The Presbyterian Church of Queensland held liable for Prescare Contracts

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Authors: Chris Mills, Asher Evans and Andre Gronum with Dr Matthew Turnour

 

Catalyst Townsville SPV No 1 Pty Ltd v The Presbyterian Church of Queensland (receivers and managers appointed);

Catalyst Corinda SPV No 2 Pty Ltd v The Presbyterian Church of Queensland (receivers and managers appointed);

The Presbyterian Church of Queensland (receivers and managers appointed) v Catalyst Carina SPV Pty Ltd & Anor

[2025] QSC 255.

On 3 October 2025, following trial dates between 6 and 24 November 2023 and 1 and 2 February 2024, the Supreme Court of Queensland published its reasons for deciding that The Presbyterian Church of Queensland (incorporated by letters patent) is liable to pay a total of over $31 million (plus interest) for breaching contracts it entered for the development and subsequent operation by PresCare of three Residential Aged Care Facilities.

Background

Between December 2017 and April 2020, The Presbyterian Church of Queensland (incorporated by Letters Patent) (‘the Corporation‘) negotiated and entered into a series of arrangements with companies related to the Carnegie Catalyst Health Real Estate Investment Trust (‘the Catalyst parties‘) (which were subsidiaries of M.H. Carnegie & Co Management Pty Ltd) for the development of three Residential Aged Care Facilities (‘RACFs‘). The arrangements were negotiated and carried out by its aged care arm, PresCare. In brief, the arrangements provided that:

  • the Catalyst parties leased three properties (‘the Properties’) to PCQ (two of which PCQ owned and would sell to the Catalyst parties);
  • the Corporation paid for the costs associated with the Properties;
  • the Catalyst parties made two loans to PCQ to enable it (in addition to the sale proceeds) to consolidate some existing debt and to build residential aged care facilities (‘RACF’) on the Properties;
  • in accordance with an agreed schedule, the Corporation would repay the Catalyst parties’ loans over ten years; 
  • the repayment amounts would become due and payable upon default; and
  • the Corporation operated the RACFs.

At around the same time, PresCare management had sought external advice about restructuring its finances. Faced with a choice between taking steps to satisfy banks that it had reduced its liabilities or taking up the Catalyst arrangements to increase its Aged Care Operation and reduce existing bank debt, PresCare management chose to take the risk that the Catalyst would allow it to generate enough income. 

PresCare did not generate enough income. After negotiating with the Catalyst parties, and under severe financial stress, the Corporation became liable to pay the Catalyst parties amounts it had been required to pay by instalments under the contracts. Unable to pay the sums from readily available assets, the Corporation applied to the Supreme Court of Queensland for the appointment of receivers and managers on 12 May 2021.

The Issues

The Receivers' Position

The receivers and managers advanced the case that the Corporation should not be liable to pay the debts and should  be able to recover the value of its property. Their submissions were:

  • all assets held by the Corporation, being a body corporate incorporated by Letters Patent pursuant to the Religious, Educational and Charitable Institutions Act 1867 (Qld) (‘RECI Act‘), were held on trust for an unincorporated body also called the Presbyterian Church of Queensland (‘the Church‘);
  • the Corporation held all PresCare assets on trust for specific purposes set out in a PresCare constitution, which formed a part of the governing documents of the Church;
  • the contracts the Corporation entered with the Catalyst parties were not authorised because the Corporation was the trustee of a charitable trust and the Corporation had therefore breached its trust/s by entering into the agreements;
  • the agreements the Corporation entered with the Catalyst parties were imprudent, hazardous and wholly unsuitable for the trustee of a charitable purpose trust and the trustee did not exercise the caution, conservatism and restraint that should be expected of the trustee of a charitable trust;
  • the Catalyst parties knew sufficient circumstances that would have indicated to a reasonable and honest person that the transactions would breach the trust/s;
  • the Catalyst parties should not have agreed to acquire the two properties knowing that it would not be in the permanent and lasting interests of the Church for the Corporation to sell them;
  • the Catalyst parties should not be able to sue on the contracts because they behaved unconscionably in their negotiations with the Church;
  • it was unconscionable for the Catalyst parties to sue on the contracts because the related transactions were no beneficial to the charitable purposes of the alleged PresCare trust; and
  • the Catalyst parties should be prevented from seeking to recover further damages because they had already realised a return on their investment.

The Attorney-General's Position

The Attorney-General for the State of Queensland sought leave to intervene in the proceeding as protector of charities to make limited submissions about the existence and nature of the relevant trust. Taking a different view from the receivers, the Attorney-General contended that the Corporation held PresCare assets pursuant to an Aged Care Trust that had been constituted in or around 1929.

The Catalyst Parties' Position

The Catalyst parties resisted the cases advanced by the receivers and managers and the Attorney-General by contending that the Corporation was not a trustee of a charitable trust, but rather a charitable corporation that held its property beneficially and was not bound by the duties of trustees.

The Outcome

The Court made the following findings, rejecting material parts of the cases advanced by each of the parties to the proceedings:

  • the Corporation must be a trustee because it does not have a constitution and does not have its own purposes, but rather serves the purposes of the Church;
  • though it had separate operations from the rest of the Church, its own Board, its own management team and was a separate tax entity with its own registrations, PresCare was not a separate trust;
  • the general purposes of the Church could include care of the aged and infirmed;
  • similarly, there was no intention by donors to settle a specific Aged Care trust in 1929;
  • the ecclesiastical polity of the Church is fundamental to the purposes for which its property are held, and therefore property must be dealt with in accordance with the Code of the Church;
  • the corporators of the Corporation, who were three officeholders of the Church, should exercise the care of an ordinary prudent business-person when carrying out the instructions of the Church; 
  • the Corporation has no directors and there is no equivalent concept to that of a ‘shadow director’, so the Church boards and committees did not owe duties as directors;
  • the management team of PresCare was qualified and experienced, took external advice, was able to explain the decisions they made and able to apprehend and understand the risks they were taking; and
  • there was no reason that the Catalyst parties should have known or believed that they were taking advantage of the Corporation or procuring a breach by the Corporation of its trust/s.
Other observations or findings emerging from the judgement include:
 
  • the corporators (members) of a letters patent body, when in doubt about a direction given by the unincorporated body, should approach the Court in advance of taking an action for approval rather than afterwards to seek relief;
  • while the letters patent body may hold property on trust generally for its purposes, evidence about the intent of a donor or benefactor is necessary to establish trusts for more specific purposes; and
  • the purchaser of property held on trust that had been acquired by donation or bequest (or with funds from gifts, bequests or fundraising for the purpose of acquiring land) should be wary about the nature of any trust obligations that the seller might owe.
The cases run by the receivers did not relieve the Corporation of the liability it had already accepted. However, the decision does help to clarify that there was no specific PresCare trust and the property used for PresCare is understood as assets held for its general purposes.
 
Under the following headings, we expand on some of the key points arising from the judgement for churches, schools and charitable institutions operating with letters patent corporations in Queensland.
 

Some Key Issues

The Nature of the Corporation

A body corporate incorporated by letters patent under the RECI Act holds property for the ‘uses and purposes’ for an unincorporated association with religious, educational or other charitable objects. The Court confirmed this means it holds property ‘on trust’ for the purposes of the association. It can do anything a natural person can do with the property, but it must follow the rules of the association and the terms of any specific gifts or bequests of property to it.

The letters patent of the corporation identifies officeholders of the association that become the members of Corporation. Whenever an officeholder retires and is replaced, the new person appointed becomes (with the other new or continuing officeholders) the corporation. Those people are not directors. Rather, they are directed by the association acting in accordance with its rules. They are expected to be careful and thoroughly understand the actions they are directed to take. They must ensure that the directions given to them have been made in accordance with the rules of the association. 

The Court accepted that the relevant officeholders held fiduciary duties ‘as members of a trustee corporation’. Provided those powers are exercised in accordance with the Code, it would appear the officeholders will not breach their fiduciary duties. Where in doubt, the officeholders have standing to apply to the Court for directions or advice about the exercise of their powers.

The corporation can hold property for the general purposes of the association to be dealt with in accordance with the terms of its constitution or it can hold property that has been gifted, donated or bequeathed for specific purposes. In this case, the purposes that PresCare served were a part of the Church’s general purposes. The use of the property to provide aged care was permitted and the decisions made in accordance with the Code of the Church, so the Corporation was permitted to deal with the property in the way provided for by the agreements.

The Duties of Boards and Committees

The directors of a company limited by guarantee owe duties under the Corporations Act 2001 (Cth) (‘Corporations Act’), and in the case of a registered charity, owe the company duties to ensure compliance with the ACNC Governance Standards. However, there are no directors of a letters patent body incorporated under the RECI Act. The Corporation acts on the directions properly given by the association in its rules. A trustee incorporated under the Corporations Act that functions in a similar way might therefore have ‘shadow directors’ (people who act like directors or whose wishes the directors customarily follow). The duties that apply to the registered directors are then also applied to shadow directors.

The Court in this case decided that no similar principle applies to the letters patent corporation. The Church had a thorough process set out in its Code for making decisions about these kinds of transactions and that needed to be followed. Outside of that, the decision-makers on the Church’s boards and committees do not have the duties of directors.

Caution should be taken with this finding. While it may be a relief to many that individuals (commonly volunteers) who take up positions in Churches that have letters patent bodies corporate do not owe the duties of directors (and do not have the attendant liabilities), poorly considered decisions leave Church property exposed to risk. Each Church will need to form its own views about finding a balance between protecting members from the risk of personal liability and protecting Church assets.

Specific Trusts

While both s 1 of the RECI Act and the judgement make it clear that a body corporate incorporated by letters patent under the RECI Act can hold property both on general and specific trusts, the Court found that the property used by PresCare was not held on specific trust. The significance of this finding becomes clear when considering the following relevant facts about PresCare:

  • the funds used to constitute PresCare were conveyed to the Corporation following a cy pres application to apply trust property to a similar purpose;
  • PresCare had its own Australian Business Number and was a separate tax entity;
  • PresCare had its own ACNC registration;
  • PresCare kept its own separate accounts;
  • PresCare had a constitution which, while part of the Code of the Church, specifically identified its functions;
  • PresCare was overseen by a Board; and
  • PresCare had its own management structure.

While it was seemingly set aside in the manner one might expect of a trust, this was not determinative. A number of these features, while perhaps consistent with what one might expect to see if there is a separate trust, serve other regulatory functions. The key question was what was intended when the property was conveyed, and the Court found that there was no clear evidence of an intention to settle a trust. To the contrary, the Court found that the Church had considered whether the PresCare Constitution should refer to the property being held on trust and decided to omit such a statement from its constitution.

Likewise, the Court did not accept the Attorney-General submissions concerning the existence of an Aged Care trust constituted in 1929. While the Attorney-General submitted that the Church had maintained a separate department to administer aged care and community services continuously since that time, there was insufficient evidence tendered to establish that the assets applied to those purposes were held on specific trust.

Unconscionable Conduct

The Court did not accept that the conduct of the Catalyst parties was unconscionable in the relevant sense. It held that conduct that is relevantly unconscionable must be conduct ‘so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience’. The Court will not make such a judgement lightly. It would not make it in this case.

While acknowledging that the representatives of the Catalyst parties themselves may not have been particularly concerned with the tenets of belief shared by the Church members, the Court found that they had not pressured PresCare management or acted inappropriately when negotiating or seeking vindication of their rights. Further, PresCare had a substantial staff of qualified and experienced individuals and access to substantial external advice, so the Court was not prepared to accept that it was particularly vulnerable to exploitation, nor that the Catalyst parties had acted in an exploitative manner. 

The Court described some of the receivers’ submissions concerning these issues as ‘overwrought’ and was critical of some of the expert evidence the receivers’ marshalled in support of certain aspects of the case.

Commercial Risk

The judgement has implications for the way in which letters patent bodies should consider commercial risk. Unincorporated associations with letters patent bodies corporate must consider the trusts upon which property is held and that property’s exposure to commercial risk. Consideration should be given to how the rules of the association should be drafted to compensate for the absence of directors’ duties and to ensure that its officeholders who form the corporation are able to make an informed assessment of the actions they are directed to take. The judgement suggests that all property held for general purposes may be available to meet all debt incurred for general purposes.

Likewise, commercial parties dealing with letters patent bodies need to understand the nature of the entity they are dealing with and what risk implications that has for them. While it might ordinarily be assumed that general assets are available for realisation to meet debts, the judgement highlights that commercial parties need to be careful what information they rely upon when completing due diligence. The Courts might not be prepared to undo dealings entered otherwise than in accordance with the rules of the association, but the nature of letters patent entities makes it possible that assets may be held on trusts that are not immediately obvious. If a commercial party has no recourse against individuals to satisfy the liabilities of a church, it would be prudent to take steps to be satisfied that any assets held are also available to meet debts.

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