Zedra Fiduciary Services (UK) Limited v HM Attorney General

Under the Charities Act 2011, section 67, a cy-près scheme requires a value judgment about alternative charitable purposes, having regard to the spirit of the gift, closeness to the original purposes, and suitability and effectiveness in current circumstances. The factors have no fixed hierarchy and must be considered together. The spirit is the donor’s basic intention, identified from the whole gift and its context. It colours the choice without creating an absolute constraint. A close purpose is desirable but not decisive. Suitability and effectiveness are assessed for the particular charity and funds. A negligible practical effect may still provide a charitable benefit. The appeal was dismissed because applying the fund to reduce the National Debt was closer to the original gift and consistent with its spirit.

The National Fund was established in 1928 to accumulate until it could discharge the National Debt, with a subsidiary power to reduce the debt where national exigencies required it. The High Court first held that the original purposes had become incapable of fulfilment and that a cy-près scheme could be made: [2020] EWHC 2988 (Ch), [2020] WTLR 1287.

In the judgment under appeal, Zacaroli J selected the Attorney-General’s scheme, applying the fund in reduction of the National Debt, rather than the trustee’s scheme for general charitable purposes: [2022] EWHC 102 (Ch), [2022] WTLR 557. The trustee appealed, challenging the judge’s evaluative application of section 67 of the Charities Act 2011.

1. Disposition and appellate approach. Lewison LJ, with Asplin LJ and Sir Launcelot Henderson agreeing, dismissed the appeal. The choice of an appropriate cy-près scheme under section 67 of the Charities Act 2011 is an evaluative value judgment. An appeal court does not rebalance the competing considerations afresh. It asks whether the first-instance decision contains an identifiable flaw undermining its cogency, applying Re Sprintroom Ltd [2019] EWCA Civ 932.
2. Spirit of the gift. The spirit of a gift means its basic intention or substance, rather than merely the form of the words. It is identified from the whole instrument and relevant evidence. It is a factor to which the court must have regard, but it is not an absolute constraint. The original purposes colour the spirit of the particular gift. The court must not select one donor motive while removing an important restriction from the gift. Applying Varsani v Jesani [1999] Ch 219, the court agreed that the spirit pointed towards the Attorney-General’s scheme. The judge was, however, wrong to suppose that a gift to the nation could be charitable only if directed to reducing the National Debt. Re Smith [1932] 1 Ch 153 and Latimer v Commissioners of Inland Revenue [2004] UKPC 13 supported the contrary proposition.
3. Closeness to the original purposes. The original purposes were to discharge the National Debt, with reduction permitted in specified circumstances. Section 67 relaxes the former requirement that a cy-près application be as near as possible to the failed purpose. Closeness remains desirable, but it is not an overriding test. The Attorney-General’s scheme promoted the subsidiary debt-reduction purpose and was materially closer than the trustee’s unrestricted general charitable purposes. Re Campden Charities (1881) 18 Ch D 310 demonstrated that there is no jurisdictional question of one scheme being more cy-près than another.
4. Suitability and effectiveness. These requirements concern what is suitable and effective for this charity and these funds in current social and economic circumstances. They cannot be assessed in the abstract or by treating the fund as available for the best general charitable use. Although the negligible practical effect of reducing the National Debt pointed towards the trustee’s scheme, reducing the debt nevertheless provided a charitable benefit. Hypothetical comparison with alternative public expenditure was a distraction. That factor did not outweigh the spirit of the gift and closeness to its original purposes.
5. The judge’s evaluative conclusion was open to him and disclosed no appealable error. The appeal was dismissed.

• Court of Appeal (Civil Division): dismissed the trustee’s appeal against the selection of the Attorney-General’s cy-près scheme.
• High Court of Justice, Chancery Division: in [2020] EWHC 2988 (Ch), held that the original charitable purposes had become incapable of fulfilment and that a cy-près scheme could be made. In [2022] EWHC 102 (Ch), selected the Attorney-General’s scheme over the trustee’s general charitable scheme.