First Appeal From The ACNC Decided – ACNC Wins
8 December 2017 at 11:38 am
This month the Administrative Appeal Tribunal handed down the first decision on the Australian Charities Not-for-profits Commission Act 2012 – a win that may be deserved but one that shows how the legislation is stacked in the commissioner’s favour, write charity law experts Dr Matthew Turnour and Nathan Rieck.
In this article Turnour and Rieck summarise some of the key points of the case and comment on some of the legal and practical implications.
The case is Waubra Foundation v Commissioner of the Australian Charities and Not-for-profits Commission. In essence, it is an appeal against a decision by the commissioner to disallow registration as a Health Promotion Charity (HPC). The appeal was unsuccessful.
The tribunal upheld the decision of the ACNC assistant commissioner that: “The applicant’s principal activity was not the promotion or prevention of the control of diseases in human beings”. This was both because Waubra’s principal activity was not health promotion but rather “of responding to requests for assistance” and also because the activity it pursued “does not constitute the promotion of the prevention or control of diseases in human beings”.
When the legislation was before the Senate in 2012 concerns were expressed by the Senate Standing Committee for the Scrutiny of Bills, that it was “not clear what is required to prove that the decision of the commissioner is wrong or should have been made differently”. These issues were addressed in detail in the decision.
The Tribunal decided that: “s 35-10(1)(a), … empowers the commissioner to revoke the registration of an entity if the commissioner believes, reasonably, that the entity is not (at the time of the commissioner’s consideration) entitled to registration or was not, at any time after the date of effect of the registration, entitled to that registration.”
That is to say, the commissioner may revoke a registration even if a disentitling factor which existed in the past is no longer operative. No doubt, the commissioner may consider whether the discretion should be exercised in favour of revocation if the disentitling factor existed for a short time only, but it seems that the discretion is enlivened by a lack of entitlement to registration which existed at some time in the past (but after the date of effect of the registration) even if the entity has again become entitled to registration.
As to the grounds of objection and burden of proof: Absent an order to the contrary by the tribunal, an applicant is, on a review of the present kind, limited to “the grounds stated in the objection to which the objection decision relates” and has the burden of proving that the “administrative decision” should not have been made or should have been made differently.
The standard of proof is the ordinary civil standard. By virtue of ss 155-5 and 300-5 of the ACNC Act, the “administrative decision” is the decision which is the subject of the objection, in this case, the decision of the assistant commissioner.
The legislation does not permit the tribunal to consider the issue de novo as it was held: “In our view it will not necessarily be sufficient for the applicant to show that one or more of the grounds relied upon has been made out. We must affirm the decision under review unless we are satisfied, by reference to the considerations made relevant by the ACNC Act, and the material before us, that that decision should not have been made, or should have been made differently.”
As to the relevant time for assessing when the decision to entitlement should be made, the tribunal, after canvassing a number of options, concluded that the proper time was the time that the decision was made by the commissioner.
The tribunal considered the relationship between activities and purposes.
Whilst the test for a HPC focuses on the principal “activity” of the institution the tribunal found that that “the purpose of the entity’s activities remains an important consideration”. It held that an “activity to promote a consequence seems necessarily to incorporate an element of the purpose to which the activity is directed”.
It followed that: “The identification of an institution’s principal activity is very much a question of fact, to be determined having regard to all the evidence bearing upon the nature of its activities and their purposes”.
Nor is motive for “engaging in an activity” determinative. It “may be revelatory of its purpose but [motives] are not themselves conclusive of that purpose”. The tribunal reminded that: “We keep in mind that in this area of the law, as in so many other areas, purpose is not to be equated with motive”.
The most important practical effect of the decision is that HPCs are provided with a framework for assessing compliance with legal and regulatory obligations under the ACNC regime.
HPCs have been a quite difficult area and this decision will provide important guidance. For those charities which are applying to become HPCs the data which they provide to the ACNC in Section C of the HPC Schedule at the time of application may be critical. The approach adopted by the AAT is consistent with the ACNC’s application processes in this regard.
The analysis of the role of purposes in understanding activities is likely to prove an important positive contribution to development of this area of law and charity law more generally. The decision underscores the importance of a charity being able to explain how its activities carry into practical effect its purposes.
The distinction between motive and purpose is sometimes quite nuanced but it is becoming increasingly important in the law concerning public benevolent institutions (PBIs) as well as the law applying to HPCs.
Leading PBIs and HPCs affected by this nuanced distinction have been considering the issue in the context of constitutional review and review of other public documents. This decision will be of assistance in carrying forward the evolving understanding of this distinction.
The world-leading charity law cases of AID/Watch and to a lesser extent Word Investments were decided by the Australian High Court when the then relevant appeal process required only that “the applicant to show that one or more of the grounds relied upon has been made out” (including pointing to an error of law).
It was not necessary, then, to show that the “decision should not have been made, or should have been made differently”. It was noted by the tribunal that an applicant bears the onus of establishing the error in the decision based on the facts and circumstances existing by the time the original decision was made.
In practice now, a charity like Waubra, seeking to develop the law under this ACNC regime is required to not merely “make out their case” but must do so on the basis that the commissioner should not have made the decision or that the decision “should have been made differently”.
Whether charities can engage in business (Word Investments) or advocacy (AID/Watch) is for the commissioner to decide and only if her or his decision should not have been made, or should have been made differently, can the decision be set aside.
Further, in order to prove that the exercise of a discretion by the commissioner is unreasonable for the purposes of the Administrative Decisions (Judicial Review) Act 1977 (Cth), it has to be demonstrated that the “exercise of a power that is so unreasonable that no reasonable person could have so exercised the power”.
At common law this was referred to as “manifest unreasonableness”. This is a high standard to be overcome by an applicant in this regard and adds weight to the concerns raised by the decision in Waubra in this regard.
On the basis of this Waubra decision and the current status of judicial review in Australia, if the commissioner acts reasonably within the current law it is difficult to see how the law can be developed within this regime as the decisions will always be unappealable (subject to any other grounds for judicial review not considered herein). This is an issue that will no doubt be considered as a part of the immanent review of the ACNC Act.
Finally, there is a warning embedded in the case for the governance of charities, particularly deductible gift recipients (DGRs). In this case the ACNC decided against retrospective revocation of the charity’s status as a Registered Charity as this would have consequences for Waubra’s DGR status with the Australian Taxation Office and for Waubra’s donors who had made bona fide donations and gifts on the basis that the charity was properly endorsed as a DGR.
We are, however, aware of an occasion when the revocation was retrospective. All charities, but particularly DGRs such as HPCs and PBIs should act promptly and, where necessary, take appropriate advice from skilled professionals if tax status is in doubt.
About the Authors: Dr Matthew Turnour is the chairman of Neumann & Turnour Lawyers and leads the commercial and not-for-profit team. He is a director of Charity Law Association of Australia and New Zealand Limited, deputy chair of the Law Council of Australia Charities and Not-for-profits Sub-Committee and Chair of the Queensland Law Society Not for profits Committees.
Nathan Rieck is a solicitor at Neumann & Turnour Lawyers who practices extensively in the not-for-profit and charity law areas as well as in general property and commercial law.