Paul Michael Russell re the Testamentary Trust of Euphemia (Mia) Polykarpou

Mr Paul Michael Russell is the executor and trustee of the late Euphemia (Mia) Polykarpou under her will dated 22 March 2004. The deceased died on 2 March 2015, and probate of her will was granted to Mr Russell on 20 October 2015.

By summons filed on 12 December 2015, Mr Russell seeks the following relief:

It will be appropriate to consider the circumstances that have occurred in relation to the deceased's estate that have led Mr Russell to make the present application.

In her will, after appointing Mr Russell as her executor and trustee, and after making a number of minor bequests, the deceased made the following gift in relation to the residue of her estate:

The gift in clause 4.1 of the deceased's will appears to have been made because the deceased was diagnosed with multiple sclerosis in 1998. The deceased was not employed from 2001 onward as a result of the disease and became essentially housebound. Mr Russell and the deceased were close friends and work colleagues for 25 years. Mr Russell maintained his friendship with the deceased after she was forced to cease work. He would frequently spend days with the deceased at her home. Mr Russell spent time with the deceased in the days leading up to her providing instructions for her will.

No issue has arisen about the effectiveness of the gift of the deceased's residue in clause 4.1 of her will.

An issue has arisen concerning the effectiveness of the gift in clause 4.2 of the deceased's will, as the Oprah Angel Network (OAN) ceased to exist before the date of the deceased's death.

By summons filed on 14 December 2015, Mr Russell applied for judicial advice under s 63 of the Trustee Act on the question whether he would be justified in making an application for a cy-près scheme in relation to the gift in clause 4.2 of the deceased's will.

On 9 February 2016, Lindsay J made orders that had the effect that the Attorney General of NSW, as the State's protector of charities, be joined to the proceedings, and also that the persons entitled to the property in question in the event that the gift in clause 4.2 failed be joined. The summons was amended to include prayers for relief as to the proper construction of the will and for directions for the administration of the estate.

Lindsay J gave judgment in the proceedings on 22 July 2016, when he published reasons for judgment which, if I may respectfully say so, provide a comprehensive and insightful explanation of the Court's jurisdiction in relation to charitable trusts, having regard to a deep historical analysis, that I can only humbly follow: Estate Polykarpou; Re a Charity [2016] NSWSC 409. I will refer to this judgment in these reasons as the principal judgment, and identify paragraphs in it with the prefix “J”.

His Honour made declarations that had the effect that the gift of property in clause 4.2 of the will constitutes a valid charitable trust and that as a result of the dissolution of the corporation identified in clause 4.2 as the recipient of the trust property, the property the subject of the trust is dedicated to charity. Lindsay J then made the following orders:

In accordance with order 4 made by Lindsay J, the Attorney General delegated to the Solicitor General the duty to establish a cy-près scheme in respect of the property the subject of clause 4.2 of the deceased's will. The Solicitor General did so by order dated 24 October 2017, which was published in the NSW Government Gazette No 119 of 27 October 2017. Under the order, the Young Women's Christian Association of NSW (YWCA) "is to hold the gift in clause 4.2 of the Will of the deceased on trust, to apply the capital and income for the purpose of establishing and funding a post-crisis domestic violence Centre in Campbelltown which provides services to women and children as described in the YWCA's application to the Crown Solicitor”.

As was indicated in the order, there was one other applicant for consideration as the beneficiary of the cy-près scheme, which is known as the Oprah Winfrey Leadership Academy Foundation (the Foundation).

The order contains brief reasons as to why the Solicitor General determined that the order in favour of the YWCA trust was closer to the primary charitable purpose in clause 4.2 of the deceased's will than the Foundation’s proposal.

Mr Russell is of the view that the judgment made by the Solicitor General as the delegate of the Attorney General in the order was wrong in so far as it concluded that the scheme proposed by the YWCA was closer to the primary charitable purpose in clause 4.2 of the will than the Foundation's proposal. Hence the application in the summons that is now before the Court.

Before Mr Russell filed his summons, certain communications occurred on his behalf between his solicitors and the Office of the General Counsel of the NSW Government. Mr Russell's solicitors advised on 7 November 2015 that Mr Russell had given instructions to lodge an appeal under s 19(1)(b) of the Charitable Trusts Act. The solicitors advised that, given the novel issues raised by the matter and the appeal, Mr Russell's counsel had advised that he should first apply for judicial advice, principally in relation to whether he would be justified in lodging the appeal and as to what extent his costs would be indemnified by the estate.

By reply dated 13 November 2017 from the Crown Solicitor's Office, it was suggested that the more appropriate course, and the one less likely to deplete the fund, was for Mr Russell to proceed to lodge the appeal without seeking judicial advice. It was suggested that the proposed judicial advice proceedings would require authorisation pursuant to s 6 of the Charitable Trusts Act before being commenced, as they would be "charitable trust proceedings" for the purposes of s 5(1) of the Act. That letter continued by suggesting that, if Mr Russell did make an application for judicial advice "it would be more appropriate for leave to commence such proceedings to be obtained from the Court, pursuant to s 6(1)(b) of the Act, rather than from the Attorney General.

I take this last suggestion to mean that, as the subject matter of the appeal would be the decision of a delegate of the Attorney General, it would not be the best course for the Attorney General to be asked to authorise the bringing of the proceedings under s 6(1)(a) of the Charitable Trusts Act, and instead the leave of the Court should be obtained under s (1)(b). Hence Mr Russell has made the application in prayer 1 of his summons.

The letter from the Crown Solicitor's office invited Mr Russell to participate in a mediation. I have been told that a mediation occurred but was unsuccessful in resolving the dispute.

I will return to the significance of this correspondence below, when I consider the most appropriate course for these proceedings to take in order to resolve the issues that have been raised in a way that will deplete the trust fund as little as possible.

Mr Russell supported his application by a statement of facts filed on 12 December 2017, and an opinion of Mr Greg McNally of senior counsel, dated 5 December 2017.

Mr Russell's application came on for hearing before me in the Applications List on 20 March 2018. Mr McNally appeared and addressed the Court. I was ambivalent about whether the leave sought should be given, and whether the Court should advise Mr Russell that he would be justified in instituting an appeal. That was principally because it was not at all clear to me that Mr Russell had substantial prospects of success on the appeal, having regard to the reasons given by the Solicitor General in the order, and I was concerned about the possibility that the trust fund would be deleted by the cost of the appeal in a manner that was not proportionate to its prospects of succeeding.

In coming to that state of ambivalence, I had regard to the fact that at J [2], Lindsay J had indicated that the approximate value of the trust fund was $700,000, and the order dated 24 October 2017 gave the current value of the portion of the deceased's estate that would be the subject of the cy-près scheme as being $609,127.66.

Further, it became apparent that the principal factor responsible for Mr Russell's desire to appeal was his strong personal belief, based upon his long and close association with the deceased, that the principal reason for her including clause 4.2 in her will was the esteem in which the deceased held Miss Oprah Winfrey, as a result of her long-term watching of Ms Winfrey's television programs. Mr Russell believed that the Solicitor General had not given any, or sufficient, weight to the fact that the alternative object of the cy-près scheme was an Oprah Winfrey charity.

Given my ambivalence concerning Mr Russell's application, I made the following orders:

On 3 April 2008, the Crown Solicitor's Office, having obtained the consent of the two competing charities, forwarded their submissions to Mr Russell's solicitor for provision to the Court.

The covering letter contained the following request:

This request is material to the course that I propose to follow in this matter, and I will return to it below.

Mr Russell also provided to the Court an affidavit affirmed by him on 29 March 2018. Apart from the evidence of his relationship with the deceased outlined above, Mr Russell gave the following evidence concerning the significance of Oprah Winfrey to the deceased's decision to include clause 4.2 in her will:

It will be convenient at this point to refer to a number of aspects of the principal judgment, as they should inform the process by which the cy-près scheme should be settled and any appeal determined.

When I come to deal with the application by Mr Russell in prayers 2(b) and 4 of his summons, it will be appropriate to consider the fact that in order 5, in relation to the reservation of liberty to apply for directions in the settlement of the cy-près scheme, Lindsay J said that it would be "at their own risk as to costs".

Lindsay J set out Article 4 of OAN's articles of incorporation as the source of its corporate purpose, in order to determine the intended effect of clause 4.2 of the will. It is only necessary to set out the most material part of Article 4, which is as follows:

It can thus be seen that the principal object of OAN was "the betterment, support and enrichment of women and children in need or for educational purposes". The use of the word "or" in this statement of corporate purpose would naturally tend to suggest two distinct purposes. I will return to this issue below when I briefly consider the reasoning in the order given by the Solicitor General.

It appears from the principal judgment that there was evidence before Lindsay J concerning the significance of Oprah Winfrey to the deceased's decision to include clause 4.2 in her will. This evidence appears to have had some influence on his Honour's construction of the will in relation to whether it exhibited a general charitable intention.

At J [10] Lindsay J said:

Later, in relation to choosing the procedure that was appropriate to the then current proceedings for the determination of a cy-près scheme, his Honour said at J [107(c)]:

His Honour then said at J [108]-[109]:

Lindsay J also considered the principles that govern how the most appropriate terms for the cy-près scheme should be determined. His Honour said at [51]:

Lindsay J's reference not only to the need to find a way if practicable to apply the gift to OAN for the benefit of work or purposes of the kind which OAN carried out, but also to do so "in a way which is in all respects consistent with any other elements of the dominant intention of the testatrix" is in my view significant. His Honour's observation suggests that it may be necessary to look beyond the bare elements of OAN's corporate purpose, but to also act consistently with any other elements of the deceased's dominant intention. That may be relevant to the issue of whether in settling the cy-près scheme it is necessary to give proper weight to any intention of the deceased that her gift benefit a charity established by Oprah Winfrey.

Lindsay J also said the following concerning the relevance of the intention of the deceased at J [104]-[105]:

It will be appropriate to look a little more closely at the decision of the Court of Appeal in Phillips v Roberts [1975] 2 NSWLR 207. The Court of Appeal was concerned with an intended charitable gift created by the deceased's will in which, she left the residue of her estate to her trustees on trust to benefit generally her fellow citizens by the improvement of biblical knowledge and instruction, to establish a church at a certain address, and directed that the main purpose of such church should be to further the study of the Bible.

The trial judge held that it was impractical to give effect to the trust for the establishment of the church, but that the will exhibited a general charitable intention, so that there was no complete failure of the residuary gift. The Attorney General and the trustees each prepared cy-près schemes. The Attorney General proposed to divide the residuary estate between six theological seminaries. The trustees proposed to make the income of the residuary estate available to a company the principle object of which, put shortly, was to engage in investigations concerning the authenticity, historicity, accuracy and inspiration of the Holy Scriptures.

The judge received the evidence of a witness as to his opinion as to what would have been the reaction of the deceased to the Attorney General's scheme, and partly in reliance on that evidence, rejected that scheme, and accepted the scheme proposed by the trustees. That evidence is stated at 214 as being: “the last thing she (the testatrix) would want would be her money to go for the training of ministers and/or priests…”

Hutley JA, in giving the first judgment, accepted that the trial judge was entitled to rely upon the witness's evidence, and expressed a relatively liberal view as to the extrinsic evidence that the Court could take into account in determining which of a number of schemes was more in tune with the charitable intention of the deceased.

His Honour said at 211:

Then, at 212, Hutley JA said:

Finally, Hutley JA said at 212:

Samuels JA expressly held at 214 that it was not necessary to determine the question of whether the evidence of the witness was admissible to establish the deceased's intention "because, it seems to me that the will itself demonstrates an intention incompatible with the scheme proposed by the Attorney General". His Honour decided the issue "upon the terms of the will alone".

Mahoney JA said at 224 (footnotes omitted):

Finally, his Honour said at 225:

Phillips v Roberts is therefore inconclusive concerning the nature of the evidence that the Court or the Attorney General should take into account in deciding upon the appropriate cy-près scheme where that evidence is not contained in the will itself.

While Hutley JA took a liberal view, and Samuels JA found it unnecessary to decide the question, the approach adopted by Mahoney JA was significantly narrower.

Mahoney JA preferred the view that it was necessary to have regard to the "manner chosen" by the deceased for the implementation of his or her charitable intention, "rather than to the intention of the deceased". If that is the correct approach, then it would be necessary to focus on the "manner" in which the deceased had sought to achieve his or her charitable intention in the will, rather than the wider "intention" of the deceased.

However, Mahoney JA did allow that the cases may permit "the drawing of inferences from the terms of the will itself and from evidence otherwise properly admissible in the interpretation of it". Thus, Mahoney JA may have permitted reliance upon some extrinsic evidence, where that evidence was admissible in order to construe the will. On that principle, evidence referred to in the principal judgment that Lindsay J took into account in construing the will for the purpose of determining whether it exhibited a general charitable intention on the part of the deceased would also be taken into account in formulating the appropriate cy-près scheme.

At the end of the part of his judgment extracted above, Mahoney JA explicitly rejected the legitimacy of evidence "of the kind here in question", which was a statement by an acquaintance of the deceased of that person's belief as to what the deceased would have preferred as a cy-près scheme if the gift intended by the deceased failed.

As stated at J [105] (extracted above), in Lovett v Permanent Trustee Co Ltd (unreported, NSW Court of Appeal, 24 March 1987), Priestley JA (with whom Street CJ and McHugh JA agreed) stated by reference to Phillips v Roberts that: "… Although the settling and approval of cy-près schemes has never been subject to a technical approach, the court's prime responsibility is to give effect as closely as possible to what the founder of the trust wanted…"

I take this statement to be supportive of the view that the objective of the Court is weighted towards giving effect to the intention of the deceased, rather than to try to mimic as close as possible the manner in which the deceased attempted to implement that intention in the deceased's will.

That appears to be the conclusion reached by Lindsay J at J [104] (also extracted above). I respectfully agree with his Honour.

Provided the issue of what evidence is admissible to assist the Court to determine the intention of the deceased is appropriately resolved, in my view the preferred course should be for the Court to implement that intention as closely as may be possible in the terms of the cy-près scheme that is chosen, and it would not be desirable for the Court to limit its objective to simply matching as closely as possible the objective components of the manner in which the deceased attempted to implement the deceased's charitable intention.

The question of what evidence is admissible to assist the Court to determine the real intention of the deceased is currently unsettled, at least in the sense that the authorities binding upon this Court do not comprehensively describe the types of evidence that are admissible.

Given the nature of the present application, and that the Attorney General has not yet had an opportunity to make relevant submissions, it would be premature for the Court to express any final view on the question of what types of evidence are admissible for the purpose of determining the deceased's intention. However, as I propose to follow a relatively summary approach in dealing with the present dispute, it will be appropriate for me to make a number of observations on this issue.

Some guidance may be found in the judgment of the Court of Appeal in Lovett's case. An issue arose at the hearing of the appeal concerning whether the cy-près scheme that was proposed adequately preserved the settlor’s intention of keeping the capital at all times intact. The relevant deed created two trusts. The first trust that was created was valid. The second trust failed. The deed provided that the first £100 of income was to be applied for the benefit of the first trust, before any excess income was to be applied for the benefit of the failed trust. The Court of Appeal apparently took the view that the settlor would have intended that none of the settled capital would be applied directly to the second trust, if that would jeopardise the capacity of the capital applied to the first trust to earn the income of £100 as to which it had priority. Priestley JA said (at 12 of his published judgment):

Even though the course that the Court of Appeal took did not in the event assist the Court in deciding which of the two competing schemes was more in accord with the settlor’s intention, it is clear that the Court accepted that, on the basis that when the deed was entered into the settlor should have had a reasonable ability to forecast the income earning capacity of the capital of the trust, and how that would affect the distribution of the income between the two trusts that he created, the Court could take the inferred understanding of the settlor into account in determining whether a cy-près scheme in relation to the failed second trust that involved a gift of capital rather than income was consistent with the real intention of the settlor.

That, I would respectfully conclude, is a relatively liberal approach to determining whether a particular scheme would accord with the true intention of the creator of the failed trust. The Court of Appeal was prepared to receive evidence of how the investments of the trusts had actually fared, in order, so to speak, to reverse engineer a conclusion as to what the settlor would have intended concerning the operation of a cy-près scheme for his failed second trust.

In my view the real objective in creating a cy-près scheme, or in choosing between alternative schemes that are on offer, is to choose a scheme that as closely as possible reflects the true subjective intention of the person who attempted to create the failed trust.

Obviously, the starting point will be the terms of the will or other instrument by which the failed charitable trust was sought to be created.

Any evidence that the Court is required to take into account for the purpose of the proper construction of the will or other instrument should be admissible on this issue. I respectfully adopt the statement of the principles governing construction of wills set out by Lindsay J at J [64].

There is a question of whether it is permissible for the Court to act upon evidence of statements made by the deceased or other conduct of the deceased during his or her lifetime, for the purpose of inferring the deceased’s preference concerning a cy-près scheme (as an implementation of the deceased’s charitable intention).

The question of whether the Court should act upon evidence given by acquaintances of the deceased concerning what the deceased would or would not have intended, or which of alternative schemes the deceased would have preferred, is perhaps more problematic.

These are not questions that should be addressed on an application such as the present one.

I now turn to the explanation given by the Solicitor General in the order made on 24 October 2017 for selecting the proposal made by the YWCA. It will be necessary to set out at some length the terms of the order as published in the NSW Government Gazette:

It will not be appropriate to discuss the contents of Mr McNally's opinion, as it remains confidential to Mr Russell.

It is sufficient to say that it contains observations concerning the nature of an appeal pursuant to s 18 of the Charitable Trusts Act. It also considers the reasoning expressed by the Solicitor General in support of his choice of the YWCA proposal, as well as the significance of the deceased's following of Oprah Winfrey.

Now is not the time to deal with the issue of the nature of an appeal from any determination of the Attorney General. It may well be that, on the proper interpretation of the relevant provisions of the Charitable Trusts Act, in the light of the history of the Court's jurisdiction in supervising charitable trusts discussed in the principal judgment, that appeals in this context may not be subject to any special restrictions given the supervisory role of the Court. I would hope that the present dispute does not become weighed down by technical controversy about the nature of the appeal.

As to the issue of whether the YWCA proposal is more aligned to the corporate purpose of the OAN’s corporate purpose than the proposals submitted by the Foundation, the observations of Lindsay J in the principal judgment at J [113]-[114] should be borne in mind:

Putting the issue perhaps over-simply, the primary focus of the corporate purpose of the OAN was the support of women and children in need or for educational purposes. The YWCA proposal focused on the needs of both women and children, but less directly on education. The Foundation's proposal focused on the educational needs of girls but less directly on women. Both are plainly worthy charities. A moment's reflection shows how quickly an argument as to which of the proposals was truly closer to the corporate purpose of the OAN could become arid and pointless. At the end of the day, the best decision possible must be made by the decision-maker, having regard to the size of the trust fund and the potential costs of the process of determination.

As Priestley JA said in Lovett "the settling and approval of cy-près schemes has never been subject to a technical approach".

In my view the more serious issue in the present case, and one which justifies the course that Mr Russell has taken, is the significance of the deceased's admiration of Oprah Winfrey, and the possibility that her real intention was to contribute part of her estate to the charitable activities of Oprah Winfrey.

There is nothing in the order to suggest that the Solicitor General took this issue into account when deciding between the two competing proposals and it is unclear whether he gave any weight to this aspect of the deceased's intentions.

Lindsay J, as stated in J [107(c)], specifically stated, in the context of his Honour's determination of the best means of proceeding that, as an aid to settling a scheme, the Attorney General "already has (in addition to these reasons for judgment) the benefit of enquiries made by the plaintiff of the Oprah Winfrey Charitable Foundation, and submissions made by the plaintiff and the deceased's parents, in spelling out alternative courses of action". That said, it is true that in J [110], Lindsay J stated that in the absence of any application he did not propose to constrain the Attorney General's performance of her public duties by giving any formal directions.

The evidence that Lindsay J referred to in J [107(c)] is not before this Court. I cannot assess its significance, but note that it is not referred to in the Solicitor General's order.

I am satisfied that Mr Russell has taken the course that he has out of a genuine and reasonable desire to ensure that his late friend's true intention is given effect as far as practically possible. For the reasons that I have considered above, Mr Russell has a real point at least as concerns the significance of the deceased's admiration for Oprah Winfrey and her choice of a charity established by that person in Illinois in the USA.

Consequently, I have decided that it will be justifiable for the Court to order that Mr Russell's costs be paid out of the trust fund. However, I propose to monitor the amount of those costs.

I do not think my preparedness to allow Mr Russell's regulated costs out of the trust fund is inconsistent with Lindsay J's order 5, in so far as he ruled that any application for directions would be at the party's risk as to costs. That a party was at such risk would not mean that the Court would necessarily reject an application for costs on proper cause being shown. In the present case, I have concluded that what I will call the Oprah Winfrey issue justifies the course taken by Mr Russell. Mr Russell may, however, remain at some risk if too great an issue is made out of the objective comparison between the two competing proposals and the OAN's corporate purpose.

There appears to be some difference between a view expressed on behalf of the Attorney General that Mr Russell is not entitled to make an application for advice under s 63 of the Trustee Act in a case such as the present, without first obtaining leave to do so under s 6 of the Charitable Trust Act, and Mr Russell’s view that leave may not be required for such an application. In the absence of submissions, I will not decide that issue, and it is not necessary for me to do so, as if leave is required, I would grant it to Mr Russell under s 6(1)(b) of the Charitable Trust Act.

I do not propose to advise Mr Russell, as he seeks in prayer 2(a) of his summons, that he would be justified in appealing the order of the Attorney General, if the consequence would then be that Mr Russell would commence new proceedings to appeal from the order. Instead, much as Lindsay J appears to have done in the original proceedings, I will invite Mr Russell to join the Attorney General in these proceedings. I will order that Mr Russell is justified in taking that course, and then in prosecuting an appeal within these proceedings.

The reason I will take that course is that much of the work necessary to be done by Mr Russell in respect of the appeal has already been done. Mr McNally's opinion will be useful for that purpose, as well as the affidavit that Mr Russell has prepared.

Given the size of the trust fund, I will expect Mr Russell and the Attorney General to agree on short minutes of order to appropriately reconstitute these proceedings. The short minutes of order should also provide for the Attorney General to submit a more extensive justification for the Solicitor General's decision, focusing particularly on the issue of the connection between the cy-près scheme and Oprah Winfrey. I will not circumscribe the course that Mr Russell and the Attorney General may agree to, save that I will require that the procedure that is adopted be as economical as possible. The proceedings as reconstituted should not be treated as entirely adversarial proceedings. I will be prepared to deal with as much as possible that is necessary to resolve this dispute in chambers.

If Mr Russell and the Attorney General can agree upon short minutes of order, they can be submitted to the Court through my associate for consideration. Otherwise, my associate will arrange for a directions hearing to be fixed at the convenience of the court and the parties.