Eligibility – The NSW Rural Fire Services Case – Donor expectations not met?

/ ATO/General, Eligibility, Public / By /

Electronic media reports of the recent NSW Supreme Court decision guiding the NSW Rural Fire Service & Brigades Donation Fund on the application of $51m in bushfire donations have been confusingly brief. At least some donors will be disappointed. The decision has implications for both charities and their donors.

The January 2020 bushfires led to an aggregate donation of approximately $51m to the NSW Rural Fire Service & Brigades Donations Fund (the RFS Fund).

The NSW Supreme Court (In the matter of the New South Wales Rural Fire Service & Brigades Donations Fund; Application of MacDonald & Or [2020] NSWSC 604) was recently asked to guide the trustees of the RFS Fund in relation to the application the donations.

Background Facts

Donations were made through a charitable crowdfunding appeal instigated by Ms Celeste Barber. The appeal utilised the internet payment service, PayPal, and more particularly ‘an electronic system controlled by PayPal, the PayPal Giving Fund Australia (“the PayPal Giving Fund”)’. It is understood that ‘Ms Barber nominated, and PayPal published, the RFS Fund as the proposed recipient of the appeal donations’.

Following issue of the Court’s decision on 25 May 2020, news media have briefly reported on the decision. The case will interest our readers as it concerned the interaction of a public ancillary fund (vis. the PayPal Giving Fund) and a charitable trust (vis the RFS Fund) which was created by a trust deed and operated a ‘Gift Fund’ through which donations were received.

It appears that:

  • The PayPal Giving Fund and the RFS Fund were both deductible gift recipients.
  • Technically, the public made donations to the PayPal Giving Fund, which issued receipts to donors evidencing the tax deductibility of the donation.
  • The PayPal Giving Fund remitted the donations to the RFS Fund.
  • The basis on which the PayPal Giving Fund accepted donations from donors was set out in PayPal’s Terms of Service which donors were required to electronically ‘accept’ as a ‘clickwrap agreement’. The agreement allowed donors to recommend the PayPal Giving Fund make a grant (corresponding to the donation) to an ‘Eligible Charity’ nominated by the donor. The Court noted that under the agreement, the PayPal Giving Fund was ‘not bound by the donor’s recommendation and it retains exclusive legal control over donations (subject of course to the law of charity)’. More detail regarding the agreement is set out at in para. 28 of the Court’s decision – in particular, the PayPal Giving Fund ‘will make every effort’ to make a grant to the Eligible Charity recommended by the donor.
  • The relationship between the PayPal Giving Fund and the RFS Fund was governed by a written agreement (the Charity User Agreement) between them. The Court set out details of the Charity User Agreement at para. 31 et seq.
  • Once the moneys were remitted by the PayPal Giving Fund to the RFS Fund, ‘they were held subject to the RFS Trust Deed’. The Deed is described at para. 35 et seq.

Clause 2.3 of the RFS Trust Deed set out the purposes/objects of the RFS Trust:

‘The purpose of the Trust is to pay or apply the income from the Trust Fund, and such parts of the capital from the Trust Fund as the Trustees at any time and from time to time think fit as follows:

(a) to or for the Brigades in order to enable or assist them to meet the costs of purchasing and maintaining fire-fighting equipment and facilities, providing training and resources and/or to otherwise meet the administrative expenses of the Brigades which are associated with their volunteer-based fire and emergency service activities;
(b) for Authorised Investments which are consistent with carrying out the purpose in paragraph (a) above;
(c) to meet the reasonable costs of the current and continuing operation and management of the Trust.’

As noted above, the RFS Trust Deed established a Gift Fund. It required all gifts received should only be used for the purpose of the RFS Trust and prohibited any payments from/distributions of the Gift Fund being made except in accordance with the Deed.

Donor messages accompanying donations and ‘statements made by Ms Barber herself about the proper objects of her fundraising success’ indicated that donors expected that the donations would be used for four different purposes. Basically, these were:

  1. ‘paying money to other charities or rural fire services, whether in New South Wales or other Australian states or territories, to assist in providing relief to persons and animals affected by bushfires’ – Object 1;
  2. ‘setting up or contributing to a fund to support rural firefighters injured while firefighting, or the families of rural firefighters killed while firefighting’ – Object 2;
  3. Provision of physical/mental health training and resources and trauma counselling services to volunteer fire fighters who require them in connection with performing functions of the NSW Rural Fire Service – Object 3;
  4. ‘setting up or contributing to a fund to meet the costs for volunteer rural firefighters, as defined in Rural Fires Act, s 8, to attend and complete courses that improve skills related to the volunteer-based fire and emergency services activities of the brigades, established under theRural Fires Act‘ – Object 4.

The Court noted that neither the trustees of the RFS Fund nor the NSW Rural Fire Service contacted Ms Barber before she instigated the appeal and that her appeal ‘clearly identified the RFS Fund as its object’.

The issue

The Court accepted that the NSW Trustee Act (s.63) allows a trustee to seek judicial advice in certain circumstances and provides the trustee with a degree of protection when acting on the advice.

The trustees of the RFS Trust considered there was a degree of tension between the donors’ expectations with respect to application of the donations and the purposes of the RFS Trust. They sought the Court’s advice in relation to their obligations to deal with the donations:

‘The trustees have submitted to the Court that they wish to honour the intentions and beliefs of Ms Barber and the donors who responded to the appeal concerning what should be done with the donated money. But they wish to do so consistently with the Trust Deed and in accordance with applicable law. This has prompted them now to seek the Court’s advice as to whether or not they can properly apply the RFS Fund to some of the objects that have been indicated.’

The Court’s Advice to the RFS Trustees

The Court’s advice can conveniently be broken down into general observations and its specific advice in the circumstances of the RFS Trust. We anticipate our readers will be primarily interested in the general observations although also interested to a lesser degree in the specific advice.

Court’s General Observations

The Court noted (para. 55) that its advice pursuant to s. 63 of the Trustee Act:

‘ … does not preclude an individual donor from later bringing suit and contending that he or she made a donation impressed with a charitable purpose other than that provided by the terms of the PayPal Giving Fund or the RFS Fund. But any such suit would primarily be brought against the PayPal Trustee but may also involve the RFS Fund. Such a case would be determined on its individual merits.’

The Court concluded (paras. 56 to 63) that the donation was initially subject to the charitable trust set out in the Trust Deed constituting the PayPal Giving Fund. When PayPal remitted the donated moneys to the RFS Fund, the moneys became the subject of a separate charitable trust, being the trust constituting the RFS Fund.

Where members of the public make donations in response to a public appeal, a key issue is ‘whether or not the donations were made absolutely to the institution that received them or were made impressed with a trust for a particular charitable purpose’. The terms of the public appeal in response to which the donation is made ‘may be good evidence of the donors’ intentions.’

The donations to PayPal were made through an internet facility with published terms that stated the effect of the donation. While the donors may have hoped/intended that the donations might be used in a particular way, the donors should be taken to have intended PayPal to receive them according to the published terms (i.e. PayPal’s Terms of Service). The Court emphasised that one of those terms was the donor’s intended destination was ‘merely a recommendation’. Although the Court did not reiterate at this juncture that the donors actually specifically nominated the RFS Trust as the ultimate desired destination, this point should not be overlooked.

When PayPal paid the donated money to the RFS Trust, it made a donation to the RFS Trust on the terms in the RFS Trust Deed. The trustees of the RFS Trust are bound by the terms of the RFS Trust Deed but are not bound by public or private statements of Ms Barber or the donors. Furthermore, any donations received by the trustees of the RFS Fund ‘must be applied only for the purposes set out in the RFS Trust Deed’ and any other application would be a breach that trust.

In summary, the public donated the funds to the PayPal Giving Fund, which (in pursuance of the terms of that charitable trust and as reflected in the PayPal Terms of Service) donated the moneys to the RFS Trust. The RFS Trust was obliged to deal with the donated moneys in accordance with the terms of that trust as set out in the RFS Trust Deed. A key point is that use of the donation made to the PayPal Giving Fund was governed by the PayPal Terms of Service and not the donors’ respective personal/private expectations as to the manner in which the funds would be used.

The Court’s specific advice

The Court advised the trustees of the RFS Fund that they could only use the donations for the purposes set out in cl. 2.3 (reproduced earlier) of the RFS Trust Deed and cl. 3.3 prohibited the trustees making payments other than in accordance with the Deed.

The Court’s advice in relation to Objects 1 to 4 is summarised below.

The Court advised that the donations could not be used for Object 1.

  • It observed that payments to other charities or giving assistance to animals were not ‘payments to or for brigades’ (see cl. 2.3(a)); were not Authorised Investments (cl. 2.3(b)) and were not payment of administrative costs (cl. 2.3(c)).
  • The Court concluded that the purposes listed in cl. 2.3 did not encompass making payments to interstate rural fire services except in so far as those brigades were from time to time integrated into NSW fire-fighting operations. The Deed referred to brigades established under the Rural Fires Act (NSW) and, consequentially, were confined to brigades which were established or operating in NSW.
  • Finally, the donations could not be used to ameliorate the effects of fires on people who were not members of the brigades because cl. 2.3 required the payments must be ‘to enable or assist’ the brigades in relation to the costs and objectives specified in cl. 2.3(a) and payments to members of the wider community affected by bushfires lacked the necessary association with brigades.

The Court advised that donations could be used for Object 2. Support for injured firefighters and families of deceased firefighters encouraged people to volunteer to fight fires and therefore increased a brigade’s ‘human’ resources.

The Court advised the donations could be used for Object 3. Clause 2.3 contemplated use of donations for ‘training’ and this included physical and mental health training. Use of donations to provide trauma counselling services was a provision of ‘ “resources” to brigades for purposes compatible with RFS functions.’

The Court advised that the donations could be used for Object 4 because this entailed use of the funds for ‘training’ as provided in cl. 2.3(a).

The Court’s concluding comment shows sympathy for the expectations of the donors, while emphasizing the role of legal principle. It is worthwhile setting this out:

 ‘Some donors may have intended or hoped that the money they donated would be used for purposes beyond those which the Court has advised are permissible. Despite the trustees’ wish to honour those intentions or hopes the law provides principles that ensure a degree of certainty in the application of trust funds including charitable trust funds and the Court has applied these principles in giving its advice in these reasons.’

Observations

While we are not in a position to express a legal view, several observations may be made:

  1. The case suggests that both donors and charitable recipients of donations should pay close attention to the charitable purposes for which a donation is made. Both are constrained by the charitable purposes which define the recipient or the recipient’s use of donations. Where donations are made to an ancillary fund for onward gift to an ‘end-user’ charity, donors should consider the purposes of the ancillary fund/ terms on which the ancillary fund receives the gift as well as considering the purposes of the envisaged charitable ‘end-user’.
  2. The case is especially instructive of the mechanism and level of complexity that is likely to be inherent in use of digital crowdfunding for public purposes.
  3. It remains to be seen whether the experience of defeated public expectation has any lasting effect on the use of digital crowdfunding of charities. Hopefully, the case will inform future use of crowdfunding, rather than deter its use.
  4. One has the impression that Object 1 was a strong public expectation. In such circumstances and where there are concerns that the expectation cannot be met, it seems eminently desirable formally to seek objective (Court) guidance in order to protect the trustees. In so doing so, a charity also provides a public explanation of the inability to meet that expectation and this maintains the charity’s reputation.
  5. Finally, we wonder whether, on this occasion, the strength of public expectation that Object 1 was being pursued through donations will motivate a legislative remedy to facilitate this. We leave the reader to reflect on whether this should, and will, occur.

Action Points

Some matters for action are:

  • In relation to our first and third observations above, we suggest ACNC Register information in relation to each charity may have a role to play in enabling donors to check their expected use of the donation accords with the recipient charity’s objects and activities. However, this assumes that ACNC information is truly reflective of the objects of the charity. Charities should check that their information included in the ACNC Register is accurate and may want to seek professional guidance in relation to their objects before advising the ACNC of who the charity helps and the summary of the charity’s activities, in order to avoid confusion.
  • As an extension to the preceding point, charities should more generally be mindful of their representations to the public in relation to their activities. In particular, apart from the ACNC Register, it is expected that prospective donors will search a charity’s own website and look not only to specific statements of a charity’s purposes but also to its activities described there. A charity should from time to time ‘stand back’ and review its website and its activities to ensure both reflect its purposes or, conversely, review its formal purposes.

 

This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.