District Court has jurisdiction to sanction settlement revoking a charitable trust under Charities Law Cap 41.

[*158] 1979 February 3

(STAVRINAKIS,P.D.C. AND BOYADJIS, S.D.J.)

IN THE DISTRICT COURT OF NICOSIA

The Municipality of Nicosia,

Plaintiffs,

v.

Constantinos Adamides and Others

Defendants.

(Action No. 4628/76).

Charitable Trusts - Charities Law, Cap. 41 - Jurisdiction - Whether Supreme Court has exclusive jurisdiction on all matters relating to charitable trusts incorporated or not - Revocation of trust and appropriate Court - A trust may be cancelled for failure of consideration - District Court competent to grant relief - Distinction between trust and contract and between completed and incompleted trusts.

K. Michaelides for A. Indianos, for the Plaintiffs.

E. Emilianides and C. Emilianides, for the administrators of the estate of Aphrodite Vassiliadou.

C. Adamides, one of the administrators, present.

JUDGMENT

The judgment of the Court was delivered by:

STAVRINAKIS, P.D.C.: The parties in this [*159] action are on the one hand the Nicosia Municipality and on the other the administrators of the estate of the late Aphrodite Vassiliadou, hereinafter to be referred to as the donor. The parties reached an out of Court settlement of the action, but as the subject matter touches a charitable trust the issue arose as to whether the District Court of Nicosia had jurisdiction to sanction the settlement in view of the provisions of the Charities Law, Cap.

41. It is the contention of both sides that the proper court to deal with this case is the District Court and not the Supreme Court in view of the fact that no trust had been created and further that the Supreme Court only has jurisdiction to exercise its powers under S.13 of Cap. 41 in cases of incorporated charitable trusts. The issues, therefore, falling for determination, are:-

(a) Whether a charitable trust was created and if so whether it can he revoked.

(b) Whether the powers given to the Supreme Court by S. 13 of Cap. 41 are confined to incorporated charitable trusts only or are of general application to all charitable trusts incorporated or not, and

(c) Whether the revocation and/or cancellation of a trust falls within the ambit of the powers set out in S. 13 of the Charities Law, Cap. 41.

FACTS OF THE CASE:

The facts which are admitted are as follows:- The donor, before her death, by a letter dated [*160] 3rd May, 1974, addressed to the Mayor of Nicosia expressed her intention to donate all her property to the Municipality of Nicosia on condition (brief summary):-

(a) That an "Institution for the Care of Young and Aged People" be established under the name Zoodochos Pigi;

(b) that a "Cultural Court" be erected at Nicosia, bearing the name Aphrodition;

(c) that a constitution be drafted with a number of persons therein named forming the administrative committee, the donor being one of them;

(d) that the rest of her property be utilised with a view to securing a comfortable and respectable life for the donor during her life-time and the remainder, if any, after her death to be disposed of in favour of the institutions.

The Municipality by a letter dated 22nd June,1974, informed the donor that in principle they would accept the performance of the trust as soon as the immovable property of the donor was transferred in their name. In particular, the Municipality would have undertaken the obligation:-

(a) to build on a suitable site which would be provided by the Government -

(i) an institution for Incurable Young and Aged People, and

(ii) a cultural centre.

(b) The maintenance of the said Institution, and

(c) the maintenance of the donor by the payment of £200.- per month. [*161]

The donor replied to the Municipality by a letter dated 25th June, 1974, informing them that she was in agreement with the proposal for the transfer of her immovable property on conditions however, that a suitable site for the building of the aforesaid institutions would be found within three months. In response, the Municipality informed the donor that in case the donation was materialised the appropriate site would be found within six instead of three months. After this the donor by a special power of attorney, dated 4th July, 1974, authorised the town clerk of the Municipality of Nicosia to transfer on her behalf in the name of the Municipality all her immovable property with the exception of two pieces of land at Kouklia. The Municipality authorised the Chairman of the committee to accept the transfers and further took steps for securing the approval of the Council of Ministers for the acquisition of the donor's property under the provisions of S. 8A of the Municipal Corporations Law, 1964 to 1972, On the 19th July, 1974, the "Council of Ministers" approved the acquisition of the donor's property by the Municipality. In the meantime the Turkish invasion intervened in consequence of which the major part of the donor's immovable property situated at Famagusta came under the Turkish occupying forces and the said properties can neither be transferred nor be of any practical use or value to the Municipality. Meanwhile, the town clerk acting on the special power of attorney given to him by the donor transferred in the name of the Municipality the following properties:- [*162]

(a) Registration No. K.644, Plot 649, Sheet/Plan XXI. 62.E2 locality ’Djimistra' Strovolos, Nicosia

- l/4th;

(b) Registration No. 499, Plot 451, Sheet/Plan XXI. 62.E2 locality ’Djimistra’ Strovolos,Nicosia - 1/4th;

(c) Registration No. 499, Plot 451, Sheet/Plan XXI.62.I.I, near Strovolos Bridge - whole;

(d) Registration No. A501 , Plot 452, Sheet/Plan XXI.62.I.I near Strovolos Bridge, Nicosia - whole.

The Municipality paid for the above transfers the transfer fees and incurred other expenses.

On the 6th November, 1974, the sister of the donor revoked the special power of attorney and undertook the obligation to reimburse the Municipality for any expenses they had occurred in connection with the transfers. The Municipality, by a letter dated 23rd January, 1975, informed Mr. C. Adamides, the advocate of the sister of the donor, that they could not acccpt the revocation of the power of attorney by the sister but if the donor herself wished to revoke the power of attorney she could do so on her return to Cyprus, and that any further transfers in the name of the Municipality would be suspended.

On 16th September, 1975, the donor by letter confirmed her desire to revoke the power of attorney and asked for the return of her property so transferred by the town clerk. [*163]

In view of the occupation by the Turkish forces of the area of Famagusta where most of the donor's property was situated the present action was filed whereby the Municipality of Nicosia, as plaintiffs, are asking for a number of declarations and orders the effect of which is the enforcement of the trust.

The donor resisted the action claiming in her turn a series of declarations and orders the effect of which is to set aside the effected transfers and any agreement made between hereself and the Municipality.

Before the filing of this action the Municipality applied to the office of the Attorney-General for a written consent under S. 13 and 14 of the Charities Law, Cap. 41 for the filing of an application to the Supreme Court. On 16th August, 1976, a letter was sent by a counsel of the Republic on behalf of the Attorney-General addressed to the advocates of the Municipality informing them that the required consent could not be given as the trust wasnot constituted in accordance with the provisions of the Charities Law, Cap. 41, and that the relevant certificate, as provided by S. 2 of the same Law, was not issued. Following this, the present action was filed in the District Court of Nicosia.

On 30th March, 1978, the advocates of the parties appeared in Court and declared a settlement which reads as follows:-

"Both sides state that it has been agreed that the trasfers of the properties in the name of the [*164] plaintiffs be cancelled and the properties be re-registered in the name of the defendant and that an order be issued as per paragraph 17### ### of the statement of claim. (As it stood before the amendment).”

At that stage the Court asked the advocates whether the District Court had competence to deal with the case in view of the provisions of S. 13 and S. 14 of the Charities Law, Cap. 41. As the advocates needed time to consider the point an adjournment was given. In the meantime the donor had died and the title of the action had to be amended and this accounts for the long delay.

DETERMINATION OF ISSUES:

QUESTION 1 - Whether a valid trust was created and if so, whether it can be revoked:

As a first step it is necessary to distinguish a "trust" from a "contract".

In Snell’s Principles of Equity, 26th ed., at p. 100, the author speaks about the distinction in the following terms:-

"First contracts differ from trusts in that broadly contracts are agreements either supported by valuable consideration or made under seal. But in many trusts there is no element of contract as where a testator creates a trust by his will or as a settlor declares himself a trustee

of certain properties for a volunteer. On the other hand, [*165] although the common law Courts persistently refused to

recognise as actionable any breach of trust, there appears to be no reason why a trustee’s breach of trust which he has agreed with the settlor to undertake should not be treated as a breach of contract, remediable by an action for damages brought by the settlor. Again if S contracted with B under seal or for valuable consideration to settled property on trust for B, S was liable at law for damages if he broke the contract."

In this case an intention was expressed by the donor to create a trust but root alone. She sought for this purpose the participation and assistance of the Municipality and imposed certain conditions. In fact, we see through the facts of the case a series of negotiating stages aiming at the conclusion of an agreement between them for the purpose of setting up a charitable trust. At this juncture, it is interesting to note that In case the agreement was concluded and the trust was completed the trustees would have been the following persons mentioned by name in her letter dated 3rd May, 1974:-

(a) Mr. Lellos Demetriades, the Mayor,

(b) Mr. Andreas Olymbios, Chief Registrar of the District Court of Nicosia,

(c) Aphrodite Vassiliadou (the donor herself),

(d) Theodora A. Constantinou,

(e) An employee of the Welfare Office. [*166]

The committee of the Nicosia Municipality would have replaced the above trustees in case anyone of them would die or otherwise become incapacitated.

So, although all the negotiations were being made with the ultimate trustees nevertheless at the material time they had no right to act as such, as none of the named trustees had either died or in any way become incapacitated. In view of the above, we find that unless a valid and enforceable agreement had been concluded between the two sides - the donor on the one hand and the donee on the other - no trust could have been created.

It seems that an agreement for the creation of a trust was in fact concluded by the parties and steps had already been taken for its implementation. However, the loss of the greater part of the immovable property of the donor which constituted a valuable consideration for the Municipality to participate in the creation of the charitable institutions in accordance with the desires and wishes of the donor, destroyed the incentive of the Municipality for undertaking such an ambitious and expensive project.

It is worth noting that if there was any action by the donor against the Municipality such action would not have been against the trustee for breach of trust but an action based on a contract between two purported settlors because, as we have already pointed out the first trustee would not have been the Municipality but a number of other persons not being parties to these [*167] proceedings. In short, we may say that despite the fact that an agreement was concluded yet it is doubtful whether it could have been enforced in view of the failure of consideration.

However, what really matters is not the enforceability of the contract but the completion of the trust. On this, we read the following from Snell’s Principles of Equity, 26th ed., p. 129:-

"Distinction between Completely and Incompletely Constituted Trusts - The question whether a trust is executed or executory can arise only if there is an enforceable trust; granted that a trust has been created, how is it to be construed? A different question is whether there is an enforeable trust at all and in this connection a distinction must be drawn between completely and incompletely constituted trusts. A trust is said to be completely constituted when the trust property has been vested in trustees for the benefit of the beneficiaries; until that has been done the trust is incompletely constituted or in fieri, as it is sometimes called."

And at p. 131,

"Modes of completely Constituting a Trust - There are two main ways in which a trust may be completely constituted: The settlor may either convey the property to trustees or he may declare himself to be a trustee of it." [*168]

It has already been stressed that the Municipality of Nicosia was not the trustee of the intended trust but merely a party to an agreement with the donor to create a trust together. It is true that certain properties of the donor where transferred in the name of the Municipality but as we see it the trust would have been completed in two stages; First, by the transfer of all the donor's property in the name of the Municipality, and secondly, by the transfer of the properties in the name of the trustees.

There is little room for doubt that the trust would have been completely constituted when the agreement between the parties was fully performed and since this has not been achieved the trust remained incomplete.

Taking the case a step further, we may say that even if the trust was completely constituted, it might have been possible for the Municipality or even the donor to have it cancelled for total failure of consideration. On this, we refer to the case of Essery v. Cowlard*. In that case, by a settlement in consideration of a then intended marriage executed in 1877, it was declared that a sum of stock, which had been transferred by the intended wife to trustees should be held by them on trusts for her benefit and that of her intended husband and the issue of the intended marriage. The marriage was not solemnised but the parties co-habited without marriage and three children were

born. In 1883 an action was brought by the [*169] father and mother of these children against the trustees to have it

set aside. It was held that the contract to marry having been absolutely put end to, the settlement ought to be cancelled.

In the present case, even if there was completion of the trust, it is highly probable that the Court would have granted relief to the Municipality by cancelling the trust after the major part of the settled property was lost and which would have provided them with the funds necessary to materialise the wishes of the donor. The consideration for the Municipality in agreeing to the creation of the trust was the transfer in its name of the donor's property which must have been of quite a considerable value at the time and sufficient to enable them to proceed with the establishment of the charitable institutions.

We believe, judging from the facts before us and the desire of the parties to have the agreement cancelled, that it would have been unfair and unjust to hold the Municipality bound to the agreement when the expected consideration for their promises has lost its practical value.

QUESTION 2 - Whether the Powers given to the Supreme Court by S. 13 of Cap. 41 are exercisable only in in Cases on Incorporated Charities:

The Charities Law, Cap. 41 , was first enacted in 1925 and its long title is a law "to make provision for the protection of charities". By S. 2 of the Law, it is provided that – [*170]

"it shall be lawful for the trustees for the time being of any charity",

to apply to the Council of Ministers for a certificate of registration of the trustees of any such body as a corporated body. The Council of Ministers may grant such certificate when it considers such incorporation expedient. It becomes obvious from a mere reading of this Section, that it is not obligatory for the trustees of a charity to apply for incorporation. They are given simply a right to do so, if they wish, with a view to enjoying the advantages of such incorporation and at the same time to subject themselves to the control which such incorporation entails, such as the keeping of books and accounts (S.10) and the audit of their accounts (S.11). It is also worth noting that even if the trustees decide to apply for incorporation the Council of Ministers may not consider such incorporation expedient, in which case the application would be rejected and the charity would remain unincorporated as before.

If we were to interprete the Law as imposing a peremptory duty on all trustees to apply for incorporation the important question will arise as to what would be the fate of a charity in respect of which an application for incorporation was rejected by the Council of Ministers or whose trustees failed to apply for incorporation. Perhaps if the duty was obligatory, failure to apply for incorporation could invalidate the trust, which is rather unlikely, or could result to certain sanctions on the trustees and none are mentioned in the Law. If there [*171] were any sanctions on account of the failure of the trustees that would, have been quite understandable; what, however, we fail to see the logic of, is to have sanctions in the case where the Council of Ministers rejects the application for incorporation. In the first case the trustees are to blame for their failure but in the second place nobody is to blame. In any case, if for any reason the charity was invalidated the loss will befall on the beneficiaries who are not at all to blame; and no doubt the legislature, in enacting the said Law, had all these in mind. In support of the interpretation that the Law does not create an obligation on the part of the trustees to apply for incorporation is strengthened by the very title of the Law which speaks for protection of charities in general. We think that any interpretation the effect of which would be the creation of peremptory duties would be alien and completely incompatible with the letter and spirit of the Law.

Reading the Law as a whole, we see a number of protective measures being created. One of them is the incorporation of charities. Another, the enrolment of deeds in accordance with the provisions of S. 12 and the third the powers given to the Supreme Court by S. 13.

We have arrived at this conclusion after having carefully studied the wording of Ss.12, and 15 and compared same with the wording of the preceding sections. In none of Ss. 12-15 inclusive, any mention of the word

’incorporated’ or other word or phrase importing the idea [*172] of incorporation or registration is made whereas

such words and phrases are used persistently in all the preceding sections rendering thus crystal clear the intention and objects of the legislature. We can say without any reservation that the absence of such words and phrases from Ss. 12 -15 is not accidental but deliberate. Indeed, if we were to find that the Supreme Court exercises the powers accorded to it by S. 13 in cases of incorporated charities only, we wonder which Court would have had jurisdiction and powers to determine similar matters in the case of unincorporated charities which, as we have already found, can exist and cannot be invalidated either by the failure of the trustees applying for incorporation or by rejection of an application by the Council of Ministers.

In conclusion, we find that the powers the Supreme Court has under S. 13 of the Charities Law are exercisable in all charities incorporated or not and such powers were intended by the legislature to be one of the measures devised for the protection of charities in addition to the incorporation and enrolment of deeds. Therefore, if we were to find that a trust was in fact completed, then the appropriate Court for determining the case would have been the Supreme Court provided, of course, that the out of Court settlement the parties have reached is one of the matters for which the Supreme Court has exclusive jurisdiction.

QUESTION 3 - Whether the Cancellation of a Trust is falling within the Powers of the Supreme Court: [*173]

It is clear from the perspicuous wording of S. 13 of Cap. 41 that the powers of the Supreme Court are exercised only when there is a trust and problems arise as to its administration and enforcement. In fact, the powers are intended for the enforcement and proper administration of a completed trust only.

What we have here is a motion to cancel a trust assuming, of course, that a trust had been validly created. We believe that the cancellation or setting aside of a trust in a proper case is a matter falling outside the ambit of S. 13 of Cap.41, and the exclusive jurisdiction of the Supreme Court. It may be in such a case, both the Supreme Court and the District Courts have concurrent jurisdiction but this does not pose for determination.

For all the above reasons, we are satisfied that the District Court has jurisdiction to entertain the case, record the settlement and issue the prayed order.

Accordingly, the settlement which is now approved by the administrators of the estate of the donor as well, is hereby recorded and the following judgment and order is issued.

By the consent of the parties, judgment and order is issued as per paragraph 19### of the amended Statement of Claim. No order as to costs.

By consent judgment with no order as to costs.

* (1884), 26 Chanc. Div., p. 191; see also Underhill’s Law of Trusts and Trustees, 12th ed., p. 136.