Leicester De Montfort Law School

LLB Equity & Trusts

Charities

LEARNING OUTCOMES

By the end of this topic you should be able to:-

1. Identify and explain the benefits of charitable status;

2. Understand and apply the statutory definition of “charity”;
3. Understand and apply the public benefit test;
4. Explain whether a purpose is “exclusively charitable”.

THE BENEFITS OF CHARITABLE STATUS

Legal:-
(i) Charitable trusts are for purposes. There are no beneficiaries of a charitable
trust so therefore they will not fail for uncertainty of objects. The beneficiary
principle (that trusts must be for the benefit of ascertainable beneficiaries) does not
apply. The issue of locus standi (enforcing the trust) is dealt with by giving the
Attorney General the right to enforce such trusts on behalf of the public.

(ii) Relaxation of the perpetuity rules. Charities can have perpetual existence.

(iii) Doctrine of Cy-pres. Gifts to charity which appear to fail can be saved and
applied for other charitable purposes as near as possible (cy-pres) as the
original gift.

Administrative:-
Charities as a group enjoy the support of the state in many ways, generally through
the powers of the Charity Commissioners. In particular this involves advice on
investments, scrutiny of trustees and scrutiny of accounts.

Financial:-
Charities are exempt from most taxes including income tax, capital gains tax,
inheritance tax and corporation tax. Not only does the charity save money but
there is also an incentive to give to charity as charitable contributions are
deductible for tax purposes. The key case of Special Purposes Commissioners
v Pemsel (1891) AC 531 (“Pemsel’s Case”) played a key role in the history of
charities by deciding that the word “charity” meant the same in tax legislation as it
did in the general law.

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DEFINITION OF CHARITY

S.1(1) Charities Act 2011 (“CA 2011”) provides that ‘charity’ means an institution
which is “established for charitable purposes only”.

S.2(1) provides that a ‘charitable purpose’ is a purpose which

- falls within s.3(1) AND
- is for the public benefit

In order for a purpose to be regarded as charitable it must it must satisfy all of the
following criteria:

1. It must fall within any of the descriptions in s.3(1) CA 2011

2. It must be for the public benefit

3. It must be exclusively charitable

We will look at each of these requirements in turn.

1. THE PURPOSE MUST FALL WITHIN S.3(1) CA 2011

Although there has been statutory definition of a charitable purpose since the
Charities Act 2006, the law does still rely on a considerable body of case law.

Position pre-Charities Act 2006

The purpose had to come within the “spirit and intendment” of the preamble to the
Statute of Charitable Uses (1601):

"The relief of aged, impotent and poor people; the maintenance of sick and
maimed soldiers and mariners, schools of learning, free schools, and scholars in
universities; the repair of bridges, ports, havens, causeways, churches, sea banks
and highways; the education and preferment of orphans; the relief, stock and
maintenance for houses of correction, the marriage of poor maids; the supportation
and help of young tradesmen, handicraftsmen and persons decayed; the relief or
redemption of prisoners and captives; the aid or ease of any poor inhabitants
concerning payment of fifteens, setting out of soldiers and other taxes."

In Pemsel’s Case (above) Lord MacNaughten when considering the preamble

classified charitable purposes into four heads:-

 Trusts for the relief of poverty

 Trusts for the advancement of education

 Trusts for the advancement of religion

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 Trusts for other purposes beneficial to the community

All purposes previously recognised as charitable before the CA 2006 continue to

be regarded as charitable.

Charities Act 2011

S. 3(1)
(a) the prevention or relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the advancement of health or the saving of lives;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(h) the advancement of human rights, conflict resolution or reconciliation or the
promotion of religious or racial harmony or equality and diversity;
(i) the advancement of environmental protection or improvement;
(j) the relief of those in need by reason of youth, age, ill-health, disability or
financial hardship or other disadvantage;
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown or of the
efficiency of the police, fire and rescue services or ambulance services;
(m) any other purposes

(i) that are not within paragraphs (a) to (l) but are recognised as charitable
purposes by virtue of section 5 (recreational and similar trusts, etc.) or under
the old law,
(ii) that may reasonably be regarded as analogous to, or within the spirit of, any
purposes falling within any of paragraphs (a) to (l) or sub-paragraph (i), or
(iii) that may reasonably be regarded as analogous to, or within the spirit of, any
purposes which have been recognised, under the law relating to charities in
England and Wales, as falling within sub-paragraph (ii) or this sub-
paragraph.

(a) the prevention or relief of poverty

Re Coulthurst [1951] Ch 661 - Poverty is a relative term

Evershed MR– “it does not mean destitution, merely going short, due regard being
had to status” is sufficient.

Re Sanders’ WT [1954] Ch 265 - The term “working classes” does not indicate
poor people. In this case the purpose of providing/assist in the provision of
dwellings for working classes was not charitable as working class does not indicate
poverty

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Re Niyazi (1978) 3 ALL ER 785 – Here there was a gift for the construction of
working men's hostels in Cyprus. This was upheld as charitable as there was a
grave housing shortage however is was stated to be "desperately near the
borderline"

A gift will not be charitable if it excludes the poor or benefits others besides those
who are poor.

Re Gwyon [1930] 1 Ch 255 - Must be exclusively for the poor. Here a gift to
provide knickers for the eligible boys of Farnham failed as not expressed to be for
the poor.

Note that s.2(2)(a), includes the PREVENTION of poverty.

(b) the advancement of education

The Charity Commission guidelines state that education is given a wide meaning
and doesn’t just cover education by a teacher in a classroom. Education in charity
law means what it means in contemporary speech.

Research
There has been interesting debate before about when research falls under the
“advancement of education”.

Learning must be passed on. In Re Shaw (1957) 1 ALL ER 745 the playwright,
George Bernard Shaw left the residue of his estate for research into a phonetic
alphabet and the translation of one of his plays into it. This was NOT charitable as
an increase in knowledge is not of itself charitable unless combined with teaching
or education.

Re Hopkins’ WT (1964) 3 ALL ER 46

A gift in a will to the Francis Bacon Society to find and research manuscripts
written by Francis Bacon and to prove that he wrote Shakespeare’s plays was
charitable. Wilberforce J stated that “research must either be of educational value
to the researcher or be directed as to lead to something which will pass into the
store of educational material or so as to improve the sum of communicable
knowledge in an area which education may cover – education in this last context
extending to the formation of literary taste and appreciation.”

In Incorporated Law Reporting v A-G [1972] CH 73 the production of law reports

was charitable as there would be an improvement of a useful branch of human
knowledge and its public dissemination

McGovern v A-G (1982) CH 321

For research to qualify as advancement of education it must satisfy certain criteria
as per Slade J.

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 subject matter is a useful object of study
 knowledge acquired will be passed to others
 trust is for the public benefit

Politics
The courts have been careful to ensure that the purpose of advancement of
education head doesn’t give charitable status to political purposes masquerading
as education.

Bowman v Secular Society [1917] AC 406

“a trust for the attainment of political objects has always been invalid…not because
it is illegal…because the court has no means of judging whether a proposed
change in the law will or will not be of public benefit, and therefore cannot say
that a gift to secure the change is a charitable gift” – Lord Parker

National Anti-Vivisection Society v IRC [1948] AC 31

This is the leading case on politics and charity. The important point is that the
Society could only achieve its objectives by a change in legislation.

Held:
(1) court unable to judge whether anti-vivisection was of public benefit
(2) the law could not stultify itself by holding that it was for the public benefit that
the law be changed and
(3) anti-vivisection could only be achieved by legislation

The key question was whether there is an absolute rule or whether there is some
scope to allow a charity to indulge in some political activity so long as it is
subsidiary to the main purpose? The majority judgments regard it as an absolute
rule based on the dictum by Lord Parker in Bowman. They rejected the minority
view of Lord Porter who was prepared to permit activity as long as it did not require
a change of legislation.

McGovern v A-G [1982] Ch 321 - Sets out reasons why political purposes cannot
be charitable.
Amnesty International sought charitable status for a trust it intended to set up. Its
objects to be carried out around the world included:
▪ attempting to secure the release of prisoners of conscience and
▪ abolition of torture or degrading treatment of punishment
Held: Not charitable as it had a political aim. A trust could not be charitable if its
main object was to secure a change in the law of the UK or of foreign countries as
how could the court judge whether this would be for the public benefit locally or
internationally?.

Re Hopkinson [1949] 1 All ER 346

“adult education along the lines advocated in the Labour Party manifesto” was not
charitable as it was more to do with political propaganda than education in the
charitable sense.

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Re Koeppler’s WT [1985] 2 All ER 869 - Conferences with political themes, but
not promoting a political view were charitable. Here there was a trust for carrying
out the work of the Wilton Park Institute which ran conferences for representatives
of western nations to debate politics, social and economical issues. It was more for
the study of politics than the practice of it and so was valid.

A-G v Ross (1985) 1WLR 252 – Scott J…”encouraging students to develop their
political awareness or to acquire knowledge of and to debate and to form views on
political issues”

The Charity Commission publishes guidance to charity trustees regarding their

involvement in political activity. For example charities cannot exist for political
purposes, they can campaign for a change in the law, policy or decisions if this
would support their charitable purpose.

(c) the advancement of religion

S.3(2)(a) CA 2011 states that religion includes

(i) a religion which involves belief in more than one god; and
(ii) a religion which does not involve belief in a god.

The courts have in the past taken the view that the promotion of any religion is
better than none and the law of charity is neutral between religions.

Even small religious sects and sects advancing doubtful theology may be
charitable.

Thornton v Howe [1862] 31 BEAV 14 – A trust was upheld for the publication of
the sacred writings of a woman who claimed she would give birth to the new
messiah.

Re Watson (1973) 1 WLR 1472

A trust to publish the religious writings of a retired builder who had belonged to a
small fundamentalist sect was charitable even though the work was said to be of
little merit.

Neville Estates v Madden [1962] Ch 832 - The religion need not be Christian.

Varsani v Jesani [1999] Ch 219 Charity does not now favour one religion over
another (in this case promoting the faith of a Hindu sect)

Although the Church of Scientology was refused charitable status in 1999 due to a
finding of lack of worship and no public benefit, in Hodkin v Registrar General of
Births, Deaths and Marriages (2013) the United Kingdom Supreme Court held
that Scientology is a religion as regards another piece of legislation. Although this
is obiter as regards the Charities Act, it would be unlikely for the Charity
Commission not to follow the decision.

Promoting morality and ethics is not charitable as advancement of religion.

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Re South Place Ethical Society (1980) 3 ALL ER 399
“Religion is concerned with man’s relations with God and ethics are concerned with
man’s relations with man. The two are not the same and are not made the same by
sincere enquiry into the question: what is God?”
This may though be charitable under another purpose and was previously under
the 4th head in Pemsel’s case.

(d) The advancement of health or the saving of lives

S.3(2)(b) CA 2011 states that the advancement of health includes “the prevention
or relief of sickness, disease or human suffering”.

In its guidance the Charity Commission states that it includes not only conventional
methods, but also complementary, alternative or holistic methods concerned with
healing mind, body and spirit in the alleviation of symptoms and the cure of illness.
To be charitable there needs to be sufficient evidence of the efficacy of the method
used.

It also extends beyond treatment to include the provision of services and facilities
to assist recovery and the saving of lives includes the rescue services such as the
fire brigade etc.

(e) The advancement of citizenship or community development

S3(2)(c) CA 2011 states that this includes rural and urban regeneration and the
promotion of civic responsibility, volunteering, the voluntary sector or the
effectiveness or efficiency of charity.

(f) The advancement of the arts, culture, heritage or science

“Art” includes abstract, conceptual and performance art and representational and
figurative art. Charities concerned with the advancement of art have to satisfy a
criterion of merit.

Previously such purposes were considered under the head of advancement of

education and the following cases are instructive:

Re British School of Archaeology [1954] 1 WLR 546 – Museums.

Royal Choral Society v IRC [1943] 2 All ER 101 – Concerts.

Re Delius [1957] Ch 299 – Promotion of Delius’ works.

Re Pinion [1965] Ch 85 - What was of aesthetic merit was a question of evidence

for the court – “ a mass of junk” was not charitable.

“Heritage” is part of a country’s local or national history and traditions passed down
through successive generations.

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(g) The advancement of amateur sport

S3(2)(d) CA 2011 states that “sport” means “sports or games which promote health
by involving physical or mental skill or exertion”.

2. THE PURPOSE MUST BE FOR THE PUBLIC BENEFIT

There is no statutory definition of what is meant by public benefit. S.4 makes it

clear that that remains governed by the existing law, which is based on decisions
made by the courts and Charity Commissioners over the years. S.4(2) makes it
clear that there is not a presumption that certain purposes benefit the public.

The requirement of public benefit was considered in detail in Independent

Schools Council v Charity Commission for England and Wales [2011]
All ER (D) 198 (Oct) and Attorney General v Charity Commission for
England and Wales [2012] WTLR 977

Two elements of public benefit have been identified:

1. The nature of the purpose must benefit the community

2. Those who benefit must constitute a section of the public rather
than a private class of individuals

1.The nature of the purpose must benefit the community

There must be a benefit. Whether or not there is a benefit is a question of fact. The
benefit can be direct or indirect; tangible or intangible. A benefit is something which
produces a “demonstrable impact” on the community or a sufficient section of the
community. Re Coats’ Trust v Gilmour [1948] Ch 340

In Gilmour v Coats [1949] AC 426 the House of Lords held that the value to the
world of intercessory prayers of a religious order was “manifestly not susceptible of
proof” and as the court could only act on proof, it could not be recognised as a
benefit and the order could not be accepted as charitable.

Where particular purposes are against the law they will not be capable of being
regarded as beneficial. National Anti-Vivisection Society v IRC [1948] Ch 31

2. Benefit must be for a section of the public

Every charity must provide a benefit which is available to either the public as a
whole, or a sufficient section of the public.

In every charity the elements of public benefit must be present. However, the
measure or standard is not uniform across the entire range of charitable purposes.
In Gilmour v Coats Lord Simonds said: “It would not, therefore, be surprising to

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find that, while in every category of legal charity some element of public benefit
must be present, the court had not adopted the same measure in regard to
different categories, but had accepted one standard in relation to those gifts which
are alleged to be for the advancement of education and another for those which
are alleged to be for the advancement of religion, and it may be yet another in
regard to the relief of poverty”.

Similarly in IRC V Baddeley [1955] 1 All ER 525 Lord Somervell said “The cases
do indicate that the words ‘beneficial to the community’ may be satisfied by the
purpose being beneficial to a sufficient section of the community, albeit that what
constitutes a sufficient section of the community depends on the nature of the
purpose”.

It is helpful to look at cases which pre-date the CA 2006, which remain good law,
to see how the test varies for each charitable purpose.

Poverty:-

In the case of charities for the relief of poverty, the pool from which the intended
beneficiaries may be chosen may be more narrowly drawn than for other charitable
purposes.

Re Scarisbricks WT (1951)
Here the COA upheld a trust for the testator’s poor relations. The court
distinguished between a gift for relief amongst poor people of a particular class and
a gift for named individuals where relief of poverty was simply the motive for the
gift.

This established that charities for the relief of poverty are excepted from the
general principle that there must not be a personal connection or tie within the
definition of the pool from which the beneficiaries may be drawn.

Oppenheim v Tobacco Securities Trust (1951) AC 297

It was suggested, obiter, that poor relations cases were anomalous and should be
reviewed.

Dingle v Turner [1972] AC 601

Approved and extended the poor relations cases to “poor employees”

Re Segelman [1995] 3 ALL ER 676

Here a trust for poor and needy relations was upheld. In Scarisbrick the class had
been very wide but in Segelman there were 26 named individuals and their issue.
The Court was influenced by the fact that over the 21 years the trust was to run the
class had potential to increase substantially and so the restricted class did not
make it a gift to individual members. Question whether this runs counter to
Scarisbrick?

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Education:-

Oppenheim v Tobacco Securities Trust (1951) AC 297

The court said there are 2 characteristics of a section of the public:-

1. The number of possible beneficiaries should not be numerically negligible.

2. The thing which the beneficiaries have in common ie the way in which they
are described, must not be by way of a relationship to an individual – The
Personal Nexus test.

This concerned a trust to advance the education of employees and ex-employees

(over 110,000) of a company. HOL held that these do not constitute a section of
the public because the beneficiaries were all defined by their relationship to the
Company, which in law is an individual. There was a personal nexus.

Lord Simonds, ‘the possible...beneficiaries must not be numerically negligible

and…the quality which distinguishes them from other members of the
community…must be a quality which does not depend upon their relationship to a
particular individual. A group of persons may be numerous but, if the nexus
between them is their personal relationship to a single propositus or to several
propositi, they are neither the community nor a section of the community for
charitable purposes’.

The dissenting view of Lord McDermott (approved in Dingle v Turner [1972] AC

601) was that the test should be a matter of degree depending upon the facts of
each particular case.

Re Koettgens WT (1954) 1 ALL ER 581

Here there was a trust for the promotion of commercial education amongst those
who could not pay for such education themselves. A clause in the trust stated that
a preference should be given to employees of a particular company up to a
maximum of 75% of the trust income (Personal nexus). The trust was held to be
charitable but very close to the borderline.

IRC v Educational Grants Association (1967) 2 Ch 123

Here a company called Metal Box established and funded the EGA which had as
its object the advancement of education. Grants were made to individuals to fund
their university or private education and between 76% and 85% of the grants were
to the children of Metal Box employees. This was not charitable.

Religion :-

Neville Estates v Madden

Cross J: “the 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”

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Gilmour v Coats (1949) SC 126
The income of a trust was to be applied to the purposes of a Carmelite Convent
which was purely contemplative. HOL stated that the court could only act on proof
of public benefit and the value of prayers was “manifestly incapable of proof”
although it was argued that the benefit of nuns prayers brought spiritual comfort to
mankind.

Re Hetherington (1989) 2 All ER 129

A gift of money to the RC Bishop of Westminster for saying masses for the dead
was charitable as the masses would be said in public and that had an “edifying and
improving effect” on those who attended.

Other purposes:-

IRC v Baddeley (1955) 1 All ER 525 Viscount Simonds held that there must be a
benefit for the whole community or at least of all the inhabitants of a sufficient area.

Williams Trustees v IRC [1947] 1 All ER 513

A trust to promote the interests of Welsh people in London was not valid.

Lord Simonds distinguished between a section of the public and a fluctuating body
of private individuals. The first can form a sufficient class for a charity. The second
cannot.

Lord Simonds also doubted whether, ‘Welsh people in London’ to whom the benefit
was confined, would constitute a section of the public as ‘the beneficiaries are a
class of persons not only confined to a particular area but selected from within it by
reference to a particular creed’ (i.e. ‘a class within a class’).

Lord Reid disagreed and argued that the test should not be any different under the
fourth head.

3. THE PURPOSE MUST BE EXCLUSIVELY CHARITABLE

S.1(1) specifies that a body is a charity if established for charitable purposes

“only”. So a body which has non-charitable as well as charitable purposes is not a
charity.

Farley v Westminster Bank [1939] AC 430

Here there was a gift to the vicar “for parish work” which was deemed invalid.

Re Simpson [1946] Ch 299

In this case there was a gift to a vicar “for his work in the parish” which was held to
be valid.

Chichester Diocesan Fund v Simpson (1944) AC 341.

In this case the testator left part of his property to charitable OR benevolent

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purposes. HoL held that the gift was not exclusively charitable and was therefore
void.

Re Best [1904] 2 Ch 354

Property was left upon trust for “such charitable AND benevolent institutions” and
was deemed to be a valid charitable gift

Re Wooton (1968) 1 WLR 681…‘to such body not being registered as a

charity, but which in the opinion of my trustees has charitable objects’. Held to be
not exclusively charitable.

SEMINARS 10 & 11

In Seminars 10 & 11 we will aim to develop your:

1. Ability to identify a charitable purpose under s 3(1) of the

Charities Act 2011;
2. Application of case law on charity to a practical scenario;
3. Understanding and application of the public benefit test to a
practical scenario;
4. Problem solving skills; and
5. Presentation skills

REMEMBER:

Seminars provide you with the ability to discuss answers to the

questions set. They will help you to clarify any misunderstanding you
may have of a topic area and give you the opportunity to receive
feedback on your understanding.

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