MLP405 Equity and Trusts

Topic 10:Charitable Trusts

Deakin University CRICOS Provider Code: 00113B

 • Charitable trusts are express trusts which
exist for a purpose rather than for identifiable
beneficiaries. In Attorney-General (NSW) v
Perpetual Trustee Co Ltd (1940) 63 CLR 209
at 222, Dixon and Evatt JJ stated:
• A charitable trust is a trust for a purpose, not
for a person. The objects of ordinary trusts
are individuals, either named or answering a
description, whether presently or at some
future time. To dispose of property for the
Introduction fulfillment of ends considered beneficial to the
community is an entirely different thing from
creating equitable estates and interests and
limiting them to beneficiaries. In this
fundamental distinction sufficient reason may
be found for many of the differences in
treatment of charitable and ordinary trusts.
 • No beneficiary principle
• Public trusts
Differences • Indestructible
• Courts and AG have power of
with other supervision
• Unincorporated Associations
express can enforce a charitable
purpose because they have no
trusts separate legal entity – most not
for profit organizations in
Australia are unincorporated
 • Statute of Charitable Uses 1601 (43 Eliz I, c.4)
• the relief of poverty;
• care of aged persons and the sick;
• care of soldiers and mariners;
• advancement of education through universities
and schools;
• repair of bridges, havens, ports, churches and
‘Charitable’ •
highways;
the care of orphans;
Purpose •
•
the maintenance of prisons;
the marriage of poor maids;
• support for young tradesmen and persons
decayed;
• the relief or redemption of prisoners or captives;
and
• relief for poor persons concerning the payment
of taxes
 ‘Charitable’ Purpose
• Gilmour v Coates [1949] AC 426 at 442-3; [1949] 1 All ER 848 at
852, by Lord Simonds:
• [F]rom the beginning it was the practice of the court to refer to
the preamble of the statute in order to determine whether or not
it was charitable. The objects there enumerated and all other
objects which by analogy are ‘deemed within its spirit and
intendment’ and no other objects are in law charitable. That is
settled and familiar law.
 • Royal National Agricultural and
Industrial Association v Chester
‘Charitable’ (1974) 3 ALR 486 a trust for the
breeding and racing of pigeons
Purpose failed because there was no
analogous charitable purpose
in the preamble.
 • A trust for the not-for-profit publication of law
reports was found to be charitable in
Incorporated Council of Law Reporting (Qld)
v Federal Commissioner of Taxation (1971)
‘Charitable’ 125 CLR 659; [1972] ALR 127, on the
grounds that the reporting of cases was
Purpose fundamental to society in the same way that
the maintenance of roads, and the promotion
of agriculture were fundamental and within
the spirit of the preamble
 • Commissioner for Special Purposes
of Income Tax v Pemsel [1891] AC
531 at 583. His Lordship stated at
• ‘Charity’ in its legal sense comprises
‘Charitable’ four principle divisions: trusts for the
relief of poverty; trusts for the
Purpose advancement of education; trusts for
the advancement of religion; and
trusts for other purposes beneficial
to the community, not falling under
the preceding heads.
 • Report of Inquiry Into the
Reform Definition of Charities and
Related Organisations 2001
• Charities Bill in 2003,
• Extension of Charitable
Purpose Act 2004.
 • Section 5 of the Act defines ‘charity’ as an
entity that is a not-for-profit entity in which all
of its purposes are: (i) charitable purposes
that are for the public benefit or (ii) incidental
or ancillary to, and in furtherance or in aid of,
Charities the entity’s charitable purposes that are for
the public benefit.
Act 2013 • None of the entity’s purposes can be a
disqualifying purpose.
• Finally, an individual, a political party or a
governmental entity cannot also be a charity.
 Section 12

• the purpose of advancing health ;

• the purpose of advancing education;
• the purpose of advancing social or public welfare;
• the purpose of advancing religion;
• the purpose of advancing culture;
• the purpose of promoting reconciliation, mutual respect and
tolerance between groups of individuals that are in Australia;
• the purpose of promoting or protecting human rights (‘human
rights’ having, pursuant to s 3(1) the meaning given by the
Human Rights (Parliamentary Scrutiny) Act 2011);
 Section 12

• the purpose of advancing the security or safety of Australia or

the Australian public;
• the purpose of preventing or relieving the suffering of animals;
• the purpose of advancing the natural environment;
• any other purpose beneficial to the general public that may
reasonably be regarded as analogous to, or within the spirit
of, any of the purposes mentioned in paragraphs (a) to (j);
 Section 12

• the purpose of promoting or opposing a change to any matter

established by law, policy or practice in the Commonwealth, a
State, a Territory or another country, if:
• in the case of promoting a change—the change is in
furtherance or in aid of one or more of the purposes
mentioned in paragraphs (a) to (k); or
• in the case of opposing a change—the change is in opposition
to, or in hindrance of, one or more of the purposes mentioned
in those paragraphs.
 New Act

• The new Act applies to Cth law not State law

 • The benefit must be for the entire public or for
a significant proportion of it: Ford & Lee at
Public [19070]. However, the purpose of the trust
need not be effected in the jurisdiction for it to
benefit be of benefit to the public: Kytherian
Association of Qld v Sklavos (1958) 101 CLR
56.
 • To illustrate these principles, trusts for the
advancement of religion have failed where
they have the object of favouring cloistered or
contemplative orders who have little contact
with the outside world: Gilmour v Coats
Public [1946] AC 426.
•
benefit Trusts established to stop the practice of
vivisection have also failed because there
would be an overall detrimental effect to the
public should such experimentation cease:
Anti-Vivisection Society v Inland Revenue
Commissioners [1948] AC 31.
 • Re Compton [1945] Ch 123. Lord
Public benefit •
Greene MR stated at 131,
…[A] gift under which the beneficiaries
are defined by reference to a purely
personal relationship to a named
propositus cannot on principle be a
valid charitable gift. And this, I think,
must be the case whether the
relationship be near or distant, whether
it is limited to one generation or is
extended to two or three or in
perpetuity. The inherent vice of the
personal element is present however
long the chain and the claimant cannot
avoid basing his claim on it.
 Public benefit

• The Compton test has been used to strike down charitable trusts
when the potential recipients of the trust funds have been defined by
reference to blood relation, employment or contract
• BUT the requirement for public benefit does not apply to trusts for
the relief of poverty: Dingle v Turner [1972] AC 601; [1972] 1 All ER
878. Secondly, trusts for people from particular geographic locales
do not offend the rule, as they can be applied regardless of inherent
personal characteristics: Re Tree [1948] Ch 325; 2 All ER 65. Thirdly,
a request by the creator that family members, or others connected
by association or contract, be given preference in the administration
of the charity, will not invalidate the trust
 • Facts: Wycliffe Bible Translators Australia
(“Wycliffe”) is Christian missionary organisation
which engaged in various religious activities.
From 1 July 2000, Wycliffe was endorsed as
an Income Tax Exempt Charity. Word
Investments Ltd (Word) was founded by
members closely associated with Wycliffe, with

Commercial the intention of using Word to raise money

within Australia (through various business
ventures, including an investment scheme and
Trusts: funeral home), and give that money to Wycliffe
for the carrying out of Wycliffe’s purposes.

Word However, Word did not itself carry out the

religious activities of Wycliffe. Word only gave
its profits (less sums retained by it to cover
Investments administrative costs) to Wycliffe and other
similar Christian organisations, to enable them
to perform these activities.
• The ATO refused to endorse Word as an Income
Tax Exempt Charity. The ATO argued that
commercial enterprise entities are not charities,
irrespective of whether the enterprise gives its
income to charitable institutions. The ATO
submitted that where an institution’s profit
generating activity goes beyond what is
incidental incidental or ancillary to the exempt
purposes, the institution loses its charitable
character
 • Held: The constitution for Word contained a large
number of “Objects”. The ATO submitted that a
number of these Objects were not charitable in
character (and therefore, Word was not a “charitable
institution”).Objects which caused concern for the
ATO included: to subscribe and make payments to
any fund for religious, charitable or benevolent
objects of any description;to set aside out of the
Commercial profits of Word such sums as the Board thinks
proper, for maintaining investments, meeting

Trusts:
contingencies or for any other purposes connected
with the business of Word, and to reinvest such sums
in the business of Word or in such securities as the

Word Board decides;to subscribe or guarantee money for

charitable or benevolent objects or for any
exhibition, or any public, general or useful objects.
Investment • The Majority concluded that these were not actually
Objects of Word, but were really “Powers” (i.e. how
the company would go about achieving its Objects).
Put another way, the Court rejected that Word had
as an Object that it would engage in commercial
activities. Engaging in commercial activities was an
exercise of its Powers, which it did only in aid of its
charitable [Link] Majority noted that the funds
paid out by Word Investments were paid to bodies
fulfilling charitable purposes. Therefore, whilst the
activities of Word in raising funds by commercial
means were not intrinsically charitable, they were
still charitable in character because they were
carried out in furtherance of a charitable purpose.
 Trusts for Political Purposes

• Bowman v Secular Society [1917] AC 406; [1916-17] All ER Rep 1 – primary

authority.
• A trust will be deemed to be political when it has the primary purpose of
changing the law: Anti-Vivisection Society v Inland Revenue Commissioners
[1948] AC 31.
• Examples include a trust to establish a nationalised health service, Re Bushell
(dec’d) [1975] 1 All ER 721, or to reform the alphabet, Re Shaw [1957] 1 All ER
745.
• Royal North Shore Hospital of Sydney v Attorney-General (NSW) (1938) 60
CLR 396 per Santow J:
There is a crucial distinction, inhering in McGovern, between
permissibly changing the law within the framework of its established policy and
impermissibly reversing the law along with its established policy.
Incremental change to the law consistent with its established direction may
indeed be permitted today.
Aid/Watch Incorporated v Commissioner of Taxation of
the Commonwealth of Australia (2010) 241 CLR 539

• Facts: Aid/Watch researches 'generally in partnership with people

that are recipients of the aid and non-government organisations';
it brings the issues it identifies to light by publicly releasing the
reports that are the result of its research; and it campaigns for
changes to the ways in which aid is delivered through media
releases and public events designed to influence relevant
agencies to alter the way aid programs are administered.”
• This concern of Aid/Watch with the effectiveness of aid delivery is
clearly aimed at the relief of poverty. Its premise is that if too little
aid is delivered, if aid is delivered to the wrong areas, or if aid is
of a particularly low quality it will be ineffective and unable to
achieve the goal of alleviating poverty. The issue for the High
Court was whether Aid/Watch could be a charity or whether the
purpose was an impermissible political purpose
 Aidwatch and Political Purposes

• Held: Majority of the High Court, French CJ, Gummow, Hayne, Crennan and Bell JJ, in a
joint judgment, found in favour of Aid/Watch. Heydon and Kiefel JJ published separate
dissenting reasons for judgment.
• The majority founds that Aid/Watch was concerned with promoting the effectiveness of
Australian and multinational aid provided in foreign countries by means of improved
investment programs, projects and policies.
• The court was of the view that the origin of the apparent "political activities"
disqualification notion (i.e., Bowman v. Secular Society Ltd [1917] AC 406) was decided
in a context which did not take account of the Australian Constitution, and the inherent
right of constituents for agitation and communication about matters affecting
government, politics and policies.
• The court decided that in Australia, there is no general doctrine which excludes from
charitable purposes "political objects".
• The court held that the concern of and attempts by Aid/Watch to promote the
effectiveness of aid delivery was clearly aimed at the relief of poverty and that the
promotion and generation by lawful means of public debate about matters affecting the
better use of and delivery of Australian aid was a matter falling within the fourth Pemsel
head, i.e., purposes beneficial to the community.
 • In order to be valid as a gift for

Trusts
the relief of poverty the law
does not require that the
persons to be benefited should

for the be destitute, or even on the

border of destitution: Re
Gillespie (dec'd) [1965] VR 402

Relief of at 406, per Little J. Rather a

trust will relieve poverty when it
provides money to those who

Poverty would have to ‘go short’

because of their financial
status: Re Coulthurst (dec'd)
 • Gifts to a Community
• Public Works and
Beautification Trusts
Trusts for • Animals and Wildlife
Purposes • Protection from War
which are and Disaster
• Relief of Taxes
Beneficial to • Public Recreation and
the Sport
Community • Public Safety and
Defence
Trusts with
Mixed
Charitable • If cannot sever the non-charitable element

and Non- •
the trust will fail
Compendious gifts include gifts for ‘objects of
Charitable benevolence and liberality,’ Morice v Bishop
of Durham. Additionally, if the gift is worded to

Purposes give the trustee a discretion to choose

between charitable and non-charitable
purposes, the gift will fail. An example of such
a gift is a gift for ‘charitable or benevolent
purposes’
 Enforcement
and • General Administrative Schemes
Administration • Cy-pres Schemes
•
of Charitable Initial Impossibility
• Supervening Impossibility
Trusts • Satisfaction of Original Purpose
• Statutory Powers
 • CHARITIES ACT 1978 - SECT 2
• Occasions for applying property cy près (1) Subject to
subsection (2), the circumstances in which the original purposes of a
charitable gift can be altered to allow the property given or part of it to
be applied cy près shall be as follows—
• (a) where the original purposes, in whole or in part—
• (i) have been as far as may be fulfilled; or
• (ii) cannot be carried out, or not according to the directions
given and to the spirit of the gift; or
• (b) where the original purposes provide a use for part only of
the property available by virtue of the gift; or
• (c) where the property available by virtue of the gift and other
property applicable for similar purposes can be more effectively used
in conjunction, and to that end can suitably, regard being had to the

Cy-pres •
spirit of the gift, be made applicable to common purposes; or
(d) where the original purposes were laid down by reference to
an area which then was but has since ceased to be a unit for some

doctrine other purpose, or by reference to a class of persons or to an area

which has for any reason since ceased to be suitable, regard being
had to the spirit of the gift, or to be practical in administering the gift; or
• (e) where the original purposes, in whole or in part, have, since
they were laid down—
• (i) been adequately provided for by other means; or
• (ii) ceased, as being useless or harmful to the community
or for other reasons, to be in law charitable; or
• (iii) ceased in any other way to provide a suitable and
effective method of using the property available by virtue of the gift,
regard being had to the spirit of the gift.
• (2) Subsection (1) shall not affect the conditions which must be
satisfied in order that property given for charitable purposes may be
applied cy près, except in so far as those conditions require a failure of
the original purposes.
 Trusts for the
maintenance of pets
Valid Non-
Charitable
Purpose Trusts for the
Trusts construction and
maintenance of tombs
unassociated with
churchyards
 • A non-charitable purpose trust can be
validated as a gift to all the present and future
members of an unincorporated association.
• Unincorporated association is not a separate
legal entity
• This requires capacity to distribute to every
Unincorporated member along with intention not to create a
Associations trust, the number and disposition of the
members of the association, the subject
matter of the gift and the capacity of the
members to put an end to the association and
distribute the assets.