England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Rolls Building London, WC4A 1NL
		16/03/2012

HHJ David Cooke:

Introduction

1. The Claimant is the sole executor of the estate of Vera Gwendoline Spear ("the deceased" or "Mrs Spear"), who died on 5 January 2007. He seeks directions as to the effect of a gift made in her will dated 29 August 1997 to a charity (The New Forest Owl Sanctuary Ltd, or "NFOS") which has ceased to exist, Mr Flower on his behalf very properly taking an entirely neutral position as to what the directions should be. Mrs Broughton represents the North Wales Bird Trust ("NWBT"), a registered charity which argues that it is entitled to take the gift under a provision in the will intended to pass it to a charity which is a successor to NFOS. Mr Buckley appears for the Attorney General, taking a neutral position on the successor provision in the will but arguing that if NWBT is not successful in its argument, the gift may nevertheless be saved for charity and given to NWBT by one of a number of routes. The First Defendant ("RSPB") and Second Defendant ("PDSA") did not appear, having indicated they are content to abide by the decision of the court.
2. If the gift fails altogether, it would fall to be divided under the intestacy rules among 16 relatives of the deceased. The fourth defendant, Mrs Small, is one of the 16 and was added as a defendant to represent their interests. She however subsequently indicated that she did not wish to make any representations and was content to abide by the decision of the court. On 13 December 2011 Deputy Master Mark ordered that notice be given to the other potential beneficiaries and that they should indicate whether they wished to apply to become defendants. Three beneficiaries responded by letter or email indicating that they wished to become defendants and that they opposed any order that would pass the gift in question to charity. Subsequently, one withdrew his objection and the other two did not follow through with any application to be named as a defendant. All were given notice of the hearing but none of them elected to file any evidence or appear.

The facts

3. Mrs Spear's will made only one specific bequest, of her pet parrot. The remainder of her estate was by clause 6 left to her trustees:

"to divide the same between [RSPB]...[PDSA]...Monkey World Limited... and The Owl Sanctuary Crow Ringwood Hampshire for their respective general purposes in equal shares absolutely"

Monkey World Ltd ("MWL") was for some reason not made a defendant, but Mr Flower tells me that it has been kept informed of the proceedings and has indicated that it too is content to abide by the court's decision.

4. The value of the estate passing under clause 6, subject to the costs of this action, is about £260,000, so that the amount at stake in relation to the intended gift to "The Owl Sanctuary" is about £65,000.
5. It is common ground that "The Owl Sanctuary Crow Ringwood Hampshire" refers to NFOS, which was a registered charity that maintained a collection of birds (not exclusively owls) at a site in Crow, Ringwood in Hampshire. It ceased to operate in circumstances of some scandal. The history of events is not entirely clear, but from Mrs Broughton's witness statement, the documents she has attached and her explanation of them at the hearing, can I think be summarised as follows:

i) NFOS was effectively run by Mr Bruce Berry. There were other trustees, but they took a back seat and Mr Berry made all decisions. In June 2003 an undercover BBC report alleged cruelty and unacceptable practices in relation to the birds it kept, leading the Charity Commission to appoint an investigating officer on 9 July 2003 to enquire pursuant to s8 Charities Act 1993 into possible mismanagement by the trustees and lack of financial control.

ii) This prompted all the trustees to resign, although two of them (not Mr Berry) were persuaded to stay in office to settle the affairs of the charity. This proved a difficult and protracted process, in large part because Mr Berry, who owned the leasehold premises at Crow on which NFOS operated, assigned the lease to a friend of his, Mr Talbot, whereupon Mr Talbot refused to allow access to any of the 240 or so birds that were housed on that site and owned by NFOS or to any of the vehicles or other chattel assets of NFOS all of which were on that site. He then began to demand a payment of £5 per bird per day as the supposed cost of maintaining the birds, and offered to buy the vehicles and other assets he had impounded for £10,000, which appeared to be much less than their true value.

iii) NFOS had no resources with which to resist these claims or meet its liabilities. Mrs Broughton agreed to become a trustee and seems to have been instrumental in achieving the best resolution available in the circumstances, which was that the claims of Mr Talbot were settled by transferring to his company approximately half of NFOS's bird collection, upon which he allowed the remainder, some 137 birds, to be removed in June 2004 to the estate of Mr Pete Waterman in Cheshire, an arrangement made by a Mr Poole who also became a trustee of NFOS. The vehicles and other chattel assets were left on the site at Crow, and have presumably been taken without payment by Mr Talbot or his company.

iv) Unfortunately it seems there was then a breakdown of relations between Mr Poole and NWBT. According to Mrs Broughton, while some birds were transferred from Mr Waterman's estate to other sites controlled by NWBT, or by other organisations which held them by agreement with NWBT, a large number remained but Mr Poole refused to give any access to them to NWBT. She further alleges that approximately 50 birds were stolen from Mr Waterman's estate, or sold with Mr Poole retaining the proceeds, On 6 August 2005 a meeting was held of the remaining trustees of NFOS at which it was agreed to transfer 17 specified birds by way of gift to NWBT, but it is clear from the minutes that this did not represent all the birds remaining that had belonged to NFOS.

6. It is important to record that I have only the evidence of Mrs Broughton as to these matters, and it is clear from the documents available from the Charity Commission

that there were many cross allegations made to it and to the police by all the people involved. I make no findings as to any of the matters that were in dispute between those people.

7. On 13 July 2006 the Charity Commission wrote to Mrs Broughton to address the way forward. Their letter recorded that NFOS had effectively ceased to operate and had no realistic future. It was not possible to achieve an orderly winding up of its affairs by transfer of its assets to another charity pursuant to its articles of association, and accordingly a number of steps were approved as "a pragmatic approach.. .to wind up the charity":

i) The letter recorded that a number of birds had been transferred to NWBT under the resolution in August 2005, and approved that course.

ii) It noted that others remained "in Mr Poole's possession" and concluded that they should be left with him.

iii) It noted that the charity's remaining cash was held by its solicitors, and likely to be applied by them towards their unpaid fees. Mrs Broughton tells me that this was about £3000.

iv) It noted that vehicles and other equipment remained at the site in Hampshire and that the charity had no funds to pursue recovery of these items.

8. According to Mrs Broughton's witness statement, Mr Poole in fact returned "the remaining NFOS birds in his possession that had not been sold or otherwise disposed of on 11 August 2006". She refers to an email from the Charity Commission of 17 August 2006 as confirmation, although that only specifically refers to two birds.
9. Thereafter, NFOS was removed from the Register of Charities on 17 August 2006 (on the ground that it had ceased to operate) though that did not affect its corporate existence or charitable objects. It appears that steps were taken about that time to have NFOS struck off the Register of Companies; the evidence does not disclose exactly when that commenced, but the procedure under what was then s 652 Companies Act 1985 requires that a letter be written to the company enquiring whether it is carrying on business, followed by publication of a first notice in the Gazette, that the company may be struck off the register three months after the first notice, and is finally deemed dissolved when a second notice to that effect is published in the Gazette. At the end of this procedure, NFOS was dissolved on 6 February 2007- a few days after Mrs Spears' death.

Alternative gift under the Will?

10. Clause 7 of Mrs Spear's will provided that:

"if before my death (or after my death but before my Trustees have given effect to the gift) any charitable or other body to which a gift is made by this Will... has changed its name or amalgamated with any other body or transferred all its assets then my Trustees shall give effect to the gift as if it were a gift to the body in its changed name or to the body which results from the amalgamation or the body to which the assets have been transferred"

Mrs Broughton argues that NWBT is the body to which all the assets of NFOS have been transferred, and is therefore entitled to the gift under this provision. She argues that the decision to wind up NFOS was only taken after all the disputes relating to its assets in the hands of Mr Talbot and Mr Poole had been resolved, and at that point it had no further realisable assets. NWBT was, she said the only charity to have received assets from NFOS and therefore, for the purposes of the will NFOS had transferred all its assets to NWBT.

11. I am not able to accept that submission as a proper construction of the will. Clause 7 is, it seems to me, dealing with circumstances in which the activities carried on by one body may have become carried on by a successor body so that the deceased's intention to further those activities could be given effect to by making the gift to the successor. A mere change of name may not have needed any provision such as clause 7 at all; the same body (whatever its legal form) would be carrying on the activity before and after the change. An amalgamation clearly implies that the activities of the former body are carried on by the amalgamated one. In that context, in my view, a reference to a body to which all the assets have been transferred should be construed as being a body which as a result of the transfer is so far as the transferor can achieve it, in a position substantially to take over and carry on the activity of the transferor.
12. Looking as a whole at the extended process by which the affairs of NFOS were brought to a conclusion, it does not seem to me that it can properly be said to be one in which its assets were transferred to NWBT with the result that NWBT took over and carried on what NFOS had previously been doing. The whole process took over three years from the point when NFOS effectively ceased to function in 2003. NWBT ended up with less than half the birds that NFOS had been looking after, and none of its other assets of any kind. A broadly similar proportion of the birds ended up with Mr Talbot's company, albeit effectively by way of sale rather than gift. This process is not, therefore, one which fits obviously into the circumstances clause 7 was intended to deal with.
13. Even if I look in a narrower sense at the wording of the clause, I do not think this produces the result Mrs Broughton contends for, because it cannot fairly be said that NWBT received "all" the assets of NFOS. No doubt "all the assets" is to be construed fairly broadly, and it would not necessarily be an objection that some minor items had not been transferred- as might happen for instance if it were necessary to retain some funds to finalise the affairs of a charity after its main assets and activity had been passed on to a successor.
14. Further, in the course of its operations any charity or other body will acquire and dispose of assets, so that if (for instance) a charity were to run down its activities over a period for financial or other reasons, and ultimately decide to transfer what remained to a successor body, the final transfer might well be of "all" its assets, even though it did not include all the assets at one time owned.
15. In this case, there may have been a number of transfers of assets from NFOS to NWBT. One which is identifiable is the resolution in August 2005 to make a gift of

16 specified birds. In respect of other birds that were recovered over the course of time and ended up in the possession or control of NWBT, there is no evidence of a formal transfer of ownership, though I would be prepared to assume that the trustees of NFOS had agreed that ownership should pass to NWBT on delivery, culminating in the last delivery by Mr Poole in August 2006. But these transfers have not in my view either collectively resulted in all the assets of NFOS being owned by NWBT, or even all the assets that NFOS owned at the date of the last delivery. It would appear that NFOS never disposed of its interest in the vehicles and equipment left behind at the site in Hampshire, and if Mrs Broughton's evidence is correct, still have ownership of a number of birds that were taken by Mr Poole and "sold" by him, since, on her evidence, he had no title to sell.

16. Mrs Broughton refers to NFOS as having no other "realisable assets" - but this is not the same as having transferred "all" its assets to NWBT. NFOS may have given up pursuit of recovery of these other assets through lack of resources, but they have not ceased to exist, and would now have become bona vacantia. It appears that the vehicles and equipment had a substantial value in 2003; according to the Charity Commission their book value at that stage was some £160,000 and they intervened to prevent the then trustees from selling them for £10,000 to Mr Talbot at that time. I do not think they can be ignored as de minimis even though by 2006 the Charity Commission were prepared as part of their "pragmatic" approach to winding up the affairs of NFOS to countenance the trustees giving up their attempts to get them back.
17. I conclude then that NWBT is not entitled to take the gift by virtue of clause 7 of the will.

Is the Gift saved for charity?

18. Mr Buckley put forward a number of logically successive questions to be answered in considering whether the gift can be saved for charity. These were:

i) Is the gift to be construed as a gift for the charitable purposes of NFOS, rather than a gift to NFOS itself absolutely? If so, the property would be impressed with a charitable purpose trust which the court could give effect to by way of a scheme; see Re Fingers Will Trusts [1972] Ch 286.

ii) If the gift was to NFOS absolutely, it has failed, but

a) If it is considered to be a case of 'initial failure', that is to say a gift that was impossible at the time it was made, the court may apply it cy-pres if satisfied that it was made as part of an overall paramount charitable intent.

b) If it is a case of subsequent failure, the gift may be applied cy-pres in any event; he refers me to Kings v Bultitude [2010] EWHC 1795 (Ch).

If any of these alternatives succeeds, the Attorney General submits that it would be appropriate to direct the gift to NWBT, though it is a matter for the court. If they all fail, the gift passes on intestacy.

Separate charitable trust?

19. As to the first question, Mr Buckley submits that the gift is expressed to be for NFOS' general purposes, which he says indicates an intention that it be held on trust for the purposes of NFOS, and that it was described as "The Owl Sanctuary" rather than its correct name, possibly indicating that Mrs Spear was not aware that NFOS was a corporate body. I am not persuaded by either of these points, which it is fair to say he did not advance with any great force. So far as the name is concerned, it is common ground that the deceased intended to refer to NFOS and it does not matter in my view whether she knew it was incorporated or not. If it had not been, then as a matter of law her gift could only have been for charitable purposes and would have been held on trust. But prima facie a gift to a body that is in fact incorporated is a gift to that body and forms part of its assets to be applied for its general purposes, unless the terms of the gift indicate that the company is to hold it on a separate trust. In my view, a gift such as this which is expressed to be to a company for its general purposes emphasises the general position rather than indicating a separate trust.
20. In Re ARMS (Multiple Sclerosis Research) Ltd [1997] 1 BCLC 157 gifts were made to a charitable company which was in liquidation by the time they came to be paid, and the question arose whether they should be paid to the liquidator and applied to meet its debts, or were subject to charitable trusts. In that case it was conceded that a gift expressed to be to the company for its general purposes formed part of its general assets (which is the case here), and Neuberger J as he then was went on to hold that a gift to a company incorporated for charitable purposes did not by virtue of those charitable purposes cease to be held for its general purposes and available to its creditors.
21. Neuberger J cited the observations of Buckley J in Re Vernon's Will Trusts [1971] 3 All ER 1061 at 1064, [1972] Ch 300 at 303:

"Every bequest to an unincorporated charity by name without more must take effect as a gift for a charitable purpose. No individual or aggregate of individuals could claim to take such a bequest beneficially. If the gift is to be permitted to take effect at all, it must be as a bequest for a purpose, ie, that charitable purpose which the named charity exists to serve . . . .

A bequest to a named unincorporated charity . . . may on its true interpretation show that the testator's intention to make the gift at all was dependant on the named charitable organisation being available at the time when the gift takes effect to serve as the instrument for applying the subject-matter of the gift to the charitable purpose for which it is by inference given. If so and the named charity ceases to exist in the lifetime of the testator, the gift fails (Re Ovey, Broadbent v Barrow (1885) 29 Ch D 560). A bequest to a corporate body, on the other hand, takes effect simply as a gift to that body beneficially, unless there are circumstances which show that the recipient is to take the gift as a trustee. There is no need in such a case to infer a trust for any particular purpose. The objects to which the corporate body can properly apply its funds may be restricted by its constitution, but this does not necessitate inferring as a matter of construction of the testator's will a direction that the bequest is to be held in trust to be applied for those purposes; the natural construction is that the bequest is made to the corporate body as part of its general funds, that is to say, beneficially and without the imposition of any trust. That the testator's motive in making the bequest may have undoubtedly been to assist the work of the incorporated body would be insufficient to create a trust"

22. There is no indication in the will that Mrs Spear intended anything other than that the bodies to which she made her gifts would be entitled to use the funds as they thought fit for their purposes. I reject the contention that any separate trust was established.

Initial or supervening failure?

23. A gift by will to an individual lapses if that individual dies before the testator (unless the will provides otherwise). The same applies where the intended donee is a corporation, if the corporation has ceased to exist at the date of the testator's death. The question arises therefore whether NFOS had ceased to exist at the date of Mrs Spears' death. At that date it was no longer functioning in any real sense. It had been removed from the register of charities on the ground that it was no longer operational and the administrative process designed to lead up to it being struck off the register of companies was well in hand. However it was not until after the death, albeit only a few days afterwards, that it was struck off the register and in accordance with the Companies Acts deemed to have been dissolved. Until that happened, it continued to have corporate legal personality and could, in principle at least, have been re-activated and continued to deal with its assets in accordance with its objects.
24. Suppose for instance the directors had become aware of the existence of assets available to be dealt with, perhaps by being aware of the legacy and Mrs Spear's death, or because Mr Talbot's company belatedly agreed to release the vehicles and other assets it held. They would have been able at any time to stop the striking off process by contacting the Registrar of Companies. Having obtained the assets in question, the company would have to deal with them in accordance with its objects. It would do so through its directors, or conceivably through a liquidator, but there can be no doubt that the company would have title to those assets and the power to hold and deal with them.
25. It cannot therefore be said to have ceased to exist until its final dissolution, in my view, and accordingly no event had occurred which might have led to the gift lapsing at the date of death. It follows that I do not need to consider whether the gift might have been saved from lapse by reason of the will being construed as showing an overall or paramount charitable intent on Mrs Spears' part in relation to the scheme of gifts she made.
26. I was not referred to any authority relating directly to the question of lapsing of legacies to a corporation, but the conclusions above are in my view supported by the decision of Neuberger J in the ARMS case, above, in which he held that gifts to a company took effect notwithstanding it had ceased to carry on business and was in liquidation, and by the following passage from the judgment of the court in Re Slevin [1891] 2 Ch 236:

"Properly speaking, a lapse can only occur by failure of the object in the lifetime of the testator... So, if the legatee were a corporation which was dissolved after the testator's death, the residuary legatee would have no claim. Obviously it can make no difference that the legatee ceased to exist immediately after the death of the testator. The same law must be applicable whether it was a day, or month, or year, or, as might well happen, ten years after; the legacy not having been paid either from delay occasioned by the administration of the estate or owing to part of the estate not having been got in. The legacy became the property of the legatee upon the death of the testator, though he might not, for some reason, obtain the receipt of it till long after."

27. This case is therefore one of supervening failure, that is to say one where the gift was effective at the date of death to impress the funds with the charitable purpose intended to be given effect to through NFOS, but which cannot now be carried through in that manner by reason of NFOS having subsequently ceased to exist. In those circumstances there is no doubt that unless the court finds that the particular method specified is the only possible way of giving effect to the donor's charitable intentions, it may direct that the funds be applied cy-pres, that is to say by the court directing a scheme which will see the funds used in a manner as close as possible to that which the deceased intended, see Re Woodhams [1981] 1 WLR 493, Kings v Bultitude (above).
28. In that event, Mr Buckley submits that it would be appropriate to direct that the gift be given to NWBT in view of the similarity of its purposes to those of NFOS and the fact that it has taken over the care of a substantial part, if not the whole, of the collection of birds formerly held by NFOS. I agree and propose to make an order accordingly, for which I invite counsel to submit a draft. If the draft and any matters arising can be agreed there need be no attendance when this judgment is handed down.