HM Attorney General v Zedra Fiduciary Services (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Zacarol,Mr Justice Zacaroli |
| Judgment Date | 09 November 2020 |
| Neutral Citation | [2020] EWHC 2988 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: PT-2018-000391 |
| Date | 09 November 2020 |
[2020] EWHC 2988 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TRUST AND PROBATE LIST (ChD)
Rolls Building
7 Fetter Lane
London, EC4A 1NL
Mr Justice Zacaroli
Case No: PT-2018-000391
William Henderson (instructed by Government Legal Department) for the Claimant
Robert Pearce QC and Daniel Burton (instructed by Macfarlanes LLP) for the First Defendant
John McDonnell QC and Sebastian Kokelaar (instructed by Richard Slade and Company Ltd) for the Second Defendant
Nicola Rushton QC (instructed by Capital Law Limited) for the Third Defendant
Hearing dates: 8, 9 12 and 13 October 2020
APPROVED JUDGMENT
Introduction
By a deed of trust dated 9 January 1928 (the “Deed”) Baring Brothers & Co Limited (“Barings”) settled an amount of cash and securities initially valued at almost £500,000, referred to as the “National Fund”, to be held by Barings as trustees to accumulate income and profits until the date fixed by the trustees as being the date when, either alone or together with other funds then available for the purpose, it was sufficient to discharge the National Debt. When that point was reached, the National Fund was to be transferred to the National Debt Commissioners to be applied by them in reduction of the National Debt.
The donor wished to remain anonymous. His anonymity was respected for 92 years. In light of the claims made by the second and third defendants in these proceedings, to the effect that as a result of the invalidity or failure of the trust, the National Fund is subject to a resulting trust in favour of the donor's estate (and those of later contributors to the National Fund), his identity has been revealed as Mr Gaspard Farrer (“GF”), a partner in Barings until his retirement in 1925.
Since 1928 there have been further contributions to the National Fund by other persons, the most significant of which was made by Lord Dalziel of Kirkcaldy, who died in 1935 having bequeathed his residuary estate (with a value in excess of £400,000) to the National Fund. There have been no contributions to the fund since 1982.
The claimant is the Attorney General, acting pursuant to her functions and duties in relation to charities. The first defendant, Zedra Fiduciary Services (UK) Limited, is the current trustee of the trust. The second defendant, Diana Iona Bruce, is a descendant of one of GF's sisters and is appointed to represent all those who are or may become entitled to share in the residuary estates of GF or Lord Dalziel, apart from those represented by the third defendant. The third defendant, John Damian Nicholas Stidworthy, is a descendant of another sister of GF, and is appointed to represent nine others, being certain descendants of either that sister or members of Lord Dalziel's family.
The Issues
The claimant contends that the Deed created a valid charitable trust and that the National Fund can and should be applied now to the reduction of the National Debt. The second and third defendants dispute the validity of the Deed and contend that the National Fund is held on resulting trusts for the donors or their estates. The first defendant supports the claimant's contention that the trust is a valid charitable trust, but disputes that the court can (alternatively should at this stage) order that the National Fund is applied to the reduction of the National Debt.
The claimant and first defendant agreed a list of 14 issues, although some of them were common ground, and in relation to others it was agreed that consideration of them was best postponed until after judgment on the principal issues. The issues naturally fall under two heads: those relating to the alleged invalidity of the trust (the “Invalidity Issues”) and those relating to the measures to be taken to wind up the trust if it is valid (the “Winding-up Issues”).
Invalidity Issues
The second and third defendants contend that the trust is invalid on one or other of two bases: (1) because the coming into existence of the charitable trust is subject to a condition precedent which has not occurred, and is now incapable of occurring; (2) because the charitable purpose (which they contend is the discharge of the National Debt) has failed for impossibility and GF had no general or paramount charitable intention.
The claimant and the first defendant deny that the trust is invalid on either ground, but contend that even if otherwise invalid, it is validated by s.9(1) of the Superannuation and other Trust Funds (Validation) Act 1927 (the “1927 Act”), which I describe in more detail below.
Winding-up Issues
If the trust is valid, the following issues arise (as between the claimant and the first defendant):
1) Whether the court has jurisdiction to make a scheme altering the trust under its administrative jurisdiction relating to charities.
2) Whether the court has jurisdiction to make a scheme altering the trust under its cy-près jurisdiction.
3) If the court has jurisdiction to make a scheme altering the trust under either its administrative or its cy-près jurisdiction, which jurisdiction should the court exercise.
4) If the court has jurisdiction to make a scheme altering the trust under either its administrative or cy-près jurisdiction, whether it should (a) make a scheme for the property held on trust to be transferred to the National Debt Commissioners for the reduction of the National Debt, or (b) some other scheme. Pursuant to the Order of Chief Master Marsh dated 22 January 2019, the arguments at this hearing were limited to the issue of whether a scheme other than one which would result in the National Fund being applied in reduction of the National Debt should be made. Accordingly, I have received no evidence or submissions as to the content of any alternative scheme.
5) If the court does not have jurisdiction to make a scheme altering the trust under either its administrative or cy-près jurisdiction, whether the Charity Commission has jurisdiction on the application of the Attorney General to settle a scheme which could take effect under s.73 of the Charities Act 2011 (the “2011 Act”) altering the trusts declared by the Deed to provide for the property held on the trust to be transferred to the National Debt Commissioners or to be applied for some other purpose or purposes.
Underlying many of the issues is the question whether the purpose of the trust is the discharge, or merely the reduction, of the National Debt. The defendants contend it was the former; the claimant that it was the latter.
It is common ground between all parties that whether the purpose is the discharge or the reduction of the National Debt, both are valid charitable purposes: Latimer v Inland Revenue Commissioners [2004] 1 WLR 1466 (PC), per Lord Millett at [38]. In Newland v Attorney-General (1809) 3 Mer 684 there was a bequest of stock “to His Majesty's government in exoneration of the national debt”. Lord Eldon directed that the stock be transferred to such person as the King, under his “sign manual”, should appoint. Implicit in this direction was the conclusion that the bequest was charitable, as the sign manual jurisdiction arises if the gift is charitable, but there is no trust (see Tudor on Charities, 10 th ed., para 13-007).
The background to the execution of the Deed
I draw the following summary of the background circumstances at the time of the execution of the Deed largely from the expert reports of Professor Martin Ellison of Oxford University and Professor Jonathan Portes of King's College London.
As a result of the heavy borrowing incurred by the British Government during the first world war, the National Debt increased significantly from a pre-war level of approximately £0.6 billion to an amount in excess of £7 billion.
It was Government policy, in the years following the first world war, to put in place measures to reduce the National Debt. Professor Ellison attributes this to the “English Method” of financing war expenditure, first presented to Parliament by Reginald McKenna, Chancellor of the Exchequer, in June 1915. The belief was that the cost of war should be borne by the current generation, rather than being passed on to future generations.
The so-called “McKenna rule” committed the government to pay off the National Debt through a series of primary budget surpluses. The Government established a new sinking fund, to which annual contributions would be made for the purpose of retiring the National Debt. In 1928, £65 million was contributed by the Government to the sinking fund.
The policy was reviewed in the Report of the Committee on National Debt and Taxation, published in 1927 under the chairmanship of Lord Colwyn. The report supported the policy of paying back the National Debt and proposed increasing contributions to the sinking fund to £75 million a year, rising to £100 million a year as soon as possible.
It was against this background that GF determined to make a gift of £500,000. An indication as to his motive for doing so is seen in a note dated 26 March 1927 from Sir Otto Niemeyer (a close friend of GF and the Controller of Finance at the Treasury) to Winston Churchill (who was then the Chancellor of the Exchequer):
“My friend's idea is, that if such a Trust existed and its accounts were published every year so that people saw a fund heaping up in this way for redemption of the Debt, other rich men...
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Zedra Fiduciary Services (UK) Ltd v HM Attorney General
...incapable of achievement, with the consequence that the funds held on those trusts should be applied cy-près. That judgment is at [2020] EWHC 2988 (Ch), [2020] WTLR 1287. In his second judgment he considered two rival cy-près schemes, one proposed by the Attorney-General and the other by t......