Zedra Fiduciary Services (UK) Ltd v HM Attorney General
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lady Justice Asplin,Sir Launcelot Henderson |
| Judgment Date | 15 November 2023 |
| Neutral Citation | [2023] EWCA Civ 1332 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2023-000851 |
[2023] EWCA Civ 1332
Lord Justice Lewison
Lady Justice Asplin
and
Sir Launcelot Henderson
Case No: CA-2023-000851
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TRUST AND PROBATE LIST (ChD)
Mr Justice Zacaroli
Royal Courts of Justice
Strand, London, WC2A 2LL
Robert Pearce KC and Daniel Burton (instructed by Macfarlanes LLP) for the Appellant
William Henderson (instructed by Government Legal Department) for the Respondent
Hearing dates: 01–02/11/2023
Approved Judgment
This judgment was handed down remotely at 11.00am on 15/11/2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
The issue
The issue on this appeal is the appropriate application of funds held on charitable trusts under a cy-près scheme made by the court in the exercise of its power under section 67 of the Charities Act 2011.
Zacaroli J gave two judgments in this case. In the first judgment he set out the facts. He decided that although the trust funds were held on charitable trusts, the original charitable trusts were 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 the trustee. He held that the Attorney-General's proposal was the most appropriate application of the fund, having regard to the statutory criteria in section 67. That judgment is at [2022] EWHC 102 (Ch), [2022] WTLR 557.
The trustee now appeals against the second judgment.
The facts
I can take the facts largely from the judge's first judgment.
In 1927 Mr Gaspard Farrer, a recently retired partner of Barings, conceived the idea of establishing a fund which would, in due course, pay off the National Debt. At that stage he remained anonymous.
At the time when Mr Farrer had his idea, the National Debt (which had existed since 1694) had increased significantly, from £0.6 billion to over £7 billion as a result of the cost of the first world war. It was Government policy, in the years following the first world war, to put in place measures to reduce the National Debt. This was called 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.
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 majority 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.
There was at that time (and still is) a separate account in the books of the National Debt Commissioners, established by section 8 of the National Debt Reduction Act 1823, which recorded bequests and donations for reducing the National Debt. The interest or dividends on funds in that account were to be applied “to the purchase of annuities composing the national debt … and no other purpose whatsoever”.
It was against that background that Mr Farrer decided to make his gift. An indication as to his motive for doing so is seen in a letter of 17 June 1926 from Sir Otto Niemeyer (a close friend of Mr Farrer and the Controller of Finance at the Treasury) to Winston Churchill (who was then the Chancellor of the Exchequer) which stated:
“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 would be induced to follow his example. He holds the view that the ocular demonstration of a growing fund would attract far more support than the mere announcement of contributions which had been applied immediately to the cancellation of the Debt.”
As the judge explained, there were potential legal difficulties in establishing such a fund, which were eventually solved by legislation. In anticipation of the passing of the necessary legislation, Mr Farrer transferred the sum of £500,000 to Barings to be used to establish the trust fund. Lord Revelstoke (a partner in Barings) wrote to Sir Otto Niemeyer on 10 November 1927 recording the transfer. He said:
“A correspondent has handed to Messrs Baring Brothers & Co. Limited a fund of cash and securities which at today's prices amounts to £500,000 … to be held in Trust for the Nation, provided certain proposed Legislation passes into law during the present Session in the form agreed between you and him: but the Fund to be re-transferred to our correspondent per the dates of transfer to us if the legislation in question is not so passed.”
The relevant legislation is contained in section 9 (1) of the Superannuation and Other Trust Funds (Validation) Act 1927, which provides, so far as relevant:
“Where by any instrument directions are given for any property being held upon trust and the income thereof being wholly accumulated (subject only to payment thereout of any costs, charges and expenses of the trustees and any remuneration to which they may be entitled) for any period to be determined under the provisions of the instrument, and for the property and accumulations being transferred at or before the expiration of that period to the National Debt Commissioners to be applied by them in reduction of the National Debt, then, …, notwithstanding any Act or rule of law to the contrary, the directions shall be valid and effective and no person shall be entitled to require the transfer of any part of the property, income or accumulations otherwise than in accordance with the provisions of the instrument.”
Section 9 (2) required the trustees of any such trust to render accounts to the National Debt Commissioners.
The deed of trust was executed on 9 January 1928. The Deed identifies Barings as the “Original Trustees”. The “National Fund” is defined as the investments and cash specified in the schedule to the Deed and all other property held on the trusts set out in the Deed, and the accumulations resulting therefrom. Clause 2 of the Deed provides:
“The Trustees shall hold the National Fund Upon trust until the date of application to accumulate the net income and profits thereof in the way of compound interest by investing such income and profits and all resulting income and profits from time to time and on and from the date of application shall stand possessed of the National Fund including the accumulations Upon trust then to transfer and pay the same to the National Debt Commissioners to be applied by them in reduction of the National Debt.”
The Trustees were defined in the Deed as the original trustee or its successors. Clause 3 (a) defined “the date of application” as being a date fixed by the trustee as being the date on which effect could be given to the founder's desire to discharge the National Debt; but it was subject to a proviso in the following terms:
“Provided that if in the opinion of the Trustees at any time or times National exigencies shall require and the Trustees shall determine that some part of the National Fund should be forthwith applied in reduction of the National Debt the Trustees shall have power to give effect to that determination by transferring and paying that part to the National Debt Commissioners to be so applied by them…”
Clause 6 (a) of the deed required the trustee to submit accounts to the National Debt Commissioners from time to time as they might reasonably require.
On 26 January 1928 Barings wrote to Mr Churchill in a form approved by Mr Farrer. The letter said:
“We have the honour to inform you that we have received from a correspondent, whose name we are not authorised to disclose, but from whose letter we are allowed to quote, the cash and securities to which reference is made below. Our correspondent writes:-
“Gifts to the Nation of historic sites, buildings and works of art, are happily frequent; gifts to repay debt comparatively rare, this last being a dull objective but bringing with its accomplishment certain comforts of its own. To repay the National Debt may be thought to be beyond the reach of individual effort, but as a beginning towards this end I am placing at your disposal, as Trustees for the Nation, some £500,000 as the nucleus of a fund to accumulate in your hands, and to be applied eventually to this object. I am entrusting this fund to your house in order to secure the benefit of your long experience in finance: and in the hope that others may from time to time be prompted to add to it, or on similar lines to set up funds of their own, citizens and City uniting in an attempt to free their country from debt.”
On 26 January 1928 Winston Churchill issued the following statement:
“The nation has just received a benefaction of a character hitherto exceptional in the relations between the State and its Citizens. Within the last few days an anonymous donor has set aside the sum of £500,000 to be managed in trust for the nation. The capital is to accumulate at compound interest over a long period of years. Ultimately, with all its accrued proceeds swelling...
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