Analysis: Public benefit - So why did it all come to court?

Stephen Cook looks at the composition of the court and the history of the public benefit argument

The Royal Courts of Justice
The Royal Courts of Justice

The chain of events leading to today's case began in 1996, when the National Council for Voluntary Organisations published the report of its Commission on the Future of the Voluntary Sector, chaired by Professor Nicholas Deakin.

"There have been problems and inconsistencies in relation to what constitutes a sufficiently significant section of the community for establishing requisite 'public benefit' in different cases," it said.

The Labour government that came to power in 1997 took forward much of the agenda of the Deakin report in Private Action, Public Benefit, a policy document by the Strategy Unit in 2002. It said: "There should be a clearer focus on public benefit. In particular, charities which charge large fees for their services, thereby excluding a substantial part of the population, will need to demonstrate how their activities have a public character."

The report raised, but rejected, the possibility of providing a clearer definition of public benefit in new legislation to replace the principles found in case law: "The advantage of the case law approach is that it takes account of the huge diversity of the sector and has the flexibility to evolve over time."

The report's central proposal was to abolish the presumption of public benefit for charities concerned with poverty, religion and education, and require all organisations with charitable purposes, defined in a new list, to demonstrate such benefit.

It also hinted that part of the government's motivation was to pacify Labour backbenchers keen to remove charitable status from fee-charging schools, while also aiming to avoid a head-on clash with the public schools lobby.

"To maintain their charitable status, independent schools which charge high fees have to make significant provision for those who cannot pay full fees - and the majority probably do so already," the report said.

A charities bill to put recommendations of the Strategy Unit into effect was scrutinised by a joint committee of the Commons and the Lords, which discovered what it described as a "farcical" disagreement between the Home Office and the Charity Commission about the effect of removing the presumption of public benefit.

Ministers argued that the whole point of removing the presumption was to make all charities subject to the new public benefit test. But the commission contended that case law meant the presumption would, in practice, be preserved.

The joint committee concluded that the solution was not a detailed statutory definition of public benefit, but a "concordat" between the commission and the Home Office that would make it clear that an organisation that wholly excluded poor people from its benefits would not be operating for the public benefit and would not be a charity.

Lord Phillips of SudburyDuring parliamentary debates on the bill, the senior charity lawyer Lord Phillips of Sudbury warned that case law about public benefit was "extremely unsatisfactory" and that failing to address the question of fee-charging charities in any way in the new law was "asking for trouble".

The government, however, stuck to its guns: the Charities Act 2006 that was steered to royal assent by Ed Miliband, then Minister for the Third Sector and now the Labour leader, says only that the term public benefit is "a reference to the public benefit as that term is understood for the purposes of the law relating to charities".

But the act also required the Charity Commission to issue guidance "to promote awareness and understanding of the operation" of the new requirement that all charities must demonstrate public benefit: thus was the hot potato passed to the regulator.

The guidance the commission produced in 2008 about the public benefit of fee-charging charities said the opportunity to benefit must not be unreasonably restricted by the ability to pay fees, and that "people in poverty must not be excluded from the opportunity to benefit".

When the commission set about using the guidance to test the public benefit provided by a sample of private schools, two of which failed in the first instance, it was accused by some right-wing commentators of conducting a politically motivated vendetta.

The eventual upshot of this was the application by the Independent Schools Council for a judicial review of the guidance, which led to the case that opens today in the Royal Courts of Justice.

Read our analysis of the case

 

THE COURT AND THE BENCH WHO'S WHO IN THE UPPER TRIBUNAL

Judicial reviews are normally heard in the Administrative Court, but the review sought by the Independent Schools Council is being heard in the Upper Tribunal (Tax and Chancery), sitting in the Royal Courts of Justice. This is because the case has been combined with a reference to the tribunal by the Attorney-General, which asks for answers to a series of questions about provision of public benefit by fee-paying schools.

Sir Nicholas WarrenSIR NICHOLAS WARREN - The Hon Mr Justice Warren has been a High Court Judge in the Chancery Division since 2005 and president of the Finance and Tax Chamber of the Upper Tribunal, which decides appeals on points of law relating to decisions in tax and charity cases, since 2009.

Alison McKennaALISON MCKENNA - McKenna was appointed as the first president of the charity tribunal in 2008. Before that, she spent six years as head of the charities department at the Wiltshire-based solicitors firm Wilsons and five years as a legal adviser to the Charity Commission.

Elizabeth Ovey ELIZABETH OVEY - Ovey is a barrister who specialises in cases concerning professional negligence, banking and financial services, and pensions law. The Legal 500, a guide to UK law practitioners, says Ovey is "calm but tough" and that she "doesn't stand for any nonsense".

 

GEMS OF CASE LAW:

"I entirely decline to limit the doctrine that a trust for the advancement of education is not charitable unless there be an element of poverty in it also. There is no foundation for it in authority, nor in reason"

- R v Income Tax Special Commissioners, ex parte University College of North Wales (1909)

No definition of what is meant by a section of the public has, so far as I am aware, been laid down, and I certainly do not propose to be the first to make the attempt to define it"

- Re Compton (1945)

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" National Anti-Vivisection Society v IRC (1948)

In the case of trusts for educational purposes, the condition of public benefit must be satisfied. The difficulty lies in determining what is sufficient to satisfy the test, and there is little to help your Lordships to solve it"

- Oppenheim v Tobacco Securities Trust Co Ltd (1951)

It would be a wrong conclusion to state that a trust for the provision of medical facilities would necessarily fail to be charitable merely because, by reason of expense, they could only be made use of by persons of some means"

- Re Resch (1969).

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