DCH 301 Charity Commission
BRIEFING PAPER FOR THE JOINT COMMITTEE ON THE DRAFT
CHARITIES BILL
THE CHARITY COMMISSION'S ANALYSIS OF THE
EFFECT OF TWO CLAUSES SUGGESTED BY CHRISTOPHER MCCALL QC
1. This paper responds to a request made by the
Joint Scrutiny Committee to the Charity Commission on 7 July 2004.
The Committee requested a paper on the Commission's view of
the legal effect of two clauses which Christopher McCall QC has
suggested be included in the proposed draft Charities Bill.
2. Those two clauses are:-
2.1. to be inserted at the end of clause 3(2)
"and in the application of precedent and
otherwise in determining whether the requirement of public benefit
is satisfied full account shall be taken of changes in social
and other relevant circumstances"; and
2.2. to be inserted as a new sub-section 3(5)
"It shall be the duty of any charity trustee
so to execute the trusts of his charity as to secure the fullest
public benefit consistent with the terms of his trust and furthermore
to seek a scheme for the modification of any term which may reasonably
be regarded as preventing him from securing that public benefit
to a material degree".
Executive Summary
3. The Commission's view is that the two clauses
will have not have the effect of overriding the existing common
law rules (including those relating to the schools cases) which
set out the wider framework for assessing public benefit in any
particular case.
4. The first clause, will have no effect in changing
the law. It restates the current common law position.
5. The second clause would place an additional
possibly onerous duty on trustees which would impact upon the
way in which trustees administer their trusts. It would limit
they way in which trustees currently exercise their discretion
to determine how to further their objects in the best interests
of the charity. It would introduce a significant change in relation
to the freedom trustees currently have to further their purposes.
Analysis of the Effect of the First Clause
6. The first clause states that changes in social
and other relevant circumstances must be taken account of when
considering whether public benefit is satisfied in any particular
case. The Commission understands the intent of this clause
is enable the court (and the Commission) to develop the law on
public benefit in light of modern society's social and other circumstances.
7. However, it is already the case, under the
existing common law, that charity law may be developed by the
court or the Commission in the context of changing economic and
social circumstances (and any statutory amendments to the law)[51].
Whether it may do so in a particular case will depend on the
strength of the underlying case law and the impact of the proposed
legislation.
8. In short, this clause would have no effect
on the current underlying substantive law on public benefit which
applies differently to different purposes (reflected in section
3(2) of the draft Bill). It states the existing position under
common law, namely that the law on public benefit may evolve
over time and that the courts (and the Commission) can recognise
this.
Analysis of the Effect of the Second Clause
9. The First Part of the Second Clause.
The second clause has two parts. The first part provides for
a duty on trustees to carry out their charitable trusts in a
way which secures the fullest public benefit (providing this is
consistent with the terms of the trust).
10. The effect of the first part of this clause
would be to introduce an additional duty on all trustees which
would impact upon the way trustees administer their trusts which
may require subsequent regulation by the Commission.
11. The impact of the new duty on trustees would
be as follows:-
11.1. The trustees would have to administer the
charity in a way which ensured they achieved fullest public
benefit. This is beyond the requirements of the existing common
law rules on public benefit, which are for sufficient public
benefit to be present, taking into consideration the nature of
the particular charitable purpose and how it is proposed it will
be furthered in each particular case. It would be a new, and
possibly onerous, duty which may place an additional burden on
the trustees of charities.
11.2. It is not clear what fullest public benefit
means. Difficulties would arise in determining what the fullest
public benefit is in any particular case. This would be over and
above the level of public benefit required to be regarded as
charitable in the first place. Fullest public benefit would be
applied differently for different charities dependent on their
particular charitable purposes and the nature of their activities
(thus preserving any anomalies which currently exist). It would
therefore be difficult for trustees to know whether and to what
extent they may have fulfilled this duty.
11.3. It would restrict the way in which trustees
exercise their discretion, beyond the existing legal limitations[52],
to determine how to further their objects. It would limit the
possible range of reasonable decisions that it would be open to
the trustees to make. It may be possible to argue, for example,
that in the case of charities which deliver their services to
the public by physical access e.g. a museum, that fullest public
benefit would only be secured if the museum were open every day
all day.
11.4. The trustees would be in breach of trust
if they failed to meet this duty.
12. The impact on the Commission would be as
follows:-
12.1. It would have to determine whether charity
trustees were executing the trusts in any particular case in a
way which secured fullest public benefit. Where the Commission
identified in any particular case, the threshold was not met,
it would have to take appropriate regulatory action to deal with
this. Given the nature of the clause this could mean closer monitoring
of trustees' activities by the Commission over and above public
benefit checks.
12.2. The Commission could only assess fullest
public benefit (consistent with the terms of the trust) within
what the law regards under the common law as acceptable for
the particular charitable purpose (see clause 3(3) of the draft
Bill).
13. In terms of other consequences:-
13.1. This clause would not change the existing
common law rules on public benefit, including the schools cases,
which determine whether the trust may be regarded as charitable.
This is because the proposed clause presupposes that public benefit
has already been demonstrated[53],
having applied the existing common law rules[54].
13.2. It would appear to create in practice a
different threshold for public benefit once a charity was operational
compared with that which is applied at registration.
13.3. It may mean that charities within a particular
sector or subsector effectively have to operate on identical or
very similar lines as all within that sector or subsector with
identical or very similar trusts would be striving to meet the
same fullest public benefit threshold. This may have a negative
impact on the effective use of charitable resources and limit
innovation and diversity.
14. The Second Part of the Second Clause.
The second part of the second clause provides for a duty on
trustees to seek a scheme to change any term of the charitable
trust which may be reasonably be regarded as preventing them from
securing that public benefit to a material degree.
15. The effect of the first part of this clause
would be to introduce a duty on trustees which would oblige them
to approach the Commission for a scheme to alter the provisions
of their trust.
16. The impact of this duty on trustees would
be as follows:-
16.1. The trustees would need to be able to identify
when a particular term could reasonably be regarded as preventing
them from securing that public benefit[55]
to a material degree. This will vary from case to case being
dependant upon the nature of the particular charitable purpose
and the activities pursued and the precise wording of the particular
term in the trusts.
16.2. The trustees would be in breach of trust
if they failed to comply with this obligation.
17. The impact of this duty on the Commission
would be as follows:-
17.1. As well as having to assess what that fullest
public benefit was, the Commission would have to assess whether
a particular term could reasonably be regarded as preventing them
from securing public benefit to a material degree before it could
exercising its regulatory powers.
17.2. Terms which could reasonably be regarded
as preventing the trustees from securing the fullest public benefit
might include a wide range of clauses, such as trustee remuneration
clauses, restrictions on public access to buildings and even terms
which define who the beneficiary class is such as geographical
or otherwise acceptable restrictions.
17.3. Any modification which the Commission would
be able to make would have to fall within the existing public
benefit rules as they applied to the particular charitable purpose.
18. In terms of other consequences:-
18.1. The clause would appear in practice to
create further uncertainty about what the threshold for public
benefit was for a particular charity and what action (if any)
the trustees had to take. The clause refers to another level
at which fullest public benefit might not be achieved but a particular
term cannot be said to materially prevent the trustees
securing it.
18.2. Any need to seek a scheme again presupposes
that the threshold for public benefit has been determined in the
first place. It follows from this and the point made in paragraph
13.3 that this clause would not therefore override the existing
substantive underlying common law rules (including the schools
cases) which set out the wider framework for assessing public
benefit in any particular case.
18.3. Trustees are already under a duty[56]
to approach the Commission for a scheme to alter the trusts of
the charity in cases where the trusts have failed and can be dealt
with under the cy-près rules. This
would include cases where the terms of the no longer provide trust
(including as a result of the development of case law) for sufficient
public benefit for the purpose of determining whether they are
charitable in the first place. Therefore, the effect of this
proposed clause may be limited as the powers to deal with some
cases and the duty on trustees to address it already exists.
Charity Commission
06 August 2004
51 See Lord Simonds' comments in Gilmour v Coats
[1949] AC 426 at page 449, Lord Wright's comments in National
Anti Vivisection Society v IRC [1948] AC 31, HL at page 42
and Picarda's comments in The Law and Practice Relating to Charities,
Butterworths, 3rd Edition at page 26 Back
52
which include the duties to act reasonably and properly, in good
faith, within the powers conferred upon them and taking into
consideration all relevant factors Back
53
This also means that if public benefit was not or could not be
met in the first place for the trust to be regarded as charitable,
the clause would be of no further relevance Back
54
It reflects the two fold question posed by Mr McCall on page
3 of his letter of 25 June 2004, attached to DCH 175, namely,
first, are the assets dedicated to the public benefit (and if
they are not then they are not charitable) and second, if so,
is the way in which they are being used a reasonable way in which
to use them for the public benefit Back
55
It is possible that this part of the proposed clause has no effect
whatsoever. This is because, on the current drafting, it is possible
to interpret "that public benefit" as meaning the fullest
public benefit which is consistent with the terms of the trust
in which case the need to seek a scheme would never arise. Back
56
s13(5) of the charities act 1993 Back
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