The “lapse rule” refers to the general rule that when a Will contains a gift to an entity that no longer exists at the time of the testator’s death, the gift will become void. This rule applies even to gifts for charitable purposes. See Re Servers of the Blind League [1960] 1 WLR 564; Re Tyrie at 177, both applied in Australian Executor Trustees Ltd v Ceduna District Health Services Inc [2006] SASC 286 at [8].
However, three exceptions to the “lapse rule” apply in the case of a charitable gift. These exceptions were listed in Re Tyrie at 177 and are as follows:
- (A) If at the time of the testator’s death, there is another institution that has taken over the work previously carried out by the named institution, and if the testator’s charitable intention was wide enough to allow the gift to take effect in favour of the successor institution, then the Estate can give the gift to the successor institution.
- (B) If the true interpretation of the Will shows that the testator intended the gift to become part of the assets of the named institution and subject to any charitable trusts applicable to those assets, then the Estate will treat the gift accordingly. If the named institution no longer exists, its assets are still subject to charitable trusts at the time of the testator’s death; the charity will treat the gift as an addition to those assets.
- (C) If the testator’s dominant intention was to benefit work or purposes similar to those carried out by the named institution, and if it is possible to apply the gift to benefit such work or objectives in a way consistent with the testator’s charitable intention, then Estate will apply the gift through a cy-pres scheme.
The New South Wales Supreme Court has applied the lapse rule: see Estate of the late Morris Zion Forbes v State of New South Wales & Ors [2010] NSWSC 1439 at [28]-[29] (Hallen AsJ, as his Honour then was); Cram Foundation v Corbett-Jones & Anor [2006] NSWSC 495 at [27] (Brereton J, as his Honour then was).
The Matter
In Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061, the plaintiff, Perpetual Trustee Company Limited (Perpetual), sought a declaration and various orders concerning the Will dated 24 August 1988 (Will) of the late Richard Bradley (Deceased), who died on 18 August 2012. The issues raised in the proceedings concern the construction of the Will, which has caused difficulties with the administration of the Deceased’s Estate.
The relevant Will provisions to be construed are as follows:
4. I GIVE DEVISE AND BEQUEATH all of my real and personal Estate of whatsoever nature and wheresoever situate unto my Trustee UPON TRUST to pay thereout all my just debts funeral and testamentary expenses and all duties and taxes of every description payable in consequence of my death, and I DIRECT my Trustee to hold the balance thereof after all such payments (hereinafter called “the Trust Fund”) UPON TRUST to pay over the same to the charitable trust known as “THE CENTENARY FOUNDATION” established and administered by the said TRUST COMPANY OF AUSTRALIA LIMITED UPON PERPETUAL TRUST to pay the income arising therefrom for or to the following charities:-
a) AS to seventy-five per cent (75%) of such income derived therefrom to pay the same to the Trustees of THE MARIST FATHERS FOR THE PROVINCE OF AUSTRALIA and I DECLARE that it is my express wish that such share of income be paid by the Trustees of THE MARIST FATHERS OF THE PROVINCE OF AUSTRALIA to the Director for the time being of the Marist Mission Centre presently of 3 Mary Street Hunters Hill in the said State;
b) AS to twenty-five per cent (25%) of such income derived therefrom to pay the same to the MEDICAL FOUNDATION OF THE UNIVERSITY OF N.S.W. for the general purposes thereof but without limiting such purposes, I DECLARE that it is my express wish that such money shall be used for the purposes of research into the alleviation of glaucoma;
c) I FURTHER DIRECT that the said TRUST COMPANY OF AUSTRALIA LIMITED shall not be responsible to see to the application of any income subsequently made therefrom AND FURTHER that a receipt from a proper officer of the said organisations shall be a sufficient discharge to such Trustee.
5. AND I DIRECT that should any of the above charities cease to exist, then my Trustee, in its sole discretion, may substitute such similar organisations as it may determine which, in the opinion of my Trustee, are carrying out similar charitable purposes and which are subject to the provisions of Section 78 (1) (a) of the Income Tax Assessment Act 1936.
The Executor
The named executor in clause 2 of the Will is The Trust Company of Australia Limited. On 1 November 2006, the name of that entity was changed to Trust Company Limited. On 21 June 2010, the name of that entity was changed again to The Trust Company Limited. On 18 January 2013, The Trust Company Limited obtained a grant of probate of the Will.
On 1 March 2015, the estate assets and liabilities of The Trust Company Limited were transferred to Perpetual by virtue of a voluntary transfer determination made on 2 February 2015. As a result, Perpetual has standing to bring these proceedings as the executor of the Will on which probate has been granted.
Perpetual is the plaintiff in the proceedings as executor of the Will. Still, it has indicated that it does not wish to be joined in its capacity as Trustee of the Centenary Foundation, referred to in cl 4 of the Will.
The Trustees of Marist Fathers for the Province of Australia have indicated they do not wish to be a party to the proceedings. The University of New South Wales (UNSW) is the sole named defendant in the proceedings, indicating that it wished to be heard concerning the issues that have arisen concerning the construction of the Will.
Consent of the Attorney General for the State of New South Wales
Section 6(1) of the Charitable Trusts Act 1993 (N.S.W.) provides that “charitable trust proceedings” must not be commenced in the Court unless the Attorney General has authorised the bringing of them or leave to bring the proceedings is obtained from the Court. There is no dispute that these are “charitable trust proceedings”. On 31 May 2021, the Attorney General for the State of New South Wales authorised the bringing of these proceedings.
Issues for Determination
The following are the issues for determination:
How is the trust in cl 4 of the Will to be constituted following the refusal of Perpetual as Trustee of the Centenary Foundation to accept the bequest in that clause because it contains a direction by the Deceased? (Centenary Foundation Issue)
What is the effect of the misdescription of “The Trustees of The Marist Fathers for the Province of Australia” in cl 4(a) of the Will? (Marist Fathers Issue)
What is the proper construction of cl 5 of the Will insofar as it operates about the gift to the “Medical Foundation of the University of N.S.W.” in cl 4(b) of the Will? (Medical Foundation Issue)
Richard Bradley’s Will gave his Estate upon trust for the Centenary Foundation to pay 75 per cent of the income to The Marist Fathers for the Province of Australia and 25 per cent to the Medical Foundation of the University of N.S.W., each with a wish to use the income in a particular manner. Clause 5 of the Will directed that should any of the charities cease to exist, the Trustee may substitute similar organisations as it may determine are carrying out similar charitable purposes.
Centenary Foundation
The Will gave rise to three issues. First, because of the terms of the trust for the Centenary Foundation, the Trustee couldn’t accept the gift as it contained a direction that the Trustee could not comply with (Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061 at [26]).
As a result of these provisions of cl 4.7 of the Deed, it is impossible for Perpetual to accept the gift in cl 4 of the Will because it contains a condition to apply the income of the fund in the manner set out in cl 4(a) and (b) of the Will, a direction with which Perpetual cannot comply under the terms of the Deed. Therefore, Perpetual, as Trustee of the Centenary Foundation, cannot and has not accepted the gift, which Perpetual confirmed by letter dated 17 December 2021.
The Court concluded that ‘the gift to the Centenary Foundation was not an essential part of the charitable intention of the Deceased, but is a procedural mechanism employed by the Deceased to achieve his ultimate charitable purpose, which was to benefit each of the specific charitable institutions identified in …the Will’ (Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061 at [35]).
The Court accepted Perpetual’s submission that the gift to the Centenary Foundation was not an essential part of the charitable intention of the Deceased but is a procedural mechanism employed by the Deceased to achieve his ultimate charitable purpose, which was to benefit each of the charitable institutions who are specifically identified in cl 4(a) and (b) of the Will. There is no machinery in the Will to appoint any alternative trustee, and no person or entity can appoint a new trustee under s 6 of the Trustee Act. Unless the Court exercises its powers under s 70 of the Trustee Act 1925 (‘Trustee Act’) or its inherent jurisdiction to appoint Perpetual Trustee Company Ltd as Trustee of the gift (at [36]), there will be no trustee to act.
The Court was also satisfied that it is appropriate to appoint Perpetual because it is a “licensed trustee company” under Sch 8AA of the Corporations Regulations 2001 (Cth)and cl 11(1) of the Trustee Companies Act 1964 (N.S.W.) without the need for any inquiry by the Court about its fitness for office: see Ability One Financial Management Pty Ltd v J.B. by his Tutor AB [2014] NSWSC 245 at [119]. As Perpetual was also granted probate as the executor of the Will, the Court held it is expedient for it to act as the Trustee for the gifts made in clause 4 of the Will.
Misdescription of Entity
The second issue was that no entity was precisely known as ‘The Marist Fathers for the Province of Australia’ as the Will contained a superfluous ‘The’. The minor misdescription of the correct entity in cl 4(a) of the Will does not preclude payment to the correct entity under that provision. The Court considered that Perpetual may proceed on the basis that under cl 4(a) of the Will, payment will be made to the “Trustees of Marist Fathers for the Province of Australia trading as Australian Marist Centre Overseas Aid Fund A.B.N. 87 382 823 140″.(Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061 at [42]).
Entity no longer exists
The third issue was that at the time of the making of the Will on 24 August 1988 and the testator’s death on 18 August 2012, there was no longer a “Medical Foundation of the University of N.S.W.” in existence.(Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061 at [44]-[45]).
Although establishing an exact chronology is not possible due to the significant passing of time and the absence of particular documentary evidence, the history of the Medical Foundation of the University of New South Wales is as follows:
- On 2 September 1963, the Medical Foundation of the University of New South Wales was incorporated as a company limited by guarantee (Medical Foundation Corp).
- In 1973, the Council of UNSW resolved that a Committee known as the Medical Foundation of the University of New South Wales was established to replace the Medical Foundation Corp (Medical Foundation Committee).
- In May 1974, the funds held by the Medical Foundation Corp were transferred to UNSW, albeit in a minor amount.
- In about 1978, the Medical Foundation Corp was deregistered and dissolved.
The Court stated the ‘general rule is that where a gift in a will is made to an entity that ceases to exist prior to the testator’s death, it will lapse, including if it is a charitable gift’ (Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061 at [50]).
The Court concluded that whilst ‘the “Medical Foundation of the University of N.S.W.” ceased to exist at the time it was dissolved and deregistered in 1978’, clause 5 operated to save the gift from lapsing (Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061 at [59]).
As outlined by the facts above, it is clear that the “Medical Foundation of the University of N.S.W.” ceased to exist when it was dissolved and deregistered in 1978. However, clause 5 operates to save the gift from lapsing. To interpret the operation of clauses 4 and 5 together as allowing the gift in cl 4(b) to lapse, thereby requiring the analysis outlined in Tyrie, would be to depart from the clear testamentary intention of the Deceased. Accordingly, the exceptions contained in Tyrie have no application in the present circumstances.
The Court held that the power under clause five was enlivened (Perpetual Trustee Company Ltd v University of New South Wales [2023] NSWSC 1061 at [69(3)]).
Orders
The orders the Court proposed to make are as follows:
- Order under s 70 of the Trustee Act 1925 (N.S.W.) and the inherent jurisdiction of the Court appoint the plaintiff as Trustee of the residue of the Estate of the late Richard Bradley (Deceased), with income paid following clauses 4 – 9 of the Will of the Deceased dated 24 August 1988.
- Order that the plaintiff is justified in proceeding on the basis that under cl 4(a) of the Will, the income is to be paid to the “Trustees of Marist Fathers for the Province of Australia trading as Australian Marist Centre Overseas Aid Fund A.B.N. 87 382 823 140″.
- Declare that the entity identified in cl 4(b) of the Will has ceased to exist, enlivening the plaintiff’s power as Trustee under cl 5.
- Order that the costs of the plaintiff, calculated on the indemnity basis, be paid out of the Estate of the Deceased.
- Order that the defendant’s costs, calculated on the indemnity basis, be paid out of the Estate of the Deceased.
The Court ordered payment of the parties’ costs out of the deceased’s Estate on an indemnity basis.