How Does The Common Law Assess Public
 Benefit In Order To Define A Charity?

Debra Morris
Charity Law Unit
University of Liverpool
30 April 1999

Determination of charitable status depends solely upon the purposes to be pursued, not the legal structure that the organisation is to adopt.[1]

Upon an individual organisation’s request to be recognised as charitable, the Charity Commission, acting on the same basis as the courts, works within and interprets the legal rules that determine whether an organisation is charitable.  These are mainly laid down in decisions of the courts on particular cases rather than set out in Acts of Parliament.  There may not always appear to be any direct court precedent.  The Charity Commission then must decide whether solutions to problems thrown up by changing social needs are legally charitable in the same sense as those already accepted as charitable.  The Charity Commission must also consider whether the courts would or would not now follow a decision made many years ago and in different circumstances.  As is the increasing practice of the courts, where appropriate, the Charity Commission will consider the underlying principles raised by a particular application for registration in order to provide guidance for future cases.

An organisation refused registration can appeal to the High Court,[2] but this option is rarely taken due to the expense of court proceedings. Once an organisation is recognised as having charitable status, all the benefits of that status are afforded - there are no grades of charitable status.  Because charities receive certain tax and other advantages that have implications for the Exchequer, the Inland Revenue may make representations to the Charity Commission and may appeal to the High Court against the Commission’s decision to register an organisation as a charity.

Although the Inland Revenue is not usually the decision making body on charitable status, it should not be forgotten that taxation will be an issue to consider when determining charitable status.  This is not usually overtly stated.  A rare exception is the comment of Lord Cross in the House of Lords in Dingle v Turner[3]:

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.

 

Lord Cross went onto describe previous decisions of the English courts as ‘pretty obviously influenced by the consideration that if such trusts as were there in question were held valid they would enjoy an undeserved fiscal immunity’.

The courts develop charity law to keep the law’s view of what is charitable reasonably in line with modern social needs and conditions.  Thus the legal concept of charity alters, and its evolution is influenced by ideas about social values.  Court decisions reflect ordinary life, taking into account generally accepted views on the nature and usefulness of what an organisation aims to achieve and its benefit to the public.  So, while public opinion cannot determine what is or is not charitable, it is an important factor to be taken into account in the shaping of the legal understanding of charity.

For an organisation to be a charity it must have aims which are exclusively charitable and must be set up for the benefit of the public.

In order to determine which purposes are charitable the law uses a process of precedent and analogy.  The courts have decided that those purposes are charitable which fall within the spirit of the preamble to the Statute of Charitable Uses 1601. The preamble contains a list of purposes which were regarded as charitable in Elizabethan times.

The courts added to the list of purposes which were accepted as charitable over the years and in 1891, Lord Macnaghten in the case of Income Tax Special Purpose Commissioners v Pemsel[4] classified charitable purposes under four heads:

·       relief of poverty;

·       advancement of education;

·       advancement of religion; and,

·       other purposes beneficial to the community. 

The classification has been used since as a matter of convenience but it is not a definition.

Although the courts still use the preamble as a touchstone and refer to the Pemsel classification, they have long recognised that what is accepted as a charitable purpose must change to reflect current social conditions.  So a purpose will be charitable not only if it is within the list in the preamble, but also if it is analogous to any purpose either within it or since held to be charitable.  Nowadays, many charities are set up for purposes that are not mentioned in the preamble.

In this way, charitable purposes have been extended and developed, by decisions of the courts and of the Charity Commission, so that the development of the law has reflected changes in social conditions and attitudes. 

A purpose will be accepted by the courts and the Commission as charitable only if it is for the public benefit, which I will now focus on.

Public benefit is the main justification for the legal and fiscal concessions granted to charities.

There are three elements to the public benefit criterion which I want to underline:

 ·       the organisation must be capable of causing a clear benefit to the public;

·       those eligible to receive benefits must (except in the case of organisations set up exclusively to relieve financial hardship) comprise a large enough group to be considered as the public or a sufficient section of the community and no personal or private relationships must be used to limit those who may benefit;

·       any private benefits to individuals must be incidental and must not outweigh the benefit to the public.

 1 - Proving Benefit

So far as the first requirement is concerned, proving benefit is a question to be determined by the court or the Charity Commission, not by the founder of the alleged charity or the testator.[5]

The test for the measure of public benefit required varies with each of the four heads of charity. 

Where the purpose appears to fall within one of the first three heads of charity in Pemsel’s case - that is relief of poverty, advancement of education or advancement of religion - the law, subject to evidence to the contrary, assumes that there is public benefit. 

For example, it is assumed that a gift for the advancement of religion is prima facie beneficial to the public.  In general, no distinction is made between one religion and another.  There is a general assumption that the advancement of religion is for the public benefit.  For the advancement of religion to be charitable, a religion (with a few exceptions), has to:

·       be founded on a belief and reverence for a god or gods;

·       promote spiritual teaching and the dissemination of its doctrines; and

·       promote itself in religious rites, observances and services.

The advancement of religion can include the provision and upkeep of places of worship, paying ministers or priests, and holding services.

The courts will not consider the merits of the beliefs which are to be promoted, provided that they have a religious tendency and do not undermine morality or religion.  In Re Watson (decd),[6] for example, Plowman J upheld a gift for the propagation of ‘the truth as given in the Holy Bible’ by the distribution of religious works books and pamphlets, written by the testatrix’s husband, which were regarded by experts as of no intrinsic worth and unlikely to extend the Christian religion, although displaying a religious tendency.

However, there are circumstances in which the advancement of religion is not charitable.  This is where public benefit is clearly lacking.  Examples of this include:

·       organisations where the benefit is wholly private (such as an entirely enclosed religious order where the activities consist only of private prayer); and

·       where an organisation is set up to promote the beliefs of a particular religion which undermine the accepted foundations of religion and morality, or are otherwise contrary to the public interest.

Where, however, the claim of charity is made under the fourth head - other purposes beneficial to the community - it is necessary to demonstrate affirmatively public benefit.

It is under the fourth head that most of the issues concerned with assessing benefit have arisen.  Under this head of charity, benefit to the community is not assumed and must be proved.

The courts have clearly indicated that they will not be rigidly bound by precedent and that a particular purpose may cease to be charitable as ideas about social values change.  This has two implications:

·       new purposes not previously considered charitable may be held to be so;

·       purposes previously regarded as charitable may no longer be held to be charitable.

Thus, in National Anti-Vivisection Society v IRC,[7] Lord Wright said:

...trusts [providing particular remedies thought to relieve the distress caused by advanced age, sickness, disability or poverty] may, as economic ideas and conditions and ideas of social service change, cease to be regarded as being for the benefit of the community, and trusts for the advancement of learning or education may fail to secure a place as charities, if it is seen that the learning or education is not of public value.

The status of the predecessor of the National Anti-Vivisection Society itself had been considered by the High Court in 1895.  Its main object was the abolition of the practice of vivisection (laboratory experiments on living animals).  The court accepted that the intention was to benefit the community and that it was a charity.  That decision remained undisturbed for the next 50 years.  However, when the House of Lords considered the matter afresh in 1948 they decided that, even though abolishing vivisection would help laboratory animals and thus elevate humanity, such benefit was far outweighed by the damage caused to humans by the loss to medical science and research (and the consequent detriment to public health).  A purpose held charitable by the court in one age was later judicially recognised as not actually beneficial to the public and not charitable.

The Charity Commission has the same powers as the court when determining whether an organisation has charitable status and the same powers to take into account changing social circumstances - whether to recognise a purpose as charitable for the first time or to recognise that a purpose has ceased to be charitable.  It interprets and applies the law as to charitable status in accordance with the principles laid down by the courts.  The Commission, faced with conflicting approaches by the courts, takes a constructive approach in adapting the concept of charity to meeting the constantly evolving needs of society, remembering the need to find a sufficiently close analogy for any new charitable purpose.

An example of the Charity Commission using its powers so as to recognise a purpose as charitable for the first time is:

Good community relations

Before 1983 it was considered by some that the promotion of racial harmony could not be a charitable purpose.  The Court of Appeal in Re Strakosch[8] had held both that the appeasement of racial feelings between different ethnic groups in a community was a political purpose and also that such a purpose was too vague and might include very wide objects, some which were plainly not charitable.  In 1983, the Charity Commission reconsidered the position in the context of contemporary Britain and in the light of changed social circumstances.  It decided that organisations opposing racial discrimination and promoting good community relations could be registered as charities.  Parliament, in race relations legislation, had recognised their public benefit.  There were also analogies to other purposes which had been held by the courts to be charitable (particularly charities for the preservation of public order, and for mental and moral improvement, and for the promotion of equality of women with men).

An example of the Charity Commission using its powers so as to recognise that a purpose has ceased to be charitable is:

Rifle and pistol clubs

Trusts for promoting the efficiency of the armed forces and thus the defence of the realm are charitable.  In 1892, the High Court determined that the teaching of Englishmen to shoot with particular weapons which are used in war for the destruction of their enemies and protection of themselves was also charitable.[9]  In apparent reliance on that decision, the Charity Commission had registered a number of civilian rifle and pistol clubs.  The Charity Commission considered the matter generally in 1993 and decided that this decision did not support the charitable status of civilian rifle and pistol clubs at the end of the 20th century and that the clubs concerned had been erroneously registered.  The 1892 decision was understandable in its social and historical context (the immediate aftermath of the First Boer War) but had no modern application (and none beyond its own circumstances).  The charitable purpose of promoting the security of the nation and defence of the realm could not be carried out in the modern day by providing a restricted number of civilian members of a club with instruction and practice in shooting.  In the aftermath of the Falklands and Gulf conflicts, it was seen that the skills required of modern uniformed personnel were quite different and clubs (whose principal concern was the benefit of members through recreational and sporting shooting) were in no sense a reserve for the armed forces.  Consequently, the Charity Commission has removed most of the clubs from the register following lengthy consultation with them and their national representative bodies.

2 - Public Benefit

A charity must confer a benefit on the public as a whole or on a sufficient section of the public.

In general, a purpose is not charitable if it is mainly for the benefit of a named person or specific individuals.  It will also not be charitable if the people who will benefit from it are defined by a personal or contractual relationship with each other.  For example, if the beneficiaries are related or connected to the person who is setting up the charity, or where they are defined by common employment or by membership of a non-charitable body, for example, members of a professional institute.

An exception to this general rule exists in the case of the relief of financial hardship, where the beneficiaries can come from a more restricted group, such as people having the same employer.

The extent of public benefit may vary between different types of charity.

It may be that the people living in a particular area belong predominantly to a particular racial, ethnic, religious or other group, and this group will inevitably be the main beneficiary of a charity’s activities.  This is unobjectionable in terms of charity law as long as the benefits are not additionally restricted solely to members of that group.  This would constitute a ‘class within a class’, and is too small a beneficial class.

3 - Private Benefit

Charities, other than those for the relief of poverty, cannot confer more than incidental private benefit.

The conferral of private benefits on individuals does not disqualify an organisation from charitable status provided that such benefits are truly incidental to the attainment of a charitable object.  Whether any private benefits arise only as a necessary means of achieving an overall charitable purpose must be determined in each case. 

The conflict between public and private benefit is often at the heart of many decisions concerning charitable status. 

This was made clear in the recent case of IRC v Oldham Training and Enterprise Council.[10]  One of the objects of Oldham TEC was the provision of support services and advice to new businesses.  The court decided that this object allowed the organisation to promote the private interests of individuals regardless of whether there would be any consequential benefits to the wider community.  Consequently, the benefit to the community was too remote from this activity to be charitable.

In 1999, following public consultation, the Charity Commission recognised the promotion of urban and rural regeneration for public benefit in areas of social and economic deprivation as a charitable purpose in its own right.  Charitable regeneration organisations can achieve this by the maintenance or improvement of the physical, social and economic infrastructure and by assisting people who are at a disadvantage because of their social and economic circumstances.

Most of the tangible benefits of urban or rural regeneration would normally seem to go, in the first place, to individuals and individual businesses rather than the wider public.  If an organisation is to be a charity its purposes and activities must therefore be restricted so that any private benefits arise only as a necessary means of achieving the overall charitable purpose and are incidental to it.  It would not be acceptable if the private benefits were an end in themselves.  The status of the organisation will therefore depend on its poise in this respect.  This will have to be determined in each particular case. 

An organisation applying for registration will therefore have to demonstrate that its activities will not result in an unacceptable level of private benefit.  For example, in an area which is ‘deprived’ largely because of its poor housing and high crime rate, but which has a reasonably low level of unemployment, activities aimed at reducing further the level of unemployment - such as retraining - will have only a minor effect on alleviating the deprivation of the area.  The public benefit is therefore more likely to be outweighed by the element of ‘private’ benefit which will accrue to employers.

On the other hand, in an area of high unemployment, such activities are likely to have a considerable effect on the regeneration of the area, and the public benefit is more likely to outweigh any private benefit accruing to employers.  Organisations applying for registration must develop their own criteria for measuring the public and private benefit arising from their activities.

This is a brief introduction to the issues to be considered in assessing public benefit in order to define a charity within the Common Law.