New ingredient

The Charity Commission is a statutory non-ministerial regulatory body, charged with the administration of charities in accordance with existing law.

For any voluntary organisation, charitable status is not only a major fundraising necessity, but also results in no tax being levied on the organisation's assets or income. Such organisations will usually cease to exist if they lose, or fail to prove their charitable status to the charity commission's satisfaction. To do so, an organisation's purpose must be charitable within the list of charitable purposes in the Charities Act 2006, and this purpose must be proven to benefit the public.

But, while the Act places a duty on the Charity Commission to publish guidance on how this public benefit requirement operates, it does not define what the requirement entails, other than to state it be interpreted, 'as that term is understood for the purposes of the law relating to charities'.

Such an omission operationally allows the commission law-making powers, enabling them to legalise their interpretation of public benefit at common law, and then use it to judge whether any particular organisation has satisfied this requirement, which the commission itself defines under its guidance duties.

Not only has the commission's interpretation been recently criticised as 'vague and uncertain', it is applied on an 'ad hoc' basis. The commission is also the first, and main, reviewer of its own decisions, and, as appeals are complex and expensive, few organisations feel able to effectively challenge the commission's decisions. In addition, it also determines whether an organisation's purpose is charitable under the 12 purposes outlined, but not defined, by the Act.

Impossible challenges

In 1998, just after the Labour government was established, and long before the Act was passed, the commission announced its intention to use its quasi-judicial powers. In its publication entitled Review of the Register, the commission stated its review of the charities register would be 'characterised by the use of our powers to apply and interpret the law in a way which fully recognises that what is legally charitable may change following trends in social and economic circumstances'.

Full Fact, an organisation that checks the accuracy of politicians' and journalists' statements, lost its appeal against the commission's decision refusing to register it as a charitable organisation, despite being held capable of being charitable. The commission did not want to create a precedent that would allow organisations 'that purport to advance correct information or the truth on any political issue from claiming charitable status'. Why not? Only campaigning or political charities per se are not charitable.

Catholic Women's Ordination abandoned its appeal when it found it impossible to respond to the huge reams of material submitted by the commission.

Such absolute control over institutions, so crucial to our social, cultural and educational well-being, can only encourage abuse of power and political interference.

Worse still, these crucial decisions are made without any separation of legislative and judicial powers, or any effective independent review, in breach of natural justice, without democratic mandate, and, it appears, if not declaratory of existing law, illegally.

By contrast, before the Charities Act 2006, a charity, as a largely common law creation, was valid until proven not to be in a court of law; registration with the Charity Commission was not compulsory, and did not affect a charity's validity.

The appeal process against Charity Commission decisions is, as those of administrative bodies, regulated under the Tribunals, Courts and Enforcement Act 2007. This process impedes the voluntary sector's access to our full judicial system and fails to allow the rigorous, uniform application of charity law. Hence the recent need for the Independent Schools Council's judicial review and the related Attorney General's reference.

Limited opposition

Sadly, no David is able to take on the Charity Commission Goliath. Challenge is restricted to cash heavyweights like the Catholic Church and the Independent Schools Council.

Catholic Care, the last survivor of 11 catholic adoption agencies, is able to continue its three-year fight for survival as it is supported by the Catholic Church.

The commission would not allow Catholic Care to change its objects to limit its adoption services to heterosexual couples, as allowed by the Equality Act (Sexual Orientation) Regulations 2007. The Charity Tribunal rejected its appeal; the High Court ordered the commission to reconsider its decision, but it still refused to allow Catholic Care to amend its objects.

The Charity Tribunal agreed with the commission, refusing leave to appeal on the administrative basis that Catholic Care had not shown the tribunal's findings of fact could not reasonably be supported.

At a time when adoptive families are desperately needed, and adoption is being publicly promoted, Catholic Care's hard-won reputation, contacts and skill for placing hard to adopt children will be lost forever, simply because they wanted to retain the choice not to place a child with a hypothetical, technically impossible to exist, homosexual practising catholic couple.

Since the Act, not only has the private education sector had to cope with the commission demanding they award more bursaries '“ without increasing fees to satisfy the public benefit requirement '“ but also a recession.

In 2009 the Association of Teachers and Lecturers reported that a private school was forced to close every fortnight, some at very short notice, without any regard to the serious disruption to so many children's education, and to social and family life.

Illegal demands?

So, were the commission's demands, which caused the loss of these schools forever, legal? The so-called 'public benefit' requirement evolved because altruism and philanthropy are the bases of a charitable purpose, which therefore intrinsically excluded any private purpose.

As a school advances education, its purpose is prima facie charitable unless that purpose is limited by a nexus between those able to benefit from that education '“ for example 'a school for my family', or 'children of companies' employees'. This would then effectively be for the private purposes of the trustee. Such purposes positively exclude the general public, and would therefore not be altruistic, breaching the main tenet of a charitable purpose.

The common law clearly states that if there is no such link between beneficiaries, and their number is not numerically negligible, the provision of such education would be charitable. This test has not been changed by the Charities Act, except insofar as it must now be expressly proven.

However, the Charity Commission's interpretation of public benefit is much wider, relying mainly on the precedent of Re Resch, which held that a fee-paying hospital could be charitable if it were shown that its fees did not exclude an appreciably important class of the community; that is, those who could not afford to pay them. This made the level of fee relevant in determining the extent of the exclusion, and, if this resulted in an appreciably important class of the community, the fee-paying establishment could not

be a charity. This interpretation of public benefit, as held in Verge v Somerville [1924] AC 496, has now been confirmed in the Upper Tribunal's ruling in Independent Schools Council v Charity Commission [2011] UKUT 421 (the ISC appeal). But, at common law, the satisfaction of this wider test was only needed where charitable status was being claimed on the ground that the purpose of the organisation benefited the public or community per se.

Public benefit at common law was never a legally distinct requirement, but rather part of proving an institution's purpose was charitable.

Even if the Charity Commission test is a valid interpretation of existing common law, as the Upper Tribunal has ruled in the ISC appeal, if a school benefits an appreciably large part of the community, it will benefit the public. To do so it must prove that the fee-paying members of our community are an 'appreciably large part of our community'. It appears that fee payers are a large enough part of our community to warrant appreciation, as, despite the recession, fee-paying schools are still a popular choice.

The Upper Tribunal's ruling still approves the Charity Commission's 'fact-sensitive' assessment of public benefit. At the same time it states that the commission should not be prescriptive, as 'there is no clear line which identifies what it is that trustees have to do'.

This is clearly a recipe for uncertainty, and distorts the legal meaning of public benefit, which flows from a charity's purpose, rather than its activities. It also still allows the Charity Commission a degree of macro-management of the trustees' administration, which is statutorily prohibited under section 7 of the Act.

Charity law on public benefit, as it relates to fee-paying schools, was and still is reasonably clear and workable despite the new provisions in the Act. But attempts by the Charity Commission to promote a policy initiated under the previous government have resulted in the unclear and uncertain subjective quandary which appears now to be the law, as illustrated by the Upper Tribunal's recent ruling.

This is positive proof that the rule of law should always be respected, and the arms of the state not allowed to create new law on the back of government policy.