Plaintiff v Defendants

2 The plaintiff seeks answers to questions arising from clause 5 of the deceased's will which provides as follows:

1. I GIVE my residuary estate and the income from it pending distribution to the ROYAL MELBOURNE HOSPITAL FOUNDATION (ABN 52 830 993 725) of Grattan Street, Parkville, 3052, for its general purposes, free from all taxes and duties. I DIRECT that the receipt of any director or other proper officer for the time being of that Foundation, will be a sufficient discharge to my Trustees.

3 By letter dated 23 June 2015, the plaintiff sent a copy of the deceased's will to the Royal Melbourne Hospital Foundation Ltd and requested confirmation that this entity was identical to the organisation named in clause 5 of the deceased's will.

4 By letter dated 29 June 2015, on Royal Melbourne Hospital Foundation letterhead which included the ABN 73 802 706 972, Mr John De Rango, director of the Royal Melbourne Hospital Foundation, informed the plaintiff that the Royal Melbourne Hospital (Melbourne Health) confirms that it is the organisation named in clause 5 of the will.

5 In September 2015, the deceased's daughter and the deceased's grandson ('the second defendant') filed a caveat objecting to the grant of probate of the deceased's will on the ground that the deceased lacked testamentary capacity. Under the deceased's penultimate will dated 1 October 2012, the second defendant is the executor and sole beneficiary of the estate. On 13 December 2015, the caveat was withdrawn and probate of the deceased's will was granted to the plaintiff on 10 February 2016.

6 On 5 August 2016, the deceased's daughter and the second defendant commenced a family provision proceeding in the County Court of Victoria, pursuant to Part IV of the Administration and Probate Act 1958. In August 2016, the parties reached an in-principle agreement to resolve the family provision proceeding and a deed of settlement was signed in October 2017.

7 After the in-principle settlement of the family provision proceeding and despite the information in Mr De Rango's letter in June 2015, the plaintiff was informed by Legal Counsel of the Royal Melbourne Hospital that:

(a) an entity known as the Royal Melbourne Hospital Foundation (ABN 52 830 993 725) did not exist and had never existed. However, there was a company called the Royal Melbourne Hospital Foundation Ltd ('the Foundation Company'), which was in existence until 30 October 2013, and on 22 January 2014 the ACN registered to the Foundation Company was cancelled; and

(b) the ABN of the named beneficiary in clause 5 of the will was not registered to the Foundation Company but was registered to the Royal Melbourne Hospital Foundation Trust ('the Foundation Trust'), which was in existence until 30 October 2013.

8 Accordingly, well over a year before the deceased's death, the Foundation Trust and the Foundation Company ceased to exist as independent organisations. This casts doubt on the validity of the gift made in clause 5 of the will and, as the identity of the beneficiary under clause 5 is unclear, on the in-principle settlement of the family provision proceeding.

9 The circumstances of these organisational changes are explained in an affidavit by Mr Nicholas Richard Thomas sworn 10 April 2018, the senior lawyer for the first defendant ('Melbourne Health'). He deposes as to the history of the changes of the Royal Melbourne Hospital since the commencement of its operation in 1848. Prior to 30 October 2013, the Foundation Company was the trustee of the Foundation Trust and in its role as trustee of the Foundation Trust, the Foundation Company carried out fundraising and advancement operations for the benefit of the Royal Melbourne Hospital.

10 Pursuant to the Health Services Act 1988, the manner in which public hospitals were conducted was re-organised so that the Royal Melbourne Hospital was no longer a separate body corporate, but a component of Melbourne Health, a statutory corporation established under s 181 of the Health Services Act 1988 and by order of the Governor in Council dated 30 June 2000. Melbourne Health is a body corporate with perpetual succession, by reason of s 65P of the Health Services Act 1988, and continues to conduct the Royal Melbourne Hospital.

11 Until 2013, Melbourne Health conducted many of its fundraising and advancement operations for the benefit of the Royal Melbourne Hospital through the Foundation Company as trustee for the Foundation Trust. In October 2013, the board of Melbourne Health resolved to restructure its fundraising and advancement activities on an 'in house' or 'departmental' model rather than through a separate entity. This resolution was the result of a review of the operations of the Foundation Company and the Foundation Trust.

12 On 30 October 2013, the board of the Foundation Company resolved to wind up the Foundation Trust, vest the trust funds in Melbourne Health and de-register the Foundation Company. On the same date, the Foundation Trust was wound up, the Foundation Company was deregistered and the assets of the Foundation Trust were transferred to Melbourne Health.

13 By originating motion filed 12 December 2017, the plaintiff seeks the determination of the following questions:

(1) On the true construction of the deceased's will dated 5 September 2013 ('the will'), is the identity of the entity described as 'the Royal Melbourne Hospital Foundation' in clause 5 of the will a reference [to]:

(a) the Royal Melbourne Hospital Foundation Trust; or

(b) some other legal entity, and if so, whom?

(2) In the events that have happened, and on the true construction of the will, has the gift in clause 5 of the will failed because the Royal Melbourne Hospital Fund [sic] Trust was wound up on 30 October 2013?

(3) If the answer to question (2) is 'no', can the gift in clause 5 of the will be applied cy-près and be paid to Melbourne Health?

(4) If the answer to question (3) is 'no', how should the gift in clause 5 of the will be applied?

Question 1: who was the intended beneficiary under clause 5 of the deceased's will?

14 Both the plaintiff and Melbourne Health submitted that the intended beneficiary in clause 5 of the deceased's will was the Foundation Company, based on the Foundation Company being the trustee of the Foundation Trust.

15 The fact that the deceased incorrectly named the entity in clause 5 of her will does not create such a level of uncertainty as to render the gift invalid.[1] Although clause 5 of the deceased's will gave the name of the Foundation Company on one hand and the ABN of the Foundation Trust on the other, the inter-relationship between the two entities and the fact that the Foundation Company was the trustee of the Foundation Trust which, in turn, carried out activities related to the Royal Melbourne Hospital leads to the conclusion that the deceased intended the Foundation Company to be the beneficiary in clause 5 of her will.

16 Accordingly, the Court answers question 1 as follows:

The entity described as 'the Royal Melbourne Hospital Foundation' in clause 5 of the will is a reference to the Royal Melbourne Hospital Foundation Ltd as trustee of the Royal Melbourne Hospital Foundation Trust.

Question 2: has the gift to the Foundation Company lapsed?

17 The Foundation Company ceased to exist before the death of the deceased when it was deregistered on 30 October 2013. If a beneficiary has ceased to exist at the time of the death of a deceased person, the prima facie rule is that the gift to that beneficiary will lapse. However, in some circumstances, particularly where gifts have been made to charitable organisations, the prima facie rule will not apply. These principles were set out in Re Tyrie (No 1) whereby Newton J stated:

(1) A gift by will to a particular charitable institution simpliciter must be treated as a gift for the advancement of the charitable work or purposes of that institution ...

(2) Nevertheless, a gift by will to a particular charitable institution (which I shall call "the named institution"), which at some time existed, but had ceased to do so in the testator's lifetime, whether before or after the date of his will, ordinarily lapses ... The reason for this general rule appears to be that by designating the named institution as the donee the testator has prima facie at least demonstrated an intention that the charitable work or purposes which he wishes to benefit are to be benefited through the instrumentality of the named institution and in no other manner ... For convenience I shall hereafter refer to this rule as "the lapse rule".

(3) To the lapse rule there are the following three exceptions, so far as material for present purposes:

(A) If at the testator's death there is in existence another institution which has taken over the work previously carried on by the named institution and which can properly be regarded as the successor of the named institution, and if the dominant charitable intention of the testator was wide enough to allow the gift to take effect in favour of that successor institution, then the gift will take effect in favour of the successor institution ...

(B) If upon the true interpretation of the will the testator intended that the gift should operate simply as an accretion to the assets of the named institution so as to become subject to whatever charitable trusts were from time to time applicable to those assets, and if after the named institution itself ceased to exist its assets remained subject to charitable trusts which were still on foot at the testator's death, then the gift will be treated as taking effect as an accretion to any property which was at his death subject to those trusts ...

(C) If in cases not falling within exceptions (A) or (B), the testator is nevertheless found upon the proper interpretation of the will to have had a dominant intention to benefit work or purposes of the kind which the named institution carried out, notwithstanding that the named institution itself might no longer exist at his death, and if it is practicable as at the death of the testator to apply the gift for the benefit of work or purposes of that kind, and in a way which is in all respects consistent with any other elements of the dominant intention of the testator (or to put it in another way, consistent with any indispensable or essential elements of his charitable intention), then the gift will be so applied by means of a cy-près scheme. This is simply one aspect of the cy-près principle ...[2]

18 Melbourne Health submits that the gift to the Foundation Company was a valid gift for charitable purposes and that the gift has survived both the winding up of the Foundation Trust and the de-registration of the Foundation Company. The gift survived because Melbourne Health is now the trustee of that gift, in place of the Foundation Company, and the charitable purpose of the gift has not failed.

19 This analysis is grounded in the structure of the Foundation Trust, the role played by the Foundation Company, and the purposes for which Melbourne Health submits the Foundation Trust was established, namely, 'for the benefit of the activities of the Royal Melbourne Hospital and its medical or health related services'. Clause 1.7 of the Foundation Trust deed defined the 'Trust Purposes' of the Foundation Trust as:

The exclusive purpose of providing moneys, property or benefits to the Royal Melbourne Hospital, Grattan Street, Parkville, Victoria and all medical or health related services operated or auspiced by the Royal Melbourne Hospital.

20 By clause 3.1 of the deed, the Foundation Company held the trust fund 'exclusively for the Trust Purposes'. Clause 4 of the Foundation Trust deed provided that the Foundation Company, as trustee of the Foundation Trust, was permitted to distribute any or all of the income of the Foundation Trust's trust fund, provided that 'all such distributions are for the promotion of and consistent with the Trust Purposes and for no other purpose'.

21 Melbourne Health submits that it is the successor of the Foundation Company and trustee of the funds formerly held by the Foundation Trust by reason of:

(a) the operation of s 5A of the Health Services Act 1988, which states:

If the terms of an instrument creating a trust ... in relation to a former agency specify particular purposes of the agency for which the trust is created, then any reference to the purposes of the former agency is a reference to the purposes (if any) of the successor agency that correspond with, or are similar to, those specified purposes of the former agency; and

(b) an order of the Governor in Council under s 215 of the Health Services Act 1988, which designated Melbourne Health as the successor to any trust created for the specific purposes of Royal Melbourne Hospital.

22 In substance, Melbourne Health submits that the deceased's bequest to the Foundation Company was a charitable gift, the purpose of which was to benefit the Royal Melbourne Hospital's medical and health related services and/or its teaching and research activities, and the charitable purpose of the gift has not failed, as the Royal Melbourne Hospital still exists and the identity of the Foundation Company was not an essential element of the deceased's gift such that the gift must fail.

23 For these reasons, Melbourne Health submits that the gift in clause 5 of the deceased's will can be applied to Melbourne Health, provided that the gift is held on trust for the benefit of the Royal Melbourne Hospital. Consequently, Melbourne Health submits there is no need for the Court to order a cy-près scheme under s 2 of the Charities Act 1978.

24 The plaintiff adopts Melbourne Health's submission that the gift was a valid gift for charitable purposes. Further, the plaintiff also agrees with Melbourne Health that the gift has not lapsed and, accordingly, there is no need for the Court to order a cy-près scheme. The plaintiff submits that the deceased's gift falls within either exception (A) or exception (C) of the principles set out by Newton J in Re Tyrie (No 1).[3] Nonetheless, in the event that the Court holds that the deceased's gift has indeed lapsed and is not saved by one of the exceptions set out by Newton J, the plaintiff submits that a cy-près scheme should be ordered.

25 Gifts to hospitals and other healthcare organisations have long been held to be gifts for a charitable purpose.[4] At the time of the deceased's death, Melbourne Health was obligated by the deed of the Foundation Trust to apply funds received by it to the benefit of the Royal Melbourne Hospital and the principles set out by Newton J in Re Tyrie (No 1)[5] are enlivened. Accordingly, the gift in clause 5 of the will was for a charitable purpose.

26 Melbourne Health is the successor institution to the Foundation Company for the following reasons:

(a) the property of the Foundation Trust was vested in Melbourne Health on 30 October 2013 for the benefit of the Royal Melbourne Hospital;

(b) Melbourne Health is a 'successor agency' within the meaning of s 5A of the Health Services Act 1988; and

(c) Melbourne Health applied the funds vested in it following the winding up of the Foundation Trust in the same way that the Foundation Company was required to before its deregistration, namely 'providing moneys, property or benefits to the Royal Melbourne Hospital ... and all medical or health related services operated or auspiced by the Royal Melbourne Hospital.'

27 Accordingly, Melbourne Health has taken over the work previously undertaken by the Foundation Company in respect of charitable gifts, such that it can be regarded as the successor of the Foundation Company. Although Melbourne Health carries out many more functions than the Foundation Company, including the running of various hospitals, the charitable activities it undertakes are conceptualised as identical.[6]

28 Further, the deceased's dominant charitable intention was wide enough to allow the gift to be applied to Melbourne Health as the successor of the Foundation Company. The fact that the deceased specified the Foundation Company by name does not necessarily mean that she had a particular charitable intention.[7] Little is required to construe a charitable purpose widely as, when deciding questions of this kind, 'the Court leans ... in favour of charity.'[8]

29 The deceased's will also points to the deceased having had a wide charitable purpose towards the advancement of the Royal Melbourne Hospital's medical and health related services and/or teaching and research activities for the following reasons:

(a) the deceased named the Foundation Company but gave the ABN of the Foundation Trust, indicating that her intention was to benefit generally the Royal Melbourne Hospital (the entity with which both the Foundation Company and the Foundation Trust were associated), rather than the Foundation Company in particular;

(b) there is no gift over in the deceased's will should the gift fail and the deceased specifically excluded her daughter in clause 6 of her will; and

(c) the gift is expressed for the Foundation Company's 'general purposes', that is, no restriction is applied as to how, when, why or for what specific purposes the gift was to be spent.

30 Accordingly, the Court answers question 2 as follows:

No. The gift in clause 5 of the deceased's will has not lapsed and the gift to the Foundation Company takes effect in favour of Melbourne Health.

Question 3: can the gift in the will be applied cy-près?

31 Melbourne Health submits that no occasion arises for the Court to order a cy-près scheme because there has simply been a change in trustee and the same purposes of the Royal Melbourne Hospital continue to be carried out unchanged, notwithstanding the change in corporate form through which the fundraising and advancement activities are conducted.

32 The plaintiff submits that if the Court accepts that Melbourne Health is holding assets transferred from the Foundation Trust for the purposes of the trust deed for the Foundation Trust, it is therefore the successor institution to the Foundation Company. In this circumstance, exception (A) identified in Re Tyrie (No 1)[9] applies and there is no need for a cy-près scheme. If that is accepted, question 3 should be answered 'No'.

33 In view of the conclusions reached, there is no occasion for a cy-près scheme and the Court answers question 3 as follows:

Question 4: if the answer to question 3 is 'No', how should the gift in clause 5 of the will be applied?

34 The plaintiff says that if the answer to question 3 is 'No', it agrees that question 4 should be answered as submitted by Melbourne Health.

35 Melbourne Health submits that Melbourne Health holds the gift in clause 5 of the will upon trust for the exclusive purpose of providing moneys, property or benefits to the Royal Melbourne Hospital, Grattan Street, Parkville, Victoria and all medical or health related services operated or auspiced by the Royal Melbourne Hospital.

36 The Court agrees with the submissions of Melbourne Health. Accordingly, the Court answers question 4 as follows:

The gift in clause 5 of the deceased's will should be applied by Melbourne Health as successor trustee upon trust for the exclusive purpose of providing moneys, property or benefits to the Royal Melbourne Hospital, Grattan Street, Parkville, in the State of Victoria and all medical or health related services operated or auspiced by the Royal Melbourne Hospital.

37 The Court answers the questions in the originating motion as follows:

On the true construction of the deceased's will dated 5 September 2013, is the identity of the entity described as 'the Royal Melbourne Hospital Foundation' in clause 5 of the will a reference to:

(a) the Royal Melbourne Hospital Foundation Trust; or

(b) some other legal entity, and if so, whom?

The entity described as 'the Royal Melbourne Hospital Foundation' in clause 5 of the will is a reference to the Royal Melbourne Hospital Foundation Ltd as trustee of the Royal Melbourne Hospital Foundation Trust.

In the events that have happened, and on the true construction of the will, has the gift in clause 5 of the will failed because the Royal Melbourne Hospital Foundation Trust was wound up on 30 October 2013?

No. The gift in clause 5 of the deceased's will has not lapsed and the gift to the Foundation Company takes effect in favour of Melbourne Health.

If the answer to question (2) is 'no', can the gift in clause 5 of the will be applied cy-près and be paid to Melbourne Health?

If the answer to question (3) is 'no', how should the gift in clause 5 of the will be applied?

The gift in clause 5 of the deceased's will should be applied by Melbourne Health as successor trustee upon trust for the exclusive purpose of providing moneys, property or benefits to the Royal Melbourne Hospital, Grattan Street, Parkville, in the State of Victoria and all medical or health related services operated or auspiced by the Royal Melbourne Hospital.

38 Melbourne Health seeks that the costs of the proceeding be paid out of the estate of the deceased.

39 The plaintiff seeks that the parties be given an opportunity to discuss the issue as to the costs of the proceeding on the basis that any costs orders would impact on the in-principle settlement of the family provision claim against the deceased's estate.

40 The second defendant did not file submissions on the substantive issues but he informed the Court by email on July 2018 that he did not agree that the costs be paid out of the estate of the deceased.

41 The Court will allow further time for the parties to discuss the costs of the proceeding. The parties must notify the Court by 31 October 2018 as to their position on the costs.

[1] Re Coulson [2014] VSC 353 (1 August 2014) [22]; see also Re Edwards; Turner v Roberts [1981] VicRp 76; [1981] VR 794.

[2] [1972] VicRp 16; [1972] VR 168, 177-8 (citations omitted).

[3] [1972] VicRp 16; [1972] VR 168, 177-8.

[4] See for example: In Re Resch's Will Trusts [1969] 1 AC 514, 540; Toose v Couch, (Unreported, Supreme Court of New South Wales, Young J, 6 May 1988); Public Trustee of Queensland v A-G (Qld) [2009] QSC 353 (7 October 2009) [8]; Australian Executor Trustees Ltd v A-G (SA) (2010) 7 ASTLR 83, [1].

[5] [1972] VicRp 16; [1972] VR 168, 177-8.

[6] Cf Australian Executor Trustees Ltd v Ceduna District Health Services Inc [2006] SASC 286 (18 September 2006) [28].

[7] Re Coulson [2014] VSC 353 (1 August 2014) [74].

[8] A-G (NSW) v Perpetual Trustee Co (Ltd) [1940] HCA 12; (1940) 63 CLR 209, 228.

[9] [1972] VicRp 16; [1972] VR 168, 177-8.