Class action

Governors of independent schools keenly await the results of the Independent Schools Council's (ISC) challenge. If the schools are found to be fundamentally uncharitable, they could face a loss of valuable tax reliefs and, at worst, insolvency, the compulsory replacement of governing bodies or merging with other schools considered to be satisfactorily complying. If the schools are charitable, it may be considered that the governors themselves have been acting in breach of trust in the way they have run the organisations.

This could have personal implications for these groups of volunteers. For many schools the inevitable consequence of the bursary schemes is that fees have to rise, thereby ensuring only the very rich and the very poor can afford them. There is of course always the option to apply to become a free school but they would then cease to have independent status. They would also have to have an outstanding Ofsted rating.

The case will obviously have implications for other fee-charging charities. If the Charity Commission is successful, the equivalent of bursaries will need to be provided by other charities, regardless of their activities. And while the take-up of reduced or 'free' fees in independent schools may not be as high as expected because of further consequential costs such as uniform, trips and equipment, this may not be the case for private hospitals, for example.

The case could also have great significance for the charitable sector as a whole. If the Charity Commission judgment is found to be flawed in this case, will this undermine confidence in their guidance in other areas? Will this require secondary legislation to rectify? The commission is already suffering from a lack of resource. It has indicated that its regulatory function will in future dominate over their advisory role. Will the results of this case undermine this? There is a similar referral scheduled for November relating to charities for the relief of poverty that have a restricted beneficiary group.

It is hard to guess which way the case will go. There is a popular perception that independent schools should not be charitable anyway, on the basis that their beneficiaries are not in 'need'. However, there are as many people who believe that the commission has pursued a political agenda in relation to schools and that the Attorney General's reference is a long-awaited opportunity for the court to carefully consider and clarify the legal position.

There is no doubt that the commission has a mandate to educate trustees and that there has been a change in the need for justification of public benefit for certain types of charity. The question is to what extent and how? Charities and their advisers eagerly await the conclusions.