Setchim & Anor v Secretary of State for Foreign & Commonwealth Affairs & Ors

The Commonwealth Institute (CIC) is a company limited by guarantee, incorporated in 1999 under the Companies Act 1985. It is a registered charity, its objects being to advance education in the Commonwealth and to promote industry and commerce in the Commonwealth for the public benefit by all means, including in particular by the promotion of exhibitions and information services.

CIC was placed in members’ voluntary winding-up on 19 July 2007. It was and remains solvent, and it has a surplus of assets available for distribution. The memorandum of association of CIC provides that, on a winding-up or dissolution, the surplus assets are to be transferred to another charity with similar objects and it is specifically provided that the surplus assets may be passed to a successor trust formed by the directors of CIC provided that it has been registered as a charity and has a purpose identical to the educational purpose of CIC.

The Commonwealth Education Trust (the CET) was constituted by a declaration of trust dated 14 June 2007 as a successor trust complying with the requirements of CIC’s memorandum of association. Immediately before the commencement of the winding-up, surplus funds of £15 million were paid to the CET. The liquidators are holding approximately £8 million of further surplus funds, which are also available for transfer to the CET, subject to resolution of various issues which have arisen in the course of the liquidation.

The application now before the court is made by the joint liquidators under section 112 of the Insolvency Act 1986 for directions on the various issues which require resolution.

The circumstances in which the links between the Commonwealth Institute and the Government were severed, and the subsequent demise of the Commonwealth Institute and the reasons for it are controversial. This is apparent from the evidence placed before the court. The purpose of this application is not to investigate or reach conclusions on any of those controversial issues. The purpose of the application is limited to giving directions to the liquidators on the legal issues which require determination before the winding up of CIC can be completed.

Before going to the issues raised by the liquidators, it is convenient to set out the background and the development of the Commonwealth Institute and its predecessor the Imperial Institute.

In 1887, a public collection was held throughout the British Empire to celebrate the Golden Jubilee of Queen Victoria. Almost £430,000 was raised and the Imperial Institute was incorporated by Royal Charter in 1888 (the chartered corporation) to hold and apply the property and assets derived from this collection. The core activity of the chartered corporation was to be scientific and industrial research and the advancement of education, principally technical education, throughout the Empire.

In order to construct a fitting building for this enterprise, a 999-year lease of land on Exhibition Road in South Kensington, London was granted to the chartered corporation by the Commissioners for the Exhibition of 1851. No premium was paid and the reserved ground rent was £5 per annum. An imposing building (the Original Building), designed by T.E. Collcutt, was completed in 1893 at a total cost of £320,000, of which £40,000 was raised by a mortgage of the property. As well as offices and other facilities, the Original Building also housed exhibition galleries which provided a showcase for the industrial and commercial development of the Empire.

An Endowment Fund of £140,000 was established out of funds raised by the public collection and vested, under the terms of the charter, in the Endowment Trustees. The chartered corporation was entitled to the income but not the capital of the Endowment Fund.

By 1899 it was clear that the Original Building was too large for the needs of the chartered corporation. In that year it assigned its lease to the Commissioners of Works who granted to it a sub-lease for a term of 987 years of approximately half the building. Terms were agreed which involved the payment of sufficient funds to enable the chartered corporation to repay its mortgage debt. The terms of the sub-lease provided that the chartered corporation would occupy the demised premises free of rent and rates and with the benefit of heating and lighting and other defined communal services (the Services).

A major reorganisation of the Imperial Institute was undertaken in 1902. The impetus for this lay in the more active role being taken by the Government (HMG) in the promotion of trade and commerce and, as it was put in Cabinet on 5 April 1901, “far more beneficial results to the commerce of the country, both at home and abroad, could be obtained if the Institute were in the hands of the State than are at present secured”. At the same time, HMG accepted, on the advice of the Attorney General Sir Robert Finlay, that the Original Building and the Endowment Fund were charity assets and that it was not appropriate that authority over them should lie with HMG.

The Imperial Institute (Transfer) Act 1902 (the 1902 Act) created a new legal structure which lasted until 2002. The chartered corporation was dissolved. The Original Building and the capital of the Endowment Fund were vested in trustees constituted as a body corporate with perpetual succession. All the other assets of the chartered corporation and its liabilities were vested in the Board of Trade which became responsible for carrying on the activities of the Imperial Institute. Although recognised as a charity and registered as such in 1963, the Imperial Institute was not a body corporate or other legal entity but is best regarded as an unincorporated charitable institution with the responsible minister or government department and its Governors as trustees. There were from time to time changes in the minister responsible for it and in its constitutional arrangements, to which I will briefly refer below.

While the basic structure remained the same, significant changes were made by the Imperial Institute Act 1925 (the 1925 Act) and by the Commonwealth Institute Act 1958 (the 1958 Act).

As the arrangements existing before the enactment of the 1958 Act are relevant to one of the issues raised on this application I will summarise their effect.

The 1925 Act repealed the 1902 Act, save as regards those provisions relating to the incorporation and powers of the Imperial Institute Trustees (the II Trustees) established by the 1902 Act to hold the Original Building and the Endowment Fund. Section 9(1) of the 1902 Act remained in force so far as it provided that the II Trustees “shall be a body corporate by that name with perpetual succession and a common seal and with power to take purchase hold and dispose of lands and other property for the purposes of this Act.” To much the same effect section 2(2) of the 1925 Act provided:

“The Imperial Institute Trustees shall hold the Imperial Institute Building and the Endowment Fund and all other property for the time being vested in them for the purposes of this Act or for any of those purposes to which the same may be applicable.”

Section 2(1) of the 1925 Act provided that the II Trustees should be the Lord President of the Council, the First Commissioner of His Majesty’s Treasury (the Prime Minister), the Secretary of State for India, the President of the Board of Trade, the Secretary of the Department of Overseas Trade (Development and Intelligence), and three other persons having colonial, financial or commercial experience appointed by the responsible minister.

Section 2(4) of the 1925 Act provided:

“The Imperial Institute Trustees may if requested by [the responsible minister] with the consent of the Board of Governors hereinafter constituted sell lease or otherwise dispose of any real or personal estate held by them and apply any proceeds for the purpose of carrying out the objects of this Act or any of those objects to which the property disposed of was applicable but in the case of the proceeds of sale only in a manner in which capital money is properly applicable.”

As regards the constitution and management of the unincorporated Imperial Institute, the 1925 Act made provision for a responsible minister and for a Board of Governors.

The responsible minister as provided by the 1925 Act was the Secretary of the Department of Overseas Trade (Development and Intelligence) but his functions as responsible minister were transferred in 1944 to the Minister of Education, in 1964 to the Secretary of State for Education and Science, in 1967 to the Secretary of State for Commonwealth Affairs, and finally in 1968 to the Secretary of State for Foreign and Commonwealth Affairs (the Secretary of State).

Immediately before the enactment of the 1925 Act, the minister exercising the functions of the responsible minister was the Secretary of State for the Colonies. Section 3 of the 1925 Act provided:

“All property real or personal all rights and obligations and all debts or liabilities which at the commencement of this Act are the property rights obligations debts or liabilities of the Secretary of State for the Colonies in pursuance of the Acts of 1902 and 1916 … shall become the property rights obligations debts or liabilities of the responsible minister and the responsible minister for the time being shall have any powers necessary to enable him to hold any such property.”

As regards the role of the responsible minister, section 4 of the 1925 Act provided:

“(1)

The Imperial Institute Building or so much thereof as is not for the time being leased or otherwise disposed of shall be used and all property transferred to the responsible minister under this Act and the income of the Endowment Fund and all sums received by the responsible Minister in respect of the exercise of any of his powers and duties under this Act shall be used and applied by the responsible minister so far as practicable in carrying out the purposes of the Imperial Institute set forth in the First Schedule to this Act…

(2)

The responsible minister shall receive and hold any sums of money or property given or entrusted to him for any purpose for which property transferred to him under this Act may be used and shall apply any such sums of money or property for the purposes for which they are so given or entrusted to him.

(3)

The income of the Endowment Fund shall be paid over by the Imperial Institute Trustees to the responsible minister and the Imperial Institute Building shall be under the management of the responsible minister.”

Section 5(1) provided:

“The responsible minister shall take such steps, make such arrangements and employ such persons as he thinks necessary or expedient for carrying out his duties under this Act.”

The 1925 Act also provided for the provision of public funds. Section 7 provided:

“There shall be paid out of moneys provided by Parliament –

(1)

in each year during the five years after the commencement of this Act a sum of nine thousand pounds towards the expenses of the Imperial Institute and thereafter such sum (if any) as Parliament may determine; and

(2)

such additional sum (if any) towards the maintenance of exhibition galleries as Parliament may from time to time determine.”

As regards the Board of Governors, section 5(2) of the 1925 Act provided:

“There shall be established for the purpose of carrying on the management of the Imperial Institute under the responsible minister a Board of Governors constituted in accordance with the provisions of the Second Schedule to this Act.”

The provisions of schedule 2 to the 1925 Act were replaced and altered by a series of statutory instruments, for the most part made in the 1950s. Following these amendments, the Board of Governors comprised a chairman and a vice-chairman appointed by the responsible minister, the High Commissioners or other appointees of the Governments of the countries of the Empire or subsequently the Commonwealth, and other persons appointed by the responsible minister or co-opted by the Board of Governors.

The purposes of the Imperial Institute as an unincorporated institution, as set out in schedule 1 to the 1925 Act, focused on trade and commerce, technical and scientific information, technical research and the maintenance of the exhibition galleries. Those purposes were replaced by statutory instrument in 1949. The new purposes were the promotion of the educational, commercial and industrial interests of the Commonwealth and the maintenance of the exhibition galleries.

For reasons and in circumstances which will be described later in this judgment, it was proposed by HMG in the course of the 1950s and finally agreed that the II Trustees should surrender their sub-lease of the Original Building and should be granted a long lease of the site in Holland Park on which the Commonwealth Institute building was constructed.

By the 1958 Act, the Imperial Institute, described in section 1(1) as “the organisation which exists by virtue of the Imperial Institute Act 1925”, was re-named the Commonwealth Institute. Likewise, the II Trustees were re-named the Commonwealth Institute Trustees but remained a body corporate with perpetual succession. Section 2(1) provided that the trustees should constitute the Secretary of State for Commonwealth Relations, the Secretary of State for the Colonies, the Minister of Education and three persons appointed by that minister. Section 2(2) provided that the Minister of Education should be the responsible minister.

Section 3 dealt with the new premises for the Commonwealth Institute. A lease of the site in Holland Park for a term of 999 years from 1 August 1957 had been granted by the Earl of Ilchester to the Minister of Works, in consideration of a premium of £215,000 and a reserved rent of £10 a year. By the terms of the lease, the Minister of Works covenanted to erect the new building for the Commonwealth Institute. By the terms of section 3, the premises demised by the lease vested in the Commonwealth Institute Trustees (the CI Trustees) for the unexpired term of the lease. Section 3 further provided that the premises demised by the lease, including the new building, should be under the management of the responsible minister.

Save as provided by the 1958 Act, the provisions of the 1925 Act continued in force, subject to changes made in intermediate legislation.

One effect of the move from the Original Building to the new Commonwealth Institute building (the Kensington Building) was that the Trustees lost the benefit of the Services and also the rents paid on those parts of the Original Building which had been sub-let by the Trustees. The right to the Services and those rents are referred to in this case as the “associated entitlements”. One of the issues on which the liquidators seek directions is whether there is a serious case that HMG contracted to pay annual compensation in respect of the associated entitlements for the term of the lease of the new site vested in the Trustees by the 1958 Act.

The Commonwealth Institute was registered as a charity in 1963 pursuant to the Charities Act 1960, which required a register of charities to be kept by the Charity Commissioners. The fact that the Commonwealth Institute was not a body corporate or other legal entity did not prevent registration because section 45(1) of the Charities Act 1960 defined a charity as “any institution, whether corporate or not, which is established for charitable purposes and is subject to the control of the High Court in the exercise of the High Court’s jurisdiction with respect to charities.” Whether the registration technically extended to the CI Trustees is not clear, but their purposes were clearly charitable and they appear always to have been regarded as a charity.

During the 1980s and 1990s, the future role and funding of the Commonwealth Institute was the subject of review within HMG. There was a clear reluctance on the part of HMG to continue indefinitely to fund the Commonwealth Institute, which was not assisted by the mounting costs of maintaining the Kensington Building.

Extensive discussions between HMG and the persons appointed to run the Commonwealth Institute and others led in due course to the incorporation of CIC in 1999 and to agreements made in January 2000. These arrangements were described at the time as “severance” and were intended, so far as was possible without statutory change, to separate the Commonwealth Institute from HMG.

CIC was incorporated as a charitable company limited by guarantee on 17 March 1999. Its objects were to advance the education and knowledge of the public in the United Kingdom and elsewhere about the Commonwealth and to promote industry and commerce in the Commonwealth for the public benefit by all means, including in particular by the promotion of exhibitions and information services. The members were the High Commissioners of the Governments of Commonwealth countries, the directors of CIC, persons appointed by the directors, a nominee of the Secretary of State and the Secretary-General of the Commonwealth or his nominee. The number of directors was to be not less than 3 and not more than 15, of whom up to 6 should be High Commissioners.

Two agreements were made on 14 January 2000, the Severance Agreement between CIC and the Secretary of State and the Transfer Agreement between the Secretary of State and the Governors as trustees of the unincorporated Commonwealth Institute, CIC and the Secretary of State.

The Transfer Agreement made provision for the transfer of assets to CIC. The trustees of the unincorporated Commonwealth Institute agreed to the transfer to CIC of the leasehold interest in the site of the Kensington Building, the historic collections of works of art, artefacts and other objects built up over many years (the Collections) and all other assets. The Secretary of State as the responsible minister agreed to request the CI Trustees to transfer the leasehold interest in the site of the Kensington Building to CIC. He also agreed to transfer the Collections and all other assets held by him for the Commonwealth Institute. In consideration CIC undertook to indemnify the trustees of the Commonwealth Institute and the Secretary of State against “all costs, claims, demands, actions and proceedings relating to the assets and undertaking of the Institute and in respect of all liabilities and commitments of the Institute.”

The Severance Agreement provided that, in consideration of CIC entering into the Transfer Agreement, the Secretary of State should pay the sum of £8,055,449 to CIC and its wholly owned trading subsidiary on the conditions set out in schedule 1 to the agreement. There is a live issue between CIC and the Secretary of State as regards the construction and application of the conditions contained in the schedule to the agreement, to which I return later in this judgment. The Secretary of State also undertook to take all necessary steps in order to transfer the Endowment Fund to CIC. Because of the statutory provisions relating to the Endowment Fund, it could not be transferred simply by contract.

The severance arrangements were completed by the Commonwealth Act 2002. Section 1(1) provided that the Imperial Institute Act 1925 and the Commonwealth Institute Act 1958 ceased to have effect. Section 1(2) provided that the capital of the Endowment Fund should by virtue of that provision be transferred to and become vested in CIC “free from any restrictions as to the purposes for which it must be held”. The 1925 and 1958 Acts were repealed in their entirety by section 3 and schedule 3.

Hopes for the future of CIC were not realised and by early 2002 it was clear that it could not continue its operations. It was decided that CIC should cease its activities, that the Kensington Building should be sold to defray the liabilities of closure and that a suitable charitable use within the overall purposes of CIC should be found for the balance of any available funds. The activities had ceased by the end of 2002.

By a deed executed on 24 January 2003, the bulk of the Collections was given to the trustees of the Museum of Empire and Commonwealth Trust (MECT). MECT was an independent registered charity established to set up and administer a museum or museums of British Empire and Commonwealth history.

The sale of the Kensington Building proved to be highly problematic. It was impossible to achieve an outright sale, in part because of the restrictions resulting from its listing as a grade II* building. In about January 2006, CIC and the Ilchester Estate entered into a joint venture, in which CIC held an 80% interest. In May 2007, CIC disposed of its interest in the joint venture for a sum which, after deducting the costs of financing in the interim and other costs including redundancy costs, left a net sum of some £25 million. A gift of £15 million was made to the trustees of the CET by CIC.

Following the making of that gift, CIC was placed in members’ voluntary liquidation on 19 July 2007. Having paid or provided for the liabilities of CIC, the liquidators are presently holding approximately £8 million which is available to be paid to the CET. Before doing so, the liquidators wish to have the directions of the court on the issues raised in the present application.

The issues raised in the liquidators’ application may be briefly summarised as follows:

The application has been served on the Secretary of State and on the trustees of the CET as interested parties and, because the interests of charity are involved, on the Attorney General and the Charity Commission. The Secretary of State has appeared by counsel at the hearing of the application, to oppose any direction either that the liquidators should take steps to recover compensation in respect of the associated entitlements or that CIC is entitled to retain the unspent amount. The trustees of the CET have not appeared on the hearing of the application but support the making of declarations and directions confirming that CIC was and is able to make payments of surplus assets to them without any restriction. The Attorney General and the Charity Commission have not appeared on the application and have not taken any position on any of the declarations or directions sought.

As part of the severance arrangements and as envisaged by the Transfer Agreement, the CI Trustees transferred the leasehold interest in the Kensington Building to CIC by a transfer form dated 16 October 2000. The consideration was expressed to be the sum of £1. The CI Trustees were not parties to the Severance Agreement or the Transfer Agreement, but, as noted above, by the latter agreement the trustees of the Commonwealth Institute agreed to transfer all its assets including the Kensington Building and the Secretary of State as the responsible minister undertook that he would take all necessary steps to ensure that the assets and undertaking of the Commonwealth Institute were transferred to CIC.

The concern raised by the liquidators’ application is whether the Kensington Building and, following its sale in 2007, the proceeds of its sale were and are held absolutely by CIC or whether they were subject to some other interest, and in particular whether they remained subject to the special trusts created by section 2(4) of the 1925 Act. The grounds for this concern are expressed in the evidence and relate to whether the CI Trustees had the authority under the relevant legislation to enable the transfer to be made and whether the procedural steps required by section 2(4) were duly taken.

To recap on the statutory provisions under which the CI Trustees held the Kensington Building, section 2(2) and (4) of the 1925 Act (as amended) provided:

“(2)

The Commonwealth Institute Trustees shall hold the Imperial Institute building and the Endowment Fund and all other property for the time being vested in them for the purposes of this Act or for any of those purposes to which the same may be applicable.

(4)

The Commonwealth Institute Trustees may if requested by the [Secretary of State] with the consent of the Board of Governors hereinafter constituted sell lease or otherwise dispose of any real or personal estate held by them and apply any proceeds for the purpose of carrying out the objects of this Act or any of those objects to which the property disposed of was applicable but in the case of the proceeds of sale only in a manner in which capital money is properly applicable. ”

CIC as transferee was a charity with objects very substantially to the same effect as the purposes of the Commonwealth Institute. The transfer form for the transfer of the Kensington Building contained the following Additional Provisions:

“12.4

The Property is held in trust by the Transferor as custodian trustee for the Charity known as the Commonwealth Institute a non-exempt Charity but this Transfer is one falling within Paragraph (b) of Section 36(9) of the Charities Act 1993.

12.5

The Property will as a result of this Transfer be held by or in trust for the Charity known as the Commonwealth Institute a non-exempt charity and the restrictions on disposition imposed by Section 36 of the Charities Act 1993 will apply to the Property (subject to Section 36(9) of that Act).”

The effect of section 36(9)(b) of the Charities Act 1993 was that the restrictions on transfer contained in section 36 did not apply:

“to any disposition of land held by or in trust for a charity which (i) is made to another charity otherwise than for the best price that can reasonably be obtained, and (ii) is authorised to be so made by the trusts of the first mentioned charity.”

Assuming, as Additional Provision 12.4 suggests, that the Kensington Building had any substantial value at the time of the transfer in 2000, there is not in my judgment any reason for restricting the scope of the power conferred by section 2(4) of the 1925 Act on the CI Trustees to dispose of real estate, so as to exclude a disposition to another charity which would carry out the purposes of the Commonwealth Institute, otherwise than for the best price that can reasonably be obtained. It seems therefore to me that the CI Trustees possessed the authority required by section 39(9)(b).

As regards procedural defects, questions have been raised both as regards the giving of consent by the Board of Governors and the exercise by the CI Trustees of their power under section 2(4) to effect the disposition.

The constitution and proceedings of the Board of Governors were governed by schedule 2 to the 1925 Act, as substituted by a statutory instrument made in 1953 and subsequently amended. It was a large body and I have earlier summarised its membership. The powers of the Board of Governors could be exercised notwithstanding any vacancy within their number. Paragraph (6) of the schedule provided that the Board of Governors could with the consent of the responsible minister make rules for, amongst other things, regulating their proceedings, including quorum.

The evidence filed by the liquidators would indicate that, if the consent of the Board of Governors was given, it was given at an extraordinary general meeting held on 9 February 1999, the minutes of which are in evidence. A total of 57 Governors are recorded as being present, including a large number of High Commissioners or other representatives of Commonwealth countries, with apologies received from 9 further Governors.

The meeting resolved that in the interests of the better management of the Commonwealth Institute and in furtherance of its purposes, the assets and undertakings of the Commonwealth Institute should be transferred to an incorporated charity, subject only to confirmation by the responsible minister that such transfer was necessary and expedient in the interests of carrying out his duties under the relevant Acts and the conclusion of a formal agreement with the Secretary of State on financial and other terms satisfactory to the Chairman and Director-General of the Commonwealth Institute. The resolution provided further for the incorporation of CIC with objects “which the Charity Commission are satisfied reflect the objects of the Institute in accordance with the draft Memorandum and Articles of Association”. A second resolution provided that, on fulfilment of the conditions mentioned, the assets and undertaking, other than the Endowment Fund, be transferred in accordance with the transfer document which was attached, with such amendments as might be agreed by the Chairman and Director-General. The resolution continued that the CI Trustees “be formally requested in accordance with section 2(4) of the 1925 Act to transfer the lease of the Commonwealth Institute Building to the new Charity” with the Director-General being instructed to take all necessary steps to effect this.

It was clear from reports previously given to the Board of Governors that the assignment of the lease of the Kensington Building would be in consideration of a payment by HMG of the sum necessary to carry out the restoration works on the building. This was in fact provided for in the Severance Agreement. It appears to me clear that the Board of Governors knew that the Kensington Building would be transferred to CIC for no further consideration.

While it is true that the details of the arrangements, as subsequently embodied in the Severance Agreement, had not been finalised by February 1999, the arrangements were for the most part settled and in particular the basis on which the Kensington Building would be transferred to CIC was clear. The final terms were reported to the last meeting of the Governors held on 30 November 1999. In my judgment, the consent of the Board of Governors required by section 2(4) of the 1925 Act was duly obtained.

As for the CI Trustees, they were in the period leading up to the transfer in October 2000 the Rt Hon David Blunkett and the Rt Hon Robin Cook, as respectively the Secretary of State for Education and the Secretary of State, and Baroness Hanham. Each of these trustees signed an authority in writing to an official at the Foreign and Commonwealth Office to sign and seal the transfer of the Kensington Building to CIC. On the face of it, therefore, the transfer was duly authorised by the CI Trustees.

However, a number of points have been raised in the liquidators’ evidence. First, it is pointed out that there were fewer trustees than the number provided by the legislation in force at the time. By reason of section 2(1) of the 1958 Act, taking account of the amalgamation of the offices of two of the Secretaries of State there named, the prescribed trustees were the Secretary of State, the Secretary of State for Education and three other persons. Only Baroness Hanham was a trustee in the latter category. Vacancies created by deaths in June 1996 and January 2000 had not been filled. The trustees were, by virtue of section 2(4) of the 1958 Act, a body corporate with perpetual succession and vacancies in the offices of individual trustees would not affect their ownership of the Kensington Building or, in my judgment, the authority conferred by section 2(4) of the 1925 Act to dispose of that property.

It is further suggested that the CI Trustees at that time may not have been aware that they were not obliged to comply with the responsible minister’s request but had a discretion as to whether to exercise the power of disposal. There is very little to support this proposition. When the written authorities were put to the trustees for their signature, they would have been accompanied by a minute or letter explaining the purpose of the authority and the relevant background. No such minute or letter is in evidence. I see no reason to assume that the nature of the power to be exercised by the CI Trustees would not have been accurately explained to them.

There is in evidence a note of a telephone conference between the chair of the trustees of the CET and Baroness Hanham in January 2010. So far as relevant to the disposal of the Kensington Building, Baroness Hanham is recorded as saying in answer to a question “what was her role?” that “she was only a trustee of the property. She had no involvement in decision-making or in commercial and financial management during her three and a half years as a trustee.” When asked how often the trustees met, she replied that there were no trustee meetings. There is nothing exceptional in this. She was right to say that she was only a trustee of the property. She was not involved in the management or decision-making process for the Commonwealth Institute. As for the lack of meetings, I am not aware of any statutory or other requirement that the CI Trustees were required to meet before they exercised their power of disposal.

In conclusion, therefore, I do not consider that there is any significant basis in the evidence before the court for thinking that the disposal of the Kensington Building to CIC was in any way invalid or carried with it the statutory trusts contained in the 1925 and 1958 Acts.

Even if there had been some basis for such doubts, the effect of the 2002 Act provides a complete answer. First, the CI Trustees ceased to exist. There is now no body or persons who could claim the benefit of any interest in the Kensington Building or the proceeds of its sale or who could seek to enforce the trusts on which it had been held, apart possibly from the Attorney General. As earlier noted, this application was served on the Attorney General but he has not raised any objections to the orders sought by the liquidators or taken any part in the application.

More important still, the 2002 Act repealed the 1925 and 1958 Acts. The trusts on which the Kensington Building and the Endowment Fund had been held existed solely by reason of those Acts and necessarily ceased to exist on their repeal. As regards the Endowment Fund, which had continued to exist, this was made clear by section 1(2) which vested the capital of the fund in CIC “free from any restrictions as to the purposes for which it must be held.” It was unnecessary to make similar provision in relation to the Kensington Building because it had already been validly transferred to CIC. In any event, it is to my mind fanciful to think that the trusts on which it had previously been held continued, or were intended to continue, following the 2002 Act.

I will accordingly make a declaration that the proceeds of sale of the Kensington Building were and, to the extent still retained, are held by CIC absolutely and are not subject either to the beneficial or other interests of any other person or to any special trusts pursuant to section 2(4) of the 1925 Act. Paragraph 1 of the application notice seeks a declaration in terms which would extend to the proceeds of the sale in the hands of the CET. I am not sure that it is either necessary or appropriate to make a declaration as regards the CET but I will hear counsel on that.

Paragraph 2 of the application notice seeks an order, for the avoidance of doubt, that in the light of the dissolution of the CI Trustees and the effect of the 2002 Act the court in the exercise of its cy-près jurisdiction declares that the liquidators should pass the remaining proceeds of sale and any other cash or other assets held by them to CET to be applied by its trustees towards its charitable objects. This is put forward as an alternative to paragraph 1, if the court had concluded that the statutory trusts had survived the 2002 Act or that the assets were charitable assets but not held on any charitable trusts.

For the reasons previously given, I have concluded that it is appropriate to make the declaration sought in paragraph 1 of the application notice and accordingly it is unnecessary and inappropriate to exercise the court’s cy-près jurisdiction. I am satisfied that the assets transferred to CIC under the Transfer Agreement and under the 2002 Act became the property of CIC to be held and applied in accordance with its own charitable objects. Following the change in its objects to provide for the transfer of assets to the CET on its winding up, the assets of CIC have been, and those remaining can be, validly transferred to the CET to be held on its charitable trusts.

Paragraph 3 of the application notice seeks directions as to whether, on the evidence before the court, the associated entitlements constitute charitable assets and, if so, what steps, including legal proceedings, the liquidators should take to recover and realise these assets.

The associated entitlements are defined as the arrangements made in 1957-58 to compensate the II Trustees for the loss of two particular benefits enjoyed by them while owning the Original Building and lost when the 1899 sub-lease was surrendered in 1958. As previously described, these benefits comprised two elements. First, under the terms of 1899 sub-lease, the II Trustees had the benefit of heating, lighting and other defined services (Services) free of charge for the term of the sub-lease which was 988 years. Secondly, parts of the Original Building were sub-let by the II Trustees to various Government departments and other public bodies. In 1954 the services were valued at £17,500 pa and the rent received was about £14,000 pa. If capitalised over the remainder of the term of the sub-lease, these benefits clearly had a substantial value.

It is apparent from the many documents in evidence that the II Trustees made clear, and HMG accepted, that they could not properly agree to the surrender of the sub-lease of the Original Building without compensation for the loss of the benefits. It is equally clear that HMG intended that the II Trustees should receive compensation for the loss of these benefits.

The first issue which is raised by the application notice is whether the arrangements which were made in 1957-58 gave rise to contractual rights in favour of the II Trustees which they could enforce against HMG. If so, the trustees received a valuable asset and issues then arise as to whether such rights became vested in due course in CIC.

Paragraph 3 of the application notice is framed in terms of a direction as to whether, on the evidence before the court, the associated entitlements constitute charitable assets. If answered in those terms, it would determine whether the associated entitlements took the form of enforceable contractual rights against HMG. It was agreed that the real purpose of paragraph 3 was to seek a direction whether the prospects of establishing such contractual rights are sufficient to justify the liquidators in taking steps to establish and enforce them. Having said that, as counsel for the liquidators in their skeleton argument pointed out, it appears highly unlikely that further material will emerge, given the depth of research already undertaken.

I should say that the liquidators and their counsel were not submitting to the court that such contractual rights exist. They put before the court the evidence and submissions which could lead to that conclusion. At my request, and at very short notice, counsel helpfully prepared a preliminary draft of particulars of claim setting out the case for a contract.

Counsel (not appearing on this application) was instructed to advise the liquidators on this issue and provided an opinion in July 2009. Counsel advised in emphatic terms that a legally enforceable agreement was reached between HMG and the II Trustees in 1957. The contract formed part of arrangements requiring, and being subject to, the enactment of legislation enabling or providing for the surrender of the 1899 sub-lease.

It is accepted that any contract was not embodied in a formal document and counsel advised expressly on that basis. The contract is said to have been made by an exchange of letters in January 1957 between Sir David Eccles, the Minister of Education writing on behalf of HMG, and the II Trustees of whom he was one. The only letters in evidence are an exchange between Sir David Eccles and the Marquess of Salisbury, then the Lord President of the Council, and a reply from Lord Brand, another trustee.

I will refer in more detail to these letters in due course, but it is essential to see first the context in which they were written and the events leading up to them.

It was Government policy from the early 1950s to expand further education in science and technology. The Cabinet decided in November 1952 that Imperial College, London should be one of three institutions to be expanded and an announcement to this effect was made in January 1953. The proposals for Imperial College included the demolition of the Original Building and the construction of new buildings to form part of the enlarged Imperial College.

The implications of this for the Imperial Institute, and more generally its future, were considered at a meeting of the Home Affairs Committee of the Cabinet on 12 November 1954. A memorandum prepared for the meeting by Sir David Eccles stated:

“I am advised that legislation will in any case be required before the Institute can properly be removed from its present building. The legislation could also give such financial powers as may be necessary, and in particular determine the compensation, if any, to be paid to the trustees for the loss of their rights in the present building.”

A sub-committee was established to examine the matter in detail and to make recommendations.

At its first meeting in November 1954, the sub-committee agreed by a majority that if the Imperial Institute had to move from the Original Building, it should be provided with a building to carry on its activities. It was further agreed that “full compensation should be paid to the trustees in respect of the loss of their rights”.

The sub-committee submitted its report dated 15 December 1954 to the Home Affairs Committee. Paragraph 15 of the report read:

“In addition to providing alternative accommodation, a “package deal” which would put the Institute in a proper position to continue, would have to include financial arrangements in substitution for those at present enjoyed by the Trustees. At present, apart from the grants from the United Kingdom and Commonwealth Governments, the Institute enjoys free services valued at £17,500 a year, and about £14,000 a year in rent for that part of its premises which is sub-let.”

The Home Affairs Committee expressed its general agreement with the report at its meeting on 17 December 1954. It was at that stage considered that legislation might be avoided, a point which the Attorney General was to consider further. It was also considered that the Institute might be re-housed within the redeveloped premises of Imperial College.

Following further consideration during 1955, the position changed in two important respects at a meeting of the Home Affairs Committee on 16 December 1955. First, HMG was to formulate a proposal to be put to the Trustees for the relocation of the Institute to a new building on a new site. Secondly, legislation would in due course be introduced “to safeguard the position of the Trustees.” An announcement to this effect was made in Parliament.

On 15 February 1956, Sir David Eccles as Minister of Education wrote, on behalf of HMG, to the II Trustees enclosing a memorandum setting out HMG’s proposals. Paragraph 9 of the memorandum read:

“It will be understood that if the Institute moves to a new building the government will compensate the Institute for any consequential losses in income – e.g. the Institute now receives certain free services and some income from sub-tenants. This would be done by an adjustment in the grant-in-aid which the Institute receives annually from the Ministry of Education.”

Paragraph 11 referred to the considerable degree of responsibility enjoyed by the Board of Governors and the Director of the Institute “subject to consultation with the Minister on matters of policy and to financial control exercised by Parliament through the annual grant-in-aid.”

At a meeting of the Board of Governors on 14 June 1956, the Chairman read a statement about HMG’s proposals which included:

“We are not being given extra accommodation in place of that which we now own but rent to the Colonial Office, but, instead, are being guaranteed, as part of our grant-in-aid, revenue equivalent to the rent now being paid to us by the Colonial Office.”

There is a good deal of evidence in the documents before the court that the Trustees, including Lord Salisbury and the Prime Minister, Sir Anthony Eden, were very conscious of their responsibilities as trustees, particularly when they might conflict with the aims of Government policy, and were conscious of the need to act as trustees in accordance with their duties as such.

It was in that vein that Lord Salisbury wrote on 6 July 1956 to Sir Henry Brooke, Financial Secretary to the Treasury:

“It is true that the Imperial Institute Act sets out the obligations of the Trustees vis-a-vis disposal of the Institute only in general terms, but I would consider it contrary to the intention of the Act and to all the obligations that usually fall on Trustees to agree to a settlement under which the Institute was offered new assets (i.e. new buildings) which were of less value than the existing assets.”

Sir Henry Brooke replied in reassuring terms on 25 July 1956, saying that there was “really no danger” of the Institute being “fobbed off, as it were, with something of the same size but of less value.” He added:

“Quite apart from the building, the Government has undertaken to compensate the Institute for any consequential losses in income which will arise from its move. The Institute at present receives certain free services and some income from sub-tenants. The Government will see that the Institute does not lose, by adjusting the grant-in-aid which the Institute receives from the Ministry of Education annually.”

In the course of 1956, the site in Holland Park, adjacent to Kensington High Street, on which the Kensington Building was in due course constructed, was identified as the best site available.

This led to the exchange of letters by which a contract providing for the associated entitlements is said to have been made. The letter from Sir David Eccles, on behalf of HMG, to the Trustees was subject to scrutiny and agreement by all relevant departments. The copy in evidence, to Lord Salisbury and beginning “Dear Bobbety”, was dated 2 January 1957 and stated:

“I am now in a position to put before my fellow Trustees definite proposals by the Government to enable the Imperial Institute to move from its present site and buildings.”

The letter described the proposed site and the advantages in general terms of a new building on that site. It continued:

“3.

Annual Grant

The Government propose that when the building has been completed an annual grant will be made as at present. As already stated in the memorandum which I circulated earlier, in assessing the grant for the expenses of management of the institute, the Government propose, when the new building has been completed, to include the estimates [sic] value of the free services and the rents from sub-tenants which the Institute now enjoys and will lose.

4.

Legislation

Legislation will be needed to enable the Trustees to surrender their sub-lease to their immediate landlord, the Ministry of Works, in consideration of the new site (which would be named in the Bill) and of the money they will receive for erecting the new building. The trustees will be required to hold the site and the building, when erected, for the purposes of the Institute, as they do the present site and building.

5.

Conclusion

After careful consideration I have come to the conclusion that the offer made by the Government is one which I, in my capacity as a Trustee, can regard as proper compensation for the loss of the present site, building and services. I hope that my fellow Trustees will be able to reach a similar conclusion. I hope also that it will be possible for the Government’s offer to be accepted at an early date so that negotiations for the site can be concluded, the necessary legislation introduced into Parliament and above all the first steps taken in regard to the choice of architect and the preparation of plans, so as to reduce as far as possible the disruption of the Institute’s activities.”

Lord Salisbury replied on 9 January 1957:

“Many thanks for your letter of 2 January setting out the Government’s proposals to enable the Imperial Institute to move from its present site and buildings. The proposals are entirely acceptable to me in my capacity as a Trustee of the Institute.”

There is also in evidence a reply from Lord Brand to Lord Hailsham who had in the meantime succeeded Sir David Eccles as the Minister of Education. Lord Brand agreed with the proposal. A letter dated 24 January 1957 between officials states the writer’s understanding that all the trustees had by then indicated their approval of the proposal. As the proposal was implemented in the course of 1957-58, there is every reason to conclude that the proposal was indeed approved by all the Trustees.

The section of Sir David Eccles’ letter headed “Annual Grant” was clear that the Imperial Institute would be compensated for the loss of the free services and rents by inclusion of their estimated value in the annual grant made by HMG. This accords with the consistent position of HMG in earlier communications and minutes.

Parliamentary counsel was instructed to draft a bill in April 1957. The first draft, circulated in May 1957, did not amend section 7 of the 1925 Act, save to substitute “the Commonwealth Institute” for the “Imperial Institute”. It was intended that this would remain the statutory means by which the Institute would be funded, except to the extent that its costs were met out of other sources. It was also to be the means by which the II Trustees were compensated for the loss of the Services and rents from sub-tenants.

Clause 6 of the Bill contained a provision for financial support to be provided by HMG out of moneys provided by Parliament, restricted to the construction and maintenance of the new building. At a meeting of officials on 29 May 1957 to discuss the Bill, it was agreed that clause 6 should be redrafted in wider terms, enabling the Minister of Education to pay such of the expenses of running the Commonwealth Institute, as well as maintaining the new building, as he thought fit out of moneys provided by Parliament.

The intention to include provision for the Services within the funds provided annually by HMG to the Commonwealth Institute can be seen in a number of subsequent documents in evidence. For example, in a letter in December 1957 to the Director of the Institute, a senior official at the Ministry of Education wrote:

“Finally, you mention the question of finance. There are two categories of Exchequer expenditure covered by the Bill. First, the cost of providing the new site and building, which will be fully met by the Exchequer. Second, the annual expenses of the Institute which will continue as now to be met partly by income from the Endowment Fund, partly by other income and partly through the Vote of the Ministry of Education. The only change here is that in estimating what is necessary under the last heading and seeking parliamentary authority for the expenditure we shall need to take account of certain items of expenditure (on maintaining the buildings and so on) which have hitherto been carried on the Vote of the Ministry of Works and merely noted in the Estimates of this department.”

In late 1957 or early 1958, HMG decided to amend clause 6 of the Bill and to repeal section 7 of the 1925 Act. This appears, at least in part, to have been a response to a point made by the Public Bill Office that the part of section 7 providing for payment of £9,000 pa for 5 years had long since become obsolete.

As enacted on 13 March 1958, the 1958 Act provided in section 6:

“(1)

Any expenses incurred by the Trustees in performing the obligations imposed, or exercising the rights conferred, on them by or by virtue of the lease shall be defrayed by the Minister of Education.

(2)

Any expenses defrayed by the said Minister under the foregoing subsection and any expenses incurred by him in connection with the Commonwealth Institute shall, except in so far as they are defrayed out of the income of the Endowment Fund or out of sums received by him for the purposes of the Institute or otherwise in the exercise of his powers and duties under the principal Act, be paid out of moneys provided by Parliament.”

The effect of sub-section (2) is that any expenses paid by the Minister in connection with the Commonwealth Institute would be paid out of moneys provided by Parliament, save to the extent that there were other sources of income.

The terms of the exchange of letters between HMG and the II Trustees in early 1957, particularly when taken with the discussions, decisions and communications which preceded them and the manner in which the proposals for the Institute were implemented, lead in my judgment to only one conclusion. The Crown undertook no contractual obligation to pay compensation for the loss of the Services and rent from sub-tenants. The agreement or understanding between HMG and the Trustees was that the loss of these benefits would be reflected in the annual funding provided by HMG to the Institute, such funds themselves being subject to parliamentary control. This was HMG’s consistent position, clearly set out in Sir David Eccles’ letter and accepted by the Trustees. It was initially intended to provide funds through the mechanism of section 7 of the 1925 Act but this was, in the circumstances explained above, replaced by section 6 of the 1958 Act.

If a contract had been intended, it is as Mr Arden QC for the Secretary of State submitted, almost inconceivable that it would not have been contained in a formal agreement, all the more so given the very long term of the 1899 sub-lease. A written contract would have addressed matters such as determination of the precise amounts to be paid and any increases in those amounts over time and the means for fixing such increases.

Part of the reasoning for the conclusion in counsel’s opinion dated 8 July 2009 that a contract was made for annual payments in lieu of the Services and rent was that, in the absence of such contract, the II Trustees would have been in breach of duty as charitable trustees in agreeing to the proposals. As I earlier mentioned, the Trustees, particularly those Trustees who were members of the Government, were very conscious of their duties as trustees. They clearly did not consider that they were acting in breach of duty in agreeing proposals which were explicitly posited on the basis that the Institute would be compensated through the annual grant from HMG. Nor do I see why it should be thought that at the relevant time they were in breach of duty in accepting a proposal based not on contract but on HMG’s statutory powers to provide finance for the Institute out of funding voted by Parliament. It must be remembered that at all times the Institute was dependent on government funding for its survival, at least in the form and carrying out the functions as they were in the 1950s, and the Institute was certainly not then proposing activities on any smaller scale.

It follows that in my judgment the II Trustees never had any contractual or other enforceable right to compensation and that the associated entitlements were never “assets” capable of transfer to CIC. I will give a direction or make a declaration accordingly.

The liquidators are holding a sum of £594,836 in a separate account. This amount (the unspent amount) represents the residue of money paid to CIC by the Secretary of State under the Severance Agreement in respect of defined building works to be undertaken by CIC under that agreement. The liquidators seek directions as to whether that sum should be repaid to the Secretary of State or whether it forms part of the assets of CIC to be paid, as part of the surplus, to the CET. Counsel for the liquidators have presented submissions in support of the contention that it forms part of the general assets of CIC, while of course counsel for the Secretary of State has argued for its repayment.

I have earlier referred to the Severance Agreement and some of its provisions and I will now refer to those provisions which are directly relevant to the present issue. Under clause 2.1 the Secretary of State agreed to pay the sum of £8,055,449 to CIC and its wholly owned subsidiary in consideration of CIC entering into the Transfer Agreement. Clause 2.1 further provided that the payment should be made “upon the conditions contained in Part II of Schedule 2.”

Paragraph 3 of Part II of Schedule 2 provided:

“Of the payments to be made to the Company by the Secretary of State under this Agreement, the sum of £3,996,435 shall be used by the Company for the following restoration and access improvement works (“the Building Works”):-

[List of works]

as more fully set out in the Company’s application (Ref. HF/97/01397) to the Heritage Lottery Fund.”

Paragraph 3 further provides:

“If, according to audited accounts, the aforesaid sum exceeds the amount actually spent on the Building Works, the excess shall be returned to the Secretary of State within 30 days of the publication of the audited accounts relating to the accounting period within which the final Certificate of Satisfactory Completion was issued.”

Paragraph 4 provided that all moneys received for the building works under the agreement should be separately identified within CIC’s accounting records and published accounts.

The Severance Agreement contains an arbitration clause, but both CIC acting by its liquidators and the Secretary of State are content that this issue should be determined on this application.

CIC spent a total of £3,401,599 in respect of the defined building works. The unspent amount is attributable to the cost of works falling within the definition of building works which were not undertaken by CIC because of what was then the impending sale of the Kensington Building.

Because the building works were never completed, a final certificate of satisfactory completion was never issued. It is therefore suggested on behalf of the liquidators that the unspent amount never became repayable to the Secretary of State under the terms of paragraph 3 of Part II of Schedule 2 to the agreement.

In my judgment, this is not the effect of the relevant provisions on their proper construction. The obligation imposed by the opening part of paragraph 3 of schedule 2, Part II, was that “the sum of £3,996,435 shall be used” by CIC for the building works. CIC was required to carry out the building works and to apply that sum in payment for those works. The purpose and effect of the further provision in paragraph 3 was that if the amount actually spent on the building works was less than the amount paid by the Secretary of State, the balance should be repaid. These conditions have clearly been satisfied. CIC did not spend the full amount and will never do so. The issue of a final certificate of satisfactory completion and the publication of audited accounts relating to the period in which it is issued are not preconditions to the obligation to repay an unspent amount but only fix the time within which such obligation must be performed. The fact that no such certificate was issued, and therefore no such audited accounts published, does not extinguish the obligation. As a matter of the proper construction of the agreement, therefore, I am satisfied that CIC is obliged to repay the unspent amount to the Secretary of State.

Further submissions were made in support of the conclusion that there was no such obligation, notwithstanding the terms of the agreement.

First, it is said that the works specified in the schedule were limited to those that were essential to maintain conformity with the obligations under the lease of the Kensington Building “not to permit the premises or any part thereof… to fall into disrepair to such an extent that they are unsightly or dangerous.” The Kensington Building was in a badly dilapidated condition by the 1990s, including suffering from severe and persistent water penetration through the roof, and it was known that the CI Trustees were in default of their repairing covenants under the lease. The building works were intended to remedy that situation. Under the terms of section 6(1) of the 1958 Act, the Secretary of State was required to defray the expenses incurred by the trustees in performing their obligations under the lease. The payment provided by the Severance Agreement for the building works was therefore the performance by the Secretary of State of his statutory obligation.

I do not accept this submission. The statutory obligation was to defray expenses incurred by the CI Trustees but they did not incur any expenses in relation to the building works. The liability for the building works was incurred by CIC to which the lease was transferred. That the Secretary of State had no obligation to CIC in respect of obligations under the lease is shown by clause 2.5 of the Severance Agreement by which CIC agreed to indemnify the Secretary of State in respect of such responsibilities as he might have under the 1925 and 1958 Acts.

Secondly, it is pointed out that the Secretary of State entered into the Severance Agreement and made the payments required by clause 2.1 in his capacity as the responsible minister: see recital (C). One of the effects of the 2002 Act was that there ceased to be a responsible minister. Therefore, it is suggested that there is no person to whom the unspent amount can be returned. The short answer to this is that the responsible minister was not a separate legal person. It was a status or position conferred by a succession of legislative provisions on various ministers and secretaries of state. The last of these was the Secretary of State, who continues to exist as a legal person to whom the unspent amount can be repaid.

Thirdly, it is suggested that the payment was made by the Secretary of State in his capacity as a charity trustee for the purposes of the charitable objects of the Commonwealth Institute. This is not a correct analysis. The payment made by the Secretary of State pursuant to clause 2.1 was not a gift nor was it made out of charitable funds. It was a contractual payment, made for consideration, out of public funds to achieve as clause 1.3 puts it “a financial severance package as between the Secretary of State, the Commonwealth Institute and the Company.” It was a payment made to CIC on the terms of the Severance Agreement, which include the terms set out in paragraphs 3 and 4 of schedule 2 part 2.

Fourthly, a sum of £600,000 was provided in the accounts of CIC at the time of the 2002 Act for depreciation in respect of the Kensington Building, having regard to its structural condition. This provision was made on the recommendation of CIC’s auditors. Given that the unspent amount was earmarked for improvements which would rectify the relevant defects, it is said that it is appropriate to apply the reserve representing the unspent amount against the provision for depreciation. Provisions made by CIC in respect of depreciation in its own accounts cannot, however, affect its contractual obligations undertaken under the agreement with the Secretary of State.

I shall therefore direct that the unspent amount be repaid to the Secretary of State.

A significant part of the activities of the Commonwealth Institute from its inception as the Imperial Institute was to exhibit objects and works of art associated with countries in the Empire and Commonwealth. A very large collection was built up over the years, including gifts from countries in the Empire and Commonwealth and their citizens, many of which were of material or historic value.

These Collections were held at the Kensington Building at the time of its transfer to CIC in October 2000. The Transfer Agreement provided that title to the Collections should be transferred to CIC. By a deed of gift executed on 24 January 2003, expressed to take effect after coming into force of the 2002 Act, CIC transferred the Collections to the trustees of MECT to be held on its own charitable trusts. It was intended that the Collections should be housed in a museum to be run by MECT or a company owned by it. Regrettably this project failed and it is understood that an arrangement has been made with a trust to be administered by the Bristol City Museum for the exhibition of items in the Collections. The liquidators wish to be satisfied that title to the Collections were duly transferred to CIC and were therefore capable of transfer by the deed of gift to the trustees of MECT.

Title to the Collections vested in the responsible minister by virtue of section 3 of the 1925 Act. By section 4 of the 1925 Act, all property transferred under the Act to the responsible minister, which would include the Collections, was to be “used and applied by the responsible minister so far as practicable in carrying out the purposes of the Imperial Institute set forth in the First Schedule to this Act”. By virtue of section 4(2), the same applied to any additions to the Collections made after the 1925 Act came into force.

Section 5 of the 1958 Act conferred on the responsible minister a limited power of disposal of objects in the Collections. This power was limited to disposing of any object which appeared to the responsible minister “to have become useless” for the purposes of the Commonwealth Institute and to disposals to the Government of any Commonwealth country for the purpose of exhibition in that country. This limited power of disposal clearly indicated that the responsible minister had no general or wider power of disposal of objects in the Collections.

When the Transfer Agreement was made in January 2000, the responsible minister, who was by then the Secretary of State, had no further statutory powers of disposal. While clauses 2 and 4 provided for the transfer by the responsible minister and the Board of Governors as trustees of the Commonwealth Institute and by the responsible minister in his own right of the Collections to CIC, clause 4.2 provided that the responsible minister would take all necessary steps to ensure that CIC obtained the full benefit of the assets and undertaking of the Commonwealth Institute.

Although the decision to transfer the Collections to the trustees of the MECT was taken some time before the execution of the deed of gift, its execution was delayed until the 2002 Act came into force on 7 January 2003. As earlier noted, the 2002 Act repealed the 1925 and 1958 Acts in their entirety. Any limitations on the powers of the responsible minister to dispose of the Collections thereby ceased to exist. The combination of the provisions of the Transfer Agreement, the delivery of physical custody of the Collections to CIC on transfer of the Kensington Building and the repeal of the 1925 and 1958 Acts by the 2002 Act resulted, in my judgment, in an unencumbered title to the Collections vesting in CIC. CIC had capacity under its memorandum of association to dispose of any property or assets in furtherance of its charitable objects and it appears to me to be beyond argument that the gift to the trustees of MECT fell within this power.

I shall accordingly make the declaration sought in paragraph 5 of the application notice that “the title to the Collection, excluding the Royal Gifts now forming part of the Royal Collections Trust, held in the possession of the CIC on 24 January 2003 passed with effect from that date and that such title was not to be subject to any restriction save that such Collection be applied for charitable purposes.”

The liquidators have considered the circumstances surrounding severance and in particular whether there is any basis on which claims could sensibly be made against any of those who were involved in that process. The conclusion which the liquidators have come to is that it would not be appropriate to bring any claims and that they should proceed to a final distribution of surplus assets as soon as practicable. They seek a direction confirming this course of action.

It is indisputable that CIC effectively failed within 2 years after severance. Having looked at the available evidence, the conclusion of the liquidators is that CIC “simply did not have the resources both to maintain the Kensington Building and to carry out its charitable objectives.” It was “an inadequately capitalised company”. The position was made worse by the condition of the Kensington Building and by the requirement for CIC to absorb the staff previously employed by the responsible minister which imposed a greater employment burden than would be normal for a similar organisation. The payment made by the Secretary of State under the Severance Agreement was calculated on a basis that would require CIC to generate new funds. It was, in the view of the liquidators, unrealistic to expect CIC to be able to generate the necessary level of funds.

So far as the possibility of any claim against the Secretary of State or others in HMG or against the CI Trustees, it is hard to see the basis of any cause of action for damages or other compensation. None of them owed fiduciary or contractual duties to CIC and there is no suggestion of a commission by any of them of any tort. The only theoretical claim might be a claim to rescind the severance agreements but, as the liquidators themselves say, it is clearly far too late to rescind those agreements.

The directors and executives of CIC owed fiduciary and/or contractual duties to it. If it could be said that they had agreed to the terms of severance without requiring sufficient funding from HMG, it might be said that they were in breach of those duties. I do not however see that any such claim could succeed. Leaving aside whether there would be any proper basis on which to make such allegations against them, as to which I make no comment, I cannot see how any loss would be established. The creditors of CIC have been paid in full. CIC has not therefore suffered a loss as a result of undertaking liabilities without adequate resources. Moreover, CIC has surplus assets which have amounted in total to some £23 million. Without severance, of course, CIC would have had no assets and no surplus. In order to succeed, therefore, in any claim against those who acted on behalf of CIC in relation to severance, it would have to be shown not only that they should have pressed for a larger payment or other funding from HMG but also that HMG would have agreed to a higher level of funding. There is no evidence at all that HMG would have been prepared to agree to any higher level of funding.

It seems to me clear that no useful purpose would be served by delaying the completion of the liquidation and by attempting to pursue claims which at the very least would be highly speculative. I will accordingly give the direction sought by the liquidators.

I shall make the declarations and give the directions indicated in the course of this judgment.

I should like to acknowledge the extensive work undertaken by the liquidators and their advisors in researching and presenting the material relevant to the issues which have arisen on this application. It has required considerable investigation at the Public Records Office, supplemented by disclosure from the FCO’s own files. I should like also to thank counsel for the liquidators and the Secretary of State for their clear presentation of the evidence and relevant arguments.