Oesterlin v Sands [1969] HCA 70; (1969) 120 CLR 346 (22 December 1969)

HIGH COURT OF AUSTRALIA

OESTERLIN v. SANDS [1969] HCA 70; (1969) 120 CLR 346

Trusts

High Court of Australia
McTiernan(1), Kitto(2) and Menzies(3) JJ.

CATCHWORDS

Trusts - Rule against perpetuities - Statutory exemption of trusts of fund or scheme for the benefit of any employee of a company - Will trust to apply income of fund in perpetuity for "the employees generally" of named company "in the interests of the whole staff" - Companies Act, 1961 (N.S.W.), s. 382.

HEARING

Sydney, 1969, August 18; December 22. 22:12:1969
APPEAL from the Supreme Court of New South Wales in its equitable jurisdiction.

DECISION

December 12.
The following written judgments were delivered:-
McTIERNAN J. I am of opinion that this appeal should be allowed. (at p348) 2. I have had the advantage of reading the judgments and reasons of my brothers Kitto and Menzies and concur therewith. (at p348)

KITTO J. This appeal relates to the will of one James Crockett deceased, who at his death was the governing director of a company called Crockett & Co. Pty. Limited. The will, after disposing of the whole of the testator's estate except a parcel of shares which he held in the capital of Crockett & Co. Pty. Limited, made the following provisions concerning those shares:-

"My principal remaining assets are 5,760 shares in Crockett & Co.
Pty. Limited of One Pound each. They have an asset value I
understand of over 30/- each today. These shares are not to be sold
or realized on but are to be held by my Trustees in perpetuity and
only the dividends accruing on them from year to year paid as
follows namely one third to my wife and one third each to my two
daughters all as aforesaid. If and when any one of the three
foregoing legatees under this clause dies her share is to be held by
the trustees and invested by them if they think wise in shares in
Crockett & Co. Pty. Limited at par when such shares are available or
in Trustee securities so that if the Company continues and
flourishes there will be built up from the dividends on these shares
a substantial fund which shall be held in trust for the employees
generally of Crockett & Co. Pty. Limited and administered by my
executors and trustees in their interests. Note: I do not mean in
the interests of the Directors exclusively or unduly but in the
interests of the whole staff, although for the good of the business
I direct that those Directors present or future who have a small
share holding such as Mr. Wheeler should be assisted out of this
fund substantially to acquire a larger holding and in the event of a
very deserving young man such as I believe Mr. Neville Lee to be
continuing efficiently to serve the Company he be appointed a
Director and assisted to acquire Director's qualifications out of
such fund. I request the co-operation of all shareholders and
Directors to make this plan outlined above a success because I have
always felt that I should like to do something of this kind for the
benefit of my co-workers in the business small or large and the
award to individuals from time to time from the fund should take
into account the years of service more perhaps than the eminence in
position . . . I should like to see Crockett & Co. Pty. Limited
continue for many years because it has an honourable name and
because the provisions which I am seeking to make herein should make
for joyful co-operation on the part of all its employees." (at p349)

2. In the Supreme Court of New South Wales Street J. made a decretal order declaring that on the true construction of the will the trustees hold the shares in perpetuity upon trust (1) to pay one-third of the net income to each of the testator's widow and two daughters during their respective lifetimes, and (2) after the death of each of them to hold the one-third share of the income previously paid to her in perpetuity for the benefit of the employees generally of the company and in their interests, subject to the powers and in accordance with the directions contained in par. 10 of the will. (at p349)

3. The effect, if this be correct, is that subject to the three life interests the trustees have a valid power to apply any or all of the income "in the interests of the whole staff", that is to say the persons who for the time being and from time to time are employees (including directors) of the company, not in any specified or ascertainable proportions or so as to meet any prescribed purposes, but simply by "award to individuals from time to time". The only guidance that the will offers the trustees is in the statement that the administration is not to be in the interests of the Directors "exclusively or unduly", the illustrations in relation to Mr. Wheeler and Mr. Neville Lee, the vague expression of the testator's preference for the taking into account of "the years of service more perhaps than the eminence in position", and the indications of his general desire "for the good of the business" and "joyful co-operation on the part of all its employees". (at p349)

4. Quite plainly the intention is not that the employees at any particular time shall be entitled by agreement among themselves to appropriate or dispose of any of the capital or income. It is of the essence of the clause that the capital shall be kept permanently intact, that the income shall be used primarily to build up a fund of income, and that every application of moneys out of that fund in favour of an employee shall depend upon an exercise of discretion by the trustees as to the selection of recipients, as to the amounts to be applied for the benefit of each, and as to the ways in which the respective interests of the chosen recipients shall be served. The result is that the income after the falling in of the respective life interests is undisposed of except in so far as the trustees may exercise their power to make awards ; and since the company may continue indefinitely to have employees any or all of the awards by the trustees out of accumulated income may be made, if the power in this regard be valid, beyond the limit of time allowed by the rule of law as to remoteness of vesting. The power is therefore invalid unless saved by some statutory provision, for it falls within the general rule which Lord Parker of Waddington stated in a well-known passage in In re De Sommery ; Coelenbier v. De Sommery (1912) 2 Ch 622, at p 630:

"A special power which, according to the true construction of the
instrument creating it, is capable of being exercised beyond lives
in being and twenty-one years afterwards is, by reason of the rule
against perpetuities, absolutely void."

The case is covered in principle by the decision on the first of the gifts considered in In re Drummond ; Ashworth v. Drummond (1914) 2 Ch 90 (at p350)

5. For this reason Street J. would have held the provisions void had he not been of opinion that they were saved by s. 382 of the Companies Act, 1961 (N.S.W.). Sub-section (1) of that section, so far as material, provides that-

"The rule of law relating to perpetuities shall not apply . . . to
the trusts of any fund or scheme for the benefit of any employee of
a company . . ." ;

and sub-s. (2) provides, inter alia, that in the section -

"'Fund or scheme' includes any provident, superannuation, sick,
accident, assurance, unemployment, pension, co-operative benefit or
other like fund, scheme, arrangement or provision." (at p350)

6. Though the word "includes" in a provision such as sub-s. (2) usually indicates that what follows is intended to be extensive rather than definitive of the meaning of the expression to which it relates that can hardly be its effect here, for the drag-net expression "other like fund, scheme, arrangement or provision" excludes by necessary implication any fund, scheme, arrangement or provision which is not "like" those that are specifically described. Wide though the descriptions are, they all postulate, I think, what indeed the very expression "fund or scheme" itself suggests strongly enough where used in relation to employees of a company, that provision is made for entitling an employee, either absolutely or subject to the discretionary judgment of a person or body of persons, to receive benefits in particular eventualities the nature of which determines the appropriateness of the descriptive title. The eventualities may be of a wide class as in the case of a provident fund, or of a more specific kind as in the case of a sick or accident fund ; they may consist in temporary situations as in the case of an unemployment fund, or continuing situations as in the case of a superannuation or pension fund ; they may be involuntary events as in the case of an assurance fund, or repeated acts of the employee as in the case of a co-operative benefit scheme ; but always there are rules which by limiting the kinds of events or situations for which the fund, scheme, arrangement or provision exists to provide give it is special character and thus qualify it for one of the descriptive titles. A fund or scheme, it seems to me, could not properly be described as "like" those to which the titles apply unless it be governed by rules or prescriptions which limit its purposes to benefiting or assisting an employee of the company in defined circumstances. (at p351)

7. The trusts which the testator's will purports to set up in the interests of employees is not so governed. It is not directed to any particular situation. It fits none of the specific descriptions in the definition of "fund or scheme", and for want of anything in the nature of rules or directions or limiting guide-lines it cannot be described as a "like" fund, scheme, arrangement or provision. It is a provision for the general benefit of such employees of the company as may be selected by the trustees upon no ascertainable principle, and it therefore qualifies for no more particular description than that of a trust to benefit employees of the company. The protection of s. 382 could not be applied to it without striking the definition of "fund or scheme" out of the Act. (at p351)

8. In my opinion, therefore, the trusts of the shares are void. It may be that the same result might have been reached by holding the whole trust to be void as tending to a perpetuity by reason of the basic direction which introduces it, namely the direction to the trustees to hold the shares in perpetuity : see Carne v. Long [1860] EngR 786; (1860) 2 De G F & J 75 (45 ER 550) ; Leahy v. Attorney-General (N.S.W.) (1959) AC 457 But I have thought it better to put my judgment on the other basis. (at p351)

9. I would allow the appeal. (at p351)

MENZIES J. I have had the advantage of reading the judgment of Kitto J., and I agree with it. (at p351)

2. I would do no more than add, that it seems to me, that a comparison between the words of the section and those of the will affords support for the conclusion that the Companies Act, 1961 (N.S.W.), s. 382 does not make the law relating to perpetuities inapplicable to the provision in the testator's will now under consideration. The section refers to the trusts of any fund or scheme "for the benefit of any employee of a company" and indicates thereby that it is the rights of particular employees to benefit under a trust, which are to be saved from extinction by reason of the remoteness. The testator, however, has been careful not to give any employee of the company any ascertainable rights. The trust to be established is one "for employees generally" and it is to be administered in the interests of employees generally, not of particular employees. This language shows that the testator did not intend to give any employee any right, capable of definition, to benefit, but was concerned rather to give the trustees power to expend the trust moneys in the interests of the general body of employees of the company while, at the same time, indicating that, in some circumstances, payments to particular employees would be within his intended bounty, e.g., payments to assist an employee, suitable to be made a director for the benefit of employees generally, to obtain the necessary share qualification. It would, no doubt, be within the power of the trustees to establish a fund or scheme of the description to be found within s. 382. The important point is, however, that the power of the trustees would not be limited to doing what falls within the section. For instance, if the trustees were to decide that the installation of air-conditioning in the factory would be in the interests of employees generally, then expenditure from the fund to provide that amenity would be authorized. (at p352)

3. It follows that I do not think the language of the section is apt to protect a trust of such a general character as that to be found in the will. (at p352)

ORDER

Appeal allowed. Decretal order of the Supreme Court of New South Wales varied by omitting the declaration therein contained and substituting therefor a declaration that upon the true construction of the will of the testator and in the events that have happened the 5,760 shares in Crockett & Co. Pty. Limited mentioned in cl. 10 of the said will are held by the trustees of the said will upon trust for the appellants in equal shares as tenants in common absolutely. Costs of all parties of this appeal as between solicitor and client to be paid out of the estate of the testator.