For the public benefit, initial thoughts on the judgement

Firstly, my apologies for the delay in the arrival of this post, but the judgement was the length of a short novel (at 116 pages), even without the inclusion of any summary of the submissions made by the parties.

However, maybe that's only to be expected, given that work on this decision by the Hon Mr Justice Warren, Judge Alison McKenna, and Judge Elizabeth Ovey began long, long ago...

How this all started
Those of you with long memories who can remember the origins of this case are to be congratulated. For those with less good memories, briefly, its origins were as follows.

The Charity Commission issued guidance, in accordance with its statutory duty under the Charities Act 2006 (the 2006 Act), on the application of the public benefit principle. It gave general guidance, and also guidance specific to fee charging charities (amongst others).

The Independent Schools Council (ISC) considered that the guidance provided went beyond mere interpretation of the existing law on public benefit, which was meant to be unchanged by the legislation, and in a way which would particularly affect its membership. So, it made an application for judicial review of the guidance, on the grounds that the guidance was incorrect and that the law should be clear in its requirements.

The Attorney General (post change of government) also raised a number of points in a reference to the tribunal on the matter of public benefit and fee charging schools, and the application for judicial review and the reference were dealt with at the same time, at the end of May.

The judgement
Both the ISC and the Charity Commission have claimed success in their press releases, and considering the number of points addressed in the judgement, that's not altogether surprising.

For those of you who can't be bothered to wade through the entire decision, I made a summary of what seem to be the main points, while reading the judgement, and these are set out below. I must emphasise that there is a lot more to be found in the judgement itself. However, even my summary is quite lengthy in itself, and some of you may just want to skip to the end!

1. Did the 2006 Act change the existing law?
Immediately before the 2006 Act, the meaning of 'public benefit' incorporated both the need for (i) the nature of the purpose itself to be such as to be a benefit to the community, and (ii) those who may benefit from the carrying out of the purpose to be sufficiently numerous as to constitute a 'sufficient section of the public'.

Public benefit in the sense of (i) above can be presumed where a trust falls into the category of being for the advancement of education (although this is a rebuttable presumption), but there is no case law to suggest that there is also a presumption of public benefit in the sense of (ii) above for such trusts.

Section 2(2) of the 2006 Act, which sets out the descriptions of charitable purposes, reflects the pre-existing categories of charitable purposes, and is includes in the 2006 Act to provide a hurdle - in order to be charitable, the purpose of a trust must fall within one of the descriptions. If it does not, then the question of public benefit, i.e. falling within section 3(3) of the 2006 Act, does not arise.

The statement in section 3(2) of the 2006 Act, that it is not to be presumed that a particular purpose is for the public benefit, reflects the conditions relating to public benefit applied in the past, but transforms them into a separate element of the 'charity' test.

2. Should 'dis-benefits' be taken into account in the test as to charitable status?
It was noted that no-one suggests the provision of mainstream education is not for the public benefit in the sense of (i) above, but it is right to ask whether the public benefit in this first sense is outweighed by the 'dis-benefits' caused by such provision being made for a fee.

The Education Review Group (also joined as a party to the proceedings) had suggested that impaired social mobility and diversity were dis-benefits caused by the provision of education by the private schools. However, the judges decided that a clear case would have to be shown that a purpose which would ordinarily be charitable is not because of the resulting consequences for society, and this not had been provided in respect of the dis-benefits allegedly caused by private schools.

3. What is a sufficient section of the public?
Although there is no case which decides the point, it is right as a matter of principle that a trust which excludes the poor from benefit cannot be a charity.

'Poor' does not mean destitute, and can cover people of modest means and even people of 'some means'. It might on occasion even include people who might be seen as 'quite well off'. Therefore, charging fees is not a bar to an institution being a charity, where the cost is within the ability of the 'not very well off' to meet, without any element of subsidy.

It is correct to look beyond the immediate beneficiary to ascertain whether the beneficiary is poor (i.e. to look at the beneficiary and his/her family), but this is not necessarily appropriate where a beneficiary is supported by a third party - a beneficiary who is supported by a grant from an educational grant making charity because he/she comes from a poor family is still poor notwithstanding the financial position of the grant making charity!

4. How do you determine whether a fee charging school's purpose is for the benefit of the community?
Whether or not an school is established for a charitable purpose is to be ascertained by reference to its constitution, and not its subsequent activities. Generally, a school which, by its constitution, is open to all, will be considered as being established for charitable purposes only.

The status of a fee charging school registered before the 2006 Act remains the same - if it was eligible to registered as a charity then, impliedly it complied with the public benefit condition within the sense of (i) above. Whether such a school is a charity under the 2006 Act does not depend on the way in which it operates now any more than it did prior to the 2006 Act.

5. What kind of benefits can be taken into account if it is queried whether the public benefit requirement under section 3 (3) of the 2006 Act is met?
When considering whether a school which is a charity is operating for the public benefit in accordance with its charitable purposes, the primary focus must be on the direct benefits it provides. Scholarships and other direct assistance to students are therefore important.

Account can also be given to arrangements allowing children educated in the state sector to attend classes at the private school, or teacher sharing arrangements. To a lesser extent, account can also be given to arrangements to share teaching materials, via the Internet, for example.

Making facilities available to students of the local state schools was considered to be more difficult to identify as appropriate benefits to assist to demonstrate meeting the public benefit requirement, because it is not usual for a school's objects to include the provision of facilities. In addition, there was some consideration as to whether it would make a difference if the facilities provided were classrooms or, for example, a swimming pool. However, it was included that making facilities should be taken into account in deciding whether a school established as a charity was operating for the public benefit.

If the same facilities are made available to the general public, however, this could not be taken into account, as the benefits were too indirect.

While it might be said that there was a benefit provided by private schools in their removal of pupils from the state sector, who would otherwise have had to be educated at the expense of the state, it was noted that this point could not be taken too far, as the suggested benefit to the state is highly speculative!

6. What does a fee charging school have to do to meet the public benefit requirement under section 3 (3) of the 2006 Act?
Bearing in mind that the concern regarding fee charging schools that they must be seen to be doing enough to benefit those who cannot afford the fees, the judges considered whether:

• the test would be satisfied if the school provided some benefit to the poor which is more than token, or de minimis, benefit at which the school can point to 'cock a snook' at the Charity Commission, or
• a more nuanced approach should be taken, and it was necessary to look at what a trustee, acting in the interests of the community as a whole, would do in all the circumstance of the particular school under consideration, and ask what provision should be made once the threshold of the de minimis has been met.

The judges decided that the second approach must be correct, although they acknowledged it would be a difficult approach to apply, and would make the laying down of guidelines difficult. It would not be possible to be prescriptive about the benefits which a school must provide. It is for the trustees of the school concerned to address and assess how their obligations might be fulfilled, in the context of their own particular circumstances.

However, it was noted that where "facilities at what [they] might call the luxury end of education" are provided, it will be more incumbent on the school to demonstrate a real level of public benefit.

The judges concluded that while the trustees must seek to conduct the school in such a way that its pupils or other beneficiaries include the poor, there is no legal requirement on the trustees to act in a way that the Charity Commission would consider reasonable.

7. Decisions on the points raised in the judicial review
The judges came to the conclusion that, while it is not possible for them to provide clarity on the requirements of the law on public benefit in the context of fee charging schools, the Charity Commission's guidance was incorrect in its interpretation of the public benefit requirements when it stated as follows:

"2b Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted by:
i) geographical or other restrictions or
ii) the ability to pay any fees charged.


2c People in poverty must not be excluded from benefit."

These statements were then amplified upon in further guidance provided by the Charity Commission.

The judges considered the interpretation to be incorrect because it implied a need for 'reasonable' provision of benefits to the poor, when this is not the case (see point 6 above). Therefore, the Charity Commission should be required to amend its guidance.

8. Responses to the points in the Attorney General's reference
This part of the judgement contained responses to the questions regarding hypothetical fee charging schools, which the judges recognised were designed to elicit from them conclusions as to where the line can be drawn between what is and is not a sufficient element of public benefit for a fee charging school. They specifically declined to give any sort of ruling which was intended to be definitive!

As this is intended to be a summary of the judgement, I will not go into detail on the responses, but it is interesting to see the application of the judges' approach. Those who are interested will find the text of the judgement here, and should refer to pages 101 to 108.

So, who did win, and how much help is this judgement going to be?
Well, it seems fair to say that there were successes on both sides.

The ISC can legitimately claim success because it was decided that the Charity Commission guidance was incorrect in some respects in its interpretation of the public benefit requirements, and should be amended.

However, the Charity Commission's stance that it cannot provide detailed information on what is required of each fee charging school to meet the public benefit requirement in its guidance was clearly endorsed by the judges. The particular circumstances of each school must be taken into account.

The decision that, effectively, a de minimis provision of benefits to the poor is required in order for the school to meet the public benefit requirement, and that what more is required will be for the trustees to decide, taking into account the particular circumstances of the school, may provide some comfort to trustees.

It remains the case that trustees do not know what constitutes a de minimis provision, so there is still some uncertainty. However, it seems, potentially, there is a much lower bar for the trustees to achieve, and it is recognised in the judgement that what further provision may be needed above the de minimis provision may be quite modest, in some cases.

The judges acknowledge that their judgement does not give the clarity in the requirements of the law which was hoped for, and will please neither side of the political debate. They are right, but they are also right that the political issue in question - whether fee charging schools should have the fiscal advantages granted to charities - is one for Parliament. Whether Parliament ever finds the political will to address this question is another matter.