Re Graham (deceased)

A rarely encountered issue arose for consideration in this matter: whether the lapse rule (and its exceptions) had any application where the named legatee (a charitable institution) was in existence at the time of the will and at death.

Bowskill J

5 March 2020

The testator’s will provided that one half of the residue of his estate be distributed to the Stroke Association of Queensland Inc (“SAQ”) for its general purposes. [1]. The issue was that, some three months after the testator’s death, SAQ’s registration as an incorporated association was cancelled. [2]. Accordingly, it fell to the court to ascertain how the gift ought be dealt with.

The applicant sought an order that the gift be read and construed as being a gift to Synapse Australia Ltd, (“Synapse”) on the ground that it was the successor of the SAQ. [2]. Ultimately it was determined that, whilst the court was unable to construe the gift in that manner, the gift should be applied cy-près pursuant to s 105 of the Trusts Act 1973. [6].

The lapse rule issue 

A primary issue for resolution by the court was whether, after the testator’s death, the SAQ ceased to exist; or whether its work and operations could properly be regarded as having merged into Synapse (with the result that SAQ effectively continued to exist, for the purposes of the bequest, albeit in the form, and under the name, of Synapse): see In re Watt; Hicks v Hill [1930] 2 Ch 243, 245. Her Honour noted that in addressing that issue, the parties’ main focus was upon the exceptions to the “lapse rule”, primarily the second exception. In her view that approach was “inapt, and le[d] to asking slightly the wrong question”. [32].

In Public Trustee v Attorney-General [2009] QSC 353, [9]–[13], her Honour Justice Lyons explained that the second exception operates where, at the time of the testator’s death, another institution which assumes the work previously carried on by the named institution exists, and it can properly be regarded as the successor of the former institution. In order for the exception to apply it is necessary that the “dominant chargeable intention” of the testator was broad enough to permit the gift to take effect in favour of that successor institution. [32]. No question of lapse will arise in that case.

Importantly however, a distinction is drawn with cases of supervening impossibility, where the institution ceases to exist subsequent to the gift taking effect. In Hicks v Mater Misericordiae Ltd [2017] QSC 38 at [27] and [28], his Honour Justice Douglas clarified that in those circumstances, the standard approach is that a court “will apply that property to objects as near as possible (cy-près) to those of the extinct institution”. The same ensues for bequests for charitable purposes that, “subsequent to the testator’s death, become impracticable or impossible”. [35].

Had the charitable institution which was named in the will ceased to exist?

It was critical for her Honour to ascertain whether the SAQ ceased to exist: if it had, the gift, which had taken effect, would need to be dealt with cy-près under s 105 of the Trusts Act 1973. If it had not, then effect could be given to the gift under the will. [36].

On many occasions the courts have held that institutions continued to exist, albeit changed in form: see Public Trustee v Cerebral Palsy Association of Western Australia Ltd (2004) 28 WAR 496 and Re Coulson [2014] VSC 353.

Merely changing the name and address of an institution will not necessarily mean that it ceases to exist. Rather, in cases where the activity and operations of an institution closely replicate those previously undertaken, “notwithstanding that the institution may even have been dissolved and succeeded by another, the institution will be regarded as not having ceased to exist ...”: see The Estate of Dulcie Edna Rand (deceased) [2009] NSWSC 48, [38]. The objects of both the former and new organisations can be useful in determining whether an entity continues to exist, post-dissolution: see Australian Executor Trustees Ltd v Ceduna District Health Services [2006] SASC 286.

Her Honour formed the view on the available evidence, that it was not the case that the SAQ continued to exist in the form of Synapse. She held that the SAQ ceased to exist from the date of cancellation of its incorporation, citing the following matters as indicative of this:

1  Whilst there was some overlap between the work that was being done by SAQ and the work of Synapse, the operations of Synapse were much broader, as is clear from its objects.

2 This was not a case of SAQ continuing to conduct its charitable work continuously, and only making changes as to its legal form.

3 This was not a case where the activity and operations of SAQ had been continued without change, under the control of a successor entity following deregistration. [42]–[43].

Having regard to the above, and to the fact that she had determined that the lapse rule (and its exceptions) did not apply, her Honour was left in the unenviable position of deciding how the gift to SAQ, which was “now impossible to pay”, should properly be applied.

In circumstances where two other entities (in addition to Synapse) had filed material in support of their being considered potential recipients of the funds under a cy-près scheme, the matter was adjourned to enable further consideration of how the gift should be applied cy-près. [46].

A de Jersey