In Our Third and Final Lecture on Charitable Trusts We Shall Look at Firstly the Issue

Charities 3

Jude Puech

Track/Slide 1

In our third and final lecture on charitable trusts we shall look at firstly the issue of reform of charitable status, moving on to the charitable doctrine of cy pres, and we shall conclude our survey of charitable trusts by tackling a past examination question.

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Despite the many obvious imperfections which even our brief study has identified in the legal definition of charity, most of the committees which have looked at the law, for example the Nathan Committee and the Goodman Committee, both of whom advocated that a definition of charity should be formulated and given statutory effect, were in fact unable to devise a definition, instead recommending setting in statute an updated extended list of purposes deemed charitable, the so-called Goodman guidelines, and enacting a definition of charity based on Lord Macnaghten’s classification. In its 1989 white paper, the government considered whether the law on charitable status should be clarified and simplified. In particular, whether it was time to put it on a statutory basis, making note of the deliberations of the Nathan and Goodman committees. The government, however, was against any substantive change in the law. There were few advantages in attempting a wholesale redefinition of charitable status. Rather, any attempts to define charity by any of these means might put at risk the flexibility of the present law, and concluding that the definition should remain on the present non-statutory evolutionary basis via the courts’ and the Charity Commissioners’ decisions. The 1996 Deacon Report proposed abolition of the existing 4 heads of charity and a single overarching charitable category be established, formulated in terms of benefit to the community. The obvious bonanza for lawyers in the vast potential for litigation was the main reason for the white paper and the earlier Goodman Committee’s rejection of this approach.

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However, the government’s current proposals for reform are well on their way to the statute books. In September 2002 the Strategy Unit of the Home Office published its consultation document entitled Private Action, Public Benefit. That the report makes a number of proposals and recommendations for reform to the charitable sector, which are not purely limited to the law on charitable status presently under discussion here. For example, the report proposes reforms, inter alia, widening the ability of charities to trade. Changes to the Charity Commission guidelines on campaigning by charities have been recommended to encourage charities to campaign. Proposals are made on charities improving information available to the public, regulating fund raising more effectively, changes to the role and accountability of the Charity Commission and the establishment of an independent tribunal to enable trustees to challenge Charity Commission decisions are also proposed. However, the reform proposals with which we are primarily interested are those on the law of charitable status.

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The report outlines difficulties with the current definition. The law is confusing and unclear. The four heads do not accurately represent the full range of different types of organisations with charitable status today nor the range of organisations which should have charitable status. There also seems little logic behind the presumption that organisations falling under the first three heads provide a public a public benefit whilst those under the fourth have to prove public benefit.

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An expanded list of purposes, 10 in total, would make for a clearer framework. The purposes being the prevention and relief of poverty, the advancement of education, the advancement of religion, the advancement of health, social and community advancement, the advancement of culture, arts and heritage, the advancement of amateur sport, the promotion of human rights, conflict resolution and reconciliation, the advancement of environmental protection and improvement and other purposes beneficial to the community. Note that this tenth purpose is head 4 of the Pemsel classification and, according to the strategy unit report, has been specifically retained to allow for flexibility as society’s understanding of what is beneficial to the community develops.

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The report considered that there is a need to retain the centrality of public benefit in the definition of charitable status and to ensure that all organisations that enjoy charitable status provide a public benefit. All charities will have to demonstrate public benefit. There will be no presumptions that certain categories, i.e. heads 1-3 of Pemsel are for public benefit. The definition of public benefit would remain, as at present, case law based. Accordingly, the report recommended that charity be redefined in law based on the principle of public benefit and falling under one of ten new purposes of charity.

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Since publication, the report has been subject to consultation and in July 2003 the government gave its response to the report, accepting the review’s recommendations for a new definition of charity, based on the principle of public benefit and augmenting the review’s proposed list of charitable purposes with the promotion of animal welfare, the provision of social housing and the advancement of science.

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Subsequently, a draft Charities Bill was published in May 2004. Clause 1 of the bill provides a general statutory definition of charity for the first time, subsection 1 of which establishing the meaning of charity. Clause 2 contains the first statutory definition of charitable purpose, the meaning of which is supplied by clause 2 subsection 1, and provides that a purpose is charitable if it meets 2 criteria, that it falls under 1 or more descriptions or heads of charity in clause 2 subsection 2 and secondly that it is for public benefit.

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The list of descriptions of charity in subsection 2 of clause 2 contains 11 specific descriptions and 1 general description. Subsection 4 of clause 2 covers purposes that are analogous to the purposes set out in paragraphs A to K, and enables the meaning of charitable purpose to be expanded in the future. Clause 3 deals with public benefit. Subsection 2 abolishes the presumption of public benefit. Subsection 3 states that the term public benefit refers to the existing concept in charity law.

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The bill has been subject to pre-legislative scrutiny by a joint committee of both houses of Parliament, which, apart from some tinkering with the list of descriptions of charitable purposes, in particular recommending that an additional charitable purpose be added to 2.2 for the provision of religious harmony, racial harmony and equality and diversity, that the new charitable purpose on the advancement of arts, heritage and science should include the word culture and that the saving of lives be added to the new charitable purpose of the advancement of health, its main recommendation was the need for a more explicit definition of public benefit, suggesting that basic principles for a definition of public benefit should be included in the bill are in non-binding statutory guidance.

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November 2004 saw the publication of the Charities Bill, which is, at the time of writing, going through the House of Lords, having received its second reading in January 2005. A Charities Act 2005 is anticipated. However, the Parliamentary timetable is very tight if the bill is to become law before a general election is called, which is expected some time May 2005.

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The bill, as published, follows the draft bill and the government appears to have accepted the joint committee’s recommendations. Changes have been made to the list of purposes in clause 2, as suggested by the joint committee. Further, whilst not going as far as putting the joint committee’s recommendations into operation, the government does appear to have taken on board the committee’s recommendation as to the clarification of public benefit. The bill will give the charity commission a set of new objectives, one of which will be to promote understanding and awareness of the operation of the public benefit requirement. Clause 4 requires the Charity Commission to issue guidance in pursuance of that objective. Although the Commission will be legally required by this clause to issue guidance, the bill contains no provision, making the guidance itself legally binding on charities or on organisations applying for registration as charities. In the absence of such a provision, the guidance will have the status of advice and information put out by the commission to assist general understanding and awareness of the public benefit requirement.

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For over 50 years, there have been various calls for reform. It will however remain to be seen whether this important piece of legislation, which has the effect of providing for the first time a statutory definition of charity, will indeed become law sometime 2005.

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To conclude our lecture on charities, we shall briefly consider the charitable doctrine of cy pres.

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If a private trusts fails, there is a resulting trust for the settler or his estate. If a charitable trust fails however, rather than the resulting trust scenario, the doctrine of cy pres may apply to save the gift.

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Cy pres means as near as possible. The doctrine applies where property has been given for charitable purposes, which cannot be carried out in the precise manner intended by the donor, then the court or Charity Commissioners may apply the property to other charitable purposes as near as possible to those intended by the donor. The doctrine encompasses a rather complex body of law giving the court or the commissioners power where charitable purposes fail or become redundant or anachronistic to rewrite the trust to provide new purposes as near as possible to the original.

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The doctrine applies in two circumstances. Firstly, in the case of initial failure, i.e. it is clear from the outset that the donor’s intention cannot be fulfilled, and secondly in the case of subsequent failure, where the purposes cannot be achieved during the continuation of the trust.

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In cases of initial failure, for example a gift to an institution which has never existed or has ceased to exist at the time when the gift takes effect, then the doctrine will only apply if a paramount or general charitable intention can be found. That is not an intention to benefit a particular charitable purpose or a particular charitable institution, but rather an intention to benefit charity generally. And whilst it is not possible to lay down hard and fast rules as each case is decided on its facts, it is possible to make some observations and draw out some general principles.

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If a specific organisation or purpose is stated, then that is presumed to be what the donor intended and no wider than that. For example, in Re Rymer, the testator had made a gift of £5,000 to a seminary which had ceased to exist by the donor’s death. The gift failed. There was no general charitable intention to allow cy pres to attach to. It was to benefit a specific organisation.

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If the charity has never existed at all, then a general charitable intention can be inferred more easily. For example, in Re Harwood, a gift was made to the Peace Society of Belfast. This organisation had never existed. It could not be said, therefore, that the testatrix had a specific organisation in mind. The court held that there was an intention to promote peace societies, and the gift could be applied cy pres. There was also a gift in the will to the Wisbech Peace Society, which had existed but ceased to exist by the time of the testatrix’s death. That gift failed. It was to a specific institution and the judge said that it was difficult to find a general charitable intention in those circumstances. It therefore appears easier to find a general charitable intention where the organisation never existed than where it has and then ceases to exist by the time of the testator’s death.

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The court does not assume that, because the testator has made a number of gifts, that any others are necessarily charitable. In Re Jenkins the testator made a number of gifts to charities in his will. There was also a gift to the British union for the Abolition of Vivisection, a non-charitable body. The gift failed as a gift to a non-charitable purpose which is void. As Justice Berkeley said, “If you meet seven men with black hair and one with red hair, you are not entitled to say that here are eight men with black hair.” Finding one gift for a non-charitable purpose among a number of gifts for charitable purposes, the court cannot infer that the testator meant the non-charitable gift to take effect as a charitable gift when the terms are not charitable, even though the non-charitable gift may have a close relation to the purposes, for which the charitable gifts are made.

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This can be compared with Re Satterthwaite’s Will Trust, where the testatrix left her residuary estate to various animal charities taken from the telephone directory. Evidence showed that she hated the human race. One institution, the London Animal Hospital, never existed as a charity but was a vet carrying on under the name of the London Animal Hospital, and he claimed the cash. The court said that the testatrix clearly had no specific organisations in mind, but rather a general intention to benefit animal charities, not withstanding that one share was to a non-charity, and hence the court applied the gift cy pres. The gift was treat as to a non-existent charity, rather than to the claimant vet.