EQUITY AND TRUSTS

EQUITY AND TRUSTS CHARITIES 1

In this section we will consider: • The structure of charitable organisations • Advantages and disadvantages of charitable status • Requirements of charitable status • Charities and political activity • The reform of the definition of charity • The doctrine of cy-pres

Structure Charities currently take one of the following forms: • Trusts • Charitable corporations (companies limited by guarantee) • Unincorporated associations Proposed now to create a new legal form for charities: the charitable incorporated organisation.

Advantages of charitable trusts • Charities may exist for purposes (as opposed to non-charitable purpose trusts – see below) • Charitable trusts can be enforced by the Attorney General (thereby avoiding the problem facing NCPTs of the lack of a human beneficiary to enforce the execution of the trust)

Advantages of charitable trusts – certainty • Validity of charitable trusts does not require certainty of objects (e.g. gifts to “charitable purposes” or just “to charity” would be valid)

Advantages of charitable trusts – perpetuity • Charitable trusts may be perpetual. Two aspects to this:

Advantages of charitable trusts – perpetuity (1) The rule against perpetual trusts does not apply to charitable trusts

Advantages of charitable trusts – remoteness of vesting 2) The rule against remoteness of vesting applies to charities except for gifts over from one charity to another

Advantages of charitable trusts – taxation Charitable status brings tax advantages: • exemptions from income and capital gains tax • gifts exempt from inheritance tax • reductions in rates charges of up to 100%

Advantages of charitable trusts – status Fundraising is aided: Status and credibility – money is more readily given to registered charities

Advantages of charitable trusts – assistance Assistance is available to registered charities: (1) The Charity Commissioners are able to offer advice to registered charities

Advantages of charitable trusts – cy pres (2) Under Cy Pres when property cannot be applied to the charitable purpose the donor intended the Commissioners can make a “cy pres scheme”

Disadvantages of charitable trusts

Regulation • regulation by Charity Commissioners • need for accounts • CC monitoring • CC have powers to disqualify trustees

Other disadvantages Restrictions on political activities will be dealt with below.

Qualifying for charitable status • Must be for one or more charitable purposes (Pemsel four heads) • Must be for the public benefit (under test for each head) • Must be wholly and exclusively charitable

Defining charity Currently no statutory definition of charity: Section 96 of the Charity Act 1993: “any institution which is established for charitable purposes” Section 97 CA ’93 “charitable purposes mean purposes which are exclusively charitable according to the law of England and Wales” See in particular the preamble to the Charitable Uses Act 1601 used by the courts to determine whether a given purpose fell within “the spirit and intendment” of the Act.

Defining charity Income Tax Special Purposes Commissioners v Pemsel [1891] AC 531, HL set out four heads of charitable trust into which a trust must fall to be charitable: • Relief of poverty • Advancement of education • Religion • Other purposes beneficial to the community not part of the above

Repeal The preamble to the CUA 1601 was repealed by the CA 1960 BUT in Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968] AC 138, the HL held that law remained the same since the preamble was embedded in case law and that the definition of charity remained the same (see in particular Pemsel head four)

Role of Charity Commissioners Decide which charities are given registration Have same powers as court in determining charitable status CC have own body of precedent – governs registration unless challenged CC also looking at reviewing register of charities with view to development of law

Charitable trusts A public or charitable trust is a trust for a purpose regarded in law as charitable and for benefit of the public (or for a section of public).

Requirements of charitable status Must be for one or more charitable purposes (i.e. within one or more of the Pemsel four heads)

(1) Poverty Poverty: relative not absolute – but need is a crucial element. Not same as destitution but dependent on condition of life at time of difficulty.

Poverty contd. IRC v Baddeley [1955] AC 572 HL: “relief” means that there must be a need to be relieved Rowntree (Joseph) Memorial Trust Housing Association Ltd v A-G [1983] Ch 159 must be need attributable to the condition of the person that they are unable to relieve themselves.

Poverty contd. The rich should be expressly excluded from benefit because the court is reluctant to infer such exclusion. e.g. Re Gwyon – knickers for boys but not expressly for poor boys and so not charitable under the poverty

Poverty contd. Re Sanders WT [1954] Ch 265 gift to “working classes” did not limit benefit to the poor so not charitable Re Nayazis WT [1978] 3 All ER 785 Gift to construct “working men’s hostel” was charitable.

Poverty contd. Charity Commissioners recently registered the AITC Foundation in 2004. Set up to help those impoverished by collapse of split level investment companies. See in particular CC booklet: Charities for the Relief of Financial Hardship and the decision in Re De Carteret [1933] Ch 103 Note also conditions for receiving help relating to income and capital.

Aged impotent and poor people Terms to be read disjunctively so trust can be solely for poor Trusts for sick and aged generally appear under Pemsel head 4.

(2) Advancement of education Definition of education wide: Not just classroom teaching – case law has recognised the publication of law reports, establishing maintaining museums, chess playing, research (but compare Re Shaw [1951] 1 all ER 656 and Re Hopkins [1965] Ch 669).

Re Shaw [1957] 1 All ER 745 Trust for research into new alphabet deemed a mere increase in knowledge by Justice Harman – could not be educational without more.

Re Hopkins WT [1965] Ch 669 Gift to Francis Bacon society to conduct research into authorship of Shakespeare’s plays – considered by Justice Wilberforce to be charitable – see judgement.

McGovern v A-G [1982] Ch 321 Trust for research charitable only if: Subject matter is useful Knowledge acquired will be disseminated.

Education and sport Promotion of sport not charitable unless it is means to a charitable end – e.g. as part of education Re Marriette [1915] 2 Ch 284 provision of squash courts at specific school was charitable IRC v McMullen [1981] AC 1, HL FA Youth Trust for schools and universities generally was sufficient limitation to be charitable.

Sport as a charitable purpose? If not for the education of the young then sport must be for charitable end e.g. Pemsel head four: • facilities for the disabled • improving police efficiency/armed forces • or under limited provisions of Recreational Charities Act 1958 See applic of Re Nottage in North Taunton RUFC, Decs of CC Vol 15, Nov 1977 and recognition by CC of community participation in healthy recreation + extension of IRC McMullen and proposed recognition of advancement of amateur sport in Charities Bill.

(2) Education – arts and culture Royal Choral Society v IRC [1952] 2 AC 378, PC – trust to promote practice and performance of choral But must be specific artistic pursuit: in Associated Artists “artistic and dramatic works” too vague.

Value judgement Does the activity have any educational value? e.g. Re Delius [1957] Ch 299 merit of his work was crucial to the finding compare with Re Pinion [1965] Ch 85 where the art works had no educative value

Fee paying schools Not charitable if profit making unless profit is for school purposes only Are private schools worthy of charitable status – see later for consideration of government proposals

Professional bodies Charitable only if promoting education e.g. Royal College Surgeons of England v National Provincial Bank Ltd [1952] AC 631 HL Compare with General Nursing Council where aim to promote the profession rendered it uncharitable

(3) Advancement of religion The meaning of religion. See Bowman v Secular Society Ltd [1917] AC 406, HL Any monotheistic belief will be recognised as religion Polytheistic beliefs now also recognised Hindu sect had divided but all parts were charitable.

Advancement of religion – value judgements? Requires some religious belief rather than merely an ethical or moral position Re Southplace Ethical Society [1980] 3 All ER 918 essential characteristics are faith and worship.

Tolerance by courts No judgement is made as to the value of different religions see Neville Estates v Madden [1962] Ch 832.

Width of toleration This approach has allowed for eccentric beliefs to be found charitable Thornton v Howe (1862) 31 Beav. 14 – trust recognised for publication of woman claiming to be pregnant by holy ghost. See also: Re Watson [1973] 3 All ER 678 Ch.D

Faith healing • Funnel v Stewart [1996] 1 All ER 715 Ch.D trust for faith healing was upheld to be a religious purpose. • National Federation of Spiritual Healers was registered as a charity in 2002 – objects included promotion of practice of spiritual healing. See CC Decision, 15.08.02 • Compare Sacred Hands Spiritual Centre: CC Dec 05.09.03

Is the law sufficiently discriminatory Gov has considered altering the law for fear of “brainwashing” practices of some organisations Charities: A Framework for the Future (May 1989) – no proposals for reform because problems stemmed from conduct not objects of charities Powers of CC were increased by CA 1992 but left unaltered by the consolidating Act of 1993

Application of the law - Scientology CC Decision 17.11.99 – CC decided Scientology not a religion as defined in South Place Ethical Society (supra) Core practices of Scientology (auditing and training) not reflective of a belief in and need to worship a supreme being. Scientology also not established for public benefit. No assumption of public benefit attached and therefore Scientologists had to demonstrate this but could not because practises were private.

Application of the presumption Compare the Scientology decision with that regarding the Sacred Hands Spiritual Centre. CC considered whether the objects of the society met the criteria used in the Scientology decision that apply to the charitable purpose of the advancement of religion (belief in supreme being, worship of that being, advancement of religion and public benefit). PB shown unless See Dec of CC Sept 2003.

Advancement of religion United Grand Lodge of Ancient Fee and Accepted Masons of England v Holborn BC [1957] 3 All ER 281 CA Masons did not advance religion and were denied charitable status – they have no religious instruction, no services and conduct no pastoral or missionary work.

Other religious purposes Preamble refers to the repair of churches Thus the erection, repair or maintenance of religious buildings is a charitable activity. As are gifts of bells etc.

Gifts to the clergy or for God’s work? Middleton v Clitheroe (1798) 3 Ves 734 trust for benefit of clergy Scott v Brownrigg (1881) 9 LR Ir. 246 missionary work not charitable because not exclusive of non-charitable work Re Barker (1898) 746 WR 296 gift “for God’s work” charitable Re Howe gift for good works was not Farley v Westminster [1939] AC 430 gift of two churches for parochial work not charitable – not a gift for religious purposes strictly but could include other objects. Compare with Re Simson [1946] Ch 299: gift to Vicar for work in parish was considered charitable.

Promotion of religious harmony The CCs have determined that this is a charitable purpose by analogy with equality of race and sex and mental and spiritual welfare and improvement of the community The Friends of the Three Faiths Forum were registered as a charity promoting religious harmony (dec of CC 2002).

EQUITY AND TRUSTS