Further memorandum from the Independent
Schools Council (DCH 47)
It was good to meet, however briefly, at the
end of the Joint Committee hearing on Wednesday 9 June, and I
look forward to giving evidence, if called, on 30 June. May I
through this letter correct one statement made during the course
of Wednesday's hearing, and also comment on one major issue of
substance raised during the hearing.
THE STATEMENT
In a necessarily brief preamble to a question,
Lord Phillips indicated that independent schools were saying,
in their written evidence, that indirect public benefit—ie
saving money to the taxpayer—was enough to secure charitable
status. That is not the view of the Independent Schools Council.
Our written evidence contains a long list of reasons which support
the charitable status of independent schools, of which indirect
public benefit, though a very large benefit, is only one.
Indirect public benefit is not conclusive in
either direction. It is entirely possible for an institution which
increases the cost to the taxpayer to be charitable. An example
would be a new venture, established under one of the heads of
charitable activity, which operated for the public benefit and
was funded by the taxpayer. Conversely, an institution which restricted
its benefits solely to a narrow class (either by status or by
wealth), and without allowing the chance of participation beyond
that class, would not be charitable, regardless of the saving
to the taxpayer.
Applying the principles of Re Resch [1969
1 AC 514], which is the leading case on this area of charity law,
indirect public benefit is a factor to be taken into account,
but, as I have said earlier, is not conclusive in either direction.
THE ISSUE
It is probably simplest if I set out the relevant
section of a short briefing paper to the Governing Council of
the Independent Schools Council. The section sets out the issue
and our view of the issue. The Joint Committee is of course welcome
to see the full document.
THE MAIN
ISSUE
The main issue for all charitable sectors is
whether "public benefit" should be defined on the face
of the Bill. The Draft Charities Bill adds new heads of charitable
activity; removes the presumption of public benefit; and requires
all charities to be for the public benefit. In the Draft Bill
as published, the meaning of "public benefit" is expressed
rather than defined: the Bill says that the meaning of public
benefit shall be as the term is understood for the purposes of
the law in England and Wales. In brief, that means case law. The
choice, therefore, is either starting from existing case law,
which can be allowed to develop, or introducing a definition on
the face of the statute.
NCVO were very clear that a statutory definition
could quickly become "sclerotic", and that there should
therefore be no statutory definition. Their view was that case
law provided flexibility to adapt to changing circumstances. The
same view is held by ISC.
Andrew Phillips (Liberal Democrat Peer; distinguished
charity lawyer) then read—without either approving or disapproving—extracts
from a briefing from the Charity Commission, in which the Commission
expressed doubts as to their ability, because of existing case
law, to review the public benefit of independent schools even
after the removal of the presumption of public benefit. Stuart
Etherington of NCVO questioned whether Home Office lawyers shared
that view: our understanding is that they do not. Nor indeed,
so far as I am aware, has the view now being expressed appeared
at any time in the Charity Commission's own publications.
Andrew Phillips asked whether, if the Charity
Commission were correct in their view, there would need to be
a public benefit definition on the face of the statute. Stuart
Etherington said yes, otherwise there would be no point in the
Bill.
THE CHARITY
COMMISSION ARGUMENT
The Charity Commission argument is flimsy in
the extreme. It is based on an 1827 case (Earl of Lonsdale's
case [1 Sim 105]) in which the Vice Chancellor said that a school
for the sons of gentlemen could be charitable. The Charity Commission
are saying that this means that a school limiting its intake solely
to a narrow class, whether by rank or wealth, will be charitable
despite the removal of the presumption of public benefit, and
that therefore the Commission will be unable to perform its regulatory
function of reviewing public benefit. There are a number of reasons
why the Charity Commission argument is weak. Taken together, the
argument does not carry any weight at all:
— The Lonsdale case comes from
early in the 19th Century, before charity law had properly developed
to the point at which charitable objects were treated as distinct
from public benefit. For that reason alone, the issue of public
benefit was not even discussed and accordingly the case is weak.
— The statements about charitable status
are obiter dicta. Obiter dicta are statements in a judgment
which are not central to the decision in the case, do not form
part of the decision, and are not authority.
— The statements are ambiguous. As
I read them the Vice Chancellor is doing no more than referring
back to the preamble to the Statute of Elizabeth, which lists
objects deemed to be charitable at that time. He was not altering
or developing the law, and indeed could not be doing so through
obiter dicta.
— The issue of charitable status was
not argued before the court: the lack of argument weakens the
already obiter dicta still further.
— There are only two later cases which
refer to the Lonsdale case. In neither of those cases are
the issues fully discussed. In both cases, although the question
of whether the school was a charity was relevant, the issue before
the court was a different one and the question of public benefit
was simply not explored. Very significantly, the Lonsdale dicta
have not been mentioned at all (in court) since Re Resch
[1969 1 AC 514], which is the leading case on this area of charity
law.
— It is in the highest degree unlikely
that dicta from the Lonsdale case would stand against
the Privy Council judgment in Re Resch. Lord Wilberforce
gave the judgment of the court (ie there is a single judgment
expressing the decision of all the judges). His judgment carefully
reviews charitable law, including the requirement of public benefit,
and makes it clear that limiting benefits solely to a narrow class
would not be charitable. Resch is the leading case on this
area of charity law and there no real doubt that Resch
would beat Lonsdale, not on a points decision but by a walkover.
The Joint Committee will be promoting legislation
for the real world rather than for a parallel and hypothetical
universe. At the very most, in the real world, a school determined
to provide no public benefit beyond a narrow class (and no such
schools exist) could just about get a case on its feet which raised
Lonsdale as a very feeble defence against regulation by the Charity
Commission. No competent lawyer would advise trustees to make
this attempt. For any case to get anywhere near the door of the
court you would need trustees with deep enough pockets to pay,
out of their personal wealth, the costs of a case which was doomed
to failure. Personal wealth would be needed because trustees could
not use charitable assets on such a frivolous exercise. Kenneth
Dibble, Director of Legal Services at the Charity Commission,
has expressed the clear (and accurate) view that the Commission
would win any such case. Precisely so. It would be regrettable
if, for the sake of a vanishingly remote possibility, hypothetical
to the point of non-existence, the Joint Committee replaced the
flexibility of case law with the sclerotic alternative of statutory
definition."
Could I perhaps add two sentences from the Charity
Commission's publication RR8—The Public Character of
Charity. They run as follows, and are on page 2 in bold type:
"The public character of charity is upheld
by ensuring that an organisation benefits the public as a whole,
or a sufficient section of it. Whether this is the case can only
be decided on a case by case basis."
Please could you treat this letter as part of
the written evidence from the Independent Schools Council and
bring it to the notice of the Joint Committee.
Jonathan Shephard
June 2004
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