A case starting today in the Royal Courts of Justice tackles the most problematic and controversial question in charity law in recent years - how should fee-charging schools that are charities fulfil the legal requirement that they should provide public benefit?
The Independent Schools Council has been granted a judicial review of the Charity Commission's guidance on fee-charging charities, which says that "people in poverty should not be excluded from the opportunity to benefit".
This case is being heard in conjunction with a reference to the charity tribunal from the Attorney-General, Dominic Grieve, who has asked for clarification of how charity law should operate in relation to fee-charging independent schools.
Charity lawyers and others in the sector expect that this landmark case, being heard by the Upper Tribunal (Tax and Chancery Chamber), will set a legal precedent, not only in relation to schools and other fee-charging charities, but also in relation to charities and public benefit more generally.
"This is the most significant case to be determined by charity law in the past 50 years," Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations, tells Third Sector. "It will determine whether the concept of public benefit is fit for purpose in the 21st century."
And in the House of Lords earlier this month, the Conservative peer Lord Hodgson said: "We are on the cusp of potentially significant changes for the charity sector. The decisions made in these proceedings will affect not only fee-paying independent schools, but also, potentially, all fee-charging charities.
"That will include playgroups, nurseries, care homes, healthcare charities, museums, theatres, amateur sports clubs, advice centres, veterinary care charities, heritage and visitor attractions, housing associations and almshouses. The outcome of this case has a very substantial possibility of changing the sector."
The case has its origins in the Charities Act 2006, which obliges all charities to demonstrate public benefit but offers no explanation of what that means. It passes the burden of interpreting the term and the diffuse body of case law from which it is derived to the commission, by requiring it to issue guidance on public benefit.
"It was a terrific fudge and a cop-out by parliament at the time," says Francesca Quint, the barrister representing the NCVO, which will play a part in the case as an 'intervener'. "It was always realised that, whatever the commission said, the independent schools in particular were likely to disagree with it."
The guidance on fee-charging charities produced by the commission in 2008 says all charities must provide a clear, identifiable benefit that is related to their aims and is "balanced against any detriment or harm" caused by their activities. It says they must provide this benefit to the public or to "a section of the public" that is not unreasonably restricted by geographical restrictions, other restrictions or the ability to pay the fees charged. It also says that "people in poverty must not be excluded from the opportunity to benefit" and "any private benefits must be incidental".
Many fee-charging charities will find it easy to demonstrate that they meet the commission's conditions and provide a public benefit - this is, after all, exactly why most charities exist. Others, however, might take a close look at the work they carry out and ask questions. Strictly speaking, can they show that people in poverty are not excluded from their activities?
Error of law
This point is one of the main issues of contention in the case. The Independent Schools Council says the Charity Commission made an error of law by interpreting the term "public benefit" to mean that those in poverty should not be excluded, and is hoping for the condition to be removed from the guidance as a result of the case.
Sam Macdonald, a partner at the law firm Farrer & Co who is working for the Independent Schools Council on the case, says: "The Charity Commission has essentially set the law through its guidance, and it is not entitled to dictate these things about being open to people in poverty."
The NCVO agrees with the general thrust of the guidance, but has claimed the document is confusing and has not been applied consistently.
It says the commission's assessments of a series of independent schools, carried out to demonstrate how the guidance worked in practice, placed too much emphasis on bursaries and too little on the other forms of public benefit that the schools could provide.
The Attorney-General's reference to the tribunal points up the confusion over the commission's guidance by describing a series of hypothetical schools acting in various way and asking which provide a public benefit. The commission, the ISC and the Attorney-General will each have to submit to the tribunal their own views on which of the hypothetical schools do and which do not.
The commission has long argued against setting specific targets for the amount of bursaries and other benefits a fee-charging school must provide, instead saying schools should follow general principles and be judged on a case-by-case basis.
In this context the reference could be seen as an attempt to give schools - and, by extension, other fee-charging charities - some specific details about how they can meet the public benefit requirement and whether they are doing enough.
The prospect of such clarity has been welcomed by the sector. Tom Murdoch, a charity and education solicitor at Stone King, says: "There has been confusion for some time about what charities must do to meet the public benefit requirement. This case will be helpful to the sector as a whole because the outcome should be a clearer picture.
In that context, all of this is broadly positive."
THE PROTAGONISTS AND THEIR VIEW OF GUIDANCE ON PUBLIC BENEFIT AND FEE-CHARGING SCHOOLS
- Charity Commission
The commission was responsible for interpreting the term "public benefit" after it was included in the Charities Act 2006 without a definition. It published guidance saying the benefits of fee-charging charities should not be "unreasonably restricted" by the ability to pay fees, and that "people in poverty must not be excluded from the opportunity to benefit".
The commission says trustees of fee-charging charities have a "positive duty" to provide for those who cannot afford the fees. One of the principles underlying its guidance is that fee-charging charities must benefit the public or a section of the public, and it believes trustees are not fulfilling their duty if a charity benefits only a part of the public that excludes the poor.
The commission's stance is that benefits provided by fee-charging charities to those who cannot afford the fees must be related to its objects, and cannot be wider. It says the argument that independent schools benefit the public by saving the taxpayer education costs is irrelevant.
- Independent Schools Council
The ISC argues that the guidance set out by the Charity Commission is not based on a sound interpretation of the law, and that fee-charging schools - and, by implication, other fee-charging charities - should not have to put in place measures that bring benefit to those who cannot afford to pay the fees.
It says those who can afford the fees of an independent school are numerous enough to constitute a sufficient section of the public that benefits. As long as a fee-charging school's charitable objects do not explicitly exclude poor people, the ISC believes it does not matter that in practice many will be excluded because they cannot afford the fees.
The ISC says that if it is deemed necessary to offer benefits to those who cannot afford the fees, it should be for the trustees of the charity, rather than the Charity Commission, to decide how best this should be implemented. It says that more remote benefits, such as saving costs to the taxpayer, could be taken into account in doing so.
The Attorney-General, Dominic Grieve, has asked the tribunal to clarify the law on fee-charging and public benefit because he has a legal role as the 'protector of charity'. He has stated that he does not advocate one solution or another.
Grieve agrees with the Charity Commission that those able to afford the fees do not on their own constitute a section of the public, and wants a clearer outline of what fee-charging schools are required to do to provide a public benefit. He has submitted a document to the tribunal that describes a number of hypothetical schools carrying out activities to benefit those who cannot afford the fees, and asks which are providing a sufficient public benefit. One question he poses is whether it is for the public benefit for a school, in practice, to be provided only for those who can afford the fees. Another is whether education provides such a wide benefit to the public that it is irrelevant whether or not the direct benefits are limited to those who can pay the fees.
- NCVO and Education Review Group
The National Council for Voluntary Organisations and the ERG, which was set up to advise the Charity Commission on public benefit in the education sector, have both been joined as 'interveners' in the case - meaning they will be allowed to submit arguments and evidence to the judges.
The NCVO believes the commission's principle that every charity must demonstrate it provides identifiable benefits to the public or a section of the public is correct. However, it argues the guidance on public benefit for fee-charging charities is unclear and, in its tests of schools' public benefit, the commission places too much emphasis on bursaries at the expense of other forms of benefit.
The ERG believes fee-charging schools should widen access to those who cannot afford fees. It points out that the commission's guidance says benefits provided by a fee-charging charity must be balanced against any detriment they create. It says wider benefits provided by such schools should be weighed against the detriment caused by removing teachers and bright pupils from state schools.