DMAW Lawyers represents trustees of Fairfax Foundation in successful application to vary trust deed in Supreme Court of South Australia


6 May 2020


Introduction

DMAW Lawyers represented the eight trustees (Trustees) of the Fairfax Foundation (Foundation) in their successful application to the Supreme Court of South Australia to vary the terms of the Foundation’s trust deed to change the proper law of the trust to South Australia and the purpose for which benefits are provided, among other variations.

 

The Supreme Court made the orders approving the proposed variations in June 2019.

 

On 6 May 2020, the Honourable Blue J handed down his reasons for those orders in the judgment, Clarke v Ebdon [2020] SASC 67.

 

Background

The Foundation is a fund established in 1959 by the Fairfax family, and is maintained for the benefit of current and former employees (and their dependants) of the Fairfax Media Group (as it was before its merger with Nine Entertainment in 2018).

 

The Foundation has significant assets in the order of $30 million.

 

The Foundation is governed by a trust deed (Trust Deed) and rules (Rules), which give the Trustees broad powers to make payments to beneficiaries from income of the fund.

 

Benefits provided generally fall into three broad categories:

  • financial assistance – eg cash, loans, discounted holiday accommodation and payment of funeral expenses;
  • financial grants – eg for personal development opportunities in areas of music, arts, amateur sport or non-vocational education and participation in not-for-profit community groups; and
  • subsidised membership of the Fairfax Media “Retired Employees Association”.

 

Over recent decades the Trustees had found it more difficult to apply all of the income of the fund in accordance with the very specific instructions contained in the Trust Deed due to changes that had occurred since the Foundation was established, including:

  • the introduction of compulsory superannuation for employees (including death and disability benefits) – which reduced the number of employees making applications to the Foundation; and
  • the number of employees in the Australian print media industry significantly diminishing –reducing the number of eligible beneficiaries of the Foundation.

 

In addition, because the Foundation is a perpetual non-charitable trust and is not a complying superannuation fund, it was noted the Foundation would not be able to continue as a perpetual trust unless either:

  • it was found to be a ‘benefit fund’ under the statutory exceptions in section 1346 of the Corporations Act 2001 (Cth) or section 13 of the Perpetuities Act 1984 (NSW); or
  • the governing law of the trust could be changed from New South Wales to South Australia, where the common law rule against perpetuities has been abolished pursuant to s 61 of the Law of Property Act 1936 (SA).

 

Changing the governing law to South Australian law would pave the way to enable a broader range of benefits to be provided to beneficiaries, as the limits imposed on benefits by the ‘benefit fund’ statutory exceptions would no longer need to be applied.

 

Proposed variations to Trust Deed

The Trustees sought to change the proper law of the Foundation to the law of South Australia.  This change was argued to align with the intentions of the Foundation’s founders, as it would permit the Foundation to continue indefinitely.

 

In addition, the Trustees sought variations to the Trust Deed to:

  • provide that the Trustees may distribute capital and either distribute or accumulate income;
  • simplify and generalise the purpose for which benefits may be paid to beneficiaries;
  • modify the provision exempting the Trustees from personal liability;
  • modify the provision for amending the Trust Deed; and
  • make drafting and minor modifications to modernise the language and style of the Trust Deed.

 

Application to the Supreme Court of South Australia

The power of amendment under the Trust Deed was not sufficiently broad to permit these amendments.  However, under s 59C of the Trustee Act 1936 (SA) (Trustee Act), the Supreme Court may, on the application of a trustee, vary a trust.  Consequently, the Trustees applied to the Supreme Court to vary the Trust Deed as proposed.

 

DMAW Lawyers commenced proceedings in the Supreme Court on behalf of the Trustees in late 2018, and represented the Trustees at the substantive hearing on 12 June 2019.

 

Outcome

Common law rule against perpetuities

Before determining whether to exercise its discretion to vary the Trust Deed, the Supreme Court first considered whether the Foundation offended the common law rule against perpetuities, which would render the creation of the Foundation void.

 

Blue J held that the Foundation was a ‘benefit fund’ for the purposes of a statutory exception to the rule against perpetuities in existence at the time the Foundation was created – section 346 of the Companies Act 1936 (NSW) (continued under section 1346 of the Corporations Act 2001 (Cth)).  Therefore, the Foundation did not offend the rule against perpetuities, and was a valid trust.

 

Supreme Court’s discretion to vary a trust

The Supreme Court’s discretion to vary a trust under s 59C of the Trustee Act is subject to several prerequisites.  Blue J noted that “[u]ltimately, it is necessary to consider the variations sought holistically in determining whether the requisite criteria are satisfied” (at [83]).

 

With respect to each of the variations sought, Blue J held (addressing the requirements in s 59C of the Trustee Act):

  • there was good reason to make the proposed variations;
  • the variations would be in the interests of the beneficiaries;
  • the variations would not result in one class of beneficiaries being unfairly advantaged to the prejudice of another class;
  • the variations accorded as far as reasonably practicable with the spirit of the trust;
  • the variations would not disturb the trust beyond what is necessary to give effect to the reasons for the variations.

 

In addition, Blue J indicated that he was satisfied the Trustees’ application was not substantially motivated by a desire to avoid or reduce the incidence of tax.

 

Accordingly, on 25 June 2019, orders were made approving the proposed variations to the Trust Deed and the Rules.

 

 

This article provides general commentary only.  It does not purport to be legal advice.  We recommend that you seek professional advice having regard to your own particular circumstances.

 

Author: Tasha Naige

 

Contact

Tasha Naige, Senior Associate in our Transactions Team
Email:  tnaige@dmawlawyers.com.au
Direct Telephone:  +61 8 8210 2244

Tom Dachs, Principal
Email: tdachs@dmawlawyesr.com.au
Direct Telephone: +61 8 8210 2234

The author would like to thank Annika Beaty for her assistance in preparing this summary.