Analysis
In 1928 Gaspard Farrer established a fund which he intended, in due course, to pay off the National Debt in its entirety, either by itself or in combination with other funds established for the same purpose. The fund was specified to be held until a specified date of application for investment and accumulation, and thereafter ‘to transfer and pay the same to the National Debt Commissioners to be applied by them in reduction of the National Debt’, with a power at any time to determine that ‘part of the National Fund should be forthwith applied in reduction of the National Debt.’ Subsequently, it had become clear that the likelihood of the fund ever being sufficiently large to discharge the National Debt at a future date was ‘vanishingly small’.
In those circumstances, the judge at first instance had held that the Charities Act 2011 applied, allowing the court to alter the original purposes of the charitable gift, since for all practical purposes there was no possibility of the fund ever being sufficient to discharge the National Debt and since, 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. Adherence to the original main purpose would leave the fund in limbo indefinitely, with no benefit accruing to charity at all.
In a second judgment, the first instance judge considered the precise contents of the cy-près scheme which should be applied by the court in these circumstances.
The Attorney General proposed a scheme according to which the fund should be applied in reduction of the National Debt. By contrast, the trustee proposed that the fund should be applied for general charitable purposes in the UK, for the trustees to pay or apply the income for such charitable purposes within the UK, and for the trustees either to retain the capital thereof or to pay or apply the same for such charitable purposes within the UK, in either case as the trustees should in their discretion think fit.
The judge found, again, relying on the expert evidence, that liquidating the fund to reduce the National Debt would:
‘… have a negligible effect on the government’s primary spending budget position and hence the UK economy. Notwithstanding this, however, the Attorney General’s scheme should be implemented.
The Charities Act required the court to have regard to three factors, namely:
(a) the spirit of the original gift;
(b) the desirability of securing that the property is applied for charitable purposes which are close to the original purposes; and
(c) the need for the relevant charity to have purposes which are suitable and effective in the light of current social and economic circumstances.’
The first two factors clearly favoured the Attorney General’s scheme. Although the third factor favoured the trustee’s proposed scheme, this was not enough to outweigh the first two factors.
The judgment as to the cy-près scheme that should be adopted by the court was appealed.
Held:
The Court of Appeal held that the first instance judge had been entitled to reach the evaluative conclusion which he had. The appeal would be dismissed.
The court accepted, as had been urged on behalf of the trustee, that the spirit of the gift included a desire to benefit the nation beyond the specific purpose of the deed, and to encourage altruism, specifically in the form of the establishment of other trusts for the redemption of the National Debt. Nonetheless, the court could not accept that the spirit of the gift was to benefit the nation and to encourage altruism without any restriction on the charitable purposes by which that could be done. It would be wrong to pick out only one or two elements of the spirit of the gift without regard to the remaining elements. The purposes of the original gift at least colour the spirit of the gift. The first instance judge had found that although the primary purpose of the gift was the complete repayment of the National Debt, its secondary purpose was for its reduction. Where, as here, such secondary purpose was capable of fulfilment, there was no reason to travel outside the spirit of the gift. Thus, the spirit of the gift did point to the Attorney General’s proposed scheme.
As to the question of the closeness of the proposed schemes to the original purpose of the gift, as the court had already found, the original purposes were the discharge of the National Debt and its reduction in certain circumstances. Since the original deed did envisage that the National Fund could be used to reduce the National Debt if exigencies so required, the effect of the Attorney General’s scheme would be to promote the secondary purpose of the deed into the primary purpose, and that the monies in the fund would be used in the way that Mr Farrer intended, even though they would not have such a ‘game-changing’ effect as he had intended.
The trustee’s proposed scheme was not ‘close’ to the original purpose of the fund since it would have no effect whatsoever on the National Debt, and would not necessarily benefit the nation as a whole or encourage altruism.
As such, the Attorney General’s scheme was undoubtedly closer to the original purpose than the trustee’s scheme and this factor also pointed to the Attorney General’s scheme.
As to purposes which are suitable and effective, in this context ‘suitable’ meant what was suitable for the charity in relation to the funds held on the charitable trusts. These questions could not be divorced from the spirit of the gift or its original purposes. This factor would not therefore empower the court to consider suitability in the abstract.
Since a reduction in the National Debt would have only a minuscule or a negligible effect, it could not be described as effective; rather it was an effect which could for practical purposes be ignored. The court accepted that adoption of the Attorney General’s scheme would ensure that the funds changed nothing and would disappear except as a book entry, whereas, if the trustee’s scheme was to be adopted, the funds could be used to produce real good.
Accordingly, if the question of ‘effectiveness’ were being considered in the abstract, there would be much to be said for the trustee’s scheme. Nonetheless, it had to be remembered that the ultimate aim of the National Fund was that it would disappear except as a book entry, leaving it to the government of the day to decide what to do with the public expenditure thus relieved, whereas it could not be said that it was any part of Mr Farrer’s intention to establish a permanent endowment fund for general charitable purposes.
To the extent that the National Fund reduced the National Debt (which was a charitable benefit), it was effective to provide charitable benefits. The question of whether this would enable the government meaningfully to increase investment in some area was a distraction. Once the National Fund was paid over to the National Debt commissioners, the charitable purpose was fulfilled.
Accordingly, the appeal would be dismissed.
JUDGMENT LORD JUSTICE LEWISON: The issue [1] The issue on this appeal is the appropriate application of funds held on charitable trusts under a cy-près scheme made by the court in the exercise of its power under s67 of the Charities Act 2011. [2] Zacaroli J gave two judgments in this case. In the first …Continue reading "Zedra Fiduciary Services (UK) Ltd v HM Attorney General [2024] WTLR 363"