Equity & Trust
“The present loose framework for the definition of charity enables the courts and the Charity Commissioners to develop the law in a way which is sensitive to the changing needs of society. The introduction of a statutory definition might put at risk the flexibility of the present law, which is perhaps its greatest strength.”
“...it is life and not logic, which has guided... the law of charity.”
nglish law has, for a long time relied upon a judicial understanding of what charity is by looking at which activities previous judges have accepted as meriting the description of charitable and analogising from those decisions.
The essential attribute of charity is that it seeks to benefit the public and it is this element that merits the special treatment such trusts receive. However, the law also looks for a certain generic character in charitable activity and by the end of the 16th Century it was clear that some enumeration was needed of the activities which were thought to further the public good; this was first provided by the preamble to the Statute of Charitable Uses 1601, which for 350 years constituted the general statement of charitable purposes. These activities are today, vague and outdated, but the courts have consistently analogised contemporary activities with the preamble, while attempting to keep the law abreast of relative changes within acceptable boundaries.
In 1891, Lord Macnaghten sought to categorise the activities which were within the ‘spirit and intendment’ of the preamble and which had come to be recognised as charitable. He listed four categories: the relief of poverty, the advancement of education and religion and those activities, ‘beneficial to the community’. Each had its own degree of ‘public’ depending on the type of benefit in question. In the days when the State made few welfare provisions, trusts under these categories were clearly for the public benefit. The House of Lords have subsequently stated that there is no requirement for a ‘public’ benefit in poverty cases.
It is argued that the fourth heading is not a separate category but merely a reference to a continuing list of categories which do not fit within the other three, which can be adapted without need for a separate rule of its own. It is here that most new registrations are made, and in a climate that sees many traditional needs of society provided for from public sources, where progress is possible. From this flexibility, the concept of charity has widened substantially; e.g. educational charities can now cover almost any form of worthwhile instruction. Even chess is seen to be educational! although Vaisey J foresaw, “...a slippery slope from chess to draughts”.
Conversely, it is suggested that ‘private’ charities could fill the gaps in the State welfare programme, but if a trust’s purpose is not appealing enough to justify public expenditure, should it justify the benefits to which charities are entitled? I have attempted to address this below.
Certain cultural assumptions are made when debating what is ‘charitable’. Broadly, for example, education and religion are beneficial. The courts, however, have had some odd debates as to whether certain sects are religious or not and what exactly education is. It has been suggested that there is real need to reform religious charities, either by extension under Article 9 of the European Convention on Human Rights or total abolition on the ground that public subsidy of religious faith’s forces the non-religious to support organisations they passionately disbelieve in. The courts however, assume that some religion is at least better than none. Private medicine and education are both charitable, but many believe that these are detrimental to those who are unable to afford them. Understandably, where substantial tax advantages are bestowed, somewhat technical lines appear between similar objects, and some say that these should no longer enjoy charitable status.
To proceed by analogy and adjust the law to current needs is made especially difficult, as judges find the dead hand of past social values constricting the way ahead; plus, the adversarial system may suit the resolution of disputes, but it is not suited to effecting social and fiscal engineering. Lord Macnaghten’s fourth category provides the basis for a contention that if a purpose is beneficial to the community, then it is prima facie charitable and that adherence to analogy is too restrictive.
In 1950, the Nathan Committee was appointed to look into the Law and Practice relating to Charitable Trusts and when they reported in 1952, many were looking for a new definition of charity. This, it was hoped, would embrace the purposes which already found acceptance and draw a perimeter around the concept of charity which was flexible enough to adjust to changing views. The Committee recommended that a new statutory definition of charity be enacted; however, the Government decided to retain the flexibility which the present situation provided.
This is a preview of the whole essay
The diversity of activities... which have qualified as charity is part and parcel of the concept...
Although the 1601 Statute was repealed, the preamble remained until 1960; but no new definition of charity was forthcoming and case law continued to serve as the source of principles of charitable purposes. However, such evolution makes it impossible to define a core meaning to what is charitable.
“...[The English courts have] taken strong liberties upon the subject of charities.”
Prior to the twentieth century the main function of public trusts was to recognise that certain objects, provided they were ‘public’ in the benefit they conferred, ought to be sustained; even if they contravened requirements of certainty and the rules against perpetuity. The law of charity was enabling and a certain judicial liberality in the handling of the definition of charity was accepted.
“The wilderness of legal charity... is a subject... recognised as a hybrid, occupying the middle ground between trusts and taxation law.”
However, when the era of taxation opened in earnest at the beginning of the 20th Century, it was evident that given the tax exemptions which charities enjoyed, the scope of charity required closer scrutiny. Charitable status involves State subsidies at the expense of the taxpayer, and as the scales of taxation became steeper after the Second World War, the law of charity was caught between two forces. On one hand, the desire to permit perpetual duration, the Attorney-General’s involvement and monitoring by the Charity Commissioners, (again, all at public expense) remained. Charities were generally seen as beneficial and the legitimate costs incurred were outweighed by those benefits. On the other hand however, there was a new desire to confer with caution, the subsidies which charitable status attracted.
In 1955, the Radcliffe Committee contended that while still existing in perpetuity, a withdrawal of fiscal advantages from some, could create a new form of charity; and others should be measured by a stricter definition, in order to gain the present exemptions. The Grand Court of the Cayman Islands, where charitable designation does not confer fiscal advantages, has recently furthered this idea and thus developed an inherently workable definition of legal charity. The 1955 proposals however, were not adopted and such restraint has lead to some unfortunate decisions denying charitable status to some worthy causes.
It is worth noting, albeit that certain measures have been implemented which increase the fiscal advantages of charities, the ways in which the law gives special treatment to charities, are all expensive to the nation. In 1989 the cost of the Charity Commissioners was over £7 million, and the value of tax exemptions and support from other public funds was in excess of £2.5 billion. Add to this more abstract elements, such as amenities not provided due to the loss of revenue, and it is not surprising that greater control of the system was sought by so many.
So, there is no clear and concise definition of what is charitable and successive legislatures have sought other ways in which to confer tax exemptions. However, they too found themselves caught in the bind that ‘charity’, does readily suggest the kind of organisation for which it was intended to grant exemption. The phrase “charitable organisations”, continues to appear in taxing statutes and the courts remain frustrated in defining with precision, what is charitable. There are two possible solutions to this.
First, is for the Inland Revenue to keep an ‘in-house’ list of organisations and to grant charitable status, for tax purposes, on the basis of their own understanding of what is charitable. The donor or trustee could then litigate when he considered that the Inland Revenue had ruled incorrectly. It seems that a high proportion of the modern leading cases in this area have arisen in this way. Disparities between concession policies impede and distort the development activities which society and government should be encouraging. It is argued there are projects that, although the State would be reluctant to spend its own resources on, such as experimental welfare provisions, should be able to attract charitable status.
Second, a further development led to an ‘independent’ charities register. Under the Charities Act 1960, the Charity Commissioners, were required to keep such a register. Since then, they have developed a knowledge and a feel in the handling of applications which, it has to be said, has earned them considerable respect; it is said that the Commissioners have built up a valuable range of precedents and are fully aware of the need for flexibility enabling them to reflect changes in society. There is nevertheless, a fine line between being flexibility and binding decisions. A refusal to register an applicant can be challenged in the courts; however, an appeal from the Commissioners is said to cost a five figure sum, so it is hardly surprising that it rarely happens!
If legislation is therefore lacking, we must return to see what the courts can accomplish. It is a pity that the courts seldom have the opportunity in today’s circumstances to hear cases concerning the meaning of ‘charity.’ All organisations must now obtain official recognition if they wish to avail themselves of the attendant benefits that charitable status brings. Applications are considered by the Charities Commission and applications for tax exemptions are likewise treated by the Inland Revenue; (the two organisations can and do work together on certain matters). Practically, this is a sensible situation whereby applicants are, on the whole, happy to accept the decisions; but it does mean that relatively few cases are appealed to the courts; and the result is that the meaning of ‘charitable,’ has become a purely administrative matter. An area of the law which over the centuries evolved and was adapted by the courts to changing concepts of ‘good works’, has largely disappeared into the offices of government. Publicly reported judicial decisions have been replaced by private correspondence between the Inland Revenue, the Commissioners, and the applicant.
The counter argument to this would be a return to the previous situation whereby the courts are more actively involved which, it may be argued, involves the court in making constitutionally unacceptable value-judgements about social worth. Clearly judges cannot avoid making subjective choices; they will undoubtedly have a personal opinion, but should judges be put in the position of being asked to hold that a controversial object is so obviously for the public good that it should be pursued perpetually and tax-free? That surely, is the task of the legislature. Such value-judgements may further endanger the court’s neutrality if they were to become, for example, the rubber stamps for religious and other beliefs. However, it can be seen in some cases, that this is exactly what they have had to do. This is plainly an awkward exercise for the judiciary, but nevertheless comparable to the situation judges find themselves when having to balance conflicting provisions of the European Convention on Human Rights, i.e. Privacy against Free Expression.
Judges have encouraged assessing cases on their merits and adopted a flexible approach by looking at public benefit as a matter of degree. Nevertheless there is a tendency towards respecting their constitutional position and judges fight shy of usurping the function of the legislature who in turn are the overseer of the Charity Commissioners; civil servants appointed by and accountable to, the Home Secretary.
Clearly, much of the existing case law is either ageing or plain out of date and there is only so much that such precedents can offer if the extensive changes in values and attitudes of today’s society continue to affect our ideas of what activities are truly for the public benefit.
Apart from the occasional limited definition, all other attempts at a general statutory definition of charity have failed. The Government had their greatest modern opportunity to introduce one in 1960, but significantly rejected the proposal of the Nathan Committee, when they enacted the Charities Act of that year. Again, in 1989 the proposal was rejected; it was said that any such definition “...would be fraught with difficulty” and would risk compromising the flexibility of the current law, “its greatest strength and most valuable feature”. This is not to say however, that legislation is automatically inflexible, as can be seen by the far-reaching reforms in the application of the cy-près doctrine. There are a number of statutes in force which provide for reductions and exemptions in tax and given the existing pressures on the legislative timetable there is less than immediate concern, by Parliament, for the meaning of ‘charity’ to be kept abreast of the times.
Apart from poverty cases, charitable purposes must possess an element of (quality) public benefit. It is argued that many problems would have been alleviated had the Goodman Committee proposals been implemented; for once the limiting effect of fiscal privilege is out of the way, it seems unnecessary to limit the benefit of a charitable trust to ‘public’. Lord Macnaghten’s words ‘a purpose beneficial to the community’ could then be taken at their face value. Thus, the public/private dichotomy would narrow and a new type of trust; a ‘public benefit trust’, would emerge. This “will make minute questions of construction a relic of the past. However, there is clearly a general political unwillingness to get embroiled in what would undoubtedly be a huge and contentious task.
One of the strengths of our system is that it allows new purposes to be recognised as charitable from time to time. The courts and the Charity Commissioners have been able, in recent years, to recognise various charitable purposes while at the same time finding it possible to remove previously favoured purposes, such as rifle clubs, in the wake of the Dunblane tragedy. However it does seem strange that a gift to a closed order of nuns in order for them to spend their life in religious contemplation is not charitable, while a trust to propagate religious works of no value is.
On balance, the current state of legislation, relevant case law and the role of the Charity Commissioners, together, do not lead inexorably to despair of determining what charity is. In most instances, faced with a new object, a charity lawyer can be reasonably confident whether it will be held charitable or not. Moreover, when contentious issues do arise, it seems that the present situation is more than capable of dealing with them satisfactorily. Certainly, no one system seems better than another. Indeed, if faced with the stark choice of introducing a rigid statutory definition or retaining the present loose framework, it is submitted that the latter be the most satisfactory solution.
Edwards, R & Stockwell, N. Trusts and Equity 1997 3rd Ed. Pitman: London
Fenwick, H. Civil Liberties 1998 2nd Ed. Cavendish: London
Gardner, S. An Introduction to The Law of Trusts 1990 Clarendon Press: London
Hackney, J. Understanding Equity and Trusts 1987 Fontana: London
Hanbury & Martin. Modern Equity 1993 14th Ed. Sweet & Maxwell: London
Keeton & Sheridan. The Modern Law of Charities 1992 4th Ed.
Moffat, G. Trusts Law: Text & Materials 1994 2nd Ed. Butterworths: London
Waters, D.W.M. Law of Trusts in Canada 1984 2nd Ed. Carswell: Toronto
Annual Reports of the Charity Commissioners 1967 - 1991
Charities: A Framework for the Future 1989 Cm. 694
The Goodman Committee Report on Charity Law and Voluntary Organisations 1976
Government Policy on Charitable Trusts in England and Wales 1955 Cmd. 9538
The Committee on the Law and Practice relating to Charitable Trusts 1952 Cmd. 8710 (The Nathan Committee Report)
The Royal Commission on the Taxation of Profits and Income 1955) Cmd. 9474, (the Radcliffe Commission).
Bentwich. (1936) 49 LQR 520
Cross. (1956) 72 LQR 187
Davies, M. Charitable Trusts in the Cayman Islands: Goodbye to the Statute of Elizabeth: The Charity Law and Practice Review 1996 Vol. 4. Issue 2
Edge, P. Charitable Status for the Advancement of Religion: An Abolitionist’s View: The Charity Law and Practice Review 1995 Vol. 3. Issue 1-3
Marshall. (1961) 24 MLR 444
Quint, F. The Rationale for Charity Law: The Charity Law and Practice Review 1994 Vol. 2. Issue 3
TABLE OF CASES
Bridge Trust Company Ltd. and another v. The Attorney-General of the Cayman Islands and others Cause 269/94
Commissioners for Special Purposes of Income Tax v. Pemsel  AC 531
Dingle v. Turner  AC 601
Incorporated Council of Law Reporting v. Attorney-General  Ch 73
Gilmour v. Coats  AC 426
McGovern v. Attorney-General  Ch 321
Morice v. Bishop of Durham (1805) 9 Ves. 399
Morice v. Bishop of Durham (1805) 10 Ves. 522
Neville Estates Ltd., v. Madden  Ch 832
Re Cole  Ch 877
Re Delius  Ch 299
Re Dupree’s Deed Trust  Ch 16
TABLE OF CASES continued
Re Pinion  Ch 85
Re Sahal’s Will Trusts  1 WLR 1243
Re Shaw’s Will Trust  Ch 163
Re Watson  1 WLR 1472
Scottish Burial Reform and Cremation Society Ltd., v. Glasgow Corporation  AC 138
TABLE OF STATUTES
Charities Act 1960 s.1
Charities Act 1992 s.52
Charities Act 1993 s.3
Charitable Trusts Act 1853
Charitable Trusts (Validation) Act 1954
European Convention on Human Rights Article 8
Mortmain and Charitable Uses Act 1888 s.13(2)
Recreational Charities Act 1958 s.1
Gilmour v. Coats  AC 426 per Lord Simonds
Commissioners for Special Purposes of Income Tax v. Pemsel  AC 531 @ 581
Morice v. Bishop of Durham (1805) 9 Ves. 399 @ 405 per Sir William Grant MR
Hanbury & Martin. Modern Equity (1993) 14th Ed. p.382
Dingle v. Turner  AC 601
Gardner, S. An Introduction to The Law of Trusts. (1990) p.93
Annual Report of the Charity Commissioners (1985) para. 8
Annual Reports of the Charity Commissioners (1978) - (1991)
Hanbury & Martin. Modern Equity (1993) 14th Ed. p.394
Re Dupree’s Deed Trust  Ch 16 @ 20
Annual Report of the Charity Commissioners (1967) & (1978)
Hanbury & Martin. Modern Equity (1993) 14th Ed. p.392
Edge, P. Charitable Status for the Advancement of Religion: An Abolitionist’s View: The Charity Law and Practice Review (1995) Vol. 3. Issue 1-3 p.29 @ 32
Neville Estates Ltd. v. Madden  Ch 832 per Cross J
Hackney, J. Understanding Equity and Trusts. (1987) pp.66/67
Gardner, S. An Introduction to The Law of Trusts (1990) p.110
Incorporated Council of Law Reporting v. Attorney-General  Ch 73 @ 88 per Russell LJ
The Committee on the Law and Practice relating to Charitable Trusts (1952) (The Nathan Committee Report) Cmd. 8710
Government Policy on Charitable Trusts in England and Wales (1955) Cmd. 9538, paras. 2-3
Waters, D.W.M. Law of Trusts in Canada (1984) p.595
Mortmain and Charitable Uses Act 1888
preamble repealed Charities Act 1960 s.38
Morice v. Bishop of Durham (1805) 10 Ves. 522 per Lord Eldon
Bentwich. (1936) 49 LQR 520
The Royal Commission on the Taxation of Profits and Income (1955) Cmd. 9474, paras. 168-175
(the Radcliffe Commission).
Bridge Trust Company Ltd. and another v. The Attorney-General of the Cayman Islands and others Cause 269/94 10th April 1996 per Harre CJ
Amnesty International - McGovern v. Attorney-General  Ch 321
see the Goodman Committee Report on Charity Law and Voluntary Organisations (1976)
Charities: A Framework for the Future (1989 Cm. 694) para. 9.2
Charities: A Framework for the Future (1989 Cm. 694) para. 1.5
e.g. Charities Act 1993
Set up under Charitable Trusts Act 1853
Annual Report of the Charity Commissioners (1985) para. 5
Hackney, J. Understanding Equity and Trusts (1987) p.67
Charities Act 1993 s.3
Charities Act 1992 s.52
Gardner, S. An Introduction to The Law of Trusts (1990) p.101
Re Shaw’s Will Trust  Ch 163 @ 168, 172 per Vaisey J
National Anti-Vivisection Society v. IRC  AC 31
Article 8. European Convention on Human Rights
Article 10. European Convention on Human Rights
Dingle v. Turner  AC 601
Charities Act 1960 s.1; First Sched. para. 1(2)
s.1 Recreational Charities Act 1958 & Charitable Trusts (Validation) Act 1954
Nathan Committee. Goodman Committee. Radcliffe Committee
Charities Act 1960 s.38(1) & s.38(4)
Charities: A Framework for the Future (1989 Cm. 694) para. 2.11
Charities Act 1960
Re Delius  Ch 299 per Roxburgh J; Re Pinion  Ch 85 per Harman LJ
Cross. (1956) 72 LQR 187 @ 205
Re Sahal’s Will Trusts  1 WLR 1243; Re Cole  Ch 877
Quint, F. The Rationale for Charity Law: The Charity Law and Practice Review (1994) Vol. 2 Issue 3. p.211 @ 215
Gilmour v. Coats  AC 426
Re Watson  1 WLR 1472
Keeton & Sheridan. The Modern Law of Charities (1992) 4th Ed. @ p.8