Australian Executor Trustees Ltd v Ceduna District Health Services Inc - [2006] SASC 286

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
AUSTRALIAN EXECUTOR TRUSTEES LTD v CEDUNA DISTRICT HEALTH SERVICES INC & ORS
[2006] SASC 286
Judgment of The Honourable Justice Vanstone
18 September 2006
CHARITIES - CHARITABLE GIFTS AND TRUSTS - VALIDITY AND PRACTICABILITY
Testator made gift of residuary estate to charitable Village providing care for elderly, indigent persons - Village dissolved by proclamation prior to testator's death - new incorporated hospital created by proclamation to take over functions of Village and other bodies - whether gift of residuary estate took effect in favour of the hospital - whether gift lapsed due to dissolution of beneficiary Village - whether Village had relevantly ceased to exist - whether incorporated hospital was a successor institution of Village - whether general charitable intention disclosed by testator's will - gift found to have lapsed - residuary estate to be divided according to principles of intestacy.
Associations Incorporation Act 1985 (SA); Associations Incorporation Act 1987 (WA); South Australian Health Commission Act 1976 (SA), referred to.
Re Tyrie, deceased (No 1) [1972] VR 168, applied.
In re Servers of the Blind League [1960] 1 WLR 564; In re Rowell, deceased (1982) 31 SASR 361; In the Estate of Liebelt, deceased (1983) 32 SASR 138; Re Estate of Pitt, deceased (2002) 84 SASR 109; Public Trustee v Cerebral Palsy Association of Western Australia Ltd (2004) 28 WAR 496; In re Faraker [1912] 2 Ch 488; In re Stemson's Will Trusts [1970] 1 Ch 16; In re Vernon's Will Trusts [1972] Ch 300; Sir Moses Montefiore Jewish Home v Howell & Co (No 7) Pty Ltd [1984] 2 NSWLR 406; In re Lucas [1948] Ch 424; Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209; Sydney Homeopathic Hospital v Turner (1959) 102 CLR 188, considered.

AUSTRALIAN EXECUTOR TRUSTEES LTD v CEDUNA DISTRICT HEALTH SERVICES INC & ORS
[2006] SASC 286
Civil
VANSTONE J:
Introduction

In October 1998 the testator executed a will leaving his residuary estate to Far West Senior Citizens Village Incorporated (“the Village”) at Ceduna. In 2000 the Village was dissolved by proclamation, along with the Ceduna Hospital Inc and the Ceduna & District Health & Aged Service Inc. By the same proclamation a new incorporated hospital was established, taking over the functions of all three dissolved bodies. This new incorporated body was named Ceduna District Health Services Incorporated (“Health Services”).
The testator died in 2005, leaving an estate of some $273,000. The Village was named as the sole beneficiary.
The question for decision is who takes the testator’s residuary estate.
Background
Clause 4 of the testator’s will provides:
I GIVE my estate to my Trustee UPON TRUST TO PAY my debts funeral and testamentary expenses and any duties payable in respect of my estate without any adjustment or apportionment of such duties AND TO HOLD the balance then remaining (“my residuary estate”) for FAR WEST SENIOR CITIZENS VILLAGE INCORPORATED.
The plaintiff is the executor of the will. It seeks a declaration as to whether the residuary estate is to be paid to Health Services in place of the Village (and if so upon what terms and conditions), or whether the will creates a valid and effective charitable trust, or whether the gift has failed. Whilst making submissions as to the relevant principles, the plaintiff has taken a neutral stance on the issues.
The first defendant, Health Services, and the fifth defendant, the Attorney-General for South Australia, contend that upon proper construction the gift takes effect in favour of Health Services.
The second, third and fourth defendants are the next of kin of the deceased. Only the fourth defendant has participated in these proceedings. It is her contention that the gift fails, and that the estate is to be divided according to the principles of intestacy.
Analysis
Where a gift by will is made to an institution which ceases to exist prior to the testator’s death, the general rule is that the gift lapses: In re Servers of the Blind League [1960] 1 WLR 564. This is referred to as the “lapse rule”. The principle extends to gifts to charitable institutions: Re Tyrie, deceased (No 1) [1972] VR 168, 177; In re Rowell, deceased (1982) 31 SASR 361, 371.
It was accepted by all parties that the Village was a charitable institution.
In Re Tyrie, at 177, Newton J set out the lapse rule as it applies to charitable institutions, along with three exceptions to it which he labelled A, B and C. The circumstances in which the exceptions were said to apply may be summarised as follows:
AWhere, at the testator’s death, there is another institution which has taken over the work previously carried on by the named institution and which can properly be regarded as its successor, and where the dominant charitable intention of the testator was wide enough to allow the gift to take effect in favour of that successor;
Bwhere the testator intended that the gift should operate as an accretion to the assets of the named institution and thereby became subject to other charitable trusts;
Cwhere, in cases outside A and B, the testator is found to have had a dominant intention to benefit work or purposes of the kind which the named institution carried out, and it is practicable to apply the gift to work or purposes of that kind, in which case the gift will be applied by means of a cy-près scheme.
There seems to be general acceptance in this jurisdiction of such a classification: see, for example, In Re Rowell (1982) 31 SASR 361 per Wells J, In the Estate of Liebelt (1983) 32 SASR 138 per Sangster J and Re Estate of Pitt (2002) 84 SASR 109 per Duggan J.
It was not contended by any party that exception B as identified in Tyrie was relevant in the present proceedings. However, it was submitted on behalf of Health Services that exceptions A and C were applicable and rescued the bequest from lapse.
Had the beneficiary ceased to exist?
The threshold question for application of the lapse rule is whether the named beneficiary institution had ceased to exist at the time of the testator’s death.
In answering that question it is relevant to examine the objects of the two organisations. The Village was an association incorporated under the Associations Incorporations Act 1985 (SA). Its objects were set out in clause 2 of its Constitution:
2.The objects of the Society shall be to provide and conduct a home for the aged irrespective of creed or denomination with preference to be given to those residing in the Upper Eyre Peninsula and Far Western Areas of South Australia. An Aged Person shall be considered to be an Aged Person as defined in the “Aged and Disabled Persons’ Homes Act”. The benefits of the institution are primarily available to Aged Persons in indigent circumstances or to Aged Pensioners.
The Village maintained a home for aged persons, at which the testator resided from September 1997 to August 1999. Upon its dissolution in 2000, the newly formed Health Services took over the running of that home. There is some indication that the operations of the home remain the same as they were in 1998 when the will was made. Health Services also took over the operations and assets of the other two bodies dissolved in the proclamation of 2000.
Health Services was established pursuant to s 27 of the South Australian Health Commission Act 1976, and is incorporated under that Act. Its objects can be found in clause 4.1 of its Constitution:
4.1 The objects of the Service shall be:
4.1.1to establish and maintain health service facilities for the care and treatment of members of the community;
4.1.2to provide instruction and practical training for nurses and persons providing services to enhance the health of members of the community; and
4.1.3to provide or promote such other health services and aged care facilities as may seem necessary or desirable from time to time.
Clauses 5 and 6 of Health Services’ Constitution indicate that the geographical area it services consists of “the Local Government areas comprising the District Council of Ceduna and the unincorporated lands west of Ceduna”.
Clearly the Village has been dissolved. However, there is some authority to the effect that a charitable institution might continue to exist in the relevant sense under another name, despite its formal dissolution.
The case law on this point was recently considered in Public Trustee v Cerebral Palsy Association of Western Australia Ltd (2004) 28 WAR 496. That case involved facts in some respects similar to those presently under consideration. The named beneficiary was the Spastic Welfare Association of Western Australia, a charitable association incorporated under the Associations Incorporation Act1987 (WA). As such it had no power to wind itself up by its own resolution. It was dissolved by order of the Acting Commissioner of Corporate Affairs and its assets were transferred to the Cerebral Palsy Association of Western Australia, an incorporated company.
After considering the competing lines of English authority stemming from In re Faraker [1912] 2 Ch 288 and Re Stemson’s Will Trusts [1970] 1 Ch 16, Barker J determined that “in practical and charitable purpose terms”, the charitable association had not ceased to exist. However, it appears that this finding was substantially based on the virtual identity of objects, operations and assets as between the Spastic Welfare Association and the Cerebral Palsy Association.
There are some similarities between the facts of Cerebral Palsy Association and those of the present case. The dissolved charitable bodies in each case were incorporated associations, and the statutory schemes controlling their dissolution were comparable. However, the objectives of the newly formed Health Services are significantly different from those of the Village. For one thing, they extend beyond the conduct of a home for aged persons, to include such matters as the establishment of other health services and the instruction of health workers. For another, they relate to a different geographical area than did those of the Village. In addition, they are not directed to benefit primarily aged persons who are indigent, or who are pensioners. The operations of Health Services are likewise considerably broader than those of the Village.
For these reasons, it cannot be said that the Village continues to exist in the form of Health Services. It has ceased to exist, and accordingly the lapse rule will apply unless an exception is made out.
Exception A - Successor institution
As seen, exception A requires a dominant charitable intention coupled with a successor institution.
As a starting point, it should be noted that a gift by will to a particular charitable institution is generally construed as being a gift on trust for the charitable purposes of that institution: Tyrie at 177. Although some English authorities appear to limit this principle to unincorporated charities (for example, Re Vernon’s Will Trusts [1972] Ch 300), no such distinction applies in Australia. In Sir Moses Montefiore Jewish Home v Howell & Co (No 7) Pty Ltd [1984] 2 NSWLR 406, Kearney J said at 416:
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.
Counsel for the fourth defendant properly conceded in argument that the gift to the Village was a gift for the purposes of the Village. Arguably the charitable intention of the testator could be seen as wide enough to allow the gift to take effect in favour of a successor institution pursuing the same particular charitable objectives.
However, the question arises as to whether Health Services can properly be regarded as such a successor. The differences between the objects of the Village and Health Services are again relevant. Health Services’ objects are substantially broader, and importantly do not indicate any priority being given for aged persons, indigent persons, or pensioners. It is by no means certain that Health Services will continue to pursue the same particular charitable objectives as did the Village.
Counsel for the first and fifth respondents sought to rely on a letter written by the chief executive officer of Health Services, which stated that the overall operations of the home were the same as they were prior to the dissolution of the Village and establishment of Health Services. However, as counsel for the fourth defendant noted, this letter did not address the critical issue of which persons were being given preference by Health Services in becoming residents at the home. The difference in objects between Health Services and the Village therefore remains significant.
In Jacobs’ Law of Trusts in Australia (6^th Ed., 1997), the learned authors suggest at [1085] that the existence of an institution with similar but not identical purposes to the named institution will not defeat the lapse rule, citing Re Lucas [1948] Ch 424. In that case, a home for the benefit of poor crippled children in the Huddersfield district had been closed and a scheme created for the future administration of its assets. Under that scheme the assets were to be applied towards sending poor crippled children to holiday homes. The new charity did not place a geographical limit on its beneficiaries, although it was likely that it would tend to concentrate on the Huddersfield area. A gift to the previously existing charity was eventually sustained as being a gift in augmentation of that charity’s funds. However, the Court held that if the gift had been for the purposes of the original charity, it would have lapsed in the circumstances. Thus, the differences between the charities were sufficient to preclude one being seen as the successor of the other. Similarly, it was doubted in Rowell (at 373) that charities which simply perform “some of the charitable work” of an earlier charity, “consistent with the dominant intention” of the earlier charity, could be successors in the relevant sense.
Having regard to all the circumstances, I am not satisfied that Health Services can be seen as the successor of the Village. Although its operations coincide with those of the Village to an extent, its objects are both broader and significantly different. It serves a different geographical area (analogously to Lucas) and lacks the focus on aged and indigent persons that characterised the Village’s charitable purposes. Accordingly, exception A to the lapse rule does not apply.
Exception C - General charitable intention
Exception C applies where there is a general charitable intention on the part of the testator and a means of applying the gift to purposes of that kind in a way consistent with the testator’s intention.
In Jacobs’ Law of Trusts the requirement is described at [1070] as “either an out-and-out intention to benefit charity or a general charitable intention plus a possible mode of effectuating that intention”. General charitable intentions are said to exist where there is an intention to benefit a wider purpose than the one specified in the will. By contrast, a particular charitable intention exists where the testator’s intention is for the gift to fail if it cannot be applied to the specified purpose: Jacobs’ Law of Trusts at [1068]; Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209. The question in the present case becomes whether in circumstances where the testator’s express intention cannot be fulfilled, the gift is to be applied to the wider charitable purposes of Health Services.
The task of the court in construction of a will is to determine the intention of the testator, having regard to the words of the will. In the present instance, there is very little in the will to provide assistance in this task. The only provision of the will relating to the disposal of the estate is clause 4, set out above. It makes a gift of the residuary estate to the Village simpliciter. No other provision sheds any light upon the testator’s intention in the event that the particular charitable purpose underpinning the gift cannot be fulfilled. It is noteworthy that in Tyrie, the researches of Newton J found no cases where the gift was to a named charitable institution simpliciter and a general charitable intention had been found. Liebelt is such a case, although there the very nature of the gift (to “the Lutheran Mission, New Guinea”) tended to indicate such a general intention and it appears that Sangster J had regard to some extrinsic evidence tending to bolster that inference.
Counsel for Health Services urged that the solely altruistic purposes of the Village weighed in favour of the testator’s intention being a general charitable one. He referred to the observations of Kitto J in Sydney Homeopathic Hospital v Turner (1959) 102 CLR 188 at 221-2 in support of this submission. However, those observations went no further than indicating that a gift to a body with solely altruistic purposes will almost invariably be a gift for those purposes, creating a charitable trust. This does not resolve the question of whether the charitable intention is general or particular.
The charitable purposes of the Village were in fact quite narrow. It singled out aged persons, and indicated both a preference for those in a particular geographical region and a further preference for pensioners and the indigent. In this respect, the present case is markedly different from cases such as Rowell and Liebelt where a general charitable intention was found. In those cases, the stated objects of the named charitable institution were themselves very broad, and expressed in general terms. That supported an inference that the respective testators, in making their gifts, themselves had general charitable intentions. I do not consider that the same inference can be drawn here.
I remain unconvinced that a general charitable intention can be inferred either from the terms of the will or from an examination of the objects of the named beneficiary. Exception C to the lapse rule has not been made out.
Conclusion
The gift in the testator’s will is made to an institution which no longer exists. No exception to the lapse rule applies. Accordingly I hold and declare that the gift lapses, and the residuary estate of the testator falls to be divided under the principles of intestacy. I shall hear the parties as to the form of the declarations and as to other orders.