Sir Moses Montefiore Jewish Home v Perpetual Company Limited
[2012] NSWSC 210
•15 March 2012
Supreme Court
New South Wales
Medium Neutral Citation: Sir Moses Montefiore Jewish Home & Ors v Perpetual Company Limited & Anor [2012] NSWSC 210 Hearing dates: 23 February 2012 Decision date: 15 March 2012 Jurisdiction: Equity Division Before: Ball J Decision: See paragraph 34 of this judgment.
Catchwords: WILLS - interpretation - rule in Thistlethwayte's case - whether gift of income in perpetuity is gift of capital - rule of construction - application of rule where beneficiary of will is a charity - whether fact that beneficiary is a charity is a relevant indication of intention of testator. TRUSTS AND TRUSTEES - replacement of trustee - s 70 of Trustee Act 1925 - inherent power to replace trustee - relationship between s 70 of Trustee Act and Charitable Trusts Act 1993 - where no suggestion of mismanagement of trust by current trustees - whether "expedient" to appoint new trustees to save the trust certain commissions and fees Legislation Cited: Charitable Trusts Act 1993 (NSW)
Trustee Act 1925 (NSW)Cases Cited: Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375
Crowle Foundation v NSW Trustee & Guardian [2010] NSWSC 647
Miller v Cameron (1936) 54 CLR 572
Re Denheart (deceased) [1973] VR 449
Re Inman (deceased) [1965] VR 238
Re Williams (deceased) [1955] VLR 65
Re Weaver [1963] VR 257
Roberts v University of Sydney [1960] NSWR 702
The Melbourne Jewish Orphan and Children's Aid Society Inc v ANZ Executors and Trustee Company Limited [2007] VSC 26Texts Cited: GE Dal Pont in Law of Charity, 1st Ed (2010) LexisNexis Butterworths Category: Principal judgment Parties: Sir Moses Montefiore Jewish Home (First Plaintiff)
Wolper Jewish Hospital (Second Plaintiff)
New South Wales Jewish War Memorial (Third Plaintiff)
Perpetual Trustee Company Limited (First Defendant)
Rupert George Rosenblum (Second Defendant)Representation: J C Kelly SC / D D Knoll AM (Plaintiffs)
P H Blackburn-Hart / P P O'Loughlin (Defendants)
Abadee Dresdner & Freeman (Plaintiffs)
Bartier Perry (Defendants)
File Number(s): 2011/68161
Judgment
In these proceedings the plaintiffs, Sir Moses Montefiore Jewish Home, Wolper Jewish Hospital and New South Wales Jewish War Memorial, which are three charitable institutions, seek a declaration that they are entitled to the corpus of the residual estate of the late Rupert Michaelis in equal shares. In the alternative, they seek an order appointing the president or chairman respectively of each of the three institutions as trustees of the estate of the deceased in substitution for the defendants, Perpetual Trustee Company and Rupert George Rosenblum.
Factual background
There is no dispute concerning the facts.
The deceased died on 11 December 1984 leaving an estate which had a value at that time of approximately $4,500,000.
By his will made on 21 July 1981, the deceased appointed Perpetual and Mr Myer Rosenblum, or in the event that he could not or was not willing to act as a trustee, Mr Rupert Rosenblum (his godson), as his executors and trustees. In accordance with that clause, Mr Rupert Rosenblum became one of the trustees.
By cl 3 of his will, the deceased left a number of legacies to individuals and named institutions ranging in amounts from $1,000 to $50,000, including a legacy of $4,000 in favour of Mr Rupert Rosenblum. By cl 4 of his will, the deceased also left Mr Rosenblum certain personal effects.
By cl 5, the deceased directed his trustees to convert into money the remainder of his estate to be held on trust to pay his debts, funeral and testamentary expenses and to be held on trust:
(b) To pay the income therefrom in perpetuity to each of the following bodies in equal shares:-
(i) New South Wales Jewish War Memorial duly incorporated under the Companies Act, 1961 and its amendments of the State of New South [sic] having its registered office at Number 146 Darlinghurst Road, Darlinghurst near Sydney aforesaid.
(ii) Wolper Jewish Hospital duly incorporated as aforesaid not for profit having its registered office at Number 8 Trelawney Street, Woollahra near Sydney aforesaid.
(iii) Sir Moses Montefiore Jewish Home duly incorporated under the Sir Moses Montefiore Home Act, 1927 as amended of the State of New South Wales.
PROVIDED THAT if it is determined within the perpetuity period (as hereinafter defined) that any of the said bodies is not a charity, whether by reason of a change of functions or otherwise, the gift to that body shall not fail but my Trustees shall pay one third of the income of the residuary estate to such body until the expiration of a period of twenty-one years from the death of the last survivor of the legatees living at my death mentioned or referred to in Clause 3 hereof (that period being referred to in this Clause as the "perpetuity period") and on the expiration of the perpetuity period my Trustees shall pay one third of my residuary estate to such body absolutely.
PROVIDED FURTHER THAT subject to the foregoing provisions of this clause if any of the said bodies cease to exist or amalgamates with another body or changes its name (whether before or after my death) the gift of one third of the income of the residuary estate shall not fail but my Trustees shall pay the income in perpetuity to the charitable organisation or organisations which they consider most nearly fulfil the objects that I intend to benefit. IT IS my earnest desire and wish that the bequests in Clause 5(b)(i), (ii) and (iii) be known as the RUPERT MICHAELIS BEQUESTS .
Clause 6 of the will gave the deceased's trustees power to postpone the sale and conversion of his real and personal property provided that:
[p]ending such sale calling-in and conversion the whole of the income of property actually producing income shall be applied as from my death as income and on the other hand on such sale calling-in and conversion or on the calling-in of any reversionary property no part of the proceeds of such sale calling-in or conversion of such property shall be paid or applied as past income.
Clause 9 set out the trustees' powers including a power to determine whether moneys are capital or income.
The income of the trust and the commission and fees charged by the trustees for the 3 years ending 30 June 2010 were as follows:
Year Ended 30 June 2008 | ||
| Estate Income | $ | 416,772.63 |
| Perpetual Income Commission | $ | 24,149.17 |
| Perpetual Income-related Transaction Fees | $ | 565.00 |
| Other Perpetual Transaction Fees | $ | 155.00 |
| Total Perpetual Transaction Fees | $ | 720.00 |
| Other Trustee Fees and Commissions RG Rosenblum for 1/1/06 - 31/12/06 (less overpaid commissions) | $ | 332.67 |
| RG Rosenblum for 1/1/07 - 31/12/07 | $ | 8,272.87 |
| Perpetual fee re franking credit refund | $ | 330.00 |
| Total Trustee Fees and Commissions | $ | 33,804.71 |
| Trustee Fees and Commissions as a percentage of income | 8.11% |
| Year Ended 30 June 2009 | ||
Estate Income | $ | 280,339.08 |
| Perpetual Income Commission | $ | 16,194.68 |
| Perpetual Income-related Transaction Fees | $ | 495.00 |
| Other Perpetual Transaction Fees | $ | 150.00 |
| Total Perpetual Transaction Fees | $ | 645.00 |
| Other Trustee Fees and Commissions Fee for application for franking refund | $ |
|
| Perpetual trust fee for 31/3/08 - 31/3/09 | $ | 649.00 |
| Total Trustee Fees and Commissions | $ | 18,038.68 |
| Trustee Fees and Commissions as a percentage of income | 6.43% |
| Year Ended 30 June 2010 | ||
| Estate Income | $ | 171,181.89 |
| Perpetual Income Commission | $ | 9,885.75 |
| Perpetual Income-related Transaction Fees | $ | 580.00 |
| Other Perpetual Transaction Fees | $ | 40.00 |
| Total Perpetual Transaction Fees | $ | 620.00 |
| Other Trustee Fees and Commissions RG Rosenblum 1/1/08 - 30/6/09 | $ | 5,606.78 |
| Perpetual fee for 1/1/08 - 30/6/08 | $ | 2,381.92 |
| Perpetual franking credit fee | $ | 550.00 |
| Total Trustee Fees and Commissions | $ | 19,693.45 |
| Trustee Fees and Commissions as a percentage of income | 11.50% |
The capital of the trust is largely invested in Australian securities. The investment is monitored by Perpetual on a regular basis. The plaintiffs accept that the trustees have acted properly in discharging their duties as trustees of the trust created by cl 5(b) of the will since the testator's death and were entitled to the commission and fees that have been paid to them.
The plaintiffs maintain that they are entitled to call for the corpus of the trust in accordance with the principle adopted by the High Court in Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375 or alternatively, they submit that the trustees should be replaced under s 70 of the Trustee Act 1925 (NSW), or in exercise by the court of its inherent power to regulate trusts.
The principle in Thistlethwayte's case
There is a principle of construction of wills that a gift of income in perpetuity will carry with it a gift of capital. GE Dal Pont in Law of Charity , 1 st ed (2010) LexisNexis Butterworths at [6.12] explained the rule in these terms:
As a rule of construction, a perpetual gift of income from real or personal property to a person carries with it an absolute interest in the capital of the fund to which the person is entitled to call for. The rule is designed to prevent gifts of income being void by reason of the perpetuity rule. As a perpetual gift of income for a non-charitable object or to a non-charitable institution is void because of the rule against perpetuities, to adopt a construction that a perpetual gift of income carries the capital that generates the income stream is a means to ensure that the gift will vest within the perpetuity period. This gives effect, it is presumed, to the donor's likely intention, in that only by payment of the capital can the donee receive the full benefit and extent of the gift that the donor is presumed to have intended. (footnotes omitted)
As Dal Pont points out, there is conflicting authority on whether the rule of construction applies to charitable trusts. For Australia, that conflict has been settled by the decision of the High Court in Thistlethwayte's case. In that case, Dixon CJ, McTiernan, Williams and Fullagar JJ said at 440:
We cannot agree that this distinction [that is the distinction between charitable and non-charitable trusts] exists. In our opinion, the rule is the same whether the gift of income is to an individual or to a charity consisting of a body capable of holding property. The beneficiary is entitled to the capital unless there is a clear intention express or implied from the will that the beneficiary is not to take more than income.
Since the decision of the High Court in Thistlethwayte's case, there have been a number of decisions, particularly of the Supreme Court of Victoria, that have held that proof of a contrary intention is more readily found where the beneficiary is a charity and that the fact that the beneficiary is a charity is one matter the court can take into account in determining whether a contrary intention exists: see Re Williams (deceased) [1955] VLR 65 at 69 per Dean J; Re Weaver [1963] VR 257 at 262 per Hudson J; Re Inman (deceased) [1965] VR 238 at 240 per Gowans J; Re Denheart (deceased) [1973] VR 449 at 451 per Starke J. The position was summarised by Gillard J in The Melbourne Jewish Orphan and Children's Aid Society Inc v ANZ Executors and Trustee Company Limited [2007] VSC 26 at [74] in these terms:
In my opinion, the fact that a gift of income is given in perpetuity to a charitable institution provides some evidence of a contrary intention. However, in the end, of course, it is a matter of intention of the creator of the trust. Nevertheless, in my opinion, the cases have established that the courts are more ready to find a contrary intention where the gift is to a longstanding charity in perpetuity.
Although that statement correctly summarises the earlier cases, it is not easy to reconcile it with the statement by Dixon CJ, McTiernan, Williams and Fullagar JJ that the rule is "the same" whether the gift is to a charity or to an individual. In each case, there must be a clear intention express or implied from the will that the beneficiary is not to take more than the income.
In a number of the cases I was taken to, the courts have found a contrary intention from the fact that the gift was structured as a gift of income in perpetuity to established charities. So, for example, in The Melbourne Jewish Orphan and Children's Aid Society Inc case, Gillard J thought that it was of significance that the testator created a trust and gifted "the net annual rents" of a particular property to the charitable beneficiaries of that trust and made provision for new trustees to be appointed in the event that the original ones retired or died. A significant part of the parties' submissions in this case focussed on identifying points of similarity and differences with that case. In my opinion, however, the court should be wary of attempting to ascertain the testator's intention in this case by comparing the conclusions reached in other cases about wills that are expressed in different terms from the will in question. In addition, although I accept that the matters referred to by Gillard J are relevant to ascertaining the testator's intentions, in my opinion, evidence that the testator intended to make a gift of income in perpetuity is of limited assistance in displacing the rule. The rule has as its starting point the fact that the testator has made a gift of income in perpetuity. A gift of income in perpetuity cannot itself be evidence of a contrary intention, since the rule is concerned with what is intended by such a gift. Similarly, the fact that the will contains other provisions that contemplate the gift of income continuing in perpetuity is of limited assistance in rebutting the rule, since those provisions are an obvious incidence of such a gift. Of greater significance is whether there are terms in the will which make it clear that the testator could not have intended that the beneficiaries would have the right, if they chose to exercise it, to call for the capital. In other words, the fact that a testator chose to allow for the possibility that the beneficiaries may not call for the capital is of limited assistance in determining whether the testator has evinced a clear intention that they not be permitted to do so. If the rule of construction is to have substance, it is the latter intention that must be clear.
In this case, the testator made provision for the gift of income to continue in perpetuity. He appointed Perpetual as one of his executors. It was to be expected that that entity would continue indefinitely. The testator also made provision in cl 6 for the capital of the trust to be preserved and provided a mechanism in cl 9 for resolving disputes about what was income and what was capital. Although these matters provide some evidence that the testator intended to make a gift of income only, for the reasons I have given, I do not attach significant weight to those considerations. Of much greater significance are the terms of cl 5 of the will. In my opinion, it is clear from the terms of that clause, particularly the two provisos, that the testator did not intend to give the capital of the trust to the plaintiffs.
The first proviso states that, if it is determined that any of the plaintiffs is not a charity, then the gift to that plaintiff is a gift of income to that body for the perpetuity period (as it then was) and is then a gift of the capital absolutely. The second proviso states that if any of the beneficiaries cease to exist, amalgamate or change their names before or after the deceased's death, the trustees shall pay the income gifted to that institution to a charitable organisation which they consider most nearly fulfils the objects the testator intended to benefit. It can be seen from these provisos that the paramount concern of the deceased was to benefit the plaintiffs as they existed at the time of his will for so long as they continued to exist, whether or not they were charitable institutions. However, it was also the intention of the testator that the plaintiffs were only to receive income and were only to receive it for so long as they continued to exist in the form they had existed at the time the testator made his will. It is not entirely clear why the names of the relevant institutions were so important to the testator. But it is clear from the terms of the second proviso that a change in name is sufficient to cause the gift to fail.
The testator could not have intended to give each of the plaintiffs an absolute interest in one third of his residual estate which each was entitled to call for at any time since, if they were or became non-charitable institutions, he specifically provided that they were to continue to receive income until the expiration of the perpetuity period and only then were they to receive the capital. The fact that it was unlikely that any of the three beneficiaries would cease to be charities does not undermine this point. What is critical is the light that the proviso sheds on the testator's intentions, not the likelihood that the proviso would operate.
Mr Kelly SC, who appeared on behalf of the plaintiffs, submitted that the first proviso supported the contention that the testator must have intended that the plaintiffs would be entitled to call for the capital. In his submission, the testator could not have intended that the plaintiffs were entitled to the capital if they were not charitable institutions, but were only entitled to the income if they were. I do not accept that submission. What the proviso demonstrates is that the testator's primary concern was to benefit the plaintiffs. He chose to do that by gifting income in perpetuity. Only if the rule against perpetuity prevented him from doing so was he prepared to give them the capital, and then only on the expiration of the perpetuity period. The perpetuity period would not have been a concern at all if the gift carried with it an absolute interest in the capital which the plaintiffs could call for at any time. If that is what the testator intended, the proviso was unnecessary.
Similarly, it is difficult to understand why the second proviso was necessary if the plaintiffs were entitled to call for the capital at any time after the gift took effect. That proviso is expressed to continue to apply after the testator's death. But, in that event, the plaintiffs would have been able to call for the capital at any time and it is difficult to understand why in those circumstances there was a need to make provision if they altered their nature through amalgamation or one or more of them altered their names. If they were entitled to call for the capital at any time, the expectation would have been that they would do so at least before any such change took place.
Some further support for the proposition that the testator did not intend to make a gift of capital except in the limited circumstances referred to in the first proviso can be found in the testator's desire expressed at the end of cl 5 that the bequests to the three charitable institutions be known as "the RUPERT MICHAELIS BEQUESTS". In Roberts v University of Sydney [1960] NSWR 702, Jacobs J took the view that a similarly expressed desire in that case was some evidence that the testator did intend to gift the capital as well. But there the gift was to a single institution for a specific purpose - that is, research in such branch or branches of medicine as the senate of the university determined - and it was the fund payable to the university that the testator expressed a desire would be named after him. In this case, the gifts made to the three institutions were not for any particular purpose. If the capital were paid to those three institutions, there is no reason to suppose that it would remain an identifiable bequest to which the testator's name would be attached. That could only be achieved if the capital were kept separately and the income paid to the institutions annually as a bequest that bore the testator's name.
For those reasons, the plaintiffs are not entitled to the declaration they seek.
Should the trustees be replaced?
Section 70 of the Trustee Act 1925 relevantly provides:
(1) The Court may make an order for the appointment of a new trustee or new trustees either in substitution for or in addition to any existing trustee or trustees, or although there is no existing trustee.
(2) The appointment may be made whenever it is expedient to appoint a new trustee or new trustees, and it is inexpedient difficult or impracticable so to do without the assistance of the Court.
(3) In particular and without prejudice to the generality of any other provision of this section, the Court may make an order for the appointment of a new trustee in substitution for a trustee who is convicted of a serious indictable offence, or is a bankrupt, or being a corporation is in liquidation or is dissolved.
(4) In the case of any trust for a charity the Court may make an order for the appointment of a new trustee on such evidence of the trust as the Court deems sufficient.
The court also has the power to remove or to replace a trustee as part of its inherent power to see that trusts are properly executed. In Miller v Cameron (1936) 54 CLR 572 at 580-1, Dixon J (with whom Evatt and McTiernan JJ agreed) explained the scope of that power in these terms:
The jurisdiction to remove a trustee is exercised with a view to the interests of the beneficiaries, to the security of the trust property and to an efficient and satisfactory execution of the trust and a faithful and sound exercise of the powers conferred upon the trustee. In deciding to remove the trustee the Court forms the judgment based upon considerations, possibly large in number and varied in character, which combine to show that the welfare of the beneficiaries is opposed to his continued occupation of the office. Such a judgment must be largely discretionary.
Although the inherent power is framed in different terms from the power conferred by s 70, it was not suggested that the two sources of power raised substantially different questions or that the inherent power conferred a substantially broader discretion than the discretion conferred by s 70. Consequently, it is not necessary to consider separately the court's inherent power.
Sections 7 and 8 of the Charitable Trusts Act 1993 (NSW) give the court power in "charitable trust proceedings" to appoint or to remove a trustee in the event of misconduct, mismanagement, incapacity and the like. Section 6 of that Act provides that "charitable trust proceedings" cannot be commenced unless they have been authorised by the Attorney-General or leave to bring the proceedings has been obtained from the court: s 6(1). In the latter case, the Attorney-General must be given an opportunity to be heard: s 6(2). "Charitable trust proceedings" is defined in s 5 to mean, relevantly, proceedings "with respect to any breach or supposed breach of a charitable trust, or with respect to administration of a charitable trust". However, they do not include "proceedings relating merely to the construction of a trust instrument".
The limitations contained in the Charitable Trusts Act 1993 do not sit easily with the broad power conferred by s 70 of the Trustee Act . Nonetheless, it seems clear from the terms of s 70(4) that the power conferred by that section extends to a charitable trust. At the hearing of this matter, Mr Kelly SC raised the question whether the proceedings, insofar as they sought orders replacing the trustees, were charitable trust proceedings, requiring the consent of the Attorney-General. However, after the hearing concluded, I was informed that the Attorney-General has given his consent to the continuation of the proceedings; and that consent is sufficient for the purposes of s 6: see s 6(2A). Consequently, the success or failure of the current application turns on whether it can be said that it is "expedient" to appoint new trustees in place of the existing ones.
The word "expedient" is a broad one which covers a wide range of circumstances. The principal question must be, however, whether the objects the settlor, or in this case the testator, sought to achieve by the trust are threatened if the power conferred by s 70 is not exercised.
In this case, there is no suggestion that the trust property is endangered or the trustees have failed efficiently and satisfactorily to execute the trust. Nor is there any suggestion that they have exercised their powers in a way that is not sound. In addition, as I have said, it is not suggested that the trustees are not entitled to charge the commissions and fees that they have. The only basis on which it is said to be expedient that the trustees be replaced is that the new trustees would not charge fees or commissions and, to that extent, the income available for distribution to the plaintiffs would be increased.
In support of that submission, the plaintiffs rely on my decision in Crowle Foundation v NSW Trustee & Guardian [2010] NSWSC 647. In that case, one of the matters I took into account in deciding to replace the existing trustee of a charitable trust with a new trustee was that the change would be conducive to the efficient administration of the trust and the overall costs of administration would be reduced.
However, it is important to observe that in that case, at the time the gift was made, the institution that the testator intended to benefit was operated by the entity which was appointed trustee. At the time of the proceedings, as a result of a reorganisation, that was no longer the case. The institution that the testator intended to benefit was operated by a different entity. It was in those circumstances that I reached the conclusion that I did. The replacement of the trustee with the entity that then operated the institution that the testator intended to benefit best gave effect to the testator's intentions and best achieved the objects of the trust she had created.
In this case, the testator's intentions were clear. The trustees were intended to be Perpetual and Mr Rosenblum. There is no suggestion that those trustees have failed to execute the trust in accordance with the testator's wishes and in a way that best achieves the objects of the trust. The testator must have expected that the plaintiffs would charge commission and other fees. Indeed, he may well have had in mind that Mr Rosenblum would benefit from doing so and the likelihood is that, given the relationship between the deceased and Mr Rosenblum and the other benefits conferred on Mr Rosenblum, the deceased intended to confer that benefit on him provided he diligently discharged his duties as a trustee - which he has done.
In addition, it is not obvious that the trust would be more effectively administered if the current trustees were replaced. Although there can be no doubt that the proposed trustees are suitable persons, there can be no certainty that they will reach agreement on the most appropriate way in which to administer the trust. The will provides no mechanism for replacing the trustees. Presumably, the testator thought it was unnecessary to do so given that Perpetual is an incorporated entity and will be able to continue to administer the trust when Mr Rosenblum ceases to be a trustee. On the other hand, it is not clear what would happen when one or more of the proposed new trustees retires from their respective positions at the institutions benefited by the trust or when one or more of them is no longer able to continue as trustee. Although the proposed new trustees have offered undertakings that they will not charge fees or commissions for administering the trust, those undertakings cannot bind new trustees. Moreover, even if the trust itself does not bear any costs of administration, there will necessarily be some costs of administration which will have to be borne by the plaintiffs. Consequently, it cannot be said that the result of replacing the existing trustees is that the charitable purposes of the relevant institutions will obtain the full benefit of the commissions and fees that are currently charged by the trustees.
For those reasons, the plaintiffs are not entitled to orders substituting new trustees for the existing ones.
Orders
The proceedings should be dismissed. The costs of the parties assessed on an indemnity basis should be paid out of the trust fund.
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Decision last updated: 16 March 2012
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