Charity Tribunal in UK delivers decision on public benefit and private schools

October 15, 2011 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, Ethics and Canadian Charities

The Charity Tribunal in the UK delivered a decision on public benefit and private schools which will affect almost a thousand UK private schools that have charitable status. This will be of interest to Canadian private schools that are registered charities as well as those interested in the importance of charities providing “public benefit”.  The debate over public benefit and what is sufficient public benefit for certain types of charities has gripped the UK.  The discussion is interesting and one that we should engage in more often in Canada.

Here is the Charity Commisssion press release on the decision:


http://www.charitycommission.gov.uk/RSS/News/pr_upper_tribunal.aspx

“Charity Commission statement on the Upper Tribunal’s decision
14 October 2011


We welcome the Upper Tribunal’s decision, and we are pleased that in its judgment the Tribunal agrees with our interpretation of the law on the key issues. The Tribunal’s decision has been widely anticipated and is an important clarification of what charitable independent schools must do for the poor.

The judgment confirms the Charity Commission’s interpretation of the law in relation to public benefit and independent charitable schools, which has always been that:

A trust which expressly excludes the poor from benefit cannot be a charity [178]1
Charitable independent schools, like any other charity, must in return for the privileges of charitable status operate for the public benefit. This means that they must run their charity to ensure that the poor can benefit in a way that is more than minimal or tokenistic. [paras 178, 215, 222]
Trustees must decide for themselves how their charity provides for the poor, acting fairly in the interests of all beneficiaries and taking into account the circumstances of their charity. The Charity Commission cannot set a specific level or amount of benefit. [paras 217, 220]
We accept of course the Tribunal’s conclusion that some parts of our guidance do not explain the law clearly enough. We will amend the relevant parts of our public benefit guidance in the light of the Tribunal’s decision, a process we have already begun.

It is a matter for individual charitable independent schools to decide for themselves how to meet the public benefit requirement as long as it gives more than a tokenistic benefit to the poor. The Tribunal has said that there is no clear line which identifies what it is that trustees must do, and acknowledges that it is simply not possible to provide the clarity which we know some schools have wished for. [paras 220-1, 224]

The public benefit requirement has never been difficult or onerous to meet for charitable independent schools. Charitable independent schools have generally seen the public benefit requirement as an opportunity to highlight the benefits they offer.

What do charitable independent schools do now?
Exactly what they’ve always had to do - and in general what they’ve always sought to do. They must make whatever provision for people who can’t afford the fees seems right and appropriate to them, provided it is more than minimal or tokenistic, and they must report on it through their Trustees Annual Report.
We will amend the relevant parts of our guidance in the light of the Tribunal’s decision, and in the meantime we advise schools that they should look at the Tribunal’s decision. Paras 217-220 in particular set out the Tribunal’s advice to trustees of independent charitable schools. It is our normal practice to consult widely on new or revised guidance.
It will be a difficult message for some schools to hear that there can be no specific threshold or benchmark which is deemed sufficient to demonstrate public benefit and that they must decide for themselves how they provide the minimum benefit and how they intend to go beyond that to ensure it is more than tokenistic. But the Tribunal is clear on that point.
What are the implications for other charities?
The Tribunal says that its decision is confined to the context of educational charities, and this decision is principally of relevance to them [para 15]
The Tribunal also notes that its analysis may have wider implications for other charities.
Further explanation is available on our website.

1. All numbers refer to paragraphs in the Upper Tribunal’s decision.


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Here is the Charity Commission statement on the decision:

http://www.charitycommission.gov.uk/Charity_requirements_guidance/Charity_essentials/Public_benefit/pb_tribunal.aspx

“Public benefit requirement for independent charitable schools: Charity Tribunal decision
The Upper Tribunal (Tax and Chancery Chamber) published its decision on 14 October 2011 regarding the public benefit requirement for charitable independent schools following a Judicial review by the ISC and a reference from the Attorney General concerning the Charity Commission’s guidance.

This decision consequently affects the Charity Commission’s guidance on public benefit as it relates to educational charities. The Tribunal has confirmed the Commission’s view that these charities must operate for the public benefit and that this means they must make provision for the poor to benefit from the charity. However, the Tribunal said that the Commission’s guidance is not clear in respect of the adequacy of the provision for the poor which should be made. The Tribunal has said that the Commission’s guidance should be corrected and so the Commission will amend the guidance.

Meanwhile trustees of educational charities should look at the Tribunal’s decision, which can be found on the Tribunal’s website.

In particular, trustees of educational charities might want to consider the following parts of the Tribunal’s judgment (from paragraphs 217-220):

“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. We have indicated some of the benefits which they might consider in paragraph 196 above. Not all of the benefits which the school provides to those other than students paying full fees need to be for the poor. We see no reason why the provision of scholarships or bursaries to students who can pay some, but not all, of the fees should not be seen as for the public benefit. Provided that the operation of the school is seen overall as being for the public benefit, with an appropriate level of benefit for the poor, a subsidy to the not-so-well-off is to be taken account of in the public benefit. It is certainly our view that in the right circumstances, remission of fees for an existing student who has become unable to meet any of the fees due to changed circumstances, should be seen as being not only for the public benefit but as a benefit provided to a person who has become ‘poor’.

We have focused on the payment of fees and the provision of benefits. But those are not the only questions which trustees need to consider. They need to consider the question of access more generally and how to treat all their potential beneficiaries fairly. This is not to say that trustees cannot properly make policy decisions which have the effect of ruling out of consideration large numbers of potential beneficiaries. But such policy decisions must be rational and justifiable in the promotion of the public interest. They certainly cannot be capricious.

Quite apart from questions of impediment to access by reason of financial means, any school will need to consider whether the provision of some of its facilities can really be justified as either part of or properly ancillary to the advancement of education. This is the ‘gold-plating’ aspect referred to by the ERG [Education Review Group]. We have to say that some of the activities and facilities revealed in the promotional material produced to us in the case of two schools might well seem astonishing to those who are not familiar with such matters. We recognise that the extent of the activities and facilities provided in any particular school will depend on the school’s historic endowment as well as the fees currently charged. In our view, however, where facilities at what we might call the luxury end of education are provided, it will be even more incumbent on the school to demonstrate a real level of public benefit. This is not to impost different standards on different schools; it is simply that where such luxury provision is made, a stringent examination of how it is provided and how the public benefit is satisfied is appropriate.

This is all a matter of judgment for the trustees. There will be no one right answer. There will be one or more minimum benefits below which no reasonable trustees would go but subject to that, the level of provision and the method of its provision is properly a matter for them and not for the Charity Commission or the court.”

Trustees of educational charities may also want to look at paras 237-258 of the judgment, where the Tribunal answers some questions posed by the Attorney General which consider some hypothetical examples of educational institutions and whether they are operating for the public benefit.

The steps the Charity Commission will in due course take in reviewing and amending our guidance will be signalled on our website.

14 October 2011 “

——-

Here is a copy of the decision:  http://www.judiciary.gov.uk/Resources/JCO/Documents/Judgments/independent-schools-council-charity-commission.pdf

——

Here are paragraphs 217 -220 of the decision:


217. The very nature of this approach means that 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. We have indicated some of the benefits which they might consider in paragraph 196 above. Not all of the benefits which the school provides to those other than students paying full fees need to be for the poor. We see no reason why the provision of scholarships or bursaries to students who can pay some, but not all, of the fees should not be seen as for the public benefit. Provided that the operation of the school is seen overall as being for the public benefit, with an appropriate level of benefit for the poor, a subsidy to the not-so-well-off is to be taken account of in the public benefit. It is certainly our view that in the right circumstances, remission of fees for an existing student who has become unable to meet any of the fees due to changed circumstances, should be seen as being not only for the public benefit but as a benefit provided to a person who has become “poor”.

218. We have focused on the payment of fees and the provision of benefits. But those are not the only questions which trustees need to consider. They need to consider the question of access more generally and how to treat all their potential beneficiaries fairly. This is not to say that trustees cannot properly make policy decisions which have the effect of ruling out of consideration large numbers of potential beneficiaries. But such policy decisions must be rational and justifiable in the promotion of the public interest. They certainly cannot be capricious.

219. Quite apart from questions of impediment to access by reason of financial means, any school will need to consider whether the provision of some of its facilities can really be justified as either part of or properly ancillary to the advancement of education. This is the “gold-plating” aspect referred to by the ERG. We have to say that some of the activities and facilities revealed in the promotional material produced to us in the case of two schools might well seem astonishing to those who are not familiar with such matters. We recognise that the extent of the activities and facilities provided in any particular school will depend upon the school’s historic endowment as well as the fees currently charged. In our view, however, where facilities at what we might call the luxury end of education are in fact provided, it will be even more incumbent on the school to demonstrate a real level of public benefit. This is not to impose different standards on different schools; it is simply that where such luxury provision is made, a stringent examination of how it is provided and how the public benefit is satisfied is appropriate.

220.  This is all a matter of judgment for the trustees. There will be no one right answer. There will be one or more minimum benefits below which no reasonable trustees would go but subject to that, the level of provision and the method of its provision is properly a matter for them and not for the Charity
Commission or the court. We deliberately avoid using the word “reasonable”. In a similar context, see Sir Nicolas Browne-Wilkinson V.-C. in Imperial Group Pension Trust Ltd v. Imperial Tobacco [1999] 1 W.L.R. 589 when he effectively created the obligation of good faith owed by employers to beneficiaries in the context of their activities in relation to a pension scheme. It is not for the Charity Commission or the Tribunal or the court to impose on trustees of a school their own idea of what is, and what is not, reasonable. The courts have never done that in the context of their supervision of trustees of private trusts and the same should apply to charities. There is nothing in the 2006 Act (including the duty to issue the Guidance) which changes that position. But trustees are under the ultimate control of the courts. There is always a range of actions which they can take in a given situation. There is, of course, a limit outside which they must not step. But the identification of that limit is not based on a test of reasonableness. We recognise that this does not provide any sort of black-letter test by which the Charity Commission or trustees of schools can know which side of the line the school falls. But this is not to create a novel sort of difficulty but to recognise that constraints on the behaviour of classes of person can often involve concepts which are easy to state but difficult to apply in practice, as is seen so often in cases of alleged breach of trust or in the application of the Imperial Tobacco duty.


As well in the decision it is emphasized that each case will depend on its own factual circumstances:


242. ...  what is, and what is not, a sufficient element of public benefit to determine whether a charitable school is acting properly. Although we will make some remarks about each of the hypothetical scenarios, we decline to give any sort of ruling which is intended to be definitive. Each real case will depend on its own factual circumstances. A tribunal addressing an actual school would need to have all sorts of detailed information: for example, it would need to see detailed accounts, to know the school’s business plan, to know what its staff are paid and their level of qualification, to see how the school operates on the ground (is there any gold-plating for instance?), to know what its class-sizes are; and to know what facilities it has (such as playing fields, sports halls, art rooms, music rooms, laboratories, computer rooms, to name but a few). These are only examples.

243.  Further, schools with different levels of endowment might be expected to make different types and different level of provision so that there is no “right” answer to what two otherwise similar schools should do. It may be that geographical location and the levels of deprivation in the local community have a part to play. The Attorney General presumably thinks that that might be the case since the hypothetical schools are all placed in Greater London or the Home Counties. But we wonder whether a school in Hackney is to be treated the same way as a school in Guildford.


———

The conclusion is interesting and quite relevant to Canada:

260.  Our Decision will not, we know, give the parties the clarity for which they were hoping. It 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. It is quite separate from the issues which have dogged the many committees which have, over the years, addressed reform of charity law but have never been able to come up with a definition of charity of more use than the concept which has developed through case law.

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Charity Lawyer Mark Blumberg

Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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