Head 23: Reorganisation of public trusts Flashcards
How can you reorganise a public trust that has failed since its setting up?
Leaving educational endowments aside, there are three ways of reorganising public trusts that fail after having been set up. This depends on the type of public trust.
How can you reorganise a charity trust?
⁃ Under the Charities and Trustee Investment (Scotland) Act 2005 this gives the court power to reorganise any registered charity under the 1975 Act (so a charity corporation or a charity company can be reorganised too).
⁃ There are a number of conditions which must be met to reorganise such a trust. These are set out in s 42 of the 2005 Act[ This is the interpretation section for this part of the Act.]. [Make sure to look up 39-43][ Do this! Very important.] The most important conditions concern the purpose of the charity:
⁃ 1) purposes have been fulfilled or were adequately provided by another means
⁃ 2) purposes can no longer be given effect to[ I.e. circumstances have changed so much that the trust really isn’t working.]
⁃ 3) purposes cease to be charitable[ This is unusual.]
⁃ 4) purposes cease in any other way to provide a suitable or effective method of using the property having regard to the spirit of the trust deed.
⁃ The other 3 conditions that are alternatives all deal with administrative matters.
⁃ The charity must apply to OSCR with details of the new scheme it would like to have in place. OSCR can either approve it or apply to the Court of Session for approval. The charity cannot apply itself to the Court of Session (although it can be a party). Furthermore, OSCR can apply to the Court of Session without the charities agreement at all.
⁃ The reorganisation can vary the constitution or alter the purposes to make the trust workable - or if this cannot be done the property is transferred to another charity or two or more charities are amalgamated.
How can you reorganise a non-charity public trust?
⁃ Under the Law Reform (Miscellaneous Provisions)(Scotland) Act 1990.
⁃ Section 9 sets out the criteria for reorganisation by the Court of Session. This can be used by any public trust that is not a charity.
⁃ The criteria for reorganisation which must be met is much the same as for charity trusts in the 2005 Act.
- Several grounds exist for variation, such as if the purposes of the trust ‘have been fulfilled as far as it is possible to do so’. The court can vary the trust purposes or provide the trust assets to be transferred to another trust. Any variation must have regard to the ‘spirit’ of the trust deed.
⁃ Under s 10 there are non-court provisions for reorganisation of small trusts (<£5k income) whereby the proposed scheme is advertised and if no objections the trustees can reorganise themselves. The Lord Advocate can intervene if objections are made.
⁃ For trusts with an extremely low income of below £1k - they can use the capital to run down the trust. [Not sure about this??????][ Unsure.]
Inverclyde Council v Dunlop 2005
Example of the 1990 Act in action:
⁃ The council was the trustee of a public trust whose main asset was a public park in Kilmacolm. Like all public parks that are not adequately supervised it has become dilapidated including the pavilion. It was beyond the means of the trust to repair it let alone upgrade it. So the council decided to convert it into a leisure centre and then lease it out to a private company.
⁃ However, it needed a change in purposes as charges could only be made for organised games - this wouldn’t cover paid activities at a leisure centre.
⁃ Thus the council had to apply to court for a change in the trust purposes and they relied on s 9(1)(b)(iii) where the purposes of the trust have wholly or partly ceased to provide a suitable or effective use of trust assets.
⁃ The change was approved by the court because it allowed the resources of the trust to be used to better effect and it had regard to the spirit of the trust deed (although not the original purpose.)
What was the previous common law method of reorganising a trust?
⁃ Prior to the passing of the 1990 Act the cy-pres method was the only way a public trust could be reorganised. If a charitable trust is unworkable, the court has power to modify its provisions to make it workable. This is called the cy-pres scheme. Involves a petition by the trustee for the court of session and the court approves a new scheme which gets around the difficulties in the existing scheme because the trust is failing in some respects but is close to the intention of the truster or the spirit of the trust deed. This scheme is supposed to be as near to the original intention of the truster as possible.
- This scheme is always possible for a charitable trust in the case of ‘strong or compelling expediency’.
- There are two main types of case: (1) initial failure where the trust cannot be put into operation and (2) supervening failure where the charitable trust is up and running but later becomes unworkable.
- The most common case is a testamentary trust in favour of a named charity that in fact does not exist. If it can be established that the tester had a general charitable intention, the court will approve a cy-pres scheme. This can take the form of simply directing that the funds be made over to an existing charity.
Clark v Ross 1976
⁃ Money was collected from the public during miners strike in the early 70s to help destitute miners and their families. When the strike was over £3000 was left over and there were no more trust purposes so the court approved the change of trust purposes to promoting the interests of miners and relief in any future strike (again staying close to the original spirit of the trust).
⁃ The court used to be very conservative in the using of the cy près powers - it really required the trust to be almost at death’s door before it would intervene. But the following case reflects the fact that the courts are more flexible and will grant a petition if a good practical case can be made for the change. [Also see R S Macdonald for a good practical account of the changes in the courts’ attitude].
Mining Institute of Scotland Benevolent Fund, Petrs 1994
⁃ In this case there was a proposed amalgamation of two miners benevolent trusts and the petition was refused since the pleadings did not meet the reorganisation criteria - what they were trying to do was not within the terms of the statute (s 9).
⁃ However, after this a cy pres petition was brought and granted.
R S Macdonald Charitable Trust Trs v SSPCA 2009
[ This case looks as if it ought to be a 2005 Act case but for some reason it is actually a cy-pres case. Cy-pres remains competent of course, but if you can fit the action under the 1990 or 2005 Act then that is what you should do. (Perhaps the trustees wanted to do something which couldn’t be changed by these Acts).]
⁃ The trust deed had been drawn up on the basis that the trust fund was only a couple of million pounds consisting of shares in Glenmorangie. Due to astute advertising in the 1990s and 2000s Glenmorangie became very popular. It was eventually bought out by one of the drinks conglomerates for an enormous sum and the shares in the trust went up from being worth £2m to being £600m.
⁃ This created grave problems for the trustees because they were limited in the what they could spend the money on to particular charitable areas in Scotland. They also didn’t want to give too much income to any particular charity because they would just sit back and do nothing. So the trustees wanted to alter the scope beyond Scotland and widen the class of charities that they could give money to so that they could continue to give reasonable amounts to each deserving charity.
⁃ [I think the court allowed this petition.]
Will the truster get the money back where there has been a failure in the public trust?
In all public trusts where there is a later failure the truster will never get the trust money back - once the trust money has been put into a public trust then it is irrevocably destined for public purposes.
