Re the Lutheran Laypeople's League of Australia Inc

[2016] SASC 106

SUPREME COURT OF SOUTH AUSTRALIA

(Applications Under Various Acts or Rules)

In the Matter of THE LUTHERAN LAYPEOPLE'S LEAGUE OF AUSTRALIA INC

[2016] SASC 106

Judgment of The Honourable Justice Hinton

11 July 2016

CHURCHES AND RELIGIOUS ASSOCIATIONS - CHURCH PROPERTY AND TRUSTS - PROCEEDINGS IN RESPECT OF

CHARITIES - ADMINISTRATION AND CONTROL BY COURT - GENERALLY - JURISDICTION AND WHAT MAY BE SANCTIONED OR ORDERED - JURISDICTION - GENERALLY

CHARITIES - ADMINISTRATION AND CONTROL BY COURT - GENERALLY - SETTLEMENT OF SCHEMES - WHEN SCHEME APPROPRIATE

Application for implementation of an administrative scheme in respect of a charitable trust.

The applicant is trustee for the Lutheran Laypeople’s League School Building Fund. The purpose of the Building Fund is to make money available for the acquisition, construction or maintenance of school or college buildings for the Lutheran Church in Australia or New Guinea. The coming into operation of the Australian Charities and Not-for-Profits Commission Act 2012 (Cth) and associated changes to the regulatory environment relating to charities and not-for-profit organisations resulted in the Building Fund losing its deductible gift recipient status under the Income Tax Assessment Act 1997 (Cth). In order to achieve deductible gift recipient status under the Income Tax Assessment Act 1997, the Building Fund must be registered with the Australian Charities and Not-for-Profits Commission. The applicant seeks an order from this Court imposing a scheme regulating the administration of the fund to facilitate that registration with the Commission. The Attorney-General appeared on behalf of the Crown in its capacity as parens patriae and did not oppose the application.

Consideration of the Court’s power to order an administrative scheme in respect of charitable trusts for the purpose of securing benefits under tax law for donors to the trust.

Held:

1.       The Court’s inherent jurisdiction to order an administrative scheme is enlivened where circumstances give rise to a practical necessity to regulate the administration of the trust by orders which are desirable for the purpose of achieving the trust objects, suitable to doing so, and which result in advantage to those the trust benefits.

2.       The proposed scheme, assuming registration with the Commission is achieved and, subsequently, endorsement as a deductible gift recipient attained, contributes to securing the continued achievement of the trust objects where otherwise they are impeded. In this regard, the imposition of a scheme is a matter of practical necessity.

3.       Administrative scheme ordered in part.

Trustee Act 1936 (SA) s 59B; s 59C; s 60; s 67; Income Tax Assessment Act 1997 (Cth) s 30-5(4AA); s 30-15; s 30-25; s 30-115; s 30-120; s 30-125(1); s 30-125(6); s 30-125(7); s 50-5; s 50-50; s 50-52; s 960-100; s 995-1; Australian Charities and Not-for-Profits Commission Act 2012 (Cth) s 25-5(5); Taxation Administration Act 1953 (Cth) Sch 1 Div 426; Charities Act 2013 (Cth) s 5, referred to.
College of Law Pty Ltd v Attorney-General of New South Wales [2009] NSWSC 1474; In Re Jewish Orphanage Charity Endowment Trusts [1960] 1 WLR 344, not followed.
In the Matter of the Trusts of the Church of St Jude, Brighton [1956] SASR 46; In Re Downshire Settled Estates; Marquess of Downshire v Royal Bank of Scotland [1953] Ch 218; In Re Dutton [1968] SASR 295; In Re Hart, Deceased (1972) 3 SASR 147; In Re J W Laing Trust [1984] 1 Ch 143; In Re New; In Re Leavers; In Re Morley [1901] 2 Ch 534; In Re Tollemache [1903] 1 Ch 457, discussed.
Arakella Pty Ltd v Paton (2004) 60 NSWLR 334; Attorney-General v Bishop of Worcester (1851) 9 Hare 328; The Attorney-General v The Governors of the Free Grammar School of Queen Elizabeth in Dedham (1857) 23 Beav 350; Chapman v Chapman; In re Chapman’s Settlement Trusts [1954] AC 429; Corish v Attorney-General’s Department of New South Wales [2006] NSWSC 1219; In the Estate of Bower (1980) 25 SASR 16; James N Kirby Foundation v Attorney-General (NSW) (2004) 62 NSWLR 276; Kytherian Association of Queensland v Sklavos (1958) 101 CLR 56; Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; In re Mason’s Orphanage and London and North Western Railway Co [1896] 1 Ch 54; In Re Meshakov-Korjakin; State Trustees Limited v Attorney-General for the State of Victoria and Others [2011] VSC 372; In Re Queen’s School, Chester [1910] 1 Ch 796; In Re Robinson; Besant v The German Reich [1931] 2 Ch 122; In Re Royal Society’s Charitable Trusts [1956] 1 Ch 87; Re Shrewsbury Grammar School (1849) 1 Mac & G 324; Re Storey’s Almshouse  (1839) 9 LJ (WS) Ch 93; In Re Tobacco Trade Benevolent Association Charitable Trusts [1958] 1 WLR 1113; Re Trusts of Kean Memorial Trust Fund; Trustees of Kean Memorial Trust Fund v Attorney-General (SA) (2003) 86 SASR 449; In Re Weir Hospital [1910] 2 Ch 124; Riddle v Riddle (1952) 85 CLR 202; The Reverend Father Simon Ckuj as trustee of the Jaroslaw Andrew Orzskiewycz Halyckyj Permanent Charitable Fund v The Attorney General in and for the State of New South Wales [2015] NSWSC 35; Ware v Cumberlege (1855) 20 Beav 503, considered.

In the Matter of THE LUTHERAN LAYPEOPLE'S LEAGUE OF AUSTRALIA INC
[2016] SASC 106

Hinton J.

Introduction

1. The Lutheran Laypeople’s League of Australia Incorporated (the League) was founded in 1921 by the Lutheran Church of Australia. It is an association incorporated under the Associations Incorporation Act 1985 (SA) and has been so incorporated since 1928. The objects of the League as set out in its Constitution include the provision of aid in business and financial matters to the Church and bodies under the umbrella of the Church, to provide loans to the Church and such bodies, and to use its property for the benefit and advancement of the Church and such bodies. In this regard, the work of the League and contributions made to the League are intended to be taken as a special mission by members of the Church. Such mission is not intended to detract from the responsibilities that Church members otherwise owe to the Church.

2. To achieve its objects, the League, which is managed and controlled by a Board, must necessarily establish and administer a pool of money and property to be applied for the purposes of encouraging and facilitating developments and projects undertaken by the Church or bodies under the umbrella of the Church. For the purposes of doing so, the League operates a number of funds. One such fund is the Lutheran Laypeople’s League School Building Fund (the Building Fund), a trust fund of which the League is trustee, created pursuant to an indenture (the Trust Deed) made on 17 September 1964. As trustee of the Building Fund, the League makes available money for the acquisition, construction or maintenance of buildings used, or to be used, as schools or colleges in Australia and New Guinea by the Church.

3. Money and property held in the Building Fund is derived in the main from donations made by members of the Church. From 1 July 2000, the League enjoyed deductible gift recipient status under the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) in relation to its operation of the Building Fund with the consequence that taxpayers were able to make a tax deductable donation to the Building Fund. For the obvious reason, such status was and is important to attracting donations.

4. The coming into operation of the Australian Charities and Not-for-Profits Commission Act 2012 (Cth) (the ACNC Act) brought about changes in the regulatory environment relating to charities and not-for-profit organisations. Those changes came into effect on 3 December 2012. From that time onwards, generally speaking, a taxpayer could not deduct a gift of money or property from their taxable income unless the recipient of the gift was either registered with the Australian Charities and Not-for-Profits Commission (the Commission), was an Australian government agency, or was specifically listed in the ITAA 1997 or regulations made under the ITAA 1997. Neither the League nor the Building Fund is specifically listed in the ITAA 1997 or regulations made under the ITAA 1997.

5. In recent times, the League has been advised that the Trust Deed does not comply with the criteria legislatively prescribed by the ACNC Act with the consequence that the Fund cannot be registered with the Commission and, as such, does not satisfy the requirements of the ITAA 1997 necessary to it obtaining endorsement as a deductible gift recipient. To overcome this, amendments to the Trust Deed creating the Building Fund need to be made. However, the Deed itself contains no amendment power, hence the League has instituted these proceedings.[1]

   [1]    In Re Tobacco Trade Benevolent Association Charitable Trusts [1958] 1 WLR 1113 at 1115-6 (Harman J).

   The Trust Deed

6. It is convenient at this juncture to note that the Attorney-General appeared on the application in the exercise of the right contained in s 65 of the Trustee Act 1936 (SA) on the understanding that s 60 of that Act was engaged. No doubt the Attorney also had the right to be heard in the exercise of his long settled responsibility for the enforcement of charitable trusts acting on behalf of the Crown in its capacity as parens patriae.[2] That said, the existence of such common law right would depend upon the Building Fund being a charitable trust. On the hearing of the application, the Attorney-General did not take issue with the characterisation by the League of the Trust Deed creating the Building Fund as establishing a charitable trust. It would appear that the Attorney-General has formed the view that the Building Fund is a trust for the advancement of education and benefits a sufficient section or class of the community such that it may be considered a charitable trust. I proceed on this basis.

   [2]    Ware v Cumberlege (1855) 20 Beav 503 at 511-2; 52 ER 697 at 700-1 (Sir John Romilly); Attorney-General v Bishop of Worcester (1851) 9 Hare 328 at 360-1; (1851) 68 ER 530 at 546 (Turner V-C), quoted with approval in In Re Royal Society’s Charitable Trusts [1956] 1 Ch 87 at 92 (Vaisey J). See also, B M Selway, The Constitution of South Australia (Federation Press, 1997) at 6.5.6; H A J Ford and W A Lee, Thomson Reuters, Principles of the Law of Trusts, vol. 2 (at Update 102) [20.170].

7. The recitals to the Trust Deed indicate that the motivation for the creation of the Building Fund was the desire on the part of the settlor and other donors to give money to the Church for the acquisition, construction or maintenance of buildings used or to be used by the Church as schools or colleges in Australia and New Guinea. The recitals also record that, as at the time of the creation of the Trust Deed, certain committees of the Church already existed for the purposes of controlling schools and colleges and had existing projects for the construction of additional buildings to be used as part of its existing schools and colleges. The recitals further note that, from time to time, other such committees would commence projects for similar purposes and that the progress and completion of such projects would depend, in part, on donations received. Lastly, the recitals record the fact that in some situations construction has taken place and that the financial arrangements for such constructions rely upon the ongoing receipt of donations. It is in the light of the above that the settlor determined upon creating the Lutheran Laymen’s League School Building Fund.

8. Clause 1 of the Trust Deed states that all sums of money paid by a donor to the Trustee for the purposes of the Building Fund must, as soon as reasonably practicable, be paid to the credit of the Building Fund at the bankers of the Trustee. Clause 2 identifies those bankers. Clause 3 requires that the Building Fund bank account be operated by cheque to be signed for and on behalf of the Building Fund in accordance with the requirements of the Fund’s bankers. Clause 4 requires books of account to be kept properly posted and located at the office of the Trustee. Clause 5 states that the Trustee shall apply the fund only in payment of the acquisition, construction or maintenance of buildings used or to be used as schools or colleges in Australia or New Guinea by the Church. Clause 6 provides for the manner of making a donation. It prescribes a “Notice of Gift” that includes the option extended to the donor of specifying a preference as to which building, school or college their donation is to be applied. Clause 7 requires the Trustee to issue a receipt for all donations received. Clause 8 imposes on the Trustee a duty to record the building, school or college to which a donation made is to be applied where such preference has been specified by the donor upon making a gift in accordance with clause 6. Clause 9 provides for the holding of tied donations (i.e. those the subject of a preference) and their application to the building, school or college to which they relate. Clause 10 vests a discretion in the Trustee to apply, at any time, any tied donation to the construction or maintenance of a building used or to be used by another school or college with the approval of the committee, board or controlling body of the school or college for which a tied donation was made, or, in the event of such body not then existing, the Church Council.

9. Importantly, clauses 12 and 13 state:

   12.The trustee shall at no time apply any portion of the fund otherwise than in such a manner as by virtue of section 78(1)(a)(xv) of the Income Tax and Social Services Contribution Assessment Act 1936-63 would necessarily make such a gift a deduction in the income tax return of each donor to the Fund.

   13.In the event of any portion of the Fund being applied by the Trustee for any reason in such a way as to result in any donor not being granted a deduction in his income tax return the Trustee will indemnify any such donor to the extent of reimbursing the donor the additional amount thereby payable by the donor for Income Tax.

10. I return to clauses 12 and 13 below. It suffices to note here that they evidence on the part of the settlor a concern that donors be able to deduct the amount of a donation made to the Building Fund from their taxable income.

11. Lastly, clause 14 further constrains the Trustee in the administration of the Building Fund by insisting that moneys applied by the Trustee only be paid by way of cheque to the owner, builder or other contractor from whom the school or college was acquired or by whom such school or college was constructed or maintained, rather than any other body exercising any interest or control in the acquisition, construction or maintenance of a building used or to be used as a school or college. Clause 14 also permits payments of any portion of the Fund in the reduction of any loan or loans made for the acquisition or construction of a building, or additions to a building, in schools or colleges that have already taken place.  

12. Five points may be made here. First, it is plain that the trust object is the advancement of education in schools and colleges operated by the Church or a body under the umbrella of the Church in Australia or New Guinea. Thus, the beneficiaries of the Building Fund are the schools and colleges in Australia and New Guinea that are used, or are to be used, by the Church and their respective school and college communities. Second, the Building Fund is devoted exclusively to the achievement of that object. Third, the Building Fund is, in the main, an instrument for the processing and application of donations, which suggests that its capacity to achieve the trust objects is highly dependent upon its ability to attract donations. Fourth, having regard to clauses 12 and 13, it may be inferred that the settlor considered it important to the attraction of donations to the Building Fund that such donations be deductible from a donor’s taxable income. Fifth, distribution, even of tied donations, is within the discretion of the Building Fund.

    The relief sought and the power to grant it

13. By summons filed on 8 March 2016, the League, as trustee, sought an order amending the Trust Deed by the insertion of three additional clauses to follow clause 14. The new clauses proposed were as follows:

    15.The assets and income of the Trust shall be applied solely in furtherance of the objects specified in this Indenture and no portion shall be distributed directly to the Trustee of the Trust except as bona fide compensation for services rendered or expenses incurred on behalf of the Trust.

    16.Upon the earlier of the winding up of the Trust or the revocation of the Trust’s endorsement as a deductible gift recipient under item 2.1.10 of the table in subsection 30-25(1) of the Income Tax Assessment Act 1997 (Cth), the Trustee must pay or apply any assets of the Trust Fund remaining after the satisfaction of all its debts and liabilities to an entity or entities which are endorsed as deductible gift recipients under the aforementioned subsection of the Income Tax Assessment Act 1997.

    17.This Indenture may be amended from time to time by deed of amendment executed by the Trustee provided that:

    (a)     the Trustee has first taken legal advice on the form and substance of a proposed deed of amendment (including advice that it will not result in a breach of the conditions for amendment set out in subparagraphs (b) and (c) of this clause);

    (b)     no part of the Fund becomes subject to any trusts other than trusts for the provision of money for the acquisition, construction or maintenance of buildings used or to be used as schools or colleges in Australia or New Guinea by the Church; and

    (c)     the amendment does not infringe any law known as the rule against perpetuities which applies to the Trust.

14. The summons was issued by the League in the exercise of the right provided by s 60 of the Trustee Act 1936 (SA). That section provides:

    (1) In every case of a breach of any trust or supposed breach of any trust created for charitable purposes, or whenever the direction or order of the Supreme Court shall be deemed necessary for the administration or management or to the advantage or benefit of any trust created for charitable purposes, it shall be lawful for a person referred to in subsection (2) to apply to the Supreme Court, stating such breach or supposed breach, or the grounds upon which such direction or order is necessary, as the case may be, and seeking such relief as the nature of the case may require.

15. The powers exercisable upon an application made under s 60 are set out in s 67. It provides:

    The court may make such order on the application as to it seems just, or may refuse to make any order, or may direct that the right to the relief sought be determined in an action to be brought for that purpose.

16. When the matter was called on for hearing before me, neither the League nor the Attorney-General submitted that the relief sought should be granted in the exercise of the power contained in s 67. Rather, submissions focused exclusively on this Court’s inherent power to impose a scheme regulating the administration of a charitable trust.

17. Sections 60 and 67 are contained within Part IV of the Trustees Act 1936 (SA). That Part is entitled “Charitable trusts procedure”. It first appeared in the South Australian statute book in 1922 upon the enactment of the Charitable Trusts Procedure Act 1922 (SA).[3] The reason for its enactment is made plain in the Chief Secretary’s speech made in support of the motion that the related Charitable Trusts Procedure Bill be read a second time. The Chief Secretary said:[4]

    The object of this Bill is to provide a speedy and convenient method whereby the Supreme Court may exercise jurisdiction over matters connected with the administration or management of trusts created for charitable purposes. As the law stands at present, the Supreme Court can adjudicate on matters relating to these trusts, but can only do so where the matters are brought before the Supreme Court in an action, i.e., where one party issues a writ or originating summons against another party, and the trial reduces itself into a contest between these parties. Obviously, occasions arise when there is no contest. The trustees of a charitable trust may wish to sell a property, and their trust deed gives them no power to sell. This does not give rise to a contest between the trustees and some other party and so to commence an action is not the appropriate mode of coming before the Court.  

    [3]    Act No 1538 of 1922. This Act was repealed upon the coming into force of the Trustees Act 1936 (SA).

    [4]    South Australia, Parliamentary Debates, Legislative Council, 15 December 1922 at 2277 (J G Brice).

1. In fact, this was not exactly new. The Charitable Trusts Procedure Act 1922 (SA) was taken almost verbatim from 52 Geo III c. 101, known as Sir Samuel Romilly’s Act. Despite its antiquity there remains some doubt about the scope of the power contained in s 67. One leading commentator has written:[5]

   Case authority dealing with the South Australian provision in an earlier iteration suggests three forms that this jurisdiction may take. First, the court can give trustees advice for the purpose of assisting them to carry out lawfully the settlor’s intentions as expressed in the trust instrument. This is for ‘the advantage or benefit’ of the trust, in the sense that ‘the result is likely to be that the trust will be faithfully carried out and breaches of trust and consequent financial loss and waste will be avoided’. Second, where property is misapplied, the procedure can be invoked in order to put matters right. The court’s jurisdiction in this regard is not limited to giving advice and directions. Third, the jurisdiction may be used ‘to amend or vary powers of the trustees of a charitable trust’. …

   [Footnotes omitted.]

   [5]    G E Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) at [14.41].

2. This may well explain why in this case neither the League nor the Attorney-General embraced s 67. The same commentator alludes to the added complexity of the interrelationship of the powers contained in s 67 and the ‘statutory expediency jurisdiction’ about which I say something more below.[6] Although I am not called upon to exercise the powers contained in s 67, and ultimately do not do so, there arises a very real question as to the content of any inherent power bearing in mind the content of the power contained in s 67. Further, a question arises as to the content of the power contained in s 67 bearing in mind that contained in s 59B. Whilst s 59B(4) indicates that the power contained in 59B(1) does not detract from the inherent jurisdiction, does that in s 67? The Chief Secretary’s speech is of no real assistance in this regard, save that it contemplates the exercise of the power to clothe trustees with powers not given to them by a trust deed. At this juncture it is important to observe that, whilst the progenitor of Part IV is Sir Samuel Romilly’s Act, there is a significant difference between the power conferred by that Act and the power conferred on this Court by s 67 of the Trustee Act 1936 (SA). The power conferred by Sir Samuel Romilly’s Act was bounded by the nature of the petition that could be presented. That is, such petition was limited to circumstances where there was a “breach of any trust or supposed breach of any trust created for charitable purposes, or whenever the direction or order of a court of equity shall be deemed necessary for the administration of any trust for charitable purposes”. By contrast, s 60(1) permits the entities in s 60(2) to seek the direction or order of this Court in any case of a breach of trust or supposed breach of trust created for charitable purposes or “whenever the direction or order of the Supreme Court shall be deemed necessary for the administration or management or to the advantage or benefit of any trust created for charitable purposes”. The power contained in s 60 is clearly broader than that of its progenitor. The difficult question that arises is whether a direction or order made under s 67 to the advantage or benefit of a charitable trust must be to the advantage or benefit of the administration or management of the trust, or is a broader power still. Bearing in mind the law’s long zealous protection of the intentions of a settlor, I would be slow to construe s 60(1) so broadly as permitting this Court to override the settlor’s intentions on a basis that it was advantageous or beneficial and the Court thought it just to do so. If it were intended to confer such power, I would have expected the Legislature to have done so expressly.

   [6]    G E Dal Pont, Law of Charity (LexisNexis Butterworths, 2010) at [14.41]. See Trustees Act 1936 (SA) s 59B.

3. I note that in In the Matter of the Trusts of the Church of St Jude, Brighton,[7] Hannan AJ considered that the additional words of s 60 – or to the benefit or advantage of any trust created for charitable purposes – permitted this Court to advise the trustees for the purpose of assisting them to carry out the intentions of the settlor. That is, Hannan AJ considered that the broader power granted by s 60 allowed for an advisory opinion on the powers of trustees under trust deeds where some authorities on Sir Samuel Romilly’s Act suggested that the jurisdiction was limited to determining what should be done once an issue confronting the current management of the trust in question arose. It would seem that whilst Hannan AJ considered that s 60 read with s 67 provided a broader power than that provided by Sir Samuel Romilly’s Act, it remained a power confined to advice on matters of administration and management in relation to a prevailing issue or one anticipated. In In Re Hart, Deceased,[8] Mitchell J referred to in In the Matter of the Trusts of the Church of St Jude and considered that Hannan AJ did not hold that this Court was limited to orders of a declaratory nature in exercising the jurisdiction contained in s 60.[9] Whilst Hannan AJ’s judgment may be construed as not limiting the jurisdiction to declaratory orders, it is plain that His Honour did not consider that s 60 empowered the court to alter powers conferred by a trust deed on a trustee. He said:[10]

   The trustees ask in the prayer of the petition that an order of the Supreme Court be made empowering them (a) to demolish completely the existing church building; (b) to erect a new church on the said land; (c) to erect a new building in its stead for a church to be called “The Church of Saint Jude”.

   For the reasons which I have mentioned, I have no power to make such an order; the trustees’ powers are limited to those given by the instrument of settlement, and I cannot either increase or diminish them. …

   [7] [1956] SASR 46.

   [8] (1972) 3 SASR 147.

   [9]    In Re Hart, Deceased (1972) 3 SASR 147 at 150-1.

   [10]   In the Matter of the Trusts of the Church of St Jude, Brighton [1956] SASR 46 at 54. Note the limitation in some authorities upon the power contained in Sir Samuel Romilly’s Act; e.g. Re Storey’s Almshouse (1839) 9 LJ (NS) Ch 93 at 94; Re Shrewsbury Grammar School (1849) 1 Mac & G 324; 41 ER 1290.

4. By contrast, in In Re Dutton,[11] the testator left a bequest of £4,000 to be held on trust for St Matthew’s Church of England at Hamilton. The trust instrument further required that the money be invested and, from the income derived, £200 per annum was to be applied as follows; £50 as a stipend for the Rector for the time being of the Church, £35 to the cleaning of the Church and to the provision of sanctuary lights, £90 toward the maintenance of the choir, and £25 toward the expenses of conveying the choir from Kapunda to Hamilton. Fifty-four years later the petitioner approached this Court and advised that:[12]

   … (a) sanctuary lights are not provided at the church and that it is impracticable to keep sanctuary lights burning as there is no one in attendance between services; (b) it is impracticable to maintain a choir; (c) on the other hand, from time to time expenses are incurred for the repairs to the organ and organ blower’s wages; (d) the church is presently in need of repair and it is necessary from time to time to expend money in the painting, repair and maintenance of the church and its furnishings; (e) the amount provided for the stipend of the Rector is considered to be inadequate for present day conditions, and it is reasonable that an allowance should be paid to the Rector for his travelling expenses from Kapunda to Hamilton to conduct services in the church or for any other purposes connected therewith. …

   In Re Dutton was not a case where advice was sought regarding the administration and management of the trust. Rather it was a case where, due to the effluxion of time, it was no longer practical to pursue the trust purposes. Mitchell J considered the capacity of two alternate powers to support the change in trust purposes sought – s 59B and s 67. As to the former, Mitchell J held:[13]

   … In order to apply s. 59b I would have to decide that (1) some expenditure in the management or administration of the property was expedient; (2) such expenditure could not be effected by reason of the absence of or defect in any power for that purpose vested in the trustee. The scope of s. 59b is limited by the words “where in the management or administration of any property” (Municipal and General Securities Co. Ltd. v. Lloyds Bank Ltd.). It has been shown that expenditure for maintenance and repair of the church is expedient, but this is not, in my view, a matter in the management or administration of the fund vested in the trustee. Furthermore the trustee seeks the Court’s approval to his proposal that, for example, further moneys will not be expended upon the maintenance of a choir, or for the expense of conveying a choir from Kapunda to Hamilton because in fact there is no choir now attached to the church. Section 59b gives the Court no power to rewrite the trust, nor, as it seems to me, to apply the trust moneys cy-pres (cf. per Evershed M.R. in In re Downshire Settled Estates, applied in In re Forster’s Settlement). See further In re Royal Societies Charitable Trusts.

   [Footnotes omitted.]

   [11] [1968] SASR 295.

   [12]   In Re Dutton [1968] SASR 295 at 297.

   [13]   In Re Dutton [1968] SASR 295 at 296-7.

5. Turning to s 67, Mitchell J noted it gave the Court “a discretion to “make such order upon the petition as to it seems just”, or to refuse to make an order or to “direct that the right to the relief sought be determined in an action brought for that purpose”.” Such power, Her Honour considered, supported an order imposing a scheme for the administration of the trust cy-pres.

6. Clearly Mitchell J thought the power contained in s 67 one of great breadth. Further, Her Honour does not appear to consider its exercise bound by the grant of jurisdiction contained in s 60 to which the power relates. If Mitchell J is correct in this regard, there would appear little, if any, scope for the inherent jurisdiction to which reference will be made below. Further, one wonders what s 59B, about which, as indicated, more will be said below, adds. On the other hand, if ss 60 and 67 are construed more narrowly, as Hannan AJ suggests, the relationship between those sections, s 59B and the inherent power is more easily discerned.

7. In the end I am not called upon to decide the bounds of s 59B, ss 60 and 67, and the inherent power. The primary question for me is whether I have the power to grant the relief sought. I am satisfied that I do, either in the exercise of the power contained in s 67, assuming it to be a power as broad as Mitchell J suggests,[14] or, if it is not, in the exercise of the inherent power that s 67 would not then subsume. That said, whilst I am satisfied I have power to grant the relief sought, and, as seen below, exercise the inherent power possessed by this Court, I do so within the constraints upon that power identified in the authorities. I leave for another day the question as to whether s 67, if it is a broad power, is nonetheless subject to the same constraints.

   [14]   However, I note that, as a result of amendments to the Trustee Act 1936 (SA) in 1980 in the form of Trustee Act Amendment Act 1980 (SA), the appropriate power under which to order a cy-pres scheme is now to be found within s 69B.

8. Before considering the inherent power of this Court to impose a scheme regulating the administration of a trust, I say something briefly of the expediency jurisdiction. That jurisdiction is to be found in s 59B of the Trustee Act 1936 (SA).

9. In its summons, the League referred to s 59C of the Trustee Act 1936 (SA) as an alternative source of power to s 60 read with s 67. However, s 59C(5)(b) makes plain that the power contained in s 59C(1) cannot be invoked in relation to a charitable trust. It appears that it was then floated that the relevant power was to be found in s 59B. The Attorney-General disagreed. He contended, and the League did not challenge, that s 59B could not support an order amending the Trust Deed in the manner sought. In this regard the Attorney relied upon the authority of Re Dion Investments Pty Ltd.[15] In that case, the question for the New South Wales Court of Appeal was whether s 81(1) of the Trustee Act 1925 (NSW) allowed the Supreme Court to confer power on the trustee to alter the terms of a trust. Section 81(1) of the Trustee Act 1925 (NSW) provides:

   (1)Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law, the Court:

   (a)     may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Court may think fit, and

   (b)     may direct in what manner any money authorised to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

   [15] (2014) 87 NSWLR 753.

10. Section 81(1) of the Trustee Act 1925 (NSW) and s 59B(1) of the Trustee Act 1936 (SA) are almost identical in their terms. Any variation is immaterial. No doubt this similarity is because both sections are the progeny of s 123 of the Law of Property Act 1922 (UK), which became s 57(1) of the Trustee Act 1925 (UK).[16]

    [16]    South Australia, Parliamentary Debates, House of Assembly, 19 August 1941 at 382, 385 (S W Jeffries, Attorney-General); New South Wales, Parliamentary Debates, Legislative Council, 19 November 1925 at 2410 (A C Willis); Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 at [75]; Re Trusts of Kean Memorial Trust Fund; Trustees of Kean Memorial Trust Fund v Attorney-General (SA) (2003) 86 SASR 449 at [45].

11. At the risk of oversimplification, the argument in Re Dion Investments Pty Ltd was that the concept of a transaction within the meaning of s 81(1) was broad enough to include the variation of the trust instrument itself, including by way of the conferral of a new power on the trustee. Barrett JA, with whom Beazley P and Gleeson JA agreed, rejected this contention. It is not necessary for me to arrive at any concluded view as to the correctness or otherwise of the reasoning in Re Dion Investments Pty Ltd. As I have said, the League did not invoke the power contained in s 59B. Rather it was submitted that the relief sought should be granted in the exercise of the inherent power possessed by this Court to impose a scheme for the implementation of a settlor’s charitable intent where the settlor’s directions as contained in a trust instrument are inadequate or insufficient.

12. There is considerable authority supporting the existence of an inherent power of this kind. If any additional comfort is sought, it may be found in the acknowledgement of the existence of the power in s 59B(4) of the Trustee Act 1936.[17]

    [17]   Re Trusts of Kean Memorial Trust Fund; Trustees of Kean Memorial Trust Fund v Attorney-General (SA) (2003) 86 SASR 449 at [47] (Besanko J).

13. The authorities indicate that the inherent power is one to clarify, supplement or alter the machinery or means identified in a trust instrument by which the trust objects, or ends, are to be achieved.[18] The Court does no more than complete “the trusts to carry out objects which … have been indicated in sufficiently clear terms” by the settlor.[19] That is, the Court “carries into effect the wishes and intentions of the founder of the charity; and where it sees that those intentions have not been carried into effect, it rectifies the existing administration of the charity for that purpose”.[20] In In re Mason’s Orphanage and London and North Western Railway Co, Stirling J observed that historically schemes for the administration of a charitable trust –[21]

    … were made mainly in three classes of cases: (1.) Where the directions contained in the instrument of foundation were ambiguous, imperfect, or otherwise insufficient; (2.) Where the directions, though originally precise and complete, had become under altered circumstances unsuitable to carry out the general intention of the founder; and (3.) Where a scheme sanctioned by the Court itself had in like manner become unsuitable for that purpose.

    [18]   Corish v Attorney-General’s Department of New South Wales [2006] NSWSC 1219 at [9] (Campbell J).

    [19]   In Re Robinson; Besant v The German Reich [1931] 2 Ch 122 at 128-9 (Maugham J).

    [20]   The Attorney-General v The Governors of the Free Grammar School of Queen Elizabeth in Dedham (1857) 23 Beav 350 at 355; 53 ER 138 at 140 (Sir John Romilly).

    [21] [1896] 1 Ch 54 at 57-8.

14. On an application for an order imposing a scheme for the regulation of the administration of a charitable trust, the question is whether, having regard to the trust objects, it is expedient to regulate the administration of the trust in accordance with a proposed scheme.[22] In answering this question two cardinal principles are controlling. First, the function of the Court is to enforce the charitable trust and secure the intended public benefit.[23] Second, the Court has no authority to change the trust objects nor to alter by a scheme the benefit that such objects intend. Thus any scheme must operate within the ambit of the trust objects.

    [22]   In Re J W Laing Trust [1984] 1 Ch 143 at 153; In Re Meshakov-Korjakin; State Trustees Limited v Attorney-General for the State of Victoria and Others [2011] VSC 372 at [54] (Mukhtar AsJ).

    [23]   In Re Weir Hospital [1910] 2 Ch 124 at 131 the Master of the Rolls said, “The first duty of the Court is to construe the will, and give effect to the charitable directions of the founder, assuming them not be open to objection on the ground of public policy. The Court does not consider whether those directions are wise or whether a more generally beneficial application of the Testator’s property might not be found”.

15. I have stated the test to be applied in terms of what is expedient relying upon the decision of Peter Gibson J in In Re J W Laing Trust.[24] In Riddle v Riddle, Sir Owen Dixon said of the notion of expediency that it is “a criterion of the widest and most flexible kind.”[25] In that same case, Williams J considered the ordinary natural grammatical meaning of the word expedient to be that of “advantageous”, “desirable”, and “suitable to the circumstances of the case”.[26] Whilst Riddle v Riddle concerned the meaning of expedient as used in s 81(1) of the Trustee Act 1925 (NSW), no reason arises to think that in In Re J W Laing Trust Peter Gibson J used that word in any sense other than as it would be ordinarily understood.

    [24] [1984] 1 Ch 143.

    [25] (1952) 85 CLR 202 at 214.

    [26]Riddle v Riddle (1952) 85 CLR 202 at 221-2.

16. In In Re New; In Re Leavers; In Re Morley, the Court of Appeal couched the ambit of the inherent power in the following terms:[27]

    … in the management of a trust estate, and especially where that estate consists of a business or shares in a mercantile company, it not infrequently happens that some peculiar state of circumstances arises for which provision is not expressly made by the trust instrument, and which renders it most desirable, and it may be even essential, for the benefit of the estate and in the interest of all the cestuis que trust, that certain acts should be done by the trustees which in ordinary circumstances they would have no power to do. In a case of this kind, which may reasonably be supposed to be one not foreseen or anticipated by the author of the trust, where the trustees are embarrassed by the emergency that has arisen and the duty cast upon them to do what is best for the estate, and the consent of all beneficiaries cannot be obtained by reason of some of them not being sui juris or in existence, then it may be right for the Court, and the Court in a proper case would have jurisdiction, to sanction on behalf of all concerned such acts on behalf of the trustees as we have above referred to. …

    [27] [1901] 2 Ch 534 at 544-5 (The Court).

1. Here the Court of Appeal refers to the circumstances in which a scheme may be imposed as arising where it is “desirable, and it may be even essential, for the benefit of the estate and in the interest of all the cestuis que trust”. The language used – desirable and essential for the benefit of the estate that such acts should be done – is not materially different to the notions of advantage, desirability and suitability which underpin the requirement that any scheme imposed for the regulation of the administration of a charitable trust be expedient. That said, power to impose a scheme that is expedient in the sense of being advantageous, desirable and suitable, is enlivened only in cases of emergency. In this regard, in In Re Downshire Settled Estates; Marquess of Downshire v Royal Bank of Scotland, the Court of Appeal said:[28]

   In our judgment (but without departing from the principle stated in our first general observation above) the inherent jurisdiction, or the aspect of the jurisdiction invoked in In re New and sought to be invoked in these appeals, is of a more limited character. It is a power or jurisdiction to confer upon trustees, quoad items of trust property vested in them, administrative powers to be exercised by them as the persons in whom the property is vested (notwithstanding that such powers were not conferred by the trust instrument) where a situation has arisen in regard to the property (particularly a situation not originally foreseen) creating what may be fairly called an “emergency” – that is a state of affairs which has to be presently dealt with, by which we do not imply that immediate action then and there is necessarily required – and such that it is for the benefit of everyone interested under the trusts that the situation should be dealt with by the exercise of the administrative powers proposed to be conferred for the purpose. The power or jurisdiction does not, in our view, extend to changes or re-arrangements of the beneficial interests inter se under the trust, as distinct from re-arrangements or reconstructions of the trust property itself.

   [Footnote omitted.]

   [28] [1953] Ch 218 at 234-5 (Evershed MR and Romer LJ).

2. Not only did the Court in In Re Downshire Settled Estates regard In Re New as the high-water mark for the exercise of the inherent jurisdiction, but it also approved of Kekewich J’s understanding of the ambit of the jurisdiction in In Re Tollemache.[29] Having regard to the majority decision in In Re Downshire Settled Estates and to Kekewich J’s judgment in In Re Tollemache, I conclude that the inherent jurisdiction is enlivened where circumstances give rise to a “practical necessity”[30] of regulating the administration of the trust by orders which are desirable for the purpose of achieving the trust objects, suitable to doing so, and which result in advantage to those the trust benefits. Accordingly, in a given case no need may arise for the exercise of the power if “notwithstanding the advantage actual and prospective of what is proposed to be done, there is no urgency for it, and the existing state of things may without great mischief be allowed to remain, or the terms on which the advantage can be gained are such that the Court would by accepting them create a new trust in lieu of that which it is administering”.[31] In this regard it is well to repeat the note of caution sounded by the Court of Appeal in In Re New.[32]

   It is a matter of common knowledge that the jurisdiction we have been referring to, which is only part of the general administrative jurisdiction of the Court, has been constantly exercised, chiefly at chambers. Of course, the jurisdiction is one to be exercised with great caution, and the Court will take care not to strain its powers. It is impossible, and no attempt ought to be made, to state or define all the circumstances under which, or the extent to which the Court will exercise the jurisdiction; but it need scarcely be said that the Court will not be justified in sanctioning every act desired by trustees and beneficiaries merely because it may appear beneficial to the estate; and certainly the Court will not be disposed to sanction transactions of a speculative or risky character. But each case brought before the Court must be considered and dealt with according to its special circumstances. …

   [29] [1903] 1 Ch 457.

   [30]In Re Tollemache [1903] 1 Ch 457 at 462.

   [31]In Re Tollemache [1903] 1 Ch 457 at 462.

   [32][1901] 2 Ch 534 at 545 (The Court).

3. Lastly, I note that there is no obstacle to the making of a scheme by virtue of the fact that some of the objects of the Trust are outside the jurisdiction. The Court may settle a scheme provided that trustees and the Trust Fund are within the jurisdiction. Further, it is no impediment that the Trust may be carried out or performed outside the jurisdiction.[33]

   [33]   In Re Robinson; Besant v The German Reich [1931] 2 Ch 122 at 127-9 (Maugham J); Kytherian Association of Queensland v Sklavos (1958) 101 CLR 56 at 70-1 (McTiernan, Fullagar and Taylor JJ).

4. In the exercise of the inherent power the League seeks orders from this Court imposing constraints on the regulation of the administration of the Building Fund in the same terms as the orders sought in its summons.[34]

   [34] See above at [13].

   The Building Fund’s Deductible Gift Recipient Status

5. It is appropriate to say something more regarding the Building Fund and its current non-status as a deductible gift recipient for taxation purposes.

6. As indicated, the League lost the status of a deductible gift recipient in relation to donations received by the Building Fund with the coming into operation of the ACNC Act in December 2012. That is not to suggest that since December 2012 the League has been idle on this issue. The League registered with the Commission in December 2012. It did so believing that registration of the League amounted to sufficient compliance with the requirements of the ACNC Act in respect of all charitable trusts of which the League was trustee. In this regard, the League was not aware that, in order to obtain deductible gift recipient status, every entity, such as the Building Fund, must be registered with the Commission in its own right irrespective of whether the trustee was itself registered. The League was only disabused of this view when, in February 2016, as a consequence of conducting a general review of the governance and operations of the Building Fund, it was advised by its lawyers that since 3 December 2012 the Building Fund was required to be registered in its own right. The League was further advised that the Building Fund could not be registered with the Commission because the Trust Deed did not contain provisions regarding the distribution of surplus assets on the winding up of the Building Fund.

7. At a meeting on 26 February 2016, the League Board resolved that the League proceed with an application to this Court to amend the Trust Deed in accordance with the advice it had received. The League Board further resolved that the Chief Executive be authorised to take any further action to effect the amendment of the Deed.

8. As I have explained above, the League no longer pursues an amendment of the Trust Deed but, to the same ends, seeks an order imposing a scheme regulating in certain respects the administration of the Building Fund.

9. Below I set out the current regime governing the endorsement of charitable and not-for-profit entities as deductible gift recipients for the purpose of identifying the deficiencies in the Trust Deed that the League now seeks to overcome.

10. Chapter 2, Part 2-5, Division 30 of the ITAA 1997 deals with deductions that may be made from a taxpayer’s taxable income as a consequence of the taxpayer making certain gifts or contributions. Division 30 also deals with the power vested by the ITAA 1997 in the Federal Commissioner of Taxation to endorse as a deductible gift recipient an entity that is, or operates, a fund, authority or institution. More particularly, this power and the criteria to be satisfied in order that it may be exercised in favour of an entity that is, or operates, a fund, authority or institution, is the subject of Subdivision BA. In this case, the League’s aim in seeking a scheme for the regulation of the administration of the Building Fund is to bring the Fund within the requirements of Subdivision BA in order that the Fund may be endorsed as a deductible gift recipient by the Commissioner. The particular motivation for the League doing so is that generally a taxpayer may deduct from their taxable income any gift made to a deductible gift recipient.[35]

    [35]   ITAA 1997 ss 30-5(4AA) and 30-115.

11. Section 30-120 ITAA 1997 confers a right on an entity, or a fund, authority or institution operated by an entity, to be endorsed as a deductible gift recipient if the entity, fund, authority or institution applies for endorsement in accordance with Division 426 in Schedule 1 of the Taxation Administration Act 1953 (Cth) and the entity, fund, authority or institution is entitled to be endorsed. Division 426 of Schedule 1 of the Taxation Administration Act 1953 (Cth) is concerned with matters of procedure relating to applications for endorsement. No need arises to say anything more about it.

12. An entity for the purposes of s 30-120 is defined in s 960-100 ITAA 1997 and includes a body corporate, a body of persons, and a trust. No one contends that the Building Fund is not an entity.

13. Entitlement on the part of an entity to endorsement is the subject of s 30-125(1) ITAA 1997. It provides:

    Endorsement of an entity that is a fund, authority or institution

    (1)     An entity is entitled to be endorsed as a deductible gift recipient if:

    (a)     the entity has an ABN; and

    (b)     the entity is a fund, authority or institution that:

    (i)is described (but not by name) in item 1, 2 or 4 of the table in section 30-15; and

    (ii)is not described by name in Subdivision 30-B if it is described in item 1 of that table; and

    (iii)meets the relevant conditions (if any) identified in the column headed “Special conditions” of the item of that table in which it is described; and

    (c)     the entity meets the requirements of subsection (6), unless:

    (i)     the entity is established by an Act; and

    (ii)the Act (or another Act) does not provide for the winding up or termination of the entity; and

    (d)     in the case of an ancillary fund:

    (i)  the fund complies with the rules in the public ancillary fund guidelines or the private ancillary fund guidelines (whichever are applicable); and

    (ii) all of the trustees of the fund comply with those rules.

14. Section 30-125 sub-ss (6) and (7) provide:  

    Transfer of assets from fund, authority or institution

    (6)A law (outside this Subdivision), a document constituting the entity or rules governing the entity’s activities must require the entity, at the first occurrence of an event described in subsection (7), to transfer to a fund, authority or institution gifts to which can be deducted under this Division:

    (a)     any surplus assets of the gift fund (see section 30-130); or

    (b)     if the entity is not required by this section to meet the requirements of section 30-130–any surplus:

    (i) gifts of money or property for the principal purpose of the fund, authority or institution; and

    (ii)contributions described in item 7 or 8 of the table in section 30-15 in relation to a fund-raising event held for that purpose; and

    (iii)     money received by the entity because of such gifts or contributions.

    Events requiring transfer

    (7)     The events are:

    (a)     the winding up of the fund, authority or institution; and

    (b)     if the entity is endorsed because of a fund, authority or institution--the revocation of the entity’s endorsement under this Subdivision relating to the fund, authority or institution.

    Note 1: There are 2 ways an entity can be endorsed because of a fund, authority or institution. An entity can be endorsed either because it is a fund, authority or institution or because it operates a fund, authority or institution.

    Note 2:Section 426-55 in Schedule 1 to the Taxation Administration Act 1953 deals with revocation of endorsement.

    Note 3: The entity is also required to keep appropriate records: see section 382-15 of the Taxation Administration Act 1953.

15. Returning to s 30-125(1) ITAA 1997, the Building Fund is an entity described in item 1 of the table in s 30-15 ITAA 1997. That is, it is a fund, authority or institution covered by an item in one of the tables in Subdivision 30-B. It is not included as a specific named entity in Subdivision 30-B. The relevant table in Subdivision 30-B is that produced under s 30-25 and the applicable item therein is 2.1.10. The special conditions relevant to that item and, therefore, the Fund, are that it be registered under the ACNC Act, or, not be an ACNC type of entity. An ACNC type entity is defined in the ITAA 1997 dictionary contained in s 995-1 ITAA 1997 as an entity that meets the description of a type of entity in column 1 of the table in s 25-5(5) of the ACNC Act. Column 1 of the table in s 25-5(5) contains only one description - that of a charity. What constitutes a charity is not defined by the ACNC Act. However, s 5 of the Charities Act 2013 (Cth) defines the meaning of the word charity for all Commonwealth statutes absent some indication to the contrary. Having regard to that section, a charity is an entity that:

    (a)    is a not-for-profit entity; and

    (b)    all of the purposes of which are:

    (i)charitable purposes (see Part 3) that are for the public benefit (see Division 2 of this Part); or

    (ii)purposes that are incidental or ancillary to, and in furtherance or in aid of, purposes of the entity covered by subparagraph (i); and

    (c)    none of the purposes of which are disqualifying purposes; and

    (d)    that is not an individual, political party or a government entity.

16. Against this background, the League considers that in order to meet the requirements for registration pursuant to s 25-5 of the ACNC Act, it must demonstrate that it is a not-for-profit entity both during its operation and on winding up. There is no definition of not-for-profit in the ACNC Act but, as is discussed below, some assistance can be gleaned from information published by the Commission and the Australian Tax Office. The League suggests that this may be achieved by a clause in the Trust Deed requiring that the assets and income of the Building Fund be applied solely to further its objects and, further, a clause providing that, on the winding up of the Building Fund or the revocation of the Fund’s status as a deductible gift recipient, any surplus assets are to be transferred to a deductible gift recipient entity or entities with the same or similar objects.

17. I do not stay further to determine whether the Building Fund satisfies each of the remaining criteria of s 30-125(1). It is enough to observe that the scheme that the League seeks from this Court is also intended to address s 30-125 sub-ss (6) and (7) in particular. Thus, not only will the scheme assist the Building Fund in obtaining registration under the ACNC Act, but will also assist the Fund in obtaining endorsement as a deductible gift recipient.

18. I add that no doubt the League also desires exemption from any liability for income tax incurred in respect of the Building Fund. In this regard, if the Building Fund becomes a registered charity within the meaning of s 50-5 ITAA 1997, any ordinary income and any statutory income it receives will be tax exempt provided that it complies with the requirements of ss 50-50 and 50-52 ITAA 1997. Section 50-50(2)(b) demands that the exempt entity apply its income and assets solely for the purposes for which the entity is established. This too is addressed in the scheme sought by the League.

19. So far this treatment of the issue proceeds from the point of view of the Building Fund. The issue could also be approached from the point of view of the donor. In this regard, Subdivision 30-A ITAA 1997 identifies the gifts and contributions that a taxpayer may deduct from their taxable income. In particular, item 1 of the table in s 30-15 ITAA 1997 identifies particular types of gift which, if made by a taxpayer to a fund, authority or institution covered by an item in any of the tables in subdivision 30-B ITAA 1997, may be deducted from the taxpayer’s taxable income. Subdivision 30-B contains s 30-25 ITAA 1997. That section identifies education recipients to whom gifts made, if such gifts are of a type identified in s 30-15, may be deducted from the taxable income of the taxpayer making the gift. As seen above, item 2.1.10 in the table in s 30-25 identifies a public fund established and maintained solely for providing money for the acquisition, construction or maintenance of a building used, or to be used, as a school or college by, relevantly, an association which is carried on otherwise than for the purposes of profit or gain to the individual members of the association. Such fund must, however, be registered under the ACNC Act or not be an ACNC type of entity. Thus, proceeding from the view point of the donor one arrives at the same position – in order for a donor to deduct from their taxable income the amount of a gift made to the Building Fund, the Fund must be registered with the Commission and endorsed by the Federal Commissioner for Taxation.

    Consideration

20. The question is whether, having regard to the trust objects, it is expedient in the sense explained above to regulate the administration of the Building Fund in accordance with the proposed scheme. The trust objects are to establish and administer a pool of money and property the product primarily of donations received for the purposes of financing the acquisition, construction or maintenance of buildings used, or to be used, as schools or colleges in Australia and New Guinea by the Church.

21. In an affidavit sworn in support of this application, the Chief Executive Officer of the League informed the Court as follows:

    I further believe that if the Building Fund is unable to be registered with the ACNC issues may arise in respect of tax deductibility of individual donations to the Building Fund and the Building Fund may as a result be unable to attract donations sufficient to enable it to discharge its intended purpose. I believe that it is in the interests of the beneficiaries of the Building Fund that members of the Church continue donating to the Building Fund and that the Building Fund is as a result able to continue its charitable purpose.

    I am informed by Thomson Geer [the law firm that acts for the League] and believe that they have assisted a number of their clients who have also inadvertently failed to register with the ACNC during the grace period described … above and that in every case the ACNC has registered those clients with retrospective effect. If the ACNC registers the Building Fund with retrospective effect, this means that the Building Fund’s DGR [deductible gift recipient] status will have been maintained for tax purposes from the time the ACNC commenced operations in December 2012.

22. I accept that it is desirable that the Building Fund be endorsed as a deductible gift recipient under the ITAA 1997 so as to assist the Fund in attracting donations. That is, I accept that the prospect of being able to deduct the amount of a gift made to the Fund by a donor from the donor’s taxable income serves to encourage donations and is a factor relevant to a donor’s determination of how much to donate. Bearing in mind the centrality of donations to the Building Fund’s capacity to achieve its purposes, I accept that obtaining endorsement for the Building Fund as a deductible gift recipient is not just desirable but advantageous in the contribution it makes to the achievement of the trust objects. The settlor was clearly alive to this. In this regard, the League contends, and the Attorney-General accepts, that the settlor intended that the Building Fund be administered in a manner that would make donors eligible for income tax deductions under the Commonwealth taxation legislation then in force. I agree. Clauses 12 and 13 bear out the settlor’s intentions. In my view, regulation of the administration of the Building Fund by orders assisting the fund to obtain registration with the Commission and thereafter endorsement as a deductible gift recipient in no way alters or detracts from the trust objects but only furthers their achievement.

1. Consistent with the opinion I have formed, I note that in other jurisdictions the Court’s inherent jurisdiction has been held to extend to the making of schemes for the purpose of enabling charitable trusts to satisfy the requirements of taxation legislation where it is “of high importance for the practical operation of the fund”.[36] In Corish v Attorney-General’s Department of New South Wales,[37] a charitable trust with objects including the support and endowment of medical and scientific research in New South Wales sought orders for the imposition of a scheme that would assist the trust obtain tax exemption status. In that case, Campbell J commented:[38]

   In my view, achieving tax-exempt status for a fund like this is something which is of high importance for the practical operation of the fund. It is within the scope of an administrative scheme to restrict the activities of the Trustees to a manner of proceeding which would accord the Trust Fund significant benefits under the tax law. Thus, the scheme will include a provision directing the Trustees to manage the fund with the sole objective of carrying out the objects of the Trust.

   [36]   Corish v Attorney-General’s Department of New South Wales [2006] NSWSC 1219 at [18], [35]-[36] (Campbell J); The Reverend Father Simon Ckuj as trustee of the Jaroslaw Andrew Orzskiewycz Halyckyj Permanent Charitable Fund v The Attorney General in and for the State of New South Wales [2015] NSWSC 35 at [7]-[10] (Darke J); James N Kirby Foundation v Attorney-General (NSW) (2004) 62 NSWLR 276 at [2]-[5] (White J).

   [37] [2006] NSWSC 1219.

   [38] [2006] NSWSC 1219 at [18]. See also, The Reverend Father Simon Ckuj as trustee of the Jaroslaw Andrew Orzskiewycz Halyckyj Permanent Charitable Fund v The Attorney General in and for the State of New South Wales [2015] NSWSC 35 at [10] (Darke J).

2. The same may be said of the desirability of restricting the administration of the Building Fund so as to secure benefits under the tax law for donors with the consequent benefit of attracting such donors to donate to the Building Fund. Here it would carry into effect the wishes of the settlor where otherwise his directions, by virtue of legislative change, would be frustrated.

3. In making these observations, I bear in mind Lord Morton of Henryton’s comment in Chapman v Chapman; In re Chapman’s Settlement Trusts concerning a scheme intended to avoid estate duty:[39]

   I would add, in amplification of remarks by the Master of the Rolls and Romer L.J. already quoted, that if the court had power to approve, and did approve, schemes such as the present scheme, the way would be open for a most undignified game of chess between the Chancery Division and the legislature. The alteration of one settlement for the purposes of avoiding taxation already imposed might well be followed by scores of successful applications for a similar purpose by beneficiaries under other settlements. The legislature might then counter this move by imposing fresh taxation upon the settlements as thus altered. The beneficiaries would then troop back to the Chancery Division and say, “Please alter the trusts again. You have the power, the adults desire it, and it is for the benefit of the infants to avoid this fresh taxation. The legislature may not move again.” So the game might go on, if the judges of the Chancery Division had the power which the appellants claim for them, and if they thought it right to make the first move.

   [39] [1954] AC 429 at 468.

4. In this case, however, an important point of distinction is the positive encouragement that the ITAA 1997 gives to donors. That reflects an acknowledgement of the important contributions that charities and the not-for-profit sector make to the community. For this Court to accede to the application in this case would not be for the Court to initiate or participate in a “most undignified game of chess” with the Legislature.

5. The position confronting the Building Fund has some parallels with that confronting the Board of Governors in In Re Queen’s School, Chester.[40] In that case, the Court was presented with a petition for a scheme of administration and management that would alter the by-laws of a charitable trust pursuant to which the school was operated, including removing the requirement that the headmistress be a member of the Church of England, in order that the school comply with regulatory requirements of the Board of Education that had to be met before the school was eligible for government grants. At the time of application, the school was in straitened circumstances. The options open to the Governors were stark – shut the school or surrender the requirement that the headmistress be a member of the Church of England. Eve J said:[41]

   On the facts of this case, having regard to the unanimity of the governors and having further regard to this consideration, that the primary object of this charity cannot be given effect to if matters are allowed to continue as they are, I think I ought to accede to the prayer of the petition. When I say that I do so with regret. I am not meaning to say that this is not pre-eminently a case in which I think an order ought to be made, but I share with the governors the regret which I am quite sure they feel that the necessity has arisen for their introducing this change into the constitution. But this is a very modern charity established only some thirty years ago, and therefore, although I make the order, I propose to preface it by some words which will show that I make it on the ground that the main object of the charity cannot be carried out under the existing constitution – in other words, I treat the case as one where the continuance of the charity under its existing constitution is proved to be impracticable, and where, therefore, the Court has to determine by what modifications in its constitution its continuance can be secured.

   [40] [1910] 1 Ch 796.

   [41] InRe Queen’s School, Chester [1910] 1 Ch 796 at 803-4.

6. Accepting, as I do, the Chief Executive Officer’s assessment of the importance of donations being tax deductible to the ability of the Fund to fulfil its purposes, it is not stretching matters too far to conclude that it is likely Fund operations would be curtailed, and possibly significantly so, if deductible gift recipient status were not maintained. The proposed scheme, assuming registration with the Commission is achieved and subsequently endorsement as a deductible gift recipient attained, contributes to securing the continued achievement of the trust objects. In this regard, I accept that the imposition of a scheme for the purposes outlined is a matter of practical necessity.

7. So far my views have been expressed at a level of generality. I turn to consider the content of the scheme proposed. I have set out the orders sought above.[42] I record that the Attorney-General agreed with the League’s submission to the effect that the Trust Deed supporting the existence of the Building Fund needed to be amended to comply with s 30-125 sub-ss (6) and (7) ITAA 1997 if the Fund was to enjoy once more the status of a deductible gift recipient. I also record that the Attorney agreed with the League that the orders sought as set out above were appropriate for this purpose.

   [42] At [13].

8. Proposed clause 15 is intended to assist in demonstrating that the Building Fund is a not-for-profit entity for the purposes of establishing that it is a charity within the meaning of the ACNC Act and entitled to registration. It does this by preventing the application of Fund assets and income otherwise than in furtherance of the trust objects. That is, distribution to the Trustee or anyone else other than by way of reasonable remuneration is prohibited. My concern with proposed clause 15, however, is that it adds nothing to clause 5 and is unnecessary. The League advised that proposed clause 15 and, indeed, 16 were drafted having regard to information provided by the Australian Tax Office (ATO). In this regard I was referred to the ATO website. I viewed the website.[43] Relevantly, it states:

   [43]   (viewed 7 June 2016).

   Is your organisation not-for-profit?

   A not-for-profit (NFP) organisation does not operate for the profit or gain of its individual members, whether these gains would have been direct or indirect. This applies both while the organisation is operating and when it winds up.

   An NFP organisation is not an organisation that hasn’t made a profit. An NFP organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people.

   We accept an organisation as NFP where its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people – both while it is operating and when it winds up. These documents should contain clauses that are acceptable to us as showing the organisation’s NFP character.

   Clauses – NFP character

   The tax law does not prescribe the words that an NFP organisation must have in its constituent documents.

   The following example clauses would be acceptable to us, provided that other clauses do not contradict them. The organisation’s actions must be consistent with this requirement.

   Example clauses

   Non-profit clause

   ‘The assets and income of the organisation shall be applied solely in furtherance of its above-mentioned objects and no portion shall be distributed directly or indirectly to the members of the organisation except as bona fide compensation for services rendered or expenses incurred on behalf of the organisation.’

   Dissolution clause

   ‘In the event of the organisation being dissolved, the amount that remains after such dissolution and the satisfaction of all debts and liabilities shall be transferred to another organisation with similar purposes which is not carried on for the profit or gain of its individual members.’

9. I was also referred to the Commission website.[44] That website similarly recommended that for the purposes of demonstrating that an organisation was a not-for-profit organisation, within the meaning of the ACNC Act, an organisation could have in its governing documents a not-for-profit clause in terms not materially different to the not-for-profit clause suggested by the ATO and a dissolution clause, also in similar terms to that suggested by the ATO. The Commission website refers to an additional suggested clause entitled “The DGR revocation clause”, which states:

   ‘If the organisation is wound up or its endorsement as a deductible gift recipient is revoked (whichever occurs first), any surplus of the following assets shall be transferred to another organisation with similar objects, which is charitable at law, to which income tax deductible gifts can be made:

   a.   gifts of money or property for the principal purpose of the organisation

   b.   contributions made in relation to an eligible fundraising event held for the principal purpose of the organisation

   c.   money received by the organisation because of such gifts and contributions.’

   [44]   (viewed 7 June 2016).

Self-evidently proposed clause 15 reproduces the non-profit clause, whilst proposed clause 16 is a hybrid, combining the suggested dissolution and DGR revocation clauses.

I understand the prudent approach adopted by the League. I note, however, that both the ATO and the Commission do not purport to be prescriptive in their advice as to the content of clauses in an organisation’s constituent documents necessary to demonstrating that the organisation is a not-for-profit organisation.

It occurs to me that, if the scheme were to include proposed clause 15 as currently drafted, questions would arise as to the meaning of clause 5 and what proposed clause 15 added. The relationship between the two clauses should be made plain. The League proposed a revised draft clause 15:

The assets and income of the Trust shall be applied solely in furtherance of the objects specified in this Indenture in accordance with clause 5 and no portion shall be distributed directly to the Trustee of the Trust except as bona fide compensation for services rendered or expenses incurred on behalf of the Trust.

I am prepared to make an order imposing a scheme of regulation including a clause in these terms. I conclude that, having regard to the trust objects and the desirability of obtaining registration and endorsement for the purposes of pursuing those objects, it is expedient to regulate the administration of the Building Fund by the imposition of a scheme including proposed clause 15 as redrafted so as to position the Fund to meet the requirements of the ATO and the Commission bearing in mind, in particular, the intentions of the settlor. Redrafted clause 15 is desirable, advantageous in the contributions it makes to achieving the trust objects, and suitable in its method of doing so. It does not alter or detract from the trust objects, indeed, as indicated, it seeks to be faithful to the settlor’s intentions that donors have the benefit of tax deductibility.

I note further that proposed clause 15 as redrafted addresses the issue of compensation for services rendered and expenses incurred on behalf of the League in the administration of the Building Fund which is not addressed in the Trust Deed. To account for the incursion of such costs is appropriate. The League cannot be expected to discharge its obligations under the Trust Deed without incurring such costs nor without those costs being met by the Building Fund as a necessary incident in the pursuit of the objects of the Fund.

Questions arose as to the drafting of proposed clause 16. A revised version was settled upon. It is intended to address the requirements of s 30-125 sub-ss (6) and (7) ITAA 1997 and, as indicated, is a hybrid, combining the suggested dissolution and DGR revocation clauses. It cannot be said to be an unsuitable means of achieving the desired end.

In my view, it is expedient to regulate the administration of the Building Fund by the imposition of a scheme including proposed clause 16 as revised. The observations made regarding proposed clause 15 as redrafted and its intended facilitation of registration and endorsement apply equally here.[45]

[45] At [68].

As to proposed clause 17, I note that it was drafted in the knowledge that a similar clause was approved as part of a scheme in College of Law Pty Ltd v Attorney-General of New South Wales.[46] The conferral of similar power under the auspices of a scheme was also not unknown to the Charity Commissioners.[47] I further note that proposed clause 17 is limited to the subject of administration and is made subject to the proviso that no part of the trust fund may become subject to any other trust other than a trust for the provision of money for the acquisition, construction or maintenance of buildings used or to be used as schools or colleges in Australia or New Guinea by the Church.  Further, a legal practitioner must certify that the amendment is within the power so granted.

[46] [2009] NSWSC 1474 at [9]-[10] (Brereton J).

[47]   In Re Jewish Orphanage Charity Endowment Trusts [1960] 1 WLR 344.

I accept that a clause such as proposed clause 17 allows the League the flexibility to adapt the administration of the Building Fund to the exigencies of conducting what may be complex transactions, involving numerous parties and significant amounts, undertaken across a number of jurisdictions, and at least two countries, in a technologically advanced age. It occurs to me that clause 3, for example, is ripe for amendment. I accept the desirability of a clause such as proposed clause 17 and the advantage it may bring. I am concerned at its suitability and practical necessity. I bear in mind the cautionary note sounded by the Court of Appeal in In Re New; In Re Leavers; In Re Morley.[48] Is proposed clause 17 concerned merely with matters of convenience? I accept that the Trust Deed contemplates the operation of the Building Fund in a commercial milieu very different to that of contemporary times. However, there is no evidence before me to suggest that the League is experiencing any difficulty in the administration of the Building Fund. Whilst I surmise that it would be desirable and advantageous that the administration of the business of the Fund be amenable to change upon resolution of the League in order that efficiencies and effectiveness in the discharge of the trust objects be achieved, I do not think the Court should interfere with the administration of a trust by the imposition of a scheme without evidence of such interference being a practical necessity in the sense explained above. In arriving at this conclusion, I am also influenced by the fact that proposed clause 17 has the consequence that responsibility for the imposition of a future scheme amending the administration of the Building Fund under the Trust Deed moves from this Court and is, in effect, delegated without any obvious means of review. I appreciate that this has been done elsewhere in different contexts. However, I have not been referred to any authorities where there has been full argument on the question of whether it is appropriate for this Court to give a power of amendment, where a settlor chose not to do so, with the consequence that the jurisdiction of the Court is largely rendered otiose. Furthermore, as currently drafted, arguably proposed clause 17 grants a power of greater breadth than this Court may exercise in the exercise of its inherent power. I have not had the benefit of full argument on these questions.

[48] [1901] 2 Ch 534 at 545 (The Court); set out at [35] above.

I decline to include proposed clause 17 in any scheme, however, I have determined that it is appropriate that the League have liberty to apply in the event that it wishes to argue further the merit of including proposed clause 17 and, in support thereof, file additional evidence.

Conclusion and orders     

I grant the application in part. I order:

1.The trust known as the Lutheran Laypeople’s League School Building Fund (the Trust) the terms of which are set out in an indenture dated 17 September 1964 (the Trust Deed) be administered as if the Trust Deed included immediately after clause 14 the following two clauses:

15.The assets and income of the Trust shall be applied solely in furtherance of the objects specified in this Indenture in accordance with clause 5 and no portion shall be distributed directly to the Trustee of the Trust except as bona fide compensation for services rendered or expenses incurred on behalf of the Trust.

16.Upon the earlier of the winding up of the Trust or the revocation of the Trust’s endorsement as a deductible gift recipient under the Income Tax Assessment Act 1997 (Cth) or any successor legislation thereto, the Trustee must pay or apply any assets of the Trust Fund remaining after the satisfaction of all its debts and liabilities to an entity or entities which are endorsed as deductible gift recipients under the Income Tax Assessment Act 1997 (Cth) or any successor legislation thereto with the same or similar objects that are charitable at law.

2.     Liberty to the applicant to apply, such liberty to expire in 72 days.