Validity of Charitable Trusts

This essay considers a case scenario in which a shipping tycoon, Akira Kurosawa, left by will £2.5 million to ‘the Seafarers’ Trust’ and £2.5 million for the creation of a multi-purpose recreational green space just outside the city. This essay considers the validity of the trusts created by Akira by reference to the law related to charitable trusts, especially the possible application of the cy’-pres doctrine.

The issue that arises with reference to the creation of trust for the Seafarer’s Trust is whether the trust constituted by Akira is valid or not and if not what is to be done with the £2.5 million bestowed upon the trust by Akira before she died. The law that is applicable in this case is law related to charitable trusts, as Akira has created the trust for a charitable purpose. The cy’-pres doctrine is also applicable here.

Charitable trusts are those that are created for the benefit of the public or a section of the public. The Charities Act 2006, Section 2(2), lists out the benefits that count as charitable, including advancement of environmental protection (which would relate to the creation of green spaces), and the relief of those in need by reason of financial hardship (which would relate to Seafarer’s Trust). Charitable trusts are the only trusts that are valid despite being trusts for purpose and not for particular individuals and which are valid despite not following the rule against perpetuity. This means that a charitable trust can last forever, unlike other trusts that are restricted by rule against non-alienability. This has implications for both the trusts created in this situation as these trusts can last forever, being charitable trusts.

Another significant point here is that for the purpose of charitable trusts, it is not necessary for the charity to prescribe to any particular form, as charities can be incorporated or unincorporated for the purpose of valid trust. Therefore, the fact that Seafarer’s Trust was not incorporated does not have significance for the valid operation of the trust made by Akira in the will. The issue however is whether the property can be applied to the trust when the Seafarer’s Trust was defunct at the time of the making of the trust. To this end, the cy’-pres doctrine is applicable in this situation.

The cy’-pres doctrine becomes applicable in cases where it becomes impossible for a designated charitable purpose to be carried out as per the directions of the settlor. One way in which the charitable purpose may become impossible is where the object is an institution that does not exist or ceases to exist in the period between the making of the will and the death of the testator. However, as one authority shows, even if the organisation becomes defunct, but the purpose for which the trust was created can still be carried out through a mechanism other than the defunct institution, then the trust will not fail and will be carried out through another mechanism. Another way in which a trust can be kept alive in such situations is where the property is applied cy’-pres, which means that the property is allocated to another charitable purpose that is close to the one originally designated for the trust. In any case, the matter is mostly left to judicial interpretation and will depend greatly on how the judiciary interprets the intention of the settlor.

In this particular case, the Seafarer’s Trust was already wound up at the time when the trust was made therefore. The cy’-pres doctrine will apply in cases where although the institution has ceased to exist but the court considers that the donor had a general interest to benefit a charitable purpose and not to benefit a specific charity. In cases where the trust has ‘initial failure’, that is, the failure prevents the trust from even coming into effect, there should be a general intention to benefit a purpose (general charitable intention or GCI) and not a specific charity. In case the assets of the trust were effectively applied to the charity before it ceased to exist (‘subsequent failure’), cy’-pres is automatically possible and the court need not infer GCI.

It is easier to infer GCI to benefit a purpose and not a specific charity where the donor gives a gift to some charity that never existed, which shows that the donor was more likely interested in benefitting a general purpose and not a specific charity. The cy’-pres doctrine will not apply where the court is of the opinion that although the charity institution has ceased to exist, the purpose for which the charitable trust was to be applied was a purpose which was being carried out by the charity. The core of the application of the cy’-pres doctrine is the difference between initial and subsequent failure of trust. Luxton argues that the in case of initial failure, the presumption is in favour of resulting trust except where such presumption can be rebutted by general charitable intention. In cases of subsequent failure, the presumption is in favour of dedication of property to the trust unless it can be rebutted by evidence of general charitable intention on the part of the donor.

In other words, the cy’-pres doctrine will not apply where there was no GCI on the part of the donor. There is also an argument in case of bequests for social purposes that confer some substantial benefit to the public, that such trusts should be allowed to continue in perpetuity, even if not strictly charitable.

In case of application of the cy’-pres doctrine, court can also infer that the testator may have been open to vary from the strict terms of a charitable bequest in case of bequest becoming obsolete and also open to modification of the bequest so that it could continue for a similar purpose. The Charities Act 2011, Section 62 relaxes the requirement of impossibility and allows the cy’-pres doctrine to be applied to situations where the purpose becomes outmoded. In such cases, Section 62 allows the Charities Commission to alter the original purposes of the charitable gift. This may be allowed where the original purposes of the gift have been wholly or partly fulfilled or cannot be carried out as per the directions of the donor and the spirit of the gift. The effect of the application of Section 62 is not to alter the conditions for the property to be applied cy’-pres, but to alter the original purposes of the charity in order to enable the application of the property in a way that is different from what was intended by the donor. Section 62 only works if the case falls within one of the listed conditions; however, even if the case falls outside of it, the courts can apply common law jurisdiction to amend the terms of the charitable trust. The important consideration in such cases is the spirit in which the gift was made and giving effect to the spirit of the gift.

The facts of the case show that Seafarer’s Trust was wound up at the time of the making of the gift. This suggests that Akira was more concerned about making a gift for the benefit of unemployed sailors rather than to the specific charity. The Seafarer’s Trust provided financial support to unemployed sailors. Therefore, Akira’s GCI can be inferred to be that of providing financial support for unemployed sailors and not to provide support to the specific charity. This much can be argued on the basis of the authorities discussed in this section. In this case, the GCI can be argued to be in favour of unemployed sailors and not the Seafarer’s Trust specifically. This would mean that the courts can apply the property cy’-pres by altering the terms of the charitable trust. The spirit in which the gift was made by Akira would allow the courts to make such alteration and give effect to the spirit of the gift. Even though the Seafarer’s Trust being rendered unnecessary in recent years as sailors had been widely replaced by robots, there may be other trusts or organisations that are involved in helping unemployed sailors.

With respect to the Green Space trust, the issue is related to the balance amount of £.50 million, which is left over after completion of the green space in 2017. The rule in such cases is that the property should be held in a resulting trust for the settlor unless there is an intention to benefit specific individuals as uncovered by the court. In Re Trusts of Abbot Fund, the court applied this principle to let the undistributed property in the trust to be held on resulting trust for those who had subscribed to the trust. The same principle was applied by the court in Re Hillier. In a case, the facts of which are similar to the present one in some respects, a settlor left his property for planting of trees on an estate, for which only a part of the money was sufficient; but holding that the trust was for the benefit of the estate residents, the court held that the settlor left the property absolutely to the beneficiaries. In the current case, the subscribers are not persons but the property was applied to a charitable trust for the benefit of public in providing for environment as mentioned in Charities Act 2006, Section 2(2). The court may interpret this to mean that the money was left absolutely for the benefit of the public in the development of green spaces. However, beneficiaries are not clearly identifiable in this situation, and this may allow the court to hold that this creates a resulting trust for the settlor’s estate.

Table of cases

Gaudiya Mission v Brahmachary [1998] Ch 341.

Re Bowes [1896] 1 Ch 507.

Re Faraker [1912] 2 Ch 488

Re Finger’s Will Trusts [1972] Ch 286.

Re JW Laing Trust [1984] Ch 143.

Re Harwood [1936] Ch 285

Re Hillier [1954] 1 WLR 9.

Re King [1923] 1 Ch 243.

Re Lysaght [1966] Ch 191.

Re Roberts [1963] 1 WLR 406.

Re Rymer [1895] 1 Ch 19

Re Trusts of Abbot Fund [1900] Ch 326.

Re Wright [1954] Ch 347

Books

Hudson A, Equity and Trusts (Routledge 2014)

Virgo G, The Principles of Equity and Trusts (Oxford University Press 2018)

Journals

Cross G, ‘Some recent developments in the law of charity’ (1956) 72 LQR 187.

Luxton, ‘Cy’-pres and the Ghost of Things that Might Have Been’ [1983] Conv 107.