Zedra Fiduciary Services (UK) Ltd v HM Attorney General

Factual and Procedural Background

The case concerns the appropriate application of funds held on charitable trusts under a cy-près scheme pursuant to section 67 of the Charities Act 2011. The original charitable trusts were established by a deed in 1928, funded initially by a £500,000 gift from an anonymous donor ("the Donor") who intended to create a fund to pay off the National Debt. The fund was to accumulate income until it was sufficient to discharge the National Debt, or alternatively to reduce it if national exigencies required. Over time, the National Debt grew substantially, while the fund's value increased but remained a very small fraction of the debt.

The court held in a first judgment that the original trusts were charitable but incapable of full achievement, triggering the court’s power to apply the funds cy-près. The second judgment addressed two competing cy-près schemes: one proposed by the Attorney-General to apply the fund now to reduce the National Debt, and the other by the trustee to apply the fund to general charitable purposes within the United Kingdom. The trustee appeals against the second judgment.

Legal Issues Presented

1. Whether the original charitable trusts had become incapable of achievement, justifying application of the funds cy-près under section 67 of the Charities Act 2011.
2. The appropriate application of the funds held on the trusts, considering the statutory criteria under section 67, including the spirit of the original gift, closeness to the original purposes, and suitability and effectiveness of the new purposes in light of current social and economic circumstances.
3. The proper interpretation and application of the "spirit of the gift" in determining a cy-près scheme.
4. The role and approach of the court in evaluating and selecting between competing cy-près schemes.

Arguments of the Parties

Attorney-General's Arguments

• The National Fund should be applied immediately to reduce the National Debt, consistent with the spirit of the gift and the original purposes of the trust.
• The spirit of the gift was to benefit the Nation by attempting to free it from debt, and applying the funds to reduce the National Debt is close to the original purpose.
• Despite the small size of the fund relative to the National Debt, any reduction benefits the Nation and is a valid charitable purpose.

Trustee's Arguments

• The National Fund should be applied to general charitable purposes within the United Kingdom through a new charitable trust.
• The trustee’s scheme aims to benefit the whole UK, stimulate altruism, and collaborate with other charities, though the aim to benefit future generations was dropped on appeal.
• The current value of the fund means applying it to reduce the National Debt would have a negligible economic effect and would not be a suitable and effective use of the funds.
• The trustee’s scheme would allow the funds to produce real charitable benefits, making it more suitable and effective under current circumstances.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming that the original charitable trusts were valid but had become incapable of fully achieving their primary purpose of discharging the National Debt due to changed economic and social circumstances. This triggered the court’s statutory cy-près jurisdiction under section 62 and 67 of the Charities Act 2011.

The court analyzed the three statutory criteria under section 67(3):

• Spirit of the gift: The court interpreted the spirit narrowly as the donor’s intention to benefit the Nation by attempting to free it from debt. Although the donor had a broader charitable intention to benefit the Nation, the primary and subsidiary purposes related specifically to discharging or reducing the National Debt.
• Closeness to original purposes: The Attorney-General’s scheme to apply the fund to reduce the National Debt was closer to the original purpose than the trustee’s scheme for general charitable purposes. The court acknowledged that closeness is a desirable but not absolute requirement.
• Suitability and effectiveness: The trustee’s scheme was more suitable and effective in producing tangible charitable benefits given the negligible economic impact of applying the fund to the National Debt. However, this factor did not outweigh the first two.

The court rejected the trustee’s argument that the spirit of the gift included unrestricted altruism or general charitable purposes, emphasizing that the spirit must reflect the particular gift and its original purposes. The court also noted that the fund’s application to reduce the National Debt, albeit symbolic and economically minor, remains a valid charitable use and consistent with the donor’s specific intentions.

The court applied established cy-près principles and precedent, recognizing the need to balance fidelity to the donor’s intent with practical considerations of current circumstances. It also affirmed the limited scope of appellate review, upholding the first instance judge’s evaluative judgment absent identifiable errors.

Holding and Implications

The court DISMISSED THE APPEAL, affirming the decision that the Attorney-General’s cy-près scheme to apply the National Fund in reduction of the National Debt is the appropriate application of the charitable funds.

The direct effect is that the National Fund will be applied in a manner consistent with the donor’s original intention, despite the limited practical economic impact. The decision does not establish new precedent but confirms the application of statutory criteria under section 67 and the continued relevance of the spirit of the gift in cy-près applications.