Construction of a Trust Deed

Senate HouseThe recent case of University of London v Prag [2014] EWHC 3564 (Ch) may be one of interest to students of trusts law, and not merely due to their familiarity with the identity of the claimant, the University of London (UoL). It illustrates that much can turn on the proper construction of a trust instrument.

This case concerned a trust deed made in 1944 between the UoL and the Warburg family, which established the Warburg Institute. According to its website, the institute ‘is concerned mainly with cultural history, art history and history of ideas, especially in the Renaissance.’

By the 1944 trust deed, the Warburg Library (consisting of about 80,000 books and a large collection of photographs) was transferred to the UoL. The UoL, a charitable body, was to ‘maintain and preserve the Warburg Library in perpetuity’, to house it ‘in a suitable building in close proximity to the University centre at Bloomsbury’ and to ‘keep it adequately equipped and staffed as an independent unit the whole to be known as “the Warburg Institute”. The UoL felt that it was no longer able to fund the Institute separately from the university. As a result, there arose a number of questions of construction of that trust deed, both as to the subject matter of the trust as well as to the methods of funding or running the Institute and Library.

In the Chancery Division, Proudman J first held that the Institute is a part of the UoL, but also a separate charity to the extent that it is subject to the special trusts by virtue of the trust deed. In relation to the subject matter of the trust, she found that this was not limited to the books and photographs actually transferred to the UoL in 1944, but also other later additions to the library as well as gifts made out to the Institute or the Library. This was said to reflect the words used in the trust deed, in particular that it was set up for the ‘further development’ of the Library, and that the UoL would ‘maintain’ and ‘keep it adequately equipped and staffed’. From these, Proudman J concluded that the UoL accepted the 1944 collection ‘on terms that the Library would continue as a living institution’.

As to the building which ‘housed’ the collection, on construction of the trust deed the judge found that this did not form the subject matter of the trust. The defendant argued that the UoL could not assert a beneficial interest in any grant funding which the UoL applied for and succeeded in securing for the benefit of the Institute (in particular for the building), on the basis of the ‘no profit’ rule and the case of Boardman v Phipps [1967] 2 AC 46. Proudman J rejected this argument: the funding was awarded to UoL as a university and not as trustee of the Warburg Library and Institute. What was necessary to engage the rule in Boardman was a profit made qua fiduciary, and the funding received by the UoL did not fall within this definition.

As for the running of the Institute and Library, Proudman J found that the deed required the UoL to maintain them ‘as an independent unit’, and therefore the library could not be integrated into another library, and the Institute could not be integrated into another part of the UoL. Moreover, because the collection which made up the library was to be preserved ‘in perpetuity’, this meant that the UoL could not fund the running of the Institute out of the collection — it could not, for example, sell a collection of books for this purpose — but only out of other resources available to the UoL. Finally, the UoL could not debit an estate-wide service charge to the account of the Institute, since this was to fund the UoL’s costs on its other property. The UoL could only legitimately be indemnified in respect of proper expenditure incurred in fulfilling its duties under the trust deed.

This decision demonstrates how the terms contained in a trust instrument, which may appear insignificant, may have important consequences for the running of a trust. An appeal to the Court of Appeal is currently outstanding, as the UoL maintains that it is not viable to run the Warburg Institute independent from the UoL. It will be also interesting to see whether the UoL succeeds in its appeal, and whether a different approach to the construction of the trust deed would be taken.

This blog was written by Dr Ying Khai Liew, Law lecturer at UCL and tutor on the Regional Revision Courses.

2 comments

  1. Re:UOL v Prag

    when UOL accepted to be trustee of The Warburg institute in 1944, no one thought of or foresaw how technology and the access to information would have evolved in less than a century. The testators wishes is to keep the Warburg institute separate from any othe UOL Library..
    1. Separate could not mean the same thing it did in 1944, in 2014.
    2. The subject matter of the Warburg trust is able to remain separate on computer files
    3. As technology evolves and the institute’s further development takes place, computer files are going to be a major part of its subject matter
    4.As technology evolves, libraries are becoming even more paperless, The Warburg institute will be no different.
    5. The trustee, UOL should be allowed to integrate the present hard copies of the Warburg institute into any brick and mortor building it has, keeping it apart from the other hard copies that do not form part of the original donation. Present and future additions in computer files, if hard copies are not always possible.
    6. However to honor the wishes of the testator and keep the testators intention in tact, UOL could continue to staff and maintain it as a separate entity within the brick and mortor location.
    7. If Uol is not able to maintain the staff and institute as an “independent unit”, the Cy-pres doctrine can always be applied as per Part 6 of the Charities Act 2011.

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