Harmony - The Dombroski Foundation Ltd v Attorney General in and for the State of New South Wales - [2020] NSWSC 1276 - NSWSC 2020 case summary

Supreme Court of NSW|2020-09-11|Before: Ward CJ

Background

By reference to the agreed statement of facts and the affidavits read on this application (being an affidavit affirmed 10 December 2019 by Francis Jean Mougel, a founding director of the Foundation; and part of an affidavit sworn 9 May 2019 by Lisa Devine, a current director of the Foundation), the background to the present application may be summarised as follows.
Mr George Dombroski was born in 1916. He and his sister, Pamela, who died on 25 February 1998, resided together for many years at a property in Balaclava Street, Balaclava (the Balacalva Street Property) and owned various other parcels of land in Mittagong. Mr Francis Mougel was a friend and carer of both Mr Dombroski and Pamela.
On 14 August 2001, Mr Dombroski and Mr Mougel founded the Foundation (as a company limited by guarantee).
For some time prior to the establishment of the Foundation, the possibility of the establishment of a foundation was discussed between Mr Dombroski, Pamela and Mr Mougel. In particular, they discussed establishing a foundation to maintain and develop the property which they owned and to apply that property for charitable purposes. Mr Dombroski and Pamela wanted to keep the parcels of land united and for the properties to remain accessible for the good of the community by maintaining community gardens, permaculture, providing access to an open range of artistic activities, spiritual and philosophical studies and providing residence for visitors, thereby creating a "sanctuary" (see [11] of Mr Mougel's affidavit).

Submissions

In summary, the Foundation (as noted, with the agreement of the Attorney) submitted that: the Foundation is a charitable organisation; the property, including real property, gifted to the Foundation in the past is (or, in the case of property no longer held, has been) held on a charitable trust for the charitable purposes set out in cll 2(a)-(h) of the Constitution; and income received and any other property derived by the Foundation during the course of using such gifts (in furtherance of its objects) is trust property (i.e., such income and property is impressed with the same charitable trust).
As noted above, it was the joint position of the Foundation and the Attorney that the original purposes of that charitable trust have ceased to provide a suitable and effective method of using the trust property within the meaning of s 9 of the Charitable Trusts Act and that the trust property should be applied cy-près. For that purpose, as also noted, they proposed that the Constitution be replaced with the proposed constitution at Annexure B to the amended summons. It was submitted that this is appropriate because, inter alia, the proposed constitution includes a much clearer statement of the objects of the Foundation (and thus the charitable trust) and those objects are within the spirit of the original purposes of the charitable trust. The Attorney emphasised, in this regard, that the proposed new constitution provides separately for the objects of the corporate entity and the objects of the trust (see T 6).
I now turn to the disposition of the application.

Determination

The first declaration sought in the amended summons was a declaration that the Foundation holds its property subject to a valid charitable trust, within the meaning of s 3 of the Charitable Trusts Act, for the purposes set out in cl 2 of the Constitution.

Prayer 1 - declaration as to valid charitable trust

A determination as to whether an entity such as the Foundation is a charitable organisation involves an examination of the objects of its constitution and the manner in which those objects were, or are, effected by its activities (see Grain Growers Ltd v Chief Commissioner of State Revenue [2015] NSWSC 925 (Grain Growers) at [37] per Black J; Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204; [2008] HCA 55 (Word Investments) at [17] per Gummow, Hayne, Heydon and Crennan JJ). It is noted that that examination requires an holistic enquiry to discern the organisation's purpose, not a separate analysis of each specific activity undertaken by the organisation (see Word Investments at [26]) and that the focus is on whether the main object is charitable. It is further noted that it is permissible for a charitable organisation to have objects that are incidental or ancillary to the main object (see Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation (2005) 142 FCR 371 at [41]; [2005] FCA 439 per Heerey J).
In the present case, the parties submitted that it is apparent from the objects in cll 2(a)-(h) of the Constitution (as extracted above) that the Foundation's purposes are charitable within the spirit and intendment of the Charitable Uses Act of 1601 (43 Eliz I, c. 4) (Charitable Uses Act 1601) and the observations in Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531 (Pemsel) at 583 per Lord Macnaghten.
It is well known that the four categories of charitable purposes identified in Pemsel reflect those in the Preamble to the Charitable Uses Act 1601: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community not falling under any of the preceding heads. As the parties submitted, however, the concept of charity, as understood by reference to those four categories, is not static; rather, it evolves over time to accommodate new social needs and values (see Aid/Watch Inc v Commissioner of Taxation (2010) 241 CLR 539; [2010] HCA 42 at [18], [23]-[24j per French CJ, Gummow, Hayne, Crennan and Bell JJ; Scottish Burial Reform & Cremation Society v Glasgow Corporation [1968] AC 138 (Scottish Burial) at 154 per Lord Wilberforce); and what is charitable in the legal sense should be considered in light of contemporary community values and beliefs and social infrastructure of contemporary society (see Scottish Burial at 154).
Turning to the particular objects set out in the Constitution (and noting that some of these appear to be in the nature of powers rather than objects per se), the parties here submitted that the objects in cll 2(a), (f), (g) and (h) of the Constitution clearly fall within the second category in Pemsel, namely "advancement of education". It was noted that that category is given a wide interpretation and encompasses improvement of a useful branch of human knowledge and its public dissemination (referring to Tantau v MacFarlane [2010] NSWSC 224 at [134]); and that education is not a static idea (referring to Inland Revenue Commissioners v McMullen [1981] AC 1 at 15 per Lord Hailsham).
In particular, it was submitted that the focus of cl 2(a) is research into and teaching and promotion of a healthy lifestyle. It was said that this involves "imparting knowledge or assisting and guiding the development of body or mind"; noting that, by analogy, it has been held that education of the public in the facts of human reproduction and matters concerning reproductive health and physical and social well-being is a charitable purpose (see Auckland Medical Aid Trust v Commissioner of Inland Revenue [1979] 1 NZLR 382 at 393). It was also noted that it has been held that promoting temperance is a charitable purpose (see Re Hood [1931] 1 Ch 240 at 250 per Lord Hanworth MR).
The parties pointed out that in Re Price; Midland Bank Executor & Trustee Company Ltd v Harwood [1943] Ch 422; 2 All ER 505, a trust for carrying on the teachings of Dr Rudolph Steiner (where such teachings were directed to "the extension of knowledge of the spiritual in man and in the universe generally and of the interaction of the spiritual and the physical" - see at 431 per Cohen J, as his Lordship then was) was held to be charitable.
As noted above, the Foundation, in pursuit of the object set out in cl 2(a), has undertaken or facilitated the undertaking of activities involving the promotion or teachings of Dr Rudolph Steiner, and I accepted that those teachings were an influence upon the founders of the Foundation and their desire for the Foundation to educate people about healthy lifestyles (see Mr Mougel's affidavit at [24]-[26], [28]-[32]).
The parties also submitted that cl 2(f) is directed at the carrying out of research into alternative energies and ecologically sound technologies and the dissemination of the results of such research; and that such purposes are for the "advancement of education". It was noted that, generally, trusts for the carrying out of research directed at adding to human knowledge and public dissemination of results are charitable (see Taylor v Taylor 10 CLR 218 at 224; [1910] HCA 4 per Griffith CJ).
The parties submitted that cll 2(g) and (h) are also directed at imparting knowledge amongst the community with respect to artistic, spiritual and philosophical matters and, as such, they are also for the "advancement of education". It was said that, by analogy, a gift for a centre for the cultivation, education and performance of musical and dramatic arts was held to be charitable (see Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (NSW) [1976] 1 NSWLR 127 at 132; [1977] AC 525 per Lord Wilberforce, delivering the judgment of the Board).
Insofar as the objects in cll 2(c)-(e) are concerned with the provision of services, support and assistance to persons who are socially disadvantaged, who have needs because they require special care or who require rehabilitation, the parties said that those objects fall within the first category in Pemsel (i.e., the relief of poverty) or, alternatively, within the first category and the fourth category (i.e., other purposes beneficial to the community).
It was noted that a trust may be for the relief of poverty even if it goes beyond relieving against poverty in the strict sense, referring to what was said by Martin CJ in Flynn v Mamarika (1996) 130 FLR 218 at 223 and by Walsh J (with whom Menzies J and Gibbs J, as his Honour then was, agreed) in Downing V Commissioner of Taxation (Commonwealth) (1971) 125 CLR 185 at 193-194; [1971] HCA 38). It was said that these observations are consistent with the Preamble to the Charitable Uses Act 1601 which listed (as one example) the "relief of aged, impotent and poor People" as being a charitable purpose. Reference was also made to cases in which consideration has been given to a gift targeted at persons who might be described (at least in part) by other terms suggesting poverty, such as "in needy circumstances" or "in special need" (see Re Cohen (deceased) [1973] 1 All ER 889 at 895 per Templeman J, as his Lordship then was), or "poor and needy" (see Estate of Flannah Raw Ward [1957] SASR 125 at 128 per Ross J) as being for the relief of poverty.
As for the fourth category in Pemsel (i.e., "purposes beneficial to the community"), it was noted that the relevant purpose is the benefit to the public generally, as opposed to individual members of the community, and that the purpose may be satisfied where a benefit is provided to a section of the public, notwithstanding direct or indirect incidental benefit to individuals, such as members of a profession (reference being made here to Inland Revenue Commissioners v Yorkshire Agricultural Society [1928] 1 KB 611 (Yorkshire Agricultural Society) at 622-623 per Lord Hanworth MR, 629-630 per Atkin LJ, as his Lordship then was, and 637 per Lawrence LJ, as his Lordship then was; Grain Growers at [31]). The parties pointed to the breadth of the fourth category in Pemsel as explained by Dixon J, as his Honour then was, in Barby v Perpetual Trustee Co (Ltd) (1937) 58 CLR 316; [1937] HCA 64 (see at 324).
In the present case, it was noted that both cll 2(d) and (e) are directed at "persons who are socially disadvantaged" (thus falling within the first category in Pemsel); and that cl 2(c) is concerned with persons in special need of care (also said to be encompassed by the first category or alternatively within the fourth category in Pemsel).
As to cl 2(b), which is concerned with the development of sustainable agriculture, it was said that this falls within the fourth category in Pemsel, reference here being made to authorities where valid charitable objects have been found to be for "an improvement of horticulture" (see, for example, In re Pleasants; Pleasants v Attorney-General (1923) 39 TLR 675) or for "the general promotion of agriculture" (see, for example, Yorkshire Agricultural Society) and to Re Centrepoint Community Growth Trust [2000] 2 NZLR 325, where the court (at [40]) accepted that the promotion of a "standard of living which enhances and sustains a quality of life that is not exploitive of the environment or people and that is permanent, healthy and sustainable for future generations" was a charitable objective within the fourth category in Pemsel.
As to the activities of the Foundation, it was submitted (and, I accepted) that in general the primary activities undertaken by the Foundation are (and, have been) commensurate with, and in pursuit of, the Foundation's objects. It was noted, however, that, save for making one research grant, the Foundation has not undertaken any activities in pursuance of the object in cl 2(f). It was noted that the activities of the Foundation have included those referred to above, including the construction of Harmony Village and the pursuit of Anthroposophy at retreats held at Harmony Village, and also the provision of temporary accommodation for people in crisis (including individuals with addiction and mental health issues).
Thus, it was submitted (and, again, I accepted) that the Foundation is a charitable organisation, within the principles outlined above. It was noted in this context that cll 3 and 59 of the Constitution have the effect that the income and property of the Foundation must be applied solely towards its objects and any such property cannot be paid or distributed to the Foundation's members.
As to the remaining provisions in cl 2 of the Constitution, the parties pointed out that, although cll 2(i)-(m) are listed under the general heading "Objects of the Foundation", they do not record any stated object or purpose. It was said that these are more properly characterised as provisions which confer powers on the Foundation for the purpose of carrying out or fulfilling the objects in cll 2(a)-(h) and, in that sense, cll 2(i)-(m) might be seen as incidental to those objects.
Therefore, I accepted that the Foundation is a charitable organisation and that, in those circumstances, it should be concluded that the property held by the Foundation, including the real property described above is (or, in the case of property no longer held by the Foundation, was) held by it on a charitable trust (i.e., for one or more of the charitable objects in cll 2(a)-(h) of the Constitution).
As to the latter proposition, the parties noted what was said by Kearney J (at 416) in Sir Moses Montefiore Homes v Howell & Co (No 7) [1984] 2 NSWLR 406 (Montefiore) to the effect that a disposition to a charitable corporation is to be treated as having presumptively the necessary elements creating a trust "so that the disposition to such a charitable corporation takes effect as a trust for the purposes of the corporation rather than as a gift to it to be applied as it sees fit". Kearney J there referred to the observations of Kitto J in Sydney Homoeopathic Hospital v Turner (1959) 102 CLR 188 at 222; [1959] HCA 19, considering (at 416) that no distinction should be made between an unincorporated organisation and one which is incorporated (cf the distinction made in Re Vernon's Will Trusts [1972] Ch 300). It was noted that Kearney J's approach in Montefiore was cited with approval by Kourakis J (as his Honour then was) in Australian Executor Trustees Ltd v Attorney-General (SA) [2010] SASC 348 (see at [49]) and in Re Coulson [2014] VSC 353 (see at [39] per McMillan J).
I accepted that it follows from the conclusion that the Foundation is a charitable organisation, and on the material referred to above, that the real property donated to the Foundation by the late Mr Dombroski and Ms Morris, as well as other gifts made to the Foundation by the late Mr Dombroski and others, are to be treated as having been held by the Foundation on a charitable trust for the purposes set out in cll 2(a)-(h) of the Constitution. In particular, I accepted that the donation of the land by Mr Dombroski enabled the Foundation to undertake activities in furtherance of its objects. I also accepted that any income received and any other property derived by the Foundation during the course of using such gifts (in furtherance of its objects) is trust property (i.e., it is impressed with the same charitable trust), the parties here citing Attorney General for the State of Queensland (Ex rel Nye) v Cathedral Church of Brisbane (1977) 136 CLR 353 at 371-372; [1977] HCA 15 per Jacobs J (with whom Stephen, Mason, as his Honour then was, and Murphy JJ agreed) and University of New South Wales International House Ltd v University of New South Wales [2016] NSWSC 1709 at [64], [130]-[136] per McDougall J).
I was therefore satisfied that the declaration sought in prayer 1 of the amended summons should be made.

Prayer 2 - trust property should be applied cy-près

Section 9 of the Charitable Trusts Act extends the circumstances within which the Court may order a cy-près scheme (see Attorney General for New South Wales v Fulham [2002] NSWSC 629 (AG v Fulham) per Bryson J, as his Honour then was, at [16]-[17]; Free Serbian Orthodox Church Diocese for Australia and New Zealand Property Trust v Dobrijevic (2017) 94 NSWLR 340; [2017] NSWCA 28 (Free Serbian Orthodox Church) per Payne JA [196]-[197]), it no longer being necessary to establish that the achievement of the trust purposes is impossible or impractical.
The test is whether the original purposes of the trust have ceased to provide a suitable and effective method of using the property, in whole or in part, having regard to the "spirit of the trust" (a broader conception than the original purposes of the trust) (see Payne JA in the Free Serbian Orthodox Church). As to what is meant by the concept of the "spirit of the trust", I note what was said by Leeming J, his Honour sitting in the Equity Division, in Perpetual Trustee Co Ltd v Attorney General for the State of New South Wales (The Will of the Hon George Nesbitt) [2018] NSWSC 1456 (Re Nesbitt) (see at [56]-[70]), his Honour referring (at [63]) to the observations of Morritt LJ in Versani v Jesani [1999] Ch 219 at [24]).
The parties submitted that the original purposes of the trust in the present case (of advancing education in philosophies and practices having the goal of a healthy lifestyle through certain means) have ceased to provide a suitable and effective method of using the trust property for the following reasons.
First, they pointed to the fact that the objects in the Constitution are broad and disparate. It was said that there is no guidance in the Constitution as to which of its objects, if any, are to be prioritised in the use of trust property. Further, it was said that the proper fulfilment of the various disparate objects requires relatively more time, income, property and resources than would be the case if the objects were narrower (but still within the spirit of the underlying purposes of the Foundation). The Attorney, in particular, emphasised the concept of efficiency in relation to the trust objects and submits that the Constitution does not contain sufficient mechanisms to ensure the proper administration of trust property (as evidenced by certain of the Foundation's past transactions).
Second, and related to the complaint as to the breadth and attendant ambiguity of the stated objects in the Constitution, the parties pointed to various transactions undertaken in the past which they say "may not have fallen squarely within" any one or more of the objects in the Constitution, referring to Ms Devine's affidavit (at [15]), in which she deposes that the diversity of the objects is such that the Foundation has found it difficult to work with them.
Third, the parties pointed to the fact that cl 2 of the Constitution contains provisions which are not truly objects (i.e., cll 2(i)-(m)), which it was said adds to the inexpediency of the original trust purposes.
After some reflection, I accepted the proposition that (focussing not so much on whether the original trust purposes remained suitable but on whether they remain effective), the sheer breadth of the objects coupled with the confusing manner in which objects and powers are stated in the Constitution has given rise to ineffective uses of the trust property or uses of the trust property that were not in accordance with the spirit of the trust. For that reason, and the difficulty which the director of the Foundation (Ms Devine) has identified as arising from the disparity of objects, I concluded that the original purposes of the trust have, indeed, ceased to provide a suitable and effective method of using the property, in whole or in part, having regard to the "spirit of the trust", that being properly identified as the advancement of education in philosophies and practices having the goal of a healthy lifestyle (through certain means) (see, in particular, Mr Mougel's affidavit at [19]). In this regard, the Attorney pointed to the focus in the discussions between Mr Mougel and the late Mr Dombroski prior to the establishment of the trust on community and their desire for the Foundation to have a social aspect and develop a humanitarian presence in the community for both the advancement of education and promotion of a healthy lifestyle, the arts and more generally; and to relieve the poverty by supporting people in need in the community, including providing accommodation and free counselling and medical assistance when required.
For those reasons, I concluded that it was appropriate to make the declaration sought in prayer 2 of the amended summons.

Prayers 3 and 4 - proposed cy-près scheme

The jurisdiction to settle schemes in relation to the carrying out of charitable trusts is well understood. It was described in Hunter Region SLSA Helicopter Rescue Service Ltd v Attorney General for New South Wales [2000] NSWSC 456 (at [2]-[3] per Hamilton J) (and see also Phillips v Roberts [1975] 2 NSWLR 207 at 211-212 per Hutley JA; AG v Fulham per Bryson J, as his Honour then was, at [18]-[83]).
As noted above, the parties had agreed on a cy-près scheme that involves the replacement of the Constitution with the proposed constitution at Annexure B to the Amended Summons. They submitted that the proposed constitution is appropriate because: it includes a much clearer statement of the objects of the trust (cl 5); the objects listed in cl 5 are within the spirit of the trust (as identified above), without being needlessly broad; there is a clear delineation between the objects of the trust, on the one hand, and those of the Foundation as a corporate entity, on the other hand; and also between the objects which the Foundation is to pursue and the incidental powers which the Foundation has for the purposes of pursuit of those objects (cl 3(a) and (b)); and the powers of the Foundation are recorded in clearer manner and include express limitations on the use of trust property (cl 4 and cl 7).
It was noted that the agreed position of the parties, particularly regarding the need for the application of the trust property cy-près, is a relevant matter to take into account in this regard (the parties citing in this context what was said by Slattery J in Ubiparipovic v Vucicevic [2018] NSWSC 1583 at [4] and [6]-[9]; and by Robb J in Russell v Attorney Genera! of New South Wales [2019] NSWSC 98 at [37]).
I accepted that the proposed scheme, which (as noted) includes the adoption of a new constitution allowing for proper governance with specific guidance about powers and duties, and limitations on those powers, and with a clear statement of the purposes for which the Foundation's property is to be applied, is appropriate and is consistent with the original spirit of the trust. I therefore accepted, for the reasons submitted by the parties and having regard to the proposed new constitution, that it was appropriate to make the orders sought in prayers 3 and 4 of the amended summons.

Prayer 5 - costs

The Foundation sought an order for its costs to be paid out of the assets of the trust on an indemnity basis, submitting (and, I accepted) that the application had been properly made and that there was, and is, no question that its costs have been properly incurred (and referring generally to Re Nesbitt at [122]-[128]). I accepted that such an order was appropriate.
The Attorney did not seek his costs.

Orders

For the above reasons, on 11 September 2020, I made the following declarations and orders: 1. The Court declares that the plaintiff holds its property subject to a valid charitable trust within the meaning of section 3 of the Charitable Trusts Act 1993 (NSW) for the purposes set out in clause 2 of its Constitution which is Annexure A to these orders. 2. The Court declares that in the circumstances the original purposes of the charitable trust have, since they were laid down, ceased to provide a suitable and effective method of using the trust property, having regard to the spirit of the trust, within the meaning of section 9 of the Charitable Trusts Act 1993 (NSW). 3. The trust property be applied cy-près and that a scheme be established whereby the trust property be applied for the purposes set out in clause 5 of the proposed Constitution which is Annexure B to these orders. 4. The plaintiff do all such things as are necessary to adopt the proposed Constitution. 5. The costs of the plaintiff are to be paid out of the assets of the trust on the indemnity basis and that the defendant is to bear his own costs.
Further, I noted that any amendments to the Constitution as may be made by the members of the plaintiff in the future will not have effect to alter the trust purposes pursuant to the cy-près scheme in order 3; and that should any further alteration of the trust purposes in the future be desired, this can only be effected through a further cy-près scheme.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 September 2020

Inland Revenue Commissioners v Yorkshire Agricultural Society [1928] 1 KB 611 Perpetual Trustee Co Ltd v Attorney General for the State of New South Wales (The Will of the Hon George Nesbitt) [2018] NSWSC 1456 Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (NSW) [1976] 1 NSWLR 127 Phillips v Roberts [1975] 2 NSWLR 207 Re Centrepoint Community Growth Trust [2000] 2 NZLR 325 Re Cohen (deceased) [1973] 1 All ER 889 Re Coulson [2014] VSC 353 Re Hood [1931] 1 Ch 240 Re Price; Midland Bank Executor & Trustee Company Ltd v Harwood [1943] Ch 422; 2 All ER 505 Re Vernon's Will Trusts [1972] Ch 300 Russell v Attorney Genera! of New South Wales [2019] NSWSC 98 Scottish Burial Reform & Cremation Society v Glasgow Corporation [1968] AC 138 Sir Moses Montefiore Homes v Howell & Co (No 7) [1984] 2 NSWLR 406 Sydney Homoeopathic Hospital v Turner (1959) 102 CLR 188; [1959] HCA 19 Tantau v MacFarlane [2010] NSWSC 224 Tasmanian Electronic Commerce Centre Pty Ltd v Commissioner of Taxation (2005) 142 FCR 371; [2005] FCA 439 Taylor v Taylor 10 CLR 218; [1910] HCA 4 Ubiparipovic v Vucicevic [2018] NSWSC 1583 University of New South Wales International House Ltd v University of New South Wales [2016] NSWSC 1709 Versani v Jesani [1999] Ch 219 Category: Principal judgment Parties: Harmony - The Dombroski Foundation Limited (Plaintiff) Attorney General in and for the State of New South Wales (Defendant) Representation: Counsel: H El-Hage (Plaintiff) A Hochroth (Defendant)

Harmony - The Dombroski Foundation Ltd v Attorney General in and for the State of New South Wales

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