By John Vaughan-Williams, Associate
The recent Supreme Court of Victoria case of Equity Trustees Ltd (As Sole Trustee of the Sir Colin and Lady MacKenzie Trust Fund) v Attorney-General for Victoria (MacKenzie Case) is a good reminder of the principles that courts will consider when determining whether it needs to modify the terms of a charitable trust, through what is known as a cy-près scheme.
Facts of Case
Lady Winifred Iris Evelyn MacKenzie (Deceased) passed away in 1972. The Deceased left a will dated 1966, and a codicil dated 1969 (collectively, the Will).
Relevantly to these proceedings, the Will provided that a specific portion of the Deceased’s residuary estate (that is, the portion of the estate that remains following specific gifts) would be held on trust in perpetuity, such trust being known as the “Sir Colin and Lady MacKenzie Trust Fund” (Trust). There were two separate charitable purposes to which the Trust was to be applied, both of which are relevant to the proceedings.
Sanctuary Charitable Purpose
The Will provided that one third of the income deriving from the Trust was to be applied annually towards the Sir Colin MacKenzie Sanctuary (Sanctuary), to be spent as far as possible in the furthering of scientific knowledge of the native fauna maintained in the Sanctuary (Sanctuary Gift).
Sir Colin MacKenzie had been the husband of the Deceased. He had established the Institute of Anatomical Research in Healesville, Victoria, which conducted studies of local fauna. The land on which the Institute was based was eventually passed to the Healesville Council, and became known as the ‘Sir Colin MacKenzie Sanctuary’. The Sanctuary came under control of the Zoological Parks and Garden Board (Board) in the late 1970s, and the Board was one of the defendants in these proceedings.
Crucially to these proceedings, the Will contained a condition that if the name of the Sanctuary changed from the ‘Sir Colin MacKenzie Sanctuary’ (Prescribed Name), then the Sanctuary Gift would no longer apply, and that one third of the Trust would instead be applied to the remainder of the Trust.
Scholarship Charitable Purpose
The Will then set out that the other two thirds of income stemming from the Trust was to be applied to scholarships and grants for studies in comparative anatomy, studies which had to have a medical significance, and further the understanding of human health and disease (Scholarships Gift).
Under the Will, the distribution and application of these scholarships and grants were to be decided by a committee, composed of the individuals holding five specified positions (Scholarships Committee).
One of the positions on the Scholarships Committee was held by a representative of the National Health and Medical Research Council (NHMRC). Before these proceedings, the NHMRC had written to the trustee of the Trust, advising that it did not wish to have a representative on the Scholarships Committee, due to a perceived conflict of interest.
Circumstances regarding name of Sanctuary
Some ambiguity existed at the time of the proceedings as to whether the name of the Sanctuary had changed from the Prescribed Name. Since the Sanctuary referred to land, the question of the Sanctuary’s name largely depended on how it was known to the public, as opposed to how the name was formally registered anywhere. This is in distinction from the name of a corporation, which can easily be determined from an official record.
It was uncontroversial that at the time of the Deceased’s death, the Sanctuary was still known by the Prescribed Name.
In the decade following the Deceased’s death, there was further evidence that the Sanctuary had retained the Prescribed Name, with Government Gazettal notices regarding the Sanctuary referring to it by the same name. The Prescribed Name was registered as a business name in 1984, and that registration remained until 2002.
However, sometime in the mid-1990s, the Sanctuary began being known as the ‘Sir Colin MacKenzie Zoological Park’ (New Name). The New Name was, for example, used in a Victorian regulation in 1996 when referring to the Sanctuary.
In 2000, the Board had obtained deductible gift recipient endorsement for a fund registered under the New Name, an endorsement which remained current as at these proceedings.
The Prescribed Name did not resurface until 2014, when the Board registered it as a trade mark. Contemporaneously, the Board registered the New Name as a business name.
Questions before the Court
The questions before the Court in the MacKenzie Case were:
- Had the Sanctuary Gift lapsed, due to the name of the Sanctuary changing? If the Sanctuary Gift had lapsed, how should it be applied?
- Could the Will be modified so as to replace the NHMRC representative on the Scholarships Committee, as well as adding a mechanism to replace Scholarships Committee representatives in the future?
Relevantly to these proceedings, a court can apply a cy-près scheme to a charitable trust (often arising from a will) if it can no longer be performed according to its strict wording. A cy-près scheme involves modifying the trust, so as to give effect to the settlor’s or testator’s intention as best as possible.
The ability to apply a cy-près scheme arises both from common law (that is, judge-made law), and statute (which vary across each state and territory).
Circumstances in which a cy-près scheme can be applied include where the gift is impractical, impossible or illegal.
In these proceedings, the Court needed to consider whether to apply a cy-près scheme to both the Sanctuary Gift and the Scholarships Gift.
Had the Sanctuary Gift lapsed?
The Court held that it was clear, on the evidence, that the Prescribed Name had fallen into total disuse between 2002 and 2014.
The Sanctuary was no longer known in any capacity under the Prescribed Name, and this was not affected by the registration of the Prescribed Name as a trade mark in 2014. Instead, it was clear that the Sanctuary had become known under the New Name.
The Court assessed whether the New Name was a significant enough divergence from the Prescribed Name so as to cause the Sanctuary Gift to lapse.
The Court first considered whether it could use extrinsic materials to determine the Deceased’s intention, and to interpret the Sanctuary Gift accordingly. The Court noted that it is limited in when it may interpret a will other than according to its literal and ordinary meaning.
The relevant principles regarding the consideration of extrinsic materials in interpreting a will were discussed by the Court. These principles included the following:
- Terms of a will must be construed according to their plain meaning. Extrinsic evidence can only be used to understand the words used.
- In interpreting a will, a court will only add words if it is clear on the face of the will that words have been omitted from it.
- Courts will strive not to interpret a will in a way that would lead to intestacy (that is, so that gifts fail in their entirety, without any ‘gift over’ provision).
Although the Court accepted that it seemed clear that the Deceased’s intention, in including the condition in the Will regarding the Prescribed Name, was to honour her late husband, the wording of the Sanctuary Gift was clear and unambiguous. It could not be interpreted any other way than that if the Sanctuary ceased to be known by the Prescribed Name, it would fail. Accordingly, the Court held that the Sanctuary Gift had failed.
Could the Court apply a cy-près scheme to the Sanctuary Gift?
Given the Court’s view that the Sanctuary Gift had failed under the Will, it then considered whether it could apply a cy-près scheme in order to amend it.
The Court held that although there were deficiencies with the wording of the Sanctuary Gift, those deficiencies fell short of rendering the gift impractical, impossible or illegal. In particular, the Court gave weight to the fact that the Will provided a ‘gift over’ provision (that is, a clause providing an alternative gift in the event that the original gift fails).
The Will provided that if the Sanctuary Gift failed, one third of the Trust would be applied to the Scholarships Gift. Accordingly, the Court held that it was unable to apply a cy-près scheme to the Sanctuary Gift.
Could the Court apply a cy-près scheme to the Scholarships Committee?
Regarding the proposed variation to the Scholarships Committee, the Court came to a different conclusion.
The Court held that given one of the members of the Scholarships Committee was not willing to perform its role, this would render the Scholarships Gift impossible to perform. Accordingly, the Court held that it was within its power to apply a cy-près scheme to replace that member.
Additionally, the Court agreed to the request to apply a cy-près scheme to insert a mechanism into the Will to replace members of the Scholarship Committee, which would eliminate the need to make continual applications to the Court. The Court included in its reasons that a previous application – before these proceedings – had already been made to the Court for a cy-près scheme to replace another member of the Scholarships Committee, and that both applications had cost the Trust over $100,000 in legal fees.
Take Away Points
The MacKenzie Case demonstrates that the circumstances in which a court will, and will not, apply a cy-près scheme to a charitable trust can be subtle, and can vary based on only minute differences in facts. It is recommended that trustees of charitable trusts carefully consider the prospects of any claim before commencing any court proceedings.