Relief of poverty for restricted groups can be charitable

Practical Law UK Legal Update 8-518-1100 (Approx. 8 pages)

Relief of poverty for restricted groups can be charitable

by PLC Private Client

Background

Charities Act 2006: prevention or relief of poverty

The Charities Act 2006 (ChA 2006) defines "charity" as an institution that is both:

Established exclusively for charitable purposes.
Subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.

(Section 1(1), ChA 2006.)

A charitable purpose is a purpose that both:

Falls within the list of recognised purposes set out in section 2(2) of ChA 2006 (see Practice note, What is a charity?: Descriptions of charitable purposes).
Is for the public benefit.

(Section 2(1), ChA 2006.)

The prevention or relief of poverty is included in the list of recognised charitable purposes (section 2(1)(b), ChA 2006).

"Public benefit" is defined as a reference to that term as understood for the purposes of the law of charities in England and Wales (section 3(3), ChA 2006). When determining whether any particular purposes satisfy the public benefit requirement, it is not to be presumed that a purpose of a particular description is for the public benefit (section 3(2), ChA 2006).

Charity Commission guidance

The Charity Commission (Commission) has issued the following guidance on public benefit and the prevention of relief of poverty:

For further information about charitable purposes and the public benefit requirement, see Practice note, What is a charity?: What are charitable purposes? and Public benefit requirement.

Attorney General charity law references

The Attorney General (AG) may refer questions concerning any aspect of the operation of charity law or its application to a particular state of affairs to the First-tier Tribunal (Charity) for determination. The First-tier Tribunal may transfer the matter to the Upper Tribunal (Tax and Chancery Chamber).

The AG is automatically a party to proceedings on the reference and the Commission is entitled to be a party (paragraph 2(2)-2(3)(a), Schedule 1D, ChA 1993). Charities and other parties likely to be affected by the decision can be made parties with the tribunal's permission (paragraph 2(3)(b), Schedule 1D, ChA 1993).

For more information about:

The jurisdiction, procedure and practice of the tribunal system in relation to charity law references, see Practice note, Charity litigation: overview of charity law references.

The role of the AG in charity litigation, see Practice note, Charity litigation: the role of the Attorney General by William Henderson of Serle Court (who acted for the AG in both this reference and the AG's first charity law reference).

AG's first charity law reference

On 14 October 2011, the Upper Tribunal published its decision on the AG's first charity law reference about independent fee-charging charitable schools and public benefit (Independent Schools Council v Charity Commission for England and Wales and others [2011] UKUT 421 (TCC)). To review all developments in that reference, see Private client case tracker: Charities cases: A

AG's second charity law reference

The key developments leading up to the hearing of the second reference were as follows:

On 27 January 2011, the AG issued a notice referring five questions to the First-tier Tribunal for a determination, see Legal update, AG's second reference seeks clarity from Charity Tribunal on public benefit and relief of poverty: Five questions for determination.
The Charity Commission and these ten charities were joined as parties to the reference:
- Professional Footballers' Association Benevolent Fund.
- Chartered Accountants' Benevolent Association.
- British Airways Welfare and Benevolent Fund.
- National Westminster Staff Foundation (also known as RBS Care Homes Foundation).
- Royal Bank of Scotland Group Benevolent Fund.
- Stock Exchange Benevolent Fund.
- Henry Smith Charity.
- BT Benevolent Fund.
- Chartered Institute of Public Relations Benevolent Fund.
- Grand Steward's Lodge 250th Anniversary Benevolent Fund.
19 organisations made written submissions to the Tribunal (some of them jointly) as "interveners". Two of the interveners, the Association of Charitable Organisations and the Police Federation of England and Wales, were granted permission to make oral representations, limited to one hour each, at the hearing.
On 1 November 2011, the reference was transferred to the Upper Tribunal.

The reference was heard during the week commencing 14 November 2011. To review all developments in this reference, see Private Client case tracker: Charities cases: A.

Upper Tribunal decision

Issues

The purpose of the reference was to determine whether the following three types of charity satisfy the public benefit test and are therefore capable of being charities under charity law, as it applies after ChA 2006:

Institutions for the relief of poverty amongst a potential class of beneficiaries defined by their relationship to one or more individuals (poor relations charities).
Institutions for the relief of poverty amongst a potential class of beneficiaries defined by their, or a member of their family's, employment or former employment by one or specified commercial companies (company employee charities).
Institutions for the relief of poverty amongst the members of an unincorporated association or their families (membership charities).

By the time of the hearing, it was common ground amongst most of the parties (including the AG) that ChA 2006 did not affect the charitable status of any of these three types of charity. However, the AG considered that sufficient doubt had been raised by the Commission and within the sector for it to be appropriate to make the reference.

While it was neutral on the questions in the reference, the Commission put the following argument to assist the Upper Tribunal in determining the reference:

Charities for the relief of poverty are exempt from the rule that a trust is not charitable where the potential beneficiaries are defined by reference to their relationship to a named individual, employer or organisation (Re Compton [1945] Ch 123).
The pre-ChA 2006 case law says that this anomaly exists because there is either:
- no public benefit requirement at all for trusts for the relief of poverty; or
- a public benefit requirement for all charitable trusts, but it operates differently for trust for the relief of poverty.
If there is no public benefit requirement at all for trusts for the relief of poverty, they do not satisfy ChA 2006 and therefore no longer have charitable status. The Commission estimated that this outcome would profoundly affect approximately 1,500 benevolent charities that would lose the tax and reputational benefits of charitable status.

Conclusions

The Upper Tribunal held that:

Poor relations charities, company employee charities and membership charities were all capable of being charitable.
ChA 2006 had not reversed or affected any of the following leading cases:
- A-G v Price (1810) 17 Ves 371.
- Spiller v Maude (1886) LR 32 Ch D 158 (Note).
- Gibson v South American Stores (Gath & Chaves) Ltd [1949] Ch 572 (Harman J), [1950] Ch 177 (CA).
- Re Scarisbrick [1951] Ch 622.
- Dingle v Turner [1972] AC 601.
Whether the public benefit requirement for a trust for the prevention of poverty among a specified class of persons was the same as the public benefit requirement for a trust for the relief of poverty among the same class depended on the way in which the prevention of poverty was to be carried out in accordance with the purposes of the particular trust.

The tribunal analysed the position before and after ChA 2006, and then considered the effect of linking the prevention of poverty to the relief of poverty as a charitable purpose in ChA 2006.

Position before ChA 2006

The Upper Tribunal repeated the following findings on the concept of public benefit from its decision on the AG's first charity law reference:

While not specifically referred to, a public benefit element has been inherent to the concept of charity since the historic statutory description of charitable purposes (the preamble to the Statute of Elizabeth of 1601).
There have always been two aspects to public benefit:
- Public benefit in the first sense. The nature of the purpose itself must be such as to be of benefit to the community at large.
- Public benefit in the second sense. Those who may benefit from the carrying out of the purpose must be sufficiently numerous, and identified in such manner, as to constitute a "section of the public".
The development of the law on public benefit has been ad hoc. This means that:
- What satisfies the public benefit requirement may differ markedly between different types of allegedly charitable purposes.
- The case law does not provide a comprehensive statement of the public benefit requirement. It provides a series of examples of when the requirement is or is not satisfied. The courts have not developed an overarching, coherent, guiding principle.

The Upper Tribunal considered in detail the case law decided before the ChA 2006 came into force on the nature of the "anomalous" treatment of trusts for the relief of poverty (in particular, Gibson, Scarisbrack, Dingle and Oppenheim v Tobacco Securities Trust Company Ltd [1951] AC 297).

It concluded that:

Nothing in the case law cast any doubt on the principle that public benefit in the first sense was a necessary requirement for a purpose to qualify as a charitable purpose.
Public benefit in the first sense was part and parcel of the public benefit requirement: it was not a separate and distinct test.
It had long been established that trusts for the relief of poverty needed only to show public benefit in the first sense. Such trusts therefore did not need, either because of an exception to the general rule or an anomaly (it was not for the tribunal to decide which), to provide benefits to a sufficiently numerous section of the public in order to be for the public benefit. It was not clear from the authorities whether this was because the relief of poverty of a small group was sufficient in itself, or the indirect benefit to society of the relief of any poverty was so great that it was sufficient to pass the test, and the tribunal did not decide this point.
Relief of poverty was ordinarily a purpose of a nature that was for the public benefit in the first sense. However, it was possible for a trust for the relief of poverty not to be for the public benefit in the first sense. (The tribunal reached the same conclusions for ordinary education in its decision on the AG's first charity law reference.)

Position after ChA 2006

The Upper Tribunal found that ChA 2006 had not changed the meaning of public benefit for trusts for the relief of poverty as it was understood before ChA 2006 was passed. In particular:

"Public benefit" was that term as it was understood for the purposes of the law relating to charities in England and Wales (section 3(3), ChA 2006) and the test had never been an abstract one. The tribunal rejected the Commission's submission that both limbs of the public benefit test (public benefit in the first and second sense) had to be satisfied for an institution to be charitable under ChA 2006. To determine if an institution satisfied the public benefit requirement, it had to be assessed by reference to the criteria relevant to its particular purposes. For trusts for the relief of poverty, only public benefit in the first sense needed to be shown.
There had never been a presumption that a trust for the relief of poverty was for the public benefit. The so-called abolition of the presumption of public benefit in section 3(2) of ChA 2006 therefore had no impact on whether a trust for the relief of poverty was charitable or not. (The tribunal came to the same conclusion in relation to the advancement of education in its decision on the AG's first charity law reference, see Legal update, Independent charitable schools decision requires Charity Commission to rewrite public benefit guidance: Charities Act 2006 has little or no effect on legal position.)

Prevention of poverty

Because ChA 2006 links the prevention of poverty to the relief of poverty as a charitable purpose for the first time, the Upper Tribunal considered whether an institution for the prevention (or the prevention and relief) of poverty with a restricted beneficiary class could be charitable (in other words, whether it had to show public benefit in the second sense). The tribunal was mindful that the exception to the general rule or anomaly should not be extended.

The tribunal concluded that section 2(2)(a) of ChA 2006 did not distinguish between prevention and relief of poverty (although each purpose could clearly be pursued independently) and it was therefore not necessary to demonstrate public benefit in the second sense in the case of all trusts for the prevention of poverty.

Trusts for the prevention and relief of poverty and trusts for the prevention of poverty could therefore both be charitable with limited beneficiary classes, provided any restrictions on those who could benefit were appropriate in the circumstances. In practice, however, it was unlikely that an institution for the prevention of poverty (or the prevention and relief of poverty) would restrict its benefits to a limited beneficiary class.

The tribunal approved the Commission's guidance on public benefit in relation to charities for the prevention of poverty and charities for both the prevention and relief of poverty (see section E3 of Charity Commission: The Prevention or Relief of Poverty for the Public Benefit).

Employment in public sector

The tribunal concluded that a trust for the relief of poverty by reference to employment within the public sector was capable of being charitable in the same way as a trust for the poor employees of a private sector employer.

Comment

The Charity Commission has been criticised for persuading the AG to pursue the reference and thereby wasting resources of those charities that felt compelled to respond, see Legal update, Private Client news round-up to 17 November 2011: Attorney General's second charity law reference gets under way. However, practitioners will welcome the clarity on the law of public benefit that the decision provides in relation to charities for the prevention or relief of poverty.

Case

Charity Commission for England and Wales and Others v Her Majesty's Attorney General (FTC/84/2011).

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