charitable purpose trusts - problem question: Bill died recently...

With a long standing hostility to private ‘purpose’ trusts1 there has nonetheless been a well established, and long standing exception as regards trusts for ‘charitable purposes’; which though recently protected by statute,2 have occupied a long established position of privilege.3 Such sentiments clearly underpin Lord Evershed’s judgment in re: Endacott [1960]:4 ‘No principle has perhaps 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 beneficiaries’ We are here asked to consider a variety of testamentary trusts: “Bill died recently. According to his will, the residue of his entire estate is to be held in trust as follows: (a) to provide training for soldiers; (b) to provide uniforms for soldiers serving in Bill’s old regiment; (c) to encourage the government to increase military spending. Fred and Simon were appointed as the executors of Bill’s estate and the trustees of his will trusts. They seek your advice concerning the validity of those trusts. Bill’s old regiment was disbanded last year. Advise Fred and Simon”. Engaging many elements of this area of law (the ‘over-arching requirement’ of public benefit which is considered essential to charitable ‘status’; elements of a ‘purpose’ which may contaminate said ‘status’, rendering it not exclusively charitable; and whether a particular trust (under certain circumstances) may be salvaged by the cyprès doctrine5) it makes good sense to consider these three variations (mindful that Bill’s old regiment was disbanded last year and that Fred and Simon are seeking advice as regard the validity of the trusts ) in turn:6 Notes: i. ii. iii. iv. v. identify possible categories of charitable purpose = is the purpose prima facie charitable? apply the public benefit test check it isn’t a political purpose confirm that it is wholly and exclusively charitable see whether cy-près could apply 1 which we might think of as enshrined in the ‘beneficiary principle’… 2 Charities Acts 2006/2011 - essentially establishing that charitable trusts were public not private matters historically it fell on the King as parens patriae to enforce charitable trusts, before such locus standi passed to the Attorney General 3 4 [1960] Ch. 232 when the original objective of the settlor or the testator became impossible, impracticable, or illegal to perform, the cy-près doctrine allows the court to amend the terms of the charitable trust as closely as possible to the original intention of the testator or settlor to prevent the trust from failing… 5 there is nothing in the question to suggest there are any issues of certainty (as per Knight v Knight (1840)) nor that there are any concerns as regards the validity of the s. 9 Wills Act 1837 6 a. provision of training for soldiers: Unlikely to be considered a valid ‘Anomalous Valid Purpose Trust’7 if deemed non-charitable the question would inevitably arise as to whether ‘training’ was not excessively nebulous and/or whether ‘soldiers’ constituted an ‘appropriate and ascertainable’ class (as per McPhail v Doulton [1970]).8 And though considered in rather negative terms in re: Grant’s Will Trusts [1979] and re: Lipinski’s Will Trusts there is the outside possibility that one might argue that this trust could be saved by the application of Goff J’s analysis in re: Denley’s Trust Deed [1968] i.e. that that the group of beneficiaries could be adequately ascertained such as not to invalidate the trust .9 But it seems most likely that Fred and Simon’s efforts (if it is their goal to salvage this trust) should be to establish a valid ‘charitable purpose trust’ and thus bypass any issues regarding the certainty of beneficiaries. This require the resolution of five issues (see notes above).10 To be deemed charitable (as per s. 2 Charities Act 2011) the purpose must be: • prima facie ‘charitable’ AND • meet the section 4 ‘public benefit’ requirement/s As regards the former, initially required to be within the “spirit and intendment” of the ‘Preamble’11 (Williams v IRC [1947]12 ) and subsequently under one of the four heads established by Lord Macnaghten in Income Tax Commissioners v Pemsel (1891) Section 3 (1) Charities Act 2011 now establishes 13 heads. 7 Pettingall v Pettingal (1842)/re: Dean (1889) etc. 8 it being neither ‘abstract [n]or impersonal - re: Astor’s Settlement Trusts [1952] 9 [1968] 3 All ER 65 10 as per Professor Claire de Than 11 Preamble to the Statute of Charitable Uses 1601 12 [1947] A.C. 447 It would seem our instant case falls most comfortably under Section 3 (1) (l) “promotion of the efficiency of the armed forces of the Crown”. What of the ‘public benefit requirement’?13 The public benefit requirement has two aspects: i. ‘benefit aspect’: • a purpose must be beneficial - this must be in a way that is identifiable and capable of being proved by evidence where necessary and which is not based on personal views • any detriment or harm that results from the purpose (to people, property or the environment) must not outweigh the benefit14 ii. ’public aspect’: To satisfy this aspect the purpose must: • benefit the public in general, or a sufficient section of the public - what is a ‘sufficient section of the public’ varies from purpose to purpose • not give rise to more than incidental personal benefit - personal benefit is ‘incidental’ where (having regard both to its nature and to its amount) it is a necessary result or byproduct of carrying out the purpose In general, for a purpose to be a charitable purpose it must satisfy both the benefit and the public aspects. However, charities for the relief (and in some cases the prevention) of poverty need only satisfy the benefit aspect.15 With Section 4 (2) removing any acting presumptions in this area of law; it seems likely that a court (or the Charity Commission) would not balk at considering our first trust as both prima facie charitable and of adequate ‘public benefit’; nor is there anything to suggest that the purpose is any way corrupted by either political and/or profit distribution motives (see: National Anti-Vivisection Society v IRC [1948] and McGovern v A-G [1982] Ch 321). Section 4 Charities Act 2011 establishes that a purpose (falling within s. 3 (1)) must be for the ‘public benefit’ if it is to be [considered] a ‘charitable purpose’ 13 14 this is also based on evidence and not on personal views… 15 https://www.gov.uk/guidance/public-benefit-rules-for-charities b. provision of uniforms for soldiers serving in Bill’s old regiment (now disbanded): Doomed to fail as a non-charitable purpose trust we need to consider whether we can salvage Bill’s second purported trust; obviously complicated by the fact that his regiment is now disbanded and we may need to engage the doctrine of cy-près to square the circle. In IRC v City of Glasgow Police Athletic Association [1953]16 it was held that: “[the] purpose of promoting the efficiency of the police force falls within the spirit and intendment of the statute of Elizabeth I and is charitable. The police contribute to the maintenance of public order more obviously than the Army.” Notwithstanding it might certainly be argued that a ‘generic’ clothing provision be deemed adequately ‘charitable’ to not fall foul of Section 2 Charities Act 2011 but what of the Section 2 ‘public benefit requirement’; for it might equally well be argued that this particular trust is both: i. inadequately public (does this benefit a ‘sufficient section of the public’) ii. falls foul of the ‘personal nexus test’.17 With Briggs J’s judgment in Catholic Care (Diocese of Leeds) v Charity Commission [2010]18 affirming that: “it is no longer to be presumed that any particular type of purpose is for the public benefit”19 the ‘Oppenheim test’ (originally developed in re: Compton [1945]20) was developed to obviate scenarios where a private trust (or a trust of significant private benefit) is trying to gain the advantages of charitable status by claiming it is of benefit to a section of the public. Though criticised by Lord Cross in Dingle v Turner [1972]21 (who essentially built upon Lord McDermott’s dissenting judgment in Oppenheim22 ) it remains good law, with Lord Simmonds clarifying that in order to show ‘public benefit’, the identity of the members of the class must not be defined by means of a ‘personal nexus’; he clarified: 16 [1953] AC 380 17 established in Oppenheim v. Tobacco Securities Trust Co. Ltd [1951] AC 297 18 [2010] EWHC 520 (Ch) 19 now established in Section 4 (2) Charities Act 2011 20 [1945] Ch. 123 21 [1972] AC 601 22 who considered the the Compton test to be “very arbitrary and artificial” “the quality which distinguishes [the beneficiary] from other members of the community . . . must be a quality which does not depend on their relationship to a particular individual.” later adding: “a group of persons may be numerous but, if the nexus between them is their relationship to a single [donor or organisation] they are neither the community nor a section of the community for charitable purposes.” With no presumption/s acting would Bill’s second purported trust be deemed adequately charitable in the eyes of the court and/or Charity Commission; it certainly remains open to doubt, it being both excessively circumscribed, and arguably marred by a personal nexus. In the event that it wasn’t, would it be possible to engage the cy-près doctrine23 to somehow salvage what are his obvious good (one might argue charitable24) intentions, and/or would the residue return to the estate under a resulting trust.25 Here we face a fundamental problem; cy-près can be invoked26 to either: i. preserve from failure at its outset (in the event that the charitable purpose is impossible or impracticable to carry out) and/or ii. preserve from subsequent failure a valid charitable trust (modifying the purposes on the basis that they are giving effect to the settlor’s intention to give property ‘out and out’ to charity 27) but it cannot be invoked to convert a non-charitable purpose into a charitable one; so at first blush it seems that Bill’s second trust may not be salvageable. For the court to intervene in scenario i. (in our instant case there is nothing to suggest a ii. scenario) they must find that the donor/settlor manifested a ‘general’ or ‘paramount’ 23 = as near as possible if deemed partly ‘benevolent’ partly ‘charitable’ The Charitable Trusts (Validation) Act might be engaged to salvage the gift… 24 25 Morice v Bishop of Durhan (1805); Westdeutsche Landesbank v Islington {1996] 26 more recently buttressed by Part 6 Charities Act 2011 (ss 61 - 68) Penner 13.59 explains how Section 62 (1) (e) (i) of the 2011 Act has expanded the possibility of the doctrine in this area… 27 charitable intention of which the “particular gift was but a specification”28 as opposed to a ‘particular’ intention as per re: Lysaght [1966].29 It is not difficult to argue the case in both directions. In the spirit of Harman J in re: Gestetner [1953] (which establishes that the courts will always try to validate a trust where at all possible) one could certainly attempt to invoke both Lysaght [1966] itself, and re: Woodhams [1981] to suggest that the “old regiment” ‘condition’ be struck out and the gift be made a ‘generic’ gift to provide uniforms to the army in general; but perhaps the rather ‘particular’ nature of this bequest might ultimately defeat the argument that Bill intended to create a ‘charitable purpose trust’ and one might have one’s work cut out to argue that a ‘regiment’ (disbanded or otherwise) constituted an unincorporated charitable association.30 Megarry VC’s judgment in re: Spence [1979] (which itself built on re: Harwood [1936]) would only seem to support this contention; as he stated “the specific displaces the general”. c. to encourage the government to increase military spending: Here, with reference to our five point check list: i. ii. iii. iv. v. identify possible categories of charitable purpose = is the purpose prima facie charitable? apply the public benefit test check it isn’t a political purpose confirm that it is wholly and exclusively charitable see whether cy-près could apply We clearly have a wide range of issues (across i. to iv.). Hardly contained within the “spirit and intendment” of the ‘Preamble’ (nor any of the heads of Section 3 Charities Act 2011) its ‘public benefit’ contribution is also highly debatable. But with Morice v Bishop of Durham (1805) establishing that to be deemed a ‘charitable purpose’ an entity must be wholly and exclusively charitable it is nonetheless the possibility of political ‘contamination’ that most colours Bill’s third purported trust. 28 Penner 13.50 29 [1966] Ch. 191 30 which might save the day: re: Vernon’s Will Trusts [1972]; re: Finger’s Will Trusts [1972] As established in the lead case National Anti-Vivisection Society v IRC [1947]31 and developed in McGovern v AG [1982]32 in general political purposes are not considered charitable. Here we see an attempt to establish a trust for what appears prima facie to be a political lobby; a lobby directed to (one presumes) the incumbent government of the day to “increase military spending”. Though it might be argued it is not ‘political’ in a true party political sense (as we saw in say re: Hopkinson [1949]33 where it was considered “the trust was one for the attainment of political objects, and [consequently] not charitable”) it nonetheless appears to go far beyond just (‘indirectly’) courting political controversy (re: Koeppler Wills Trusts [1986]34). Increasing military spending is by no means politically ‘neutral’ and as we saw in its mirror image Southwood v AG [2000]35 (where an organisation’s professed charitable purposes included “proposing alternative policies to achieve disarmament”) it seems likely that such a purpose if not deemed ‘political’, would certainly be deemed insufficiently charitable36 to validate Bill’s third and final purported trust. 31 [1947] UKHL 4, [1948] AC 31 32 [1982] Ch 321 33 [1949] 1 All ER 346 34 [1986] Ch 423 35 3 ITELR 94 36 see Slade J’s judgment in McGovern v AG [1982]