LAW OF TRUSTS
Keagan Van Wijk
‘A group of persons may be numerous but, if the nexus between them is their personal relationship to a single propositus or to several propositi, they are neither the community nor a section of the community for charitable purposes’ (per Lord Simmonds, Oppenheim v Tobacco Securities Trust Co Ltd  AC 297, 306).
Discuss the above statement in relation to the public benefit test within the ambit of Charity Law. Your answer should also analyse whether the personal nexus test differs in charities set up for the relief of poverty.
A charity is an institution established for a charitable purpose and is subject to the control of the High Court. In determining a charitable purpose, there are two requirements. The first being that the purpose must be for one of the heads of charity and the second is the requirement of a public benefit, which is no longer presumed. The public benefit requirement is split into two aspects: the ‘benefit aspect’ and the ‘public aspect’. The ‘benefit aspect’ refers to the benefits of the charity being clear, related to the charity and balanced against any detriment. The ‘public aspect’ refers to the general requirement that the benefit of the trust should fall to a section of the public. The initial statement relates to this element and this essay will discuss the ‘public aspect’ of the public benefit requirement with regards to determining whether the statement is valid.
Charities for the of the advancement of education were part of the four original heads of charity. The initial statement is from the Oppenheim case, which reinforced Re Compton, and further clarified what would constitute a sufficient section of the community. The ruling places a limit as to when the ‘public aspect’ will be satisfied by stating there cannot be a charitable trust where there is a personal nexus between the settlor/testator and the beneficiaries. The reasoning behind this was that if the beneficiaries are those connected by a personal nexus, inherently it cannot reach a sufficient section of the community because the class of beneficiaries is limited.
However, the ruling was not unanimous as Lord MacDermott gave a dissenting opinion saying the number of people affected by the trust should be enough to satisfy the ‘public aspect’ and pointed out the difficulties in creating a positive rule regarding personal nexus. He noted that personal nexus should be a factor for consideration, but not a defining factor. He also proposed there was that there is no meaningful distinction between those employed by a particular company, who fail the personal nexus test and those who are employed in a particular sector, who do not fail the personal nexus test.
In Re Koettgen, it was held that if a settlor merely expresses a wish for preference to be given to relatives or employees, it does not necessarily mean there is no public benefit. In fact, it was held that there was a charitable trust even though the settlor expressed that preference should be given to beneficiaries he had a personal nexus with. In Caffoor, the court considered Re Koettgen but held that a trust will not be deemed charitable if the settlor directs the trustee to prefer his own family or employees of a particular company. This was a discrepancy, but as the Caffoor case was a Privy Council decision it is only persuasive precedent. In Re Koettgen the court placed an emphasis on the use of precatory words, whereas in Caffoor they strictly prohibited any form of preference with a personal nexus. Caffoor upholds the ruling in Oppenheim by restricting any type of personal nexus, however, Re Koettgen appears to relax the rule by allowing for preference to be inferred to those with a personal nexus to the settlor.
IRC v Educational Grant clarified this discrepancy, where it was held that a settlor may intend for preference to be given, but charitable status will only be withdrawn if the trustees actually prefer relatives or employees of a particular company when they distribute the funds of the trust. In IRC the trust was not charitable even though it was similar in nature to Re Koettgen. In Re Koettgen, up to 75% of the trust assets could be distributed to those with a personal nexus to the settlor. In IRC, 80% of the income was paid to education for the children of those who had a nexus to the company. The difference lies in the fact that in IRC the trustees acted on the preference and in Re Koettgen the trustees merely had the option, not an obligation to do so. Relating this back to the Oppenheim statement, it appears as if the courts are relaxing the personal nexus rule by giving discretion to trustees to look past the intentions of the settlor and judge it off the practical results of the trust. This shows that in situations where individuals aren’t singled out for preferential treatment, they may still be eligible to benefit from the trust, which ultimately opposes the statement from Oppenheim.
Although the initial quotation from Lord Simmonds lays down the no personal nexus rule, he does not make it clear if ‘poor relations’ cases would have to adhere to the standard. In fact, he avoids giving a definitive answer by merely stating they have their own line of case law. This separate line of case law refers to a long tradition of cases that allowed for a personal nexus between the settlor/testator and beneficiaries. None of these cases were taken to the highest court in the land however, which is why there was still uncertainty. This uncertainty was clarified in Dingle v Turner where the House of Lords gave a ruling on how/if the personal nexus test applies to charities for the prevention or relief of poverty.
In Dingle v Turner, there was a trust to pay pensions to poor employees of a specific organisation. The concern was whether a personal nexus to a company would negate charitable status. The House of Lords held that the public benefit requirement was fulfilled, and that the personal nexus test in Oppenheim did not apply to charities for the prevention and relief of poverty. The rationale was that ‘poor relations’ cases had been recognised for such a long period of time their validity could not be impeached, and the same applied to a trust for poor employees as it would be illogical to draw a distinction between the types of “poverty” trusts. Commentators suggest these trusts are recognised in equity because of underlying concern to relieve the vulnerable while others suggest the relief of the poor is seen as a benefit to the community as it places less pressure on the state to provide for these people…….
Written by Keagan Van Wijk