The Honourable Justice Hinton
4 October 2019
CHARITIES - ADMINISTRATION AND CONTROL BY COURT - GENERALLY
CHARITIES - CHARITABLE GIFTS AND TRUSTS - IN GENERAL
In 2001 the Public Trustee created a public charitable trust which became known as the Community Foundation of South Australia (the Foundation). Under the umbrella of the Foundation specific charitable trusts of which the Public Trustee would be trustee could be and were created. The Public Trustee has determined that the Foundation be wound up. In relation to 10 trusts the terms of the trust prevented the Public Trustee from distributing the trust capital. Accordingly, the Public Trustee applied for an order imposing a scheme for the administration of the 10 specific charitable trusts created under the umbrella of the Foundation that would allow the Public Trustee to apply the trust funds comprised of both the capital and income held in relation to each trust, to the charitable purpose of each trust.
Held, granting the application; the 10 specific charitable trusts are to be administered as if each trust contained a clause vesting a discretion in the Public Trustee to apply the trust fund, comprised of both capital and income, to the charitable purposes of the particular trust.
Income Tax Assessment Act 1997 (Cth), referred to.
Re the Lutheran Laypeople’s League of Australia Inc [2016] SASC 106; Public Trustee (G D Butler Medal Trust) v Attorney-General (SA) (2019) 132 SASR 574, considered.
PUBLIC TRUSTEE (THE COMMUNITY FOUNDATION OF SOUTH AUSTRALIA) v ATTORNEY-GENERAL (SA)
[2019] SASC 172Application
HINTON J:
Introduction
On 24 January 2001 the Public Trustee created a perpetual public charitable trust which became known as the Community Foundation of South Australia (the Foundation). The purpose of the Foundation was to create a fund capable of generating an income that would be applied for charitable purposes. In order to establish and build the fund the Public Trustee, as trustee for the Foundation, would receive gifts from people and organisations who wished to contribute to the charitable work that the Foundation supported. Gifts received were of two kinds; those not tied to any particular charity, and those that were tied. Originally, all gifts were deposited into the one general fund. However, where a gift was made for the benefit of a particular charity, which created a distinct trust, whilst the gift was deposited into the general fund, separate accounts were maintained.
Putting to one side the tied gifts, once a year the Public Trustee distributed the income earned by the fund in amounts settled by the Public Trustee amongst designated charities, as defined, as chosen by the Public Trustee.
With respect to the tied gifts, distribution occurred in accordance with the terms of the gift.
This application concerns 10 specific charitable trusts (or tied gifts) created under the umbrella of the Foundation, being:
·The Lutheran Community Care Fund;
·The Motor Neurone Disease Association of South Australia Inc Fund;
·The Multiple Sclerosis Society of South Australia Fund;
·The Muscular Dystrophy Association Inc Fund;
·The Paraplegic & Quadriplegic Association of South Australia Inc Fund;
·The Australian Red Cross Society Fund;
·The Spastic Centres of South Australia Inc Fund;
·Uniting Care Wesley Adelaide — General Fund;
·Uniting Care Wesley Adelaide — Wesley Building Better Futures Fund;
·Uniting Care Wesley Adelaide — Wesley Lifeline Fund.
In relation to each trust the Public Trustee seeks a scheme for the administration of the trust allowing the trustee to apply the capital of the trust fund to the trust purposes in addition to any income derived from the capital. The Attorney-General does not oppose the application.
I would grant the application in relation to each of the 10 trusts and order that those trusts be administered as if the Trust Deed in each case included a clause vesting a discretion in the trustee to apply both the trust capital and the trust income to the trust purposes.
The Trust Deed
When the Foundation was first established the recitals to the Trust Deed provided:
A. The Public Trustee is desirous of establishing a perpetual public charitable trust to be known as the COMMUNITY FUND OF SOUTH AUSTRALIA and to have the income therefrom applied for charitable purposes for the relief of poverty, for the advancement of education, or for any other purpose beneficial to the Community.
B. The Trustee has consented to become trustee thereof upon the trusts and with and subject to the powers and provisions hereinafter contained.
C. Persons desirous of supporting the COMMUNITY FUND OF SOUTH AUSTRALIA may make gifts thereto and it is contemplated that the said COMMUNITY FUND OF SOUTH AUSTRALIA will seek and accept gifts (whether testamentary or inter vivos) from any person, corporation, institution or organisation.
Clauses 1 and 2 dealt with relevant definitions and matters affecting interpretation. Clause 3 provided for the establishment of the fund with the Public Trustee as trustee. Under clause 3(4) the Public Trustee was empowered from time to time to accept further sums of money as an addition to the trust fund. I pass over clause 3(5) momentarily.
In clauses 4 and 5 the Trust Deed made provision for specific trusts to be part of the Foundation:
4. SPECIFIC TRUSTS FOR SPECIFIC CHARITIES
(1)The Trustee may at any time accept gifts for the use of specific charities on any terms and conditions that are not inconsistent with the purposes for which this Trust was created.
(2)The assets of such specific Trusts should be separately accounted and applied exclusively for the benefit of the designated charitable beneficiary.
5. EXISTING TRUSTS
(a)The Trustee may at any time by deed accept responsibility for the administration under the umbrella of the Trust of any existing Trust for the benefit of Designated Charities as if the assets of the existing Trust had been part of COMMUNITY FUND OF SOUTH AUSTRALIA and which can conveniently be administered as part of the COMMUNITY FUND OF SOUTH AUSTRALIA.
…
A designated charity was defined in clause 1 as any entity approved by the Commissioner of Taxation or Deputy Commissioner of Taxation as a fund, authority or institution having deductible gift recipient status under sub-div 30-B of the Income Tax Assessment Act 1997 (Cth) (ITAA) or any amendment or re-enactment thereof. Having deductible gift recipient status allowed a charity and, in turn, the Foundation, to receive tax deductible gifts, rendering the charity and the Foundation a more attractive proposition for donors.
Returning to clause 3(5), it provided:
Investment made from moneys forming part of the Trust Fund shall not be made on account of any particular authorised charitable trust but the Trustee shall cause to be kept in the books of COMMUNITY FUND OF SOUTH AUSTRALIA an account showing at all times the proportionate interest or share at credit in the Trust Fund on account of each nominated Specific Trust in respect of which it has received donations, bequests, settlements or other dispositions.
I understand the effect of clause 3(5) to be that all monies received by the Foundation, irrespective of whether receipt occurred under clause 3, 4 or 5, were to be pooled[1] and invested as a pool or as portions of the pool. Notwithstanding, where the Public Trustee received funds under clause 4 or where she assumed responsibility for the administration of a trust under clause 5, the Public Trustee was to retain separate accounts for such specific trusts and apply the trust fund accredited to each exclusively for the benefit of the charitable purpose designated by the trust.
[1] See clause 20 of the Trust Deed.
I understand that the 10 trusts to which the Public Trustee’s application relates were all created under clause 4.
Clauses 6-17 of the Trust Deed provided for the establishment, function and operation of a Board of Advice. Those clauses may be passed over as the Board of Advice has no role in relation to specific trusts established under clause 4 or the administration of which has been assumed under clause 5.
Clause 18 of the Trust Deed provided:
18. DISTRIBUTION OF INCOME
(a) In each year the Trustees shall hold the net income of the Trust Fund upon trust to pay or apply the whole or part of such part of the net income of the Trust Fund in such manner and for the benefit of such Designated Charities as shall be determined in accordance with the following provisions:-
(i) The Trustee shall at such time or times as it shall in its absolute discretion determine but in any event on or before the 30th June in each year pay to apply to or for the benefit of each Designated Charity the whole of the net income referable to that part of the Trust Fund representing the amount held by it on account of that charity.
(ii)Subject to sub paragraph (iii) the residue of the net income of the Trust Fund may be paid or applied to a Designated Charity or Charities at the discretion of the Trustee (for the purposes of this sub-paragraph such “net income or the Trust Fund” shall mean such part of the net income of the Trust fund as shall not have been distributed pursuant to sub-paragraph (a) of this clause) –
PROVIDED that the Trustee may at its discretion realise capital gains and distribute them as if they were income under this clause.
(iii) It shall not be necessary for the Trustee to pay or apply income of the COMMUNITY FUND OF SOUTH AUSTRALIA in the year of its receipt and the Trustee may in its absolute discretion pay or apply any income at any time or times or hold and carry forward such income for subsequent payment or application PROVIDED that the amount to be held or carried forward is within the limits from time to time agreed by the Commissioner of Taxation.
Two observations may be made regarding clause 18. First, it only provided for the distribution of net income. The corpus of the trust fund, including the corpus of any fund relating to a specific trust established under clause 4, may not be applied to the purposes of the trust or to the purposes of specific trusts, save to the extent that it is to be invested to generate income. Second, clause 18(a)(i) dealt with the distribution of the net income attributable to specific trusts created under clause 4 or in relation to which the Public Trustee had assumed administration under clause 5.
Consistent with the first observation made in relation to clause 18, clause 19 required that the capital or corpus of the trust fund must at all times be separately identified from the income earned or any other accretions to the capital that may occur.
Clauses 20 and 21 may be passed over. They deal with the creation of the common fund into which all receipts were to be paid and with the keeping of accounts. Clause 22 required that the trustee determine what times and places and under what conditions the records of the Foundation would be open to inspection. Clause 23 dealt with the determination and payment of the trustee’s fees. Clause 24 vested power in the trustee to amend the Trust Deed by revoking, adding or varying all or any of the terms and provisions of the Trust Deed, including all or any trusts, beneficial interests, powers and discretions set out in the Trust Deed, provided that:
… no part of the Trust Fund or the income therefrom shall become subject to any trusts other than trusts for the benefit of Designated Charities and PROVIDED FURTHER that no additions or variations shall be made without the prior consent of the Commissioner of Taxation or the Deputy Commissioner of Taxation.
The Trust Deed did not contain a clause 25. Clause 26 provided that in the event that the Foundation was wound up or ceased to be endorsed as a deductible gift recipient:
… any surplus assets of the Trust Fund and any accrued income thereon shall be applied exclusively for the benefit of such Designated Charities as the Trustee in its absolute discretion shall think fit which shall have been approved of by the Commissioner of Taxation or the Deputy Commissioner of Taxation for the purpose of subdivision 30-B of the Income Tax Assessment Act 1997 (Commonwealth) or any amendment or re-enactment thereof.
Clause 26 may be considered not to apply to a trust created under clause 4, or to a trust in respect of which, under clause 5, the Public Trustee had assumed the administration.
Clauses 27 and 28 may be passed over as not being presently relevant. Clause 29 stated that the Trust Deed is governed by the laws of South Australia.
In the exercise of the power contained in clause 24 the Trust Deed was amended a number of times, the most recent being in 2015. The recitals to the 2015 deed of variation summarise the various amendments previously made. They stated:
A. On 24 January 2001 Public Trustee declared by Trust Deed a perpetual public charitable trust to be known as COMMUNITY FUND OF SOUTH AUSTRALIA (“the Fund”) for the receipt and distribution of funds for charitable purposes.
B. On 18 October 2007 Public Trustee varied the Trust Deed to declare additional trusts and to make other changes including changing the name of the Fund to COMMUNITY FOUNDATION OF SOUTH AUSTRALIA as permitted by the Trust Deed.
C. On 2 November 2007 Public Trustee varied the Trust Deed to limit the payment of income from the general perpetual fund to only those named funds that are established for the use of a designated charity.
D. On 29 April 2008 Public Trustee varied the Trust Deed to remove the capacity to establish disaster relief funds.
E. On 25 July 2008 Public Trustee varied the Trust Deed to give more discretion in the naming of individual funds and the payment of income to named funds.
F. On 30 October 2008 Public Trustee varied the Trust Deed to make changes to recital A and clause 1.
G. Public Trustee desires to vary further the Trust Deed to abolish the Board of Advice.
The raft of amendments made in 2008, amongst other things, inserted a new clause 3.3 being:
3.3 Purposes
(1) The Trustee may maintain in the name of the Foundation several trust funds including:
(a)a fund for the receipt of money or other property for such charitable purposes as the Trustee may select and the Trustee shall hold the fund on trust to pay or apply the income, and if the Trustee thinks fit, part of the capital, of the fund to or for such eligible charities, or for the establishment of such eligible charities, as the Trustee determines from time to time and this fund shall be called “The General Discretionary Charitable Trust”;
(b)a perpetual fund for the receipt of money or other property for charitable purposes when the donor has not specified the particular purpose or charity for which the income is to be applied and the Trustee shall hold the fund on trust to pay or apply the income to any funds established under clause 3.3(1)(c) of this Deed and this fund shall be called “The General Perpetual Charitable Fund”;
(c)one or more funds for the receipt of money or other property given for the use of an eligible charity and the Trustee shall pay or apply the income of each fund to the designated charity and, if and so far as the terms of the trust relating to any particular designated charity permit, all or any part of the capital, and each fund shall have a name related to the designated charity;
(d)One or more funds for the receipt of money or other property given for charitable purposes specified by the donor without specifying an eligible charity and the Trustee shall pay or apply-
· the income of each fund, and
· if the Trustee thinks fit, but subject to the terms on which it was given, all or any part of the capital of each fund
for the purposes specified by the donor and the Trustee may do so by paying or applying such income or capital to one or more eligible charities and each fund shall have a name.
(2) The Trustee may at any time by deed accept responsibility for the administration under the umbrella of the Foundation of any existing trust for the benefit of a designated charity that can be administered conveniently as part of the Foundation, as if the assets of the existing trust had been part of the Foundation.
The addition of clause 3.3 saw the general fund replaced by a number of specific funds.
The Trust Deed was also amended to give the Trustee a broader power of distribution. The power of distribution was dependent on the basis upon which a gift was received under clause 3.3. In relation to trusts created under clause 3.3(1)(c), distribution was to be effected in accordance with clause 5(2)(c) which stated:
(2)After taking into account any applications received from eligible charities:
…
(c) in relation to funds established under clause 3.3(1)(c) of this Deed (for designated charities) the Trustee shall at such time or times as the Trustee may in its absolute discretion determine, pay to or apply for the benefit of each designated charity the whole of the net income of the fund referable to the designated charity and if the terms of the trust of the designated charity permit, the Trustee may pay or apply a part or the whole of the capital to or for the benefit of the designated charity.
It is unnecessary to refer to any further amendments save clause 13 which provided:
13. WINDING UP
In the event of the Foundation being wound up or dissolved, any surplus assets of the trust funds remaining after the payment of the Foundation’s liabilities shall be transferred to another fund, authority or institution that has similar objects and to which income tax deductible gifts may be made and is an eligible charity.
The application
Originally, the Commissioner of Taxation endorsed the Foundation as a deductible gift recipient with effect from 24 January 2001. Further, the Foundation was considered to be a public fund as defined in the table set out in s 30-15 of the ITAA. Subsequently, amendments to the ITAA have had the consequence that what was once referred to as a public fund is now known as a public ancillary fund.
After its establishment in 2001 the Foundation actively sought contributions. Many of the contributions received created specific trusts under clause 4 of the Trust Deed (and subsequently clause 3.3(1)(c)). In that regard the various gifts were accounted for separately as “sub-funds”. In the case of gifts made by existing charities, such gifts were generally held on trust for the charity that had donated it. These gifts were of a relatively small amount and were intended to constitute “seed funding”. I gather that it was hoped that the sub-funds or specific trusts would build up over time as a result of ongoing donations from the public and the return on investment. As to the latter issue, I understand that one of the benefits of creating a specific trust under the umbrella of the Foundation was the better investment return that the Public Trustee could secure. I also understand the 10 trusts to which this application applies all to be sub-funds in the sense explained.
The requirement for endorsement as a deductible gift recipient was, as at 2001, to be found in the Australian Taxation Office’s (ATO) Taxation Ruling 95/27 (the ruling). Importantly, the ruling did not expressly state that a public ancillary fund must be constituted of only one trust. The position was clarified in the ATO’s Taxation Determination 2004/23 (the determination) where it was stated:
4.Some arrangements between the trustee and a donor are such that the trustee is not permitted to distribute the amount of the gift or resulting investment income without first obtaining and considering a recommendation from the donor or the donor’s advisory committee, and the trustee is required to inform the donor if it intends to depart from the donor’s recommendations. This can operate as an effective power of restraint or direction or by the donor as the trustee needs the consent or acknowledgement of the donor before it can implement decisions on the application of the gift and resulting income. Such a feature is consistent with an obligation or assurance from the trustee to comply with the donor’s ongoing request.
5.Where the trustee of a public fund accepts a gift subject to such obligations or assurances, we consider that there is a relevant legal distinction between that gift and other gifts made to the fund without those features. There is a legally binding relationship, with ongoing rights and obligations, between the trustee and the donor that does not apply to persons who make contributions without those features. In these cases, a separate fund is created.
Applying the ruling to specific trusts established under clause 4 of the Foundation’s Trust Deed as executed in 2001, and to existing trusts for which the Public Trustee assumed responsibility under clause 5, suggests that they are “separate funds” and therefore ineligible for deductible gift recipient endorsement. Similarly, the determination would characterise funds held under clauses 3.3(1)(b), (c) and (d) of the amended Trust Deed as separate funds.
In 2011 the Commonwealth Government issued its Public Ancillary Fund Guidelines 2011. The Guidelines represent a formalisation of past legal interpretations of the ruling and the determination. Part 2 of the Guidelines sets out the rules that a public ancillary fund must comply with in order to be endorsed as a deductible gift recipient and in order that it remain endorsed as such. Part 3 of the Guidelines sets out transitional rules for public ancillary funds that had deductible gift recipient endorsement prior to 1 January 2012. Where the governing rules of the public ancillary fund prevented it from complying with all of the rules in Part 2, the fund was exempt from full compliance until 1 July 2015. However, clause 54.5 of the Guidelines stated that the trustee of a public ancillary fund to which Part 3 applied “must seek to have the governing rules of the fund amended to comply with Part 2 … by 1 July 2015”. A note to clause 45 of the Guidelines reiterates the prohibition on the establishment of separate funds. It states:
A public ancillary fund may establish sub-funds in relation to contributions from particular donors. However, the fund must be under no obligation to comply with any requests from a donor.
Included with the Guidelines is a Model Trust Deed. Paragraph 4.7 of the Model Trust Deed deals with sub-funds. It provides:
(a) The Trustee may maintain a management account in respect of Gifts and Deductible Contributions from a particular donor or group of donors.
(b) The management account may be used to record receipts from a donor or group of donors, money received because of those Gifts and Deductible Contributions and payments or applications from the management account.
(c) The donor or group of donors (or persons nominated by the donor or group of donors) may make requests or indicate preferences, as to the name of the management account, and as to the payments or applications from the account.
(d) The Trustee is under no obligation to comply, and the Trustee may not agree or give an assurance that it will comply, with any request or preference.
(e) The management account forms part of the Trust Fund and is not a separate fund.
(f) The management account may not be separately invested or be separately accounted for in the statutory financial statements of the Trust.
(g) The trustee may at any time cease to maintain the management account and account for the money and investments in the general accounts of the Trust Fund.
(h) The Trustee may provide reports of the investments and application of the management account to the donor or group of donors but is not under an obligation to do so.
(i) The Trustee may formulate rules and policies relating to the maintenance of a management account provided they are not contrary to this Trust Deed or any requirements of the Commissioner.
Having regard to the above, clauses 3.3(1)(b), (c) and (d) of the Foundation’s Trust Deed as amended are incompatible with paragraph 4.7 of the Model Trust Deed. The funds held by the Public Trustee under those clauses are separate funds in that they are held as separate trusts from those held under clause 3.3(1)(a).
In addition to the requirement that public ancillary funds must consist of only one fund and that all monies must be subject to the same trust, the Guidelines reiterate the existing law that the fund must be public in nature. In this regard paragraph 44 of the Guidelines states that a fund will be public in nature where it is the intention of the founders or promotors of the fund that the public will contribute to it.
In January 2015 the Public Trustee resolved to terminate the Foundation as an administrative entity. The reasons for doing so were threefold; first, it was not possible to comply with the Commonwealth Guidelines because, as trustee of the Foundation, the Public Trustee had differing trust obligations in relation to the various funds comprising the Foundation. Second, and related to the first, it was not possible to maintain deductible gift recipient endorsement for the Foundation as a whole. Third, and in any event, donations from the public had not been significant and the Public Trustee did not regard the administration of a public fund as a core function of her Office. Accordingly, the Public Trustee has taken the following steps to terminate the Foundation:
i.the Trust Deed was amended on 23 December 2015 to abolish the Board of Advice;
ii.the ATO was advised that the Foundation would not continue as a separate entity and the ATO was requested to revoke the Foundation’s deductible gift recipient endorsement with effect from 1 July 2015;
iii.existing funds, other than testamentary funds, were dispersed in full where the trusts on which they were held permitted this.
In correspondence between the ATO and the Public Trustee, the ATO has expressed the tentative view that the Foundation was comprised of a number of separate trusts in that where the trustee had an obligation to comply with requests made by a donor, a separate trust fund arose. The ATO also advised that any remaining trust funds in the Foundation needed to be registered with the Australian Charities and Not-for-profits Commission or would need to lodge tax returns for the 2018 financial year onwards.
In view of the impossibility of maintaining the Foundation as a separate entity with deductible gift recipient status, the Public Trustee has, as explained, sought to disperse in full all funds established by inter vivos donations where it has been permissible to do so under the terms of the particular trust. However, where the terms of the trust permit the payment of income only, the Public Trustee has been unable to distribute the trust funds. The 10 trusts to which this application relates all fall in this category. Accordingly, the Public Trustee applies for orders varying the terms of the trusts so that the capital, as well as any income, held to the credit of the particular trust can be applied to the purposes of the trusts. In each case, the current balance of the funds would be paid to the original donor, an endorsed deductible gift recipient, for its general charitable purpose.
The Public Trustee has consulted each of the donors of the 10 funds subject to this application. None has voiced opposition. As mentioned, the Attorney-General is not opposed.
Consideration
The effect of the scheme for the administration of each of the 10 trusts sought by the Public Trustee will be that the trusts are brought to an end in that in each case the trust fund comprised of both capital and income is applied to the relevant charitable purpose and exhausted. In Public Trustee (G D Butler Medal Trust) v Attorney-General (SA) I dealt with the power of this Court to order the imposition of an administrative scheme the practical effect of which would allow for the relevant charitable trust to be brought to an end.[2] In that case I resorted to the inherent power possessed by this Court to supervise and regulate the administration of charitable trusts generally. I considered:[3]
In Re JW Laing Trust (Laing) the Court approved a scheme in the exercise of the inherent jurisdiction discharging a trustee from an obligation to distribute the trust capital and accumulated income within 10 years of the death of the settlor. The trust was first created in 1922 with a gift of 15,000 shares worth £15,000 “the proceeds of which and the dividends thereon from time to time declared and paid ... to be devoted to charitable purposes, it being understood that the capital and income is to be wholly distributed” within the settlor’s lifetime or within 10 years of his death. The settlor died in 1978. By the 1982 financial year the value of the trust assets had grown to be in excess of £24 million and in that year generated an income exceeding £1.2 million. Peter Gibson J held:
In my judgment, the plaintiff has made out a very powerful case for the removal of the requirement as to distribution, which it seems to me to be inexpedient in the very altered circumstances of the charity since that requirement was laid down 60 years ago. I take particular account of the fact that this application is one that has the support of the Attorney-General. Although the plaintiff is not fettered by the express terms of the gift as to the charitable purposes for which the charity’s funds are to be applied, it is, in my view, proper for the plaintiff to wish to continue to support the causes which the settlor himself wished the charity to support from its inception, and which would suffer if that support was withdrawn as a consequence of the distribution of the charity’s assets. I have no hesitation in reaching the conclusion that the court should, in the exercise of its inherent jurisdiction approve a scheme under which the trustees for the time being of the charity will be discharged from the obligation to distribute the capital within 10 years if the death of the settlor. I shall discuss with counsel the precise form of order that is appropriate.
It seems to me that if the inherent power to approve a scheme may be exercised to expand the lifespan of a charitable trust as occurred in Laing, then it may be exercised to contract the lifespan of a charitable trust provided that to do so is expedient in the relevant sense.
[footnotes omitted]
[2] (2019) 132 SASR 574.
[3] Public Trustee (G D Butler Medal Trust) v Attorney-General (SA) (2019) 132 SASR 574 at [27]-[28].
I remain of this view. In Re the Lutheran Laypeople’s League of Australia Inc, I explained the breadth of the inherent power and the content of the test of expediency to be applied:[4]
The authorities indicate that the inherent power is one to clarify, supplement or alter the machinery or means identified in a trust instrument by which the trust objects, or ends, are to be achieved. The Court does no more than complete “the trusts to carry out objects which ... have been indicated in sufficiently clear terms” by the settlor. That is, the Court “carries into effect the wishes and intentions of the founder of the charity; and where it sees that those intentions have not been carried into effect, it rectifies the existing administration of the charity for that purpose”. In In re Mason’s Orphanage and London and North Western Railway Co, Stirling J observed that historically schemes for the administration of a charitable trust –
... were made mainly in three classes of cases: (1.) Where the directions contained in the instrument of foundation were ambiguous, imperfect, or otherwise insufficient; (2.) Where the directions, though originally precise and complete, had become under altered circumstances unsuitable to carry out the general intention of the founder; and (3.) Where a scheme sanctioned by the Court itself had in like manner become unsuitable for that purpose.
On an application for an order imposing a scheme for the regulation of the administration of a charitable trust, the question is whether, having regard to the trust objects, it is expedient to regulate the administration of the trust in accordance with a proposed scheme. In answering this question two cardinal principles are controlling. First, the function of the Court is to enforce the charitable trust and secure the intended public benefit. Second, the Court has no authority to change the trust objects nor to alter by a scheme the benefit that such objects intend. Thus any scheme must operate within the ambit of the trust objects.
I have stated the test to be applied in terms of what is expedient relying upon the decision of Peter Gibson J in In Re J W Laing Trust. In Riddle v Riddle, Sir Owen Dixon said of the notion of expediency that it is “a criterion of the widest and most flexible kind.” In that same case, Williams J considered the ordinary natural grammatical meaning of the word expedient to be that of “advantageous”, “desirable”, and “suitable to the circumstances of the case”. Whilst Riddle v Riddle concerned the meaning of expedient as used in s 81(1) of the Trustee Act 1925 (NSW), no reason arises to think that in In Re J W Laing Trust Peter Gibson J used that word in any sense other than as it would be ordinarily understood.
[footnotes omitted]
[4] [2016] SASC 106 at [30]-[32].
I start with clause 26 of the original Trust Deed. Whilst it has no direct application to a trust created under clause 4 or, subsequently, clause 3.3(1)(c), I consider that it gives rise to an implication as to the intention of settlors who acted to create trusts under clause 4 or clause 3.3(1)(c). That is to say, no need arose in relation to such trusts to account for the winding up of the Foundation in the same way as was necessary for the general fund or funds. Where it was not known amongst whom the general fund would be distributed if the Foundation was wound up, the same could not be said in relation to specific trusts created; the balance of any fund held on behalf of a specific charity would be distributed to that charity.
From the presence of clause 26 and subsequently clause 13 in the Trust Deed it may be inferred that all donors/settlors were aware that it was contemplated that the Foundation may be wound up. Put slightly differently, a settlor or donor creating or contributing to a trust under clause 4, being aware that the Trust Deed contemplated the possibility of the Foundation being wound up, would have been alive to the fact that the umbrella under which he or she created or contributed to a trust may disappear. Accepting this, in my view the settlor’s or the donor’s intention was nonetheless to exploit the financial advantages that the Foundation offered for the benefit of an established charity for so long as the Foundation was able to provide the financial advantage. Thereafter the intention was not that the trust fund be combined with the general fund, but remain separate. One may ask for what purpose? To my mind, the answer is obvious; to be applied for the benefit of the charitable entity that was the beneficiary of the trust created under either clause 4 or clause 3.3(1)(c).
In relation to each of the 10 trusts subject of the application, the settlor was an established charity that, in effect, invested a portion of its funds held for charitable purposes with the Public Trustee. The arrangement was necessarily one where, if the Public Trustee was no longer able to provide the financial advantage, the funds held to the account of the settlor would be returned to the settlor to be applied in accordance with the settlor’s charitable purposes. Bearing this in mind, and having regard to the Public Trustee’s reasons for winding the Foundation up, I consider the scheme sought for the administration of each of the 10 trusts expedient in the sense explained above. Accordingly, I would order that the 10 trusts to which this application applies, being those identified above in paragraph [4], be administered as if each trust contained a clause vesting power in the Public Trustee to apply the trust fund comprised of both capital and income to the particular charitable purposes of the particular trust.
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