McDONALD v. BRITISH-ISRAEL-WORLD FEDERATION IN NSW LIMITED [2005] NSWSC 1026

The issues 15 Parties interested in the Blackheath property and the residuary bequest in the Will of the late Kenneth Dudley Nichols have raised issues as to:-

(a) whether or not the bequest in the will has failed by reason of the winding up of the company;

(b) if the gift has not failed, should the Administrator distribute the gift to the company in liquidation or to another entity? 16 The applicant's view is that:-

(a) the provisions of clause 3 of the Will meant that the company's New South Wales branch became the beneficiary and entitled to a distribution in accordance with that clause. He contends that the fact that the company was wound up is irrelevant for the purposes of administration of the deceased's estate.

(b) the bequest not having failed, he constitutes the "governing body" of the company by virtue of his appointment as its liquidator. Accordingly he remains entitled to the fund of property being the Blackheath property and any other residuary estate. 17 On 9 September 2004, the British-Israel-World Federation in London advised the applicant that the British-Israel-World Federation in New South Wales Limited (hereafter referred to as "BIWF in NSW") is the affiliate for that organisation within New South Wales.

Alternative claimants 18 There are, depending upon whether the gift in question has failed, two alternative claimants upon the fund:-

(a) British-Israelite-World Federation Australia Limited (ACN 103 431 465) incorporated on 20 January 2003; and

(b) British-Israel-World Federation in New South Wales Limited (ACN 110 588 700) incorporated on 19 August 2004 (" BIWF in NSW" ). 19 Mr. Boyle, solicitor, was present during the hearing of the application on 16 June 2005 representing British-Israelite-World Federation in Australia but took no part in the proceedings. He did not seek to file any evidence or to appear. The entity referred to in (a) above was served with the summons by service effected upon Mr. Boyle. 20 I note at this point certain history recorded in the judgment of Campbell, J. delivered in proceedings No. 1630 of 2001 entitled Leon Gregor v. British-Israel-World Federation (New South Wales Branch) on 19 March 2003. At paragraph 10, his Honour observed:- "There appeared before me today, Mr. Boyle, solicitor. He acts for certain of the former directors of the British-Israel World Federation (New South Wales Branch). He informs the court that one outcome of the internal divisions which are catalogued in Justice Austin's judgment is that one group of members of the British-Israel World Federation (New South Wales Branch) have now formed a new company called British-Israelite Federation Limited, which seeks to carry on in New South Wales similar activities to those which the British-Israel World Federation (New South Wales Branch) formerly carried on. Mr. Boyle contends that his client will be someone entitled, under clause 7 of the will, to the benefits given under the will of Mr. Nichols to the British-Israel World Federation (New South Wales Branch)." 21 Campbell, J. proceeded to refer to a number of aspects including:-

(a) the provisions in the Memorandum of Association of the company as to surplus assets on winding up (involving transfer of such assets to the British organisation, British-Israel-World Federation, unless members resolve otherwise);

(b) difficulties of construction of Mr. Nichol's Will, which will need to be resolved before any decision can be made about the ultimate destination of those funds:- "… there is a problem of construction of Clause 3, as to whether the gift is intended to be one to the members of the governing committee beneficially or whether it is a gift given on trust for the corporation. There is a question of whether the gift for the benefit of the Federation is one for the Federation in its own right, or whether it is for the purposes of the Federation. If the latter, there is a question of whether those purposes are charitable, or not." 22 I note at this point that on 2 April 2003, Mr. Boyle wrote to Access Business Lawyers who act on behalf of the applicant, contending that "the proposed 'trusts' and devise in the will have obviously failed and become void with the liquidation of the potential beneficiary …" (p. 3) (exhibit folder GDM-1, Tab 21). Mr. Boyle went on to state:- "Our client company may be a potential beneficiary, either directly pursuant to operation of clause 7 of the will (most likely), or upon consideration of similar organisation in NSW (sic) accordingly to operation of the Articles and Memo of the Company in Liquidation …" 23 The exhibit folder GDM-1, contains a series of communications between Mr. Boyle and Access Business Lawyers. It is unnecessary here to detail the contents thereof. 24 When previously acting on behalf of the company, Mr. Boyle, on 30 March 2001, lodged a caveat on its behalf on the title to the Blackheath property claiming an equitable interest in it as a beneficiary under the Will. 25 An affidavit of service of Graham Lancaster sworn 25 May 2005 in relation to service on the above two claimants was filed and read on behalf of the Administrator. Mr. S.J. Johnson of counsel appeared on his behalf and Mr. P.R. McGuire of counsel appeared on behalf of BIWF in NSW. I record my appreciation to both counsel for their concise and helpful submissions.

The evidence 26 The applicant relied upon a number of affidavits, in part constituting Exhibit A. They included affidavits filed in the Probate List (proceedings no. 110360 of 2003). The affidavits in question are:-

(a) affidavit of Geoffrey David McDonald, chartered accountant and official liquidator, sworn 27 October 2004 in proceedings no. 110360 of 2003 (and associated exhibits folder GDM-1).

(b) affidavit of Graham Lancaster, solicitor, sworn 11 February 2005 in proceedings no. 110360 of 2003.

(c) Further affidavit of Graham Lancaster sworn 11 February 2005 in proceedings no. 110360 of 2003. 27 Affidavits were filed and read on behalf of BIWF in NSW, in particular:-

(a) Affidavit of Leon Philip Gregor sworn 12 February 2005 in proceedings no. 110360 of 2003.

(b) Affidavit of Wilson Moore, chartered accountant, sworn 14 February 2005 in proceedings no. 110360 of 2003.

(c) Affidavit of Mathew James Browning sworn 26 February 2005 in proceedings no. 110360 of 2003.

(d) Affidavit of Michael John Fitzgerald, solicitor, sworn in these proceedings on 15 June 2005.

Salient facts 28 The applicant, Mr. McDonald, in his affidavit sworn 27 October 2004 stated his understanding that the company was originally affiliated with the London Branch of the British-Israel-World Federation and states that provision is made in its Articles of Association for the property to be returned to BIWF upon winding up. 29 The applicant in the same affidavit stated (paragraph 74):- "Having regard to the comments of Justice Austin in his judgment of 29 April 2002, and particularly paragraphs 11, 16, 148 and 160, I believe that the appropriate course to deal with the estate of the late Kenneth Nichols would be to:- (a) transfer all assets to the company; (b) after resolving all claims against the company in liquidation, distribute any surplus in accordance with paragraph 6 of the Memorandum and Articles of Association, in accordance with any directions from BIWF (London)." 30 It is at this point appropriate to refer to the company and the British-Israel movement and, in that respect, I draw upon the historical facts as recounted by his Honour, Justice Austin, in his judgment of 29 April 2002 in proceedings no. 1630 of 2001 entitled Leon Gregor & Trevor Baker v. British-Israel-World Federation (in which proceedings his Honour determined that it was just and equitable for the company to be wound up). 31 The British-Israel movement is a group of organisations existing mainly in the British Commonwealth and North America. The members of the movement generally believe that the 10 lost tribes of the northern house of Israel's descendants are to be found in the Anglo-Saxon-Celtic and kindred people of today. They profess to be Christians who insist that they believe in the whole Bible, and that they hold that the British nation plays an important part in God's plan. The Federation was fairly prominent and had a large membership during World Wars I and II but that the numbers of members has declined since that time. 32 The headquarters of the Federation is in London. The British body is called the British-Israel-World Federation. A branch of the Federation has existed in New South Wales for many years. Before November 1929, there was an unincorporated body called the British-Israel-World Federation - Sydney Branch. As I have previously recorded, in November 1929, the Company was formed to take over the assets and liabilities of that body. The Company being a company limited by guarantee was licensed as a non-profit company to dispense with the word "limited" from its title. 33 The evidence before me indicates that BIWF issued a certificate dated 1 October 1939 certifying that "BIWF (New South Wales Branch) is recognised by and in affiliation with the British-Israel-World Federation". I note at this point that in relatively recent years the BIWF later withdrew certification. This arose from an internal dispute between members of the defendant company for control of it (see history "withdrawal of application by BIWF" in the judgment of Austin, J. in proceedings no. 1630 of 2001 dated 29 April 2002). The British-Israel-World Federation in New South Wales Limited ( BIWF in NSW ) and the administrator 34 Mr. McGuire of counsel outlined the issues between his client (BIWF in NSW) and the Administrator/applicant in relation to the bequest concerning the Blackheath property. Mr. McGuire stated that there was at least an argument to the effect that the gift may have failed and, if so, then his client appears in the proceedings in order to contend that clause 7 of the will applies to his client, it being the charity closest to the company and therefore should take under the Will. 35 If the gift has not failed, then reliance is placed by Mr. McGuire's client upon particular provisions of the Articles of Association of the company in liquidation for the distribution of the unadministered residue of the estate to the British-Israel Federation which has recognised and affiliated his client. Accordingly, an order is sought in this respect for distribution of any residue of the estate to his client. 36 The BIWF in NSW in particular relied upon the affidavits of Mr. Gregor sworn 11 February 2005. The constitution of the respondent company was relied upon to show it as a like-minded charity or organisation and thereby qualifying under clause 7 of the will. Mr. Gregor's affidavit annexed a copy of the relevant certificate of affiliation that was issued by the British-Israel-World Federation. 37 Mr. McGuire also relied upon the affidavit of Mr. Wilson Moore sworn 11 February 2005 which establishes that an application has been made to the Australian Taxation Office for the respondent organisation to be registered as a charity. The evidence indicates that there is a reasonable prospect that it will be so registered. 38 The affidavit of Mr. Browning, director of the BIWF in NSW attests to the issue of a certificate of affiliation to that organisation and that the latter shares the same goals and objectives as the company now in liquidation (relevant to clause 7 of the Will). He states that one of the functions of the BIWF is to recognise branches in other countries as affiliates and to issue certificates of affiliation to branches that meet its religious and other objectives. 39 Mr. Browning's affidavit is relevant if the gift has not failed. Against the background of the BIWF in NSW application of 8 September 2004 to be recognised as the affiliated branch of the BIWF and the granting of the application on 9 September 2004, BIWF in London does not wish to receive any distribution from the estate of Kenneth Dudley Nichols "and respectfully requests that any such distribution instead be made directly to BIWF in New South Wales" (paragraph 10 of Mr. Browning's affidavit). Mr. Browning adds:- "11. The BIWF does not wish to receive any distribution under the constitution of British-Israel-World Federation (New South Wales Branch) (now in liquidation) and respectfully requests that any such distribution instead be made directly to BIWF in New South Wales." 40 Mr. Robinson further stated that "… in the event that any distribution is made to the BIWF, the BIWF will hold such property on trust for BIWF in New South Wales and then transfer such property to BIWF in New South Wales at the earliest opportunity" (paragraph 12).

The stance taken by the Administrator 41 The administrator brings this application for directions pursuant to s.63(1) of the Trustee Act 1925. The provisions of that section provide the jurisdictional foundation for the application. 42 As earlier noted, Mr. McDonald is both the administrator of the estate (having been appointed in July 2003) and the liquidator of the company in liquidation (having been so appointed in May 2002 by Austin, J.). He has been conscious of the fact that in that sense he "wears two caps". 43 As issues have been raised as to entitlement to distribution and possible failure of the bequest to the Company in liquidation, Mr. McDonald has properly been concerned to establish, as he maintains, that the bequest has not failed and that the monies ought to be distributed to the Company in liquidation. As Mr. Johnson of counsel on his behalf expressed it, the Administrator's concern is that, unless the court is satisfied that the position be maintains is the appropriate one, he might, in effect, be said to be in a position of favouring himself as the official liquidator of the company.

The terms of clause 3 of the Will 44 I have set out the terms of clause 3 in paragraph 11 of this judgment. In relation to clause 3, I note the following:-

(a) The bequest under the clause is a bequest not to "the Company" per se but to "the governing committee of (the company)" .

(b) The bequest is accompanied by a direction that the gift or bequest "should be used for the benefit of the Federation it being my wish that the said property be retained for the purposes of the Federation …" .

(c) The bequest is also accompanied by a restraint on alienation except as declared in the clause. 45 The position taken by Mr. McDonald is that he, being the liquidator of the Federation, is the governing committee. 46 I will return to consider the significance of clause 3 in relation to the issue as to whether or not the gift under the will has failed.

The stance taken by BIWF in New South Wales 47 Mr. McGuire of counsel described his role on behalf of his client as a "protective" one by which he elaborated meant a role in protecting his client against the position taken by British-Israelite World Federation of Australia as foreshadowed in correspondence written by Mr. Boyle. Mr. McGuire observed that, given the failure by Mr. Boyle's client to file evidence in these proceedings and its failure to appear, it was unlikely that an order benefiting Mr. Boyle's client would be made. 48 The interest of BIWF in NSW, however, may also properly be seen as an affirmative one in that, if the court held that it had jurisdiction to so order, it would be one which would favour his client even though BIWF in NSW is not a party with standing to claim and has not and could not make a formal claim in proceedings of the kind with which I am concerned.

Has the gift failed? 49 This is the fundamental question to be answered. Mr. McGuire drew attention to the judgment in Re ARMS (Multiple Sclerosis Research) Limited; Alleyne v. Attorney General & Anor (1997) 2 All ER 679 to both Mr. Johnson and to the court. Whilst observing that the judgment in that case was the nearest authority in point to the circumstances of the present case, Mr. McGuire contended that that decision was distinguishable for reasons stated in paragraph [51]. 50 If the bequest in clause 3 of the Will, properly construed, was an absolute bequest to the company, then on the authority of the Re ARMS (Multiple Sclerosis) case, the bequest did not fail. This is upon the basis that, at the date of death, the company was then in existence. The subsequent winding up cannot effect the position as at the date of death. This represents the view of the Administrator and on that basis he maintains that he is obliged to transfer the Blackheath property and any surplus cash after the costs of the administration to the company to be dealt with in that administration in accordance with paragraph 6 of the Memorandum and Articles of Association (which is set out earlier in this judgment) and not by direct transfer to the new body BIWF in NSW. The Administrator also relied upon s.44(1) of the Wills, Probate & Administration Act 1898 which, in this case, vests upon grant of probate, the estate property in the Administrator back to the date of death. Before resolving the fundamental question in the present case, I will deal with Mr. McGuire's submissions on the authority of Re ARMS (Multiple Sclerosis).

Is Re ARMS (Multiple Sclerosis Research) Limited distinguishable? 51 Mr. McGuire submitted that the decision in that case is distinguishable. Whether, even if that be so, it provides a different outcome is another question. The points of distinction were identified as:-

(a) The bequest in the Multiple Sclerosis case was an absolute gift. It was not expressed in terms of a charitable trust.

(b) The bequest, it was said in contrast here, was a charitable trust to be used for charitable purposes in terms of clause 3 of the Will.

(c) Following the death on 23 May 2002 of the executor, Mr. Baker (to whom probate had been granted on 25 November 1997), some time elapsed before the Court made the winding up order on 29 April 2002. There was, therefore, a period of 15 months when the estate was left unadministered during which period there was no administrator in whom estate property could vest, Mr. McDonald not being appointed administrator until 23 January 2004. 52 The question as to whether the Multiple Sclerosis case is distinguishable turns, in my opinion, upon the terms of the bequest in clause 3 of the Will and the proper construction to be given to those terms. 53 The designated donee is the "governing committee" of British-Israel-World Federation (New South Wales Branch), the members of which are then bound by the imperative direction "AND I DIRECT that this gift shall be used for the benefit of the Federation …". 54 There is a matter of importance encapsulated in this direction. The obligation imposed by clause 3 is appropriate to establish a trust in favour of "the Federation" as the intended beneficiary. The words of the clause , in my opinion, construed in context, specify that the gift of the Blackheath property is for the Federation to be held by the governing committee on trust for it. The gift is expressed, not in terms that it is to be for the objects or purposes of the Federation, but for the "benefit" of it. This second point is of some significance to Mr. McGuire's argument that the terms of clause 3 should be read as giving rise to a trust for charitable purposes and that the winding-up of the Federation meant that the purposes of the trust could no longer be fulfilled. The gift for that reason it was argued has failed. I will return to this point shortly. I will meanwhile continue my consideration of the words of clause 3. 55 Immediately following the bequest and direction to which I have referred, appears the following words:- "… it being my wish that the said property be retained for the purposes of the Federation and, in particular, to provide a venue for conducting educational and service programmes and courses …" 56 This is then followed by a further declaration prefaced by the words, "it is my wish" namely the testator's wish that there be a restraint on alienation. 57 I return to Mr. McGuire's argument that the trust created by the Will was one for charitable purposes. Upon consideration of the matter, I am unable to agree for at least two reasons. Firstly, unlike the direction which, as expressed, is a mandatory or imperative one, the expression immediately following "it being my wish", is not of that character. Secondly, two points concerning the subject matter of the expressed "wish" may be noted:-

• the testator's expressed wish that the property be retained for the purposes of the Federation adds little to the preceding trust obligation by which the governing committee is required to hold the property "for the benefit" of the Federation;

• the words that then follow "and, in particular, to provide a venue …" (as set out above) are part of the testator's expressed wish but again do not add or detract from the primary bequest which is simply that the gift "shall be used for the benefit of the Federation" . 58 It is unnecessary to extensively analyse authorities that have considered the effect of expressed "desires" or "wishes" of testators in specific testamentary contexts. It is sufficient to refer to cases where words of desire or expressed "wish" of a testator have been examined in order to determine whether they can be said to constitute a form of imperative direction: Gunther v. Commissioner of Stamp Duties (1932) 33 SR(NSW) 95, 99-100; Hayes v. National Heart Foundation of Australia (1976) 1 NSWLR 29, 32-33 (Needham, J.); Re the Will of Logan (1993) 1 Qd R 395, 398. See also West v. Federal Commissioner of Taxation (1949) 79 CLR 319. 59 The construction of clause 3, as I have discussed and analysed it, is sufficient to dispose of the argument advanced by Mr. McGuire. I should, however, add that apart from the fact that the words of clause 3 do not, in my opinion, give rise to a charitable trust obligation of the kind contended for, there is little evidence to establish activities of the company in New South Wales before and after the testator's death, which could characterise them as undertaken for charitable purposes arising under a trust. I am mindful of the objects clause set out in the Memorandum of Association, including clause 3(1), which refers to the teaching and instruction in the Bible with special reference to the "chosen people, Israel and the promises … to … such people …". Trusts for the advancement of religion have, of course, been considered in a large number of cases. Accordingly, it has been said that "to advance religion means to promote it, to spread its message ever wider among mankind, to take some positive steps to sustain and increase religious belief and those things are done in a variety of ways which may be comprehensively described as pastoral and missionary": United Grand Lodge of Ancient Free and Accepted Masons of England v. Holborn Borough Council (1957) 1 WLR 1080, 1090. 60 A trust for the advancement of religion must involve a public benefit rather than a private benefit. The advancement of religion connotes the promotion of religion by spiritual teaching or by pastoral or missionary work among others outside one's own circle: National Deposit Friendly Society Trustees v. Skegness UDC (1959) AC 293, 322. See also Doing God's Work; is Religion Always Charitable? By S.T. Woodfield (1996) 8 Auckland Law Review, 25 at 27-30. 61 There was little analysis in evidence or argument on the question of the claimed trust for charitable purposes. I have given consideration to the objects of the Federation, New South Wales Branch as they appear in the objects clause (clause 3) in the company's Memorandum of Association. I infer from some of the affidavit evidence and from what has been said from the bar table that administrative activities of the company were conducted from an office in York Street, Sydney and that the Blackheath property appears to have provided "some respite for people who participated in the company in liquidation", to quote Mr. Johnson on behalf of the applicant. Accordingly, for reasons discussed in paragraphs [57] and [58] as well as those expressed in paragraphs [59] to [60], I do not consider that the terms of clause 3 of the Will created a trust for charitable purposes.

Conclusion 62 I am of the opinion that the bequest provided for in clause 3 was one under which the Federation (the company) was beneficially entitled absolutely and that, notwithstanding the order winding-up the company, the bequest has not failed. At the date of death, it remained in existence. Probate was granted to the late Mr. Baker in November 1997 and the fact of the 15 month period following his death when there was no administrator of the estate did not by some means divest the company of its entitlement under the bequest made in its favour and for its benefit (to be held on its behalf by its governing committee). 63 Accordingly, in response to the question posed for the direction of this Court in paragraph 1(a) of the summons for directions, I state that:- The gift in clause 3 of the Will of the late Kenneth Dudley Nichols dated 15 November 1994 has not failed. 64 In relation to paragraph 2(a) of the summons for directions, subject to any further direction or directions I may make, I propose to make a direction in terms of that paragraph. 65 The question of any further direction or directions to which I have just referred raises two matters. The first concerns the utility of a literal application of clause 6 of the Memorandum of Association. This clause deals with the transfer upon the winding-up of the company of any property of the company remaining after satisfaction of all debts and liabilities. It provides that such property be "transferred to the jurisdiction of the Headquarter Authorities of the British-Israel-World Federation" in London. Whatever those words precisely comprehend, the evidence reveals that that Federation wishes any such property to be transferred directly to Mr. McGuire's client, "BIWF in NSW" and not to it. The evidence establishes that that entity is an "institution" having "objects similar to those of the company" within clause 6. 66 Justice Austin in his judgment (paragraph [16]) similarly noted the position that existed at the time that his Honour was called upon to determine the winding-up application, namely, that the evidence before him indicated that if it were to receive the assets, the BIWF would regard itself as a custodian or trustee with the responsibility to see that an appropriate new body was formed to pursue the Federation's objects in New South Wales, and then to transfer the assets to that new body. 67 I will hear further submissions as to whether any direction in terms of paragraph 2(a) of the summons should be made subject to a procedural mechanism which will achieve the desire of both the Federation and BIWF in NSW. An alternative possibility may possibly embrace a decision by the Administrator, in lieu of voting members of the company, to transfer the property to the "BIWF in NSW" as an alternative institution referred to in the second part of clause 6. 68 The second matter concerns a possible amendment of the summons on the plaintiff administrator's application whereby he may obtain directions under the Corporations Act on behalf of the Corporation. This matter was raised by Mr. Johnson at page 18 of the transcript. I will accordingly also hear counsels' submissions on that matter. 69 Accordingly, on application of either party, I will re-list the proceedings for this purpose on a date convenient to counsel for the purposes of receiving any further submissions and for the making of any further directions. 70 I reserve the question of costs of the proceedings. **********

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