Transcript PUBLIC BENEFIT AND THE INDEPENDENT SCHOOLS

THE CHARITIES ACT 2006:
PUBLIC BENEFIT AND THE
INDEPENDENT SCHOOLS
Peter Luxton
Professor of Law
School of Law
Cardiff University
[email protected]
1
LEGAL REQUIREMENTS FOR CHARITABLE
STATUS BEFORE CHARITIES ACT 2006
1. Charitable purpose
– Preamble to Statute of Elizabeth 1601
– four heads of Pemsel’s case (1891) (Lord
Macnaghten):
relief of poverty
advancement of education
advancement of religion
other purposes beneficial to the community
2. Public benefit
– used in two senses
(a) the purpose itself
(b) the section of the community to benefit
2
Public benefit (a): the purpose itself
The advancement of education is presumed to be for the
public benefit:
‘The test of benefit to the community goes through the whole
of Lord Macnaghten’s classification, though, as regards the
first three heads, it may be prima facie assumed unless the
contrary appears’: Lord Wright in National Anti-Vivisection
Society v IRC [1948] AC 31, 42
But this does not mean that the court presumes that a
purpose is for the advancement of education merely
because the testator or settlor considers it to be so:
– Re Dupree [1945] Ch 16
– Re Pinion [1965] 1 Ch 85
– Re Shaw [1957] 1 WLR 729
3
Public benefit (b): the section of the community to
benefit
This is partly a matter of evidence
– (number of persons capable of benefiting must be more
than negligible)
But, apart from the first head (relief of poverty),
there is also a rule of law:
– The persons to benefit must not be defined by reference
to a personal or contractual nexus
So a trust to educate the descendants of a named person, or the
children of employees of a company is not charitable
– Note there is no contractual nexus if the contract arises
merely in order to enjoy a benefit already conferred:
Joseph Rowntree Memorial Trust Housing Association
Ltd v A-G [1983] Ch 159
4
Excluding the poor?
Lord Camden once said that charity is ‘a gift to a general
public use, which extends to the poor as well as to the
rich’: Jones v Williams (1767) Amb 651, 652
Lindley LJ: ‘I doubt very much whether a trust would be
declared to be charitable which excluded the poor’: Re
Macduff [1896] 2 Ch 451, 464
Harman J said that a home of rest for millionaires could
not be a charity: Re White’s Will Trusts [1951] 1 All ER
528, 530
Re Resch [1969] 1 AC 514 (PC): ‘to limit admission to a
nursing home to the rich would not be charitable‘ (Lord
Wilberforce)
5
However, none of these cases was specifically concerned
with the advancement of education
Re White (home of rest for nurses) and Re Resch (for general purposes
of a hospital that charged fees) were both concerned with the healing of
the sick, and such purposes are closely connected with the relief of
poverty (“relief of aged, impotent and poor people” in the Preamble to
the Statute of Elizabeth 1601)
Although such words in the Preamble are to be read disjunctively, see
the observations of Lord Simonds in Oppenheim:
‘I am concerned only to say that the law of charity, so far as it
relates to ‘the relief of aged, impotent and poor people’ and to
poverty in general, has followed its own line, and that it is not
useful to try to harmonise decisions on that branch of the law
with the broad proposition on which the determination of this
case must rest.’
6
The dicta in Jones v Williams (1767) pre-date the
separation of the advancement of education into a head of
charity distinct from the relief of poverty (Pemsel’s case
(1891)) (foreshadowed in classification of Romilly
arguendo in Morice v Bishop of Durham (1805) 10 Ves
Jun 522, 532)
Dicta referring to not excluding the poor may refer to an
express exclusion in the trust instrument
– The express purposes of providing “homes of rest for millionaires”
or “a nursing home for the rich” do expressly exclude the poor;
– whereas the charging of fees, which merely has the effect of
reducing the extent to which the poor may in fact use the facilities,
are outside the dicta (i.e. poor persons may be able to use the
facilities if they can obtain financial support from other charitable or
philanthropic sources)
7
But what if it is relevant to take account of the effect that the charging
of fees has on the extent to which it in fact reduces the use of the
facilities by poor persons?
The blanket assertion that the poor cannot be excluded needs
qualification even in the case of the relief of poverty itself: Re De
Carteret [1933] Ch 103 (annual allowance for widows and spinsters
held charitable despite the express exclusion of persons with an
annual income of less than £8)
In Re Resch, Lord Wilberforce commented that he was not saying
that the medical facilities ‘were not charitable merely by reason of
expense they could only be made use of by persons of some means’
– ‘persons of some means’ seems much wider than the poor
– on this basis, fees that could be afforded only by millionaires might be
repugnant to charitable status
8
Indirect benefit is relevant
Re Resch [1969] 1 AC 514: ‘The test is essentially one of
public benefit, and indirect as well as direct benefit enters
into the account’ (Lord Wilberforce)
– he found sufficient public benefit in the relief to the
beds and medical staff of the general hospital
– in relation to the fee-paying independent schools, a
similar public benefit might be found, according to this
reasoning, in the relief of the pressure on the state
school sector
9
CC General Guidance treats Lord Wilberforce’s words as
authority for admitting indirect benefit in the advancement of
education only where there is also direct benefit
– CC seem to be cherry-picking Re Resch – trying to use it to
support a ‘no-exclusion-of-the-poor’ restriction, but limiting the
admissibility of indirect benefit
– Whilst indirect benefit alone was rejected in the advancement of
education in Re Compton [1945] 1 Ch 123 (CA), that was where
those to benefit were defined by a personal nexus
– Where the class is not so defined, there is no reason to exclude
indirect benefit in the advancement of education
– CC had effectively previously recognised pure indirect benefit as
sufficient even in the advancement of education: (1993) 1
Decisions 16: CC treated the advancement of education as
charitable even if carried out only overseas; yet if (as usually
accepted) the class to benefit must be the public in the UK, the only
benefit from such a purpose can be indirect
10
Independent schools can be charitable under the law pre2006 Act if:
They have charitable purposes (the advancement of education)
They satisfy public benefit in both senses:
– (a) the advancement of education is itself for the public benefit
– (b) they benefit a sufficient section of the community
fee-charging may reduce the section of the community
capable of benefiting, but the remaining section is more than
negligible
there is no contractual nexus because the contract to pay fees
is merely the means by which the benefit is conferred
the charging of fees does not itself contravene any rule
against excluding the poor
11
IMPACT OF THE CHARITIES ACT 2006
Statutory list of charitable purposes in s 2(2)
(“descriptions” of charitable purposes):
– This includes the advancement of education
Statutory requirement of public benefit
– To be charitable, a purpose must not merely fall within
(or be analogous to a purpose within) the statutory
list, it must also be for the public benefit: s 2(1)(b)
– “Public benefit” has the same meaning as
immediately before the coming into force of these
provisions
12
The only possible change in the law is as
a result of section 3(2)
– This states that, in determining whether the
public-benefit requirement is satisfied, ‘it is not
to be presumed that a purpose of a particular
description is for the public benefit.’
– Does this change the legal position as it was
before the Act?
13
It seems that it was drafted with the Lord Wright’s
statement in the National Anti-Vivisection Society case
(quoted earlier) in mind:
– ‘The test of benefit to the community goes through the whole of
Lord Macnaghten’s classification, though, as regards the first
three heads, it may be prima facie assumed unless the contrary
appears.’
Yet contrast Russell J in Re Hummeltenberg [1923] 1 Ch
237
– ‘no matter under which of the four classes a gift may prima facie
fall, it is still, in my opinion, necessary (in order to establish that it
is charitable in the legal sense) to show … that the gift will or may
be operative for the public benefit.’
14
And Lord Simonds in Oppenheim v Tobacco Securities
Trust [1951] AC 297 said that public benefit was
necessary for every head of charity (including the
advancement of education), with the exception of the
relief of poverty
Are these statements at variance?
– Lord Wright was speaking conceptually – e.g. the
advancement of education is presumed to be for the
public benefit
– Russell J was speaking evidentially i.e. he was
referring to the particular words of any particular will,
trust or constitution – must show that the purpose
specified is of public benefit for it to be the
advancement of education
– Lord Simonds was speaking of public benefit in the
second sense (the community to benefit)
15
What is the impact of s 3(2)?
If s 3(2) operates at the conceptual level, it means that it
is not to be presumed that the advancement of
education itself is for the public benefit
– This seems unlikely – as Parliament has listed descriptions of
purposes in the Act, it must be presumed that these are for the
public benefit
S 3(2) seems to operate only at the evidential level
– In the advancement of education this does not change the law,
since there never was any presumption that a particular purpose
(what the CC’s General Guidance on Public Benefit calls “aim”)
was educational unless the court was satisfied that it was for the
public benefit (see Re Pinion, Re Dupree and Re Shaw)
16
– i.e. a purpose cannot rank as the advancement of education
unless it is for the public benefit – public benefit is implicit in the
concept of the advancement of education
It therefore follows that to teach poodles to dance or to collect lists
of Derby winners are not charitable purposes because, as they lack
public benefit, they are not for the advancement of education
It would be odd to admit such purposes as prima facie charitable
for the advancement of education and only then go on to deny
them charitable status on the separate ground that they are not for
the public benefit
It might be different in the advancement of religion, since one can
envisage a “religion” which is not for the public benefit, e.g.
Satanism (hence the prima facie presumption that the concept of
the advancement of religion is for the public benefit might be
rebutted – but that is outside the scope of the present discussion)
17
In summary, in the context of the advancement
of education, s 3(2):
– does not reverse any evidential presumption of public
benefit, and
– does not reverse any presumption of public benefit in
the sense of the community to benefit,
since in neither case has there been any such
presumption
In short, in the context of the advancement of
education, s 3(2) has no effect on the previous
law
18
Any argument that independent schools are not charitable
if they charge high fees and thereby (it is argued) exclude
the poor, must therefore be based on the previous law
However, the Act seems to strengthen the argument here
presented (that the charging of fees does not itself
contravene any rule against excluding the poor) because
the statute puts the Pemsel classification (much
expanded) into statutory form, i.e. it is a statutory
recognition of what that case established: namely that the
advancement of education is distinct from the relief of
poverty
Charity Commission Guidance under s 4 cannot change
the law on public benefit
19
Public benefit must be contained in the purposes
Where the purposes of an organisation are ambiguous
or unclear, the court may be able to determine its true
purposes by reference to its activities
But there is no legal basis for the notion that an
institution whose purposes are charitable (and so for the
public benefit) can lose such charitable status merely
because of the manner in which it is run by the directors
or trustees
Under the law (both before and after the Charities Act
2006) public benefit is contained in an organisation’s
purposes, not in its activities
– The position is different in Scotland, where the Charities and
Trustee investment (Scotland) Act 2005, ss 7 and 8 refer to a
body “providing” public benefit
20
The purposes of a charity for the advancement of
education are necessarily for the public benefit
A charity does not have to show that it is providing public
benefit in the way in which it carries out its activities
A charity merely has to show that it is carrying out its
purposes
A charity asked to state how it has been satisfying public
benefit in carrying out its purposes could therefore
respond that it has been satisfying public benefit in that
its purposes are charitable for the public benefit, and that
it has been carrying out its purposes in the following
ways (and so listing its activities)
21