In 1951, an argument that schools should be charitable only if they offer free or reduced tuition was dismissed by the court as a “startling proposition”.Footnote 1 Yet, in 2010, an independent school was assured of its charitable status only when it agreed to offer means-tested bursaries.Footnote 2 So did the law change with the Charities Act 2006 (‘the Act’)?
Well, yes and no, says the Charity Commission (‘the Commission’).Footnote 3 Yes, in that the Act removed a presumption that the advancement of education is for the public benefit, with the result that schools, whether already registered as charities or not, must manifestly demonstrate that they operate for the public benefit. No, in that case law already provides that opportunities to benefit must be provided to people in poverty and, where fees are charged by the charity for its services, to people unable to afford those fees.
This paper will examine whether the Commission is right to require that people who are unable to afford the fees charged by a charity, including people in poverty, are given opportunities to benefit from the charity's activities. It will submit that the Commission's responses are neither justified by statute or case law, nor do they render the above-mentioned argument any less startling or flawed.
I. The Presumption
The Act defines a charity as an institution established for purposes which fall within certain categories and are “for the public benefit”. It also provides that “public benefit” shall have the meaning given to it in underlying case law.Footnote 4 Subsection 3(2) provides that public benefit is not to be presumed in any particular case. The Commission maintains that this provision removes a presumption of public benefit. However, it is misleading to suggest that public benefit, as understood in charity law, was ever presumed. To the extent that a presumption existed in case law, it was a rebuttable presumption that an organisation with the purposes of advancing education (or relieving poverty or advancing religion) was prima facie charitable, because those purposes were assumed to be beneficial.Footnote 5 The presumption was always subject to those purposes not being shown to be illegal or contrary to public policyFootnote 6 or more detrimental than beneficial.Footnote 7 The need for multiple purposes to be exclusively charitable still had to be satisfied and the requisite public character, the “public” element of public benefit, was not presumed.Footnote 8
The express stipulation that public benefit is not presumed is no more than a statement of the existing law.Footnote 9 Public benefit cannot be “presumed”, because the courts must be satisfied that the necessary public character exists and that there are no factors which detract from apparent charitable status. The provision means that a court must be satisfied that purposes are for the public benefit and not that a charity must always “manifestly demonstrate” that that is the case, nor that it operates Footnote 10 for the public benefit. A court may continue to take judicial notice of matters which it considers do not need evidence, including that a school's provision of education is prima facie charitable.Footnote 11
II. Relevant Principles Under Case Law
The Commission interprets case law as embodying the principle that opportunities to benefit must be provided to people unable to afford a charity's fees, including people in poverty. However, the principles that emerge from the case law are, first, that poverty is not an essential element of charity and, secondly, that the charging of fees is permissible, provided there is no intention to profit for private gain.
A. Poverty is not essential
Whether or not poverty, and the needs of the poor, must be addressed in all cases of charity has proved to be a contentious aspect of charity law. On the one hand, there have been clear authoritative statements to the effect that poverty does not always need to be considered. Most notably, perhaps, in a Privy Council decision in 1924,Footnote 12 Lord Wrenbury made it clear that poverty is not “a necessary element” in charities under the fourth headFootnote 13 and, similarly, that education and religion “do not require any qualification of poverty to be introduced to give them validity.”Footnote 14 On the other hand, the relevance of poverty has been argued on occasion, principally in relation to charities dealing with the aged or infirm and where fees are charged for the charity's services.
To say that poverty is not an essential element of charity is to say, first, that the relief of poverty does not need to be one of the purposes of the organisation and, secondly, that there is no requirement in charity law for the poor to be given the opportunity to benefit from an organisation's charitable purposes. It may well not accord with popular notions of charity, but that is because “charity” has a distinct legal meaning that is “clear and distinct, peculiar to the law” and “not depending upon or coterminous with the popular or vulgar use of the word”.Footnote 15 The technical nature of the legal definition of charity was not changed by the Act.
The beneficiaries of a charity's purposes might comprise all poor, all rich, or a combination of poor and rich. For our purposes, “rich” means “not poor” and “poor” means “not rich”. The two terms are thus mutually exclusive and require no further definition.Footnote 16 Whilst accepting the principle that a class need not be confined to the poor and that the rich may also benefit, the Commission maintains that, where all the beneficiaries may be rich, the poor must also be given material opportunities to benefit.
A class comprising only the rich might arise in the following ways:
• By an indifference to whether those who actually benefit are rich or poor
• By declaring that purposes are aimed at the rich or with a proviso or qualification that the poor shall not benefit (an “express exclusion on the terms”)
• By describing a class of beneficiaries in such a way that only the rich could possibly fall within it (an “implied exclusion on the terms”)
• By declaring purposes which can only benefit the rich because high fees are charged (an “implied exclusion in practice”)
Except where purposes are clearly aimed at relieving poverty, very often there is no intention that a potential beneficiary's wealth should be taken into account in considering his eligibility to receive the benefits of the charitable purposesFootnote 17 and this lack of concern on the part of the donor is reflected in the courts' attitudes. It seems unlikely that an express exclusion on the terms would arise in practice and even less likely, if it did, that charitable status would be advocated or defended with any vigour.Footnote 18 An implied exclusion on the terms is more likely to arise and, indeed, has arisen in some casesFootnote 19 and, of course, an implied exclusion in practice is commonplace where fees are charged.
1. The relief of poverty
Clearly poverty is an essential element under the first head of charity. In the case of membership organisations, which are potentially non-charitable because of their non-public character, charitable status will only exist if the purpose, or one of the dominant purposes, is to relieve poverty.Footnote 20 Thus in Re Hobourn Aero Components Limited's Air Raid Distress Fund,Footnote 21 the Court of Appeal held that a fund which was primarily for contributing employees who had suffered from air raids did not constitute a charitable trust, principally on the ground that it was of a private and not public nature.Footnote 22 Had there been a requirement of poverty in those eligible for assistance, the trust would have been charitable, whereas the relief of distress from air raids (which would be capable of being charitable in a public context) would not render a private arrangement charitable.Footnote 23
2. Advancement of education
In Attorney-General v. The Earl of Lonsdale Footnote 24, the Vice-Chancellor, Sir John Leach, dismissed outright an argument by counsel that a free school for the education of gentlemen's sons could not be charitable. He conceded that such an object would not be charitable “in popular language” but then stated that “in the view of the statute of Elizabeth, all schools for learning are so to be considered”.Footnote 25 Nearly a century later, Lord Cozens Hardy M.R. refused to accept that a trust for the advancement of education could not be charitable unless there was an element of poverty: “There is no foundation for it in authority nor is there any foundation for it in reason.”Footnote 26
Many fee-paying schools were founded for the education of the poor.Footnote 27 Fee-paying boarders were initially few in number, or introduced at a later date, but, typically, became the sole or main category of pupils. This evolution in educational provision led to many repeated calls for independent schools to be closed, or for fiscal privileges and/or charitable status to be removed,Footnote 28 but it did not hinder the unswerving attitude of the judiciary in attributing charitable status to them in the nineteenth and twentieth centuries.Footnote 29
Provided purposes are actually seen as tending to advance education,Footnote 30 they have been held to be charitable without any consideration of the presence or absence of poverty.Footnote 31 A failure to attract charitable status, on the other hand, has not been due to the absence of poverty but other reasons, most notably lack of public character where education has been intended for relatives or employees.Footnote 32
3. Advancement of religion
The relevance of poverty was central to Pemsel's case,Footnote 33 where the House of Lords held that the purposes of “advancing the missionary establishments among heathen nations of the Protestant Episcopal Church”Footnote 34 were charitable and entitled to income tax allowances. Three of their Lordships, dismissed the “restricted”Footnote 35 view that charity implies the relief of poverty and that the testator must be found to have had an intention to provide such relief. They found the purposes to be charitable, notwithstanding that there was no intention to discriminate between rich and poor heathens.
As with education, the presence or absence of poverty has not been a determining factor in purposes for the advancement of religion.Footnote 36
4. Cases falling under the fourth head
After identifying the fourth head of charity in Pemsel's case, Lord Macnaghten added that trusts within that category “are not the less charitable in the eye of the law, because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do either directly or indirectly”.Footnote 37 Of course, in itself, this tells us only that the beneficiaries of a charitable trust are not required to be exclusively poor and not that poverty is an irrelevant consideration. Whilst it is authority for the proposition that the rich may benefit incidentally, it is not authority for saying that the rich cannot benefit in ways that are not merely incidental.Footnote 38 To suggest that it requires at least some poor to benefit, regardless of purpose and charges, would be to ignore the historical and factual context of the case.
Later dicta address more explicitly the relevance of poverty in charities under the fourth head. In I.R.C. v. Baddeley,Footnote 39 trusts were declared to be non-charitable because the purposes were not recognised by law as exclusively charitable. Lord Reid was clearly of the opinion that, had the purposes been exclusively within the fourth head, “the element of poverty is not necessary to make them valid charitable purposes”.Footnote 40 In Re Resch,Footnote 41 Lord Wilberforce referred to Lord Wrenbury having “held generally that poverty is not a necessary qualification in trusts beneficial to the community”.
Again, numerous purposes have been found to be charitable under this head without any consideration of povertyFootnote 42 and charitable status has been denied on a number of grounds but not the absence of povertyFootnote 43.
5. Relief of the aged or infirm
The significance of poverty has been especially prominent where the purposes are concerned with the aged or infirm.Footnote 44 In these cases are to be found some of the most notable suggestions of a judicial reluctanceFootnote 45 to accord charitable status to purposes that do not include an element of poverty. In the mid-twentieth century, academics debated whether a trust for the relief of “aged peers” or “impotent millionaires” would be charitable. Megarry noted the evolving cases of the time and identified the nub of the problem as it seeming “to accord ill with the spirit of the Statute to open the doors of charity to those who are wealthy and well able to provide for themselves, merely because they are aged”.Footnote 46 Brunyate,Footnote 47 however, considered the example of a rich blind man and distinguished between gifts of money on the one hand and curing blindness or providing braille services on the other.Footnote 48 Taking a bolder approach than some, he noted: “to regard a rich man who is blind or maimed as in no sense a proper object of charity would surely be taking a very worldly view of human suffering”.Footnote 49 The cases which addressed this issue over the following two decadesFootnote 50 reflected this view and to relieve the needs of aged or impotent persons came to be regarded as charitable without any need for poverty, just as other prima facie charitable purposes had not been disqualified through an absence of poverty.
After a period of reticence, where judges appeared to be reassured to find evidence which suggested that the testator had intended to benefit aged people who were also poorFootnote 51 or indigentFootnote 52, a new confidence emerged in Re Robinson Footnote 53, where Vaisey J. held, without hesitation, that a gift to people aged over 65 was charitable without any need for poverty. The requirement for some relief of a need attributable to age, however, was favoured as an approach and emphasised in Joseph Rowntree Memorial Trust v. Attorney General. Footnote 54 Peter Gibson J. in that case considered a number of schemes for the provision of special housing for the elderly and found that the relief of that need was prima facie charitable without any qualification of poverty. Basing his decision on logic as well as judicial authority, he expressed his conclusion with utmost clarity: “It would be as absurd to require that the aged must be impotent or poor as it would be to require the impotent to be aged or poor, or the poor to be aged or impotent.”Footnote 55
The question of whether poverty is essential in gifts for the relief of the infirm was to the fore in Re Lewis.Footnote 56 Roxburgh J., in construing gifts of £100 to blind boys and girls, boldly decided to “grasp the nettle” and decide whether or not the absence of “any element of poverty whatsoever” was fatal to finding that the gifts were charitable.Footnote 57 He was also happy to endorse the disjunctive interpretation (and its necessary consequences) adopted by Danckwerts J. and Vaisey J.Footnote 58 Like Peter Gibson J,Footnote 59 Roxburgh J pointed to the illogical nature of the counter-argument that would mean that a trust for poor people would not be charitable unless they were also aged or infirm.
Re Resch Footnote 60 is considered below in relation to fee-charging, but for present purposes it is worth noting the words of Lord Wilberforce in that case where, keen “to dispose of a misapprehension”, he said that “it is not a condition of validity of a trust for the relief of the sick that it should be limited to the poor sick …. there is no warrant for adding to the condition of sickness that of poverty”.Footnote 61 The first part of this statement of principle is narrow but the second is much wider and, logically, must embrace the possibility that all beneficiaries could be rich.Footnote 62
6. Locality cases
Where the public generally, or a section of the public defined by location, is to benefit then poverty is seen not to be essential. Thus in Mitford v. Reynolds (1842),Footnote 63 a bequest for the benefit of the native inhabitants of a named city was construed as being “not for any particular class of the native inhabitants, but for all the native inhabitants in general, both rich and poor”Footnote 64 and thus charitable. Similarly, in Jones v Williams,Footnote 65 a gift to supply water to the people of Chepstow was charitable as “a gift to a general public use, which extends to the poor as well as to the rich”. Despite mention of rich and poor in both cases, neither decision appears to require that some poor must be able to benefit from the bequest. Rather, it appears sufficient that the public benefits indiscriminately, that is without reference to wealth or poverty.Footnote 66
In the leading case of Goodman v. Saltash,Footnote 67 the House of Lords concluded that the privilege of removing oysters from a fishery amounted to a charitable trust for the benefit of free inhabitants of ancient tenements in the borough of Saltash. None of their lordships was concerned to find any element of poverty. This case is significant because the charitable trust was tantamount to a trust for the rich aloneFootnote 68 and the potential or actual exclusion of the poor did not prevent that conclusion. Lord Fitzgerald understood the term “free inhabitants” to mean persons “on whom privileges were conferred in respect of their having erected houses within its limits, and being inhabitants or residents therein”.Footnote 69
In construing the Inclosure Act 1802,Footnote 70 the Court of Appeal was reluctant to find that it created a trust unless it could be framed as a charitable trust in line with judicial authorities. It seems that some comfort was derived from conjecturing that the Act might originally have been aimed at poor people, although this was said only to support (and not to prove) the viewFootnote 71 that the court had already reached on the basis of features in common with those in Goodman v. Saltash, namely that the Act gave rise to a charitable trust for the benefit of occupiers of the cottages, whether poor or not.
7. Charitable and non-charitable purposes
Where the courts have ruled that philanthropic or benevolent purposes are not charitable, it has not been because those purposes have failed to address the needs of the poor.Footnote 72
However, the relevance of poverty might appear to be prominent in Re Macduff Footnote 73 where the court was faced with the task of determining whether purposes could be “philanthropic” but not “charitable”. Lindley L.J. suggested a distinction in that “purposes indicating goodwill to rich men to the exclusion of poor men”Footnote 74 would be philanthropic but not charitable. He did not say that poverty, whilst clearly not an essential element of philanthropy, was an essential element in charity. Although such purposes would probably be non-charitable in any event for being uncertain, his comment by way of explanation, namely that he doubted “very much whether a trust would be declared to be charitable which excluded the poor”,Footnote 75 does indicate that he considered that even a prima facie charitable purpose would not be charitable if it “excluded the poor”. Since his lordship must be presumed to have been aware of the decisions of the courts in Attorney-General v. Lonsdale Footnote 76 and Goodman v. Saltash Footnote 77, his words cannot be taken as authority for holding an implied exclusion on the terms to be non-charitable. It seems, rather, that his Lordship's comments can be taken only as an obiter suggestion that an express exclusion of the poor could not be charitable.
The technical meaning of charity, which depends on purpose and public character, appears to provide no reason, in logic or judicial precedent, why such an express exclusion should render something non-charitable that would otherwise be charitable.Footnote 78 Is there any difference between a gift “for the benefit of gentlemen's sons but not the poor” and one “for the benefit of gentlemen's sons”? To say “for all children but not adults” means nothing more than “for all children”. And if a test of charitable status survives describing the class as, essentially, wealthy people, why would it fail if the beneficiaries, though not described in such clear terms, would need to be so in order to pay any contributions charged? However, an express exclusion of the poor undoubtedly arouses the sort of sentiments that associate charity with poverty. It would not be surprising, therefore, if the courts, unfettered by precedent and accustomed to evolving empirically, chose to deny charitable status on the grounds of policy, even though logic alone might lead to a different conclusion.
In the same case,Footnote 79 Lopes L.J. indicates that he would not consider “recreation grounds and grounds devoted to sport which are not for the poorer classes, but are generally for rich and poor alike” to be charitable. It is submitted that the view he is expressing, in response to a point raised in argument, is that the provision of such facilities is not a prima facie charitable purpose, but could only be charitable if provided specifically for the poor, in which case they might be treated as fulfilling the undoubtedly charitable purpose of relieving poverty.Footnote 80 His second example of purposes that are philanthropic but not charitable is that of a gift to landowners affected by agricultural depression whose incomes drop to £300 p.a. Since the only possibly charitable purpose might be to relieve poverty, the wealth of the recipients is clearly relevant and there can be no charitable purpose of relieving the poverty of the rich,Footnote 81 including someone with an income of £300 in 1896. Hence the gift is philanthropic but not charitable. Peter Gibson J. made the same point in 1983:Footnote 82 “a gift of money to the aged millionaires of Mayfair would not relieve a need of theirs as aged persons”.
Rigby L.J., similarly, illustrates his conclusion that some purposes may be philanthropic but not charitable by considering a gift of residue on trust “towards advancing the happiness and the position in life generally” of the “well to do or moderately well to do”.Footnote 83 Again, neither making people happierFootnote 84 nor making them “in some sense better than they now are” is a charitable purpose in law but only philanthropic. If the aims were to advance the happiness or improve the position of poor people, these might be construed as ways of relieving poverty, but one cannot relieve the poverty of the “well-to-do”.Footnote 85
B. Fees may be charged but not for private gain
The fact that a charity may charge for the benefits and services it provides is a well-established principle of charity law. Lord Upjohn put it simply: “It is quite clear that the mere making of a charge for the services rendered does not prevent an organisation, otherwise charitable, from being charitable”.Footnote 86
However, the effect of charging fees is to highlight the distinction between rich and poor and it becomes entirely foreseeable that the beneficiaries of a charity which charges high fees will comprise a significant proportion of rich people. This makes the question of whether poverty is an essential element in charity more acute and the tension between the popular and legal meanings of charity more pronounced. It is not surprising, therefore, that the legitimacy of charities charging fees has been challenged, but the courts have not refused charitable status on the grounds of fees being charged, even high fees, provided any surplus or profit is applied to charitable purposes.
1. Level of fees
If an organisation's purposes are charitable, charitable status will not be denied because the means of fulfilling that purpose involve the running of a business.Footnote 87 The courts have not imposed any objective requirement that fees should be fair or reasonable or necessary.Footnote 88 The trustees have discretion in setting the level of fees and determining the basis on which they are charged. Even fees set on a commercial basis have not affected charitable status, whether they have been charged to some in order to subsidise others, or across the board. Thus schools have been considered to be charitable despite “substantial fees”Footnote 89 or fees fixed “on commercial principles” giving rise to fee receipts significantly exceeding working expensesFootnote 90. Fees for the hospital in Re Resch, too, were substantial and produced surpluses but, in line with the common approach, the court was more concerned with the application of the surplus than the level of fees and found the trust to be charitable.Footnote 91 Fees are typically expressed to be at a rate necessitated by the cost of providing the servicesFootnote 92 or at less than costFootnote 93. The charges may vary in order to reflect different levels of services receivedFootnote 94 or different categories of beneficiaryFootnote 95.
The courts' approach is summarised in Incorporated Council of Law Reporting for England and Wales v. Attorney-General: Footnote 96 “… it is clear that the mere fact that charges on a commercial scale are made for services rendered by an institution does not of itself bar that institution from being held to be charitable – so long, at any rate, as all the profits must be retained for its purposes and none can enure to the benefit of its individual members”. There was no suggestion that extra provision should be made for people unable to afford the fees.Footnote 97
2. Destination of profits
However, if a profit is intended to be made for the private gain of its founders, managers, owners or members, there is no charity.Footnote 98 Numerous cases and judicial dicta have noted the destination of profits, and not the benefits available to people unable to afford the fees, to be the critical test in relation to charitable status. Danckwerts J summarised the principle thus: “as the whole purpose of this deed was to secure the education of girls at the Abbey School on a non-profit-making basis, the trusts are plainly of a charitable nature”.Footnote 99 Similarly, Buckley L.J., in the Law Reporting case Footnote 100, concluded that the fact that business profits were permitted but could only be applied in furtherance of its objects meant that the Council was “consequently not prevented from being a charity by reason of any commercial element in its activities”.Footnote 101
Likewise, in Re Smith,Footnote 102 Upjohn L.J. described two ways of treating the sick: the charitable way, being a hospital where funds are applied exclusively to the relief of the sick, and the non-charitable way, being the application of funds to an institution run for profit, ie where the funds are applied in part to the treatment of the sick and in part to earning profits. Russell L.J. also noted that profit motives would exclude an institution for treating the sick from the legal concept of charity.Footnote 103
The position may be different, however, where the profit-making institution is not the purported charity itself but another institution which might be used as a vehicle for carrying out the charity's purposes. In Taylor v. Taylor,Footnote 104 Isaacs J. contemplated circumstances where founding or endowing a non-profit-making institution would not be practicable and expressed his view that the charitable intention could properly be carried out by providing financial assistance to a profit-making institution which would meet the needs of the beneficiaries.Footnote 105
The principal fee-charging charities are independent schools and hospitals and the courts may have shown a greater readiness to affirm charitable status in education cases.Footnote 106 However, it is submitted that the essence of the decisions can be extracted and generally applied. This is that there must be some charitable, or altruistic, element that distinguishes the organisation from a commercial venture. There must be some “benevolent source or sources” which result in the beneficiaries receiving the services for less than the full commercial or market rate.Footnote 107 This might be an original gift of money or property, or ongoing source of income such as donations, subscriptions or investment income, or higher fees charged to some in order to subsidise others. Provided an organisation's purposes are charitable, the “unselfregarding” diversion of profits into those charitable purposes will also suffice.Footnote 108 The courts have not generally insisted on one form of altruism over another.Footnote 109 Without such evidence of altruism, the organisation is indistinguishable from a commercial venture.Footnote 110
3. Reduction or waiver of charges
Of course, one of the consequences of an organisation's charitable foundation or income is that it may be able to reduce the charges to some beneficiaries in particular or to waive them altogether. This is different from providing services to all beneficiaries at below cost or market value. Such a reduction or waiver of fees may be targeted at the less well-off and, therefore, becomes a significant part of any policy or argument which seeks to correlate legal charity and relief of the poor.
An organisation's obligation or willingness to reduce or waive fees, therefore, has been raised in evidence and argument and may be relied upon as indicative of charitable intention where the charitable nature of the purposes is in question. However, the courts have not required fee-charging charities to offer reduced or nil fees for their services before charitable status can be attributed.Footnote 111 For example, Nicholas J. in Perpetual Trustee Co v. St Luke's Hospital Footnote 112 commented that “… a hospital is not excluded from the category of charitable institutions because it accepts no patients who do not pay fees …” and he intimated that charitable status cannot depend on precise numbers of those receiving below-cost services or their proportion to the total number of beneficiaries or the precise level of fees.Footnote 113
4. Re ReschFootnote 114
Having identified the purposes of the hospital as prima facie charitable, the Privy Council considered two “disqualifying indicia” that might render it non-charitable: first, whether it was run for private profit and, secondly, whether it failed the necessary test of public character by not benefiting a sufficiently large section of the community. It was not disqualified on either count.
There was evidence that some patients had benefited without payment. However, there were no rules or constitution for the hospital (nor provision in the will) which required some services to be given gratis, and so the position could have varied from year to year. Counsel for the hospital did not seek to rely on such provision for the less well-offFootnote 115 and although Lord Wilberforce commented on this part of the evidence in summarising the facts of the case,Footnote 116 he can hardly be said to have attached weight to it and it is not a conclusive, or even critical, part of the Privy Council's decision.Footnote 117 Certainly there was no suggestion that the provision of reduced or free services should be a qualifying factor of charitable status.Footnote 118
Recognising the high cost of medical services, the court held that a trust for providing medical facilities would not be deprived of charitable status “merely because by reason of expense they could only be made use of by persons of some means”.Footnote 119 This principle is significant in stating that a charitable purpose can be charitable even though high fees (as opposed to an express exclusion on the terms) mean that only the rich can benefit.Footnote 120 Of course, the purpose could still be rendered non-charitable by an intention to make a profit for private gain or to apply monies also to non-charitable purposes. However, having a class of beneficiaries comprised only of “persons of some means” does not deprive the institution of charitable status on the basis of it failing to benefit a sufficiently large section of the community.
Lord Wilberforce identified indirect benefit and said that it could be taken into account in determining public benefit,Footnote 121 apparently as much to do with the sufficiency of the section of the public as with the charitable nature of the purpose. Independent schools provide an indirect benefit to society by educating some of its number and by relieving the burden to the state. However, although indirect benefit alone may even be sufficient,Footnote 122 the courts have not insisted on identifying indirect benefit in addition to direct benefit once purposes have been acknowledged to be charitable.Footnote 123
III. The Commission's Principles From Case Law
The principles which the Commission extrapolates from underlying case law are that opportunities to benefit must not be unreasonably restricted by ability to pay fees and that the poor must not be excluded from the opportunity to benefit.Footnote 124 In expounding those principles, and in its public benefit assessment programme, the Commission demands a rather more proactive approach than these words might suggest and requires trustees to provide “sufficient opportunity to benefit in a material way for people unable to afford the fees, including those in poverty”.Footnote 125 This places a significant burden on trustees, which runs counter to the extensive judicial authority indicating that poverty is not a qualification of charity.Footnote 126
The Commission bases these principles on Re Resch Footnote 127 in particular, and six other cases.Footnote 128 Only two cases involve feesFootnote 129 and none offers even tentative support for the stated principles.Footnote 130 In its legal analysis, it quotes dicta from Jones v. Williams Footnote 131, Pemsel's case Footnote 132, Re Macduff (Lindley L.J.)Footnote 133 and Taylor v. Taylor (Griffith C.J.)Footnote 134 but does not provide any analysis of those dicta. It also cites Oppenheim v. Tobacco Securities Trust Co Ltd Footnote 135 but gives no specific reference.Footnote 136 These cases are said to support the principle in Re Resch that an organisation which “wholly excluded poorer people from any benefits, direct or indirect, would not be set up, and operate, for the benefit of the public and therefore would not be a charity”.Footnote 137
In fact, Lord Wilberforce articulated no such principle. Although his approach might be interpreted to favour the view that an express exclusion of the poor on the terms of the trust might have rendered it non-charitable, any such principle could not be applied to an implied exclusion in practice, since that would conflict with his stated principle that a charitable purpose was not rendered non-charitable only because high fees meant that “only people of some means” could benefit from it.
The Commission fails to comment upon this principle but concentrates instead on Lord Wilberforce's contrasting example, that “to limit admission to a nursing home to the rich would not be charitable”Footnote 138. However, this example cannot be taken as authority for the Commission's analysis. His reference to limiting admission must be construed as referring to an express exclusion on the terms if it is not to conflict with the afore-mentioned principle, or it may be seen as a “belt and braces” approach, akin to the examples of philanthropic but non-charitable purposes in Re Macduff Footnote 139. In addition,Footnote 140 it seems likely that his lordship was referring to institutions run for profit and therefore not charitable in any event. Five years earlier, Wilberforce J, as he then was, was required to interpret the word “hospital” in a will.Footnote 141 Since the word “hospital” could be construed as including non-charitable institutions, he held that the purposes were not exclusively charitable and the gift failed. On appeal, Lord Denning M.R. agreed that the word “hospital” was capable of covering “both voluntary hospitals, dependent on voluntary contributions, and also nursing homes run for private profit”,Footnote 142 but it was held that only the former were intended by the testator. Upjohn L.J. described the non-charitable purpose most pertinently: “The non-charitable way of treating the sick is by applying funds to an institution run for profit, commonly called a ‘Nursing Home’.”Footnote 143
The Commission concludes that the access provided by the hospital to those not able to afford the fees was “clearly more than minimal or nominal … or … by chance” and that “it was therefore clear that there were sufficient benefits to poorer people who could not afford the fees in this case”Footnote 144 and yet this is at odds with the expressions of small and occasional gratuitous services described by counsel and Lord Wilberforce. The Commission's legal analysis fails to explain the significance of a fee-charging charity's surpluses and does not differentiate between express and implied exclusions of the poor.
The Commission maintains that a school which fails to demonstrate either of these principlesFootnote 145 is not operating for the public benefit, with the consequences that the trustees are “operating in breach of their charity's trusts” and the school is “not, in substance, a charity”.Footnote 146 Highfield Priory School was declared to be “capable of being charitable” but only if it met the public benefit requirement which, the Commission reported, it was not doing because it failed to meet these two principles.Footnote 147 As an institution which “it [the Commission] no longer considers is a charity”, the Commission could, perhaps should, have removed it from the register of charities.Footnote 148 However, this might have led to an argument that the school had never been a charity and had been registered in error (since it had not changed materially since registration). In these circumstances, the Commission might have been forced to accept that the school could then continue as before, but removed from the Commission's regulatory regime and without the fiscal and other benefits of charitable status.Footnote 149 Instead, the Commission accepted the school's “plan” to provide means-tested bursaries worth 4.9% of gross fee income, in return for which it was reassured of its continuing charitable status.Footnote 150 In the face of potential liability for breach of trust and divestment of charitable status, it is hardly surprising that the school's trustees did the Commission's bidding.
IV. Conclusion
The law continues to require an organisation to be established for exclusively charitable purposes (now listed), which are neither outweighed by detriment nor illegal nor contrary to public policy, and which are for the benefit of the public or a section of the public. Subsection 3(2) effects no substantive change in the law. The Commission's two principles regarding the poor are founded on the principle that a charity cannot have a class of beneficiaries which comprises only the rich. Re Resch is not authority for that proposition in the context of fee-charging charities and the other cases which the Commission cites in support are specifically said, in Re Resch, not to support it.
Although judicial dicta suggest that an express exclusion of the poor on the terms may result in charitable status being denied on policy grounds, the law does not require the trustees of a charity to provide services for nil or reduced fees to the poor, or to provide opportunities to people outside its beneficial class.
The Commission's conclusion that a school which fails to operate for the public benefit is in breach of trust is a distortion of the law by a non-ministerial government department responsible for offering guidance on the law.Footnote 151 It appears to have fashioned its exposition of the law on its stated aim to “help the general public to see what charities do actively to reflect the benefits of their special status”.Footnote 152 Notwithstanding its promises, the Commission has failed to act in the same way as the courts.
A wish to see wider access to those less well off is a legitimate ideology and was a recurrent theme in many of the debates in Parliament before the Act was passed. It is, of course, open to the legislature to remove any or all of the privileges afforded to charities or to legislate for greater access to services.Footnote 153 However, the 2006 Act did neither and provides no justification for the Commission's approach.
When Highfield Priory submitted its revised plans, the Commission may have congratulated itself on a job well done. Now that members of the Upper Tribunal (Tax and Chancery) have considered the Attorney General's reference and application for judicial review brought by the Independent Schools Council,Footnote 154 the judgment of the court might be expected to reveal a different conclusion.
