Link: Case Summary Document
Citation: [2012] NSWSC 210 (Supreme Court of New South Wales, Ball J)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
Summary:
In these proceedings the plaintiff charitable institutions, the Sir Moses Montefiore Jewish Home, the Wolper Jewish Hospital and the New South Wales Jewish War Memorial, sought a declaration that they were entitled to the corpus (the capital sum) of the residuary estate of the late Rupert Michaelis in equal shares. In the alternative, they sought an order appointing the president or chairman respectively of each of the three institutions as trustees of the estate of the deceased in substitution for the defendants, Perpetual Trustee Company Limited (Perpetual) and Rupert George Rosenblum.
Michaelis (the deceased) died in 1984 leaving an estate of about $4.5 million. The deceased appointed Perpetual and Mr Myer Rosenblum, or in the event that he could not or was not willing to act as a trustee, Mr Rupert Rosenblum (his godson), as his executors and trustees. In accordance with that clause, Mr Rupert Rosenblum became one of the trustees.
By clause 5 of his will, the deceased left the residuary of his estate to be held on trust to pay the income arising from that residuary in perpetuity to each of the following bodies in equal shares:
(i) New South Wales Jewish War Memorial (a registered company)
(ii) Wolper Jewish Hospital (a registered company)
(iii) Sir Moses Montefiore Jewish Home incorporated under the Sir Moses Montefiore Jewish Home Act 1927 as amended.
The capital of the trust was mostly invested in Australian securities. The investment was monitored by Perpetual on a regular basis, but the income earned on the trust had been declining sharply owing to market conditions. The plaintiffs accepted that the trustees had acted properly in discharging their duties as trustees of the trust since the testator’s death and were entitled to the commission and fees that had been paid to them.
The plaintiffs maintained that they were entitled to call for the corpus of the trust to be paid to them in accordance with the principle adopted by the High Court in Congregational Union of New South Wales v Thistlethwayte [1952] HCA 48; (1952) 87 CLR 375 or alternatively, they submitted that the trustees should be replaced, under s 70 of the Trustee Act 1925 (NSW) by the court in exercise of its inherent power to regulate trusts.
There is a principle of construction of wills that states that a gift of income in perpetuity will carry with it a gift of capital. As a rule of construction, a perpetual gift of income from real or personal property to a person carries with it an absolute interest in the capital of the fund which the person is entitled to call for. The rule is designed to prevent gifts of income being void by reason of the perpetuity rule (a gift of income in perpetuity is void unless it is to a charitable purpose).
As a perpetual gift of income for a non-charitable object or to a non-charitable institution is void because of the rule against perpetuities, to adopt a construction that a perpetual gift of income carries the capital that generates the income stream is a means to ensure that the gift will vest within the perpetuity period.
It is presumed that this will give effect to the donor’s likely intention, in that only by payment of the capital can the donee receive the full benefit and extent of the gift that the donor is presumed to have intended.
As to the principle developed in Thistlethwayte’s case, the High Court stated in that case (at 440) that ‘the rule is the same whether the gift of income is to an individual or to a charity consisting of a body capable of holding property. The beneficiary is entitled to the capital unless there is a clear intention express or implied from the will that the beneficiary is not to take more than income’.
Since the decision of the High Court in Thistlethwayte, there have been a number of decisions, particularly of the Supreme Court of Victoria, that have held that proof of a contrary intention is more readily found where the beneficiary is a charity and that the fact that the beneficiary is a charity is one matter the court can take into account in determining whether a contrary intention exists. For example, His Honour quoted Gillard J in The Melbourne Jewish Orphan and Children’s Aid Society Inc v ANZ Executors and Trustee Company Limited [2007] VSC 26 who said in this respect (at [74]):
In my opinion, the fact that a gift of income is given in perpetuity to a charitable institution provides some evidence of a contrary intention. However, in the end, of course, it is a matter of intention of the creator of the trust. Nevertheless, in my opinion, the cases have established that the courts are more ready to find a contrary intention where the gift is to a longstanding charity in perpetuity.
In this case, His Honour said (at [14]–[15]):
In my opinion, however, the court should be wary of attempting to ascertain the testator’s intention in this case by comparing the conclusions reached in other cases about wills that are expressed in different terms from the will in question. In addition, although I accept that the matters referred to by Gillard J are relevant to ascertaining the testator’s intentions, in my opinion, evidence that the testator intended to make a gift of income in perpetuity is of limited assistance in displacing the rule. The rule has as its starting point the fact that the testator has made a gift of income in perpetuity. A gift of income in perpetuity cannot itself be evidence of a contrary intention, since the rule is concerned with what is intended by such a gift. Similarly, the fact that the will contains other provisions that contemplate the gift of income continuing in perpetuity is of limited assistance in rebutting the rule, since those provisions are an obvious incidence of such a gift. Of greater significance is whether there are terms in the will which make it clear that the testator could not have intended that the beneficiaries would have the right, if they chose to exercise it, to call for the capital. In other words, the fact that a testator chose to allow for the possibility that the beneficiaries may not call for the capital is of limited assistance in determining whether the testator has evinced a clear intention that they not be permitted to do so. If the rule of construction is to have substance, it is the latter intention that must be clear. In this case, the testator made provision for the gift of income to continue in perpetuity. He appointed Perpetual as one of his executors. It was to be expected that that entity would continue indefinitely.
The testator also made provision in cl 6 for the capital of the trust to be preserved and provided a mechanism in cl 9 for resolving disputes about what was income and what was capital. Although these matters provide some evidence that the testator intended to make a gift of income only, for the reasons I have given, I do not attach significant weight to those considerations. Of much greater significance are the terms of cl 5 of the will. In my opinion, it is clear from the terms of that clause, particularly the two provisos, that the testator did not intend to give the capital of the trust to the plaintiffs.
Therefore, His Honour held that the plaintiffs were not entitled to the capital sum. The two provisos that His Honour referred to were:
1. if it is determined that any of the plaintiffs was not a charity, then the gift to that plaintiff was a gift of income to that body for the perpetuity period (as it then was) and was then a gift of the capital absolutely.
2. if any of the beneficiaries cease to exist, amalgamate or change their names before or after the deceased’s death, the trustees should pay the income gifted to that institution to a charitable organisation which they consider most nearly fulfils the objects the testator intended to benefit.
His Honour said that these provisos meant that the paramount concern of the deceased was to benefit the plaintiffs as they existed at the time of his will for so long as they continued to exist, whether or not they were charitable institutions. However, it was also the intention of the testator that the plaintiffs were only to receive income and were only to receive it for so long as they continued to exist in the form they had existed at the time the testator made his will.
On the issue of replacement of trustees, His Honour held that there was no evidence that the trust would be administered better by different (though proper) trustees. This was particularly so since Perpetual was a corporation and had continuous existence in perpetuity.
The declarations sought by the plaintiffs were therefore dismissed. Costs were ordered to be paid from the trust.
The case may be viewed at: http://www.austlii.edu.au/au/cases/nsw/NSWSC/2012/210.html
Implications of this case
In this case, His Honour strictly interpreted the wording of the deceased’s will. He said that the deceased could have indicated that he intended that the capital sum in the residuary should be paid to the charities in equal shares if they called for it, but he did not. This was supported by the deceased stating in the will that if any of the charities should cease to be charities, they were still to continue to receive the income until the end of the perpetuity period, and then receive the capital sum.