Court of Appeal Upholds Cy-près Scheme for Disbursement of Charitable Trust Funds in Zedra Case
Introduction
In the appeal case of Zedra Fiduciary Services (UK) Limited v HM Attorney General, the Court of Appeal for England and Wales provided a nuanced analysis of when and how charitable funds may be applied under a cy-près scheme, in accordance with section 67 of the Charities Act 2011. The case delved into the appropriate application of funds held on charitable trusts that were originally intended to contribute to the discharge or reduction of the National Debt but could no longer achieve that purpose.
Key Facts
The appellant, Zedra Fiduciary Services (UK) Limited, acting as trustees, held funds initially contributed by Mr. Gaspard Farrer in 1927 to eventually pay off the National Debt. The trust was established with the intent that the funds would accumulate and, at an undetermined future date, be applied either fully or partially towards the National Debt’s reduction. However, over time, the fund’s relative value diminished to a point where its impact on the National Debt became insignificant.
At first instance, the High Court concluded that the trust’s original charitable purpose could not be fulfilled, and thus a cy-près scheme was necessary. Two rival schemes were proposed: one by the Attorney-General, aiming to apply the National Fund directly to the National Debt, and another by the trustee, recommending broader general charitable purposes within the UK.
Legal Principles
The decision primarily hinged upon interpreting section 67 of the Charities Act 2011, which outlines how to approach the application of property for charitable purposes when the original charitable purpose cannot be achieved. Three key factors were considered:
- The spirit of the original gift,
- The closeness of alternative purposes to the original purposes, and
- The suitability and effectiveness of the new charitable purposes in light of current social and economic circumstances.
In examining ‘the spirit of the original gift’, Lord Justice Lewison established that it is the underlying intent of the donor that must be considered, rather than the literal wording of the trust or conditions imposed to fulfill it. It was determined that the primary spirit of Mr. Farrer’s gift was to benefit the nation by reducing the National Debt and encourage others to contribute similarly.
The need for closeness of alternative purposes to the original purposes highlighted that any alternative application of the funds must be ‘close’ to the original intent of the trust. The Attorney-General’s proposal aligned closely with the original purpose by directly reducing the National Debt albeit marginally, whereas the trustee’s broader use of the funds for general charitable purposes did not.
As to the suitability and effectiveness of the alternative charitable purposes, the funds’ application must be evaluated based on the present-day societal and economic context. The court had to reconcile the need for an effective modern application of funds with the gift’s original intention.
Outcomes
In its decision, the court found in favor of the Attorney-General’s scheme to apply the funds in reduction of the National Debt. The approach of the Court of Appeal was in alignment with the first instance judgment that the trust funds should be applied in a manner that retains a connection with the initial charitable trust’s purposes, adhering closely to the donor’s original spirit and intentions.
Conclusion
The Zedra case reaffirms the principle that, even where the original purposes of a charitable trust have become unachievable, the cy-près doctrine allows for the re-purposing of those funds in a manner that aligns as closely as possible with the donor’s original intentions. Moreover, it demonstrates the court’s role in ensuring the application of charitable funds is dynamic yet respectful of historical philanthropic desires, underpinned by modern socio-economic realties. This case is pivotal for legal professionals, trustees, and the Charity Commission in understanding the nuanced application of the Charities Act 2011 when dealing with charitable trusts that can no longer fulfill their original aims.