Public benefit: trustees cannot ‘cock a snook’ at the Charity Commission

On Friday 14 October the Tribunal finally handed its decision in the case between the Independent Schools Council and the Charity Commission on the question of public benefit. Unfortunately, what is a landmark decision seems to have been overshadowed by a grapple for headlines and claims of respective victory by each party.

The Independent Schools Council press release says it is “delighted” that the Upper Tribunal has ruled that certain core elements of the Charity Commission’s guidance are wrong in law. Meanwhile the Charity Commission is “pleased” that the Tribunal agrees with its interpretation on certain key issues. While it has welcomed the clarification of the law the Commission recognises that their guidance will need amending.

The point is that such a complicated issue – let’s remind ourselves that the whole debate about ‘what is public benefit’ has kept lawyers and judges on their toes for over 400 years – is never going to get a clear cut answer.

So maybe it is more useful to pull out the key points?

‘Sufficient section of the public’ in relation to charities which charge fees for their services

The Tribunal has accepted the Charity Commission’s and NCVO’s proposition that a charity which (either constitutionally or as a matter of practice) excludes the poor from benefiting from its activities would not satisfy the public benefit requirements as it would not be providing for a sufficient section of the community. This is not based on case law but is considered right as a matter of principle, given the underlying concept of charity.

I should clarify here that the ‘poor’ in the context of fee-charging independent schools does not mean ‘destitute’: it extends to any child whose family cannot reasonably afford to pay the full cost of the fees, although being of moderate or ‘some’ means.

This is a clear rejection of ISC’s submission that, provided the poor are not expressly excluded as beneficiaries in the definition of the charity’s purposes, it does not matter if they are necessarily excluded in practice because they cannot afford the fees.

The judgment makes it clear that trustees have a positive duty to take practical steps to offer benefits to those who cannot afford the fees. Paragraph 229 reads:

‘We think they are all to be read as stating that there is a practical requirement (and not simply an obligation to consider whether) to benefit in a material way some people who cannot afford to pay’.

Discretion of charity trustees

The Tribunal has therefore concluded that a charitable independent school would be failing to act for the public benefit if it does not provide some benefits for its potential beneficiaries other than its fee-paying students (unless this was a merely temporary state of affairs). However, it has also decided that each case depends upon its own facts and, provided something beyond a de minimis threshold is crossed, it is a matter for the trustees of a charitable independent school (rather than the Charity Commission or the Tribunal) to decide how trustees’ obligations might best be fulfilled in the light of their circumstances.

The ISC press release has emphasised this point. But it fails to then address the Tribunal’s approach to this issue, which is outlined in paragraph 215.

‘There are two mutually exclusive possibilities for assessing whether the public benefit requirement is satisfied.

a. The first is that the test is satisfied if the school provides some benefit for the poor which is more than a de minimis benefit, or a token benefit for the school to be able to point at in order, as it were, to cock a snook at the Charity Commission. The justification for this approach would be that it is the de facto exclusion of the poor which prevents there being the necessary element of public benefit so that once some benefit is provided for the “poor” however small – provided that it is more than de minimis or a token benefit – all of the school’s activities, including education of fee-paying students can be taken into account as part of the public benefit provided.

b. The second approach is to apply a more fact-sensitive assessment. It is 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 to ask what provision should be made once the threshold of benefit going beyond the de minimis or token level had been met.

We consider that the second approach is correct. Each case must depend on its own facts.’

So power is handed over to trustees: they have the discretion to decide how to provide public benefit, without having to strictly follow the Charity Commission’s guidance. But there must be a defined benefit for those who cannot afford the fees and this cannot be merely tokenistic. Indeed, the Charity Commission still has a statutory duty to make sure trustees are providing a public benefit and can still intervene if it thinks this is not being done.

Direct benefits, indirect benefits, and wider benefits

In this context, the Tribunal sets out some useful examples of benefits that can be provided to those who cannot afford the fees in paragraph 196 of the judgement. While bursaries are important, they are not the only way in which a way a school can deliver public benefit to those who are otherwise unable to afford the fees.

However the judgement also clarifies that, in order to be relevant, the benefits must be related to the charity’s purposes (namely the provision of education, in the case of independent schools). So a school won’t meet the public benefit requirement only by making facilities such as playing fields or sports grounds available to the community as a whole. Although obviously a good thing, this would not be enough because it would be seen as an ‘ancillary activity’, meaning that it has nothing to do with the fulfilment of the charity’s purpose.

What this means for charities

There has been discontent about the fact that the Tribunal does not set a specific threshold or benchmark which can be deemed sufficient to demonstrate public benefit. There will still be some uncertainties as to what is, or is not, sufficient public benefit in a general sense. Each case will have to be assessed on the facts and circumstances that prevail at that time.

However, the judgement is to be welcomed as a helpful clarification of the law in many respects, especially for the trustees of fee-charging schools. In particular, the Tribunal has sought to answer the questions asked by the Attorney General: therefore there is a set of specific case studies of fee-charging schools operating in various ways, with indication from the Tribunal of whether or not they would meet the public benefit requirement. This is likely to provide guidance to fee-charging schools, and by extension other fee-charging charities.

But beyond this, the judgement includes a very detailed analysis of the case law around public benefit and formulates some key principles which are likely to be referred to in any future decision.