White & Ors v Williams & Ors

Charity trustees must administer each trust asset consistently with the purposes for which it was acquired and must preserve a proper separation between the financial affairs of distinct congregations or funds. Trustees may borrow unsecured where the borrowing serves a proper trust purpose and there is a sound, timely means of repayment. They cannot claim an indemnity from one trust fund for expenditure or liabilities incurred solely for another. Persistent expenditure beyond income, improvident borrowing and the exposure of permanent trust property to enforcement proceedings may constitute breaches of trust. A charging order is discretionary and must take account of all affected interests, including the interests of beneficiaries and the public interest where charitable property is concerned.

The proceedings concerned the proposed cy-près transfer of the remaining church buildings of the Bibleway Trust after a schism in 1997. The Bibleway Trustees claimed an indemnity from the Lewisham, Bethnal Green and Mitcham Buildings for expenditure, professional fees and liabilities, including an unsecured loan from Alistair Abrahams. Mr Abrahams sought a final charging order over the Lewisham Building following a default judgment against the Bibleway Trustees.

The court also had to determine whether the trustees had committed breaches of trust, whether section 61 relief was available, and the proper form and procedure for the cy-près schemes.

1. Trust duties and breaches. Following the schism, the Bibleway Trustees remained obliged to promote the charitable purposes for all relevant congregations. They had to preserve each building for the congregation whose contributions had acquired it, maintain separate financial accounts, avoid using one building to support another congregation, and consult relevant congregational leaders. Mixing the Cambridge Congregation’s affairs with those of the Bibleway Trust, operating the combined affairs at a continuing loss, pursuing imprudent corporate ventures, paying unauthorised remuneration and failing to keep proper records amounted to breaches of trust.
2. Unsecured borrowing and indemnity. The relevant question was not whether the trustees had a general power to borrow unsecured, but whether the particular borrowing served a proper trust purpose and entitled them to an indemnity from trust property. Unsecured borrowing may be proper for a temporary cash-flow shortage or genuine emergency where repayment is reasonably assured. Trustees who habitually spend beyond income and borrow after secured borrowing is exhausted cannot expect an indemnity. The Abrahams borrowing could at most have been met from the Cambridge Building’s proceeds. It could not expose the other buildings, which represented separate congregational funds, to liability.
3. Section 61 relief. Relief was unavailable because, although the trustees generally acted honestly, their conduct was not reasonable. Their mistaken belief that the Trust’s purposes were confined to the Cambridge faction led to serious mismanagement.
4. Charging order. A charging order is discretionary. The court had to balance Mr Abrahams’ position against the interests of the congregations whose buildings and charitable activities would be affected. The considerations against making the order final substantially outweighed those in favour. The interim charging order was therefore set aside.
5. Cy-près schemes. The schemes were to be implemented by amending the relevant trust deeds and by schemes made by the Charity Commission under section 16(2) of the Charities Act 1993. The buildings were to remain primarily available for the worship and witness of the relevant congregations.

This was a further first-instance hearing following the court’s earlier judgment in May 2010 directing cy-près schemes for the transfer of the Lewisham, Bethnal Green and Mitcham Buildings.