Link: Case Summary Document
Citation: First Tier General Regulatory Chamber (Charity) Hinchcliffe J Kahn Duggal (members)
Acknowledgement:The Pemsel Case Foundation thanks The Australian Centre for Philanthropy and Nonprofit Studies for its contribution in the drafting of this Case Note.
This was a preliminary decision as part of an appeal from a decision of the Charity Commission for England and Wales (the Commission) to the First Tier Tribunal (Charity) (the Tribunal). The question before the Tribunal was whether a scheme (the Scheme) established by the Commission on 11 November 2011 to govern the charities formerly known as The Lytham Schools and King Edward VII and Queen Mary School Prize Fund was valid.
The Tribunal held that the circumstances set out in section 13(1)(c) of the Charities Act 2006 (UK) (the Act) existed in respect of the property of The Lytham Schools at the time that the Scheme of 11 November 2011 was ordered. The Tribunal also held that the terms of the Scheme created unnecessary risks and restrictions with regard to the effective use of the property of the charity.
The Scheme was established under the power given to the Commission under sections 13 and 16 of the Charities Act 1993. The Scheme merged the two charities formerly known as The Lytham Schools (TLS) and King Edward VII and Queen Mary School Prize Fund into a charity called The Lytham Schools Foundation. The objects of the new charity were:
…for the public benefit to advance education in or near Lytham St Ann’s [sic] including by, but not limited to, the provision of land, buildings and other facilities for the purposes of a school or schools and the provision of means-tested bursaries and other financial awards to children and young people in need of financial assistance for the purpose of assisting with the cost of their education (including extra-curricular activities undertaken for educational purposes).
On 9 December 2011 the appellants submitted a notice of appeal in respect of the decision of the Commission that established the Scheme. The appellants acted as representatives of a group of parents of pupils attending the King Edward and Queen Mary School in Lytham St Annes (KEQMS). The grounds of appeal were that the Commission had incorrectly made the Scheme, and had not properly taken into account various factors which militated against the Scheme.
The respondent Trustee was established under the Scheme, and the third respondent the United Church Schools Trust (UCST) had the right under the scheme to the use of land and buildings formerly occupied by the KEQMS. The objects of the UCST are:
…to provide in England and Wales, by the establishment and maintenance of schools, a liberal, practical, and general education for children and adults of all ages and both sexes, such education to include religious instruction in the doctrine and duty of Christianity principally as the same are taught by the Church of England, and otherwise to promote the establishment and maintenance of schools conducted, or to be conducted, by any charitable institution.
Prior to the Scheme the TLS had always provided funds for the education of children in or around Lytham St Anne’s whose parents could not afford to pay for the education of their children. The TLS had established the KEQMS with means-tested bursaries available for children attending the school.
The UCST operated a school called the Arnold School about 4 miles from KEQMS. During the course of 2011, negotiations took place between TLS and the UCST regarding the possible merger of KEQMS and the Arnold School. The TLS had substantial assets, but pupil numbers were low and falling. The outcome of the negotiations was that a transfer and lease of land and buildings belonging to KEQMS was made to the UCST.
Section 13 of the Charities Act 1993 dealt with the application of property of charities in a cy-près scheme. The appellants took exception to the Scheme on the basis that the KEQMS and UCST did not have similar aims. Moreover, the lease was for 999 years which they felt was excessive, and illustrative of the inadequacy of the process which led to the merger of the charities and the Scheme.
The Commission submitted that section 13(1)(c) applied where there was a cy-près occasion in which two or more items of charity property held for similar purposes could be used more effectively for a common purpose. The Commission was of the view that charity law seeks to encourage the merger of charities in order to increase the efficiency of the sector. The Commission argued that sections of the Charities Act 2011 are evidence of this underlying intention: see sections 14, 267–274 and 305–314.
The Commission stated that the charitable purposes of TLS and UCST were similar, but not identical, and that the property of TLS and UCST could be used more effectively in conjunction with each other. The running of the two schools on one site could reasonably be expected to result in economies of scale and a saving in administrative costs. The sale of the Arnold School site would free up substantial sums for charitable educational purposes. The Commission argued that the ‘spirit of the gift’ in respect of TLS was the provision of schooling for children (including schooling in accordance with Christian doctrine) in the Lytham area. The economic and social circumstances that were relevant were primarily those relating to the current and future demand for private education in the Lytham area. The common purpose to be pursued by the new charity and UCST is the use of the KEQMS site as a school. Overall, the Commission regarded the common purpose of the Charity and UCST in providing and operating the merged school as being virtually identical to the original purpose of TLS and falling squarely within the ‘sprit of the gift’ of TLS and being suitable having regard to the prevailing social and economic circumstances.
To determine whether the circumstances existed which were provided for in section 13 of the Act, the Tribunal considered it necessary to form a view on the following matters:
- Whether the charitable assets employed in KEQMS and the Arnold School were being applied for similar purposes?
- What was meant by the ‘spirit of the gift’ in relation to the new charity?
- What were the social and economic circumstances prevailing at the time of the Scheme?
- Whether the site and the undertaking of KEQMS are capable of being used more effectively in conjunction with the Arnold School for a common purpose?
The Tribunal’s findings on each were:
- The Tribunal took the view that the purposes of the two merged charities were similar, though not exactly identical. They accepted the Commission’s submission that section 13 of the Act did not mean that the purposes had to be identical, and held that the purposes of the two charities were sufficiently similar (at [8.2.3]).
- As to section 13’s requirement of a consideration of the ‘spirit of the gift’, the Tribunal could discern no difference between the parties on the issue. The spirit of the gift was accepted as being the provision of education for poor children in the Lytham area (at [8.3.2]).
- The Tribunal took a broad view of the social and economic circumstances which were relevant to the Scheme. In particular, the Tribunal noted that circumstances were now very different from those which pertained when the original gifts were first made. The most notable change was the provision of universal free education in Britain. In addition, there was a surplus of places in fee-paying schools in the area served by the two schools, which was a relevant factor (at [8.4.1]–[8.4.2])
- The Tribunal concluded that the property used by the TLS to operate the KEQMS could be used more effectively by combining resources with the Arnold school for the common purpose of providing a merged secondary school in Lytham St Annes. The Tribunal said (at [8.5.3]) that:
This use was capable of increasing the effectiveness of the [new charity] in advancing education for the public benefit in the area over the longer term, both through the activities of the new merged school and through the increase in charitable funds available for other purposes that could advance education in the area.
Therefore, section 13 applied in this situation to make the Scheme permissible. The Tribunal then looked at the factors favouring the Scheme, as well as those which were not in its favour and those which were neutral. The overall conclusion of the Tribunal was that, on balance, the factors that would cause the property of TLS and UCST affected by the Scheme to be used more effectively in conjunction with each other, regard being had to the ‘appropriate considerations’, outweighed the factors that would cause such use to be less effective.
However, the Tribunal was concerned that the terms of the Scheme created unnecessary, and possibly unintended risks and restrictions that reduced the likelihood of the property of the new charity being applied more effectively in achieving its charitable purpose. In addition, there were concerns about the process employed by the Commission. The Tribunal stated (at ) that:
The Tribunal’s decision in relation to the Preliminary Issue is that the circumstances provided for in s. 13(1)(c) of the Charities Act 1993 did exist at the time that the Scheme was established by the Commission. However, the Tribunal finds that the terms of the Scheme and the manner in which the Charity and UCST had already agreed to implement it creates an unnecessary risk that such effective use may be jeopardised or lost.
Therefore, although the Scheme was permissible under the Act, the Tribunal was concerned that there should have been a better process from the Commission. The Tribunal made substitutions to the Scheme and invited the parties to make submissions on those substitutions. The new ‘modified’ draft Scheme reflected the Tribunal’s view that the substitutions might increase the prospects for the property of the Charity being put to more effective use in conjunction with the goodwill and assets (other than the site) of the Arnold School.
The case may be viewed at: http://www.charity.tribunals.gov.uk/documents/decisions/Lytham_Prelim_Decision_170512.pdf
Implications of this case
This was a cy-près scheme which was introduced after only a brief period of consultation and as a ‘matter of urgency’ by the Charities Commission of England and Wales. The First Tier Tribunal was concerned that the scheme was not subject to a proper process, and that the haste with which it was put together might result in unforeseen detriment to the charities. This case has yet to be heard in full.