Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3)

[2023] NSWSC 238

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 3) [2023] NSWSC 238
Hearing dates:	21, 22, 23, 24 March 2022; further written submissions ending 21 April 2022
Date of orders:	17 March 2023
Decision date:	17 March 2023
Jurisdiction:	Equity
Before:	Parker J
Decision:	see [421]-[424]
Catchwords:	EQUITY – jurisdiction – charitable trusts – charitable corporations – company limited by guarantee – where company objects involve promotion of bread-making and allied industries – whether company’s assets held on trust for its objects – whether objects charitable
Legislation Cited:	Charitable Collections Act 1934 (NSW) Charitable Fundraising Act 1991 (NSW) Charitable Trustees Incorporation Act 1872 (UK) (35 & 36 Vict c 24) Charitable Trusts Act 1853 (UK) (16 & 17 Vict c 137), s 57 Charitable Trusts Act 1860 (UK) (23 & 24 Vict c 136) Charitable Trusts Act1993 (NSW) Charitable Trusts Amendment Act 1855 (UK) (18 & 19 Vict c 124) Charitable Uses Act 1601 (UK) (43 Eliz 1 c 4) Charities Act 1960 (UK) Charities Act 2011 (UK) Charities Procedure Act 1812 (UK) (52 Geo 3 c 101 Companies Act 1862 (UK) (25 & 26 Vict c 89), s 21 Companies Act 1867 (UK) (30 & 31 Vict c 131), s 23 Companies Act 1874 (NSW), ss 54, 55 Companies Act 1936 (NSW), s 34 Corporations Act 2001 (Cth), s 125 Duties on Income Act 1799 (UK) (39 Geo 3, c 13), s 5 Joint Stock Companies Act 1844 (UK) (7 & 8 Vict c 110) Mortmain Act 1736 (UK) (9 Geo 2 c 36) Succession Act 2006 (NSW), s 43
Cases Cited:	Aboriginal Hostels Ltd v Darwin City Council (1985) 75 FLR 197 Alice Springs Town Council v Mpweteyerre Aboriginal Corporation (1997) 139 FLR 236 Attorney-General v Governors of the Foundling Hospital (1793) 2 Ves Jun 42; 30 ER 514 Australian Executor Trustees Ltd v Attorney-General (SA) [2010] SASC 348 Bacon v Pianta (1966) 114 CLR 634 Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 Bowman v Secular Society Ltd [1917] AC 406 Byrnes v Kendle (2011) 243 CLR 253 Children’s Investment Fund Foundation (UK) v Attorney-General [2022] AC 155 Clay v Clay (2001) 202 CLR 410 College of Law (Properties) Pty Ltd v Willoughby Municipal Council (1978) 38 LGRA 81 Commissioners of Inland Revenue v Yorkshire Agricultural Society [1928] 1 KB 611 Congregational Union of New South Wales v Thistlethwayte (1952) 87 CLR 375 Construction Industry Training Board v Attorney-General [1973] Ch 173 Estate Polykarpou; Re a charity [2016] NSWSC 409 Fouche v Superannuation Fund Board (1952) 88 CLR 609 General Assembly of Free Church of Scotland v Lord Overtoun [1904] AC 515 Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 2) [2019] NSWSC 1744 Hardey v Tory (1923) 32 CLR 592 Harpur v Levy (2007) 16 VR 587 Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531 Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73 Incorporated Council of Law Reporting (Queensland) v Federal Commissioner of Taxation (1971) 125 CLR 659 Incorporated Council of Law Reporting (Queensland) v Federal Commissioner of Taxation (1924) 32 CLR 580 Incorporated Society in Dublin v Richards (1841) 4 I Eq Rep 177 Leahy v Attorney-Generalfor New South Wales [1959] AC 457 Liverpool and District Hospital for Diseases of the Heart v Attorney-General [1981] Ch 193 Maclean Shire Council v Nungera Co-Operative Society Ltd (1995) 86 LGERA 430 Metropolitan Petar v Mitreski [2012] NSWSC 16 Moggridge v Thackwell (1803) 7 Ves 36; 32 ER 15 Patel v University of Bradford Senate [1978] 1 WLR 1488 Re Bennett, Decd; Sucker v Attorney-General [1960] 1 Ch 18 Re British School of Egyptian Archaeology [1954] 1 All ER 887 Re Faraker [1912] 2 Ch 488 Re Finger’s Will Trusts [1972] Ch 286 Re Godfree [1952] VLR 353 Re Hopkins’ Will Trusts [1965] Ch 669 Re Inman [1965] VR 238 Re Lucas [1948] Ch 424 Re Merchant Navy Supply Association Ltd [1947] 1 All ER 894 Re Public Trustee and Toronto Humane Society (1987) 60 OR (2d) 236 Re Shaw [1957] 1 WLR 729 Re Shipwrecked Fishermen and Mariners’ Royal Benevolent Society [1959] Ch 220 Re The French Protestant Hospital [1951] Ch 567 Re Tyrie [1972] VR 168 Re Vernon’s Will Trusts [1972] Ch 300 Re Whitworth Art Gallery Trusts v Victoria University of Manchester [1958] 1 Ch 461 Roman Catholic Archiepiscopal Corporation of Winnipeg v Ryan (1957) 12 DLR (2d) 23 Rookwood General Cemeteries Reserve Land Manager v Attorney-General NSW [2022] NSWSC 1763 Saunders v Vautier (1841) 4 Beav 115; 41 ER 482 Scott v Frank F Scott (London) Ltd [1940] Ch 794 Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138 Secretary for Justice v Joseph Lo Kin Ching (2015) 18 HKCFAR 169 Sir Moses Montefiore Jewish Home v Howell & Co (No 7) Pty Ltd [1984] 2 NSWLR 406 Smith v The West Australian Trustee Executor and Agency Company Ltd (1950) 81 CLR 320 Sydney Homeopathic Hospital v Turner (1959) 102 CLR 188 Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 Toomelah Co-operative Ltd v Moree Plains Shire Council (1996) 90 LGERA 48 Von Ernst & Cie SA v Inland Revenue Commissioners [1980] 1 WLR 468 Walker Corporation Pty Ltd v The Owners – Strata Plan No 61618 [2022] NSWSC 1246 Whicker v Hume (1858) 7 HL Cas 124; 11 ER 50
Texts Cited:	‘Charitable corporations taking income in perpetuity’, Ford HAJ, (1953) 26 ALJ 635 ‘The Charitable Corporation: A ‘Bastard’ Legal Form Revisited’ (2006) 9(2) The Charity Law & Practice Review 19 ‘The Law of Mortmain: An Historical and Comparative Review’ (1977) 27 University of Toronto Law Journal 257 ‘Visitatorial Jurisdiction Over Corporations in Equity’ (1936) 49(3) Harvard Law Review 363 A History of English Law, Holdsworth W (1st ed, Vol 9, 1925, Sweet & Maxwell) A History of English Law, Holdsworth W (2nd ed, Vol 4, 1936, Sweet & Maxwell) Halsbury’s Laws of England, Lord Simonds (Vol 4, 1953, Butterworth & Co (Publishers) Ltd) History of the Law of Charity 1532-1827 (1969, Cambridge University Press) Palmer’s Company Law, Palmer F (9th ed, 1911, Stevens and Sons Limited) Palmer’s Company Precedents, Palmer F (3rd ed, 1884, Stevens) Scott and Ascher on Trusts, Scott A, Fratcher W, Ascher M (Vol 5, 5th ed, 2008, Aspen Publishers) Scott on Trusts, Scott A (1st ed, Vol 3, 1923, Little, Brown and Company) Tudor on Charities, Carter HG and Crawshaw FM (5th ed, 1929, Sweet & Maxwell) Tudor on Charities, Henderson W, Fowles J, Hogan G (11th ed, 2023, Thomson Reuters) Tudor on Charities, McMullenn D, Maurice S, Parker D (6th ed, 1967, Sweet & Maxwell)
Category:	Principal judgment
Parties:	Grain Technology Australia Limited (First Plaintiff) Raymond Bruce Schwartz (Second Plaintiff) Manildra Flour Mills Pty Limited (Third Plaintiff) Bakers Delight Holdings Limited (Fourth Plaintiff) Rosewood Research Pty Limited (First Defendant) Pathway Properties Pty Limited (Second Defendant) Asia Pacific Technologies Pty Limited (Third Defendant) Attorney General of NSW (Fourth Defendant) Rosewood Research Pty Limited (First Cross-claimant) Pathway Properties Pty Limited (Second Cross-claimant) Asia Pacific Technologies Pty Limited (Third Cross-claimant) Attorney General of NSW (First Cross-defendant)
Representation:	Counsel: LP Menzies/E Lambert (Plaintiffs) P Taylor SC/D Barlin (First to Third Defendants; First to Third Cross-claimants) C Mantziaris/R Reynolds (Fourth Defendant; First Cross-defendant) Solicitor: Prolegis Lawyers (Plaintiffs) Pointon Partners Sydney (First to Third Defendants; First to Third Cross-claimants) Crown Solicitor (Fourth Defendant; First Cross-defendant)
File Number(s):	2013/152562
Publication restriction:	Nil

Judgment

1. Before the Court are longstanding charitable trust proceedings. The proceedings concern the affairs of the first, second and third defendants which are proprietary companies based in Sydney. The principal asset of the companies is a property at North Ryde. The equity in the property is worth about $40 million.

2. It is claimed in the proceedings that the companies’ assets are held on trust for charitable purposes. Orders are sought to ensure that the companies’ affairs are conducted with a view to advancing those purposes in the future. The particular charitable purposes will be discussed in more detail later in the judgment, but broadly they involve research and development in aid of the manufacture of bread and related products. They include both improvements in the wheat and other grains used in such manufacture and improvements in the manufacturing processes themselves.

3. The first defendant, Rosewood Research Pty Limited, was incorporated in 1948 under the name “The Bread Research Institute of New South Wales Limited”. Later its name was changed to “The Bread Research Institute of Australia Limited”. In this judgment I will refer to it as “BRI”.

4. The corporate structure of BRI has changed over time. It was originally incorporated in 1948 under the Companies Act 1936 as a company limited by guarantee. It retained that structure until 1988, when it became an incorporated association under the Associations Incorporation Act 1984. In 1995, it was re-registered under the Corporations Law as a company limited by guarantee. In 2010, it was converted under the Corporations Act 2001 (Cth) into a proprietary company limited by shares.

5. When it was incorporated in 1948, the memorandum of association of BRI contained, as was then required for companies, a list of company objects. A fresh set of objects was adopted as part of the reconversion of the company into a company limited by guarantee in 1995. There were other changes to BRI’s memorandum and articles of association over time, which are not necessary to go into at this point.

6. The second defendant, Pathway Properties Pty Limited, is a proprietary company limited by shares. It was incorporated in 2006 as, and remains, a wholly-owned subsidiary of BRI. It is now the registered proprietor of the North Ryde property which it holds as trustee of a unit trust. All of the units in the trust are owned by BRI. I will refer to this company as the “Property Subsidiary”.

7. The third defendant, Asia Pacific Technologies Pty Limited, is another proprietary company limited by shares which is, and has always been, a wholly-owned subsidiary of BRI. It was incorporated in 1998 but appears to have remained dormant until 2004. Since then, it has functioned as the vehicle for holding the “technology assets” developed within the BRI group of companies. I will refer to it in this judgment as the “Technology Subsidiary”.

8. I will refer to BRI, the Property Subsidiary and the Technology Subsidiary collectively as the “BRI Companies”.

9. From 1951 until 1981, BRI received grant funding for research from the Commonwealth Scientific and Industrial Research Organisation (“CSIRO”) (from 1981 until 1988 the grant funding was received from Commonwealth Departments). The CSIRO also made the North Ryde property (which it then owned) available for BRI to use. It allowed BRI to build (at its own expense) buildings which it used for its headquarters and its research activities. The CSIRO later sold the property to BRI, with title passing in 2000. As I have already mentioned, the property is now held by the Property Subsidiary, having been transferred to it in 2006. The unit trust structure under which the property is held by the Property Subsidiary was also established in 2006.

10. Following its transfer to the Property Subsidiary, the property was redeveloped by the BRI Companies (in fact it appears that some redevelopments began prior to the formal transfer). The redevelopment involved the construction of an office building which is now commercially leased. It required substantial borrowing, which was undertaken on the security of the property. The venture has been very successful. Between 2014 and 2021 the value of the property increased by approximately $25 million to $67 million. The property remains encumbered, but, as I have already said, the equity in it is now worth about $40 million.

11. The conversion of BRI into a proprietary company limited by shares in 2010 left the company with three individual shareholders who were also its directors. They were Dr Graham John McMaster, BRI’s Managing Director, Mr Allan Murphy and Mr Laurence Disdale Gullick. I will refer to them as “the Directors”. The Directors were formerly the fourth, fifth and sixth defendants in the proceedings.

12. The first plaintiff, Grain Technology Australia Limited (“Grain Tech”) is a public company limited by guarantee. Its “core objects” are research, development and promotional activities relating to Australian grain foods industries. The second plaintiff, Raymond Bruce Schwartz, is an individual who is a member of a grain farming partnership. The third plaintiff, Manildra Flour Pty Limited, is a member of the Manildra corporate group whose business is in grain milling. The fourth plaintiff, Bakers Delight Holdings Limited, is a member of the Bakers Delight corporate group which operates, either in its own right or through franchising arrangements, a chain of retail bakeries.

13. The plaintiffs in the proceedings thus all represent, directly or indirectly, business interests associated with the bread manufacturing industry. They began these proceedings in 2013. Their concern was that, under the control of the Directors, the affairs of the BRI Companies were not being conducted, or conducted exclusively, for what the plaintiffs regarded as the proper objects.

14. The bringing of the proceedings was authorised by the Attorney General, in accordance with the procedure laid down by the Charitable Trusts Act1993. In due course, as sometimes happens, the Attorney General was joined as a defendant so as to be able to present submissions directly to the Court.

Claims for determination

15. Originally the plaintiffs sought three main forms of relief. First, they sought declarations that each of the BRI Companies’ assets were held on trust for charitable purposes. The purposes, as formulated by the plaintiffs, essentially involved carrying out (or financing others to carry out) research and development into bread manufacturing, its raw materials (including grain) and by-products. Second, the plaintiffs sought orders appointing Grain Tech, in place of the BRI Companies, as the trustee of those charitable trusts. Third, the plaintiffs sought orders that the Directors account to the trusts, or pay compensation, for various alleged misfeasances.

16. In September 2014, consent orders were made for the appointment of Mr Jamieson Louttit (“the Receiver”) as receiver to, and manager of, the BRI Companies. Since then, the Companies have been under his control.

17. Following the Receiver’s appointment, he caused the BRI Companies to bring their own proceedings by way of cross-claim. The BRI Companies’ statement of cross-claim named the Attorney General and the Directors as cross-defendants. The statement of cross-claim appears not to have been formally filed, but was treated by the parties as if it had been (an “amended” statement of cross-claim was formally filed in August 2021).

18. The BRI Companies’ cross-claim was broadly similar to the plaintiffs’ claim. It likewise sought declarations that the assets of the BRI Companies were held on trust for charitable purposes. The formulation of the charitable purposes was broadly similar to, but slightly more extensive than, those formulated on behalf of the plaintiffs. The cross-claim also sought orders removing the Companies as trustees of their respective trusts and appointing a new trustee or trustees. But rather than appointing Grain Tech directly, the cross-claim proposed that there should be an open selection process for the replacement trustee(s), in the first instance by advertising for suitable applicants. The BRI Companies made claims against the Directors for misfeasance along similar lines to the claims made by the plaintiffs.

19. The cross-claim raised an additional issue not raised by the plaintiffs. The BRI Companies contended that it had become impractical to carry out the purposes of the trusts in their existing form. Orders were sought that the trust property should be settled cy-près, or at least that the terms of the trust should be fixed by means of an administrative scheme. For his part, Dr McMaster filed a further cross-claim back against BRI for unpaid remuneration.

20. Following a very lengthy process of mediation, all of the parties to the proceedings executed a deed of settlement and release in August 2019. The deed provided for a partial settlement of the proceedings. All claims by and against the Directors were released. The deed was subject to approval by the Court which was given (coincidentally by me) in late 2019: Grain Technology Australia Ltd v Rosewood Research Pty Ltd (No 2) [2019] NSWSC 1744. As a result, the Directors dropped out of the proceedings.

21. The August 2019 deed obliged the BRI Companies, the Receiver and the Attorney General to proceed with the cross-claim to the extent to which it sought declaratory relief, the appointment of new trustees and the settlement of any administrative or cy-près scheme which might be required. Attached to the deed was a minute of order setting out the terms of the declarations which were to be sought, the terms of which largely reflected the orders sought in the cross-claim.

22. The plaintiffs were not parties to this particular part of the settlement. The BRI Companies, the Receiver and the Attorney General recorded in the deed that they considered the further participation in the proceedings by the plaintiffs to be unnecessary. It was noted that the plaintiffs nevertheless wished to continue to participate and that it had been agreed between the plaintiffs and the other parties that this would be at their own expense.

23. The plaintiffs did continue to participate. An amended version of their statement of claim was filed in September 2021. The plaintiffs no longer sought orders for the appointment of Grain Tech as the new trustee, or indeed the appointment of a new trustee at all. Nevertheless, they continued to seek declaratory relief.

24. The proceedings came before me for hearing as a result of consent orders agreed to by the plaintiffs, the BRI Companies and the Attorney General in August 2021. The consent orders provided for a separate hearing which would define the purposes of the trusts, but not their precise terms. The contemplation was that those terms would be settled in later proceedings.

25. Attempts were made to have the shareholders of BRI participate in the proceedings to advance any claim they might have. Mr Gullick has died. The surviving shareholders, and Mr Gullick’s legal personal representative, have declined to become involved.

26. In final submissions, no party pursued any contention that BRI’s subsidiaries are themselves trustees of the property they hold. The parties instead proceeded on the basis that the shares BRI owns in its subsidiaries (and the units it owns in the unit trust) are subject to whatever trust applies to BRI’s other assets. The BRI subsidiaries effectively dropped out of the picture. In what follows, I will for simplicity refer to the BRI Company parties collectively as BRI.

27. All the parties agree that BRI’s property is held on trust for charitable purposes. But there are some differences of detail between them.

28. All parties contend, as their main contention, that BRI’s objects are exclusively charitable. This is said to have resulted in the property of BRI being dedicated to a trust for charitable purposes, namely the charitable purposes set out in the objects. The difference between the parties is when this occurred.

29. The plaintiffs’ principal contention is that the trust came into existence when BRI was originally incorporated in 1948. Some of the objects adopted in BRI’s 1948 memorandum of association were not charitable, or at least were arguably not charitable, but that, according to the plaintiffs’ contention, did not matter. BRI’s assets were still held for the charitable objects set out in the memorandum.

15. Neither BRI nor the Attorney General went so far. Their contention was that the trust came into existence with the adoption of the objects set out in the 1995 constitution, which were (it was agreed between the parties) exclusively charitable. The plaintiffs adopted this as their secondary position.

16. Although all parties agreed that BRI’s property was held on trust for charitable purposes, they recognised that it was necessary to establish that proposition to the Court’s satisfaction. In the course of the hearing, it began to emerge that the proposition was contestable. To meet this, the parties developed an alternative basis for the Court’s intervention.

17. The contention was that the Court had jurisdiction over “charitable corporations”. It was contended that BRI was such a corporation by virtue of its charitable objects. This was said to give the Court power to enforce “trust-like” obligations over the assets of BRI (which would of course include its shares in the subsidiary companies and the units in the property trust) which were broadly equivalent to obligations which would apply to a charitable trust in the strict sense. The form of the orders which would be made in those circumstances was left somewhat unclear and will need to be addressed if the Court ultimately concludes that there is no trust in the strict sense but that “trust-like” obligations still apply.

Summary and analysis of evidence

33. For the purposes of the trial, a huge court book was produced which contained numerous affidavits and thousands of pages of documents. But there was no dispute of primary fact between the parties. The affidavits were formally read and the documents were tendered but only a handful of them were referred to in submissions; there was no evidentiary conflict which needed to be resolved.

34. Comprehensive written submissions dealing with the history of BRI, and various other specific matters, were produced on behalf of BRI. On a factual level, the case was effectively run on the basis of those submissions. No issues were raised by the other parties and BRI’s submissions were not disputed. Accordingly, I have not found it necessary to refer in any great detail to the underlying evidence.

Industrial background

35. The establishment of BRI can be traced back to a concern which had arisen by the latter part of the Second World War about the state of the bread industry in New South Wales. The industry was the subject of an inquiry held by the Industrial Commission under the Industrial Arbitration Act 1940. In September 1943, the Minister for Labour and Industry and Social Welfare referred the “system for the making, baking and delivery of bread” to the Commission for enquiry and report. The terms of reference included consideration of the welfare of employees in the industry, the quality of bread and its cost.

36. The inquiry was conducted by Mr Edward Parnell Kinsella, then a member of the Industrial Commission and later a Judge of this Court. Having conducted hearings between November 1943 and December 1944, he delivered his report in April 1945.

37. Among the active participants in the inquiry was an industrial association known as the Master Bakers Association (“MBA”). The membership of the MBA seems to have included sole-trader bakers throughout New South Wales. It was, it seems, registered as a trade union under State industrial legislation (which allowed the registration of employer as well as employee unions).

38. The MBA clearly did not represent all of the business and employee interests involved in the industry. The Baking Trades Federation and the Bread Carters’ Union of New South Wales (apparently employee unions) were also represented at the inquiry. Millers and grain growers also had their own groupings.

39. According to Commissioner Kinsella’s report, in about 1943 the MBA had established a “Nutrition Committee” to undertake work on improving the quality of bread. In August 1944, at a meeting of members of the MBA in Sydney, a resolution was passed to take this further. That resolution contemplated the establishment of a research institute to support the bread industry, to be funded by a levy on members of the MBA.

40. Although there was a clear public interest in improving the operation of the bread industry, the proposed research institute was to be established by the MBA alone. Inevitably, it would approach its task with a view to benefiting the members of the MBA directly. There was thus a degree of self-interest in the idea. Commissioner Kinsella was concerned about this. He preferred the model provided by the Wheat Research Institute in New Zealand, which had been established by statute and which was operated by representatives of all groups and institutions which had an interest in the industry.

41. In his report, Commissioner Kinsella recommended the establishment by the State Government of a Wheat and Flour Research Institute with a board consisting of representatives of the wheat growers, flour millers, bakers, the Department of Agriculture, the University of Sydney and of the Government. It would be financed by contributions levied upon wheat growers, flour millers and master bakers, and subsidised by the Government. Its functions would be the undertaking of research, and the provision of education and advice, with the object of improving wheat, flour and bread and the methods of production of each of them. The Commissioner specifically recommended that there be a “careful study” of the Wheat Research Institute of New Zealand.

42. At some point after the delivery of the report, the MBA underwent a reorganisation. Its functions were assumed by an industrial association known as the Bread Manufacturers of New South Wales, to which I will refer as the “Manufacturers’ Association”. Whether this resulted from a change of name of the former MBA or some more extensive re-organisation is not clear from the evidence. The new Association appears to have had the same membership, and the same executive, as the former MBA. By 1948, the Association had been registered as a trade union under State industrial relations legislation.

43. Despite the recommendations by Commissioner Kinsella, the Manufacturers’ Association pressed on with its plan to establish its own research institute. In 1947, Dr Kent Jones, a British cereal chemist, visited Australia at the invitation of the Association to advise on the establishment of such an institute. Dr Jones produced a report for the Association in which he recommended that a “bakery advisory and research association” be established so as to provide the bread industry with scientific advice. Dr Jones argued that such advice was sorely needed. He also suggested that establishing such a research institute would enhance the Manufacturers’ Association’s standing in the industry.

44. It seems that the research institute was initially established as a sub-organisation within the Manufacturers’ Association itself. The institute’s Director was Mr Eric Bond, an Australian cereal chemist. He was formally employed as Director of the institute in July 1947.

Incorporation

45. BRI was incorporated in May 1948. BRI’s memorandum and articles of association were based on the memorandum and articles of a similar British body called the British Baking Industries Research Association.

46. There were seven subscribers to BRI’s memorandum of association. They were all individuals who were members of the executive of the Manufacturers’ Association.

47. Clause 2 of the memorandum contained twenty-nine stated objects of the company, set out in paragraphs (a) to (cc). The initial seven objects were:

(a)   To carry out scientific research and developmental work in connection with the manufacture of bread and allied industries.

(b)   To carry out scientific research and experimental and developmental work in connection with wheat and all other cereals and the products thereof.

(c)   To promote, maintain, develop and preserve the manufacture of bread and flour industries and to treat and use residuals and by-products for all purposes connected therewith and to expend money thereon and in experimenting upon and testing the same.

(d)   To set up chemical, physical and engineering laboratories for any or all of the afore-said purposes and to carry out various tests as required by any statue for the time being in force in the State of New South Wales or elsewhere for any other purpose.

(e)   To compile, collect, circulate and diffuse statistical and other information relating to the manufacture of bread and allied industries generally.

(f)   To encourage and foster the output of bread and allied products as the Company shall deem expedient.

(g)   To print and publish or cause to be printed and published such journals, pamphlets, books or leaflets as the Company may think desirable for the promotion of the objects and to make any arrangements the Company may think proper for the printing, production, publication and distribution of any of the said journals and literature aforesaid and to arrange lectures and demonstrations for the furtherance of the objects.

48. These were followed by objects which extended more generally to promoting the interests of the membership:

(h)   To provide and conduct refreshment rooms, clubs, newspaper rooms, reading and writing rooms, libraries, dressing rooms, telephones and other conveniences, comforts or entertainment for the members and others.

…

(j)   To communicate the opinions of the Company to the Government of the Commonwealth or of any of the States thereof or to various Departments thereof by letter, memorial, deputation or otherwise in any matter affecting the interests of the members of the Company.

(k)   To originate and promote improvements in the law as affecting the interests of the Company or the members thereof and to support or oppose alternations therein and to advocate improvements in administration and for the purposes aforesaid to petition the Parliament of the Commonwealth or any State thereof and take such other steps and proceedings as may be deemed expedient.

(l)   To attain all lawful advantages by united action which the members of the Company would have difficulty in attaining in their separate capacity.

49. The remaining objects were operational in nature. They included: the acquisition and maintenance of patents and other intellectual property (object (i)); the purchase, or receipt by way of gift, or lease, of real or personal property and the investment of the company’s monies in securities (objects (p)-(w)); and the employment of staff (objects (x)-(z)). The inclusion of such operational objects was conventional in company memoranda of association of the time.

50. The operational objects appear more like powers than objects strictly so called. But the end of clause 2 provided:

… the objects specified in each paragraph of this clause except where otherwise expressed in such paragraph shall be separate and independent main objects of the Company and shall not be limited or restricted by reference to or inference from the terms of any other paragraph or the name of the Company.

51. Clause 5 of the memorandum provided:

The income of the Company whencesoever derived shall be applied solely towards the promotion of the objects of the Company as set forth in the Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise howsoever by way of profit to the persons who at any time are or have been members of the Company or to any of them or to any person claiming through any of them …

52. The articles provided for executive members of the Manufacturers’ Association to be members of BRI. Their membership would cease if they ceased to be members of that executive. The Council (see the following paragraph) also retained a discretion to admit others to membership.

53. Management of BRI was conferred on a Council consisting of Councillors. The Councillors did not have to be members of BRI. They were elected by the members in general meeting, with a system of retirement and re-election by rotation. Casual vacancies could be filled by the Council, but subject to a vote at the following annual general meeting. The maximum and minimum number of Councillors (initially three and seven) could also be increased or reduced by the members in general meeting.

54. Article 55 provided for a “Director of the Institute” whose powers and duties were to be specified in an agreement between the Council and the Director. It also provided that Mr Bond would be the first to hold the position.

55. Article 85 dealt with the surplus in the event of BRI being wound up. It provided:

If the Institute shall be wound-up and after satisfaction of the debts and liabilities of the Institute there remain surplus assets, then such surplus assets shall be given or transferred to the [Manufacturers’ Association].

56. An initial general meeting of BRI took place on 18 May 1948, six days after its incorporation. At that meeting Mr Bond’s pre-existing contract of employment was confirmed. There is no reference in the minutes to any other pre-incorporation contracts. But later reports state that on incorporation, BRI was provided with an initial capital fund of £12,000 and income of £4,500. Presumably these amounts came from the Association. BRI may have also taken over equipment and stores of the predecessor research institute belonging to the Association.

Operations 1948-1988

57. Membership, management and activities: According to BRI’s articles, its formal membership was confined to a small group of individuals who were members of the executive of the Manufacturers’ Association (subject to nomination by the Council of other persons as members). But from the outset, the ordinary members of the Association were treated for some purposes as members of BRI. They were charged a subscription fee and were entitled to receive services provided by BRI. It seems clear enough that these “baker members” (as they were described by BRI) were only members in an informal sense. There is nothing to indicate that they were registered as members by BRI (which would presumably have required them to agree to provide a guarantee of BRI’s debts, albeit limited to £1, and would have entitled them to vote at general meetings).

58. The subscription paid by baker members was based on the flour tonnage used in their businesses (initially one shilling per tonne). This apparently entitled them to receive BRI’s publications and use BRI’s library. BRI also provided such members with technical advisory services on an individual basis. Advice was provided on subjects such as: the construction of bakeries; the installation of machinery; and the ingredients for “fancy bread”. Members could also submit bakery samples for testing by BRI. These services appear to have been provided to some extent as membership benefits and to some extent on a fee-for-service basis.

59. Before long, BRI’s ambitions had expanded beyond New South Wales. In April 1950, BRI’s name was changed from “Bread Research Institute of New South Wales Limited” to “Bread Research Institute of Australia Limited”. Bread manufacturers’ associations in other States became “affiliated” with BRI. Officeholders of affiliated associations were probably nominated as members by the Council, or elected as Councillors, or both, although the representation of affiliated interstate associations was not formalised in BRI’s articles until 1960 (see below).

60. It seems that initially the interstate associations paid affiliation fees on behalf of their baker members for access to BRI’s facilities and services. By 1959, baker members of affiliated interstate associations were paying a direct subscription to BRI based on flour usage.

61. BRI also established a category of “membership” (again, informal, and not involving voting rights) for businesses in allied trades. This was known as “associate membership”. By 1952, it included various flour millers and manufacturers of allied products, and BRI was operating an advisory and technical service for millers.

62. By 1954, associate members had been split into two categories. One, described as “ordinary” associated members, paid subscriptions which entitled them to receive BRI’s publications. The other category was “service” associated members who were additionally entitled to receive advice and testing on a fee-for-service basis. They paid a subscription calculated by reference to the volume of their businesses (in the case of flour millers, per tonne of flour produced).

63. It seems to have taken a few years for BRI to organise and develop research capabilities. In 1950, BRI applied for grants to the CSIRO, which then administered a system of Commonwealth-funded grants for research and development. BRI started receiving grants from the CSIRO in 1951.

64. The beginning of BRI’s relationship with the CSIRO in 1951 was accompanied by some changes to BRI’s articles of association, which were made at an extraordinary general meeting in December of that year. The amendments gave the CSIRO certain entitlements for so long as it was providing grants to BRI.

65. First, the CSIRO was entitled to nominate two members of the Council (the size of which was increased to accommodate the two new members). The Councillors so nominated were to be exempt from the requirement to retire and face re-election by rotation. Second, BRI was prohibited from altering its memorandum or articles without the CSIRO’s consent. Third, if BRI were wound up, its surplus assets were to go to some other institution or institutions having objects “similar to” those of BRI, provided that such institution(s) were subject to restrictions on the distribution of their income and of their assets on winding up which were at least as stringent as those applying to BRI.

66. The CSIRO was not the only organisation which provided research grants to BRI. By the mid-1950s, BRI was also receiving grants from bodies called the “Wheat Industry Research Council” and the “Rural Credits Development Fund”. Over time, other bodies provided grants.

67. From 1949 or thereabouts, BRI was based at an office building in North Sydney, built on land which had been acquired in 1948. It seems that this building had no space for testing and BRI used laboratory facilities provided to it by others. Over time, BRI’s need for office space also outgrew the building.

68. To meet this challenge, BRI entered into an agreement with the CSIRO in October 1958 concerning the North Ryde land (then owned by the CSIRO, and apparently vacant). Under the agreement, BRI was to have a right of occupation of the land for ninety-nine years. It was to build a new building on the land at its own expense. BRI would own the building but was obliged to accommodate a wheat research institute to be established by the CSIRO. In late 1959, BRI sold its North Sydney premises; BRI later moved to the North Ryde property following the construction of the new building there in 1960.

69. In October 1960, a special resolution was passed by the members of BRI amending various articles. This included amendments to the membership provisions. The amendments enabled the Association and affiliated interstate organisations to nominate a specified number of persons (totalling nine) as registered members of BRI. The number of nominations for each nominator organisation varied between one and three. Appointments were to last for specified periods (although no doubt subject to re-appointment) of one, two or three years. The Council retained power to appoint additional members and could remove members so appointed.

70. The amendments also affected the Council. Members nominated by the Association and affiliated interstate organisations automatically became Councillors for the duration of their appointments. Such Councillors did not need to be elected by the members. The Council also retained its power to appoint additional Councillors. Provision was made for an Executive Committee of Councillors, which presumably oversaw BRI’s day-to-day management.

57. BRI’s activities continued to diversify after the move to North Ryde. In 1966, BRI expanded its activities establishing a new division known as the Nutrition and Consumer Services Division. The division was intended to communicate with the public about bread and other flour products (including their nutritional value) and assess consumer preferences. It was funded by grants from the Federal Council of Flour Millowners of Australia, who continued to support the Division for many years. From at least 1973, the Federal Council was referred to as the “Flour Millers Council of Australia”. In what follows, I refer to that body as the “FMC”.

58. In July 1972, BRI’s articles were further amended to increase the maximum number of Council members from fifteen to twenty. The annual report of that year suggests that this was to facilitate the appointment of a further three Councillors representing bakery and flour milling interests.

59. In May 1974, BRI adopted a new set of articles. The articles provided for the following membership categories:

(a) ordinary members, being bread manufacturers, retired bread manufacturers, executive officers of bread manufacturing companies or retired executive officers of bread manufacturing companies;

(b) affiliate members, being persons carrying on business wholly or mainly in the baking of bread, biscuits, cakes, flour confectionary or production of other farinaceous food stuffs or executive officers of such persons;

(c) associate members, being persons carrying on a business in the production of or dealing with machinery, appliances accessories or materials for use in the baking industry;

(d) honorary members, being persons elected to honorary membership by the Council for special services to the Institute.

74. Ordinary membership was the equivalent of the formal membership provided for under the 1948 articles. This presumably continued to involve registration as a member. The ordinary members were to be nominated in specified numbers by the Association, interstate bakers’ associations, and a national Bakery Group. But rather than having fixed-term appointments, ordinary members were susceptible to removal or replacement by their nominators at any time. The Council continued to have power to appoint additional ordinary members itself.

75. Baker members and associate members were now formally recognised (the former as “affiliate members”) but their memberships, and those of honorary members, still were not memberships for the purposes of the Companies Act. The articles made it clear that such memberships were granted, and could be removed, by the Council.

76. Under the new articles, the maximum number of Councillors remained at 20, subject to any variation by the members in general meeting (article 34). Ordinary members nominated by the Association and others automatically held office as Councillors. The CSIRO retained its right to nominate two Councillors if it was providing grants to BRI. The FMC was also entitled to nominate one Councillor. Additional Councillors could be appointed by the Council for a twelve-month term. The Executive Committee was no longer named in the articles, but article 49 enabled the Council to continue to delegate powers to it. Accordingly, day-to-day management continued to be in the hands of the Director (who was ex officio a Councillor) under the oversight of the Committee.

77. The new articles carried forward the prohibition on BRI changing its memorandum or articles of association without the CSIRO’s consent, during any period for which a grant had been obtained from the CSIRO or while the 1958 agreement concerning the North Ryde land was in force. The article governing the surplus on winding up was new article 68. It provided:

If upon the winding up or dissolution of the Institute there remains after the satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed among the members but shall be given or transferred to the [CSIRO] or some other institution or institutions having objects similar to the objects of the Institute and which shall prohibit the distribution of its or their income or property among its or their members to an extent at least as great as is imposed on this Institute under and by virtue of Clause 5 of its Memorandum. Such institutions or institutions shall be determined by the members and the [CSIRO] at or before this time of winding up or dissolution and in default thereof by the Chief Judge in Equity of the Supreme Court of New South Wales or any Judge of that Court as may have or acquire jurisdiction in the matter and if and so far as effect cannot be given to the aforesaid provisions then to some charitable object.

78. After the adoption of the 1974 articles, BRI’s technical and research activities expanded to encompass the grain industry more directly. From January 1975, BRI established a new facility called the Central Grain Research Laboratory. Much like the FMC funding the Nutrition and Consumer Services Division, the new laboratory was established and funded by arrangements with the Australian Wheat Board (“AWB”). The AWB continued to fund the facility for a number of years.

79. In 1983, with funding from the AWB and the FMC, BRI constructed a pilot flour mill for research purposes on the North Ryde property. This mill was the subject of a formal agreement between the AWB and BRI in October 1984.

80. Meanwhile, BRI had adopted yet another new set of articles in November 1981. The membership provisions were similar to those adopted in 1974 but only included three categories: ordinary, associate and honorary. The entitlements of external parties to nominate ordinary members were re-jigged. In particular both the AWB and the FMC were given nomination entitlements. Nominees to ordinary membership had a fixed term of two years, subject to re-nomination.

81. As to the Council, the maximum number of Councillors was increased to twenty-five. Persons nominated to ordinary membership automatically became Councillors. The Council’s ability to appoint additional Councillors or fill vacancies was retained on the same terms as in 1974. The CSIRO also retained Council representation. Provision was made for an executive committee which was to include Councillor representatives of certain specified nominating organisations (including the CSIRO).

82. A key development during the 1980s was the reduction in, and eventual withdrawal of, Commonwealth grant funding for BRI. From July 1981, grant funding was provided by the Department of Science and Technology (from 1985 it was provided by the Department of Industry, Technology and Commerce), in place of the CSIRO. In fact, according to BRI’s 1984 annual report, Commonwealth funding had been in decline over the preceding five years. By 1986, there was a recommendation before the relevant Commonwealth Minister to stop providing grant funding to BRI altogether after the 1987/1988 financial year.

83. Public description of BRI’s objects and activities: In its first annual report (1948), BRI described the task for which BRI has been established as having been “to improve the quality of bread in as short a time as possible, to maintain that improvement, and further, to ensure the development of the industry along scientific lines”. The report grouped BRI’s activities into five categories:

1. Advisory Service

2. Research

3. Travelling Baker Service

4. Industry Representation

5. Public Relations

84. The predominant activities-based section of the 1949 report concerned “scientific and advisory services”. The same heading appeared in the 1950 report. Other headings in that report included “extension services”, “research” and “revision of the pure food regulations”. Relevant headings in the 1951 report were “scientific advisory services to members”, “educational and associated activities”, “research” and “bread standards”.

85. In its 1953 annual report, BRI recorded that it had been recognised by the Federal Commissioner of Taxation as “an approved research organisation”. The report stated that this would enable all gifts and donations to BRI to be allowable deductions for income tax purposes. The Council trusted that this recognition would encourage individual members and companies allied to the baking industry to support research projects by way of grant or donation.

86. BRI’s 1954 annual report recognised that its “activities should be directed along two broad channels”. The first was the provision of “advisory services for members, including the handling of day to day problems”. The second was more general, namely “research into bread making methods and materials”. The distinction was, however, difficult to maintain because so much of BRI’s work was common to both channels.

87. Annual reports in 1954 and later years, in describing the work of BRI over the year in review, contained separate sections which reflected these two channels, being described as “technical advisory services” (which included sampling, testing, the publication of newsletters and bulletins, the provision of library services, assisting affiliated associations including by the provision of advice, training and trials, and conducting investigations) and “research activities”. Following the introduction of the Nutrition and Consumer Services Division, those services were identified as a third aspect of BRI’s activities.

88. In its 1969 annual report, BRI recorded that it had been recognised as an “approved research organisation” for the purposes of the Industrial Research and Development Grants Act 1967 (Cth). Under that Act, the Commonwealth Government was to provide financial assistance for approved research and development work undertaken by individual companies. Accordingly, work of that nature carried out by BRI in agreement with an individual company would qualify for Commonwealth support.

89. From 1976, BRI’s annual report stated its “primary aim” as being “to carry out scientific research and developmental work for the benefit of the Australian Baking Industry and to provide technical advisory services to that industry”. The 1976 report continued by noting that BRI “also undertakes research of concern to the wheat and flour milling industries and, through the Central Grain Research Laboratory, provides technical services for the Australian Wheat Board”.

90. In the 1983 annual report, BRI’s “primary aim” was described as being to “carry out scientific research and development work for the benefit of the industries it represents”. The report continued by noting that, “[t]echnical advisory services and training programs are also provided to those industries by BRI”. This language was maintained until at least 1988.

91. Income, expenditure and assets: In its first couple of years, BRI received some grants from the Manufacturers’ Association to allow it to operate. But after that, BRI was able to support itself with fee income from members and (after 1951) grant income.

92. As would be expected, the levels of BRI’s income and expenditure increased over time. In 1970, income was at $265,000. By 1980, it was at $952,000. By 1987, it was at $2.4 million. BRI recorded very few deficits during the first two decades of its operations. Thereafter, deficits were more frequent in the late 1970s and 1980s, when BRI experienced pressure on the income side of the ledger.

93. Overall, there appears to have been only a slow build-up (after taking into account the effects of inflation) in BRI’s assets over the period from 1948 to 1988. As at the end of 1967, BRI had $317,000 in fixed assets (largely leasehold land and buildings, as depreciated). Current assets were at $60,000 and liabilities at $40,000. By the end of 1987, BRI’s total assets were up to $4 million and its total liabilities were $1.8 million, resulting in net assets of $2.2 million.

94. For well over two decades, subscriptions and service fees paid by members were BRI’s main source of income. They accounted for 60% of BRI’s income in 1959 and reached 70% in 1964. Thereafter, they declined back towards 50% in the 1970s. By the 1980s, income from the bread and milling industries represented somewhat less than half of BRI’s income.

95. Up until the late 1970s, the Commonwealth was the main source of grant income for research purposes. It seems that for at least part of the period, these grants were linked to the income received from the baking industry. Research grants were, however, provided by the bodies noted above at [66], among others. As already mentioned, Commonwealth grant monies declined in the 1980s: BRI recorded in its 1985 annual report that it had fallen, as a percentage of BRI’s total income, from 22% to 12%.

Conversion to incorporated association

96. In November 1988, BRI applied to become an incorporated association. The question of conversion had been raised at an executive committee meeting in August of that year. The Chairman suggested that conversion “could simplify the presentation of the annual accounts”, whereas the Companies Code format had given “a misleading overview of the composition of the profit and loss account” in the previous year.

97. BRI’s application was accompanied by a copy of the “objects” and “rules” that it adopted. The new objects appear to have been identical to the objects in the 1948 memorandum of association, apart from the substitution of “association” for “company” where relevant. The rules appear to have been an amalgam of a standard set of rules for incorporated associations and some, but not all, of the provisions of BRI’s previous articles. In particular, the winding up provision from the articles does not appear to have been adopted.

98. In November 1989, these rules and objects were revised at an extraordinary general meeting. The objects as set out in BRI’s prior memorandum were adopted (although, as identified above, the objects adopted in 1988 appear to have already been materially identical). The articles as set out in BRI’s 1981 were adopted as the rules, subject to two exceptions that are not necessary to describe.

Operations 1988-1995

99. Membership, management and activities: Commonwealth grant funding ceased from 1 July 1988 as had been foreshadowed. Shortly beforehand, the Commonwealth government had introduced an additional tax concession (a 150% tax deduction) for research and development expenditure. Although project-specific grants continued to be available, BRI was faced with a loss of grant income.

100. There was a recognition that BRI needed to reconsider its activities in a substantial way. The 1990 annual report recorded that BRI had resolved to proceed on a “more commercial basis”. BRI adopted more of a “user pays” approach to its facilities and services. It also embarked on a build-up of its fee-earning services, which were expanded to include training. This culminated in contract research, contract services and fees for services becoming the predominant sources of income (see below at [109]).

101. In September 1990, BRI obtained written advice from solicitors, Mallesons Stephen Jacques (“MSJ”) on its tax status as a “scientific organisation”. MSJ’s opinion was that the provision of technical services to the industry did not fall within that description, but that the conduct of such activities would be legitimate if undertaken incidentally to BRI’s more general research activities. MSJ also drew attention to the increasing fee-for-service income from non-members and indicated that if such income reached a level of 20% or 25% of total annual fees, then BRI’s tax status might be in question.

102. Despite the adjustments which they had made, BRI’s management continued to see it as operating in a state of flux. In May 1993, Mr McCorquodale (the then chairman) and Dr McMaster presented a paper entitled “Future Directions” to the Council. The paper presented a “long-term plan” for consideration.

103. The paper began with the following description:

BRI’s Role

BRI is an independent national research, training and service organisation for the grains, milling and baking industries.

Rationale

By its expertise in all areas of the integrated industry - grains, milling, baking - the BRI is able to be of maximum service to each of these industries in its quest for technical excellence.

Mission Statement

To provide services required by industry. BRI strives to be a focus of excellence through the dedication of its staff to high quality research and competence in the delivery of services.

The BRI aims to provide services which both complement and supplement services available to all members from within their own organisations, and to provide an independent secretarial/representation function or members’ collective activities in research, training, nutritional and regulatory areas.

Operating Philosophy

While BRI is a non-profit organisation and a registered research agency, it operates as far as is reasonably practicable, in accordance with commercial principles applicable in the general marketplace.

The BRI is committed to a user pays/fee for service basis. It aims to be able to account fully to all members for the application of funds supplied.

104. The paper put forward a series of recommendations for changes to be made to BRI’s structure and administration. Most of these were accepted by the Council. The recommendations included changes to BRI’s rules. The authors noted that all ordinary members automatically become Councillors who, under the rules, were to manage the business of BRI. The report recommended that as BRI was now “a more responsive organisation” and there were “many more commercial policy decisions to be made” it was necessary to have a “more normal commercial structure”. Under this, the members (Councillors) were to appoint an executive committee which would be equivalent to a board of Directors. This recommendation was accepted by the Council.

105. In July 1994, the old flour levy was phased out and replaced with a new subscription system under which members paid a flat fee or entered into a fee-for-service contract. The new system was explained in the 1993/94 annual report as follows:

For many years, the BRI has received funding from all of industry via a levy on each tonne of flour.

From 1 July 1994, this levy has been discontinued and the BRI is now actively promoting its services to the whole industry, seeking memberships as well as investment in specific research work to make technological advances and help solve industry problems.

To make the BRI more accessible to a broader range of members and also to make BRI membership more meaningful and equitable, a new system has been adopted whereby members formally, ‘sign up’, ‘pay up’, and are officially recognised as being ‘part of the organisation’.

From now on, only signed up/paid up members will be kept informed about what the BRI is doing and, more importantly, kept up to date on what BRI can do for them as part of their membership privileges. They will also have priority access to BRI services at special rates.

106. The new system included different types of membership. These were described as:

Subscriber Members receive ‘BRIEFS’ newsletter every three months to keep them up to date with BRI initiatives and important industry developments, as well as many other issues. Subscribers may also access BRI services, at members’ rates, should these ever be needed.

Baker ‘Gold’ Members on the other hand, receive BRI publications monthly. On a quarterly rotation, these will include BRIEFS newsletter, BRI Technical Bulletins, and BRI Regulatory Alerts. Gold Members will also have the right to consult by telephone with BRI experts at no charge and to access BRI services at members’ rates.

Miller Members are the ‘gold members’ of the milling industry with benefits equivalent to those of the Baker Gold Member group.

Associate Members are those individuals or companies which are not classified as millers or bakers, but are connected with the cereals, milling, or baking industries through the provision of products or services. Associate members are also treated like ‘gold’, receiving the same benefits as Baker Gold Members.

386. Meanwhile, the charitable status of the Incorporated Council of Law Reporting for England and Wales had arisen for determination in the United Kingdom. Strictly speaking, the question was whether the Council could be registered under the Charities Act 1960, but the Inland Revenue Commissioner was joined as an interested party because of the obvious implications for taxation of any decision that the Council could be so registered.

387. At first instance, it was held that Council’s objects were charitable. The IRC’s appeal was heard before the High Court had decided the ICLR Queensland case and judgment was delivered by the Court of Appeal only a few days after delivery of the High Court’s decision (Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] Ch 73).

388. The Council was established as a company limited by guarantee with an exemption under s 23 of the 1867 Companies Act (in fact it was one of the institutions listed in Palmer’s text). Its membership was made up of professionals who were not remunerated. Under its memorandum of association, profits from its activities could not be distributed to its members, although payment of remuneration could be made to editors, reporters, and other persons for services rendered.

389. On appeal, it was argued on behalf of the IRC that the principal object of the Council was to advance the interests of the legal profession by supplying it with the tools of its trade. This was said not to be charitable. The argument was rejected. Russell LJ said (at 87):

It seems to me that if the publication of reliable reports of decisions of the courts is for the benefit of the community and of general public utility in the charitable sense, it is an inevitable and indeed necessary step in the achievement of that benefit that the members of the legal profession are supplied with the tools of their trade. I do not see how the benefit to the public, assuming it to be a charitable object, could otherwise be achieved. So it would be if there were a non-profit-making association under gratuitous professional supervision for the production at moderate expense of pure medical drugs or efficient surgical instruments. But the only main object or purpose in such case would be, it seems to me, the relief of the sick.

403. Even so, Russell LJ did not consider that the purpose of the Council was for the advancement of education as such. Nonetheless, he held the Council’s objects charitable under the fourth Pemsel category, essentially for the same reasons as had been given in the ICLR Queensland case. The other members of the Court, Sachs LJ and Buckley LJ, considered that the Council was a charitable corporation on both bases.

404. I turn now to the text of the 1995 objects. For convenience, I will set out objects (a) to (d) again (object (e) is an ancillary one which does not make any difference to the outcome of the present debate):

(a)   to carry out scientific research and developmental work in connection with the grains, milling, baking and allied industries:

(b)   to carry out scientific research and development work in connection with grains and grains products;

(c)   to promote and develop the grains, milling, baking and allied industries;

(d)   to advise, consult and provide services to the grains, milling, baking and allied industries; and

405. Counsel submitted that objects (a) and (b) are charitable because they are directed towards the improvement of scientific and technical knowledge in the bread-making industry. This makes them both educational and conducive to the public interest generally. But I think there are difficulties with this submission.

406. Objects (a) and (b) do not require the education or training of students, as in the School of Egyptian Archaeology case. Nor do they require the publication of the results of the research and development funded (or undertaken) by BRI, as in the Francis Bacon Society case. It would be possible for any scientific knowledge or technical know-how discovered or developed by BRI to be retained by it for the private benefit of members of the industries it serves. Indeed, BRI has established a subsidiary (which is an ordinary company limited by shares) which holds intellectual property rights, presumably so that the fruits of its research may be commercialised.

407. Object (c) refers to promotion of the grains, milling, baking and allied industries. Counsel submitted, by reference to the Yorkshire Agricultural Society case, that this is within the fourth Pemsel class.

408. I am not sure that the promotion of a particular industry, as such, can necessarily be seen as charitable. To my mind, a critical feature in the Yorkshire Agricultural Society case was that the agricultural shows mounted by the Society were open to the public, and thereby served to educate and inform the public generally. Clearly, that gave rise to a public benefit. Furthermore, the object of promoting agriculture, as the decision emphasised, involved the promotion of agriculture generally, and not the promotion of the business ventures of the Society’s members.

409. There is nothing in the present case which would limit the promotional activities which BRI might undertake to disseminate scientific knowledge or educate the public. Advertisements designed to increase consumption of the industry’s products would undoubtedly fall within the object as expressed of promoting the industry, but I do not think that such advertising would necessarily have the requisite element of public education or information. It might be no more than propaganda, in the sense in which that term was used in Shaw.

410. It may, in a general sense, be for the benefit of the public that the quality of bread should be improved and its price kept down. But that does not necessarily make activities directed to those objectives charitable. The example given by Russell LJ in the ICLR England and Wales case of the production of cheap medical drugs or surgical instruments underlines the problem. His Lordship considered that this would be charitable because it would be for the relief of sickness. But that is an independent category of charitable endeavour under the Pemsel classification. In the present case reducing the price of bread or improving its quality would benefit all consumers. It would not involve the relief of poverty or sickness as such.

411. It is not necessary, however, to reach any final conclusion on objects (a) to (c). That is because object (d) is, on any view, too broad to be charitable. The object authorises the provision of any advice or services whatsoever, on any terms, to participants in the industries served by BRI. While the provision of advice or services might indirectly conduce to cheaper or better bread products, in my view, that does not make it a charitable purpose. And object (d) cannot be read down as ancillary to other objects, as in the Yorkshire Agricultural Society case. In my view, the 1995 objects are not exclusively charitable

412. The 1948 memorandum contained additional provisions, not reflected in the 1995 memorandum, for BRI to act for the personal benefit of its members, including by such means as providing facilities for their use and lobbying for their benefit (see [47]-[50] above). It also provided that all of the objects were independent.

413. This led counsel for BRI and the Attorney General to eschew the submission that a charitable trust was created on the incorporation of BRI in 1948. Counsel for the plaintiffs however contended that these additional provisions were not an obstacle to the Court making such a finding, and urged me to do so. In counsel’s submission, the additional provisions were no more than powers for achieving the main, allegedly charitable, objects, or were ancillary thereto.

414. In my view, the additional provisions to which I have referred cannot be seen purely as ancillary powers. They are expressed as objects and that is what they are. They include ends which may be pursued rather than being simply means to such ends. And I think the independency clause makes it impossible to argue they are merely ancillary to other objects. In any event, the conclusions I have already reached on the 1995 version of the memorandum apply with the same force to the 1948 version.

415. For these reasons, even if I had concluded that a trust had been created in 1995 or in 1948, the trust would not have been a valid charitable trust.

416. It hardly needs to be said that BRI’s entitlement to taxation or rating exemptions is a separate matter. I have already indicated that BRI could be seen as an “institution” even though, in my view, it is not a trustee for charitable purposes. The application of taxation and rating legislation was not debated before me and will depend upon the particular terms of the relevant statutes.

Charitable corporation with quasi-trust obligations

417. Had I concluded that BRI’s objects were charitable, it would have been necessary to consider the possibility that the Court could exercise some form of quasi-trust jurisdiction over its affairs. Even in that event, I would not have been prepared to make the declaration that was sought, which was a declaration that BRI holds its assets “subject to the same obligations and entitlements that would apply to a trustee possessed of [those assets] for the charitable [objects specified]”.

418. A declaration in these terms would have been too vague to be of practical utility and would only have led to further argument. Instead, it would have been necessary for the parties to formulate relief based on a specific aspect of BRI’s quasi-trustee status and justify the grant of relief in those specific terms.

419. As it is, I have concluded that BRI’s objects are not charitable. In theory, there may be some argument that there is some power of the Court that does not depend upon possession of exclusively charitable objects. Alternatively, it might be argued that there may be a “visitatorial” jurisdiction in any event. The article by Dean Pound appears to have been directed towards establishing that proposition.

420. But to pursue any such argument would require further, much more extensive, analysis of the authorities. Alternatively, as I suggested to the parties at an earlier stage, it would appear to be open to BRI, through the Receiver, now to make a declaration of trust in favour of suitably worded charitable objects. Or the proper course might be to order that BRI be wound up on the “just and equitable” ground. In that event, the Court’s power to determine what should be done with its surplus assets under Article 83 might possibly be invoked. I will leave all of this to the parties for further consideration.

Conclusions and orders

421. I have concluded that:

1. the property of BRI is not held on the terms of a charitable trust cognisable in equity;

2. BRI’s objects are not solely charitable in the legal sense of that term, and so BRI is not amenable to such jurisdiction as the Court may have over “charitable corporations” with exclusively charitable objects;

3. whether the Court has some other basis for making orders about the administration of BRI’s affairs or the destination of its property on winding up remains to be considered by the parties.

422. It seems to me that the claims for declarations of trust will need to be dismissed. The parties will need to consider what, if any, other relief they are able to seek. As the Receiver’s appointment is interlocutory, the parties will also need to consider how much longer the receivership can, or should, be maintained.

423. I will stand the proceedings over for two weeks to allow the parties to consider these questions and to agree, if possible, orders giving effect to this judgment. If agreement cannot be reached, I will hear argument. The parties are also invited to identify any errors or omissions (including arguments which I have not dealt with) in the reasons for judgment.

424. The orders of the Court are:

1. Adjourn the proceedings to 9:30 am on 31 March 2023 or such other time as may be arranged with my Associate.

2. Direct that the parties confer on the form of orders to be made to give effect to this judgment, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.

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Amendments

29 January 2024 - [132] Deletion of incorrect word.

Decision last updated: 29 January 2024