Rotary Club of Melbourne Inc v Commissioner of State Revenue

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
TAXATION LIST

S ECI 2018 01229

ROTARY CLUB OF MELBOURNE INC (ABN 31 564 943 498)	Applicant
v
COMMISSIONER OF STATE REVENUE	Respondent

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JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	By written submissions (Applicant—7 September, 12 October, 9 November 2018 and Respondent — 8, 26 October 2018)
DATE OF JUDGMENT:	29 November 2018
CASE MAY BE CITED AS:	Rotary Club of Melbourne Inc v Commissioner of State Revenue
MEDIUM NEUTRAL CITATION:	[2018] VSC 699

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PRACTICE AND PROCEDURE – Victorian Civil and Administrative Tribunal – Appeal against Tribunal orders – Victorian Civil and Administrative Tribunal Act 1998 s 148(1), (2A)

TAXATION AND REVENUE – Stamp duty – Whether body established for charitable purposes – Rotary Club of Melbourne – Construction of entity’s purposes – Whether purpose of raising ethical standards in business and the professions directed to Rotarians or the community generally – Whether the purpose of moral improvement of members in their personal, business and community lives is charitable – Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138 – Incorporated Council of Law Reporting (Qld) v Federal Commissioner of Taxation (1971) 125 CLR 659 – Re South Place Ethical Society [1980] 1 WLR 1565 – Latimer v Commissioner of Inland Revenue [2004] 3 NZLR 157 – Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204 – Telecommunications Industry Ombudsman Ltd v Commissioner of State Revenue (2017) 105 ATR 822 – Duties Act 2000 s 45.

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APPEARANCES:	Counsel	Solicitors
For the Applicant	Ms J Batrouney QC, Ms A Lee and Mr M Meng	Davis Lawyers
For the Respondent	Mr C Horan QC and Ms K O’Gorman	Solicitor for the Commissioner of State Revenue

HIS HONOUR:

By its proposed notice of appeal of 7 September 2018, the Rotary Club of Melbourne Inc (“the Applicant”) seeks both leave to appeal and to appeal from the orders of the Victorian Civil and Administrative Tribunal (“the Tribunal”) under s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”). Pursuant to those orders, the Tribunal affirmed the liability of the Applicant to pay stamp duty in respect of its purchase of an office suite, finding that as the Applicant could not be characterised as a body established for charitable purposes within the meaning of s 45 of the Duties Act 2000, it was not entitled to the exemption from stamp duty available to such bodies under that section.[1] The Commissioner of State Revenue (“the Commissioner”) resists both the application for leave to appeal and the appeal itself.
[1]Rotary Club of Melbourne Inc v Commissioner of State Revenue (Review and Regulation) [2018] VCAT 1257 (“the Tribunal’s Reasons”).

The principal issue in this appeal is whether the Tribunal erred in law when it determined that the Applicant was not a body established for charitable purposes. For the reasons which follow, I am of the view that the orders made by the Tribunal are not affected by an error of law and so ought not to be disturbed.

By way of background, the Applicant is the Melbourne branch of Rotary International, an organisation dedicated to the ideal of service. The Applicant undertakes a number of projects both in Australia and overseas through which it assists a variety of disadvantaged people. The Tribunal found that almost all of the objects and activities of the Applicant are charitable, with the present appeal relating to the charitable status of one purpose which is the subject of some controversy.

In the interests of expedition and economy in terms of time and cost, this proceeding was heard as a combined or “rolled up”[2] application for leave to appeal the Tribunal’s decision and, if leave were to be granted, the hearing of the appeal itself. In pursuit of the same interests, the Applicant requested that this appeal be determined “on the papers” and suggested that such a course was appropriate having regard to the fact that the Applicant’s representatives were acting pro bono and that even though those representatives indicated that they would not seek costs from the Commissioner if the Applicant succeeded, the Applicant nonetheless faced the prospect of having to pay the Commissioner’s costs if it was unsuccessful, and such costs would be larger if a hearing was convened. This request was acceded to by both the Court and the Commissioner, and so the appeal was by consent conducted “on the papers”, albeit after some initial reluctance on the part of the Commissioner.
[2]An expression now well understood: see R (Miller) v Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin), [110].

Principles applicable with respect to appeal

Section 148 of the VCAT Act relevantly provides:

(1)A party to a proceeding may appeal on a question of law from an order of the Tribunal in the proceeding—
(a)if the Tribunal was constituted for the purpose of making the order by the President or a Vice President, whether with or without others, to the Court of Appeal with leave of the Court of Appeal; or
(b)in any other case, to the Trial Division of the Supreme Court with leave of the Trial Division.

…
(2A)The Trial Division of the Supreme Court may grant an application for leave to appeal under this section only if it is satisfied that the appeal has a real prospect of success.

It follows from this provision that any appeal is dependent upon two important qualifications. First, that the appeal be on a question of law and secondly, that the Court gives leave to appeal. The latter qualification is affected by the “real prospects of success” requirement in s 148(2A) which was introduced recently by the Justice Legislation Amendment (Court Security, Juries and Other Matters) Act 2017. Neither party made submissions as to the effect of this new requirement, and the explanatory memorandum to the amending act states that the effect of the amendment is that “the test is now consistent with the test for leave to appeal under the civil appeals regime”. It is not necessary to consider this change in any depth as I am satisfied, for the reasons which follow, that the proposed appeal has real prospects of success.

The legislative policy underlying these provisions is that “VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal.”[3] The leave requirement under s 148(1) of the VCAT Act is designed to maintain this position. As Pagone J said in Commissioner of State Revenue v Frost:[4]

The requirement for leave under s 148(1) of the VCAT Act “is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the Court do found the subject matter of the appeal”.[5] It also confers a discretion about whether to grant leave[6] which an applicant must persuade the Court to exercise in its favour. What must be shown will depend upon the particular case bearing in mind the statutory criteria being a grant of leave and not special leave.[7] It will ordinarily be necessary (in addition to a clearly articulated question of law)[8] for an applicant to make out a prima facie case[9] and in an appropriate case it may be necessary for the applicant to show that the question upon which leave is sought has public or general importance.[10]

[3]Commissioner of State Revenue v Frost (2011) 83 ATR 832 at 834 [5] citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335–6 and Myers v Medical Practitioners’ Board (Vic) (2007) 18 VR 48 at 55 [28].

[4](2011) 83 ATR 832 at 833–4 [3].

[5]Commissioner of State Revenue v STIC Australia Pty Ltd (2010) 81 ATR 682 at 687 [10].

[6]Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331; Al-Hakim v Monash University (Unreported, Victorian Supreme Court of Appeal, 28 March 2003); Myers v Medical Practitioners’ Board (Vic) (2007) 18 VR 48.

[7]See Morris v R (1987) 163 CLR 454 at 475.

[8]Osland v Secretary to the Department of Justice [No 2] (2010) 241 CLR 320 at 333 [21].

[9]Morris v R (1987) 163 CLR 454 at 475; Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335.

[10]Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335–6; Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65 at 69 [20], 77 [65].

In considering an application of this nature, courts have been concerned to respect the role entrusted by the legislature to the particular tribunal and not, in effect, subvert this position by seeking out error. Thus, Kirby J in Roncevich v Repatriation Commission said:[11]

Courts conducting this form of review have been repeatedly enjoined by this Court to avoid overly pernickety examination of the reasons.[12] The focus of attention is on the substance of the decision and whether it has addressed the “real issue” presented by the contest between the parties.

[11](2005) 222 CLR 115 at 136 [64].

[12]Minister for Immigration and Ethnic Affairs v Guo (1997) 191 CLR 559 at 575, 597. Cf Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at 348 [74].

As is apparent from the reasons which follow, the Applicant has demonstrated that there is a real or significant argument that error exists in relation to the Tribunal’s decision.[13] The proposed appeal concerns a question of law which is of general or public importance as it is one that is likely to arise in future cases relating to charitable exemptions and be relevant to the Commissioner’s determination of such cases. Moreover, the exemption of certain charitable entities from particular taxes is an important way by which the State assists—or more precisely, declines to inhibit— citizens working collectively to do good independently of government. In this way, questions as to the operation of charitable exemptions will often be of general or public importance and justify the grant of leave. Accordingly, and having regard to the strength of the submissions of the Applicant referred to in the reasons which follow, leave to appeal is granted.
[13]See Myers v Medical Practitioners’ Board of Victoria (2008) 18 VR 48 at 55–6 [28].

Evidentiary matters

The Applicant sought to rely on certain academic literature relating to business ethics and the Rotary Club,[14] as well as on the interim report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.[15] As the Commissioner submits, this material is inadmissible insofar as it was sought to be relied upon in support of factual contentions as it is obviously irrelevant to the question of law arising in this proceeding, in addition to being material which was not before the Tribunal. The suggestion by the Applicant that this material may be relied upon as authorities is entirely unhelpful:[16] there is an obvious distinction between legal academic writing which may assist the Court in understanding legal issues, and academic discussion relating to contested issues of fact that ought not to be relied upon unless admitted into evidence. There is one important caveat to this position, being that the Court may take judicial notice of factual matters otherwise than through evidence where the state of the law is informed by the factual matters in question, as is discussed in more detail below in the context of the evolution of the spirit and intendment of the Preamble to the Statute of Elizabeth.[17]
[14]Mark Tadajewski, ‘The Rotary Club and the Promotion of the Social Responsibilities of Business in the Early 20^th Century’ (2017) 56(7) Business & Society 975 at 987; Katarina Katja Mihelič, Bogdan Lipičnik and Metka Tekavčič, ‘Ethical Leadership’ (2010) 14(5) International Journal of Management & Information Systems 31; Bill Dee and John Braithwaite, Ethical Compliance Management (24 August 2016) John Braithwaite: War, Crime, Regulation < Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Interim Report (2018).
[16]See Applicant’s Reply to Further Submissions (9 November 2018), [4], citing Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 at 215, where criticisms made by Professor Ross Parsons with respect to certain definitions of “income” were referred to, and Russell Smyth, ‘Citation of Judicial and Academic Authority in the Supreme Court of Western Australia’ (2001) 30 Western Australia Law Review 1 at 8–11, 20–3, which pages are concerned entirely with the citation of legal academic writing.
[17]See below, [32]–[34].

In a similar vein, the Commissioner is correct to observe that the registration of certain organisations with the Australian Charities and Not-for-Profits Commissioner or an equivalent body in another jurisdiction is irrelevant. That being said, where those bodies publish rulings, guidelines or other material, any discussion found within may assist the Court in a similar manner to an academic article.[18] In this way, it is of no import that several Girls Friendly Societies, one of which was the subject of judicial consideration in Re Wilson’s Grant,[19] are currently registered as charities with the Australian Charities and Not-for-Profits Commission.[20]
[18]See Telecommunications Industry Ombudsman Ltd v Commissioner of State Revenue (2017) 105 ATR 822 at 854–5 [116], 864 [143].
[19][1960] VR 514.
[20]See also Appellant’s Submissions (7 September 2018), [13]–[15].

Issues on Appeal

The relevant exemption from stamp duty arises under s 45 of the Duties Act 2000:

45 Charities and friendly societies
No duty is chargeable under this Chapter in respect of a transfer of dutiable property to, or a declaration of trust over dutiable property to be held on trust for—
(a) a religious, charitable or educational purpose; or
(b) a corporation or body of persons established for a religious, charitable or educational purpose; or

(c) a friendly society.

The term “charitable... purpose” in s 45(b) of the Duties Act is to be understood by reference to its source in the general law as it developed in Australia from time to time.[21] In the absence of a contrary intention in the statute under consideration, the word “charitable” should be given its technical legal meaning, that is, as set out by Lord Macnaghten in Commissioners for Special Purposes of the Income Tax v Pemsel[22] by reference to the four heads of charity and the spirit and intendment of the preamble of the Statute of Charitable Uses Act 1601 (Eng) 43 Eliz 1, c 4 (“the Preamble”), known generally as the Statute of Elizabeth.[23] Of particular relevance in the present context is the fourth head of charity: other purposes beneficial to the community which fall within the spirit and intendment of the Preamble.
[21]See Aid/Watch Inc v Federal Commissioner of Taxation (2010) 241 CLR 539 at 549 [23]: “in the absence of a contrary indication in the statute, the statute speaks continuously to the present, and picks up the case law as it stands from time to time”.
[22]Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 (“Pemsel”).
[23]Central Bayside General Practice Association Ltd v Commissioner of State Revenue (2006) 228 CLR 168 at 178–9 [18].

The proposed notice of appeal identifies the question of law and grounds relied upon by the Applicant:[24]

QUESTION OF LAW:
Whether the promotion of high ethical standards in business and professions is a charitable purpose under section 45 of the Duties Act 2000 (Vic) (Duties Act).
THE GROUNDS RELIED UPON ARE:
The Tribunal erred in law in finding at paragraphs 10 and 115 to 117 of its reasons that the promotion of high ethical standards in business and professions is not a charitable purpose under section 45 of the Duties Act.
The Tribunal ought to have found that such purpose is a charitable purpose under section 45 of the Duties Act.

[24]Notice of Appeal (7 September 2018).

Notwithstanding the proposed notice of appeal, there was some controversy between the parties as to the precise question of law which this Court must consider. The Applicant submits that the Tribunal found that a substantial and independent object of the Applicant was “the promotion of high ethical standards in business and professions”,[25] and submits that the relevant question of law for this Court is that identified in the proposed notice of appeal. On the other hand, the Commissioner submits that the Tribunal did not—and did not need to—conclude on the question of law as formulated by the Applicant. Rather, the Commissioner submits, the Tribunal concluded only on the distinct question of whether the Applicant’s object of the moral improvement of the Applicant’s members as they conduct themselves in their own personal, business and community lives is charitable. The Applicant submits that if the Commissioner’s submission as to the construction of the Tribunal’s Reasons is accepted, the Tribunal erred in law in so construing the objects of the Applicant.
[25]Tribunal’s Reasons, [39], [87], [115], [117].

Did the Tribunal construe the relevant purpose as being directed only to the Applicant’s members?

In support of his construction of the Tribunal’s Reasons, the Commissioner refers to paragraph 10 of the Tribunal’s Reasons, where the Tribunal ostensibly summarises its reasoning:[26]

For the reasons which follow… a significant and independent object of [the Applicant] is the moral improvement of its members as they conduct themselves in their own personal, business and community lives, divorced from the activities of [the Applicant]. The moral improvement of members, while ‘admirable and, indeed, praiseworthy’, is ‘beyond the purposes accepted by the law as charitable’.
[emphasis added]

[26]See also Tribunal’s Reasons, [95], [100], [110], [111], [115], [117].

This finding that the “moral improvement of members” was a significant and independent object of the Applicant arose out of the Tribunal’s construction of the “second, and to some extent the third” object in article 4 of the Rules of the Applicant,[27] as well as a range of other evidence.[28] Article 4 of the Rules states:
[27]Rules of Rotary Club of Melbourne Incorporated (7 May 2014) (Exhibit PR-2 to the Affidavit of Peter Rogers (30 January 2018)).
[28]Affidavit and vive voce evidence of Mr Rogers; the Four Way Test contained in the RCM Manual of Procedure, the applicable Code of Conduct for Rotarians; the Declaration given by Club members; see Exhibits PR-3 and PR-7 to the Affidavit of Peter Rogers (30 January 2018); Tribunal’s Reasons, [94]–[109].

Article 4 — Object
The Object of Rotary is to encourage and foster the ideal of service as a basis of worthy enterprise and, in particular, to encourage and foster:
First The development of acquaintance as an opportunity for service;
SecondHigh ethical standards in business and professions; the recognition of the worthiness of all useful occupations; and the dignifying of each Rotarian’s occupation as an opportunity to serve society;
ThirdThe application of the ideal of service in each Rotarian’s personal, business and community life;
FourthThe advancement of international understanding, goodwill, and peace through a world fellowship of business and professional persons united in the ideal of service.

In my view, the Tribunal’s reasons are sufficiently clear in that the ultimate conclusion was not dependent on the broader statement that “the promotion of high ethical standards in business and professions cannot be characterised as a means to a charitable end; rather it is an end in, and of, itself”, and nor was it dependent on the question of law as formulated by the Applicant.[29] Rather, the Tribunal determined that the relevant object of the Applicant was the “moral improvement of its members” and found that this object was not charitable. Indeed, if one considers the critical paragraph upon which the Applicant relies for its construction—paragraph 115—in context, that construction is clearly untenable:[30]

114.Can the same be said of the moral improvement of members of [the Applicant]?
115.In my view, the promotion of high ethical standards in business and professions cannot be characterised as a means to a charitable end; rather it is an end in, and of, itself. If [the Applicant] abandoned that end, it would not satisfy one (or possibly two) of the four objects for which it was established.
116.In CCI(WA), the activities which were of benefit to members were the same activities that lead to achievement of that organisation’s charitable purpose. The same can be said of the social and networking activities discussed in VWA. However, the improvement of the ethical standards of [members of the Applicant] in the conduct of their own business or profession is distinct from the charitable activities which RCM itself pursues.
[29]Tribunal’s Reasons, [115].
[30]Tribunal’s Reasons, [114]–[116].

Did the Tribunal err in law in construing the Applicant’s objects?

The Applicant submits that the Tribunal erred in law by finding that the Applicant’s purpose of moral improvement was concerned with its members, rather than moral improvement in business and professions generally. Contrary to the position taken by the Commissioner, the Applicant submits that the construction of its objects is a question of law, rather than of fact.[31] The Applicant submits that the role of this Court on appeal is to consider the Applicant’s purposes and the activities in which the members engage so as to determine the relevant question of law, being whether the Applicant was established for charitable purposes.[32] This approach is concordant with that taken by the High Court in Federal Commissioner of Taxation v Word Investments Ltd,[33] where the High Court considered the evidence adduced before the Administrative Appeals Tribunal as to the objects and activities of the subject entity and made express reference to the evidence of witnesses, before reaching a legal conclusion as to the effect of that evidence in terms of the purpose of the subject entity.[34]
[31]Applicant’s Submissions in Reply (12 October 2018), [2].
[32]Applicant’s Reply to Further Submissions (9 November 2018), [2].
[33](2008) 236 CLR 204.
[34]Federal Commissioner of Taxation v Word InvestmentsLtd (2008) 236 CLR 204 at 217–23 [19]–[31].

As the Commissioner submits, the construction of the objects of an entity is not undertaken by considering its constituent documents in isolation, but is “to be undertaken ‘holistically’, having regard to both its objects and activities”.[35] In the present case, the Tribunal concluded that the principal objects of the Applicant as set out in its rules included non-charitable purposes, but found that this was not determinative of the charitable status of the Applicant because the holistic approach required that those objects be read in light of the activities of the Applicant.[36] As a result, the Tribunal considered the detailed evidence about the activities of the Applicant and its members.[37] Against this background, and in accordance with the approach of the High Court in Word Investments,[38] I accept that this Court must consider the objects and activities of the Applicant to determine the appropriate construction of the relevant purpose.
[35]Tribunal’s Reasons, [15].
[36]Tribunal’s Reasons, [58]–[59].
[37]Tribunal’s Reasons, [60] et seq; see above, fn 28.
[38]FederalCommissioner of Taxation v Word InvestmentsLtd (2008) 236 CLR 204.

The Applicant submits that none of its constituent documents are inward looking or otherwise support the conclusion that the Applicant is concerned with the self-improvement of its own members rather than the improvement of ethical standards in business and the professions generally. In this respect, reliance is placed on the Code of Conduct which provides:[39]

We will act at all times in a manner consistent with the Rotary Principles and Ideals, thereby setting a personal and appropriate example to follow.

[39]Exhibit PR-7 to the Affidavit of Peter Rogers (30 January 2018).

Reliance is also placed on the evidence of Mr Rogers, who states that the pledge made by members to maintain high ethical standards “reinforces a culture of community integrity beneficial to all citizens” and states that “[the Applicant] is not an association purposed for moral self-improvement, but does define the conduct [expected] of members in both Rotary activities and personal life service of others”.[40] Other materials indicate that the Applicant was concerned with the moral improvement of its members, rather than moral improvement generally, specifically the Four Way Test and the Declaration. The Four Way Test provides a guide to conduct for members of the Applicant:[41]

Of the things we think, say or do:
1) Is it the TRUTH?
2) Is it FAIR to all concerned?
3) Will it build GOODWILL and BETTER FRIENDSHIPS?
4) Will it be BENEFICIAL to all concerned?

[40]Affidavit of Peter Rogers (30 January 2018), [103].

[41]Exhibit PR-3 to the Affidavit of Peter Rogers (30 January 2018), 6.

The Declaration notes that members of the Applicant are expected to inter alia:[42]

·“[b]e fair to my employer, employees, associates, competitors, customers, the public, and all those with whom I have a business or professional relationship”; and
·“[a]dhere to honesty in my advertising and in all representations to the public concerning my business and profession”.

[42]Exhibit PR-7 to the Affidavit of Peter Rogers (30 January 2018).

In my view, other than the conclusionary evidence of Mr Rogers with respect to the purpose of the Applicant, all of this material supports the construction of the Applicant’s object which was adopted by the Tribunal: the immediate focus of the Applicant is upon the moral improvement of its members, and only indirectly with the moral improvement of others.

Moreover, the “Mission” of the Applicant is equivocal as to its focus because of the emphasis on the conduct of members of the Applicant:[43]

We provide service to others, promote integrity, and advance world understanding, goodwill and peace through our fellowship of business, professional and community leaders.

[43]Exhibit PR-3 to the Affidavit of Peter Rogers (30 January 2018), 7.

The Applicant suggests that the following passage from Re South Place Ethical Society applies mutatis mutandis to its object of fostering and encouraging high ethical standards in business and the professions:[44]

One of the requirements of a charity is that there should be some element of public benefit in the sense that it must not be merely a members club or devoted to the self-improvement of its own members. In the case of this society I have no doubt that it is not just a members club and that it is not merely concerned with the self-improvement of its members. In its objects there is reference to the cultivation of a rational religious sentiment; that in my judgment means cultivation wherever it can be cultivated and not merely cultivation among the members themselves.
[emphasis added]

In this vein, the Applicant says that it seeks to improve ethical standards in business and the professions wherever it can be achieved, and not merely amongst its members. Specifically, it is submitted that its members are expected to share the high ethical values reflected in the second Object[45] to their professional networks, and that in this way ethical standards in business may be improved generally.

[44][1980] 1 WLR 1565 at 1570.

[45]See above, [16].

In my view, what arises out of these materials is that the Applicant, an organisation which is largely dedicated to charitable objects,[46] also seeks to ensure that its members act with integrity and adhere to high ethical standards in all that they do. It is clearly intended by the Applicant that the conduct of its members provides an example for others to follow, and that a part of the ethical conduct fostered in the members involves encouraging non-members to adhere to high ethical standards. However, the essence of the Applicant’s objects and activities in respect of moral improvement is the promotion of ethical conduct amongst its members, and the improvement of ethical standards in business and the professions is incidental to this purpose.
[46]See Tribunal’s Reasons.

Accordingly, the question for determination in this appeal may only be understood as enquiring whether “the moral improvement of members of the Applicant as they conduct themselves in their own personal, business and community lives” (“the Purpose”) is a charitable purpose under the fourth head of charity in Pemsel.[47] Though the Applicant’s submissions do focus on the question set out in its notice of appeal, they do also assist in the determination of this question. It is well established that in order for a purpose to fall under this head, it must:[48]

(a) fall within the spirit and intendment of the Preamble; and

(b) be beneficial to the community.

[47]Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531 at 583.

[48]Incorporated Council of Law Reporting (Qld) v Federal Commissioner of Taxation (1971) 125 CLR 659 at 667, 669.

Is the Purpose a purpose within the spirit and intendment of the Preamble?

A purpose will be within the spirit and intendment of the Preamble if it is analogous to a purpose that has been held to be within the spirit and intendment of the Preamble. As Lord Reid found in Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation:[49]

… [T]he appellants must also show that the public benefit is of a kind within the spirit and intendment of the Statute of Elizabeth I. The preamble specifies a number of objects which were then recognised as charitable. But in more recent times a wide variety of other objects have come to be recognised as also being charitable. The courts appear to have proceeded first by seeking some analogy between an object mentioned in the preamble and the object with regard to which they had to reach a decision. And then they appear to have gone further and to have been satisfied if they could find an analogy between an object already held to be charitable and the new object claimed to be charitable. And this gradual extension has proceeded so far that there are few modern reported cases where a bequest or donation was made or an institution was being carried on for a clearly specified object which was for the benefit of the public at large and not of individuals, and yet the object was held not to be within the spirit and intendment of the Statute of Elizabeth I. …

[49]Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138 at 146–7.

That being said it is not strictly necessary to seek analogy with precedent, and instead the principles underpinning the Preamble may be considered directly. As Barwick CJ stated in Incorporated Council of Law Reporting (Qld) v Federal Commissioner of Taxation:[50]

Yet it must be considered whether that benefit is charitable in the Elizabethan sense. Out of certain of the instances given in the preamble to the Act of 1601 a broad concept emerges of the kind of object of public utility which will satisfy the quality of charity. Any notion that that concept is of an eleemosynary nature is seen to be untenable by some of those very instances themselves, e.g. the repair of bridges, havens, causeways, seabanks and high-ways and the setting out of soldiers. Further, these instances seem to regard the provision of some of the indispensables of a settled community as charitable. … The sustenance of the law is a benefit of a material kind which enures for the benefit of the whole community. Is not its administration, with regularity, and with as much consistency as a system based on human judgment can attain, as socially fundamental as the instances which I have taken from the preamble? Surely it is. Though perhaps not now universally accepted because no doubt not properly understood, it is true that the society cannot exist as such if it is not based upon and protected by justice under law: and nurtured by obedience to law. As I have said, justice under law requires, according to the system of law which we have entrenched in Australia, and I think enhanced, the ready availability of reports of the decisions of superior courts.
Thus to my mind, without seeking any analogy in cases which have gone before, the production of law reports of a superior court is within the equity and the spirit and intendment of the preamble and thus capable of forming a charitable purpose.

[50](1971) 125 CLR 659 at 669.

Against this background, the Applicant submits that the Tribunal erred in relying on Inland Revenue Commissioners v Baddeley[51] and Re Wilson’s Grant[52] in finding that the encouragement and fostering of “high ethical standards in business and professions” is not charitable. It submits that these cases are concerned with the “provision of social activities” and are distinguishable from the present case. Baddeley concerned two trusts, one for the promotion of the “moral social and physical well-being of persons resident in” certain localities “who [were] members or likely to become members of the Methodist Church” and the other for the promotion of the “religious social and physical well-being” of such persons.[53] The Court found that these purposes were “too wide to include only purposes which the law regards as charitable”.[54] Similarly, in Re Wilson’s Grant,[55] the Court construed the objects as to “promote the moral, social and physical development of its members, and to improve them in these respects”, and held these objects were not charitable.[56] The Applicant submits that its relevant purpose was much narrower in that it is the encouragement and fostering of “high ethical standards in business and professions” only, and not religious, social and physical well-being.
[51][1955] AC 572 (“Baddeley”).
[52][1960] VR 514.
[53]Inland Revenue Commissioners v Baddeley [1955] AC 572.
[54]Inland Revenue Commissioners v Baddeley [1955] AC 572 at 589, 593, 614.
[55]Re Wilson’s Grant [1960] VR 514.
[56]Re Wilson’s Grant [1960] VR 514 at 518.

Moreover, the Applicants submit that its purpose is analogous to a number of purposes which have been found by Courts to be charitable in the following cases:

(a) Re South Place Ethical Society, where the purpose was the “study and dissemination of ethical principles”;[57]
[57]Re South Place Ethical Society [1980] 1 WLR 1565 at 1577.

(b) Re Price, where the object of “carrying on the teachings of the founder, Dr Rudolf Steiner” was held to be directed to the mental or “moral improvement of man”;[58]
[58]Re Price [1943] Ch 422 at 432–3.

(c) Re Cranston, where the objects of certain vegetarian societies to stop the use of animals as food and to promote a vegetarian diet were held to relate to “the elevation of the human race in a moral as well as in a physical point of view”;[59]
[59]Re Cranston [1898] I IR 431 at 439, 444–5, 447, 451.

(d) Re Wedgwood, where the purpose of the protection and benefit of animals was held to be charitable on the basis that it “tends to promote public morality by checking the innate tendency to cruelty”, and “promote[s] feelings of humanity and morality generally”;[60]
[60]Re Wedgwood [1915] 1 Ch 113 at 117–8, 121, 122.

(e) Re Hood, where the purpose of “aiding all active steps to minimize and extinguish the drink traffic” was characterised as the promotion of temperance, a purpose which was found to be undoubtedly charitable because “many people regard temperance as contributing to the moral improvement of mankind”;[61] and

(f) Re Wright, where the purpose was erecting a building “for the purpose of bringing the people together to uplift and train them to higher ideals”.[62]

On the basis of the analogy with these cases, the Applicant submits that the purpose of promoting high ethical standards in business and professions is within the spirit and intendment of the Preamble.

[61]Re Hood [1931] 1 Ch 240 at 250, 252.

[62]Re Estate of George Wright (1923) 56 NSR 364.

That being said, it is clear that “not all objects which tend to promote the moral improvement of the community are charitable”.[63] In this light, the Applicant relies on the well-established position that the “law of charity is a moving subject” which evolves to accommodate “new social needs”,[64] and submits that the law of charity either has or should evolve in light of an increasing need for ethical conduct on the part of businesses and professions. The importance of this need is said to be apparent from matters that the Court may take judicial notice of under s 144 of the Evidence Act 2008, which allows the Court to rely upon common knowledge that is capable of verification by reference to reliable documentation.
[63]Re South Place Ethical Society [1980] 1 WLR 1565 at 1574.
[64]Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138 at 154; affirmed in Aid/Watch Inc v Federal Commissioner of Taxation (2010) 241 CLR 539 at 548 [18].

In particular, the Applicant submits that the need for the law of charity to evolve to include the Purpose is exemplified by the evidence given at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This evidence is said to show:[65]
[65]Appellant’s Submissions (7 September 2018), [23].

(a)the significant detrimental impact that unethical conduct in business affairs have had on large numbers of members of the community who have suffered loss as a result; and
(b)the consequent high need to improve ethical standards in the business community.

The Applicant submits that the same need is also reflected:[66]

(a) in the Australian Institute of Company Directors’ publication ‘Directors, is ethics on your board agenda?’ which discusses ‘five ways to start the conversation for your board of directors in the wake of the banking Royal Commission’[67]; and
(b)the UK Charity Commission’s recognition of ‘promoting ethical standards in business and corporate responsibility’ as a charitable purpose in its Recognising New Charitable Purposes Report.[68]

[66]Appellant’s Submissions (7 September 2018), [24].

[67] Charity Commission, Recognising New Charitable Purposes Report (October 2001) 14: type="1">

The matters of common knowledge referred to by the Applicant do establish a social need for the promotion of ethical conduct in business and professions.[69] By contrast to the material referred to above in paragraph 9, this material is directly relevant in the context of evaluating the ever evolving field of purposes which fall within the spirit and intendment of the Preamble. In my view, society has evolved such that the promotion of ethical standards in business and the professions is a purpose which falls within the spirit and intendment of the Preamble, notwithstanding the commercial character of business and the professions. Indeed, and similarly to Re Wedgwood,[70] I am of the view that the promotion of ethical conduct in business and the professions is a charitable purpose because it tends to promote public morality by checking the innate tendency to greed. Although the matters referred to by the Applicant suffice to establish this conclusion, for completeness, reference should also be made to the following issues which, among others, make patent the need for the promotion of ethical conduct in business and professions:

[69]See also Telecommunications Industry Ombudsman Ltd v Commissioner of State Revenue (2017) 105 ATR 822 at 857 [121]; Victorian Women Lawyers v Federal Commissioner of Taxation (2008) 170 FCR 318 at 345 [116].

[70][1915] 1 Ch 113.

(a) reports of systemic and prolific exploitation of labour abroad, including the use of child, slave and slave-like labour;

(b) reports of widespread wage theft and other forms of exploitation of labour within Australia, especially of migrant workers, young people and other vulnerable groups;

(c) profiteering and unethical fee generation by lawyers conducting group proceedings, and litigation more generally;

(d) the prevalence of cynical breaches of the law, where entities act unlawfully having calculated that the consequent gain will outweigh any penalty imposed.

However, the purpose the Court must consider is the Purpose—being the promotion of ethical conduct in business and the professions amongst members of the Applicant. Whether this purpose falls within the spirit and intendment of the Preamble is distinct from whether the purpose of improving ethical conduct in business and the professions generally falls within the spirit and intendment of the Preamble. The target of the purpose must be relevant for ascertaining whether the purpose falls within the equity of the Preamble because it forms part of that purpose, though it may be more easily considered when evaluating the benefit to the community.

As the Commissioner submits, the mere fact that a purpose has the consequence of benefiting the public is not enough to make that purpose charitable.[71] Even if the Purpose does have a consequential benefit to the public, this does not address the question of whether the purpose falls within the equity of the Preamble. Though many of the activities and purposes of the Appellant are laudable and indeed charitable, it is quite clear that it is a private members club. As a result of the private nature of its focus, the Purpose is disanalogous both to the cases upon which the Applicant relies,[72] and the instances given in the Preamble.[73] In my view, the promotion of ethical standards in business and the professions to members of the Applicant cannot fall within the spirit and intendment of the Preamble. Whatever the consequential benefits to the community may be, it is clear that the Purpose is focussed upon members of the Applicant and in this way it does not share the public nature of the spirit and intendment of the Preamble.
[71]Commissioner’s Submissions (8 October 2018), [25] citing Telecommunications Industry Ombudsman Ltd v Commissioner of State Revenue (2017) 105 ATR 822 at 852 [108].
[72]See above, [31].
[73]See above, [29].

Is the pursuit of the Purpose beneficial to the community?

It is long established that in order for a purpose to be “beneficial to the community”, the benefit stemming from the purpose needs to be available to a sufficient section of the community.[74] When considering the fourth head of charitable purposes, there is no presumption of public benefit or benefit to the community; rather, any such benefit to the public must be affirmatively established or be clear to the Court.[75] Importantly, and as will be explored in greater detail, “benefit to the community” has a technical meaning in the law of charity. In my view, the following issues bear upon whether the Purpose benefits the community:

(a) does the pursuit of the Purpose “benefit the community”, whether directly or indirectly, within the ordinary meaning of that phrase?

(b) does it suffice for the law of charity that the pursuit of the Purpose will confer a benefit on the community, even as the immediate focus is on members of the Applicant?

[74]G E Dal Pont, Law of Charity (LexisNexis Butterworths, 2^nd ed, 2017) [11.4], citing Chesterman v Mitchell (1923) 24 SR (NSW) 108 at 112–3; Inland Revenue Commissioners v Baddeley [1955] AC 572 at 589; Re Stone (1970) 91 WN (NSW) 704 at 716–7 and Inland Revenue Commissioner v Oldham Training and Enterprise Council (1996) 69 TC 231 at 250.

[75]G E Dal Pont, The Law of Charity (LexisNexis Butterworths, 2^nd ed, 2017) [11.4].

Is there benefit to the community, whether direct or indirect?

The alleged benefit to the community is that the public benefits from dealing with businesses and professions which conduct themselves in an ethical way, and therefore the maintenance of higher ethical standards by certain business people and professionals, such as the members of the Applicant, benefits the community. Against this rather intuitive position, the Commissioner submits that the Applicant bears the burden of positively establishing that its pursuit of the Purpose is of benefit to the public, and it entirely failed to discharge that burden. On this basis, it is said that even if the Court does take notice of the issues raised by the Royal Commission into the Banking, Superannuation and Financial Services Industry, there was no evidence before the Tribunal that, in the event that a limited number of Rotarians comprising the Applicant’s members improve their ethical and moral practices in their own personal, business and community lives, the practices of the Banking, Superannuation and Financial Services Industry would thereby improve. The Applicant submits that evidence of public benefit is unnecessary because the promotion of ethics has already been found to be charitable,[76] and alternatively that there was evidence of public benefit before the Tribunal.[77] Indeed, the Tribunal found that “it is beneficial to the community that leaders in business and the professions conduct themselves with the highest ethical standards”.[78]
[76]Citing Grain Growers Ltd v Chief Commissioner of State Revenue (NSW) [2015] NSWSC 925; ATC 20-518, [23], [27], [28].
[77]Applicant’s Submissions in Reply (12 October 2018), [3] citing Affidavit of Peter Rogers (30 January 2018), [24], [31], [32], [34], [102], [103].
[78]Tribunal’s Reasons, [111].

The Applicant also notes that it is a leadership organisation, which “requires that membership be limited to those who demonstrate integrity, and leadership; and are willing to serve in their community in Australia and/or around the world”.[79] The Tribunal found that this is a positive obligation which applies at all times and not just while involved with Rotary organised activities.[80] In this way, a kind of benefit to the community will also arise to the extent that members of the Applicant are able to lead by example and inspire ethical conduct in others.
[79]Affidavit of Peter Rogers (30 January 2018), [29], referring to the Applicant’s Constitution (Exhibit PR-2 to the Affidavit of Peter Rogers (30 January 2018)); see also Exhibit PR-7 (Code of Conduct for Rotarians in D9800); Tribunal’s Reasons, [104].
[80]Tribunal’s Reasons, [105].

Although the promotion of ethics is plainly not a fifth head of charity and it is necessary that public benefit be established, it is not necessary that such public benefit be proved in a strict sense. In Grain Growers Ltd v Chief Commissioner of State Revenue (NSW) the “fundamental social quality” of the purpose sufficed to establish that the community would benefit from the pursuit of the purpose.[81] Given that the Purpose is directed to members of the Applicant, such a fundamental social quality does not arise here. It is, however, sufficient that the benefit to the community be clear to the Court.[82] On the basis of the preceding reasons—particularly the common sense position that the improvement of ethical standards amongst a group of business people and professionals will benefit the community—I am satisfied that the community does benefit from the Applicant’s pursuit of the Purpose.
[81](2015) ATC 20-518, [27].
[82]Re Blythe [1997] 2 Qd R 567 at 582; Nelan v Downes (1917) 23 CLR 546 at 563; Wilfrid Vernor-Miles v Charity Commission for England [2015] UKFTT (15 June 2015), [26].

Is the indirect benefit sufficient?

Notwithstanding the conclusion just reached, there remains a question as to whether it is sufficient that the benefit accrue to the community indirectly. There are different ways in which a benefit may arise, and a helpful classification is set out in Tudor on Charities:[83]

(1) Direct benefits: benefits to persons whose needs it is a purpose of the charity to relieve which are received by such persons as recipients of the main service which the charity provides.
(2)Indirect benefits: benefits to persons whose needs it is a purpose of the charity to relieve which are received by such persons otherwise than as recipients of the main service which the charity provides.
(3)Wider benefits: benefits other than direct and indirect benefits which are received by the community at large from the activities of the charity.

[83]William Henderson, Jonathan Fowles and Julian Smith, Tudor on Charities (Sweet & Maxwell, 10^th ed, 2015) 27 [1-045].

It is well established, as the Commissioner notes, that public benefit will not be found if the benefit is limited to members of a private club, or the benefit is conferred exclusively on the basis of a particular trade, business or calling. In light of the proper characterisation of the question to be determined on appeal, the Commissioner submits that the Purpose is not charitable because it is addressed to members of the Applicant rather than the business and professional community generally. He notes that in cases upon which the Applicant relies, such as Re Cranston[84] and Re Wedgwood,[85] the relevant purpose was improving the moral condition of the public, rather than members of a particular club. In my view, it is plain that to the extent that the relevant “benefit” of the Purpose accrues only to members of the Applicant, it will not be of benefit to the community in the sense required by the law of charity.
[84]Re Cranston [1898] I IR 431.
[85]Re Wedgwood [1915] 1 Ch 113.

The Applicant submits that the wider benefit referred to above is sufficient for the purpose to be beneficial to the public as required by the fourth head of charity in Pemsel. In this respect, reference is made to Radmanovich v Nedeljkovic,[86] where the purpose “of ensuring that members of a particular immigrant community conduct themselves as ‘good citizens’” was found to be for the public benefit and therefore charitable.[87] The Commissioner submits that this case is distinguishable for two reasons. First, it is observed that while a “particular immigrant community” may constitute an acceptable “section of the public”,[88] the members of a club are not, particularly where there are restrictions on admission as members. As the Applicant is a private club, it is clear that its members do not constitute a section of the public for the purposes of evaluating public benefit. Thus, as has been noted, there can be no “direct benefit” within the classification system set out above which constitutes a public benefit.[89]
[86](2001) 52 NSWLR 641 (“Radmanovich”).
[87]Radmanovich v Nedeljkovic (2001) 52 NSWLR 641 at 658 [87].
[88]See Lloyd v Federal Commissioner of Taxation (1955) 93 CLR 645 at 662, 667, 670.
[89]See above, [41].

Secondly, the Commissioner submits that as the purpose in Radmanovich concerned the improvement of the conduct of the particular immigrant community in their capacity as “citizens”, while the Purpose concerns the conduct of the members in “their own personal, business and community lives”, the Purpose does not concern the conduct of members in their public capacity. The Commissioner submits that it is members’ conduct in their private commercial dealings which is sought to be improved, as distinct from how they interact with the broader public. In my view, this distinction is wholly untenable. Even as commercial dealings may be conducted in private, their effects on employees, competitors, consumers, suppliers and other stakeholders are manifestly public in nature. Indeed, so much is apparent from the Declaration under which members of the Applicant are expected to be fair to those with whom they have a business or professional relationship.[90] In this way, Radmanovich does not assist in resolving the question of whether the indirect benefit to the public in the instant case is sufficient.
[90]See Tribunal’s Reasons, [109], extracted above, [22].

Against this position, the Commissioner submits that it is not sufficient that there is a consequential benefit to the community, and refers to the passage of Re South Place Ethical Society,[91] where Dillon J held that “public benefit” requires “that it must not be merely a members club or devoted to the self-improvement of its own members”.[92] Although the Applicant suggests that the latter parts of this passage extracted above support its position,[93] that reasoning does not apply in circumstances where the Purpose is directed to the moral improvement of members as opposed to the public.
[91][1980] 1 WLR 1565 at 1570; extracted above, [25].
[92][1980] 1 WLR 1565 at 1570.
[93]Extracted above, [25].

Moreover, the Commissioner suggests that the sentiments expressed in Re Wilson’s Grant apply naturally to the Applicant. In that case, Hudson J held that the society’s:[94]

direct objects and immediate activities go a great deal further than the teaching and application of Christian principles. It seeks not only to do this and to widen and improve the mental outlook of its members, but it also seeks, and in my view not merely incidentally, to promote the moral, social and physical development of its members, and to improve them in these respects, and to these ends provides them with opportunities of friendly association and healthy recreation and with interests and occupations that will be not only of practical use to them, but will assist in the development of character. All of this is admirable and, indeed, praiseworthy but, unfortunately, it has been held by the highest authority that purposes such as these are not charitable in the eye of the law.

[94][1960] VR 514 at 518.

In this way, it is not enough that there is some consequential benefit to the community. As Lord Millet stated in Latimer v Commissioner of Inland Revenue:[95]

The distinction is between ends, means and consequences. The ends must be exclusively charitable. But if the non-charitable benefits are merely the means or the incidental consequences of carrying out the charitable purposes and are not ends in themselves, charitable status is not lost.

[95][2004] 3 NZLR 157 at 170 [36]; see also Law Institute of Victoria v Commissioner of State Revenue (2015) 101 ATR 899 at 922–3 [111]–[112]; Victorian Farmers Federation v Commissioner of State Revenue [2017] VCAT 19, [20], [26], [51].

Critically, the Tribunal found that the Purpose “cannot be characterised as a means to a charitable end; rather it is an end in, and of, itself”,[96] and the Applicant has not sought to impugn this finding on appeal. Accordingly, it is inescapable that the benefit to the community is incidental to the benefit to members, and in this way the benefit to the community required by the fourth head in Pemsel is absent.
[96]Tribunal’s Reasons, [115].

This should not be understood to be any criticism of the activities of the Applicant, which were rightly found by the Tribunal to be admirable and praiseworthy.[97] Rather, this conclusion follows inescapably from the Applicant’s cultivation of ethical conduct on the part of its members for deontological as opposed to consequentialist reasons. That is, the Applicant seeks to cultivate good ethical conduct amongst its members because it is good in and of itself to do so, rather than because so doing is a means to achieving a broader benefit for the community. So much is apparent from the Tribunal’s findings of fact,[98] and the intrinsic value the Applicant finds in the ideal of service.[99] Moreover, in my view, this case epitomises the problems inherent in the reliance by the taxation law of this State on ancient notions of charity. As I recently wrote extra-curially:[100]

The classification of a purpose… depends upon whether the purpose is for the benefit of the public and within the equity of the Preamble to the Statute of Elizabeth 1601 (Eng). The second limb of this test admits much uncertainty, and, given the apparent irrelevance of the Statute of Elizabeth to modern taxation, may seem capricious, even though the equity of the Preamble evolves over time. Such difficulties with this definition motivated the introduction of a statutory definition of charity in the Australian Charities and Not-for-profits Commission Act 2012 (Cth). On the other hand, where a legal concept is incapable of explanation in anything but dated and complex terms, this may indicate that the concept remains bound to its historical genesis to the extent that it fails to provide certainty. Thus it may be asked, why should the equity of the Preamble be applied in Australian law, when its meaning, although evolving, is thoroughly incapable of precise statement? …
…
Traditionalists might argue that the equity of the Preamble has been applied without serious issue for over 400 years, yet recent taxation case law shows that uncertainty continues to burden organisations that have unclear charitable status. Many of these organisations are critical to the happy functioning of the Australian community—even if they are not properly characterised as charitable. Consequently, it is vital that their taxation liability be based on whether or not they ought to be taxed in a particular way, which may not be achieved by the current application of the equity of the Preamble. As illustrated by the taxation treatment of organisations that regulate professions, reform or codification of the definition of charity is needed.
[97]Tribunal’s Reasons, [10].
[98]See Tribunal’s Reasons, [115].
[99]See Exhibit PR-2 to the Affidavit of Peter Rogers (30 January 2018) (Rules of Rotary Club of Melbourne Incorporated (7 May 2014)), Arts 4, 5.
[100]Clyde Croft, ‘Regulation Of Professions: Charitable?’ (2017) 91 Australian Law Journal 806.

Conclusion

For the preceding reasons, leave to appeal is granted and the appeal is dismissed. The parties are to provide orders to give effect to these reasons. I otherwise reserve the question of costs and will hear the parties further on this issue.

[2018] VSC 699

29 November 2018