Cy-près doctrine

The cy-près doctrine applied in England and Wales limited the strictness of the rules of mortmain under which property disposed of otherwise than to a legal heir was subject to forfeiture in certain circumstances. Following abolition of mortmain, the modern application of the cy-près doctrine has predominantly occurred in relation to charities, as these are the most important trusts for a general purpose (not private benefit) permitted under English law.

The Charity Commission for England and Wales has the statutory power to apply the cy-près doctrine on behalf of a charity where, for example, no trustees remain in a charity or the necessary mandate cannot be agreed. These powers extend to a corporate charity or unincorporated association (which the common law rules may not cover). Similar powers apply to the equivalent bodies in Northern Ireland and Scotland. The cy-près doctrine will not be applied where a charity has alternative powers to redirect its funds under its constitution.

In jurisdictions which have retained the English cy-près doctrine but do not have an equivalent state body to the Charity Commission for England and Wales (or in relation to foreign charities' assets in the United Kingdom), charity trustees may seek the approval of the court to their entry into cy-près arrangements to avoid later accusations of breach of trust.

In the United States there is a Uniform Trust Code ("UTC"), which is a model code that various jurisdictions (e.g., states) may adopt by statute.

The UTC codifies that cy-près applies only to charitable trusts where the original particular purpose of the trust has become impossible or impracticable, and the terms of the trust do not specify what is to happen in such a situation.

The UTC provides, in part, that "if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful...the court may apply cy-près to modify or terminate the trust...in a manner consistent with the settlor’s charitable purposes".[6]

However, the UTC further provides that the court may not apply cy-près where "[a] provision in the terms of a charitable trust...would result in distribution of the trust property to a noncharitable beneficiary" and also that cy-près may not be used to violate the rule against perpetuities.[7]

The UTC also contains a cy-près rule for noncharitable trusts. It provides that "[t]he court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust".[8]

In 1986, the California Supreme Court endorsed cy-près mechanisms in class action settlements, and other American courts followed.[2] Cy-près mechanisms allow money to be used to promote the interests of class members, rather than reverting to a defendant, which could be seen as a windfall to a defendant charged with breaking the law. Judge Richard Posner has argued that the term is a misnomer in the class action context, because cy-près awards serve a punitive effect.[2] Some commentators have criticized the use of cy-près settlements; the American Law Institute's Draft of the Principles of the Law of Aggregate Litigation proposes limiting cy-près to "circumstances in which direct distribution to individual class members is not economically feasible, or where funds remain after class members are given a full opportunity to make a claim".[2][9]

In 2018, the US Supreme Court decided to hear an appeal of Ninth Circuit decision in, Google Referrer Header Privacy Litigation, 10-cv-04809, U.S. District Court, Northern District of California (San Jose) [10] that allowed a class action settlement that awarded $2 million to the plaintiff's attorneys, $5,000 to each of the handful of named plaintiffs, and no monetary award to an estimated 129 million class members, instead citing the cy-près doctrine to give a handful of privacy groups (including all three plaintiffs' attorneys' alma maters and several groups already supported by defendant Google) a share of $6 million rather than any monetary award to class members (who would receive approximately four cents). The case, Frank v. Gaos, which challenges that the award was not "fair, reasonable, and adequate" as required by Rule 23(e)(2) of the Federal Rules of Civil Procedure, will be heard by the Supreme Court during its October 2018-June 2019 session.