The Charities Act: Inconsistencies in Charity Classification

The definitions of what a charity is and its purpose are explained in the Charities Act 2006 and is subject to the control of the High court. For a charity to exist it must fall into the list of the purpose s2(2) Charities Act 2006 and it must satisfy the public benefit test.

Political purposes are not considered to be a valid purpose and cannot exist. The law is absolutely clear on this, however the inconsistencies have occurred in the application of the law. In Bauman v Secular Society 1917 it was held that “a society whose predominant aim was not to change the law” could be charitable even though it included a subsidiary activity to charge legislation. Hence it would appear that the degree of, between the two purposes have to be looked at. However there is no clear line that the law draws here and thus inconsistencies have occurred.

It has been argued that there has been a weakening in the courts attitude to purportedly charitable trusts recently. Two approaches towards the validity of charitable purpose have arisen. The first approach is that the applicant show a general charitable purpose e.g. Dingle v Turner. The second approach is a requirement that there is no personal nexus between the settler and the class of people to be benefited, but that there has to be sufficient “public benefit” e.g. Re Compton. This means that the benefit should be available to a sufficiently large section of the public without any direct connection to the settlor. The point here is as Lord Cross suggested “is that there must be some genuine charitable intention on the part of the settlor.” This means that trusts for the relief of poverty can be valid, even if only a few people will benefit from the trust; as long as there was a genuine intention to relieve poverty.

The issue between the approaches falls down to whether Lord Cross’s approach which requires a intrinsically charitable in the creation of a trust or as with the Compton approach which requires just a evidential issue of showing that there is a predominantly public benefit rather than a private benefit, is correct. Hence the first approach looks at the purpose of the trust or the second which looks at how the trustees are running the trust and whether or not the practical approach achieves suitably public, charities effects.

Often in cases politics masquerading as education purpose charities have arisen. Cases such as Re Bushnall (1975), McGovern v AG (1981) and Southwood v AG (1998) have established that a trust or organisation whose purposes are ostensibly educational will not be accorded chartable status where these purposes are meant to further some political agenda, ideology or goal. Also at the same time cases such as Baldry v Feintuck (1972), AG v Ross (1986) have held that bodies that are considered to be charitable in educational circle will be precluded from engaging in political activities or supporting political causes.

The general principle is that political trusts are not charitable and this position has not been affected by the Charities Act 2006. As in the case of Re Bushnall (1975), where it was held that the trust was neither an educational charity or a charity under any heading as it felt that the desirability of such legislation was a political matter.

Again the failure of the National Anti- Vivisection Society v IRC (1948) failed as the objective of the society required changes to be made in the law. The issue occurred again in the case of McGovern v Att-Gen 1982 where Amnesty International sought to seek charitable status for part of its organisation. Again the charity failed as the inclusion of other objects caused the trust to fail as they were thought to be political. Here the objectives on their own would have gained charitable status as on their own as there were objective uses such as: the relief of needy persons, who were likely to become prisoners of conscience attempting to secure the relief of prisoners of conscience, the abolition of torture or inhuman or degrading treatment or punishment and research into human rights and disseminating the results of the research.

The Political Activities and Campaigning by Charities (2004) states “a charitable may engage in political activity where to do so will enhance or facilitate or support its work.”

This document goes to great lengths to try and simplify the situation. It provides for situations where political activity can be carried out, in order to support the delivery of its charitable purposes. There are some charitable purposes under which an organisation can gain charitable status for purposes such as the promotion of human rights. However it does stress that the political activity must only be done in order to support the delivery of its charitable purpose. It differentiates between activities of a charity which is aimed at “securing, or opposing, any change in the law or in the policy or decisions of central government, local authorities or public bodies” from an activity aimed at ensuring that an existing law is upheld – i.e. make a difference between campaigning and political activity. In general charitable status can be acquired if: the political activity was not the charities sole and continuing aim to change government policy, and if the purpose can be gained without a change in the law.

There is also room for organisations to get charitable status even if campaigning is a major part of their work if it is set out appropriately in the governing document e.g. charities for the rights of Disabled people.

(B) The Charities Act 2006 contains the current law and S1(a) Charities Act 1993 has created the Charity Commission for England and Wales. Its purpose, objectives, duties and powers are contained in S7. In order to determine the purposes are charitable, the courts have decided that the purposes should fall within the objects set out in Preamble to the Charitable Uses Act 1601.

For Both Laura’s gifts to attain charitable status it must fall into the definition and purpose defined in the Charities Act. The courts have added to the list of purposes which are accepted as charitable and in 1891 Lord McNaughton (Pemsel Case 1891 Ac 531) classified four heads for charitable purposes. The classification is to be used for a matter of convenience and is not a definition. For Laura gift to be classified as a Charity it must fall within s3(1) Charities Act 1993, where the Charity Commission keeps a Register of institutions that are charities. Hence they have the power to recognise new purposes as charitable where they believe the courts would do so.

There are three tests to be satisfied in order for Laura’s gifts to be classed as a charitable purpose. First the purpose must be charitable as in s2(2). Secondly the purpose must be for the benefit of the public at large or a section of the public at large and thirdly the purpose must be exclusively charitable.

Under the purposes set out in s2(2)(j) it is possible that Laura’s first gift to be a charitable purpose as the gift could benefit a large section of the public and the purpose is exclusively charitable. Wich is second test Laura’s gift must pass. This means that the purpose of the trust needs to meet two requirements. Firstly, the organisation must be capable of having a positive effect and not cause harm to the public and secondly, those eligible to receive benefits must (except in the case of organisation set up exclusively to relieve financial hardship) comprise a large group so as to be considered the public or sufficient section of the community and no personal or private relationships must be used to limit those who may benefit. The most important feature here is that the Charities Act 2006 removes the presumption, it provides s3(2), the public benefit requirement must be demonstrated in all cases, not just in the first three heads of Lord Macnaghten’s classification.

The public benefit was central to the validity of trusts which fell into the fourth category in Verge v Somerville (1924) the charitable statues of trusts depend on whether the benefit which they provide are available to the community at large. The public benefit requirement as stemmed from cases such Williams Trustees v IRC (1947) where it was held that a trust for the benefit of Welsh people in London was not charitable since they did not form an appreciable section of the community. In IRC v Baddeley (1955) it was held that a trust which provided outlet for members would be members of the Methodist church, in West Ham; was not charitable since this was not a section of the community but a class within a class. Other cases such as Goodman v Saltash (1882) and Peggs v Lamb 1993 have held that trusts for people in a definite geographical area are charitable. In Dingle v Turner it was concluded that the public benefit requirement is problematic in such cases. However Lord Simmonds in the case of IRC v Baddeley (1955) emphasised that once the benefit of a trust are open to the public or an appreciable section, the trust is deemed to be charitable even if relatively few people take advantage of the benefits.

The test of that the trust must be exclusively charitable is framed within terms that enable the trustees without being in breach of trust to expand any part of the trust fund on non-charitable purposes is liable to fail. In Williams Trustees v IRC (1974) a trust which was predominantly for valid purposes failed because one of its purpose was deemed not to be charitable as have other cases such as City of Gassglow Police AA (1953); AG Cayman Island v Even Wahr-Hansen (2001.)

The problem of trust failing on this test is largely due to bad drafting. The difficulty is in using words such as benevolent, deserving, philanthropic and worthy which have the same connotation as the concept of charity but considered to be of wider import than charity in the legal sense. Hence again in Morice v Bishop of Durham (1805) and Re Gillingham BUD DF (1958) have held that the effect of using such words is that the trust is not be exclusively charitable.

The guiding principles in such cases are as follows: where connecting word is “or” this is construed disjunctively which means the trust is not to be regarded as exclusively charitable e.g. Blair v Duncan (1902), AG v National Provincial Bank (1924) etc where the word “and” is used, this is ordinarily construed conjunctively so that the word of wider import is drawn into the ambit of charitable e.g. Blair v Duncan (1902), Re Sutton (1885) etc.

The requirement has relaxed in certain situations such as in the case of Re Coxen (1948) where the inclusion of non-charitable element was allowed as it facilitated the performance of the trusts purpose. Another situation is where the non-charitable element is merely incidental to the main chariatable purpose e.g. Re Le Cren Clarke (1995), ICLR v AG (1972), IRC v City of Glasgow Police AA (1953.)

Under the Charities Act 2006 Section 2, thirteen heads of charitable purposes are listed. Section 2(2) (b) is the advancement of education which may be suitable for Laura’s second gift.

The advancement of education clearly covers purposes involving schools and universities but confusion arises when trusts are created for study of esoteric subjects or to advice ideological position which are not annexed to any accepted educational institution. However the head does consider a wide range of activities as said in the case of McGovern v AG 1982 “contribute to the improvement of a useful branch of human knowledge and its public dissemination.” The leading case of McGovern v AG (1982) sets out the principles on which a court will typically find research work to be charitable.

If the subject is useful subject of research and it intends to publish the results of that research it will be allowed.

In my opinion both Laura’s gifts will be given the charitable status. However in, the first gift the courts may feel that “the unemployed” may not be a large section of the public as this depends on the economy of the country. The other problem is that it may be seen as a class within a class as in case of IRC v Baddeley (1955). However due to the poverty exception and in light of cases such as Re Gosling (1900), Gibson v South American States, it would appear that the public benefit requirements is almost inexistent (Hanbury and Martin.)Hence Laura’s gift should have no problems.