The Upper Tribunal of the United Kingdom Tax and Chancery Chamber recently released its decision in The Independent Schools Council v. The Charity Commission for England and Wales. The decision ordered corrections to certain published policy directions issued by the Charity Commission for England and Wales (the “Commission”), particularly with respect to the Commission’s interpretation and test for “public benefit” in the context of charities that charge fees for their services. Although the decision focussed on the definition of “public benefit” in the U.K. Charities Act 2006, the decision is nonetheless relevant to Canadian charities, particularly given that the statutory definition of “public benefit” in the U.K. is based largely on the common law.
The Independent Schools Council (the “ISC”) is an umbrella organization for 1,270 U.K. independent schools, 980 of which operate as charities. The ISC sought an order to quash parts of the Commission’s Guidance on the interpretation of the public benefit requirement under the Charities Act (this Guidance would be similar to an Interpretation Bulletin or Information Circular issued by the Canada Revenue Agency). The ISC argued that the Guidance included errors of law with respect to the public benefit requirement, particularly with respect to the requirements in the Guidance that:
- where a benefit is to a section of the public, the opportunity to benefit must not be restricted by the ability to pay any fees charged; and
- people in poverty must not be excluded from the opportunity to benefit.
Following the release of the Guidance, the Commission assessed five independent schools. Pursuant to its assessments, the Commission determined that the fees charged by these schools were unreasonably high and not in keeping with the public benefit test under the Charities Act and the Guidance. It was the Commission’s view that the benefit of education was being restricted by the ability of the students to pay and by the fees that were charged by independent schools. Accordingly, people in poverty were, effectively, excluded from the opportunity to benefit from these charities’ activities.
The ISC argued that the prescriptive elements in the Guidance – and particularly those requiring minimal levels of provision for those who could not afford the fees – unreasonably interfered with trustees’ discretion to carry out a charity’s objects, and failed to distinguish between a charity’s objects and the activities carried out in pursuit of those objects. It also argued that it was unclear as to what level of provisions (such as bursaries, for example) would satisfy the public benefit requirement under the Commission’s interpretation.
The Tribunal extensively reviewed the U.K. common law regarding the concept of “public benefit”, noting that the definition of “public benefit” under the Charities Act 2006 essentially adopts the common law on this issue. It stated that, at common law, a purpose will only be charitable if it meets two aspects of a public benefit test: the nature of the purpose itself must be such as to benefit the community (e.g., education), and the benefit must be conferred on a sufficiently large section of the public. In the context of fee-charging schools, it was the second aspect of the public benefit definition on which the case focussed.
The Tribunal held that private schools that are run as charities cannot be exclusively restricted to those who are able to afford to pay full fees. Adequate provisions need to be made for the poor (or those who cannot afford the fees) that are greater than de minimis. However, the Tribunal held that it was entirely within the trustees’ discretion to determine what provisions should be made to ensure this. In the context of private schools, these provisions do not need to be restricted to bursaries or scholarships to students otherwise unable to pay the fees. The requirements could be met, for example, through the sharing of school resources or education facilities with other students. The Tribunal confirmed that the proper approach is a fact-specific analysis of what a trustee, acting in the interests of the community as a whole and the particular circumstances of the charity, should do to meet the public benefit requirement.
The Tribunal noted that the nature of this approach made it impossible to be prescriptive about the nature of the benefits that must be provided to the poor or the extent of them. It is up to the trustees to make these determinations. The Tribunal specifically stated that there is no legal requirement that the trustees act in accordance with what the Commission or anyone else would consider “reasonable” but rather in accordance with their own considered assessment of the circumstances pertaining to the charity.
The Tribunal also confirmed that the provision of education to paying students is a public benefit, notwithstanding the fact that tuition fees were charged. In this regard, the Tribunal held that “public benefit” was to be broadly interpreted. Further, it held that it was not up to Tribunals to enter into political debates regarding the provision of private education to paying students versus public education to the general public.
Implications for Canadian Charities
The decision in Independent Schools Council is significant to Canadian charities in affirming the level of independence with which trustees and directors should be provided when it comes to running their charities. While the decision is not directly applicable in Canada, its summary of the U.K. common law (from which Canadian charity law in part derives) is helpful in affirming the need for trustees to have discretion to determine what steps are appropriate for their charities to ensure that the public benefit requirement is met.
The decision does not suggest that charities have “carte blanche” to charge fees for services without remaining cognizant of and meeting the need to benefit a wider segment of the public than those individuals who can afford the fees. The Tribunal was clear that “poor” does not exclusively mean “destitute” and that charities need to maintain a measured and balanced approach when charging fees in order to ensure that their activities remain within and continue to meet the “public benefit” test. Although the Tribunal left it to trustees’ and directors’ discretion as to how a charity would balance and measure its activities in order to remain within the meaning of public benefit, the circumstances of every case will be different.