Link: Case Summary Document
Citation: First Tier Tribunal 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 an appeal against a decision of the Charity Commission of England and Wales (the Commission). A preliminary decision had previously been made in May 2012: see casenote; or decision of the tribunal at: http://www.charity.tribunals.gov.uk/documents/decisions/Lytham_Prelim_Decision_170512.pdf
On 11 November 2011 the Commission established a scheme (the Scheme) for the charities formerly known as The Lytham Schools (TLS) and the King Edward VII and Queen Mary School (KEQMS) Prize Fund. The scheme established The Lytham Schools Foundation (the Charity). The second respondent in this appeal is the trustee of the Charity and is a company limited by guarantee. The third respondent is a registered charity founded in 1883 which operates a number of schools in the area of England in question, including the Arnold School only four miles from KEQMS.
The Scheme was established under the power given to the Commission by sections 13 and 16 of the Charities Act 1993 (the Act). The Scheme merged the two former charities, with the objects of the new Charity being (at [1.1]):
…for the public benefit to advance education in or near Lytham St. Annes 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 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.
Prior to the Scheme, 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. TLS had established the KEQMS with means-tested bursaries available for children attending the school.
During the course of 2011, negotiations took place between TLS and the UCST regarding the possible merger of KEQMS and the Arnold School. 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 Act deals 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) of the Act 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 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 was 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.
In the preliminary hearing, the Tribunal held that section 13 of the Act 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 more effectively used in conjunction, regard being had to the ‘appropriate considerations’ (as discussed in the preliminary hearing), 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. This appeal decision dealt with these matters. The Tribunal decided that a modified scheme would be more suitable, using its powers to substitute an order under Schedule 6 of the Charities Act 2011. The Tribunal said (at [4.1]):
The Tribunal is concerned that the misinterpretation by the Commission of certain aspects of s. 13(1)(c) of theCharities Act 1993 led to the Scheme placing too much emphasis on the need for the Charity to provide support to the merged school that is to be run by UCST and created some avoidable risks or obstacles to the effective use of the property in achieving the Charity’s purpose. The Tribunal accepts the view of the Appellants that the terms of the Lease create an unnecessary risk of conflict with the objects of the Charity. For example, the premises of the KEQMS could be used for purposes other than the provision of a school that will benefit local residents and UCST could be in a position to gain a financial advantage from some changes of use.
The modified scheme set out to overcome the perceived risks in the earlier cy-près Scheme relating to governance of the Charity, use of the land and buildings, the length of the lease (reduced by agreement to 150 years), and various revenue and expenditure matters.
The case may be viewed at: http://www.charity.tribunals.gov.uk/documents/decisions/ca_2011_0007_decision_aug2012.pdf
Implications of this case
The underlying issue in this case was that the Scheme of merging the two original charities had been undertaken in haste by the Commission, the Charity and the UCST. Some criticism (particularly of the Commission) was made of the process involved which the Tribunal found had ‘unnecessary risk’. However, the Scheme survived with modifications, such that the merged school was able to continue to operate ‘more effectively for the… public benefit in providing education in or near Lytham St. Anne’s’ (at [4.1]).