Examination of Witnesses (Questions 240
- 259)
WEDNESDAY 16 JUNE 2004
MR STEPHEN
LLOYD AND
MS JUDITH
HILL
Q240 Ms Keeble: And what else?
Mr Lloyd: The charitable incorporated
organisation, which is a one-stop shop for a charity to get limited
liability, is very important. I would say the codification of
charitable purposes as well for the reasons I was saying earlier.
Then there is also the reform of public charitable collections
which is pretty important because the law has been in a complete
mess. I am not sure the reforms clear up the mess completely but
at least they are a step in the right direction.
Ms Hill: The bits that relate
to facilitating mergers of charities is extremely important coupled
with some very technical points on cy-pres and permanent endowments
which, taken together, give the Charity Commission the flexibility
to make charities much more efficient and to cut out a lot of
the nonsense, which means that currently charities simply cannot
work together because their objectives are very slightly different,
getting rid of all that sort of issue. I do not think that could
be done by deregulation, that really does have to be done through
a statute.
Mr Foulkes: One specific point on this
before we move on to the question of public benefit which we have
been anticipating a little.
Q241 Lord Campbell-Savours: Do you
have any concerns that, as drafted, a charity will be defined
in the 2005 Act but some of its powers, and the body regulating
it, will be governed by the 1993 Act?
Mr Lloyd: Absolutely. I think
it is really vital, as happened with the 1992 Charities Act which
reformed the 1960 Act by reference, just like this does the 1993
the Act, the next year the Government put through the 1993 Charities
Act which consolidated most of the legislation, there is a consolidation
Bill in charity law. If you are a trustee and you are trying to
come to grips with what the law is and you are volunteering, if
you then have to look between different statutes trying to go
work out what the law is, that is really tough. I would urge that
there be a consolidation Bill as soon as possible.
Q242 Lord Campbell-Savours: Do you
recommend that we put that in our report?
Mr Lloyd: I do.
Q243 Lord Campbell-Savours: Do you?
Ms Hill: Absolutely.
Q244 Lord Best: We cannot do that
consolidating within this Bill though.
Mr Lloyd: You could.
Q245 Mr Mitchell: So why are we not?
Ms Hill: Because we have not got
the time.
Mr Foulkes: It is the time. It is practically
possible but not within the timescale we have, yes. Can we move
on to public benefit. Lord Phillips is going to lead us on that.
Q246 Lord Phillips of Sudbury: I
must just say, Mr Foulkes, that my colleague's expectation and
hope that going to the tribunal is going to be cheap and easy
I think will be just like employment tribunals, it will be found
to be a complete myth and no cheaper at all.
Mr Lloyd: That depends on the
degree to which the rules laid down by the Lord Chancellor are
based on the complexities of the rules of evidence and so forth
that you get in the industrial tribunal or whether the pole is
set lower and it is deliberately designed to have a chairman who
is more willing to be more like a continental chairman, ie to
help the applicants come to a decision rather than sitting there
in judgment. So I think there is a real argument for the way the
rules of that tribunal should be framed.
Q247 Lord Phillips of Sudbury: This
is the sexiest part of the Bill and it is liable to cause quite
a lot of excitement and angst. You said you did not cover public
interest in your submission, but in fact you did say this in Clause
2.1 of the Bill, "the public benefit test is to be applied
to the charitable purposes rather than to the way the organisation
furthers those purposes. We are not sure that this was what was
intended." Before we go any further, would you kindly explain
to the Committee what you meant by that?
Ms Hill: To be perfectly honest,
that was a point which was destined for the larger paper because
I think it is a point of detail and it was not one that we intended
to bring in here. It is simply that in the government's response
to the Strategy Unit they said that a charity would be defined
as a body which fell within one of these heads and was established
for public purposes; in other words, was set up in order to further
the public benefit. In the way that it has been dealt with in
the Bill it is slightly different in that a charity is not defined.
A charity is defined effectively as something that has charitable
purposes and then the public benefit is applied to the purposes.
Probably if you work it through it does come to more or less the
same thing. As I say, it is not an important debate.
Q248 Lord Phillips of Sudbury: I
just wanted to clear that up. On the issue of public benefit in
the wider world, particularly in terms of the case law that already
exists on public purposes, and you may be aware of the paper which
the Charity Commission did for us on public benefit entitled Public
Benefit and the Effect of the Proposed Legislation, they say
in effect that they do not think in practice that there will be
a great deal of difference in terms of existing charities, and
I suppose one must particularise schools and hospitals which are
at the forefront of public controversy on this. They do not think
there will be much change in applying the public benefit test
that is presently in the Bill because the definition of public
benefit in the Bill, as you will know, takes you back to the existing
case law. Firstly, would you like to comment on that and, secondly,
would you see any virtue, as has been suggested by some, in clarifying
the public benefit test by including on the face of the Bill some
non-exclusive criteria that would help to guide the Charity Commission,
the tribunal and the courts?
Ms Hill: Can I first start with
the point that you say the Charity Commission have made a submission?
I have not seen the Charity Commission's submission but if what
they are saying is that sub-clause (3) of clause 3 in the Bill
effectively cancels out sub-clause (2), I think that is a misreading,
certainly the way that I interpret these provisions, because they
have very clearly differentiated between existing charity law
and charity law in that charity law is defined, at least for the
previous section, as meaning the law relating to charities in
England and Wales, in other words, as it shall evolve, whereas
existing charity law is defined as meaning charity law immediately
preceding the passing of this Act. The wording that they have
used in sub-clause (3) relates to charity law; in other words
it envisages a development of the law. It specifically means charity
law as it evolves and therefore it is not in any way restrictive
of what the position will be as the law moves forward. The whole
point about this Bill is that to my mind in a very enlightened
way it is facilitating the evolution of charity law which is so
important because charity law relates to social activity and volunteering
and civic responsibility, and all these things are evolving concepts
and the law must be free to evolve along with them. This Bill
gives it the framework to allow it to do that. Coming back to
putting something on the face of the Bill—
Q249 Lord Phillips of Sudbury: Could
I just point out to you that this difference between charity law
and existing charity law which you refer to only applies to a
particular section, section 2?
Ms Hill: I would suggest that
it should be made to apply to the whole part of this Act if only
to clarify that.
Lord Phillips of Sudbury: It is.
Ms Hill: If you look at the wording
used it is precisely the same as the wording used for the definition
of charity law and that is clearly distinct from existing charity
law, so I would have no difficulty interpreting it as I have done.
Q250 Lord Phillips of Sudbury: You
do not think this is a draftsman's subtlety?
Ms Hill: No. I think it would
be helpful to clarify that it means charity law as it evolves
and that would be easily done by changing "section"
to "part".
Mr Lloyd: I would also add that
subsection (3) should be made specifically subject to subsection
(2) so that it is quite clear the two inter-relate and, if you
like, subsection (3) trumps subsection (2). In other words, the
notion of evolution in the law is clearly there. I find the Charity
Commission position as you have read it out, Lord Phillips rather
extraordinary. It sounds like you give with the one hand and you
take away with the other and that is not our reading of this Bill
and certainly should not be.
Q251 Lord Phillips of Sudbury: I
do not want to misrepresent them and no doubt they will disagree
with me, but what they appear to be saying in paragraph 15, which
is not so surprising, is that there is existing case law on public
benefit and as it affects schools. For example, In re Resch
is the case they cite in the document and that after the Bill
is law that will still be binding precedent. Therefore, the definition
of public benefit is at best going to be slowly evolutionary rather
than radical.
Ms Hill: I would be surprised
if they want to seek to override In re Resch. That is authority
for the fact that if a charity charges for its services then that
does not prevent it from being charitable. If you are seriously
going to say that they want to overrule that, there are universities,
there are hospitals.
Q252 Lord Phillips of Sudbury: The
way they are looking at it though appears to back to this issue
of whether or not relief of the Exchequer by the provision of
services which otherwise would be provided by the state is of
itself sufficient public benefit. I think they are looking at
that aspect of In re Resch. Would you now go to the second
issue?
Ms Hill: It seems to me, and I
am sure you will not disagree, Lord Phillips, that the law as
it stands relating to public benefit has two purposes. First of
all there is the question, is the purpose in question for the
benefit of the public? This is in such cases as In re Pinion
where a collection left for the benefit of the education of the
public was held to be rubbish, so clearly no benefit to the public.
That is one arm. The other arm is, who for these purposes is the
public? That I think is what you are getting at when you are talking
about public benefit. You are saying is the class of the public
large enough to constitute the public? There is a lot of law about
that. There is a very intricate interwoven body of case law which
addresses both those issues. It would be impossible to articulate
the whole effect of that body of law on the face of the Bill because
it would take a book and then it would be totally inflexible and
would defeat the whole purpose of making a law which is capable
of growing and breathing. Given that we cannot articulate the
whole thing, the best that you could do by putting something on
the face of the Bill would be to articulate something. The canons
of construction of statutes would say that if you put anything
on the face of the Bill then you are deemed to be changing the
law, and the effect of putting something on the face of the Bill
would therefore be that no body would be sure what the law is.
The whole thing would be thrown into disarray and it would take
a long time of evolution through the courts or through some other
mechanism, which I will come to, in order to clarify how and in
what way what was on the face of the Bill changed the existing
law. It seems to me therefore that you have that process whichever
you do. With or without anything on the face of the Bill there
is going to have to be an evolutionary process and I think that
it is going to be much easier to control that process and to make
sure that it is going in accordance with the law if we are at
least starting from a position that is well accepted, namely,
the current law. So far as evolution is concerned, I absolutely
accept the fact that since there has been a presumption in existence
for however long it has been there that the first three heads
of charity as they exist today are for the public benefit, then
this case law body is not perhaps as well developed as it might
be. That does not mean to say there is no such case law because
of course the presumption has always been rebuttable and there
have been many cases over the past when people have sought to
rebut that position, notably in cases of wills where, if the purpose
was not charitable, then individuals would benefit from the estate.
That gives incentive for them to bring a case assessing whether
or not a particular purpose is for the public benefit or whether
the class which can benefit is sufficiently large to constitute
the public for this purpose. It has happened and I could cite
for you some of them but I am sure you will not want me to. That
means the body of case law is there. What this Bill does is give
a machinery for developing that case law which is better than
having to go to the courts because we all know that going to the
courts is a very expensive process and one that charities simply
do not want to take on because they have better things to do with
their money. It seems to me therefore that you are going to have
to have a process of evolution and interpretation. The best way
to do it is by the Charity Commission taking a view on the basis
of the law as it stands and extrapolating from it by analogy,
and that will be controlled by the new tribunal because if people
feel that the Charities Commissions has gone wrong they will be
able to appeal to the new tribunal. Behind that ultimately will
be the courts but I would hope that if the tribunal is set up
in the way that Stephen was suggesting as a relatively simple
and informal mechanism it will not actually be necessary for the
courts to be involved and therefore we get the necessary evolution,
we get the necessary development of the law, in an easy and straightforward
way starting from a base which everybody understands.
Q253 Lord Phillips of Sudbury: Thank
you very much for that. Can I ask, because some members of the
committee may be dazzled by your science, where do you think it
ends up, if I can put it that way? How do you anticipate, with
your profound knowledge of this subject and the cases, that it
will look the day after the Bill has become an Act in terms of—and
let us take the two cases—Eton and the London Clinic?
Ms Hill: In the case of both of
them the law is already there to assess whether or not they benefit
a sufficiently large part of the public, and that is the question.
What you will have to look at in the case of all charities—Eton,
the London Clinic, the Royal Opera House, a whole variety of them,
is what section of the public is getting benefit from this. If
you take Eton, obviously people who pay the fees are not getting
public benefit because they are paying for what they get. However,
you might say—
Q254 Lord Phillips of Sudbury: That
is not quite true because they are getting the benefit of the
endowments of previous donors.
Ms Hill: They are not actually
because the endowments up to a point are providing the buildings
which the people are paying for but they are also being used to
give scholarships across the board open to all comers. There is
the public benefit that anybody who has the ability can apply
for a scholarship to Eton. There is public benefit there. In addition,
there are a number of people who are using facilities which are
provided by Eton. Their rowing lake, for example, is part of the
Olympic pitch.
Q255 Lord Phillips of Sudbury: Can
I stop you there? I am not trying to be unkind; I am trying to
put you on the spot, which is not the same. Saying all that, and
you have obviously thought about all this and you have thought
about Eton and so on, do you think that the day the Bill becomes
law Eton will be in any different position vis-a"-vis
its entitlement to charitable status?
Ms Hill: It will have to be assessed
as to whether it is or not.
Q256 Lord Phillips of Sudbury: I
am asking for your opinion.
Ms Hill: No, I do not think it
will.
Q257 Mr Foulkes: When you describe
Eton as having scholarships to get people who cannot afford it
into Eton, and the use of their facilities for public benefit,
are you saying that if we were to include tests in the Bill that,
for example, all the resources that they have got through tax
breaks would have to be used for scholarships and that all the
facilities should be open to the public consistent with their
use by the school on the normal basis, those tests would be sensible
and legitimate?
Ms Hill: I do not think it is
necessary for you to include it on the face of the Bill because
that is already the law. The law is that unless a charity can
show that it is providing genuine public benefit to a sufficiently
wide part of the public, then it is not charitable. That is already
there. If you try and articulate this test I think all you are
going to do is restrict their application because then you will
start to be putting in place narrower criteria than currently
exist.
Q258 Mr Foulkes: Are you saying then
that when the tests are introduced on an ongoing basis there are
some bodies that presently have charitable status that will be
questioned and might lose it?
Ms Hill: There may well be, yes.
Mr Lloyd: I am sure that that
will happen. One envisages the Charity Commission undertaking
a rolling review of charities. Clearly the Charity Commission
will need to be resourced to be able to do that effectively and
I would anticipate that what they are talking about doing is producing
norms of what they deem to be appropriate public benefit and that
organisations that fall short of those norms will I hope not lose
charitable status. One would hope that what would happen would
be that the Charity Commission would intervene and appoint new
trustees and make sure that the assets are applied for charitable
purposes rather than allowing a body of assets that has been given
for charitable purposes to be walked off into the private domain.
That would be a tragedy. At that point it would be a question
of appropriate intervention.
Q259 Mr Foulkes: Are you saying basically
that the existing position is sufficient without us having to
recommend that there should be a particular criterion?
Ms Hill: I think so. The big difference
is that up until now there has been only one point at which the
charitability, if you like, of the organisation is assessed and
that is when it goes on to the register in the first place. A
lot of charities that are on the register now were put on in 1960
when the register was first invented and nobody has ever really
looked at it. Of course, Eton, since you choose to use that, is
an exempt charity but will no longer be after this Bill is passed.
The introduction of the rolling review is a very major change.
It means that the Charity Commission is going to have to go back
with the tests that are already there in the law and reassess
charities over a period of time. That is the important difference
here.
Lord Phillips of Sudbury: Could I just
take you up on your extremely competent and unqualified assertion
that case law already determines that Eton is under the new aegis
going to completely satisfy the charity test? It would not be
fair of me to ask you to elaborate on that, and indeed it would
probably take up too much time. Would it be reasonable to ask
you on the charity law situation to do a short paper because I
think it is something that exercises the committee a lot because
there is a sense on the part of some of those on the committee
and in the wider world that we could find ourselves after the
Bill is legislated in a position of such uncertainty with such
little real guidance in existing case law that one would be in
a morass and that we as legislators would have failed by not providing
the clarity which is there to be provided.
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