Purpose Trusts Flashcards
1
Q
Certainty of objects
A
‘Every…trust must have a definite object. There must be somebody, in whose favour the Court can decree performance.’ (Morice v Bishop of Durham, Sir William Grant MR)
2
Q
Exceptions to the beneficiary principle
A
(1) Charitable purpose trusts
(2) Non-charitable purpose trusts in specific, exceptional cases, known as the Endacott exceptions
- There is also a further class of trusts which appear to be for a purpose, but in fact indirectly benefit identifiable individuals. These are known as Denley trusts
3
Q
Charitable purpose trusts
A
Charitable purpose trusts are not void for infringement of the beneficiary principle because there is a mechanism for their enforcement. They are enforceable by the Attorney General, with practical responsibility for their enforcement lying with the Charity Commission.
4
Q
Benefits of trusts having charitable status
A
- No requirement to comply with the beneficiary principle
- More flexible rules on certainty of objects (i.e. certainty of purpose)
- No limit on their duration (i.e. they can exist in perpetuity)
- A rule known as the cy-près doctrine which allows the trust property to be applied for other charitable purposes even if the specific trust fails
- Tax benefits
5
Q
Requirements for charitable purpose trusts
A
To have charitable status a trust must:
(a) Be for a charitable purpose
(b) Satisfy a public benefit test
(c) Be wholly and exclusively charitable
6
Q
Non-charitable trusts - the Endacott exceptions
A
- In order to be valid, the purpose of a non-charitable purpose trust must fall within a recognised exception to the beneficiary principle. These exceptions apply only when a trust is created in a will and were classified in the case of Re Endacott.
- Only very limited types of trust fall within this category and it is a closed class which is narrowly construed. No further exceptions are likely to be recognised.
- There is no recognised method of enforcement for non-charitable purpose trusts. They are therefore known as ‘trusts of imperfect obligation.’
7
Q
Denley trusts
A
- It was recognised in the case of Re Denley’s Trust Deed that a trust which appears to be for a purpose can nonetheless be recognised as a valid trust within the spirit of the beneficiary principle provided that:
(a) it is directly or indirectly for the benefit of individuals such that they have standing to enforce the trust in court
(b) the individuals are ascertained or capable of being ascertained
(c) the duration of the trust is limited to a valid perpetuity period
8
Q
Perpetuity
A
- In general terms, the law prevents people from tying up their assets on trust in perpetuity
- This is for policy reasons; it prevents people with wealth locking their assets away on trust and out of circulation in the wider economy.
- There are two related rules in this area:
(1) The rule against remoteness of vesting
(2) The rule against inalienability
9
Q
The rule against remoteness of vesting
A
- The statutory rule against remoteness of vesting applies to charitable trusts.
- Just as the property held on a private express trust must vest in beneficiaries within 125 years, property held on a charitable trust must vest in the charity within that period.
- The practical difference is that a trust with beneficiaries will be extinguished when the capital is distributed to the beneficiaries. In contrast, capital which vests in charity trustees will continue to be held by the trustees and used for the purposes until the property runs out.
- If the trust fund is well-managed, the property may never run out so the trust will continue to subsist unless the purposes fail. This means that charitable purpose trusts can exist indefinitely.
10
Q
The rule against inalienability
A
- The pereptuity rule applicable to non-charitable purpose trusts is the common law rule against inalienability.
- This rule provides that assets cannot be tied up on trust for longer than the common law perpetuity period of a life in being plus 21 years (or just 21 years if no life in being is specified)
- The common law rule is stricter than the statutory rule. There is no ‘wait and see’ rule. It must be clear from the outset that the trust must end within the prescribed perpetuity period.
- The common law rule does not apply to charitable purpose trusts.
11
Q
Certainty of purpose
A
- The rules in relation to certainty are much more flexible for charitable purpose trusts than for private trusts:
- It is sufficient that there is an intention to apply property for a charitable purpose.
- If there is uncertainty as to how this intention is to be carried out, the trustees can direct that the property be applied for such charitable purposes as they select.
- For charitable purpose trusts, the court will strive to resolve any uncertainty and hold the trust valid once it has established charitable intent.
- The Charity Commission or the court can provide a ‘scheme’ to specify the charitable purposes the property should be applied to.
- This is not true for non-charitable purpose trusts or Denley trusts. Such trusts will be void for uncertainty of objects if the purpose, or means of achieving the purpose, is unclear.
12
Q
Re Astor’s Settlement Trusts - an attempted non-charitable purpose trust found to be void because of uncertain intended purposes
A
A trust of substantially all the shares in The Observer were held on trust for various non-charitable purposes including:
- ‘The maintenance…of good understanding, sympathy and co-operation between nations’
- ‘The control, publication…financing or management of any newspapers, periodicals, books, pamphlets or publications’
- ‘The protection of newspapers…from being absorbed…or being tied by finance or otherwise to special…views…inconsistent with the highest integrity and independence.’
- Roxburgh J: ‘The purposes must be so defined that if the trustees surrendered their discretion, the court could carry out the purposes declared’
- He considered these purposes too inherently uncertain to be performed: ‘how in any case could I decree in what manner the trusts applicable to income were to be performed? The settlement gives no guidance at all.’
- Counsel’s argument that the trustees could apply to the court for a ‘scheme’ for the administration of the trust, as is available for charitable trusts, was rejected: ‘It is not, I think, a mere coincidence that no case has been found outside the realm of charity in which the court has yet devised a scheme’ ‘[It would] necessarily require the assistance of a custodian of the public interest analogous to the Attorney-General in charity cases…There is no such person.’
- It did not fall within an Endacott exception so Roxburgh J concluded: ‘a court of equity does not recognise as valid a trust which it cannot both enforce and control. This seems to me to be good equity and good sense.’
13
Q
Charitable purposes - history
A
- There is an extensive body of case law on charitable purposes, much of which refers to charitable purposes listed in the preamble to the Charitable Uses Act 1601. The law on charities was codified in the Charities Act 2006 and consolidated in the Charities Act 2011, but the history of the case law is important because many modern cases will still be interpreted by references to cases predating the legislation.
- For around 300 years, the case law on charitable purposes developed with reference to the four traditional ‘heads of charity’ in the 1601 Act:
(1) The relief of poverty
(2) The advancement of education
(3) The advancement of religion
(4) Other purposes beneficial to the community - These were subsequently recognised to be a ‘checklist’ only, with other purposes capable of being charitable as long as they fell into the spirit of this preamble.
14
Q
Charitable purposes - current position
A
- The law has been codified, with section 2 of the Charities Act 2011 providing that a charitable purpose is a purpose which:
- falls within section 3(1); and
- is for the public benefit.
- There are 12 specific heads of charity set out under s 3(1) as well a wide additional head of charity which codifies the common law principle of recognising additional charitable purposes falling within the spirit of the law.
15
Q
s 3(1) - 12 heads of charity
A
(1) The prevention of relief of poverty
(2) The advancement of education
(3) The advancement of religion
(4) The advancement of health or the saving of lives
(5) The advancement of citizenship or community development
(6) The advancement of the arts, culture, heritage or science
(7) The advancement of amateur sport
(8) The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
(9) The advancement of environmental protection or improvement
(10) The relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage
(11) The advancement of animal welfare
(12) The promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services
16
Q
Head of charity (1) - The prevention or relief of poverty
A
- no definition of ‘poverty’ in the Charities Act 2011 and it is therefore interpreted using existing case law from which some key principles can be derived:
- (a) Poverty does not mean destitution - ‘There are degrees of poverty less acute than abject poverty or destitution, but poverty nonetheless’ (Re Gardom)
- (b) Poverty means ‘going short’ (Re Coulthurst, and now reflected in Charity Commission guidance which provides that ‘it is likely to be charitable to relieve the poverty or financial hardship of anyone who does not have the resources to provide themselves…with the normal things of like which most people take for granted.’
- (c) Poverty is a relative concept - it is judged against a person’s ‘status in life.’ Trusts have been found to be charitable for ‘distressed gentlefolk’ (Re Young) and ‘ladies of limited means’ (Re Gardom)
- (d) The purpose must not benefit the rich - otherwise it will not be ‘wholly and exclusively charitable’ (Re Gwyon; a trust for the provision of clothing to boys was void in the basis that it did not require the boys to be poor so would benefit rich boys too)
- (e) Poverty can be inferred - The provision of a soup kitchen was implicitly for the alleviation of poverty (Biscoe v Jackson). In contrast, a trust to provide dwellings for the ‘working classes’ was not charitable as ‘working class’ did not indicate poor persons (Re Sanders’ WT)
- (f) Poverty can be temporary - Charity Commission’s decision to grant charitable status to the AITC Foundation which provided relief for those who suffered as a result of the collapse of investment companies noted that ‘someone suffering a temporary period of financial hardship due to a sudden change in circumstances might also be eligible for assistance.’
17
Q
Head of charity (2) - The advancement of education
A
- Charity Commission guidance indicates that the advancement of education is not confined to formal instruction in an educational institution and could include training, research or broader education.
- Scholarships to support students (Re Gott) and funding of lectureships (AG v Margaret and Regius Professors in Cambridge)
- Ancillary organisations in educational institutions e.g. a students’ union, provided it exists to further the educational purposes of the institution (London Hospital Medical College v IRC)
- The dissemination of knowledge e.g. Incorporated Council of Law Reporting for England and Wales, in which a trust for the publication of law reports was considered charitable as it assisted research into the law.
- Sometimes the case law is not entirely consistent:
- Re Shaw: George Bernard Shaw left a gift for the purpose of developing a 40-letter phonetic alphabet. The purpose was held to be an increase in knowledge, but this was not a charitable object because there was no element of teaching/education.
- Re Hopkins’ Will Trust: A gift was left on trust for the purpose of researching whether plays attributed to Shakespeare may have been authored by Francis Bacon. Wilberforce J did not find himself constrained by the requirement of ‘an element of teaching or education’ and held that research must ‘either be of educational value to the researcher or must be so directed as to lead to something which will pass into the store of educational material’
- Both these cases predate the statutory requirement to prove public benefit.
18
Q
Head of charity (2) - The advancement of education: Charity Commission guidance on organisations that class as charitable under this heading
A
- museums, galleries, libraries, scientific institutes
- pre-schools, playgroups, summer schools and homework clubs
- organisations supporting the work of educational establishments such as parent-teacher associations, teacher training organisations or exam boards
- organisations providing life skills training such as the Duke of Edinburgh award schemes, Scouts and Guides
- this list is not exhaustive.
19
Q
Head of charity (3) - The advancement of religion
A
- s 3(2)(a) Charities Act 2011 provides that ‘religion’ includes:
- a religion which involves belief in more than one god, and
- a religion which does not involve a belief in god.
- Charity Commission guidance consolidates further case law requirements describing a religious belief as:
- belief in a god (or gods) or goddess (or goddesses) or supreme being, or divine or transcendental being or entity of spiritual principle which is the object/focus of the religion
- a relationship between the believer and the supreme being or entity by showing worship of, reverence for or veneration of the supreme being or entity
- a degree of cogency, cohesion, seriousness and importance
- an identifiable positive, beneficial, moral or ethical framework
- earlier case law now needs to be considered in light of the statutory definition and Charity Commission guidance, which provides that it should be considered ‘in the context of current social and economic circumstances.’
20
Q
Head of charity (3) - The advancement of religion key cases
A
R v Registrar General of Births, Deaths and Marriages - Supreme Court held that scientology was a religion: ‘religion should not be confined to religions which recognise a supreme deity.’
Under this heading, as well as meeting the definition of ‘religion’, charitable trusts need to also positively ‘advance’ the religion.
Advancement of religion has been defined as meaning ‘to promote it, to spread its message ever wider among mankind; to take some positive steps to sustain and increase religious belief’ (United Grand Lodge of Ancient Free and Accepted Masons of England v Holborn Borough Council)
- This can be achieved by way of religious services, pastoral or missionary work.
- Support of a religious order such as a monastery or convent (Re Banfield)
- Public masses celebrating the dead (Re Hetherington)
- The repair of churchyards of burial grounds (Re Douglas)
21
Q
Head of charity (4) - The advancement of health/saving lives
A
- The prevention or relief of sickness, disease or human suffering, the promotion of health.
- Charity Commission takes a broad view of advancing health including complementary, alternative or holistic methods as well as conventional methods, though to be charitable there must be sufficient evidence for the claimed benefits of the method used (Charity Commission Operational Guidance 304)
- Can include the provision of hospitals (Re Resch’s Will Trust) or healthcare advice (British Pregnancy Advisory Service)
- The saving of lives includes rescue services e..g lifeboat associations, mountain rescue and cave rescue.
22
Q
Head of charity (5) - Citizenship/Community development
A
- Section 3(2)(c) provides that this head includes:
- rural and urban regeneration
- the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities
- covers a broad group of charitable purposes directed towards support for social and community infrastructure which is focused on the community rather than the individual
- the purpose must be wholly and exclusively charitable; demonstrated in IRC v Oldham Training and Enterprise Council where an organisation was held not to be a charity because in addition to providing vocational training for the unemployed, it also promoted trade, commerce and enterprise and provided advice to new businesses
23
Q
Head of charity (6) - Arts, culture, heritage or science
A
- Charity Commission guidance provides that to be charitable the arts need to be of ‘merit’, the assessment of which may require expert evidence.
- Compare the cases of Re Delius (promoting the music of the composer Delius) and Re Pinion (in relation to the settlor’s art collection). The former was considered charitable, though the judge left open the question as to the consequence if the trust had related to a lesser composer. In contrast, the art collection in Re Pinion was described in the CoA as ‘junk’ and was not charitable. These cases were decided under old law but it can be presumed similar considerations would apply under the Act.
- Monuments can be charitable under this head if they are of cultural or historical importance. Monuments to private individuals are therefore unlikely to be charitable (but may be recognised as a non-charitable purpose trust)
- Charity Commission guidance provides that ‘heritage’ might be regarded as part of a country’s local or national history and traditions which are passed down through generations e.g. preservation of historic land and buildings, activities concerned with preserving or maintaining a tradition
- Williams’ Trustees v IRC: Court rejected the argument that a trust to foster the study of the Welsh language, history, music, literature and art was charitable. This might now be decided differently under the Charities Act 2011.
24
Q
Head of charity (7) - The advancement of amateur sport
A
- s 3(2)(d) of the Charities Act 2011 defines ‘sport’ as sports or games which promote health by involving physical or mental skill or exertion.
- There is uncertainty as to the types of games and sports which might qualify, and the level of physical and mental exertion required to promote health. It clearly includes physical sports e.g. football/athletics but also includes chess due to the mental skill involves. Other games and activities will be borderline.
- the Charity Commission found that the Hitchen Bridge Club was charitable on the basis that it involves logical and lateral thinking skills, planning, memory, sequencing, and other higher order functions
- for the Cambridgeshire Target Shooting Association, whilst the Comission accepted that it was necessary to be physically and mentally fit to succeed in target shooting, it was not convinced that these health benefits were gained from the activity itself.
25
Q
Head of charity (8) - The advancement of human rights
A
- s 3(1)(h) provides for the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity.
- In order to be charitable under this head, the purpose must not stray into political objectives such as seeking to procure changes in the law.
- Charity Commission guidance includes in its examples: raising awareness of human rights issues, relieving the victims and securing the enforcement of human rights laws; and the promotion of restorative justice and other forms of conflict resolution or reconciliation.
26
Q
Head of charity (9) - Environmental protection
A
- s 3(1)(i) provides that this head includes both the protection and improvement of the environment.
- Charity Commission guidance provides that this includes preservation and conservation of the natural environment and the promotion of sustainable development.
- Conservation of the environment includes the conservation of a particular animal, bird or other species of ‘wildlife’; a specific plant species, habit or area of land, including areas of natural beauty/scientific interest; flora, fauna and the environment generally.
- Charities may need to produce independent expert evidence to show that the particular species, land or habitat is worthy of conservation.
27
Q
Head of charity (10) - The relief of those in need
A
- For the relief of those in need because of youth, age, ill health, disability, financial hardship or other disadvantage.
- s 3(2)(e) provides that this includes relief given by the provision of accommodation or care.
- A person does not have to be poor to be in need, but it is necessary to show that the person has a specific need.
- Joseph Rowntree Memorial Trust Housing Association v Attorney General: accommodation was provided for the elderly, without a poverty requirement. The tenants could actually sell their leases and make a profit. The purpose was found to be charitable on the basis that the tenants had a need for suitable accessible accommodation.
28
Q
Head of charity (11) - The advancement of animal welfare
A
- Includes providing for the welfare of particular types of animal (e.g. cats and kittens in Re Moss) as well as animals generally. It has also included improving methods for slaughtering animals (Re Wedgewood)
- Trusts for the care of particular animals (e.g. the testator’s pet dog) are not included, although such trusts might exceptionally be upheld as non-charitable purpose trusts.
- The purpose of pursuing the abolition of vivisection has been found not to be charitable since this would be a political purpose seeking a change in the law (National Anti-Vivisection Society v IRC)
29
Q
Head of charity (12) - The efficiency of public services
A
- s 3(1)(l) provides that this purpose relates to the efficiency of the armed forces, the police, fire and rescue services or ambulance services.
- case law has upheld a fund for the promotion of physical fitness (Re Gray) and for the provision of a library (Re Good) in respect of an army regiment as charitable.
- Charity Commission guidance also suggests a series of examples considered charitable under this head: increasing technical knowledge of members of the services through the provision of educational resources, competitions and prizes; providing opportunities for services personnel to gain additional experience relevant to their jobs.
30
Q
General purpose
A
- There is also a wide, additional category in s 3(1)(m) which recognises that some charitable purposes may not have been captured within the previous 12 heads of charity.
- It covers purposes which would have been recognised as charitable under previous law, or purposes which are analogous to or within the spirit of the statutory heads of charity and earlier case law.
- This principle of recognising charitable purposes by analogy is a long-standing principle of charity law, ensuring that the law on charitable purposes is flexible and can evolve.
31
Q
Wholly and exclusively charitable
A
- For a trust to have charitable status, all its purposes must be charitable
- If a trust has a mixture of charitable and non-charitable purposes, the consequences depend on the precise situation.
- As a basic rule, the trust will be void unless the non-charitable purpose falls within a recognised category of non-charitable purpose trusts. If the trust fails, the property will return to the settlor on a resulting trust.
- If the non-charitable purpose can be construed as ‘incidental or subsidiary’ to the main charitable purpose, the trust will remain effective (Latimer v IRC)
- If the charitable and non-charitable purposes can be separated, and a portion of the fund allocated to each, the court will ‘sever’ the trust and recognise the charitable part. This is only possible if the trust language contemplates severance of the fund (Salusbury v Denton). This requires the amount allocated to each purpose to be quantifiable (Re Coxen)
32
Q
Public benefit requirement
A
- There is no definition of ‘public benefit’ in the Act, but it does provide that:
- there is no presumption of public benefit (s 4(2))
- charity trustees must have regard to any guidance published by the Charity Commission in pursuance of its public benefit objective (s 17(5))
- there are two elements to the requirement:
(1) whether there is an identifiable benefit
(2) what constitutes the public, or a section of the public.
33
Q
Public benefit requirement - (1) Identifiable benefit
A
- A question of fact having regard to all the evidence in a particular case. The settlor’s belief as to benefit is not relevant.
- Benefit is balanced against any detriment of harm arising from the purpose. The benefit must be capable of being identified and described even if it cannot be quantified or measured. If it is not obvious that the purpose is beneficial, the Charity Commission may require evidence.
- Re Hummeltenberg: A benefit could not be identified in relation to a training college for mediums notwithstanding the settlor’s belief that it was beneficial.
- National Anti-Vivisection Society v IRC: The adverse effect on medical research outweighed the benefit arising to the welfare of animals of abolishing vivisection.
34
Q
Public benefit requirement - (2) Public or section of the public
A
- The purpose must be beneficial to the public or section of the public, not to a private class of individuals. This is for policy reasons; a settlor should not benefit from the advantages of charitable status in respect of a trust which in fact benefits only their friends and family, for example
- To satisfy the test:
(a) the possible beneficiaries must not be negligible in number; and
(b) the quality which distinguishes them from other members of the community must be a quality which does not depend on their relationship to a particular individual (Oppenheim v Tobacco Securities Trust Co Ltd) - It is not simply a question of numbers. In Oppenheim, a trust for the education of children of the employees of a company which employed over 100,000 staff was held not to be charitable on the basis that the beneficiaries were defined by reference to their personal relationship with the employer.
35
Q
Public benefit requirement - (2) Public or section of the public: when charities can choose to focus on certain beneficiaries
A
Charity Commission guidance provides that charities can choose to focus on certain beneficiaries provided that:
- they have proper reasons for doing so
- the poor are not excluded from the benefit
- the people focused on are a sufficient section of the public for the charity’s purpose. What constitutes a section of the public is therefore related to the purpose of the charity.
- IRC v Baddeley: a bridge may be charitable and it does not matter how many people actually use it. But confine its use to a selected number of persons, however numerous or important, and it is not charitable.
- Charities can charge for the services/facilities they offer. They can even make a profit provided this is reasonable and necessary to carry out the charity’s aims e.g. used to fund facilities provided by a private school/hospital
- The opportunity to benefit must not be unreasonably restricted, e.g. if fees restrict the benefit to only those who can afford the fees it may be that the benefits are not available to a sufficiently large section of the public.
- If the charges are of a level which the poor cannot afford, the trustees must make sure that the poor can otherwise benefit. This is always a matter of degree.
36
Q
Public benefit requirement - the prevention or relief of poverty
A
- The requirement that the class of beneficiaries must not be defined by reference to their relationship with a single person is relaxed in the case of the relief or prevention of poverty. However, the purpose must still be for the benefit of a particular description of poor persons, as opposed to the benefit of particular poor persons (which would be a private trust)
- Re Scarisbrick’s Will Trusts: trusts for “poor relations” are “of so altruistic a character” that the public element may be inferred
- The relaxation of the “public” element means that trusts for such purposes can have pools of beneficiaries where there is a family or other personal connection to the settlor (such as to an employer in Dingle v Turner) or restricted to a smaller geographical area where this would not be allowed for other charitable purposes.
37
Q
Public benefit requirement - advancement of education
A
- Fee paying schools have been an issue of particular difficulty in relation to the public benefit requirement. Charities can charge fees but must not by doing so exclude the poor from benefitting from the charitable purpose.
- Both elements of the public benefit requirement were considered in The Independent Schools Council v the Charity Commission:
(1) Identifiable benefit: the benefit of providing education was not outweighed by the social mobility implications of the requirement to pay fees.
(2) Section of the public: If fees are of a level which the poor cannot afford the trustees must make provision so that the poor can otherwise benefit. This benefit must be more than de minimus or “token” benefit. Examples suggested included the provision of scholarships or making teaching materials or other facilities (e.g. swimming pools/sports grounds) available.
38
Q
Public benefit requirement - advancement of religion
A
Before the Charities Act 2006, there was a presumption that charitable trusts for the advancement of religion were for the public benefit. Now the presumption has been abolished, the public benefit must be proven in each case.
39
Q
Public benefit requirement - advancement of human rights
A
- A key difficulty is distinguishing between trusts with political objectives and those which are pursuing a political activity as a means of achieving a charitable end.
- e.g. a trust by Amnesty International was held not to be charitable because its objectives included securing the release of prisoners of conscience and the abolition of torture and inhuman/degrading treatment. The court did not consider that it could judge whether procuring a change of law in a foreign country would be to the public benefit in the UK, so the trust was not held to be wholly and exclusively charitable.
40
Q
The cy-près doctrine
A
- Where a private trust fails there is usually a resulting trust to the settlor.
- Where a charitable purpose trust fails, a resulting trust would defeat the intention of the person who had dedicated their property to a charitable purpose, so charities are therefore subject to the cy-près doctrine.
- This provides that where a charitable purpose trust fails, any surplus funds will be applied to another charitable purpose by way of a scheme established by the Charity Commission or court.
41
Q
The cy-près doctrine: five grounds on which the original purpose of a charitable gift can be altered
A
(1) The original purpose has been fulfilled or cannot be carried out.
(2) The original purpose may still be workable but does not provide a use for all the property available on the trust, i.e. there are surplus funds.
(3) The property from similar trusts is combined so as to be used more effectively.
(4) The original purpose referred to an area of class of persons which is no longer relevant or suitable.
(5) The purpose has: been adequately provided for by other means; ceased to be charitable in law; or ceased to provide a suitable and effective method of using the property.
42
Q
When will the cy-près doctrine be used?
A
- Once property has been given to charity it is given for all time, so where there is a subsequent failure the gift cannot go back on a resulting trust – it will be applied cy-près.
- However, where there is an initial failure e.g. property cannot be applied for the specific purpose from the beginning, it will only be applied cy-près if the settlor has shown a general charitable intention.
- The question for the court to decide in construing the document is whether there was a specific intention to benefit a particular object, or an intention to give effect to a general mode of charity (notwithstanding a reference to a more specific object). Only in the latter case can property be applied cy-près on the failure of the initial purpose.
43
Q
Cy-près cases
A
Biscoe v Jackson - the intended purpose was the provision of a soup kitchen and cottage hospital for the parish of Shoreditch. Suitable land could not be found so the purpose failed. However, the court found that there was a general charitable intention to benefit the sick and poor of the parish. The impossibility only related to the form of the gift, and the general charitable purpose could be executed cy-près.
Re Good’s Will Trusts - a trust to provide rest homes in Hull was found to be too specific to demonstrate a general charitable intention. The testator had created detailed plans relating to management of the homes which the court found to be inconsistent with a general charitable intention. There could therefore be no cy-près application of the funds when they transpired to be insufficient for the intended purpose.
44
Q
The Endacott Exceptions
A
- In order to be valid, the purpose of a non-charitable purpose trust must fall within a recognised exception to the beneficiary principle.
- These exceptions apply only when a trust is created in a will and were classified in the case of Re Endacott. They are:
(1) Trusts for the maintenance of particular animals
(2) Trusts for the erection and maintenance of monuments and graves
(3) Trusts for the saying of private masses - There are a few further miscellaneous exceptions, the continuing validity of which is doubtful. The court also classified gifts to unincorporated associations as a further exception, but there is a separate body of case law for this.
45
Q
Endacott exceptions - (1) Maintenance of particular animals
A
- A trust for the welfare of animals generally would be charitable.
- A trust for the care of a particular animal would not, as it would not pass the public benefit test.
- Trusts for the maintenance of particular animals have been upheld as valid, provided they comply with certainty and perpetuity requirements.
46
Q
Endacott exceptions - (2) Monuments and graves
A
- A trust for the purpose of constructing or maintaining a monument could be charitable if it is of cultural or historical importance.
- However, monuments and graves in respect of private individuals will not be charitable.
- Trusts for the erection and maintenance of monuments and graves have been upheld as valid, provided they comply with certainty and perpetuity requirements.
47
Q
Endacott exceptions - (3) Private masses
A
- A trust for the purpose of conducting religious ceremonies may be charitable if it passes the public benefit test.
- However, a ceremony that takes places in private will not pass the public benefit test and will therefore not be charitable.
- Trusts for the saying of private masses have nonetheless been upheld as valid, provided they comply with certainty and perpetuity requirements.
48
Q
Re Endacott case
A
Lord Evershed reviewed the case law and summarised the approach that should be taken to the recognition of non-charitable purpose trusts.
FACTS: A testator gave his residuary estate ‘for the purpose of providing some useful memorial to myself.’
HELD: The provision was held to be void. The purpose was too uncertain to be charitable and did not fall within a recognised class of non-charitable purpose trusts.
Lord Evershed: ‘No principle perhaps has greater sanction of authority behind it than the general proposition that a trust by English law, not being a charitable trust, in order to be effective, must have ascertained or ascertainable beneficiaries.’
In relation to the exceptions, he said that ‘the scope of these cases…ought not to be extended. So to do would be to validate almost limitless heads of non-charitable trusts…; and in my judgment, that result would be out of harmony with the principles of our law.’
49
Q
Developments following Endacott
A
- Following Endacott, it is apparent that the exceptions are anomalous and difficult to justify other than as ‘concessions to human weaknesses or sentiment.’ The intended purpose must fall squarely within a recognised exception to be valid.
- The exceptions will not be extended by analogy.
50
Q
Trusts of imperfect obligation and Pettingall orders
A
- Non-charitable purpose trusts falling within an Endacott exception are sometimes referred to as trusts of imperfect obligation because although the court recognises their validity, meaning they will not fail if included in a will, they are not enforceable.
- It is therefore prudent to check that the appointed trustee is willing to carry out the terms of the trust. If they are, the court will make what is known as a Pettingall order. This requires the trustee to give an undertaking to comply with the trust. If they do not, the testator’s residuary legatees (who would otherwise receive the property) can sue to enforce the undertaking and prevent a misapplication of the fund.
51
Q
Pereptuity - non-charitable purpose trusts
A
- The rule against inalienability applies to non-charitable purpose trusts. This rule requires the trust to come to an end within the common law period of 21 years.
- The perpetuity period can be extended by reference to a human life in being i.e. the 21 year period does not start to run until the person dies. The person does not need to be associated with the trust; royal lives are often chosen.
- It must be certain at the time the trust is created that it will come to an end within the perpetuity period, otherwise the trust will be void. The ‘wait and see’ rule does not apply.
- The rule against inalienability is applied strictly. A drafter should therefore always include an express perpetuity clause limiting the duration of a non-charitable purpose trust to the perpetuity period to ensure its validity.
- The 21 year perpetuity period starts to run when the trust comes into effect, i.e. on the date of the testator’s death.
52
Q
Academic debate about the validity of non-charitable purpose trusts
A
- There is academic debate about whether non-charitable purpose trusts should be limited to these specific exceptions.
- One argument is that any non-charitable purpose trust should be valid provided that there is a mechanism for its enforcement in the absence of a beneficiary
- A number of foreign jurisdictions allow non-charitable purpose trusts. These jurisdictions typically employ enforcement mechanisms such as the appointment of a third party with standing to enforce the trust in court.
- However, there is also a consideration of whether a third party with no beneficial proprietary interest in the trust property is sufficient to satisfy the beneficiary principle.
53
Q
Re Denley’s Trust Deed - FACTS
A
By a trust deed, land in Gloucestershire was settled on trustees for use by the employees of a company as a sports field. The provision included a valid perpetuity period of 21 years from the death of the last survivor of a list of named individuals. It also included a ‘gift over’ i.e. provision for what should happen to the property at the end of the perpetuity period or following the failure of purpose. The deed provided that the land ‘shall be maintained and used as and for the purpose of a recreation or sports ground primarily for the benefit of the employees of the company and secondarily for the benefit of such other person or persons (if any) as the trustees may allow to use the same…’
54
Q
Re Denley’s Trust Deed - LEGAL ISSUE
A
- The trust was described as being for a purpose (i.e. providing of a recreation/sports ground) rather than as being a trust for the benefit of particular beneficiaries
- The question was whether the trust was void because it breached the beneficiary principle
- The company argued that:
(a) If the trust was a purpose trust, it was void because the purpose was not charitable.
(b) If the trust was for individuals, the individuals could not be identified and the trust therefore failed for lack of certainty of objects. - The employees argued that the trust could be put into effect and was therefore valid.
55
Q
Re Denley’s Trust Deed - JUDGMENT
A
- Citing Re Astor’s Settlement Trusts, Goff J acknowledged that a trust for a non-charitable purpose would not be merely unenforceable but void for breach of the beneficiary principle and potentially also for certainty.
- However, he considered that the beneficiary principle was confined to purpose trusts which are abstract or impersonal, explaining that the objection is not that the trust is for a purpose per se, but that there is no beneficiary to enforce the trust.
- ‘where…the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, it seems to me that it is in general outside the mischief of the beneficiary principle.’
- It is then necessary to determine whether those individuals could be ascertained such that the trust was sufficiently certain. On the facts, it was accepted by the parties that the ‘employees of the company’ were ascertained or ascertainable.
- The ability of the trustees to allow use of the land by the further category of ‘such other person or persons (if any) as the trustees may allow to use the same’ was found to be a power rather than a trust. It was therefore not necessary to identify all of the possible objects of the power.
- The trust was upheld as valid.
56
Q
Requirements for an Re Denley purpose trust
A
- A trust which appears to be for a non-charitable purpose and which does not fall within an Endacott exception can be valid provided that:
(a) it is directly or indirectly for the benefit of individuals such that they have standing to enforce the trust in court
(b) the individuals are ascertained or capable of being ascertained
(c) the duration of the trust is limited to a valid perpetuity period (although query whether this is the common law period or if the statutory rule against remoteness of vesting applies to Denley trusts on the basis that they are for individuals) - If Re Denley was decided today, it might be analysed as a charitable purpose under the head of advancement of sport, but it would likely fail the public benefit test.
57
Q
Nature of an Re Denley purpose trust
A
- The individuals who benefit from a Denley trust have a factual interest in the trust property in that they can benefit from its use and enforce the terms in court, but they do not have a beneficial proprietary interest in the trust property; their interests seem similar to those of the objects of a discretionary trust before the discretion is exercised in their favour.
- The ‘beneficiaries’:
(a) lose any interest in the property once the purpose has been fulfilled or fails; and
(b) do not have Saunders v Vautier rights allowing them to direct the trustees to collapse the trust (although, as with the objects of a discretionary trust, it could be theoretically possible, albeit extremely unlikely, for beneficiaries of the Denley trust and the gift-over recipient together to exercise Saunders v Vautier)
