Zedra Part II: no new mega-fund for charity

Date

01 Feb 2022

Facts

Overview:

 

The High Court has directed that a £600 million fund be paid to the government to reduce the national debt, rather than be used as major new endowment for charity in the UK: see the judgment of Zacaroli J in Attorney General v Zedra Fiduciary Services (UK) Limited [2022] EWHC 102 (Ch) delivered on 21.01.2022.    

 

 

Facts:

 

In 1928 an anonymous donor, now revealed to be the banker Gasper Farrer, settled over £500,000 to establish a “National Fund”. This was to be invested and, at a future date, be used (whether alone or with other contributions) to discharge the National Debt. The fund is now worth £600 million, whilst the National Debt had risen to £2,277 billion in the Autumn of 2021.

 

In an earlier judgment of 09.11.20 ([2020] EWHC 2988 (Ch), Zacaroli J declared that there was a valid charitable trust, but also, importantly, that the Court had jurisdiction to make a scheme to apply the fund cy-près on the grounds that:

 

1) The original purposes of the charitable trust cannot be carried out and have ceased to provide a suitable and effective method of using the trust property: s.62(1)(a)(ii) and (e)(iii) of the Charities Act 2011, respectively; and

2) There has been a subsequent (and not initial) failure of those purposes. 

 

The decision as to any scheme was deferred, to take into account further evidence and submissions – to a hearing in December 2021.

 

The Attorney General proposed the immediate application of funds to reduce the National Debt. The present trustee proposed the incorporation of a new company to hold the fund on trust for charitable purposes, to be applied at the discretion of the trustee, with the aim to benefit the whole of the UK.   

 

 

Decision-making:

 

The Court (by s.67(2)&(3) of the Act) is able to direct that a fund is applied for such charitable purposes as it considers appropriate, having regard to:

 

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.

 

His Lordship considered these matters in turn.

 

“The spirit of the original gift”

 

The "spirit of the gift" means "the basic intention underlying the gift or the substance of the gift rather than the form of the words used to express it or conditions imposed to effect it": in Varsani v Jesani [1999] 2 Ch 219, Chadwick LJ said (at p.238C):

 

The need to have regard to the spirit of the gift requires the court to look beyond the original purposes as defined by the objects specified in the declaration of trust and to seek to identify the spirit in which the donors gave property upon trust for those purposes. That can be done, as it seems to me, with the assistance of the document as a whole and any relevant evidence as to the circumstances in which the gift was made.

 

The Court considered (fascinating) evidence from the date of original gift, including correspondence on behalf of Mr Farrer with the then Chancellor of the Exchequer, Winston Churchill. The essence of the correspondence was that Mr Farrer wished to benefit the nation in an out of the ordinary way (“dull” as he described it), by elimination of the National Debt. 

 

The Judge found that the spirit of the gift was not as broad as benefiting the nation generally (and indeed this may not have been charitable), and stressed the importance of the National Debt to the exercise.  

 

The Judge had found, in his original judgment, there to be a general charitable intention to benefit the nation beyond the specific purpose of discharging the National Debt – this perhaps indicates the particular nature of the “spirit of the gift” test.

 

 

Desirability that the property is applied for purposes close to the original purposes

 

The Judge found that that it is always desirable for the property to be applied for charitable purposes which are close to the original purposes – and that this is something that the Court must have regard to.

 

His Lordship referred to Attorney-General v Ironmongers' Company (1844) 10 Cl & Fn 908, as to the importance of staying close to the original gift:

 

We may look at his disposition in the will to see what his charitable inclinations were, and, having ascertained them, then we must provide something corresponding with our opinion of those charitable inclinations. You cannot talk of his intention with respect to something that he never contemplated. The true mode is, to consider what he did, and from what he did to collect what were his inclinations with regard to charity.

 

 

Need for suitable and effective purposes in light of current social & economic circumstances

 

Zacaroli J explained the reference to “need” in that one of the triggering events for an application of charitable property cy-près is where the original purposes have ceased to provide a suitable and effective method of using the property, having regard to the spirit of the gift and the prevailing social and economic circumstances. There would be no point in applying the property to new purposes, if those were similarly unsuitable and ineffective. His Lordship concluded that this factor does not “trump” the others, in the sense that the scheme adopted must be that which is most suitable and effective in the current social and economic circumstances.

 

 

Outcome:

 

The Judge evaluated the s.67(3) factors in respect of the rival proposals as to the scheme proposals (see above):

 

a) The “spirit of the gift” inevitably pointed towards the Attorney General’s scheme as this involved addressing the National Debt;

b) The proximity of the charitable purpose again favoured that scheme, as “applying the fund in reduction of the National Debt is clearly close to applying it in discharge of the National Debt”;

c) Taking account of current social and economic circumstances did not tip the balance in favour of the Trustee’s scheme, despite this being a matter of some concern to the Judge:

 

[70] The more difficult question relates to the third factor. There is considerable force in Mr Pearce's argument that to apply the National Fund in discharge of the National Debt would make nothing but a miniscule dent in the overall volume of the National Debt. He submitted that far from being a suitable and effective use of the funds, application of the National Fund in accordance with the Attorney-General's scheme would be "a futile, symbolic gesture". I also have sympathy with the contention that a great deal of good could be done if the National Fund were applied to particular charitable causes.

 

The Court directed that the fund be paid to the government to reduce the National Debt.

Comment

 

The case is useful to practitioners as it:

 

a) Illustrates the approach of the Court to alterations to charitable purposes;

b) Provides clarification as to having regard to the ‘in-built’ desirability of an application of property close to the original purposes;

c) Stipulates that it is enough to have (appropriate) regard to the need for the revised charity to have purposes which are suitable and effective in the light of current social and economic circumstances – it is not a question of which rival scheme is the most effective.

 

 

Despite understandable disappointment in the charitable sector at the loss of such a valuable fund, the outcome appears to be correct. Where there is a sufficiently close analogy to the original charitable purpose available, trustees should expect the court to favour this as the most suitable application of charitable funds.