Charity law update

The Charity Commission's long awaited revised public guidance came out on 16 September. Both the guidance itself and the commission's collaborative approach to drafting it, involving 'critical friends' across the sector, have been broadly welcomed by charity leaders and lawyers alike.

The guidance reflects a shift in the commission's position in various important respects. This article considers some of these and puts them in the context of current issues facing the commission.

Revised guidance

Revised guidance has been due since small but significant parts of the previous public benefit guidance, particularly relating to fee-charging charities, were rejected by the Upper Tribunal in 2011 in the Independent Schools Council '¨(ISC) case.

The ISC case was heralded in many respects as a victory for the ISC, but the tribunal also confirmed that charities must provide public benefit and that trustees must take account of the Charity Commission's public benefit guidance, which it must issue.

In the new guidance, the commission appears to have responded to criticism that the previous guidance, which referred to 'principles of public benefit', was perceived as a distillation of fundamental legal principles.

The guidance now refers to 'aspects of public benefit', and explains it is not the law but rather an explanation of how the commission interprets and applies the law.

The revised guidance is substantially clearer, shorter and more accessible to trustees than the previous guidance. It provides a helpful starting point for trustees to understand their role and responsibilities, although reference to the underlying Charities Act 2011 and relevant case law is necessary to achieve a fuller understanding.

The ISC case and others make clear that the meaning of public benefit is nuanced and varies from one charitable purpose to another and this is one of the main reasons perhaps that the guidance has been shortened.

The guidance is now broken down into three areas, explaining what public benefit means in three contexts:

 the public benefit requirement; a charity's purposes must be for the public benefit;

 running a charity; a charity must operate for the public benefit; and

 reporting; trustees must report how they have carried out the charity's purposes for the '¨public benefit.

Public benefit requirement

The new guidance makes clearer than previous editions that the fundamental test in England and Wales of charitable status is based upon the purposes, not the activities of a charity. Each purpose of a charity, considered separately, must provide public benefit.

However, it does not make fully clear the extent to which the commission considers it is legitimate to scrutinise the activities of an applicant charity. Kenneth Dibble, chief legal adviser at the commission has stated that, particularly in cases in which the underlying charitable purpose is not clear from the stated objects, the commission will consider actual and proposed activities to '¨construe purposes.

Clearly, if a purpose of a proposed charity is not capable of providing public benefit, it cannot be registered as a charity. However, the position is different with an existing charity; for example, one that advances a purpose which, with the passage of time, is no longer as beneficial as it once was. If an existing purpose does not provide or no longer provides public benefit, the commission considers that trustees should consider changing it so that it can provide public benefit. In rare cases where it is not possible to change a purpose in this way, the institution will no longer exist for exclusively charitable purposes and the commission's duty to remove it from the register will be engaged.

Powers not duties

The Charities Act 2006 purported to remove any 'presumption' of public benefit in favour of any charitable purpose. Whether or not such a presumption existed and whether or not the 2006 act had this effect is disputed, but the commission is now reconsidering the purposes of (particularly religious) charities which were previously considered to provide public benefit.

Where it considers they do not, the commission can, and arguably should, if the underlying charitable intention is clear, assist trustees to amend purposes cy près, so that they can provide public benefit. However, this is a power and not a duty. In an extreme case, the commission may consider it more appropriate to exercise its duty to remove such an institution from the register, or decline to register it in the first place.

Alleged 'detriment', where purposes may be harmful in some way, is a significant area in which the guidance is unclear. The guidance states that any detriment that results from a purpose must not 'outweigh' the benefit, but it is not clear what this means in practice.

Clearly, any significant detriment may call into question the benefit offered, but in practice this is likely to be a subjective and controversial assessment; not least because any alleged detriment is likely to be qualitatively and quantitatively very different from the benefit '¨on offer. Somewhat elliptically, the guidance states: 'Where the benefit of a purpose is obvious and commonly recognised, there is an even greater need for evidence of detriment or harm to be clear and substantial, if it is to outweigh the benefit.' Does this mean that, where the benefits of purposes are less clear and less commonly recognised (a religious purpose, for example, to secular observers), only relatively modest or even disputed evidence of harm would be sufficient to call charitable status into question? Clearly this would be controversial.

Trustees' actions

Again, guidance reflects the ISC case in stating that a failure of an existing charity to provide public benefit in practice does not lead to a failure of charitable status, provided the purpose remains capable of providing public benefit. Instead, the analysis leads to an assessment of the trustees' actions and whether they are within the range of decisions trustees could reasonably make in the particular circumstances of the charity.

The commission will consider a failure to provide public benefit in accordance with its risk framework. In other words, it will consider whether regulatory action is needed and, where it considers circumstances require it, use the broad range of powers open to it to intervene in the running of '¨a charity, and in extreme cases, it may even '¨remove trustees.

Detailed description

Trustees must report each year in their annual report how they have carried out their charity's purposes for the public benefit. The guidance sets out the two main schemes applying to smaller charities with income not more than £500,000 per year, and larger charities with income over £500,000 per year.

In practice, it is for the trustees to decide in how much detail they describe the charity's activities. Trustees would be well advised to provide as thorough and comprehensive a description as they are able, given that reporting is not just a compliance matter but also an important communication with beneficiaries and the'¨ general public, with reputational and '¨fundraising implications. SJ