Berry & Anor v IBS-STL (UK) Ltd & Anor [2012] EWHC 666 (Ch)

Case No HC11C01014[2012] EWHC 666 (Ch)Date 16 February 2012
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before
David Donaldson Q.C.Sitting as a Deputy High Court JudgeIN THE MATTER OF THE ESTATE OF ELIZABETH LONGMAN (DECEASED)
Between
SIMON ANTHONY BERRY PAUL ARCHER (as executors of the estate of Elizabeth Longman)ClaimantsIBS-STL (UK) LIMITED (in liquidation)First DefendantHER MAJESTY’S ATTORNEY GENERALSecond Defendant
Judgment

Nature and basis of the action

[1]The Claimants are the executors and trustees of the will dated 13 May 2002 ('the Will') of Elizabeth Longman ('the Testatrix'), who died on 18 April 2008. The principal relief sought by them in this action, which relates to an interest in the residuary estate held by them as trustees, is the determination of the court as to whether(i) the First Defendant is entitled to that interest by the application of section 75F of the Charities Act 1993, as amended, ('the Act') Now section 311 of the Charities Act 2011. or(ii) the Claimants are required in accordance with Clause 6.3 of the Will to pay the amount of that interest to one or more other charitable organisations as the Claimants may in their absolute discretion think fit. In the latter case the Court is further asked to approve the Claimants= proposed selection of such organisations and distribution between them.[2]After providing for pecuniary legacies and the creation of trust funds for individuals, Clause 6 of the Will dealt with the residuary estate as follows: "6.1 I GIVE the residue of my estate ... to my TRUSTEES upon trust to divide in equal shares between such of the following charities as shall to the satisfaction of my Trustees be in existence at the date of my death namely:6.1.1 [first charity]6.1.2 [second charity]6.1.3 [third charity]6.1.4 [fourth charity]6.1.5 [fifth charity]6.1.6 INTERNATIONAL BIBLE SOCIETY (UK) .... 6.2 ....... 6.3 IF any charity or charitable organisation which I have named as a beneficiary in this Will is found never to have existed or to have ceased to exist or to have become amalgamated with another organisation or to have changed its name before my death then the gift contained in this Will for such charity or charitable organisation shall be transferred to whatever charitable institution or institutionsand if more than one in whatever proportions as my Trustees shall in their absolute discretion think fit and I EXPRESS THE WISH but without imposing any obligation on my Trustees that the gift be given to such charitable institution or institutions whose purpose is as close as possible to those of the charity or charitable organisation named byme in this Will".[3]Section 75F of the Act provides that:
"(1) This section applies where a ... charity merger is registered in the register of charity mergers. (2) Any gift which - (a) is expressed as a gift to the transferor, and (b) takes effect on or after the date of registration of the merger, takes effect as a gift to the transferee ..."
[4]International Bible Society (UK) ('IBS') was at the date of the will an unincorporated registered charity. With effect from 31 May 2007 it transferred the entirety of its assets to the First Defendant, an incorporated registered charity. The merger was registered on 2 January 2008, and the register records that IBS ceased to exist on 5 February 2008, both dates preceding the death of the Testatrix.[5]On 16 April 2009, having reached the conclusion that the First Defendant had broadly the same aims as the now defunct IBS, the Claimants made an interim distribution of, 330,000 to the First Defendant. Subsequently, however, the First Defendant went into administration and later insolvent liquidation. This has compelled the Claimants to address the question whether section 75F compels payment of the remaining monies - about, 214,000 - to the First Defendant, and now - since it has gone into liquidation - effectively for the benefit of its creditors rather than any charitable activity. If not, the Claimants wish to exercise their discretion under Clause 6.3 of the Will to pay those monies to a number of other charitable organisations.[6]The liquidators of the First Defendant have chosen not to attend or be represented. The Attorney General has provided the court with written submissions prepared by Counsel in favour of the application of Clause 6.3 of the Will rather than section 75F of the Act, though (with the prior consent of the court) not attending to make any oral representations. The Claimants have sought to maintain a neutral position, and their Counsel has in the absence of the First Defendant assisted the court in exploring what arguments might be advanced against the position adopted in the submissions of the Attorney General.

Analysis

[7]I start with a preliminary point of construction of section 75F not addressed by the submissions of the Attorney General.[8]The section applies only to a 'gift' which 'is expressed as a gift to the transferor [here IBS]'. As is clear from Clause 6.1 this case is not concerned with a pecuniary legacy to IBS. Instead, the will gives the residuary estate to the Trustees who are then to hold it on trust for the beneficiaries. In normal language that may be a gift for each beneficiary, but not to the beneficiary. I can however see no sensible reason why the application of the statute should be confined by such a narrow interpretation. The obvious purpose of the section is to ensure that money (or property) which the benefactor has specified should pass to a charity accompanies it into the entity into which the charity has been merged notwithstanding that the benefaction is not to take effect until a time which postdates the merger. That purpose is in my view equally engaged whether the route of benefaction runs directly to the donee or a trustee is interposed with an obligation to confer the benefit using the money (or property) provided by the benefactor.[9]I therefore pass to the next question, whether the Testatrix has 'expressed ... a gift to the transferor [viz IBS]'. Since the Will does not speak until the death of its maker its provisions have to be applied to the situation at that date. Clause 6.1 does not specify the beneficiaries to be all six charities listed in Clause 6.1.1 to 6.1.6 but only such of them as are in existence at the date of the Testatrix=s death. By that time however IBS had ceased to exist. The Will did not therefore specify IBS as beneficiary nor in consequence, in the parlance of section 75F, express a gift to IBS. Accordingly, there was no gift to be transmuted by the statutory fiat into a gift to the new merged entity.[10]As only the first five charities were thus in the event designated as beneficiaries by application of the formula in Clause 6.1, the residuary estate would, absent Clause 6.3, then have fallen to be applied by the Trustees in five equal shares. Clause 6.3 avoids this result. Where one of the six listed charities fails to qualify as a beneficiary because it has ceased to exist, the sixth share is to be held for payment to such substitute organisation(s) as the Trustees shall determine in their absolute discretion The same duty and power is given to the Trustees by Clause 6.3 where the charity is (a)amalgamated or (b) changes its name. As regards (a), this is irrelevant, given Clause 6.1, exceptwhere the amalgamation proceeds in a manner which preserves the existence of the charity - e.g. where as an incorporated body it acquires the entire assets and undertaking of another charity. A counter-argument mooted in the hearing before me that the reference to amalgamation in Clause 6.3 requires all mergers, whatever their form, to be excluded from the concept of Anot or no longer existing@ implicit in Clause 6.1 involves in my view a wholly untenable construction. .[11]In the present case, the Trustees= exercise of their discretionary power has been closely guided by the non-binding wish expressed at the end of Clause 6.3 that the substitutes should have purposes as close as possible to those of the former IBS. Ihave also no reason to believe that either of the Claimants, a solicitor and an accountant, have any conflict of interest. In these circumstances, and with the benefit of the observations of Hart J in The Public Trustee v Cooper [2001] WTLR 901 at 925, I think it appropriate to give the approval of the court to the Trustees= proposed distribution of the sixth share.[12]At the request of Counsel I confirm that in my view paragraph 8 of this judgment satisfies the requirements of paragraph 6.1 of the Practice Direction (Citation of Authorities) [2001] 1 WLR 1001 in so far as it addresses the meaning or ambit of section 75F of the Charities Act 1993 (now re-enacted as section 311 of the Charities Act 2011). 5

Cited in 2 later judgments