Independent schools can decide charitable status, says Tribunal

18 October 2011 by

Independent Schools Council and the Charity Commission for England and Wales (Defendant), National Council for Voluntary Organisations and the Education Review Group (Interveners); Attorney General v Charity Commissioner for England and Wales (Referrer) and the Independent Schools Council (Respondents) [2011] UKUT 421 (TCC) – read judgment

 It is not for the Charity Commission or the courts to impose on trustees of a school their own idea of what is for the “public benefit” so as to qualify for charitable status, the Upper Tribunal has ruled. In a detailed assessment of the law on charitable status both before and after the Charities Act, the Tribunal has indicated that the Act has not introduced any legal requirement to act in a way prescribed by the Charity Commission or anyone else.  Provided they run their charity to ensure that the poor are able to benefit in a way that is more than minimal or tokenistic, they should be free to make their own considered assessment of what is for the “public benefit” in the circumstances pertaining to their own institution.

The right to education played no role in these proceedings, which turned on the meaning of charitable status in the strict sense. But this case nevertheless has very real implications for the regulation of education in this country, mired as it is in the bitter controversy over state versus private education. This is still a weeping sore for which there is no salve. But the Tribunal’s firm steer towards autonomy at least puts paid to the efforts of the past government to micromanage schools behind the smokescreen of charity law.

The applications and parties

The case involves two separate but closely related proceedings, both concerning the effect of the public benefit requirement contained in the Charities Act 2006 (“the 2006 Act”) on independent schools which charge fees.

The first was an application for judicial review by the Independent Schools Council (ISC), seeking an order to quash certain sections of the Charity Comission’s guidance on the concept  “public benefit” under the 2006 Act.  The ISC was concerned that this guidance meant that  independent schools might forfeit their charitable status if they did not make bursaries available to people who could not pay their fees.

The part of the Guidance under attack was the section which required an institution to provide a benefit to the public way that was not “unreasonably restricted”

  •  by geographical or other restrictions; or
  •  by ability to pay any fees charged

The claimant in the JR application, the ISC,  is an umbrella organisation for private schools, most of which are charities.  The two intervening parties broadly speaking represented opponents of private education.

The second set of proceedings was a reference by the Attorney General to the Tribunal for clarification of certain aspects of charity law, formulated as a series of questions about the operation of charity law in relation to a hypothetical independent school. At the heart of both the JR application and the reference lies the public benefit requirement as it applies to independent schools.

What is a “charity” in law?

It is worth emphasising at the outset that in law, “charity” is a term of art which does not mean precisely what it is thought to mean in the real world. It confers tax and reputational benefits to qualifying institutions. Significantly,  a charitable institution or trust is not subject to the “rule against perpetuities”, a common law rule which developed to prevent people from putting qualifications and criteria in their wills which would continue to control or affect the distribution of assets long after their death, a concept often referred to as control by the “dead hand”.  Private trusts cannot have this perpetual existence, but charitable trusts can. And of course the concept of what is and is not for the public benefit (as seen by society generally, and as reflected in judicial recognition of the views of society) changes over time.

Similarly, the word “poor” in this context does not mean destitute. In the discourse of charity law, a poor person is a person who cannot reasonably afford to meet a particular need by purchasing at the full cost price the service which it is the charity’s purpose to provide.
The submissions
The arguments from either side were essentially political and therefore predictable. Neither brought much weight to bear on the two central questions, which were, first, what a school’s stated objective needs to provide in order for the school to be capable of being a charity, and, second,  ”what a school actually needs to do to be seen as operating for the public benefit”.
The ISC furnished evidence to the effect that 5% of the school population of England and Wales were attending 983 charitable schools within the ISC umbrella. The ISC therefore argued that the benefits provided to the state by the activities of its schools far outweighed the fiscal advantages received by ISC schools as a result of their charitable status because of the cost which would otherwise be incurred of educating some 440,000 extra children in the maintained sector. The Education Review Group  (ERG) maintained  on the other hand that private schools have significant “dis-benefits” to society in terms, for instance, of removing able pupils from state schools and presenting barriers to social mobility.
The Tribunal’s ruling
In reaching its decision (via 260 dense paragraphs), the Tribunal was not concerned with the question whether a particular purpose is a charitable purpose: the advancement of education clearly is capable of being a charitable purpose. It was concerned with whether the rich (by which is meant those able to afford the school fees) are a sufficient section of the community.
Public Benefit for the purpose of the Preamble to the 2006 Act
The Tribunal first set out to consider what is meant by “public benefit”.  A merely philanthropic purpose, or purpose for the benefit of a private class, would lack this element of public benefit and would therefore not qualify as charitable (Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] A.C. 297) . In Oppenheim  the endowment restricted the benefits of an educational trust to children of employees of certain employers. This rendered the trust a private trust, because it was not for the benefit of a sufficient section of the public. It was therefore not charitable.
So a trust for the advancement of education is not necessarily for the public benefit simply because it is such a trust, even if it is directed to a sufficiently wide section of the community.
Charitable status under the 2006 Act
The Tribunal noted, first, that  a purpose might fall within the Act but nevertheless fail to be a charitable purpose. This is so where a potentially charitable purpose fails to actually to be one because it is a private rather than a public purpose, such as the educational purpose in Oppenheim.
On the other hand, the 2006 Act has made very little difference to the pre-existing law and does not increase the burden on private schools to prove public benefit before they can qualify for or retain their  charitable status. All the 2006 Act has done is to bring into focus what it is that the pre-existing law already required, and what the law now requires by way of the provision of benefit and to whom it must be provided. The Tribunal gave various examples of the direct benefits that should be provided, when it came to considering whether a school which was a charity was operating for the public benefit in accordance with its charitable purposes. But these were not prescriptive. What the trustees decided to do in the running of the school was a matter for them, subject to acting within the range within which trustees can properly act.
The Tribunal was satisfied that the objects of the schools with which the JR application was concerned were for the public benefit in the first sense. The real issue about public benefit in the present proceedings related to the question whether, as a matter of fact, the class which stood to benefit from those objects – those able to afford to pay school fees – was a “sufficient section of the community” when it comes to public benefit in that sense.
ERG’s attack was essentially  on the whole system of private education and its allegedly socially divisive effects and detrimental consequences for social mobility. But the Tribunal declined to accept that it was the proper role of  the Charity Commission or the Tribunal or the higher courts
to carry out what is an essentially political exercise to determine whether and if so what, if any, dis-benefits there are of the private schools sector generally and then to balance the benefits and to form a view about public benefit.
And, in any event, a “clear case” would have to be made out to show that an object which would ordinarily be charitable is not charitable because of the consequences which it has for society. Therefore, concluded the Tribunal,

the schools with which we are concerned do have purposes which are for the public benefit in the first sense. This is because (a) the nature of the education which they provide is for the public benefit …. and (b) the material put before us by the ERG does not displace that conclusion

There follows a detailed consideration of the question of “public benefit” as it relates to a “sufficient section of the community”.  The Tribunal considered it “very important” to remember that the enquiry is about the public benefit. The result of the enquiry is not to be concluded a priori simply because the institution levies charges even if the result is that the facilities are available only to persons of “some means”.

Whilst the tribunal was prepared to concede that a school, whose sole object is the advancement of the education of children whose families can afford to pay fees, would not qualify for charitable status as lacking the requisite public benefit in terms of “sufficient section of the community”. But in practice such a school is unlikely to exist.

191. The status of an existing registered charity and the duties of the trustees have not been changed by the 2006 Act. As to status, either it was entitled to be registered before the 2006 Act or it was not. If it was, its purposes must have been for the public benefit as that term was then understood and, since we are dealing with schools where there is no presumption made under the pre-2006 Act law for the reasons we have given, it thus fulfils the public benefit test under the 2006 Act. Accordingly, whether such a school is a charity within the meaning of the 2006 Act does not now turn on the way in which it operates any more than it did before. Its status as a charity depends on what it was established to do not on what it does.

The position of the schools in this case could be distinguished from that in the Oppenheim decision because in this case these schools choose the majority of their students because of a preference for students who have as a characteristic an ability to pay fees; they do so because they cannot afford not to choose such students. And the charging of fees does not per se preclude charitable status. In any event,

it is not possible to be prescriptive about the nature of the benefits which a school must provide to the poor nor the extent of them. It is for the charity trustees of the school concerned to address and assess how their obligations might best be fulfilled in the context of their own particular circumstances. [217]

Conclusion

The application for judicial review of the Guidance succeeded. The Tribunal considered that principle 2b and 2c of the principles of public benefit on which the Guidance focuses (quoted above) was wrong. In the light of this conclusion, the Tribunal ordered the parties to decide a form of wording themselves that would properly reflect the law on this question.

As to the reference, some of the questions appeared to be designed to draw from the Tribunal conclusions about where the lines could be drawn between what is, and what is not, a sufficient element of public benefit to determine whether a charitable school is acting properly. Such a line could not be drawn and therefore the Tribunal declined reach a decision which would give the parties clarity for which they were hoping,  because it was not constitutionally competent to do so:

Our decision…will satisfy neither side of the political debate. But political debates must have political conclusions, and it should not be expected of the judicial process that it should resolve the conflict between deeply held views. We venture to think, however, that the political issue is not really about whether private schools should be charities as understood in legal terms but whether they should have the benefit of the fiscal advantages which Parliament has seen right to grant to charities. It is for Parliament to grapple with this issue. [260]

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