Charitable Purpose Trusts Notes

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Table of Contents

TABLE OF CONTENTS
THE BENEFICIARY PRINCIPLE..................................................................................................................................................................2
-Gardner, Introduction to the Law of Trusts.......................................................................................................................3

NON-CHARITABLE PURPOSE TRUSTS....................................................................................................................................................... 4
Hayton, 'Developing the Obligation Characteristic of the Trust' (2001) 117 LQR 96.............................................................4

CHARITABLE PURPOSE TRUSTS...............................................................................................................................................................4
-Charities Act 2011 ss 1-5...................................................................................................................................................7
-Charity Commission, Analysis of the Law relating to Public Benefit (September 2013)....................................................7

I - THE STRUCTURE OF 'CHARITY'.................................................................................................................................................8
Independent Schools Council v Charity Commission [2012] 1 All ER 127, [41]-[92] (Upper Tribunal)....................................8

II - Heads of Charity (section 3 CA 2011).....................................................................................................................................9
A - 'RELIEF OF Poverty'........................................................................................................................................................................... 9 1 - Charitable purpose.............................................................................................................................................................. 9
Independent Schools Council [2012] 1 All ER 127 (meaning of "poverty")............................................................................9
Re Coulthurst [1951] Ch. 661.................................................................................................................................................9
Re Niyazi [1978] 1 W.L.R. 910 (Megarry VC).........................................................................................................................9 2 - Public Benefit....................................................................................................................................................................... 9
Re Segelman [1995] 3 All E.R. 676, 687-694 (poor relations - open class upon testator's death).........................................9
Dingle v. Turner [1972] A.C. 601; [1972] 1 All ER 878 (poor employees - indistinguishable from poor relations)..............10
Independent Schools Council [2012] 1 All ER 127 (meaning of "poverty")..........................................................................10
B - 'ADVANCEMENT OF Education'.......................................................................................................................................................10 1 - Charitable Purpose............................................................................................................................................................10
*Incorporated Council of Law Reporting v. A-G [1972] Ch. 73 (research)............................................................................10
*Re Hopkin's Will Trusts [1965] Ch. 669; [1964] 3 All ER 46 (research)...............................................................................10 2 - Public Benefit.....................................................................................................................................................................11
*Oppenheim v. Tobacco Securities Trusts Ltd [1951] A.C. 297; [1951] 1 All ER 31 (applies the personal nexus test)..........11

III - The Public Benefit Requirement (section 4 CA 2011)..........................................................................................................11
Independent Schools Council [2012] 1 All ER 127 (pre-2006 state of the law regarding public benefit test).......................12
A - 'BENEFIT'......................................................................................................................................................................................... 12
National Anti-Vivisection Society v IRC [1948] AC 31...........................................................................................................12
Independent Schools Council [2012] 1 All ER 127 (indirect and wider benefit can be relevant to public benefit test)........13
Gilmour v Coats [1949] AC 426............................................................................................................................................13
B - Not political objectives................................................................................................................................................................... 14
-Stevens and Feldman (1997)...........................................................................................................................................14 I. Maxims of Equity

1. Equity is discretionary a. Though now governed by principles, they are not set in stone and remedies are awarded at the discretion of the court, emphasizing fairness b. Schmidt v Rosewood - beneficiaries of a trust have no right to inspect trust documents but court has discretion to allow them to do so

2. Equity is triggered by unconscionability

3. Those who seek equity must do equity a. Equitable remedies won't be granted if C doesn't intend to treat D fairly b. Chappell v Times - employees denied remedy because they refused to sign an undertaking not to strike in the future

4. Those who come to equity must come with clean hands a. Remedies will not be granted to C who has acted improperly b. Dering v Earl of Winchelsea - legal impropriety only (not moral); conduct must relate to relief sought

5. Equity treats as done that which ought to be done a. If A has a specifically enforceable contractual obligation to transfer property to B,
Equity will regard it as transferred

6. Equity protects the weak and vulnerable

7. Equity is cynical a. In certain cases Equity will mistrust gifts and hold that donee is holding them on a trust on behalf of donor

8. Equity is imaginative

9. Equity follows the law a. Equity recognizes Common Law principles but doesn't apply them slavishly or always

10. Equity looks to substance rather than form

11. Equity will not assist a volunteer

12. Equity assists the diligent a. C may be denied a remedy due to lapse in time

13. Equity is equality a. If there are multiple equitable interests, they are treated equally

14. Equity acts in personam a. Rights destroyed when bona fide acquirer acquires the property (no rights in rem)
II. Rule against perpetuities
Purpose trusts and gifts to unincorporated associations can infringe the perpetuity period and the latter may also raise problems of future vesting. The rule against perpetuities was reformed by the
Perpetuities and Accumulations Act 2009 (a product of the 1998 LRC report). It still applies to trusts but abolishes the rule against perpetuities in most real property contexts. The perpetuity period is now simply 125 years (s.5).
A - Rule against remoteness of vestingProperty must be vested in individuals within a recognized period of time (the perpetuity period), so as to prevent wealth being locked away indefinitely.

B - Perpetuity Period
- Common Law: Life in being plus 25 years
- Reformed by Perpetuities and Accumulations Act 1964: possible to specify a period not exceeding 80 years
- Reformed by Perpetuities and Accumulations Act 2009: 125 years even if trust specifies a different period
C - Wait-and-See Rule
- Under common law: if at the outset property may not be vested within the perpetuity period it is considered void
- Under the Perpetuities and Accumulation Act 2009: if at any one time it possible that property will not vest during perpetuity period it is not to be treated as void until it is certain that it will not vest.
D - Duration of Purpose Trusts
- Charitable purpose-trusts: since these are vested in the public there is an interest in them lasting forever so Act does not apply

Non-charitable purpose-trusts: Act still doesn't apply but since no public interest these are caught by common law perpetuity rules

THE BENEFICIARY PRINCIPLE
I. Principle
Property must be held on trust for identified beneficiaries or objects, or it is void, so that the court has people in whose favor it can decree performance. A trust for purposes will not be valid.
II. Example Cases
-Morice v Bishop of Durham - a trust bequeathing "such objects of benevolence and liberality as the Bishop of Durham in his own discretion shall most approve of" was invalid as there were no ascertainable beneficiaries

Sir William Grant: "There must be somebody, in whose favour the Court can decree performance"
III. Exceptions
-Charitable trusts - valid though trust for purposes (does not undermine rationale because
Charity Commision and AG enforce them
-Express trusts - though appearing to be trusts for purposes people can benefit indirectly,
satisfying the requirement
-Exceptionally non-charitable purpose trusts - old cases that are likely to be followed on facts but unlikely extended
-Gardner, Introduction to the Law of Trusts
I. Trustee's Duties
Traditionally duties are in personam but increasing recognition of rights in rem attached to the trust property:

1. Trust property cannot be taken on bankruptcy because the duties owed are attached to it,
whereas borrower can have the money taken away because duties are in personam.

2. When trust property is transferred from trustees, obligations stay with it and affect other people a. Except when trustee is authorized to make the transfer (eg. to pay beneficiary from trust assets)
b. Bona fide purchaser for value (someone who pays what the property is worth without knowing/reasonably knowing it is trust property)
II. Beneficiaries' Rights
Beneficiaries' rights mirror trustee's duties; interest thesis holds that a beneficiary holds interest in the trust property and trustee must provide, rather than the other way around.
Two (three?) categories of NCP trusts being valid:

1. Re Denley's Trust Deed - two interpretations:
a. Trust is for the employees as beneficiaries (where employees could claim sports field's monetary value and not just use)
b. Judge opted for view that trust is for purpose of providing employees with a sports field so the NCP trust was still valid because employees were benefited and could enforce the trust

2. Quistclose trusts:
a. Money transferred with understanding that payee would spend it in a particular way failing which it would return to transferer (trustee is not beneficiary as strings are attached to spending)

3. Graves/monuments, masses, particular animals etc.:
a. Other jurisdictions introduced statutes holding NCP trusts valid as long as there is someone to enforce them
III. Arguments of Principle
Technically all trusts are "purpose trusts" because trusts with beneficiaries are simply purpose trusts to transfer money to them. Distinction on this basis is purely for policy. Policy concerns include 1) rights to enjoy property and 2) property be exposed to market influence (thus owned by someone with liberty to dispose).
Thus trusts benefiting certain people (eg. sports field for employees) prevents those benefitted from spending the money as they wish, and those of erecting monuments (benefiting no-one) channels money away from enjoyment altogether.
IV: Is Enforceability Necessary?
Examples of enforceable PTs:
- CPTs enforced by AG and Charity Commission
- Re Denley enforced by individuals benefitted by purpose (but only they can enforce - thus if employees didn't want sports field and trustees did something else with money, nobody else can enforce)
- "Remaindermen" of anomalous cases: they can enforce but have no incentive (underspending on monument/purpose gives them more)
Non-enforcement:
- If person with right to enforce chooses not to enforce, the choice prevails over settler's wishes
(this upholds interest theory as beneficiary has a choice to exercise his ownership)
- Lack of information, energy, resources etc. often impede enforcement
Arguments against requirement of enforceability:

1. Against facilitative policy: while the requirement is supposed to prevent frustration of settlers by subversion of their intentions (eg. trustees keeping money for self) it simultaneously itself frustrates them by denying validity (abolishing requirement allows trust to exist but at the risk of subversion - both only partially vindicate settler's wishes)

2. Purpose of enforcement is not to secure trustee's performance of duties as established by settlor but only to the extent that suits the beneficiary
Arguments for requirement = availability of enforcement is intrinsic to concept of legal duty (or trustee will have full ownership). However enforcement is not the only factor that ensures trustees use the property for intended purpose. Also, no need to worry about enforceability because trustees are mostly solicitors liable to professional authorities so are "self-enforced".

NON-CHARITABLE PURPOSE TRUSTS
NB Other Methods for Non-Charitable Purposes
- Fiduciary power
- Power attached to gift (donee would not be obliged to use the property for purpose stipulated but if he doesn't the gift would elapse)
- Mandate (donee can act as agent to apply a gift to a purpose; if he doesn't then he is in breach of fiduciary duty)
- Appointment of an enforcer
NB Even when purpose trusts are valid, there may be exceptions for illegal, immoral,
wasteful or useless purposes-

Brown v Burdett: Testator made a trust to block up all the rooms of the house - Bacon V-C
held that this was void.
M'Caig v University of Glasgow: Testator made a will for his whole estate to be used to build statues of himself. Testator's heir successfully had the trust set aside on the ground that under
Scots law an heir can only be disinherited by a beneficial gift to someone else. Lord Kyllachy considered whether the trust could also be set aside for policy - If it is not unlawful, then it ought to be unlawful to dedicate the whole of a large estate to "objects of no utility" that benefit nobody and serve no purpose than perpetuate at great cost "the idiosyncrasies of an eccentric testator."
Thrupp v Collett: Trusts to commit legal wrongs are void for illegality - trust to pay the fines of convicted poachers is void.

Hayton, 'Developing the Obligation Characteristic of the Trust' (2001) 117 LQR 96 -Trusts are obligations so there must be a beneficiary to enforce it; settlor drops out of the picture as soon as property is transferred as he retains no beneficiary interest
However, if settlor designates an enforcer (eg. Conservative Party case where settlor designates Party Leader to enforce and at perpetuity deadline enforceability passes onto a new person), IAO English law will hold it valid because beneficiary principle should be regarded as
"enforcement principle"
IAO:
o Status of beneficiary automatically confers rights as enforcer

No reason why enforcer shouldn't be allowed to confer additional enforcement rights on others (including himself)
o In case of purpose trusts settlor should be allowed to confer original primary enforcement rights on an enforcer whom he believes can be relied upon to affect his purpose

CHARITABLE PURPOSE TRUSTS
Charities are numerically (165,000 charities registered with the Charity Commission ('CC')),
financially (annual income of PS70M), and politically significant.Charity = an institution established exclusively for charitable purposes and is subject to the jurisdiction of the High Court (CA 2011, s1(1))
CPT = one of the methods of implementing a CP - others include incorporating a charitable company ("charitable incorporated organization" - Part 11 CA 2011), or unincorporated association to effect a CP

I. Requirements for Charitable InstitutionEstablished for a purpose that the law recognizes as charitable
Purpose must benefit the public or a sufficient section thereof
It must be wholly and exclusively charitable

II. Advantages of a Charitable Trust (over a private trust)No need for ascertainable beneficiaries
Duration (not subject to perpetuity rule)
Certainty of purpose (more flexible than private trusts)
Tax advantages (no income and capital gains tax)
Cy-pres (if CPT fails, funds will be used for another CP) - whereas where a private trust fails,
the trust funds will be returned to the settlor by resulting trust
Exception to the Equality Act 2010 (charities can adopt discriminatory charitable objects that can be objectively justified as a proportionate means of achieving a legitimate aim, or are a means of preventing or compensating for a particular disadvantage - s193(2)(a))

III. Regulation and supervising of Charities-

AG (enforces CPTs in the name of the Crown)
Charity Commission (s15 CA 2011) (determines whether institutions are charities, identifies misconduct, maintains register of charities - can direct charity trustees to take particular actions in the interests of the charity (s84)...) ? growing concern that the CC is not exercising its powers appropriately in determining whether an institution is a charity (Luxton and
Evans)
Tribunals

Judicial review of Charity Commission's decisions (though will only be available in the
"most exceptional cases" because JR is not normally available where another procedure exists (charity proceedings) - Scott v National Trust (1998) per Rober Walker J)
o Jurisdiction in charity proceedings (disputes relating to the internal or functional administration of a charitable trust - s115 CA 2011)
-can only be initiated by someone "interested in the charity" (someone with an interest in securing the due administration of the charity greater than or different from that of the general public - Re Hampton (1989))

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