Dealing with difficult provisions

Statute XVI, section 20 provides that, in the absence of provision to the contrary under specific provisions relating to individual trusts, any surplus income of any trust in any year may at the discretion of the board of management or other body responsible for the administration of that trust:

• be used in that year for the benefit of the division, faculty, sub-faculty, or department within whose area of responsibility the administration of the trust falls; or
• be placed on reserve for expenditure in the subsequent year as if it were income of that subsequent year.

These provisions provide the University with statutory authority to spend surplus income more flexibly. However, it is still necessary in each case to go back to the contemporaneous documents to establish the specific provisions relating to the individual trusts, and ascertain whether there are any express restrictions on the spending of surplus income that would override the section 20 power.

Use of this provision is best suited to difficulties of a temporary nature.

In general, the terms of a charitable trust can be amended only (i) if the terms of the trust themselves permit the alteration; (ii) by the courts or the Charity Commission; or (iii) pursuant to some other statutory power.

1.1          The terms of the trust
The general rule is that the terms on which trust funds are held by the University will be the terms intended by the donor (ascertained objectively by reference to the terms on which the donor made their gift) construed against the factual background known to the donor.  The terms of the trust may be set out in a will, deed of covenant, correspondence or other contemporaneous documents. They may be as brief as a line in a letter, and may be entirely silent on the subject of amendment. Alternatively, the terms may specify a procedure for amendment.  Note that unless the trust instrument specifically provides that amendments may be made with the consent of a particular person (for example the donor), obtaining the agreement of the donor is not sufficient to allow changes to be made.

1.2          Courts/Charity Commission
The Charity Commission is often willing to make Schemes to change the objects of a trust where the objects are no longer appropriate, or provide a use for part only of the funds available. Applications to the Charity Commission do not need to be expensive or time consuming and can provide certainty: but it may be necessary to show that the donor (if still living) or other interested parties (such as the donor’s family) support the proposals and that the University's own procedures (described below) are not appropriate.

1.3          The Charities Act 2011
Unincorporated charities such as the University’s trust funds may be able to use the powers set out in the Charities Act 2011 to amend certain trust provisions. A trust fund is a special trust of the University, but it will also be a charity for the purpose of most of the Charities Act 2011.

Administrative powers and procedures - Section 280

The Trustees of any unincorporated charity have the power to change the administrative powers and procedures of the trust by resolution. This includes, for example, changes to the name of a trust, powers to borrow or invest money, and procedures such as trustee meetings or appointment of trust officers.

Where a power of amendment in the governing document of a trust requires the approval of a third party (such as the donor) to amendments, that approval will not be necessary if the s280 provision is used to make the amendment. There may, however, be cases where it is in the interests of the University to obtain approval nonetheless. The Charity Commission is unlikely to intervene in such cases unless there are particularly unusual circumstances.

This power cannot be used to amend:

• objects;
• purposes for which property is to be used on the dissolution of the trust;
• powers which the governing document states the trustees can only exercise with the consent of a third party: the trustees must have the agreement of the third party, or the third party must have ceased to exist;
• provisions which will result in a benefit to the University as the trustee; or
• the status of permanent endowment (see below).

Council, on behalf of the University as trustee, must pass a resolution to approve the change.

Objects – Section 275

Trustees of trusts whose gross income in the last financial year did not exceed £10,000 have power to change the objects of the trust by resolution.  The University must be satisfied that it is expedient in the interests of the trust for the objects to be changed. So far as is reasonably practicable, the new purposes must consist of or include purposes which are similar in character to those which are to be replaced. The new objects must be exclusively charitable.

A copy of the resolution must be sent to the Charity Commission with the reasons for passing it. Unless the Commission objects, calls for further information, or requires publicity to be given, the resolution will automatically take effect 60 days after the Commission has received it.  Trustees of trusts whose gross income in the last financial year was more than £10,000 can change the objects of the trust by resolution only if the terms of the trust allow them to do this; or there is another statutory power available. They can also apply to the Charity Commission for a Scheme to amend the objects.

A Charity Commission Scheme can also be used where changes might benefit the University or connected businesses or individuals. And a Scheme can be made in other specific circumstances (e.g. where the objects can no longer be carried out, or cannot be carried out in the way laid down in the governing document, or do not provide a use for all of the charity’s income or property, or have stopped being a useful way of using the funds or property). The new objects must take account of the spirit of the original gift.

1.4          The Universities of Oxford and Cambridge Act 1923 (“1923 Act”)
The 1923 Act sets out a procedure for the amendment of statutes made by the University, acting through Congregation, with the consent of any college affected by the statute, and with the approval of the King-in-Council.

In making amendments to a statute the University must have regard to the main design of original benefactor for the institution or “emolument” which will be affected by the change, except where that design had ceased to be observed before the passing of the 1923 Act; or where directions affecting the institution or emolument have been altered in substance by or under any other Act. ‘Emolument’ includes any professorship, lectureship or scholarship arising wholly or in part from an endowment, benefaction or trust; and any fund, endowment or property held by or on behalf of the University for the purpose of advancing, rewarding or otherwise providing for any member of the University.  The University must also have regard to the interests of education, religion, learning and research; and in the case of a statute which affects a College, shall have regard in the first instance to the maintenance of the College.

Finally, in making any statute or regulation under the 1923 Act the University must have regard to the need to facilitate the admission of poorer students to the University and Colleges.

1.5          The University’s Statute XVI
Part D of Statute XVI is a King-in-Council statute which provides certain powers for the University to amend trusts.  Changes to trusts listed in the Schedule must be approved by Congregation and the Privy Council, except to the extent that Congregation is empowered by the provisions in the Schedule which govern the relevant trust to make the amendment on its own authority.  Changes to trusts in the University’s Trust Regulations (and this includes trusts set out in the Academic Regulations that have been re-designated as Trust Regulations by Council) can be made by Council, save where the change is to the main objects of the trust (when the approval of Congregation and the Privy Council is required).

As a King-in-Council statute, Statute XVI is analogous to a statutory power to amend trusts.

1.6          Regulations
The Academic Regulations and the Trust Regulations each contain a procedure for alteration. For Trust Regulations the procedure is as specified in Statute XVI. Academic Regulation 1 provides that those Regulations can be amended by Council.  There is, however, an issue over the role of Regulations in relation to the express terms of a trust. Whereas King-in-Council Statutes are made by the Privy Council, and are therefore akin to parliamentary statutes, or to Charity Commission orders which can alter or override the terms of a trust, Regulations are made by the University and arguably do not have such force.

In cases where a donor actively approves a Regulation it may be possible to show that the Regulation records the terms of the trust as intended by the donor. In other cases, for example where the gift was made by will, it will be very hard to show that the terms of the Regulation are the terms actively intended by the donor. This is not a problem where the Regulation simply reflects the terms of the gift, but there is a problem where the contemporaneous terms of the gift are silent or even conflict with the terms of the Regulation. To what extent can the Regulation add to, or even override, the original terms of a gift as set out in a will, deed of covenant, correspondence or otherwise, for example by providing for a power of variation? In some situations the Regulations are expressly made subject to contrary provisions of the original terms of the gift (e.g. Statute XVI, section 20), but in other cases the position is not clear.

Sections 281 and 282 of the Charities Act 2011 grant unincorporated charities a statutory power to spend permanent endowment if the trustees decide that using the permanent endowment as well as the income will enable the charity to carry out its purposes more effectively.  Endowed funds are special trusts of the University but also separate unincorporated charities (other than for accounts purposes). The statutory powers in 281 or 282 can therefore be used in relation to a particular trust.  These powers are particularly useful where the income of a trust fund falls to a level where it is not possible to achieve its purposes. The University can then bring the trust to an end by spending the permanent endowment.

Conditions
(1)  Where a trust fund has:

• annual gross income of less than £1,000; or
• permanent endowment with a value of less than £10,000; or
• endowment which was not entirely given from outside ‑ (this condition will apply primarily where the University has used corporate funds to create its own permanent endowment, or has contributed from corporate funds to the permanent endowment held by a trust);

the endowment may be spent without the need for Commission approval. First there must be a Council resolution, passed in accordance with the procedure set out below.

(2)  Where a trust meets none of the conditions set out above, the approval of the Charity Commission will be required.

Procedure
The University, as trustee of the relevant trust fund, must be satisfied that the purposes of the trust could be carried out more effectively if some or all of the trust’s permanent endowment is used, rather than the income alone.  The University as trustee must pass a formal resolution that the permanent endowment restrictions should be removed from all or part of the trust fund concerned. The resolution can be passed in any way specified by the University’s Statutes.  For trusts meeting the small trusts requirements set out above, as soon as the resolution has been passed the University can spend the permanent endowment. For trusts which do not meet the small trust criteria, the consent of the Charity Commission will be required.