Public Benefit Test Charity Law

Introduction

In Oppenheim v Tobacco Securities, a proposed trust for the education of children of employees or former employees of the British American Tobacco Company was to be set up but the court did not consider the proposed trust to be charitable because there was a personal link between the donor and beneficiaries. The question before the court was whether a group of persons defined by common employment could be regarded as a section of community so as to satisfy the test of public benefit. The court observed that the “group of persons may be numerous but, if the nexus between them is their personal relationship to a single propositus or to several propositi, they are neither the community nor a section of the community for charitable purposes.” The court took exception to the personal link between the donor and beneficiaries and held that if there is such a personal nexus, then the trust cannot be charitable. This is not surprising considering that the test of public benefit was evolved in common law at the time demanded that the organisation’s purposes must be beneficial in a way regarded as charitable by the law, and also that the purposes be of a public character. Thus, in order to test whether the trust satisfied the public benefit test or not, reference must be made to the notion of charitable in law as well as the public character of the trust.

In this essay, the statement from the judgment of Lord Simonds is discussed in relation to the public benefit test. The essay will first briefly discuss the public benefit test before analysing how the statement by Lord Simonds relates to the test.

The Public Benefit test within the ambit of Charity Law

It is important to note at the outset that the term charitable is to be interpreted not in the popular sense but in the technical and legal sense. In Morice v Bishop of Durham, the court has noted that charitable status is strictly a matter of law and this is something that cannot be ascertained by reference to the ordinary meaning of the term. In the technical sense, the term charitable is not related to a purpose only because it is of benefit to some section of public, but because it satisfies some elements contained in the definition of ‘charitable’. These elements in the traditional sense have been the beneficial purpose of the charity and the public character of the charity.

Thus, in Verge v Somerville, even though the charity was for the benefit of soldiers, the court denied charitable status because there was a personal nexus. Unless the possible beneficiaries constitute a section of public, they will not be able to save the trust as a charitable trust as held in Oppenheim v Tobacco Securities, where Lord Simonds clarified that to constitute a section of the public, the “proposed beneficiaries must not be numerically negligible and secondly, the quality which distinguishes them from other members of the community so that they form by themselves a section of it must be a quality which does not depend on their relationship to a particular individual.”

The Charities Act 2006 does not detract from the technical and legal interpretation of charitable as provided in the common law. The public benefit test within the ambit of Charity Law emphasises on the public benefit that the charitable organisation exists to serve. To put it simply, the public benefit test asks that in order to enjoy the benefits that are associated with charitable status, an organisation must exist for a purpose that is beneficial to the community, and must have one of the purposes that are provided in the Charities Act 2006, which may be relief of poverty, or advancement of education, religion, public health, community interests, to name a few. The Charities Act 2006, deals with the public benefit requirement in Sections 1 to 5 of the Act. Section 1 of the Charities Act 2006 provides that in order for an organisation to be categorised as a charity, its purposes must be charitable. Whether the purposes are charitable or not can be assessed on the basis of the two strand test provided in Section 2(1) of the Charities Act 2006, which are, firstly that the charity must have a purpose listed in Section 2(2) and, secondly, that the charity is for a public benefit. Section 3(1) specifically provides that in order for it to be charitable, the purpose “must be for the public benefit.” However, just because the charity is for the purpose provided there is no presumption that the description is for public benefit. Section 3(3) of the Act states that “reference to the public benefit is reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales”. This is the way of preserving common law and how public benefit has come to be defined as understood in the common law. One implication of this provision is the restrictive elements of the common law for the description of public benefit.

This has particular relevance to the decision of the court in Oppenheim v Tobacco Securities, wherein the court decided that even if the organisation had wider benefits, other than the purpose for which it was to be established, the wider benefits will not be taken into consideration for assessing whether the organisation met the public benefit test. It may be noted that the Charities Act 2006 puts public benefit at the centre of definition of a charity and the emphasis here is not that the charity should provide public benefit, but that its purposes be for public benefit. In Oppenheim, the court had to consider whether the purposes of the trust were charitable or not and came to the conclusion that even if the purpose was to provide benefit of a nature that was generally regarded as charitable, the trust could not be considered charitable because it was directed at persons joined by personal nexus, that is, children of the employees and not at the wider public. This does not mean that advancement of education is not a public benefit purpose, but that when the advancement of education is only for a specific group of people bound by personal nexus, then the trust is deprived of public character and therefore, its charitable status.

In the statement by Lord Simonds in Oppenheim, it is the public character of the charity which is emphasised on and as the proposed trust was made for the employees of the donor, therefore the personal nexus deprived the public character of the trust. This approach has found support in other cases as well. In Neville Estates Ltd v Madden, the trust was formed for members of the Catford Synagogue, but they were treated as an appreciable section of the public and were therefore held to satisfy the public character component of the public benefit test because they were integrated in the society. The numerical negligibility principle which Lord Simonds had applied in Oppenheim has been applied in other cases as well to ascertain whether the proposed charity satisfied the public benefit test or not. In Gilmour v Coats, wherein a gift to 20 cloistered nuns was made, was declared to not satisfy the public benefit test as the public character was missing. Numerical negligibility principle was also applied recently in Re Duffy, where a staff and residents (numbering 73) of a residential home, were given a gift under a proposed charitable trust, which failed on construction. The difference between the decisions in Gilmour v Coats, and Re Duffy, on one hand, and Neville Estates Ltd v Madden, on the other hand has been noted to be that in the former cases the beneficiaries were secluded from the world, while in the latter the beneficiaries were integrated in the wider society. However, on closer scrutiny it does not seem to be reasonable that gifts should succeed to a group of people, even though it is not for the wider public benefit simply because the beneficiaries are integrated into the society, whereas in the case of beneficiaries leading a secluded life, such benefits are denied.

The caselaw proves to be varied on public benefit test, which shows that for the most part, whether the charity is for public benefit or not is a matter for the courts to ascertain. For instance, in Re Lewis, charitable gift was allowed to 10 blind boys and 10 blind girls in Tottenham; but failed in Williams Trustees v IRC, where the gift was for the promotion of Welsh culture. Similarly, whereas the personal nexus does not allow charitable trusts to succeed, in some cases courts have allowed personal nexus test to be bypassed. Therefore, personal nexus test differs in charities set up for the relief of poverty.

Trusts for the relief of poverty enjoys a presumption of public benefit, unlike other purposes which do not enjoy any such presumption and it has to be proved that there is a public benefit. Not only that, trusts for the relief of poverty also are exempted from the general rule that there should not be a personal connection between the intended beneficiaries. Poor relations trusts principle was established in Re Scarisbrick, in which the court had held that if the class of poor relations was not closed at the time of the death of the testatrix and that any number of such beneficiaries could be ascertained after the death, then the trust would not fail as a charitable trust. The same principle was followed in Re Segelman,wherein the court allowed the charitable trust to pass where it was made for poor and needy relations not completely ascertained at the time of the death of the donor. In Dingle v Turner, the same line of reasoning was followed. The passage of Charities Act 2006 and its successor in 2011, does not seem to have changed the position of law in this regard as seen by the decision of the Upper Tribunal in Attorney General v Charity Commissioner, where a trust for relief of poverty was held to not be invalidated by personal nexus. Continue your exploration of Common Law with our related content.

Conclusion

The public benefit test is the definitive test for charitable trust, which ascertains whether the proposed charity is charitable in technical and legal sense. As seen in a number of cases, the public benefit test does not allow trusts that are made under a personal nexus, barring those trusts that are made for relief of poverty. Legislation seems to have followed the common law as Charities Act 2006 specifically refers to the term public benefit in the same sense as it has been understood, thereby giving in to the established notions of public benefit test.

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Table of Cases

• Attorney General v Charity Commissioner [2012] WTLR 977.
• Dingle v Turner [1972] AC 601.
• Gilmour v Coats [1949] 1 All ER 848.
• Morice v Bishop of Durham [1805] EWHC Ch J80.
• Neville Estates Ltd v Madden [1962] 1 Ch 832.
• Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297.
• Re Duffy [2013] EWHC 2395.
• Re Lewis [1954] 3 All ER 257.
• Re Scarisbrick [1951] Ch 622, CA.
• Re Segelman [1996] 2 WLR 173.
• Verge v Somerville [1924] AC 496.
• Williams Trustees v IRC [1947] AC 447 (HL) 455.

Books

• Synge M, The New Public Benefits Requirement: Making Sense of the Charity Law (Bloomsbury 2015).
• Harding M, Charity Law and the Liberal State (Cambridge University Press 2014).
• Morgan GG, ‘Public benefit and charitable status: assessing a 20-year process of reforming the primary legal framework for voluntary activity in the UK’ (2012) 3(1) Voluntary Sector Review 67.