Chapter 5: Charity 1
5.0 Charities Bill 2004
A Draft Charities Bill was introduced into the House of Lords on 20 December 2004, but it did not receive Royal Assent before the general election on 5th May 2005. Amongst other things, it sets out a new statutory definition of charity. The Charities Bill is available from the United Kingdom Parliament Website:
(http://www.publications.parliament.uk/pa/ld200405/ldbills/015/2005015.pdf ) together
with Explanatory Notes to the Bill:
(http://www.publications.parliament.uk/pa/ld200405/ldbills/015/en/05015x--.htm )
The home office web site notes that "The Government had proposed that the Bill be dealt with during "wash-up" - the period between the election being called on 5th April and Parliament being dissolved on 11th April - but all-party agreement to that proposal was not secured. It will be for the incoming Government after the election to decide whether or not to re-introduce the Charities Bill. The fact that it has been through a major public consultation, earned the support of virtually the entire charitable sector, and has been through pre-legislative scrutiny and, most recently, over 30 hours of detailed consideration in Grand Committee in the House of Lords will be something for the incoming Government to take into account when considering whether or not it wants to do so". (http://www.homeoffice.gov.uk/comrace/active/charitylaw/index.html)
The key features of the Bill, as they relate to the definition of charity, are set out below:
Charities Bill 2004
Part I
1. Meaning of "charity"
2. Meaning of "charitable purpose"
3. The "public benefit" test
4. Guidance as to operation of public benefit requirement
5. Special provisions about recreational charities, sports clubs etc.
1 Meaning of "charity"
i. For the purposes of the law of England and Wales, "charity" means an institution which-
(a) is established for charitable purposes only, and
(b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.
ii. The definition of "charity" in subsection (1) does not apply for the purposes of an enactment if a different definition of that term applies for those purposes by virtue of that or any other enactment.
iii. A reference in any enactment or document to a charity within the meaning of the Charitable Uses Act 1601 (c. 4) or the preamble to it is to be construed as a reference to a charity as defined by subsection (1).
iv. In this section "institution" includes a trust or undertaking, whether incorporated or not.
2 Meaning of "charitable purpose"
i. For the purposes of the law of England and Wales, a charitable purpose is a purpose which-
(a) falls within subsection (2), and
(b) is for the public benefit (see section 3).
ii. A purpose falls within this subsection if it falls within any of the following descriptions of purposes-
(a) the prevention or relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the advancement of health or the saving of lives;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
(i) the advancement of environmental protection or improvement;
(j) the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
(k) the advancement of animal welfare;
(l) any other purposes within subsection (4).
iii. In subsection (2)-
(a) in paragraph (d) "the advancement of health" includes the prevention or relief of sickness, disease or human suffering;
(b) paragraph (e) includes-
o rural or urban regeneration, and
o the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities;
(c) in paragraph (g) "sport" means sport which involves physical skill and exertion; and
(d) paragraph (j) includes relief given by the provision of accommodation or care to the persons mentioned in that paragraph.
iv. The purposes within this subsection (see subsection (2)(l)) are-
(a) any purposes not within paragraphs (a) to (k) of subsection (2) but recognised as charitable purposes under existing charity law or by virtue of section 1 of the Recreational Charities Act 1958 (c. 17);
(b) any purposes that may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of those paragraphs or paragraph (a) above; and
(c) any purposes that may reasonably be regarded as analogous to, or within the spirit of, any purposes which have been recognised under charity law as falling within paragraph (b) above or this paragraph.
v. Where any of the terms used in any of paragraphs (a) to (k) of subsection (2), or in subsection (3), has a particular meaning under charity law, the term is to be taken as having the same meaning where it appears in that provision.
vi. In this section-
o "charity law" means the law relating to charities in England and Wales; and
o "existing charity law" means charity law as in force immediately before the day on which this section comes into force.
3. The "public benefit" test
(1) This section applies in connection with the requirement in section 2(1)(b) that a purpose falling within section 2(2) must be for the public benefit if it is to be a charitable purpose.
(2) In determining whether that requirement is satisfied in relation to any such purpose, it is not to be presumed that a purpose of a particular description is for the public benefit.
(3) In this Part any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.
(4) Subsection (3) applies subject to subsection (2).
4 Guidance as to operation of public benefit requirement
(1) The Charity Commission for England and Wales (see section 6 of this Act) must issue guidance in pursuance of its public benefit objective.
(2) That objective is to promote awareness and understanding of the operation of the requirement mentioned in section 3(1) (see section 1B(3) and (4) of the Charities Act 1993 (c. 10), as inserted by section 7 of this Act).
(3) The Commission may from time to time revise any guidance issued under this section.
(4) The Commission must carry out such public and other consultation as it considers appropriate-
(a) before issuing any guidance under this section, or
(b) (unless it considers that it is unnecessary to do so) before revising any such guidance.
(5) The Commission must publish any guidance issued or revised under this section in such manner as it considers appropriate.
5 Special provisions about recreational charities, sports clubs etc.
(1) The Recreational Charities Act 1958 (c. 17) is amended in accordance with subsections (2) and (3).
(2) In section 1 (certain recreational and similar purposes deemed to be charitable) for subsection (2) substitute-
"(2) The requirement in subsection (1) that the facilities are provided in the interests of social welfare cannot be satisfied if the basic conditions are not met.
(2A) The basic conditions are-
(a) that the facilities are provided with the object of improving the conditions of life for the persons for whom the facilities are primarily intended; and
(b) that either-
i. those persons have need of the facilities by reason of their youth, age, infirmity or disability, poverty, or social and economic circumstances, or
ii. the facilities are to be available to members of the public at large or to male, or to female, members of the public at large."
(3) Section 2 (miners' welfare trusts) is omitted.
(4) A registered sports club established for charitable purposes is to be treated as not being so established, and accordingly cannot be a charity.
(5) In subsection (4) a "registered sports club" means a club for the time being registered under Schedule 18 to the Finance Act 2002 (c. 23) (relief for community amateur sports club).
5.1. Law & Charity – Introduction
5.1.1. Definition of Charity
Charity in one form or another is an everyday phenomenon. Most of us are familiar with its images: the collectors with their tins in the town centre, the TV appeals for Children in Need, the interweaving of appeals and humour in Comic Relief.
Some would claim that such appeals are directed at a deep-rooted element in human behaviour. To provide emotional, spiritual or material comfort to those in need is believed by many to be an instinctive social trait. Religious and ethical precepts reinforce the instinct by extolling charity as an ennobling form of conduct.
This generally beneficent image is encapsulated in the comment of Sir William Grant M.R in Morice v Bishop of Durham (1805) that in its widest sense charity denoted 'all the good affections that men ought to bear towards each other'.
It is as well to state at the outset that this generalisation was not intended to provide us with a legal definition of 'charity'. As we shall see shortly the legal definition may not coincide with popular opinion as to what is and what is not charitable.
Surveys conducted by polling organisations and consumer groups have tended to reveal differences between legal and public perceptions of which organisations are charitable and which are not.
None of the organisations listed in the following questions are profit-making in any conventional sense but not all of them are or could be charities in the legal sense of that term.
Tick the 'Yes' box if you think that the organisation is a charity, 'No' if you think it is not.
Yes No
1. Eton College (Annual Boarding Fees £13,947 - October 1997)
2. Amnesty International
3. British United Provident Association (BUPA)
4. The Salvation Army
5. The National Trust
6. National Union of Students
7. Your local comprehensive school Parent Teachers Association
Answer: The correct answer would have been 'Yes' for numbers 1, 4, 5 and 7; 'No' for numbers 2, 3, and 6.
The principal reasons why the organisations are or are not charitable are briefly summarised here. We examine the legal definition of charity more closely in Section 3 of this workbook.
The National Trust is a charity in law on the basis that the preservation of the countryside and of the country's architectural heritage is a charitable purpose.
Advancement of education is also a charitable purpose and hence we can find that expensive independent schools such as Eton College and relatively impecunious Parent Teacher Associations are equally able to acquire charitable status.
The Salvation Army is charitable on the basis that it seeks to advance religion - a charitable purpose at law -, although many of its activities such as relieving poverty and homelessness would equally be charitable.
Relief of sickness is a charitable purpose in law but organisations such as BUPA which restrict benefit to the members of the organisation will generally not be charitable.
Having a political objective can prevent organisations being recognised as charities even if they have some objectives which would otherwise be charitable. This 'constraining rule' affects both Amnesty International and the NUS and is one important reason why neither are charities in law.
Identifying certain institutions or organisations as charities assumes that there exists a legal definition of 'charity'.
Indeed we might expect to find a definition in the Charities Act 1993.
Consider though the following extracts from that statute:
s. 96 (1) 'charity' means any institution corporate or not, which is established for charitable purposes and is subject to the control of the High Court in the exercise of the court's jurisdiction with respect to charities;
s. 97(1) 'charitable purposes' means purposes which are exclusively charitable according to the law of England and Wales.
In our view s. 96 defines 'charity' by reference to 'charitable purposes' and s. 97 in defining 'charitable purposes' then refers us back to what is charitable according to the law of England and Wales. To take the further step and discover what are 'charitable purposes' we must go back to the law as developed over some four centuries by the courts in their interpretation of the Statute of Charitable Uses 1601, a statute primarily concerned with preventing mismanagement of property devoted to charitable uses.
The Preamble to that statute survives to the present day as the basis of our case law definition of charitable purposes.
A point of some legal and practical importance is that nowadays the overwhelming majority of decisions about whether an organisation is established for charitable purposes is taken by a supervisory agency; the Charity Commission.
The Preamble to the Statute of Charitable Uses 1601, listed certain 'charitable and godlie uses'. The preamble simply marked out the boundaries of the statute's operation and was not intended to constitute an exhaustive definition of charitable purposes. It nevertheless provided a basis from which the courts developed over time a definition of charitable purposes.
Of course, to adhere strictly to the purposes listed in 1601 would be very limiting. The courts therefore purported to decide whether some novel purpose was charitable by assessing whether it was 'within the spirit and intendment of the preamble'. This somewhat mystical approach was effectuated by a process of reasoning by analogy which we will consider in section 3 of this workbook. [See Gareth Jones (1974) 33 CLJ 63 for an analysis that draws attention to the influence of social, economic and religious pressures on the law of charity.]
A landmark in the development of the legal definition of charitable purposes is the House of Lords decision in Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531. We examine some key extracts from two opinions in this important case on the next page but if you prefer to read the case in full click on Income Tax Special Purposes Commissioners v Pemsel.
In Pemsel under the terms of a trust deed executed in 1813 income was to be used 'for the general purposes of maintaining, supporting and advancing the missionary establishments among heathen nations of the Protestant Episcopal Church ...'. Where income is applied to charitable purposes it attracts tax relief and in Pemsel the Commissioners were seeking to disallow that relief on the grounds that the purposes were not charitable.
Consider extracts from the judgments of Lords Macnaghten and Bramwell [see the pop-up page] in the Pemsel case and indicate in the response box which of the definitions of charity you would have been most likely to concur with had you been on their Lordships' panel.
By 4:2 the House of Lords rejected the Commissioners' appeal and decided that the purposes were charitable under the law as set out in Lord Macnaghten's judgment. The then Lord Chancellor Lord Halsbury was the other dissentient. Although not specifically acknowledging its origins the 'fourfold' classification of charitable laid down by Lord Macnaghten closely followed that first advanced in argument by Sir Samuel Romilly, counsel for the next-of-kin in Morice v Bishop of Durham. The decision of their Lordships in Pemsel is a watershed in the law of charities in three respects: (i) Lord Macnaghten's 'fourfold' classification has been generally adopted by the courts and academic writers as a convenient guideline; (ii) the view that 'trusts are not the less charitbable in the eye of the law, because incidentally they benefit the rich as well as the poor' probabaly represents a broader version of charitable than was originally within the intent of the 1601 Statute (see Chesterman; Charities, Trusts and Social Welfaare (1979) chs 2 - 5); (iii) the decision effectively affirmed that unless otherwise stated the definition of 'charitable purpose' would be identical for tax and trusts law purposes. It is striking that the fiscal policy implications of the decision were scarcely discussed in the judgments.
Pemsel Case
Lord Macnaghten: '... That according to the law of England a technical meaning is attached to the word 'charity' , and to the word 'charitable' in such expressions as 'charitable uses', 'charitable trusts' or 'charitable purposes', cannot I think be denied.The Court of Chancery has always regarded with peculiar favour those trusts of a public nature which, according to the doctrine of the Court derived from the piety of early times, are considered to be charitable ... .
How far then, it may be asked, does the popular meaning of the word 'charity' correspond with its legal meaning? 'Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads. The trusts last referred to are not the less charitable in the eye of the law, because incidentally they benefit the rich as well as the poor ... . But after all, this is rather an academical discussion. If a gentleman of education, without legal training, were asked what is the meaning of 'a trust for charitable purposes' , I think he would most probably reply, 'That sounds like a legal phrase. You had better ask a lawyer'... .
Lord Bramwell: 'But what is a charitable purpose? Whatever definition is given ... in my opinion this trust is not within it. ... I think a charitable purpose is where assistance is given to the bringing up, feeding, clothing, lodging and education of those who from poverty, or comparative poverty, stand in need of such assistance. That a temporal benefit is meant, being money, or having a money value. [Lord Bramwell then rejected the view that 'charitable purpose' had an artificial meaning, and concluded that not every purpose listed in the Preamble was a 'charitable purpose']. ... [S]ome cases within [the Statute] could not, according to any reasonable definition of the words, be said to be 'charitable purposes'. I take, for example, 'schools of learning' not limited to the poor, 'repair of sea banks', 'relief .. for houses of correction' which is in aid of rates not paid by the poor. ... Let it not be supposed that I find any fault with Courts of Equity for calling every trust within the statute [of Charitable Uses] a charity. It was not strictly accurate, but was concise, and saved a circumlocution... .
WARNING
In this workbook we follow the generally accepted practice of classifying charities under Lord Macnaghten's four headings. We emphasise though that care is needed in their application.
It is advisable to keep in mind the warning contained in the following extract from the judgment of Lord Wilberforce in Scottish Burial Reform and Creation Society v Glasgow City Corporation [1968] AC 138 at 154:
'But three things may be said about [Lord Macnaghten's classification], which its author would surely not have denied: first that, since it is a classification of convenience, there may well be purposes which do not fit neatly into one or other of the headings; secondly, that the words used must not be given the force of a statute to be construed; and thirdly, that the law of charity is a moving subject which may well have evolved even since 1891'.
One evolutionary development since 1891 is that the courts have articulated more explicitly a 'public benefit' requirement in the definition of charity. For an institution to be charitable its purposes must benefit the public at large or a sufficient section of the public. This requirement, which operates with varying degrees of severity between the four heads of charity, is examined in detail in Section 4 of this workbook. (Click here to see the introduction to this issue from that part of the workbook)
We have seen that for an organisation to be charitable at law;
(i) its purposes must be within the spirit and intendment of the preamble to the 1601 statute, generally interpreted as requiring that the purposes fall within one of the four heads of charity as stated in Pemsel; and
(ii) there must be a public benefit.
There is a third requirement that must also be met: the purposes must be exclusively charitable. This means that an organisation seeking charitable status cannot pursue both charitable and non-charitable purposes unless the non-charitable purpose is purely incidental or ancillary to the charitable purpose (see Re Coxen for an extreme illustration).
Sometimes all-purpose terms such as 'charitable', 'philanthropic', 'benevolent' are used either separately or together to describe the purposes to be pursued. In these circumstances fine distinctions are sometimes drawn to decide whether the purposes so described are 'exclusively charitable'. The use of the conjunction 'and' can be a particular source of confusion here.
Consider whether the purposes in the examples are exclusively charitable.
(i) For such objects of benevolence and liberality as the trustees shall most approve
o Yes No Maybe
Answer: NO
The courts have tended to the view that terms such as 'benevolence', 'liberality', 'worthy purposes', and 'public purposes' are wider than the legal concept of charitable. The terms used in the example are the same as those at issue in Morice v Bishop of Durham. There Sir William Grant stated that 'the trusts may be completely exercised without bestowing any part ... upon purposes strictly charitable' (1805 9 Ves 399, 406).
(ii) For such charitable institutions or other benevolent objects as my executors may select
o Yes No Maybe
Answer: YES
This form of words was considered by the House of Lords in Chichester Diocesan Board v Simpson [1944] AC 361. It was held, following Morice v Bishop of Durham, that 'benevolent' was a term of wider import than 'charitable', that consequently it was possible for the executors to apply all the trust funds to non-charitable objects, and that the trust was therefore void. A small drafting error thus defeated the seemingly clear intention of the testator; it also led to the imposition of personal liability on the executors (one of whom committed suicide) as considerable sums had already been distributed by them to charities.
Where the different purposes, one seemingly charitable and the other not, are separated, as in this example, by the word 'or' the courts have tended to apply what is termed a 'disjunctive construction', i.e. the property might be applied to either the charitable or the non-charitable purpose. In another House of Lords case, Blair v Duncan (1902) AC 37 a similar disjunctive construction was adopted to the words 'such charitable or public purposes as my trustees thinks proper' and the gift failed.
Compare, however, Re Bennett (1920) where the ejusdem generis rule of interpretation was used to prevent failure of the charitable bequest. The case was cited to but distinguished by the House of Lords in Chichester Diocesan Board v Simpson.
(iii) For charitable and benevolent institutions in the City of Coventry
o Yes No Maybe
Answer: YES
In this example, very similar to the facts of Re Best [1904] 2 Ch 354, the terms 'charitable' and 'benevolent' are linked by the word 'and'. In these circumstances a 'conjunctive' construction may be adopted, i.e. the court may assume that 'benevolent' is qualified by 'charitable' so that only those institutions which are both 'charitable' and 'benevolent' can be benefited.
(iv) For religious, charitable and philanthropic purposes
o Yes No Maybe
Answer: NO
This phrase was at issue in Re Eades [1920] 2 Ch 353 where Sargant J construed the word 'and' disjunctively (compare the interpretation in the previous example). Dicta to the effect that the greater the number of qualifications or characteristics enumerated, the more probable it was that a disjunctive construction be adopted was approved by the Privy Council in Attorney General of the Bahamas v Royal Trust Co. [1986] 1 WLR 1001 ('any purposes for and/or connected with the education and welfare of Bahamian children and young people' construed disjunctively leading to the failure of a residuary bequest). But as Lord Oliver, giving the judgment of the Board, emphasised, it is a matter of construction of the particular disposition - previous cases are only guidelines and of limited assistance.
A case that reinforces Lord Oliver's constructionist point and highlights the uncertainty is Re Bennett (1920).
Postscript
1. Note that some of the pitfalls posed for terms such as 'benevolent' or 'philanthropic' by the 'exclusively charitable ' requirement have been avoided where distribution of National Lottery money is to be made by the National Lottery Charities Board. Under the National Lotteries Act 1993, s. 44 'charitable expenditure' means expenditure:-
(a) by charities; or
(b) by institutions other than charities, that are established for charitable purposes, ..., benevolent purposes or philanthropic purposes.
2. A governing instrument which mixes substantial non-charitable purposes with charitable purposes will be held charitable if it falls within the terms of the Charitable Trusts (Validation) Act 1954. This statute now has very limited effect as it applies only to dispositions contained in instruments taking effect on or before16 December 1952.
3. Where a gift is made on terms that part of the fund is to be directed to charitable purposes and part to non-charitable objects then it may be possible for the court to sever the charitable from the non-charitable.
Severance
Where a gift is made in favour of some charitable and other non-charitable purposes, the court may be able to sever the charitable from the non-charitable thereby saving the former even though the latter may fail. In Salusbury v Denton (1857) 3 K & J 529 a testator left property to his widow 'to apply a part of the fund for the foundation of a charity school or such other charitable endowment for the poor as she may prefer ... and the remainder of the said money to be at her disposal among my relatives in such proportions as she may be pleased to direct'. The widow died without making any appointment of the fund. Page-Wood V-C applied the maxim 'equality is equity' and divided the fund equally between the charitable purposes and the next-of-kin.
But how, we might ask, is this sort of case different from those where the courts have held purported gifts to charity void because they are not exclusively charitable?
Page-Wood V-C sought to explain the distinction in the following manner (at 539): 'It is one thing to direct a trustee to give a part of a fund to one set of objects, and the remainder to another, and it is a distinct thing to direct him to give "either" to one set of objects "or" to another' (emphasis in original).
5.1.2. Charity & Legal Structure
You may have thought it a little odd that we have tended to use the terms 'charitable organisation' or 'charitable institution' in preference to the term 'charitable trust'.
The simple explanation is that a charity can be established using any one of the several different legal forms illustrated in the diagram below.
In practice the legal forms most commonly adopted are the charitable trust, the unincorporated association and the company limited by guarantee. Each has their strengths and weaknesses when used in the context of charity. The choice of legal form may depend on a weighing of several different factors.
5.1.3 Charity & Legal Privilege
We have seen that charities can be created using a variety of legal formats, one of which is the trust. In some respects the rules of trusts law have weaknesses where it is intended to devote property to charitable purposes.
Let us consider a somewhat basic example.
Anastasia Altruist seeks your opinion as to the validity of the following clause that she wishes to include in her will: '£50,000 on trust, the income to be used indefinitely for such purposes as the trustees shall think fit and most deserving'
Which, if any, of the responses below are correct?
1. The clause would be valid as a disposition for charitable ('fit and deserving') purposes.
2. The clause would be valid as a non-charitable trust disposition.
3. The clause would NOT be valid as a charitable or non-charitable trust disposition.
4. Void because the law of trusts does not recognise alliterative nom-de-plumes.
Answer: C
We think that this clause would not be valid as a charitable disposition. The words 'fit and deserving' would allow income to be spent on non-charitable purposes.
We also think that the disposition would be void as a private trust on three separate grounds:
(i) As there is no class of identifiable human beneficiaries directly or indirectly capable of benefiting from or enforcing the trust, the disposition would appear to infringe the Beneficiary Principle.
(ii) Even if it were possible for a non-charitable purpose trust of this type to be valid, the terms of this disposition - 'fit and most deserving' - would seem too uncertain to be enforceable. (See Re Astor's Settlement Trusts [1952] Ch 534).
(iii) The obligation to apply the income for an indefinite period would infringe the rule against perpetual duration of private trusts.
Anastasia is somewhat perplexed when you suggest that one additional word -'charitable'- might provide the necessary alchemy to transform a void disposition into one that is valid.
The revised clause (charitable is italicised) is:
'£50,000 on trust, the income to be used indefinitely for such charitable purposes as the trustees shall think fit and deserving'.
In this revised form the clause will benefit from three privileges that trusts law grants to charitable trusts.
1. The beneficiary principle does not apply to charitable trusts.
2. The rules of certainty of objects have only a very limited application to charitable trusts.
3. A charitable trust has partial immunity from the rules concerning perpetuities.
Beneficiary
In order to be deemed charitable in law a trust must be expressed in terms of purposes. It is the nature of its purposes that is tested against the criteria outlined in Section 2.1 of this Workbook. To overcome the practical and theoretical difficulties of enforceability the Crown, in accordance with long-established rules but nowadays in the form of the Attorney- General, is designated as the protector of charities. Although there may be no specified beneficiary who has locus stands to come to court and insist on the trust being performed, the Attorney-General can apply in the role of representative plaintiff.
As Viscount Simonds said in Leahy v Att.-Gen. for New South Wales [1959] AC 457, 479: 'A trust may be created for the benefit of persons as cestuis que trust but not for a purpose or object unless the purpose or object be charitable. For a purpose or object cannot sue but, if it [the purpose] be charitable, the Attorney-General can sue to enforce it'.
Certainty of Object
Where the trust is clearly intended to be for charitable purposes but those purposes are not clearly defined, the trust will not fail for uncertainty.
Where the purposes are so broad (e.g. 'for fit and deserving charitable purposes') that the trustees do not know what specific objects they should pursue, the law provides procedures whereby they may obtain official guidance. Both the Court and the Charity Commissioners have jurisdiction (Charities Act 1993, s. 16(1)) to establish 'a scheme of administration' under which specific projects are determined.
Remember, however, that the purposes must be exclusively charitable for the privilege to apply. The trust purposes must therefore be expressed with sufficient clarity to exclude application of the trust moneys to non-charitable purposes (see Section 2.1).
Perpetuities
Charitable trusts and the rule against inalienability: charitable trusts may expressly state that they are intended to last for ever or, as is more commonly the case, they may simply omit any mention of the period for which they are intended to last. Note however that charitable trusts are subject to the same statutory restrictions on accumulation of income as other trusts. The privilege of perpetual duration applies only to the charity's capital endowment and even then is subject to the possibility that the trust's purposes may be altered under a cy-près scheme (see Charities Workbook 2).
There is also a limited exemption from the rule against remoteness of vesting. A gift over from one charity to another is valid even if it takes place outside the permitted perpetuity periods. Thus, for example, a gift on trust for the relief of poverty in England until 3,000 AD, then on trust for the advancement of education in England thereafter, is wholly valid. The reasoning here is that since the law allows property to be devoted to charity for ever, it need have no concern to ensure that the second charitable purpose replaces the first within the perpetuity period.
Note, however, that a gift over from a non-charity to a charity or vice versa must vest within one of the perpetuity periods, subject now to the normal rules regarding 'wait and see' (Perpetuities and Accumulations Act 1964, s. 3)
Note also that this general exception to the remoteness of vesting rule can be used to give effect indirectly to a non-charitable purpose (see Re Tyler (1891))
There is one further way in which charitable trusts might be said to be privileged and that concerns the consequences of failure. We only briefly mention this topic here since it is dealt with in more detail in Charities Workbook 2.
Where a private trust fails - or 'lapses' - the beneficial interest results to the settlor, or his estate if he has died. But if fulfilment of a charitable gift or bequest is impracticable or impossible, so that under normal trusts law principles a lapse would occur, the cy-près doctrine may, but not necessarily will, 'rescue' the property for charity.
That is to say, in some instances, the Chancery Division or the Charity Commissioners may establish a scheme whereby the originally stipulated purposes which have 'failed' are replaced by new purposes which are charitable in law and similar to those originally stipulated (the original meaning of cy-près being 'as near as possible') but whose fulfilment is not impracticable or impossible. (Click here if you would like to read a brief outline of the cy-près doctrine).
5.1.4. Charity in Society
We have seen that legal privileges are granted to charitable trusts. In addition, as we shall see shortly, tax law provides numerous exemptions and incentives to charities and to those individual and corporate bodies who donate funds to them. We might therefore say that the law exhibits a positive view of charitable activity and its place in society.
Survey evidence seems to support this positive view since some measure of charitable giving by individuals is an almost universal phenomenon in the UK. (See S. Saxon-Harrold)
S. Saxon-Harrold Case
Susan K.E. Saxon-Harrold notes that according to the 1991 British Social Attitudes Survey only 2.5% or respondents to the survey had not 'given' to charity in the previous 12 months. The notion of 'giving' extends to include 'purchases', whereby the donor receives a material benefit, as well as 'philanthropic' donations, where no material return is received.
TABLE 1
Ways of Giving Money to Charity in the Past Year.
Purchases %
Buying raffle tickets 82
Buying goods in sale/fete 37
Buying goods in charity shop 34
Attending a charity event 31
Buying Charity catalogue goods 22
Philanthropic %
Sponsorship in fundraising 68
Giving in door-to-door collection 63
Giving in street collection 60
Giving in church collection 35
Giving to TV/Radio appeal 18
None of these ways 3
Giving is not the only activity that individuals undertake. A recent Charity Commission survey found that 4 million adults had given time to charities in the previous month (See Report of the Commission on the Future of the Voluntary Sector Vol 1. Para 1.4.11 (NCVO, London, 1996).
Before we move on to consider what role charity should perform in a welfare state and its legal implications, we must scrutinise more closely the notion that charity is an activity to be encouraged.
Contrast the sentiments expressed in Corinthians with those of Leo Tolstoy.
I Corinthians 13:4
Charity suffereth long, and is kind; charity envieth not; charity vaunteth not itself, is not puffed up, ... charity never faileth;
Leo Tolstoy
I sit on a man's back, choking him and making him carry me, and yet assure myself and others that I am very sorry for him and wish to ease his lot by all possible means - except by getting off his back.
(What then must we do? (1886) ch 16)
You may have noticed that some of the arguments about charity are premised on a particular perception of the nature of charitable activity - that of relieving distress in its various forms. Charitable activity, as the breadth of the legal definition indicates, has tended to range far beyond this limited phenomenon. This trend became increasingly evident when the State, and to a lesser extent employers, took on principal responsibility for meeting welfare needs. Consequently the appropriate legal framework and role in a Welfare state for voluntary activity in general and charity in particular has been and remains the subject of much debate.
We briefly review on the next page. the main outlines of that aspect of the debate concerned with the role of charity. Consideration of the legal framework is deferred until we have examined the present definition of charitable purposes in more detail in Sections 3 and 4.
Since 1945 numerous official and quasi-official reports have sought to define a role for private philanthropy. The Nathan Report 1952, strongly influenced by William Beveridge's Voluntary Action (published in 1948), and the Wolfenden Committee report (1978) were each responding to circumstances whereby the State was seen as the senior partner in welfare provision.
A different economic climate and governing ideological perspective during the post 1979 years of Conservative government posed fresh challenges for the voluntary sector, particularly in relation to the State and commercial organisations in meeting welfare needs. The 1996 report of the Commission on the Future of the Voluntary Sector (the Deakin Commission) to a large extent reasserts the values and functions identified in the earlier reports whilst proposing a large number of legal, fiscal and regulatory changes, including the adoption of a new definition of charity. We will consider this proposal closely in the final section.
One feature very evident from all the reports is that the charitable sector of the economy defies easy categorisation, being heterogeneous both as regards the nature and size of organisations.
In the next section of this workbook we look at some information and statistics about this matter.
5.1.5. Demography of Charity
At present charities are abundant and have increased in number by some 70% since the time of the Nathan Report in 1952. Then the Report (para 103) noted that there were about 110,000 Charitable Trusts known to official sources. By the end of 1997 the number of charities on the Register had grown to just over 184,000, with an estimated total annual income of £18.4 billion (1997 Annual Report of the Charity Commissioners, paras 60 - 61). Whilst the total number of registered charities is becoming more stable (cf e.g. 1995, 181,467), there is a degree of turnover taking place - over 9,000 charities were registered during 1997 and just under 7,000 charities were removed, most of which had simply ceased to exist.
These overall statistics tell us little about the complexion of a charity sector which is marked by considerable differentiation in terms of purposes and income.
On the next two pages we look at some data about what we have termed the demography of charity.
Registered charities classified according to objects:
The statistics on the previous page tell us only half the story about the structure of charity finances. We may also want to know what the sources of income are. The Deakin Report grouped the sources of income in the following way;
1. Earned income, such as sales of goods or services to the public or contracts with government;
2. Voluntary or private income, meaning donations from individuals, legacies. company giving, and grants from trusts; and
3. Investments.
Using broadly these categories the sources of income for 1994/95 were as shown in the diagram on the previous page. These figures predate the introduction of the National Lottery. Fears have been expressed by some charities as to the impact that the Lottery will have on charity finances. There are reports that the voluntary income of large charities has been growing by less than 1% per year since the introduction of the Lottery compared with annual growth of 6% in the pre-lottery years. The same reports conclude, however, that it would be premature to link this 'stagnation' in contributions to the introduction of the lottery.
The prominence of central and local government as a source of funding and the significant reliance on earned income can pose important questions about the autonomy, accountability and regulation of charities many of which are confronted in Charities workbook 2.
Deakin commission
The Commission was established by the National Council for Voluntary Organisations to review the place of voluntary action in society. The Commission adopted a model of civil society made up of the state, the market and the informal sector ('the world of personal and family relations'). The Commission view is that within this 'triangular force field' there is a public space in which voluntary organisations live and work:
1.3.33: This model presents the voluntary sector as performing a positive, active role, not simply doing what doesn't fit into any other sector. ... Voluntary bodies act as brokers and links between the market, the state and individuals and their families ... .
1.3.34: The voluntary sector's activities and objectives may change as those of the state, the market and the personal and the family world expand, contract or change. [The voluntary sector] can itself promote change by persuading institutions in the other sectors to do more, or less, or something different.
1.3.35: ... The essence is that the actions taken by voluntary and community organisations are contributions made neither commercially (for their economic value) or compulsorily (by conscription or taxation). In order for the space for voluntary activity to be as substantial and productive as possible, society must esteem both the values associated with these contributions and what is achieved through them - the public benefit, to adopt a term from charity law. And in this process of change, voluntary organisations can also function as the essential cohesive element (the glue, if you like) that helps to hold society more tightly together.
5.1.6. Charity Fiscal Privileges
'The Chancellor of the Exchequer is a man whose duties make him more or less of a taxing machine. He is intrusted with a certain amount of misery which it is his duty to distribute as fairly as he can'.
Not everyone would agree with this rather jaundiced view of Chancellors expressed by Robert Lowe in the House of Commons in 1870 (11th April). What is striking is that since the time of the introduction of income tax by William Pitt in 1799 almost all these 'taxing machines' have sought in various ways to exempt charities from sharing in the misery. The result is that today a wide range of valuable tax reliefs are available to charities and to donors.
In the next few pages we consider the scope of the tax reliefs and some policy implications.
The fact that tax reliefs exist has no necessary connection with decisions as to what is and what is not a charitable purpose. On the other hand it can be argued that the existence of tax reliefs can affect decisions about charitable status. It has been argued by Geoffrey Cross Q.C. (later Lord Cross) that the fiscal consequences accompanying the label 'charitable' have directly influenced judicial decisions particularly as regards a 'public benefit' requirement in a way that has resulted in a more stringent definition of charitable purpose (1956) 72 LQR 187).
More indirectly it is noticeable that the Inland Revenue was a litigant in many of the leading cases, particularly post-1945, in which a restrictive approach to the definition was adopted by the appellate courts. We consider this point further in section 4 of this workbook.
For the moment we would just mention one direct statutory link between the Inland Revenue and decisions on charitable status. At the stage when an organisation first applies to be entered on the Charity Register there is provision for close consultation between the Charity Commission and the Inland Revenue.
You will have noticed that the heading of this part of the workbook adopts the term fiscal 'privileges' of charities rather than 'reliefs' or 'exemptions' or indeed 'fiscal rights'. As always the language chosen carries certain connotations with it.
Nowadays economists are apt to analyse the so-called privileges in terms of 'tax expenditures' e.g. 'A tax expenditure is an exemption or relief which is not part of the essential structure of the tax in question but has been introduced into the tax code for some extraneous reason. ...
The choice of the term "tax expenditure" indicates that, because they are not inherent in the structure of the tax, these reliefs are equivalent in terms of revenue foregone to direct government expenditure and should in general be judged by the same criteria (J. R. M. Willis and P. J. W. Hardwick, Tax Expenditures in the UK (Institute for Fiscal studies 1978) p. 1).
The pasted page (SEE NOTE ‘A’ BELOW) contains statements from three different sources - including what must be one of the longest rhetorical questions in parliamentary history! - which touch on what remains a sensitive policy issue, bearing in mind that the fiscal provisions apply equally to all categories of charity.
You can 'paste' the contents directly into your scrapbook.
We will return to these matters - in particular whether reliefs should be equally applicable to all charities - in the final section of this workbook.
NOTE ‘A’
William Ewart Gladstone, ( HC Hansard May 4 1863 cols 1080-1081)
'[the charity exemption] is in fact part of of the State expenditure.But if it is part of the State expenditure why is it to be kept up in such a form? ... If this money is to be laid out upon what are called charities, why is that portion of the State expenditure to be altogether withdrawn from view, to be shrouded within the folds of the most complicated sections of our Acts of Parliament, and to be so contrived that we shall know nothing of it and have no control over it; so that, while to every other object recognised by the State as fit to be provided for out of the public funds, we apply every year a vigilant eye with a view to modification or retrenchment, here we continue an exemption and pluming ourselves upon our liberality, we leave this great expenditure entirely in the dark, and waive in favour of these institutions, not only the receipt of a certain sum of money, but the application of all those principles of philosophical administration and constitutional control which we consider necessary for the general government of the country and the management of our finances?'
The Royal Commission on the Taxation of Profits and Income (Cmd 9474, 1955, para. 164)
' Accepting the view that all parts of the national income are prima facie to a tax on income, the system [of reliefs] does amount in effect to a grant of public moneys towards the furtherance of such causes as come within the legal category of charity.'
I. Kristol 'Taxes, Poverty and equality' (1974) 37 The Public Interest 3, 15.
' Whereas a subsidy used to mean a governmental expenditure for a certain purpose, it now acquires quite another meaning - ie a generous decision by government not to take your money. ... What we are talking about here is no slight terminological quibble. At issue is a basic principle of social and political philosophy - the principles that used to be called 'private property'. The conversion of tax incentives into 'tax subsidies' or 'tax expenditures' means that 'in effect' a substantial part of everyone's income really belongs to the government - only the government, when it generously or foolishly refrains from taxing it away, tolerates our possession and use of it'.
5.2. Charity Purposes
5.2.1. Introduction
In this section of the workbook we examine more closely the definition of charitable purposes.
It may be helpful first just to reiterate the overall framework into which the legal definition of 'charity' has become crystallised.
In order to be charitable in law the purposes of a trust or other organisation must satisfy the following criteria:
1. The purposes must fall within the 'spirit and intendment' of the Preamble to the Statute of Charitable Uses 1601, commonly exemplified nowadays in the 'Macnaghten' categories: (i) relief of poverty, (ii) advancement of education, (iii) advancement of religion, and (iv) other purposes beneficial to the community which the law recognises as charitable. Alternatively the purposes may be valid under the terms of the Recreational Charities Act 1958.
2. The purposes must contain an element of public benefit.
3. The purposes, unless purely incidental to the main objects, must be exclusively charitable.
'Public benefit' means that the purposes must entail benefit of a tangible nature to the public at large or a sufficient section thereof. In applying the test emphasis is placed on both words.
The test can therefore be said to comprise two distinct, though closely related, tests (i) do the purposes being considered confer a tangible benefit? and (ii) is the class of persons eligible to derive benefit directly from the purposes defined so as to constitute the public as a whole or a sufficient section thereof?
Let us take a very simple example. It may be beneficial that the education of my children is advanced in some fashion. But a trust to educate my children would not be charitable as they do not constitute a 'section of the public' under charity law.
Unfortunately once we start to move beyond this sort of example matters begin to become rather more complicated. Suffice to say here that the second limb of the public benefit requirement - the so-called 'section of the public' test - is not applied with any degree of consistency between the different heads of charitable purposes. It is scarcely relevant to the relief of poverty, occasionally relevant for advancement of religion, is of key importance to advancement of education and possibly also to the fourth category and to the Recreational Charities Act 1958.
Because it raises distinctive legal and policy questions we consider the second limb of the public benefit test separately in section 4 of this workbook.
We might think that it is a peculiar logic that identifies the source of the definition of charity in a preamble to a repealed statute. This might not worry us unduly as long as the 'spirit and intendment' is sufficiently mystical to allow a flexible approach to be adopted to the development of the definition. The issue of flexibility can arise under any of the 'four heads' but is particularly relevant to the category 'other purposes beneficial to the community' and this matter is considered in some detail there.
You may though find it helpful to consider here some preliminary observations on the flexible approach issue.
Flexible Approach
Although the definition of what is charitable is based on decisions of the courts, only a handful of such decisions are made in any one year by the courts. By contrast the Charity Commissioners make thousands of decisions each year on charitable status. Of course most involve straightforward application of the established case law but the continuing expansion in the range of philanthropic activity means that the Commissioners are sometimes called upon to determine charitable status relatively free from the constraint of precedent authority. The approach that the Commissioners take is therefore of considerable practical importance, and their decisions are in many instances a better guide to the boundaries of 'charitable purpose' than older decisions of the courts.
The Commission summarised their approach in the 1995 Annual Report:
Para 87: Charities, and therefore charity law and administration, must be flexible, innovative and responsive to changing needs ... .
Para 88: We see it as our responsibility to ensure that novel applications for charitable status are treated as flexibly as possible within the fundamental principles of the existing legal framework. Just as it is important to ensure that the register accurately reflects the established legal definition and principles of charity, equally it is essential that the concept of charity:
- keeps pace with social change;
- responds to new circumstances and challenges;
- reflects public concerns and opinions; and
- is intelligible to the general public.
5.2.2. Relief of Poverty
Although the phrase 'relief of aged, impotent and poor people' in the preamble expressly brackets relief of poverty with two other forms of relief, it is now clear that the phrase is to be construed disjunctively. Relief of poverty, relief of the aged and relief of the impotent (i.e. those suffering from sickness or other disabilities) are each distinct charitable purposes. The last two now belong in the fourth of the Macnaghten categories 'other purposes beneficial to the community'.
Historically charity was strongly associated with the purpose of relieving poverty. It is therefore not surprising that the case law is prolific. Many of the cases litigated concerned bequests couched in terms that did not specify an intention to relieve poverty but where that intent might be inferred from the language used. It is not difficult to find language that we might today regard as somewhat eccentric being upheld e.g. a superannuation fund 'for the purpose of pensioning off old and worn out clerks' of a particular bank was held charitable in Re Gosling (1900) 48 WR 300.
The first step to take in exploring this category of charity is to ascertain what is meant by 'poverty'.
'Poverty is a political concept - it does not just describe a state of affairs, it also implies that some action must be taken to remedy it' (Pete Alcock, Understanding Poverty, (1993) p15)
Before we look at the ways in which the courts and the Charity Commissioners have sought to interpret 'poverty' you may find it useful to wrestle with the problem yourself.
Try and construct, in not more than a few sentences, your own definition of poverty and then compare it with our summary of some different approaches.
'Poverty is a political concept - it does not just describe a state of affairs, it also implies that some action must be taken to remedy it' (Pete Alcock, Understanding Poverty, (1993) p15)
Before we look at the ways in which the courts and the Charity Commissioners have sought to interpret 'poverty' you may find it useful to wrestle with the problem yourself.
Try and construct, in not more than a few sentences, your own definition of poverty and then compare it with our summary of some different approaches.
Disagreements over the definition of poverty run deep and you may find that your definition contrasts sharply with that of your colleagues.
Our own summary is necessarily brief (Alcock's book provides a comprehensive and critical survey of the topic).
Consider the contrasting statements of Townsend and Joseph and Sumption both written in 1979 (you can 'hot key' these from the Instructions box)
We would be mistaken if we were to assume from these statements that there are just two polar opposite definitions, the 'absolute' and the 'relative'. Few, if any, adherents of an absolute standard would disagree that the 'actual needs of the poor' are different in 2,000 to those defined in the pioneering studies of Booth (The Life and labour of the People, 1889) and Rowntree (Poverty: A Study of Town Life, 1901). An absolute standard is usually seen as one which is itself 'relative' at least in terms of historical period and, we might add, geographical location (it costs more to keep warm in mid-winter in Moscow than in Malaga). In short there is a tendency even with an absolute definition for the minimum level to rise as living standards generally improve. As far as explicitly relative standards are concerned, critics argue that 'relative differences' are merely 'inequalities' and that if poverty levels change simply because society becomes more affluent then how can the 'poor' be distinguished from those who are just 'less well-off' in an unequal society. Consequently, it might be argued, even relativists need to identify some 'absolute' level if society wishes to identify those whom it is believed should be regarded as 'the poor'. . We seem to be left in a position where, in Alcock's words, 'absolute definitions of poverty necessarily involve relative judgements to apply them to any particular society; and relative definitions require some absolute core in order to distinguish them from broader inequalities' (at p. 62).
P. Townsend, Poverty in the United Kingdom (Penguin, 1979) p. 31.
'Individuals, families and groups in the population can be said to be in poverty when they lack the resources to obtain the type of diet, participate in the activities and have the living conditions and amenities which are customary ... in the societies to which they belong'
K.Joseph and J. Sumption, Equality (John Murray, 1979) p.27.
'An absolute standard means one defined by reference to the actual needs of the poor and not by reference to the expenditure of those who are not poor. A family is poor if it cannot afford to eat'
In charity law the courts have generally tended towards a broader notion of poverty than that of 'destitution' or some other synonym for a basic absolute level. Terms such as 'of limited means' and 'needy' abound in English and in Commonwealth case law (Re Gardom [1914] 1 Ch 662 and Re Wedge (1968) 67 DLR (2d) 433 respectively). That is not to say that at times the courts do not have in mind some standard of income and wealth measurement, or 'datum line', beyond which people would no longer be classed as poor. One much-cited dictum of Evershed MR in Re Coulthurst supports the notion that poverty should be a relative matter in the sense that an individual's prior circumstances should be taken into account (Re Coulthurst). In conformity with this dictum gifts for 'distressed gentlefolk' (Re Young [1951] Ch 344), and even 'any of my fellow members [of the Savage Club, 1Carlton House Terrace, London SW 1] ... who have fallen on evil days' (Re Young [1955] 1 WLR 1269) have been held charitable.
The Charity Commission is interpreting the case law as permitting a clearly relativist approach to the meaning of poverty:
'Generally speaking, anyone who cannot afford the normal things in life which most people take for granted would probably qualify for help' (Charity Commission Leaflet CC 4, para 8)
Now that we have briefly looked at some of the court's decisions on the meaning of poverty, consider the following three dispositions and decide whether it is 'unlikely', 'possible' or 'very likely' that they are charitable for the relief of poverty.
o ‘Disposition A' to provide dwellings for the working classes and their families'
o ‘Disposition B' to contribute towards the construction of a working mens hostel'
o ‘Disposition C' to provide interest-free loans to enable poor young members of the church to purchase freehold accommodation'.
Disposition A.
This type of disposition was at issue in Re Sanders [1954] Ch 265 where there was a trust to provide ' dwellings for the working classes and their families living within five miles of Pembroke Dock'. Harman J. rejected the contention that it was a charitable gift, since 'working classes' was not a phrase which connoted poverty. Apparently an appeal against the decision was compromised. Note, however, that in a case under the Rent Acts (not a charity law case) barely a year later members of the Court of Appeal treated 'working classes' as a phrase which indicated 'people in the lower income range, or those whose circumstances were such that they were 'deserving of support from a charitable institution in their housing needs' (Guinness Trust (London Fund ) v Green [1955] 1 WLR 872 per Denning LJ at 875)
Disposition B
The clause is almost identical to that used in Re Niyazi's Will Trusts [1978] 1 WLR 910 where the gift was upheld although said to be 'desperately near the borderline' (at 915).
Disposition C
A practice similar to the one proposed in this clause has been upheld by the Charity Commissioners, although it had been objected to by the Inland Revenue (Garfield Poverty Trust 1995)
Deciding what constitutes poverty still leaves open the matter of what forms of relief are permissible under charity law.
It is evident that relief can be given only as long as the recipients fall within the definition of the poor under charity law. Indeed if those who are not considered poor fall within the scope of the gift, then it will not be charitable (see e.g Re Gwyon [1930] 1 Ch 255). It is equally evident that poverty can be relieved in ways other than by payment of money to the poor, e.g. by providing or assisting with accommodation. Indeed, given that the State might now purport via the benefit system to be the principal provider of direct financial support, poverty charities will of necessity be driven to find alternative means to dispense their funds.
We suggest that you read paras 31 - 40 of a guidance note published by the Charity Commission to provide specific guidance for trustees (Charity Commission Leaflet CC4 paras.31 - 40).
There remain two particular problems associated with interpreting 'relief'. You may wish to review these before we move on to look at 'advancement of education'.
1. How direct must the connection be between the form of relief and the receipt of benefit? - see Fairtrade Foundation.
2. Should charity funds substitute for state benefit? - see the summary of the operation of the Social Fund.
5.2.3. Advancement of Education
The educational purposes specified in the Preamble are relatively specific, with references to 'the maintenance of schools of learning, free schools and scholars in universities ... education and preferment of orphans'. The process of reasoning by analogy has taken us a long way from this position and 'advancement of education' now constitutes a very wide category of charitable purposes indeed. In IRC v McMullen [1980] 1 All ER 884 Lord Hailsham emphasised the dynamic nature of the concept:
''What has to be remembered ... is that both the legal conception of charity, and within it the educated man's ideas about education are not static, but moving and changing. Both change with changes in ideas about social values. Both have evolved with the years. In particular in applying the law to contemporary circumstances it is extremely dangerous to forget that thoughts concerning the scope and width of education differed in the past greatly from those which are now generally accepted' (at 890).
Our description of charitable educational purposes attempts to summarise the breadth of this category but, as with other categories there are limits and it is those that we focus on most.
We concentrate in particular on three topics or limiting factors:
1. charitable status of research activity;
2. whether the 'educational' activity is beneficial to the community
3. the distinction between education and propaganda.
A fourth limiting factor is to be found in the requirement that the activity must benefit a sufficient section of the public, an issue we consider in a later section of this workbook.
All of the first three topics are posed to some extent in Re Shaw [1957] 1 All ER 745, a case concerning certain bequests under the will of George Bernard Shaw, famous as playwright, novelist, critic, pamphleteer and eloquent reformer.
In this scene taken from the Channel Four production Mister Shaw's Missing Millions (produced by the Drama house and first shown in May 1993) George Bernard Shaw (played by Sir Ian McKellen) is in the garden of what was his house for 35 years and briefly outlining for us the gist of his bequests. For our purposes the only contentious bequest was that concerning the development of a phonetic British alphabet (the so-called 'alphabet trusts').
Shaw's will was made on June 12 1950, some of the document being his own work even though he was then 94 years old. His intention was that his residuary estate should be devoted to certain causes and institutions which he supported. The key clauses of the will (35 to 38 inclusive) are reproduced in Re Shaw [1957] 1 All ER 745 and should be read and compared with the following summary by Harman J of the purposes of the 'alphabet trusts':
'The first object ... is to find out by inquiry how much time could be saved by persons who speak the English language and write it, by the use of the proposed British alphabet [see picture below] and so to show the extent of the time and labour wasted by the use of our present alphabet, and, if possible, further to state this waste of time in terms of loss of money. The second is to transliterate one of the testator's plays, 'Androcles and the Lion', into the proposed British alphabet, assuming a given pronunciation of English, and to advertise and publish the transliteration in a page by page version in the proposed alphabet one side and the existing alphabet on the other, and, by the dissemination of copies and, in addition, by advertisement and propaganda, to persuade the government or the public or the English speaking world to adopt it. This was described by the Attorney-General as a useful piece of research beneficial to the public, because it would facilitate the education of the young and the teaching of the language and show a way to save time and, therefore, money.'
The residuary estate consisted principally of copyrights and royalties arising from them which in the event - the event being the huge success of the musical 'My Fair Lady' based on Shaw's play 'Pygmalion' - became of great value. Two of the residuary legatees, the British Museum and the Royal Academy of Dramatic Art, claimed that the alphabet trusts were entirely void and that consequently they were entitled to come into their inheritance at once. On the next page we briefly review the outcome of the litigation over the validity of the alphabet trusts in Shaw's will.
Read the case Re Shaw [1957] 1 All ER 745 or (less satisfactorily) just the following extracts from the judgment of Harman J and then answer the questions in the panel below:
'In my opinion, if the object be merely the increase of knowledge, that is not in itself a charitable object unless it be combined with teaching or education. ... The research and propaganda enjoined by the testator seem to me merely to tend to the increase of public knowledge in a certain respect, namely the saving of time and money by the use of the proposed alphabet. There is no element of teaching or education combined with this, nor does the propaganda element in the trusts tend to do more than to persuade the public that the adoption of the new script would be "a good thing", and that, in my view, is not education. Therefore I reject this element.'
Harman J concluded that the alphabet trusts were invalid. It may be said that three of the propositions listed below are supported by his judgment. Which are they?
(a) The court preferred the interests of the next of kin to those of charity.
(b) Research is not charitable.
(c) The method of dissemination of 'the findings' was too propagandist.
(d) The purpose of the research proposed by the 'alphabet trusts' was not beneficial to the community.
(e) The 'alphabet trusts', being purpose trusts, infringed the beneficiary principle.
Answer: C, D, E.
Proposition C
It can be inferred from the judgment that what Harman J refers to as the 'propaganda element in the trusts' was insufficiently 'objective' to be characterised as education. Note, however, that in Clause 35 it is stated that 'The inquiry must not imply any approval of or disapproval of the proposed British alphabet by the inquirers or by my trustees'. On the other hand Clause 38 contained a provision 'to remunerate the services and defray the expenses ... incidental to the launching, advertising and propaganda of the said British alphabet'.
The supposed distinction between propaganda and education is explored further at page 7 of this section.
Proposition D
An alternative argument advanced in the case was that the trusts were charitable under the fourth head. Harman J rejected the argument seemingly on the grounds that it was impossible to prove that the project proposed by the alphabet trusts was 'beneficial':
'Who is to say whether this project is beneficial? That on the face of it is a most controversial question, and I do not think that the fact that the testator and a number of other people are of opinion that the step would be a benefit proves the case, for undoubtedly there are a great many more people, at present at any rate, who think the exact contrary'.
Although these comments were made in relation to the fourth head, it is conceivable that the same argument could have been deployed to defeat the trusts under the advancement of education category had Harman decided that the trusts were not too propagandist in nature.
The question of when a purpose prima facie for the advancement of education can nevertheless be held to be non-charitable because it is not 'beneficial to the community' is considered further at page 6 of this section of the workbook.
Proposition E
We agree that this proposition is correct technically. Of course we can only arrive at that conclusion when we have decided that the alphabet trusts are not charitable and therefore cannot benefit from the legal privileges accorded to charitable trusts.
It will be recalled that in Re Shaw Harman J was of the opinion that 'if the object [of a trust] be merely the increase of knowledge that is not in itself a charitable object unless it be combined with teaching or education'. This dictum could be taken to suggest that research without teaching is not 'for the advancement of education', although much would depend on what meaning is to be attributed to 'education'.
Consider whether the purposes in the examples below are 'for the advancement of education' in the sense required by charity law.
(a) £65,000 to the Francis Bacon society on trust to be applied towards finding the Bacon-Shakespeare manuscripts.
o Yes No Maybe
(b) On trust to complete any research and work on Voltaire, Rousseau and other authors of the Enlightenment ....
o Yes No Maybe
(c) On trust to carry out the research specified in the 'alphabet trusts' of George Bernard Shaw and to disseminate the results thereof.
o Yes No Maybe
Answer: (a) YES,
The language in our example is identical to that at issue in Re Hopkins' Will Trusts [1964] 3 WLR 840 (although we have increased the sum bequeathed from £6,500 to reflect the consequences of inflation). There Wilberforce J held that the trust was both for the advancement of education and within the fourth category.
With reference to Harman J's dictum from Re Shaw Wilberforce J commented that he would 'be unwilling to treat [it] as meaning that the promotion of academic research is not a charitable purpose unless the researcher were engaged in teaching or education in the conventional meaning'.
In his view 'education' had to be construed in a wide sense and an appropriate rule as regards research would be as follows:
'in order to be charitable research must either be of educational value to the researcher or must be so directed as to improve the sum of communicable knowledge in an area which education may cover - education in this last context extending to the formation of literary taste and appreciation'.
As regards dissemination of the research, although not specifically mentioned in the bequest, Wilberforce J observed that 'it is inherently inevitable, and manifestly intended, that the result of any discovery should be published to the world'.
(b) YES.
A disposition in these terms was held charitable by Slade J in Re Besterman's Will Trusts (1980) Times, 22 January.
In his judgment Slade J summarised the principles to be deduced from the earlier authorities.
Note in particular that the court 'will be readily inclined to construe a trust for research as importing subsequent dissemination of the results thereof'.
Assuming that the principles stated by Slade J (and repeated unchallenged in McGovern v Attorney General [1981] 3 All ER 493 at 518) represent the current state of the law most useful research will qualify as charitable.
(c) NO
The difficulty here, apart from the small matter of precedent, lies in deciding what precisely was the ratio in Re Shaw. Clearly our reformulation attempts to sidestep any difficulties concerned with dissemination. It is also arguable that, with one possible exception, the terms of the 'alphabet trusts' fall within the principles set out in Re Besterman. (Cf Picarda The Law and Practice Relating to Charities (2nd edn) 1995, who suggests the contrary at p. 51). The possible exception relates to the utility of the subject of study. Might the weight of expert evidence still be such that the court would not accept that the research would be 'beneficial to the community'? Probably so, but we suggest that you review the balance of conflicting evidence adduced in Re Hopkins that enabled Wilberforce J to conclude that the search for the Bacon-Shakespeare manuscripts was not 'so manifestly futile that the court should not allow the bequest to be spent' on it.
Deciding whether purposes are 'futile' or 'cranky' or 'beneficial' requires the court to form an opinion, helped by expert evidence where appropriate. We explore this issue further on the next page.
We have seen that the advancement of education can extend to include the promotion of cultural activities and the development of artistic and aesthetic taste. But in charity law there are boundaries as to what qualifies as educational. In setting the boundaries the question can arise as to whose opinion should hold sway. If, for instance, testators think that the preservation of a collection of antiques or the promotion of the works of particular painters or composers - perhaps even their own work - is educational, should this be decisive?
It may not surprise you to find that their subjective opinions are not decisive. The courts and the Charity Commissioners, assisted where appropriate by expert evidence, are the final arbiters. The fact that a donor is motivated by charitable sentiment or considers the chosen purpose to be charitable will not make the gift charitable. Compare Re Delius and Re Pinion to see how this process can work. In the latter case, Harman LJ, faced with the argument that artistic value was a 'matter of taste' responded that 'there is an accepted canon of taste on which the court must rely' and in Re Pinion expert opinion was unanimous.
Of course there are occasions when expert opinion may be divided. In such circumstances do you think that courts or the commissioners should seek to decide between competing judgments or simply accept that as long as some expert supporting opinion can be found, then that should suffice for the purposes of charitable status?
On page 1 of this section we suggested that one of the three topics or limiting factors to focus on is the distinction that the law draws between education and propaganda.
One of the objects in Clause 38 of George Bernard Shaw's will was 'to defray the expenses ... incidental to the launching, advertising and propaganda [emphasis added] of the said British Alphabet'. Harman J commented in Re Shaw that the propaganda element in the trust tended merely 'to persuade the public that the adoption of the new script would be a "good thing" and that, in my view, is not education' . The decision in Re Shaw can be contrasted with those in Re Hopkins Will Trusts and Re Women's Service Trust where potentially propagandist elements did not invalidate charitable status.
Nevertheless the distinction between education and propaganda has been endorsed both judicially (see e.g. Re Bushnell [1975] 1 WLR 1596) and by the Charity Commission. The latter specifically warn against overstepping the boundary between education and propaganda: 'The distinction is between providing balanced information designed to enable people to make up their own mind and providing one-sided information designed to promote a particular point of view' (Political Activities and Campaigning by Charities, February 1997 para 33).
This warning generally relates to propaganda of a political nature and is considered in more detail later in this workbook.
5.2.4. Advancement of Religion
The closest one gets to any mention of the advancement of religion in the Preamble is the reference to 'the repair of churches'. Nevertheless by the mid-seventeenth century it seems that the advancement of established religion was accepted as being within the equity of the statute (see generally Gareth Jones History of the Law of Charity 1532-1827 (1969).
Over a long period, stretching from before the Preamble to at least the mid-nineteenth century, it tended to be only trusts for the advancement of the tenets of the established church that were valid. During this time the charitable status of religious trusts was intimately bound up with questions of religious toleration. Liberality as to the range of faiths that may be advanced is therefore a comparatively recent development (see Crowther Religious Trusts ch 4, (1954) and on the implications of the anti Catholicism of former times see A. Ware, 'Religion, Charities and the State in A. Ware (ed) Charities and Government 222-247 (1989), M. Blakeney, (1981) 2 Journal of Legal History 207 and cf C. Rickett, [1990] Conv (N.S.) 34).
The position in charity law now is that no distinction is drawn between the merits of one religion and another.
The existence of a more liberal approach does not mean that all the difficult questions associated with the charitable status of religion have been resolved. In the following pages we will focus in particular on the following questions:-
- What is a religion?
- In what ways may it be advanced?
- Must religions prove that their practices or beliefs are beneficial to the community?
- How public must the practice of religion be for it to be accorded charitable status?
- Should the advancement of religion continue to be a charitable purpose in what can be seen as an increasingly secular society?
Charity law has tended to show its liberality not only in the breadth of religions recognised as charitable but also over the ways in which religion can be advanced.
'To advance religion means to promote it, to spread its message ever wider among mankind; to take positive steps to sustain and increase religious belief; and these things are done in a variety of ways which may be comprehensively described as pastoral and missionary.' (per Donovan J in United Grand Lodge of Ancient Free and Accepted Masons of England v Holborn Borough Council [1957] 1 WLR 1080 at 1090). Long-established examples include general furtherance of the work of churches, denominations and sects; erection, maintenance and repair of churches and other places of worship (e.g A-G v Day [1900] 1 Ch 31); upkeep and religious education of clergy and other church officials (e.g. Re Randell (1888) 38 Ch D 213); and more obscurely the provision of prizes at a Sunday school (Re Strickland [1936] 3 All ER 1027).
More recently it has been accepted that trusts to support faith healing (Re Kerin (1966) The Times 24 May 1966) and exorcism (Power, Praise and Healing Mission [1976] Ch Comm Report pp 19-20 paras 65-68) can advance religion.
Liberality of approach is not without its limits. These are potentially to be found in the requirement that the 'religion' to be advanced must be beneficial and have a public element.
We consider these requirements next.
In Thornton v Howe (1862) 31 Beav 14 Sir John Romilly had to consider whether a trust to publish the works of Joanna Southcote was a charity. In the course of the judgment Romilly set out criteria by which a religious trust may be held invalid. Read the extract from his judgment and select the passage which identify the relevant criteria.
Clue: We are looking for an extract of about 25 words.
I am of opinion, that if a bequest of money be made for the purpose of printing and circulating works of a religious tendency, or for the purpose of extending knowledge of the Christian religion, that this is a charitable purpose. ...
I am of opinion that the Court of Chancery makes no distinction between one sort of religion and another....
Neither does the Court make any distinction between one sect and another. It may be that the tenets of a particular sect inculcate doctrines adverse to the very foundations of all religion, and that they are subversive of all morality. In such a case, if it should arise, the Court will not assist the execution of the bequest, but will declare it to be void; but the character of the bequest, so far as regards the Statute of Mortmain, would not be altered by the circumstance. The general immoral tendency of the bequest would make it void, whether it was to be paid out of pure personalty or out of real estate. But if the tendency were not immoral, and although this Court might consider the opinions sought to be propagated foolish or even devoid of foundation, it would not, on that account, declare it void, or take it out of the class of legacies which are included in the general terms charitable bequests'.
We have seen that prima facie purposes within the category of 'advancement of religion' are presumed to confer a tangible benefit on the community at large. We have also seen, following Thornton v Howe, that the presumption is rebuttable only if the doctrines or practices are adverse to the foundations of all religion and subversive of all morality. One additional potentially disqualifying element focusing on a public/private distinction is to be found in the case of Gilmour v Coats.
Read the facts from the case and the extract from Lord Simonds judgment on the pop-up pages.
Then consider the facts in the following four examples and indicate on the scroll bars how likely it is that the purposes described in the examples are charitable:
(1) Re Warre
(2) Neville Estates v Madden
(3) Re Hetherington
(4) Society of the Precious Blood
In Re Warre [1953] 1 WLR 725, Harman J held that the particular disposition was not charitable. Although he accepted that a retreat was likely to be highly beneficial for the individual retreatant, there was not in his opinion the element of public benefit required. In reaching this conclusion he considered that he was correctly applying Gilmour v Coats.
Note however that a diocesan retreat house is open to any member of the Church of England and that individual retreatants return to the outside world to take up their everyday existence once their temporary retreat is completed. The decision in Re Warre, although expressly approved by Goff J in Re Banfield [1968] 1 WLR 846, has been criticised in two standard works on charity law (Picarda, Law and Practice Relating to Charities (2nd edn, 1995) at 98; Tudor on Charities (8th edn, 1995) at 84-5). Picarda, for instance, suggests that 'there is surely a material difference between a closed religious community consisting of private individuals working out their own salvation in private and a retreat house to which members of the public resort for only a very limited period of time and possibly only once'.
We suggest that you might consider (i) whether the decision in Re Warre is consistent with the outcome of Neville Estates v Madden; and (ii) assuming that benefit accrues to the public, albeit indirectly, from retreatants returning to the community whether this benefit should be construed as material enough to justify conferring charitable status in a case such as Re Warre.
In Neville Estates v Madden [1962] Ch 832 Cross J conceded that the trust resembled that in Gilmour v Coats in that the persons immediately benefited were members of a private body i.e members for the time being of the Catford Synagogue. However, he emphasised that a difference between the cases lay in the fact that members of the Catford Synagogue spend their lives in the world whereas members of a Carmelite Priory live secluded from the world. Thus although 'edification by example' had been rejected in Gilmour v Coats, Cross J accepted the proposition that ' the court is entitled to assume that some benefit accrues to the public from the attendance at places of worship of persons who live in this world and mix with their fellow citizens' (at 853), adding that 'the court assumes that any religion is at least likely to be better than none'.
Re Warre was not cited in Neville Estates v Madden and the cases are, shall we say, difficult to reconcile. Moreover do you think that the outcome in Gilmour v Coats would have been different had it been shown that some nuns periodically returned to life outside the convent?
Dicta in the Court of Appeal and the House of Lords in Gilmour v Coats ([1948] Ch 340 and [1949] AC 426 respectively) had raised doubts about the charitable nature of gifts for the saying of masses.
In Re Hetherington [1989] 2 All ER 129 Browne-Wilkinson V-C upheld the bequests as valid charitable dispositions by the following reasoning (at 135):
(i) The celebration of a religious rite in public does confer a sufficient public benefit because of the edifying and improving effect of such celebration on the members of the public who attend. Authority cited was Lord Reid in Gilmour v Coats ([1949] AC 426 at 459): '... a religious service can be regarded as beneficial to all those who attend it without it being necessary to determine the spiritual efficacy of that service or to accept any particular belief about it'.
(ii) Conversely the celebration of a religious rite in private does not contain the necessary element of public benefit since any benefit by prayer or example is incapable of proof in the legal sense, and any element of edification is limited to a private, not public, class of those present at the celebration.
(iii) Where there is a gift for a religious purpose which could be carried either by public means (i.e public mass) or by private means (i.e private mass) the gift is to be construed as a gift to be carried out only by the methods that are charitable, all non-charitable methods being excluded.
In short the gifts were validated by adopting a benign construction which excluded a non-charitable application of the property.
How persuasive do you find the distinction drawn between the benefit conferred by the saying of masses in public as compared to those said in private?
In Gilmour v Coats [1949] AC 426 the income of a trust fund was to be applied for the purposes of the Carmelite Priory of Notting Hill, London. The convent comprised an association of strictly cloistered and purely contemplative nuns who devoted themselves entirely to worship, prayers and meditation and engaged in no activities for the benefit of anyone outside their own association. The inward-looking nature of the convent raised the question as to whether there was any tangible benefit to the public.
The Roman Catholic Archbishop of Westminster tendered evidence to the effect that members of the public derived spiritual benefit in so far as their souls were the subject of the nuns' intercessory prayers and also that they were edified and inspired by the example of the nuns' piety, self-denial and religious devotion.
Although relying to some extent on previous authority the House of Lords also held that the alleged benefits were not such as would be recognised by the law (see Lord Simonds at 446)
The capacity to sidestep the restrictive aspects of Gilmour v Coats (as in Neville Estates v Madden and Society of the Precious Blood), the adoption of a benign approach to construction (Re Hetherington) and the unchallenged status of Thornton v Howe all tend to facilitate a liberalising approach to what is deemed charitable for the advancement of religion.
One corollary of such an approach is that there can appear to be scant scope under charity law to challenge the proliferating numbers of novel and/or obscure religious sects about which official concern has been expressed (see eg Annual Report 1982 Appendix C and generally the 1989 White Paper Charities: A Framework for the Future, paras 2.18-2.36). If it is felt that a more restrictive approach is desirable then one possible route could be to require charities for the advancement of religion to establish that they provide some positive public benefit (cf Re Pinion in the context of advancement of education). It is open to question whether this could be achieved without involving the courts or Commissioners in matters of religious controversy in a way which the present law is claimed to avoid (cf the extracts from Charities: A Framework for the Future and Picarda at 103).
Yet of itself such a development leaves untouched a more fundamental question: why should advancement of religion be a charitable purpose at all? The rationale for this has not been discussed in the English case law, it simply being assumed that 'any religion is at least likely to be better than none'. The importance of antiquity should not be underestimated but in a more positive vein the White Paper claims that ' trusts for the advancement of religion have contributed much to the spiritual welfare of generations of individuals and to the sound development of our society' (para 2.22). It is also the case that the obligation of charity is seen as a fundamental tenet for most religions.
Would you agree that these types of argument justify the continuation of the legal and fiscal privileges of charitable status? (for a critical view see Edge, The Charity Law and Practice Review vol 3(1), 1995/96 29-35).
5.2.5. Other Purposes
(A) Introduction
In Scottish Burial Reform and Creation Society v Glasgow City Corporation [1968] AC 138 Lord Wilberforce, commenting on Lord Macnaghten's fourfold classification of charitable purposes, emphasised that 'the law of charity is a moving subject which may well have evolved even since 1891' (at 154). If anything events since then have served only to endorse that judgment. An important question for charity law is whether the pace and direction of this evolution can adequately accommodate the changing emphasis of voluntary and philanthropic activity. This is particularly relevant to the interpretation of the fourth category - 'other purposes beneficial to the community' - which appears potentially to provide the greatest scope for recognising new developments.
In this section of the workbook we consider first the criteria applied to delineating the boundaries of the fourth head and possible categorisations of purposes within it. We then focus on the more contentious areas of activity such as animal charities, protection of the environment and recreation.
On the next page of the workbook we look at how the courts have developed criteria for deciding what constitutes a purpose 'beneficial to the community'.
(B) The Boundaries
(C) The Categories
The Charity Commissioners have pointed out that their approach of 'favouring charity' means that their decisions will 'inevitably move further and further away from cases decided by the Court' (Annual report 1985, para 25). Consequently we need to be aware that some earlier cases may become less reliable authorities and that a classification of the fourth head based solely on decided cases is likely to be of limited predictive or analytical value.
In this workbook we are therefore going to concentrate on two areas of contemporary interest that can be contentious, those of:-
• Animal and environmental welfare, and
• Sport and recreation.
The fourth head does incorporate a much more diverse range of purposes than those and you may like to look at the brief summaries that we provide for some of the other purposes:-
(i) Relief of the Aged, Sick and Disabled.
(ii) Social Rehabilitation and Welfare
(iii) Relief of Human Suffering or Distress
(iv) Overseas Charitable Purposes
(i) Relief of the aged or sick or disabled
It is not too difficult to trace the origins of this category back to the Preamble - 'Relief of aged, impotent and poor people'. It is now generally accepted that the words 'aged, impotent and poor' are to be construed disjunctively. Consequently people do not have to be both old and poor to be within the scope of this category. What is necessary is that some element of relief must be present. This was defined in the following manner by Peter Gibson J in Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney General [1983] 2 WLR 284 at 292:
'The word 'relief' implies that the persons in question have a need attributable to their condition as aged, impotent or poor persons which requires alleviating, and which those persons could not alleviate, or would find difficulty in alleviating, themselves from their own resources. The word 'relief' is not synonymous with 'benefit'.... Thus a gift of money to the aged millionaires of Mayfair would not relieve a need of theirs as aged persons.'
The provision of special housing for the aged is an increasingly prominent aspect of activity under this category, and it is no objection that full cost fees are charged. Subject to the proviso concerning relief virtually any activity in aid of the sick or disabled falls within the fourth category. Indeed the purposes of some very large fund-raising charities come under this category (e.g. Help the Aged (income £52m); SCOPE (£79m); Cancer Relief Macmillan Fund (£38m)). It should be noted that hospitals and clinics are not ipso facto non charitable merely because they charge sufficient fees to cover their costs, nor need they be confined to the poor but if they are run with a view to profit or are expressly confined to the rich they will not qualify as charitable (see Re Resch's Will Trusts [1969] 1 AC 514).
(ii) Social rehabilitation/welfare
This category encompasses much contemporary charitable activity. Among the many examples recently cited in the commissioners' Annual Reports are: rehabilitation of drug addicts; crime victim support schemes; family conciliation services; provision for 'latch key' children. The purposes of the NSPCC (1996 income £44m) generally come within this category.
The term 'welfare' as used here is not wholly unlimited, however. Purposes defined in terms such as 'general benefit and welfare' are considered too wide because, if unaccompanied by any clarification of the methods to be adopted, they may permit the application of funds to non-charitable purposes (see A-G of the Bahamas v Royal Trust Co [1986] 1 WLR 1001).
(iii) Relief of human suffering or distress
Trusts and other organisations for the relief of distress from natural disasters and other such calamities are within the fourth category (Re North Devon and West Somerset Relief Fund Trusts [1953] 1 WLR 1260). The 'distress' envisaged includes personal injury, bereavement and loss of or damage to property. Other examples of activities falling within this category are the establishment and maintenance of a fire brigade or a lifeboat service and the promotion of road safety.
It is important to note that a disaster fund will not be charitable unless assistance is restricted to those in need. To avoid confusion the Charity Commissioners have issued a guidance note (CC40) which emphasises that 'charitable funds, being essentially public in their nature, cannot be used to give individuals benefits over and above those appropriate to their needs.'
(iv) Overseas Charitable purpose
It has long been accepted that the relief of poverty, the advancement of religion and the advancement of education are charitable in whatever part of the world they are carried out by a UK charity. Under the fourth head the purpose has to be beneficial to the community of the United Kingdom and doubt has been expressed about the charitable status of some purposes carried on outside the UK.
Lord Evershed MR in Camille and Henry Dreyfus Foundation Inc v IRC [1954] Ch 672 stated that he saw 'formidable difficulties, where the objects of the trust were, say, the setting out of soldiers or the repair of bridges or causeways in a foreign country. To such cases the argument of public policy (meaning United Kingdom public policy) might be the answer' (at 684).
In 1993 the Charity Commissioners reassessed their approach and concluded that 'one should first consider whether [institutions operating abroad] would be regarded as charities if their operations are confined to the United Kingdom (Decisions of the Charity Commissioners Vol 1 1993 pp16-17). If they would, then they should be presumed also to be charitable even though operating abroad unless it would be contrary to public policy to recognise them.' This approach self-confessedly take as its raison d'etre the comments of Evershed MR on public policy.
(D) Animals / Environment
Some of the best-known and largest fund-raising charities are concerned with animal welfare. The RSPCA, for instance, had a total income in 1996 of £37.3 million. Yet there is no hint in the Preamble of animal welfare being recognised as a charitable purpose. Perhaps this should not surprise us since as Picarda has pointed out: 'A society in which cock-fighting and bear-baiting flourished would be unlikely to rate the prevention of cruelty to animals as sufficiently important' (The Law and Practice Relating to Charities (2nd ed, 1995) p. 143).
How then can we explain the present charitable status of animal welfare and are there any limits in the law to charity's favourable attitude? In the next two pages of this workbook we consider these issues and an initially puzzling link to environmental protection.
The first recognition of the charitable status of gifts for animal welfare came in London University v Yarrow (1857) 1 De G & J 72 where a trust to found an institution for studying and curing the diseases of animals useful to man was upheld. The necessary link to benefit to the human community was located initially therefore in the utilitarian criterion- 'useful to man'.
Consider which, if any, of the following purposes could be charitable as being for the protection of animals.
(a) To provide for humane methods of slaughtering animals for human consumption
o ü Yes û No Maybe
(b) To provide a sanctuary for animals and birds to be safe from molestation by man'
o û Yes ü No Maybe
(c) To suppress the practice of experiments on living animals
o û Yes ü No Maybe
(d) To prevent all types of cruelty and exploitation of animals particularly in factory farms and laboratories
o û Yes ü No Maybe
Answer: (a) YES
In Re Wedgwood [1915] 1 Ch 113 the testatrix left her residuary estate to her brother on an oral understanding that he would apply it for the protection and benefit of animals. It was accepted that the testatrix was particularly interested in the improvement of methods for slaughtering animals. But it was not the direct benefit [sic] to animals that justified charitable status. On the contrary it was said by Swinfen Eady LJ in a somewhat tortuous process of reasoning to be the beneficial impact on humans of 'showing kindness' that was important:
'A gift for the benefit and protection of animals tends to promote and encourage kindness towards them, to discourage cruelty, and to ameliorate the condition of the brute creation, and thus to stimulate humane and generous sentiments in man towards the lower animals, and by these means promote feelings of humanity and morality generally, repress brutality, and thus elevate the human race' (at 122).
Answer (b) NO
There would seem to be judicial support for your conclusion although the position is nowadays not beyond argument.
The clause is modelled on the terms of the gift in Re Grove-Grady [1929] 1 Ch 557 where a majority in the Court of Appeal, reversing Romer J, held that the trust was not charitable because it lacked the necessary benefit to the human community. Lord Hanworth explained this conclusion as follows: 'In this proposed refuge ... whatever animals, birds or other creatures, ferae naturae, may be living therein or obtain access thereto, are to find sanctuary. ... It is not a sanctuary for any animals of a timid nature whose species is in danger of dying out: nor is it a sanctuary for birds which have almost entirely left our shores and may be attracted once more by a safe seclusion to nest and rear their young. No such purpose is indicated, nor indeed possible. The one characteristic of the refuge is that it is free from the molestation of man, while all the fauna within it are to be free to molest and harry one another. Such a purpose does not, in my opinion, afford any advantage to animals that are useful to mankind in particular, or any protection from cruelty to animals generally. It does not denote any elevating lesson to mankind.'
It may be argued that since 1929 there has been a shift in opinion and that a similar purpose today may be held charitable as being for the protection of the environment (see Attorney-General for New South Wales v Sawtell [1978] 2 NSWLR 200).
Answer (c) NO
In National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31 the House of Lords held, inter alia, that the public benefit emanating from experimental vivisection's contribution to medicine outweighed the cruelties perpetrated upon the animal victims. The view was most forcibly stated by Lord Wright: 'The scientist who inflicts pain in the course of vivisection is fulfilling a moral duty to mankind which is higher in degree than the moralist or sentimentalist who thinks only of the animals. Nor do I agree that animals ought not to be sacrificed to man when necessary. A strictly regulated amount of pain to some hundreds of animals may save and avert incalculable suffering to innumerable millions of mankind. I cannot doubt what the moral choice should be.' This approach assumes that a choice has to be made. Previous authority, overruled by the decision in National Anti-Vivisection Society, had appeared to hold that the court could stand neutral between competing claims. The House of Lords decision establishes that the court must decide where the balance of public benefit lies. As we shall see later in the Workbook their Lordships (Lord Normand dissenting) also took the view that the Society was not charitable because a principal purpose of the Society was political i.e. the repeal of a statute permitting vivisection.
Answer (d) NO
The clause is similar to one of the objects in the Memorandum of Association of the Animal Abuse, Injustice and Defence Society. The Charity Commissioners decided that the Society was not established for exclusively charitable purposes (Decisions of the Charity Commissioners Volume 2, 1994, 1-4). The Commissioners commented: 'Although we accepted that the prevention of cruelty to animals can be a charitable purpose ... we could not accept that it is charitable to prevent the exploitation of animals. Man, by his very nature, exploits animals for a wide variety of purposes not the least for the very necessary functions of eating and dressing. To keep cows for the purpose of eating them or to keep sheep or other animals for the purpose of providing wool or leather for clothing is exploitation and it was clear that the Society viewed that as such. ... [The Commissioners referred to National Anti-Vivisection Society v IRC] In the present case it seemed to us that the tangible benefit to the public arising from the exploitation of (as opposed to cruelty to) animals outweighed any moral elevation or benefit which might accrue if all exploitation were to cease.'
As evidenced by A-G for New South Wales v Sawtell a major species of charitable purpose within the fourth category, stemming from an important phrase in the preamble is the provision of public amenities.
Whereas the preamble mentioned the 'repair of bridges, ports, havens, causeways, sea banks, and highways', virtually all of which is now wholly within state responsibility, a modern equivalent within charity law is the protection of the environment including, for example, preservation of the countryside, its flora and fauna and of the country's architectural heritage as by the National Trust (Re Verrall [1916] 1 Ch 100; Annual Report 1968 paras 67 72).
(E) Sports & Recreation
In 1978 Walton J exhibiting a determinedly pessimistic streak maintained in IRC v McMullen [1978] 1 All ER 230 that 'a trust whose real purpose is the early discovery and encouragement of budding soccer stars, however necessary from the point of national prestige in view of our present disastrous international showing, would not appear to me to be charitable on any footing' (at 240). This observation can be viewed as a manifestation of recent support for a broad proposition advanced in Re Nottage (1895) that 'a gift for the encouragement of a mere sport' is not charitable. Care is needed in interpreting this proposition since subsequent cases have established that the encouragement or pursuit of sport can take on the colour of charitable activity where the sporting activity is ancillary or subsidiary to some wider purpose which is itself charitable.
In Re Dupree's Deed Trusts a trust for the purpose of providing an annual chess tournament for boys and young men under 21 was upheld as an educational charitable trust. Indeed in IRC v McMullen itself the House of Lords, reversing Walton J and a majority on the Court of Appeal, upheld the trust as charitable despite the absence of any direct link to an educational institution.
It is therefore tempting to suggest that Re Nottage, although not overruled, can be readily distinguished. Before you decide whether to accept or reject this temptation we suggest that you consider the examples on the next page.
The purposes described in the examples below all have some relationship with recreational activity and the playing of sport. Consider whether any of them might be held to be charitable.
(a) A gift of land for recreational purposes.
o ü Yes No Maybe
(b) To provide an ice skating rink for the inhabitants of the city of Coventry
o ü Yes No Maybe
(c) To promote the amateur games of football, cricket and rugby for the benefit of the inhabitants of Coventry
o Yes ü No Maybe
Answer (a) : YES
Although legislation dating back to 1859 recognising the charitable nature of public recreation grounds has been repealed, several judicial decisions have firmly established their charitable status under the general law. In Re Hadden [1932] 1 Ch 133 a gift to provide parks, playing fields, gymnasiums and other 'plans' was upheld as charitable because it promoted the health and welfare of the working classes. The class dimension is probably irrelevant since Harman J in Re Morgan [1955] 1 WLR 738 upheld as charitable a bequest of a fund for the provision of a public recreation ground for the inhabitants of a particular parish.
Answer (b) : YES
In 1984 the Charity Commissioners registered as a charity the Oxford Ice Skating Association Limited whose objects were 'to provide or assist in the provision of facilities for an ice-skating rink in the City of Oxford or its environs to be available to the members of the public at large.' The Commissioners accepted that Re Hadden [1932] 1 Ch 133 and Re Morgan [1955] 1 WLR 738 'were authority for the proposition that although the promotion of sport in itself is not charitable, the provision for the public of land, with or without buildings, for carrying on sport is charitable' (Annual Report 1984, para 21).
In our view this decision begins to elide a distinction previously drawn between the promotion of sport and the provision of facilities for recreation.
Answer (c) : NO
We tend to agree in the light of current authority although there is a view that the position is ripe for change at appellate level.
In 1997 the Charity Commissioners rejected an application for registration from North Tawton Rugby Union Football Club. The principal object of the club, whose membership was open to members of the public in general, was 'to promote the amateur game of Rugby Union Football particularly but not exclusively in North Tawton and the surrounding districts for the benefit of the public ...'. The Commissioners in a sense restated what they perceived the legal position to be: 'the promotion of "mere" sport (that is sport undertaken as an end in itself rather than as a way of achieving some other purpose which is charitable in its own right) is not recognised as a charitable purpose at common law - even though sport may have beneficial effects for those who practice it.' They also stated that in the light of numerous dicta in the House of Lords (see e.g. Lord Hailsham in IRC v McMullen) to the effect that promotion of mere sport is not a charitable purpose 'there was no scope for us to take a contrary view ' It seems unlikely that the edition of two more named sports alters that fundamental position.
It is noteworthy, however, that the Commissioners stated further that 'the position at common law arising from the decision in Re Nottage would benefit from reconsideration by the courts in the light of the role of sport in modern social conditions' (see North Tawton Rugby Union Football Club, Decisions of the Charity Commissioners Volume 5 (1997) p. 13).
As mentioned on previous pages the promotion of specific sports has been distinguished from the promotion of recreation generally, whereby people are enabled to play any game or undertake any relaxing activity that they may choose.
Until 1955, it was assumed that the general law authorities went far enough to confirm the charitable status of recreation generally, but IRC v Baddeley [1955] AC 572 cast serious doubt on this assumption. By a majority of four to one (Lord Reid dissenting) the House of Lords held that a trust's purposes aiming to promote 'the moral, social and physical well being of persons resident ... in West Ham and Leyton' were not exclusively charitable because of the inclusion of 'social' purposes.
In order to resolve these doubts and to confirm the charitable status of various long established charities such as the National Playing Fields Association, the Recreational Charities Act 1958 was enacted. Under the provisions of the statute the Charity Commission has registered numerous organisations such as recreational centres open to the public or to a disabled group such as the blind, day nurseries for the under 5s (these are also educational) and women's institutes, although by virtue of the phraseology of s 1(2)(b)(ii) - 'the facilities are to be available to the members or female members of the public at large' - men's institutes have had to be denied registration (Annual Reports 1965 App C; 1966 App A).
Unfortunately interpretation of the statute has not been completely straightforward. On the next page we will consider some of the difficulties posed by the term 'social welfare'.
The key criterion contained in section 1 of the Recreational Charities Act 1958, and elaborated in section 2, is that recreational facilities 'are provided in the interests of social welfare'.
The meaning to be attributed to the term 'social welfare' has created difficulties. Doubts were raised by the decisions at first instance [1978] 1 WLR 664 and Court of Appeal [1979] 1 WLR 130 in IRC v McMullen. At first sight, setting up facilities for football and other games at schools and universities appears to be recreational within subsection 1(1), being designed to 'improve the conditions of life' of pupils within subsection (2)(a) and aimed at persons who have 'need of such facilities ... by virtue of their youth' within subsection (2)(b).
Walton J and the majority in the Court of Appeal held, however, that the key phrase 'social welfare', particularly when amplified by the 'improving the conditions of life' requirement, denoted an element of deprivation, though not necessarily financial deprivation. In contrast Bridge LJ (dissenting) disagreed that social welfare could be limited to the deprived: 'Hyde Park improves the conditions of life for residents in Mayfair as much as for those in Pimlico or the Portobello Road' (at 143).
The House of Lords left this point open in IRC v McMullen, deciding the case simply on the basis that the trust was for the advancement of education. The more liberal approach of Bridge LJ has subsequently been endorsed by the House of Lords in Guild v IRC [1992] 2 All ER 10. A bequest for use 'in connection with the Sports Centre in North Berwick or some similar purpose in connection with sport' was upheld. Lord Keith, giving the sole opinion of the House, rejected the 'deprivation' argument:
'It suffices if [the facilities] are provided with the object of improving the conditions of life for the members of the community generally' (at 18).
We suggest that the process of incremental change under both the fourth head and the 1958 statute, most recently exemplified by the decision of the Commissioners in Fairfield (Croydon) Limited, is making the restriction in Re Nottage on the promotion of a particular sporting activity look increasingly out of step. There remains, however, a further obstacle to individual sports clubs seeking charitable status, viz the second limb of the public benefit test, and it is to that topic that we turn in the next section of this workbook.
5.3. Public Benefit
Introduction
Earlier in this Workbook we stated that 'Public benefit' means that the purposes must entail benefit of a tangible nature to the public at large or a sufficient section thereof. We indicated that in applying the test emphasis is placed on both the words 'benefit' and 'public'. The test can therefore be said to comprise two distinct, though closely related, tests (i) do the purposes being considered confer a tangible benefit? and (ii) is the class of persons eligible to derive benefit directly from the purposes defined so as to constitute the public as a whole or a sufficient section thereof?
This section of the workbook looks at the second of those tests. Let us take a very simple example. It may be beneficial that the education of my children is advanced in some fashion. But a trust to educate my children would not be charitable as they do not constitute a 'section of the public' under charity law. But what if I broaden the category to include the children of my next-door neighbours? You may not be surprised to discover that in Re Compton [1945] Ch 123 the Court of Appeal held a perpetual trust 'for the education of Compton and Powell and Montague children' to be non-charitable and therefore invalid because the class defined in that way did not constitute a section of the public.
Unfortunately once we start to move beyond this sort of example matters begin to become rather more complicated. Suffice to say here that the second limb of the public benefit requirement - the so-called 'section of the public' test - is not applied with any degree of consistency between the different heads of charitable purposes. It is scarcely relevant to the relief of poverty, occasionally if indirectly relevant for advancement of religion, is of key importance to advancement of education and possibly also to the fourth category and to the Recreational Charities Act.
Many of the key developments have occurred in the context of cases for the advancement of education and we therefore look first at the 'section of the public' test under that heading.
Education & Religion
In Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297 the House of Lords had to consider whether a trust to provide as the trustees thought fit 'for the education of children of employees or former employees of the British American Tobacco Co Ltd ... or any of its subsidiary or allied companies' benefited a sufficient section of the public. The number of employees of the company and its subsidiary and allied companies exceeded 110,000.
Read the extract from the opinion of Lord Simonds and indicate what features he considered were necessary for an educational trust to be for the 'public benefit'.
If I may begin at the bottom of the scale, a trust established by a father for the education of his son is not charitable. ... At the other end of the scale the establishment of a college or university is beyond doubt a charity. ...The difficulty arises where the trust is not for the benefit of any institution ... but for the benefit of a class of persons at large. Then the question is whether that class of persons can be regarded as such a 'section of the community' as to satisfy the test of public benefit. These words 'section of the community' have no special sanctity, but they conveniently indicate (1) that the possible (I emphasise the word 'possible') beneficiaries must not be numerically negligible, and (2) that the quality which distinguishes them from other members of the community, so that they form by themselves a section of it, must be a quality which does not depend on their relationship to a particular individual. It is for this reason that a trust for the education of members of a family or, as in Re Compton, of a number of families cannot be regarded as charitable. A group of persons may be numerous, but, if the nexus between them is their personal relationship to a single propositus or to several propositi, they are neither the community nor a section of the community for charitable purposes.
Education & Religion
Read the opinions of Lord Simonds and Lord Macdermott in Oppenheim v Tobacco Securities Trust Co Ltd and then consider which, if any, of the beneficial classes in the examples that you will be given would satisfy the section of the public test for advancement of education.
Oppenheim v Tobacco Securities Trust Co Ltd and Others [1951] AC 297 HL
Lord Simonds, Lord Normand, Lord Oaksey, Lord Morton of Henryton and Lord Macdermott.
Charity - Settlement - Trust for education - Children of employees or former employees of company - Validity.
By a settlement trustees were directed to apply certain income "in providing for ... the education of children of employees or former employees" of a British limited company or any of its subsidiary or allied companies. The employees so indicated numbered over 110,000.
Held, (per Lord Simonds, Lord Normand, Lord Oaksey and Lord Morton of Henryton, Lord MacDermott dissenting) that, though the group of persons indicated was numerous, the nexus between them was employment by particular employers, and accordingly the trust did not satisfy the test of public benefit requisite to establish it as charitable.
In re Compton, [1945] Ch 123, and In re Hobourn Aero Components Ld.'s Air Raid Distress Fund, [1946] Ch 194, approved.
In re Rayner (1920) 89 LJ (Ch) 369, disapproved.
Decision of the Court of Appeal affirmed.
(a) 1. Children of employees and ex-employees of ABC plc and its associated companies (the trust fund is provided by ABC plc)
o û Yes ü No Maybe
(b) 2. As in 1 but the fund is provided by a generous benefactor with no known connection to ABC plc.
o û Yes ü No Maybe
(c) 3. Children of employees and ex-employees of Xplc, Yplc and Zplc [the companies are wholly separate corporate entities]
o û Yes ü No Maybe
(d) 4. Children of people employed in the banking industry
o ü Yes û No Maybe
(e) 5. As in 4 with a preference that up to 75% of the annual income be used for the benefit of children of employees of ABC bank plc.
o ü Yes û No Maybe
Answer (a): NO
In our example, as in Oppenheim, there would be appear to be a common thread that links the members of the beneficial class ie employment with a named company. This would appear to constitute the sort of personal nexus that in the opinion of Lord Simonds prevents the beneficial class from being a 'section of the community'. We do not know the size of the beneficial class but this would appear to be immaterial once the personal nexus is established. It was of course just this point that concerned Lord MacDermott in his dissent.
Answer (b): NO
The grantor (or settlor) of the fund in Oppenheim apparently had no direct connection with the company although he 'was a large stockholder'. The identity of the trust founder or the donor of the fund therefore seems to be immaterial under a strict application of the personal nexus test.
Answer (c): NO
The definition of the class highlights one of the penumbral aspects of Lord Simond's attempt to clarify the the 'personal nexus' test: '...A group of persons may be numerous but, if the nexus between them is their personal relationship to a single propositus or to several propositi [emphasis added], they are neither the community nor a section of the community for charitable purposes'.
Answer (d): YES
Remember that in Oppenheim there is implicit acceptance of long-standing authority to the effect that those 'who follow a profession or calling, clergymen, lawyers, colliers, tobacco workers and so on are a section of the public'.
In an era of large corporations it is conceivable that a class defined by reference to a trade or profession (and hence valid) could be recharacterised as a class of employees of 2 or 3 or 4 employers (cf example 3 above) and probably not valid as a section of the community.
You will recall that Lord Simonds sidesteps this potential problem in Oppenheim:
'I am not impressed by this sort of argument and will consider on its merits, if the occasion should arise, the case where the description of the occupation and the employment is, in effect, the same ...'.
Answer (e): YES
We tend to agree although largely on the basis of what is generally perceived to be an unconvincing authority Re Koettgen.
Note, however, that in our example the primary class is more narrowly defined than that in Re Koettgen. It would therefore be open to the courts to distinguish Re Koettgen and hold that the beneficial class in our example does not constitute a section of the community. The possibility of fiscal privileges coming into consideration should not be disregarded. It does appear that in Oppenheim Lord Simonds was concerned at the possibility that charitable status might be exploited for fiscal reasons: 'charitable institutions enjoy rare and increasing privileges, and the claim to come within that privileged class should be clearly established'. The inclusion of a preference in the form stated in our example might be seen as an attempt to benefit what is substantially a private class (ie children of employees of ABC) within a broader public class. Even if the trust is interpreted as benefiting a sufficient section of the community the Inland Revenue may seek to disallow tax relief if too great a proportion of the fund is expended for the 'private class' (see IRC v Educational Grants Association Ltd [1967] Ch 123; affd 993).
It is questionable whether a separate section of the public test is even recognised here.
In Gilmour v Coats [1949] AC 426 Lord Simonds acknowledged that there was 'a speciously logical appearance' to the argument that because membership of the order of cloistered nuns was 'open to any woman in the wide world who has the necessary vocation' (at 448) in the same way as a scholarship is open to anyone who wishes to compete, the persons eligible to derive what was undoubtedly, for them, a tangible benefit did constitute a section of the public. Lord Simonds rejected the argument and refused to accept that on this issue an analogy could be drawn between educational and religious trusts. Different standards applied because 'the law of charity ... has been built up, not logically, but empirically' (at 448).
How then, in Neville Estates v Madden [1962] Ch 832, could a trust for the advancement of religion among the members of Catford Synagogue - 'no more a section of the public than the members for the time being of a Carmelite priory' (at 853) - be held charitable? Cross J was able to reconcile the two cases but only by saying that the public as a whole derived a tangible benefit from the fact that members of the synagogue went out after their worship there and made contact with their fellow citizens. This appears to blur the two limbs of public benefit and suggests that the public benefit requirement in religious charities will be satisfied merely by the existence of some tangible benefit, however indirect and tenuous, to the public as a whole.
It may be added that the applicability of the Compton-Oppenheim test to religious trusts has never been resolved in the courts.
Poverty
Some 20 years after the decision in Oppenheim the House of Lords had to consider the section of the public test afresh in Dingle v Turner [1972] AC 601, this time in the context of a trust 'to apply the income of a legacy of £10,000 and of the residuary estate in paying pensions to poor employees of E. Dingle & Co. Ltd'. At the date of the summons the company had 706 full-time and 189 part-time employees and was paying pensions to 89 ex-employees. Note that the case was a 'leapfrog' appeal to the House of Lords under section 12 of the Administration of Justice Act 1969. At issue was whether the anomaly of granting charitable status to so-called 'poor relations' and 'poor employees' trusts should be upheld.
Using the Resource Book read the opinion of Lord Cross and the brief concurring opinions of their other lordships, and then indicate which of the following statements are correct by clicking on the appropriate buttons.
(a) Charitable status should not be extended to 'poor employee' trusts although 'poor relations' trusts were to retain their long-standing charitable status.
(b) Oppenheim is overruled and a 'question of degree test' is substituted for the 'personal nexus test'.
(c) Tax reliefs are a relevant consideration in deciding whether any given trust is a charitable trust.
(d) Trusts for the relief of poverty are charitable no matter how small the number of potential beneficiaries may be.
Answer (a) Wrong
Lord Cross stated that both should remain charitable because (i) poor relations trusts were of long-standing; (ii) it would be quite illogical to draw distinctions between different sorts of poverty trusts and (iii) there was no practical objection to their retaining charitable status.
Answer (b) Wrong
Oppenheim is not overruled by the decision in Dingle v Turner. Lord Cross states only that 'it would no doubt be open to this House without overruling Oppenheim to hold that the scope of the [personal nexus] rule was more limited'.
He suggests, obiter, that 'a trust to promote some religion among the employees of a company might perhaps safely be held to be charitable provided that it was clear that the benefits were to be purely spiritual. On the other hand many 'purpose trusts' falling under Lord Macnaghten's fourth head if confined to a class of employees would clearly be open to the same sort of objection as educational trusts'.
For the objection stated by Lord Cross review the full judgment in Dingle v Turner or the summary (see Cross).
Answer (c) Depends
Lord Cross in his opinion appears to endorse this view: 'In answering the question whether any given trust is a charitable trust the courts - as I see it - cannot avoid having regard to the fiscal privileges accorded to charities'. Note however the disagreement amongst their Lordships on this matter. Lord Simon briefly concurred with Lord Cross's judgment whereas Lords Dilhorne, Hodson and Macdermott all expressed reservations about the relevance of fiscal privileges. Lord Macdermott confusingly added however that 'this subject [ie fiscal privileges] may be material on the question whether what is alleged to be a charity is sufficiently altruistic in nature to qualify as such but beyond that, and without wishing to express any final view on the matter, I doubt if these consequential privileges have much relevance to the primary question whether a given trust or purpose should be held charitable in law.'
The statement is ambiguous. You might consider whether Lord Macdermott is suggesting here that fiscal privileges should not be relevant in deciding whether a specified purpose is prima facie charitable but may be relevant to determining whether that purpose satisfies the section of the public requirement.
Answer (d) Depends
The statement is not quite accurate although it has been said that 'the requirement of public benefit has been reduced, in the field of poverty, almost to vanishing point' (per Hanbury and Martin Modern Equity at p 412).
'Vanishing point' has not quite been reached. It is still necessary, if difficult, to draw a line between charitable trusts for the relief of poverty and private trusts in favour of individuals who happen to be poor.
On the next page we look at how this line has been drawn.
The test to be applied, and one approved in Dingle v Turner, was stated by Jenkins LJ in Re Scarisbrick [1951] Ch 622 at 655 as follows: 'I think the true question in each case has really been whether the gift was for the relief of poverty amongst a class of persons, or ... a particular description of poor people or was merely a gift to individuals, albeit with relief of poverty amongst those individuals as the motive of the gift, or with a selective preference for the poor or poorest amongst those individuals'.
We discovered on the previous page that it is still necessary to draw a line between charitable trusts for the relief of poverty amongst a class and private trusts in favour of individuals who happen to be poor.
The test to be applied, and one approved in Dingle v Turner, was stated by Jenkins LJ in Re Scarisbrick [1951] Ch 622 at 655 as follows: 'I think the true question in each case has really been whether the gift was for the relief of poverty amongst a class of persons, or ... a particular description of poor people or was merely a gift to individuals, albeit with relief of poverty amongst those individuals as the motive of the gift, or with a selective preference for the poor or poorest amongst those individuals'.
This formulation is easier to state than to apply to borderline cases, but the relevant circumstances are likely to include the number of potential beneficiaries, their relationship to the trust founder and possibly the amount of money involved (see the facts of Re Cohen [1973] 1 WLR 415 but compare Re Segelman [1996] Ch 171 where the residuary estate was worth some £8 million.
RCA 1958
That there is a section of the public requirement under the fourth of Lord Macnaghten's categories (Other Purposes Beneficial to the Community) is clear. It is less certain what exactly the nature of that requirement is.
We will try to explore its scope by considering some examples. Before you attempt them - we prefer that you do so without knowledge of the case law in the area - you may find it helpful just to remind yourself of the comments of Lord Cross as to the reason for the rules (click here to view).
Indicate whether the examples do, in your opinion, satisfy the 'section of the public' requirement.
(a) To provide hospital care for members of the Transport Workers' Union.
o û Yes ü No Maybe
(b) To provide sporting and recreational facilities for members of the West Midlands Police Force.
o û Yes ü No Maybe
(c) To provide for recreation and physical welfare of residents of Coventry who are or are likely to become Methodists
o û Yes ü No Maybe
(d) To provide sheltered housing for mentally handicapped residents of Coventry
o ü Yes No Maybe
Answer (a): NO
There is authority that the personal nexus test, as explained by Lord Simonds in Oppenheim v Tobacco Securities Trust Co Ltd, is applicable in these circumstances. In Re Mead's Trust Deed [1961] 2 All ER 836 Cross J (as he then was) commented that 'the considerations which led Lord Simonds to hold that the employees of a company, however numerous, could never form a section of the public for the purpose of the law of charity appear to apply equally to a trade union' (at 840). He indicated that, in his opinion, this would be the position even if the funds were provided by non-members. Note, however, that this case pre-dates Dingle v Turner and it would be open, at least to the House of Lords, to apply a question of degree test in preference to the personal nexus test. This does not necessarily mean that the case would or should be decided differently but the courts would be able to consider the wider range of matters identified by Lord Cross in Dingle v Turner.
Answer (b): NO
We tend to agree although here again the contrary may be argued; it might help if we had more information eg the source of the funds and must the police officers be members of a club or association to benefit. The example is analogous to Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] 1All ER 747 (click here for a summary). It was unsuccessfully argued there that the principal purpose of the Association was to maintain or increase the efficiency of the police - a charitable purpose - and that the conferral of benefits on the members of the Association was the means to achieving the charitable end. There is therefore clear authority that, outside the relief of poverty, mutual benefit and mutual aid associations are unlikely to be granted charitable status unless their purposes can be subordinated to some broader charitable purpose with the consequence that any benefits to the members are incidental (see also Re Hobourn Aero Components Ltd's Air Raid Distress Fund [1946] Ch 86 applied in the City of Glasgow case).
Note in particular the following dictum of Lord Morton from the City of Glasgow case: 'The members pay their subscriptions and get certain benefits in return .... The association would not appear to be any more a charity than is any other athletic or social association or club established for the like purpose'.
Note also, however, that in our example there is no mention (i) of any formal association or society, nor (ii) of the funds being provided by the members. This could provide a basis for seeking to distinguish our example from the City of Glasgow case.
In the light of the City of Glasgow case you may be puzzled by the fact that students' unions are generally considered to have charitable status (click here to know more).
The Charity Commissioners have recently invoked the City of Glasgow case as one source of authority for rejecting the application of the North Tawton Rugby Union Football Club to be registered as a charity.
Answer (c): NO
In IRC v Baddeley [1955] AC 572 (click here for summary) the House of Lords held non-charitable a trust the beneficiaries of which constituted what has become known as a class within a class. In that case the beneficiaries were residents of West Ham and Leyton who were or were likely to become Methodists i.e. inhabitants of a particular area who were adherents of a particular creed. Notwithstanding the fact that only two of their lordships adopted 'the class within a class' test it is commonly cited as constituting an element of the 'section of the public' requirement in some circumstances. The relevance of the circumstances needs to be borne in mind and is apparent in the opinion of Viscount Simonds (click here for the key passage). In this particular example the circumstances and the description of the qualifying criteria for benefit are closely comparable to those in Baddeley.
Answer (d): NO
At first glance the beneficial class here looks very much like 'a class within a class'. Indeed it is a class within a class! That fact itself does not resolve the matter. The scope of the class within a class test under the fourth head remains an open question. We suggest that it is necessary to consider the nature of the purpose and its relationship to the beneficial class. In Baddeley, for instance, no doubts were expressed about an earlier decision in Verge v Somerville [1924] AC 496 which accepted that a 'Repatriation Fund ... for the benefit of New South Wales returned soldiers' was a valid charitable gift. Viscount Simonds emphasised that repatriated New South Wales soldiers clearly constituted 'an adequate class of the community for the purpose of the particular charity that was being established' (emphasis added).
We suggest that a comparable argument can be applied to our example here.
Earlier in this Workbook we mentioned, in the context of the Recreational Charities Act 1958, (RCA) (click here for key sections) that one of the obstacles to individual sports clubs attaining charitable status is to be found in the interpretation of the section of the public test.
You may recall that under the RCA the provision of facilities in the interests of social welfare (s 1(1) and 1(2)(a)) will be charitable provided that (1(2)(b)(i)) the persons for whom they are primarily intended 'have need of such facilities ... by reason of their youth, age, infirmity, or disablement, poverty or social and economic circumstances' or (1(2)(b)(ii) 'the facilities are to be available to the members or the female members of the public at large'.
Whilst the RCA therefore remedies one aspect of the decision in IRC v Baddeley it does not completely dispense with the section of the public requirement.
The possibility therefore remains that a class of beneficiaries could satisfy the 'social welfare' requirement of the statute (s 1(2)(a)) yet still fail to constitute a section of the community for the public benefit requirement.
No indication is given as to what is the appropriate section of the public test under the statute. Interpretation rests in practice with the Charity Commissioners.
On the next page we consider two examples, one restrictive and one expansive.
The provision, on a not-for-profit basis, of housing or of health care for those in need of such services is recognised as charitable as long as a sufficient section of the community is able to benefit. Any restriction of the beneficial class to a group such as employees would therefore not be consistent with charitable status.
It is, however, often a feature of the provision of these services that fees are charged to those who benefit. There are numerous authorities confirming that this will not necessarily invalidate charitable status. But what if the fees are pitched at a level which in effect prevents a section of the community from being able to benefit? Can it be argued that charitable status should be refused because the provision of the facilities does not benefit ' a sufficiently large section of the community'?
These were amongst the questions considered by the Privy Council in Re Resch's Will Trusts [1969] 1 AC 514, a case that we examine on the next page.
In Re Resch's Will Trusts (click here for a summary) it was argued that the private hospital was not carried on for purposes 'beneficial to the community' because it provided only for persons who were capable of paying the substantial fees required as a condition of admission.
We would like you to read the text provided and identify the public benefit test adopted by the Privy Council.
Hint: we are looking for one sentence only.
Lord Wilberforce:
The appellants based their argument on the proposition that a trust could not be charitable which excluded the poor from participation in its benefits. There was not sufficient 'public element'...
[The appellants] appealed to some well known authorities. In Jones v Williams (1767) Amb 651 Mr Ambler attributes to Lord Camden LC (at p 652) a definition of charity as a 'gift to a general public use, which extends to the poor as well as to the rich'- the gift there was to provide a supply of water, and if that should fail to the Foundling and Lying-in Hospitals. Then in Re Macduff [1896] 2 Ch 451 in a general discussion of such expressions as 'charitable' or 'philanthropic', Lindley LJ said (at p 464) 'I am quite aware that a trust may be charitable, and yet not confined to the poor but I doubt very much whether a trust would be declared to be charitable which excluded the poor'.... Their lordships accept the correctness of what has been said in those cases, but they must be rightly understood. It would be a wrong conclusion from them to state that a trust for the provision of medical facilities would necessarily fail to be charitable merely because by reason of expense they could only be made use of by persons of some means. To provide, in response to public need, medical treatment otherwise inaccessible but in its nature expensive, without any profit motive, might well be charitable: on the other hand to limit admission to a nursing home to the rich would not be so. The test is essentially one of public benefit, and indirect as well as direct benefit enters into the account. In the present case, the element of public benefit is strongly present.
The decision of the Privy Council that the gift to St Vincent's Private Hospital was a valid charitable bequest, (click here for the reasons given by Lord Wilberforce) has been cited in this country as authority for the proposition that the mere charging of fees will not render an otherwise charitable purpose non-charitable (see Joseph Rowntree Memorial Trust Housing Association v A-G [1983] Ch 159, criticised by Nobles (1983) 46 MLR 782).
Beyond there the decision, in our view, raises as many questions as it solves. The principal areas of doubt are introduced on the next page.
Overview
First, however, on this page we emphasise one or two points about the tests and about the dangers of searching for consistency and logic in this matter.
Lord Simonds, who was closely involved with establishing the present scope of the section of the public test in key post-1945 cases (Gilmour v Coats (1949), Oppenheim (1951) and Baddeley (1955)), regarded any inconsistencies as simply reflecting the empirical development of the law (click here for a summary of Lord Simonds' view). The outcome, to reiterate this very important point, is that the degree of public benefit required may well vary from one category of charity to another.
The greatest degree of uncertainty attaches to the requirement under the fourth head. We can only repeat our earlier warning: That there is a section of the public requirement under this head is clear; the form of the requirement is less certain. Nevertheless, two propositions can be advanced. First, there is ample authority that a trust under the fourth head cannot be charitable if, following Compton and Oppenheim, the eligible beneficiaries are confined to persons defined by reference to a personal nexus with a named propositus (eg Re Hobourn Aero Components Ltd's Air Raid Distress Fund [1946] Ch 19 and Re Mead [1961] 1 WLR 1244
The second proposition is that the section of the public requirement may, in certain circumstances, be more restrictive here than under the other three heads of charity. (click here for further comment on this).
The legal conundrum remains: which section of the public test is appropriate and in what circumstances under the fourth head of charity? It is noteworthy that in one recent case, Re Dunlop, no conclusion was expressed as to the test to be applied (see Dawson [1987] Conv (NS) 114). (click here for comment on some implications of the conundrum).
5.3. Charities & Politics
There is a sharp theoretical dividing line in the modern law of charities between charitable purposes and political purposes: the former exclude the latter. In 1978 the Charity Commissioners refused to register Amnesty International Trust whose objects, among otherwise charitable purposes, included (1) attempting to secure the release of prisoners of conscience, and (2) procuring the abolition of torture or inhumane or degrading treatment or punishment. In McGovern v A-G [1982] Ch 321 Slade J recognised that 'Amnesty International ... is performing a function which many will regard as being of great value to humanity' but upheld the Commissioners' decision because the disputed purposes were 'substantially political', not 'charitable'.
This initially puzzling conclusion reflects a position whereby politics has a specific meaning in the context of charity law. It may not surprise you to be told that the promotion of the cause of a political party is not charitable (Bonar Law Memorial Trust v IRC (1933) 49 TLR 220 (Conservative); Re Ogden [1933] Ch 678 (Liberal); Re Hopkinson [1949] 1 All ER 346 (Socialist)). In view of what we learned earlier in this workbook about the distinction that the courts draw between 'education' and 'propaganda' (click here to jump to the relevant page) it may also not surprise you that the promulgation of a general political doctrine (Re Bushnell [1975] 1 All ER 721, 'furthering socialised medicine in a socialist state') will not be a charitable purpose.
There is one further and important dimension to the concept 'political'. Earlier in this chapter we referred to the House of Lords decision in National Anti-Vivisection Society v IRC that the public benefit from experimental vivisection outweighed the detriment of cruelty to animals. An alternative reason for holding the National Anti-Vivisection Society non-charitable was (Lord Porter dissenting) that the total abolition of vivisection required a change in the law and that this was therefore a political purpose.
In the next few pages we try to uncover the reasons for the doctrine and how far its scope extends.
We would like you to identify and describe the reasons that Lord Simonds gives for holding that the National Anti-Vivisection Society was not established for charitable purposes only. You can either read the opinion in full National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31
Extract from the opinion of Lord Simonds.
Lord Simonds referred to a passage from Lord Parker's speech in Bowman v Secular Society Ltd [1917] AC 406 at 442 '... a trust for the attainment of political objects has always been held invalid, not because it is illegal ... but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit', and commented as follows (at 62)
My Lords, I see no reason for supposing that Lord Parker ... used the expression 'political objects' in any narrow sense or was confining it to objects of acute political controversy. On the contrary, he was, I think, propounding familiar doctrine, nowhere better stated than in a textbook which has long been regarded as of high authority, but appears not to have been cited for this purpose to the courts below (as it certainly was not to your Lordships), Tyssen on Charitable Bequests. The passage (1st ed, 1898, p 176) is worth repeating at length: 'It is a common practice for a number of individuals amongst us to form an association for promoting some change in the law.... It is clear that such an association is not of a charitable nature. However desirable the change may really be, the law could not stultify itself by holding that it was for the public benefit that the law itself should be changed. Each court in deciding on the validity of a gift must decide on the principle that the law is right as it stands. On the other hand, such a gift could not be held void for illegality.'
Lord Parker uses slightly different language, but means the same thing, when he says that the court has no means of judging whether a proposed change in the law will or will not be for the public benefit. It is not for the court to judge and the court has no means of judging. The same question may be looked at from a slightly different angle. One of the tests, and a crucial test, whether a trust is charitable lies in the competence of the court to control and reform it. I would remind your Lordships that it is the King as parens patriae who is the guardian of charity, and that it is the right and duty of his Attorney-General to intervene and inform the court if the trustees of a charitable trust fall short of their duty. So too it is his duty to assist the court, if need be, in the formulation of a scheme for the execution of a charitable trust. But, my Lords, is it for a moment to be supposed that it is the function of the Attorney-General, on behalf of the Crown, to intervene and demand that a trust shall be established and administered by the court, the object of which is to alter the law in a manner highly prejudicial, as he and His Majesty's Government may think, to the welfare of the state? ... There is undoubtedly, a paucity of judicial authority on this point. It may fairly be said that De Themmines v De Bonneval (1828) 5 Russ 288, to which Lord Parker referred in Bowman's case, turned on the fact that the trust there in question was held to be against public policy. In IRC v Temperance Council of Christian Churches (1926) 136 LT 27 the principle was clearly recognised by Rowlatt J as it was in Re Hood [1931] 1 Ch 240. But in truth the reason of the thing appears to me so clear that I neither expect nor require much authority. I conclude upon this part of the case that a main object of the society is political and for that reason the society is not established for charitable purposes only.
On the previous pages we have outlined what can at first glance appear to be a sweeping prohibition against charities being involved in political activity. The apparent rigour of the doctrine is mitigated in practice by a distinction being drawn between ends and means.
A clear clue as to the existence of this distinction is to be found in the opinion of Lord Normand - one of the majority judges - in the National Anti-Vivisection case. Although rejecting the argument that an alteration in the law on vivisection was not the main purpose of the Society, he did agree that the key question was whether the general purposes of the society were 'in the main political or in the main charitable. It is a question of degree of a sort well-known to the courts' (at 76-77). (Click here if you would like to read an extract from the dissenting judgment of Lord Porter on this matter.)
In the Amnesty International case Slade J elaborated on this point:
'If all the main objects of the trust are exclusively charitable, the mere fact that the trustees may have incidental powers to employ political means for their furtherance will not deprive them of their charitable status' (at 511).
We therefore reach the position where it is permissible for charities to undertake what is often termed 'ancillary political activity'. But does this mean that otherwise non-charitable political activity will automatically become acceptable within an organisation as long as it is ancillary to some designated charitable purposes? Is it all a matter of shrewd drafting?
On the next page we will try and answer these questions through the use of some examples which draw on guidance issued by the Charity Commissioners.
You may recall that when we were looking at the 'section of the public' requirement we discovered that students' unions were likely to be seen as charitable organisations (click here for a reminder of the reasoning). It is, of course, correct that the cases do not establish that every students' union is necessarily a charity. On the other hand, even if a students' union could establish that it was not a charitable organisation, any funds derived via its parent university from central or local government would almost certainly be deemed to be held by the officers of the union for charitable educational purposes only. And it is the use to which those charitable funds can be put that is almost always at issue in litigation.
The occasional attempts by students' unions to spend union funds on political activities has provoked controversy as to the compatibility of such expenditure with charitable status. The courts have consistently held that expenditure on political purposes would be unlawful (Baldry v Feintuck [1972] 2 All ER 81; A-G v Ross [1986] 1 WLR 252; Webb v O'Doherty (1991) Times, 11 February).
But what of ancillary activity? Does this open up a loophole for expenditure on political activity? The Attorney-General has sent to all universities and colleges guidelines on permissible expenditure on such activity, the touchstone being: 'does the matter in issue affect the interests of either the students as such or the affairs of the college as such? If the answer is "no", then the case is likely to be one on which the students may hold debates and express views but not charge expenditure to the charitable funds of the Union' (7 October 1983).
On the next page we will consider whether some hypothetical items of expenditure are charitable or not.
On this page we want briefly to summarise the practical impact of the rules and of the Guidelines issued by the Charity Commissioners.
The revised guidelines go some way towards clarifying what is acceptable. They also appear more liberal in this regard than previous formulations whilst still seeming to retain a strong emphasis on 'style' - being restrained rather than strident in advocacy. The Deakin Commission, responding to the considerable volume of evidence presented to it on this matter, concluded that the guidance 'has given adequate scope for charities to fulfil their role in seeking changes in policy and law for the benefit of their beneficiaries and society' (Meeting the Challenge of Change (1996) para 3.5.12 but see Sprince (1997) 11 TLI no 2, 35-41 for a comparative and more sceptical assessment).
If a campaigning organisation still perceives these guidelines to be too restrictive it can hive off its charitable activities, as Amnesty International has now done with its Amnesty International British Section Charitable Trust, although there are associated practical administrative and fund-raising disadvantages. Where such 'organisational fission' has not occurred, there are potentially severe sanctions for undertaking political activity which is not merely ancillary. They include action for breach of trust, withdrawal of tax relief and even, as a final resort, deregistration of the charity. The potential effectiveness and practical impact of such sanctions are difficult to discern. (Click here for comment on Commissioners' practice.)
A more formidable deterrent for a campaigning charity could be a threat from central or local government to remove direct funding, a threat of some potential magnitude because of the growing and substantial reliance on state funding. Despite some early signs of an apparent willingness on the part of the state to intervene (see generally Brenton The Voluntary Sector in British Social Services (1985) pp 93-6) the current climate appears to favour non-intervention. This is reflected in the adoption in November 1998 of a 'Compact' between government and the voluntary sector which inter alia recognises that charities have the right 'to campaign, to comment on government policy and to challenge that policy irrespective of any funding relationship that may exist' (see Financial Times 13 November 1998 and also Home Office Profiting from Partnership (1990)).
5.4. Charity Law Reform
The authors of one prominent textbook (Keeton and Sheridan, The Modern Law of Charities (4th edn, 1992)) pointedly comment on the present definition as follows (at p 8):
'No statutory or judicial definition of charity; no enunciation from the bench of governing principle; fine distinctions in borderline cases; those elements do not lead inexorably to despair of determining what a charity is. In most instances, faced with a new object, a charity lawyer can be reasonably confident whether a court will hold it charitable or not.'
Substitute 'Charity Commissioners' for 'courts' and it becomes difficult to disagree with this sentiment. Moreover, of the thousands of decisions on charitable status each year, contentious questions arise infrequently. However, if we probe the borderline more deeply is a point reached where reasoning by analogy shifts from being a process of formally determining a legal question, to acting as a cloak for administrative consideration of policy choices? If this were the position, the criticism then becomes not that the 'spirit and intendment' and 'reasoning by analogy' formulae are too restrictive of new developments, but that their mysticism allows relevant policy considerations to remain unarticulated and perhaps even unconsidered.
There are therefore two general issues concerning a definition of charity that we would like you to address: one, notwithstanding the above statement from Keeton and Sheridan, is whether in the interests of clarity simplicity and even efficiency a new 'definition' is needed. The second issue is whether and to what extent any proposed new definition should be required to address certain policy debates in this area of law.
posted by Maverick SM @ 10/12/2005 02:16:00 AM
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