Title: Charity Law

 

 

Introduction

In the UK it is now well settled that for a charitable trust to be considered valid it must be for a charitable purpose that is for the public benefit.[1] This requirement is known as the public benefit requirement or test and is recognised under the Charities Act 2011.[2] The public benefit requirement has two components namely that the proposed charity must provide useful services to the public and that the charitable benefits offered by the charity must be available to a sufficiently wide class of people or the general public.[3] This position was reiterated in the recent case of Independent Schools Commission v Charity Commission[4] where the court distinguished between public benefit in the first sense which means that the purpose of the charity should be to benefit the community and public benefit in the second sense which requires the beneficiaries of the charity to be a sufficient number that constitutes a section of the public.

Due to the failure by statute law to define the public benefit requirement or test, the courts have taken significant steps towards defining the test to ensure that private arrangements are not allowed to enjoy charitable privileges such as tax advantages.[5]  In Oppenheim v Tobacco Securities Trust Co. Ltd[6] the court clarified the position on whether a class of persons can be considered as a ‘section of the community’ so as to meet the criteria for the public benefit test. The court held that even where a group of persons is numerous it may not be considered as the community or a section of the community where there isis a nexus between the group and their personal relationship to a propositus or several propositi.[1] This means that the quality which differentiates the group from the rest of the community such that they can be considered as a section of the community should not be based on their relationship with a specific individual. This paper provides a discussion on the public benefit test in charitable trusts and further considers whether the test also applies to charitable trusts created for the relief of poverty.

The Public Benefit Test in Charitable Trusts

The legal meaning of the concept of charity has for a long time been obtained from the preamble to the Statutes of Charitable Uses 1601 where the courts recognised the charitable purposes listed in the preamble. Later, Lord Macnaghten attempted to define charity where he held that the concept comprises of four principal divisions also known as charitable purposes which include trusts for the relief of poverty, for the advancement of religion, for the advancement of education and trusts for other purposes that are beneficial to the community but which do not fall under any of the preceding classifications.[8] The enactment of the Charities Act 2011 further expanded the list of charitable purposes including trusts for the advancement of health, arts, citizenship, human rights, amateur sports among other purposes.[9] According to the Act, therefore, a charitable purpose is one that falls within the list provided in the Act and is for the public benefit.[10]

The Charities Act 2011 provides that it is mandatory that every charitable purpose be for the public benefit.[11] The Act further provides that there is no longer a presumption that a certain charitable purpose is for a public purpose[12] hence it must be shown that a charitable purpose meets the public benefit criteria.[13] Despite the statutory requirement that a charitable trust must be of public benefit, the Charities Act does not define what constitutes public benefit hence the test is determined based on the operation of existing case law.[14]

The Benefit and Public Aspects of the Test

Based on the court decisions, there are two aspect of the public benefit test namely the benefit and public aspects. This distinction was upheld in Independent Schools Commission v Charity Commission[15] where the Tribunal distinguished between public benefit in the first sense which requires that the nature of the charitable purpose be beneficial to the community and in the second sense which requires the beneficiaries of the charity to be enough to constitute a section of the public.[16] The benefit aspect requires that the charitable purpose ought to benefit the public or at least a section of the public.[17] Such a benefit must be identifiable, be capable of being proved through evidence and be linked to the charitable purpose. This means that any charitable trust that causes public disadvantage cannot be considered to be a charitable trust.[18]

There is also the public aspect that requires that a charitable trust must be accessible to the community/public or a section of the public. The public aspect of the public benefit test was emphasized in Verge v Somerville[19] where it was held that to ascertain where a gift is a charitable trust the first inquiry is whether such a trust is public, that is, whether it is created to benefit the public/community or a section of the community. When considering whether a charitable purpose is for the benefit of the public or a section of the public it is important to identify the beneficiaries or intended class of individuals to benefit from the trust. The requirement that the charitable purpose be public is met where the purpose primarily benefits the community in general.

Where the purpose benefits individuals of a particular description, it must be shown that that the potential beneficiaries constitute a sufficient section of the public. Even where the class of potential beneficiaries is sufficient to be a section of the public, the charitable purpose may be void where the quality that makes the class of individuals a section of the community is based on the relationship or the nexus the class has to an individual or group of individuals such as blood ties. This fact was acknowledged in Oppenheim v Tobacco Securities Trust Co. Ltd where the court held that even where a group of persons is numerous, such a group may not be considered to be a community or a section of the community for charitable purposes where the nexus between the individuals in the group is their personal relationship to one propositus or several propositi. In that case, although the children of the employees and ex-employees of British American Tobacco were not a negligible number, the fact that their nexus was the fact that they were connected to the same company proved fatal to the validity of the charitable purpose. The application of the personal nexus rule in the case rendered the charitable trust for the education of the children void. The application of the test also means that a trust established by a father for the education of his children or grandchildren cannot be a valid charitable trust due to the lack of the public element arising from the personal nexus between the beneficiaries and the settlor.

 

The Difference in Application of the Test in Charities for Relief of Poverty

One of the notable aspects of the decision in Oppenheim v Tobacco Securities Trust Co. Ltd is the recognition by the court that test of public benefit may vary between the various charitable purposes. This means that the public benefit requirement in a trust set for the relief of education may be different from the requirement relating to a trust created for the relief of poverty. In Attorney General v Charity Commission,[20] it was held that a charitable purpose for the relief of poverty may be charitable even if the potential beneficiaries are linked to a single individual either by blood, membership of an unincorporated association or employment. This means that the personal nexus rule does not apply to trusts created for the relief of poverty. The reason for the non-application of the personal nexus test in charitable purposes for the relief of poverty is because such purposes are socially useful hence there is no need to test for public benefit.[21]

Although the personal nexus test does not allow to charitable purposes for the relief of poverty, it is a requirement that the potential beneficiaries of such a trust be a class as opposed to being merely individuals. Once it is shown that the potential beneficiaries of the purpose for the prevention of poverty can be considered as the public or a section of the public, the charitable purpose will be valid even where there is a personal nexus.[22] For a trust to fall under this category, it may be expressly stated that it is for the relief of poverty in which case there will be no doubt as to its validity or it may be directed towards the poor or any other synonymous class such as a group of people in needy circumstances. Where the purpose of the purpose of the trust is expressly set out then the trust shall be considered valid as long as it is clear that it is meant to alleviate poverty. Poverty in this case does not mean destitution but rather it refers to the ability of the trust to meet the needs of certain individuals.[23]

Conclusion

One of the most important factors to consider in determining whether or not a charitable purpose is valid is whether the purpose is for public benefit. The public benefit requirement or test is set out in UK charity law as an important factor to be considered by the courts in deciding whether a trust should enjoy the benefits that are associated with charitable trusts such as tax advantages. The public benefit test is provided for under section 4 of the Charities Act 2011. The test consists of two elements namely the benefit aspect and the public aspect. The benefit aspect is the requirement that the charitable purpose should be beneficial to the public or the section of the public it targets. This means that a charitable purpose that is disadvantageous to the public is void. The public element is the requirement that the charitable purpose should be open to the public or a section of the public and that the qualifying factor of a group of potential beneficiaries as a section of the public should not be a personal nexus between the group members and an individual. The personal nexus test does not, however, apply to the relief of poverty. This means that a trust whose charitable purpose is to relief poverty does not need to satisfy the public aspect of the public benefit test.

 

 

 

Bibliography

Statute

Charities Act 2011

Case Law

Attorney General v Charity Commission [2012] WTLR 977

Income Tax Commissioners v Pemsel [1891] AC 531

Independent Schools Commission v Charity Commission [2012] Ch 214

Oppenheim v Tobacco Securities Trust Co. Ltd [1951] AC 297

Verge v Somerville [1924] AC 496

Books

Clements Richard and Abass Ademola, Equity and trusts: Text, cases and materials (Oxford University Press 2018).

Webb Charlie and Akkouh Tim, Trusts law (Palgrave Publishers 2015).

Articles

Barsi Naomi, A critical analysis of the development of the public benefit requirement of charitable purposes under English and Welsh charity law, from Re Compton [1945] 1 Ch 123 to R (Independent School Council) v Charity Commission [2012] ch 214 (University of Huddersfield 2012).

Charity Commission for England and Wales, Public benefit: Analysis of the law relating to public benefit (UK Government 2017).

Chevalier-Watts Juliet, “Under the law of charity, is the principle of ‘public benefit’ being hindered by the doctrinal rule of precedent?” [2008] 16 Waikato Law Review 194.

Mills Matthew, “The development of the public benefit requirement for charitable trusts in the nineteenth century” [2016] 37 The Journal of Legal History 269.



[1] Mills Matthew, “The development of the public benefit requirement for charitable trusts in the nineteenth century” [2016] 37 The Journal of Legal History 269, 269.

[2] The Charities Act 2011, section 4(3).

[3] Mills Matthew, “The development of the public benefit requirement for charitable trusts in the nineteenth century” [2016] 37 The Journal of Legal History 269, 271.

[4] Independent Schools Commission v Charity Commission [2012] Ch 214, para. 44.

[5] Chevalier-Watts Juliet, “Under the law of charity, is the principle of ‘public benefit’ being hindered by the doctrinal rule of precedent?” [2008] 16 Waikato Law Review 194, 195.

[6] Oppenheim v Tobacco Securities Trust Co. Ltd [1951] AC 297.

[7] Ibid.

[8] Income Tax Commissioners v Pemsel [1891] AC 531.

[9] The Charities Act 2011, section 3(1).

[10] Ibid, section 2(1).

[11] Ibid.

[12] The Charities Act 2011, section 4(2).

[13] Charity Commission for England and Wales, Public benefit: Analysis of the law relating to public benefit (UK Government 2017) 6.

[14] Webb Charlie and Akkouh Tim, Trusts law (Palgrave Publishers 2015) 93.

[15] Independent Schools Commission v Charity Commission [2012] Ch 214, para. 30.

[16] Mills Matthew, “The development of the public benefit requirement for charitable trusts in the nineteenth century” [2016] 37 The Journal of Legal History 269, 271.

[17] Attorney General v Charity Commission [2012] WTLR 977, para. 32.

[18] Barsi Naomi, A critical analysis of the development of the public benefit requirement of charitable purposes under English and Welsh charity law, from Re Compton [1945] 1 Ch 123 to R (Independent School Council) v Charity Commission [2012] ch 214 (University of Huddersfield 2012) 4.

[19] Verge v Somerville [1924] AC 496.

[20] Attorney General v Charity Commission [2012] WTLR 977

[21] Clements Richard and Abass Ademola, Equity and trusts: Text, cases and materials (Oxford University Press 2018) 231.

[22] Charity Commission for England and Wales, Public benefit: Analysis of the law relating to public benefit (UK Government 2017) 15.

[23] Webb Charlie and Akkouh Tim, Trusts law (Palgrave Publishers 2015) 94. 

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