Australian Youth & Health Foundation v Perpetual Trustee Company Ltd  NSWCA 127 (Court of Appeal of New South Wales, Bathurst CJ, Beazley P, Meagher JA, 6 June 2017)
This case concerned the will of Eric Storm (the deceased) who died on 24 February 2000. By his will, he settled a charitable trust known as The Eric Storm Charitable Trust, of which the respondent was trustee. By clause 7 of the will, the deceased directed that the trustee apply 44% of the net income of the trust to the appellant, the Australian Youth and Health Foundation (the Foundation), ‘to be applied for the promotion of natural health in accordance with the present philosophy and practices of the Hopewood Health Centre at Wallacia’. The Foundation, through a wholly owned subsidiary, conducted the Hopewood Health Centre, a 30 bed facility for those recovering from illness through natural means.
Clause 7 was subject to the proviso that if, in the opinion of the trustee, the Foundation ceased to exist, or ceased to operate under its fundamental objects and purposes, or ‘shall not apply the funds for the charitable purposes set out above’, then the income was to be distributed amongst other charities selected by the trustee. Since 2013, the trustee had withheld distributions to the Foundation pending the trustee’s consideration of whether to form one or both of the opinions in the proviso.
The trustee sought judicial advice from the primary judge pursuant to section 63 of the Trustee Act 1925 (NSW) that it would be justified in forming those opinions. The primary judge construed the term ‘shall not apply’ retrospectively, in the sense that the term required consideration of how the Foundation had in the past applied the funds which were distributed to it from the trust. The primary judge therefore gave advice that the funds had been applied for a non-charitable purpose and that once the trustee formed that opinion, it was obliged to pay the funds to other charities and was not required to review the decision.
The issues on appeal were whether the primary judge had erred in construing the proviso as retrospective rather than prospective, and whether there was an obligation on the Trustee to review the decision each year.
The primary judge had construed the proviso as operating as a condition subsequent i.e. if the trustee formed the opinion that funds previously distributed to the Foundation had been applied other than for the purposes of natural health in accordance with the philosophy and practices of the Hopewood Health Centre, then any further distribution of funds to which the Foundation otherwise would be entitled would be distributed amongst the charities referred to in the proviso. The primary judge acknowledged the use of the word ‘shall’, but did not interpret it as prospective.
The Court of Appeal disagreed (per Bathurst CJ, with whom the remaining justices agreed), at least in part (at –):
The proviso can operate in three circumstances. The first is where the beneficiary ceases to exist and the second is where the beneficiary ceases to operate under its fundamental objects and purposes. These two limbs envisage what might be described as a permanent change in the beneficiary, be it ceasing to exist or operating under different purposes or objects [from] those under which it operated at the date of the will. In these circumstances, the word “shall” where it first appears in the proviso, is referring to the occurrence of a particular event. The third limb of the proviso, “shall not apply the funds for the charitable purposes set out above”, assumes the beneficiary has neither ceased to exist nor ceased to operate under its fundamental objects and purposes. In my opinion the word “shall” in that context looks to the application of funds to be distributed rather than funds which have been distributed.
The trustee also had to form its opinion each year (at ):
It follows that the obligation on the Trustee is to consider in each year whether the proviso applies. At least where the beneficiary is continuing to operate in accordance with its fundamental objects and purposes, it seems to me the beneficiary is entitled to the income provided for it under the will unless the Trustee in the year in question forms the opinion referred to in the proviso. Once it is appreciated that the proviso looks to the application of monies to be distributed, there is nothing to suggest the operation of the proviso in any one year determines once and for all the beneficiary’s entitlement to its share of income.
Thus the primary judge had misconstrued clause 7. The word ‘shall’ had its ordinary meaning and referred to the future. Whether or not the funds were applied other than for the requisite purpose in the past was irrelevant, unless that was the basis for the trustee forming an opinion that a distribution in a subsequent year would not be used for the requisite purpose. However, that was not the opinion which the trustee had in fact formed.
The appeal was allowed.
The case may be viewed at: http://www.austlii.edu.au/au/cases/nsw/NSWCA/2017/127.html