Analysis
The Independent Schools Council (ISC) brought an application for judicial review, seeking an order to quash certain parts of guidance issued by the Charity Commission (CC) comprising the ‘Charities and Public Benefit – the Charity Commission’s General Guidance on Public Benefit’ (issued January 2008) and ‘Public Benefit and Fee Charging’ and ‘The Advancement of Education for the Public Benefit’ (both issued in December 2008). ISC alleged that the guidance included errors of law in respect of the public benefit requirement as applied to charities that charge fees for their charitable activities, and in particular as applied to independent schools. The defendant was CC. The National Council for Voluntary Organisations (NCVO) and the Education Review Group (ERG) later joined as interveners. The Attorney General also referred several questions of charity law to the Charities Tribunal for a decision, concerning a hypothetical independent school under the Charities Act 1993 (see Annexe A to the judgment below). There were no parties to the reference when it was made, but the CC and ISC were later joined as parties.
The two proceedings were dealt with in the course of a single hearing and raised two central issue:
- 1. What the governing instrument of a school (where such an instrument exists at all) needs to provide in order for the school to be capable of being a charity; and
- 2. What a school actually needs to do to be seen as operating for the public benefit.
Held
The guidance should be corrected [236].
It was worth remembering that in law, ‘charity’ is a term of art that does not mean precisely what it is thought to mean in the real world. Where a trust or corporation is a ‘charity’ in that sense, certain legal consequences follow. For instance a charitable trust, unlike a private trust, is not subject to the rule against perpetuities and is entitled to a number of favourable tax reliefs. Also the law has developed differently in relation to different ‘heads’ of charitable endeavour. Care had to be taken in applying the law established in one area to another area, particularly when the same words were used to describe similar, but not identical, concepts. For this reason, what was said in the decision about the public benefit requirement was confined to the context of educational charities [15]. Similarly, the word ‘poor’ in this context did not mean destitute. In charity law, a poor person is a person who could not reasonably afford to meet a particular need by purchasing at the full cost price the service which it was the charity’s purpose to provide [40].
The Charities Act 2006 (the 2006 Act) made very little difference to the pre-existing law and did not increase the burden on private schools to prove public benefit before they could qualify for or retain their charitable status. All the 2006 Act had done was to bring into focus what it was that the pre-existing law already required, and what the law now required by way of the provision of benefit and to whom it must be provided [88]. In the state of the authorities immediately prior to the 2006 Act, public benefit ‘as that term was understood for the purposes of the law relating to charities…’ included two aspects:
- 1. It had to be of a nature such as to be of benefit to the community; and
- 2. It also had to be directed at the public (or community, to use the language of several cases) or a sufficient section of it. It was for the alleged charity to establish its status.
The judge or tribunal would assess all the circumstances and decide whether or not the purposes in question were for the public benefit in both senses. It was highly unlikely that a judge or tribunal would ever have to decide an issue on the burden of proof. It was certainly not something which was necessary in the present proceedings in relation to public benefit in the first sense [44], [53].
Prior to 2006 the courts had never made any assumption about whether a purpose was directed to the public or a sufficient section of the public so that s3(2) of the 2006 Act did not alter anything. The present context was not, in any case, an area where there was really any room for presumption. The class of persons to benefit would be known and the court would then decide, not presume, whether the class identified formed a sufficient section of the community for the purpose to qualify as a charitable purpose. The schools had purposes which were for the public benefit in the first sense because:
- 1. the nature of the education which they provided was for the public benefit [95]; and
- 2. the material provided by ERG did not displace that conclusion.
Indeed, even where a clear disadvantage to the public could be demonstrated, it might not be easy, or indeed, possible, for the court (and now the tribunal) to balance the benefits and disadvantages. Still more would that be the case where the suggested disadvantages (and indeed the benefits) depended on value judgements influenced by social and political agendas [96]-[110]. The inter-relationship between the two senses of public benefit in the context of education was that educational trusts of an ordinary sort were seen as being for the public benefit in the first sense because of the value to society of having an educated population. That was no more and no less of benefit to the community in the case of a rich person than a poor person. Accordingly, if an educational institution failed to be for the public benefit because it was limited, either constitutionally or in practice, to providing benefits to the rich, this would be so because, and only because, it failed to be for the benefit of a sufficient section of the public [111].
A hypothetical independent school whose sole object was the advancement of the education of children whose families could afford to pay fees representing the cost of the provision of their education did not have purposes which provided that element of public benefit necessary to qualify as a charity. This conclusion would be ‘all the stronger’ if the hypothetical school were to charge fees that were significantly in excess of the cost of education in order to build resources for further development of the school’s facilities [177]. Where, however, a school was, by its constitution, open to all, it was established for charitable purposes only [189]. Where a school did not have a written constitution, or only had an incomplete one, its purposes were established by looking at the evidence [193].
When considering whether a school which is a charity was operating for the public benefit in accordance with its charitable purposes, the primary focus was on the direct benefits it provided, such as scholarships, bursaries, the sharing of teachers or teaching facilities, and making teaching materials or other facilities such as sports facilities available to state schools. However, less weight should be given to benefits which were provided at little cost to the school. The making available of facilities to the community as a whole could not be taken into account in this context [201]-[203]. Independent schools had to be seen to be doing enough for those who could not afford fees if they were to operate for the public benefit. That public benefit requirement was satisfied if the school provided some benefit for those not able to afford fees which was more than de minimis or token. However, each case turned on its own facts and the school trustees had to decide how this was to be best achieved in the context of the school’s own circumstances [216].
It followed that guidance issued by the CC for England and Wales included errors of law in respect of the public benefit requirement contained in the Charities Act 2006 on independent schools which charged fees. Whether the public benefit requirement was satisfied depended on the facts of each case. The correct approach was to look at what a trustee, acting in the interests of the community as a whole, would do in all the circumstances of the particular school under consideration and to ask what provision ought to be made once the threshold of benefit going beyond the de minimis or token level had been met. There was no reason why the provision of scholarships or bursaries to students who could pay some, but not all, of the fees should not be seen as for the public benefit. Provided that the operation of the school was seen as being for the public benefit, with an appropriate level of benefit for the poor, a subsidy to the not so well off was to be taken account of in the public benefit [215-217].
The tribunal noted that its decision would not give the parties the clarity for which they were hoping and would satisfy neither side of the political debate. However, that the political issue was not really about whether private schools should be charities as understood in legal terms but whether they should have the benefit of the fiscal advantages which Parliament had seen right to grant to charities. It was for parliament to grapple with that issue which was quite separate from the issues which had dogged the many committees which had addressed reform of charity law.
JUDGMENT MR JUSTICE WARREN, JUDGE ALISON McKENNA AND JUDGE ELIZABETH OVEY: A. Introduction The proceedings [1] We have before us two separate but closely related sets of proceedings. They both concern the effect of the public benefit requirement contained in the Charities Act 2006 (the 2006 Act) on independent schools which charge fees. [2] The …Continue reading "The Independent Schools Council v The Charity Commission [2011] UKUT 421 (TCC)"