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Court of Appeal of Samoa |
IN THE COURT OF APPEAL OF SAMOA
HELD AT APIA
BETWEEN:
HYUN SOOK CHOI
and ANGUS MACDONALD
Appellants
AND:
THE BOARD OF TRUSTEES
OF THE FAATUATUA CHRISTIAN SECONDARY SCHOOL
First Respondent
AND:
THE BOARD OF TRUSTEES
OF PEACE CHAPEL CHRISTIAN FELLOWSHIP
Second Respondent
AND:
ATTORNEY GENERAL’S OFFICE OF SAMOA
Third Respondent
Coram: Honourable Justice Baragwanath
Honourable Justice Salmon
Honourable Justice Paterson
Hearing: 12 September 2007
Counsel: G Lātu for Appellants
R Drake and K Drake for First and Second Respondents
R Wendt for the Attorney General’s Office
Judgment: 14 September 2007
JUDGMENT OF THE COURT
Introduction
[1] This matter comes before this court as an appeal against a judgment of Vaai J rescinding an ex parte interim injunction. The underlying issue is the sale of a school by the Board of Trustees of the Faatuatua Christian Secondary (FST) to the Board of Trustees of Peace Chapel Christian Fellowship (PCT). Both respondents are charitable trusts.
[2] The original proceeding in this matter was misconceived. It overlooked the fact that the FST was a charitable trust which ran the school pursuant to duties and powers contained in a charitable trust deed. The protector and supervisor of charities is the Attorney-General, who should have been involved in this matter from the beginning.
[3] This Court, on 10 September last, invited the Attorney-General to make submissions on the appeal. Because of a conflict of interest the Attorney General delegated his powers to Ms R Wendt, the assistant Attorney-General. We are extremely grateful to Ms Wendt for, at very short notice, preparing and filing prior to the commencement of the hearing on the morning of the 12th September very clear and well researched submissions which encapsulated all the relevant issues in this complex matter.
Background
[4] Mrs Choi and her husband came to Samoa in 1992 under an assistance programme sponsored by the Korean Government. She decided to establish a christian secondary school affordable to most Samoans to be funded mainly by donations and other fundraising activities, rather than by unaffordable school fees. It was to be identified with the Christian faith in general, rather than with one particular Christian denomination.
[5] Mrs Choi’s vision led to the creation of the FST by a trust deed dated 2 September 2001 (the trust deed). The FST was incorporated as a Charitable Trust under the Charitable Trusts Act 1965 on 14 September 2001. It is still so registered.
[6] Mrs Choi was the initial chairperson of the Board of Trustees and held that position until she resigned as a trustee in April 2005. Construction of the initial school was completed by February 2003 at a cost of $570,000. Further additions were planned. Mrs Choi’s husband pledged to donate US$20,000 per year for five years but ceased donating when Mrs Choi resigned. The evidence is that Mrs Choi and family and supporters have donated at least US$250,000 (in two currencies) to the project.
[7] Mrs Choi resigned in April 2005 after difficulties arose between her and some of the other trustees. She, her family and friends thereafter ceased to financially support the FST. As a consequence the remaining trustees were unable to raise sufficient funds to meet the school expenses. They arranged a bank overdraft of $30,000 which they had fully drawn down, owed teachers’ salaries and were in arrears with ground rental payments.
[8] The Court has sympathy for the predicament that the trustees found themselves in. Unsurprisingly the trustees took steps to ensure the future of the school. They considered they had two options. The one that they adopted was to sell the school, including its assets and liabilities to the PCT for $1. This is the transaction which led to these proceedings. A further option, of referring the matter to the Attorney-General for consideration was not recognised.
[9] The option which the trustees rejected was an offer from Mrs Choi to assist again. On 26 May 2006 her solicitor wrote to the chairman of the board of trustees of the FST expressing her concerns at the proposed take over by the PCT. A further letter was written on 5 June 2006 offering an immediate pledge of $50,000 and the same amount for the next four years. She also offered to seek further financial assistance from overseas.
[10] The trustees did not accept this offer. They say that the teachers at the school advised that they would resign if Mrs Choi became involved again. The evidence of the chairman of the board of trustees was that it was the board’s duty to consider the teachers concerns to ensure the survival of the school and to avoid any further instability. Both the offers from Mrs Choi and the PCT were considered at an annual general meeting of the trust. The evidence is that he members were concerned about the conditional nature of Mrs Choi’s offer and that there was no guarantee that Mrs Choi would not once again desert the school and leave it in financial difficulties.
[11] The FST then entered into the agreement to sell the school to the PCT, and this agreement had been perfected and settled before the Supreme Court issued an injunction to prevent the sale on Mrs Choi’s ex parte application.
[12] Vaai J’s judgment from which Mrs Choi now appeals determined that the sale of the school was pursuant to the valid exercise of a power of sale in the FST trust deed, and the sale was therefore valid. He discharged the interim injunction.
The appeal
[13] In the Supreme Court proceeding Mrs Choi alleged that the FST was in breach of trust in two respects. First, the trustees had a duty to accept the funding offer from Mrs Choi which they rejected. Secondly, they breached their duty in selling the school.
[14] In this Court Mrs Choi submitted that Vaai J wrongly decided that the trustees were not in breach of their duties. She sought the following orders:
(a) The PCT be restrained permanently from assuming ownership of the school.
(b) The sale of the school be declared null and void.
(c) The assets revert back to Mrs Choi as settle or of the FST.
[15] In the belief that the FST had been wound up. Mrs Choi sought the reversion of the assets to her. This is what the chairman of the board of trustees had deposed. While the FST may no longer have assets or liabilities it appears as though nothing has been done to wind it up. It is still registered under the Charitable Trust Act. When Mr Lātu became aware of this during the hearing he contended that the assets should therefore be vested back in the FST.
Breach of Trust
[16] Mr Latu submitted that the trustees were in breach of their duties by refusing to accept Mrs Choi’s offer of assistance.
He said there was a mandatory obligation to accept donations under the terms of the trust deed on the correct interpretation of
the following clauses in the deed.
9. Duties of Trustees
9.1 In addition to the duties arising out of and incidental to the trusts declared by this Deed the Trustees, under the guidance and leadership of the Holy Spirit, shall:
(1) develop appropriate mechanisms to ensure the Trust Fund is applied for Charitable Purposes;
(2) actively promote the work of the Trust in order to attract extra funding and for that purpose may:
- (a) seek, accept and receive subscriptions, donations, subsidies, grants, endowments, gifts, legacies, loans and bequests in money, in kind or partly in both.
[17] The submission was that the word "shall" at the end of the second line of clause 9.1 imposes a mandatory obligation, and that the word "may" at the end of the second line of clause 9.1(2) is subject to such mandatory obligation which means that "may" as used means "shall". We do not accept this submission. Given its natural meaning "may" implies a discretion. There is nothing in the context of the deed which suggests the word should be given other than its normal meaning. Indeed it would be absurd in our view to interpret the provision as requiring the trustees to accept all grants, donations etc, notwithstanding the circumstances or the conditions attached to the offers. To do so could require the trustees to agree to a course of action contrary to their duties, or as in this case to proceed on a basis which the trustees believed was not in the best interests of the school.
[18] The second alleged breach of trust was the sale of the school to the PCT. This was, in this Court’s view, a clear breach of trust. There are two reasons for this. First, section 22(1) (b) of the Charitable Trusts Act states:
Powers in respect of property
(b) Notwithstanding any trusts that may affect its property, sell or exchange any part of its property for any purpose upon such terms as it deems expedient.
PROVIDED THAT no property subject to any trust shall be sold or exchanged in exercise of the power conferred by this paragraph without the consent of the Court in any case where it is of the essence of the trust that the particular property should be used for the purpose of the trust.
It was of the essence of the FST trust deed that the school property be used for the purpose of the trust. By selling the school it was placed beyond the purposes of the trust. At the least the consent of the Supreme Court was required. It is the Court’s view as noted later that more than an application to the Supreme Court was required in this case.
[19] There is ample authority for the proposition that a power of sale in a trust deed does not permit trustees to defeat the dominant purpose of the trust by selling the trust property. The overriding duty of trustees, often called the paramount duty, is to administer the trust property in accordance with the purpose of the trust deed. Para 780, Halsbury’s Laws of England (4th Ed) gives examples of breaches of trust where trustees have not executed the trust in accordance with its terms. They include diverting a charitable fund given for one purpose to another purpose not contemplated by the donor, and to extend the benefits of a charity intended exclusively for the members of one religion to persons holding different religious beliefs.
[20] In this case the objectives of the FST are set out in clause 5 of its trust deed and reads:
The objectives of the Trust are:
(1) To undertake, promote, advance and carry out in Samoa educational works and teachings that incorporate Christian principles\, beliefs and values as are directed from time to time by the Trustees;
(2) To establish, promote and oversee the administration of the Faatuatua Christian Secondary School, and if desired, any other educational entities;
(3) To do all such acts, matters and things incidental to or conducive to the furtherance of any of the foregoing objects
In addition clause 1 of the trust deed states:
(1) The constitution annexed hereto titled "Constitution of the Faatuatua Christian Secondary School Trust" shall be the operative part, and shall form part of this Deed.
[21] A principal object of the FST is to establish, promote and oversee the administration of the Faatuatua Christian Secondary School. A fundamental duty of the trustees is to hold the property of the FST to administer the school. They were in breach of their duty when they sold the school. This would be the position in an ordinary trust and is reinforced in the case of a charitable trust, where there is strong authority for the proposition that a charity can not be terminated: see the National-Anti-Vivisection Society v Inland Revenue [1947] UKHL 4; [1948] AC 31.
[22] We conclude that the Judge erred when he determined that the sale of the school was not a breach of trust. Notwithstanding, a specific power in the trust deed to sell all or part of FST’s property, the law does not permit a sale if it has the effect of defeating the dominant purpose of the trust.
The role of the Attorney General
[23] We accept Ms Wendt’s submission that, while most trusts are enforced by their beneficiaries, charitable trusts which are for a purpose and not for specified beneficiaries, are enforced by the Attorney-General representing the State as parens patriae. The position is noted in para 870 Halsbury’s Laws of England (4th Ed) in the following terms:
"The Crown as parens patriae is the constitutional protector of all property subject to charitable trusts, such trusts being essentially matters of public concern. The Attorney-General, who represents the Crown for all forensic purposes, is accordingly the proper person to take proceedings on behalf of and to protect charities".
[24] There is statutory recognition of this role in Samoa in sections 37 and 38 the Charitable Trusts Act 1965 (the Act). The former section gives the Attorney-General wide powers to examine and inquire into the affairs and management of charities in Samoa. Section 38 gives the Attorney-General the right to apply to the Supreme Court for various orders to enforce the duties of trustees under charitable trusts, to give directions to trustees, to vary charitable trusts or to require a new scheme.
[25] The Attorney-General is now seized of this matter. Ms Wendt has indicated that he will proceed under s37, and possibly s38 of the Act.
The Way Forward
[26] This Court is mindful that the trustees of the FST were faced with serious financial difficulties and took a decision which was in their view in the best interests of the school and its pupils. It is also conscious of the need to keep the school open in the interests of its pupils. The Court is grateful for the indication given by Mrs Drake on behalf of the PCT that that trust is prepared to keep running and financing the school until a solution to the present legal problems is found.
[27] While it is not for this Court to suggest the appropriate solution, which may depend on the Attorney General’s inquiry, it is probable that a scheme of arrangement either initiated by the Attorney General under s38 of the Act, or by the FST either under s41 of the Trustee Act 1975 or under the Supreme Courts’ inherent jurisdiction to approve cypress schemes will need to be brought to the Supreme Court for approval. Because a sale of the school will defeat the fundamental purpose of the trust, consent to a sale under s22 of the Act will be insufficient.
[28] Until such scheme is approved the interests of the pupils at the school can be protected by the Attorney-General who will be able to work with the PCT to keep the school open. The matter cries out for a speedy and sensible resolution. The orders this Court is about to make are designed to assist in such resolution.
[29] The Attorney-General raised the standing of Mrs Choi to bring this proceeding. While there is something in this point the issue is one of academic interest only at this stage. The proceeding has disclosed a breach of trust, albeit an unintended one. It has led to the putting in place of a procedure to regularise the position.
Orders
[30] It would be pointless to direct a retransfer of the school to the FST at this time. That trust has ceased to operate and has no funds, even though it still exists. Until the matter is satisfactorily resolved the PCT should continue to run the school under the supervision of the Attorney-General. Mrs Choi has no legal right to have the property of the FST transferred to her.
[31] Under the Court of Appeal Rules this Court has power to give any judgment and make any order which the Court considers ought to have been made (rule 24). It therefore makes the following orders:
(a) The appeal against the order discharging the interim injunction granted on 6 October 2006 is dismissed;
(b) The costs order of $2,000 made against Mrs Choi is set aside;
(c) It declares that the trustees of the first respondent were in breach of their duties as trustees of the FST when they transferred the school to the PCT;
(d) The Attorney General is added as a party to this proceeding and given leave to make in this proceeding any application which he is entitled to make either under s38 the Act or otherwise;
(e) Apart from the orders made herein Mrs Choi’s claim for relief is dismissed.
[32] We invite the Chief Justice to consider appointing a designated Judge to facilitate resolution of this mater and to case manage any application that the Attorney-General may make.
Costs
[33] Costs are to lie where they fall. Mrs Choi has not obtained the relief sought but has exposed a breach of trust. The FST was placed in a difficult position and in seeking to resolve the dilemma committed a breach of trust. The PCT offered its assistance which has been instrumental in keeping the school open. It was the unwitting recipient of property transferred in breach of trust. Fairness indicates that there should no order for costs.
Honourable Justice Baragwanath
Honourable Justice Salmon
Honourable Justice Paterson
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