- Where a trust seeks to provide for mixed charitable and non-charitable purposes, the non-charitable purpose can invalidate the charitable purpose; and
- Conversely, where there are mixed charitable and non-charitable purposes but the non-charitable purpose is itself invalid, the whole trust property can go to the charitable purpose.
The Court reached these decisions in Representation of Equiom Trust (CI) Limited re Estate of Constantin Mattas [2024]JRC068¹. This concerned a will that provided for various trusts. These included an accumulation period of 20 years and then life interests of income to the testator's two nephews. On the death of those nephews, the final disposal of residue was to a discretionary trust with the Greek Government as trustee (the "Intended Trust").
This Intended Trust had two further components. Under one, the Greek Government had discretion as trustee how to employ income on the trust fund to provide interest free loans to intelligent and promising young men of Greek Orthodox faith born in Greece of Greek, Greek Orthodox parents, for the purpose of them undertaking further university education in specified countries (the "Charitable Component"). Under the other, the testator's grand-nephews and great-grand-nephews would have priority to trust funds for further university education, again in the trustee's discretion, but not have to repay any sums advanced (the "Private Component").
Private trust can invalidate charitable trust
The Court held that the first, Charitable Component of the Intended Trust was capable of being a valid charitable trust, for the purpose of promoting education. However, relying on previous Jersey and English authority, the Court also held that a charitable trust could not validly mix with a private trust. However, the Court then further held that the Private Component was invalid, because it infringed the rule against perpetuities. This is the first time the rule against perpetuities has been held to apply in Jersey, as we consider further here.
Effect of invalid private trust on charitable trust
Because the Private Component providing for the grand-nephews and great-grand-nephews was invalid, the further question arose what effect that had on the Intended Trust as a whole. The testator's heirs argued that the Private Component dragged down the Charitable Component so that the whole Intended Trust failed. The Greek Government and Attorney-General argued that only the Private Component failed and fell away, not only leaving the Charitable Component to survive as a valid charitable trust, but also as a trust in respect of the entire trust fund.
The Court considered previous case law and text books, and whether and how the rules as to the effect of a private trust's invalidity on a charitable trust applied to the case before it. By 1948, in England those rules had been divided into four categories in set out by the High Court in Re Coxen², which suggested that:
a)Where trust property to be apportioned to the invalid private trust can be quantified, that amount falls away with the private trust and the charitable trust takes the rest.
b)Where property intended for the private trust cannot be quantified, both it and the charitable trust fail because it cannot be said how much property is supposed to go to each trust.
c)Where the private trust is invalid because it is an invalid purpose trust for the maintenance of a tomb or monument (which English law does not recognise), the attempt to create that invalid trust is ignored and the whole goes to charity. This is known as the "Tombs Rule".
d)More generally, where as a matter of construction, the gift intends the whole of the property to go to charity but subject to payments out for the private purpose which is invalid, that private purpose is ignored and the whole of the property applied to both the charitable trust.
The heirs argued, however, that category (d) did not exist independently of category (c). Although it had been referred to in Coxen and text books, there was no case in which it had actually been applied. Instead, on examination of the cases cited (in Coxen and the textbooks) for the existence of category (d) were all cases involving tombs which were therefore in category (c), to which category (d) added nothing. So, since the Intended Trust and the Private Component of it were not for the maintenance of tombs, the Tombs Rule in category (c) (and therefore category (d)) could not apply. They therefore argued that since it could not be determined how much the trustee would need for the Private Component, the case fell into category (b) and the whole Intended Trust should fail.
The Court accepted the Nephews' submission that the basis for the existence of an independent category (d) was slender. However, it decided that there was some previous case law from before 1948 to support the view that a trust could be construed in accordance with category (d), i.e. that the primary intention of the trust was for the whole fund to go to charity, albeit subject to any payments that could be made towards the private purpose. Such a construction would mean that if there were no such payments, including because the private trust was invalid and so none could be made, the whole fund remained intact to go to the charitable purpose.
Further, the Court considered that a couple of cases could be explained on the basis of both category (c) – the Tombs Rule – and category (d) at the same time. It considered that just because it was those cases were tombs cases, that did not exclude category (d) applying independently and in parallel, so that separately to any application of the Tombs Rule the charitable trust in those cases also survived as a matter of pure construction.
Finally, the Court noted that category (d) had been accepted at face value as existing in several cases in Canada, Australia and Hong Kong, albeit obiter and not as an essential part of the decision each case made. However, given they – and the text books - accepted category (d) at face value and without question mark, that indicated that it was accepted as existing.
Effect of the case: charity, privacy, invalidity…
As decided, Mattas demonstrates two potentially competing rules. First, that a charitable trust cannot be mixed with a private trust, so that a private trust can invalidate a charitable trust. Secondly, however, if a private trust is invalid, it need not invalidate a charitable trust that it is mixed with and the charitable trust can take the whole trust fund as if the private trust did not exist.
This second rule, however, is not necessarily an absolute rule. As the cases which the Jersey court considered make clear, there are two alternative rules that may apply when a private trust is invalid leaving an otherwise valid charitable trust. First, the trust property may be apportioned between them and so the property apportioned to the private purpose fall away. Secondly, it may be impossible to apportion the property, such that both fail.
Which rule applies and to what extent will always turn on the drafting and construction of the trust in question.
