WEEK 5 Charitable purpose trusts

The legal test to identify a valid charitable purpose trust

Section 2 of the Charities Act 2011 states the requirements, being:

1. Exclusively charitable purpose

2. For the public benefit.

Recognised charitable purposes are stated under section 3 as: 

• Preventing or relieving poverty (exception for the required public aspect - see notes) 

• Advancement of education 

• Advancement of religion (‘Religion’ includes those which involve believe in one god, many gods or no god: CA 2011, s. 3(2)(a).

• Advancement of health or saving lives 

• Advancement of citizenship or community development 

• Advancement of arts, culture, heritage or science (Re Pinion [1965] Ch 85 the art was interpreted as having no educational value described as a “mass of junk” and therefore failed as a charitable purpose)

• Advancement of amateur sport (CA 2011, s.3(1)(g) sport = sports or games which promote health by involving physical or mental skill exertion. But must still satisfy public benefit test. So a yachting club or a motorsport organisation might struggle, unless they made opportunities available to those who cannot afford equipment)

• Advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity 

• Advancement of environmental protection or improvement 

• Relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage

• Advancement of animal welfare 

• Promotion of the efficiency of the armed forces of the crown or the efficiency of the police, fire and rescue services or ambulance service

• Any other purposes which are recognised as charitable purposes by virtue of section 5 or under the old law or that may reasonably be regarded as analogous

What does having exclusively charitable purpose mean? 

• Including the wording of “non-charitable purposes” can make the trust void.

• “Trust for such charitable institutions ‘or benevolent objects’ as executors shall select” was found to be insufficient of being a charitable trust as the courts found that some things could be benevolent but not charitable: Chichester Diocesan Fund v Simpson [1944] AC 341.

• The charity must be for exclusively charitable purposes but that doesn’t mean that everything the charity does must be charitable. Therefore ‘’incidental’ or ‘subsidiary’ non-charitable activities will not be found void: AG v Ross [1986] 1 WLR 252 (students’ union).

What does it mean for the charity to be in the public benefit? 

Section 4 of the Charities Act 2011 outlines that:

• ‘the public benefit requirement’ means that the purpose must be for the public benefit. The statute doesn’t define what public benefit means case law does and the charity commission guidance does (however the guidance is not legally binding).

Charity commission guidance states that there are two aspects of public benefit and for a purpose to be considered for the public benefit both should be satisfied:

1. The ‘benefit aspect’

• Benefits must outweigh harm (National Anti-Vivisection Society v IRC [1948] AC 31)

• Political purposes and law reform are not regarded as beneficial “the court will not regard as a charitable trust of which a main objective is to procure an alteration of the law of the UK” McGovern v AG [1982] Ch 321.

• Encouraging students to develop and debate views on political issues is consistent with the charitable purposes of education AG v Ross [1986] 1 WLR 252.

• So long as the ‘main purpose’ of the organisation is charitable, it can have some ‘ancillary or supplemental’ non-charitable powers AG v Ross [1986] 1 WLR 252.

• “The distinction is between ends, means and consequences. The ends must be exclusively charitable” Latimer v IRC [2004] UKPC 13; [2004] 1 WLR 1466 

1. The ‘public aspect’

• The Compton Test (otherwise known as the person nexus test, the test which decides whether something is for the public or just a bunch of individuals): people eligible to benefit must form a section of the community, not numerically negligible (can’t be so small its not worth considering or unimportant), and not connected by a personal nexus (personal connection with a particular individual) Re Compton [1945] Ch 123

• The Compton test has been criticised by Lord MacDermott in Oppenheim v Tobacco Securities [1951] AC 297, calling it a “very arbitrary and artificial rule” “it makes the quantum of public benefit a consideration of little moment; the size of the class becomes immaterial and the need of its members and the public advantage of having that need met appear alike to be irrelevant” 

• Religion must still satisfy the public benefit test. Private prayer is not for the public benefit: Gilmour v Coates [1949] AC 426.

Exception for trusts for the relief of poverty

• Trusts for the relief of poverty can be charitable even if they only benefit people who are connected by a familial relationship or are all employed by the same employer: Dingle v Turner [1972] AC 601.

• But trusts for the relief of poverty of named individuals are not charitable.

Can a charitable purpose trust charge fees?

• Permissible, but must still leave sufficient public benefit.

• Relieving burden on public sector may be an indirect public benefit: Re Resch’s [1969] 1 AC 514.

• Must provide ‘more than token benefits’ for those who cannot pay fees, e.g. scholarships and bursaries: ISC v Charity Commission[2012] Ch 214.

• The ISC decision was (and remains) controversial, but the Supreme Court approved of it in Merton LBC v Nuffield Health [2023] UKSC 18 (Lords Briggs and Sales JJSC at [27]) “The fact that the fees paid by the rich parents cross-subsidise the education of those pupils with bursaries does not mean that the provision of education to the full fee-paying pupils is not itself charitable”

• Merton LBC v Nuffield Health [2023] UKSC 18 Nuffield Health was held to be charitable, even though some of its gyms (including that in the London Borough of Merton) charged significant market rates for gym membership. “the rich are as much a part of the section of the public benefited by Nuffield Health’s charitable activities as are the poor”