Charity update

Independent schools

In October, the Upper Tribunal delivered its long-anticipated decision in the Independent Schools Council (ISC) case, which it heard in May. The ISC challenged how the public benefit requirements should apply in the context of independent schools and the lawfulness of the Charity Commission's guidance on this point.

The outcome of the case has been reported in a variety of ways. It is true that the tribunal has told the commission that it must rewrite key parts of its public benefit guidance because in certain respects it is incorrect or unclear, but the requirement for all charities to provide public benefit has not disappeared.

While the decision supports much of the commission's interpretation of the law, the ISC has claimed the decision as a victory because the tribunal was very clear that the provision of public benefit offered by a given school is a matter for the charity's trustees and that it was not for the court or the commission to impose any generally applicable standards of 'appropriate' or 'reasonable' provision.

What is clear is that the commission's guidance will be much less prescriptive so that it will no longer necessarily be a requirement on every school, irrespective of its size, type or location to fund means-tested bursaries for the poor. Neither are 'the poor' necessarily to be interpreted as 'the destitute' '“ indeed, they may simply be unable to afford full school fees. However, because public benefit will need to be assessed on a case-by-case basis, the tribunal was unable to provide any clear guidance on what is and what is not sufficient to meet the public benefit requirement.

An organisation aspiring to be a charity under the Charities Act 2006 must have a purpose that is for the 'public benefit'. In the absence of a clear definition from parliament, the tribunal's analysis of what public benefit means is helpful: 1) the nature of the purpose has to be a benefit to the community, in other words 'a good thing'; and 2) the people who benefit from the implementation of that purpose have to be a sufficiently broad section of the public.

In looking at public benefit 'in the first sense', as the tribunal put it, the purpose or object needs to be prima facie of benefit to the community at large. While there is no presumption that education of any sort is for the public benefit, the tribunal did conclude that mainstream education provided by schools in the independent sector was generally for the public benefit. However, the tribunal specifically declined to consider political arguments as to whether independent schools provided disbenefits to the great majority of schools in this country which are run by the state.

Public benefit 'in the second sense' was also discussed by the tribunal, which accepted that it was right, as a matter of principle, that a trust that excluded the poor from benefitting could not be a charity. It had been accepted by the commission when amending its original draft guidance that the follow-on from that principle was not that the poor must be included in any benefit offered but rather that the poor should not be excluded. The tribunal went further and said that 'poor' did not mean 'destitute', nevertheless a school that was established for the purposes of educating only those who could pay full fees would not be charitable.

The tribunal concluded that, provided the poor were not excluded and that more than 'token provision' was made for them, the whole range of benefits that the school provides to the community was able to be taken into account in assessing whether the public benefit requirement 'in the second sense' was met. The tribunal looked at activities that might indicate a reasonable amount of public benefit provision, which included:

• scholarships and bursaries for the 'not so well off';
• inclusion in certain activities of pupils from local state schools;
• sharing of teachers/teaching facilities with local state schools;
• providing know-how or teaching materials, e.g. on the internet or otherwise; and
• making facilities (e.g. sports fields, swimming pools) available to pupils from local state schools.

It is also permissible for some wider benefits to the community to be taken into account provided that they are a consequence of the trustees advancing the objects of the school. The weight to be attached to any such benefits will depend upon the nature of these benefits and the precise objects of the school '“ in some cases the weight may be slight. Interestingly, the tribunal declined to include in the list of wider benefits the availability of sports facilities to the community at large, including adults.

The tribunal addressed the issue of 'gold-plating', where schools that charge high fees and/or provide education at the 'luxury' end of the market, stating that a stringent examination of how the public benefit requirement is satisfied would be required to justify such provision.

The tribunal's judgment states: 'There will be no one right answer. There will be one or more minimum benefits below which no reasonable trustees would go but subject to that, the level of provision and the method of its provision is properly a matter for [the trustees] and not for the Charity Commission or court.' Patently, provision for 'the poor' has to be more than minimal or 'token', but the quantity and quality of that provision was for the trustees to decide 'acting reasonably in an objective sense'. Clearly, what the reasonable trustees should do in relation to their school is to undertake 'their own considered assessment in the circumstances pertaining to their charity'.

And what if, for example, a relatively wealthy school made no more than a token gesture towards the poor. The commission's previous guidance suggested that such an organisation could be struck off the register of charities. However, the tribunal's approach, which is more logical, is that the organisation would remain a charity but, if necessary, the trustees could be removed from office.

In its judgment, the tribunal required the parties to agree a form of order detailing the changes to be made to the guidance. However, the parties were, perhaps unsurprisingly, unable to come to an agreement and a further hearing took place on 22 November 2011. As a result of that hearing, the tribunal said it would use its powers to quash the guidance unless the commission withdraws it. It gave the regulator seven days to decide whether or not to withdraw the offending parts of the guidance, and 21 days after the date it agrees to withdraw it, to do so.

The tribunal judges stressed that the Charity Commission had not acted unlawfully in coming up with the guidance it did. It said: 'This case is of course'¦ not a case in which illegality has been shown or in which the Charity Commission has taken an unlawful action or promulgated an unlawful decision. What has happened is that'¦ it has issued guidance based on a very detailed analysis of the complex and difficult case law relating to public benefit and following thorough consultation. We have decided that limited parts of the guidance are wrong or obscure.'

The Charity Commission has applied for an extension of time that the parties can apply for permission to appeal the tribunal's judgment on the original Attorney General's reference and the judicial review application. The extension sought is until 21 days after the date of this latest decision '“ so 23 December. The tribunal has granted the extension. At the time of writing, the commission said it had not yet decided whether to appeal.

Independent schools should continue to take seriously the provision of what they offer to those who cannot afford full school fees but it is for the trustees/governors of each school to decide how that is best done, considering the type of school, its financial viability and the local situation. Trustees/governors will also need to turn their thoughts to how they report on the public benefit they deliver when preparing their next annual report, in order to ensure that a full and accurate picture is given.

Benevolent funds

In November, the Charity Tribunal considered the Attorney General's reference on whether benevolent funds that benefit a restricted class of beneficiaries fulfil the public benefit requirement. At the time of writing, no decision had been published.

The parties to the reference are the Attorney General (who is automatically a party to proceedings), the Charity Commission and ten charities that have been joined as parties with the tribunal's permission. Seventeen organisations have made written representations (some of them jointly) as 'interveners' in the proceedings.

The Charity Commission's skeleton argument for the case said that it would not advocate a particular point of view about whether benevolent funds are charitable, outlining arguments for and against them remaining as charities. The document says that if the tribunal rules against benevolent funds being charitable, those that were established before the 2006 Act would have to change their objects to help a wider range of people. Those set up since the Act would be deemed to have been registered by mistake, it says, and would be removed from the register of charities. It says those organisations would keep their assets, but 'there may be tax implications for the period they were mistakenly considered to be charitable'.

Appealing out of time

Uturn UK CIC has been granted an extension of time to appeal against a decision of the Charity Commission and has also been granted a request for an oral hearing of its appeal (Uturn UK CIC v Charity Commission for England and Wales (Appeal no. CA2011/0006)).

The commission considered an application from the organisation for registration as a charity but, on the evidence before it, the commission concluded that the company was not established for exclusively charitable purposes and could not therefore be entered on the register of charities.

It is the first time that the tribunal has made a ruling on an application of for an extension of time. The tribunal applied the principles recently approved by the Upper Tribunal (Administrative Appeal Chamber) in Information Commissioner v PS [2011] UKUT94 (ACC):

• The lateness of the application.
• The extent to which the applicant has complied with the relevant rule.
• The date the application received the decision notice.
• Whether the reason for the delay was due to a holiday, ill health or other causes largely beyond the control of the applicant.
• The complexity of the decision being appealed.
• The fact that an appellant is unrepresented and unfamiliar with the appeal process.
• The fact that the appeallant had made enquiries about appealing before the deadline.

In applying these principles, the tribunal in particular noted that the appellant was unrepresented and therefore could not be expected to be familiar with the Tribunal Procedure (First-tier Tribunal) (General Regulatory Chamber) Rules 2009, it had not been informed of the deadline for appeal by the commission and had filed notice of appeal as soon as it became aware of the deadline.

This ruling provides helpful guidance for those who may be considering appealing against, or applying for a review of, a decision of the Charity Commission out of time. Furthermore, the ruling states that the tribunal is required to hold a hearing unless both parties to proceedings consent to an appeal or review being determined 'on the papers', or where the matter for consideration is striking out a party's case.

Wedgwood Museum pensions

The case was heard by the High Court in September 2011 to determine whether Wedgwood Museum's 10,000 piece collection may be sold by administrators to fund the payment of a £134m debt owed to the Wedgwood Group pension plan.

The museum went into administration in April 2010 because it had five employees enrolled in the company's 7,000 member scheme and was the only body contributing to the scheme that was not in administration, and therefore became liable for the entire debt. The museum's share of the shortfall, based only on its own employees, would have been approximately £60,000.

In October 2010 the Charity Commission, with regret, concluded that the collection was not protected as a permanent endowment and therefore it could be sold to pay off the deficit. The High Court's decision was expected towards the end of October but at the time of writing has not been published.