Small Change: Charity & the National Debt — an update

Barbara Rich
12 min readJan 15, 2020

HM Attorney General v Zedra Fiduciary Services (UK) Ltd [2020] EWHC 18 (Ch)

On 22 May 2018, the then Attorney General, Jeremy Wright QC MP, issued a claim in the High Court to ask the court what it could and would do to determine the future of a charity called The National Fund, created by an anonymous donor in 1928 with the aspiration of paying off the National Debt. The claim was due to be heard in November 2019, but that date was postponed in the light of the developments recorded in the recent judgment in HM Attorney General v Zedra Fiduciary Services (UK) Ltd [2020] EWHC 18 (Ch), published on 14 January 2020.

In May 2018 I wrote about the history of the National Fund and the object of the Attorney General’s claim in a blog called Small Change (also published in Trusts and Trustees vol 24 issue 8 pp 741–749), “small change” being both the value of the National Fund in comparison to the size of the UK’s National Debt, and a paraphrase of the literal translation of the Norman French “cy pres” (as close as possible), which is the technical term for seeking an alternative charitable object for charity funds which cannot be used for their originally intended purpose.

This blog is an update on that of May 2018.

The National Fund

As I described in Small Change, when the National Fund was created by a deed executed on 9 January 1928 with an initial gift of £500,000, and a strikingly progressive trust investment policy for its time, it would have required a combination of (1) extraordinary investment performance, and/or (2) dramatic reduction of the level of the National Debt, which had risen sharply during the First World War, and/or (3) substantial additional contributions from other donors in order to have any hope of fulfilling its original object of accumulation until it was sufficient to pay off the total quantity of money borrowed by the Government. The recent judgment quotes from the expert evidence prepared for the Attorney General by Professor Portes, describing the original donor’s aspiration of the National Fund becoming sufficient to extinguish the National Debt as “in retrospect … hopelessly optimistic, but it was perhaps not implausible at the time” (paragraph 37 of the judgment).

I also suggested that the creation of the Fund should be understood in the context of its time: the aftermath of the First World War of 1914–1918, when two ideas which are now largely forgotten were more widely held and discussed. The first was a Victorian and Edwardian aspiration that the National Debt should be paid off in its entirety, rather than managed by the Treasury and Bank of England, and kept in acceptable proportion to the UK’s gross domestic product. The second was a view that men who had been too old to serve in the armed forces in the First World War, or those who had financially prospered eg through the manufacture and sale of armaments, should make a gesture of parity of sacrifice by contributing significantly from their personal fortune towards the repayment of the National Debt. This view was reflected in an originally anonymous gift expressed in these terms and made by future Prime Minister Stanley Baldwin in 1919, and other funds and legacies created in the late 1920s and early 1930s for the same purpose. Christopher Nevinson’s painting He Gained a Fortune but He Gave a Son, exhibited to mark the centenary of the 1918 Armistice, as part of Aftermath: Art in the Wake of World War One at Tate Britain between June and September 2018 illustrates this relationship between the loss of young men’s lives and the war profits of their fathers well, I think.

C R W Nevinson — He Gained A Fortune But he Gave A Son 1918 © University of Hull Art Gallery

The recent judgment has provided some more detail about the foundation of the National Fund. The original £500,000 was deposited with the bankers Baring Brothers & Co Ltd (“Barings”), who were also the original trustees, in November 1927, and the anonymous donor set out some of his thinking in a letter to Barings:

“Gifts to the Nation of historic sites, buildings and works of art, are happily frequent; gifts to repay debt comparatively rare, this last being a dull objective but bringing in its accomplishment certain comforts of its own. To repay the National Debt may be thought to be beyond the reach of individual effort, but as a beginning towards this end I am placing at your disposal, as Trustees for the Nation, some £500,000 as the nucleus of a fund to accumulate in your hands, and to be applied eventually to this object.

I am entrusting this fund to your house in order to secure the benefit of your long experience in finance: and in the hope that others may from time to time be prompted to add to it, or on similar lines to set up funds of their own, citizens and City uniting in an attempt to free their country from debt.”

As it happens, the National Fund itself has outlasted Barings, which ceased operations in 1995 in the aftermath of a financial scandal precipitated by the activities of a rogue trader working in its Singapore office. Zedra Fiduciary Services (UK) Ltd (“the trustee”) is the current corporate trustee of the National Fund, and the defendant to the Attorney General’s claim.

Winston Churchill, then Chancellor of the Exchequer, made a public announcement on 6 February 1928, which was widely reported in the press:

“The nation has just received a benefaction of a character hitherto exceptional in the relations between the State and citizens. Within the last few days an anonymous donor has set aside the sum of £500,000 to be managed in trust for the nation. The capital is to accumulate at compound interest over a long period of years. Ultimately, with all its accrued proceeds swelling progressively with the passage of time, it is to be applied to the reduction of the national debt . . . . The Chancellor desires to acknowledge publicly the gratitude of his Majesty’s Government for this important gift, unprecedented in its character. He regrets that he cannot thank the donor by name.”

The most recent accounts (year ended 5 April 2018) filed by the trustee show that the National Fund had an accumulated value of just under £500M (£498,762,757). In paragraph 19 of the recent judgment the value is stated as at December 2019 at £520M. Although a very large fund, and one which has more than doubled in size in this century alone, this is only a minuscule fraction of the value of the National Debt, which was £1,821.3bn at the end of the 2018/9 financial year.

The Attorney General’s Claim

The Attorney General’s claim is neither political nor personal. Whoever holds the office of Attorney General has a duty to represent the public interest in the administration of charity. As every valid charity enjoys a range of legal privileges, and must have public benefit in order to qualify as a charity, it is obvious that there is a public interest to be represented. This particular claim has been widely perceived, and incorrectly described in many general media reports, as political, since the Attorney General proposed that the court should direct the immediate payment and transfer of the National Fund towards the reduction of the National Debt, rather than its distribution to other, smaller charities concerned with social welfare, as had been proposed by some commentators, and at one time considered as a possibility by the trustee itself. Jeremy Wright QC MP appeared on BBC Radio 4’s Law in Action programme on 5 June 2018, and in answer to questions from the programme’s presenter, Joshua Rozenberg, said:

“I hope … that this money can be dispensed in a way that’s as close as possible to the intentions of the original donors. We know that we can’t use that money to pay off the National Debt in its entirety . . . but we can, I think, get close to the intentions of the original donors and that’s not just my view that this is the desirable way forward, it’s also the view of the trustees of the Fund and indeed of the Charity Commission as well.

The evidence that we will put before the Court demonstrates that this Fund will never pay off the National Debt . . . but we can, I think, meet the broader objectives of the Fund, which were to pay down the National Debt, so that’s the application that we make.

There are those who would say “let’s find another way of dealing with this money that would benefit all sorts of other people”, but I think it is important, and I say this in my role as guarantor of the interests of charity more broadly, that when people give money for a particular purpose, that they feel as though that purpose will be honoured, that we will not be seeking to spend the money in a way that they hadn’t envisaged and didn’t set out as their intention.”

This statement correctly reflects the aim of the law of charitable cy-pres, which is to follow the intentions of the original donors as closely as possible in circumstances which have changed since the date of their gift. Although the Attorney General’s claim is not in any way adversarial to the trustee, but is a framework within which the court can consider what powers it has, and how they should be exercised, the trustee has made it clear in its most recent annual report that, following a case management hearing on 22 January 2019, it “will be represented at the court hearing and will put forward contra arguments to that of the Attorney General to allow the court to consider all relevant matters in reaching its conclusion”. This is an obviously sensible way of ensuring that contrary arguments about the charitable use of the National Fund to those of the Attorney General are given a hearing in a case where there appears to be no obvious person or institution with standing to become involved in order to do so. At the same case management hearing, it now appears, the trustee told the court that it considered the prospect of any individual making a claim to any part of the National Fund’s assets to be “exceedingly remote”. Following the hearing, as explained in the recent judgment, the court made an order making it clear that it did not expect the trustee to take any steps to identify any such individuals, but that the trustee should be prepared to present argument on their behalf if the trial judge required that to be done.

The recent judgment

As is far from unknown in litigation, the “exceedingly remote” has now materialised. The judgment of Chief Chancery Master Marsh published on 14 January 2020 is his decision on an application made by a person (“X”) who is for the time being anonymous, and who has not previously been involved in the claim, and who only became aware of it on 2 October 2019. This person is connected by kinship to the anonymous donor who first created the National Fund. His great-grandmother was a sister of the anonymous donor. He is not seeking to argue that the Fund should be distributed to other charities or purposes, but to raise an argument that the original constitution of the National Fund was technically invalid from the date of its constitution, and that the original gift of £500,000 therefore fails and is to be distributed to those entitled to claim an interest in the original donor’s estate through their kinship with him.

In the recent judgment, Chief Master Marsh permitted X to become a party, i.e. an active participant in the Attorney General’s claim and therefore to be represented to argue for the original invalidity of the National Fund at the final hearing. He considered that X had an arguable case and that it was desirable that he should be a participant in the claim. It is clear from the judgment that there was vigorous argument as between X and the Attorney General as to whether X’s case is or is not arguable. There are three aspects to X’s argument:

- That the purposes of the National Fund were impossible or impracticable to achieve at the outset. X wishes to call expert evidence to set against that obtained on behalf of the Attorney General on this issue. Chief Master Marsh accepted (at paragraph 37) that it was clear that X “has some prospects of success on this point”.

- That the deed creating the National Fund was a gift for particular purposes, so that if they fail at the outset, the gift remained as the property of the original anonymous donor, and would form part of his estate on death. This depends on the court’s ultimate interpretation of the deed and whether it can find a general charitable intention rather than a gift for particular purposes. Where there is a general charitable intention behind a gift that fails, the gift can be redirected to a valid charitable object. Again, Chief Master Marsh accepted (at paragraph 37) that it was clear that X has some prospects of success on this point.

- That X is not prevented from challenging the validity of the deed by the words of the Superannuation and Other Trusts (Validation) Act 1927 (“the 1927 Act”), which received Royal Assent and came into immediate force on 22 December 1927. The significant practical effect of s9 of that Act, which was headed “Provisions as to Funds for the Reduction of the National Debt”, was to validate directions to trustees to accumulate the income of a fund which was intended to reduce the National Debt, without any limitation on the period of time for which income could be accumulated. Until the Perpetuities and Accumulations Act 2009 came into force, this period was otherwise limited. There is a dispute between X and the Attorney General as to how some of the language of s9(1) of the 1927 Act should be interpreted. The Attorney General, with whom the trustee agrees, argues that the words at the end of s9(1): the directions [for the accumulation of income] 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 [deed creating the trust]” mean that X cannot require the any part of the National Fund or its accumulated income to be transferred to him. X argues that the 1927 Act is intended to permit accumulation of income for a longer period than the law would then otherwise have allowed, and that s9(1) does not go further in “immunising” the National Fund from a challenge to its validity. Chief Master Marsh described this as a “major hurdle” for X, as the words quoted above “appear apt to bar any claim of the type X wishes to make” (paragraph 27 of the judgment), and said there was “considerable force” in the Attorney General’s argument against X’s interpretation. However, he felt that X’s argument still managed to get over the “low threshold” of having some prospects of success, despite “very significant difficulties” in his way.

Having accepted that X had some prospects of success on the legal arguments, Chief Master Marsh also thought that it was desirable that X should be permitted to participate in the claim because (1) section 9 of the 1927 Act had never previously been considered by a court (unsurprisingly given its very specific ambit) (2) the National Fund itself is very substantial (3) at the time of the January 2019 case management hearing the trustee itself had been willing to contemplate the possibility of a person like X making a claim, and (4) it is preferable for the court to hear argument about whether or not a gift has failed from someone who has a real interest in seeking that outcome. However, he refused to make a prospective costs order for X to have his legal cost from the National Fund.

The final hearing of the claim has now been postponed to October 2020. It will involve more participants and a significantly wider range of legal issues than was apparent when it was first issued in May 2018. The individual identity of the Attorney General him or herself is not of any consequence to a claim of this type, and it is only a reflection of the political tumult of the last few years that both currently and foreseeably in October 2020 the office-holder was not the Attorney General when the claim was issued. And irrespective of the change of office-holder, there is no reason to suppose that the Attorney General’s view of the claim has changed from that which was expressed in that broadcast.

As for the anonymous donor, the final paragraph of the judgment raises the possibility that he might be identified. That identification might well lead to a deeper knowledge of his life and the ideas and experiences that led him to create the National Fund. The court was not asked to make any order maintaining his anonymity and Chief Master Marsh did not consider that it would be right to do so. The donor did not need to be named to decide the issues in the judgment, and the legal representatives of the Attorney General, the trustee and X have agreed to exercise ‘self-restraint’ in the future.

“Whether this leads to the benefactor’s wish for anonymity being respected remains to be seen.”



Barbara Rich

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