Attorney General's Office

Guidance around recent charity law Reference

On 27 January 2011, the Attorney General, Dominic Grieve QC MP, 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 - e.g. an employees' benevolent fund - and established for the purpose of relieving poverty, satisfy the test of public benefit following the implementation of the Charities Act 2006. (see press release 17 December 2010).

Since then, the Attorney General has received a number of enquiries as to the possible impact on existing charities of his Reference to the First-Tier Tribunal (Charity) concerning certain types of trust for the relief or prevention of poverty.

We cannot give individual advice to charities as to whether to join the Reference or not, but the information below is intended to assist charities in deciding whether the reference is relevant to them.

The object of the Reference is to seek clarification of the charity law concept of 'public benefit' as it applies to the purposes of certain kinds of trust for the relief of poverty. They are trusts where the class of potential objects of the trust's bounty are defined by reference to:

• their personal relationship to one or more individuals (e.g. trusts for the relief of poverty amongst 'my poor relations') or;
• their or a member of their family's employment by a specified commercial company (e.g. a trust for the relief of poverty amongst the poor employees or poor former employees of the XYZ Company Ltd) or;
• their membership of an unincorporated association (e.g. a trust for the relief of poverty amongst the poor members of the PQR Benevolent Association).

In addition to the three classes listed above, certain other types of charity, which are similar in character and so may be affected, have been identified. One category is utility trusts where the beneficiaries are defined by being customers of a particular utility company. Another is trusts for the relief of poverty among former players of a particular football club.

Before the Charities Act 2006 came into force, case law established that the purposes of trusts of the kind in question were charitable. The Charity Commission and others have been concerned that the effect of the Charities Act 2006 may have been to cause such purposes to cease to be charitable. Essentially the Reference asks the Tribunal to determine whether that has been the effect of the 2006 Act.

The outcome of the Reference may be either:

• that the Tribunal decides that Charities Act 2006 has not materially altered the law as to the charitable nature of the purposes of the kind in question, or;
• that it has done so, with the consequence that generally (and subject to any appeal or other proceedings) purposes of the kind in question will have ceased to be charitable.

The Attorney General considers that, if the Charities Act 2006 has caused such purposes to cease to be charitable:

(a) Charities with purposes of the kind in question which were in existence before 1 April 2008 (the date the relevant provisions of the Charities Act 2006 came into force) would not cease to be charities. Generally, s.13(1)(e)(ii) Charities Act 1993 would apply to them, and their trustees would be bound by s.13(5) Charities Act 1993 to apply for a cy pres scheme; that is to say a scheme whereby their assets became applicable for, broadly speaking, the nearest practicable charitable purposes to their pre-existing purposes.

(b) Trusts or institutions with purposes of the kind in question which came into existence on or after 1 April 2008 would not be charities.

Although the determination of the charitable nature of their purposes would ultimately be a matter for the Tribunal or the courts, the Attorney General considers that trusts for the benefit of needy serving or former military personnel and their families should generally not be affected by the Reference or its determination, whichever way it is decided. This is because the promotion of military efficiency and esprit de corps can be inferred as the primary purpose, even where this is not expressly stated in the objects. Further the Attorney General considers that there is a distinction in charity law between:

(i) a trust for the benefit of the employees of a particular employer and;

(ii) a trust for the benefit of persons working in a particular industry or for the benefit of a particular profession or occupation, even if the two classes are in practice virtually identical. Generally an otherwise charitable trust expressed to be for the benefit of the latter is charitable and is not within the terms of the reference, whilst one expressed to be for the benefit of the former is within the terms of the reference.

For more information about References and details of how to apply to the Tribunal to join in the reference, see the Charity Tribunals website

There is also further information on the Charity Commission website.

Further information may also be available from the Association of Charity Officers website