Trustees of the Auckland Medical Aid Trust v. Commissioner of Inland Revenue.

Judges:
Chilwell J

Court:
Supreme Court of New Zealand

Judgment date: Judgment delivered 15 March 1979.

Chilwell J.: This is a case stated pursuant to sec. 32 of the Land and Income Tax Act 1954. It relates to the income years ended 31 March 1975 and 1976. The question for the determination of the Court is whether the income derived by the Objectors, as trustees of the Auckland Medical Aid Trust (the Trust), is exempt from income tax. The income in each year represents the whole of the assessable income of the Trust if it is not exempt.

When the hearing commenced I directed that it take place in camera. It is my opinion, shared by many Judges before whom I appeared as counsel, that income tax cases should be heard in camera as is the position in the case of hearings before the Taxation Review Authority. Because an objector exercises his statutory right to request a case to be stated for the determination of the Court he ought not to be placed in peril of publicity. The whole tenor of the relevant

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provisions of the Land and Income Tax Act 1954 (the Act) and of the Inland Revenue Department Act 1974 is the preservation of secrecy with regard to one's taxation affairs. Judicial comment to the contrary is to be found in
Powell v. C. of I.R. (unreported; 18 December 1962; M.No. 312/62, Auckland; Perry J.) but the particular point was not decided. In that case both parties desired an open hearing - the objectors because personal fraud in peculiar circumstances was alleged. As it happened, during the subsequent trial, newspaper publicity brought forward a missing witness whose evidence assisted the trial judge to find the objectors innocent of fraud.

It follows from the order which I made in this case that the names of the Objectors and of the Trust would normally be suppressed. However, having regard to the strong interest shown by the public in the affairs of the Trust it would seem appropriate to allow publication of this judgment including the names of the Objectors and of the Trust. Unless an order to the contrary is made by noon on the 30 March 1979 publication is authorised.

If the Objectors are to succeed they must establish exemption under sec. 86(1)(n) or sec. 86(1)(o) of the Act. The following incomes are exempt from taxation:

Stripping those sections of legal formalism for the purpose of considering the relevant facts and law in this case they exempt:

Subsection (o) controls subsec. (n) because of the words in (n) ``not being income of the kind referred to in... (o)...''.

It was conceded by Mr. Bridger that there was no element of private pecuniary profit for any individual. Accordingly it is not necessary for me to decide whether the concluding words of each subsection apply to Trusts as well as to societies and institutions. This issue was left undetermined by Wilson J. in
Calder Construction Co. Ltd. v. C. of I.R. (1963) N.Z.L.R. 921, 926.

In the present case the income of the trustees was derived from the carrying on of a business. Hence, subsec. (o) applies to the exclusion of subsec. (n).

The issue is whether the business was carried on by trustees ``in trust for charitable purposes''. By contrast under the equivalent English Statutes the issues were and are different. The first is whether the trust is established for charitable purposes only and the second is whether the income is in fact applied to those charitable purposes. See sec. 360 of the Income and Corporation Taxes Act 1970 and its predecessor sec. 447 of the Income Tax Act 1953 (33 Halsbury's Statutes of England 3 ed. 477). Hence authorities such as
I.R. Commrs. v. Educational Grants Association Ltd. [1967] Ch. 893 (Court of Appeal) are distinguishable.

In New Zealand, having regard to the relevant provisions applicable to this case, the issues are first whether the income was derived from a business, secondly whether that business was carried on by trustees in trust and thirdly whether that trust is one for charitable purposes.

The first issue must be resolved in favour of the Objectors. In the years in question they carried on business at a clinic and later at a private hospital where abortion services were provided.

The resolution of the second issue turns upon the interpretation of the deed of trust which governs the activities of the trustees.
Bowman v. Secular Society Ltd. [1917] A.C. 406 (House of Lords),
Dunne v. Byrne [1912] A.C. 407 (Privy Council),
Tennant Plays Ltd. v. I.R. Commrs. [1948] 1 All E.R. 506

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(Court of Appeal),
C. of I.R. v. Carey's (Petone and Miramar) Limited [1963] N.Z.L.R. 450 (Court of Appeal), Calder Construction Co. Ltd. v. C. of I.R. (supra) and
Brisbane City Council v. Attorney-General for Queensland [1978] 3 All E.R. 30 (Privy Council).

The deed of trust dated 17 May 1974 constituted a trust fund to be held upon the following trusts:

``1. (i) Upon trust to establish and maintain a comprehensive health and welfare service related to the human reproductive process and its control (whether by means of contraception, sterilization, abortion or otherwise) and to that end to establish, provide and maintain hospitals and clinics and surgical, medical, pharmaceutical, counselling and welfare services.

(ii) Upon trust to arrange and conduct lectures meetings and classes and to publish and disseminate literature and to do all other things to educate the public in the facts of human reproduction and the human reproductive process and of all matters concerning reproductive health and well-being physical and social.''

And in the event of failure or frustration of the objects of the trust as above set forth or if and when they become incapable of being carried out then:

``4... the Trust fund shall be paid to the Medical Research Endowment Fund of New Zealand for the purpose of carrying out research into all or any of the medical legal and social aspects of the control of human reproduction.''

Human reproduction is controlled by contraception, sterilization and abortion in respect whereof there is now comprehensive enabling legislation in this country. I refer to the Contraception, Sterilization, and Abortion Act 1977 enacted consequent upon the report of the Royal Commission of Inquiry into such matters submitted to the Governor-General on 5 March 1977 (the Report). The 1977 Act and its amendment in 1978 and other enactments passed in 1977 and 1978 express in statutory form the public policy of New Zealand with regard to human reproduction and its control whereas before that legislation was enacted public policy, though it existed, was incapable of precise definition. It is impossible to advance any argument that the control of human reproduction was contrary to public policy in 1975 and 1976 (the income tax years in question) because the Report (which I have read for the purpose of this judgment) and the legislation to which I have referred annihilate any such submission. No such broad submission was advanced by Mr. Bridger.

It is my judgment that the provisions of the trust deed declaring its objects which I have just recited are plain and unambiguous. Mr. Bridger conceded that point with reference to object I(i). There is no room for the introduction of extrinsic evidence to assist in determining the issue whether the business was carried on by the trustees in trust. The cases already cited in this judgment go some distance in support of that proposition. Compare also re Davidson,
Minty v. Bourne [1909] 1 Ch. 567 (Court of Appeal),
Bourne v. Keane [1919] A.C. 815 (House of Lords) and
Incorporated Council of Law Reporting for England and Wales v. Attorney-General [1972] Ch. 73 (Court of Appeal).

I return to sec. 86(1)(n) and (1)(o) of the Act. Prima facie both subsections apply because the income in each year was derived from a business carried on by the trustees in trust and the income itself was held in trust for the purposes of the deed of trust. It is because of the opening words in subsec. (n) that subsec. (o) applies in this case.

The effect of the first part of subsec. (o) is that once it is determined that a business is carried on in trust and that the trust is one for charitable purposes income of that business is exempt from income tax irrespective of whether it is immediately impressed with a trust or whether it is kept within the business. In Calder Construction Co. Ltd. v. C. of I.R. (supra) Wilson J. said at p. 923:

``On this construction, provided the business is carried on in trust for charitable purposes, it is immaterial that the whole of the income derived from it is not obliged to be paid immediately to the charity or charities. By extending exemption to businesses, the Legislature must be presumed to have accepted that

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normal prudent business practices, such as the creation of reserves out of income or the application of part of the income of the business for development purposes would be adopted. The paragraph does not in terms require the income of the company to be applied exclusively and immediately for charitable purposes and I can see no reason for implying such a condition. So long as any resulting assets must ultimately be applied to charitable purposes the business is none the less carried on in trust for such purposes because such application is postponed.''

Even without the clear statutory scheme of subsec. (n) and (o) the Court of Appeal has held in a stamp duty case that wide business powers vested in a trustee do not negative the charitable nature of a trust provided the conduct of the business is subject to the dominating consideration that the income when ascertained is paid to the trustee to be applied exclusively to the charitable purposes. C. of I.R. v. Carey's (Petone and Miramar Limited) (supra) Gresson P. at pp. 455 and 456.

It is clear that if either the business itself is conducted in trust for charitable purposes or the income derived from that business is held in trust for charitable purposes the trustees may carry on any business, buy and sell, employ staff, provide for reserves and engage in sundry other commercial operations.

It follows that the business itself may have non charitable characteristics. The test is whether its income is ultimately applied to charitable purposes.

In fact in both the years in question the income was retained to fund the current and fixed assets of the Trust. In the result by 31 March 1976 the total net income of $140,790 for the two years is found to have been accumulated and invested primarily in the Trust's private hospital and its equipment.

That accumulation (which represents the surplus of assets over liabilities) is held upon the trusts set forth in deed of trust. Whether or not in 1975 and 1976 the trustees acted in a manner wholly complying with the most restrictive interpretation of the law with regard to contraception, sterilization and abortion the Contraception, Sterilization, and Abortion Act 1977 as amended in 1978, the Food and Drug Amendment Act 1977, the Guardianship Amendment Act 1977, the Hospitals Amendment Act 1977, the Mental Health Amendment Act 1977, the Medical Practitioners Amendment Act 1977, the Property Law Amendment Act 1977, the Social Security Amendment Act 1977, and the Crimes Amendment Acts of 1977 and 1978 now provide a comprehensive code of what is lawful and what is unlawful in these areas of the human reproductive process and its control. The activities of the trustees as described by Dr. Hunton and Professor Bonham in their evidence are within the law as is now established by Parliament. The ultimate destination of the two years' income must be in terms of the trust deed and if the purposes are charitable it matters not that the application of the income is postponed beyond the income tax years in question. Calder Construction Co. Ltd. v. C. of I.R. (supra).

The third issue to be determined under sec. 86(1)(o) of the Act is whether the trust is one for charitable purposes. In view of Calder's case that issue requires consideration of the position during the income tax years in question and, because the accumulated funds are still held upon trust, consideration of the present position.

The current position is explained in the evidence of Dr. Hunton and Professor Bonham. The activities of the Trust cover now many aspects of the human reproductive process whereas in 1975 and 1976 the principal services provided were abortion services. Little is to be gained in reciting passages from the evidence. There is no suggestion that the trustees are acting outside the provisions of the legislation enacted in 1977 and 1978. The evidence reflects compliance with the law.

The predominant question is whether the Trust is a trust for charitable purposes. Section 2 of the Act provides a definition of ``Charitable purpose''.

```Charitable purpose' includes every charitable purpose, whether it relates to the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community.''

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This definition is taken from the classification of charitable trusts defined by Lord Macnaghten in
I.R. Commrs. v. Pemsel [1891] A.C. 531 (House of Lords) at p. 583 which is in turn a distillation of the four purposes described in the preamble to the Statute of Elizabeth, otherwise known as the Charitable Uses Act 1601. The common law is therefore applicable in determining whether purposes are charitable within the meaning of sec. 86(1)(o) of the Act.

A purpose will be charitable at common law if it falls within the purposes enumerated in the preamble to the Statute or within one of the four categories of charitable purpose laid down by Lord Macnaghten and derived from the preamble namely, purposes for the relief of poverty, for the advancement of education or religion, or for other purposes beneficial to the community, not falling within the preceding heads. In the case of the last of Lord Macnaghten's categories, the purpose or purposes must be within the spirit and intendment of the Statute, either directly or by analogy with decided cases.
Scottish Burial Reform and Cremation Society Limited v. Glasgow City Corporation [1968] A.C. 138 at pp. 154/155 (Lord Wilberforce) or because they are prima facie beneficial to the public and there is no ground for holding them outside spirit and intendment of the preamble. Incorporated Council of Law Reporting for England & Wales v. Attorney-General (supra): Russell L.J. 87-88 and Sachs L.J. 89-90.

In addition, a purpose must be for the public benefit, that is, it must be both beneficial and available to a sufficient section of the public and it must be enforceable by the Court at the instance of the Attorney-General. 5 Halsbury's Laws of England 4 ed. para. 506 and 507. Mr. Bridger conceded that the purposes of the present Trust were available to a sufficient section of the public. As to enforcement by the Court, this matter was not argued. However, the objects are sufficient clearly expressed for the Court to enforce them. Re Smith's Will Trusts:
Barclays Bank Ltd. v. Mercantile Bank Ltd. [1962] 2 All E.R. 563 (Court of Appeal).

It is essential to analyse the objects as expressed in the Trust.

Object 1(i) can be separated into two parts:

The second part is limited in scope by the first part.

Mr. Bridger submitted that the terminology of part (a) is so broad in expression as to give insufficient information to determine what the alleged charitable purpose really is and whether it is charitable. Compare the obiter dictum of Salmon L.J. in I.R. Commrs. v. Educational Grants Association Ltd. (supra) p. 1015. Mr. Bridger's submission is answered, in my judgment, by the Report and by the 1977 and 1978 legislation. The comprehensive health and welfare service is limited to the human reproductive process and its control which is a branch only of medical science. The conjunctive ``and'' confines welfare services to health services in the human reproductive field and its control.

A distinction between health services carried on within hospitals and those within other lawful institutions is no longer valid today in assessing the charitable nature of a purpose. In
Resch's Will Trusts [1969] 1 A.C. 514 (Privy Council from New South Wales) Lord Wilberforce said at p. 540:

``the provision of medical care for the sick is in modern times, accepted as a public benefit, suitable to attract the privileges given to charitable institutions''

and at p. 544, referring to certain cases cited to their Lordships:

``It would be a wrong conclusion for them to state that a trust for the provision of medical facilities would necessarily fail to be charitable merely because by reason of expense they could only be made use of by persons of some means.''

It can now be asserted that medical facilities per se can be charitable.

In re Smith (deceased) (supra) Upjohn L.J. said at p. 566:

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``It is clear that a gift for the relief of the sick is per se charitable, for it falls by analogy within the phrase `the relief of the impotent' in the Statute of Elizabeth. Counsel for the Attorney-General concedes, however, that there are two ways of treating the sick; one is charitable and one is not. The charitable way of treating the sick is through the ordinary hospital which, before the National Health Service Act, 1946, was supported by voluntary contributions and was usually referred to as a voluntary hospital. In voluntary hospitals patients are relieved without payment if their means do not permit them to make such payment, but they may pay according to their means and have the benefit of a private ward. This, however, does not prevent a voluntary hospital from being charitable, for its funds are exclusively applied for the relief of the sick. The non-charitable way of treating the sick is by applying funds to an institution run for profit, commonly called a nursing home. This is not charitable, for the reason that the funds are not applied exclusively for the relief of the sick but partly in earning profits. The learned judge held that the word `hospital' in the testator's will was apt to comprehend both types of establishment, and therefore, as the funds could be applied for purposes other than the relief of the sick, that is by payment to a nursing home run for profit, the gift was not charitable.

My mind has fluctuated a good deal during the able arguments to which we have listened on both sides. The learned judge referred to one or two persuasive authorities, including that of
re Padbury, Home of Peace for the Dying and Incurable v. Solicitor-General (1908) 7 C.L.R. 680, decided in the High Court of Australia, but, as he pointed out, none is directly in point. It can hardly be doubted that the testator's intention was to benefit what I have described as voluntary hospitals, and it seems scarcely possible that he could have contemplated that the chairman for the time being of Barclays Bank Ltd. should have liberty to pay a substantial sum to a nursing home. That, however, is not decisive of the point, for if in fact the testator has chosen to use the word `hospital', and that word in its ordinary and popular meaning comprehends nursing homes, he has unwittingly failed to achieve his purpose. In my judgment (and it is a very short point) in a will such as this the word `hospital' is apt and appropriate to describe only what used to be called a voluntary hospital and is not appropriate to describe an institution, however expert medical and surgical services may be available therein, which is run for profit and which is normally and ordinarily described as a nursing home. That the word `hospital' is capable in a proper context of including nursing homes or clinics cannot possibly be doubted, but that, in a will, is not its ordinary meaning in my judgment, and I can find no context in this will which would extend its meaning to include a nursing home. Accordingly, I think the testator created a valid charitable trust and I would allow the appeal.''

Hospitals not run for private commercial gain are charitable because they provide for the ``relief of the sick''. It is my judgment that ``relief of the sick'' is today used in the broad sense of those requiring medical treatment. In re Smith deceased (supra) Lord Denning M.R. said that the word ``hospital'' is capable of a charitable meaning because it provides for the care of the sick and the wounded or of those who require medical treatment. (See p. 564).

I will later consider Mr. Bridger's submission that the activities of the Trust were in fact harmful to the community. It is impossible to contend as a matter of interpretation that the purposes in part (a) of Object (1)(i) are not for the public benefit. I find part (a) to be for the public benefit, available to a sufficient section of the public and enforceable by the Court.

I will consider now part (b) of Object (1)(i) i.e. the provision of hospitals and clinics and related services.

The provision of medical services within hospitals is prima facie a charitable purpose. Lord Wilberforce said in Resch's case (supra) at p. 540:

``A gift for the purposes of a hospital is prima facie a good charitable gift. This is now clearly established both in Australia

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and in England, not merely because of the use of the word `impotent' in the preamble to 43 Eliz. c. 4, though the process of referring to the preamble is one often used for reassurance, but because the provision of medical care for the sick is, in modern times, accepted as a public benefit suitable to attract the privileges given to charitable institutions. This has been recognised in the High Court in Australia in
Taylor v. Taylor (1910) 10 C.L.R. 218 and
Kytherian Association of Queensland v. Sklavos (1958) 101 C.L.R. 56: in England In re Smith, decd. (1962) 2 All E.R. 563.

In spite of this general proposition, there may be certain hospitals or categories of hospitals, which are not charitable institutions (see In re Smith, decd.). Disqualifying indicia may be either that the hospital is carried on commercially i.e., with a view to making profits for private individuals, or that the benefits it provides are not for the public, or a sufficiently large class of the public to satisfy the necessary tests of public character.''

In
re McIntosh (unreported; 28 October 1975, M.No. 107/74, Dunedin) a scheme was placed before the Court for its approval in which provision was made for the comfort of children and other patients in institutions, including hospitals, a convalescent home and a sanatorium, under the control of the Otago Hospital Board. Beattie J. held this to be for the relief of the impotent.

In re Smith (deceased) (supra) a hospital, being an institution which provides for ``the care of the sick and the wounded and those who require medical treatment'' was held to be a charitable institution, because its purposes fell by analogy within the phrase ``the relief of the impotent''.

In re Harding (deceased),
Dixon and Anor. v. Attorney General and Anor [1960] N.Z.L.R. 379, it was held that a public hospital is itself a charity. It is implicit in the decision that medical services of a wide nature carried out in a public hospital are charitable.

In
re Alfred Ford [1945] 1 All E.R. 288 concerned the question whether the Birmingham General Dispensary, a type of clinic, was a ``voluntary hospital'' and therefore whether it came within the terms of a bequest to the ``voluntary hospitals'' of Birmingham. It was held by Vaisey J. that it did not because, unlike the hospital which provided for continuous patient care, a dispensary provided for the occasional treatment of out-patients. However, with reference to the beneficial nature of the institution he said at pp. 288-289:

``Let me say at once that the merits of the Birmingham General Dispensary are indubitable. No more beneficient and useful institution that appears to be could be well imagined. It carries on a most useful work for the benefit of the citizens of Birmingham and Solihull. It is most admirably organised and administered... it has full-time salaried, medical, dental, pharmaceutical, nursing and other specially trained staff and, in addition it has consultants in practically every department of medicine and surgery.''

It is clear from the judgment that had the issue been simply charitable purpose or not Vaisey J. would have found a charitable purpose to exist.

This disqualifying indicia referred to by Lord Wilberforce in Resch's case (supra) do not apply on the facts of this case because:

Lord Wilberforce said in Resch's case (supra) at p. 544:

``It would be a wrong conclusion... to state that a trust for the provision of medical facilities would necessarily fail to be charitable merely because by reason of expense they could only be made use of by persons of some means. To provide, in response to public need, medical treatment otherwise inaccessible but in its nature expensive, without any profit motive, might well be charitable: on the other hand to limit admission to a nursing home to the rich would not be so.

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The test is essentially one of public benefit and indirect as well as direct benefit enters into the account. In the present case, the element of public benefit is strongly present. It is not disputed that a need exists to provide accommodation and medical treatment in conditions of greater privacy and relaxation than would be possible in a general hospital and as a supplement to the facilities of a general hospital. This is what the private hospital does and it does so at, approximately, cost price. The service is needed by all, not only by the well-to-do. So far as its nature permits it is open to all: the charges are not low, but the evidence shows that it cannot be said that the poor are excluded: such exclusion as there is, is of some of the poor - namely, those who have (a) not contributed sufficiently to a medical benefit scheme or (b) need to stay longer in the hospital than their benefit will cover or (c) cannot get a reduction of or exemption from the charges. The general benefit to the community of such facilities results from the relief to the beds and medical staff of the general hospital, the availability of a particular type of nursing and treatment which supplements that provided by the general hospital and the benefit to the standard of medical care in the general hospital which arises from the juxtaposition of the two institutions.''

It is my judgment that part (b) of Object (1)(i) is a charitable purpose by analogy with the phrase ``the relief of the impotent''. It is for the public benefit, available to a sufficient section of the public and enforceable by the Court.

Object (1)(ii) is educational in character. The advancement and dissemination of education and learning is a charitable purpose. This branch of the law is not confined to teaching in the conventional sense. It extends to all branches of human knowledge and its dissemination: Incorporated Council of Law Reporting for England and Wales v. Attorney-General (supra).

In
McGregor v. Commr. of Stamp Duties [1942] N.Z.L.R. 164 gifts to the N.Z. Obstetrical Society, whose activities included the distribution of pamphlets to expectant mothers and the education and shaping of public opinion on all matters that concern maternal welfare in New Zealand, were held charitable as providing education in the treatment and care of maternity cases for a large section of the community or for the promotion of maternal welfare in New Zealand. Smith J. said at p. 169:

``The real object is the promotion of the scientific study of obstetrics and gynaecology in New Zealand. The correlation of the activities of the individual members of the society is only a means to the end. The education of expectant mothers and of public opinion are involved. Co-operation with the Health Department in such education and in other matters for the promotion of maternal welfare are involved. The essential object of the society appears to me to be to provide education in the treatment and care of maternity cases, not for some individual doctors, but for a large section of the community. The gift is therefore a gift left by the will of the deceased on a charitable trust and is entitled to exemption from succession duty.''

In
re Travis [1947] N.Z.L.R. 382 it was held that a trust for the assistance of scientific investigation of remedies for consumption and cancer was charitable and capable of execution. Consequently it did not require modification under sec. 15 of the Religious, Charitable, & Educational Trusts Act, 1908.

In the present case the Trustees are charged by the Trust with education of the public in the facts of human reproduction and in all concerning reproductive health and physical and social well-being. In my judgment this is clearly a trust for educational purposes beneficial to the community. Mr. Bridger felt obliged virtually to concede the point. I am indebted to him for referring me to other important authorities such as
re Hopkins Will Trusts, Naish v. Francis Bacon Society Incorporation [1964] 3 All E.R. 46 (Wilberforce J.) to
re Shaw's Will Trusts, National Provincial Bank Ltd. v. National City Bank Ltd. (1952) Ch. 163 (Vaisey J.) and to
Oppenheim v. Tobacco Securities Trust Co. Ltd. (1951) A.C. 297 (House of Lords).

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The final object clause requiring consideration is the residuary provision in cl. 4 of the trust deed. The Medical Research Endowment Fund is charged with the obligation of ``carrying out research into all or any of the medical legal and social aspects of the control of human reproduction''. This purpose takes its colour from the principal objects of the Trust. The purpose does not relate to the general purposes of the Endowment Fund whatever they may be.

My determination upon Objects 1(i) and (ii) automatically determines the charitable purpose of cl. 4. Compare the residuary provision in Scottish Burial Reform and Cremation Society Ltd. v. Glasgow Corporation (supra).

I conclude by finding as a matter of interpretation that the objects of the Trust are within recognised charitable purposes. So far as it is relevant I find that the present activities of the trustees are in terms of the Trust Deed.

I will now consider the position during the two income tax years in question (1975 and 1976). The income derived in those years came almost wholly from that part of the business of the trustees relating to its abortion services. One of Mr. Bridger's submissions was that this part of the business had created so much public controversy as to warrant the determination of the Court that the controversy and the degree of it was harmful to the community. He referred to the well known principle:

``... the purpose itself must be beneficial and not harmful to the public.''

5 Halsbury's Laws of England ed. para. 505.

In the event that the Court be not prepared to make that positive finding he went on to submit that the objectors had not discharged the onus of proof that their activities had been beneficial and that they had not been harmful. The Royal Commissioners examined the activities of the Trust in respect of the same years as are in issue in the present case. They expressed their ``assessment'' (pp. 171-2) as follows:

``Much was said both in favour of, and against, the operations of the Trust. We think it desirable that we should set out our view of the operations of the Trust and the Centre based on an objective appraisal of all the evidence which we have heard. We are of the opinion that:

  • 1. The surgical and medical facilities provided at the Centre are adequate for the performance of first trimester abortion, using the vacuum aspiration method. They have been commended by some gynaecologists. Satisfactory arrangements have been made so that patients in whom complications develop may be referred to National Women's Hospital for necessary treatment.
  • 2. The performance of the operating doctors, once trained, seems to be satisfactory, and complication rates appear to be below those generally reckoned to be acceptable in many hospitals.
  • 3. Women presenting for an abortion are treated with every consideration.
  • 4. The refusal of only 4.6 percent of woman referred for abortion in the first year and 2 percent in the second year on the basis of insufficient legal grounds indicates that virtually any woman, not more than twelve weeks advanced in pregnancy, is able to obtain an abortion by making a request and not deviating from her attitude through counselling.
  • 5. The vagueness of the law on abortion has been exploited to the fullest extent by the Centre by providing what is virtually an `abortion on request' service.
  • 6. Those at the Centre carrying out pre-abortion counselling and performing the abortions are generally abortion-orientated, and in favour of liberalisation of the abortion laws.
  • 7. The counselling service provided by the Centre has not the appearance of independence, in that counsellors are employed and paid by the Trust, the profitability of which is directly related to the number of abortions performed.''

Earlier at p. 143 the Royal Commissioners reported that the law of New Zealand on abortion ``cannot now be stated with certainty''. The relevant passage states:

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``As a result of the judgments declined in the Woolnough case, the law of New Zealand on abortion cannot now be stated with certainty. Although the majority view of Mr Justice Richmond and Mr Justice Woodhouse dismissed the appeal by the Crown, they did not define the limits to be placed upon the word `unlawfully'. Only Parliament, as all three judges said, can now do that by legislation. Until it is done the law on abortion will continue to merit the criticism that it is undefined and lacking in certainty.''

However, the Trust did not emerge from the Report without some praise. It is clear that the Royal Commissioners relied extensively upon statistics provided by the Trust for which they expressed their gratitude. Some of the methods used at the clinic were favourably commented upon. The Commissioners did not contemplate the end of the Trust. I refer to the following extracts from pp. 292 and 293 of the Report:

``We think that there is a place for the charitable trust controlling a clinic (such as the Auckland Medical Aid Centre) whose function will be restricted to carrying out first trimester terminations. Such a trust would make a direct charge to the patient as though it were a profit-making institution.''

``We have already recommended that clinics such as the Auckland Medical Aid Centre should be allowed to perform terminations in the first trimester. This clinic is registered as a charitable trust - a non-profit making institution. Accordingly, it is not liable to pay income tax and it is entitled to substantial relief from land tax. It is a prerequisite to the registration of any body as a charitable trust that its rules should contain a provision that, when its objects have been fulfilled or it is wound up, the assets which it possesses should be paid to some charitable agency and not distributed to private persons. The rules of the Auckland Medical Aid Trust contain such a provision. The Trust now has substantial assets, and at its present rate of charge is likely to acquire further assets or to increase its equity in the Aotea Hospital. The question is whether the State should intervene in the case of a charitable trust operating in the abortion area to remove or reduce the measure of relief from taxation at present afforded to it by legislation. We have no recommendations to make in this area. Charitable trusts operate in a number of areas of business in competition with other commercial enterprises which pay tax. For this reason we think that it would be unfair for charitable trusts controlling clinics performing abortions to be made the subject of any treatment differing from that extended to charitable trusts operating in other fields of enterprise. If an unfair advantage is obtained by way of relief from taxation by the operation of a charitable trust, that matter should be the subject of an overall fiscal policy.''

I was not requested by either Counsel in this case to read the Report. I have done so because it is a public document having direct bearing upon the issues before me and, accordingly, relevant. Having regard to the evidence actually tendered to me I defer to the Royal Commissioners' assessment. That assessment was the result of a much wider ranging inquiry than I have been able to conduct. The evidence before me was very much narrower in scope than the evidence before the Royal Commissioners.

It is observed that the assessment of the Royal Commissioners stopped short of finding unlawful conduct. I refer to the equivocal word ``virtually'' appearing in para. 4 and 5. Abortion on request they defined as an abortion to which a woman is entitled without the necessity for medical or legal justification (p. 273).

If the Trustees had been carrying on the business of procuring unlawful abortions and thereby acting illegally the Court would have felt obliged to determine that the income had not been derived in any sense for charitable purposes. The law would resist finding a charitable purpose if a trust were dressed up within a cloak of charitable purposes that cloak being in fact used for non charitable purposes. See
Royal Choral Society v. I.R. Commrs. [1943] 2 All E.R. 101 (Court of Appeal) per Lord Greene M.R. 106 and Du Parcq L.J. 108 and
Salvation Army (Victoria) Property Trust v. Shire Fern Tree Gully Corporation (1952) 85 C.L.R. 159 (High Court) per Fullagar J. pp. 185-186.

ATC 6015

The Commissioner of Inland Revenue adduced no evidence of illegality. He adduced no evidence at all. Nor did his counsel submit that the Trust was illegal or that the trustees activities were or had been illegal. The Report contained no express finding of illegality. When the Trust's principal operating medical practitioner (Dr. Woolnough) was prosecuted under sec. 183 of the Crimes Act 1961 in 1975 he was acquitted after two trials by a jury. The acquittal was upheld in the Court of Appeal in July 1976. See
R. v. Woolnough [1977] 2 N.Z.L.R. 508.

While under sec. 36 of the Inland Revenue Department Act 1974:

``... the burden of proof shall be on the objector''

this is not an onus in absolute terms. The evidence before the Court in any given case will usually satisfy the Court one way or the other. It is only when the Court is left in doubt that sec. 36 carries the day. See
Huyton-with-Roby Urban District Council v. Hunter [1955] 2 All E.R. 398 (Court of Appeal)
Brown v. Rolls Royce Ltd. [1960] 1 All E.R. 577 (House of Lords),
Davis v. C. of I.R. [1959] N.Z.L.R. 635 (Hutchison J.) and
Phillips v. C. of I.R. [1959] N.Z.L.R. 1357 (Shorland J.)

Prima facie the Trust was established for lawful purposes. It was incorporated on the 8 August 1974 as a charitable trust under the Charitable Trusts Act 1957. That is not, of course, conclusive. (Sections 7 and 12 of that Act.) It is not the Trust per se but the activities of the trustees which have been called into question. They have been called into question not as illegal activities but as activities which were harmful: harmful it is alleged because they created public controversy and because they took advantage of an uncertain law.

There are no degrees of legality known to our law. The activities of the trustees were either illegal or they were not. The Royal Commissioners, after very full inquiry, made no finding of illegality. Dr. Woolnough was acquitted after his trial. After the Hospitals Amendment Act 1975 was enacted the Trust's private hospital was approved by the Director-General of Health for operations. That approval could be given only:

``... upon his being satisfied that it (the hospital) maintains or uses adequate and independent counselling services and also procedures to ensure that all operations are within the law and that the facilities for operation and after-care are satisfactory.''

Those factors shifted the obligation to the Commissioner of Inland Revenue to establish illegality. He did not attempt to do so. For the purpose of this case on the evidence before me the only proper conclusion is that the trustees did not act unlawfully in running their business.

The pertinent question is not the last but whether the trustees carried out their business in a non charitable way under the cloak of respectability of a carefully drafted charitable trust deed. From Calder's case (supra) one deduces the principle for the purpose of sec. 86(1)(o) of the Act that the business in question may have non charitable characteristics. It does not follow that Wilson J. intended to give licence to harmful activities. Most private businesses carried on in the ordinary commercial way are not harmful to the public. I doubt if the Courts would embrace the proposition that a charitably minded person can do what he likes so long as in the end the income he derives as a trustee is derived in trust and is to be ultimately applied for charitable purposes. That Robin Hood approach is hardly likely to succeed.

I accept that when the terms of a Trust are plain and unambiguous there are limits upon the power of the Court to accept extrinsic evidence. If the terms of the trust are ambiguous the Court can go outside the trust document and examine relevant extrinsic evidence. That does not let in evidence of what in fact was done by the trustees as an aid to interpretation. See the conflicting views held by Lord Denning M.R. and Harman L.J. in I.R. Commrs. v. Education Grants Association Ltd. (supra). With respect to Lord Denning the view of Harman L.J. is to be preferred. See
Jarvis v. Pitt Ltd. (1935) 34 C.L.R. 506, 513,
Provincial Assurance Association Ltd. v. E.T. Taylor & Co. Ltd. [1947] N.Z.L.R. 793 (Privy Council) and
L. Schuler A.G. v. Wickman Machine Tool Sales Ltd. [1974] A.C. 235 (House of Lords).
Watcham v.

ATC 6016

Attorney-General [1919] A.C. 533 (House of Lords) now applies only to the interpretation of ancient documents.

Evidence of the activities of the trustees can be examined when it is necessary to determine the charitable status of an Institution or whether an Institution has as its principal object one which brings its income within a statutory exemption or whether its actual business has as its principal object one which brings its income within a statutory exemption. Examples are Salvation Army (Victoria) Property Trust v. Fern Tree Gully Corporation (supra),
Royal Australasian College of Surgeons v. F.C. of T. (1943) 68 C.L.R. 436,
A. & S. Ruffy Proprietory Ltd. v. F.C. of T. (1958) 98 C.L.R. 637, and
Molloy v. C. of I.R. (1977) 3 NZTC 61, 218, Mahon J. The present case is distinguishable. The trusts of the Trust have been strictly declared. The issue in this case is not the same as the issues in the cases just cited. The issue here is whether the income was derived from any business carried on by trustees in trust for charitable purposes. That is a matter of interpretation of the trust dead.

Evidence of the activities of the trustees can also be examined to unmask an activity which is harmful to the public. The historical path of the law of charities is strewn with the great controversies of the past. Secularism formerly forbidden was approved by the House of Lords in 1917, the saying of masses for the dead was held no longer to be a superstitious use in 1919 when the House of Lords took the opportunity of saying that the law had wrongly punished Roman Catholicism for 80 years. In that case (Bourne v. Keane supra) Lord Atkinson said of the secularism approved in 1917 (p. 895):

``It is difficult if not impossible to distinguish this from Atheism.''

In 1947 the House of Lords effectively told the anti vivisectionists that their cause was no longer charitable. In 1967 the House proclaimed in favour of cremation of the dead. One could spend a great deal of time elaborating this theme from a review of the decided cases. To my mind they establish that the advocates of causes involving intense moral issues ought not per se to be considered to be acting in a manner harmful to the public. There must be at least two sides to such controversies. The cases show that when the Courts take sides injustice may be the result.

The controversy which has raged over the abortion and related issues in this country during periods relevant to this case was not in my judgment harmful to the public viewed objectively. I reject that branch of Mr. Bridger's argument.

The aspect of this case which is of concern flows from the assessment of the Royal Commissioners that the trustees provided ``what is virtually an `abortion on request' service'' and that they ``exploited'' the vagueness of the law to the fullest extent. They achieved that under a deed of trust which withstands scrutiny and survives all attacks upon its interpretation as a document creating a valid charitable trust. The Trust was not a cloak for illegal conduct because the evidence does not support such a finding. Was the Trust a cloak for a fringe activity; something bordering on illegality? If it was then the Trust's private hospital should not have been approved under the Hospitals Amendment Act 1975. The Director-General of Health would not have granted approval if he thought the Trust a cloak for borderline crime. His decision cannot supplant mine. But when it comes to deciding whether the Objectors have discharged the burden of proof, the fact of the granting of that approval at a time when public controversy was extreme assists me to arrive at the conclusion that the Objectors have discharged the burden of proving that the Trust was not a cloak for activities harmful to the public. Furthermore the Royal Commissioners recommended a continuance of the services of the Trust and expressed a favourable view towards this type of service being provided by a charitable trust.

I concluded this part of my judgment by finding that the activities of the trustees during the two income tax years in question were within the terms of the Trust and were not of a non charitable or harmful nature.

There is no element of private precuiary profit in this case. If the closing words of sec. 86(1)(n) and 86(1)(o) apply (and I doubt if they do) any requirement that the income or the business be held or carried on in trust for charitable purposes of itself excludes any element of private pecuniary profit. This

ATC 6017

exclusion does not mean that individuals may not benefit indirectly through the operations of a trust. Those who have commercial dealings with a trust or who are employed by it may benefit in a broad sense. Carey's case and Calder's case establish that such a trust is not, thereby, rendered uncharitable. To lose its charitable status the trust must have as one of its objects the benefit of individuals with surplus income and/or capital being applied for their benefit. In re Resch's Will Trusts (supra) Lord Wilberforce said (p. 539):

``St. Vincent's Private Hospital has on no occasion in the past and is not now conducted as a profit making enterprise as if it were a commercial venture. It is, however, the case that on a cash accounting basis, and without allowing for certain overheads or depreciation which would be chargeable if the hospital were run commercially, fairly substantial surpluses have from time to time been made. These have been used, in accordance with the original intentions of the Sisters of Charity, in contributing to the maintenance and building account and the general purposes of the general hospital and also for the general purposes of the Sisters of Charity.''

See also Scottish Burial Reform and Cremation Society Ltd. v. Glasgow Corporation (supra) and Salvation Army (Victoria) Property Trust v. Fern Tree Gully Corporation (supra).

In considering whether the prima facie charitable nature of the hospital had been lost because it was carried on commercially Lord Wilberforce said in Resch's case at p. 541:

``Their Lordships do not consider it necessary to enter upon these latter considerations. For whatever the Sisters of Charity may be empowered to do with regard to their general property, as regards the share of income of the residuary estate, given to them as trustees, they are bound by the trusts declared in the will under which any money received by them must be applied exclusively for the general purposes of the private hospital as above defined. As regards these purposes, it appears, from the evidence already summarised, that the making of profits for the benefit of individuals is not among them. The most that is shown is that, on a cash basis, and without making such adjustments as would be required for commercial accounting, a net surplus is produced over the years which in fact has been applied largely, though not exclusively for hospital purposes. The share of income given by the will must be devoted entirely to the purposes of the private hospital. The character, charitable or otherwise, of the general activities of the Sisters, is not therefore a material consideration.''

The Trust in that case was to pay income for a period of 200 years to The Sisters of Charity to be applied by them toward running St. Vincent's Private Hospital in Sydney. Implicit in the decision is recognition of the principle that provided the profit was kept within the Hospital it did not lose its charitable status even although the Hospital was run as a business and even although high fees were charged for the Hospital's services. It was not contended in the present case that the trustees overcharged for their services: nor does the evidence support any such contention.

For the foregoing reasons I answer the questions for my determination in the affirmative i.e. that the income derived by the Objectors, as trustees of the Trust, is exempt from income tax.

The question of costs is reserved.

 

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