The Presbyterian Church of Victoria Trusts Corporation v Anstee, Nuske, Evans, Holman, Kerss (No 2)
[2017] VSC 102
•7 April 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2013 03222
BETWEEN
ATTORNEY-GENERAL OF VICTORIA on the relation of THE PRESBYTERIAN CHURCH OF VICTORIA TRUSTS CORPORATION
| THE PRESBYTERIAN CHURCH OF VICTORIA TRUSTS CORPORATION | Plaintiffs |
| and | |
| DOROTHY RAE ANSTEE, JAMES FREDERICK NUSKE, BRUCE CHARLES EVANS, HELEN ANNE HOLMAN and PAUL LINDSAY KERSS as Trustees of the Scots’ Church Properties Trust and as Trustees of the Assembly Hall of the Presbyterian Church of Victoria | First to Fifth Defendants |
| and | |
| DOUGLAS SHERMAN in his capacity as representative of the Board of Management of the Scots’ Church Melbourne | Sixth Defendant |
| and | |
| HARRY MEARES HEARN | Third Party |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5-6 October 2016, 10 October 2016 |
DATE OF JUDGMENT: | 7 April 2017 |
CASE MAY BE CITED AS: | The Presbyterian Church of Victoria Trusts Corporation v Anstee, Nuske, Evans, Holman, Kerss & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2017] VSC 102 |
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CHARITABLE TRUST – Remedies for breach of trust – Whether election required – Identity of party or parties required to make election – Availability of proprietary remedies – Tracing – Extent of each charitable object’s interest in the Assembly Hall and proceeds of sale of the Assembly Hall.
CHARITABLE TRUST – Construction of Trust Deed – Whether trustees authorised to deduct a Stipend or Collegiate Charge from amounts otherwise distributable – Amount of allowable Stipend or Collegiate Charge – Strict literal construction not appropriate in the circumstances.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. W. Shand QC with Ms C. G. Rome-Sievers | Lewis Holdway Lawyers |
| For the First to Fifth Defendants | Mr R. Garratt QC with Mr D. Guidolin | Marsh & Maher |
| For the Sixth Defendant | Mr P. Solomon QC with Mr J. McComish | DLA Piper Australia |
| For the Third Party | Mr C. Caleo QC with Mr D. Luxton | Minter Ellison |
HIS HONOUR:
Introduction
On 7 June 2016 I published reasons for holding that the acquisition of the Assembly Hall by the Trustees of the Scots’ Church Property Trust (SCPT or the Trust), and improvements made to the Assembly Hall by the Trustees were all in breach of trust.[1] I will assume familiarity with the Reasons. Defined terms bear the same meaning.
[1]The Presbyterian Church of Victoria Trusts Corporation v Anstee, Nuske, Evans, Holman, Kerss & Ors (No 1) [2016] VSC 297 (Judgment or Reasons).
The Assembly Hall was acquired for $4.5m and improvements were in excess of $6.9m. These amounts were required to be distributed equally to each of the charitable objects or beneficiaries of the Trust,[2] being the Presbyterian Church of Victoria (PCV) and the Board of Management of the Scots’ Church (BOM). The funds were not so distributed and instead were deployed in breach of trust. A summary of the various claims made is set out at paragraphs [4]–[16] of the Reasons.
[2]Given the structure of the Trust and in particular the obligation to distribute all income received in a certain order or priority with the balance to be divided equally between two stated ‘entities’ it is not unhelpful to refer to those entities (PCV and BOM) as beneficiaries. It is indeed those identified beneficiaries that have stated charitable objects. Although nothing turns on this, SCPT does not as such make charitable bequests in accordance with stated objectives. Rather, this is carried out by those identified beneficiaries. I will use the terms interchangeably.
The first stage of this proceeding (Stage 1), to which the Reasons were directed, involved the answering of seven agreed questions.
The seven questions and answers were as follows —
1.Q - Was the payment of $5.5 million (or $4.5 million of the same) received on 7 April 2008 by the Trustees from APN DF2 Project 2 Pty Ltd (‘APN’) under the ground lease between the Trustees and APN of the Commercial Properties distributable pursuant to clause 7 of the Trust Deed?
A – The Lease Premium was distributable. It was clearly moneys received under or by virtue of a lease.
2. Q - If the moneys were distributable pursuant to clause 7 –
(a)was the $4.5 million used to pay the purchase price of the Assembly Hall distributed pursuant to clause 7 of the Trust Deed?
(b) If it was not so distributed, what is the consequence in law?
A – (a) The Lease Premium was not distributed. It was, by agreement, paid out prior to distribution. The fact that the structure of the transaction was premised on how a distribution would have taken place, merely provides an explanation but does not make it a distribution.
(b) The consequence is that there was a breach of trust.
3.Q - If the $4.5 million was distributed pursuant to clause 7 of the Trust Deed, did the Trustees, in using that $4.5 million to pay the purchase price of the Assembly Hall, purchase the Assembly Hall –
(a)pursuant to any provisions of the Trust Deed, including clause 9, conferring a power on them to do so? or
(b) on separate express trusts independent of the SCPT Deed.
A – (a) No. The SCPT does not permit the acquisition of the Assembly Hall and clause 9 does not provide such authority.
(b) The purported acquisition of the Assembly Hall was not acquired on separate trusts.
4.Q - If that payment of $4.5 million was not distributable pursuant to clause 7, did the Trustees, in using that $4.5 million to pay the purchase price of the Assembly Hall, purchase the Assembly Hall pursuant to any provisions of the Trust Deed, including clause 9, conferring a power on them to do so?
A – No. See answer to question 3(a).
5.Q - If that payment of $4.5 million was not so distributable and the Trustees did not purchase the Assembly Hall pursuant to any provisions of the Trust Deed, including clause 9, is the Assembly Hall charged with the repayment of that $4.5 million to the SCPT or otherwise held on a constructive trust on what terms?
A – Yes, the Assembly Hall is charged with the repayment.
6.Q - Were the Trustees authorised to deduct all or part of the sum of $6,902,419.64 from the annual moneys distributable under clause 7 of the Trust Deed the items referred to in paragraph 73 of the Amended Statement of Claim, what is the consequence in law?
A – No.This is common ground.
7.Q - If the Trustees were not authorised to deduct all of part of the sum of $6,902,419.64 from the annual moneys distributable under clause 7 of the Trust Deed the items referred to in paragraph 73 of the Amended Statement of Claim, what is the consequence in law?
A – The consequence is that the Assembly Hall is charged with the repayment of this amount.
In the Reasons, I expressed some preliminary conclusions. Paragraphs [197]–[208] are in the following terms —
197The starting point, so far as relief is concerned, is that the SCPT (and more particularly the identified beneficiaries) has been impoverished through various breaches of trust by the Trustees in relation to unauthorised expenditure of the sum of over $11m, putting both the value or increased value of the acquisition of the Assembly Hall and interest to one side. Under the SCPT this amount (or such lesser amount after taking into account other prior required distributions) should have been distributed as to one-half to the Presbyterian Church of Victoria and as to the other half to the Board of Management. These parties or entities are the beneficiaries entitled to beneficial ownership of the funds.
198They, or any of them, are entitled to bring (as indeed the plaintiffs have) a personal claim against the Trustees for breach of trust and in aid of or part of this claim they are entitled to assert an equitable lien or charge over the Assembly Hall. Alternatively, the beneficiaries may assert beneficial ownership (as indeed they have) in the asset acquired in breach of trust, in this case the Assembly Hall.
199Although the remedies are alternative, both are available at this stage, subject to the matters that may be the subject of the further hearing of this case. The beneficiary, in this case, the Presbyterian Church of Victoria, is not required to make any election.
200The final remedies will depend upon resolution of the next and final part of the case, which must of necessity include a consideration of any relief under the Trustee Act 1958, the subject of the related proceeding.
201Unfortunately, these are the real issues in the case, namely given the obvious breaches of trust, what remedies flow in the peculiar circumstances of this charitable trust with specific beneficiaries. This, with respect, should have been the starting point of the case.
202The relief will need to reflect what the parties would have received but for the diversion or unauthorised use of the identified funds. However, in order to identify the true loss, a beneficiary will, on the accepted authority of Target Holdings and Youyang, be required to account for gains that would not have been made but for the breach of duty. This in turn may affect the extent to which the Assembly Hall is held on (constructive) trust and whether it will need to be sold.
203Accordingly, on the footing that there have been breaches of trust as identified, and that at the very least the Assembly Hall is charged with repayment of a sum in excess of $11m plus interest, the following matters need to be decided in order to determine what final relief should be granted.
204First, matters relating to whether any relief is available —
· Estoppel.
· Acquiescence, consent and condoning.
205Second, matters associated with the personal liability of the Trustees —
· Excused from liability for acting honestly.
· Third party claim.
· Right of indemnity.
206 Third, matters associated with proprietary relief —
·Assembly Hall constructive trust — the extent of the beneficiaries interest.
·Knowing participation.
·Sale of Assembly Hall.
·Section 63 Trustee Act.
207In my opinion the real issue so far as remedy is concerned is the third matter. It will involve complex accounting and legal issues.
208I will hear from the parties as to the further disposition of the proceeding.
After a number of directions hearings and further argument, the parties agreed on five further questions relating to the appropriate remedy consequent upon the breaches of trust.
The five questions are as follows —
1. Whether an election is to be made by or for either charitable object in relation to the relief that may be ordered in consequence of the breaches of trust which have been found by the Court
2. If an election is to be made as to the relief that may be ordered, the identity of the electing party or parties;
3. If an electing party elects to take an interest in the Assembly Hall (being the land contained in certificate of title Vol. 3757 Fol. 276), the extent of that party’s interest in the Assembly Hall or the proceeds of a sale of the Assembly Hall subsequent to its election;
4. The validity of the lease dated 7 May 2008 granted by the first to fifth Defendants to the second Plaintiff in respect of part of the Assembly Hall and what if any relief is appropriate to rectify any invalidity;
5. Question 8 (as referred to in the Court’s judgment delivered on 7 June 2016), on which the sixth defendant may make submissions, and on which the Plaintiffs and the first to fifth Defendants have already made final submissions.
Question 1 – whether an election is to be made by or for either charitable object in relation to the relief that may be ordered in consequence of the breaches of trust which have been found by the Court
At paragraphs [198]–[199] of the Reasons, and based on the authorities referred to, I assumed that an election between a personal and proprietary remedy would at some stage be required. The paragraphs were under the heading ‘The result – some preliminary conclusions’. It seems to me that all parties proceeded on this basis. Nothing said by PCVTC during the course of the trial suggested that any remedy did not involve an election. Indeed, it appears to me that the case was run on the assumption, that if breach was established, an election would be available and required. It was not a finding as such and I permitted further argument as to whether the appropriate remedy in the circumstances did indeed call for or compel an election. It is an important issue and was addressed by all parties.
Mr Shand QC (who appeared with Ms Rome-Sievers for PCVTC) submitted forcefully, and repeatedly, that the appropriate remedy, in the first instance, did not and could not call for an election. Rather, in the first instance, the trust estate had to be replenished or restored, whereafter required distributions would be made to each charitable object, subject to any necessary adjustments. This of course would require, as was submitted, a judicial or supervised sale of the Assembly Hall, despite the non-desirability of such a course.
Mr Shand submitted further that a proprietary remedy was not available because it was clearly beyond the remit of each charitable object to hold an interest in real property. Rather, each charitable object required available funds to enable it to carry out its own functions as specifically mandated and required by the terms of the Trust Deed. The holding of real estate was therefore inimical to its own stipulated objectives. All funds received had to be applied as stipulated and only as stipulated.[3] The fact that the proprietary interest was remedial in nature and its declaration did not preclude further activity (for example mortgage or sale) in relation thereto, did not, it was submitted, affect the argument.
[3]In the case of PCV, funds had to be applied for home mission and church extension purposes. In the case of BOM, funds had to be applied for maintenance, improvement and enlargement purposes as set out in the sixthly provisions of clause 7 of the Trust Deed.
Mr Shand submitted further that cases dealing with private trusts were for the most part distinguishable or inapplicable. Beneficiaries of private trusts generally held a proprietary interest in the corpus of the trust whereas the charitable objects did not and were in fact required to deal with distributable funds received in a particular way, and only in that way. Otherwise there would, it was submitted, be a variation or rewriting of the Trust Deed which was specifically not permitted. Indeed it was emphasised, by reference to authority, that the provisions of the Trust Deed were paramount and could not be departed from.
For these reasons it was submitted that the due administration of the Trust called for a sale and distribution as required, a most unfortunate but, it was submitted, inevitable and unavoidable consequence.
The other charitable object, the BOM, disagreed. It has already elected the proprietary remedy and seeks declarations and orders accordingly. The Trustees also disagree and contend that an election is available and should be exercised immediately.
The submissions made by the BOM and the Trustees were entirely orthodox. There was a long line of authority, which included cases dealing with charitable trusts, that supported the availability of an election and there was simply no reason, in principle, logic or authority, to depart therefrom, it was submitted equally forcefully. Indeed it was submitted that the parties had proceeded on this basis. It was submitted that the earlier authorities were relevant and that the appropriate remedy for past breaches could not and did not depend on whether there was any proprietary interest in the property. Finally it was submitted that the remedy did not involve any variation of the Trust but simply provided a remedy shaped by the law.
For reasons that follow, I agree with the BOM and the Trustees, largely for the reasons they give, supported and underpinned, by the substantial body of authority referred to.
In Attorney General v. Corporation of Newcastle,[4] a case concerning the misapplication of funds by a trustee of a charitable trust for the relief of poor freemen of Newcastle and their families, Lord Langdale MR said:
It has been singularly put at the bar, that if there are two remedies, if the charity can either follow the estate, or sue for the substitute obtained by the trustee for the estate:- if it has an option, then that course ought to be adopted which is the most beneficial to the person who committed the breach of trust. That proposition is quite a new one; I have always understood that if the cestui que trust suffers from a breach of trust, he is entitled to that remedy which is the most beneficial to himself; and we find every day that with respect to the restitution of property, in cases where money has been laid out on an improper security, the cestui que trust chooses that course which is most beneficial to himself.
…
We come therefore, to this position, that the corporation, having the possession of, and power over, the charity property, sold it, and received into their own coffers the purchase money, and laid it out as their money with other money which was really their own, in the purchase of another estate. As this was a breach of duty in those persons who had the control of the property, the cestui que trust have a right to select which relief they will have, and they claim relief against the estate that was purchased.
[4](1842) 5 Beav. 307.
In Lord Provost v Lord Advocate,[5] a case of charitable funds being mixed with municipal funds, the House of Lords upheld the decision of the Court of Session that the charity was entitled to take its proportionate share of the mixed fund. Lord Hatherley referred to the right of a cestui que trust to elect “whether he will have a decree for the restoration of the fund … or whether he will take the result of the employment of that fund …”.[6]
[5](1879) 4 App Cas 823.
[6]Ibid at 841.
In Scott v. Scott[7] the High Court held that where the expenditure of money constituted a breach of trust the remedies available may overlap and beneficiaries may have both a proprietary and personal remedy and where they choose to pursue a proprietary remedy, that remedy will be the full measure of the relief available to them.[8] Although not a charitable trust case, reference was made by the High Court in its reasons, on the question of remedy, to Lord Provost v Lord Advocate (above), without any suggestion that different rules as to remedy apply in the case of breach of a charitable trust.
[7](1963) 109 CLR 649.
[8]Ibid at 660-663.
Of course there are numerous other cases dealing with remedies for breaches of trust where an election was clearly available and assumed to be available without argument.[9]
[9]See Halsbury’s Laws of Australia (LexisNexis Butterworths, 3rd ed.) at para 679 under the heading Charities – ‘[Beneficiaries] are entitled to take whichever remedy appears most beneficial’. See also: Foskett v McKeown & Others [2001] 1 AC 102 at 130-131 (per Lord Millett) (Foskett v McKeown).
In my opinion, the authorities are sufficiently clear that a beneficiary, in this case a charitable object must, at some stage, make an election between a personal and proprietary remedy. The authorities do not support replenishment or restoration of the trust estate or a judicial sale as being the only and indeed required remedy. To the contrary, they specifically permit, following such election, the holding or declaration of a proprietary interest, as a remedy for the breach of trust. What happens following such declaration, being simply a remedy for past conduct, is another matter.
I am not persuaded that the remedy, calling as it does for an election, is or may be, to the extent that a proprietary remedy is elected, inconsistent with or may undermine or affect the ability of either PCV or the BOM to discharge its specific required obligations. The relief is remedial. It responds to and addresses the past breaches of trust in an appropriate and permitted way sanctioned by the authorities.
To scope the remedy to accord perfectly with the Trust Deed and stated duties of each charitable object would in my opinion be the wrong way around and unduly restrictive. Further, to deny a proprietary remedy on the grounds that the funds would not be available for immediate use, is both presumptuous and premature. The funds have not been available to date and there is no evidence as to the immediate need for funds. There is no evidence that all funds derived would immediately be used in accordance with the stated obligations. It seems to me that the conduct or anticipated conduct of the charitable objects, in discharging their own trustee type obligations is not a matter presently before the Court. I do not consider that any charitable object is restricted from holding a proprietary interest as a remedy and a substitute for funds that it would have derived. The way forward is another matter.
I am not persuaded that the holding by PCV and the BOM of a proprietary interest in the Assembly Hall, following such election, constitutes either a variation to the terms of the Trust or does not advance the stipulated purposes or objectives of either beneficiary or charitable object or would involve a departure from the terms of the Trust Deed.
First, as pointed out by the Trustees[10] the breaches cannot be undone and the distribution process undertaken as if there had not been any breach. Rather, as submitted, it is the question of an appropriate remedy at trial taking into account all relevant matters. In this sense the remedy does not affect the terms of the Trust. The terms remain unaffected. There is no variation or departure from the terms of the Trust Deed. There is a remedy to address past breaches of trust.
[10]Paragraph 22 of submissions filed 26 September 2016 and paragraph 4 of reply submissions filed 3 October 2016.
Further being remedial in nature it may not matter whether the holding of a proprietary interest in real estate does not involve advancing the stipulated purposes or objections of the beneficiaries or charitable objects.
Secondly, and in any event and as pointed out, I do not consider that the holding of a proprietary interest in real estate, namely the Assembly Hall, offends or is inconsistent with the stated objectives of each beneficiary or charitable object. Although all funds received must be applied in a particular way, there is no indication as to what is to happen with funds received if they are not immediately required or until they are required. Surely they can be held until required? It must follow that the holding of a proprietary interest as a remedy for past breaches does not and is not of itself and without more inconsistent with the stated purposes. The better view is that such a passive holding declared by law, according to law, does not at this stage undermine or inhibit the ability of each charitable object to fulfil its objectives.
The authorities relied on by PCVTC are, in my view, either distinguishable or not entirely on point.
The first case relied on was Wylde v Attorney General for New South Wales (at the Relation of Ashelford and Others).[11] Reliance was placed on the following passage from Latham CJ —
The suit is brought for the purpose of securing the performance of charitable trusts. The trusts upon which the church property is held are religious trusts and are therefore plainly charitable in character. Property devoted to a charitable trust must be used for the purposes, and only for the purposes, of the trust. Changes in circumstances may make it probable that the founder of the trust would, if he had been able to do so, have varied the terms of the trust for the purpose of meeting conditions created by such new circumstances. But when proceedings are instituted in a court for the purpose of securing the performance of such a trust there is no authority in the court to “vary the original foundation, and to apply the charity estates in a manner which it conceives to be more beneficial to the public, or even such as the Court may surmise that the founder would himself have contemplated could he have foreseen the changes which have taken place by the lapse of time” (Attorney-General v. Sherborne Grammar School (1)).
[11](1948) 78 CLR 224 at 255.
It may readily be accepted that the ‘purposes of the trust’ referred to are those of the charitable objects. There is nothing at present to suggest that the funds represented by an interest in the Assembly Hall will not be used for such purpose.
The next case relied on was Re Stable, Deceased. The Legacy Club of Brisbane v Marston and Others.[12] In this case, the late Rose Stable devised ‘her freehold house property situated at Tambourine to the Legacy Club of Brisbane absolutely to be used by them for the benefit of war orphans and widows’. Jeffriess A.J. held that the property was to be held in specie and that the Legacy Club was not entitled to sell the property.[13]
[12](1957) St. R. Qd. at 103.
[13]Because the cost of putting the property into a fit condition for its intended use was too high the Legacy Club was unable to accept the trust and the gift was administered cy-pres.
Jeffriess A.J. held that the word ‘used’ and ‘use’ were clear indications that a sale would undermine the testator’s clear intention. His Honour said —
So it would appear to me here, that if the property were sold, or leased, then the trustees would be using the proceeds of sale or the rents and profits and not the land for the benefit of widows and orphans. The words of the will point to the use of the property itself and not to the use or purpose to which proceeds of sale or rents and profits derived from the property may be applied.
It must be noted that testatrix does not say in what manner it is to be used.
But what I think the testatrix contemplated was that the property would be held by Legacy and conducted as a place where war widows and war orphans might reside, either for holiday purposes or health giving purposes.
As pointed out, the mere holding of an interest, remedial in nature is not, without more like the selling of the house which comprised the entire corpus of the trust and was earmarked specifically for war orphans and widows.
The next case relied on was The Sydney Homoeopathic Hospital v Turner and Ors.[14] Reference was made to the following passage in the judgment of Kitto J —
The contention fails to give sufficient weight to the fact that when the will was framed the name “the Sydney Homoeopathic Hospital” signified both the hospital as a going concern (so to speak) and an unincorporated association which conducted the hospital through a board of management. The association comprised a class of contributors to the hospital funds, and its only object, as stated in its rules, was “to afford gratuitous medical and surgical aid under the Homoeopathic system to sick persons in destitute circumstances and to others upon such terms of payment as shall from time to time be determined by the Board of Management”. The testator used the name in a will which, although it has a good deal of the artificial about it, is not remarkable for precision either in expression or in thought. The natural meaning to attribute in the circumstances to his direction to pay income to “the Sydney Homoeopathic Hospital” is that the payment should be made to the unincorporated association (i.e. to the trustees appointed to hold property under its rules) to be applied for the purposes for which the body existed: cf. In re Tyler (1); Royal College of Surgeons of England v. National Provincial Bank Ltd. (2). The gift cannot possibly have been intended as a gift to a body of persons taking beneficially, so that moneys received under it might be diverted to new purposes by decision of the board of management or agreement of the members, or might be distributed amongst the members in a winding-up. There is, I think a strong implication of an intention that, through the medium of the unincorporated association, the relevant income should be devoted to the purposes which that association announced by its rules and was serving by carrying on its hospital. Such an implication must often arise upon a gift to a body which exists for specific purposes of an altruistic nature, and especially where the name used in the words of gift fits indifferently an activity serving such purposes (as for instance a hospital) and the body which carries it on. In such a case, the use of the name is apt to conceal an omission to distinguish in thought between the one and the other, so that the name is really a portmanteau description signifying that the governing body is to be the recipient but is to take upon trust for the furtherance of the activity.
Not, of course, that a trust arises in every case of a gift to a body established for limited objects. The nature of the objects may have provided the donor with the motive for his gift, and yet the gift may be a beneficial gift entitling the body to apply the property as it sees fit within the scope of its powers as they exist from time to time. Property given to a company, for example, is not necessarily held on trust for the objects stated in the company's memorandum of association, nor is property which is given to a chartered corporation necessarily held on trust for application in accordance with the charter. But if the objects of a body are limited to altruistic purposes, it is as an instrument of altruism that it is likely to attract benefactions. Very often, to say the least, it will be a proper inference, when a gift is made to such a body, that the donor intends the gift to operate as a devotion of the subject property to the relevant purposes, and that the donee accepts it as such. Where that is the case all the elements necessary for the creation of a binding trust are present. Accordingly a gift which would be invalid unless it operates to create a charitable trust may be upheld because, when the objects of the body which is the donee are taken into consideration, an inference arises that the gift is upon trust for charitable purposes (or for charitable purposes and others which are no more than ancillary).
[14](1958-1959) 102 CLR 188 at 220-222.
Next, reference was made to Attorney-General for the State of Queensland (At the Relation of Nye and Others) and Others and the Corporation of the Lesser Chapter of the Cathedral Church of Brisbane and Another.[15] Reliance was placed on the following passages from the decision of Jacobs J —
It is necessary to make clear this distinction between a gift to an institution impressed with a trust for the application thereof to particular purposes and an absolute gift to such an institution as a result for instance of an appeal by the institution for funds based on its need for moneys in order to carry out a particular project or purpose. The distinction is one which can be difficult in its particular application. Where the expressed purpose is not a charitable purpose the gift will fail if the purpose is held to create a trust unless the trust is found to be a private trust enforceable by the donor until the purpose has been achieved, but meanwhile revocable—the so-called trust of imperfect obligation where there is a resulting trust to the donor if the moneys are not expended. Such a gift may however be construed as an absolute gift motivated by the expressed intention of the institution. However, if the purpose of the gift is a charitable purpose, the charitable purpose will more likely than not impress the subject matter of the gift with a charitable trust.
A further distinction needs to be borne in mind. A trust to a charitable institution such as a church of money or property for the improvement of the fabric of the church or some other purpose will in many instances be fully performed once the moneys have been so expended. There is no separate continuing trust of the improvements. The trustees of that property can deal with it in accordance with their powers appertaining to that property. However, where the purpose of the appeal is itself charitable and particularly where the purpose is identifiably distinct from a particular need of the institution which makes the appeal, then the moneys raised and the product thereof will be impressed with a continuing charitable trust for the purposes for which the moneys are so raised and the trust will be enforceable at the suit of the Attorney-General.
In the present case the moneys were raised from the public for the erection of a new hospital, to be called St Martin’s Hospital. It was to be on the site on which the old Pyrmont Hospital stood, an existing property and existing charitable activity of the Lesser Chapter. But the purpose of the appeal was not the mere renovation of the old hospital. The essence of the appeal was a new hospital, a hospital which would itself be a war memorial. The erection of such a hospital, intended to be supported by the payment of fees by patients, but one from which the poor were not excluded and which was not intended to be operated for commercial profit (In re Resch’s Will Trusts (2)) and which was intended to make special provision for shell-shocked soldiers (cf. Verge v. Somerville (3)) was a valid charitable purpose and was a purpose distinct from the general purposes of the Lesser Chapter. In my opinion the Lesser Chapter was in these circumstances distinctly a trustee of the funds so raised for that particular charitable purpose.
…
The duty of the Lesser Chapter was to apply the moneys for the purpose of rebuilding and, that having been done, to ensure so far as it could that the hospital was carried on for the purpose for which it was built.
[15](1976-1977) 136 CLR 353.
Reference was also made to the basic principles as set out by Chisholm J in the New Zealand case of The Great Christchurch Buildings Trust v Church Property Trustees.[16] His Honour said —
[16][2012] NZHC 3045 at [142]-[144].
[142]Although several other cases were cited by counsel, none appear to have a direct bearing on the issue I am attempting to resolve. I will therefore go back to first principles.
[143]As Weigall AJ, sitting in the Supreme Court of Victoria, observed In re The Church of England Trusts Corporation (Wangaratta):[17]
As to any trust, whether charitable or non-charitable, the duty to effect, so far as possible, the purpose of the trust as originally created, and as closely as possible in the manner then prescribed, and to avoid any unnecessary departure from the terms of the trust, must always be the dominant consideration as well for the Court as for the trustee.
Observations to the same effect can be found in numerous decisions and texts. In short, trustees, and also this Court in its supervisory jurisdiction, must comply with the terms of the trust.
[144]Once a trust has been created its terms will continue to apply until the trust reaches the end of its life or is earlier varied. Depending on the nature of the trust, there are several paths by which a trust can be varied: Section 64 of the Trustee Act 1956; Part 3 of the Charitable Trusts Act 1957; and Part 3 of the Anglican Church Trusts Act 1981. Given that there has been no variation of the Cathedral trust, its original terms must stand.
[17][1924] VLR 201 at 206.
In my opinion these cases do not assist PCVTC for the reasons already noted. The critical differences are first the remedial nature of the holding and secondly there is no proposed inconsistent use but merely the holding of an asset in the context and circumstances referred to. The remedial proprietary nature of the interest does not mean that the holding is not permitted simply because it is not immediately being used for the contemplated purposes.
I consider that in all of the circumstances and subject to what is said hereunder, the election should be made within 14 days of the publication of these reasons. PCV is, in my opinion, clearly in a position to make an informed choice as to which remedy is more desirable or favourable from its standpoint.[18]
Question 2 – if an election is to be made as to the relief that may be ordered, the identity of the electing party or parties
[18]Island Records Ltd v Tring International PLC & Another [1996] 1 WLR 1256; GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers & Ors [2005] VSCA 113 at [56] (Warren CJ; Chernov JA and Dodds-Streeton AJA agreeing).
In my opinion the correct party to make the election is PCVTC. Despite submissions to the contrary it is clearly within its remit to act on behalf of the PCV. That is its function. In any event any argument to the contrary loses its force given the clear and unequivocal concession by PCV that it will abide the result of the case and any election made by PCVTC.[19] Finally lest there be any doubt PCV derives its ultimate authority from the same source as PCVTC, namely the General Assembly.
Question 3 – if an electing party elects to take an interest in the Assembly Hall (being the land contained in certificate of title Vol. 3757 Fol. 276), the extent of that party’s interest in the Assembly Hall or the proceeds of a sale of the Assembly Hall subsequent to its election
[19]The concession is made in a letter dated 8 October 2016 from PCV to Lewis Holdway Lawyers and a letter from Lewis Holdway Lawyers to Marsh & Maher dated 10 October 2016 enclosing the PCV letter.
Whatever the election, it is necessary to determine the respective interests of the charitable objects in light of benefits received over the years.[20]
[20]Target Holdings Ltd v Redferns (A Firm) and Another [1996] 1 AC 421 at 437.
PCV submitted that it must, in accordance with the Trust Deed, be 50:50 with appropriate adjustments.
The BOM submitted that the entire interest in the Assembly Hall is held on constructive trust for it alone and that PCV does not hold and is not entitled to any proprietary interest in the Assembly Hall.
The essence of the submission is that, unlike the BOM which received none of its entitlements (one half) to the $4.5m, PCV effectively received its full entitlement which was presumably applied in the required manner. As a consequence, having received its full entitlement, associated with the breach comprising the acquisition of the Assembly Hall for $4.5m, it is entitled to no more and is unable to assert any claim in this regard and in particular no claim to the Assembly Hall. In other words it received and indeed (as was submitted) acquiesced in the receipt of which — but for the breach — it would have in any case received.[21] Consequently, although funds were misapplied or were deployed in breach of trust, one of the beneficiaries — that is PCV — nevertheless received what it was entitled to receive.
[21]Reference was made to Re Tilley’s Will Trusts [1967] Ch 1179 at 1193.
Finally in relation to PCV acquiescing in the distribution, made in breach of trust, but received by it nonetheless, it was submitted by reference to authority[22] that no further remedy is available to PCV.
[22]The authorities are referred to in footnote 13 of the BOM submissions dated 26 September 2016.
In relation to the breach associated with the expenditure in the sum of $6,902,419, BOM submitted that PCV is not entitled to, and such expenditure does not give rise to, any further proprietary interest or entitlement.
It was submitted that no proprietary interest arises because ‘the money spent on renovations was not used to acquire any asset’ and ‘it is not possible to trace where the payment in breach of trust does not result in the acquisition of a substitute asset’.[23]
[23]Reference was made to Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75 at [132]–[139] (Spigelman CJ, Handley and Santow JJA agreeing).
Finally it was submitted by reference to authority that PCV is unable to trace the amount of about $3,451,209 that it ought to have received because it has never been beneficial owner of the Assembly Hall and ‘cannot trace funds expended on the improvement of land beneficially owned by someone else’.
The Trustees agreed with the BOM that the receipt by the PCV of the sum of $2.25m, an amount that it would have been entitled to in the absence of any breach, must be taken into account and that the interest of the PCV must be reduced accordingly.[24] However, unlike the BOM, the Trustees submitted that the PCV was, if it so elected, entitled to a proprietary interest in the Assembly Hall consequent upon the breaches of trust associated with the improvements, that is the sum of about $6,902,419. As a consequence it was submitted that the correct percentages were 37% to the PCV and 63% to the BOM.
[24]The Trustees went further and submitted that the purchase price was struck so as to take into account the $2.25m that would otherwise have been paid. This was done so as to ensure the payment or distribution was effectively made.
The gravamen of the Trustees’ submission is that, in the circumstances and having received the sum of $2.25m, ‘it is not appropriate to regard the PCV as having made a contribution towards the purchase price of the Assembly Hall’. By contrast, the sum of $3,451,209 ‘represents direct financial contributions made to the improvement of the Assembly Hall by the PCV’.[25] It was submitted that these contributions ‘give rise in equity to a constructive trust’.[26]
[25]When regard is had to the equal contribution of the BOM ($3,451,209) plus its contribution to the acquisition ($2.25m), a total of $5,701,209, the percentages are 37% and 63%.
[26]Reference was made to Muschinski v. Dodds (1985) 160 CLR 583 and Baumgartner v. Baumgartner (1987) 164 CLR 137.
The Trustees made much of the fact that the sale and refurbishment or improvement of the Assembly Hall was a consensual joint enterprise undertaken in circumstances where the Assembly Hall had fallen into disrepair and substantial funds were required for refurbishment and redevelopment.
In a reply submission the PCV persisted with its 50:50 percentage allocation and submitted that so far as its receipt of $2.25m is concerned, the Court has specifically held that it was not a distribution and its allocation and receipt was purely an internal matter. In relation to the moneys spent on improvements it was submitted that as the moneys can be traced into the Assembly Hall which has increased in value, the Assembly Hall ‘remains charged with the payment of $6,902,419 plus interest.’[27] The submission also referred to occupation and possessory benefits and is referred to below.
[27]Reference was made to a number of authorities collated at footnote 24 of its submissions dated 26 September 2016.
Each of the charitable objects have received occupational and possessory benefits associated with the acquisition and refurbishment (all in breach of trust) of the Assembly Hall. Of course this is not a criticism and indeed appears to have been contemplated. The question is whether these benefits should be quantified and taken into account. The precise nature and extent of those benefits have not been the subject of evidence and have only briefly been canvassed in the submissions.
What then is to be done? What are the respective interests of the charitable objects? Are the respective interests 100:0 as submitted by the BOM? Or are they 50:50 as submitted by PCV? Or, are they 63:37 as submitted by the Trustees?
In my opinion, and although not free from difficulty, the better analysis and submission is that of the Trustees. For reasons that follow and subject to the election, I propose to declare that the PCV holds a 37% proprietary interest in the Assembly Hall and the BOM holds a 63% proprietary interest in the Assembly Hall.
There are, as identified by all parties, three distinct matters for consideration. First the breach associated with the acquisition of the Assembly Hall. Secondly, the breach associated with the redevelopment or improvements made. Thirdly, looking at the matter today whether other benefits or burdens should be taken into account when assessing or finalising the percentage interests of each charitable object.
The Assembly Hall was acquired in breach of Trust. It was however acquired from PCVTC. On any view PCVTC was paid, and the purchase price was far in excess of the market value of the Assembly Hall. PCV received what would otherwise have been its distribution had the sale (and breach) not taken place. PCVTC and PCV agreed to the sale. Not only that, they struck the purchase price, the inflated purchase price in order to facilitate the payment of an amount equivalent to the distribution it would have received. It cannot now claim an interest in the Assembly Hall based on non-receipt or diversion of funds that it should have received, when it did effectively receive such funds pursuant to a deliberately structured agreement between the parties.
The submissions of the BOM and the Trustees in this regard are sound. I do not accept the submission of the PCV that the receipt by it of $2.25m was simply an internal matter and that it did not receive any distribution because the Court said so in the Reasons at [162], [163] and [167]. It was not simply an internal matter and it did effectively receive an amount equivalent to what would have been its distribution. If one was to stop the clock after the acquisition, how could it then have asserted an interest in the Assembly Hall or any other remedy in circumstances where the breach of trust did not cause it any loss at all? To what detriment would any relief attach? Surely equity would not in the circumstances countenance any double dipping?
As submitted by the PCV and the Trustees, the breach associated with the misuse of the sum of $6,902,419 is traceable directly into the redevelopment, refurbishment and improvement of the Assembly Hall. The funds should have gone to the PCV and the BOM in equal shares.[28] Instead the specifically identified funds were used for the purposes aforesaid. For the reasons given by the PCV and the Trustees, which I accept, they are each entitled to an interest in the Assembly Hall consistent with the amount each would have received, that is $3,451,209. The authorities referred to below support the proposition and conclusion reached.
[28]Subject to the regime of expenses set out in clause 7 of the Trust Deed.
In Foskett v McKeown,[29] Lord Millett said in relation to tracing and the establishment of claims to substituted and mixed assets as follows —
My Lords, this is a textbook example of tracing through mixed substitutions. At the beginning of the story the plaintiffs were beneficially entitled under an express trust to a sum standing in the name of Mr. Murphy in a bank account. From there the money moved into and out of various bank accounts where in breach of trust it was inextricably mixed by Mr. Murphy with his own money. After each transaction was completed the plaintiffs’ money formed an indistinguishable part of the balance standing to Mr. Murphy’s credit in his bank account. The amount of that balance represented a debt due from the bank to Mr. Murphy, that is to say a chose in action. At the penultimate stage the plaintiffs’ money was represented by an indistinguishable part of a different chose in action, viz, the debt prospectively and contingently due from an insurance company to its policyholders, being the trustees of a settlement made by Mr. Murphy for the benefit of his children. At the present and final stage it forms an indistinguishable part of the balance standing to the credit of the respondent trustees in their bank account.
[29][2001] 1 AC 102.
Later at page 128 his Lordship said —
Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant’s property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. If he held only a security interest in the original asset, he cannot claim more than a security interest in its proceeds. But his claim may also be exposed to potential defences as a result of intervening transactions.
In relation to contributions to a mixed fund his Lordship said —
A mixed fund, like a physical mixture, is divisible between the parties who contributed to it rateably in proportion to the value of their respective contributions, and this must be ascertained at the time they are added to the mixture. Where the mixed fund consists of sterling or a sterling account or where both parties make their contributions to the mixture at the same time, there is no difference between the cost of the contributions and their sterling value. But where there is a physical mixture or the mixture consists of an account maintained in other units of account and the parties make their contributions at different times, it is essential to value the contributions of both parties at the same time. If this is not done, the resulting proportions will not reflect a comparison of like with like. The appropriate time for valuing the parties’ respective contributions is when successive contributions are added to the mixture.[30]
[30]At page 141. See also: Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) at [17.37].
In Robb Evans of Robb Evans & Associates v European Bank Ltd,[31] Spigelman CJ referred to the passage of Lord Millet at page 128 cited above, and in the circumstances of the case before him said —
[31](2004) 61 NSWLR 75.
[134]In the present case it is possible to trace, in the sense of identifying a causal chain, from the Benford deposit with the Respondent into the Respondent’s deposit with Citibank. That identification does not, however, of itself, establish a right of any kind. Something more is required. The terminology of a “right to trace” can be, and in the present case is, misleading. The process of identification should not be confused with a proprietorial right.
[135]This is not a case in which a beneficiary—a defrauded credit card holder, in this case—elects to take property which his fiduciary has acquired with trust property. (See, for example, Scott v Scott (1963) 109 CLR 649 at 660; Foskett v McKeown (at 130-131.) The election asserted in this case extends to a third party who holds property that is causally linked to the property to which the beneficiary remains entitled.
[136]The Appellant’s assertion that he could elect between claiming the debt in Vanuatu and the deposit in Sydney was based on the following sentence in Lord Millett’s judgment in Foskett v McKeown (at 127C): “… Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner”.
[137]This sentence was immediately preceded by the following: “The processes of following and tracing are … distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old”.
[138]No issue of an election between following and tracing arose here. The original asset, that is, the debt in Vanuatu, was not passed on. In the present circumstances, only tracing was material. The “election” to which Lord Millett referred, did not arise.
[139]Furthermore, in property law, the new “asset” constituted by the European Bank deposit with Citibank, was not, to use Lord Millett’s terminology, a “substitute for the old [asset]”, constituted by the Benford deposit with European Bank. That “old asset” has never been transformed or “substituted” into any thing. The funds had been employed by the bank, but the “old asset” always existed and still exists. The Benford account was always in credit, whether as a deposit account or as a current account. There was no occasion on which the value inherent in the account, which Benford held as trust property, had become located in the value inherent in the deposit with Citibank. No process of the character referred to by Lord Millett as “substitution” has occurred.
In Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd,[32] Sackar J referred to the passage of Lord Millet at page 128 cited above, and in the circumstances of the case before him said—
[32][2016] NSWSC 1344.
[32]Tracing is a doctrine which, in certain circumstances, allows the owner of property converted into a different form to be treated as the owner of this property in its new form: J D Heydon and M J Leeming, Jacobs’ Law of Trusts (7th ed, 2006, Lexis Nexis Butterworths) at 666 [2701]. It must be noted that tracing rules are different at law and in equity. Only the equitable rules of tracing allow a plaintiff to trace into and out of a mixed fund, as in the present case: Brady v Stapleton (1952) 88 CLR 322 at 337; Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75 at [143]-[145]; Re Global Finance Group Pty Ltd (in liq) (2002) 26 WAR 385 at 406-407 [96]; Russell Gould Pty Ltd v Ramangkura [2014] NSWCA 310 at [32].
[33]Tracing is not a remedy, right or a claim, but an ‘evidentiary process’ of identifying assets and determining the rights of a plaintiff: Re Magarey Farlam Lawyers Trust Accounts (No 3) (2007) 96 SASR 337 at 371 [117]; Foskett v McKeown [2001] 1 AC 102 at 113, 128; Re Global Finance Group Pty Ltd (in liq) (2002) 26 WAR 385 at 406 [94]; Jones (as Trustee of the property of Heather MacNeil-Brown, A Bankrupt) v Southall & Bourke Pty Ltd [2004] FCA 539 at [59].
[34] As Millett LJ explained in Foskett v McKeown [2001] 1 AC 102 at 128:
“It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.”
(Approved in Robb Evans of Robb Evans and Associates v European Bank Ltd (2004) 61 NSWLR 75 at [133])
[35]Given its nature, there is nothing “inherently legal or equitable about the tracing exercise”: Foskett v McKeown [2001] 1 AC 102 at 128 per Lord Millett affirmed in Re Magarey Farlam Lawyers Trust Accounts (No 3) (2007) 96 SASR 337 at 371 [117]. It is simply a process which may lead to the making of a personal or proprietary claim, or to the enforcement of a legal or equitable right: Foskett v McKeown [2001] 1 AC 102 at 128.
[36]As Millet LJ again explained in Boscawen v Bajwa [1996] 1 WLR 328 at 334:
“If the plaintiff succeeds in tracing his property, whether in its original or in some changed form, into the hands of the defendant, and overcomes any defences which are put forward on the defendant’s behalf, he is entitled to a remedy. The remedy will be fashioned to the circumstances. The plaintiff will generally be entitled to a personal remedy; if he seeks a proprietary remedy he must usually prove that the property to which he lays claim is still in the ownership of the defendant. If he succeeds in doing this the court will treat the defendant as holding the property on a constructive trust for the plaintiff and will order the defendant to transfer it in specie to the plaintiff. But this is only one of the proprietary remedies which are available to a court of equity. If the plaintiff’s money has been applied by the defendant, for example, not in the acquisition of a landed property but in its improvement, then the court may treat the land as charged with the payment to the plaintiff of a sum representing the sum by which the value of the defendant’s land has been enhanced by the use of the plaintiff’s money.”
[37]Applying the above principles of equitable tracing to the current proceedings, the relevant asset which may be traced is the amount of $260,000 transferred to the First Defendant. As above, the evidence presented before the Court only allows $200,000 of this amount to be traced. Therefore, the remedies sought by the Plaintiff can only be granted in respect of $200,000. I will consider this further at [72]-[83] below.
Imposition of a constructive trust
[38]It is a feature of precedent that an equitable remedy must be ‘appropriate’ in the circumstances and achieve ‘practical justice’ for the parties: see Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 at [503]-[512].
[39]A constructive trust is an institution or remedy used to grant equitable relief which is to some degree equivalent or analogous to relief that would be available against an express trustee for breach of trust: Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 at [152].
[40]A constructive trust is distinct and typically remedial in nature, usually imposed by operation of law when it would be inequitable, by reference to established equitable principles, for a defendant to unconscionably retain a benefit: Muschinski v Dodds (1985) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137.
[41]Unconscionability has been accepted by the High Court as the benchmark criterion for determining the propriety of the award of a constructive trust. As Deane J said in Muschinski v Dodds (1985) 160 CLR 583 at 614:
“Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.”
In my opinion the amount of $6,902,419, which would otherwise have been available for distribution was instead used to improve the Assembly Hall. The funds are directly traceable into the Assembly Hall. In effect a new and improved asset was thereby created. Each of the charitable objects therefore has an equal interest in that new and improved asset to the extent of such improvement.[33]
[33]See also Alesco Corporation Limited v Te Maari [2015] NSWSC 469 at [143]-[151].
In relation to occupation and possessory benefits enjoyed by each of the charitable objects, I do not propose to make any findings or adjustments at this stage and probably not at all. However, I will at this stage leave the matter open.
Question 4 – the validity of the lease dated 7 May 2008 granted by the first to fifth Defendants to the second Plaintiff in respect of part of the Assembly Hall and what if any relief is appropriate to rectify any invalidity
In view of the concession made by PCVTC on its behalf and on behalf of PCV it is unnecessary to answer this question. The Lease will be set aside.
Question 5 – the stipend issue
Submissions were made by the parties during the first stage of this proceeding. I deferred answering the question which was question 8 of the original questions.[34]
[34]See paragraphs [113] and [120] of the Judgment.
During the period 1 July 2007 to 30 June 2014, the Trustees deducted from the annual moneys distributable under clause 7 amounts purporting to be in or towards the stipend of the Scots’ Church minister or ministers or assistant minister of the congregation (‘Stipend’) or colleague to the minister (‘Collegiate Charge’) as set out below —
Year ended 30 June Stipends Collegiate Charge 2008 $114,914 2009 $137,000 2010 $120,035 2011 $124,190 $124,190 2012 $126,030 $126,030 2013 $127,344 $127,344 2014 $129,918 $129,918 $879,431.00 $507,482.00
The Trustees paid these charges to the Scots’ Church General Fund, a fund operated by the BOM.[35]
[35]From 1 July 2015 the minimum remuneration approved under the PCV Committee Regulations, sec 17, Maintenance of the Ministry Committee, regulation 4, to ‘meet the proper and reasonable requirements of the ministry at the current level of living costs’ is $51,792 per annum.
Clause 7 of the Trust Deed deals with both payment ‘in or towards the stipend’ and payment ‘in or towards the stipend of a colleague to the minister’ and relevantly states:
…Secondly – in payment of the yearly sum of one thousand pounds in or towards the stipend of the minister or ministers or assistant minister of the said congregation in manner following that is to say –
To the minister while there is no assistant minister the sum of one thousand pounds and while there is such an assistant minister the sum of seven hundred and fifty pounds to the minister and two hundred and fifty pounds to the assistant minister
Provided that if any part of such sum of one thousand pounds be not used or required for such purpose in any year then the said trustees or trustee may apply such part not used or required as aforesaid for such congregational purposes or otherwise for the benefit of the said congregation as they or he may deem advisable…
…
Fifthly – to apply one-third of the surplus remaining in each year (after providing for the foregoing purposes) but not exceeding in amount one thousand pounds per annum in or towards the stipend of a colleague to the minister for the time being of the said congregation if the Scots’ Church be created a collegiate charge.
Provided that if any part of sum be not used or required for such purpose in any year then the said trustees or trustee may apply such part not used or required as aforesaid for such congregational purposes or otherwise for the benefit of the said congregation as they or he may deem advisable.
The scheme of clause 7 was, it was submitted by PCVTC, to authorise specific deductions and apply the residue equally between the two classes of charitable purposes. One cannot discern from the secondly and fifthly provisions an intention that the fund constituted by the gross surplus was to meet the annual cost from time to time of the minister and assistant minister (or colleague of the minister), except to the extent of $2,000.
It was submitted further by PCVTC that the Trustees accepted that their contention was not correct. By letter dated 20 November 2012 to Lewis Holdway, marked without prejudice, Mr Hearn wrote concerning the proposed mediation, stating that in respect of the Minister’s stipend —
the trustees accept that the reference to “1,000 pounds in or toward the Minister’s stipend” in the directions commencing “Secondly” and “Fifthly” in clause 7 of the Trust Deed means $2,000 and not present equivalent of 1,000 pounds. They do contend, however, that until now the Trusts Corporation has acquiesced in the payment of the current equivalent of 1,000 pounds on the Minister’s stipend.
The Trustees have sought in the proceeding exoneration from liability for paying the stipend amounts on the grounds that they acted honestly and reasonably and relied on legal advice. This letter, it was contended, contradicts that position when they continued afterwards to deduct the stipend amounts from the distributable income, albeit relying on their contention of acquiescence. I do not propose to deal with this aspect at this stage. Apart from being a without prejudice communication, it is not relevant to the issue of construction. If following these reasons it is necessary to deal with issues associated with acquiescence and exoneration the matter will be considered at that stage.
The opinion of Dr Clyde Croft (as his Honour then was) dated 28 September 1998 is to the effect it was at least reasonably arguable that the provisions should be construed to provide for an adequate payment of stipend from time to time, adequate meaning as adequate in current money values as a stipend of £1,000 was adequate in the money values of 1891. He said there are, naturally, contrary arguments to which reference has been made.
Dr Croft was not provided with either the judgment in Mackinnon v Borland[36] or the opinions of Mr W.A. Sanderson dated 29 January 1921 and 28 June 1924.
[36](1925) Supreme Court No 266 unreported.
In Mackinnon v Borland , McArthur J considered this clause 7 “fifthly” and the proviso that if any part of the sum is not used or required for this purpose, the unused sum or such unused part of it could be applied for congregational purposes.[37]
[37](1925) Supreme Court No 266 unreported, page 8.
In the case McArthur J had before him, an application was made by originating summons for the determination of certain questions. The first question was whether the Trustees were bound to apply the whole £1,000 under the provision while there is no assistant minister or simply £750 to the minister and £250 to the assistant minister while there is one. The board of management were seeking to pay a smaller amount being the stipend then agreed with the minister. At page 5, he stated –
The word “stipend” is used not as governing the amount which is to be paid by the trustees to the Minister – this amount being definitely fixed by the deed at £1,000 – but merely as indicating the purpose for which the money is paid, or to which it is to be devoted.
It appears to me to be clear that it was contemplated that in no case would the stipend be less than £1,000, but that it might be more.
Consequently a definite and absolute obligation was placed on the trustees to pay a fixed yearly sum of £1,000 in respect of or “towards” the stipend – the word “towards” making it clear that in no case were the trustees to pay more than £1,000. It was £1,000 a year – neither more nor less.
PCVTC relied on cases involving specific bequests where the authorities are to the effect that a specific sum in a will was precisely that and was not subject to adjustment and was not a rateable proportion of the gross sum. PCVTC submitted that the sum was a sum fixed and there was no intention that it was subject to any adjustments.
The Trustees contend that the payment under the secondly and fifthly clauses of £1,000 is, on its proper construction, to be read as meaning the current day equivalent value of that amount. The relevant enquiry is, it was submitted, the following: What was the objective intention of the parties to the Trust Deed in the light of the language used and the context of the provisions?
The Trustees submitted that given the important and critical role performed by ministers ‘securing a substantial payment in or towards the stipend of the minister was an important priority necessary for securing’ the services of a minister. It was submitted that this could only be achieved ‘if the sterling amount was to be construed as a like amount in subsequent generations as this for which provision was nominally made in the 1891 deed’. It was submitted that any other interpretation would not achieve this objective. The fact that there was a ceiling, it was submitted, was no bar to this ‘independent enduring provision’ and the decision in Mackinnon v Borland did not, it was submitted, affect such an interpretation. Finally, it was submitted that if ‘liberally construed’ the provision, viewed objectively, did ‘manifest an intention to make provision towards the payment of stipends in an amount that reflected current values, and not simply a nominal historical amount’.
In my opinion, for reasons that follow, the Trustees are and were at all relevant times authorised to deduct and pay by way of a Stipend or Collegiate Charge the modern or current day (from time to time) equivalent of £1000 (as at 1891).
In my opinion the context of the clauses is important and cannot simply be ignored in favour of a strict literal approach that would lead, in my view, to a wrong and unintended consequence.
The sixthly provisions of the Trust Deed require the distribution of all of the funds received by way of rental. The amount was known at the time and of this amount a proportion, namely £1,000 was to be used in payment of Stipends and if applicable a Collegiate Charge. No more, no less. This is the specific amount that was provided for, to be paid out of income and before distribution of the balance to the two equal charitable objects. To maintain this amount, fixed at a period in time, when the income of the trust has increased enormously could not have been intended. Any other construction is in my view unfair, illogical and unintended. Further, given the critical importance of the minister, it must have been contemplated that a reasonable amount would be paid from time to time as or towards a Stipend or Collegiate Charge and that the amount would change from time to time to keep pace with the changing value of money.
Finally, if I am wrong in the construction of the provision, I should say, in relation to this entirely undignified issue, that given the nature of the dispute, a compelling case would need to be made out for denying the Trustees appropriate relief associated with any excess payments. However, as pointed out, this is not presently an issue before the Court.
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