Public benefit's day in court - the Attorney General rules on the ISC case
October 2011
Today (14 October), the Upper Tribunal finally delivered its long-anticipated decision on the Independent Schools Council (“ISC”) case, in which the ISC challenged the Charity Commission’s approach to the assessment the extent to which fee-paying schools meet the requirement of public benefit
The judgment runs to 109 pages and 260 paragraphs, and will therefore need some time for all concerned to assimilate and absorb!
We must first say that we do not regard this judgment as a “victory for the ISC” in quite the way that some have already suggested. There is much in the judgment that supports the Charity Commission’s interpretation of the law and recognises the difficult role it was given by the Charities Act 2006 (“the Act”). However, it is clear that the Commission’s Guidance will need to be re-written and to be less prescriptive than has been the case – so it will no longer be a question of every school, irrespective of its size, location or activity, necessarily having to fund a certain level of bursaries.
Sadly, the decision does not deliver the absolute clarification of charity law that many, including we at Stone King, had hoped for. The Tribunal was at pains to emphasise that its decision will not please any of the parties. There can ultimately be no clarity on all the questions arising without a political conclusion to what is a political debate - namely, whether independent schools should have the benefit of the fiscal advantages available to charities, not whether they are, legally, charities.
Initially, many saw the ISC’s application for judicial review (and the simultaneous Reference by the Attorney General on related matters) as a welcome opportunity for the effect of the public benefit requirement introduced by the Charities Act 2006 to be clarified. Specifically, many had hoped that the uncertainty surrounding the approach taken by the Charity Commission to the public benefit requirements of independent schools would be resolved. In a long and controversial judgment, the Upper Tribunal has now given its views. Our initial thoughts are:
- The effect of the Act, and in particular the effect of the abolition of any presumption of public benefit in relation to any charity or charities and the introduction of the “public benefit test” under s.3 of the Act, is that independent schools and fee-charging charities still (and quite rightly in our view) have to meet the test of whether their activities benefit the public.
- The judgment endorses the Charity Commission’s view of the law, that a trust which wholly excludes “the poor” from benefit cannot be a charity. How exactly one defines “the poor” and how much benefit needs to be provided in order to demonstrate that is more than “tokenistic” is of course where the position becomes complex.
- The judgment clarifies that the test is whether a charity is “established” for charitable purposes, not what it does – therefore the consequence of a charity providing insufficient public benefit is a breach of trust by its trustees/governors, and not deregistration as a charity.
- Indeed, the judgment places great stress on the fact that it is the task of a charity’s trustees/governors, and not that of the Charity Commission or the court, to decide how their obligation to provide public benefit might best be fulfilled.
- Independent schools must demonstrate a wider public benefit by permitting access to their services beyond the narrow range of people who can afford their fees. It is a matter for the governors of individual independent schools to decide for themselves how to meet the public benefit requirement, as long as it gives more than a tokenistic benefit to “the poor”. There is no clear line which identifies what it is that trustees/governors must do, and the Tribunal acknowledges that it is simply not possible to provide the clarity in this connection which we know some schools have wished for.
- The Tribunal concluded that independent schools should be able to demonstrate public benefit through a variety of means – whilst bursaries clearly remain important, other activities, including the sharing of teachers, facilities and educational materials, will all be relevant. The Tribunal also noted that wider benefits such as relieving the State of its duty to educate pupils who attend independent schools, was not irrelevant, but no great weight could be accorded to this. Certainly an independent school seeking to rely solely on this would not satisfy the public benefit test. However, ancillary benefits provided by the charity to the wider community which are not for educational purposes should not, in the Tribunal’s view, be taken into account.
- The legal status of the public benefit guidance issued by the Charity Commission under s.4 of the Act is that it remains guidance, not a statement of the law, and that it was too restrictive. It is still the duty of school governors and other charity trustees to have regard to such guidance, under s.4(6) of the Act, but the guidance will have to be altered and the parties have been encouraged to agree what is required. In particular, the Tribunal says that it cannot be left to the Commission alone to correct the guidance.
- As a result of the Upper Tribunal’s decision, independent schools will still be required to demonstrate public benefit. However, the Commission was found to be in error in stating that the public benefit test was satisfied only if provision for “the poor” was “reasonable”.
- The Tribunal seems to have failed to take into account that many independent schools are established under the charitable purpose of the advancement of religion, whether or not under the purpose of the advancement of education, and that the potential benefit to such a school’s pupils, and others in the community which it serves, is necessarily wider.
- As well as the direct implications for independent schools set out above, the decision has substantial implications for other fee-charging charities on the extent to which they may now restrict charitable benefits to beneficiaries who may be unable to afford fees.
Next steps
The Charity Commission’s guidance must now be reviewed and amended in light of the Upper Tribunal’s criticisms.
The possibility of appeal
The Commission will doubtless now require time to properly consider how the decision has affected its relationship with independent schools, and the sector as a whole, as their regulator.
Author: Jonathan Burchfield
Jonathan Burchfield is a charity and education partner at Stone King LLP. He has specialised in charity law and practice since qualifying as a solicitor in 1978. Jonathan is a former deputy chairman of the Charity Law Association
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