Sector faces legal minefield in the year ahead

The Community Advocate recently published a story highlighting the top 10 most significant legal cases involving the charity and not-for profit sector in 2023.

The comprehensive analysis was based on the forensic work of Emeritus Professor Myles McGregor-Lowndes and his colleagues at the Australian Centre for Philanthropy and Nonprofit Studies (ACPNS).

This week the same team turn their attention to the top legal trends the sector should watch in 2024.

“After summarising nearly 200 cases in 2023 from across the charity jurisdictions, I stand back and reflect on how the dots can be joined to discover trends,” said Professor McGregor-Lowndes.

“In some instances, the trends continue over from previous years, while others have newly arisen.”

Here’s a rundown of some of the thorny legal issues the sector may face in the year ahead.

Historical sexual abuse

Cases involving historical sexual abuse by individuals associated with not-for-profit organisations have continued to grow.

“The plight of victims and sometimes the betrayal of trust by organisations that tout themselves as the most trustworthy in our society is sobering,” said Professor McGregor-Lowndes.

Insurance to protect not-for-profits against liability for not-for-profit organisations in such cases is expensive and increasingly difficult to procure.

The absence of witnesses or evidence does not necessary make a civil trial unfair and thus permanently stay it, as the High Court found in its 2023 decision in the case of GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore.

Professor McGregor-Lowndes said a pending High Court case, Bird v DP on appeal from the Victorian Court of Appeal, would consider the scope of vicarious liability in the context of a not-for-profit institution and could have important implications for the sector.

He cited a recent case involving historic sexual abuse of an 11-year-old boy where a football club was held liable for a breach of duty of care to ensure the safety of a child spectator who was neither a player nor a club member, resulting in combined damages of almost $6 million.

“The size of this settlement raises the issue of organisations' future viability without insurance access,” said Professor McGregor-Lowndes.

“Who will miss out on compensation, who will volunteer for board positions, and will the general community suffer due to nonprofit organisations being dissolved?"

Advocacy via the courts

Professor McGregor-Lowndes used two recent cases to highlight the trend of not-for-profit advocacy organisations using the courts to call governments and others to account for their alleged actions.

In Save the Children Australia v Minister for Home Affairs, the charity tried to force the federal government to repatriate Australian women and children detained in north-east Syria.

The Court was satisfied (on the balance of probabilities) that the government did not have control over the detention of the relevant women and children, and a writ of habeas corpus should not be issued.

In the case of ClientEarth v Shell Plc and others, a UK environmental charity applied for permission to continue a derivative action (a lawsuit brought by shareholders on behalf of the corporation against the corporation's directors, officers, or other third parties who have breached their duties) against Shell.

The charity had purchased shares in Shell, so it was a member. The breaches alleged in ClientEarth's claim were said to arise from the directors' acts and omissions relating to Shell's climate change risk management strategy.

The England and Wales High Court refused permission because convincing evidence could not support the allegations of breach of director duty. A later application to the Court of Appeal was rejected.

Charitable corporations

The case of Grain Technology Australia Ltd v Rosewood Research Pty Ltd provided the opportunity for the court to clarify the law in relation to charitable companies.

All parties involved in the case contended that the objects were exclusively charitable as the company’s property was dedicated to a trust for charitable purposes, but they were rebuffed by the court.

Professor McGregor-Lowndes said it was important for the issue to be settled once and for all to maintain public trust in charitable organisations.

“Do we wait for the stars and moon to align for an appropriate case to make its way to an appeal court (a ten-year journey in this instance), or a scandal of the plunder of what appeared to be charitable assets for private gain to nudge legislative reform?”

Professor McGregor-Lowndes said there was a good case to be made for statutory reform to facilitate the court and attorney general’s supervision of charitable companies under state law, if not more widespread reform of the corporate law statutes.

Cybercrime

Significant privacy breaches of computer databases dominated the headlines in 2023 and not-for-profits were not left untouched.

In the case of Pacific Lutheran College (Privacy), the Australian Information Commissioner and Privacy Commissioner considered whether a school had complied with its obligations under the Privacy Act after a phishing incident led to a data breach.

The college had two previous notifiable data breaches between June 2019 and May 2020 and was found to be in breach of the Privacy Act.

The Office of the Australian Information Commissioner's judgment provided a clear statement of the Commissioner's expectations in such situations, and the preventative measures that are considered necessary to prevent breaches of a computer network and the relevant legislation.

“This may be the first of many such cases if nonprofits of all sizes and purposes cannot find the funds and will to implement the requirements,” said Professor McGregor-Lowndes.

AI makes its mark on charitable fundraising

A patent application filed four years ago but only decided in 2023 provided an insight into where AI could be heading for charitable fundraising.

In 2019, PayPal Inc filed a patent application claiming to have developed a system that provided tailored recommendations during transactions. In its specification, it used the example of a charity donation.

This involved three AI machine-learning processes that would be combined, resulting in a recommendation score for a specific charity to the potential donor.

The patrent application was refused and PayPal objected.

Professor McGregor-Lowndes said using AI to rank funding applications, charity, and other licensing applications, and analyse funding acquittals and annual financial reports were all in scope for government agencies.

“It will be up to the sector for its voice to be heard in the fashioning of regulation around AI that may be of specific benefit or impact to their operations, from fundraising to health, education and community services to government agency use of AI to vet beneficiary social benefit applications, tender and grant proposals, and regulatory compliance,” he said.

Bank de-risking

De-risking, also referred to as de-banking by financial institutions describes the closure of accounts by banks who perceive their holders to pose a financial, legal, regulatory, or reputational risk to the bank.

In November 2023, charity regulators in the UK penned an open letter to the nation’s banks expressing their concerns over charity bank account closures, or sudden suspension for long periods, a practice which can result in charities being unable to fulfil their mission

Australian banks can terminate a customer’s banking services at any time without having to give a reason.

In Human Appeal International Australia v Beyond Bank Australia Limited, a bank sought to terminate the banking services it provided to Human Appeal International Australia, an ACNC registered charity and Public Benevolent Institution (PBI).

The charity, which seeks to alleviate the effects of poverty and social injustice in Australia and overseas, had about $6.1million on deposit.

Its work ranged from bushfire and drought relief to assisting the elderly and high achieving students in Muslim schools.

While the bank terminated its services with scant reason, evidence later revealed that high administration costs associated with the charity's accounts as a result of the bank's obligations to comply with anti-money laundering and counterterrorism financing laws, were a factor.

The NSW Supreme Court ruled the termination to be invalid.

“It remains to be seen if Australia will see a significant number of bank account closures for charities that are administratively costly for banks because of multiple pieces of federal legislation dealing with money laundering and terrorism financing, or whether the self-regulatory code will mitigate any effects,” said Professor McGregor-Lowndes.

Bequests and wrongly named or ceased charities

The misdescription of named charitable beneficiaries in wills is a growing issue increasingly being fought out in the legal system.

Professor McGregor-Lowndes said contributing factors included increased consolidation of the community services sector, the decreasing life span of community organisations and less frequently updated wills.

"When naming an organisation in your will, how do you know it will still exist at the time of the distribution of your estate?” he said.

The ACPNS cited numerous court cases that highlight the issue, including one in which a person who once lived in South Australia left bequests to Australian animal welfare charities, some of which had ceased to operate by the time of her death. In the meantime, she had emigrated to Canada, where she died.

Professor McGregor-Lowndes said including the ABN of the nominated charity in a will was an increasingly popular option to avoid and would help to avoid the problem, as would including a “gift over’’ clause in the will, to be invoked should the intent of the primary gift fail to take effect.

Volunteers

Court disputes involving volunteers show no sign of abating in 2024 said Professor McGregor-Lowndes.

Recent examples have included:

• a case involving a volunteer seeking an order in the Fair Work Commission to stop bullying (Linda Beaver FWC 3460)

• a $6 million payout against a suburban football club where a child spectator was found to have been sexually abused by a volunteer, also discussed earlier (Kneale v Footscray Football Club Ltd)

• an application by the chair of an incorporated association to the Fair Work Commission to prevent alleged bullying by federal government officers who funded the association (Lulu Lisa Liang-Godber FWC 2423)

Discrimination

As in previous years, court cases involving accusations of discrimination are also expected to make an impact on the sector landscape in 2024.

The ACPNS cited several Australian examples from 2023 including Parent v Matthew Flinders Anglican College (a discrimination complaint brought by a parent against the school over restricted communications), Grass v Voyager Tennis Pty Ltd (alleged discrimination in relation to membership of a tennis club) and Grass v McIntosh, Leong and Auyeng (alleged victimisation after making a complaint).

However, Professor McGregor-Lowndes said a case from the UK illustrated how particularly sensitive discrimination issues could be for the charity and not-for-profit sector.

The case of Randall v Trent College Ltd and others (ET/2600288/2020) was brought before the courts after a school chaplain delivered a 10-minute sermon to 11–13-year-olds on "competing ideologies" about LGBT issues.

He was suspended, restructured out and made redundant, He took the school to the UK Employment Tribunal claiming direct discrimination, harassment, victimisation, unfair dismissal and indirect discrimination, but all his claims were dismissed.

More information

Charities on centre court for trendsetting legal decisions