Small Change: Charity and the National Debt — Waiting for Judgment

Barbara Rich
17 min readNov 8, 2020


The senior partners of Barings 1926 by Ambrose McEvoy — l. to r. John Baring, second Lord Revelstoke, Cecil Baring, later third Lord Revelstoke, Gaspard Farrer, Alfred Mildmay. Barings were the original trustees of the National Fund chosen by the donor “in order to secure the benefit of your long experience”. Barings had been trading since 1726, and the donor could not have imagined that the National Fund would outlast the existence of the bank, which failed in the aftermath of the crisis precipitated by rogue trader Nick Leeson in 1995

Update: 9 November 2020 — judgment in Attorney General v. Zedra Fiduciary Services UK Ltd [2020] EWHC 2988 (Ch) has now been published on BAILII, upholding the validity of the National Fund as a charitable trust for the purpose of discharging the National Debt and deciding that the court can make a cy-pres scheme altering the charitable purposes of the trust. A future hearing will decide whether this scheme should be one which directs payment of the National Fund towards reduction of the National Debt or some other charitable purpose.

The published judgment has also revealed the identity of the founder of the National Fund as Gaspard Farrer [1860–1946], a partner of Barings and a member of the Farrer solicitors’ family, depicted standing on the right in the painting above.

On Monday 9 November 2020 the High Court (Mr Justice Zacaroli) will give judgment in the case of Attorney General v. Zedra Fiduciary Services UK Ltd. This judgment will decide the future of the £512M National Fund, currently registered as a charity. The National Fund came into existence in 1928 with an anonymous gift of £500,000, and with the ultimate aspiration of discharging the UK government’s National Debt. Redemption of the National Debt by the government was an aspiration far more widely held by those responsible for public finances in the 1920s than now, and had been favoured by a 1926 report of the Treasury Committee on National Debt and Taxation. The foundation of the Fund was also influenced both by the sharp rise in the amount of the National Debt itself during the First World War, and a belief that men who had survived and profited from that war should make some financial sacrifice for the nation in its aftermath. I have discussed this background in more detail in previous blogs about the case, published in June 2018 and January 2020.

The claim and its protagonists

The case commenced on 22 May 2018, with a claim issued by the then Attorney General, acting, not politically, but on behalf of the public interest in charity, which is one of the duties of the office. The claim was not intended to be a hostile claim but a means to enable the High Court to answer questions about the future of the National Fund. It was a substantial fund which was essentially sterile, with neither its capital nor its income ever having been used for any charitable purpose. Its original aspiration had for some time appeared to be increasingly unlikely ever to be fulfilled, given the minuscule percentage of the National Debt the accumulated fund represented, both at the date the claim was issued, and at the date of hearing. A joint experts’ statement in September 2020 gave the National Fund a value of 0.026% of the National Debt at that date, and at the hearing in October 2020, it was accepted that it is now impossible for the National Fund ever to grow sufficiently to pay off the National Debt. The Attorney General’s position at the date the claim was issued and since has consistently been that the National Fund should be paid to the National Debt Commissioners, and applied in the reduction of the National Debt. The defendants to the claim are the corporate trustees who replaced Barings. They have no personal interest in the claim but play a role in presenting any tenable arguments contrary to those of the Attorney General as to how the National Fund might now be administered and applied, so that the court can have a completely informed basis for the decision it makes. One counter-argument that has been raised from time to time, and which is supported by some civil society advocates and opposition politicians, is that the National Fund should become a grant-making fund for other, smaller charities. More recently it has been suggested that it might relieve hardship caused by the coronavirus pandemic.

By the time the case came to be heard in October 2020, two Attorneys General later[1], its participants had grown to include two separate individuals, descendants of the family of the original anonymous donor. Each of these individuals represents others with equivalent claims of entitlement, and each has separate legal representation. Both have contested the initial validity of the National Fund as a charitable fund. Their arguments have developed since the hearing in January 2020, when a different individual, then known only as X, and also a descendant of the family of the anonymous donor, was first given permission to participate and be represented at the final hearing, as described in my January 2020 blog. X later decided to withdraw from the proceedings, perhaps deterred by the refusal of a protective order for his legal costs of participation to be paid from the National Fund. The participation of the other individuals who have now argued for the invalidity of the National Fund trusts has significantly expanded the range of possible outcomes of the case, and escalated the element of real dispute first introduced by X, as to whether the Fund belongs to private individuals who are descendants of family members of original donors, or to the public, as money given to charity. The hearing of the case has also coincided with the unforeseen coronavirus pandemic, which has created its own pressures on public finances and drawn greater attention both to the level of the National Debt and to charities’ financing than would otherwise be the case. It has also had the consequence that the hearing took place by live video stream rather than in a courtroom, with one of the QCs appearing in a setting of more apparent grandeur than the judge, seated on a high-backed chair gilded with a heraldic shield, and accompanied on and between each hour by the chiming of a mechanical clock.

In this blog I summarise the history, the key issues and the arguments on them which are to be decided in the judgment. This is only a brief summary which does not do justice to the range and detail of the parties’ arguments. In addition to the extensive legal argument, a great deal more of the background to the creation of the National Fund has been revealed in the public archive documents available at the hearing, and this has its own historical interest, yielding insights into the worlds of high finance and politics in the 1920s from a previously untold story. And, like the commissioning of Mozart’s Requiem[2], stories which are rooted in anonymity are always intriguing. The “extremely munificent” anonymous donor of the original £500,000 of the Fund in 1928 wished to retain his anonymity for ever. He is now long dead, and is not a person generally well-known to posterity. There is no posthumous reason to maintain his anonymity, nor is there any court order protecting it, and he has been named in open court in the recent hearing. All the same, I have decided not to name him unless and until he is named in the published judgment.

History of the National Fund

The history of the National Fund began in the summer of 1926 when the anonymous donor, “a very rich man of advanced years” (he was in fact in his mid-60s and lived for another two decades) [3], approached Sir Otto Niemeyer, then adviser to the governor of the Bank of England, to ask what would happen if he used his fortune to create a fund to accumulate income and capital in the hands of private trustees for the redemption of the National Debt, not immediately, but many years in the future. The donor believed that creating the fund in this way, rather than making an immediate payment towards reduction of the National Debt, would encourage other rich men to follow his example. Winston Churchill, then Chancellor of the Exchequer, was keen for the government to accept the gift, which he described in correspondence as “an outstanding example of public spirit” which might “mark a turning-point in the history of the Debt”. In order for this to take effect in the way conceived by the donor, legislation was necessary to permit the trustees of the intended trust to accumulate income for an unlimited period of time[4]. This legislation, shaped by the influence of the donor, and with its progress through Parliament interconnected with the creation of the National Fund, is section 9 of the Superannuation and other Trust Funds (Validation) Act 1927 (“the 1927 Act”).

On 10 November 1927, Lord Revelstoke, then the senior partner of the long-established City banking firm Baring Brothers & Co (“Barings”)[5], wrote to Sir Otto Niemeyer to inform him that the donor, “Dives”, had given Barings a fund of cash and securities valued at £500,000 which were to be “held in Trust for the Nation” provided that the legislation which became the 1927 Act did so in that Parliamentary session. It received Royal Assent on 22 December 1927, and on Monday 9 January 1928, Barings formally executed the trust deed which brought the National Fund into existence. Its existence was publicly announced by Winston Churchill on 26 January 1928, describing it as “a benefaction hitherto exceptional in the relations between the State and its citizens”, and widely reported in the press. The public announcement was followed by many small donations in the course of 1928, some from identified donors, and some anonymous, with one simply described as “from an old woman to England”, and another as “from daughter to Mother Country”. One man who wrote to Winston Churchill under a “nom-de-plume” was an ex-officer who had served from 1914–1918 in the First World War. He had been discharged from the Army with a disability pension of £43 per year which he now offered to surrender in order to associate himself with “the spirit of Old England” which he believed had inspired the anonymous donor of the £500,000 Fund. On 5 July 1928 Winston Churchill acknowledged receipt of another important gift to the nation: a fund of £500,000 to be accumulated and ultimately applied to the reduction of the National Debt, made by Lord Inchcape in memory of his daughter Elsie Mackay. Elsie Mackay was a pioneering aviator who had disappeared at the age of 35 on a transatlantic flight in March 1928, a flight which she had promised her parents she would not attempt, and which she undertook in secrecy and under an assumed name. Other important contributions to the National Fund itself were made by other donors from time to time in the decade or so after its foundation.

The National Fund trust deed and the 1927 Act

The central focus of the issues and arguments in the case is the interpretation of the constitutional document of the National Fund: the trust deed executed on 9 January 1928, and the wording of s9 of the 1927 Act. These are the core texts for the decision in the case.

The National Fund trust deed

The trust deed is a formal declaration by Barings that they held the £500,000 transferred to them on 10 November 1927 on the trusts set out in the deed. Its principal terms are as follows:

(Trust of the National Fund) 2. The Trustees shall hold the National Fund upon trust until the date of application to accumulate the net income and profits thereof in the way of compound interest … and on and from the date of application shall stand possessed of the National Fund including the accumulations upon trust then to transfer and pay [it] to the National Debt Commissioners to be applied by them in reduction of the National Debt

(The date of application) 3(a). The date of application shall be the date fixed as such by the Trustees as being the date upon and after which effect can be given to the desire of the founder of this trust that the National Fund shall be retained and accumulated until either alone or with other Funds then presently available for the purpose it is sufficient to discharge the National Debt

Provided that if in the Opinion of the trustees at any time or times National exigencies shall require and the Trustees shall determine that some part of the National Fund shall be forthwith applied in reduction of the National Debt the Trustees shall have power to give effect to that determination by transferring and paying that part to the National Debt Commissioners to be so applied by them

Provided further that it shall be the duty of the Trustees to keep in hand until the date of application a substantial part of the National Fund to the extent that effect shall ultimately be given to the desire of the founder of this trust as herein expressed

First and last pages of the deed creating the trust of the National Fund. Barings had already received the cash and securities of £500,000 forming the trust fund from the anonymous donor in November 1927, so he did not need to be named in the declaration of trust

s9 of the 1927 Act

Provisions as to Funds for the reduction of the National Debt

9 Validation of trust funds for the reduction of National Debt.

(1) Where by any instrument directions are given for any property being held upon trust and the income thereof being wholly accumulated (subject only to payment thereout of any costs, charges and expenses of the trustees and any remuneration to which they may be entitled) for any period to be determined under the provisions of the instrument, and for the property and accumulations being transferred at or before the expiration of that period to the National Debt Commissioners to be applied by them in reduction of the National Debt, then, unless the Treasury within three months after they receive notice of the taking effect of the instrument disclaim the interest of the National Debt Commissioners under the said directions, notwithstanding any Act or rule of law to the contrary, the directions shall be valid and effective and no person shall be entitled to require the transfer of any part of the property, income or accumulations otherwise than in accordance with the provisions of the instrument

Summary of the issues and arguments

The issues and arguments divide into two groups:

(1) Issues about the initial validity of the trust, in which the Attorney General and the trustees argue for the initial validity of the trust of the National Fund as a charitable trust, and the other parties, the “invalidity beneficiaries”, argue against it. All the parties agree that if the trust is initially valid, its purpose, whether defined as discharging or reducing the National Debt, is charitable.

(2) Issues about the future application and administration of the National Fund, if the Attorney General and the trustees are right about initial validity. The invalidity beneficiaries are not concerned in these arguments at all.

The validity of the trust and its charitable status

The invalidity beneficiaries argue that the National Fund never became a charitable trust capable of fulfilling the “desire” of its founder. They interpret the wording of the trust deed as imposing a condition on which the initial validity of the trust depends, and which was incapable of being fulfilled. They argue that because it is now established that the fund could never have grown sufficiently to discharge the National Debt, whatever people may have reasonably believed at the time, the trustees could never have fixed a “date of application” upon which they were to pay the trust fund over to the National Debt Commissioners. If they are right, the consequence is that the trust fails and, unless the donor had any “paramount” charitable intention, the original fund and any additions to it instead belong to the personal estates of their respective donors.

Against this, the Attorney General argues that the National Fund vested in the trustees immediately it was created, for the stated purpose of reducing (not discharging) the National Debt, and that there is no uncertainty or conditionality about any gift to charity. The trustees disagree with the Attorney General on the purpose of the trust, but agree that there was a valid trust constituted on 9 January 1928, with no future conditionality involved, analysing the language of the deed and the mechanics of the relationship between the trustees and the National Debt Commissioners (who are not beneficiaries of the trust, but have since 1786 had statutory powers and functions in connection with the management of government finances) to support this argument.

There is a further argument on validity of the trust, which depends on the effect of s9 of the 1927 Act. As the scope of this legislation is so limited and specific to the National Fund and a small number of other funds following it, unsurprisingly, it has never been considered in court before. The Attorney General and the trustees argue that even if the trust of the National Fund was not valid when it was created, s9 has validated it. As the Treasury did not disclaim the National Fund within three months as provided for by s9, then, in accordance with its strict wording, “notwithstanding any Act or rule of law to the contrary”, no-one is entitled to claim entitlement to any part of the fund other than in accordance with the terms of the trust deed itself. There are no terms of the trust deed which would permit the invalidity beneficiaries any interest in the National Fund. The invalidity beneficiaries argue that section 9 of the 1927 Act goes no further than permitting an unlimited period of accumulation that would otherwise have been prohibited, and can’t be interpreted as permitting the creation of a trust subject to an impossible condition precedent. This argument was foreshadowed at the hearing in January 2020.

The purpose of the trust

There is a disagreement between the Attorney General and all the other parties as to whether the purpose of the trust is the reduction of the National Debt, or its complete discharge. The trust deed refers to giving effect to the desire of the founder for the fund to grow until it was sufficient to discharge the National Debt, but clause 2 unequivocally states that the fund is to be paid to the National Debt Commissioners “to be applied by them in reduction of the National Debt”. The Attorney General argues that this was the purpose of the trust. All of the other parties argue that the founder’s desire to discharge the National Debt in full was the true purpose of the trust. The argument between the parties is important, because other aspects of the case depend on it. If the Attorney General is right that the purpose was reduction, not discharge, then it is more difficult, or impossible, for the invalidity beneficiaries to argue that the condition on which the existence of the trust depends could never be fulfilled. The “reduction or discharge” purpose question also makes a difference to the arguments about whether the trust has subsequently failed, even if initially valid, and the consequences of that. As a matter of fact and history, the trustees have never used part of the fund in any “national exigencies”, not even during the second world war between 1939 and 1945, to reduce the National Debt, but have continued to accumulate income and capital without reduction since 1928.

Failure of the purpose of the trust

The invalidity beneficiaries argue that the founder of the National Fund did not have any general or paramount charitable intention which might rescue a gift otherwise invalid from the outset. The Attorney General argues that it is not necessary to resolve this issue, but that that the founder did in any event have a paramount intention to make a gift to the nation from his private wealth and to encourage others to do the same. The court is entitled to look at evidence more widely than the wording of the trust deed to decide this issue. The trustees argue that the founder did have a paramount charitable intention, that intention again being to benefit the country and encourage others to do so in a similar way, and suggesting that his chosen anonymity and absence even from being named on the trust deed was also consistent with a paramount charitable intention.

Just as for the primary invalidity issue, there is also a question about the effect of s9 of the 1927 Act. The Attorney General argues that it does not prevent the exercise of the cy-pres jurisdiction which applies to charitable trusts in the event of initial or subsequent failure of charitable purpose, whereas the trustees and the invalidity beneficiaries argue that it does.

If the National Fund is a valid charitable trust, what should now be done with it?

The arguments between the Attorney General and the trustees involve two separate jurisdictions which apply to charitable trusts: a cy-pres change of purpose, where the original purpose has become incapable of fulfilment or obsolete, under s62 of the Charities Act 2011, and a change of administrative provisions under a managerial scheme made under s73 of the same Act.

The Attorney General argues that s62 does not apply, because the original purpose of the National Fund can still be carried out, and continue to provide a suitable and effective method of using the National Fund. The trustees argue against this that a cy-pres occasion under s62 has arisen, and that the “spirit of the gift” which is relevant to this jurisdiction favours an alternative to simply applying the fund to reduction of a minuscule fraction of the National Debt. The trustees argue that the court should consider an alternative cy-pres scheme.

The Attorney General argues that applying the Fund immediately to the reduction of the National Debt does not involve a change of original purposes but can and should be achieved by a scheme under s73 of the Charities Act 2011.

The published judgment will determine:

  • Whether the Attorney General and the trustees are right about the validity of the National Fund as a charitable trust, and so whether the £512M remains public funds, or whether the invalidity beneficiaries’ challenge to this is successful, and
  • Whether the Attorney General is right that the National Fund should now be paid towards reducing the National Debt and that this does not require any scheme in which the purposes of the trust are changed, or whether other possible applications of the £512M for charity will be considered
  • There will also be a hearing at some point after the judgment is “handed down” to determine consequential issues, particularly in relation to the legal costs of the invalidity beneficiaries and the extent to which (now retrospectively) any of them may be entitled to a protective costs order from the National Fund itself

With thanks to all counsel instructed in the case for making copies of their skeleton arguments available to me and the bundle of public archive documents prepared for the hearing


[1] The claim was issued on 22 May 2018 when Jeremy Wright QC MP was in office as Attorney General, an appointment that ended on 9 July 2018. His successor Geoffrey Cox QC MP was in office from that date until 13 February 2020, and the current Attorney General is Suella Braverman QC MP. All three are Conservative MPs, as that has been the party of government throughout the relevant period. However, neither the identity nor the political views of the individual officer-holder are relevant to this case, and the changes simply reflect a concurrent period of some political turbulence.

[2] In 1791 Mozart was visited by a stranger with a solemn expression, bearing an unsigned letter commissioning him to write a requiem mass. He was forbidden to make any attempt to discover the name of the author of the letter, who had sent the stranger as his intermediary. Mozart accepted the commission, but as his health declined and he died with its composition uncompleted, came to believe that he was writing the Requiem for himself. It had been in fact commissioned by a minor aristocratic music-lover whose wife had died and who wished to (and did) pass Mozart’s work off for his own.

[3] In correspondence, Niemeyer referred to the donor as “Dives”, the Latin word for a rich man, and a reference to the parable of Dives and Lazarus in the New Testament gospel of St Luke. He called the legislation which was needed to validate the proposed trust the “Dives Bill”.

[4] Section 164 of the Law of Property Act 1925, no longer in force since the Perpetuities and Accumulations Act 2009, restricted the period for which trust income could be accumulated, essentially to 21 years from the settlor’s death. It was itself the re-enactment of some legislation dating back to the Thellusson case of 1799. During Parliamentary debate on the 1927 Act an unsuccessful attempt was made to limit the period of operation of s9 to an initial period of 50 years.

[5] Barings were described by the Duc de Richelieu in 1818 as the “Sixth Power” in Europe after Britain, France, Austria, Prussia and Russia — see Philip Ziegler’s “The Sixth Great Power: Barings, 1762–1929”, Collins 1988



Barbara Rich

English barrister & mediator — specialising in disputed succession & decision-making for people who lack mental capacity