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  SASC 67.
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:
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:
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:
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:
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.
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 ).
With respect to each of the variations sought, Blue J held (addressing the requirements in s 59C of the Trustee Act):
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
Tasha Naige, Senior Associate in our Transactions Team
Direct Telephone: +61 8 8210 2244
Tom Dachs, Principal
Direct Telephone: +61 8 8210 2234
The author would like to thank Annika Beaty for her assistance in preparing this summary.