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Charities Test Case Focuses on Fund Meant to Pay Off the National Debt

Generous benefactors donate to charity with a view to furthering all sorts of purposes close to their hearts – but what if those purposes cannot possibly be achieved? The High Court considered that thorny issue in a guideline case concerning a trust fund which was established in 1928 with the objective of paying off the national debt.

Gaspard Farrer, a retired partner in Barings Bank, placed cash and securities into the fund which were then valued at about £500,000. Further donations to the fund followed, including a gift of more than £400,000 by Lord Dalziel of Kirkcaldy in 1935. No new donations had been received into the fund since 1982 but, thanks to wise investment, it was currently worth £512.2 million.

After issues were raised as to whether the deed by which the fund was established created a valid charitable trust, the Attorney General – whose functions include the oversight of charities – launched proceedings. A number of descendants of donors into the fund argued that the deed was invalid from the outset and that the fund’s contents were therefore held on trust for their benefit.

Ruling on the case, the Court found that the deed created a valid charitable trust, the purpose of which was to benefit the nation by accumulating a fund that would in time be applied to discharging the national debt. It also had the subsidiary purpose of accumulating a fund to be applied in reducing the national debt if the trustees decided that there was an urgent national need for such a reduction.

The Court noted that the value of the fund represented about 0.007 per cent of the current national debt, which as at 31 July 2020 stood at £2,004 billion. Although the objective of paying off the national debt had seemed viable in 1928, it was now vanishingly unlikely, in effect impossible, for that to be achieved. Mr Farrer had made an outright charitable gift, but the purposes that he envisaged had failed.

The Court, however, ruled that it had the power to alter the purposes of the fund so that its contents could be used to meet the overriding wish of Mr Farrer and other donors to benefit the nation. Whether the fund should be used to achieve a relatively tiny reduction in the national debt, or for some other purposes to which the money could make a real difference, would be considered at a further hearing.