Lecture 7:

Charitable Trusts

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 Agenda
• The benefits of charitable status;
• Problems with charitable trusts;
• Requirements for charitable status;
• The definition of charity;
• Categories of charitable purpose;
• The public benefit requirement;
• What happens when a charitable trust fails;
• A brief consideration of the doctrine of cy-près.
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 Learning Outcomes.
By the End of This Seminar You Will Understand:
• The benefits of charitable status;
• Problems with charitable trusts;
• Requirements for charitable status;
• The definition of charity;
• Categories of charitable purpose;
• The public benefit requirement;
• What happens when a charitable trust fails;
• A brief consideration of the doctrine of cy-près.
 Charitable Trusts
• Charities are big business

• 2008-9: HK $8 billion; 2012: 6000 charities in HK

• HK Jockey Club Charities Trust- 2015/16 over HK$3.9 billion,

benefitting 215 charitable and community projects.

• In UK Charities - 2009- 189,143 registered charities-

Combined income- £48 billion/year

• USA: $373.25 billion in 2015: majority of charitable dollars

went to religion (32%), education (15%), human services
(12%), grantmaking foundations (11%), and health (8%).
 Singapore’s City Harvest church leaders jailed up to eight years
for misappropriation
SCMP, 20 November, 2015

• Six Christian church leaders in Singapore were jailed for

misusing more than US$35 million of church funds to turn the
pastor's wife into a global pop star.
• “The criminal breach of trust offences … involve the largest
amount of charity funds ever misappropriated in Singapore's
legal history”
• Found guilty of fraud for diverting S$24 million (HK$131
million) from a building fund to help Mandarin pop singer, Sun
Ho, break into the English-language market.
• Ho appeared in a 2007 music video called China Wine with
rapper Wyclef Jean.
 Benefits

1. the objects of a charitable trust do not have to be

certain;
2. may be for “pure” purposes;
3. Administrative benefits for trustees (e.g. majority
decisions);
4. Rule against perpetuities is relaxed (Re Tyler);
5. rule against inalienability does not apply;
6. Cy-près;
7. Fiscal advantages: s.88 IRO exempt from tax.
 Changes to RAP and RAEA for charitable
trusts created after 1st December 2013
• RED has never applied
• RAP abolished
• RAEA applies to charities- must not
accumulate income for more than 21 years
 Why No Certainty of Objects?
• “…it is now settled, upon authority, which it is too late to
controvert, that where a charitable purpose is expressed,
however general, the bequest shall not fail on account of the
uncertainty of the object…” Grant MR- Morice v Bishop of
Durham (1804)
• Who enforces?
• May be “pure” purpose trusts e.g. a trust for the welfare of
animals
• But- purposes must be charitable in the legal sense
 Creating a Charitable Trust
a capable settlor must make a declaration of
trust, complying with required formalities and
the law, imposing a certain trust obligation on a
capable trustee to hold legal title to certain
property for the exclusive benefit of the public
by way of accepted charitable purposes,
constituted by the transfer of legal title of the
certain property to the trustee.
 Creating a Charitable Trust
Secretary for Justice v Joseph Lo Kin Ching
essential elements are:
‘(1) Imperative words creating a trust. There must be certainty on the part of
the donor to impose a trust. The words used must be such that on the
whole they ought to be construed as imperative. A mere express of
desire or hope will not create a trust of any kind. The word "trust"
however need not be used.
(2) Certainty of an exclusive charitable intention. It must be clear that the
trustees are bound to apply the funds to charitable purposes and not to
non-charitable purposes.
(3) Certainty as to subject matter of the trust. The trust property must be
clearly identified. Otherwise the charitable trust will fail.’
 Creating a Charitable Trust
Declaration of trust evidencing:
• Certainty of intention
• Certainty of subject matter
• Object? Certainty of charitable purpose
1. Legally recognised charitable purpose
2. Public benefit
3. Exclusively charitable
 Ng Chi Fong v Hui Ho Pui-Fun
Rhind J
‘“Charity” in this branch of the law does not have
its popular meaning, but, instead, is a term of art
with a technical meaning which moves with the
times…As explained by Sachs L.J. in Incorporated
Council of Law Reporting for England and Wales v.
Attorney-General … the word is “wide, elastic”, and
“…has an admirable breadth and flexibility which
enables it to be reasonably applied from generation
to generation to meet changing circumstances”.’
 Charitable Purposes: Preamble to
Charitable Uses Act 1601
‘…relief of aged, impotent and poor people; the maintenance
of sick and maimed soldiers and mariners, schools of learning,
free schools, and scholars in universities; the repair of
bridges, ports, havens, causeways, churches, sea banks and
highways; the education and preferment of orphans; the
relief, stock, or maintenance for houses of correction; the
marriage of poor maids; the supportation aid and help of
young tradesmen, handicraftsmen and persons decayed; the
relief and redemption of prisoners or captives; the aid and
ease of and poor inhabitants concerning payment of fifteens,
setting out of soldiers & other taxes…’
 Hong Kong and the UK
• The Preamble was repealed by the Mortmain and
Charitable Uses Act 1888 (UK)
• The UK has further legislated with the Recreational
Charities Act 1958, Charities Act 1993, Charities Act
2006,Charities Act 2011
• These 4 Acts have not been introduced to HK
• HK has followed common law developments since
1888
• Consultation on Charities reported Dec 2013
 Charitable Purposes-

• No definition of charity
• Preamble still formed basis of charitable definition
• Purposes within ‘sprit and intendment’ of the
preamble deemed charitable (Morice v. Bishop of
Durham)
• the Four Pemsel Heads
 Commissioners for Special Purposes of the
Income Tax v Pemsel [1891]: four ‘heads’
Lord Macnaghten
‘“Charity” in its legal sense comprises four
principal divisions: [1] trusts for the relief of
poverty; [2] trusts for the advancement of
education; [3] trusts for the advancement of
religion; [4] and trusts for other purposes
beneficial to the community, not falling under
any of the preceding heads.’
 Problems With the Pemsel Heads
• Still essentially based on the archaic Preamble
• Some beneficial purposes are not charitable e.g. sport
• Some purposes artificially included under heads
• Scottish Burial Reform & Cremation Society v Glasgow
Corporation[1968]- Lord Wilberforce: “… it is a classification
of convenience, there may well be purposes which do not fit
neatly into one or other of the headings; .. the words used
must not be given the force of statute to be construed; .. the
law of charity is a moving subject and may well have evolved
since 1891”.
 (1) Relief of Poverty
• Preamble- “the relief of aged, impotent and poor people” and
“the marriages of poor maids”.
• No definition of charity, also no definition of poverty.
• “… poverty does not mean destitution; it may not unfairly be
paraphrased as meaning persons who have to ‘go short’ in the
ordinary acceptance of that term.” Re Coulthurst [1951] – per
Evershed MR
• ‘people who can fairly be said to be, according to current
standards, “poor persons”‘: Dingle v Turner [1972] per Lord
Cross
 (1) Relief of Poverty
• Cases not totally consistent:
• Trust for “ladies of limited means”: Re Gardom
• Gifts for ladies in reduced circumstances: Shaw v. Halifax
Corporation [1915]
• for the aid of distressed gentlefolk: Re Young [1951]
• If difficult to decide whether it is exclusively for the poor it
may be a problem
• Free trousers for boys of Farnham: Re Gwyon [1930]
• Working Class?
 Re Sanders’ WT : housing for the working classes
 Re Niyazi’s WT: gift-construction of workingmen’s hostel
 (2) The Advancement of Education
• Preamble: “schools of learning, free schools and
scholars in universities”; “the education and
preferment of orphans” and “the supportation, aid
and help of young tradesmen, handicraftmen, and
persons decayed.”
• Construed Widely as long as public benefit (not
necessarily contact with the public): Universities,
Museums, Nursery Schools, Scholarly societies, trusts
for industrial and technical training
(2) The Advancement of Education
• Re Delius [1957]: the promotion of arts?
• Ng Chi Fong v Hui Ho Pui-Fun [1987]: ‘the
development of Chinese culture’? (4th head?)
• Incorporated Council of Law Reporting v. A-G [1972]:
‘to the improvement of a useful branch of human
knowledge and its public dissemination.’
• London Hospital Medical College v IRC [1976] ; AG v
Ross [1986] Connected organisations / Students’
Union?
 (2) The Advancement of Education -
Research Trusts
• Re Shaw: pure research?
• Re Hopkins [1965]: trust towards finding the Francis
Bacon/Shakespeare manuscripts?
• “heretics are not necessarily wrong”
• Conditions:
– Useful
– Disseminated
– Public benefit (McGovern v Attorney-General, per
Slade J)
 (2) The Advancement of Education
Sports / Recreational Trusts
• Artificial?
• Re Nottage [1895]: Trusts for promotion of sport or
recreation alone?
• Re Dupree’s Deed Trusts [1945]: Trust to promote an
annual chess tournament?
• Re Mariette [1915]: must be linked to school etc
• IRC v McMullen [1981]: Trust to encourage pupils and
students to play soccer or other sports?
 (3) The Advancement of Religion
• Preamble- just repairs to churches
• But Pemsel 3rd Head- why?
• Watt: unique?
• Gifts for religious buildings, support of clergy,
missionary work, ancillary organisations (Salvation
Army) etc may be accepted as long as exclusively
charitable
• A-G v Pon Yup Chong How Benevolent Association
[1992]: provision for the repose of souls of the dead
(3) The Advancement of Religion Thornton v
Howe (1862): Romilly MR
"printing, publishing and propagation of the sacred
writings of Joanna Southcott“- “foolish, ignorant
woman”
“the Court of Chancery makes no distinction between
one religion and another” and “although this Court
might consider the opinions sought to be propagated
foolish or even devoid of foundation”
the trust will be charitable unless the beliefs
are “adverse to the very foundations of all
religion and subversive of all morality.”
 (3) The Advancement of Religion
• the common law would not fail a trust or
legacy because ‘the law condemns as unsound
the theological dogma which such a legacy
implies…’ per Sir Peter Maxwell in Choa
Choon Neo v Spottiswoode [1932]
• “As between different religions the law stands
neutral, but it assumes that any religion is at
least likely to be better than none.” Neville
Estates v Madden [1962]
 (3) The Advancement of Religion
• Bowman v Secular Society [1917]: belief in a God
(Gods)?
• Pemsel [1891]: Trusts for conversion
• R. v. Registrar General ex parte Segerdal [1970]:
Scientologists: no belief in divine being?
• Barralet v Attorney-General: Agnostic ethical society?
man’s relations with God not man’s relations with
man?
 Recommendations
• UK: The advancement of religion
• "'religion' includes —
(i) a religion which involves belief in more than one
god, and
(ii) a religion which does not involve belief in a god.“
• HKLRC recommended retaining advancement of
religion
Jedi?
Charity Commission 2016
Jediism, the worship of the mythology of Star Wars, is
not a religion, the Charity Commission has ruled.
• UK 2001 census religious belief - 390,000
• 2011 census, 177,000 declared themselves Jedi – 7th most
popular religion- more adherents than Rastafarians and Jains
• Did not "promote moral or ethical improvement" for charity
law purposes in England and Wales- "lacked the necessary
spiritual or non-secular element" it was looking for in a
religion- Insufficient evidence that "moral improvement" was
central to beliefs and practices and did not have the "cogency,
cohesion, or seriousness" to truly be a belief system.
• To be classed as a religion it must also have a positive
beneficial impact on society in general - Raised concerns that
Jediism may, in part, have an "inward focus" on its members.
 Jedi
• NZ 20,000
• US Tax Exempt Status for Temple of the Jedi Order
• https://www.templeofthejediorder.org/
 (4) Other Purposes Beneficial to the
Community
• Preamble:“the relief of aged, impotent people; the
maintenance of sick and maimed soldiers and mariners;
the repair of bridges, ports, havens, causeways sea banks
and highways; the relief, stock or maintenance for houses
of correction; the relief or redemption of prisoners or
captives; and the aid or ease of any poor inhabitants
concerning payments of fifteens, setting out of soldiers
and other taxes.”

• Lord Macnaghten’s ‘catch-all’ provision not as wide as it

first seems
 (4) Other Purposes Beneficial to the
Community
• Relief of the aged and the sick: ‘the promotion of health’:
hospitals; medical research
• Relief of distress: relief of victims of disaster
• Relief of impotent people: disabled
• armed forces or services: police force, fire and ambulance
services
• Trusts for local amenities: Jones v Williams (1767):examples
the building of bridges and the public water supply
• Trusts for localities: Re Lewis [1955]
 (4) Other Purposes Beneficial to the
Community
• Trusts for the preservation of the
environment: protection of endangered plants
and animals, provision of waste recycling
processes, renewable energy, and the
monitoring of air and water quality.
• Trusts for the preservation of heritage and
culture: National Trust; the study and
development of Chinese culture.
 (4) Welfare of animals generally
Re Wedgwood [1915]
"A gift for the benefit and protection of animals tends to
promote and encourage kindness towards them, to discourage
cruelty, and to ameliorate the condition of the brute creation,
and thus to stimulate humane and generous sentiments in man
towards the lower animals, and by these means promote
feelings of humanity and morality generally, repress brutality,
and thus elevate the human race. That such purposes are
eminently charitable, in the accepted legal sense of that term, is
amply established by the cases to which the Master of the Rolls
has referred."
 (4) Welfare of animals generally
Re Grove-Grady [1929]
• But Re Grove-Grady [1929]
• "an animal sanctuary for “all animals birds or other
creatures not human”, where the animals could live
free from “molestation or destruction by man”
 (4) Other Purposes Beneficial to the
Community
• HSBC Ltd v Incorporated Trustee of the Islamic Community
Fund of Hong Kong [1984]
• ‘social welfare work in west Pakistan’?
• Rhind J analogy to Social Welfare Fund
• Well known meaning in HK if not in England

• N.b.- Tax problems- trusts seeking s.88 exemption will be

required to provide their services in HK: IRD website- While
the purposes under the first three heads may be in relation to
activities carried on in any part of the world, those under
head (d) will only be regarded as charitable if they are of
benefit to the Hong Kong community.
 All or Any of the Four Heads?
• General charitable trusts- Bequest to “such
charities as the trustees sees fit”: Moggridge v
Thackwell (1807)
• But see later problems with wholly charitable
 Public Benefit
• To be valid a public purpose trust must be of public
benefit!
• This is presumed for the first 3 heads but must be
established for the 4th head
• to be charitable a trust must be “For the benefit of the
community or an appreciably important class of the
community” (Verge v. Somerville [1924]
• Oppenheim v. Tobacco Securities Trust Co. [1951]: HL
adopted ‘personal nexus’ test- had been used in Re
Compton [1945]- this is test usually used today.
 Public Benefit
Oppenheim v Tobacco Security Trust Co Ltd
• Education trust- potential beneficiaries numbered over
100,000
• Personal nexus between company and beneficiaries
• Lord Simonds “the quality which distinguishes them from
members of the community must be a quality which does not
depend upon their relationship to a particular individual [or
company]”
• “neither a community nor a section of the community for
charitable purposes.”
• Personal nexus- a personal connection- not a benefit to the
public- not charitable
 Public Benefit
Test After Oppenheim
• 2 parts:
1. The beneficiaries must not be numerically negligible; and
2. The quality which distinguishes them from other members
of the public must be a quality which does not depend on
their relationship with a particular individual.
• IRC v Educational Grants Association: Harman LJ- “It is an
admirable thing that the children of employees should have
a higher education, but I do not see why that should be at
the expense of the taxpayer.”
 Not numerically negligible?
Cheung Man Yu v Lau Yuen Ching (2007) –
Tang VP
‘A charity is not defined by its scale or resources.
A legal (and public in this sense) charity may be
small and run by one or a few people. It does
not have to be a public organisation.’
 Public Benefit Exception-
Poverty: “Poor” Relatives or Employees
• No requirement of public benefit as long as relieves the
poverty of poor persons :Isaac v Defriez (1754)
• relief of poverty so “altruistic a character that the public
benefit may necessarily be inferred’: Re Scarisbrick
• Class can be identified by reference to particular person or
employer – Re Coulthurst: Dingle v Turner (HL)
• “Poor relatives” ? Re Cohen – trust “for or towards the
maintenance and benefit of any relatives of mine whom my
trustees shall consider to be in special need”
• Re Segelman [1996] Ch 171 : ‘poor & needy’
• Nexus will not invalidate if class not specific individuals
 Public Benefit- Other Categories
Education
• must comply-Oppenheim

• Problems with charging- UK public schools

• Quality Matters
• Re Shaw [1957] mere increase of knowledge? (Watt)
 Public Benefit- Other Categories
Education
• Quality Matters
• Re Pinion [1965]:
• expert commented that he was astounded that “so voracious
a collector should not by hazard have picked up even one
meritorious object”.
• Harman LJ: “I can conceive of no useful object to be served in
foisting on the public this mass of junk.”
 Public Benefit- Other Categories
Religion
• must comply
• Masses said in public? Re Hetherington [1990]
• Cloistered nuns? Gilmour v Coats [1949]
• Building of a Taoist temple for Tong: Cheung Man Yu
v Lau Yuen Ching [2007]:
• Ancestor veneration? Yeap Cheah Neo v Ong Cheg
Neo (1875)
• But Neville Estates v Madden [1962]?
Public Benefit: Other Purposes Beneficial to
the Community
• More stringent requirements than the others!
• Can be confined to a locality But class within a class?
• Williams v. IRC [1947] “Welsh people in London”
• IRC v. Baddeley [1955]: residents of West Ham and Leyton
who “for the time being are members or likely to become
members of the Methodist Church and of insufficient means
otherwise to enjoy the advantages provided by these presents ”
• Lord Simonds “Who ever heard of a bridge to be crossed only
by impecunious Methodists?”
• Ip Cheung Kwok v Ip Siu Bun [1988]: “assist the common
welfare of the village”- “descendants of the clan in the village”
 Public Benefit: Political Purposes?
“A trust for the attainment of political objects has
always been held invalid, not because it is illegal, for
everyone is at liberty to advocate or promote by any
lawful means a change in the law, but because the
court has no means of judging whether a proposed
change in the law will or will not be for the public
benefit, and therefore cannot say that a gift to secure
the change is a charitable gift.” per Lord Parker in
National Anti-Vivisectionist Society v IRC [1948]
 Public Benefit: Political Purposes?

• McGovern v Attorney-General [1981]

• Amnesty International
• Focuses on the release and humane treatment
of prisoners of conscience, the observance of
human rights and the dissemination of the
results of such research
• Strong political element?
• But RSPCA?
 Exclusively Charitable?
• If the charity is set up with mixed charitable and non-
charitable objectives? Why?
• “In construing trust deeds the intention of which is to set up
a charitable trust...where it can be claimed that there is
ambiguity, a benignant construction should be given if
possible.” IRC v McMullen [1981]
1. Use of ‘and’ and ‘or’;
2. Gifts to those in public office;
3. Incidental non-charitable purposes;
4. Charging for charitable services;
Problems with multiple purposes: “or” and
“and”
• Re Diplock
• ‘for such charitable institutions or other
charitable or benevolent objects in England
as they may select in their absolute
discretion’
 Wholly and Exclusively?
Trust Must Be Exclusively Charitable
• Blair v Duncan [1902]: ‘such charitable or public purposes as
my trustee thinks proper’
• Houston v Burns [1918]: ‘public, benevolent or charitable
purposes’ as think fit
• Ng Chi Fong v Hui Ho Pui-Fun [1987]: ‘the development of
Chinese culture or establishing…school(s)’
• Re Sutton- ‘charitable and deserving objects’
• Re Best [1904]: ‘charitable and benevolent’ objects
• A.G. of Bahamas v Royal Trust Co [1986]: gift for the
‘education and welfare’- of children in Bahamas
 Exclusively?
Trust Must Be Exclusively Charitable
 Public office e.g. priest: Issue is whether restricted to
religious work or could use for other purposes:
 E.g. Morice v Bishop of Durham: ‘for such objects of
benevolence and liberality as the Bishop of Durham
in his own discretion shall most approve’.
 “parochial work”- non-charitable (Farley)
 “for his work in the parish”- charitable (Simpson)
 Exclusively?
Trust Must Be Exclusively Charitable
1. incidental/ de minimis non-charitable purposes:
 Re Coxen [1948] - dinner & small payment to committee
 Cheung Man Yu v Lau Yuen Ching [2007] –accomodation for
temple keeper and her disciples
2. Charging: Scottish Burial Reform and Cremation Society v
Glasgow Corporation [1968]
3. Sever/apportion charitable and non-charitable purposes – if
no direction as to portions then “equality is equity”: Salusbury
v Denton (1857)

• But if trustees can choose non-charitable? Chichester

Diocesan Fund v Simpson
 Cy-près
• ‘as near as possible’
• What happens if charitable trust fails:
• Inter vivos ?
• Testamentary?
• If recipient association cannot carry out charitable
purpose?
• How?
• Why?
 Cy-près
• 3 conditions for cy-près:
1. Valid charitable trust
2. The impossibility or impracticality of carrying out the
charitable purpose, or surplus funds after purpose carried
out (charitable purpose must have failed)
3. Must recognise general charitable intent of testator

• How do we decide if there is general charitable intent?

• initial failure & subsequent failure?
 General Charitable Intent
• Initial failure
1. Recipient never existed- Re Harwood [1936]:
2. Recipient ceases to exist before testator’s death -
I. amalgamated with other charities similar aims? Re Faraker
[1912]:
II. Defunct charity was UA? HSBC Ltd v Incorporated Trustee
of the Islamic Community Fund of Hong Kong [1984] : Re
Finger’s Will Trusts [1972]: But Re Spence [1979]
III. Defunct charity was incorporated? Re Woodhams [1981]:
 General Charitable Intent
Subsequent failure
3. Ceases to exist after testator’s death but before transfer? Re
Wright [1954]

4. Receives funds but ceases or ceases to carry out purpose?

Hong Kong Housing Services for Refugees Ltd v Secretary for
Justice [1999]
 Possible reforms
• Statutory definition of charities
• Charitable purposes
• Public benefit presumption
• cy-près
• Charity commission
• Admin