Setchim & Anor v Secretary of State for Foreign & Commonwealth Affairs & Ors

Statutory charitable trusts created by repealed legislation cease on repeal unless preserved by the legislation. A valid transfer of property before repeal is therefore held absolutely by the transferee, subject to its own charitable purposes. A funding arrangement expressed through parliamentary grants does not create contractual compensation rights merely because the parties contemplated compensation. Where an agreement requires money to be used for specified works and any excess to be repaid, the repayment obligation arises when the money is not spent; a certificate or audited accounts may regulate timing without being a condition precedent. Property transferred to a charity under an agreement and later freed from statutory restrictions may be validly gifted to another charity within the transferor’s objects.

The applicants were liquidators of the Commonwealth Institute, a solvent charitable company in members’ voluntary liquidation. They applied under section 112 of the Insolvency Act 1986 for directions concerning surplus assets, possible contractual compensation rights, repayment of an unspent contractual payment, title to collections, and possible claims arising from the Institute’s severance from Government.

The principal issues were whether proceeds from the sale of the Kensington Building remained subject to statutory charitable trusts under the Imperial Institute Act 1925 and the Commonwealth Institute Act 1958; whether Government had undertaken enforceable compensation obligations; whether the unspent amount was repayable; and whether title to the collections had validly passed.

1. The court declared that the proceeds of sale of the Kensington Building were held absolutely by the Commonwealth Institute company and were not subject to beneficial interests or special trusts under section 2(4) of the Imperial Institute Act 1925. The transfer to the company was authorised by the statutory power of disposal, and the consent of the Board of Governors had been obtained. Any procedural defects were immaterial. In any event, repeal by the Commonwealth Act 2002 ended the statutory trusts.

2. The court declined to exercise its cy-près jurisdiction. The assets had become the company’s property and could be transferred to the Commonwealth Education Trust under the company’s charitable objects.

3. The arrangements concerning the loss of free services and rents from sub-tenants did not create contractual or other enforceable compensation rights. The agreed arrangement was that the loss would be reflected in annual Government funding, subject to parliamentary control. The Trustees did not act in breach of duty by accepting that arrangement.

4. The unspent amount of £594,836 was repayable under paragraph 3 of Part II of Schedule 2 to the Severance Agreement. The requirement to issue a final certificate and publish audited accounts fixed the time for repayment; it did not extinguish or make conditional the underlying obligation.

5. The collections passed to the company with unencumbered title. The repeal of the statutory restrictions, combined with the transfer arrangements and delivery of possession, enabled the company validly to gift them to the trustees of the Museum of Empire and Commonwealth Trust for charitable purposes.

6. No useful purpose would be served by pursuing speculative claims arising from the severance arrangements. The liquidators were directed to proceed towards completion of the liquidation.

First-instance directions application under section 112 of the Insolvency Act 1986. The High Court determined the issues and made the declarations and directions described in the judgment.