Introduction
To create a valid private express trust, the Court of Chancery required three certainties: certainty of intention, certainty of subject matter, and certainty of objects.Footnote 1 The focus of this paper is on the certainty of objects requirement, whose origin dates back at least as far as the most notable English case, Morice v Bishop of Durham Footnote 2 (Morice). A notorious principle that Morice laid down is that private express trusts must be created in favour of identifiable or named individuals. Following this principle, a trust created for purposes rather than identifiable individuals is prima facie void, due to the absence of ascertainable individuals ‘in whose favour the court can decree performance’.Footnote 3 On the other hand, a body of scholarly writings has argued that certainty of objects is not a legal necessity, although ‘it is reasonable, equitable, and in accordance with the analogies of the law’.Footnote 4 The main tension between these two arguments lies, in substance, in the concern regarding the enforceability of a purpose trust.Footnote 5 The case law developed in the last century has upheld a limited, though well-recognised, number of purpose trusts.Footnote 6 Yet the basis on which these exceptional and anomalous trusts were recognised falls short of consistency and coherence, and therefore it is doubtful whether these instances can be followed in light of recent case law.Footnote 7
Traditional trust scholarship holds that the presence of an equitable proprietary interest, held by an identifiable individual or individuals, is the prerequisite of a valid trust. An exception to this view is the institution of the charitable trust. In view of the public benefit deriving from the enforcement of charitable trusts,Footnote 8 the courts have widely recognised their establishment and appointed the Attorney General to perform the role of an enforcer.Footnote 9 In Leahy v Attorney-General for New South Wales,Footnote 10 the Privy Council held that ‘a trust may be created for the benefit of persons as cestuis que trust but not for a purpose unless the purpose be charitable. For a purpose cannot sue, but, if it be charitable, the Attorney-General can sue to enforce it’.Footnote 11 The Master of Rolls Sir William Grant referred to the legal validity of charitable trusts as long ago as 1804 in Morice, although it was recognised far earlier than that.Footnote 12 His Lordship said, ‘where a charitable purpose is expressed, however general, the bequest shall not fail on account of the uncertainty of the object’.Footnote 13
The central concern of a charitable trust lies in the establishment of mechanisms to hold a charity trustee accountable for its performance of duties, so as to the protect the public benefit flowing from the execution of the charitable purposes. In England, Parliament introduced the ‘necessary interest rule’ through the passage of the Charities Act, allowing ‘any person interested in’Footnote 14 a charitable trust to bring charity proceedings against a defaulting trustee in its administration of charitable assets. This rule has also been introduced into other jurisdictions inheriting the common law tradition, though the expression is slightly different; for example, section 57A(a)(iii)Footnote 15 of the Trustee Ordinance (Hong Kong), section 70(5)(e)Footnote 16 of the Trustee Act 1925 (Australian Capital Territory), and section 36(1c)(e)Footnote 17 of the Trustee Act 1936 (South Australia). Nevertheless, insufficient attention has been paid to this rule, even though it came into being as long ago as 1853.Footnote 18 Upon closer inspection of the relevant trust scholarship, there exists already a sizable body of literature that discusses the role of settlors and the Attorney General in supervising the trustees’ daily management of charitable trusts.Footnote 19 In contrast, scholarly writing analysing the role of the ‘interested’ person in the governance of charitable trusts is exceedingly rare. This is primarily attributable to the widely acknowledged conceptualisation of the charitable trust as a purpose trust.Footnote 20 It thus follows that the model of charitable trust has no beneficiary or beneficiaries as understood in the context of an express private trust, and the recipients selected for the purpose of charity asset distribution play the mere role of a channel through which the public benefit pursued by the trust is realised. This view, very much the orthodox one, has discouraged both academics and practitioners from exploring the potential supervisory role of recipients under a charitable trust and the scope of ‘interested’ persons in relation to the bringing of charity proceedings.
This paper studies the necessary interest rule under English lawFootnote 21 with the aims of exploring the way in which it has been construed and applied, and of identifying the extent to which an interested person may hold charity trustees responsible for their management of charitable assets. This study has significance in both practical and theoretical senses. Practically, although it is recognised that the Attorney General ‘[represents] the Crown as parens patriae to enforce the execution of charitable trusts’,Footnote 22 this ‘protector’Footnote 23 or ‘guardian’Footnote 24 mechanism has been extensively criticised due to its lack of resources (in terms of both personnel and funds) dedicated to supervising the administration of charitable trusts.Footnote 25 Since the reforms of the Charities Act 1960 (England and Wales), the function of the Attorney General has largely been replaced by the Charity Commission for England and WalesFootnote 26 (Commission). However, the establishment of the Commission does not completely alleviate the concerns over the supervision and enforcement of charitable trusts, for not all charitable trusts are required to register with the Commission,Footnote 27 and more notably, it is questionable whether the Commission is capable of effectively performing its monitoring role.Footnote 28 One might argue that, aside from the Attorney General and the Commission, settlors are interested in seeing charitable assets being properly used, and therefore they are ideal candidates to play an overseeing role. But this approach is also not free of problems, as too much reliance on settlors to supervise charitable trusts will contribute to the risk that they may use charitable trusts as a vehicle for illegal purposes, such as money laundering or tax evasion. In view of the above concerns, it is of practical significance to explore other ways to oversee trustees’ administration of charitable trusts, such as via interested person(s).
Theoretically, there has been a long-standing debate as to the conceptual nature of express trusts, where two arguments have been raised. The first opines that the essence of an express trust lies in the ‘equitable proprietary rights of the beneficiaries’.Footnote 29 This argument considers charitable trusts an exception to the beneficiary principle and recognises the validity of charitable trust as a matter of public policy. The second argument holds that the essence of express trusts is in ‘the trustee's subjection to the control of her exercise of power over trust property’.Footnote 30 This argument centres on the accountability of trustees and the proper execution of trusts. It follows that a valid trust may be created by way of appointment of an enforcer and that whether this enforcer is the person in whom the ‘equitable proprietary rights’Footnote 31 are vested is not a critical question. Focusing on the ‘due execution’Footnote 32 of charitable trusts, the necessary interest rule relates to the identification of qualified persons who are entitled to ‘call on the court to enforce the trust’.Footnote 33 An examination of this rule provides an opportunity to revisit the discussion concerning the conceptual nature of express trusts, and sheds light on the debate concerning the two arguments noted above.
This paper will proceed as follows. After the ‘Introduction’, Part 1 analyses the two elements constituting the necessary interest rule: the necessary interest requirement and the protection filter. It explores the meaning of the ‘interest’ required of a person for the purpose of bringing charity proceedings, and the factors that the courts have taken into account in its interpretation. It also identifies the way in which the protective filter is operated for the prevention of frivolous and pointless litigation. Part 2 draws out the theoretical implications that analysis of the necessary interest rule has for the beneficiary-enforcer debate, as well as the court's inherent jurisdiction to supervise the administration and execution of trusts. Finally, the paper concludes with some comments.
1. The necessary interest rule
In contrast to the private law approach of standing under express private trusts, ie trustees’ duties are ‘seen as correlative to a right of [beneficiaries]’Footnote 34 and beneficiaries accordingly are entitled to sue against trustees who commit misconduct, the courts and Parliament have chosen to take a different approach in determining whether a person is eligible to sue in the context of charitable trusts. This Part studies this different approach, ie the necessary interest rule, which comprises two elements: the requirement of necessary interest and the protective filter. In summary, section (a) of this part seeks to explore the meaning of the phrase ‘necessary interest’ and its application in case law. Section (b) centres on the analysis of the protective filter, including its operational mechanisms and the policy concerns underlying its operation. Section (c) summarises the key observations about the rule.
(a) The requirement of necessary interest
(i) Statute
Section 115Footnote 35 of the Charities Act 2011 (England and Wales) has two provisions spelling out the entitlement of a person to file charity proceedings in the context of charitable trusts. It reads:Footnote 36
(1) Charity proceedings may be taken with reference to a charity by –
(a) the charity,
(b) any of the charity trustees,
(c) any person interested in the charity,
(d) if it is a local charity, any two or more inhabitants of the area of the charity.Footnote 37
…
(8) In this section, ‘charity proceedings’ means proceedings in any court in England or Wales brought under –
(a) the court's jurisdiction with respect to charities, or
(b) the court's jurisdiction with respect to trusts in relation to the administration of a trust for charitable purposes.
Section 115 shows that how the phrase ‘any person interested in the charity’ is construed lies at the crux of understanding a person's standing in the charitable trust context. This phrase is not defined, either in the Charities Act 2011 or elsewhere, and the terms ‘interest’ and ‘interested in’ may ‘bear widely differing meanings according to their context’,Footnote 38 as Nicholls LJ recognised in the English Court of Appeal case of Re Hampton Fuel Allotment Charity Footnote 39 (Re Hampton). By enacting section 115 of the Charities Act 2011 and its predecessors,Footnote 40 Parliament had intended not to ‘give the Attorney General a monopoly of proceedings for judicial monitoring of’Footnote 41 charitable trusts, but affords no express guidance on how this necessary interest rule should be interpreted and how wide ‘the net is spread’.Footnote 42 The case law shows that English judges have been markedly reluctant to work out an explanation or definition of this rule, for two reasons. First, charitable trusts vary so widely that it is impossible to provide a uniform understanding applicable to all forms of charitable trusts.Footnote 43 Secondly, the term ‘interest’ is ‘capable of a very wide and general meaning’Footnote 44 and the context out of which the interest arises is crucial to its construction. As Lord Wilberforce observed in the English House of Lord case of Gartside v Inland Revenue Commissioners,Footnote 45 ‘the wide spectrum that it covers makes it all the more necessary, if precise conclusions are to be founded upon its use, to place it in a setting’.Footnote 46
(ii) Case law
The English courts have long been grappling with the application of the necessary interest rule, despite ‘its existence in some form since 1853’.Footnote 47 There is a lack of uniform understanding as to the meaning of the necessary interest rule amongst judges, and conflicts or inconsistencies have been raised because of the different interpretative approaches the courts have adopted. A close review of the case law shows that the courts tend to read the phrase ‘interest in the charity’ in two ways: (a) interest in the due administration of charities; and (b) beneficial interest in the charitable assets.
(a) Interest in the due administration of charities
A stream of authority holds that, to be recognised as ‘having an interest in’Footnote 48 the charity, the person in question should ‘have some good reason for seeking its due administration’.Footnote 49 This view was first proposed by Sir Robert Megarry in the English High Court case of Haslemere Estates Ltd v Bake Footnote 50 (Haslemere Estate). Haslemere Estates is the first English case dealing with the construction of the phrase ‘any person interested in the charity’. Its dispute relates to whether a commercial developer who had a contract for the grant of a lease of property owned by a charity fell within the remit of ‘any person interested in the charity’ under section 28(1) of the Charities Act 1960.
In this case, Sir Robert Megarry defined what a person's interest should entail in order to qualify as a ‘person interested in the charity’. Through distinguishing ‘any person interested in the charity’ from any person who ‘has a claim against the charity’,Footnote 51 his Lordship declared that only those whose claims focused on ‘seeking the [due administration] of the charity’Footnote 52 were entitled to bring charity proceedings. The fact of contracting with the trustees of a charity itself would not automatically transform the contractor into a person interested in the charity.Footnote 53 In Haslemere Estates, the commercial developer sought to enforce the contract with the charity merely for the purpose of developing its own commercial interest. Such a claim ‘[aimed] to improve [the developer's] position at the expense of the charity’Footnote 54 and was therefore ‘not the best course in the interest’Footnote 55 of the charity. Understanding the object of the developer's claim in this way, Sir Robert Megarry eventually struck out the litigation.
Sir Robert Megarry's reasoning in Haslemere Estates has been endorsed and further developed by Nicholls LJ in Re Hampton, the only recent case that has gone to the English Court of Appeal. In Re Hampton, Nicholls LJ commented that there was no ‘justification for the court attempting to delimit with precision a boundary which Parliament has left undefined’.Footnote 56 Accordingly, Nicholls LJ in his judgment only provided guidance as to how the terms ‘interest’ and ‘interested’ can be construed, without attempting a comprehensive definition of the necessary interest rule. His Lordship subscribed to Sir Robert Megarry's observation in Haslemere Estate that ‘some good reason’Footnote 57 is needed for a person to ‘bring the [litigation] before the court’.Footnote 58 To qualify as ‘good reason[s]’, a person's claim should be centred on securing the due administration of a charity,Footnote 59 as opposed to facilitating the furtherance of his own interest. Consistent with this thinking, a person will be barred from bringing charity proceedings if his claim is ‘adverse to the charity’Footnote 60 or ‘not on the charity side of the fence’.Footnote 61
However, in contrast to Sir Robert Megarry's construction in Haslemere Estate, Nicholls LJ took a further step by qualifying ‘necessary interest’ with a gravity requirement. According to his Lordship, a person cannot qualify as a ‘person interested in the charity’ if he or she only ‘has a sentimental or altruistic interest in [the charity] or provides modest financial support for [its administration]’.Footnote 62 For the purpose of launching charity proceedings, the interest required of a person must be ‘materially greater than, or different from, that possessed by ordinary members of the public’.Footnote 63 The assessment of whether an interest meets the gravity requirement is fact-sensitive and should be conducted by scrutinising ‘all the circumstances of [a] particular case’.Footnote 64 Upon closer inspection of the case law, the ‘circumstances’ that are of relevance to the taking of charity proceedings include the substance and nature of the interest a person possesses, the relevance of this interest to the advancement of the charity's objects, and the context out of which the interest arises.Footnote 65
Nicholls LJ's two-stage approach in Re Hampton – first, identifying whether the person concerned has the necessary interest and, secondly, assessing whether the person's interest meets the gravity requirement – has been extensively cited with approval by judges in subsequent cases. For example, in Gunning v Buckfast Abbey Trustees Registered Footnote 66 (Gunning), Arden J, delivering the judgment of the English High Court, held that by ‘making a contract for their [children's] education with the [charity] trustees’,Footnote 67 the parents in question were considered to possess ‘a materially greater interest than ordinary members of the public in securing the due administration of’Footnote 68 the preparatory school run by the charity and, accordingly, they were entitled to bring charity proceedings against the trustees’ decision to close the school. Four years later, in another English High Court case, Scott v National Trust for Places of Historic Interest or Natural Beauty Footnote 69 (Scott), Robert Walker J followed Nicholls LJ's approach in Re Hampton and recognised the standing to sue on the part of tenant farmers. His Lordship identified the partnership relationship between the tenant farmers and the National Trust ‘in the successful preservation of the red deer population [on that land]’,Footnote 70 holding that such a relationship led to these farmers’ interests being ‘materially greater than or different from that possessed by ordinary members of the public’.Footnote 71
Nicholls LJ's two-stage approach in Re Hampton has also been endorsed by courts outside of England. In Metropolitan Petar v Mitreski Footnote 72 (Metropolitan), Hamilton J, delivering the judgment of the Supreme Court of New South Wales, observed that Nicholls LJ's interpretation in Re Hampton of the necessary interest rule was authoritative and influential, which could be applied as a useful reference for evaluating whether a person's interest was sufficient to ‘qualify [him or her as] a plaintiff within the meaning of [section 33 of the Charities Act 1993]’.Footnote 73 In the Hong Kong Court of First Instance case of Sik Chiu Yuet v Secretary for Justice Footnote 74 (Sik Chiu Yuet), Justice Lisa Wong systematically reviewed the English case law on the construction of the special interest rule, and discussed the applicability of English authorities to the interpretation of section 57A(a)(iii)Footnote 75 of the Trustee Ordinance (Hong Kong). In applying Nicholls LJ's two-stage approach in Re Hampton, her Ladyship declined the applicant's standing to sue, since his interest was ‘potentially adverse to the Trust’Footnote 76 and not ‘materially greater than that possessed by ordinary members of the public’.Footnote 77
(b) Beneficial interest in the charity assets
Aside from the interpretation of ‘interest in the due administration of charities’, there exists another line of authority noting that ‘necessary interest’ is a beneficial interest or is ‘analogous to a beneficial interest’Footnote 78 in the charitable assets. This view was first proposed by Hoffmann J in the English High Court case of Bradshaw v University College of Wales Footnote 79 (Bradshaw). Although not as widely recognised as Nicholls LJ's two-stage approach, this view was not explicitly rejected by the English Court of Appeal in Re Hampton and subsequent English cases. It therefore still has reference significance for the understanding of the necessary interest rule. In Bradshaw, Hoffmann J stuck out a claim by the executors who represented the deceased settlor of certain charitable trusts against the trustees for a full account of the administration of the trust, on the grounds that these executors were not ‘person[s] interested in the charity’ under s 28(1) of the Charities Act 1960. In contrast to Nicholls LJ's two-stage approach in Re Hampton, Hoffmann J adopted a narrower view in Bradshaw by limiting the class of the persons ‘interested’ to those whose interest is or is analogous to a beneficial interest in the trust assets. As his Lordship noted:Footnote 80
A person who could not in any circumstances be a beneficiary of the charity or take any interest under the trusts applicable to the property of the charity can be within the expression of ‘any person interested’.
Pursuant to this approach, the expression ‘interested in the charity’ is considered to have the same meaning as that of ‘beneficial interest in the property’Footnote 81 owned by the charity. This approach accords with the traditional understanding of the beneficiary principle, and is apparently in contradistinction to what Sir Robert Megarry stated in Haslemere Estates, namely, ‘a person may be interested in the property of a charity without, for this purpose [of the charity proceedings], being interested in the charity’. Following this narrow approach, Hoffmann J declined the locus standi of the executors, asserting that their interests ‘[were] no more than that of any other member of the public whose guardian in the enforcement of charities was the Crown’;Footnote 82 the founder of the charitable trust could have been a ‘person interested’, but this interest could not be transmitted to the executors, because ‘[e]xecutors succeed to the property of the deceased; not to her spirit and disembodied wishes’.Footnote 83
Hoffmann J's approach in Bradshaw was considered by Knox J at first instance in Re Hampton. His Lordship emphasised the role of the circumstances of a case in construing the ‘words in the extracts from Hoffmann J's judgment’,Footnote 84 and remarked that he ‘would not go so far as to limit the category of persons interested to those who have something which is or is analogous to a beneficial interest’.Footnote 85 When it went on appeal, Nicholls LJ thoroughly scrutinised the merits and demerits of Hoffmann J's interpretation of the necessary interest rule, concluding that his approach was ‘unsatisfactory’Footnote 86 in that it could not provide full insight into the scope of the persons eligible to take charity proceedings. The following passage from Nicholls LJ's judgment is especially illustrative:Footnote 87
It may be too wide, because the class of potential beneficiaries under many nationwide charities is vast. We accept that there may be cases where an actual or potential beneficiary under a nationwide charity will qualify as a person interested in that charity. But we do not accept that an actual or potential beneficiary will always qualify. It must depend on all the circumstances. Conversely, the test will, in some circumstances, be too narrow. Take the example of a local authority which sets up a charitable trust for the relief of poverty of former employees and their dependents. Assume the local authority has power to appoint all the trustees. Assume further that the trust is maladministered. We are not at all attracted by the conclusion, which application of the suggested test would yield, that such an authority would not be a person interested in that charity: that it would not be able to launch charity proceedings in respect of that charity.
Nicholls LJ criticised the approach proposed by Hoffmann J, but did not completely overrule it. Thus, in the sense of stare decisis, Hoffmann J's approach in Bradshaw still has reference significance for subsequent courts in their construction and application of the necessary interest rule. Nonetheless, judicial practice over the past two decades has shown that, in contrast to Nicholls LJ's two-stage analysis in Re Hampton, Hoffmann J's approach has not received many followers, either inside or outside of England. After Bradshaw was adjudicated, subsequent English High Court cases such as Gunning, Scott and Royal Society for the Prevention of Cruelty to Animals v Attorney General Footnote 88 (Royal Society) made no reference to Bradshaw at all when their respective judges explored the meaning of the expression ‘any person interested in the charity’. In the New South Wales Supreme Court case of Metropolitan, Hamilton J followed Nicholls LJ's two-stage approach in Re Hampton directly and left Bradshaw unmentioned in the entirety of his judgment. In the recent English High Court case of Bisrat v Kebede Footnote 89 (Bisrat), Judge Purle QC implicitly rejected Hoffman J's approach in Bradshaw by warning against the use of the terms ‘beneficiary’ and ‘beneficiaries’ in the context of charitable trusts, as he observed:Footnote 90
I think one has to be careful of the use of the word ‘beneficiary’ in this context. A charitable trust, as such, does not have beneficiaries in the same sense as beneficiaries under a private trust. No individual has any proprietary interest in the charity's assets and funds as such, but a person may become a beneficiary in a loose sense as an object of the charitable trust.
Even more recently, in the Hong Kong case of Sik Chiu Yuet, Justice Lisa Wong, after reviewing the cases considered by English courts, identified seven ‘applicable principles’Footnote 91 with respect to the necessary interest rule.Footnote 92 In response to Hoffmann J's approach in Bradshaw, her Ladyship opined that a person who has a beneficial interest under a trust does not necessarily qualify him as a ‘person interested in the charity’;Footnote 93 a holistic approach should instead be adopted in the assessment of a person's eligibility to bring charity proceedings.Footnote 94 As she explained:Footnote 95
That being the case, an actual or potential ‘beneficiary’, used in this context in a loose sense to mean an object of a charity, may not always qualify, depending on all the circumstances … whether a person is a ‘person interested in the charity’ for the purpose of bringing charity proceedings in relation to that charity is a fact sensitive question, depending on facts and circumstances that can be so varied that no helpful definition of the phrase could or should be attempted.
(b) The protective filter arrangement
In addition to the necessary interest requirement, there is a protective filter in respect of the taking of charity proceedings. Pursuant to section 115(5) of the Charities Act 2011, the taking of charity proceedings must be authorised by an order from the Charity Commission, or by leave from one of the judges of the High Court. This protective filter arrangement is indicative of the supervisory role of the court and the Commission over the administration of charities. Robert Walker J explicitly discussed the rationale underlying such a protective filter in Scott – that is, ‘[t]his protective filter is intended to protect [charity trustees] from being harassed by a multiplicity of hopeless challenges’.Footnote 96 In Rosenzweig v NMC Recordings Ltd Footnote 97 (Rosenzweig), Norris J, delivering the judgment of the English High Court, explained that the protective filter was aimed at preventing cases that would ‘cause [charities] to fritter away money subject to charitable trusts in litigation’.Footnote 98 The protective filter is thus linked to the necessary interest requirement – it supplements the interpretation of the phrase ‘anyone interested in the charity’, and the need for complaints to have a necessary interest enhances the ‘efficacy of this protective screen’.Footnote 99
The protective filter reflects a strong sense of public law thinking. It is said to be a ‘sensible and necessary requirement in the public law field’,Footnote 100 and its application grants the courts a degree of flexibility in determining the scenarios in which a charity proceeding can be brought about. It is widely acknowledged that a distinction exists between public law and private law in terms of the standing to sue: private law grants standing as a matter of right on the basis of plaintiffs’ personal interests, whilst public law grants it as a matter of discretion in consideration of various factors.Footnote 101 The critical relevance of public law thinking to the determination of whether charity proceedings should be commenced has been well illustrated in Rosenzweig. In this case, Norris J recognised the sufficient interest that Mr Rosenzweig had in the charity, and held that this interest was sufficient to enable Rosenzweig to initiate charity proceedings.Footnote 102 However, Norris J still disallowed the proceeding, due to the concern that such litigation could ‘exhaust the assets of the Charity and prevent it from achieving its charitable objectives from which others appear to benefit’.Footnote 103 After considering the limited financial budget of the charity and the way in which the charity executed its goals,Footnote 104 Norris J struck out Rosenzweig's claim, on the grounds that his litigation was ‘not the best course in the interests of the Charity as a whole’Footnote 105 and allowing it would lead to the ‘destruction of the Charity’.Footnote 106 In Rosenzweig, the internal administration of the charity and the carrying out of its charitable purposes were predominant in determining the outcome of the case. In other words, public law thinking triumphs where there is a conflict between the execution of the charity's goals and the advancement of a potential recipient's personal interest. As Norris J argued:Footnote 107
This is the very sort of case where even an Applicant who can demonstrate that he is a ‘person interested’ in the charity ought not (because of the application of the protective filter) to be permitted to cause the charity to fritter away money subject to charitable trusts in litigation.
The need to protect public interest in the administration of charities is not a policy that was only considered in Rosenzweig; it has also been evident in numerous cases adjudicated by the English High Court. Take Bisrat, Royal Society and Scott for example. In Bisrat, when determining whether regular worshippers and contributors of a Church were ‘interested’ persons, Judge Purle QC emphasised the important role of the Ethiopian Orthodox Church – namely, the Church is ‘one of the oldest churches [and] of great distinction and establishment’,Footnote 108 and the ‘trustee's [maladministration of the Church has] impacted upon the Ethiopian community in this country’.Footnote 109 For the purpose of ensuring proper management of the Church and thereby protecting the public interest in the carrying out of its charitable activities, Judge Purle QC interpreted the necessary interest rule in a very broad manner, recognising the standing to sue of regular worshippers ‘who have contributed to the acquisition of the assets of the charity and [have worshipped] at the church in its various forms over many years’.Footnote 110
Similarly, in Royal Society, when assessing whether the members of a charity had the necessary standing under section 33(1) of the Charities Act 1993, Lightman J pointed out the important role of the charity in the country: ‘[the charity] is very important and its activities (in particular the inspectorate and its prosecutions for cruelty to animals) are of great value to society’; most notably, ‘its inspectorate is the largest non-governmental law enforcement agency in England and Wales’.Footnote 111 For the purposes of securing effective administration of the charity and preventing supporters of hunting from damaging the reputation of the charity,Footnote 112 Lightman J also adopted a broad approach to determine whether a person's interest is sufficient to ‘meet the statutory standard for the institution of charity proceedings’.Footnote 113 According to his Lordship, both an annual member and a life member can be recognised as having sufficient interest in the due implementation of the membership policy, whilst a rejected applicant for membership does not.Footnote 114
Finally, in Scott, in deciding whether the tenant farmers were persons ‘interested’ in the National Trust under s 33(1) of the Charities Act 1993, Robert Walker J confirmed that ‘the National Trust was a charity of exceptional importance to the nation and its purposes and functions were of high public importance’. His Lordship also cited Lord Camden LC's definition of charity in Jones v William Footnote 115 and Harman LJ's remarks on the nature of charity cases in Inland Revenue Commissioners v Educational Grants Association Ltd Footnote 116 to emphasise the public law nature of the National Trust.Footnote 117 With regard to the tenant farmers, Robert Walker J highlighted the significant role that they had played in the development of local economy – they were an ‘important part of the rural economy in providing a service in destroying and removing sick and injured beasts, and generally in deer management’.Footnote 118 In view of the public law role of the National Trust and the purpose of securing its due administration, Robert Walker J considered these farmers as partners with National Trust in the preservation of the deer population on the land, and recognised their capacity to ‘apply for authority to commence and to prosecute charity proceedings’.Footnote 119
In Scott, Robert Walker J's observations about Haslemere Estates shed considerable light on the role of public law norms in the analysis of standing. His Lordship found that the dispute in Haslemere Estates was commercial in nature, and ‘had no real connection with the internal or functional administration of charitable trusts’.Footnote 120 According to Robert Walker J's reasoning, the position of the farmers in Scott could not be equated with that of a commercially sophisticated developer in Haslemere Estates.Footnote 121 The commercial nature of the dispute justified Sir Robert Megarry's refusal to grant standing in favour of the developer. If the developer's litigation had been related to the charity's ‘functional land’Footnote 122 or to its internal management, Sir Robert Megarry might have decided the case in a markedly different way.Footnote 123
(c) Summary
Examination of the foregoing cases has shown that English courts in general differentiate ‘interest in the charity’ from ‘beneficial interest in trust properties’ under a private trust. This differentiation reflects how the courts have conceptualised the purpose nature of charitable trusts. With respect to the necessary interest requirement, Parliament chose not to define the terms ‘interest’ and ‘interested’. Nor have the courts attempted a comprehensive explanation of this requirement. Flexibility is inherent in its application: according to the facts of a particular case, the courts are granted a high level of discretion in assessing whether the claimant has an interest, and whether the interest is sufficient to make the claimant ‘a person interested in the charity’, and thus eligible to launch charity proceedings. The courts have considered a wide range of factors in the construction of the necessary interest requirement, including the substance of the interest the persons possess, the relevance of the interest to the furtherance of the charitable objects, and the context out of which the interest arises. The way in which the courts construe the meaning of ‘necessary interest’ reflects their central concern over the securing of due administration and execution of charitable trusts.
The protective filter for charity proceedings, on the other hand, is applied with a view to protecting charity trustees from ‘being harassed by a multiplicity of hopeless challenges’,Footnote 124 and to protecting charitable assets from being exhausted because of frivolous and vexatious claims.Footnote 125 A person whose interest is sufficient to meet the threshold of the initiation of charity proceedings does not necessarily mean that he is entitled to initiate litigation in respect of a charity trustee's misconduct. Through the operation of the protective filter, the courts can examine the full circumstances of a case, eg the object of the proceeding and the relevance of the proceeding to the execution of the charity's goals, and then balance the benefits and detriments of upholding a person's claim. The ‘right’ of a qualified person to bring charity proceedings is thus ‘not absolute and is subject to [the court's] discretion’.Footnote 126 The way in which the necessary interest requirement and the protective filter operate has evidenced a prominent public law thinking and demonstrated the inherent jurisdiction of the courts to supervise the administration and enforcement of charitable trusts.Footnote 127
2. Theoretical implications
Part 1 has explored the way in which the necessary interest rule has been construed and applied in judicial practice. It shows that the courts’ administrative jurisdiction over trusts is fundamental to the application of the rule. This analysis has theoretical implications for the beneficiary-enforcer debate around the conceptual nature of express trusts. This Part discusses these implications. The necessary interest rule, as presented in Part 1, is closely confined within the public law concerns underpinning the recognition and operation of charitable trusts, ie securing public benefit flowing from the due execution of the trusts’ charitable purposes. Looking beyond such public law concerns provides a wider view of how charitable trusts relate to express trusts at the doctrinal level. Such an approach encourages a proper appreciation of the unique characteristics of charitable trusts and more significantly, a better understanding of the law of trusts as a whole. This Part comprises two sections. Section (a) briefly reviews the beneficiary and enforcer principles and the rationale underlying them. Section (b) identifies the relevance of the necessary interest rule to the beneficiary-enforcer debate and highlights the theoretical contribution that analysis of the necessary interest rule in the context of charitable trusts can make to the debate concerning express trusts.
(a) The beneficiary and enforcer principles
Although presently the English courts adopt the beneficiary principle as opposed to the enforcer principle, the debate as to which principle more appropriately describes the essence of an express trust has never been conclusively settled. The beneficiary principle suggests that ‘the equitable proprietary rights of the beneficiaries’Footnote 128 lies at the heart of an express trust. The enforcer principle, in contrast, holds that the essence of the trust lies in subjecting trustees ‘to an equitable duty relating to the [administration and distribution] of [the trust] property’.Footnote 129 It has been argued that the equitable duty need not be owed to a person ‘who benefits directly from [the trustee's] performance’;Footnote 130 an enforcer can be appointed for the purpose of creating valid express trusts.Footnote 131
Morice has been considered ‘as a key source of the modern “beneficiary principle”’.Footnote 132 It holds that a beneficiary's standing to sue is founded on its proprietary entitlement to the benefit of the trust assets.Footnote 133 However, the English High Court case of Re Denley's Trust Deed Footnote 134 is important in its impact on the understanding of the beneficiary principle. In this case, Goff J allowed a party who was a member of a defined group of individuals to initiate litigation to enforce a defined non-charitable purpose trust,Footnote 135 indicating the relaxation of the requirement that only ‘beneficiaries with equitable rights’Footnote 136 in the trust assets are eligible to sue. The correlative relationship between the possession of beneficial interest in the trust assets and the right to sue to enforce due administration of trusts has been further challenged following the English House of Lords’ decisions in McPhail v Doulton Footnote 137 and Re Gulbenkian's Settlements Footnote 138 on the validity of trust powers and mere powers respectively. So far, there exists a large body of court decisions that recognise the ‘entitlement’Footnote 139 of objects of trust or mere power (‘discretionary objects’) to sue in respect of the due administration of a trust. In the English House of Lords case of Gartside v IRC,Footnote 140 Lord Wilberforce remarked that ‘a beneficiary under a discretionary trust has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity’.Footnote 141 In the New Zealand Court of Appeal case of Johns v Johns,Footnote 142 Tipping J was of the view that objects of trust power have more than a ‘mere spes’,Footnote 143 ‘mere hope’Footnote 144 or ‘mere equity’;Footnote 145 instead, a discretionary beneficiary ‘has sufficient standing to compel proper administration of the trust’,Footnote 146 although he or she may have no proprietary interest in the trust assets. Likewise, the weight of recent Australian cases has confirmed the proposition that ‘the right to due administration [can] accrue to objects [of mere or trust power] who have only a chance of acquiring an entitlement to the benefit of trust property’.Footnote 147
Under the beneficiary principle, it follows that the person, ‘in whose favor the court can decree performance’, is constrained to the ‘narrower sense of’Footnote 148 beneficiaries who have an equitable proprietary interest in the trust assets,Footnote 149 or those who are entitled to invoke the rule in Saunders v Vautier.Footnote 150 In contradistinction, recognition of the standing to sue on the part of discretionary objects signifies a trend in departure from the orthodox operation of the beneficiary principle. These discretionary objects possess no ‘definable’Footnote 151 proprietary interest in the trust assets. What they have is only the ‘chance [or expectation] of acquiring an entitlement to the benefit of trust property’.Footnote 152 The conferral of standing on them, sitting more comfortably with the understanding of the enforcer principle, demonstrates the court's central concern over the accountability of trustees and the proper execution of a trust,Footnote 153 rather than the identification of the ‘equitable proprietary rights of the beneficiaries’.Footnote 154 This line of thought is supported by the following statement from Lord Eldon in Morice, ‘often cited as the ratio of [his Lordship's] judgment’:Footnote 155
As it is a maxim, that the execution of a trust shall be under the controul of the Court, it must be of such a nature, that it can be under that controul; so that the administration of it can be reviewed by the Court; or, if the trustee dies, the Court itself can execute the trust: a trust therefore, which, in case of mal-administration could be reformed; and a due administration directed; and then, unless the subject and the objects can be ascertained, upon principles, familiar in other cases, it must be decided, that the Court can neither reform mal-administration, nor direct a due administration. Footnote 156
This passage, on the one hand, has been commonly cited in support of the establishment of the beneficiary principle.Footnote 157 On the other hand, the wording of this passage leaves scope for an alternative interpretation in favour of the enforcer principle. In the first half of his statement, Lord Eldon twice emphasised the essentiality of execution of a trust, and thrice the requirement that such execution must be amenable to the court's control. In the second half, his Lordship explained the relationship between the requirement of the objects being ascertainable and the court's capacity in controlling the administration of a trust. That is, in the absence of ascertainable objects to ‘make representations [about the trustees’ misconduct]’,Footnote 158 the court is unable to intervene to enforce the trust by way of providing ‘guidance, directions and assistance’.Footnote 159 Following from this interpretation, the requirement of certainty of objects is not an end, but rather one of the mechanisms through which a court can invoke and exercise its inherent jurisdiction to supervise the trustees’ administration of the trust. The crucial concern for the present purpose is that there must be someone who can ‘call on the court to [execute] the trust’;Footnote 160 it does not matter whether this person is a beneficiary who has a vested, albeit defeasible, equitable proprietary interest in the trust assets. Such an interpretation also fits squarely with Sir William Grant's oft-cited statement in his trial judgment of Morice, namely, ‘[t]here must be somebody in whose favour the Court can decree performance’.Footnote 161 Since his Lordship made no explicit mention of what the phrase ‘in whose favour’ entails, it is arguable that the person concerned can be an enforcer ‘who does not personally benefit from performance of [the trustees’] duty’.Footnote 162
Interpreting Lord Eldon's statement in such a way provides a basis for defending the rationality of the enforcer principle, and the court's inherent jurisdiction over the administration and execution of trusts lies at the heart of this interpretation.Footnote 163 As suggested previously, what matters most is that a valid trust should be one over which the court is capable of exercising its control and supervision. The background against which Morice was adjudicated has also confirmed this line of thinking.Footnote 164 As Professor Joshua Getzler convincingly explained, Morice occurred in an episode where there existed ‘[n]ot only a desire to clarify the nature and enforceability of a private trust, not only mortmain concerns, but also a desire to reduce the clout of the Church in its control of testamentary and charitable wealth’;Footnote 165 it is the courts that were tasked to ‘[address] issues of the role of clerics in administering succession, and attendant problems of undue influence and the fiduciary status of executors’.Footnote 166
(b) The necessary interest rule
It has been shown in section (a) that the focus of the beneficiary principle is on the beneficial entitlement to trust assets, whilst the enforcer principle is centred on the due execution of a trust. The way in which the necessary interest rule operates suggests that it stands closer to the enforcer principle: the essentiality of this rule is to invoke the court's power to remedy the breach of charitable trusts by way of the interested person as a mechanism. This observation can be further clarified by drawing comparisons between the beneficiaries of a fixed trust and the recipients of a charitable trust. Examples of the latter include the UK-based composer in Rosenzweig, the tenant farmers in Scott, the existing members in Royal Society, and the regular worshippers and contributors in Bisrat.Footnote 167
It is common practice in charitable trusts that the charity trustee, according to the criteria specified in the trust instrument, selects qualified recipients for the purpose of distributing charitable assets. From the perspective of distribution, the recipients who obtain benefits under a charitable trust are akin to beneficiaries who acquire benefits under a fixed trust: they are the persons who benefit from the execution of a trust. However, the analogy should stop here. Unlike the beneficiaries of fixed trusts, the selection of recipients of charitable trusts and the distribution of charitable assets to them are primarily concerned with aspects of public benefit, rather than the advancement of personal or private interests of these selected individuals. The recipients selected merely act as a channel through which the charitable purpose is carried out. While beneficiaries of a fixed trust hold ‘definable beneficial interest’Footnote 168 before the trustee proceeds with distribution, recipients of a charitable trust do not have any right to any part of the trust assets before the charity trustee carries out selection and distribution. The most they have is a mere hope or expectation that they will be selected by the trustee to acquire the entitlement to the benefit of the charitable assets.
Also, in contrast to discretionary objects, currently there seems to be no authority that affirms the proposition that the recipients of a charitable trust have the ‘right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity’.Footnote 169 The charity proceedings initiated by the tenant farmers in Scott, the existing members in Royal Society, and the regular worshippers and contributors in Bisrat were upheld by the English High Court, not because they had a ‘right’ to the due administration of the Society or the Church concerned, or they had an equitable proprietary entitlement to the distribution of charitable assets, but because their lawsuits exposed the risk related to the administration of these charities to the courts. The courts could therefore exercise their supervisory jurisdiction to ‘reform mal-administration’Footnote 170 by the charity trustees at issue. Accordingly, it can be said that the upholding of these charity proceedings is due to the consideration of the proper execution of charities rather than the protection of the recipients’ personal interest.
This line of thought also illuminates the reluctance of the courts and Parliament to attempt a comprehensive and explicit definition of the phrase ‘interest in the charity’. One reasonable explanation is that they are unwilling to set unnecessary restrictions to hinder the initiation of charity proceedings. The current practice creates the greatest scope for charity proceedings to be launched in a manner that is facilitative to the invocation of the court's jurisdiction over the enforcement of trusts. At the same time, the protective filter is applied with a view to avoiding frivolous litigations that would exhaust the assets of a charitable trust. It is submitted that ‘not everyone who can be said to be on “the charity side of the fence” is a “person interested in the charity”’;Footnote 171 neither can it be said that ‘a beneficiary of a charity is necessarily a “person interested in the charity”’.Footnote 172 It is ‘open to the court in any charity proceedings to permit persons interested in the widest sense of the term to be joined as parties [to the proceedings]’.Footnote 173 The protective filter arrangement therefore allows the courts to evaluate whether the proceedings involved have the genuine effect of promoting the proper management of charitable trusts, and enables them to uphold or strike out a person's claim based on such evaluations.
Finally, moving back to the debate between the beneficiary principle and the enforcer principle, under the former, the trustees of an express private trust are subject to equitable duties because there exist beneficiaries who can enforce their correlative equitable right.Footnote 174 The ‘proper plaintiff rule’Footnote 175 is thus applied in the assessment of a person's eligibility to sue and the scope of his standing. Failure to satisfy the beneficiary principle does not strike down the validity of charitable trusts, due to the policy consideration that their recognition and execution can bring about ‘identifiable benefit’Footnote 176 for ‘a sufficient section of the community’,Footnote 177 as shown in the Introduction above. Charitable trusts are characterised as an exception to the beneficiary principle, and a person's entitlement to sue against defaulting charity trustees is generally analysed on ‘policy and pragmatic grounds’.Footnote 178 In contradistinction, if the enforcer principle is followed, whether a person is eligible to sue is not completely determined with reference to the proper plaintiff rule. The lack of beneficial interest does not necessarily deprive a person of his standing to sue. Instead, whether a person is eligible to sue depends on whether he has ‘good reason[s] for seeking to enforce the trust or secure its due administration’.Footnote 179 Of course, the enforcer principle does not preclude the application of the proper plaintiff rule — if a person has ‘some positive claim to benefit from the [trust assets]’,Footnote 180 this rule can be still be invoked to remedy the infringement of his own interest. What distinguishes the enforcer principle from the beneficiary principle is that, under the former, a person may still be able to file lawsuits even if he has no ‘expectation of benefit’Footnote 181 under the trust – his standing to sue is not derived from ‘[a person's] own right to put [trust assets] back into [their] proper state’Footnote 182 but rather from the notion that the integrity of the administration of the trust has been compromised, and thus they are allowed to invoke the court's inherent power to remedy the breach of the trust. Meanwhile, recognising that such a person has ‘prima facie standing to apply to court to remedy the maladministration of a trust’Footnote 183 does not indicate that the court ‘must accede to every such invocation’.Footnote 184 By scrutinising the purpose of the proposed litigation and the relevance of the litigation to the protection of the trust's proper administration, the court has discretion in determining whether litigation can be justified or not.Footnote 185
When exploring the entitlement of discretionary objects to secure the due administration of a trust, scholars and judges have widely borrowed the reasoning of the enforcer principle to justify the granting of certain entitlements to them.Footnote 186 Unfortunately, presently there is very little discussion that connects this line of reasoning to the analysis of a person's standing to sue in the context of charitable trusts. It is assumed that charitable trusts are policy-oriented and, accordingly, a person's entitlement to sue against defaulting trustees is granted by legislation or case law as a matter of public policy. The analysis in this paper demonstrates that, aside from policy and pragmatic justifications, the law relating to a person's entitlement to sue is also ‘doctrinally coherent’Footnote 187 if one accepts that the doctrinal basis for the court's intervention is the due administration and execution of trusts. From a purely doctrinal perspective, the operation of the necessary interest rule is essentially in line with the tenor of the enforcer principle. The way in which the courts have applied and construed this rule suggests the same conceptual basis for the recognition of an interested person's standing to sue under charitable trusts and that for discretionary objects. Irrespective of whether an express trust is for persons or for purposes, it is the concern of securing its due administration and execution that lies at the heart of the assessment of a person's eligibility to sue.
Conclusion
The way in which a charity trustee's obligations are enforced is significant for an understanding of the execution of the charitable trust. This paper has provided a detailed analysis of the necessary interest rule in both statute and case law. It shows that the administrative jurisdiction of the court to ‘secure the performance and execution of trust’ is fundamental to the application of this rule. Despite a lack of uniform understanding as to its meaning, the majority of cases have affirmed that the ‘interested’ persons who are qualified to bring charity proceedings tend to be those whose claims are aimed at securing the due administration and execution of charities. In addition to the necessary interest requirement, the rule also entails the arrangement of a protective filter. It confers on courts the deciding power as to whether a proceeding can be launched, so upholding Parliament's efforts in striking a balance between the protection of charity trustees’ exercise of power and the avoidance of frivolous litigations that would exhaust the charities’ assets.
The necessary interest rule also has relevance to the understanding of the essence of express trusts. Centring on the accountability of charity trustees and the proper enforcement of charitable trusts, the necessary interest rule stands in alignment with the tenor of the enforcer principle. It is fairly clear that the current English law of express trusts, unless and until it is re-interpreted by the Supreme Court, adopts the beneficiary principle as opposed to the enforcer principle. However, similar to the discussion of the entitlement of discretionary objects to the due administration of trusts, analysis of the necessary interest rule can also contribute to academic discussions around the beneficiary-enforcer debate and the conceptual nature of express trusts. In accordance with the enforcer principle, the fundamental concern of securing due execution of trusts can serve as a uniform basis to explain both the granting of standing to sue to discretionary objects and the identification of ‘interested persons’ under charitable trusts.
