The Benefit Aspect of Charitable Trusts

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Legal definition of charity

In order for there to be a charitable purpose, not only must it fall under the list in s3(1) of the Charities Act (see previous topic notes) but must also serve a public benefit → only if both of these things are satisfies is the purpose a charitable purpose under s.2 Charities Act 2011

‘Public benefit’ isn’t defined in the Act → instead, what s.4(3) of the Charities Act tells us in a roundabout way is that ‘public benefit’ carries its common law meaning → so the definition of ‘public benefit’ is located in judicial decision prior to statutory reorganisation

Charity Commission guidance

The Charity Commission has number of objectives, including a public benefit objective to “promote awareness and understanding of the operation of the public benefit requirement.” (Charities Act s.14(2))

The Charity Commission must issue guidance on the operation of the public benefit requirement (Charities Act s.17(1))

The two aspects of the public benefit requirement

The 1st aspect demands the purpose in question be beneficial

The 2nd aspect demands the purpose in question is for the public or a section thereof

This is reiterated in ISC v Charity Commission [2012] where it was said that the purpose must both “be a benefit to the community” and be for “a section of the public”

PART 1: THE BENEFIT ASPECT

The benefit aspect explained

Net benefit to society

A purpose satisfies the benefit aspect if it delivers a net benefit to society (i.e. if its pros outweigh its cons such that it is on balance a good thing)

While net benefit must in theory be positively demonstrated, the majority of s.3(1) purposes are self-evidently beneficial so proof of benefit is unnecessary

  • At least in theory, a net benefit must be positively demonstrated
  • But, of course, the majority of potential charitable purposes would be self-evidently beneficial → so in such a case, the court wouldn't require positive proof of their benefit and will just take it as clear/obvious such benefit exists

The balancing exercise

When the benefit is not self-evident, the court must obtain evidence of the purpose’s benefits and detriments and weigh one against the other in order to establish whether the purpose is on balance beneficial

  • The court has to obtain evidence of the purpose’s benefits and detriments → and then weigh the one against the other in order to establish the balance of advantage
  • If the benefit is weightier then the benefit aspect is satisfied
  • If the detriment is weightier then the benefit aspect is not satisfied and the purpose doesn't satisfy the ‘public benefit’ requirement so cannot be a charitable purpose under s.2 Charities Act 2011

“[T]he court…has to balance the benefit and disadvantage in all cases where detriment is alleged and is supported by evidence.” (ISC v Charity Commission [2012])

“[A] purpose cannot be a charitable purpose where any detriment or harm resulting from it outweighs the benefit.” (Charity Commission: Public Benefit Guidance)

Consequential effects

When weighing up the good and bad of a purpose, the court must consider all the downstream consequences of pursuing the purpose in question eads

  • ‘[T]he whole terms and effect of the particular trust have to be considered’ ISC v Charity Commission 2012

In Re Resch [1969], the purpose was that of providing private hospital care. On balance this purpose was held to be beneficial in part because its downstream consequence would be to relieve pressures on a neighbouring NHS hospital

Measuring Benefit

Often you cannot quantify/measure the benefit/detriment the purpose provides

However, the Charity Commission said that even though that will often be the case, it should nevertheless always be possible to identify and describe how a charity’s purpose is beneficial

  • So we don't need to be able to measure/quantify a benefit/detriment

Cases where the benefit aspect was not satisfied

Re Hummeltenberg [1923]: Educating people to become spiritualist mediums held not to be beneficial → the ‘public benefit’ requirement was not satisfied. The court didn't really find any detriment stemming from the purpose but didn't identify any benefit either

Re Pinion [1965]: purpose was to establish a museum using material of no artistic or historical value. The court held this would fail the ‘benefit’ aspect as, again, there was neither really a detriment or a benefit

National Anti-Vivisection Society v IRC [1948]: the purpose here was to ban animal testing, but banning animal testing was held on balance to be detrimental. The purpose clearly fell within s3(1) (of advancing animal welfare), but it could not satisfy the benefit requirement of the 'public benefit' requirement. The court found a detriment in this case (unlike the other two cases) of banning animal testing → this was the loss of medical progress that would otherwise be achieved through animal testing. However, they also found a benefit → if animal testing were banned this would promote kindness among humans

  • Court held the detriment far outweighed the benefit → so the purpose was on balance detrimental so could not satisfy benefit aspect of public benefit test

Historical development of the ‘benefit’ aspect

Pre 20th century: no benefit aspect

The benefit aspect has not always formed part of the legal definition of charity

Pre 20th century, the courts held a purpose charitable if it: (i) fell within the list of charitable purposes; and (ii) satisfied the public aspect

Thornton v Howe (1862): a trust was established for the purpose of publishing the writing of an author who claimed to be pregnant by the holy ghost. The court dubiously said this was a charitable purpose and was held to extend to the public - as there was no requirement of benefit it was held to be a charitable purpose

Re Foveaux [1895]: the High Court had to decide whether a society aimed at animal testing was charitable. The court said “it stands neutral” on the question as to whether the practice of vivisection is beneficial or neutral. However, 50 years later the court came to the opposite conclusion on the same society, based on the detriment it would bring

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CONTENT

A public law explanation for lack of benefit aspect pre 20th century

It cohered with public law orthodoxy at time which viewed determinations of the public interest to be the exclusive preserve of the legislature

This was rationalised on basis that the legislature is democratically elected, so has been given a mandate by the electorate to determine what is in benefit to them

  • “[T]he function of the judiciary is to interpret and enforce the law…It is not for the judiciary to decide what is in the public interest.” (Lord Greene M.R.)

So, in the charity law context, by refusing to judge the benefit of potentially charitable purposes the judiciary stuck to the traditional limits on its constitutional competence

20th century: benefit aspect

Not long after Re Foveaux the judiciary (first implicitly and later explicitly) incorporated a requirement of benefit into the legal test of charitable purpose i.e. things began to change

In Re Hummeltenberg [1923] Russell J held a bequest to train mediums non-charitable on the basis that it was not “operative for the public benefit”

In National Anti-Vivisection Society v IRC [1948] the Houe of Lords approved Re Hummeltenberg and overruled Re Foveaux

  • So their Lordships in Anti-Vivisection held that Chitty in Re Foveaux should not have stood neutral on the question of benefit

A public law explanation

The decision in National Anti-Vivisection correlated to a shift in the public law arena: the judiciary began to assume the (hitherto legislative) role of judging the public interest

Increasingly throughout the 20th and 21st centuries, the public law judiciary has disregarded the traditional limits on its constitutional competence

  • This manifests itself most greatly in the context of judicial review → so when exercising their powers of judicial review the courts are becoming increasingly bold: they are no longer simply inquiring into the legality of legislation/policy, they are also influenced by its merit i.e. whether it is good for society

Benefit not to be “presumed”

Charities Act s.4(2)

The Charities Act s.4(2) states that “In determining whether the public benefit requirement is satisfied in relation to any purpose falling within section 3(1), it is not to be presumed that a purpose of a particular description is for the public benefit.”

So as a result of s.4(2) then, any previous presumption of benefit – which may have existed under the common law - has thus been abolished by statute

Presumption: Definition

A legal presumption is a rule of law which permits the courts on proof by evidence of the existence of a primary fact to conclude that a secondary fact also exists. The secondary fact is “proved by presumption” i.e. is held to be true unless it can be rebutted by evidence demonstrating it not to be true

Presumption: Operation

A presumption of charitable benefit would work as follows:

i) The primary fact is proved by evidence: i.e. the purpose falls within the Charities Act s.3(1)

ii) The secondary fact is proved by presumption: i.e. because the purpose falls within the Charities Act s.3(1), that purpose is beneficial

iii) The secondary fact is rebutted if positive evidence is show that the detriment outweighs the benefit

Impact on outcome of benefit assessment

In most cases, the presence/absence of a presumption of benefit makes no difference to the court’s conclusion on the benefit aspect E.g. the purpose of banning animal testing

  • No presumption of benefit: Evidence required that the purpose is on balance beneficial. The purpose’s detriment outweighs its benefit. So purpose held not beneficial
  • Presumption of benefit: The presumption is rebutted by evidence demonstrating that the purpose’s detriment outweighs its benefit. So purpose held not beneficial

The presence/absence of a legal presumption of benefit will make a difference where: (i) the court is unable to judge whether a purpose is beneficial/detrimental; or (ii) a purpose is on balance neutral E.g. the purpose of establishing a museum comprising artefacts of no artistic value (as in Re Pinion [1965]):

  • No presumption of benefit: Evidence required that the purpose is on balance beneficial. Such evidence not available. So purpose held not beneficial
  • Presumption of benefit: The presumption is not rebutted by evidence demonstrating that the purpose’s detriment outweighs its benefit. So purpose held beneficial

Did a presumption of benefit ever exist?

The drafters of the Charities Act 2006 clearly considered that benefit was presumed at common law otherwise there would have been little point in expressly excluding the possibility of presumpton; this view has academic support (e.g. Virgo)

  • On this view then, the Charities Act s.4(2) has altered the law

Other commentator, however, believe the court never actually applied a presumption of benefit → this view has the support of ISC [2012] and Synge

  • On this view, the Charities Act s.4(2) has not altered the law

If the Charities Act changed the law away from a presumption of benefit then this is a significant change to charity law

Politics and benefit

A “political” purpose cannot be charitable

It is well-established law that a “political” purpose can never be a charitable purpose (McGovern v Attorney-General [1982])

“Political” purposes are those aimed at:

  • Furthering the interests of a particular political party e.g. conservative, labour…
  • Procuring changes in the laws of this country
  • Procuring changes in the laws of a foreign country
  • Procuring a reversal of government policy in this country
  • Procuring a reversal of government policy in a foreign country

So a trust aimed at these cannot be a charitable trust

Most academic attention has been on the aim of procuring changes in the laws of this country (i.e. the law reform purpose)

Why can’t a law reform purpose be charitable?

The cases assert that the judiciary is unable to judge the public benefit of a change in the law; and because they are unable to do this, they are unable to hold a purpose aimed at such a change to satisfy the public benefit requirement

“[T]he court has no means of judging whether a proposspand change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift.” (Lord Parker, Bowman v Secular Society Ltd [1917])

  • When the court mentions ‘public benefit’ here they must mean the ‘benefit’ aspect → as they are unable to judge the benefit of a change in the law they can never hold such a purpose to be charitable

“[A] trust for political purposes…can never be regarded as being for the public benefit in the manner which the law regards as charitable” (Slade J, McGovern v AG [1982])

The standard academic criticism

Academic commentators are near unanimous in their criticism of the inability of purposes aimed at law reform to achieve charitable status e.g. Virgo says the “reasons given for the illegitimacy of pursuing such objectives are unconvincing, especially the reason that the law is incapable of judging whether a change in the law is good or bad”

Ostensible support for the standard academic criticism

In National Anti-Vivisection Society v IRC [1948], the House of Lords held a purpose aimed at illegalising vivisection to be on balance detrimental

  • The court identified a benefit of the purpose (the promotion of human kindness) and a detriment (the loss of medical progress), weighed them up and determined it was on balance a greater detriment for society

The House or Lords presented the rule against political purposes as a further reason why the Society’s purpose could not be charitable

  • In Bowman and McGovern, the court says they are unable to judge whether a law reform purpose is good or bad, and that is the reason why a law reform purpose can never be charitable, however in National Anti-Vivisection Society v IRC [1948]the court seemed to be doing exactly that; they appear to be judging the benefit of a law reform purpose
  • Academics (e.g. Virgo) have used this case as proof the court can, in fact, judge the benefit of a law reform purpose, meaning it should be possible for such purposes to be charitable

An independent rule

These commentators reason that because it is possible, therefore, to determine the public benefit of a law reform purpose, this cannot be the real reason why law reform purposes cannot be charitable

Instead, they reason, the inability of political purposes to achieve charitable status must be an independent rule i.e. in order for a purpose to be charitable it must fall within the list of charitable purposes, it must be for the public benefit, and it cannot be political

  • Drassinower: “the doctrine of political purposes is an independent rule

Is an independent rule justifiable? I.e. should such a rule exist?

There is an academic consensus that an independent rule denying purposes aimed at law reform charitable status cannot be justified

They argue there is no reason why purpose which falls under s3(1) Charities Act and is in public benefit should be denied charitable status because it is political (i.e. aimed at law reform)

Should law reform purposes be capable of being charitable?

On a proper understanding of the cases, the reason a law reform purpose cannot be charitable is because the judiciary cannot reach a legal conclusion on its benefit

Normative analysis must therefore focus on whether the proffered reason for this inability (viz. desire not to usurp legislative function) is defensible

  • So the question that must be answered is not, as most commentators imagine, whether there is any possible justification for a ban on political purpose, instead we must address whether the judiciary has the right to determine whether the law is good or bad

Religion and benefit

Impossible judgments

The benefit aspect poses a particular challenge for religious purposes

The core impact of a religious purpose is fostering faith in believers, but it cannot be proved one way or another whether this amounts to a “benefit”

Likewise, the question of whether prayer confers benefit cannot be proved

  • Gilmour v Coats: money was settled on trust for the purpose of supporting a community of cloistered nuns. It was held that the trust’s purpose fell within the category of advancement of religion, but the purpose was not held beneficial and so was not charitable; the counsel claimed that the purpose was beneficial on the basis that the nuns’ prayers delivered a benefit to the wider public, but this benefit was rejected as incapable of proof

Consequential, secular benefits

Where possible, the courts have seized upon the consequential, secular benefits of religious purposes in order to satisfy the benefit aspect

  • Religion generally promotes volunteering; giving to charity; mutual trust and respect; honest etc. → adherence to, and promotion of, these doctrines has a positive effect on society as a whole

Benefit is thus located in the positive effect which religious doctrine has on society

  • “[T]he court is…entitled to assume that some benefit accrues to the public from the attendance at places of worship of persons who live in this world and mix with their fellow citizens” (Neville Estates v Madden [1962])
  • Neville Estates v Madden: the purposes of the Catford Synagogue were held beneficial on the basis that those attending the synagogue would mix with the general public and so spread religious doctrine to the benefit of the public
  • C.f. Gilmour v Coats: the nuns being cloistered, the purpose had no beneficial secular side-effect → the outcome of the benefit aspect would doubtless have been different had the nuns been able to leave the nunnery and mix with the wider world

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