Charities for the relief of poverty and public benefit
1.1 The Attorney General made a reference to the Charity Tribunal (the Tribunal) in 2011. The main purpose of the reference (the Reference) was to seek a decision from the Tribunal which addressed the uncertainty regarding whether institutions for the relief of poverty among a class of beneficiaries defined by reference to their relationship to a particular entity or individual are capable of being charities under charity law as set down in the Charities Act 2006 (the Act). Such institutions would include Masonic charities and other charities which are defined by reference to an organisation, employee benevolent funds and charities for the relief of poverty amongst past or present pupils of a named school or residents of particular care homes.
1.2 On 20 February 2002, the Tribunal published its decision on the reference (the Decision). It is fair to say that its contents will be extremely welcome news for the large number of institutions currently registered as charities whose status as such might have been adversely affected by the Decision. Indeed, the Tribunal decided in no uncertain terms that any such charities are still capable of being recognised as charities. Any decision otherwise would have been highly controversial.
2. Background – before the Act
2.1 The relief of poverty has long been recognised as a charitable purpose. This was the position prior to the Act and remains the position today. Broadly speaking, it has always been necessary for an institution to provide a benefit to the public or a section of the public for it to be charitable but there was a rebuttable presumption that charities for the relief of poverty were charitable.
2.2 A body of case law established that trusts were capable of being charitable where their purposes were the relief of poverty amongst a class of beneficiaries defined by reference to their relationship with either one or more entities or one or more individuals. However, the case law was unclear on whether such trusts were recognised as charitable because they either:
(a) Satisfied the public benefit requirement by providing:
(i) direct benefits to the class of beneficiaries who were a sufficient section of the public; or
(ii) indirect benefits to the public at large by either or both (1) preventing the financial burden of maintaining the poor falling on the general public and (2) being right, morally, to relieve those in need; or
(iii) a combination of direct and indirect benefits.
(b) Did not provide public benefit but were capable of being charitable because they were an anomalous exemption to the general rule that for a trust to be charitable it has to provide a benefit to the public or the section of the public.
3. The Act
3.1 The Act inadvertently complicated matters further by introducing a statutory definition of charity. Under the statutory provisions, for an institution to be a charity, it must be established for exclusively charitable purposes (i.e. one which falls within the list of recognised purposes set out in the Act and which is for the “public benefit”). Public benefit is defined as a “reference to that term as understood for the purposes of the law of charities in England and Wales”.
3.2 The prevention or relief of poverty is expressly included in the list of recognised charitable purposes (but note that the Act abolished the rebuttable presumption that an institution established for the relief of poverty is charitable).
3.3 The Act therefore reinforced the public benefit requirement and made no exceptions. If the correct analysis of the position was that institutions for the relief of poverty amongst a class of potential beneficiaries defined by reference to their relationship with one or more entities or one or more individuals are charitable because they are an anomalous exception to the general (pre-Act) rule on public benefit, the effect of the statutory provisions in the Act would have been that those institutions would no longer be capable of being charities. Unsurprisingly, the far-reaching ramifications of this interpretation and the continuing uncertainty surrounding this area prompted a call for clarification.
4. The Decision – a summary
4.1 The Decision focuses on five questions which had been put to the Tribunal by the Attorney General. These questions and a summary of the answers provided are set out below:
(a) Question 1: Whether a trust for the relief of poverty amongst a class of potential objects of the trust’s bounty defined by reference to the relationship of the potential object to one or more individuals is capable of being a charitable trust.
(b) Question 2: Whether a trust for the relief of poverty amongst a class of potential objects of the trust’s bounty defined by reference to their or a number of their family’s employment or former employment by one or more specified commercial companies is capable of being a charitable trust.
(c) Question 3: Whether a trust for the relief of poverty amongst the members of an unincorporated association or their families is capable of being a charitable trust.
(d) Question 4: Whether the Act operates so as statutorily to reverse the decisions in a number of specified cases (1) A-G v Price (2) Re Scarisbruck (3) Gibson v. South America Stores (Gath & Chaves Ltd (4) Dingle v Turner and (5) Spiller v Maude.
Answer: No, in all cases. None of the cases mentioned is affected by the Act because it is not necessary to show public benefit in the “second sense” (discussed in section 5 below), the absence of which is the only ground on which it could be argued that the Act has changed the position.
(e) Question 5: Is the nature and extent of public benefit required in order for a trust for the prevention of poverty amongst a specified class of persons to be a trust for charitable purposes within the meaning of the Act (i) the same as that which would be required for a trust for the relief of poverty amongst the same class to be a trust for such a purpose or (ii) different, and if so, in what way?
Answer: This depends on the way in which the prevention of poverty is to be carried out in accordance with the purpose of the trust concerned.
4.2 Whilst the above is a helpful summary of the position as it now stands, it is important to understand the points of principle which the Tribunal analysed during its decision-making process. We look at this in some further detail below.
5. The Decision - public benefit as it applies to trust for the relief of poverty
5.1 The Tribunal began by outlining their view that it is possible to discern from the pre-Act case law in this area that there are two related (but independent) aspects of public benefit. The first aspect is that the nature of the purpose of itself must be such as to be a benefit to the community (it refers to this throughout the Decision as “public benefit in the first sense”).
5.2 In this regard, the Tribunal concluded that the requirement that the purpose of the trust (e.g. the relief of poverty) should be, of its very nature and without regard to the section of the community to be benefitted, beneficial to the community.
5.3 The second aspect of public benefit is that those who may benefit from carrying out the purpose must be sufficiently numerous, and identified in such manner, as to constitute what is described in the authorities as a “section of the public”: this is public benefit in the second sense.
5.4 Counsel for the Charity Commission (which adopted a neutral position but advanced alternative arguments to assist the Tribunal in determining the Reference) submitted that, even if the purpose of a trust for the relief of poverty is for the public benefit in the first sense, it is not, if restricted to a narrow class, for the public benefit in the second sense and it is not therefore charitable.
5.5 The Tribunal rejected that submission on the basis that, whether or not an institution satisfies the public benefit requirement must be assessed by reference to the criteria which are relevant to its purpose. What is or is not a sufficient section of the public to satisfy the second aspect of public benefit varies depending on the nature of the charity and it does not make sense to address the public benefit requirement in the Act in abstract.
5.6 The Tribunal held that, in order for a trust for the relief of poverty with a narrow class of beneficiaries to be charitable, the public benefit requirement as applied to that trust required only that public benefit in the first sense be established. The Act had not changed that. The Tribunal did observe that a trust for the relief of poverty might be one which is also for the public benefit in the second sense because the class of beneficiary is, on any view, a sufficient section of the community. However, it does not follow that every trust for the relief of poverty must be for the public benefit in the second sense.
5.7 The Tribunal emphasised that nothing in the authorities raises the slightest doubt that public benefit in the first sense is a necessary requirement for a purpose to qualify as a charitable purpose. It further emphasised that there is also nothing which leads to a conclusion that public benefit in the first sense is unconnected with (or an anomaly to) the longstanding public benefit requirement.
6. The Decision - public benefit as it applies to trust for the relief and prevention of poverty
6.1 The Tribunal dealt with the matter of charitable trusts for the prevention of poverty in relatively short order. It held that there is no doubt that public benefit in the first sense must be shown in a case of a trust for the prevention of poverty just as much as in the case of a trust for the relief of poverty.
6.2 The question is then whether public benefit in the second sense must be shown if an institution having as its object the prevention of poverty is to be charitable under the 2006 Act.
6.3 The Tribunal noted that the Act combines “prevention” and “relief” of poverty into a single description of “purpose” which they interpreted as an indication that Parliament saw no real distinction between prevention and relief (although the Tribunal acknowledged that these purposes could be pursued independently). Accordingly, just as it is not necessary to demonstrate public benefit in the second sense in the case of the relief of poverty, neither is it to demonstrate it in the case of the prevention of poverty.
7.1 The Decision has provided some welcome clarity that the law has not changed with regard to the charities in question and sets out the legal basis on which they are established for the public benefit.
7.2 This is obviously a great relief for those charities that might have been found to be no longer charitable. Organisations that have applied for charitable status but were told they may not be charitable pending the outcome of the Reference may have applications revisited and the Charity Commission is likely to review its Guidance.
If you would like to discuss any of the issues raised in this article please contact Lydia Kinley or your usual contact at Maurice Turnor Gardner LLP.
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