H.M. Attorney General v Zedra Fiduciary Services (UK) Ltd & ors [2020] WTLR 1287

Analysis

In 1927 a partner (GF) in Barings Brothers & Co (Barings) transferred cash and securities of almost £500,000 (the National Fund) to Barings in anticipation of the execution of a deed of trust by Barings, which was executed on 9 January 1928 (the deed). Other donors, including Lord Dalziel, subsequently made further contributions to the National Fund. By clause 2 of the deed Barings held the National Fund as trustees upon trust to accumulate income and profits until the date fixed by the trustees as being the date when, either alone or together with other funds then available for the purpose, it was sufficient to discharge the National Debt. When that point was reached, the National Fund was to be transferred to the National Debt Commissioners to be applied by them in reduction of the National Debt.

The claimant was the Attorney-General, acting pursuant to her functions and duties in relation to charities. The claimant contended that the deed created a valid charitable trust and that the National Fund should be applied now to the reduction of the National Debt. The first defendant, the current trustee, supported the claimant’s contention that the trust was a valid charitable trust, but disputed that the court could (alternatively should at this stage) order that the National Fund be applied to the reduction of the National Debt.

The second and third defendants were relatives of GF, appointed to represent the interests of all those who might have a claim through the estates of GF or Lord Dalziel. They disputed the validity of the deed on one or other of two bases:

1. (1) because the coming into existence of the charitable trust was subject to a condition precedent which had not occurred, and is now incapable of occurring; and
2. (2) because the charitable purpose (which they contended was the discharge of the National Debt) had failed for impossibility and GF had no general or paramount charitable intention.

They contended that the National Fund was held on resulting trusts for the donors or their estates.

Held:

1. (1) The reference in clause 2 of the deed to the National Fund being applied ‘in reduction’ of the National Debt was intended to ensure that the deed complied with s9(1) of the Superannuation and other Trust Funds (Validation) Act 1927 which referred to the ‘reduction’ of the National Debt. However, that did not necessarily point towards the purpose of the trust being the reduction of the National Debt. The wording in the statute was capable of encompassing both a gift to be used to reduce the National Debt, and one to be used in its complete discharge (because ‘reduction’ encompasses discharge, although not vice versa). Once it was understood that the choice of the wording in the Deed was to ensure that it fell within the protection of s9(1) of the 1927 Act, the force of the word ‘reduction’ was much reduced. The better indication of the meaning of the word, as used in clause 2 of the deed, was that the National Fund was only to be applied in reduction of the National Debt when it was of a size sufficient to discharge it.
2. (2) The principal purpose of the trust constituted by the deed was to benefit the nation by accumulating a fund that would in time be applied (either alone or with other funds then available) in discharge of the National Debt, and not merely its reduction. The requirement to hold the National Fund so as to accumulate income and profits until such time as it had grown to a size sufficient to discharge the National Debt was more than a matter of timing or administration; it was an inherent requirement in order for the purpose of the gift to be achieved.
3. (3) The subsidiary purpose of the trust constituted by the deed was to benefit the nation by applying part of the National Fund in reduction of the National Debt, if the trustees determined that national exigencies required it.
4. (4) As a matter of construction of the deed, it effected an immediate and unconditional gift to charity (such that there was no condition precedent to the coming into existence of the charitable trust). This was so notwithstanding that the particular application of the National Fund in accordance with the primary charitable purpose would not take effect until it was of a size sufficient (alone or with other funds) to discharge the National Debt.
   1. • First, this conclusion followed logically from the primary purpose of the trust: namely to benefit the nation by the accumulation of a fund so that it was eventually sufficient to discharge the National Debt. There was no doubt that the trustees’ obligation to hold the fund so as to accumulate income and profit arose upon execution of the deed.
   2. • Secondly, the subsidiary purpose of the trust arose, by definition, prior to the date of application. Clause 3(a) necessarily imposed a duty on the trustees to consider from time to time whether national exigencies required the application of part of the National Fund in reduction of the National Debt. That duty was imposed from the outset and was inconsistent with the trust only coming into existence if and when the date of application was reached.
   3. • Thirdly, the absence of any language of conditionality in the deed (particularly in clause 2) was a factor that pointed away from the gift being a conditional one.
   4. • Fourthly, the absence of any alternative provision, such as a gift over, in the event of failure of the primary purpose, pointed away from a conditional gift.
5. (5) Although all parties submitted that the question of construction of the deed was to be resolved in their (respective) favour by reference to the terms of the deed alone, it was necessary to consider the admissible contemporaneous evidence. The most relevant evidence was of statements made by GF (via Barings) and by Winston Churchill broadly contemporaneously with the execution of the deed that funds had been given in trust for the nation. The language used was not apt to describe a gift that was intended to provide the nation with a mere contingent benefit, particularly one that was potentially extremely remote. GF had also made a statement that the fund was to be applied ‘eventually’ to the object of repaying the National Debt, which was not language of conditionality.
6. (6) The main charitable purpose of the trust effected by the deed (to discharge the National Debt) was not impossible from the outset. Looking at the position in 1928, the possibility that the National Fund might one day be sufficient to discharge the National Debt was dependent upon future events. On the proper analysis of the expert evidence before the court, there was a reasonable prospect at the outset that the National Fund might one day be sufficient, certainly with other funds that might be available, to discharge the National Debt. That was so even though there was now no reasonable prospect of it ever being sufficient for that purpose, and even though with hindsight it had turned out that there was never any reasonable prospect of the National Fund one day discharging the National Debt. Where, at a particular point of time in the past, the likelihood of something happening depends on subsequent events, it cannot be said that because those later events have rendered the thing happening impossible, it was therefore always impossible. Accordingly, the National Fund was not held on resulting trusts for the donors or their estates.
7. (7) In the light of the conclusion that there was no initial impossibility, it was unnecessary to consider whether the deed manifested a general charitable intention. However, looking at the terms of the deed and the extrinsic evidence as a whole, GF had a general charitable intention to benefit the nation beyond the specific purpose of discharging the National Debt (or reducing it in the specific circumstances of national exigencies).
8. (8) The court exercised two parallel jurisdictions relating to the alteration of charitable trusts: first, an inherent equitable jurisdiction to regulate the administration of a charity without altering its purposes by way of an ‘administrative scheme’; and, second, a statutory jurisdiction governed by s62(1) of the Charities Act 2011 to alter the purposes of a charity by way of a cy-près scheme. In the light of the court’s conclusion that the direction in the deed to transfer the National Fund to the National Debt Commissioners on and from the date of application was an integral part of the main purpose to discharge the National Debt, any scheme which permitted the National Fund to be applied in reduction (but not discharge) of the National Debt or (a fortiori) for any other purpose would involve an alteration of the original purpose of the trust which could only be achieved by a cy-près scheme, and not by an administrative scheme.
9. (9) The court had jurisdiction under s62(1)(a)(ii) of the Charities Act 2011 to make a cy-près scheme where the original purposes, in whole or in part, cannot be carried out or not according to the directions given and to the spirit of the gift. The original purposes could not be carried out. The circumstances in which the National Fund could be sufficient to comply with the main purpose of the trust (the discharge of the National Debt) were so remote that for all practical purposes there was no possibility of the Fund ever being sufficient to discharge the National Debt (whether alone or with other funds available for the purpose).
10. (10) The court also had jurisdiction under s62(1)(e)(iii) of the Charities Act 2011 to make a cy-près scheme where the original purposes, in whole or in part, had, since they were laid down, ceased in any other way to provide a suitable and effective method of using the property available by virtue of the gift, regard being had to the appropriate considerations, defined in s62(2) as:
    1. • (on the one hand) the spirit of the gift concerned; and
    2. • (on the other hand) the social and economic circumstances prevailing at the time of the proposed alteration of the original purposes.
11. Once regard was had to the spirit of the gift and social and economic circumstances currently prevailing, the original purposes had ceased to provide a suitable and effective method of using the property available by virtue of the gift. The current economic circumstances meant that adherence to the original main purpose would leave the National Fund in limbo indefinitely, with no benefit accruing to charity at all. That would not be a suitable and effective method of using the property.
12. (11) All that was necessary, in the case of subsequent impossibility, was that there was an out-and-out gift for specific charitable purposes. This requirement was satisfied as there had been an unconditional immediate gift to charity upon execution of the deed for the specific charitable purposes identified in the deed.
13. (12) Construed purposively, s9(1) of the Superannuation and other Trust Funds (Validation) Act 1927 ought not to prevent the court ordering (whether pursuant to the cy-près jurisdiction or some other jurisdiction) the application of the trust fund otherwise than as directed under the instrument, where to do so would not frustrate the donor’s intentions. Specifically, it ought not to preclude the application of the cy-près doctrine where it is to be applied so as to facilitate, not frustrate, the donor’s charitable intentions in circumstances where it has become impossible to carry out the specific directions set out in the instrument. Where the donor intended an unconditional gift to charity and/or had a general charitable intention notwithstanding the particular purpose specified in the instrument, s9 was not intended to prevent the court giving effect to the donor’s intention to make an unconditional gift to charity.
14. (13) Section 67(2) of the Charities Act 2011 conferred a broad discretion on the court, once a cy-près occasion had arisen, to make such scheme as it considers appropriate, having regard to three matters identified in s67(3). Without an ability to compare the effect of using the National Fund to reduce the National Debt with any other charitable scheme, the court could not be satisfied that the only realistic conclusion that could be reached was one in favour of a scheme for the reduction of the National Debt. Accordingly, directions were given for the resolution of this issue on another occasion.

JUDGMENT ZACAROLI J: Introduction [1] By a deed of trust dated 9 January 1928 (the ‘Deed’) Baring Brothers & Co Limited (‘Barings’) settled an amount of cash and securities initially valued at almost £500,000, referred to as the ‘National Fund’, to be held by Barings as trustees to accumulate income and profits until the date …

Continue reading "H.M. Attorney General v Zedra Fiduciary Services (UK) Ltd & ors [2020] WTLR 1287"