Not-for-profits should brace for court decisions that could shake up the sector if a summary of key legal decisions is anything to go by.
The Australian Centre for Philanthropy and Nonprofit Studies (ACPNS), based at the Queensland University of Technology (QUT), recently published the working paper Top Ten Cases That Shaped Charity and Nonprofit Law in 2021 and Ten Trends to Consider.
The popular legal case notes series accounts for some of the most downloaded materials from QUT, offering insightful explanations of how legal cases in Australia – and in some cases overseas – are likely to affect the sector.
According to the centre’s summary, key issues likely to play out in the courts in the coming year will involve:
- the pandemic, with expectations of more legal battles over vaccination mandates and more negligence claims over infections
- the standing of so-called “charitable companies”, where commercial companies act with a charitable purpose
- challenges to grant funding decisions amid accusations of political bias
- defamation cases targeting not-for-profits, especially involving social media
- not-for-profits battling to resolve outdated “federated” structures and constitutions
- attempts to unravel the rights and powers of unincorporated associations
- a growing number of volunteers suing organisations for serious injury
- battles over bequests to charities
- cases in which activist not-for-profits are forced to defend claims they’ve overstepped their bounds in advocacy campaigns
- more test cases involving the sector regulator, the Australian Charities and Not-for-profits Commission, that may clarify confusing rules affecting governance, taxation, charity deregistration and more.
Lead author Professor Myles McGregor-Lowndes sits on the Community Directors Council, the high-level advisory body that guides the Institute of Community Directors Australia.
Prof McGregor-Lowndes, along with researcher Frances Hannah, also listed the 10 most significant cases to affect the not-for-profit sector in the past year.
Top cases that set precedents for the not-for-profit sector
We’ve reproduced a summary of those significant cases below, but not-for-profit leaders and directors should consider adding the ACPNS legal case notes to their reading lists to examine the rulings and implications in more detail.
Kids Company, Street Swags and the role of directors
The move to disqualify the directors of an insolvent UK company, Kids Company, ended up playing out in court in a $20 million case.
ACPNS highlighted the case because of its “detailed observations about the conduct and duties of the board, the CEO and the identification of shadow directors”.
The report drew some parallels with governance issues in an Australian case that involved beleaguered homelessness service Street Swags and the contentious attempt to dismiss the then CEO Jean Madden before the Fair Work Commission.
As the ACPNS put it in its summary of that case: “This 237-page judgment is sobering reading for those unfamiliar with the machinations of founder CEO/directors who disregard the law and accepted governance practices. It is an all too familiar tale for those regularly advising non-profit organisations.”
The latest ACPNS report says: “Both these cases contain detailed commentary by the court on governance arrangements that many practitioners will recognise as common in dysfunctional non-profit organisations. For this reason, the judgments are excellent material for governance education.”
Public benevolent definition needs more work
There were two cases addressing the status of Public Benevolent Institutions (PBI).
These included a case involving the Australian Charities and Not-for-profits Commission (ACNC) and the anti-poverty campaigner Global Citizen Ltd, and another case involving Australians for Indigenous Constitutional Recognition Ltd (AICR).
Global Citizen won its case against the ACNC after it was initially denied PBI tax status over its political work.
The ACNC had refused to allow either organisation to become a PBI, which would have enabled the organisation to claim deductible gift recipient (DGR) tax status and apply for grants from a broader range of funders.
The AICR case was brought to the Federal Court, but stalled over who would pay costs. The Global Citizen case went ahead in the Administrative Appeals Tribunal.
The ACNC had claimed that Global Citizen should not be a PBI because it did not provide direct aid, but instead was involved in lobbying, but the Administrative Appeals Tribunal (AAT) ruled it was satisfied Global Citizen’s role in promoting poverty relief was legitimate.
The ACNC decided not to appeal the decision by the AAT, but it would be “carefully considering the tribunal’s decision”, it said in a statement.
The ACPNS hopes that those cases may “provide further clarification about the boundaries and definition of (a) PBI”.
It argued that the ACNC had a role to play in ensuring that the definition of a PBI remained up to date, by being “willing and able to disclose its PBI registration decisions” and in supporting further test cases.ATO forced to meditate on DGR decision by Buddhist appeal
The Australian Tax Office was sent back to the classroom to look at how it determines the deductible gift recipient (DGR) status of schools after a judgment in the Federal Court.
The Buddhist Society of Western Australia had appealed a decision to revoke the DGR status of its school building fund, which gave donors a tax deduction.
Justice Neil McKerracher did not make a ruling on the DGR status, largely because he found that the Tax Commissioner had “applied the wrong definition of ‘school’”.
Justice McKerracher referred the matter back to the Tax Commissioner.
The ACPNS wrote that the decision was “a critical case on the issue of tax deductibility of gifts for education facilities”.
The centre noted that there are nearly 5000 school building funds (SBF) on the books of the ATO, and SBFs are the second largest category of deductible gift recipients (DGRs) after Public Benevolent Institutions.
The centre wrote that school building funds had been “on the compliance radar” for some time, with the ATO concerned about tax revenue losses from “non-traditional” schools, faith-based groups co-locating with schools, schools based overseas and “non-gift” payments.
Rates, taxes and not-for-profits
The ACPNS highlighted a battle between Melbourne University and Victoria’s state revenue collectors over whether student accommodation was being used “exclusively for charitable purposes”. The Victorian Supreme Court found that the land was exempt from land tax following its broader interpretation of “exclusively”.
While the ACPNS said that cases related to the exemption of rates and taxes on land were “notorious for being tax and jurisdiction specific”, it said this case may have set a precedent about what counts as “use” when it comes to the delivery of services.
The report pointed to similar cases in NSW and the ACT that would also interest not-for-profits wanting to unravel the confusion.
Phoenix charity bid fails for cancer campaigner
The Administrative Appeals Tribunal knocked back an attempt to register “clean skin” charities that were established to take over the work of other financially failing charities.
The ACNC refused to register those charities under the umbrella of the Cancer and Bowel Research Association (CBRA), which had clocked up $146,000 in debt – not including interest and tax penalties.
The CBRA’s then chief executive, John Thomson, had taken over the organisations’ affairs after what the court accepted had been a time of “serious mismanagement”.
Three organisations were established in 2017 to duplicate and take over the fundraising activities previously conducted by the CBRA. These included Cancer & Bowel Research Australia Ltd, Breast Cancer Australia Ltd, and Kids Cancer Research Australia Ltd.
Senior tribunal member Nicholas Manetta:
“I do not doubt the sincerity of Mr Thompson’s desire to put an end to what he believes is a most unfair situation, one where, because of past mismanagement, CBRA Inc is unable to advance its charitable endeavours as adequately as it might because of the debts owing to the ATO.
“It is the case, nevertheless, that it is not … a proper purpose for the incorporation of a company or corporation that it be used to take over the functions and property of another entity without also assuming the liabilities of that entity or making arrangements for the liabilities to be met.
“It may or may not be, in any individual’s view, a morally justified action to take; but the law is quite clear, in my opinion, that the avoidance of the due repayment of a debt, whether the debt is owed to a private individual or to the Federal Government, is not a proper purpose for the incorporation of a company or corporation.”
Boosting business is not charity
In another case before the Administrative Appeals Tribunal, the authority supported the decision of the ACNC not to register Angel Loop Ltd as a charity, given its stated aims were to facilitate private business relationships by linking entrepreneurs and angel investors.
The AAT upheld the decision not to register the organisation as a charity, saying: “While it is true that the activities … in this matter would be likely to increase entrepreneurial business activity in a positive way and provide encouragement for innovation and entrepreneurship, the evidence does not show that that is the sole or predominant purpose …
“A core function is to bring about a commercial deal between investor and inventor. That cannot be said to be ancillary to the charitable purpose. … It is a noncharitable purpose even though it is doubtless a worthy purpose.”
Church charities and the ability to sell property
The sale of aged care facilities by an entity of the Presbyterian Church of Queensland prompted the ACPNS to highlight the implications for other assets held by about 600 other institutions using an old (and largely repealed) legal form known as a “Letter Patent Institution”.
The report said many of those organisations, all in Queensland, were finding it hard to manage transactions under federal laws, and many were converting to a company structure.
In one related case in NSW, a church’s management committee was held liable for debts in the church’s name.
Trustees must understand the rules
A case in Victoria’s Supreme Court involving the National Jockeys Trust highlighted the need for trustees to follow correct governance procedures, after the court was called in to iron out “irregularities”, including the trust having improperly changed the number of trustees, improper appointments, the failure to keep proper minutes, and handing out grants by emails in breach of the terms of the deed.
The ACPNS noted that the governance issues “had the potential to cause substantial disruption to beneficiaries, as well as personal liability for trustees”, and that the issue served as a reminder about responsible people thoroughly understanding the terms of a trust deed.
Other noteworthy cases
The ACPNS said other noteworthy cases during 2021 included these:
- The Church of the Flying Spaghetti Monster’s bid to be incorporated as a church
- The “spectacular failure” of an “eccentric” home-made will that aimed to revoke a charity bequest
- The underpayment of staff by the Yooralla Society of Victoria
- The “tragedy upon a tragedy” of a child death in community care in NSW, which the ACPNS described as “recommended reading to all involved in the delivery of community care”
- A historical sex abuse claim against a Scottish trust estate
- A series of unusual cases involving animals and not-for-profits, including a long-running dispute involving Cavalier King Charles Spaniel Rescue (Qld) Inc.
- by Matthew Schulz, journalist, Our Community
This summary employs the following creative commons license in using material from the ACPNS report: Attribution-NonCommercial 4.0 International (CC BY-NC 4.0)