THE CHARITIES ACT 2006: PUBLIC BENEFIT AND THE INDEPENDENT SCHOOLS

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THE CHARITIES ACT 2006 PUBLIC BENEFIT AND THE
INDEPENDENT SCHOOLS

• Peter Luxton
• Professor of Law
• Cardiff Law School
• Cardiff University

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LEGAL REQUIREMENTS FOR CHARITABLE STATUS BEFORE
CHARITIES ACT 2006

• 1. Charitable purpose
• four heads of Pemsels 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

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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 Macnaghtens
  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

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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

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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 said 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 Whites
  Will Trusts 1951 1 All ER 528, 530

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• However, in Re Resch 1969 1 AC 514, Lord
  Wilberforce said
• The test is essentially one of public benefit,
  and indirect as well as direct benefit enters
  into the account.
• That was in context of a gift for the general
  purposes of a hospital that charged fees
• There was sufficient public benefit in the relief
  to the beds and medical staff of the general
  hospital

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• None of these cases was specifically concerned
  with the advancement of education
• Since Jones v Williams (1767), the advancement
  of education has become a separate head of
  charity, distinct from the relief of poverty
  (Pemsels case (1891))

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Independent schools can be charitable under the
pre-2006 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

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(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
• They do not fall foul of the statement in Jones v
  Williams, for one or more of several reasons
• The statement does not apply to the advancement
  of education
• The poor are unlikely to be in terms excluded
• Poverty is a relative term a trust may be
  charitable for the relief of poverty even if it
  excludes the poorest and can benefit only persons
  of moderate means Re De Carteret 1933 Ch 103

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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

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• 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?

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• It seems that it was drafted with the Lord
  Wrights 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 Macnaghtens
  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.

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• 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)

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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
  CCs 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)

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• 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

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• 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
• Indeed, the Act seems to strengthen the argument
  here presented (that the exclusion of the poor is
  irrelevant) 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

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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 organisations purposes, not in its
  activities

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• 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)