The Public Aspect of Charitable Trusts and Cy-Près

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The Public Aspect Explained

The legal test

In order for a purpose to satisfy the “public” aspect of the public benefit test it must benefit either:

  • i. The public in general; or
  • ii. A sufficient section of the public

i. The public in general

This is the first way a purpose can satisfy the ‘public’ aspect of public benefit test

So, for example, a purpose aimed at conserving an endangered animal benefits the public in general

  • This extends to purpose in general because the benefit is not limited to a certain category of people: it is for us all

Religion and the public in general

The courts locate a religion’s “benefit” in its secular side-effects i.e. the positive impact which religious doctrine has on the public at large

  • What this means then is that a religious purpose is beneficial only if it involves an engagement with the broader community, because it is only in this way that religious doctrine can be spread throughout the community and deliver a benefit

A religious purpose thus satisfies both elements of public benefit in the same way viz. by demonstrating that it involves a direct engagement with the community

Contrast Gilmour v Coats with Neville Estates v Madden

  • In 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. As the court could locate no benefit to the purpose, there could logically be no benefit to the public – so the public aspect was not satisfied
  • C.f. In 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 diffuse positive religious doctrine throughout society; and the benefit stemming from the synagogue’s purposes was held to be to the public in general

ii. A sufficient section of the public

The meaning of “sufficient section of the public” differs depending on the category of charitable purpose (s.3(1)) in question

There is a usual rule which applies to all categories of charitable purpose, but this ‘usual rule’ is amended in respect of purposes which (i) prevent or relieve poverty, and is amended in a different way in respect of purposes which (ii) advance education

  • So there are 3 different sets of rules operating which govern what amounts to a sufficient section of the public

“Sufficient section of the public”: the usual rule

The usual rule explained

The usual rule is that a charitable purpose benefits a “sufficient section of the public” (and thereby satisfy the public aspect of the public benefit test) provided there are no unreasonable restrictions on the opportunity to benefit from the purpose. So:

  • i. The purpose of providing a children’s playground does benefit a sufficient section of the public → This purpose is restricted to ‘children’, but the restriction is a reasonable one
  • ii. The purpose of providing a playground for churchgoing children does not benefit a sufficient section of the public → This restriction to ‘churchgoers’ would be an unreasonable restriction, therefore churchgoing children would not constitute a section of the public and the purpose in question would not satisfy the public aspect of the public benefit test

But what is an ‘unreasonable restriction’?

  • It is notoriously difficult to define when a restriction becomes unreasonable
  • Simon Gardner suggests an unreasonable restriction is one which is extrinsic to the purpose’s nature → this definition is pretty difficult to work with
  • Ultimately it will be a matter of judicial discretion

Secondly, the ‘usual rule’ focuses on the ‘opportunity’ to benefit from the purpose

  • This makes clear then that it is irrelevant that the relatively small numbers are likely actually to benefit from any given purpose, what is important is that the opportunity to benefit is not unreasonably restricted

Selection permissible

The fact that selection is involved in determining who will benefit from a purpose does not prevent that purpose from benefiting a section of the public…

…provided the selection process is open to all who could benefit from the purpose

E.g. say there is a purpose of sending 12 disadvantaged children on holiday → some selection will be involved in determining which 12 children will actually get to benefit from the holiday, but this wont prevent the purpose from benefiting a section of the public, provided that the selection process is open to all who could benefit from the purpose (i.e. provided that all disadvantaged children can apply for a place on the holiday)

Geographical restrictions

Restricting the opportunity to benefit to the inhabitants of a certain locality will often be reasonable e.g. the purpose of providing counselling to inhabitants of Bristol

It will, however, be unreasonable if the geographical area is too narrowly defined given the particular purpose e.g. the purpose of providing an Olympic-standard swimming pool to be used exclusively by the inhabitants of a particular street

Key cases on the ‘usual rule’

Williams’ Trustees v IRC [1947]: the purpose of the charitable trust was for maintaining an institute for the benefit of Welsh people living in London. This was held not to extend to a “sufficient section of the public”; the geographic limitation was reasonable, but the further restriction (being Welsh) was unreasonable, so did not satisfy the public aspect of public benefit test

IRC v Baddeley [1955]: a purpose of providing social and recreational facilities to members of the Methodist Church in West Ham was held not to extend to a “sufficient section of the public”; the geographic restriction was reasonable, but the further restriction (i.e. to Methodists) was held to be unreasonable, so did not satisfy public aspect

“Sufficient section of the public”: poverty

Restrictions on opportunity to benefit permissible

Where the purpose in question is for the prevention or relief of poverty, the opportunity to benefit can be unreasonably restricted in any way (and still extend to a sufficient section of the public and still satisfy the public aspect of the public benefit test) including:

  • i. To the members of a particular family (Re Scarisbrick [1951]);
    • So if your purpose is for the prevention or relief of poverty then the opportunity to benefit can be restricted to the members of a particular family as in the above case.
    • For example, a trust can be established for the purpose of relieving poverty amongst the settlor’s relatives. This would not be permitted under the ‘usual rule’ → a restriction to family members under the ‘usual rule’ would be held unreasonable
  • ii. To the employees of a particular employer (Dingle v Turner [1972]);
    • The opportunity to benefit can also be extended to the employees of a particular employer
    • The Question for the House of Lords was whether a trust for benefit and relief of poverty of particular employees should be treated in same way as a trust for poor family members → the court held it could
    • Again, under the ‘usual rule’ a trust for the benefit of employees of a particular employer would be considered unreasonable and would prevent the purpose from benefitting a sufficient section of the public, but as regards poverty purposes the usual rule is amended and the restriction is permitted
  • iii. To the members of a particular association (Spiller v Maude (1881)); and
  • iv. To the residents of a small geographical area (Re Monk [1927])
    • This include a small geographic location that is too narrowly defined in comparison to the purpose in question (this is in contrast to the usual rule, where this would not be permitted and would be deemed unreasonable)

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CONTENT

Distinguishing non-charitable, private purposes

But, in order to be charitable those that are to benefit must amount to a class/category, because charitable trusts are aimed at fulfilling particular purposes

Charitable purposes aimed at relieving poverty among a restricted class must be distinguished from non-charitable purposes aimed at particular poor individuals. So:

  • “To relieve poverty amongst my relatives” is charitable → this is a class/category to benefit from the purpose to relieve poverty
  • “To relieve the poverty suffered by my son and daughter” is not charitable → this is aimed at particular named individuals so is essentially a private trust

The distinction ensures the benefits of charitable status do not extend to private trusts

Why is the poverty rule more liberal (than the usual rule)?

It may be that the law’s approach to poverty purposes is best understood not as an amendment to the usual rule on what constitutes a “section of the public” but rather as an acknowledgment that such purposes benefit the public in general

  • Any purpose relieving or preventing poverty lifts the burden of providing such relief from the state who would otherwise have to act; this in turn reduces taxes to the benefit of all taxpayers and in this way the benefit extends to the taxpaying public → So it indirectly delivers a benefit to entire taxpaying public

On this account, poverty purposes, like religious purposes, do not engage the rules on what constitutes a “section of the public”

“Sufficient section of the public”: education

Some restrictions on opportunity to benefit permissible

Where the purpose in question is to advance education, the opportunity to benefit can be unreasonably restricted in some ways, but not in others

The opportunity to benefit may be restricted by locality, parental occupation or religion

The opportunity to benefit may not be restricted by reference to a ‘personal nexus’ i.e. to the members of a particular family (Re Compton [1945]) or to the employees of a particular employer (Oppenheim v Tobacco Securities Trust [1951])

  • See the case of Oppenheim v Tobacco Securities Trust [1951] → as the opportunity to benefit was restricted by a personal nexus the public aspect was not satisfied. The court noted the conclusion reached would have been different had the purpose been to educate children of those involved in the tobacco industry in a given town, because restrictions as to locality and parental occupation are allowed in the context of education!

Criticism

Lord MacDermott dissented in Oppenheim → he doesn't like how some restrictions on the opportunity to benefit are permissible where others are not, and suggest an alternative test arguing that ‘sufficient section of the public’ should be a matter of degree, to be determined by conducting a “general survey of the circumstances and considerations regarded as relevant”

On this test, he held the trust in Oppenheim to benefit a “sufficient section of the public” → his judgment as a whole shows what he is ultimately interested in is whether the purpose benefit the public or whether it is aimed at a collection of private individuals

  • This test, taken to its logical conclusion, seems to permit any restriction (whether reasonable or unreasonable) on the opportunity to benefit, provided that those that are able to benefit amount to a public rather than a private class
  • Although in theory this test was only said in the context of educational purposes, the test could be generalised across the board and indeed this would align with circumstances where the context is that of poverty, too

Excluding the poor

The last point to elaborate on with regards to the public aspect of the public benefit test is whether the poor can be excluded and the public aspect nonetheless satisfied

Who counts as poor?

Poverty is not the same as destitution; it embraces those who do not have access to things which most people take for granted

Thus in ISC v Charity Commission the Upper Tribunal held that people count as poor if they are ‘of moderate means’; ‘not very well off’ (ISC v Charity Commission [2012]])

When does a purpose exclude the poor?

A purpose excludes the poor if its benefit is limited to the rich either:

  • i. Expressly (e.g. “to provide medical treatment to those earning over £100,000/annum”) → so an express limitation to those who are wealthy
  • ii. De facto (e.g. “to educate the children of Clifford Chance partners”)

A purpose also excludes the poor if even though not absolutely limited to the rich, it is open to only a token number of the poor (ISC v Charity Commission [2012])

  • The Upper Tribunal here held those that can afford to pay for private school education are not poor → So it was recognised that a hypothetical private school with the sole aim of educating children whose parents could afford the fees would indeed exclude the poor, and in turn the private school would not be a charity
  • But, the tribunal noted that most private schools make provision for the poor through scholarships, bursaries, and opening up facilities to broader community → so it was held that provided this provision to the poor was more than token then a private school would be held not to exclude the poor and would not, for this reason, fail the public aspect of the public benefit test

EXCLUSIVELY CHARITABLE

Legal definition of charity

Charities Act s.1: ‘charity’ is an “institution which is established for charitable purposes only

Charities Act s.2 defines a ‘charitable purpose’ as one which “falls within section 3(1) and is for the public benefit”

The exclusivity requirement

The Charities Act s.1 dictates that a trust is charitable only if all its purposes are charitable (i.e. each and every purpose falls within s.3(1) and is for the public benefit: Charities Act s.2)

So a trust which has a mixture of charitable and non-charitable purposes is not a charitable trust

Key cases

Chichester Diocesan Fund v Simpson [1944]: the trust was not limited to charitable purposes but extended also to benevolent purposes. It was held that the description ‘benevolent purpose’ was broader than charitable purpose, so the trust was seen to be aimed at both charitable and non-charitable purposes and so could not be a charitable trust

Re Macduff [1896]: trust for charitable or philanthropic purposes held not charitable

By contrast see Re Sutton (1885): A trust for charitable and deserving objects was held charitable. This contrast lies in the fact the trust was for charitable ‘AND’ deserving objects. The key word is ‘and’, whereas the other two cases used the word ‘OR’

Qualifying the exclusivity requirement

There are, however, two ways in which the demand for exclusively charitable purposes is mitigated

1) Incidental purposes

If a trust’s non-charitable purpose is incidental to its main, charitable purpose, the trust will be held charitable after all

In order to be ‘incidental’, the non-charitable purpose must be a by-product of the main, charitable purpose

See the cases of Re Coxen [1948] and Re South Place Ethical Society [1980]

2) Severance

The court may be able to sever a fund which has a mixture of charitable and non-charitable purposes into two parts: one part comprising exclusively charitable purposes, and the other part non-charitable purposes

The part comprising exclusively charitable purposes can then be a valid charitable trust

Severance is possible only when the trust instrument contemplates a division and the money to be applied to each part can be quantified (Re Coxen [1948])

In Salusbury v Denton (1857) a trust was established in part to found a school/provide for the poor, the remainder to benefit the testator’s relatives. The trust was severed into two parts, the first of which was a valid charitable trust

CY-PRÈS

The cy-près doctrine explained

When a private trust fails, remaining funds revert to the settlor on resulting trust; when a charitable purpose fails, remaining funds may instead be applied cy-près

Funds which are applied “cy-près” are directed by the court or Charity Commission to a charitable purpose analogous (i.e. similar) to the original, failed, charitable purpose

Initial failure i.e. trust fails from the outset

How does a charitable purpose fail? There may be a failure of a charitable purpose from the outset, before the charitable trust has even come into existence i.e. an initial failure

At common law, there was an initial failure of a charitable purpose only if it was impossible to apply funds for the identified charitable purpose

  • E.g. giving money to a hospital that has already shut down

The Charities Act s.62 (previously Charities Act 1960 s.13) has expanded on the common law position e.g. s.62(e) provides that a purpose fails if it is adequately provided for by other means or is not a “suitable and effective” use of the available funds

  • So now, a charitable purpose will have initial failure not inly if it is impossible to apply the funds for the identified charitable purpose, but also if the purpose is already adequately provided for by other means or is not a “suitable and effective” use of the available funds

Application cy-près on initial failure

On initial failure of a charitable purpose, funds are applied cy-près (to analogous charitable purpose) only if the settlor can be considered to possess a general charitable intent

  • General charitable intent exists if the trust creator is more concerned the funds should be used for charitable purpose generally than he is concerned that the funds should be used for the specific purpose which he has identified
  • This will be a matter of construing the trust to determine whether the settlor has a general charitable intent

In the absence of general charitable intent, the property reverts on resulting trust (to the settlor or estate of the testator)

Subsequent failure

There is a subsequent failure of a charitable purpose if:

  • i. The charitable purpose becomes impossible to achieve; or
    • E.g. purpose to save endangered animal which then becomes extinct → here the charitable purpose has become impossible to achieve so there is a subsequent failure of the purpose
  • ii. The purpose ceases to be charitable; or
    • E.g. because the court’s assessment of whether on balance the purpose is beneficial may change = subsequent failure of charitable purpose
  • iii. The purpose is fulfilled, leaving a surplus of funds
    • E.g. Re King: £1000 was settled to install a stain-glass window in a church. It cost £700, achieving the purpose. So there was a subsequent failure of the charitable purpose (as there was still £300 remaining

Application cy-près on subsequent failure

Where there is subsequent failure of a charitable purpose, the trust property will (subject to the exception below) automatically be applied cy-près

  • So you do not look for general charitable intent like where there is initial failure

Property will not be applied cy-près when the settlor/testator expressly provides that in the event of failure the property should revert on resulting trust or be passed to 3rd party

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