VIII - Charitable purpose trusts Flashcards
Does a charitable purpose trust require beneficiaries?
They don’t have a beneficiary who has a vested interest in trust property: object of trust is charitable purpose. They are enforced by the AG. (Attorney General)
Why does the law permit charitable trusts?
- Charitable purpose trusts (unlike private purpose trusts) are upheld because of their value to society.
What advantages do charities enjoy?
- Charities enjoy a number of fiscal and legal advantages, including:
- Fiscal: Relief from income tax, corporation tax, CGT, stamp duty, VAT and inheritance tax.
- Legal: Exemption from the rule against perpetuities and limitation periods on bringing enforcement proceedings.
What tax advantages do charitable trusts have?
- No income or incorporation tax. No capital gains tax, gains from VAT with regards to some supplies. If you can become a charity, you are tax exempt from a wide range of situations.
- Recognising a purpose as a charity has huge tax implications. Dingle v Turner – automatic to tax relief
- When deciding whether there should be a charitable purpose trust, should the courts decide whether it exists for the public benefit? because public money will be spent for this purpose: not pay VAT or income tax. Money given to charity will not be taxed. These moneys cannot be spent on education etc – there is an opportunity cost to recognising this charity.
- Thrust of this argument of lord Cross in Dingle v Turner has been rejected largely by courts. For tax purposes is purely for parliament to decide. Court should not take this into account but Lord Cross’ views have been influential.
What are the legal advantages of charitable trusts?
- Rule against perpetuities does not apply to CP
- No limit as to how long it can be conveyed
- Unlike most private trusts, trustees can act by a majority vote as to how the charitable property will be used. Most private trustee require trustee to act unanimously unless provision saying otherwise
- No limitation period for bringing enforcement proceedings
- Private period – limitation period for sueing trustee (6 months)
- This limitation period does not apply to CT
Charitable purposes are those which:
- Benefit the public; and
- On the authority of statute and common law are defined as ‘charitable’
In order for a purpose to be charitable:
- The character of the purpose must be legally charitable recognised as being a charity.
- The purpose must satisfy the public benefit test: it must be beneficial to society;** and it must **benefit a significant section of the public (as opposed to a class of private individuals as opposed to a class, must exist for a public benefit.
- The purpose cannot be political Cannot be specific for the repeal of a legislation – this is political.
- The purpose must be exclusively charitable (eg: cannot involve the distribution of profits to private individuals as this would be a private trust)
What does:
- The character of the purpose must be legally charitable:
mean?
- Charities Act 2011: Recognised Heads of Charity
- “The Old law” s. 3(1)(m)(i) Charities Act 2011
- Growth by analogy with Existing Charitable Purposes
What is s2-3 Charities Act 2011?
These are recognised Heads of Charity.
Charities Act 2011, ss. 2-3 provides a list of purposes which are regarded as charitable. S2(1)(a) and s3(1) gives statutory meaning of charitable purpose but it does not constitute a legal definition of charitable purpose, only lists.
Why is the old law under s3(1)(m)(i) CA 2011 relevant?
Older case law is relevant because s3(1)(m) specifically preserves any charities recognised by old law (pre 2006 common law), which slowly recognised new charities over time. Need to look at history to work out what charities have been recognised.
Scottish Burial Reform v Glasgow Corporation
per Lord Reid: when looking at if a charity, prior to 2006 and 2011, the law recognised what was charitable by looking at the statute of Elizabeth.
Ask if it is within the statute, if not, ask whether it can be analogised within the state.
Must show that the “public benefit is of a kind within the spirit and intendment of the Statute of Elizabeth I.”
“all that is necessary to bring the objects and activities of the appellants within the spirit and intendment of the preamble to the Statute of Elizabeth I is to find an alogous decided cases”
Held: the question for HL was whether trust for cremation of corpses was charitable (this was not listed in 1601 preamble). Held: it was charitable, by analogy of upkeep of graveyards and churches (contained in 1601). Analogy built upon analogy. Trust for repair of churches are in 1601 preamble and by analogy the repair and upkeep of graveyards and churches was an analogy held correct, within this, the cremation of corpses fell within this exception of an exception.
Preamble to the Statute of Charitable Uses 1601:
The statute of Elizabeth I
If not listed within the 1601 preamble or has not been previously argued, the courts could argue by analogy.
When courts were presented with a new purpose, deciding whether it was a charitable nature, the courts would look towards the 1601 preamble, if the purpose was not here, they would say “is this new purpose analogous to anything in the preamble”.
Facts of Scottish Burial: the question for HL was whether trust for cremation of corpses was charitable (this was not listed in 1601 preamble). Held: it was charitable, by analogy of upkeep of graveyards and churches (contained in 1601). Analogy built upon analogy. Trust for repair of churches are in 1601 preamble and by analogy the repair and upkeep of graveyards and churches was an analogy held correct, within this, the cremation of corpses fell within this exception of an exception.
What does s(1)(m)(ii) and (iii) mean?
This analogising has been preserved within the 2011 statute within the (s3)(1)(m). This analogising reasoning means that even if the purpose is not within a-l, if it is analogous to these purposes, then they can recognise it as a new purpose within (m). This form of analogising reasoning has been popular with courts – it means the law will be flexible. As society changes, new charitable purposes can be. In 1601 would not have recognised trust for the provision of cremation services, but now it has been.
Criticisms of the rules on identifying charitable purposes
- The analogical reasoning employed by the courts is unprincipled
- Analogical reasoning does not account for how the consequences of charitable status have changed over time.
- Fiscal Consequences : lord Cross’ concerns
- The distinction between Purposes and Activities
Vancouver Regional v MNR
The analogical reasoning employed by the courts is unprincipled
Access to internet is not within the statute. But by analogy the statute “ highway and bridges” was analogous to the internet. Holding a trust for internet services are therefore charitable. Such reasoning between highways for internet and highways has drawn criticism.
The preamble [to the Statute of Charitable Uses] speaks of repair of bridges, ports, causeways and highways. These were, of course, at the time essential means of communication…
“it is within the spirit and intendment of the preamble…’”
What are the consequences of chartiable status having changed over time?
Recognising charitable purposes are important for tax relief and the benefit of society. But in past, recognising purposes as charitable in nature did not have those consequences. The Mortmain Act held: gifts of land for charitable purpose are void. There was a concern that it should not be given over for charitable purposes and land held in perpetuity.
In the past, recognising a purpose as charitable had the effect of rendering the gift void. As a result, the courts adopted a wide definition of charity in order to set aside gifts of land.
Thornton v Howe
Facts: Land given on trust to publish the religious works of Joanna Southcote. Romilly MR called her works “foolish” and “ignorant”, but nonetheless held it a charitable purpose. As a result, it was void under the Mortmain Act 1736, 9 Geo II, c. 26. Southcote declared herself pregnant by the holy ghost. The testatrix bequeathed land for publishing works of Southcote. Is this a charitable purpose: if so, the gift of land would be void. Romilly MR held: this was a charitable trust for the advancement of religion. Therefore, under the Mortmain act, the trust was void. A wide definition of charitable purposes was given by the mortmain act which now gives advantage to other people.
New purposes can be recognised by analogy to the previous case law, even though the effect of the gift of land was to make the gift void. The fact it was recognised as a valid charitable purpose meant that later charities can argue by analogies that their purpose is similar and so should get tax exemptions.
Dingle v Turner
Fiscal Consequences : lord Cross’ concerns
- Charitable status automatically entitles a purpose to significant tax exemptions.
When considering whether a purpose is charitable, the courts do not consider specifically one purpose over another because taxation is a matter for parliament and don’t for courts or charity commission. Nevertheless, the courts avoid the obvious fact that if they recognise a trust as charitable, it will have implications for the revenue.
Lord Cross -
“cannot avoid having regard to the fiscal privileges accorded to charities… Charities automatically enjoy fiscal privileges which with the increased burden of taxation have become more and more important and in deciding that such and such a trust is a charitable trust the court is endowing it with a substantial annual subsidy at the expense of the taxpayer”
What did Lord Cross in Dinge v Turner think?
Lord Cross strongly says that a court OUGHT to consider whether a given purpose will be beneficial to society so that it justifies the tax exemptions. He emphasises that immunity for certain privileges apply for any purpose recognised as charitable, but this is dangerous water, even at HL level. Three other law lords disassociated himself from Lord Cross’s comments
What did Viscount Dilhorne in Dinge v Turner think?
He refused to enter the debate with Lord Cross about the fiscal privileges of a legal charity.
Although he doubts whether the existence be a determining factor in deciding whether a gift or trust is charitable.
R (Independent Schools) v Charity Commission
“Rather, [matters of] tax relief…[are] for Parliament, not for us, to determine.”
Showing the Lord Cross’ approach should not be followed.
Criticisms against the tules on identifying charitavble purposes
- unprincipled/unstructured
- In the 19th Century, finding a purpose as charitable could have effect of making gift void, as a result, the chancery developed a broad definition of what a charity was and even though the Mortmain acts are repealed, the case law remains so modern organisations can use these 19th century case law and be considered charitable. Consequences of charitable status has change over the time.
- Because of the recognition that a purpose is of charitable bring, there is an automatic tax relief, should courts ought to take into account the fiscal consequences of their decision?
- Is this a good use of the money – what is the opportunity cost. Held: this is a matter for the government. Nevertheless, automatic tax uplift which charities receive brings courts closely within the political relief and is this justified.
- Distinction between purposes and charities.
J Garton, Charitable Purposes and Activities
This distinction between purposes and actives presupposes a “bright dividing line” between the two – Said Garton. He said that sometimes the distinction is merely a question of degree.
Garton said: ‘Sometimes the distinction between a purpose and an activity is merely a question of degree.
- J Garton (2014) says this distinction presupposes a “bright line dividing purposes from activities”
- This has proven especially controversial where charities engage in political activities because political purposes are not considered charitable in English law.
National Anti-Vivisection Society v IRC
HL
NAVS was set up to achieve the repeal of the cruelty of animals act 1876. The society argued the repeal of act was ancillary (ancillary activity) to its central purpose – protecting animal welfare. The HL rejected this and even aiming for the repeal of act was all charity did and as such, this activity was its main purpose. Campaigning for repeal of legislation or change in government policy where it is the SOLE purpose of the organisation, so was held not to be a charitable purpose because of its political nature. In this case, because the sole activity was for the repeal of legislation, they said it was A activity but sole purpose and as its sole purpose was political it was not charitable. Not a drawn line between purposes and activities, sometimes we look at the activities to work out what the purpose of the trust are.
Lord Normand thought you can aim to repeal the law but it should not be the SOLE objective. If sole purpose was the repeal of legislation it would be political. In certain circumstances, we must look to the charities activities to discover the purpose, as such a bright dividing line may not exist in practise. This distinction between activities and practises may create uncertainty when deciding whether to recognise new purposes as charitable.
s 2 CA 2011?
provides that a purpose is legal charitable if it falls within the purposes listed in s. 3 and if it satisfies the public benefit requirement in s. 4.
R ( Independent Schools Council) v Charity Commission
per Warren J
- Two senses of Public Benefit
(I) purpose is beneficial to society
(ii) that purpose benefits the whole or a substantial section of society
Did the 1601 Preamble include charitable purposes?
Yes!
Morice v Bishop of Durham
per Lord Eldon: Courts when considering whether a purpose was charitable, the courts should start with the 1601 preamble. Landmark case hitched the law of charity with the 1601 preamble. Lord Eldon approved the following classification of charitable purposes:
- relief of the indigent
- including education, money
- advancement of learning
- advancement of religion
- advancement of objects of general public utility
Commissioners of Income Tax v Pemsel
Lord Macnaughten:
Charity” in its legal sense comprises four principal divisions:
- trusts for the relief of poverty;
- trusts for the advancement of education;
- trusts for the advancement of religion;
- and trusts for other purposes beneficial to the community, not falling under any of the preceding heads.
The “Pemsel heads of charity” as they came to be known remained the starting point for the identification of charitable purposes until the passing of s. 2 of Charities Act 2006 which sought to codify the common law rules. The 2006 Act was, in turn, replaced by the s. 3 of the Charities Act 2011.
Is there a presumption of a public benefit?
Pre-2006: presumption that purposes within the first three Pemsel heads of charity (i.e. poverty, education and religion) were for the public benefit.
But the labour government when passing 2006 charities act, in s3(2) of that act abolished this presumption.
- Presumption abolished by Charities Act 2006, s. 3(2).
- Now contained in Charities Act 2011, s. 4(2):
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. Example: If you have trust for advancement of education, you need to prove beneficial for society in a specified benefit to a section of society.
R (Independent Schools Council) v Charity Commission
Warren thought there never existed a presumption of public benefit and as such statutory sections which abolish this presumption had no effect, there was nothing to abolish. Warren explained:
Warren said that there never existed a presumption of certain trusts, but it is a matter of evidence. This is a question of evidence and fact whether any given purpose exists for a public benefit, no presumption, so s4(2) was not needed and was as a result of legislative craftsman misunderstanding the state of the law. Trust for education/religion/poverty etc will not be presumed as a public benefit, the court needs to look at the facts and evidence.
Simple principle in R v CC
Per Warren J
- Charity Commission’s review of fee-paying schools
- Warren J found that there had never existed a presumption of public benefit.
- The Court was entitled to consider :
- The terms of the trust; and
- The available evidence
Example given: a trust to train pickpockets. It is a trust for the advancement of education (within the Pemsal Heads), it may be open to the public. But it is not education of a sort which is beneficial to society (in the first sence)
Can the courts weigh the benefit and detriment for public benefit in the first sence?
- The Court must be convinced that the benefits of the purpose are not outweighed by the harm such a purpose may cause.
- NAVS v IRC [1948] AC 31, 47 (per Lord Wright): Wright made particular reference of weighing the benefit and the detriment. In that case the detriment outweighed the benfits allowing it.
- R (Independent Schools Council) v Charity Commission [2012] Argument from charity commission that private education is awful for society and it does not satisfy the public benefit test in first sense so should not be able to be charitable. Unsurprisingly: Warren disagreed, independent schools were valid trusts for education.
What did Warren J say about weighing up the benefits and detriment?
He said that if it is shown that an object is ordinarily charitable is not [education], then a “clear case will have to be made out”
Contradictory evidence can be drawn and made. It could be argued that fee paying schools are socially divisive. On the other hand, fee paying schools provide bursaries etc. Warren J said that: political resolution needs to resolve this problem. Warren gave a strong judgment saying this is not within competence as a judge to decide. Warren did not explicitly disagree with what Lord Wright said in the IRC, but there must be clear obligations on benefit and detriment. Once the court weighs this, it can only do so on clear evidence that something is detrimental to society. Where evidence is unclear or nonexistence, it is not for the courts to decide, especially in a trust for education where historically it is allowed.
IRC v Baddeley
- Public benefit in the second sense: Benefit to a significant section of the public
Class within a Class
per Viscount Simmonds: 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.
Simmonds thought:
“It is not of general public utility: for it does not serve the public purpose which its nature qualifies it to serve.”
Example Simmonds thought of: a bridge which is available for all the public may undoubtedly be a charity and it is indifferent how many people use it. But confine its use to a selected number of persons, however numerous and important: it is then clearly not a charity
Re Compton
Personal Nexus
Facts: A trust for the descendant for X could not be charitable . The Compton test has been used to strike down trusts.
“‘A gift under which the beneficiaries are defined by reference to a purely personal relationship to a named proposition cannot on principle be a valid charitable gift.”
Oppenheim
HL
Lord Simonds -
Facts: A trust will not be valid if there is a factor linking a class of people to a common person. Here, the trust in question was to educate the employees of British American Tobacco, this was held not to be a trust. The HL held, applying the Compton test, that the trust could not be charitable as the only thing linking the employees together was the employer. It was not a trust for benefit of specific section of society but for a private class of individuals linked together.
‘section of the community’ has “no special sanctity”, but indictate that:
- beneficiaries must not be numerically negligible
- the quality does not depend upon their relationship to a particular individual.
Lord Simonds:
“A group of persons may be numerous, but, if the nexus between them is their personal relationship to a single propositus…they are neither the community nor a section of the community for charitable purposes.”
What was Lord MacDermott’s dissent in Oppenheim?
- In Oppenheim, there were over 110,000 current employees of the company. This was a sizeable class. It is such a large class, but the trust apparently failed to benefit a sector of society. The Lords held that the trust was not valid because the class of beneficiaries was not wide enough, when the beneficiaries are huge.
- If the purpose had been “to educate those formerly employed in the tobacco industry” it would have been valid. Moreover, a trust educating those living in a particular region would have been valid, such redrafting would have achieved this purposes.
For Lord MacDermott, the personal nexus test ought not to be automatically conclusive as to whether a class constitutes a section of the public (p 317):
Personal nexus test is capricious (changing), even where there is a large class of beneficiaries, it might still be struck down. Moreover, the test can be avoided through good drafting, for example, by saying the trust is for the education of the children in Bournville, in reality this might only benefit the employees of Cadburys etc. Lord MacDermott’s view was then approved in Lord Cross (HOUSE OF LORDS) in Dingle v Turner.
