Update: charity law

Catholic Care

In April, the First-tier Tribunal (Charity) dismissed the latest appeal by the adoption agency Catholic Care [2011] CA/2010/000. It was trying to overturn the second decision of the Charity Commission, delivered in July last year, to refuse permission for the charity to change its objects to allow discrimination in favour of a heterosexual couple, which would have permitted it to refuse to offer adoption services to same-sex couples.

Catholic Care argued that the less favourable treatment it proposed to offer same-sex couples constituted a proportionate means of achieving a legitimate aim, which is the requirement of section 193 of the Equality Act 2010. The arguments advanced included the notion that the legitimate aim that it was pursuing was the prospect of increasing the number of children placed with adoptive families.

The charity also claimed that the discrimination proposed was proportionate to the achievement of this legitimate aim because, while the discrimination would take the form of a denial of the charity's adoption services to same-sex couples, such services would be available to them via other adoption agencies. Unless the discrimination was allowed the charity said it would no longer be able raise funds from its supporters which would result in a loss in the provision of adoption services.

The tribunal unanimously dismissed the appeal. It found that while the charity's aim was, in principle, a legitimate aim for the purposes of section 193 of the Act, the charity's evidence that it would achieve this aim by the proposed method and that this method was a proportionate means of achieving its aim was rejected. The charity has applied for leave to appeal against the decision to the Upper Tribunal. If leave to appeal is granted, it will be the charity's fourth appeal.

In deciding whether to appeal a judgment, trustees must consider carefully whether pursuing a matter further is justifiable in terms of use of the charity's resources in the best interests of the charity and its beneficiaries. In its judgment, the tribunal referred to the public sector equality duty (which has since come into force), which imposes a duty on public bodies to pay due regard to the need to eliminate unlawful discrimination and to promote equality of opportunity.

While not relevant to its decision, the tribunal stated that even if the charity was permitted to discriminate in reliance upon section 139 of the Equality Act 2010, the duty is likely to impact, in due course, on the willingness of local authorities to work with a charity which discriminated on the grounds of sexual orientation in respect of adoption placements.

Contested legacies

Last year, this round-up considered the case of RSPCA v Gill. Following this ruling, in which the Court of Appeal ruled against the RSPCA, there has been a further case of note, again involving the RSPCA, and a recent development that has once again led to extensive media coverage and debate surrounding charities entering into litigation to protect legacies.

In RSPCA v Sharp [2010] EWCA Civ 1474, the issue was that there were two ways in which the deceased's will could be interpreted. The executors interpreted it in such a way as to increase the amount of a cash gift which would be received by themselves and the testator's brother, thus decreasing the amount in residue for the charity and causing inheritance tax to be payable on the estate.

The charity disagreed, arguing that the will should be read as a whole and that the testator had intended to make a tax efficient disposal of his estate. That would mean that the nil-rate band pecuniary legacy to the executor and the testator's brother would be reduced, that no IHT would then be payable on the estate, and the gift of residue to the charity thereby increased.

The Court of Appeal decided in favour of the RSPCA's interpretation. This case could have been avoided had the will stated more clearly whether or not the value of the property should count towards the nil-rate band allocation. Individuals (and their legal advisers) leaving gifts in their will should ensure that the terms of all gifts are unequivocal so as to avoid the possibility of a later dispute.

Charity trustees have a duty to act solely in the best (financial) interests of the charity's objects. Cases like this one illustrate how difficult the decision can be to enter into litigation to protect legacy income. However, before going to court, charity trustees should always consider three points: the likely success of their case; the risk of adverse publicity from the case; and the potential costs of the case.

Equally, such trustees must not simply give up and settle out of court at the first hint of negative publicity. Publicity can work both ways: perhaps equally damaging could be a perception that trustees have been too weak in protecting the charity's assets. Furthermore, settling cases that have no real legal grounds could be interpreted as an 'ex gratia' payment, falling outside the charity's objects and requiring a specific order from the commission.

At first instance, the trial judge had made an award of indemnity costs against the RSPCA, which implied that the charity had acted improperly in bringing the case. The Court of Appeal stated that it would have reversed the order, even had it been found that the first instance judge had reached the same conclusion on the interpretation of the will.

Helpfully, the judgment made it clear that charities benefiting under a will have the same rights to promote or defend their interests under the will as any other beneficiary and they should not be criticised unjustly, or penalised on costs, for doing so.

The case of Illot v Mitson [2011] EWCA Civ 346 involved a claim under the Inheritance (Provision for Family and Dependants) Act 1975. Mrs Ilott has overturned an earlier decision of the High Court that the testatrix's will could reasonably make no financial provision for her estranged adult daughter, instead leaving her entire estate to charity. The testatrix chose to exclude her daughter from the will and stated: 'If my daughter should bring a claim against my estate I instruct my executors to defend such a claim as I can see no reason why my daughter should benefit in any way from my estate.'

Despite these clear instructions, the court has allowed the daughter to continue her claim on the basis that she is an 'adult child in financial need' under the provisions of the Act. The decision emphasises the need to take all the factors set out in section 3 of the Act into account when deciding whether the financial provision for a claimant under the Act is unreasonable.

Housing association's £6m tax bill

A housing association, Helena Housing Limited (HHL), has lost its appeal against the decision of the First-tier Tribunal (Tax)'s decision that it was not entitled to corporation tax relief on rental income. It is thought that the case was the first time the Upper Tribunal (Tax and Chancery) has considered a charity law case. The tribunal held that HHL was not a charity when it was in receipt of the rental income in question because the wording of HHL's objects permitted it to carry out activities which were neither charitable in themselves nor ancillary to a main object which was charitable.

The case highlights that, while an organisation is capable of being charitable in law even when it is not registered with the Charity Commission (because it is established for exclusively charitable purposes and satisfies the public benefit requirement), organisations and legal advisers should be aware that there is no guarantee that tax reliefs will be granted for the period between the organisation being established and any subsequent registration.

Another significant risk is that the commission often asks for objects to be amended when an application is being considered. While organisations and their legal advisers can ask for applications to be considered urgently by the commission, legal advisers should advise clients that registration cannot be guaranteed and that there are risks involved in operating without the comfort of registration.

Voluntary discrimination

The question of whether volunteers should be covered by discrimination law has been the subject of much debate over the years. In January, the Court of Appeal held in the case of X v Mid Sussex Citizens Advice Bureau [2011] EWCA Civ 28 that an unpaid volunteer who undertook a wide range of advice work at a Citizens Advice Bureau (CAB), but did not have a contract to personally undertake work for it, was not entitled to protection against discrimination under the Disability Discrimination Act 1995 and the Equal Treatment Framework Directive (2000/78/EC). The same principles would apply under the Equality Act 2010.

X worked a few hours per week as a volunteer adviser for the CAB. While she signed a contract, it was clear from the contract that there was no intention to create an employment relationship between the two parties or otherwise be legally binding. In addition, X never contended that she was an employee. The volunteer disclosed to her manager that she had a disability (she was HIV positive). She was immediately informed that her services as a volunteer were no longer required. X brought a discrimination claim on the grounds that she had been discriminated against on the grounds of her disability.

X argued that she was protected by the provisions of Council Directive 2000/78/EC establishing a general framework for equal treatment in employment and occupation. It was argued that domestic law had not correctly implemented the provisions of the directive. The court held that the directive did not apply to volunteers and rejected her argument that her work for the CAB was an 'occupation' for the purposes of the directive. The court said that it was inconceivable that a draftsman would have intended such a large and important area of activity to be covered without expressly saying so and without carefully defining its scope. Although the court held that this volunteer was not covered by discrim-ination law, it is clear that there will be some limited situations where what appears to be a voluntary arrangement will be covered by discrimination law. Volunteers found to have a contract to provide services will be protected. The court will look at the wording of any agreement and the intentions behind that agreement. Charities should note that a volunteer does not need to be paid for a contract for services to arise.

Although discrimination in employment should not be overlooked, for most charities the most significant impact of discrimination legislation, and the Equality Act 2010 in particular, remains in service delivery, where discrimination against a beneficiary, for example, on the grounds of HIV infection would, of course, be very likely to be discriminatory.

Limited jurisdiction

In November 2010, the First-Tier Tribunal (Charity) struck out another appeal by an unrepresented appellant pursuant to rule 8(2) of the Tribunal Procedure (First-tier Tribunal) (General Regulatory Chamber) Rules 2009 on the grounds that it did not have jurisdiction to hear it.

This case, Reverend Sophie Wahab v Charity Commission for England and Wales CA/2010/0009, joins a number of other cases including Professor Leon Poller v Charity Commission, First-tier Tribunal (Charity), 4 June 2010, and Morris and another v Charity Commission, highlighting the limitation of the tribunal's jurisdiction to appeal and review certain of the decisions of the Charity Commission.

Legal advisers of persons wishing to appeal a decision or act of the Charity Commission should check schedule 1C and 1D of the Charities Act 1993 carefully to ensure that the act or decision in question is one that can be challenged in the tribunal. In an earlier case, Alison McKenna, the principal judge of the tribunal, said in the judgment: 'The tribunal does not have an inherent supervisory jurisdiction in relation to charities and therefore has no power to hear appeals in the absence of a specified decision, order or direction being found to have been made by [the commission].'

Upcoming cases

By the time this review goes to print, the Independent Schools Council's application for judicial review will have been heard, together with the Attorney General's reference on related points of law. The decision of the tribunal is keenly awaited.

The implications of this case will have an impact not only on independent schools but also on the wider fee-charging charity sector and charities generally, because the case will be one of the first to assess the impact of the Charities Act 2006 and the meaning of 'public benefit'. It is hoped that greater clarity will be achieved as to the types of benefits, both direct and indirect, that can count towards meeting the public benefit requirement.

In January, the Attorney General lodged a reference to the Charity Tribunal to determine whether trusts with a restricted pool of beneficiaries, defined by a relationship to an individual or a company and established for the purpose of relieving poverty, satisfy the test of public benefit following the implementation of the Charities Act 2006.

The reference is likely to be heard in September or October this year. The main purpose of the reference is to address current uncertainty about whether such charities meet the public benefit requirement. In this case, unlike the ISC one, the commission itself invited the Attorney General to make the reference, recognising that the Charities Act 2006 may have changed the law so far as these charities are concerned.

The outcome will affect a large number of organisations currently registered as charities whose purposes are for the relief of poverty with a restricted pool of beneficiaries such as a large number of Masonic charities, employee benevolent funds, charities for the relief of poverty among past or present pupils of named schools and among residents of certain care homes. The tribunal system, which allows charities to be joined as parties to cases and allows them to provide evidence that the tribunal must consider when reaching a verdict, has seen 39 benevolent fund charities applying to become joined as parties.

This may cause a dilemma for the tribunal as it considers whether to permit them to be joined. Refusing the charities an opportunity to address the hearing orally may assist the hearing logistically, but could also strengthen the charities' case if the final verdict goes against them and they wish to appeal.

The outcome of these upcoming cases will be hugely significant for charities and their legal advisers.