Crowle Foundation v New South Wales Trustee and Guardian  NSWSC 647 (Supreme Court of New South Wales, Ball J, 25 June 2010)
This case concerned the construction of charitable bequests made in the will of the testatrix, Kathleen Mary Waugh. The testatrix died in 1994 leaving the bulk of her estate to the Public Trustee to be held on trust for the provision of care for her daughter, Michele. Michele had Down Syndrome, and lived in the care of the Crowle Home for 59 of her 69 years.
The Crowle Home (Crowle) was set up by the Challenge Foundation Ltd (Challenge) which was originally established as the Subnormal Children's Welfare Association in 1951. Challenge is a company limited by guarantee, and has as its principal object the provision of support services to the intellectually disabled. Before 1992, Challenge ran its operations through local volunteer branches. All property used by the branches was owned by Challenge.
The Crowle Home was obtained by bequest in 1952, and in 1955 it became the Ryde branch of the Challenge Foundation. For the first three years, Challenge ran the site as a school for the intellectually disabled. Over the next 20 years, the site was considerably developed with the completion of extra accommodation, a swimming pool and oval, a workshop and an administrative building (referred to as Lacey House). In 1978, the school was taken over by the government, and relocated elsewhere.
In 1992-93, a major reorganisation of Challenge was undertaken. The branches were encouraged to incorporate, and all property they were using was made over to them. Crowle accordingly incorporated with the main object being 'to succeed to and carry on all the activities hitherto carried on by Ryde Branch of the Challenge Foundation of New South Wales'. The Challenge Foundation transferred the land on which the Crowle Home stood to Crowle by Deed on 1 July 1993. This part of the land on which Lacey House stood was then leased back to Challenge for a period of 99 years. Challenge used Lacey House as its head office.
In 1997, Challenge commenced action against Crowle concerning the transfer of the land as a whole, but these proceedings were dismissed: Challenge Foundation of New South Wales Ltd v Windgap Foundation Ltd  NSWSC 1292.
In 2008, Crowle merged its operations with the former Hornsby branch of the Challenge Foundation, which was called the Achieve Foundation Ltd. The merger entity was called ACNewCo Ltd. The reasons for approval of the two schemes of arrangement involved can be read in the case note for Achieve Foundation Ltd v ACNewco Ltd; in the matter of Achieve Foundation Ltd and the Crowle Foundation Ltd  FCA 382, available at https://wiki.qut.edu.au/display/CPNS/Dissolution%2C+winding+up+and+insolvency+cases
The merger arose in the following circumstances. During 2005 to 2008, both companies experienced financial difficulties, with those of Achieve being more severe than those of Crowle. However, both companies had total assets in excess of total liabilities. The boards of both companies decided that it would be desirable to merge their activities. All board members of both companies supported the merger.
The merger was effected by two schemes of arrangement. Under the schemes, all the assets and liabilities of the two companies were to be transferred to a new company limited by guarantee (Newco). The principal characteristics of the schemes included:
The only issue arising in the published reasons for approval of the scheme was the nature of the transfer of the assets and liabilities of each of Achieve and Crowle to Newco. At the time of the merger, Achieve had $2,231,595 in liabilities, and Crowle had $3,572,259 in liabilities. Achieve was running operational losses, and Crowle, although running a surplus, had difficulty with cash flow. Section 413 of the Corporations Act applied in that case.
The schemes required that both Achieve and Crowle continue in existence after the merger, in order to receive any bequests which might flow to them. Was this appropriate in the circumstance where both companies were in financial difficulty before the merger? Usually companies in this situation would be wound up. His Honour could see no difficulty:
The fact that there were 'future proceedings' was not a bar to the merger going ahead as structured. Case law had previously considered the situation when there were future liabilities involved, but in this case, there were potential future assets. These were bequests made by testators who might have left money or other assets to the pre-merger Foundations in wills already made, or yet to be made in the future, naming the pre-merger entities as beneficiaries. His Honour described these bequests as 'contingent property', and held that they could not be seen as the property of Achieve or Crowle pre-merger, but would be the property of Newco.
Section 413(4) of the Corporations Act defines property as 'rights and powers of any description, including rights and powers that are of a personal character and are incapable under the general law of being assigned or performed vicariously'. Future property was held to fall within the definition of property in section 413(4) of the Corporations Act, even if, at the merger date, it is nothing more than potential or contingent. This interpretation is also supported by the definition of property in section 9 of the Corporations Act, which includes future property or contingent property: 'property means any legal or equitable estate or interest (whether present or future or whether vested or contingent) in real or personal property of any description and includes a thing in action'. His Honour held that the definition of property is meant to be expansive.
Since 3 December 2009, ACNewCo Ltd has been renamed Achieve Australia Ltd (Achieve). Challenge has continued to exist, but in a diminished form since the devolution to its branches. Challenge has no paid employees or staff. Its principal activities are to provide a number of holiday homes and buses for use by people with disabilities. With two exceptions, the land litigation in 1997 and the lease of Lacey House, it has not maintained any contact with Crowle since devolution.
His Honour referred to the changes at Crowle since devolution in the following terms:
In relation to the will of the testatrix, clauses 5.00 and 5.02 stated:
The remainder of the trust income was to be applied for the benefit of Michele. If any amount was not used for that purpose, it was to be accumulated and added to the capital (clause 6.0). The trust was expressed to end on Michele's death (clause 8.0). Michele died in 2008.
The final distribution amount was approximately $1.4 million. Clauses 9.0 to 9.22 of the will made provision for the final distribution in the following terms:
The will was made in 1991. At that time, the Ryde Branch of Challenge was not a separate legal entity, as it later became. His Honour took the view that as Challenge still exists, the gift in clause 9.0 is to it as trustees of the charitable trust established by clause 9.11. As to the purposes for which the gift can be used, His Honour held that as the Crowle Home still exists and carries out residential care and ancillary services for the intellectually disabled, then it is for its purposes that the gift in clause 9.11 must be used.
In addition, the Crowle Home was the last institution to care for Michele before her death. Therefore, His Honour found that clause 9.21 should be interpreted to mean that a second gift to Challenge should operate on the same terms as the first.
Another subsidiary question in this case was whether Challenge should be removed as a trustee of the trust created by the will. One power to remove and replace a trustee is found in sections 7 and 8 of the Charitable Trusts Act 1993 (NSW), but His Honour found that these sections had no bearing on the case. A second power to remove a trustee is conferred by section 70 of the Trustee Act 1925 (NSW). In this case, section 70(4) was held to apply: 'In the case of any trust for a charity the Court may make an order for the appointment of a new trustee on such evidence of the trust as the Court deems sufficient'.
Alternatively, the substitution of a trustee could be under the inherent jurisdiction of the court. However, these powers are expressed in different terms:
His Honour held that Challenge should be removed as a trustee and replaced by Achieve, which now owns and operates the Crowle Home, regardless of the legal basis for the decision. He offered two broad reasons:
Thus the gifts in the will went to the Crowle Home, with Achieve as the trustee of the trust created by the will.
The case may be viewed at: http://www.austlii.edu.au/au/cases/nsw/NSWSC/2010/647.html