The Uniting Church in Australia Property Trust (Vic) v Attorney-General (Vic)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

TRUSTS, EQUITY AND PROBATE LIST

S ECI 2020 03812

IN THE MATTER of the GORE CHARITABLE TRUST
and
IN THE MATTER of r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic)
BETWEEN:
THE UNITING CHURCH IN AUSTRALIA PROPERTY TRUST (VICTORIA)	Plaintiff
v
THE ATTORNEY-GENERAL FOR THE STATE OF VICTORIA	Defendant
and
JENNIFER SHEPPARD	Joined Party

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JUDGE:	Incerti J
WHERE HELD:	Melbourne
DATE OF HEARING:	2–3 February 2022, with further written submissions made on 18, 22, 25 and 28 March 2022
DATE OF JUDGMENT:	12 October 2022
CASE MAY BE CITED AS:	The Uniting Church in Australia Property Trust (Vic) v Attorney-General (Vic)
MEDIUM NEUTRAL CITATION:	[2022] VSC 610

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CHARITABLE TRUST – Judicial advice – Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 54.02 – Breach of trust due to withdrawals of capital – Whether trustee personally liable to restore withdrawn capital – Whether traditional rules of equitable accounting apply to charitable trusts – Andrews v M’Guffog (1886) 11 App Cas 313 applied – Target Holdings Ltd v Redferns (a firm) [1996] AC 421 considered – Whether perpetuity is an object of a charitable trust –Application for relief from liability under Trustee Act 1958 (Vic) s 67 – The Uniting Church in Australia Act 1977 (Vic).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J McComish	Stewart Peters
For the Defendant	Dr P Bender	Victorian Government Solicitor’s Office
For the Joined Party	Mr I Upjohn KC with Mr R Young	Waters Lawyers

TABLE OF CONTENTS

Summary.............................................................................................................................................. 1

Background......................................................................................................................................... 4

Procedural history............................................................................................................................ 12

Issues in dispute............................................................................................................................... 14

Questions 1 and 2........................................................................................................................ 14
Question 3.................................................................................................................................... 14
Question 4.................................................................................................................................... 15
Question 5.................................................................................................................................... 16
Section 67 relief............................................................................................................................ 17

Consideration.................................................................................................................................... 18

Questions 1 and 2........................................................................................................................ 18
Question 3.................................................................................................................................... 19
Andrews v M’Guffog........................................................................................................... 20
The ‘objects’ of a charitable trust..................................................................................... 21
Do the traditional rules of equitable accounting apply to charitable trusts?............ 23
Conclusions on question 3................................................................................................ 27

Question 4.................................................................................................................................... 31
Question 5.................................................................................................................................... 33
Section 67 relief............................................................................................................................ 33
Relevant law....................................................................................................................... 34
Income accumulation, delegation of authority, trust records..................................... 36
Investment diversification and distributions to ‘external charities’.......................... 37
Form of order..................................................................................................................... 43

HER HONOUR:

Summary

This is an application by the plaintiff, the trustee of the Gore Charitable Trust, for:

(a) the Court’s answers to five questions in relation to the administration of the Gore Charitable Trust pursuant to r 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic); and

(b) relief under s 67 of the Trustee Act 1958 (Vic) (‘Trustee Act’) for certain actual or potential breaches of trust by the plaintiff.

The Gore Charitable Trust was established by the will of the late Edward Kent Gore dated 21 October 1997 (‘the Will’). It is not disputed that it is a perpetual charitable trust for religious purposes.

The plaintiff is the statutory corporate trustee established by The Uniting Church in Australia Act 1977 (Vic) (‘Uniting Church Act’) to hold property for the purposes of The Uniting Church in Australia (‘Uniting Church’) in Victoria. The corporation consists of the Moderator, Secretary and Property Officer of the Synod of the Uniting Church, and not more than seven other persons appointed by the Synod.[1] Property held by the plaintiff is held on trust for the Uniting Church and ‘upon any other trust affecting the property’.[2] The Gore Charitable Trust is said to be one such ‘other trust’.
[1]The Uniting Church in Australia Act 1977 (Vic) s 12(1).
[2]The Uniting Church in Australia Act 1977 (Vic) s 13(2).

The Attorney-General, as the guardian of charities in Victoria, is the defendant in the proceeding.

The joined party, Dr Jennifer Sheppard, was added to the proceeding as an objector by order of the Court dated 11 December 2020.

The five questions that the plaintiff seeks answers to are:

1. Do the terms of the Gore Charitable Trust authorise the payment of capital as well as income for the purpose of the Wesley Uniting Church Box Hill Parish?
2.If no to question 1 above, was the plaintiff in breach of trust for causing or permitting capital to be paid from the Gore Charitable Trust?
3.If yes to question 2 above, is the plaintiff justified in restoring to the Gore Charitable Trust the amount of capital paid out in breach of trust?
4.If yes to question 3 above, in the circumstances that have happened is it appropriate that the amount paid by the plaintiff to restore the Gore Charitable Trust be:
(a)the sum of $539,115.10 of capital paid out, plus interest that those funds would have earned had they not been paid out?
(b)some other amount, and if so, what?

5.Is the plaintiff justified in paying the amount identified in answer to question 4 above, if any, from funds or property held pursuant to s 13(2) of The Uniting Church in Australia Act 1977 (Vic) in trust for The Uniting Church in Australia and not upon any special trust?

All parties invited the Court to answer ‘no’ to question 1 and ‘yes’ to question 2. Whilst, in essence, the parties originally invited the Court to answer ‘yes’ to question 3, the plaintiff’s ultimate position was that it is open for the Court to relieve the plaintiff of liability to restore the trust fund, applying Andrews v M’Guffog (1886) 11 App Cas 313 (‘Andrews v M’Guffog’). That position was hotly contested by the other parties. The joined party also disputed the interest calculation originally proposed by the plaintiff under question 4, and the defendant canvassed a range of calculation options, without advocating for one in particular. All parties effectively agreed that I should answer ‘yes’ to question 5, but that the Court should not give its imprimatur for any particular property to be used to fund the restoration of capital.

The joined party opposed the scope of the relief sought by the plaintiff under s 67 of the Trustee Act. The Attorney-General submitted that the relief should be confined to matters that are properly the subject of the current proceeding but did not otherwise oppose the relief sought.

For the reasons outlined below, I answer as follows:

Question 1
No.
Question 2
Yes.
Question 3

The plaintiff is not legally obliged to restore, and therefore not justified in restoring, the capital paid out in breach of trust prior to its receipt of the auditor’s report in July 2015.
The plaintiff is legally obliged to restore, and therefore justified in restoring, the capital paid out in breach of trust after its receipt of the auditor’s report in July 2015.
Question 4
(a) No.
(b)It is appropriate that the amount paid by the plaintiff to restore the Gore Charitable Trust for capital paid out after its receipt of the auditor’s report in July 2015 be the amount of each capital payment converted into its present value on the date of this order in accordance with the applicable inflation figures.
If it is not possible to characterise individual payments as occurring on capital or income account, it is appropriate for the plaintiff to calculate the total capital paid out during each relevant accounting period (being the extent to which payments exceeded income) and converting that figure into its present value on the date of this order in accordance with the applicable inflation figures.
Question 5

I decline to answer whether the plaintiff is justified in paying funds from any particular source. However, the amount identified in answer to question 4 should not be paid from property held by the plaintiff that is affected by ‘any other trust’ within the meaning of s 13(2) of The Uniting Church in Australia Act 1977 (Vic).

In relation to s 67 of the Trustee Act, I decline to grant relief in respect of breaches of trust (if any) constituted by the plaintiff’s failure to invest the capital of the Gore Charitable Trust in a diversified portfolio before January 2020, and any distributions for purposes that were not within ‘the purpose of the Wesley Uniting Church Box Hill Parish’ as required by sub-paragraph 2(b)(v) of the Will. However, I will grant relief in respect of certain other breaches of trust as follows:

Upon the plaintiff restoring to the Gore Charitable Trust the amount identified in answer to question 4 above, pursuant to s 67 of the Trustee Act 1958 (Vic), the plaintiff is relieved from any remaining liability for:
(a) breach of trust, if any, by accumulating income of the Gore Charitable Trust between 19 September 2018 and the date that is 21 days after the date of this order;
(b) failure to maintain adequate trust accounts of the Gore Charitable Trust during the period commencing on 9 February 2012 and ending on 3 February 2022, where such failures have been remedied on or before the date of this order; and
(c)during the period 9 February 2012 to 19 September 2018 (inclusive), failing to adequately supervise the Church Council of the Wesley Uniting Church Box Hill congregation where the result of such failure was one of the breaches specified above, or the payments of capital disclosed in this proceeding.

Background

The Uniting Church was established in 1977 by union of the ‘Congregational Church’, the ‘Methodist Church’ and the ‘Presbyterian Church’. It is governed by its Basis of Union (set out in schedule 1 of the Uniting Church Act), its Constitution and its Regulations; and, in Victoria, the Uniting Church Act.

The plaintiff is the statutory body corporate which holds property in Victoria for the Uniting Church. The other components or ‘councils’ of the Church established by the Basis of Union, Constitution and Regulations are not separately incorporated, and include congregations (local councils), presbyteries (district councils), the Synod (regional council) and the Assembly (national council).

In other words, the Uniting Church is comprised of a ‘number of interlocking councils (local, district, regional and national) that exist in dialogue with each other.’[3] According to Mr James Milne, Property Officer of the Synod of Victoria and Tasmania, this inter-conciliar model of the Uniting Church means that ‘the ethos of its governance is relatively decentralised.’[4] While this proposition was not disputed by the joined party, her preferred description of the Uniting Church is ‘a hybrid church, with aspects of a hierarchy, as well as features of independent congregations and parishes.’[5]
[3]Affidavit of James Milne sworn 3 October 2020, 3 [8].
[4]Affidavit of James Milne sworn 3 October 2020, 4 [8].
[5]Outline of submissions of the joined party dated 28 May 2021, [3].

Clause 3.1.2(viii) of the Regulations provides that the responsibilities of the Church Council of a congregation include:

managing the financial affairs and the general administration of the Congregation including the reception, preparation and presentation of all necessary budgets, statements and reports[6]

[6]Extracted in affidavit of James Milne sworn 3 October 2020, 4 [8].

Clause 4.4.1 of the Regulations provides that:

the Church Council shall be responsible for the management and administration of all property of the Church acquired or held for the use of the Congregation, and without limiting the generality of the foregoing shall:
…
(f) be responsible for the financial affairs and the management and investment of all funds related to property[7]

[7]Extracted in affidavit of James Milne sworn 3 October 2020, 4-5 [11].

The Gore Charitable Trust was established by the Will. The executor and trustee under the Will (and the original trustee of the Gore Charitable Trust) was State Trustees Limited (‘State Trustees’).

The beginning of paragraph 2 of the Will relevantly states:

I GIVE all my real and personal estate to my Trustees [sic] ON TRUST and I direct my Trustee to hold the same in a trust in perpetuity to be known as the GORE CHARITABLE TRUST the object of which is the advancement of religion …

Sub-paragraph 2(a) provides that:

my trustee shall hold my house property situated at and known as 37 Fowler Street, Box Hill in the State of Victoria (“my house property”) UPON TRUST to retain the same as an investment of my estate and I DIRECT that my Trustee shall let my house property to a tenant or tenants chosen by the majority of Elders of the Box Hill Uniting Church on such terms and conditions as my Trustee in its absolute discretion may deem fit and I DIRECT that my trustee shall pay the income so derived to the Uniting Church in Australia Property Trust (Victoria) [being the plaintiff] 130 Little Collins Street, Melbourne to be applied for the purpose of the Wesley Uniting Church Box Hill Parish.

Wesley Uniting Church Box Hill is a local congregation of the Uniting Church located in the eastern suburbs of Melbourne. The parties agreed that the reference in the Will to the Wesley Uniting Church Box Hill Parish is to the Wesley Uniting Church Box Hill congregation.[8]
[8]Legal advice obtained by the internal auditor of the plaintiff in 2016 (exhibit JPM-5 to the affidavit of James Milne sworn 3 October 2020) indicates that: ‘In 1997, the year in which the Will was executed, ‘Box Hill – Wesley’ had a ‘Parish Elders Council’ and a ‘Parish Council’. It was probably therefore known by worshippers, such as the testator, interchangeably as ‘Parish’ or ‘congregation’, hence the word ‘Parish’ in the Will. Therefore the reference to the ‘Wesley Box Hill Uniting Church Parish’ in Clause 2 b) v) of the Will is to the congregation (also known as a Parish) recorded in the 1997 Synod of Victoria Directory as ‘Box Hill – Wesley’, and which is now known as ‘Wesley Uniting Church Box Hill’’.

While the plaintiff (as the sole body corporate of the Uniting Church) is the legal owner of all Uniting Church property, the Church Council of the Wesley Uniting Church Box Hill congregation is a ‘responsible body’ within the Uniting Church Regulations with the authority to manage and administer certain property.

Sub-paragraphs 2(b)(i), (ii) and (iii) of the Will direct that the residue of Mr Gore’s estate (ie, his net property, excluding his house) is to be invested and the income used to pay rates and taxes in respect of the house (‘the Box Hill property’), and to maintain that property.

Sub-paragraph 2(b)(iv) of the Will provides that, should the Box Hill property no longer be maintained in sufficient repair as a safe and viable rental property, it is to be demolished and replaced with a residential dwelling comparable to the average residential house in the suburb of Box Hill at the time.

Sub-paragraph 2(b)(v) deals with the scenario where the house becomes non-viable and there are insufficient funds invested to build a new dwelling:

if the property becomes non-viable as a rental property and their [sic] is insufficient funds invested to build a dwelling then I DIRECT that the property be sold and after payments of the costs of sale the balance the remaining be paid together with all the funds invested after payment of any outstanding management costs or other debts to the Uniting Church in Australia Property Trust (Victoria) [being the plaintiff] for the purpose of the Wesley Box Hill Uniting Church Parish. I DECLARE that the receipt of the person authorised to receive the money on behalf of the organisation will be full and sufficient discharge to my Trustee AND will absolve my Trustee from seeing to the application of the gift.

State Trustees held and leased out Mr Gore’s house in accordance with the terms of the Will until 2011 when, pursuant to sub-paragraph 2(b)(v) of the Will, the house was sold at auction for $1,490,000.

Prior to that sale, rental income was paid by State Trustees to the plaintiff, initially to a Bank of Melbourne account established by the Wesley Uniting Church Box Hill congregation, and subsequently to an ‘enhanced cash portfolio’ funds management account with UCA Funds Management established by the then Chair and Secretary of the Church Council of the Wesley Uniting Church Box Hill congregation. The authorised signatories of the Bank of Melbourne account were persons nominated by the Church Council of the Wesley Uniting Church Box Hill congregation.

UCA Funds Management has since been renamed Uniting Ethical Investors Limited, trading as ‘UEthical’. It is separately incorporated, but operates ‘under the umbrella of the Synod, as part of the stewardship mission of the Uniting Church.’[9] It also holds an Australian Financial Services Licence. UEthical operates as the fund manager to the plaintiff, the Uniting Church in Australia Property Trust (Tasmania), congregations and other Uniting Church bodies and members. It also invests money on behalf of non-Uniting Church entities.[10]
[9]Affidavit of James Milne sworn 3 October 2020, 7 [23].
[10]Affidavit of James Davidson sworn 9 April 2021, [4].

The ‘enhanced cash portfolio’ product was discontinued by UEthical on 30 June 2020 and replaced with an ‘enhanced cash trust wholesale account’ product.[11] The tendered materials suggest that the original product operated much like a savings account, whereas the new product is held in the form of units in a unit trust. Except where otherwise indicated, references in these reasons to the ‘Enhanced Cash Account’ are to the plaintiff’s enhanced cash portfolio prior to its discontinuation, and to the plaintiff’s enhanced cash trust wholesale account thereafter.
[11]Affidavit of James Davidson sworn 9 April 2021, [8(f)].

Through the vehicles UCA Cash Management Limited and UCA Growth Fund Limited, UEthical operates a number of wholesale and retail funds which are invested solely in cash assets, solely in growth assets, or in a mixture of cash and growth assets.

The net proceeds of sale of Mr Gore’s house were paid into the Enhanced Cash Account on 9 February 2012. The plaintiff considers that, when it accepted those proceeds, it became the trustee of the Gore Charitable Trust, and that the Gore Charitable Trust therefore became a trust within s 29(1)(b) of the Uniting Church Act, which provides that:

(1) The [Uniting Church in Australia Property Trust (Victoria)] may—
…
(b)accept appointment, and act, as trustee or co-trustee under and in pursuance of any trust where the trust property is not vested in the [Uniting Church in Australia Property Trust (Victoria)] by, or pursuant to, this Act, and—
(i)the trust was created wholly or partly for the benefit of the Church or any of the Uniting Churches; or
(ii)the purpose or one of the purposes for which the trust was created relates to the Church or any of the Uniting Churches—

and may do all things necessary for the exercise or performance of its powers, authorities duties or functions as executor, administrator or trustee, as the case may be.

On the plaintiff’s view, the Gore Charitable Trust also became an ‘other trust’ within s 13(2) of the Uniting Church Act:

13 Powers and Duties of Trust
…
(2) Subject to this Act, the [Uniting Church in Australia Property Trust (Victoria)] shall hold trust property in trust for the Church and upon any other trust affecting the property.
(3) Subject to subsection (2) the [Uniting Church in Australia Property Trust (Victoria)] shall hold, manage, administer and otherwise deal with trust property in accordance with the regulations, directions and resolutions of the Assembly.

Between 9 February 2012 and 19 September 2018, withdrawals from the Gore Charitable Trust were made in accordance with redemption forms (and accompanying letters) signed by the authorised signatories of the Wesley Uniting Church Box Hill congregation. Each of the withdrawals, and the purposes to which they were put, were authorised by the then authorised office holders or signatories of the Wesley Uniting Church Box Hill congregation.

There has been a substantial turnover of office holders of the Wesley Uniting Church Box Hill congregation since about 2017. Since 2018, disputes have arisen between members of that congregation and other bodies in the Uniting Church. It seems clear that the current office holders of the Wesley Uniting Church Box Hill congregation disapprove of their predecessors’ management of the Gore Charitable Trust and consider that the plaintiff breached its duties as trustee by permitting their predecessors to mismanage the trust assets, or at a minimum, by failing to supervise the previous office holders’ decisions.

The joined party is a current member of the Wesley Uniting Church Box Hill congregation, and its Church Council.[12]
[12]Affidavit of Jennifer Sheppard sworn 3 November 2020, [2].

The primary allegation for the purposes of this proceeding is that the plaintiff allowed withdrawals of capital from the Gore Charitable Trust when the terms of the Will only authorise income distributions.

The office holders and authorised signatories of the Wesley Uniting Church Box Hill congregation initially administered the Gore Charitable Trust on the basis that only income distributions were permitted. However, subsequent office holders did not share, or did not act upon, that understanding of the Will, and significant capital distributions were made.

The terms of the Will are ambiguous in relation to capital distributions. While paragraph 2(a) makes clear that only rental income was to be applied while the Box Hill property remained trust property, the Will is not explicit about the distribution conditions after the power of sale in paragraph 2(b)(v) was exercised.

In July 2015, an audit report by the Synod’s internal auditor (‘auditor’s report’) identified that capital was being eaten into. The report notes that:

These findings and recommendations [which included ceasing capital withdrawals] were discussed with the Church Secretary and Treasurer who have accepted the findings and has [sic] agreed action plans to address the recommendations.[13]

[13]Internal audit report, Box Hill Wesley Uniting Church dated July 2015 (contained within exhibit JPM-1 to the affidavit of James Milne sworn 3 October 2020), 2.

The auditor sought legal advice from the Synod’s lawyers in about May 2016. The lawyers provided a memorandum of advice dated 8 June 2016.[14] That advice concluded that the Gore Charitable Trust authorised only the deployment of income.
[14]Exhibit JPM-5 to the affidavit of James Milne sworn 3 October 2020.

On 19 September 2018, the plaintiff placed a hold on withdrawals from the Enhanced Cash Account until the affairs of the Gore Charitable Trust could be regularised. There was no evidence before the Court about any steps taken by the plaintiff between 8 June 2016 and 19 September 2018 to prevent capital withdrawals.

The plaintiff also sought the advice of Ian Hardingham KC on the question of capital distributions. His advice, dated 23 October 2018,[15] was that the Gore Charitable Trust authorised deployment of income, but not capital. Subsequent advice from counsel James McComish obtained in May 2020 was to the same effect.[16] In counsels’ view, the express power of sale in the Will did not vary the pre-existing trust arrangements: namely, that the Will created a perpetual charitable trust which authorised the deployment of income, but not capital, for the stated charitable purpose. A copy of Ian Hardingham KC’s advice was provided to the Wesley Uniting Church Box Hill congregation by email and letter on 14 November 2018.
[15]Exhibit JPM-6 to the affidavit of James Milne sworn 3 October 2020.
[16]Exhibit JPM-8 to the affidavit of James Milne sworn 3 October 2020.

Since 2019, the plaintiff has been in ongoing correspondence with representatives and legal advisors of the Wesley Uniting Church Box Hill congregation and its Church Council about the Gore Charitable Trust on a without prejudice basis.

On 31 July 2019, the plaintiff resolved to restore to the Gore Capital Trust the capital mistakenly paid out. The plaintiff notified the Wesley Uniting Church Box Hill congregation by letter dated 10 September 2019.

On 23 October 2019, the joined party commenced Supreme Court proceeding S ECI 2019 04946 against the plaintiff in its capacity as trustee of the Gore Charitable Trust (‘Dismissed Proceeding’). The joined party alleged a number of breaches of trust by the plaintiff in addition to unauthorised withdrawals of capital. On 30 January 2020, that proceeding was summarily dismissed by John Dixon J on the basis that the joined party is not and cannot be a beneficiary of the Gore Charitable Trust (being a charitable trust) and, accordingly, did not have standing to enforce the Gore Charitable Trust.[17]
[17]Sheppard v The Uniting Church in Australia Property Trust (Victoria) [2020] VSC 12.

On 2 December 2019, the plaintiff instructed UEthical to vary the investment of the Gore Charitable Trust funds from 100% in the Enhanced Cash Account to 30% in the Enhanced Cash Account and 70% in an ‘Australian equities trust wholesale’ account (‘Equities Account’), which change was instituted on 24 January 2020, and to remove Wesley Uniting Church Box Hill congregation members as authorised signatories in respect of trust withdrawals.

Since 21 January 2020, the only authorised signatories in respect of trust withdrawals have been two officers of the plaintiff and two staff members of Synod Accounting Services.

On 20 February 2020, the joined party made an application for the Attorney-General’s fiat to initiate proceedings against the plaintiff (‘Fiat Proceeding’). The joined party drafted a writ and statement of claim at about that time in anticipation of receiving the Attorney-General’s fiat. The Fiat Proceeding essentially repeats and adopts the matters alleged in the Dismissed Proceeding.

The plaintiff says that, since 21 August 2020, it has attempted unsuccessfully to arrange a meeting with the Church Council of the Wesley Uniting Church Box Hill congregation. Correspondence exhibited to various affidavits suggests that its invitations were declined by reason of its alleged failure to provide documents requested by the Church Council.

By letter dated 18 September 2020, the defendant granted the fiat sought by the joined party.

The present proceeding was commenced on 4 October 2020. On 7 October 2020, in light of the present proceeding, the defendant instructed the joined party not to issue proceedings, and by letter dated 11 December 2020, the defendant withdrew her fiat.

As at 31 March 2021, the value of the Gore Charitable Trust was $966,212.40, comprised of:[18]

(a) 294,725 units in its Enhanced Cash Account, valued at $296,640.71; and

(b) 39,413 units in its Equities Account, valued at $669,571.69.

[18]Transaction reports dated 31 March 2021 for the plaintiff’s Enhanced Cash Account and Equities Account exhibited in exhibit JD-1 to the affidavit of James Davidson sworn 9 April 2021.

The parties agree that, during the period 9 February 2012 (when the net proceeds of sale of the Box Hill property were paid into the Enhanced Cash Account) and 19 September 2018 (when the plaintiff placed a hold on withdrawals from the Enhanced Cash Account), $545,985.73 of capital was withdrawn and applied.[19] This has been calculated as the difference between total withdrawals of approximately $880,000 and total income of approximately $340,000 during the relevant period.[20]
[19]Transcript of Proceedings, The Uniting Church in Australia Property Trust (Victoria) v The Attorney General for the State of Victoria (Supreme Court of Victoria, S ECI 2020 03812, Incerti J, 2-3 February 2022) (‘T’), 16.01-05 (Mr McComish).
[20]Affidavit of James Davidson sworn 9 April 2021, [8(b)]. In that affidavit, total withdrawals are recorded as $878,036.32 and total income recorded as $338,921.22, producing a capital depletion of $539,115.10. At trial, Mr McComish informed the Court that the slightly higher figure of $545,985.73 had been agreed by the parties.

Procedural history

When the proceeding came before the Court, the plaintiff relied on the affidavit of James Milne sworn 3 October 2020, and the affidavit of James Davidson, Director – Operations of Uniting Ethical Investors Limited trading as UEthical, sworn 9 April 2021. The defendant relied on the affidavit of Jennifer van Veldhuisen, solicitor for the defendant, affirmed 23 June 2021. The joined party relied on the affidavits of Dr Jennifer Sheppard sworn 3 November 2020 and 28 May 2021.

The matter came before me on 2 and 3 February 2022. As noted above, the plaintiff’s position at that time was that it was justified in restoring the withdrawn capital. However, during the hearing, counsel for the plaintiff briefly noted that it would be open to the Court to find that the plaintiff was not legally obliged to do so, applying Andrews v M’Guffog. Counsel also referred me to Edelman J’s judgment in Plan B Trustees Ltd v Parker (No 2)[21] where his Honour cited Andrews v M’Guffog as support for the proposition that ‘in cases of charitable trusts, as opposed to private trusts, courts would not normally direct an account for a period prior to commencement of proceedings or before the trustee was first appraised of a claim against him or her’[22] (noting that Edelman J did not provide a concluded view on the correctness of this position).
[21][2013] WASC 216.
[22]Ibid, [187].

Counsel for the plaintiff indicated that the plaintiff’s resolution to restore the trust fund was based on non-legal theological considerations, noting that:

given its responsibilities to the wider church and the charitable aims that are in fact intended to be benefited by the Gore [Charitable] Trust, the [plaintiff] considers that the proper course, within the family of the church, is to make restitution of the capital that was mistakenly paid out, plus the interest that that amount of capital would have earnt, had it simply stayed in the trust properly.[23]

[23]T51.11-18.

In light of this indication, neither the defendant nor the joined party made submissions about the prospect of no restoration of withdrawn capital being required.

After the hearing, having further examined the relevant materials, I determined that it was appropriate to seek submissions on whether Andrews v M’Guffog is applicable in the present case, and whether its application would alleviate the plaintiff of any legal requirement to restore the trust fund. On 18 February 2022, my chambers wrote to the parties requesting written further submissions on the following question:

In the present case, what is the legal and factual justification for applying the traditional rules of equitable accounting developed in relation to private trusts (and thereby holding the plaintiff liable to restore the trust fund), where:
(a)       the plaintiff is a charitable trustee;
(b)       the relevant breaches of trust were honestly made;
(c)       trust funds were only ever applied towards (what are asserted to be)           legitimate charitable objects; and
(d)      the source of compensation will be another charitable trust?

The Court received written submissions from the plaintiff on 24 February 2022 in which the plaintiff argued it was open to the Court to find that the traditional rules of equitable accounting do not apply to the charitable trust in this case. The plaintiff reiterated that its approach to the proceeding had been ‘shaped by the desire for harmony and dialogue within the church, in which conciliation and compromise are sought as much as possible’ but noted that those ‘are essentially theological and non-legal considerations.’[24]
[24]Plaintiff’s Note in Response to Court’s Questions dated 24 February 2022, 5.

The Court received responsive submissions from the defendant and the joined party respectively on 18 March 2022, who both argued that the plaintiff is legally obliged to restore the trust fund, and that Andrews v M’Guffog is distinguishable. The plaintiff was granted leave to file submissions in reply, which were received on 22 March 2022. The defendant and joined party were granted leave to file further submissions in response, and did so on 25 and 28 March 2022, respectively.

Issues in dispute
Questions 1 and 2

The plaintiff does not dispute that the terms of the Gore Charitable Trust do not authorise the payment of capital, and that such distributions therefore constituted a breach of trust. That interpretation of the Will is consistent with the advice of two counsel and agreed to be correct by the defendant and the joined party. Accordingly, all of the parties invite the Court to answer ‘no’ to question 1 and ‘yes’ to question 2.

Question 3

All parties initially agreed that the appropriate response to the plaintiff’s conceded breach of trust was the plaintiff’s restoration of the amount of capital paid out in breach of trust, plus interest. However, as outlined above, the plaintiff now submits that application of Andrews v M’Guffog alleviates the plaintiff of any legal obligation to do so.

The defendant and joined party disagree that Andrews v M’Guffog is applicable in the present case and submit that the plaintiff is legally obliged to restore the trust fund.

Question 4

Before making detailed submissions on Andrews v M’Guffog, the plaintiff suggested a restoration amount constituted by:

(a) the amount of the withdrawn capital, being $545,985.73 (calculated as the difference between the total withdrawals from, and income earned by, the Gore Charitable Trust during the relevant period); and

(b) the amount of income that would have been earned on the withdrawn capital had it been invested in the same manner as the corpus that was not withdrawn (ie, 100% in the Enhanced Cash Account before 24 January 2020, and 30% in the Enhanced Cash Account and 70% in the Equities Account thereafter), being $108,583.52.

The plaintiff originally submitted that the first figure (withdrawals less income) should be restored on capital account, whereas the second figure (foregone income) should be restored on income account. In response, the Attorney-General expressed a concern that the restoration method proposed by the plaintiff did not account for the eroding effects of inflation on the value of the withdrawn capital, which would undermine the intended function of the Gore Charitable Trust as a perpetual trust. The Attorney-General suggested two methods to account for inflation over the relevant period:

(a) payment of an additional amount on capital account (ie, an amount above the figure calculated as withdrawals less income); or

(b) allocation of some of the ‘foregone income’ to capital account.

The Attorney-General indicated that she was content to leave it to the Court’s discretion as to which, if either, of these methods was appropriate. Initially, the plaintiff invited the Court to select the second option. In its reply submissions and the joint trial outline, the plaintiff indicated that the amount allocated to capital account should be determined by reference to the historical rate of inflation; however, at trial, counsel for the plaintiff submitted that all of the ‘foregone income’ should be allocated to capital account to avoid double recovery:

The congregation has already received the benefit of the wrongful premature payment of capital …
… if the interest recompense that we’re talking about now comes back in to the trust on account of income, and therefore is able to be paid out straight away because it’s income available to be distributed for the charitable purposes of the congregation, the congregation will receive income twice over. Namely, what they have received prematurely – innocently, but prematurely, and what now comes back.[25]

[25]T55.11-13; 55.29-56.05.

The joined party disagreed that the final compensation calculation proposed by the plaintiff (and not opposed by the Attorney-General) was adequate, and submitted that the calculation should also:

(a) reverse the ‘effects of wrongful accumulation of income since September 2018’;[26] and

(b) account for the plaintiff’s failure to invest the capital in a diversified portfolio before 24 January 2020 (when the investment was varied to 30% in the Enhanced Cash Account and 70% in the Equities Account).

[26]Outline of submissions of the joined party dated 28 May 2021, [6].

Question 5

All of the parties agree that the restoration of capital, if required, should be from general funds held by the plaintiff and not subject to any special trust (such as the Gore Charitable Trust). In her written submissions, the joined party said that the appropriate sources of the funds were, in fact, narrower – that is, they should be restricted not only by the absence of a special trust, but also by a requirement, for example, that the plaintiff not target a specific asset in the Box Hill parish to satisfy the capital restoration. To do so, according to the joined party, would be to ‘rob Peter to pay Paul.’[27] However, the joined party acknowledged that this proceeding is not a suitable vehicle to determine the plaintiff’s powers and discretions in respect of any particular asset,[28] and the plaintiff agreed with that view.[29]
[27]Outline of submissions of the joined party dated 28 May 2021, [4].
[28]Outline of submissions of the joined party dated 28 May 2021, [7].
[29]Reply submissions of the plaintiff dated 28 July 2021, [30].

Section 67 relief

There is disagreement about the scope of the breaches that are properly the subject of an order under s 67 of the Trustee Act.

In addition to the unauthorised withdrawals of capital (conceded by the plaintiff), the joined party’s broader allegations against the plaintiff, as set out in the statement of claim for the Dismissed Proceeding and draft statement of claim for the Fiat Proceeding, include that the plaintiff breached its duties as trustee by:

(a) allowing distributions from the Gore Charitable Trust to ‘external charities’ and, consequently, for purposes that were not within ‘the purpose of the Wesley Uniting Church Box Hill Parish’ as required by sub-paragraph 2(b)(v) of the Will;

(b) failing to invest the capital in a diversified portfolio before January 2020;

(c) failing to make payments of income to the Church Council of the Wesley Uniting Church Box Hill congregation when required to do so (by freezing the Funds Management Account on 19 September 2018), and thereby accumulating income;

(d) impermissibly delegating authority to, or failing to adequately supervise, the Church Council of the Wesley Uniting Church Box Hill congregation during the period when unauthorised capital withdrawals were made; and

(e) failing to maintain adequate trust accounts.

Relevantly, the joined party agrees that there is no evidence that any of those breaches were dishonest, that any person personally benefited from those breaches, or that the funds of the Gore Charitable Trust have ever been applied for a non-charitable purpose.

The relief apparently sought by the joined party for the breaches includes further compensation, a declaration regarding the charitable purposes within the scope of the Gore Charitable Trust, an order for the taking of accounts, and an order that the plaintiff be removed as trustee of the Gore Charitable Trust.

In the originating motion to this proceeding, the plaintiff sought an order pursuant to s 67 of the Trustee Act that, upon restoring the withdrawn capital and paying to the Gore Charitable Trust ‘foregone income’ on that capital, the plaintiff ‘otherwise be relieved from liability in respect of that Trust to date.’ The breadth of that relief was opposed by both the Attorney-General and the joined party, the Attorney-General noting that it would extend to all liability ‘whether disclosed in this proceeding or not and whether the subject of this proceeding or not.’[30]
[30]Attorney-General’s submissions dated 2 July 2021, [41].

When the matter came before the Court, the plaintiff sought a narrower release under s 67 – namely, from liability in respect of any breach of trust alleged against it in the statement of claim in the Dismissed Proceeding or draft statement of claim in the Fiat Proceeding. The Attorney-General reiterated her view that the relief should ‘not extend to other alleged breaches that do not form the basis of the current proceeding’,[31] but otherwise considered that the question of relief was for the Court’s discretion.
[31]Joint trial outline dated 27 October 2021, 5.

Consideration
Questions 1 and 2

All parties agree that the terms of the Gore Charitable Trust do not authorise the payment of capital, and that such distributions therefore constituted a breach of trust. I also note the advice of two counsel to that effect.

The terms of the Will are regrettably ambiguous. The advice of Mr Hardingham KC places significant emphasis on the fact that sub-paragraph 2(b)(v) is subject to the opening words of paragraph 2 (extracted at paragraph 17 above) – in particular, that Mr Gore’s estate is to be held on trust ‘in perpetuity’ – and suggests that a construction permitting capital distributions following the sale of the house would be a matter of ‘the tail wagging the dog.’[32] The advice also considers that Mr Gore’s express indication that the trust be established ‘in memory of my late mother Julia Elizabeth Gore and myself’ (paragraph 5 of the Will) favours that construction.
[32]Exhibit JPM-6 to the affidavit of James Milne sworn 3 October 2020, [6].

I consider that there is merit to those arguments and, in the absence of any submissions to the contrary in this proceeding (and the fact that all parties positively agreed with Mr Hardingham’s construction), I am satisfied that they are correct.

I will therefore answer ‘no’ to question 1 and ‘yes’ to question 2.

Question 3

Question 3 is whether the plaintiff is ‘justified’ in restoring to the Gore Charitable Trust the amount of capital paid out in breach of trust.

While the plaintiff resolved to restore the capital on 31 July 2019, it has never admitted a legal obligation to do so. As noted above, counsel for the plaintiff indicated that the plaintiff’s resolution to restore the capital was based on essentially theological and non-legal considerations. I reject the joined party’s submission that the plaintiff has made a ‘forensic concession’ of liability to repay which has never been withdrawn, and from which it cannot now depart.[33]
[33]Joined party’s second submissions in reply dated 28 March 2022, [2].

In my view, where a trustee is seeking advice on the appropriate remedy for an admitted breach of trust, it is only appropriate for a court to advise that remedial action is ‘justified’ if the trustee is legally obliged to take that action. In exercising the advisory jurisdiction of this Court, it is important that the Court’s answers to the questions have sufficient clarity so as to provide guidance on the relevant legal principles not only for the plaintiff, but to trustees of charitable trusts more broadly.

It therefore falls for me to determine whether the plaintiff is legally obliged to restore the withdrawn capital, applying Andrews v M’Guffog.

Andrews v M’Guffog

The trust property in Andrews v M’Guffog was the residue of a deceased estate comprising £3,000. The testatrix directed that the ‘whole or any part of the annual produce or interest’ of the £3,000 be applied towards the ‘maintenance and support’ of a specified school.[34] However, instead of applying only the ‘produce or interest’ of the £3,000 for that purpose, the trustees applied almost all of the £3,000 towards reducing the balance on an overdrawn account at the National Bank, which had been debited in connection with the building, furnishing and maintenance of the specified school under a separate trust.[35]
[34]Andrews v M’Guffog (1886) 11 App Cas 313, 319-20 (Lord Watson).
[35]Andrews v M’Guffog (1886) 11 App Cas 313, 320-21 (Lord Watson).

Therefore, like the present case, the relevant breach of trust in Andrews v M’Guffog was the payment of capital when the relevant instrument only empowered the trustee to make income distributions.

In overturning the lower court’s decision to hold the trustees personally liable to restore the £3,000, Lord Watson (with whom the Lord Chancellor and other Lords agreed) pointed to the ‘[t]he rule as to personal liabilities of charitable trustees for the public’ articulated by Lord Eldon in Attorney-General v Corporation of Exeter:

With respect to the general principle on which the Court deals with the trustees of a charity, though it holds a strict hand on them when there is wilful misapplication, it will not press severely upon them when it sees nothing but mistake. It often happens from the nature of the instrument creating the trust that there is great difficulty in determining how the funds of a charity ought to be administered. If the administration of the funds, though mistaken, has been honest and unconnected with any corrupt purpose, the Court, while it directs for the future, refuses to visit with punishment what has been done in the past. To act on any other principle would be to deter all prudent persons from becoming trustees of charities.[36]

[36]Andrews v M’Guffog (1886) 11 App Cas 313, 324 (Lord Watson), quoting Attorney-General v Corporation of Exeter (1826) 2 Russ 45, 54 (Lord Eldon).

Lord Watson subsequently noted that:

To expend trust funds upon objects not contemplated by the founder is a much more violent inversion of his trust than to expend them in attaining one of the main objects of the trust, by means which he did not contemplate.[37]

[37]Andrews v M’Guffog (1886) 11 App Cas 313, 324 (Lord Watson).

Andrews v M’Guffog was cited by the Supreme Court of South Australia in University of Adelaide v Attorney-General (SA) as support for the proposition that ‘there is no requirement that charity trustees must be held liable regardless of circumstances’.[38] In Plan B Trustees Ltd v Parker (No 2), Edelman J quoted from the above comments of Lord Eldon and Lord Watson when observing that ‘some authorities have suggested that the strict principles of trust accounting do not apply with the same rigor to trustees of charitable trusts’, and that ‘those principles do not necessarily apply in the same way’.[39] In that case, Edelman J was asked by a trustee of a charitable trust to provide directions to the effect that the trustee was justified in not taking legal proceedings against the previous trustee (amongst other persons). While his Honour did not provide a view on the correctness of Andrews v M’Guffog, he nevertheless identified it as one of the potential obstacles to a successful claim against the prior trustee, and thus a reason for making the direction sought by the trustee.
[38]University of Adelaide v Attorney-General (SA) [2018] SASC 82, [50].
[39]Plan B Trustees Ltd v Parker (No 2) [2013] WASC 216, [186].

I was not taken to any authority to suggest that Andrews v M’Guffog is not good law in Australia. It therefore falls for me to determine whether Andrews v M’Guffog is applicable in this case and, if so, whether that means the plaintiff is not obliged to restore the withdrawn capital.

The ‘objects’ of a charitable trust

It seems clear that one factor which may take a breach of charitable trust outside the scope of Andrews v M’Guffog is, using Lord Watson’s words, application of trust funds ‘upon objects not contemplated by the founder’. Critically, the advice sought by the plaintiff is the appropriate remedial response to payment of capital on the assumption that the charities which received that capital were nevertheless charities contemplated by the founder. While the joined party disputes this (in respect of some of those charities), for the purposes of the following analysis, I have assumed that all of the recipients are charities within Mr Gore’s contemplation. I must therefore determine whether payment of capital in and of itself constitutes the expenditure of trust funds ‘upon objects not contemplated by’ Mr Gore within the meaning of Andrews v M’Guffog.

It is important to precisely identify what is meant by the ‘object’ of a trust. On that question, the Attorney-General took me to Commissioner of Taxation v Word Investments Ltd,[40] where the High Court considered whether the ‘objects’ listed in a company’s memorandum of association were charitable. Relevantly, the majority (Gummow, Hayne, Heydon and Crennan JJ) held that the stated ‘objects’ were, in fact, comprised of two mutually exclusive categories: purposes, and powers to carry out those purposes.[41] By way of example, the stated ‘object’ to proclaim religion was regarded by the majority as a purpose; whereas, the ‘object’ to set aside and retain profits was a power conferred on directors.[42]
[40](2008) 236 CLR 204.
[41]Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204, 218 [20].
[42]Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204, 218-19 [20]-[22].

I therefore accept that, in its broadest sense, ‘objects’ can include both purposes and powers. However, in my view, Lord Watson intended a more precise meaning when using the term in the context of charitable trusts, and this meaning accords with the common use of the term in the context of trusts generally (noting that Commissioner of Taxation v Word Investments Ltd concerned a company, not a trust). It is uncontroversial that, in the case of non-charitable trusts, the ‘objects’ are the identifiable persons for whose benefit the property is held. By analogy, the ‘objects’ of a charitable trust are the social purposes for ‘whose benefit’ the property is held. This view is supported by the observation of Dixon and Evatt JJ in Attorney-General (NSW) v Perpetual Trustee Co Ltd that, where a testator’s or settlor’s instructions ‘do not concern the creation, devolution or enjoyment of estates or interests, they are enforced only when they answer some purpose of a defined class allowed by the law as tending to the public benefit’.[43]
[43]Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209, 223 (citations omitted).

Once this is recognised, it is clear that ‘perpetuity’ cannot constitute an ‘object’ of the trust within the meaning of Andrews v M’Guffog . It may facilitate the promotion or advancement of a social purpose, but it cannot be the social purpose itself. Therefore, while the application of capital from the Gore Charitable Trust was clearly an act outside the powers conferred by the trust instrument, it did not necessarily involve contravention of the purpose or ‘object’ for which the Gore Charitable Trust was established.

Do the traditional rules of equitable accounting apply to charitable trusts?

While I accept that a court should, as far as possible, ensure that all of a settlor’s intentions are carried into effect (and not confine itself to advancement of the trust’s objects),[44] in my view, there are good reasons why conduct constituting an honest breach of charitable trust that is nevertheless directed towards attaining the trust’s objects is less likely to warrant imposition of personal liability on the trustee.
[44]Attorney-General’s Response to Court Request dated 18 March 2022, [3]-[12].

As explained below, this is due to the fundamental differences between private and charitable trusts, and the fact that the rules of equitable accounting respond, in part, to specific features of ‘traditional’ private trusts without clear analogues in charitable trusts.

It has been recognised that there are two types of ‘compensation’ for breach of private trust, which correlate with different historical ‘accounts’:[45]

(a) the account in ‘common form’, which is analogous to specific performance or recovery of a debt and only requires proof of an unauthorised disbursement, not proof of loss; and

(b) the account on the basis of ‘wilful default’, which requires proof of loss caused by the trustee’s breach.

[45]Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1, [334]-[349] (Edelman J).

The account in common form protects a beneficiary’s right to have the trust administered in an authorised manner. It therefore focuses on the state of the trust estate, not on any loss caused to the beneficiaries. In Target Holdings Ltd v Redferns (a firm) [1996] AC 421 (‘Target Holdings’, cited with approval by the High Court in Maguire v Makaronis (1997) 188 CLR 449 and Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484), Lord Browne-Wilkinson relevantly said (at 434):

The basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law. Thus, in relation to a traditional trust where the fund is held in trust for a number of beneficiaries having different, usually successive, equitable interests (e.g. A for life with remainder to B), the right of each beneficiary is to have the whole fund vested in the trustees so as to be available to satisfy his equitable interest when, and if, if falls into possession. Accordingly, in the case of a breach of such trust involving the wrongful paying away of trust assets, the liability of the trustee is to restore the trust fund, often called “the trust estate”, what ought to have been there.
The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries’ rights can be protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss.

As his Lordship noted, it is precisely because different, usually successive, equitable interests exist that the only way in which all beneficiaries’ rights can be protected is to restore to the trust fund what ought to be there. In contrast, charitable trusts do not involve different equitable interests. They create no interests at all. As noted by Dixon and Evatt JJ in Attorney General (NSW) v Perpetual Trustee Co Ltd:

A charitable trust is a trust for a purpose, not for a person. The objects of ordinary trusts are individuals, either named or answering a description, whether presently or at some future time. To dispose of property for the fulfilment of ends considered beneficial to the community is an entirely different thing from creating equitable estates and interests and limiting them to beneficiaries. In this fundamental distinction sufficient reason may be found for many of the differences in treatment of charitable and ordinary trusts. As a matter of reason, if not of history, it explains the differences between the interpretation placed on declarations or statements of charitable purposes and the construction and effect given to limitations of estates and interests. Estates and interests are limited with a view of creating precise and definite proprietary rights, to the intent that property shall devolve according to the form of the gift and not otherwise. Whatever conditions are expressed or implied in such limitations are therefore as a rule construed as essential to the creation or vesting of the estate or interest unless an intention to the contrary appears. But to interpret charitable trusts in the same manner would be to ignore the conceptions upon which such trusts depend.[46] (emphasis added)

[46]Attorney General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209, 222-3.

As the present case concerns a charitable trust, it cannot be said that, for example, identifiable income beneficiaries have benefited at the expense of capital beneficiaries. Rather, generating income and preserving (or growing) capital are interrelated mechanisms which together serve the overarching object of the Gore Charitable Trust to advance religion. I therefore reject the Attorney-General’s submission that the present situation invites application, by analogy, of a private trustee’s duty of impartiality between income and capital beneficiaries.[47] I also reject the Attorney-General’s submission that the above comments in Target Holdings must be confined to bare commercial trusts or trading trusts,[48] and instead consider that they serve as a useful reminder that the rationale underpinning established remedies should be kept in mind when applying those remedies to materially different circumstances and situations.
[47]Attorney-General’s Submissions dated 2 July 2021, [19]-[21].
[48]Attorney-General’s Response to Court Request dated 18 March 2022, [23].

There is another reason why compensation in the nature of an account in common form is not justified in the present case: that is, payment of capital towards trust objects is not analogous to ‘paying away’ trust assets in the requisite sense. The scenario which typically attracts an account in common form involves unauthorised investments resulting in dissipation of trust funds. That is not akin to what happened here. Capital was not directed towards unauthorised purposes (or, in the Attorney-General’s words, ‘frittered away’);[49] rather, it was applied towards the very objects for which the trust was established. To the extent an analogy does exist with a private trust, in my view, that analogy is payment to the beneficiaries themselves.
[49]Attorney-General’s Response to Court Request dated 18 March 2022, [20].

In circumstances where the objects of the trust are the beneficiaries of the unauthorised payments, it might seem an odd result if the trustee was nevertheless liable to restore those amounts to the trust fund. Of course, had this been a case where one charitable object was given a separate and distinct entitlement to another charitable object (as was the case in In re Freeston’s Charity, to which I was taken by the Attorney-General),[50] a different conclusion may be required. However, I cannot identify anything to suggest that one of Mr Gore’s objects has benefited at the expense of another object by payment of the capital.
[50]In re Freeston’s Charity [1978] 1 WLR 741, cited by the Attorney-General in Attorney-General’s Response to Court Request dated 18 March 2022, [17].

For similar reasons, I cannot identify a basis for compensation in an account for ‘wilful default’, which requires identifying loss. In my view, it is not sufficient simply to point to the fact that the capital balance would be greater if capital had not been withdrawn. The benefit obtained by the objects from those capital applications must be also accounted for in assessing whether loss has occurred.

This point is illustrated by the conceptual difficulties identified by the parties in determining a methodology to calculate the restoration amount. The parties agreed that the amount would normally be calculated as the amount of the withdrawn capital plus the amount of income that would have been earned on the capital had it not been withdrawn. Initially, the plaintiff submitted that the ‘foregone income’ should be restored on income account; however, at trial, counsel for the plaintiff submitted that the foregone income should be allocated to capital account to avoid double recovery, noting that ‘[t]he congregation has already received the benefit of the wrongful premature payment of capital’.[51] Again, this highlights that the present case is not a situation where the withdrawal of capital has resulted in the objects of the trust being denied ‘use’ of that capital – rather, the withdrawal was applied specifically for those objects.
[51]T55.11-13; 55.29-56.05.

As I understand it, there is nothing in the instrument creating the Gore Charitable Trust that would prevent the trustee from allocating the capital of the Trust to an investment which prioritises capital growth over income generation for a period to restore the depleted capital mistakenly distributed as income. It is true that, during the period where the capital is grown, income distributions may be less than what was contemplated by the testator. However, critically, during the period where capital was mistakenly applied, ‘income’ distributions were greater than anticipated (to the tune of $437,402.21 on the plaintiff’s calculations).[52] Thus, in a very general sense, the net position over the life of the trust will be unaffected by the breach if the capital is restored by growth over time. Indeed, it is by virtue of the fact that the trust is perpetual in nature, and that there are no separate capital and income beneficiaries, that fluctuations in distributions over time have less significance. I therefore reject the Attorney-General’s submission that not requiring the trustee to repay the capital would necessarily ‘harm’ the Gore Charitable Trust.[53]
[52]The parties agree that the capital value has been depleted by $545,985.73 as a result of the breach. On the plaintiff’s calculations, $108,583.52 of income would have been earned on that capital had it not been withdrawn. Therefore, the Gore Charitable Trust has had access to $437,402.21 more ‘income’ ($545,985.73 less $108,583.52) than it would have, had no breach occurred.
[53]Attorney-General’s Response to Court Request dated 18 March 2022, [2].

Again, had this been a case where temporarily reducing income distributions during a specific period would directly interfere with the trust’s objects, a different conclusion may be required. However, I cannot identify anything in the trust instrument that prescribes a particular proportion of growth and income-producing investments after Mr Gore’s house was sold.

Conclusions on question 3

In summary, I consider that the strict rules of equitable accounting developed in relation to private trusts do not automatically apply in this case because:

(a) the Gore Charitable Trust, being a charitable trust, did not create different equitable interests which can only be protected by restoring the trust fund (as will often be the case for a private trust);

(b) the withdrawn capital was not ‘dissipated’ or ‘frittered away’, but applied towards the very objects of the Gore Charitable Trust with the result that those objects received significantly more ‘income’ than would otherwise have been the case; and

(c) it is difficult to identify any precise analogue of private law ‘loss’ requiring compensation.

Of course, this does not mean that plaintiff is automatically relieved of personal liability; however, it does suggest that the ‘basic rule’ outlined by Lord Browne-Wilkinson (‘that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss’) requires moderation.

Bearing this in mind, in my view:

(a) the plaintiff is not legally obliged to restore to the Gore Charitable Trust capital amounts mistakenly withdrawn on or before the date it received the auditor’s report in June 2015; however

(b) the plaintiff is required to restore to the Gore Charitable Trust capital amounts mistakenly withdrawn after its receipt of the auditor’s report in June 2015.

I consider that the capital withdrawals made prior June 2015 fall squarely within the principle in Andrews v M’Guffog: they were honestly made, applied towards what were honestly regarded as legitimate trust objects and provided no benefit to the trustee. While the same is also true of the capital withdrawals after that date, the key difference is that the plaintiff was on notice that the organ of the Uniting Church administering the Gore Charitable Trust (being the Church Council of the Wesley Uniting Church Box Hill congregation) had mistakenly been making capital distributions. At this point, a greater degree of supervision was required by the plaintiff. Here, I accept the joined party’s submission that Andrews v M’Guffog should, as far as possible, be applied harmoniously with s 67 of the Trustee Act, which requires that a trustee has acted both honestly and reasonably before being alleviated of personal liability. In my view, the plaintiff’s failure to adequately supervise the local Church Council for a period of more than three years after receiving the auditor’s report was not reasonable.

Accordingly, in my view, the rationale for requiring restoration of capital withdrawn after June 2015 is ensuring that charitable trustees perform their duties with appropriate diligence, rather than compensation in the conventional sense.

As noted above, I do not consider that perpetuity is a charitable ‘object’ in the requisite sense. However, this should not be understood as suggesting that a clear intention to establish a perpetual trust can be deliberately or carelessly ignored by a trustee without consequence. In this case, the terms of the Gore Charitable Trust are regrettably ambiguous in relation to the testator’s intentions after the Box Hill property was sold. I therefore consider that the failure to preserve capital before this requirement was investigated and clarified via legal advice is less egregious than if the Will had been expressly clear on this point. Mr Gore clearly hoped that the Box Hill property would be leased into perpetuity, and thus it is perhaps unsurprising that his instructions in relation to the eventuality he hoped to avoid (sale of the property) are less prescriptive.

Another factor I have considered in reaching my conclusion is that the source of restoration of capital will be another charitable trust. While I accept the Attorney-General’s submission that the plaintiff is ‘an extremely well-resourced trustee that is specifically constituted under legislation’, [54] it remains the fact that all of its property is held on trust for The Uniting Church in Australia (and upon any other trust affecting the property).[55] Restoring capital to the Gore Charitable Trust from general funds of the plaintiff will have no effect on the overall quantum of funds available for the ‘advancement of religion’ (the overriding object of the Gore Charitable Trust) within the Uniting Church. Rather, it will simply shift decision-making responsibility for applying a portion of those funds to the Church Council of the Wesley Uniting Church Box Hill congregation – which is somewhat ironic, given the joined party’s complaints about the plaintiff’s delegation of such authority to that Church Council in the first place.
[54]Attorney-General’s Response to Court Request dated 18 March 2022, [19].
[55]The Uniting Church in Australia Act 1977 (Vic) sub-s 13(2).

The Attorney-General and the joined party also submitted that Lord Watson’s concern about individuals being dissuaded from becoming charitable trustees is inapplicable in the present case. While I accept that this concern has less weight where (as here) the trustee is a well-resourced institution, I do not consider that it is completely inapplicable. Sub-section 29(3)(c) of the Uniting Church Act expressly provides that the plaintiff may retire, or decline to act, as trustee of property that is not vested in it by or pursuant to that Act. If the plaintiff was repeatedly exposed to personal liability for honest and reasonable breaches of trust in the nature of the Gore Charitable Trust, it might legitimately ask itself whether it should continue to administer such trusts (particularly when it does not charge fees for such administration).

Distinguishing between breaches before and after the auditor’s report is also consistent with Fox J’s observation in In re Freeston’s Charity that, where a charitable trustee has acted mistakenly but honestly, a court can direct an account:

from the date when the trustee was first apprised of the claim or from the commencement of proceedings or from some date after the commencement of proceedings. The matter must turn on the particular circumstances of the case but it would, it seems, not be normal to require an account in respect of a period prior to the commencement of proceedings.[56]

[56]In re Freeston’s Charity [1978] 1 WLR 120, 130 (Fox J) (citations omitted). The case was appealed unsuccessfully, although the appeal did not turn on the question of remedy, see generally: In re Freeston’s Charity [1978] 1 WLR 741 (Buckley and Goff LJJ).

Finally, I am confident that this decision will not signal to charitable trustees that they may act with impunity. On the contrary, the circumstances in which Andrews v M’Guffog might apply are clearly confined. As the plaintiff points out, nothing decided in this case would prevent a court from reaching a different result, for example:

(a) in a case of dishonest, wilful or self-interested breaches of trust;[57]

(b) if the funds were put towards obviously improper or non-charitable purposes;[58] and

(c) in the case of a commercial trustee having private resources held for its own benefit.[59]

[57]Plaintiff’s Note in Response to the Court’s Question dated 24 February 2022, [7].

[58]Plaintiff’s Note in Response to the Court’s Question dated 24 February 2022, [8].

[59]Plaintiff’s Note in Response to the Court’s Question dated 24 February 2022, [9].

I therefore answer to question 3:

The plaintiff is not legally obliged to restore, and therefore not justified in restoring, the capital paid out in breach of trust prior to its receipt of the auditor’s report in July 2015.
The plaintiff is legally obliged to restore, and therefore justified in restoring, the capital paid out in breach of trust after its receipt of the auditor’s report in July 2015.

Question 4

Question 4 enquires about the appropriate amount to be paid by the plaintiff to restore the Gore Charitable Trust.

Consistently with my answer to question 3, the starting point is to calculate the total capital paid out during the period commencing on the date the plaintiff received the auditor’s report and ending on the date of the last withdrawal.

The question then is whether the plaintiff is obliged to pay an additional sum by way of interest on the total withdrawn amount.

The plaintiff initially proposed to pay an additional amount equal to the amount of income that would have been earned on the withdrawn capital had it been invested in the same manner as the corpus that was not withdrawn. That approach is ostensibly directed at compensating the fund for lost ‘use’ of the withdrawn capital and thus, for the reasons outlined in my analysis of question 3, conceptually flawed. As noted above, the Gore Charitable Trust was not in fact deprived of the benefit of the withdrawn capital during the relevant period – that capital was honestly, but mistakenly, treated as income, and applied for what were honestly regarded as proper purposes.

Accordingly, an additional amount (in addition to the amount of the withdrawn capital) will only be payable by the plaintiff if that amount is justifiable by reference to a principle other than ‘lost use’ of that capital.

In my view, it is appropriate in the circumstances of this case for the plaintiff to pay an additional amount so that the value of the restored capital is the same, in real terms, as the value of the withdrawn capital (in accordance with the relevant inflation figures). My reasons are as follows:

(a) conceptually, an inflation-adjusted amount is directed at restoring the Gore Charitable Trust to its capital position, in real terms, before the withdrawal of capital, and not the hypothetical state the Trust ‘would have’ been in, had the breach not been committed (which would only be appropriate if the remedial objective was compensation);

(b) inflation-adjusted compensation avoids selection of an interest rate that would be, in the circumstances of this case, largely arbitrary;

(c) restoring the value of the capital in real terms is consistent with the intended perpetual nature of the Gore Charitable Trust; and

(d) the order is not predicated on the capitalisation of income, which may contravene the terms of the Gore Charitable Trust.[60]

[60]While no submissions on the capitalisation of income were made, the parties appeared to agree that this was not permitted by the terms of the Gore Charitable Trust, and this view is consistent with advice provided to the plaintiff by counsel.

For completeness, I consider that the joined party’s complaints about the compensation methodologies canvassed at trial – that they fail to reverse the ‘effects of wrongful accumulation of income since September 2018’ or account for the plaintiff’s failure to invest the capital in a diversified portfolio – are irrelevant to question 4, as they go to asserted breaches other than the withdrawal of capital from the Gore Charitable Trust. Those alleged breaches are dealt with in my consideration of relief under s 67 of the Trustee Act.

Accordingly, I will answer question 4 as follows:

(a) No.
(b)It is appropriate that the amount paid by the plaintiff to restore the Gore Charitable Trust for capital paid out after its receipt of the auditor’s report in July 2015 be the amount of each capital payment converted into its present value on the date of this order in accordance with the applicable inflation figures.
If it is not possible to characterise individual payments as occurring on capital or income account, it is appropriate for the plaintiff to calculate the total capital paid out during each relevant accounting period (being the extent to which payments exceeded income) and converting that figure into its present value on the date of this order in accordance with the applicable inflation figures.

Question 5

Turning now to question 5, I agree with the joined party that it is not appropriate, within this proceeding, to provide the Court’s imprimatur for the plaintiff to deal with any item or items of property in order to satisfy its obligation to restore funds to the Gore Charitable Trust. Rather, the appropriate function of question 5 is to identify the capacity in which the plaintiff should hold property that is used to restore the Gore Charitable Trust. As the plaintiff notes, there are only two options in this regard:

(a) property held on trust for the Uniting Church that is not affected by a special trust; and

(b) property held on trust for the Uniting Church that is affected by a special trust (such as the Gore Charitable Trust or other specific trusts).

All the parties agree that the plaintiff should not have recourse to the second category of property. However, to make clear that the Court is not endorsing recourse to any particular sub-category of property within the first category, I will answer question 5 as follows:

I decline to answer whether the plaintiff is justified in paying funds from any particular source. However, the amount identified in answer to question 4 should not be paid from property held by the plaintiff that is affected by ‘any other trust’ within the meaning of s 13(2) of The Uniting Church in Australia Act 1977 (Vic).

Section 67 relief

I turn now to the question of relief under s 67 of the Trustee Act. The plaintiff seeks relief from the historical breaches alleged by the joined party in the Dismissed Proceeding and the Fiat Proceeding, beyond the distribution of capital, as outlined in paragraph 68 above.

For the following reasons, I grant the relief in respect of any actual or potential breach or breaches of trust by the plaintiff for:

(a) failing to make payments of income to the Church Council of the Wesley Uniting Church Box Hill congregation when required to do so (by freezing the Funds Management Account on 19 September 2018), and thereby accumulating income;

(b) delegating authority to, or failing to adequately supervise, the Church Council of the Wesley Uniting Church Box Hill congregation during the period when capital distributions were made; and

(c) failing to maintain adequate trust accounts.

However, I decline to grant relief in respect of any actual or potential breach or breaches of trust by the plaintiff for:

(a) allowing distributions from the Gore Charitable Trust to ‘external charities’ and, consequently, for purposes that were not within ‘the purpose of the Wesley Uniting Church Box Hill Parish’ as required by sub-paragraph 2(b)(v) of the Will; and

(b) failing to invest the capital in a diversified portfolio before January 2020.

Relevant law

Section 67 of the Trustee Act provides as follows:

Power to relieve trustee from personal liability
If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve him either wholly or partly from personal liability for the same.

Eligibility for relief under s 67 is comprised of two limbs, both of which must be satisfied in respect of the relevant breach or breaches:

(a) the trustee ‘acted honestly and reasonably’; and

(b) the trustee ‘ought fairly to be excused’ for the actual or potential breach of trust.[61]

[61]Re Sir Colin and Lady MacKenzie Trust (No 2) [2020] VSC 335, [24]-[26] (McMillan J); Re Turner; Barker v Ivimey [1897] 1 Ch 536, 541 (Byrne J); National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd [1905] AC 373, 380-1 (Sir Ford North, Lord Davey, Lord Linley and Sir Arthur Wilson agreeing); Reid v Hubbard [2003] VSC 387, [30] (Nettle J).

The jurisdiction is remedial in nature, and should not be interpreted narrowly.[62] Further, there is no requirement that the alleged breach or breaches be proven. As noted by McMillan J in Re Sir Colin and Lady MacKenzie Trust (No 2) (‘MacKenzie’):

It is not necessary for the exercise of the jurisdiction that the Court has made a positive finding of breach, it is enough that the Court is of the opinion that the trustee may be under some personal liability.[63]

[62]Re Sir Colin and Lady MacKenzie Trust (No 2) [2020] VSC 335, [25] (McMillan J).

[63]Re Sir Colin and Lady MacKenzie Trust (No 2) [2020] VSC 335, [23], citing Re Mackay [1911] 1 Ch 300, 306 (Parker J).

In relation to the first limb, McMillan J in MacKenzie said:

Honesty and reasonableness are to be viewed objectively, by reference to the welfare and interest of the trust. The Court must consider whether the trustee’s actions were in good faith, and whether they acted with a degree of prudence that a person of ordinary intelligence and diligence would be expected to exhibit in the conduct of his or her own affairs. That standard does not, however, require that the trustee engage in best practice in all respects. As the requirements are cumulative, honesty on the part of the trustee will not excuse actions that are nonetheless unreasonable. Unreasonableness may be identified by reference to several factors, including a failure to seek legal advice, or undue reliance upon another person. Although negligence on the part of a trustee may be indicative of a want of honesty or reasonableness in a trustee’s actions, mere negligence is not in itself disentitling.[64]

[64]Re Sir Colin and Lady MacKenzie Trust (No 2) [2020] VSC 335, [26] (citations omitted).

Her Honour also relevantly noted:

Although a breach may have occurred in law, the Court may consider that the trustee’s actions were sensible and that the trust suffered no loss or was in no way prejudiced as a consequence of the trustee’s actions.[65]
[65]Re Sir Colin and Lady MacKenzie Trust (No 2) [2020] VSC 335, [27].

Income accumulation, delegation of authority, trust records

I will commence with analysis of the asserted breaches in respect of which I have determined to grant s 67 relief.

The joined party alleges that the plaintiff committed a breach of trust by freezing the Enhanced Cash Account in September 2018 and impermissibly accumulating income. Even if this breach was made out, the appropriate remedy would likely be an order that the plaintiff distribute the retained income. The plaintiff has undertaken to do as much as soon as the threat of ongoing litigation is lifted.[66] Therefore, paradoxically, the only obstacle to the remedy sought by the joined party would seem to be her threat of litigating to obtain it.
[66]Reply submissions of the plaintiff dated 28 July 2021, [17].

Further, in my view, it was reasonable for the plaintiff to freeze the Enhanced Cash Account in September 2018 (despite potentially committing a breach of trust in doing so) when it became aware that the local Church Council had reverted to making capital distributions, and to maintain that freeze when the joined party threatened and then commenced litigation. Thus, I consider that relief under s 67 (subject to the plaintiff’s distribution of the retained income) is appropriate.

In relation to the question of delegation and supervision, I have already determined that the plaintiff’s failure to supervise the local Church Council more closely after its receipt of the auditor’s report in July 2015 was unreasonable, and that the plaintiff is therefore liable to restore capital distributions made after that date. However, I do not consider that the plaintiff should incur any additional liability for those supervision failures during the relevant period and will therefore grant the relief sought.

On the related question of whether the plaintiff was in breach of trust by delegating authority for property management to the local Church Council (as distinct from failing to adequately supervise the exercise of that authority), I accept the plaintiff’s submission that such delegation is expressly contemplated by clauses 3.1.2(viii) and 4.4.1 of the Regulations, and therefore permissible. Counsel for the plaintiff also pointed to s 35 of the Uniting Church Act, which creates an indemnity not only for members of the plaintiff in relation to honest and non-negligent dealings with trust property, but also for:

… any other person, exercising a power or performing a duty in relation to trust property pursuant to this Act or pursuant to any resolution or direction of the Assembly …

Thus, I do not consider that the plaintiff was in breach of trust by the mere act of delegating authority for management of the Gore Charitable Trust to the local Church Council. There is also a certain irony in the fact that the plaintiff – a current member of the Wesley Uniting Church Box Hill congregation – complains of the plaintiff’s delegation of authority to the Church Council of that congregation while simultaneously seeking to assert influence over the administration of the Gore Charitable Trust through persistent litigation.

Finally, in relation to the allegation that the plaintiff failed to maintain adequate trust accounts, I note that this was not agitated at trial (where the joined party seemed to accept that adequate accounts had been provided), and the apparently uncontested submission by counsel for the plaintiff that the Court has before it complete accounts documenting the entire financial history of the Gore Charitable Trust. Therefore, to the extent that the trust records were inadequate at any point during the relevant period, this has now been remedied, and the plaintiff is appropriately relieved of liability for those remedied breaches.

Investment diversification and distributions to ‘external charities’

I turn now to the joined party’s assertion that the plaintiff’s failure to invest the capital in a diversified portfolio before January 2020 constituted a breach of trust. The joined party asserts that the plaintiff should be held to the standard of a ‘professional trustee’, whereas the plaintiff rejects its characterisation as such. The plaintiff submitted that:

While it is true that [the plaintiff] is a body corporate and acts as trustee of a number of trusts, it does not have the ‘profession, business or employment’ of acting as a trustee [citing, s 6(1)(a) of the Trustee Act]. It does not act as a trustee for professional reward, or for any purpose other than the religious charitable purposes of the Uniting Church. Further, the relevant individual actors – the authorised members of the Church Council – were altruistic volunteers [citing Macedonian Orthodox Community Church St Petka Inc v Metropolitan Petar [2013] NSWCA 223, [226]-[229] (Macfarlan JA; Beazley and Emmett JJA agreeing)].[67]

[67]Reply submissions of the plaintiff dated 28 July 2021, [28].

In oral submissions, counsel for the plaintiff reiterated that the plaintiff:

… doesn’t operate on a commercial basis; it doesn’t hold itself out to the public as undertaking any business; it doesn’t act for profit; and it charters no commission in respect of the Gore [Charitable] Trust; and it’s not a trustee company within the meaning of the Trustee Act.[68]

[68]T28.20-25.

The plaintiff also points to caselaw to the effect that a breach of duty is not established simply because the maximum possible hypothetical rate of return has not been obtained,[69] or simply by a failure to diversify investments.[70] The plaintiff notes that:

… in 2006 the selection of UCA Cash Management Fund (a cash option), rather than the UCA Growth Fund (a growth option), for monies received from the executor of the Estate of Edwin Kent Gore, was the express choice of the authorised signatories of [the] UCA Funds Management account … into which the corpus of the Gore [Charitable] Trust was later placed in 2012.[71]

[69]Nestle v National Westminster Bank Plc [1993] 1 WLR 1260, 1276 (Staughton LJ), 1282 (Legatt LJ); Elder’s Trustee and Executor Co Ltd v Higgins (1963) 113 CLR 426, 448 (Dixon CJ, McTiernan and Windeyer JJ).

[70]Gregson v HAE Trustees Ltd [2008] All ER (D) 105.

[71]Reply submissions of the plaintiff dated 28 July 2021, [6], citing the affidavit of James Milne sworn 3 October 2020, [21], [22], [27] and exhibit JPM-6 to the affidavit of James Milne sworn 3 October 2020, 7.

While it was only income that was being received when the cash option was selected in 2006 (as the plaintiff was not at that time the trustee of the Gore Charitable Trust), this evidence nevertheless suggests that the authorised signatories turned their mind to the available investment options and selected a conservative option. This provides some answer to the joined party’s observation that s 8(1) of the Trustee Act requires trustees to ‘have regard to’ various matters, including, relevantly ‘the desirability of diversifying trust investments’: s 8(1)(b).

Counsel for the plaintiff also observed that the combined research of counsel failed to identify any case where a court has imposed liability on a gratuitous charitable trustee for breach of the duty to invest, or on any trustee where the trust funds were, before the trial of the proceeding, suitably invested.[72]
[72]T62.31-63.08 (Mr McComish).

While I consider that there is significant force to the plaintiff’s submissions on this point, in my view, it is inappropriate to grant the relief sought when the substantive subject of this proceeding is the withdrawal of capital, and not investment of that capital.

However, I encourage the joined party to have regard to the above comments and following additional considerations when determining whether to seek the Attorney-General’s fiat for further legal action:

(a) the appropriate balance between capital and income returns is, within broad limits, properly a matter of discretion for the trustee;[73]
[73]On this point, counsel for the Attorney-General relevantly took me to Nestle v National Westminster Bank Plc [2000] WTLR 795, a decision affirmed by the English Court of Appeal.

(b) the joined party at times appeared to treat the plaintiff and UEthical as the same entity, and therefore implied that particular characteristics of UEthical (such as its holding an Australian Financial Services Licence) should inform the standard reasonably expected of the plaintiff. While the available evidence regarding the interrelationship of the two entities is limited, I note that UEthical invests on behalf of Uniting Church entities other than the plaintiff and, importantly, on behalf of non-Uniting Church entities.[74] Therefore, the standards reasonably expected of the two entities may well be different;

(c) even if the alleged breach is made out, the differential between the minimum ‘acceptable’ return and actual return during the relevant period is likely to be relatively modest, and perhaps less than the legal and expert witness fees incurred to establish it; and

(d) the diversified portfolio in which the trust funds are now invested is agreed by the joined party to be appropriate.

[74]Affidavit of James Davidson sworn 9 April 2021, [4].

I turn now to the last category of breach alleged by the joined party – that the plaintiff allowed distributions from the Gore Charitable Trust to ‘external charities’ and, consequently, for purposes that were not within ‘the purpose of the Wesley Uniting Church Box Hill Parish’ as required by sub-paragraph 2(b)(v) of the Will.

Counsel’s advice,[75] adopted by the plaintiff, is that the ‘purpose’ of a congregation within the Uniting Church includes: worship, witness and service; sharing the wider responsibilities of the Uniting Church; and serving the world. These categories have been drawn from the constitutional documents of the Uniting Church, specifically clause 15(a) of the Basis of Union, which identifies the congregation as ‘the embodiment in one place of the One Holy Catholic and Apostolic Church, worshipping, witnessing and serving as a fellowship of the Spirit in Christ. Its members meet regularly to hear God’s Word, to celebrate the sacraments, to build one another up in love, to share in the wider responsibilities of the Church, and to serve the world’ (emphasis added), and clause 3 of the Constitution which defines ‘congregation’ in similar terms.
[75]Exhibit JPM-8 to the affidavit of James Milne sworn 3 October 2020.

The joined party criticised the plaintiff’s reliance on these constitutional documents to construe the terms of the Will. However, in my view, strict adherence to the terms of the Will is of little assistance to the plaintiff. Such an approach arguably invites the conclusion that, by declining to provide any substantive guidance on the religious purposes to which funds may be applied – and instead nominating a particular congregation for the purpose of distributions – the testator intended to leave the application of income as a matter of discretion for that congregation. The only limiting factor created by the Will is that the application be for the ‘advancement of religion’, which is expressly prescribed at the beginning of paragraph 2, and conspicuously unaccompanied by any reference to the Box Hill congregation.

On that view, the income of the Gore Charitable Trust could legitimately be applied for any charitable purpose within the phrase ‘advancement of religion’, and the subsidiary phrase ‘for the purpose of the Wesley Box Hill Uniting Church Parish’ would be read only as denoting the decision-making organ within the Uniting Church empowered to select the recipient of funds.

However, ultimately, I am not in a position to draw the broad conclusion that the plaintiff invites me to make – that each of the distributions listed in the statement of the claim to the Dismissed Proceeding and Fiat Proceeding was within the plaintiff’s power. That is because defining the parameters of the phrase ‘the purpose of the Wesley Uniting Church Box Hill Parish’ is only one half of the analysis required to determine if each of the distributions was within power – the other being the proper characterisation of the recipients of those payments. There is simply insufficient evidence before the Court to determine whether ‘Worldshare Heal Africa’ (an example of a charity listed in the statement of claim to the Dismissed Proceeding) was an entitled recipient within any particular construction of the phrase ‘the purpose of the Wesley Uniting Church Box Hill Parish’ (perhaps with the exception of the construction outlined above, but not canvassed in argument, that the only limiting factor established by the terms of the Will is that the application be for a charitable purpose within the phrase ‘advancement of religion’).

Also, as noted in my analysis of question 3, expending trust funds on objects not contemplated by the founder ‘is a much more violent inversion of his trust than to expend them in attaining one of the main objects of the trust, by means which he did not contemplate’,[76] and thus determining whether this has occurred in the present case should not be done without full evidence and submissions.
[76]Andrews v M’Guffog (1886) 11 App Cas 313, 324 (Lord Watson).

However, again, I would encourage the joined party to have regard to the above comments and the following additional considerations when determining whether to seek the Attorney-General’s fiat for further legal action:

(a) the impugned distributions total the relatively modest sum of the $197,000;

(b) the statement of claim to the Dismissed Proceeding and Fiat Proceeding indicates that the impugned distributions all occurred on or before 7 December 2015;

(c) there is no suggestion that the recipients of distributions were not charities, or that the distributions were made dishonestly;

(d) the joined party has failed to articulate a test that she says would identify which charitable purposes have a sufficient connection with the ‘the purpose of the Wesley Uniting Church Box Hill Parish’. The closest the joined party has come to substantiating her position is the submission that the purpose of a distribution must be ‘properly within the parish’s mission and outreach functions’ and the bald assertion that ‘[t]he external charities … are by definition not part of the Uniting Church and mission or outreach activities do not extend to them’ [sic];[77] and

(e) the joined party, through her counsel, appeared to concede that many of the disagreements about appropriate recipients were ‘largely theological’,[78] which would render litigation an inappropriate resolution mechanism.

[77]Outline of submissions of the joined party dated 28 May 2021, [2].

[78]T105.23-24 (Mr Upjohn KC).

It is also important to keep in mind that, in the case of charitable trusts, a court’s primary concern is the future administration of the trust. As noted by Lord Watson in Andrews v M’Guffog:

If the administration of the funds, though mistaken, has been honest and unconnected with any corrupt purpose, the Court, while it directs for the future, refuses to visit with punishment what has been done in the past.[79]

[79]Andrews v M’Guffog (1886) 11 App Cas 313, 316 (Lord Watson, quoting Attorney-General v Corporation of Exeter (1826) 2 Russ 45, 54 (Lord Eldon)).

To that end, I note that the plaintiff has instituted significant changes to its internal processes to reduce the likelihood of future breaches of trust. According to Mr Milne:

Since the 2013 resolutions were passed [by the Property Board of the Synod, the plaintiff and the Standing Committee of the Synod], centralisation of trusts management has occurred for all new trusts, and a project has been commenced to centralise all trusts received before that date.
…
Although the past practice of decentralised trust administration was consistent with the Constitution and Regulations of the Uniting Church (which provides for an inter-conciliar model of governance; and which expressly recognised multiple distinct ‘responsible bodies’ for the management and administration of property), decentralisation was also administratively complex; did not make the best use of specialised expertise within the church; and was reliant on a wider range of office-holders or signatories understanding, and adhering to, the terms of the relevant trusts.
In particular, turnover of office-holders and authorised signatories within local congregations could lead to a loss of institutional memory about the terms of particular trusts benefiting those congregations. That risk was particularly acute in some congregations, like Wesley Uniting Church Box Hill, that have experienced a substantial turnover in membership of office-holders in recent years.[80]

[80]Affidavit of James Milne sworn 3 October 2020, 11 [37], 12 [39]-[40].

Further litigation may also result in depletion of the Gore Charitable Trust to finance the ongoing litigation, which would be most regrettable.

Form of order

Turning now to the form of order under s 67, the plaintiff seeks a release that is framed by reference to the breaches alleged in the statement of claim to the Dismissed Proceeding and the statement of claim to the Fiat Proceeding.

In oral submissions, counsel for the Attorney-General expressed concern about the appropriateness of this approach, noting that the allegations in those statements of claim are broader than the questions on which the plaintiff has sought advice. However, counsel for the Attorney-General also acknowledged the benefit in dealing with all of the historically ventilated allegations in the current proceeding to avoid potentially costly litigation moving forward.

In my view, it is inappropriate to frame the s 67 relief simply by reference to the statements of claim. While the ultimate effect of that approach may be substantially the same as the order I propose to make, it might also imply a summary dismissal of the relevant claims. Further, a release by reference to the statements of claim would potentially allow a new proceeding that makes substantively similar claims that are differently particularised.

It is appropriate that the relief accords with my reasoning set out above, which deals with the substance of the joined party’s complaints, as opposed to her specific articulation of those claims in the statements of claim.

I also accept the Attorney-General’s submission that the order should not provide ‘blanket relief that would cover other unknown breaches’,[81] and therefore consider that the relief should be carefully restricted to the factual matrix agreed by the parties in this proceeding, and the time period covered by that matrix.
[81]T70.10-11 (Dr Bender).

While the plaintiff indicated that the parties would draft a final form of order based on my reasons for judgment, I have determined to make the order directly to avoid any more unnecessary expenditure on litigation.

The order I will make under s 67 is as follows:

Upon the plaintiff restoring to the Gore Charitable Trust the amount identified in answer to question 4 above, pursuant to s 67 of the Trustee Act 1958 (Vic), the plaintiff is relieved from any remaining liability for:
(a) breach of trust, if any, by accumulating income of the Gore Charitable Trust between 19 September 2018 and the date that is 21 days after the date of this order;
(b) failure to maintain adequate trust accounts of the Gore Charitable Trust during the period commencing on 9 February 2012 and ending on 3 February 2022, where such failures have been remedied on or before the date of this order; and
(c)during the period 9 February 2012 to 19 September 2018 (inclusive), failing to adequately supervise the Church Council of the Wesley Uniting Church Box Hill congregation where the result of such failure was one of the breaches specified above, or the payments of capital disclosed in this proceeding.

If the parties are unable to resolve costs, I will hear submissions.

[2022] VSC 610

12 October 2022