Australian Executor Trustees Ltd v A-G (SA)
[2010] SASC 348
•20 December 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Testamentary Causes Jurisdiction)
AUSTRALIAN EXECUTOR TRUSTEES LTD v ATTORNEY-GENERAL FOR THE STATE OF SOUTH AUSTRALIA & ORS
[2010] SASC 348
Judgment of The Honourable Justice Kourakis
20 December 2010
CHARITIES - CHARITABLE GIFTS AND TRUSTS - VALIDITY AND PRACTICABILITY - NON-EXISTENCE OF OBJECTS - GIFT TO CHARITABLE INSTITUTION: INSTITUTION CEASING TO EXIST - GENERALLY
Testator left gift of residue of his estate to incorporated hospital which had ceased to exist at time of death. Whether Part 9 of the Health Care Act 2008 applies. Whether gift created valid charitable trust. Whether gift failed or lapsed. Appointment of trustee.
Held: Part 9 operates retrospectively but does not apply to testator's bequest. Bequest established charitable trust for which trustee should be appointed in place of, now dissolved, trustee appointed by testator.
Health Care Act 2008 Pt 9, s 16, s 29, s 77, s 78; Trustee Act 1936 s 36, referred to.
Sir Moses Montefiore Home v Howell & Co (No 7) [1984] 2 NSWLR 406, applied.
Re Tyrie, deceased (no 1) [1972] VR 168; Australian Executor Trustees Limited v Ceduna District Health Services [2006] SASC 286; Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209; Re Ovey [1855] 29 Ch Div 560; In re Rymer [1895] 1 Ch 19; Marsh v Attorney-General [1860] 2J. and H. 61; 70 ER 971; Sobels v The Attorney-General [1942] SASR 251; Public Trustee v Cerebral Palsy Association of Western Australia Limited (2004) 28 WAR 496; In re Lucas [1948] 1 Ch 424; Royal North Shore Hospital of Sydney v Attorney-General (NSW) & Ors (1938) 60 CLR 396, discussed.
Clark v Taylor [1853] 1 Drewry 642; 61 ER 596, considered.
AUSTRALIAN EXECUTOR TRUSTEES LTD v ATTORNEY-GENERAL FOR THE STATE OF SOUTH AUSTRALIA & ORS
[2010] SASC 348Testamentary Causes
KOURAKIS J:
Summary of findings
I have no hesitation in finding that the bequest to the Central Yorke Peninsula Hospital Incorporated (CYPH) established a charitable trust. The charitable purpose of the bequest was the provision of health and aged care services through the Maitland Hospital (the Hospital). The testamentary disposition was not a charitable gift to CYPH, to use as it saw fit; nor was it a gift to CYPH for it, and it alone, to provide services at the Hospital. I explain my reasons for so finding in [23] below.
The nomination by Mr Flinn in his Will of the legal entity, through which services at the Hospital were at that time provided, served both as a convenient short hand form of expression of the objects of the trust, and the appointment of CYPH as the trustee of that trust. I explain the principles which support this characterisation of the gift in [39] – [49] below.
My characterisation of the bequest means that it does not fall within the scope of s 78 of the Health Care Act 2008 (HCA) because it is not a disposition made “in favour” or “for the benefit of” CYPH, which was to hold the bequest merely as a trustee. The consequences of the subsequent dissolution of CYPH must therefore be determined in accordance with the general, and not the statutory, law. I consider the operation of HCA further in [24] – [38] below.
The Hospital continues to exist as a medical and nursing institution even though CYPH has been dissolved as a legal entity. The services provided at the time of the execution of the Will continue to be provided at the Hospital. It remains practicable therefore to perform the trust established by Mr Flinn’s testamentary disposition in accordance with its purpose. All that is necessary to effectuate Mr Flinn’s charitable purpose is to appoint a suitable trustee. For the reasons given, and pursuant to the powers referred to, in paragraphs [16], [17] and [77] below I appoint Yorke Peninsula Health Advisory Council Inc. (YPHAC) to administer the trust. I find that the object of that trust is the provision of services at the Hospital which are in addition to, and improve or supplement the health and aged care services which are there delivered by the health agencies of the State.
The Hospital
The foundation stone of the Hospital was laid by the Premier of South Australia, Mr John Verran, on 11 November 1911. The Hospital was officially opened on 31 May 1912. A nurses’ quarters was later added as a second building, and in 1927 the Hospital expanded further with a new wing for surgical and maternity cases. In 1971 the original hospital buildings were demolished and a “modern, well-equipped structure was opened during the centenary celebrations in April 1972”.[1]
[1] Brad Walker, The Maitland Hospital (an Anecdotal History), (1993) 3 – 4.
The Hospital was incorporated on 23 May 1929 under the Hospitals (Incorporation) Act 1926 as the “Maitland Hospital Inc.” and later came under the provisions of the Hospitals Act 1934.
On 23 May 1985 the “Maitland Hospital Inc.” was dissolved and the Hospital was incorporated as the Maitland Hospital Incorporated under the South Australian Health Commission Act 1976 (SAHCA).
On 22 February 1996 the name of the Hospital was changed to the Central Yorke Peninsula Hospital Incorporated. In 2000, when Mr Flinn became a resident, the Hospital was operated by CYPH.
Under its constitution, the objects of the CYPH, were:
4.1.1to establish and maintain health service facilities for the care and treatment of members of the community;
…
4.1.3to provide or promote such other health services and aged care facilities as may seem necessary or desirable from time to time.
The constitution of the CYPH empowered it:
6.1to establish and maintain health service facilities for the care and treatment of people residing in the service area of the Hospital and other persons;
…
6.5to establish and maintain residential, nursing home and community service facilities for the care and support of aged and disabled persons;
The “service area of the Hospital” was defined as “the Local Government areas of the Hundreds of Tiparra, Clinton, Kilkerran, Maitland, Cunningham, Wauraltee and Muloowurtie in the District Council of Yorke Peninsula”.[2]
[2] Central Yorke Peninsula Hospital Incorporated Constitution, 7 September 2000 [5.1].
CYPH was dissolved by proclamation on 8 December 2005 under the SAHCA. The effect of the proclamation was to dissolve the CYPH (and Southern Yorke Peninsula Health Service Incorporated) and to establish a new incorporated hospital, the Yorke Peninsula Health Service Incorporated (YPHSI).
The constitution of the YPHSI stated that the aims and objects of the Health Service were:
3.2.1to establish, maintain, and operate health service facilities for the care and treatment of people in the service area of the Health Service and other persons;
3.2.2 to efficiently conduct and manage … health services for its community, including:
3.2.2.1 health services provided on a live-in or outpatient basis;
…
3.2.2.7nursing home and community service facilities for the care and support of aged and disabled persons;
The “service area of the Health Service” means the Local Government areas of the District Council of Yorke Peninsula.
On 15 May 2008 Country Health SA Hospital Incorporated (Country Health SA) was established under s 29 of the HCA as an incorporated hospital to provide “services” and “facilities” under the HCA. On 5 June 2008 the YPHAC was established as an Incorporated Health Advisory Council.
The HCA empowers the YPHAC to administer a trust.[3] Its functions include acting as trustee “in relation to property that may be used in or in connection with the provision of health services”.[4]
[3] Health Care Act 2008 s 16(1)(b)(v).
[4] Yorke Peninsula Health Advisory Council Inc. Constitution, 6 June 2008 [4.10].
The constitution of the YPHAC provides:
where, save for the application of section 78 of the Act, the hospitals (incorporated under either the Act or under the South Australian Health Commission Act 1976) named in Schedule 1 to this Constitution would obtain the benefit of any testamentary disposition or trust, assume that benefit in substitution for those hospitals;[5]
[5] Yorke Peninsula Health Advisory Council Inc. Constitution, 6 June 2008 [4.15]. “The Act” means the Health Care Act 2008.
The YPHSI was dissolved under the HCA on 1 July 2008. The assets, rights and liabilities transferred to and vested in Country Health SA, save for certain property which vested in the YPHAC.
County Health SA is listed in Sch 1 of the HCA. The significance of this provision will become apparent later when the provisions of s 78 HCA are discussed.
Mr Flinn’s care
Mr Flinn became a resident of the Chappell Wing of the Hospital in February 2000. The Chappell Wing is an aged care facility which was purpose built in 1988. He lived there until his death in 2007. The care of Mr Flinn was not confined to the Chappell Wing; he had periodic consultations with his treating physician who was attached to the Hospital and underwent surgery in the Hospital in 2003.
Mr Flinn’s social activities were mostly confined to the Hospital where he enjoyed being involved in the group activities and entertainment offered to the residents of the Chappell Wing. He had a high regard for the care he received, and for those who delivered it. There is strong evidence that he was very appreciative of the care he received.
Mr Flinn had few close relatives, however, he had a good rapport with the staff of the Chappell Wing and made friends with several volunteers. Other than volunteers, he only received visits from the friends and family of his long-time carer, Mrs Beryl Searle.
I find on the evidence which I have just summarised, that Mr Flinn intended to provide funds for the continuing provision of aged care and health services through the Hospital. The name of the entity, incorporated pursuant to the SAHCA for the purposes of the public management and administration of the services provided through the Hospital, was not a matter which would have concerned Mr Flinn at all. As a matter of common sense and human experience I find that, by his bequest, Mr Flinn intended to add to and improve or supplement the provision of health and aged care services at the Hospital, like those which he had enjoyed during his residency, irrespective of the identity of the administrator of the Hospital from time to time. The continuing operation of the Hospital allows the purpose of that trust to be fulfilled.
The Health Care Act 2008
It is necessary to first determine whether Pt 9 of the HCA has any application in the circumstances of this case before turning to consider general law principles. It is, in my view, inappropriate to consider, as the first step, whether the general law would have the same consequence as Pt 9 and, if it does, decline to determine whether Pt 9, on its terms, applies to the Will of Mr Flinn. If Pt 9 applies it necessarily abrogates the general law and must be applied whether or not the general law would have led to the same result.
For many decades in South Australia, hospitals and other health institutions have been administered through statutory corporations incorporated, and from time to time dissolved, pursuant to the provisions of the Hospitals Act 1934 and the SAHCA. Part 9 of the HCA is headed “Testamentary Gifts and Trusts”. The purpose of Pt 9 appears to be to address difficulties in giving effect to testamentary bequests to hospitals when, between the time of the testamentary bequest and the death of the testator, the legal entity providing the health service has been dissolved and its functions transferred to another entity.
Section 77 of the HCA provides that the provisions of Pt 9 apply to “a testamentary disposition or trust made or created before or after the commencement” of the Part.
The express application of Pt 9 to testamentary dispositions made or created before its commencement does not resolve the question whether it was intended to apply where the testator had also died before the commencement of the Part, and his or her estate had therefore already vested in his or her executor. It is the vesting of the estate and not the making of the Will which creates rights and interests which may be affected by Pt 9. On the one hand the section evinces an intention that the provisions operate retrospectively, at least to the extent that they apply to dispositions made before the commencement of Pt 9. On the other hand that reference, together with a failure to expressly apply Pt 9 to cases where the testator’s death had preceded the commencement of the Part, leaves room for the operation of the presumption that Parliament does not intend to vary or alter vested property rights and interests.
If the Part retrospectively applies to deceased estates it might deprive beneficiaries of property in which they held an equitable entitlement; it is also likely to cause much inconvenience in that the legal effect of acts and decisions of executors, and indeed courts, made before the commencement of Pt 9 would be nullified. Significantly, s 78(7) purports to deal with that very circumstance. It provides:
(7) Nothing in this section—
(a) affects the operation of any order or determination of a court made before the commencement of this section; or
(b) affects the operation or validity of an act or decision of an executor or executrix, or a trustee, lawfully taken or made before the commencement of this section.
Section 78(7) of the HCA could not serve any useful purpose unless s 78(1) itself was intended to apply retrospectively to deceased estates. Section 78(7) carves out, from that retrospective operation, bequests which are affected by the act of an executor or a determination of a court.
I hold therefore that s 78(7) evinces an intention to give Pt 9 a retrospective operation; Pt 9 applies to the Will of Mr Flinn even though it came into operation after his death.
Having held that the temporal scope of s 78 applies to the Will of Mr Flinn it is next necessary to determine whether the testamentary disposition here in question falls within s 78(1)(a) of the HCA.
Section 78(1) of the HCA provides:
(1) If—
(a) a testamentary disposition has been made in favour of, or a trust has been created for the benefit of, a prescribed entity; and
(b) the prescribed entity has been dissolved (whether before or after the commencement of this section); and
(c) either—
(i)all of the functions of the prescribed entity have been transferred to an incorporated hospital under this Act; or
(ii)the Minister has, by instrument published in the Gazette, certified that, in his or her opinion, a major proportion of the functions of the prescribed entity have been transferred to an incorporated hospital under this Act,
then the disposition will be taken to be made, or the trust will be taken to be created, (as the case requires) in favour of—
(d) in a case where paragraph (c)(i) applies—
(i)subject to subparagraph (ii) of this paragraph—the relevant incorporated hospital; or
(ii)if the constitution of an incorporated HAC provides that the HAC is to assume the benefit of any testamentary disposition or trust to which this section applies in substitution for the hospital (named in the constitution) that would otherwise obtain the benefit of this section under subparagraph (i)—that HAC;
(e) in a case where paragraph (c)(ii) applies—an incorporated hospital or an incorporated HAC, as designated by the Minister by notice in the Gazette.
The expression “prescribed entity” is defined to mean a statutory corporation. The phrases “in favour of” and “for the benefit of” suggest that the subject matter of the disposition is the entity itself and not a purpose for which the entity is to administer, as trustee, the gift. Section 78 appears therefore to apply only to those testamentary dispositions which are bequests to a particular charitable institution simpliciter and which are to be treated as gifts for the advancement of the charitable work of that institution.[6]
[6] Re Tyrie, deceased (No 1) [1972] VR 168 at 177. See further [50] - [63] below.
On the findings I have made about Mr Flinn’s intention and the characterisation of his bequest, s 78(1) does not apply to it; the bequest was made for the purpose of adding to and improving the provision of services at the Hospital. However, it is convenient to identify the circumstances to which s 78 does apply by way of further elucidation of my reasons.
Section 78 provides that where the nominated entity has been dissolved the disposition will be taken to be made, or the trust will be taken to be created in favour of another incorporated entity in accordance with the rules established in s 78(1)(c). However s 78(5) provides:
(5)Nothing in this section operates to defeat the intention reflected by the provisions or terms of a testamentary disposition or trust that provide that, should the beneficiary cease to exist, the testamentary disposition or trust was to lapse or was to be in favour of some other person or body.
The operation of s 78(1) is therefore quite limited. It does not save any gift that would have lapsed under the general law. It affects only the mode by which a gift made out of an outright, general charitable intention is to be applied. Under the general law, where the gift manifests such a general charitable intention but the object of the gift no longer exists, the Court will apply the gift, cy-preś, in accordance with a scheme which best approximates the charitable purposes proposed by the testator. The effect of s 78 of the HCA is to direct that the gift will be applied in accordance with the rules in s 78(1)(c) instead of a scheme so devised by a court.
Accordingly, even though Pt 9 appears to have been enacted in response to the decision in Australian Executor Trustees Limited v Ceduna District Health Services[7] it does not actually address the circumstances as found in that case. I discuss the decision of Vanstone J further in [63] – [65] below.
[7] [2006] SASC 286.
It is necessary therefore to return to the general law to determine the effect of the dissolution of CYPH.
Characterisation of charitable bequests
The courts have for centuries grappled with the difficulty caused when a bequest is made to a charitable institution, or a legal entity which operates a charitable institution, which has ceased to exist before the testator’s death.[8] I use the term “charitable institution” to refer to an organised charitable enterprise rather than the legal entity which undertakes that enterprise.[9] The legal entity may be a natural person, an unincorporated association, or a corporation, and may, or may not, be a trustee of a charitable trust.
[8] Re Ovey [1885] 29 Ch Div 560; In re Rymer [1895] 1 Ch 19; Clark v Taylor [1853] 1 Drewry 642; 61 ER 596.
[9] Cf Jacobs’ Law of Trust in Australia (7th ed) Heydon, Leeming.
For reasons which I develop below it is important to distinguish between the closure of a charitable institution, the dissolution of a legal entity and the variation or termination of a trust. Unfortunately the distinction is not always clearly made in the authorities, or at least not immediately obvious to contemporary readers.
The early approach was to find that where a nominated institution or legal entity had ceased to exist, a charitable gift to it failed unless the gift manifested a general charitable intention.[10] A particular charitable intention exists where it is an essential condition of a gift that it be applied in a particular way or through, or by, a particular institution.[11] A general charitable intention is an intention to give to a charity in preference to the residual beneficiaries of an estate such that the nominal terms on which the gift is made are no more than a directory indication of the mode in which the gift to charity should be applied.
[10] Jacobs’ Law of Trust in Australia (7th ed) Heydon, Leeming at 221.
[11] Clark v Taylor [1853] 1 Drewry 642 at 644 per Sir Richard T Kindersley VC.
The authors of Jacobs’ Law of Trust in Australia draw the distinction in this way:
A merely particular charitable intention exists when the creator of a charitable trust displays an intention to benefit the particular charitable purpose designated in the trust instrument and none other; where, in other words, if it were not possible to apply the trust property to the designated purpose, the creator of the trust would prefer the trust to fail, so that the property would be held either on a resulting trust for the settler, where the trust was created by deed, or on trust for the residuary beneficiaries (or the next-of-kin, as the case may be), where the trust was created by will.[12]
[12] Jacobs’ Law of Trust in Australia (7th ed) Heydon, Leeming at 204.
In Attorney-General (NSW) v Perpetual Trustee Co (Ltd)[13] Dixon and Evatt JJ explained that it is sufficient to save a gift which is coupled with an impracticable direction that the charitable intention is not limited to, and “more general”, than a bare intention that the impracticable direction be executed as an essential element of the gift:
If there are insuperable objections, either of fact or of law, to a literal execution of a charitable trust it at once becomes a question whether the desires or directions of the author of the trust, with which it is found impracticable to comply, are essential to his purpose. If a wider purpose forms his substantial object and the directions or desires which cannot be fulfilled are but a means chosen by him for the attainment of that object, the court will execute the trust by decreeing some other application of the trust property to the furtherance of the substantial purpose, some application which departs from the original plan in particulars held not essential and, otherwise, keeps as near thereto as may be. The question is often stated to be whether the trust instrument discloses a general intention of charity or a particular intention only. But, in its application to cases where some particular direction or directions have proved impracticable, the doctrine requires no more than a purpose wider than the execution of a specific plan involving the particular direction that has failed. In other words ‘general intention of charity’ means only an intention which, while not going beyond the bounds of the legal conception of charity, is more general than a bare intention that the impracticable direction be carried into execution as an indispensable part of the trust declared.[14]
[13] (1940) 63 CLR 209.
[14] (1940) 63 CLR 209 at 225.
It might be said of the gift in question in these proceedings that, on its face, it is a gift to CYPH, or that it establishes a trust for the purpose of maintaining and advancing the services provided through or by the CYPH. An application of the principle stated by Dixon and Evatt JJ would raise, as the relevant factual issue in this case, whether there was a charitable intention which went beyond the bare, and now impracticable, direction that the gift be made to, or the trust be executed by, the non existent CYPH. The answer to that question, given the circumstances in which Mr Flinn came to make his Will, is plainly yes. It follows therefore on the approach articulated in the cited passage that the gift has not lapsed.
That approach is, with respect, appropriate and helpful where effectuating the charitable purpose has become impractical. However where the only difficulty is the non existence of the trustee selected by the donor to administer a charitable trust which can, otherwise, be administered according to its terms a simpler and more direct solution may be adopted. In such cases the court may simply exercise its inherent and statutory powers to appoint an appropriate trustee.
In my respectful opinion the discussion of the approach to the construction of charitable gifts in Australia in the judgment of Kearney J in Sir Moses Montefiore Home v Howell & Co (No 7)[15] is consistent with the passage just cited from the judgment of Dixon and Evatt JJ and correctly states the law in Australia:
[15] [1984] 2 NSWLR 406.
As to the first submission it is trite that the law of charity is concerned with trusts for charitable purposes. It has been pointed out by Windeyer J in Stratton v Simpson (1970) 125 CLR 138 at 144 that:
‘...every charitable trust is a trust for a purpose or purposes that are charitable, not a trust for a person or persons, although persons benefit from the fulfilment of the purpose. A body or organization which holds property upon a charitable trust and carries out the trust purposes is commonly called a charitable institution or a charity. It is really but the instrument for carrying a purpose into effect. Confusion can occur from want of remembering this....’
To the same effect is the statement by counsel in argument cited by Walsh J in Joyce v Ashfield Municipal Council (1959) 4 LGRA 195 at 196 as follows:
‘To speak of institutions or entities as public charities is to introduce a concept which is not only confusing, but inaccurate. Unless an institution or entity, which is loosely called a charity, is bound as trustee to carry out a public charitable purpose, there is no public charity. If it is so bound the public charity is not the institution itself, but the institution as an organization subject to an established trust for charitable purposes.’
I consider that it is in accordance with authority, particularly more recent authority, to regard the deeds as evincing as the dominant intent of the settlors the intention to benefit the purposes and not merely the particular institution which happens to be carrying out those purposes. It is to be borne in mind that in relation to this submission we are concerned with an expression of a particular charitable intention, and the plaintiff calls in aid recent authority to support the proposition that even in the case of particular charitable intention where the gift might be thought to fail or lapse, for example through the non-existence of the charitable body, the charitable trust for such particular purpose nevertheless survives and is to be effectuated. The plaintiff relies strongly in this regard upon the decisions in Re Vernon's Will Trusts (which is reported as a note in [1972] Ch at 300), and the decision in Re Finger's Will Trusts [1972] Ch 286. These cases were illustrations of a particular charitable intention which was effectuated notwithstanding the non-existence or disappearance of the nominated charitable institution, such charitable intention being effectuated by means of a scheme — which, of course would not be a cy-pres scheme (see Jacobs at 196) — through the medium of some substitute institution: ie in effect a new trustee for the particular purpose.[16]
[16] Sir MosesMontefiore Home v Howell & Co (No 7) [1984] 2 NSWLR 406 at 413-4.
The reference in the above passage to Jacobs is a reference to the fourth edition of the text Jacobs’ Law of Trust.[17] In that edition of the work a distinction is drawn between the classes of schemes which the Court may order. The Court may order a scheme where the testator has not given sufficient directions, or where nominated persons have not taken the contemplated steps, to effectuate his or her charitable purpose; schemes may also be ordered where the directions, even though perfecting the testator’s purpose, are not capable of performance. Only the latter is a cy-preś scheme.
[17] Jacobs’ Law of Trusts in Australia (4th ed) 1977 Meagher and Gummow.
Kearney J went on to consider English authority which distinguished between gifts to an unincorporated charity and bequests to an incorporated charitable entity; a bequest to the former was generally treated as a gift for a charitable purpose and a bequest of the latter kind simply as a gift to the body beneficially. Kearney J contrasted those authorities with Australian authorities which treated gifts to all charitable institutions as prima facie gifts for charitable purposes.[18]
[18] Kearney J referred to Smith v West Australian Trustee Executor and Agency Co Limited (1950) 81 CLR 320 per Latham CJ; Re Godfree (deceased) [1952] VLR 353 at 356 per Herring CJ.
Kearney J then continued:
In my view a disposition to a charitable corporation is to be treated as having presumptively the necessary elements creating a trust, so that the disposition to such a charitable corporation takes effect as a trust for the purposes of the corporation rather than as a gift to it to be applied as it sees fit: see also Bradshaw The Law of Charitable Trusts in Australia (1983) at 81.
The effect of such decisions as Re Vernon and Re Finger is that while the purpose can be found to exist, the failure of the institution which is the vehicle through which such purpose is intended to be implemented, does not prevent the trust for such purposes being carried into effect. … Provided the purpose still remains unfulfilled, it is proper in my view for the charitable trust for such purpose to be carried into effect notwithstanding that it is only a particular purpose.
A parallel approach arises from construing a disposition for charitable purposes through the medium of a particular charitable body as being one for augmentation of such body's funds. It is established since the decision of the Court of Appeal in Re Faraker [1912] 2 Ch 488 followed by the Court of Appeal decision in Re Lucas [1948] Ch 424 that continued existence of the funds in some transposed form, for example, through another institution altogether or through one into which the original body has been amalgamated enables a general charitable intention for the application of such funds to be fulfilled. The rationale is expressed in the judgment in Re Lucas (at 426, 427) thus:
‘It is settled by authority binding upon this court that so long as there are funds held in trust for the purposes of a charity the charity continues in existence and is not destroyed by any alteration in its constitution or objects made in accordance with law, as for example by a scheme under the Charitable Trusts Acts. ...’[19]
[19] Sir MosesMontefiore Home v Howell & Co (No 7) [1984] 2 NSWLR 406 at 416-7.
In Re Tyrie[20] Newton J distilled from many authorities, which he found were “not easy to reconcile”, the following broad principles governing the construction of testamentary dispositions, and the way in which the disposition, once properly construed, was affected by the non existence of the nominated charitable institution or entity:
(1)A gift by will to a particular charitable institution simpliciter must be treated as a gift for the advancement of the charitable work or purposes of that institution: …
(2)Nevertheless, a gift by will to a particular charitable institution (which I shall call ‘the named institution’), which at some time existed, but had ceased to do so in the testator’s lifetime, whether before or after the date of his will, ordinarily lapses: … The reason for this general rule appears to be that by designating the named institution as the donee the testator has prima facie at least demonstrated an intention that the charitable work or purposes which he wishes to benefit are to be benefited through the instrumentality of the named institution and in no other manner: see for example Sobels v Attorney-General [1942] SASR 251 at p 255; and Re Ogilvy [1953] 1 DLR 44 at p 45. For convenience I shall hereafter refer to this general rule as ‘the lapse rule’.
(3)To the lapse rule there are the following three exceptions, so far as material for present purposes:-
(A)If at the testator’s death there is in existence another institution which has taken over the work previously carried on by the named institution and which can properly be regarded as the successor of the named institution, and if the dominant charitable intention of the testator was wide enough to allow the gift to take effect in favour of that successor institution, then the gift will take effect in favour of the successor institution: see, for example, Re Watt [1932] 2 Ch 243; Sobels v Attorney-General [1942] SASR 251; Tudor, op cit pp 261, 262 and 266, 267, and Halsbury, 3rd ed, vol 4, p 280 where it is stated that ‘there is no lapse where an institution which has ceased to exist was named merely as the channel for carrying out a charitable intention, or for carrying on a particular charitable work which is still being carried on although by different persons or a different institution’.
For convenience I shall hereafter refer to this exception as exception (A).
(B)If upon the true interpretation of the will the testator intended that the gift should operate simply as an accretion to the assets of the named institution so as to become subject to whatever charitable trusts were from time to time applicable to those assets, and if after the named institution itself ceased to exist its assets remained subject to charitable trusts which were still on foot at the testator’s death, then the gift will be treated as taking effect as an accretion to any property which was at his death subject to those trusts: see, for example, Re Withall [1932] 2 Ch 236; Re Lucas [1948] Ch 424; [1948] 2 All ER 22; Re Hutchinson’s Will Trusts [1953] Ch 387; [1953] 1 All ER 996; Re Roberts [1963] 1 WLR 406; [1963] 1 All ER 674, and Halsbury, 3rd ed vol 4, p 280; cf Re Slatter’s Will Trusts [1964] Ch 512; [1964] 2 All ER 469, and Re Ogilvy [1953] 1 DLR 44. For convenience I shall hereafter refer to this exception as exception (B).
(C)If in cases not falling within exceptions (A) or (B), the testator is nevertheless found upon the proper interpretation of the will to have had a dominant intention to benefit work or purposes of the kind which the named institution carried out, notwithstanding that the named institution itself might no longer exist at his death, and if it is practicable as at the death of the testator to apply the gift for the benefit of work or purposes of that kind, and in a way which is in all respects consistent with any other elements of the dominant intention of the testator (or to put it in another way, consistent with any indispensable or essential elements of his charitable intention), then the gift will be so applied by means of a cy-preś scheme. This is simply one aspect of the cy-preś principle.[21]
[20] [1972] VR 168.
[21] Re Tyrie, deceased (No 1) [1972] VR 168 at 177-8.
Re Tyrie has been applied often in South Australia.[22]
[22] In Re Rowell (1982) 31 SASR 361; In the Estate of Liebelt (1983) 32 SASR 138 and; Re Estate of Pitt (2002) 84 SASR 109.
In applying these principles it is, with respect, important to remember that ultimately a construction of the particular testamentary disposition is necessary. It is no doubt for that reason that the cases are not always able to be readily reconciled.
It should also be noticed that the “exceptions” identified by Newton J are not, with respect, true exceptions to the general rule that a gift simpliciter to a non existent named “institution” fails. They are, instead, examples of the discernment of a wider charitable intention than that nominally expressed by the testator, which displaces the prima facie intention, referred to in paragraph (2) of the cited passage. Moreover, each of the paragraphs should not be considered in isolation, and they should not be treated as comprehensively defining the universe of possible characterisations of a testamentary bequest. It is I think helpful to reconsider the taxonomy adopted by Newton J in light of the judgment of Kearney J in Sir Moses.
For example, where a bequest is properly construed in accordance with the approach articulated by Kearney J in Sir Moses a successor institution, for the purposes of paragraph (A), might be no more than an appropriate alternative trustee which can take the place of the trustee, nominated by the testator, but who has ceased to exist.
If the testator has nominated a legal entity “merely as the channel for carrying out a charitable intention” the gift will not fail if the alternative trustee is capable of executing the trust, notwithstanding any differences, in their nature and functions, between the nominated, and the proposed alternative, trustees.
Lord Herschell LC explained the applicable principle and its origins as follows in In re Rymer:[23]
The nature of those[24] cases, and the effect of the decision, I think, is very well emphasised in a short passage in Lord Eldon’s judgment in the latter case.[25] He points out that giving property ‘to such person as I shall name to be my executor,’ and appointing no executor, leaves that in the case of an individual a void gift. And then he says:
‘But, to give effect to a bequest in favour of charity, the Court will … supply the place of an executor and carry in to effect that which, in the case of individuals, must have failed altogether. This distinction has proceeded partly, perhaps, on principles in the Roman law which we do not at this time perfectly comprehend; and partly, no doubt, on the religious notions which formerly obtained in this country, according to which it fell to the Ordinarys province to distribute, in case of intestacy. …’[26]
[23] [1895] 1 Ch 19.
[24] Moggridge v Thackwell 7 (1803) Ves.36; 30 ER 440; Mills v Farmer 1 (1815) Mer.55.
[25] Mills v Farmer 1 (1815) Mer.55; (1875) Mer.55 at 95; 35 ER 597.
[26] Inre Rymer [1895] 1 Ch 19 at 29.
In my respectful opinion, the decision in Marsh v Attorney-General,[27] which appeared to Newton J to be the only reported decision of the operation of the rule in paragraph (C), is also more conveniently treated as a case where the only difficulty in the creation of a charitable trust was the want of a suitable trustee. In Marsh the bequest was of a sum of money “to the Trustees and President of the Deal Nautical School in trust, to be invested in public funds and the yearly interest to be applied for the instruction of youth in the practical part of navigation and nautical astronomy”.[28] Sir W Page-Wood VC upheld the legacy saying:
Upon the question as to the legacy to the Deal Nautical School, I think that this was simply a gift to the treasurer and president of the school, to be applied for the instruction of youth, and not necessarily to be applied in the school. If the school were subsisting it would be competent to the treasurer and president to send a pupil to Cambridge, if they thought he would obtain better teaching there than at Deal. This, therefore, is the case of a failure of the trustee, but the trust remains. There must be a scheme for the application of this legacy.[29]
[27] [1860] 2 J. and H. 61; 70 ER 971.
[28] In re Rymer [1895] 1 Ch 19 at 25, per Chitty J.
[29] Marsh v Attorney-General [1860] 2J. and H. 61 at 66.
A stricter approach to the identification of a “successor institution” is necessary where, on a proper construction, the charitable gift is to the nominated charitable institution itself.
In In re Rymer a bequest was made to a particular seminary which was closed before the testator’s death with the result that priests, for the dioceses in which the named seminary was located, were educated in a neighbouring seminary. No wider charitable intention was found. Chitty J held that the neighbouring seminary was not the successor of the seminary to which the bequest had been made because it was not a case in which the seminary had simply “migrated” to another location or had merely changed its name. The neighbouring seminary was neither the same charitable (teaching) institution nor the same legal entity, it was, in the words of Chitty J, a “different institution”. The bequest therefore lapsed.
However, the rule saving a gift to a charitable institution simpliciter extends beyond mere changes in name and geographical location. In Sobels v The Attorney-General[30] a gift to an unincorporated fund was held to be a valid gift to the association which had been incorporated, by the time of death, to administer the same fund on the same basis. On one view Sobels can be treated as a case where the incorporation of the previously unincorporated trustee of a charitable trust did not change its essential characteristics so that it was a “successor institution”. Similarly, where the appointed corporate trustee has, by the time of death been replaced by another, there may be a sufficient identity between the organisational structures, and other characteristics, of the two, for the latter to be regarded as the successor of the former.
[30] [1942] SASR 251.
Alternatively, Sobels may be treated as a case where the gift was an accretion to the assets of a charitable trust in the way alluded to by Kearney J in the passage cited in [49] and in paragraph (B) of the judgment of Newton J in Re Tyrie.[31] Such a gift is valid notwithstanding changes in the trust structure.[32] I will discuss this “exception” further in [66] – [67].
[31] Re Tyrie, deceased (No 1) [1972] VR 168 at 177-8.
[32] See In re Lucas [1948] 1 Ch 424.
In Public Trustee v Cerebral Palsy Association of Western Australia Limited[33] Barker J considered a testamentary disposition where the named beneficiary was the Spastic Welfare Association of Western Australia. That Association had been dissolved and its assets transferred to the Cerebral Palsy Association of Western Australia. Barker J appears to have proceeded on the first of the two bases on which the decision in Sobels can be explained. Barker J held that “in practical and charitable purpose terms” the nominated charitable institution had not ceased to exist; he drew an analogy between the indefinite continuation of charitable trusts which cannot be terminated and charitable associations incorporated under the Associations Incorporation Act 1987 (WA). However, Barker J would also have held that the Cerebral Palsy Association was the successor of the Spastic Welfare Association of Western Australia because of the virtual identity of the objects, operations and assets of the two Associations. In that respect Barker J appears to have treated the case as one where there had been an augmentation of the funds of a charitable trust.
[33] (2004) 28 WAR 496.
This Court more recently considered the “successor institution” exception in circumstances similar to the case at bar, in Australian Executor Trustees Limited v Ceduna District Health Services Inc.[34] In that case, a resident of a retirement complex in Ceduna made a testamentary bequest to the “Far West Senior Citizens Village Incorporated” (the Village), which was the operator of the complex. Before the testator’s death the Village was dissolved and a new entity, the Ceduna and District Health and Aged Services Incorporated (CDHAS), was formed to operate the retirement complex. CDHAS performed a greater variety of functions over a different geographical area than had been undertaken by the Village.[35]
[34] [2006] SASC 286.
[35] Australian Executor Trustees Limited v Ceduna District Health Services Inc [2006] SASC 286 at [20].
Vanstone J found that the CDHAS was not a “successor institution”. Vanstone J emphasised the difference between the objects of the two institutions and the priorities according to which they delivered their services. Vanstone J also found that the testator was not motivated by a general charitable intention because the gift was made to the Village simpliciter and the charitable work of the Village was relatively narrow.[36]
[36] Australian Executor Trustees Limited v Ceduna District Health Services Inc [2006] SASC 286 at [31], [33].
The parties in Ceduna District Health Services do not appear to have raised as an issue that, even though the bequest in that case was, on its face, to the Village itself, it was in substance a gift for a charitable purpose, namely the provision of aged care services at the Ceduna retirement village which was still operating. The failure to frame the case in that way is perhaps attributable to the continuing attraction of the taxonomy adopted by Newton J in Re Tyrie[37] which does not clearly advert to such a construction of charitable bequests. In my respectful opinion although that taxonomy is useful, it should not be allowed to distract attention from the fundamental issue identified in the judgment of Dixon and Evatt JJ in Attorney-General (NSW) v Perpetual Trustee Co (Ltd)[38] and to the analysis made by Kearney J appearing in the above cited passages from his judgment in Sir Moses.
[37] [1972] VR 168.
[38] (1940) 63 CLR 209 at 225.
Paragraph (B) of the judgment of Newton J[39] deals with gifts which “operate simply as an accretion to the assets of the named institution”. In my view the word “institution” as used here means a continuing charitable trust. If the charitable trust referred to in the bequest continues in existence at the time of death, but is administered by a different trustee the nomination of the former trustee is treated as directory only.
[39] Re Tyrie, deceased (No 1) [1972] VR 168 at 178.
The operation of this principle is well illustrated by the decision in In re Lucas.[40] In In re Lucas a testatrix bequeathed, by her Will made in October 1942, a legacy to “The Crippled Childrens Home, Lindley Moor, Huddersfield” (the Home). The testatrix died in December 1943. The Home had been opened in 1916 but was closed in 1941. The Home had been financed by the proceeds of a charitable trust established in 1915 (the 1915 trust). After the closure of the Home the 1915 trust was reconstituted as the Huddersfield Charity for Crippled Children by a scheme constituted under the then applicable English statutory regime for the regulation of charitable trusts. The object of the 1915 trust was the maintenance and operation of the Home for the benefit of poor crippled children within the Huddersfield district. The object of the charitable trust as it was constituted under the statutory scheme was the sending of poor crippled children to holiday or convalescent homes provided by other organisations. The scheme also broadened the class of eligible crippled children. However, the essential primary purpose of the 1915 trust, the provision of holidays under suitable care to crippled children, was preserved. The Court of Appeal accepted as a matter of settled principle that for so long as there are funds held in trust for the purposes of a charity, the charity continues in existence and is not destroyed by any alteration to its constitution or objects made in accordance with law.[41] A gift intended as an accretion to the assets of a charitable trust is therefore treated as an accretion to those assets notwithstanding any lawful amendments of the trust scheme. On the facts just described the Huddersfield Charity for Crippled Children had a continuous existence from 1915 to the date of death of the testatrix.
[40] [1948] 1 Ch 424.
[41] In re Lucas [1948] 1 Ch 424 at 426-7.
The Court of Appeal accepted therefore that:
[I]f the gifts made by the testatrix were upon their true construction gifts to the charity, that is to say gifts simply in augmentation of the funds held by the trustees of the trust deed of 1915 … they took effect as gifts to that same charity in the reconstituted form in which it was continued … as gifts in augmentation of the funds held by the trustees.[42]
[42] In re Lucas [1948] 1 Ch 424 at 427.
The Court of Appeal found that the dispositions were of that nature and overturned the finding of the Judge that the gifts were intended for the more limited purpose of the maintenance of the Home at Lindley Moor. The Court of Appeal accepted that if that more limited characterisation of the gift was found, there being no more general charitable intention which could be discerned, the ordinary doctrine of lapse would have applied.[43] That result would follow because, on a proper construction, the bequest was subject to an essential condition that it be applied for purposes which could no longer be effectuated, namely the maintenance of the Home. On either view, however, the decision in In re Lucas does not speak to the question of successor institutions in the sense dealt with in paragraph (A) of the judgment in Re Tyrie. Instead, the decision of the Court of Appeal in In re Lucas is an illustration of the principle stated in paragraph (B) of the passage from Re Tyrie and authority for the proposition that a gift is not invalidated by lawful changes to the trust, the assets of which the testator intended to augment.
[43] In re Lucas [1948] 1 Ch 424 at 427.
Paragraph (C) of the passage from Re Tyrie deals with the circumstances in which a court will order a cy-preś scheme notwithstanding the impossibility of effectuating the charitable scheme in the terms directed by the testator by reason of events occurring before his or her death.
Where a bequest is made to advance charitable purposes which can no longer be effectuated at the time of death, the funds may be applied cy-preś if there was a charitable intention which extended beyond the particular purposes specified by the testator.
The decision of the High Court in Royal North Shore Hospital of Sydney v Attorney-General (NSW) and Ors[44] provides a useful illustration. In that case the High Court considered the effectiveness of a testamentary bequest which directed that the income derived from the capital of the gift be applied for the perpetuation of an award to be competed in the form of an essay competition. The testator stated that the object of the bequest and the purpose of the essay competition were to promote principles advocated in his published works namely the prevention of infant mortality, the improvement of Australian dietary habits and the teaching of technical education in State schools. The society which was asked to administer the fund for that purpose declined to do so. The High Court found that the charitable intention of the testator extended beyond the particular mode he had chosen for the promotion of the charitable objects of his bequest and that notwithstanding the refusal of the society selected by him the bequest should be applied cy-preś.
[44] (1938) 60 CLR 396.
Latham CJ expressed his finding in the following terms:
Therefore it appears to me that the testator has expressly stated that he has a general intention of establishing a fund for the purpose of promoting certain principles, and has then gone on to provide a particular means of achieving this object. The means is not of the essence of the trust. If the particular means is impracticable, it is open to the court to frame a scheme cy-preś for the attainment of the general objects mentioned in the will, namely, the promotion of the three principles mentioned. I am, therefore, of opinion that upon this part of the case the judgment of the learned judge was right, though the order should be varied to make it clear that the cy-preś scheme to be settled should be directed towards the attainment of the objects mentioned and not necessarily to the attainment of those objects through a scheme of prizes for essays.[45]
[45] (1938) 60 CLR 396 at 415.
Dixon J explained:
If the particular manner of advancing the three purposes or principles which the testator propounds is limited to an essay competition, the disposition does so fail. But, if a wider intention exists and that intention does not exceed the limits of legal charity, the gift may be administered cy-preś by a court of equity as a good charitable disposition. The question whether the substantial intention of such provisions as those now in question is to advance the ultimate charitable purposes but by the particular means directed or, on the other hand, the intention is confined to giving effect to the particular plan as the main or essential object in view is commonly said to be one of construction. No doubt it involves an ascertainment of the intention implicit in the testamentary dispositions. But it depends less on the construction of language than upon an estimate of the relative importance attached to the particular and to the general by the author of the scheme. In most cases in which an elaborate scheme is directed of a charitable nature the testator has been animated by a desire to achieve some object which may be stated in wider terms than his detailed plan. But it is not legitimate to infer from the fact that his plan is a means to an end that the accomplishment of the end is his substantial purpose. The question is whether, independently of the means he has chosen, he had any charitable intention. Sometimes the question is stated as a decision between regarding a particular plan as subordinate to the end and regarding it as the end in itself. Sometimes it is stated as an inquiry whether the particular means are essential or a necessary condition. Again, the question has been described as amounting to an inquiry whether the particular means prescribed should be considered as a direction engrafted upon a gift to a main purpose. But, however, it is stated, the matter to be considered is whether the will should be understood as meaning that the fund should be devoted to the attainment of the end, although the precise method directed should prove impracticable.[46]
[46] Royal North Shore Hospital of Sydney v Attorney-General (NSW) and Ors (1938) 60 CLR 396 at 428-9.
Plainly enough in Royal North Shore Hospital there was a failure of the charitable purpose and not merely the absence of a trustee, or an insufficiency in the directions given, to administer the trust. In this case, by contrast, it is still possible to execute the trust for its stated purposes.
In my view, the following passage from Jacobs’ Law of Trust in Australia is a useful summary of the principles established by the authorities to which I have referred. In particular, in my view, it is consistent with the approach described by Kearney J in Sir Moses:
The following principles seem to be those applicable when no general charitable intention is disclosed in testamentary trusts for specified institutions where there is difficulty in effectuating the dispositions according to their tenor:
(1)If the gift be construed as a gift to the named institution for its purposes, the gift lapses if the institution has ceased to exist in the testator’s lifetime. This is so even if the institution’s funds are, on its closure, devoted to charitable purposes similar to those of the named institution. However, modern authority is reluctant to construe a disposition as a gift to a particular charitable institution.
(2)If the bequest be construed not as a gift to the named institution for its purposes but as a gift for the purposes themselves gift lapses if at the testator’s death the purposes of the institution cannot be carried out. This is so even if the named institution has devoted its funds to another institution with similar but different purposes which can be carried out.
(3)If the bequest be construed as a gift for the purposes of the named institution, there will be no lapse simply because between the date of the will and the date of death, the institution has lawfully amended its constitution or carries on different work or changes its place of operation, provided always that at the testator’s death the particular purposes contemplated by the testator are, or can be, still carried on by it.
(4)If the bequest be construed neither as a gift to the named institution for its purposes, nor as a gift for the purposes themselves, but as a gift to augment the funds of the named institution, likewise there is no lapse simply because, between the date of the will and the date of death, the institution has lawfully amended its constitution (whether including its objects or not) or carries on different work or changes its place of operation.
(5)If the bequest be construed as a gift to augment the funds of a named institution, the principle set out immediately above still applies, even if the institution lawfully changes its objects so radically that it applies its funds to purposes which the testator could never have contemplated.[47]
[47] Jacobs’ Law of Trusts in Australia (7th ed) Heydon, Leeming at 222-3. Citations omitted.
Conclusion
Applying the principles discussed by Kearney J in Sir Moses, I have concluded that a charitable trust was validly created by Mr Flinn’s testamentary disposition even though the nominated trustee, CYPH, no longer exists. The object of that trust is the provision of services at the Hospital which are in addition to, or supplement, or improve, the health and aged care services which are provided at the Hospital by State agencies and instrumentalities. Accordingly, it falls to this Court in the exercise of its jurisdiction in equity and the powers conferred by s 36 of the Trustee Act 1936, to appoint a trustee. In my view the appropriate trustee is YPHAC which has been established by the HCA to, amongst other things, administer trusts of property which may be used in connection with the provision of health services at the Hospital.
I will hear the parties as to the precise orders which should be made.
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