Background

A letters patent institution is a unique legal creature of a now-repealed piece of Queensland legislation (the Religious Educational and Charitable Institutions Act1861 (Qld)) (RECI Act).  The RECI Act was repealed on the creation of the Incorporated Associations Act but remained in force for those already under its regime.  A letters patent institution is a repository of property held on trust for the uses and purposes of an unincorporated association.  In other words, it is the trustee of a charitable trust (or charitable trusts) and the unincorporated association of members has its own existence.

The Minister has the power to recall letters patent and require incorporation as an incorporated association, although this appears to never have been exercised. It is possible for letters patent institutions to migrate to an incorporated association or company limited by guarantee, which some have done, but some 600 institutions remain in this form.  The lack of an active independent regulator, no filed returns and thus public scrutiny appeared attractive to some.  It is becoming increasingly difficult for large organisations under this form to keep in mind the legal ramifications of what is otherwise normal transactions for other corporate bodies under federal corporate regulation.  Often in the minds of members and trustees, the 2 bodies (the trustee and the unincorporated association) are conflated as one body which can lead them into legal error.

The question: Letters patent and power of sale

The Presbyterian Church of Queensland (PCQ)  was a body incorporated by letters patent and held on trust property for the uses and purposes of the unincorporated association known as the Presbyterian Church of Queensland (Church)[1].

In about 1998, the Church established a ministry division known as PresCare. It carries out the social mission responsibilities of the Church.  Although not a separate legal entity, PresCare is the trading name for the operating business associated with aged care facilities, has its own ABN, constitution and governing board.  Thus, PresCare appears to have been operated as a separate business insofar as its books and records indicate, and it maintains its own financial reports and bank accounts. The fact that it was not a separate legal entity was not held to be material.

Joint and several receivers and managers to all of the assets, property and undertaking of PCQ, including the assets of the property and undertaking of PresCare, were appointed by an order of the Court made on 12 May 2021.

The 3 aged care facilities were packaged together for the purposes of sale and are the subject of 3 sale agreements with Apollo Care Operations Pty Ltd, Apollo Care Properties Pty Ltd and Calvin Aged Care Limited (Apollo). The sale agreements were entered into by PCQ and Apollo on 28 April 2021, prior to the appointment of the receivers, and were yet to be completed at the time of this hearing.

Since their appointment, the receivers have negotiated further agreements with the purchaser, which were referred to as side deeds which varied the sale agreements (side agreements). The side agreements were conditional upon the Court making an order that the receivers were justified in entering into them.  The receivers also entered into 3 agreements to effect the sale and facilitate completion of the packaged businesses, referred to as the completion agreements. All the additional agreements entered into by the receivers were referred to by the Court as the “supplementary agreements”.

The date for completion of the pre-appointment contracts was extended until 11 June 2021. This judgment, therefore, was sought on an urgent basis.  The Court, upon consideration, was satisfied that it was appropriate to make the order sought, which was supported as being appropriate by the Attorney-General of Queensland and consented to by PCQ.  The Attorney-General was involved as the State Guardian of Charities.

The primary issue was whether PCQ had the legal ability to alienate land in the RECI Act. In particular, section 1 of the RECI Act relevantly provides that PCQ can:

…mortgage charge or alienate all or any of the said messuages lands tenements hereditaments goods chattels gifts or benefactions provided such a mortgage charge or alienation be not contrary to the gift grant or dedication of the original donor or of the constitution of such body or association of persons and that the moneys to be raised thereby shall be applied to the same uses and purposes…”

PCQ holds its property on trust for certain charitable purposes. As the receivers had been appointed to property impressed with a charitable trust, they had to respect the charitable purposes and any limitations upon the power of alienation that they entailed in effecting completion of the sale agreements.  As a result of PCQ’s status as a trustee of a charitable trust, the power of alienation could only be exercised to promote and maintain the purposes of the trust.  A trustee who alienates property has a positive obligation to demonstrate that it has not done so in breach of trust.  Thus, the Court had to satisfy itself that the proposed completion of the sale and alienation of property of PCQ was justified and promoted the permanent or lasting interests of PCQ.

A secondary issue was raised that the doctrine of ultra vires was another possible source of constraint on the alienation of trust property. In corporate law, ultra vires describes acts attempted by a corporation that are beyond the scope of powers granted by the corporation’s objects clause, its articles of incorporation, its by-laws, or in the case of Letters Patent institution, laws authorising a corporation’s formation. Acts attempted by a corporation that are beyond the scope of its charter are void or voidable.  Although not beyond doubt, there is Queensland case authority that that an RECI Act corporation equates with a common law corporation established by charter from the Crown such that the doctrine of ultra vires does not apply.

Given that the aged care facilities in question were operating at a loss, and only remained open by federal government support which was to cease on 30 June 2021, the Court was satisfied that PresCare had properly considered the sale and its alternatives and that the receivers had properly dealt with the matter of the sale by negotiating the supplementary agreements.

Moreover, the Attorney General, as protector of charities, did not oppose the sale of PCQ property. Amongst other things, Counsel for the Attorney-General agreed that:

  • the sale was supported by the financial difficulties being suffered by PresCare in respect of the aged care facilities;
  • the side agreements had been entered into after an arm’s length process;
  • the sale was at market value and there was a net benefit to PCQ as a whole;
  • considerable costs would be incurred to engage in a further sales process; and
  • these would likely result in detriment to PCQ.

Therefore, the application of the receivers for the Court to approve the sale was granted.

Lessons

If your legal form is letters patent and an unincorporated association, then it is essential that your trustees, committee and senior management all have a grounded understanding of the different legal structures and their operation. Regular education is required in the onboarding of officials and management staff to avoid confusion.  Inadvertent conflating the letters patent and an unincorporated association can be a recipe for legal troubles.

Purchasers of property from letters patent institutions, particularly land, should also treat such transactions with caution as the transaction may be disrupted by the Courts if a breach of trust may be involved or the transaction is not in the best interest of the charity.

[1] http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QSC/2021/136.html – fn1