CHAPTER THREE: ‘BALANCED VARIATION’ AND THE CY-PRES TRIGGERS
5. Further Developing Balanced Variation
The statutory reforms have achieved their policy goal In the reform of established trusts, the donor’s intention is no longer the ‘starting point’ for the scheme-maker. It is now just one of two considerations guiding a discretionary and balanced power of alteration. Consequently of low ineffective and obsolete trusts can be reformed at law. But there is scope for further case-by-case flexibility in the statute. This final section shows how, in one circumstance, the statute may continue to prevent discretionary judicial intervention contrary to the policy underpinning statute. It then draws on Australasian legislation in order to suggest legislative change in the English context.
i. A ‘Ghost’ of the Non-Intervention Principle
Under the English statute, there is an anomalous circumstance where, contrary to the policy of the statute, judges do not enjoy balanced discretion. If a court considers that, on the facts of the case, proactive effort on behalf of the trustees might ‘salvage’ an ineffective trust from long term decline or impracticability, it will not be amenable to variation cy-pres under statute. The courts cannot intervene even where it might be beneficial. Such a scenario is not difficult to imagine, for example, working to rescue a charity that continues to be
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potentially salvageable carries attendant risks; the trustees may fail in their enterprise after substantially diminishing the charity’s funds.
This is a matter of statutory wording. The legislation is directed at purposes that have definitively stopped functioning in a certain way. So for example in order for the broad catch-all subsection 62(1)(e)(iii) to trigger the doctrine, the original purposes must have ceased to be suitable and effective. As a matter of interpretation, purposes that may cease to be suitable and effective, but may also be salvageable by the action of trustees will not trigger the doctrine.
A recent application of subsection 62(1)(e)(iii) illustrates the point. The trustees of The Sir Edward Heath Charitable Trust asked for a scheme so that they could sell ‘Arundells’, the historic home of Edward Heath.100 The former
Prime Minister had left the property on trust so as to preserve the building, but unfortunately visitor numbers had been poor. The trustees were attempting to sell the property so that some funds could be preserved, but the Commission had received a large number of public representations stating that maintenance of the house had not ceased to be a suitable and effective use of the property. The reviewer noted:
100 Charity Commission,‘Sir Edward Heath Charitable Trust: Decision of the Charity Commission as to
whether to make a Scheme’< http://www.charitycommission.gov.uk/media/93121/sehcfdec.pdf.> accessed 20th September 2013
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…that Arundells has not been properly marketed, that the opening hours and booking system deter many people, that visitor numbers can and should be much higher bearing in mind the location of the house. 101
The existing trusts had the potential to be effective and so the cy-pres doctrine could not be applied even under the broadest statutory trigger. There remained proactive ways in which funds could be raised, the Commission directed the trustees to investigate methods of meeting the charity’s shortfall in income without resorting to the sale of the property.
The automatic restriction on applying the cy-pres doctrine to salvageable trusts runs counter to the wider policy of the statute. In ordinary cases, the court has a discretion whether or not to intervene. In relation to salvageable trusts, there is no discretion or flexibility at the trigger stage. Trustees will always be expected to work proactively in order to save it on its original terms. This is a ghost of the non-intervention principle; the court is barred from considering use of the doctrine.
ii. The Case for an Inexpediency Trigger
A solution to the anomaly would be to provide for the reform of trusts where they are inexpedient. Rather than prevent variation in relation to problematic charities that have not yet ceased to be suitable and effective, statute might
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permit use of the cy-pres doctrine for the straightforward reason that it would benefit the trust. That is the statutory position in New Zealand and Western Australia (which share identical cy-pres legislation).102 In those jurisdictions
the common law non-intervention principle has been entirely displaced. Trusts can be altered cy-pres:103
….in any case where any property or income is given or held upon trust, or is to be applied, for any charitable purpose, and it is impossible or impracticable or inexpedient to carry out that purpose.
New Zealand and Western Australia have adopted a very different model to that in England. It is a single ‘stand-alone’ trigger that does not direct the court to take account of any other considerations than impossibility, impracticability or inexpediency. The inclusion of the third ‘inexpediency’ trigger prima facie
gives a maximum discretion to the courts; cy-pres can be triggered on the simple basis that it would be advantageous for the charity to undergo a scheme. Owing to a lack of case law, definitions of ‘inexpediency’ are thin on the ground, but in Re McElroy Trust,104 counsel suggested:
…the term inexpedient was introduced to expand the power of the Court to order variations to charitable trusts in order to avoid inconvenient or undesirable results that were not captured by the terms impossible or
102 Charitable Trusts Act 1962, s 7(1)(a) Western Australia); Charitable Trusts Act 1957, s 32(1) New
Zealand
103 The legislation in the two jurisdictions is presented differently, but is the same in substance.
Whereas in Western Australia Charitable Trusts Act 1962, s 7(1)(a)-(d) presents the triggers in a separated form, in New Zealand the Charitable Trusts Act 1957, s 32(1) sets out the triggers in a single paragraph.
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impracticable… the term authorised the Court to make an assessment of efficiency and beneficial nature of the way the trust operates and whether it could be operated more expediently in another way. 105
The South Australian case, Re Trusts of Kean Memorial Trust Fund,106 is
directly on point. It illustrates the far-reaching and negative effect of denying an inexpediency trigger in those instances where a trust is potentially salvageable. A fund had been established for the purpose of establishing a grassed play area adjoining a primary school. The original scheme envisaged the purchase of two distinct zones of land, but owing to the prohibitive cost and the length of time necessary to achieve the plan, the trustees sought a cy-pres scheme. Rather than salvage the plan, the trustees wished to develop the curriculum and upgrade school buildings. Besanko J rejected their application for a scheme on the basis that (in the South Australian jurisdiction) inexpediency was not sufficient to trigger the cy-pres doctrine:
I do not think the criterion provides the basis for a scheme merely because it is expedient or because it involves the use of trust property for purposes considered more useful or beneficial. I do not think [the subsection] authorises a scheme in circumstances where the point has not yet been reached where the application of the trust property in accordance with the original purposes is not reasonably practicable even
105Ibid [20]
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though the needs of the school in the areas of curriculum development and the upgrading of buildings are pressing. 107
The plan was salvageable, and in the absence of an expediency trigger, the trustees were expected to proactively try and effect the original plan. That was the case even though the trustees considered that the original plan was highly impracticable and expensive. Just as in England, the anomalous ghost of the non-intervention principle was present.
iii. Fitting Inexpediency into Balanced Variation
Inclusion of an inexpediency trigger into English law would provide flexibility in circumstances where trusts are in decline or highly impracticable, but still potentially salvageable by the trustees. It would no longer be necessary to show that gifts have ceased to be suitable and effective. Such a reform is appropriate in policy terms because it meshes with the wider English statutory principle of permitting discretionary intervention in trusts. But if it is to do so, it cannot stand alone. The English model is one of guided and balanced discretion. That is, in applying the statutory triggers, judges must consider both the abstract intention of the donor as well as social and economic circumstances. Only after creating a fact-specific picture can they decide whether or not to reform trusts.
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The New Zealand and Western Australian legislation provides no statutory guidance as to how the courts’ discretion should be carried out. It is a stand- alone trigger. But a key difficulty with the absence of statutory guidance can be illustrated by Re McElroy Trust.108 The case concerned a gift of a farm made by
two brothers. Their will provided that the value of their estate should be applied to Anglican agencies delivering rest home care. Over some years, funds were paid periodically to local Church of England charities, but the trustees asked for a scheme on the basis that, in their view, the brothers’ plans had become inexpedient. Their submission related to social and economic changes. They noted that, in modern times, the state largely provided for rest home care by direct transfer of public funds to the agencies and, in light of changed social attitudes, that the brothers’ money could be better spent on non-residential purposes. O’Regan J rejected the application. The judge stated:
…it is unfashionable to support residential facilities, but it does not follow that it is inexpedient to do so if there is still a need for residential facilities as well as institutions providing them. 109
And so by itself, the inclusion of an inexpediency trigger in statute is insufficient to bring appropriate reform. In the case, social and economic circumstances had changed since the foundation of the trust, and the trustees’ submission was that funds could be more expediently spent in light of that change. Under the English guided model, the judge would have been directed
108McElroysupra note 104 109Ibid [51]
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to consider those concerns as part of his judgement. His discretion would have been focussed. If an inexpediency trigger were to be included in the English statute, it should only be applicable in the light of the statutory ‘appropriate considerations’. That would enable judges to consider inexpediency in accordance with the policy of the statute: balancing donor intention against the need to reform low utility and obsolete trusts.
6. Conclusion
This chapter assesses the role of intention at the cy-pres trigger stage. Directed at the reform of established trusts, legislation has transformed the old approach. Whereas at common law the courts were reluctant to intervene and change the purposes of a trust, under statute they operate a policy of balanced variation. On a case-by-case basis, the scheme-maker will use his discretion to assess effectiveness standards alongside the original intention of the trust.
The reform has been conceptually successful, although in one instance it is incomplete. A ghost of the non-intervention principle remains in relation to potentially salvageable trusts. If there is a possibility that the trustees might be able to rescue the original donor’s plans, under the current English law, it is not possible to intervene. This is the case even in circumstances where non- intervention carries attendant risks. For this reason, it is proposed that English law should take a lead from Western Australia and New Zealand, where it is
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possible to reform trusts on the basis of inexpediency. Provided that legislation was drafted so that inexpediency could take its seat within the broader system of English balanced variation, it would make a useful conceptual and practical contribution to the law.
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CHAPTER FOUR: TOWARDS A MORE REALISTIC