SUPREME COURT OF QUEENSLAND

Transcription

1 SUPREME COURT OF QUEENSLAND CITATION: McKnight & Anor v Ice Skating Queensland (Inc) [2007] QSC 273 PARTIES: DONALD McKNIGHT and COLIN EDWARD JACKSON AS TRUSTEES OF THE ICE SKATING ASSOCIATION OF QUEENSLAND NO. 1 TRUST (applicants) v ICE SKATING QUEENSLAND (INCORPORATED) (respondent) FILE NO: 7211 of 2007 DIVISION: Trial PROCEEDING: Application ORIGINATING Supreme Court of Queensland COURT: DELIVERED ON: 26 September 2007 DELIVERED AT: Brisbane HEARING DATE: 13 September 2007 JUDGE: Chesterman J ORDER: 1. The applicants are directed to make their claim for reimbursement for the performance of their duties within two weeks; 2. The applicants may retain under their control an amount sufficient to meet their claim for remuneration and are directed to transfer the balance of the trust estate to the respondent; 3. The application should be otherwise dismissed; 4. Liberty to apply COUNSEL: SOLICITORS: Mr P Bickford for the applicant Mr M Brady for the Respondent Hawthorn Cuppaidge & Badgery for the applicants Rogers Matheson Clark for the respondents [1] The applicants are and have been the trustees of the Ice Skating Association of Queensland No. 1 Trust ( the Trust ) for almost 30 years. The respondent is an incorporated association whose objects are the promotion of all branches of figure skating, the maintenance of standards of skating by championships and competitions, and the carrying on of any business, including the operation of ice skating rinks, in furtherance of its objects. [2] An unincorporated association, The Ice Skating Association of Queensland, was incorporated in 1994 pursuant to the Associations Incorporation Act 1981 (Qld) and thereby became the respondent. The applicants were members of the council of the unincorporated association. [3] Times have changed and there is now a new council in control of the respondent. It has

2 acted to terminate the Trust by a resolution passed on 16 August Notice of the resolution was given to the applicants that evening. [4] The applicants seek a declaration that the notice of termination is ineffective, and they further seek a declaration that the Trust remains valid and subsisting. They seek also an order pursuant to s 76 of the Trusts Act 1973 (Qld) relieving them from any liability they might have incurred as a consequence of exercising trust powers after the notice of termination, and ancillary injunctions. [5] In 1979 the trustees bought land at 1179 Beaudesert Road, Acacia Ridge on which they built an ice skating rink with borrowed money. The loan was repaid from profit earned from the trustees operation of the completed ice rink. In 1994 the trustees again bought land, this time at 2304 Sandgate Road, Boondall on which they built another ice skating rink. Again, moneys were borrowed for the construction of the rink and the loan was repaid from profits from its successful operation. On 15 August 2007 the trustees bought a third parcel of land, at 19 Beenleigh-Redland Bay Road, Loganholme with the intention of building a third ice rink. This acquisition was paid for by the Trust s moneys, presumably from accumulated profits, but on settlement the land was conveyed to the respondent. It was the acquisition of this land which gave rise to disagreements amongst the members of the respondent culminating in the election of a new council and expressed dissatisfaction with the trustees. [6] Following the respondent s incorporation the land at Acacia Ridge and Boondall was transferred to the respondent which remains the registered proprietor. However, the respondent leased both parcels of land back to the trustees who have continued to manage and operate the skating rinks. Each demise was for a term of 15 years commencing 24 May 1994 and expiring on 23 May The leases are held by the applicants as trustees of the Trust. Should the notice of termination be valid the applicants would be obliged to convey to the respondent their leasehold interest in the land and the leasehold estates will merge in the respondent s reversions. [7] It is accepted that the sole beneficiary of a trust who is entitled to an absolute and indefeasible interest in the trust property may call for the trust assets to be transferred to it, thereby putting an end to the trust. See Saunders v Vautier (1841) 49 ER 282; Trustees of Estate Mortgage Fighting Fund Trust v Federal Commissioner of Taxation (2000) 175 ALR 482. The respondent claims to have taken advantage of this principle by requiring the applicants to transfer to it their interests in the two leases and the other investments and property subject to the Trust. The transfer of the property will bring about the termination of the Trust. [8] The applicants resist the respondent s demand for a transfer of the Trust assets on the basis of their contention that the respondent is not the sole beneficiary of the Trust absolutely entitled to the beneficial ownership of the trust property. [9] To understand the arguments it is necessary to recite relevant parts of the Trust Deed. [10] The Deed is dated 22 March 1978 and was made between Mr Peter Rankin, the then president of the unincorporated association, and the applicants who were together described as the trustee. Mr Rankin was described as a member of the council for the Ice Skating Association of Queensland (hereinafter called the Association ). The deed recited that the Association desires to create a trust for the purpose of erecting and operating ice rinks in Queensland and for such purposes has paid the sum of $10 to the [applicants] to be held by them upon the trusts and with the powers... declared. [11] Clause 2 was in these terms: The Association hereby declares that the trustee shall and the trustee hereby acknowledges and declares that he will hold the trust fund, capital and income upon trust to invest the same and... to add to the trust fund and to apply the trust fund and its accretions in the acquisition of land for, and construction of, ice rink premises, to manage and control such premises and to promote in any form

3 the sport of ice skating with the object of furthering the sport of ice skating and generally to use his best endeavours to enlarge the trust fund and the income therefrom and to stand possessed of the trust fund capital and income to be vested indefeasibly in possession of the members of the Ice Skating Association of Queensland on the first day of January provided that the trustee shall have the power to direct vesting and possession of the trust fund to the members of the Ice Skating Association of Queensland at any time prior to that date if in his sole discretion he so determines. [12] Clause 3 provided that: The Ice Skating Association of Queensland may at any time by writing under the hand of the President for the time being of the Association in accordance with the resolution of its council alter the settlement herein made to confer upon the trustee such further or additional powers as it may consider necessary from time to time. [13] Clause 5 of the Trust Deed provided that trustees could retire or appoint further trustees either additionally or in their stead provided that the number of trustees should not exceed three in number. Membership of the unincorporated Association was a necessary qualification for appointment. [14] That power conferred by clause 3 was in fact exercised on two occasions. On 20 June 1980 a Deed of Variation was executed by Mr Rankin. It recited: (i) By deed of trust made [22 March 1978]... a trust fund... was settled for the benefit of the Ice Skating Association of Queensland. (ii) The said deed of trust empowered the Ice Skating Association of Queensland by writing under the hand of the president... given in accordance with the resolution of its council to alter the settlement... (iii) The said... Rankin is the president of the... Association... and has been empowered by resolution of the council to alter the terms and conditions of the original trust by executing this deed. [15] One of the additional powers conferred by the Deed of Variation was 2A(e): The trustee shall have power to allocate to the beneficiaries all or some part of the net income of the Trust and the beneficiaries shall be presently entitled to such income so allocated... Beneficiaries was not defined but the word had been used in cl 4(g) of the original Trust Deed which conferred on the trustees power to guarantee the liabilities of third parties, including beneficiaries. [16] On 5 February 1990 another Deed of Variation was executed by Mr Rankin. This also recited that the Deed of Trust of 22 March 1978 had been settled for the benefit of the Ice Skating Association of Queensland. [17] The issue between the parties is whether the respondent is the sole beneficiary of the Trust or whether there are two trusts, one for the promotion of ice skating with a gift over at the expiration of 80 years to the respondent. If the Trust deed does establish two trusts, one a purpose trust and secondly a trust for the respondent of the remainder then the respondent

4 cannot call for a conveyance of the trust estate until [18] The applicants rely for their argument on cl 2 of the Trust deed and, in particular, that part which provides that the trustee will hold... and apply the trust fund... to promote in any form the sport of ice skating with the object of furthering the sport of ice skating.... These words precede the command to the trustees to stand possessed of the fund to be vested in possession of the respondent on 1 January It is pointed out that the purpose trust would be invalid, the object not being charitable, if the Trust was not to subsist for less than 80 years. This requirement is said to explain the gift of remainder to the respondent, after the trustees have applied the trust fund in those eight decades to the promotion of the sport of ice skating. [19] It is accepted by both sides that the reference to the Ice Skating Association of Queensland in the Trust Deed, is since the incorporation of the respondent, to be understood as referring to it. This is a consequence of s 22 of the Associations Incorporation Act. [20] The question to be answered is one of construction. Does the Trust Deed identify the respondent as the beneficial owner of the trust property, or was the intention of the settlor not to benefit the respondent until the vesting day, and in the meantime to effect the purpose of promoting ice skating. [21] I have no doubt that on the proper construction of the Deed the respondent was intended to be the beneficiary. There was not a separate purpose trust. All the indications point to that conclusion. [22] The minutes of a special council meeting of the Association held on 19 March 1978 were in evidence. Attendees at the meeting included the applicants and Mr Rankin. According to the minutes: The president went through the proposals to build a new ice skating rink which had been the objective of the Association for a number of years. In order to facilitate the building and operation of the new rink it was unanimously agreed that a Trust to be known as the Ice Skating Association of Queensland No. 1 Trust be created. The proposed Trust was discussed at length and the draft Deed examined in detail.... It was resolved... that [the applicants] be appointed trustees under the terms of the draft Deed circulated. [23] A flying minute of the next day noted the council s resolution: To give effect to the decision of the council on to set up a Trust called the Ice Skating Association of Queensland No. 1 Trust it is resolved that Mr Peter Keith Rankin be authorised to execute the Trust Deed on behalf of the council. [24] A general meeting of the Association on 22 March 1978 discussed the concern that an ice skating rink leased by the Association would become unavailable when the lease expired on 30 June next. A proposal was discussed to acquire a new rink. The minutes record: The matter of trustees for the new ice rink and associated business was discussed at length. It was pointed out that the new rink would be the means by which skating could be promoted in all its forms. The trustees assured members that at all times there would be due and proper weight given to members of not only the Association but also other clubs and their Associations since the new rink was to be for the benefit of the people of Brisbane. The view was expressed by the trustees that close liaison between all interested parties should be maintained and that all members should strive

5 to promote the interests of ice skating. It was agreed that the council s actions with respect to the trustees appeared the only feasible one. [25] These minutes show that the Trust was created, and the Deed executed by the president and council members of the Association, to benefit Association members by the provision of an ice skating rink in Brisbane. Immediate action was called for because the members were about to lose the rink which they leased. The impetus for the creation of the Trust was the need for a venue for the members of the Association. [26] The portion of cl 2 on which the applicants rely to find a purpose trust follow the intimation in the clause that the trustees would hold and apply the trust fund in the acquisition of land for, and construction of, ice rink premises, to manage and control such premises.... Clause 2, read as a whole, against the background established by the minutes, shows an obvious intention that the trust fund was to be applied in the acquisition, construction and operation of an ice skating rink for the members of the Association. The promotion of the sport of ice skating was a consequence of the application of the trust fund in favour of the Association s members. It is not a separate purpose. The words relied upon are too insubstantial to support the inference of an intention that the Trust was to be one of imperfect obligation and doubtful validity (see Jacobs Law of Trusts in Australia 6 th edition by Meagher and Gummow JJ para 1104). To suppose that the words do give rise to such an intention is to ignore their context in cl 2 and to divorce the Trust Deed from its provenance. [27] It is significant that the settlor was the president of the Association and the trustees were council members. Trustees must be financial members of the Association. This restriction would have been unnecessary if the intention was to benefit ice skating in general, rather than Association members in particular. [28] There are other indications. Clause 2 which provides for the vesting of the trust property in the respondent on the eightieth anniversary of the trust s inception confers on the trustees power to give the trust property to the respondent at any time prior to the eightieth anniversary. This power is inconsistent with a stated intention to provide trust property for the promotion of an object for as long a period as the law permits, rather than to benefit specified beneficiaries. [29] It is significant that both Deeds of Variation executed by the settler, whose intention is determinative, recites that the Trust was settled for the benefit of the Ice Skating Association of Queensland. [30] As well cl 2A(e) of the Deed of 20 June 1980 gave the trustees power to allocate to the beneficiaries all or part of the trust income. This is inconsistent with an intention that the trust estate be devoted to the promotion of competitive ice skating as a purpose for the 80 years allowed by the law. So is the use of the term beneficiaries which appears as well in cl 4(d) of the original Deed. The fact that the Deed refers to beneficiaries is a good indication that the settler s intention was to benefit the individual members of the Association. [31] It is also noteworthy that the power to vary the terms of the Trust was given to the Association, or at least its president acting in accordance with a resolution of its council. [32] Also important is the recital in the Trust Deed that the origin of the Trust s inception was the Association s desire to create a Trust for the purpose of erecting and operating ice rinks in Queensland.... [33] Those parts of cl 2 on which the applicants rely as pointing to a purpose are properly to be seen as incidents following from the primary object of the Trust, to acquire ice skating rinks for the Association s members. The existence and operation of such rinks would promote the sport of ice skating generally, but that is a consequence of the benefit intended to be conferred on the Association, not a separate purpose. [34] The applicants have a second objection to the respondent s attempt to terminate the Trust and call for a conveyance of the Trust assets to it. It is that they are owed substantial

6 sums by way of remuneration for the performance of trustees duties. Clause 4(e) which conferred on the trustees power to carry on the business of operating ice rinks allowed them to engage employees or to perform the management of the businesses themselves and to retain out of income from such business for his own use such sums as may appear proper and reasonable... provided... that such remuneration... in any one year shall not exceed 10 per centum of the gross income.... The trustees have paid themselves remuneration in each of the years from 2001 to 2006 but less than the maximum permitted. They are taking advice as to their entitlement to claim additional amounts up to the maximum of 10 per cent each year. The sum could exceed $1,000,000 but how much the trustees decide to claim and how much they may prove an entitlement to are as yet unknown. [35] The applicants counsel submits that while there remains the possibility that the trustees should seek indemnification from the trust estate for their entitlement to additional remuneration it cannot be said that the respondent is the sole beneficiary absolutely entitled to the conveyance of the trust fund. Unless there is such a beneficiary in whose favour alone the trust property might be applied the rule in Saunders v Vautier does not apply. See CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria (2005) 224 CLR 98 at 120. If a trustee has a right of indemnity out of the trust fund the beneficiaries are not the only ones who have an absolute right to the trust property and, until the right of indemnity is satisfied, it is not possible to say what the trust fund in question was - CPT Custodian at 121. [36] The applicants point is well supported by authority. In Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Stephen, Mason, Aicken and Wilson JJ said (367): In such a case there are then two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trust, those for whose benefit the business was being carried on; and secondly, the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. The latter interest will be preferred to the former, so that the cestuis que trust are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied... In Chief Commissioner of Stamp Duties for New South Wales v Buckle & Ors (1998) 192 CLR 226 the Court said (246): Until the right to reimbursement or exoneration has been satisfied, it is impossible to say what the trust fund is. The entitlement of the beneficiaries in respect to the assets held by the trustee which constitutes the property to which the beneficiaries are entitled in equity is to be distinguished from the assets themselves. The entitlement of the beneficiaries is confined to so much of those assets as is available after the liabilities in question have been discharged or provision has been made for them.... To the extent that the assets held by the trustees are subject to their application to reimburse or exonerate the trustees, they are not trust assets or trust property in the sense that they are held solely upon trust imposing fiduciary duties which bind the trustee in favour of the beneficiaries.... The right of the trustee has been described as a first charge upon the assets vested in the trustee... and is conferring upon the trustee an interest in the trust property [which] amounts to a proprietary interest... [37] Accordingly the respondent was not, on 16 August 2007, entitled to call for the conveyance of the whole of the trust estate from the applicants, who, as trustees, may first take the sums to which they are properly entitled before it can be said that there is trust estate to which the respondent is absolutely entitled. On the other hand the termination of the trust should not be unduly delayed. It is apparent that the applicants and the respondents disagree profoundly about the manner in which the rinks are to be operated and the further land developed. Such disagreement should not be allowed to delay the respondent s right to the

7 property. If provision is made for the applicants claims to reimbursement the balance of the trust estate can be conveyed. See Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 587. [38] In the circumstances the appropriate course is to direct the applicants to make their claim for reimbursement within a relatively short period. The trustees may retain under their control an amount sufficient to meet their claim for remuneration but the balance can be transferred. The application should otherwise be dismissed. Should there appear any need for an order pursuant to s 76 of the Trusts Act a fresh application can be brought. None may be necessary when it is realised that the respondent was not entitled to insist upon compliance with its notice of 16 August 2007.