The Will of Meshakov-Korjakin, deceased
[2011] VSC 372
•22 August 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2010 02842
IN THE MATTER of the will and estate of
Igor Meshakov-Korjakin, deceased
– and –
IN THE MATTER of section 2 of the Charities Act 1978
B E T W E E N:
| STATE TRUSTEES LIMITED (in its capacity as the executor of the will and trustee of the estate of the deceased) | Plaintiff |
| - and - | |
| THE ATTORNEY-GENERAL FOR THE STATE OF VICTORIA | First Defendant |
| THE UNIVERSITY OF MELBOURNE | Second Defendant |
| EVGENIA PAVLOVNA SIMONOVA | Third Defendant |
| ST JOHN OF KRONSTADT RUSSIAN WELFARE SOCIETY INC | Fourth Defendant |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 February 2011 | |
DATE OF JUDGMENT: | 22 August 2011 | |
CASE MAY BE CITED AS: | The Will of Meshakov-Korjakin, deceased | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 372 | |
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TRUSTS AND TRUSTEES ― Charitable trusts under will ― Validity ― Administrative scheme ― Whether appropriate ― Gift for educational scholarship ― Gift for care of elderly ― Nominated trustee declined to act ― Construction of will ― Whether identity of trustee necessary to validity of trust ― Time for performance of steps ― Whether essential to validity of trusts ― Accumulation of income ― Whether void ― Contingent gift ― Vesting ― Whether void under perpetuities rule.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Boaden with Mr S Marantelli | State Trustees Limited, Legal Branch |
| For the First Defendant | Mr P Golombek | Victorian Government Solicitor’s Office |
| For the Second Defendant | Mr M T Flynn | Office of General Counsel, University of Melbourne |
| For the Third Defendant | Dr I Hardingham QC with Mr R Phillips | AJH Lawyers |
| For the Fourth Defendant | Mr S McNab | Ryan Carlisle Thomas |
* * *
HIS HONOUR:
This case concerns the construction of a will that created a trust for the charitable purposes of tertiary education in Russian language and literature, and for care of the elderly.[1] There are ancillary questions whether the Court ought in its general jurisdiction settle a scheme to effectuate the charitable trust, or whether it is the occasion for the Court to apply the cy près doctrine under section 2 of the Charities Act 1978. There was also an issue agitated concerning the effect of the Perpetuities and Accumulations Act 1968.
[1]Under rule 77.05, the trial was referred to an Associate Justice for hearing.
The proceeding has five parties. The estate is worth about $3.4 million. The plaintiff State Trustees Ltd, as executor and trustee, originally sought the advice of the Court according to six questions, and sought declaratory orders. The second defendant the University of Melbourne subsequently applied by summons for substituted and more elaborate questions which annexed a draft administrative scheme.[2] The plaintiff and other parties were content to proceed by amending the originating motion in accordance with the University’s questions, and procedural orders to that effect were made at trial.[3]
[2]Filed 20 January 2011.
[3]Order made on 24 February 2011
The Attorney General for the State of Victoria on behalf of the Crown is responsible for the public supervision of charitable trusts and is therefore a necessary party in the litigation as co defendant. The main protagonists in the case are the University of Melbourne (where the testator lectured) and the third defendant Evgenia Pavlovna Simonova who has a contingent interest and stands to gain if the charitable trust fails. She says it has. Not that it matters, but the Court does not know the nature of her past relations with the testator. It is not shown to be familial. The interests of the third defendant, the St John of Kronstadt Welfare Society Inc was broadly speaking aligned with the plaintiff, the University and the Attorney in contending the charitable trusts had not failed. The Society was established in 1955 and is the paramount welfare organisation for the care of people of Russian origin in Victoria. From premises in Dandenong, it cares for nursing home patients and operates a retirement village. The testator’s mother was a resident of the Society’s nursing home.
The University was on its own in propounding an administrative scheme to alter what were contended to be machinery provisions of the will. It was opposed firmly by Simonova and the plaintiff at least to the extent that the scheme could restructure trusts under the will or adversely affect Simonova’s contingent interest. The Attorney’s position was that a scheme was unnecessary because the testator’s charitable purposes can, and should be left alone to be carried out in accordance with the directions under the will. In the end there was no party that contended the charitable trust had become impracticable or impossible of performance so as to call for the application of the cy près doctrine.
In the way the case was conducted, there are questions of principle or construction which inform and dispose practically of a large part of the controversy at least in the current circumstances. But events may occur in the future attracting other parts of the will, and maybe other legal controversies. Before reciting the facts, at the outset I would state these as my conclusions that deal with the questions that matter:
(a) The requirement under clause 3 of the will for the trustee to make the first payment of income within 12 months of the testator’s death was not essential. The trusts did not fail by reason of that non compliance.
(b) The event in clause 4(a) has not occurred. As a matter of objective fact, I find there has been located a university, the University of Melbourne, willing to set up a scholarship, and the plaintiff has decided that is so. The University’s assent to setting up the scholarship when asked was real and not (as Simonova submitted) superficial or open to be negotiated. The University’s subsequent proposal in this proceeding for an administrative scheme on terms that depart from provisions of the will does not derogate from that finding.
(c) Further to (b), as a legal component of the validity of the University’s assent, I would not construe the will as requiring the University by its chancellor to also accept trusteeship of the entire residuary estate as a concomitant to its assent to set up the scholarship. A will must be construed as a whole but I do not see an intended link between clause 1 and clause 3. That is, I do not read this will as mandating that the University must not only be willing to set up the scholarship but it must also be willing by its chancellor to be the trustee of the residuary estate and administer the trust for the benefit of the social welfare purpose as well as the educational purpose.
(d) Simonova unquestionably has a contingent interest. As the event in clause 4(a) has not occurred, there is no gift over to Simonova in prevailing circumstances. The question whether clause 4(a) and (b) are to be construed in a composite way, as the plaintiff contended, is academic. But out of deference to the arguments, I would construe clause 4 to say that if either of the events in (a) and (b) occur then there is to be a gift over to Simonova. There is a dormant question of construction about the extent of that gift.
(e) It remains to be seen whether the event in clause 4(b) will come to pass, that is, if money is not applied by the University for the scholarship and an alternative cannot be found. If so, the question for another day is whether the whole trust determines (in which case the welfare society misses out) or whether the charitably minded testator did not intend such a drastic and uncharitable result, but only intended Simonova to receive the corpus and income that would have otherwise gone to the unavailable university under clause 3(a).
(f) There is no need, and I do not regard it as expedient, for the Court to intervene to settle a scheme with different machinery provisions than posited under the will. The Court is concerned with what is in the best interests of the trust estate and the intentions of the testator. The desire of the University to split the residuary estate in two and establish a separate trust, with it as trustee, for the educational purpose may be convenient to the University to give it complete control over a scholarship it will award. But to do so I think fragments the intention under the will to set up one trust only over the residuary, for which the University was not willing to accept responsibility as trustee in the first place. But in any case I would not endorse the scheme because it interferes with the contingent interests of Simonova.
(g) The machinery of the will can be carried out into practical execution. There is no administrative breakdown or dysfunction. The testator has stated that the residuary estate is to be vested in a single trust and invested to give three income streams. And that is how it should be. No party says there is any problem with the plaintiff remaining as trustee for the charitable trusts.
Some facts, and the text of the will
The late Igor Meshakov-Korjakan was a lecturer, then senior lecturer, in Russian at the University of Melbourne for 25 years until his retirement in December 1988. He occasionally acted as head of department. He was a graduate of the university, having been conferred with a Bachelor of Arts in 1958 and Master of Arts in 1960 in Russian language and literature. The university’s records show that whilst on study leave or leave of absence throughout his tenure, he travelled and engaged with academies in various places including, notably for present purposes, the Pushkin Institute of Russian Language in Moscow, and faculties of Russian studies at some renowned American universities. He also had a connection of sorts with the St John of Kronstadt Russian Welfare Society Inc because his mother lived in its nursing home from 1985 until her death in 1988.
Mr Meshakov-Korjakan died on 3 August 2008, unmarried and with no children. He left a will dated 14 August 1996. Probate of the will was granted to the plaintiff, State Trustees Limited, on 12 December 2008. The deceased left an estate valued for probate purposes at about $2.426 million consisting of a valuable home in Elsternwick and some investments. The estate is now valued at about $3.4 million.
There is evidence that in April 1996, the testator attended the offices of State Trustees and submitted an application form with which he provided a draft typewritten will. It is clear that from the outset, the testator had in mind giving to a university and the welfare society, and by default to Simonova. Based on that first draft, State Trustees re-typed a will for him in August that year in a way that, as it appears to me, put it in a more presentable and re-ordered form, and made other changes that need not be exposed here. By September 1996 the testator had submitted to State Trustees some questions together with a second draft will as prepared by him. That is the action of a knowing or attentive testator. State Trustees cut another draft in September that year, described as “very good” by the testator in some written comments on the later draft. His last will, appearing to be on State Trustees stationery, was made and signed on 14 October 1996.
I do not know, and it may not matter, the extent to which State Trustees was taking instructions and advising the testator on the precise composition of the will. But I doubt whether this can be described as a home-made will even though the testator seems to have played a significant part in its preparation. Between July 2005 and July 2007 the testator made 11 appointments with State Trustees presumably to discuss the will but he re-scheduled all of them. A lawyer for State Trustees swears that he never attended their office after October 1996.
The will is not elaborate, but its contents are problematic. Clause 1 states (and it is the proviso that is very important for present purposes):
I APPOINT my friends RADZHEN KASPIEV of 10 Clifford Parade, Barwon Heads, Victoria and NICHOLAS JAKUBOVSKY of 2 Amelia Street, South Caulfield, Victoria and EUGENE DAMIEN of 27 Arnold Drive, Scoresby, Victoria EXECUTORS of my Will and TRUSTEES of my Estate (“my Trustee”) PROVIDED HOWEVER should my Trustees be successful in locating a recipient university or institute referred to paragraph 3(a) of this my Will for the purpose of establishing Igor Meshakov‑Korjakin Russian Scholarship Fund pursuant to clause 3 of this my Will then I APPOINT the chancellor of the said university or the head of the said institute or its successor as Trustee of my estate.
I should record that according to the probate file, the testator’s friend Kaspiev predeceased him and Jakubovsky authorised State Trustees to apply for probate. Leave was reserved to Damien to come in and prove the will. An order to that effect was made by the Court on 12 December 2008.
In clause 2 of the will, the testator made five separate gifts of chattels. They were gramophone records, a piece of antique furniture, photographic equipment and radio receivers, a figurine and his library books. The precise contents of that clause are immaterial and do not illuminate the questions of construction in this case.
It is the very words of clause 3 and clause 4 that matter. Clause 3 created a trust of the residuary estate to be invested as for a charitable purpose. The income from the corpus was to be distributed three ways. That clause says:
3.AFTER paying my debts funeral and testamentary expenses and all probate and estate and other duties payable by my estate (whether actual or notional) to any State or Federal Authority in consequence of my death and subject to clause 4 of this my Will I GIVE my residuary estate to my Trustee ON TRUST to set up the “Igor Meshakov-Korjakin’s Russian Scholarship Fund” and to invest the same in any investments authorised by law for the investment of trust funds and to distribute the income from such investments as follows:-
(a)To pay one third of the income from such investments annually to either (in order of preference) an Australian or American University which teaches Russian or the A.S. Pushkin Institute of the Russian language (ul. Volgina, 6 Moscow, 117485) for the purpose of establishing a scholarship or scholarships for students of Russian to enable them to study the Russian language and/or Russian literature at a University in Russia or at the Pushkin Institute in Moscow the selection of such university to be made at the sole discretion of my Trustee the first such payment to made within one year from the date of my death.
(b)To retain one third of the income from such investments as part of the said fund to compensate for the devaluation effect of inflation.
(c)To pay the remaining one third of the income from such investments annually to The St John of Kronstadt Russian Welfare Society Inc. of 24-26 Morwell Avenue, Dandenong in the said State for the benefit of the patients at the Russian Home for the Aged at Dandenong the first such payment to made within one year from the date of my death AND I DECLARE that the receipt of the person authorised to receive the money on behalf of the said society shall be full and sufficient discharge to my Trustee AND will absolve my Trustee from seeing to the application of the gift.
Clause 3 is stated to be subject to clause 4 which is where a problem lies. It says:
4.PROVIDED HOWEVER if my Trustee in its absolute discretion either:-
(a)decides that it is unable within one year from the date of my death to locate a university willing to set up a scholarship or scholarships as aforesaid in paragraph 3(a) of this my Will; OR
(b)decides that in its opinion the said university is not using the income to support a scholarship program as aforesaid then I DIRECT my Trustee to pay the income referred to in paragraph 3(a) of this my Will in equal shares to the Trusts held in accordance with paragraphs 3(b) and 3(c) of this my Will AND then in the absence of being able to locate an alternative university to effect the aforesaid purpose within six months of so deciding
(whichever first occurs) I DECLARE that clause 3 of this my Will shall not or no longer continue to apply AND I DIRECT my Trustee to hold my residuary estate (or the capital and income remaining thereof) subject to the aforesaid payments ON TRUST for my friend EUGENE SIMONOVA of ul. Profsojuznaya, 43, bl. 2, flat 829, Moscow, 117420 or care of Mayakovsky Theatre, ul. Gertsena 19, Moscow absolutely.
Thus, the first task for State Trustees as trustee under the will was to locate a recipient university or institute as referred to in paragraph 3(a). Under that clause it was to be, in order of preference, an Australian university or an American university which teaches Russian, or the Pushkin Institute in Moscow. The selection of such university was to be at the sole discretion of the will’s trustee.
It is the undisputed fact that Melbourne University teaches Russian in the School of Languages and Linguistics within the Faculty of Arts. So, it qualified under the opening terms of clause 3(a). By letter dated 27 April 2009, State Trustees asked the School of Languages whether it would “accept the residuary estate on behalf of Melbourne University to set up the Igor Meshakov-Korjakan’s Russian Scholarship Fund pursuant to the conditions set out in clause 3(a) of the Will.” The letter said, as is the fact, that there was pending in this Court a proceeding brought by the testator’s brother, Oleg Korr, making a testator’s family maintenance claim under Part IV of the Administration and Probate Act. That claim was made on 23 March 2009. It is significant to see that Melbourne University was being asked to accept the residuary estate to set up the scholarship fund, and not just being asked to set up the scholarship. This seems to link the responsibility of trusteeship under clause 1 with the payment of income by the “Trustee” to the university under clause 3(a) to establish the scholarship.
After receiving this request, an affidavit of the Deputy Vice Chancellor (University Affairs) of Melbourne University, Professor Bebbington says that he consulted with the Dean of the Arts Faculty whether the university was in a position to award and give oversight to the scholarship “in accordance with the terms of the will.” As a trustee must act personally, it is apparent the problem was that the chancellor of a university would reasonably not be willing or able to be a trustee of a deceased estate involving responsibilities to pay income for a welfare society having nothing to do with university affairs. Indeed there could be a problem of the University’s power to do so as an educational institution. The problem at a practical level is sharpened if for example it was an American University or the Pushkin Institute having to administer a trust for a welfare society in Victoria under clause 3(c).
In a subsequent letter to the university dated 28 May 2009, State Trustees gave the University its view about the construction of the will, saying it was not necessary for the chancellor to assume responsibility as trustee under clause 1, and all that was required was the University’s willingness to set up the scholarship. The letter said (and the emphasised words appeared in the letter):
The operation of the will seems to be as follows:
1.The executors of the will are appointed Trustees of the estate.
2.If a University Chancellor (of an appropriate university) will become trustee of the estate, then he or she is to become the new trustee of the estate; (and the will recognises the possibility of what has happened, namely that no university chancellor will agree to become trustee of the estate). Otherwise the executors are to remain trustees; and the will sets out a cascading series of trustees to apply, ending, if all else fails, with the estate being given to Eugenia Simonova.
3.Hence State Trustees will remain trustee of the estate, either in perpetuity or, perhaps, until the net estate is distributed to Eugene Simonova, if it should be determined that she becomes entitled to it.
4.The estate, at least for an initial trial period, is to be invested and is to become the Igor Meshakov-Korjakin Russian Scholarship Fund (“the Fund”).
5.The Fund is plainly to be held on charitable trusts, the two purposes being (a) establishing a scholarship or scholarships for students of Russian to enable them to study the Russian language and/or Russian literature at a university in Russia or at the Pushkin Institute in Moscow and (b) the care of Residents at the Russian Home for the Aged which is operated by the St John Kronstadt Russian Welfare Society in Dandenong.
6.The will directs that one third of the income of the Fund be accumulated, and one third be applied each year to the two charitable purposes. The will does not give discretion to disburse capital and the two charitable trusts are plainly perpetual income trusts.
7.The opening words of paragraph 3 give the estate to the trustee of the estate “to set up” the scholarship which is defined. But paragraph 4(a) refers to a university “willing to set up a scholarship”.
8.This then takes us back to paragraph 1 of the will. It says that if State Trustees as trustee of the Fund can locate a university “for the purpose of establishing the scholarship”, then the chancellor is to become the trustee.
It is our view that the essence of what the will is saying is that if there is a university which is willing to support the proposed scholarship (in the manner in which all universities customarily do) then it is the trustee of the estate which is to establish (see paragraph 1, and 3(a)) the scholarship; and all that it is really necessary is that there be found a university which teaches Russian and is able to support the operation of the scholarship.
On this view the problem posed by paragraph 1 recedes in importance. The direction that if an appropriate and co-operative university can be located, then its Chancellor is to become trustee of the Fund, can be seen as nothing more significant than a direction, or even a preference, as to the identity of the trustee.
If you agree with this analysis please advise whether the University of Melbourne is willing to “support” such a scholarship, obviously for its own students. Given the Part IV application that is already on foot we ask that you give this matter your urgent attention.
The last three paragraphs of that letter are important. They set the context in which a lawyer for the University responded by letter dated 12 June 2009 saying: “I wish to advise that the University would be pleased to support the ‘Igor Mechekov‑Korjakan Russian Scholarship’ which will be established in accordance with 3(a) of the Will.” This was an assent on the basis put to the University; that is, under clause 1 State Trustees is already trustee of a fund made up by the residuary estate; under clause 3(a) one third of the income derived from that fund goes to the university willing to set up and award the scholarship; and the university chancellor is not legally bound to take over trusteeship of the residuary estate from the will trustee in order for clause 3(a) to be satisfied.
Thus within one year of the testator’s death, State Trustees says it was able to locate a willing university for the purposes of clause 4(a). But no payment of income could be made to Melbourne University within one year of his death as stipulated in clause 3(a) because the testator’s family maintenance claim had in effect frozen the estate. That claim was not resolved until 22 April 2010 when the testator’s brother was paid $120 000 in full and final settlement. This delay meant that the “first such payment” under clause 3(a) could not be made within one year of the testator’s death.
I turn now to the subsequent state of affairs which concerns the University’s application for an administrative scheme. In Professor Bebbington’s affidavit[4], he states it would be advantageous for the University (not the chancellor) to become the trustee of half of the residuary estate comprising the scholarship fund under clause 3(a), but not the trustee of the other half of the residuary estate which is referable to the welfare society. (It is one half as between the two charitable purposes after splitting the clause 3(b) fund in two.) He puts forward these advantages in having the university as a trustee of the capital that funds the scholarship–
(a)It would avoid any duplication in administering the fund because the university has the necessary governance framework in place to undertake the role. The university is the trustee of about 800 charitable trusts which have been established by gifts or bequests during its 157 year history, with a total capital value of more than $260m.
(b)The Vice Chancellor of the university is responsible for the proper administration and performance of all trusts and reporting to the council of the university.
(c)The university has its own procedures and investment policy (which he has explained) to ensure the trust capital is preserved so there is no need for one-third of the income from investment of the scholarship fund to be retained to compensate for the effects of inflation as provided under clause 3(b).
(d)He says that on the basis of the estate being worth approximately $3.3m, the income from one-half of that capital, or even one-third of that capital, would be sufficient to support a scholarship. A 4% rate of return on capital of $1.1m would produce an annual income of $44 000 sufficient for fully funding travel to Russia, living expenses and tuition costs.
(e)Section 42 of the University of Melbourne Act2009 authorises the collective investment of trust funds and permits the university council to deduct an amount not exceeding 5% as commission. The university currently deducts 2.5% commission.
[4]Sworn on 13 September 2010.
To that end Professor Bebbington produced a draft trust record in accordance with the relevant University Statute recording the terms of the scholarship fund and administrative arrangements for administering the fund. In essence, the scheme proposed by the university would –
(a)establish a perpetual trust with one-half of the residuary estate;
(b)apply the net annual income for providing the scholarship under clause 3(a); and
(c)retain any unspent income in any year as income for the award of any one or more scholarships in a subsequent year or to add such unspent income to the capital sum.
Professor Bebbington states the University also receives gifts from funds administered by external trustees for the award of scholarships. He says if the University cannot be the trustee of the clause 3(a) scholarship fund as he proposes, it would apply such income as State Trustees distributes to it for the purposes of awarding the scholarship in accordance with clause 3(a). That is an affirmation of the position the university took in June 2009.
The legal creations under the will.
It is clear under clause 1 that before any steps were taken to locate a willing university or institute to set up the scholarship, State Trustees was the initial trustee or more precisely, the will’s trustee. Putting to one side the prospect of events occurring subsequently to engage the proviso in paragraph 1 of the will (that is, if and when a willing university or institute was found) the legal fact with which to commence is that the phenomenon of a trust ― a single trust ― had been created under the will.
It is also clear that the trust estate was the entire net residuary estate. So much is clear from the words in clause 3 “…I GIVE my residuary estate to my Trustee ON TRUST…”. And give to the trustee to do what? Clause 3 says to set up by appellation the “Igor Meshakov-Korjakan’s Russian Scholarship Fund”, to invest that fund, and to distribute the income from that investment equally in three ways. Although it is called a scholarship fund, one of the donees is the welfare society which has nothing to do with an award of a scholarship. Indeed amongst the written correspondence between the testator and State Trustees in evidence, he questioned the use of the phrase “Igor Meshakov Korjakin Scholarship Fund” and asked if it was right to call it ”Scholarship” fund if one third of the income went to the welfare society.[5] But it was left so expressed.
[5]See exhibit JB 5 to the affidavit of J Berger, sworn 17 February 2011.
It is also clear that the trust as established was for purposes which the law would regard as charitable. For that classification, the law recognises purposes that are for the advancement and propagation of education and learning, and for purposes beneficial to the public: see recently Aid/Watch Inc v FCT[6] and generally Jacobs’ Law of Trusts in Australia.[7] Under clause 3(a) the purpose was to enable a scholarship to enable students of Russian to study the Russian language or literature at a university in Russia or at the Pushkin Institute in Moscow. The purpose under clause 3(c) was for the benevolent purpose of the patients at the Russian Home for the Aged at Dandenong. The third destination of the income under clause 3(b) was as compensation for the devaluing effects of inflation. That is not a charitable purpose in itself. But it is in aid of the preservation of the trust fund for the fiscal benefit of the payments to charity.
[6](2010) 241 CLR 539 at [18], [66], [74] and [75].
[7](7th Ed), pp 138-147.
When viewed at that primary level, it is an uncomplicated trust structure. The problem lies in the second expected stage of finding a willing recipient university. What is to happen if the recipient or inaugural university says it is willing to set up the scholarship but not willing, by its chancellor, to take over the trusteeship of the entire residuary estate as stated in clause 1 of the will? Does the charitable trust wholly fail and bring the gift over to Simonova into being? That is the dominant question in this case. That question first requires a closer examination of clause 4.
Clause 4 of the will
The first thing to say is that clause 4 (b) has to be read as if it commenced by saying in parentheses “(b) decides (having located a university willing to set up a scholarship)…” I think that is implicit naturally.
Secondly, the words show the testator had in mind the possibility that a willing university might not be found, or, the university as found might not for any number of reasons use the income to support or award his scholarship program in any year. On the face of it, the expression “(whichever first occurs)”means if the trustee cannot under clause 4(a) find an inaugural willing university within a year, then that would be logically the first occurring event. If so clause 4(b) is sterilised. And that would mean, on the face of it, by the declaration that is stated in the separate paragraph underneath clause 4(b), that the whole of clause 3 and not just the clause 3(a) corpus and income “shall not apply”. The will directs the trustee to hold the entire residuary estate for Simonova. If that is correct, the whole charitable trust is destroyed. That is one of Simonova’s contentions. Yet the declaration in clause 4 says that conferral on Simonova is “subject to the aforesaid payments”. Could that mean the default gift to Simonova is subject to the payments under clause 3(b) and 3 (c) so that she stands only in the shoes of the clause 3(a) university that could not be found?
Likewise, on the face of it, if an inaugural university is found but it does not use the income under clause 3(a) to support a scholarship, the will tells the trustee in clause 4(b) to re divert the clause 3(a) income for that year to the welfare society in clause 3(c) and into the clause 3(b) anti-inflation fund. Then, the clause supposes, to save the situation the trustee will look to find within six months an “alternative” university willing to establish and award the scholarship. If the trustee cannot do that, then the residuary estate goes to Simonova “subject to the aforesaid payments”.
All of this could mean that that the benefaction to the welfare society is tied inexorably to the location of a university under clause 4(a) or, if that be satisfied, the location of an “alternative” university if events under clause 4(b) occur. That is unless the words “subject to the aforesaid payments“ mean there is a preservation of payments of clause 3(c) income to the welfare society and payments to the anti-inflation fund. But that would require the phraseology “clause 3 of my Will shall not or no longer apply” to be construed as containing a mistake because it meant to say “clause 3(a) shall no longer apply”.
Having decided charitably to give income to education and the welfare society, did the testator intend to whisk it away and put an end to the whole charitable trust just because the trustee could not find a willing inaugural university within a year, or an “alternative” university later? The plaintiff says surely not. It says the only sensible way to construe clause 4 is in a composite way as creating two gifts over. That is, all that the trustee had to do under clause 4(a) was to find a university willing to set up the scholarship. If the trustee decided it could not find a university, or, if a university was found but at some later time did not use the received income to support the scholarship, then the plaintiff says in either of those events there is a general direction to the trustee in clause 4(b) to divert the clause 3(a) income by way of accretion to clause 3(b) and 3(c). Then the trustee goes on the search for an “alternative university to effect the aforesaid purpose” to be found in six months. But, the plaintiff says, it is only if another university cannot be found that the words “AND then” denote a second gift over which puts an end to clause 3, and gifts the residuary estate to Simonova subject to “the aforesaid payments.”
In the course of argument I had real restlessness with this, concerned not to allow paragraph structure or syntax to alter intended meaning or a domineering charitable purpose. As it turns out, the question is academic because I find, as I will explain, that a willing university was located under clause 4(a), and clause 3 of the will is to now operate. That means the declaration and direction after clause 4(b) are immaterial at least for the time being. But there is the live possibility that the University will not use the income as required in which case the meaning of clause 4(b) and the extent of the contingent gift to Simonova may be properly agitated in the future.
But as much was said about the clause in argument, I venture to go some way in stating some views on the question.
I doubt whether clause 4(a) and (b) are composite as was submitted by the plaintiff, and to the contrary by Simonova, the Attorney General and the University. They are disjunctive not only because of the use of the word “OR” but because they concern two distinctly different events. That is apparent in the words “(whichever occurs first)”. To construe them as a composite requires a Court to take a scalpel and sever the words in 4(b) after “as aforesaid” and transplant them to the separate paragraph underneath 4(b) so that it applies to both 4(a) and (b). I think the use of the expression “alternative university” in clause 4(b) can only mean an alternative to the university that was first found, but did not use the income as required. That creates a real distinction to show clause 4(a) and (b) are not a composite. If the trustee was unable to find a university in the first place I cannot see how the trustee goes on the search for an alternative.
The words of the will seem to be saying literally that an inability to find an inaugural willing university means that clause 3 capsizes and the residuary estate goes to Simonova but “subject to the aforesaid payments”. The question which has been surpassed here is whether in that event she takes subject to clause 3(b) and (c) payments. Likewise, if as has happened a university is found, but it does not in the future come to use the income to award a scholarship, the will directs the trustee to find within six months an alternative university that will award the scholarship. If that cannot be done, clause 3 capsizes “subject to the aforesaid payments”. What is perplexing in both cases is why the gift to the welfare society should depend on the location of a university. Why could one not survive if the other failed?
But for that dormant question if and when it arises, and for the ones that follow here the Court’s duty is clear. It is to search for testamentary intention as disclosed by the words used as part of a study of the will as a whole: see ANZ Executors and Trustees v McNab[8] and Re Blake.[9] The question is not what the testator meant to do when he made his will but what the written words used by him mean. Matters of construction, in this field as in others in the law depend on the impression left in the reader’s mind as that is the purpose of language; but what the Court cannot do is guess the testator’s wishes or rewrite the will regardless of how bizarre or eccentric or whimsical it may appear to be: see generally the commentary and cases in Haines, Construction of Wills in Australia[10] and Theobald on Wills.[11]
[8][1993] 3 VR 666 at 667-8.
[9](2009) 25 VR 27 at 32-33.
[10](LexisNexis Butterworths, 2007) 2.8ff
[11](17th edition, Sweet and Maxwell, 2011) Ch. 15.
But a court of construction may correct mistakes in a will where the mistake is palpable and a correction is necessary to give effect to inferences obtained from the will as a whole, with possible resort to extrinsic evidence where there is ambiguity: see Tatham v Huxtable[12] and Re Blake.[13] If so, the outcome could be that Simonova obtains the income that was otherwise to go to education under clause 3(a), and the welfare society’s income under clause 3(c) is unaffected and the clause 3(b) fund stays to counter the effects of inflation. That may be felt to be a just outcome and perhaps what the testator really intended. Although not a lot of attention was directed to the draft wills, it is noteworthy that in the testator’s first draft of the will, clause 6 said that “…if noone (sic) of the above mentioned institutions be able, or willing to manage and use the said Fund…” then it was bequeathed to Simonova.[14] That is not clear, but it tends to suggest that Simonova gets the lot, so to speak, only if both university and welfare organisation cannot or will not use the fund.
[12](1950) 81 CLR 639 at 645, 651.
[13](2009) 25 VR 27 at [32], esp. proposition (6).
[14]Exhibit JB 1 to the affidavit of J Berger sworn 17 February 2011.
As I say, this question is presently unnecessary to confront but had to be exposed I think to better understand the issues.
The first issue: did the non payment of the “first such payment” under clause 3 (a) within one year of death invalidate the trust?
Put another way: was it essential at law to comply with that time stipulation? That is a question of construction. There was no party that contended time was of the essence. But, it is just as well for the Court to state why the law in this field would regard that as so.
It was said that a time stipulation by its nature, or in this context, is administrative in nature and does not affect the charitable purpose of the gift. There is something unsatisfying about characterising the time requirement in clause 3(a) as only “administrative”― connoting I think procedural or accessorial ― and therefore not legally essential. Such a description seems to draw analogically from notions in contract law where time stipulations can be waived by the party having the benefit of them, or not treated by law and equity as a basis for defeating rights or asserting breach where the time stipulation is not stated to be essential, or not construed as having been intended to cause adverse consequences for non compliance.
The law in this field presumes that the testator did not regard the time limit as essential if there was not a gift over or revocation in the event of a breach of the time stipulation: see Re Selinger’s Will Trusts.[15] In Selinger, the Court acted, as will I, upon the following general statement of Romer J in Re Goodwin:[16]
It is well settled by authority that where a gift in a will is made subject to a condition, even a condition precedent, to be performed within a specified time, but the condition is not in fact performed within that time, then, at any rate in the absence of an express gift over, it is always a question for the court to determine whether the time so specified was of the essence of the matter. In determining that question the court must have regard to what was presumably the intention of the testator in inserting the condition, what it was that he desired to bring about or to guard against; and if the court finds that a performance of the condition at a time subsequent to the expiration of the period fixed by the testator in substance provides for the very thing that the testator intended to provide for, so that all parties can be put in substantially the same position as they would have been in had the condition been performed within the proper time, time is not regarded of the essence, and such performance is treated as sufficient compliance with the condition.
[15](1959) 1 All ER 407 at 409H to 410D.
[16][1924] Ch 26 at 30.
That all means, as Simonova’s counsel submitted, that where a condition prescribing time for distribution is unaccompanied by gift over on breach of that condition, it will be construed as a condition to prevent avoidable delay on the part of the trustee. If the condition has not been complied with because of circumstances beyond the control of the trustee, the Court will allow a distribution to be made when circumstances permit, even if that means the distribution is made outside the prescribed period.
Under this will there is no gift over by reason of a failure to make the first payment of income under clause 3(a) or clause 3(c) within one year of death. Further, it is plain that the bringing of the testator’s family maintenance claim by the brother put circumstances beyond the trustee’s control and made timely payment impossible. Accordingly, there being no other invalidating circumstances, I would hold that the gift for the charitable purpose under clause 3(a) did not fail even though the first payment was not made within 12 months of the testator’s death on 3 August 2008.
The second issue: was the University “willing to set up a scholarship or scholarships as aforesaid in paragraph 3(a) of this my Will” as clause 4(a) says?
Simonova says the University was not truly willing. Therefore she says the event in clause 4(a) has occurred and under the direction made after clause 4(b), that means clause 3 no longer applies, and the entire residuary estate is held for her on trust. There were two elements to this argument; one factual and one a point of construction.
On the factual level, the submission is not that a decision has been made as clause 4(a) says; but that objectively speaking the University has now shown itself to be not willing to set up the scholarship as required by clause 3(a). It is argued that on the facts the University’s willingness ought in truth be seen as conditional, or that its assent can now been seen as having been given in “negotiation mode” because it now looks in a different way to fashion its involvement by establishing the scholarship to suit its own convenient and institutionalised administrative terms.
Simonova submits that not only must the recipient university be willing to set up the scholarship, but the chancellor of the willing university must also as a concomitant accept the office of trusteeship of the entire residuary estate as dictated under clause 1, which the Chancellor and the university was, and still is, unwilling to do. These are the steps of the argument:
(a)The subject of the trust estate is the testator’s residuary estate.
(b)The trustee of the trust of residue is initially State Trustees. However, clause 1 envisages that should State Trustees succeed in locating a willing university for the purpose of establishing the Igor Meshakov-Korjakin Russian Scholarship Fund under clause 3, then the testator appointed the chancellor of that university as trustee of the residuary estate.
(c) If that is carried through, clause 3 envisages that the chancellor would become trustee of the entire residue, which is the whole of the fund and not just so much of the fund as would permit the trustee to give effect to the trust of income in clause 3(a).
(d)On the facts, the university has expressed support for the scholarship rather than for the Fund and the role prescribed for the university chancellor in relation to it, because the chancellor would not assume trusteeship of the Fund. And now, the university is seeking to modify the will so that it assumes trusteeship of one-half of the Fund for the exclusive purpose of implementing clause 3(a) of the will in isolation from the rest of the clause. In other words, the university was willing to be the trustee but only on its terms.
(e) It is axiomatic that a trustee may not accept a trust in part and disclaim it in part: see Re Lord and Fullerton’s Contract;[17] Jacobs Law of Trusts in Australia [18] and Ford & Lee, Principles of the Law of Trusts.[19]
[17][1896] 1 Ch 228 at 232, 233.
[18](7th ed) at [1573]
[19](Looseleaf Service, Thomson Reuters, 2010) at [8320]
To the extent that this submission depends on the objective facts, that is, outward manifestations of willingness, I reject it. The facts are plain. Clause 4(a) is concerned with a decision by State Trustees. It has made a decision by selecting Melbourne University which said it was, in the easy language of clause 4(a), ”willing to set up a scholarship” when asked within a year of the testator’s death. And it still is. It is not contended that State Trustees has made a wrong decision. What the University was not willing to do, and was not asked to do, was to have its chancellor become trustee of the whole residuary estate as part of its assent to set up the scholarship. The evidence of Professor Bebbington adduced for the purposes of an administrative scheme does not derogate from the university’s previous declaration of its willingness. In short, the university is saying not only is it willing to set up the scholarship using the income from an external trustee, but it is willing to administer it as well. The proposal for it to become a trustee of half of the residuary estate is only put forward as part of an administrative scheme in the context of this case if the Court rules that the trust did not fail. But if the Court does not approve a scheme, the fact is that the University remains willing to set up the scholarship.
To the extent this submission depends on a construction of the will to create a legal link between clause 1 and clause 3(a) I would also reject it. The thesis is that the only way the University could signify its willingness to set up the scholarship under clause 3(a) was by taking the trust in toto and becoming the trustee of the whole fund, to be invested and applied three ways under clause 3. I think this submission confuses the creation of the Meshakov-Korjakin’s Russian Scholarship Fund by the trustee under the will with the setting up of the scholarship by a willing university. But they are two different things.
The commencement point for the analysis as submitted by the plaintiff and the Attorney-General (and adopted by the University) is to recognise that the plaintiff was the trustee under clause 1 the will. Clause 3 gave to the plaintiff the entire residuary estate on trust, more specifically, a trust for charitable purposes. As trustee the plaintiff was directed to do two things: first, to establish the Fund and invest the moneys in that fund; and secondly to distribute the income from that investment three ways. The important point is that the fund is already established at an incipient stage before a willing university is found. The plaintiff as trustee of that fund then seeks to locate a university that is willing to set up the scholarship, not the fund. That university then becomes the beneficiary to whom the income is given under clause 3(a) for the scholarship. So understood, the willing university does not establish the Fund. The plaintiff trustee does and already has. Likewise, the trustee does not set up the scholarship; the university does and obtains the funding from the trustee who derives that from the investment of the Fund. All this I think is clear enough.
I also think the principles concerning disclaimer of part of a trust are inapplicable. There is only one trust under this will and it was established for charitable purposes. The chancellor was unwilling to become trustee of the entire residuary estate. If it matters there is good reason not to do so, not the least of which is doubt about powers to act as trustee of a deceased estate for non university purposes. The question is whether the chancellor was bound to accept trusteeship in toto failing which the trust also fails. I cannot see how, unless there are clear words saying so. Otherwise, a person cannot be compelled to accept appointment as trustee, even if a person promises to act as such: see Jacobs’ Law of Trusts in Australia.[20] Looking at this will, the appointment of the chancellor of the willing university as the takeover trustee is not expressed in clause 1 or anywhere as a condition necessary for the creation and preservation of the charitable trust. It is a strange and problematic clause for practical purposes if for example the Pushkin Institute in Moscow or an American University was the located university and expected to administer a trust from overseas not just for educational purposes but also for unrelated purposes for a Victorian welfare organisation.
[20](Seventh ed) at [1573]
Hence I see no link between clause 1 and the validity of the trust for charitable purposes in clause 3. The language in clause 1 is a little clumsy because it speaks of locating a university for the purpose of establishing the Scholarship Fund, when the Fund has already been established under the will. The clause is to be construed I think to mean “should my Trustees be successful in locating a recipient university for the purposes of establishing the scholarship”. That would cohere with clause 3(a) and clause 4(a).
Accordingly I would hold that the chancellor’s or the University’s unwillingness to accept trusteeship has no effect on the validity of the charitable trust. The ultimate analysis is that the as soon as the residuary estate was established, the fund was held on trust to invest for 3 purposes. At that point the fund vested in charity subject only to possible defeasance under clause 4.
The University’s application for a scheme
This part of the case seemed to agitate the greatest number of legal issues, described in Court as a kaleidoscope, some of which were conceded as not necessary to answer or which could await future events. The array of questions is what had lead Simonova to expostulate in Court that the University was willing to set up the scholarship but only on its terms according to a scheme.
The Court has a broad inherent jurisdiction to alter, delete or insert administrative provisions in a charitable trust where it is thought expedient to regulate the administration of the charity. Such schemes are intended only to modify the mechanics of how property devoted to charitable purposes is to be distributed, and may not involve the charity’s purposes: see Re JW Laing Trust,[21] Luxton, The Law of Charities[22] and Picarda, The Law and Practice Relating to Charities.[23] However the jurisdiction is there to be exercised as a matter of necessity in order to carry into effect the wishes and intentions of a donor. The Court has no authority to vary the original foundation and to apply the charity estates in a manner which it conceives to be more beneficial to the public: see In re Royal Society’s Charitable Trusts.[24]
[21][1994] 1 Ch 143.
[22](Oxford University Press) at 15.19ff.
[23](3rd ed, Butterworths, 1999) pp 364-5.
[24][1956]1 Ch 87 at 92.
As I have said, the University submits the Court should make administration orders for the residuary estate to be divided in two and one half vested in the University to carry out the clause 3(a) trust, and the other half vested in the plaintiff to carry out the clause 3(c) trust for the welfare society. It submitted, first, it was entitled to be appointed as trustee of the clause 3(a) scholarship fund as of right because clause 3 created two distinct trusts: a trust to pay income to fund a scholarship and a trust to pay income to the welfare society under clause 3(c). As they are separate trusts, the University said it is entitled to disclaim the second trust while accepting the first, and to do so does not offend the rule that a trustee may not disclaim part of a trust.
It is correct to say that although a person may not accept a trust in part and disclaim in part[25] a person appointed trustee of two separate trusts may accept one and disclaim the other unless it is the intention of the settlor that both be accepted or disclaimed: see Ford and Lee, Principles of the Law of Trusts.[26] But I cannot accept that clause 3 created two distinct trusts. This was an argument by assertion and I see no basis intrinsic to this will to support it. As I have already analysed, there is but one trust set up by this will: it is the trust of the entire residuary estate under clause 3, and it is a single trust for two charitable purposes.
[25]Re Lord and Fullerton’s Contract [1896] 1 Ch 228
[26]At [8320]
Secondly it was submitted the University had a right to be appointed as trustee of half the residuary estate because according to Congregational Union of NSW v Thistlethwayte[27] where a testator created a perpetual right to income, the beneficiary has the right to call for the capital unless there is a clear intention expressed or implied from the will that the beneficiary is not to take more than the income. The University submitted it was manifestly intended to have the benefit of the capital because clause 1 of the will showed the testator’s willingness for the university’s chancellor to be trustee and thus have control of the capital. It says the University’s investment policy will ensure that the capital value of the fund is preserved without the necessity of an anti inflation clause 3(b) fund.
[27](1952) 87 CLR 375 at 440.
Thistlethwayte is based on the principle that a testator making an indefinite gift of income to an individual under a private trust is presumed to intend that such individual should have the fullest enjoyment of the income by treating it as a gift of corpus: see Jacobs Law of Trusts in Australia.[28] More precisely, it is a beneficial rule of construction in order to prevent certain gifts from failing under the rules against the accumulation of income as the donee, absolutely entitled as beneficiary, can call for the capital and put an end to the trusts of income. The High Court in Thistlethwayte held there should be no distinction between private trusts and charitable trusts even though the receipt by a charity of income in perpetuity would not be liable to be defeated by any rule against the perpetual duration of trusts.[29] But for the rule to apply, there must not be a contrary intention and there must be no one else interested in the property.
[28]At [1083].
[29]See Jacobs Law of Trusts in Australia, at fn 28.
In my view this is not a case for the application of the rule or presumption in Thistlethwayte. I do not see why a willingness to appoint the chancellor as trustee under clause 1 therefore of itself reveals, in something more than a technical sense, an intention to allow the University to call for the corpus in order to have full enjoyment of the gift. Moreover and more importantly, for the Thistlethwayte presumption to apply, there must be no-one else except the specified individual interested in the property. But in this case, Simonova has a contingent interest. A time may come when the event under clause 4(b) occurs, and an alternative university cannot be found within six months. In that case the residuary estate and the corpus and income under clause 3(a) and the anti‑inflation fund in clause 3(b) could go to Simonova, or it may be the entire residuary estate depending on the question of construction I have already exposed. Her contingent interest may never vest for as long as clause 4(b) is not triggered, but it is a contingent interest nevertheless. And her interest is non charitable.
The University persevered for this or maybe the next question by saying that the Court has a discretion to order a scheme even if it has the effect of defeating a gift over, relying on Re Hanbey’s Will Trusts.[30] That case deals with the situation where trustees of a charitable trust failed to comply with the terms of the bequest. A gift over to a hospital was to take effect. The trustees sought Court approval for a scheme to preserve the trusts in a different form, even if that defeated the gift over. The Court noted authorities which have allowed that to occur, described as by no means clear[31], but they were cases where the gifts over were for charitable purposes (unlike the situation here). In Re Hanby, the Court accepted it had a discretion, but decided not to exercise because to do so would defeat the gift over and the testator’s intention. I am afraid to say I do not see the utility of that case for present purposes and I see no reason to exercise a discretion to defeat this gift over.
[30][1956] 1 Ch 264 at 273-5.
[31][1956] 1 Ch 264 at 273.
I conclude the prospect of the income passing to Simonova in my view makes it manifest that there was no intention here that the whole of the income in perpetuity under clause 3(b) should pass and remain with the University. Therefore I accept the submission put on behalf of the plaintiff and Simonova that it would be wrong for the Court to make any orders that might affect the contingent entitlement of Simonova.
Thirdly, the University submitted that if it is not entitled to be appointed as trustee of the scholarship fund as of right, then it ought to be appointed as trustee of the scholarship fund because that is the most efficient administration of the trust property, and an administration order should be made accordingly. It says so because it is appropriate for the university that awards the scholarship to also be the trustee. It is empowered under its enabling statute to administer trust funds[32] and even though the chancellor is not ordinarily appointed as trustee, he could be if required. Yet the evidence is that the University also awards scholarships from external trustees.
[32]University of Melbourne Act 2009 (Vic), s 39, 42(b).
As I have said the Court’s jurisdiction to order a scheme involves the dichotomy between an alteration is that is merely administrative or one that involves purpose. On which side of the line does identity of trustee fall? It is all matter of the testator’s intention whether the identity of a particular trustee was essential. Reference was placed on this general explanation in Luxton, The Law of Charities:[33]
The identity of a particular trustee selected by the settlor is not usually treated as essential to the settlor’s purpose; so that the death or dissolution of the specified trustee before the testator’s death, or the intended trustee’s refusal to accept the trusteeship, will not usually affect the purposes of the trust. Such events are normally treated as mere failures in the administration of the charitable trust, which will not cause a failure of the charity’s purposes: equity will not permit a trust to fail for want of a trustee. If necessary, a scheme will be ordered applying the property to the same purposes although the machinery of a different trustee.
If, however, there is clear evidence that the identity of the trustee was essential to the settlor’s gift, the death or dissolution of the trustee, or its refusal to act, or at least to accept the terms of the charitable trust as they stand, will cause a failure of the charitable purposes themselves. If, for example, a testator appoints as trustee a charitable institution, it may be found that the carrying out of the trusts by that particular institution is part of the testator’s purpose. If, for example, the court finds that the testator’s intention was to make the gift dependent upon that specified institution serving as the instrument for bringing the gift into effect, the closure of the institution before the testator’s death is a failure of the charitable purposes of the gift.
[33]At 15.25.
It was submitted as follows. The testator’s main purpose in clause 3(a) was to establish a scholarship to enable students to study at a Russian university or the Pushkin Institute, and the identity of the trustee was not part of those purposes, but was machinery. One could not say that the identity of a trustee went to purpose or was in any way dispositive, but it went to the mechanics of how the property devoted to charitable purposes is to be distributed, and therefore fell on the administrative side of the line. It would be expedient if Melbourne University that acts as trustee of many other scholarships and has its own investment procedures and administrative regime in place could administer the scholarship as trustee.
I can see the convenience to the University if it is appointed as trustee of the education fund. But I think two matters lead to reject the proposal.
The first is even assuming that the selection of a trustee is a matter of machinery rather than going to the heart of the gift, it is clear to me that under this will there was only one trust to be established. There are no facts shown to me making it problematic or inexpedient or inefficient in some way for one trustee to direct income to three destinations to enable the scholarship to be set up and for the welfare society to benefit. The University is willing to set up the scholarship, the machinery for effectuating charitable intention is there in the will, and it ought be put into operation. That really was the essence of the Attorney’s submission and I think it correct.
Secondly, to place the University as trustee of the scholarship fund also puts it in the awkward, maybe untenable, position of deciding in its own interests whether the adverse event in clause 4(b) is made out. By law a trustee must act impartially but if this proposal is accepted it means the University as trustee will come to make its own decision concerning its own conduct whether it has failed to support a scholarship program. The Court must act prudentially. It strikes me as inappropriate that that the University should be both trustee of the scholarship fund and under the duty to decide whether the condition for defeasance under clause 4(b) has occurred. Where the rights of Simonova remain contingent, it is less productive of problems and conflicts that an independent trustee decides such matters.
Fourthly, the University submitted the accumulation of the anti inflation income under clause 3(b) was void as an accumulation of income in perpetuity. Even if the Court would not order an administrative scheme, it submitted that in order to benefit the charitable objects, there should be a scheme by which the capital required to support the accumulation of one third of the income should be added to the capital supporting the gifts in clause 3(a) and 3(d); or by cy près, the income should be added to each of the gifts. The plaintiff and Simonova maintained their prime contention that it would be wrong for the Court to make any orders that may effect her contingent interest.
If a testator directs that part of a capital fund must be accumulated, that part of the gift will fail but it may be applied cy près if a general charitable intention can be shown: see Ford and Lee, Principles of the Law of Trusts.[34] That was the outcome in Perpetual Trustees Ltd v Roman Catholic Bishop of Christchurch[35] a case in the High Court of New Zealand which the University submits is on all fours with the present.
[34](2010, Thomson Reuters) at 20-2063.
[35][2006] 1 NZLR 2002
In that case a testatrix’s will directed the residuary of her estate to be held upon trust to invest and pay in perpetuity so much of the income as the trustee thought fit, but not exceeding four fifths in any year, to the Roman Catholic Archbishop for certain charitable purposes. A clause also directed the trustee to accumulate so much of the annual income as was not paid out to the Archbishop and to add that amount to the capital of the residuary estate. The question was whether that open ended clause, which meant that the accumulation operated indefinitely, was void as offending the rule against perpetuities. There is no law against creating a charitable trust in perpetuity. The argument was that a direction to accumulate income is not a trust in favour of charity; it is a fetter on the charitable trusts as it prevents the use of the money for charitable purposes during the accumulation period at common law.
There were two opposing arguments in that case. First, that the New Zealand equivalent of s 19(1)of Victoria’s Perpetuities and Accumulations Act applies to a charitable trust. That section which is a little opaque says
Where property is settled or disposed of in such manner that the income thereof may be or is directed to be accumulated wholly or in part the power or direction to accumulate that income shall be valid if the disposition of the accumulated income is or may be valid but not otherwise
Secondly, if the corpus of a charitable trust can be held in perpetuity there is nothing wrong with making it inflation proof by augmentation from income on an annual basis, if that is really an administrative direction to enhance the charitable purpose.
Chisolm J held the clause was void on two grounds. First, that the perpetuities and accumulations legislation did not apply to a charitable trust. Secondly that accumulations that are to be held in perpetuity do not fall within the umbrella of a charitable trust because they cannot be used by the charity.[36] But his Honour went to make a cy près modification and invoke the inherent jurisdiction of the Court because there was a general charitable intention evident to give the entire income, including the accumulated income, to the charitable purpose.[37]
[36]At 286.
[37]At 287.
The Attorney, the plaintiff and Simonova were unified in submitting that in Victoria, s 19(1)of the Perpetuities and Accumulations Act was the complete answer, and they distinguish Perpetual Trustees Ltd v Roman Catholic Bishop of Christchurch because of the presence in this case of Simonova’s non charitable contingent interest. I think that is correct on both counts. The perpetuities rule is one against remoteness of vesting. Here there are two parties entitled to the accumulated income: the charities and Simonova under her contingent interest. Her interest, not yet in possession, may well vest within the perpetuity period if the events in clause 4(b) come to pass. They may or they may not. But if they do, the whole of clause 3 or perhaps just clause 3(a) vests in Simonova. Section 19 says that disposition will be valid if it vests in a timely manner.
Although Simonova also submitted in addition that that Perpetual Trustees Ltd v Roman Catholic Bishop of Christchurch was wrongly decided, I shall abstain from definitively considering that submission as the case is distinguishable anyway. But I cannot resist saying that whilst an anti inflation fund is not an intrinsically charitable purpose, it is there for no other purpose than to preserve the real value in fiscal terms of a fund that is charitable. As Simonova submitted, if the law allows capital to be held on trust for a charitable purpose in perpetuity, why would the law forbid adding to that capital by accumulation along the way at least in order to met the erosive effects of inflation?
For all the above reasons this Court sees no cogent reason to approve an administrative scheme as proposed by the University. I do not see this as a case where the machinery is defective or incomplete. And there is good reason to the contrary to the extent that the scheme affects the contingent interest of Simonova, and puts the University in the position as trustee where it is making decisions about its own defaults under clause 4(b).
The validity of clause 4(b)
This issue also concerned the rule against perpetuities, but as I followed the destination of argument, it was said to be strictly not necessary to answer yet, but I shall mention it as a matter of completeness.
It is accepted the dispositions in clause 3 charitable are subject to, that is determinable by, the conditions subsequent in clause 4, which as I have found is narrowed to clause 4(b). It must eventuate that the trustee decides subsequently that the university is not using the income to support the scholarship program and cannot find an alternative university within six months. It is also accepted that the rule against perpetuities applies by operation of section 16(1)(c) of the Perpetuities and Accumulations Act applies which says:
(1) The rule against perpetuities shall apply ―
…
(c) to a right of entry for condition broken the exercise of which may determine a fee simple subject to a condition subsequent and to an equivalent right in the case of property other than land; in which case if the right of entry or other right is not exercised within the perpetuity period the fee simple shall thereafter continue as an absolute interest and any other such interest in property shall thereafter continue free from the condition.
Section 16(2) says it is irrelevant that the initial or determinable disposition is charitable. Section 16(3) says, in essence,
The outcome is that if the event in clause 4(b) occurs within the perpetuity period, the gift over to Simonova is valid. If not, the trusts under clause 3 become absolute and they will become perpetual charitable trusts of income and any changes will be under the cy près jurisdiction. Where as here it is not certain at the time of the creation of the interest that the subsequent gift will not vest in the perpetuity period, the “Wait and see” rule under s 6(3) of the Act applies. Thus for the time being clause 4(b) is valid.
The possible question is, what is the applicable perpetuity period? It is a relevant life in being at the date of the creation of the interest plus 21 years. The University contends that the life in being is measured according to the determinable interest in favour of the charities and not the gift over to Simonova. As there are no measuring lives for the disposition in favour of the charities under clause 3, it submits the relevant period is 21 years. That view is supported by R H Maudsley in The Modern Law of Perpetuities[38] on the basis that the statute treats the gift over as a separate disposition arising by virtue of the provision for termination.
[38](Butterworths, 1979) at 190-1.
Simonova asserts there is no reason why the law should not look to the life of the actual contingent donee which is in being at the time of the creation of that interest. In that case, the applicable perpetuity period ought be her lifetime plus 21 years.
At common law it was open for the framer of a disposition of a future interest to direct that certain persons living at the time of the disposition would constitute the measuring life. If (as here) no measuring lives are stated, then any lives which are necessarily involved in the limitation will be the measuring life: see Ford and Lee, Principles of the Law of Trusts.[39] To say “necessarily involved” would amount I think to saying there was an implied stipulation under the “wait and see” provisions: see s 6(4) of the Perpetuities and Accumulations Act. The question is whether Simonova truly is necessarily involved just because she is named as taking the gift over.
[39]At [7.19530].
Submissions were not elaborate, but I think there is natural force in the University’s submission, for what does the duration of Simonova’s life have to do with the carrying out of the matters in clause 4(b)? But as was said by the plaintiff’s and Simonova’s counsel, clause 4(b) is valid for the time being. How clause 4 may operate and the circumstances in which it may come to be engaged, and the consequences, are all a future matters. There could well be different circumstances and, as was said, the matter may need to then be the subject of discussion, debate, negotiation and a possible reference to the Court.
Outcome
I think this can be stated in elementary terms. The University is willing to set up the scholarship. The welfare society will receive its gift. Whatever the oddities of this will, there is as the Attorney submitted nothing impracticable or impossible about putting it into effect. The machinery provisions are efficacious, certainly not dysfunctional and there is no reason why State Trustees should not remain as trustee. The presence of Simonova’s contingent interest makes it inappropriate to order a scheme.
Counsel for State Trustees suggested at the conclusion of submissions that the parties could consider the Court’s decision on the matters of principle and then consider submitting appropriate answers to appropriate questions. I will allow that to happen. However, there are some fundamental questions to which an answer can now be provided, which I would answer as follows by reference to the amended originating motion:
Question 1(a): No.
Question 1(b): No.
Question 1(c)(i): No.
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