The Cy-près Doctrine and Charitable Trusts

Introduction

Cy-près means ‘as near as” or “nearest alternative gift.” Usually, if a trust fails, then the property settled on the trust passes on a resulting trust back to the settlor’s estate. However, the cy-près doctrine gives the courts the power to interpret the settlor’s charitable intentions to benefit an alternative charity if the original purposes cannot be achieved. In this sense, the cy-près doctrine is an alternative to the resulting trust principle.

It is necessary to consider whether the trust should fail and the funds be returned to the settlor through a resulting trust or whether they might be applied cy-près for a slightly different charitable purpose.

How does a charitable trust fail?

A charitable trust fails if the charitable objects do not exist or the intended purpose ceases to be charitable.

Factors assessed in the application of the doctrine

i) Whether the settlor had disclosed a general charitable intention or a specific charitable intention.

ii) Whether the failure is initial or subsequent.

iii) Whether the charitable gift is for unincorporated or incorporated charities.

Whether the settlor had disclosed a general charitable intention or a specific charitable intention

A settlor’s intention is essentially a question of fact that can only be determined in light of all the circumstances.

i. General charitable intention

Where the charitable purpose fails before the commencement of the trust, the gift can be applied cy-près only if the settlor had a general charitable intention as opposed to benefiting a specific charitable purpose or institution. If the general charitable purpose does not exist, the gift will be held on resulting trust.

An example of a case in which charitable trust was identified was in Biscoe v Jackson (1887) 25 Ch D 460, where ￡10,000 was left for a charitable purpose, ￡4,000 of which was to be applied to create a soup kitchen for the parish of Shoreditch and a cottage hospital. When the intended land could not be acquired, the Court of Appeal held that the settlor had disclosed a general charitable intention such that the fund could be applied cy-près.

ii. Specific charitable intention

A specific charitable intention always negates the application of the cy-près doctrine. In such circumstances, failure to take effect guarantees claims by the settlor’s estate on a resulting trust. A specific charitable intent exists where a gift was intended for a particular institution or purpose identified by the testator. For example, in Re Rymer [1895] 1 Ch 19, where a legacy to a rector of a seminary failed, it was held that the bequest was so specific that it did not disclose a general charitable intent.

Although a gift to a specific institution is evidence of no general charitable intent, some factors enable the court to identify the existence of a general charitable intent. One of the factors is “charity by association.”

“Charity by association"—where a donor makes a gift to several charities with similar purposes but one of the charities does not exist, the court will be willing to find a general charitable intent by its association with gifts to the existing charities. An example is in Re Satterthwaite’s Will Trusts [1966] 1 WLR 277, where the testatrix left her estate to seven animal charities, an anti-vivisectionist society, and the London Animal Hospital. No such hospital existed when the will was made. It was held that the gift that was purportedly made to the hospital could be applied cy--près because the testatrix had a general charitable intent in favor of animal welfare.

Whether the failure is initial or subsequent

The doctrine applies differently depending on whether the charitable purpose occurs before the trust commences (initially) or subsequently. Where there is an initial failure, the cy-près doctrine will be applied only if the settlor can be considered to have an intention that the gift should be used for the charity generally rather than confined to the specific charitable purpose that has failed.

Where the failure is initial, the gift may be claimed by beneficiaries under the settlor’s trust through a resulting trust where there is a specific intention. In the same circumstance, the cy-près doctrine will be applied to the gift where there is a general charitable intention.

On the other hand, once the property has been used for a charitable purpose and there is a subsequent failure of the purpose, the property will be applied cy-près whether or not the settlor has an intention to benefit charity generally.

It is therefore important to ascertain whether there has been a failure of charitable purpose and if the failure is either initial or subsequent.

Initial failure

To establish an initial failure of a charitable trust, it is necessary to consider whether at the time the trust is to take effect, the identified purpose is impossible to fulfill. For example, where a bequest is intended for a particular charitable institution rather than the institution’s charitable purpose and the institution ceases to exist before the testator’s death, then there will be an initial failure.

The distinction between a gift to a charitable purpose and a gift to a charitable institution is influenced by whether the intended object is unincorporated or an incorporated charity. The significance of this distinction was recognized in Re Finger’s will trusts [1972] Ch 286 and will be furthered in subsequent subheadings.

Whether property can be applied cy-près following an initial failure of purpose may turn on whether the particular charity that had been identified is defunct or never existed; this may affect whether a general intention can be identified.

In Re Harwood [1936] Ch 285, A testatrix left bequests to the Wisbech Peace Society and the Peace Society of Belfast. The Wisbech Peace Society had existed when the will was made, but it had ceased to exist by the time of her death. The Peace Society of Belfast had never existed. It was held that the gift to the Wisbech Peace Society could not be applied cy-près, but the other could. The reason is that where the testator had selected a specific object [Wisbech Peace Society], which he desired to benefit, and such an object ceased to exist, the difficulty of finding a charitable intention is great, and there is no room for the cy-près doctrine. However, as for the Peace Society of Belfast, which never existed, there was a clear intention on the part of the settlor to benefit societies whose object was the promotion of peace and since the named society never existed, there was a general intent and accordingly the cy-près applied.

Subsequent failure

Where a testator creates a charitable trust, the failure of the charitable purpose will be subsequent if it occurs after the testator’s death, even though it occurred before the gift was vested in the charity. For example, in Re Slevin [1891] 2 Ch 236, the testator left money to St. Dominic’s orphanage in Newcastle. The orphanage existed at the date of the death but closed down soon afterward before it received the legacy. The court held that the fund was applied cy-près.

Once a gift has been dedicated to a charitable purpose, the fact that the purpose fails cannot destroy the charitable nature of the gift. The court will always find a similar purpose, and the gift will be transferred to it regardless of whether the donor has had a general or specific charitable intent. The only exceptions are where the settlor has expressly provided for what should happen to the gift if the purpose subsequently fails, i.e., the gift should be returned to the settlor or those entitled under the testator’s residuary estate or to a third party.

A charitable gift may also be considered to have failed subsequently where the purpose has been fulfilled and there remains a surplus of trust funds. For example, in Re King [1923] 1 Ch 243, the testatrix left the residue of her estate for a stained-glass window to be installed in a church. The residue was over ￡1,000, and the cost of the window was about ￡700. It was held that the surplus of the estate could be applied cy-près towards the installation of another window in the church.

Whether the charitable gift is for unincorporated or incorporated charities

Unlike unincorporated charities, incorporated charities have a separate legal identity. A gift to incorporated charities must be a gift for a charitable purpose rather than to the institution. If that purpose can still be fulfilled, there has been no initial failure; however, if a gift is to an incorporated charity, that gift will be to that body beneficially, save where it was intended to take as a trustee.

The transfer of a gift to unincorporated charities will generally constitute a trust capable of being applied cy-près, whereas gifts to incorporated charities will not always constitute a general charitable intent.

Conclusion

The cy-près doctrine is useful since it guarantees that once a property has been received by that trust, it will be used for charitable purposes even if its particular trust fails.

References

1. Davies, Paul S, and Virgo, Equity & Trusts: Text, Cases, and Materials, Oxford University Press, USA, 2013.

2. Ramjohn, Mohamed, Unlocking Equity and Trusts, Fifth Edition, Routledge, 2015.

3. Hudson, Alastair, Equity and Trusts, Eighth Edition, Routledge, 2012.