London Borough of Brent v Johnson [2022]
Case summary
In the case of London Borough of Brent v Johnson, the Court of Appeal had to decide if the Trial Judge was wrong to find that a Community Trust did not have a beneficial interest in a property, the title to which was registered at the Land Registry in favour of the Claimant (London Borough of Brent).
In 1981, a property was acquired by the Claimant with the assistance of various grants for the purpose of creating a community project, run by the community in the Brent area, in the wake of the Brixton riots. The purpose of the project was to empower the community and ease the unrest.
The site was acquired and initially, the project proceeded as planned. The community ran the project but in the mid-1990s the project ran into financial difficulties and the Claimant had to retake control in terms of the finances and running of the project. The Claimant now intends to redevelop the site with a view to creating a leisure facility but in doing so intends to sell part of the site. The Defendant is one of the original participants in the community trust created to run the project originally. Stonebridge is referred to in the judgment as Stonebridge Community (HPCC) Ltd and advances the arguments on behalf of the community trust.
The question before the Court was whether the Claimant was holding the property on charitable trust.
The original Trial Judge concluded:
“After this review of the authorities I can summarise my conclusions in the following propositions:
(1) In order to establish that a property is held on charitable trust, it is insufficient to say that the property was acquired or to be used for charitable purposes;
(2) The prior question… is whether the owner of the property is holding it on trust;
(3) … in order to create a trust there has to be an intention to do so;
(4) That intention can be proved by reference to a number of factors, including and probably most importantly, whether the documents of or relating to the transfer indicate that the registered proprietor does not hold the property beneficially and instead holds it on trust;
(5) I do not consider that a charitable constructive trust can come into existence merely because a property was acquired for arguably charitable purposes if the parties do not intend it to be held on such a trust; in the Dore case, the constructive charitable trust was conceded but that was on the basis that charitable money had actually been contributed to the overall acquisition and construction costs…
294. In all the circumstances, because of the lack of any evidence of an intention on the part of Brent and, so far as I can tell, HPCC that Brent would hold the Property on trust for charitable purposes, I reject the Defendants’ charitable trust arguments.”
Stonebridge appealed. Lord Justice Lewison summed up the appeal by Stonebridge as follows:
- Section 56
“Stonebridge has always relied on the deed between the GLC and Brent. We decided, therefore, that despite its late appearance, we should engage with the substance of the new argument; but on the basis that the understanding of the GLC and Brent at the time when Brent acquired title was as reflected in the deed between them, taken as a whole.“
- Section 57
“Mr Crampin relied in particular on the recitals to the deed which, he said, showed that the (sole) purpose of the monies advanced by the GLC was to provide the Community Project (as defined). That project was a charitable purpose. Since the monies were not at Brent’s free disposal, that necessarily meant that Brent held them on trust. This species of trust is usually described as a Quistclose trust: see Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; Twinsectra Ltd v Yardley [2002] 2 AC 164.”
- Section 58
“The judge rejected the case on charitable trust, which was not put on this legal basis below, largely on the basis that Brent and the GLC had no intention to create a trust. Mr Crampin submitted with force that the judge’s approach needed qualification. The type of trust for which he argues is a constructive trust; that is to say, a trust which a Court of equity will impose on a person irrespective of their intention whenever the circumstances so require. It is true that in some circumstances, particularly where there has been some form of wrongdoing, equity will impose a constructive trust on a person, irrespective of their intention. One extreme example is the constructive trust imposed on an agent who takes a bribe. Plainly such an agent has no intention of holding the bribe on trust; but equity compels them to.”
- Section 59
“But where, as in this case, there is no suggestion of wrongdoing, and the arrangements alleged to give rise to the trust are contained in writing, whether they do give rise to a trust of any kind depends on the proper interpretation of those written arrangements: Quistclose at 579H-580C; Brisbane City Council v Attorney-General for Queensland [179] AC 411 at 421…”
- Section 60
“The question for us, then, is whether on the proper interpretation of the deed, a trust of that kind was created. It is in that sense that the parties’ intentions (objectively ascertained) are relevant…”
- Section 61
“In this case, however, the argument is that not only were the monies provided by the GLC not at Brent’s free disposal, but also that the underlying property asset was and remains similarly encumbered. It is important to distinguish between the two.”
In dismissing the appeal and finding that the property belonged beneficially to the Claimant, the Judge set out what he described as ‘insuperable legal hurdles’ as set out below.
- Section 66
“…First, clause 1 of the deed specifies the powers under which the GLC paid over the monies. The relevant one for present purposes is section 136 of the Local Government Act 1972, which enables two or more local authorities to make arrangements for the defraying of expenditure incurred by one of them in “exercising functions” exercisable by all or some of them. Those functions must be the functions of local government. Accordingly, use of that power to make the payment ties the purpose of the monies to the exercise by Brent of local government functions, rather than the creation of an independent charitable trust.”
- Section 67
“Second, the deed contains a charge in favour of the GLC made by Brent “as beneficial owner”. The recognition of Brent’s beneficial ownership is inconsistent with its being a charity trustee. In addition, at the time of that charge, section 29 of the Charities Act 1960 would have precluded the grant of a charge over land held by a charity without the consent of the Charity Commissioners. No such consent was obtained.“
- Section 68
“Third, the nature of a Quistclose trust was closely analysed by Lord Millett in Twinsectra. He said of Quistclose itself at [69]:
“When the money is advanced, the lender acquires a right, enforceable in equity, to see that it is applied for the stated purpose, or more accurately to prevent its application for any other purpose. This prevents the borrower from obtaining any beneficial interest in the money, at least while the designated purpose is still capable of being carried out. Once the purpose has been carried out, the lender has his normal remedy in debt.”
- Section 69
“Having examined a number of different theories, he concluded that the best analysis was that it was “an entirely orthodox example of the kind of default trust known as a resulting trust”: see [100]. It arises when the payer parts with his money on terms which do not exhaust the beneficial interest: see [102]. In other words, the payer does not part with the entire beneficial interest in the money; and in so far as he does not it is held on resulting trust for him. That analysis does not, in my judgment, sit well with the terms of the deed.”
- Section 70
“Moreover, the principle upon which the argument rests is that it is unconscionable for a person to receive money on terms as to its application and then disregard the terms on which they received it: Twinsectra at [76]. But in this case Brent did apply the money it received from the GLC on the purposes for which it agreed to apply the money; namely to contribute to the provision of the building for the Community Project. Once the monies have been applied to the agreed purpose, the Quistclose trust comes to an end…”
- Section 72
“Fourth, even if the monies provided by the GLC were not at the free disposal of Brent, it does not follow that the property itself was subject to any equitable constraints. To put the point a different way, the trust property (if there was any) was the monies, rather than what it was spent on, where it was spent for the agreed purpose.”
- Section 73
“Fifth, I do not consider that it is inequitable or unconscionable for Brent to assert an unencumbered title to the land in circumstance where, on failure of the agreed purpose to which the monies have actually been applied, it has entered into a legal obligation to repay not merely the original sum contributed by the GLC, but an agreed percentage of the open market value of the land, if higher. In this respect, equity will follow the law.”
- Section 74
“Sixth, the terms of the deed show that the property itself was indeed at Brent’s free disposal. It required the monies (or the agreed share of market value) to be repaid in the event that Brent were to sell the property. Plainly, therefore, it was contemplated that the land might not be devoted to the specified purpose for ever. That shows both that Brent did not commit itself to retaining the property for the agreed purpose; and, more importantly, the GLC knew that when it paid over the monies. That (if nothing else) distinguishes this case from Brisbane City Council where land was conveyed to the City Council on terms that it be “set apart permanently for showground park and recreation purposes.” The fact that, under the terms of the deed, Brent was free to dispose of the property contradicts any notion that the property (as opposed to the monies provided by the GLC) was not at Brent’s free disposal. There was, no doubt, a financial disincentive to the exercise by Brent of its freedom to dispose of the property; but that does not nullify or impair that freedom.”
- Section 75
“There is a seventh difficulty with this argument. Its goal is the conclusion that even though the monies received from the GLC were applied for the agreed purpose, and that purpose has subsequently failed, the land is still subject to charitable trusts. Tudor on Charities (10th ed para 9-003) explains:
“There is an important distinction between cases (i) where the issue is whether a gift can take effect at or about the time of its creation (cases of possible “initial failure”) and (ii) cases where the charitable gift has taken effect and, at a later date, it becomes impossible or impracticable for it to continue to take effect or for some other reason the purposes of the gift require to be altered. The former are generally called cases of “initial failure”. The latter used to be called cases of “subsequent failure”.”
- Section 76
“Having regard to the definition of “Community Project” and the importance of its management by a community co-operative, this is a case of subsequent failure. In such a case there are two main possibilities. One is that the monies (or whatever assets were acquired with those monies) remain subject to charitable trusts. In that event, the monies or assets will usually be applied for charitable purposes under the doctrine of cy-près (now largely regulated by the Charities Act 2011). The other is that the monies (or their equivalent) must be returned to the donor. The correct possibility depends on the terms of the gift. In Re Cooper’s Conveyance Trusts [1956] 1 WLR 1096, 1103. Upjohn J said:
“… whatever language is used, the whole question is what are the donor’s intentions, to be ascertained on a true construction of the relevant documents in the light of the relevant surrounding circumstances.
Thus, even where the gift is unlimited in time but is followed by clauses of defeasance or powers of revocation, it is a question of construction whether a donor intended to devote his gift to charity out-and-out or in perpetuity or only for a limited purpose and period.”
- Section 77
“The ultimate question, therefore, is whether the donor has made an out-and-out gift for charitable purposes. As it is put in Halsbury’s Laws of England (volume 8 (2019)) para 172:
“If a gift is only for a specific charitable purpose and is limited to that purpose, and the donor parts with his interest in the property only to the extent necessary for the achievement of that purpose, a subsequent failure of that purpose brings to an end the charity’s interest in the property given, so that what remains of it is held upon resulting trust for the donor or falls into residue.”
- Section 78
“This principle does not appear to have been affected by the Charities Act 2011 (see section 62 (3)); and is to some extent reflected in sub-sections 65 (3) to (6). Here the express terms of the deed required the monies (or the agreed proportion of market value) to be repaid to the GLC if the agreed purpose subsequently failed. There was, therefore, no outright gift to Brent but only a gift for a limited purpose and for a potentially limited period.”
- Section 79
“The covenant to repay if the property ceased to be used for the purposes of the Community Project is therefore also inconsistent with any intention (either on the part of the GLC or Brent) that the monies should be permanently dedicated to charitable purposes. In the case of a gift limited in that way, once the limited charitable purpose had come to an end, the undisposed interest of the donor would usually revert to him on a resulting trust…”
Comment
This case is a good example of what is required to establish whether property is held by a charitable trust. The fact that money was donated for a charitable purpose may not be enough on its own to establish that the money or more importantly property purchased with the money should be held for a charitable purpose indefinitely. Arguments in this arena are, however, highly dependent on the evidence and each case will turn on its own facts. Where the money was donated by deed or some other instrument, that would usually be the best place to start in terms of any interpretation.
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