DCH 13 Charities Commission
BRIEFING PAPER FOR THE JOINT COMMITTEE
ON THE DRAFT CHARITIES BILL
THE CHARITY COMMISSION, PUBLIC
BENEFIT AND THE EFFECT OF THE PROPOSED LEGISLATION
1 This document consolidates the contents
of the two briefing papers the Charity Commission produced at
the request of the Joint Committee concerning public benefit and
the effect of the proposed legislation.
It deals with :-
- the current law as regards public
benefit;
- the Commission's existing practice
when examining public benefit in charities;
- the effect of the proposed legislation
on public benefit and how the Commission envisages case law on
public benefit might develop following enactment of the proposed
legislation; and
- how tests for public benefit will
be applied in future by the Commission in respect of charities,
and sets out the limitations when applying these tests to those
charities whose purposes are educational or for the relief of
poverty.
A The Current Law
2 Public benefit is a requirement for
all organisations which profess to be charitable. All charities
must show that they exist for the public benefit. This means that
they serve either the community as a whole or a sufficient (appreciably
important) section of the community. The general principles are
that the number of those eligible to benefit must not be negligible,
they must constitute a group or class which can be considered
to be a public class and any defining connecting link must not
be a personal relationship such as family or employer/ee. The
court or the Commission determine what is a sufficient section
of the community by examining the class of individuals to be benefited
in relation to the charitable purposes declared. The class may
be limited by reference to particular types of charitable need,
by geographical area and by other criteria consistent with the
charitable purposes.
3 A number of other factors may affect
public benefit including:-
- whether any individuals or other
organisations (other than those who should properly benefit from
the charitable services) are significantly benefiting or profiting
from the charity;
- where the charitable services are
available only to a charity's members, any restrictions on who
can be a member, which are inconsistent with the charitable purposes;
- physical access to buildings and
land, where that is relevant to delivery of the charitable purpose;
- where the level of fees charged
for services may have the effect of excluding the less well off,
whether there is alternative provision for access to services
for those unable to pay; and
- whether the charity confers any
indirect public benefit (e.g. relief of the public sector).
4 Currently, the first three heads
of charity, namely for the relief of poverty, the advancement
of education and the advancement of religion, enjoy a presumption
of public benefit. This means public benefit is recognised as
established and need not be demonstrated unless any doubt arises.
For charities with purposes in the fourth head, it must be positively
shown.
5 Although all charities must have
an element of public benefit, these rules are applied flexibly
to different categories of charity. For charities for the relief
of poverty and the advancement of education, the public benefit
rules have some exceptional features.
(i) Relief of Poverty
6 In the case of charities for the
relief of poverty, the pool from which the intended beneficiaries
may be chosen may be more narrowly drawn than for other charitable
purposes.
7 A charity for the relief of poverty
may define its beneficiaries by reference to a personal connection
or tie (such as family relationship or the same employer). For
example, a gift for the poor relations of the person setting
up a charity or a benevolent fund for the poor employees of a
particular company would not fall foul of the public benefit requirements.
8 The case law which establishes these
principles is specified in section A of Annex A. Although a departure
from general public benefit principles, these principles are well
settled in the law and are applied by the court and the Commission.
(ii) Educational Purposes
9 Following the general public benefit
principles outlined in 2 above, the beneficiaries of charities
for the advancement of education cannot be defined by a personal
connection or tie (e.g. family relationship or employment). Trusts
for the education of particular family members or employees of
a company do not form a sufficient section of the public and cannot
be regarded as charitable as lacking the requirement of public
benefit.
10 Historically, however, the court
has accepted as charitable educational trusts giving preference
to the founder's relatives (sometimes called the founder's kin
cases). A charity for educational purposes with a specific provision
wishing (rather than requiring) preference to be given to a particular
group of children or people may be established provided that the
trustees act reasonably and properly in exercising the preference.
11 The case law which deals with these
principles is referred to in section B of Annex A.
12 There is also a line of legal authority
established by the court which indicates that, for charitable
independent schools, a narrow beneficiary class which may have
the effect of confining educational benefits to those who are
relatively well off is acceptable for charity. The original case
related to the beneficiary class as described in the purposes
of a school for the sons of gentlemen. The narrowness was a consequence
of the way in which those eligible to attend the school were defined
in its charitable purposes, but the principle also applies if
access is narrowed in other ways, including by the level of fees
charged.
13 The legal authorities which deal
with these principles are specified in section C of Annex A.
Although a departure from general public benefit principles, the
principles established in these cases are well settled in law
and are applied by the court and the Commission.
14 The Commission's existing practice
in examining public benefit in charities, both at the time of
registration and subsequently, is set out in Annex B.
B Effect of the Proposed Legislation
on Public Benefit and Developing the Existing Case Law on Public
Benefit
15 The proposed legislation provides
that a charity will have to have purposes which fall within those
defined in the new legislation and be for the public benefit.
The presumption of public benefit will be removed.
16 The effect of this will be that
the existence of public benefit will need to be addressed at any
time the charitable status of an organisation is being considered
by the court or the Commission. This will be done by reference
to the common law rules which currently govern the law on public
benefit, which will be preserved.
17 In exercising its powers to register
and de-register charities, the Commission will continue to develop
the law on the legal meaning of charity after the proposed legislation
is enacted both as regards the purpose for which a charity may
be established (in recognising new charitable purposes) and as
regards public benefit. In doing so it will take account of the
fact that the presumption of public benefit has been removed.
18 The Commission will follow the court's
approach in developing the law in the context of changing economic
and social circumstances and statutory amendments to the law.
It is already well established that the quantum of public benefit
may well vary from charity to charity. It is also inevitable
that the court's notion of public benefit may vary with the passing
of time.
19 The existing case law would need
to be applied to the modern context in which charities now operate
and in light of the new legislation. The exceptions to general
public benefit principles referred to paragraphs 6 to 13 above
are part of current case law and organisations have been recognised
as charities on that basis over significant periods of time.
The removal of the presumption of public benefit as proposed by
the legislation would probably not change this. The Commission
would not be able simply to over-ride these exceptions given that
they have been specifically addressed by the court and allowed
to stand.
C The Proposed Legislation - How
the Commission Would Assess Public Benefit
At Registration
20 As is the case now, the Commission
would use the information on the application form to assess, not
only whether the purposes are charitable, but also whether the
charity is for the public benefit.
21 If the presumption of public benefit
were removed, this would mean that a positive assessment of public
benefit would need to be established in each case. The Commission
would revise its application form to the effect that every applicant
would have to provide information on the form about how public
benefit is satisfied in the case of the organisation applying
for registration.
22 In some cases (as now), it would
be evident from the information provided, or even self evident,
that public benefit is present. This will depend upon the nature
of the charitable purpose(s), the proposed activities and the
way in which the charity proposes to achieve them.
23 The Commission would examine and
consider all the factors which may affect public benefit which
are relevant to the applicant's particular circumstances.
24 Applications from organisations
with purposes which are well established as being charitable in
law with model governing documents and standardised activities,
are unlikely to see much difference. This seems entirely consistent
with the underlying aim of the Strategy Unit review to make it
easier for charities to set up and grow. Applications from newer
organisations or those with novel purposes (even those within
the new description of purposes in the proposed legislation) are
likely to face greater scrutiny where the purposes concerned would
fall within those currently covered by the presumption. If it
has not been shown that public benefit is present then the Commission
would ask for further information. Advice may be provided,
where it is possible, about how to alter or restructure the activities
so as to satisfy the public benefit requirement. If public
benefit could not be demonstrated, the application for registration
must be rejected.
25 In carrying forward its registration
work, the Commission will have full regard to the need to balance
risk and proportionality in assessing applications for registration
and will apply this approach in considering all issues that arise
including public benefit.
Ongoing Regulation (Public Character
Checks)
26 Bearing in mind that the proposed
legislation will not change the existing legal definition of
public benefit, but in seeking to be in line with the proposals
set out in the SU Report, the Commission proposes to carry out
scoping exercises on fee charging and other relevant areas for
groups of charities where charging is a feature. This will be
undertaken in full consultation with the professional or umbrella
bodies representing these charities. The Commission proposes
to publish the results in a series of regulatory reports. These
will identify for the respective subsectors how the public benefit
requirements are currently met and how they might be met in the
future. It is hoped that subsector best practice may be developed
from this, again in consultation with the subsectors involved.
27 Once the proposed legislation has
been enacted the Commission would look at the position of existing
charities, including those registered under a presumption of public
benefit where concerns have been raised, or where there is the
potential for concerns to be raised, about whether they meet public
benefit requirements. The Commission would look initially at
the fee charging sectors. The Commission would undertake this
exercise to assure itself that these organisations have a public
character or, in other words, provide a benefit to the public.
28 This assurance will include an assessment
of whether:
- an organisation is established
for a purpose which may be recognised as charitable; and
- it benefits the community, or
a sufficient section of the community.
29 Assessing benefit to the community
will include consideration of the range of factors described above
at paragraphs 2 and 3.
30 Subsequently, if the Commission
identified individual charities which did not meet the public
character expectations or requirements, it would consider taking
further action. This action might range from working with the
charity to ensure it organises its activities to benefit a sufficient
section of the community and thus meet its charitable purposes,
to taking regulatory action to ensure compliance with the public
benefit rules and, in extreme cases, redirecting assets to other
charitable purposes close to any purposes that have ceased to
be charitable, where it is not possible for the organisation to
meet the public benefit test.
31 The Commission could also build
an assessment of public benefit into our ongoing regulatory assessments,
such as through review visits, where appropriate. For example,
the Commission would include an assessment of public benefit for
those charities where this has been identified as a possible issue,
for example because the charity charges fees for its services.
32 Because case law on public benefit
deals with different categories of charity differently, the extent
to which change in a charity's practice could be required, rather
than encouraged, would vary. For areas where this was the case
(particularly in relation to charities established for poor relations
and poor employees and certain educational charities including
independent schools, which are referred to in paragraphs 6 to
13 above) the development of a self regulatory approach owned
by the particular sub sector would be likely to be necessary.
For all other categories of charity, regulatory intervention
by the Charity Commission, where it was required, would be possible.
33 The Commission would encourage such
groups of charities, and their representative bodies, to develop
sector owned guidance and best practice standards which are relevant
to the circumstances of that particular group of charities (i.e.
a self-regulatory approach). This guidance might include, for
example, a best practice view on what represents a level of access
which is appropriate to the group of charities' particular circumstances.
34 This 'self-regulation' approach
also assumes that the proposed legislation will continue to provide
the Commission with an advisory function, in order to enable us
to work with groups of charities, and their advisers, in the way
outlined above.
Charity Commission
17 June 2004
Annex A
Legal Authorities and Public Benefit
A The Public Benefit - Exceptions
for the relief of poverty
1 The case of Re Scarisbrick
is the principal authority establishing that charities for the
relief of poverty, are excepted from the general principle that
there must not be a personal family connection or tie within
the definition for the pool from which the beneficiaries may be
drawn.
2 The court concluded that the exception
was established by a series of long standing authorities which
must accept as valid, not withstanding the general principle that
applied to the other heads of charity that a personal connection
or tie would affect public benefit.
3 This was confirmed in Dingle
v Turner , concerning a gift to pay pensions to poor
employees of a family company, where Lord Cross reviewed and
confirmed the poor relations cases as well as cases on poor employees.
The "poor relations" and "poor employees"
exceptions are well established and have been confirmed and applied
by the court and by the Commission.
B Public Benefit - Personal Connections
and Ties
4 The court considered whether a sufficient
section of the public was present in several cases, including
Re Compton, Oppenheim v Tobacco Securities
Trust Co Ltd and Dingle v Turner.
5 The case of Re Compton
is generally relied upon as authority that where the connection
between the beneficiaries is a personal relationship or quality
then they will not be the public nor a sufficient section of
the public for charitable purposes. The trust, to provide scholarships
to educate the relatives of three named people was held not charitable.
It is said that if the quality is impersonal, the group or class
may be a section of the public and the body may be a charity.
However, if the quality is a personal one, the trust will be
private and not charitable.
6 In the Oppenheim case,
a trust to educate children of employees and former employees
of a tobacco company, the court considered that the words "sufficient
section of the public" indicate that-
- the possible beneficiaries
must not be numerically negligible; and
- the quality which
distinguishes the beneficiaries from other members of the community
must be a quality which does not depend on their relationship
to a particular individual or group of individuals.
7 Despite the education for a particular
family not being charitable (Re Compton) , trusts
which give preference for the education of founder's kin have
been held as charitable (See Re Spencer's case)
and Re Christ's Hospital).
8 In addition, it is possible for preference
to be given to relations or other groups of people if the beneficiaries
are not confined to that group. See Re Koettgen's Will
Trusts, Caffoor v Commissioner of Income Tax
IRC v Educational Grants Association and Re
Martin.
C Charging and Educational Institutions
9 The authority for the impact on public
benefit of charging for services relies principally on the case
of Re Resch. This confirmed the principle that
charges could be raised by a charity for the services it provides,
even if the charges produce a profit. It also sets out some
general guidance on how public benefit may be assessed in any
particular case.
10 At least in the case of medical
facilities, the provision of facilities or services, which were
available only to the rich would not be charitable. The test
is one of public benefit. Direct benefit is clearly relevant,
although indirect benefit may be taken into account. But it is
not the case that fees which are set at a level which have the
effect of excluding the less well off will automatically negate
public benefit. Public benefit may still arise by the provision
of access to charitable services to the less well off in other
ways and by indirect public benefit, for example, the relief to
public services.
11 The cases on independent schools
are:-
- Attorney General v The Earl
of Lonsdale;
- Brighton College v Marriott
; and
- Malvern Wells v Ministry
of Local Government and Planning
.
12 These cases make clear that an educational
institution is charitable, even if its facilities and services
are confined to the relatively well off. In Re Resch,
the court did not draw on the educational cases. Even Counsel
for the parties arguing that the hospital was not charitable because
it excluded the less well off, stated that "the educational
cases stand on their own. To apply the logic of those educational
cases to other cases would open the door too far."
It would appear from this that these cases are treated as separate
lines of authority as regards educational institutions and did
not apply to the fourth head purpose being considered in Re
Resch.
Annex B
The Commission's Existing
Practice in Examining Public Benefit in Charities
At Registration
1 An organisation applying for charitable
status will provide the Commission with its governing document
and complete an application form which asks for information about
it and its proposed activities. The Commission uses this information
to assess, not only whether the purposes are charitable, but also
whether the charity is for the public benefit. Case law provides
that public benefit is to be assessed on the evidence before the
court or the Commission. In checking public benefit, the Commission
looks at evidence of the activities to see:-
- in cases where the presumption
applies, whether there is any evidence that public benefit is
not present; and
- in all other cases, that public
benefit has been shown.
2 Examples of issues concerning public
benefit which may arise are:-
- Example 1: Is there sufficient
public benefit in an organisation set up to relieve unemployment
by providing advice and training to people who are unemployed
where only people living in 3 streets in a town can apply?
The organisation would not be charitable unless it was to widen
the geographical area from which it drew its beneficiaries.
- Example 2: Is a trust set up
to send one child abroad for medical treatment which is not available
in this country for the public benefit? No. The Trust would
have to be set up to benefit a bigger group of sick children or
people in order to meet the test.
- Example 3: Is a professional body
made up of members promoting a particular branch of the sciences
whose members receive a number of benefits from it for the public
benefit? It will depend on the extent and nature of the benefits
- they would have to be legitimately incidental to the benefit
to the public in promoting science.
- Example 4 : Is a trust set up
to maintain a historic building in private ownership and which
the public could only have access to certain parts at certain
times for the public benefit? It would depend on how often
the public could access it and how, to ensure there was sufficient
public benefit. In addition, the benefits to the owners from
the charitable funds spent on the building would have to be assessed
against the benefit the public would receive from accessing and
enjoying the building.
Ongoing Regulation
3 Concerns may arise during the Commission's
regulatory work in particular in review visits and from complaints
raised by members of the public.
4 Where regulatory concerns exist,
the Commission intervenes by giving advice and guidance and in
particular cases of non compliance, through our powers of investigation
and remedy.
- Example: During a review visit
to an arts charity a project to provide workspace for artists
was discussed. The charity was advised of the need for public
benefit and to ensure the private benefits to the artists were
incidental. Relevant factors included on what basis the rent was
charged and whether the artists' work was for the public e.g.
did they provide arts workshops. The charity is now looking at
why it carries out these activities and how public benefit is
satisfied.
5 In extreme cases, the Commission
has a specialised team which considers whether a body can remain
a charity in law.
- Example: A charity's activities
were concerned with promoting a healing potion created by the
founder and the founder's family. The extent of private benefits
to the founder and her family could not be said to be legitimately
incidental.
- Example: The primary activity
of a charity, set up to advance the science of ornithology and
zoology, was holding dinners for members to discuss their private
collections. In the circumstances, there was no benefit to the
public.
- Example: A charity set up to advance
education, primarily in neurolinguistic programming, provided
benefits to its members which were of such number and nature that
they amounted to promoting the interests of the members themselves.
The private benefits were not legitimately incidental.
Public Benefit and the effect of the proposed
legislation. Presented to the Joint Committee on 28 May 2004
and 7 June 2004
See Lord Simonds' comments in Gilmour v Coats
[1949] AC 426 at page 449 : "It would not,
therefore, be surprising to find that, while in every category
of legal charity some element of public benefit must be present,
the court had adopted the same measure in regard to different
categories, but had accepted one standard in regard to those gifts
which are alleged to be for the advancement of education and another
for those alleged to be for the advancement of religion, and it
may be yet another in regard to the relief of poverty."
See Picarda's comments in The Law and Practice Relating
to Charities, Butterworths, 3rd Edition at page 26
and Lord Wright's comments in National Anti Vivisection Society
v IRC [1948] AC 31, HL at page 42.
[1951] Ch 622
1972 AC 601
1945 Ch 123
1951 AC 297
1928 34 OWN 29
1889 15 App Cas 172
[1954] Ch 252
[1961] AC 584;
[1967] Ch 123;
the Times, 17 November 1977
Re Resch's Wills Trusts [Le Cras and the Perpetual
Trustee Company Limited and Others] [1969] 1 AC 514
See Scottish Burial Reform and Cremation Society
Limited v Glasgow Corporation [1968]. See also Incorporated
Council of Law Reporting for England and Wales [1972] Ch 73, CA
and Joseph Rowntree Memorial Trust Housing Association Ltd v
Attorney General [1983] 1 Ch 159
[1827] 1 Sim 105
[1926] AC 192
[1951] Ch 728
The Charity Commission currently makes over 600
review visits each year to medium and large charities to encourage
better methods of administration, to identify good and poor practice,
and to recognise and improve badly-run charities.
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