CHARITABLE INTENTION IN THE CY-PRES DOCTRINE AND RELATED TRUSTS PRINCIPLES Thesis submitted in accordance with the requirements of the University of Liverpool for the degree of Doctor in Philosophy by John Picton September 2013 ABSTRACT This thesis provides the first extended taxonomy of charitable intention in the law of schemes. It does so in order to identify the legal functions of intention and suggest critical doctrinal (‘black letter’) reforms so that those functions can be better carried out. Where appropriate, it draws on Australasian statutory and common law innovation. It contrasts developments in those related jurisdictions as a reference point for English reform. Two functions of intention are identified. In the context of established trust reform, intention is one element of a broader process of ‘balanced variation’. The original intention of the donor is balanced against broadly defined effectiveness standards. By contrast, in the context of testamentary construction, intention has a different role. It is constructed simply to make a failed will possible to effect. Efficacious reform is possible with regards to both those functions, and so this thesis proposes a series of common law and legislative changes. i ACKNOWLEDGEMENTS With thanks to Warren Barr, Helen Stalford, John Fanning and Gokcen Yilmaz. This thesis is dedicated to my parents. ii TABLE OF CONTENTS CHAPTER ONE: INTRODUCTION Page 1 CHAPTER TWO: THE DEFINITION AND FUNCTION OF INTENTION IN THE LAW OF SCHEMES Page 25 CHAPTER THREE: ‘BALANCED VARIATION’ AND THE CY-PRES TRIGGERS Page 59 CHAPTER FOUR: TOWARDS A MORE REALISTIC CONSTRUCTION OF THE GENERAL CHARITABLE INTENTION Page 105 CHAPTER FIVE: A NEW APPROACH TO PERPETUAL DEDICATION Page 155 CHAPTER SIX: ‘BALANCED VARIATION’ AT THE CY-PRES APPLICATION STAGE Page 177 CHAPTER SEVEN: A MORE REALISTIC APPROACH TO TESTAMENTARY SURPLUS Page 217 CHAPTER EIGHT: RESOLVING CONCEPTUAL UNCERTAINTY IN THE CONTEXT OF FAILED PUBLIC APPEALS Page 231 CHAPTER NINE: ABOLISHING THE PREROGATIVE CY-PRES DOCTRINE Page 263 CHAPTER TEN: ADMINISTRATIVE SCHEMES AND THE DEFINITIONAL BOUNDARY WITH CY-PRES Page 278 CHAPTER ELEVEN: RATIONALISING NEW TESTAMENTARY PRINCIPLES Page 292 CHAPTER TWELVE: CONCLUSION Page 328 iii TABLE OF CASES Page 338 BIBLIOGRAPHY Page 353 REPORTS Page 357 WEB SOURCES Page 359 TABLE OF STATUTES Page 360 iv CHAPTER ONE: INTRODUCTION The law of schemes is recognisably a single doctrine, a self-contained set of rules, principles and procedural steps. But that doctrine has more than one function. It is used both in a testamentary and in a trust reform context. Where it is applied to wills, it is largely a system of construction. Through the legal analysis of testamentary language, it seeks to ascertain the true intention of the testator, and consequently effect his wishes. By contrast, where it is applied to the reform of established trusts, intention plays a different role. In that reform context, donor intention is an element in an array of other considerations. It is a factor to be taken account of in the process of variation. Across the two contexts, this thesis provides a doctrinal taxonomy of the role of intention in the law of charitable schemes. It does so as a precursor to addressing a wider question: whether the treatment of intention should be reformed so that it can better perform its two legal functions. 1. The First Function of Intention: ‘Balanced Variation’ in the Context of Established Trust Reform Prior to the enactment of section 13 of the Charities Act 1960,1 the law of schemes existed on an entirely common law basis. Alteration cy-pres was a rare event. In the circumstances where it was permitted, the courts were highly deferent to donor intention, refusing to authorise variation except in compelling 1 Which has been re-enacted as Charities Act 1993, s 13(1) and subject to modification, as Charities Act 2011, s 62(1) 1 circumstances. Their guiding principle was concern not to disturb the form of the original gift. Farwell LJ made the point with some force in Re Weir Hospital,2 where he stated in relation to the proposed reform of an established trust: It is contrary to principle that [a donor’s] wishes should be set aside, and his bounty administered not according to his wishes but according to the view of the Commissioners…3 There was a judicial policy of restraint operating in favour of leaving dedicated property undisturbed.4 The policy was well established, so in Philpott v Saint George’s Hospital,5 the Attorney General’s request to build a new hospital building at an existing almshouse site was refused, even though the plan might have led to a beneficial use of funds. Sir John Romilly MR expressly rejected interference saying that: ‘…instances of charities of the most useless description have come before the Court, but which it has considered itself bound to carry into effect.’ 6 Regardless of its utility, the court would effect the original intention behind the trust. 2 [1910] 2 Ch 124 3Ibid 138. Farwell LJ referred to ‘a testator’. Although the trust had been established for some years, it had initially been founded by will. In the context of discussion about established trusts, the word is omitted for clarity. 4 See also Mills v Farmer (1815) 35 ER 597 where Lord Eldon permitted a scheme only with reluctance. 5 (1859) 27 Beav 107 6 Ibid [112] 2 Pre-legislation, there was also concern that if variation became easy, then potential donors might lose an incentive to give. In Re Weir Hospital,7 Farwell LJ thought that to encourage founders it was, ‘eminently desirable that no doubt should be cast on the security and permanency of their bequests.’8 The same point was noted in the Report of the Committee on the Law and Practice Relating to Charitable Trusts (“Nathan Report”),9 which states in a summary of witness evidence: Any tampering, it is said, with the founder’s intentions, except in circumstances which present no practical alternative, will tend to dry up the springs of charity...10 This donor deference caused serious difficulty over time. Perpetual foundations inevitably tend towards ineffectiveness. As far back as the nineteenth century, a Charity Commissioner named Arthur Hobhouse compiled a list of obsolete charities unalterable at common law.11 Many illustrations are striking, such as Pursglove School where the curriculum was entirely restricted to Latin subjects,12 and Tancred Hospital which was described as wretched and subject to scandals.13 Some seventy years later, to illustrate that point that such wasteful charities endure through time, Lord Beveridge revisited the 7 Weir supra note 2 8 Ibid 138 9 Report of the Committee on the Law and Practice relating to Charitable Trusts (Cmd 8710) HMSO, London, 1951 10 Ibid [316] 11 Hobhouse, The Dead Hand: Addresses on the Subject of Endowments and Settlements of Property (Chatto & Windus, 1880) 12 Ibid 80 13 Ibid 65 3 Commissioner’s list, detailing their persistence into the twentieth century. His survey caused him to urge a change in legal policy, arguing in a spirit subversive to the policy of the common law that donors: ‘would welcome a sympathetic living hand to make gifts always a cause of happiness, however conditions might change.’14 Against this conflicted back-drop, the proposals in the Nathan Report, initiated by the post-war Labour government, marked a carefully crafted compromise. After hearing extensive evidence, it proposed enabling the reform of those trusts: ‘…not serving the community as they might if some relaxing of the cy- pres doctrine was introduced…15 But although in favour of enabling reform, the report did not propose that original intention should be ignored or forgotten. It had an altogether different policy at its heard. The report proposed that in any given case, intention would be balanced against the social need to make charities effective. It should be taken into account as part of the decision process. The report is express on the point: In setting forth the principles on which the doctrine should be relaxed our intention is to strike a balance between the spirit and intention of the founder and the claims of the present.16 14 Beveridge, Voluntary Action: A Report on Methods of Social Advance (Allen & Unwin, 1948) 200 15 Nathan Report supra note 9 at [105] 16 Ibid [365] 4 In the following legislation, courts were given a discretionary power to carry out this balancing act. They were directed to reform trusts where they had become ‘unsuitable’ or ‘ineffective’,17 but crucially, they were also required to consider ‘the spirit of the gift’ (that is, original intention) in the process. Subsection 13(1)(e)(iii) of the Charities Act 1960,18 is indicative. It permitted variation cy-pres where purposes have: ceased in any other way to provide a suitable and effective method of using the property available by virtue of the gift, regard being had to the spirit of the gift. Although the new law permitted reform in certain circumstances, it was no carte blanche for variation. Intention is balanced against the need for effectiveness. The scheme-maker is given a discretionary power to decide on a case-by-case basis which elements are the most important. And so a new system of cy-pres reform was introduced, permitting the ‘balanced variation’ of trust purposes. This thesis assesses the process of balanced variation in the law and proposes substantive reforms that might allow it to better take effect. In doing so, it draws upon significant Australasian statutory innovation directed at the reform of established trusts, using them as a comparative reference point. 2. The Second Function of Intention: Realistic Construction of Wills 17 Charities Act 1960, ss 14(1)(c), 14(1)(d), 14(1)(e)(ii), 14(1)(e)(iii) 18 Now Charities Act 2011, s 62 5 Legislation closely regulates the cy-pres reform of established trusts.