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Tribunal judge queries how educating rich children can be charitable 7

Finance | Tania Mason | 20 May 2011

The lawyer who is defending the Charity Commission against the Independent Schools Council’s challenge to its public benefit guidance yesterday found himself explaining to the tribunal judges how it is that such schools can be charities at all.

Robert Pearce QC faced some intense questioning by the tribunal and by lead judge Mr Justice Warren in particular as he sought to convince them that the Commission’s guidance is an accurate interpretation of charity law.

Pearce began by outlining a requirement which is applicable to charity law generally, “that a charitable purpose cannot validly be created for a class of people that excludes the poor, so to be charitable a purpose must be limited to the poor or must benefit both rich and poor”.

Therefore, trustees of fee-charging schools must ensure the school provides opportunities to benefit to those potential beneficiaries that can’t afford its fees, as well as those that can.

Mr Justice Warren told Pearce that a charity couldn’t possibly benefit a whole class of people that are deemed to be its potential beneficiaries, because “that would mean every member of it”.

Pearce said he accepted this, but contended that a school had to be administered in such a way that there are “reasonable and appropriate opportunities to benefit for persons unable to pay full fees”.

“You can’t create a valid charitable purpose to advance education only to children for whom high fees can be paid and therefore the charity has to be administered in such a way that it provides opportunities to benefit for a class including children for whom high fees can’t be afforded,” he said.

“If we are right that you can’t create a charitable purpose that excludes the poor, you come to the same conclusion if a charity is administered in such a way that its benefits are not available to the poor.”

The judge then asked: “Why does it fulfil a charitable purpose to educate the rich at all when they are educated alongside the poor, but it is not charitable to do so if you are just educating the rich?”

Pearce said that the charging of fees does not cause a charity to cease to be charitable, provided its objects are being carried out in a charitable way. 

Both rich and poor children can be its beneficiaries, he said, “but if you administer it solely for a class that can afford its fees, you are not applying its assets for charitable purpose”.

Some schools ‘can’t afford to provide scholarships’

Justice Warren said surely each case needed to be considered on its facts, as some schools simply cannot afford to provide any bursaries or scholarships, and need to charge all parents full fees in order to balance their books.

“Why should they not be able to do so without breaching their charitable objects pending such time as they are able to offer a different approach?” the judge asked.

Pearce accepted that trustees should be able to take a “broad view over a reasonable period of time” but that the charity must not be permanently administered in such a way.

“If you have a charity where the trustees do have a discretion, do have the capacity to make choices as to how to administer the charity, if they exercise their discretion in such a way as to confine benefits to persons able to pay full fees, they are not administering it for the benefit of a charitable class.”

Pearce added that at any given time there does not have to be somebody in the school that is unable to pay the fees, provided the trustees are administering the charity in such a way that opportunities to benefit are open to those people.

Mr Justice Warren then asked: “If you are selecting most of your pupils by reference to non-charitable criteria, how does the school retain charitable status? I have a real difficulty here - I have never understood why giving bursaries to people converts a non-charitable operation into a charitable one.”

Pearce replied: “The answer is that if the trustees are administering the charity in such a way that they are providing such benefits as they can to those unable to pay fees, they are administering the charity as a whole for the benefit of the charitable class.”

He went on: “You’ve got to look at it over a reasonable period of time. If during some temporary period of time trustees feel they have no option but to confine the benefits to those who can pay, that may be a perfectly reasonable judgement to make.” But they can’t run the school that way indefinitely, he added.

Competing pressures

Pearce went on: “Where you have to charge fees to conduct the charity it is obvious that the proportion of children for whom you charge fees is allowed to be higher because you need to charge the fees to educate those children in order for the charity to be viable at all.

“Trustees have to strike a balance between the competing pressures of their duty to operate the charity for the benefit of a charitable class and their need to provide places to fee-paying children in order to fund the activities of the school. If they strike that balance in a reasonable way they are administering the charity properly.”

He said that what the Charity Commission’s guidance essentially does is to offer trustees advice on how to administer their charity when they are facing these competing pressures.

This is why the guidance does not provide any benchmarks or percentages as to what rate of fee income should be applied to free places, Pearce said.

“The ISC’s submission, that all that can be said in these situations is that trustees have to take everything into account and act reasonably, is not enough.  We say that analysis does not allow for the obligation of the trustees to administer the charity for a charitable class. And so if the trustees continue permanently to administer the charity for those that can pay full fees, it is not sufficient to simply say ‘that was a reasonable decision and that is the best that could be done’. You have to take account of the further conclusion that the class who are being given the opportunity to benefit is not a charitable class.”

At the outset Pearce asked the judges to confine the scope of the reference and the judicial review to fee-charging charitable schools, saying it would not be appropriate for them to consider the impact upon other areas of charitable activity.

The case is continuing.

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