University of New England v Attorney General of New South Wales

[2009] NSWSC 1020

CITATION:	University of New England v Attorney General of New South Wales & Ors [2009] NSWSC 1020
HEARING DATE(S):	23-24 June 2009
JUDGMENT DATE :	24 June 2009
JURISDICTION:	Equity
JUDGMENT OF:	Slattery J at 1
EX TEMPORE JUDGMENT DATE:	24 June 2009
DECISION:	ORDERS: 1. Armidale Dumaresq Council be removed as trustee of the trust created by deed made on 14 July 1933 between Howard Hinton as settlor and His Majesty King George V and The Council of the City of Armidale as trustees and known informally as the “Hinton Trust”. 2. New England Regional Art Museum Limited (ACN 131 297 731) of care of Rice More & Gibson, Liguori Chambers, The Mall, 149 Beardy Street, Armidale in the state of New South Wales, be appointed as trustee of the Hinton Trust in place of the said Armidale Dumaresq Council. 3. Under section 71 of the Trustee Act 1925, the assets of the Hinton Trust vest in New England Regional Art Museum Limited (ACN 131 297 731) upon the trusts of the said deed. 4. Each party bear its own costs of this cross-summons 5. Stand the matter over to the Registrar’s list on 27 July 2009 for directions.
CATCHWORDS:	EQUITY - trusts and trustees - trustees - their appointment - assessment of fitness of new trustee - trust relating to the operation of a regional art gallery.
LEGISLATION CITED:	Crown Lands Act 1989 Crown Lands Consolidation Act 1913 Income Tax Assessment Act 1997
CATEGORY:	Principal judgment
PARTIES:	Plaintiff: University of New England First Defendant: Attorney General New South Wales Second Defendant: Armidale Dumaresq Council Third Defendant/Cross-Claimant: New England Regional Arts Museum Ltd
FILE NUMBER(S):	SC 4911/07
COUNSEL:	Plaintiff: No appearance First Defendant: Dr C Mantziaris Second Defendant: Ms G Mahony Third Defendant: Mr D H Mitchell
SOLICITORS:	Plaintiff: APJ Law First Defendant: Crown Solicitor's Office Second Defendant: Henry Davis York Third Defendant/Cross-Claimant: Rice More & Gibson Solicitors

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

SLATTERY J

WEDNESDAY 24 JUNE 2009

4911/07 UNIVERSITY OF NEW ENGLAND v ATTORNEY GENERAL NEW SOUTH WALES; ARMIDALE DUMARESQ COUNCIL & NEW ENGLAND REGIONAL ARTS MUSEUM LTD

JUDGMENT

1 HIS HONOUR: In this matter I am asked to make the orders recorded in short minutes of order which were initialled by me yesterday and placed with the papers. I made those orders at 10 o’clock this morning. Those orders removed the Armidale Dumaresq Council (“the Council”) as trustee of the Hinton Trust and appointed the New England Regional Art Museum Limited (“NERAM Limited”) as trustee of the Hinton Trust in place of the Council and vested the assets of the Hinton Trust in the NERAM Limited. I have noted in the short minutes of order that each party will bear its own costs of the cross summons. The full orders made are set out at the end of this judgment. I indicated this morning that due to the press of business in the duty list it was not possible for the court to give reasons at the time of making these orders but. The court list has now cleared there is an opportunity for me to do that.

2 It is useful for reasons to be given by the Court in a matter such as this in addition to making the orders. The court's reasons for appointing NERAM Limited as trustee may be of assistance in relation to the future administration of the trust. It is also desirable that I briefly record my reasons for the orders requested because there have been questions about the quality of the previous administration of the trust, about which it is not necessary for me to make any findings.

3 Pursuant to its First Cross Claim Cross Summons, NERAM Limited applies to be appointed as trustee of the Hinton Trust, which was created by deed made on 14 July 2003 between Howard Hinton, His Majesty King George V and the Council of the City of Armidale (“the Council”). The Council is now called the “Armidale Dumaresq Council.”

4 I have read the principal affidavit of Margaret June Larkin sworn 2 June 2009. Ms Larkin's affidavit provides extensive background to the application. Ms Larkin's experience is in arts development and management. She is the Chair of Regional Arts New South Wales and a director of Regional Arts Australia. She is also a member of the Visions of Australia Committee, a Federal body that provides funding for national tours of major art exhibitions.

5 NERAM Limited is a not-for-profit company limited by guarantee which was incorporated on 22 May 2008 as an initiative of the Council. It commenced operations on 1 July 2008. It has been operating for a single financial year. Because of its short operating life some examination of its operations, its financial arrangements and its management structure is necessary before it is appointed as trustee of the Hinton Trust.

6 The aims of NERAM Limited are recorded in its constitution and include the objects of making the New England Regional Arts Museum the premier regional Art Museum in Australia and ensuring that the museum is a thriving artistic facility which will enrich the culture and artistic experience of visitors and the community in New England through education, artistic activities and the preservation and promotion of its collections and achieving optimal use of the museum in support of its aims. The principal objects of NERAM Limited include caring for, controlling, maintaining, improving, managing and operating the museum and its collections and caring for, undertaking research about and developing the collections of the museum and other collections in its care and control and servicing and maintaining the buildings, gardens and the site of the museum.

7 The Constitution of NERAM Limited has been amended since its original incorporation to facilitate it obtaining deductible gift recipient (“DGR”) status with the Australian Taxation Office. NERAM Limited was granted DGR status by the Australian Taxation Office effective from 1 July 2008. NERAM Limited’s DGR status is an important consideration weighing in favour of its suitability for appointment as a trustee of the Hinton Trust. In order to obtain DGR status NERAM Limited has had to meet the requirements set down by the Australian Taxation Office contained in the Income Tax Assessment Act 1997 and taxation rulings, 27 of 1995 and 10 of 2000. These rulings stipulate that the majority of its board is to be comprised of responsible persons with the qualities defined by those rulings.

8 Having achieved DGR status, NERAM Limited is more likely to be able effectively to engage in fund-raising activities and to receive gifts from other deductible gift recipient registered entities without either entity incurring a tax liability. It is likely that its DGR status will improve its financial flexibility and its capacity to continue to attract the right level of expertise and management within the not-for-profit sector.

9 The current board of NERAM Limited, apart from Ms Larkin herself are: Christopher Kimberly, Charles Serow, who is also the company secretary, Herman Ernst Beyersdorf, Angus Charles Nivison, Andrew John Murray, who is also the deputy chairman, Anthony Peter Dangar, Kathleen June Dangar, Gwenda Eunice Shannon OAM and Murray Guest. Having reviewed the biographies of each of the above directors I am satisfied that the range and depth of their combined experience and relevant expertise is appropriate to direct the affairs of NERAM Limited in the administration of the Hinton Trust, if it is appointed as the trustee. Although originally selected by the council, the board of NERAM Limited operates independently of the Council as Ms Larkin's affidavit deposes. No member of the board is required to follow the directions of the Council in his or her capacity as a member or director.

10 NERAM Limited's primary activity is to operate the museum and to manage its collections. The court has not been informed of any particular difficulty in executing that task since 1 July 2008. NERAM Limited holds a lease of the museum premises other than a cafe and a kitchen area from the Armidale Community Cultural Reserve Trust, known as the New England Regional Art Museum Reserve Trust, which for the purposes of this judgment will simply be referred to as the Reserve Trust.

11 On the correspondence before me I am satisfied that a 20 year lease over the museum premises has been granted to NERAM Limited and that as a result there will be stability and continuity in the operations of the museum over the medium to long term.

12 The museum was built in 1983 for the purpose of housing the Hinton Collection, which is comprised of the artworks of the Hinton Trust. It is located in Kentucky Street Armidale. The land and buildings are maintained by the Reserve Trust. The Reserve Trust is a reserve trust constituted under the Crown Lands Act 1989. The land was reserved from sale for the public purpose of a museum by declaration of the Minister for Lands under s 28 of the Crown Lands Consolidation Act 1913 on 24 September 1982.

13 The museum houses the following collections:

(a) The Hinton Collection which is a collection of approximately 1375 art works the subject of the Hinton Trust, which is the museum's premium collection,

(b) The Chandler Coventry Collection which is a collection of approximately 149 artworks focusing on the 1960s/1970s period of Australian art. This collection was donated to the museum to support its establishment by Mr Chandler Coventry in about June 1979.

14 NERAM Limited has separately finalised another trust with solicitors for the Attorney General and the Council in relation to the Chandler Coventry Collection. That trust is known as the Chandler Coventry Collection Trust. NERAM Limited is also trustee of that trust and will be responsible, at its own expense and from any funds received by the Chandler Coventry Collection Trust, for the care of the Chandler Coventry Collection. NERAM Limited would have this responsibility as well as responsibility for the Hinton Collection.

15 Nothing in the materials before me suggests that NERAM Limited’s planned administration of the Chandler Coventry Collection will create any financial or managerial difficulty for its combined operation and administration of the Hinton Collection. There appear to be advantages for NERAM Limited in being able to administer both trusts at the one site at the museum as is proposed. The museum also houses the Armidale City Collection, a collection of approximately 300 artworks with no direct focus. Finally, NERAM Limited also curates a collection called the NERAM Collection covering approximately 2700 individual artworks, primarily in the modern and contemporary areas.

16 NERAM Limited currently employs the following staff at the museum:

(a) an interim museum director, Caroline Downer, with a fixed term contract expiring on 30 June 2010;

(b) a full time administration manager who runs the office and shop;

(c) a part time curator and registrar of collections, as required; and

(d) a film assistant who runs the print shop.

17 The museum is supported by a significant number of volunteers who assist in its day-to-day operations and the installation of exhibitions and other matters.

18 Ms Larkin deposes in her affidavit, that the employment of the museum director on an interim or permanent basis is an important step for the museum. Ms Downer’s employment now means that the museum has professional management to develop its operation and its collections. The museum director has the role of planning the progress of the museum and providing professional skill and expertise in relation to caring for the collections. The appointment of a museum director is of considerable importance in my satisfaction as to the fitness of NERAM Limited to be appointed as the trustee of the Hinton Trust. This is especially so given that there have been some problems in relation to the past administration of this trust. Not only does there need to be an appropriately qualified NERAM Limited board to direct the administration of the trust. But a well qualified museum director will need to be in a position to carry out the policies of the board and initiate appropriate measures for the care and promotion of the collection in accordance with the objects of the trust. This position is different from that which has obtained since 2005 when the trust, encountered operating difficulties.

19 NERAM Limited is primarily funded by the Council in accordance with funding arrangement agreed in writing on 15 April 2009. It is also funded through commercial activities, museum membership fees, donations and fund-raising and from interest received from the NERAM Foundation. The details of these financial arrangements are explained in Ms Larkin's affidavit.

20 NERAM Limited has entered into a twenty year funding agreement with the Council, the operation of which is subject to NERAM Limited being appointed trustee of the Hinton Trust. That agreement provides NERAM Limited with $265,000 per annum indexed annually to local government rates for a period of twenty years. The first instalment of payments under this arrangement was received on 1 July 2008. The agreement also provides that annual funding will be received by way of a lump sum allowing NERAM Limited to invest some of the funds and to receive interest until those funds are required. As part of these funding arrangements NERAM Limited has agreed to take responsibility for repaying a debt of approximately $420,000 owed by the Reserve Trust to the Council. The debt will be repaid over a period of 10 years. The stability of those financial arrangements with NERAM Limited is another important factor in satisfying the court of the appropriateness of its appointment as a trustee of this trust.

21 To increase the income from the museum NERAM Limited has established a board subcommittee to consider how best to promote sponsorship and fund-raising for the museum. Most members of the subcommittee have fund-raising experience. Other arrangements have been put in place to assist NERAM Limited’s fund-raising activities for the benefit of the trust.

22 I have reviewed the balance sheets of NERAM Limited. The net asset position of NERAM Limited could not be described as generous. It needs to be assessed in light of the secure funding arrangements that have been put in place. It is clearly sufficient for its current purposes. As at 30 April 2009 NERAM Limited’s main asset was cash at the bank of approximately $84,000. NERAM Limited has other movable assets. Its only liability is staff wages and entitlements for the lease of the premises, insurance and utility costs. Mr Larkin says the maintenance of the Hinton collection is of central importance to NERAM Limited. The Hinton Collection is a cultural resource of national significance. The collection is insured for in about $36,000,000. I am satisfied that the financial and management arrangements that are in place and are proposed to be put in place by the new trustee are satisfactory.

23 Certain arrangements have been proposed by Ms Larkin for NERAM Limited to reduce the risk of a recurrence of the problems which have plagued the museum in prior years and to ensure that NERAM Limited appropriately discharges its duties as the trustee of the Hinton Trust. These various proposals are set out in paragraphs (a) to (d) of paragraph 58 of Ms Larkin's affidavit. I reproduce them here in the judgment:

(a) create a separate bank account for the Hinton Trust funds that will be received from the Council pursuant to the Deed of Settlement executed on 15 May 2009 in relation to NSW Supreme Court proceedings No. 5553 or 2006. The trust account will be with a different financial institution to that with which NERAM Limited’s other accounts are held, currently NECU;
(b) prepare a separate set of annual audited financial statements for the Hinton Trust
(c) establish a specific advisory body, comprised of appropriate persons with appropriate visual arts expertise to specifically focus upon and consider Hinton Trust and collection issues. That committee would then make recommendations to the NERAM Limited Board in its capacity as Trustee.
(d) develop a conservation plan setting out the Hinton Collection’s needs and proposed remedial actions based on the report and recommendations prepared by David Steer in January 2009 to ensure that all the artworks within it are appropriately and properly cared for. NERAM Limited will also prepare an annual report tracking the progress of the Conservation Plan.

24 These proposals and the policy ideas for the future administration of the trust to avoid the recurrence of the problems of the past are also important factors in the court's determination of the suitability of NERAM Limited to be appointed trustee of this trust.

25 Ms Larkin says that should NERAM Limited become trustee of the trust that the collection will remain at the museum and building which was purpose-built in 1982 to house it.

26 I note the resignation of the Council as the trustee of the trust which is recorded in Exhibit D. I note the consent of NERAM Limited to act as trustee recorded in Exhibit A. I have read the affidavits of fitness of the deponents: Robert Stanley Geddes, Sotirios Paul Akon and Richard George Torbay. The evidence of these persons about the fitness of NERAM Limited is also an important factor weighing in the appointment of NERAM Limited as trustee of this trust.

27 Finally, I note from Exhibit C that there are issues about a part of the Hinton Collection called the “Armidale Teachers College Collection”. These are not issues currently before the court, but they do bear upon the identity of some of the artworks the subject of the trust. It is clear from that correspondence that those issues are being attended to and that they are not matters which call in question the overall fitness of NERAM Limited for appointment as trustee.

28 These are my reasons for making the orders which were made at 10 a.m. this morning. The orders made are as follows:

The Court ORDERS THAT:
1. Armidale Dumaresq Council be removed as trustee of the trust created by deed made on 14 July 1933 between Howard Hinton as settlor and His Majesty King George V and The Council of the City of Armidale as trustees and known informally as the “ Hinton Trust ”.
2. New England Regional Art Museum Limited (ACN 131 297 731) of care of Rice More & Gibson, Liguori Chambers, The Mall, 149 Beardy Street, Armidale in the state of New South Wales, be appointed as trustee of the Hinton Trust in place of the said Armidale Dumaresq Council.
3. Under section 71 of the Trustee Act 1925, the assets of the Hinton Trust vest in New England Regional Art Museum Limited (ACN 131 297 731) upon the trusts of the said deed.
4. Each party bear its own costs of this cross-summons
5. Stand the matter over to the Registrar’s list on 27 July 2009 for directions.
The Court NOTES THAT:
1. The Attorney General of the State of New South Wales and New England Regional Art Museum Limited have agreed to negotiate in good faith with a view to bringing an application for orders under section 81 of the Trustee Act 1925 to facilitate the better administration of the Hinton Trust.
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