Enactment of the Charities Act 2005 has led to the High Court to more regularly explore the meaning of the concept of charitable purposes. Particular occasions of that scrutiny are addressed in accompanying articles. The present comments touch on more general themes of the charity concept.


It is possible that the concept of charity is as old as mankind itself. Charity incorporates one of the natural human impulses for the better endowed to assist the less fortunate. Upon urbanisation, there has been a constant need to undertake good works such as to provide for the poor and sick, erect municipal assets and educate the young. Earlier societies and civilisations were low tax so the financial burden fell to the wealthy. A memorial from Roman times, for example, records the generosity of one Avelius Priscus in distributing cash to the people of Corfinium, central Italy, assisting with the district's corn supply, staging gladiatorial and dramatic shows and erecting public baths for women. Following the spread of Christianity monasteries assumed a more prominent role.

For legal practitioners the concept starts with the remarkable Charitable UsesAct 1601 (also known as the Statute of Elizabeth). The statute is remarkable because, along with its handmaiden, the decision of the House of Lords in Commrs for Special Purposes of the Income Tax v Pemsel [1891] AC 531, it is a legal authority which for centuries has been constantly cited throughout the common law world. The Supreme Court of the United States, for example, was called upon twice to rule on whether the 1601 Act was the sole legal authorisation for the enforcement of a charitable trust. If that was the position, a charitable trust could not be enforced following local repeal of British statutes after the American Revolution unless a replacement domestic statute had been enacted. The Supreme Court eventually reversed itself to hold that the enforcement of charitable trusts had always been part of the general law not dependant on the Statute of Elizabeth: Vidal v Girard's Executors (1844) 2 How 127.

The 1601 Act was enacted in response to apparent widespread misapplication of property conveyed for "charitable uses". By the Act the Lord Chancellor was authorised to award commissions to persons of good and sound behaviour to enquire into alleged abuses and breaches of trust and, if necessary, make orders reforming the charitable trust. A party aggrieved by an order was granted a right of appeal to the Lord Chancellor.

The statement of charitable purposes set out in the preamble to the Act was intended to give guidance on the kinds of arrangements for whose malpractices commission review and reformation might be undertaken.

As time passed it became important to identify the presence of a charitable purpose for reasons beyond curtailing mischievous practices. The courts had developed the rule against the remoteness of vesting, requiring that property settled on a trust should vest in a beneficiary within a specified period: Duke of Norfolk v Howard (1683) 1 Vern 163. To this "rule against perpetuities" the courts created an exception for a trust for a charitable purpose. Since the trust was for a purpose, and not for persons, the courts did not perceive the need to insist upon the timely vesting of property committed to a charitable purpose.

The Crown took a different view. It became popular practice for testators to leave land to monasteries. The withdrawal of land for potential devolution by testamentary disposition was to the prejudice of revenues from inheritance taxation. The practice also resulted in an excessive concentration of land ownership: some one third of land in England came to be owned by the monasteries. As one in a long line of such statutes the Mortmain Act 1736, with some exceptions, made gifts for charitable purposes void.

In ascertaining the meaning of charitable purposes for perpetuity and mortmain (which means "dead hand") purposes the courts looked to the guidance given by the preamble of the Charitable Uses Act. The notion of charity encapsulated in the preamble seems to have been regarded as a loose and flexible concept.

Jones v Williams (1767) ER 652 concerned a bequest to fund the supply of good spring water to the town of Chepstow. In deciding that the bequest was charitable Lord Camden LC is reported to have said:

"definition of charity; a gift to a general public use, which extends to the poor as well as to the rich: many instances in the statute 43 Eliz carrying this idea, as for building bridges etc. The supplying of water is necessary as well as convenient for the poor and the rich".

His Lordship's admirably succinct observation that charity encompasses "a general public use" may be taken to indicate that charity is not an especially rigorous or demanding concept. So long as the public benefits in some way a charitable purpose is likely to be present.

Lord Camden LC also appears to have been astute enough to appreciate that it need only be the public in general, and not just the indigent strata, which benefits. The reference in the 1601 Act to the repair of bridges, ports, causeways, seabanks and highways necessarily connoted that charity is not confined to the relief of poverty. His Lordship appreciated that these items of civil infrastructure are used by the rich and the poor alike.

Since charity was not limited to helping the poor a school for the sons of gentlemen may be a charitable purpose: A-G v Lord Lonsdale [1824] All ER Rep 666.

Taxation pressures were responsible for the next milestone in the law of charity.

The Income Tax Act 1842 (UK) contained an exemption for rents from land vested in trust for charitable purposes. At the outset the Revenue administered the exemption on the basis that the concept of charitable purposes meant those purposes granted charitable status by the Court of Chancery based on the 1601 Act. Such an understanding of charity came to be known as the "legal" meaning of charitable purposes.

In a scenario not unknown to the present day practitioner, the Revenue after some 40 years decided to reverse itself. The Revenue came to believe that the notion of chartable purposes stated in the tax exemption was a reference to the "popular" and not the "legal" meaning of charitable purposes. The popular meaning of charity is the narrower concept of relieving poverty in some way. For example, the Revenue would have said that the villagers of Chepstow did not benefit from a charitable bequest. Whether the tax exemption referred to the legal meaning or to the popular meaning of charitable purposes was the great issue fought out in Pemsel.

Pemsel concerned possible application of the tax exemption to rents required to be applied to support and advance missionary establishments among heathen nations of the Protestant Episcopal Church. The Revenue said that the exemption was not available because the rents might be applied to help persuade the wealthiest native chieftain to the views of the Church mission.

By a 4-2 majority the House of Lords rejected the Revenue's view. In the view of the majority it was very clear that when Parliament referred to "charitable purposes" it usually had in mind the legal meaning as developed by the Court of Chancery. The majority could not identify any occasion where Parliament had intended to adopt the popular meaning of charitable purposes. The majority also thought that it was appropriate that any reversal of a long-standing interpretation should be by a legislative and not an administrative act.

The minority worried about the fiscal implications. To grant the exemption in cases devoid of relieving poverty would create the potential for throwing an additional financial burden on the rest of the community.

There are indications that these historical developments have escaped the attention of the High Court.

Charitable purpose is to assuage need

The case of Canterbury Development Corporation v Charities Commission (2010) 24 NZTC 24,143 involved the disbursement by the Christchurch City Council of seed money to local businesses in an endeavour to promote regional prosperity. Charitable status was denied by the High Court because the objective was to assist business. Although assistance to industry generally is a charitable purpose, because that assistance is really for the benefit of the community, it is not charitable to help the community when the means chosen to do so is at the micro level of individual businesses.

In the course of reaching this view the Judge remarked that, with the exception of the advancement of religion, all charitable purpose can be seen as meeting a need. The Court signalled that, consistently with Australian precedent, it may well be charitable to assist an identifiably economic deprived area in New Zealand. However, for a seemingly well-off region like Canterbury, it is not charitable to endeavour to entrench that prosperity or to make it more so.

This perspective may reasonably be regarded as an echo of the popular meaning of charity urged in but rejected by Pemsel.

In Re Education New Zealand Trust (2010) 24 NZTC 24,354 appears to follow the lead given by Canterbury Development. The activity under review was to encourage potential offshore students to come to New Zealand to pursue their educational aspirations. The desirability of study in New Zealand was promoted generally without reference to particular institutions or courses.

The High Court thought that the reaching out to potential students was of no benefit to the students themselves. Inviting study in New Zealand was said to make no contribution to academic success once here. Although it is charitable to help the student stay in school (Educational Fees Protection Society Inc v C of IR (1991) 13 NZTC 8203) the line is crossed with facilitating the earlier step of selection of a suitable institution.

The beneficiaries of the promotional activities were only the education institutions themselves. Some 70% of total institutions comprised State universities, schools, and so on. The remaining 30% were privately owned, for-profit, schools. Although New Zealand was promoted generally, the Court said that there was in reality promotion of the 30% for-profit sector even if not serviced separately. That was a substantial, independent purpose which prevented charitable classification.

Education Trust appears to continue with a strict view of the charitable concept. Despite the commendable objective of fostering utilisation of the country's education system the prospect that private enterprise could, in part, benefit prevented the grant of charitable status. That outcome prevailed even though assistance to industry generally (being 100% for profit) is an established category of charitable purpose: Crystal Palace Trustees v Minister of Town and Country Planning [1951] 1 Ch 132.

The two cases provoke some observations.

Charity and personal benefit

Neither Canterbury Development nor Education Trust create the impression that the High Court satisfactorily evaluated the ingredients of personal benefit and public benefit. In both cases the identification of some form of private benefit meant that the analysis need go no further. Presence of the private advantage was taken to answer the question without an enquiry whether the private benefit was conferred in the course of accomplishing a public objective. The difficulty with this perspective is that it fails to appreciate the notion of personal benefit inherent in the concept of charity.

By its nature charity involves conferring personal benefit or advantage. The recipients of charitable largesse must always be human beings. That being so, it could be expected that the enquiry should become whether private benefit is conferred in the course of pursuing public benefit. A distinction may be drawn between conferring private benefit for its own sake and private benefit as an incident of public betterment. There are authorities sympathetic to this approach.

One question which has been brought before the courts is whether the publication of law reports, on a non-profit basis, is a charitable purpose. The courts appreciated that the overwhelming users of the publications would be lawyers engaged in operation of their private practices. Despite the heavy complexion of private benefit charitable status was granted on the ground that the activity is of benefit to the community through facilitating the administration of justice: Incorporated Council of Law Reporting for England and Wales v A-G [1972] 1 Ch 73, C ofIR v New Zealand Council of Law Reporting (1981) 5 NZTC 61,053, Incorporated Council of Law Reporting (Q) v FC of T (1971) 125 CLR 659.

Similarly a non-profit body required to maintain a register of qualified medical practitioners was charitable because it assisted with the public objective of ensuring high standards in the practice of medicine and surgery notwithstanding the personal benefit to individual practitioners by being so registered: C of IR v Medical Council of New Zealand (1997) 18 NZTC 13,088.

There is also the earlier case of the optimistic testatrix, the late wife of George Bernard Shaw, who was found to have made a charitable bequest when hoping to foster "the personal qualities and characteristics of Irish men and women, in their training to be better citizens in the various departments of secular life": In Re Shaw's Will Trusts [1952] 1 Ch 163, 170. Manifestly this objective concerns only personal betterment. The law of charity would appear to harbour greater tenderness for the people of Ireland compared with the citizens of Canterbury. It is unlikely we shall ever learn why.

These authorities may be taken to signal that any evaluation of the existence of a charitable purpose is a balancing exercise. The component incorporating private benefit should be weighed up along with any accompanying wider public purpose. If that public purpose is clear and unmistakeable the inevitable personal component should not impede conferral of charitable status.

In both Canterbury Development and Education Trust the High Court appears to have been unwilling to allow the public benefit aspect to receive any weight. Canterbury Development involved the disbursement of local authority funds for district improvement. That feature might reasonably be taken to confer a public complexion on the undertaking. Certainly it is possible to speculate that the Christchurch City Council had no conception that it was embarking on endeavours to enrich local entrepreneurs. Similarly, Education Trust concerned a trust established by State sector bodies with control of activities vested in public service employees. Central Government funded trust activities to execute an express central Government objective of encouraging foreign students to study in New Zealand. Despite the very strong public complexion the Trust could not satisfy the public benefit test for charitable status.

These decisions are perplexing. Given the starting point confirmed by Pemsel that charity is not limited to relieving poverty, it is not easy to understand why there is an absence of public benefit when an activist State determines that it is appropriate to engage in stimulatory measures.

Charitable purposes

As it has developed over the centuries the concept of charitable purpose has been found to embrace a wide range of activities that are reflective of the human experience. There are the entirely conventional purposes of helping poor people and alleviating sickness. Possibly at the eccentric end of the spectrum are treats for school children (In Re Mellody [1918] 1 Ch 228) and animal rides for the children at a zoo (In Re Lopes [1931] 2 Ch 130). It is possible to think that the apparent liberality of the Court of Chancery may have been prompted by a reluctance to become enmeshed in distinguishing between worthy and unworthy public purposes.

What may underlie a benign approach to the question of construction is the thought that society is unlikely to be prejudiced by attempts at public benefaction however odd they may seem. The human experience is likely to be enhanced if endeavours to assist others are encouraged. After all, philanthropy from private citizens can be expected to contribute to a sharing of the burden of the pervasive obligations that a welfare State endeavours to satisfy. Any leakage from doubtful public purposes could be expected to be at the margin and an acceptable price for receipt for that contribution.

At the same time it is necessary to recognise that a benign approach to the existence or otherwise of charitable purposes inevitably raises tensions with another precept of the welfare State. To finance social and other core functions the State needs to be assured of certain levels of revenue flow to the Treasury. Too generous a treatment of philanthropic activity might be thought to jeopardise funding of the State's activities. It has already been mentioned that concerns of this nature agitated the minority in Pemsel (even though the problem, if it existed, would have been on foot for over 40 years).

Whether there is any substance to this aspect is probably another topic. Nonetheless there may be some basis for doubting the possibility of a floodgates problem. Whilst tax foregone in favour of the charitable sector can be expected to be significant in total, that benefit is probably mainly enjoyed by religious and other large scale benevolent organisations always likely to be tax exempt whatever test for exemption is adopted. Tax exemption will always be regarded as appropriate for these institutions because it is safe to assume that they will undertake works for public good. In their case there is a quid pro quo for tax exemption. Usually it is the modestly endowed philanthropy of a public spirited citizen which raises boundary issues of the charitable concept. It would seem doubtful that, collectively, scenarios of this kind could undermine financing of the State.

Possible reforms

The tenor of this article is to express unease with the directions taken by the High Court in its recent supervision of the meaning of the charitable concept. The reluctance to recognise public benefit exhibits a drift away from Lord Camden LC's aphorism that charity is simply a general public use. This provokes the thought whether any remedial measures could be contemplated.

A first possibility to consider could be the enactment of a favourable rebuttable presumption. If a charitable or like purpose is present charitable status could be assumed unless there is good reason to decide to the contrary. English courts accept that a benign approach is appropriate when considering the possible presence of charitable purposes (IR Commrs v McMullen [1981] AC 1, 14) but the High Court has not been prepared to give any weight to this sentiment. Possibly a suitably framed sterner direction from the legislature may be more effective.

More fundamentally there may be merit in exploring whether it is appropriate to rely solely on the notion of charity as the touchstone for exempting incomes earned for public benefaction. The Income Tax Act 2007 employs the concept of charity simply as a convenient means of identifying public benefit incomes worthy of income tax exemption. The true objective should be to exempt incomes earned for public purposes. That ambition is pursued under the separate exercise undertaken by the Tax Act when setting out the criteria for the tax credit granted to individuals who donate money for public benefaction purposes. On this occasion the eligible purposes are the broader ones of "charitable, benevolent, philanthropic or cultural purposes": section LD 3 of the Income Tax Act 2007 (to the list could usually be added "community" purposes).

A broader statement of eligible public purposes might be thought to be more appropriate. After all, it would be fair to observe that there is a lack of rigour in the logic stipulating that the tax exemption on income earned by public benefit entities should be narrower than the tax credit granted to human being donors for public benefit purposes.

In this regard it is important to appreciate that any expansion of tax exempt purposes would be accompanied by continuation of the existing safeguarding mechanism that the exempt entity must not be for the private pecuniary profit of anyone. The requirement that there must be the eventual disbursement of funds for public and not private purposes may allay concerns about adoption of an expansive test of public benefit.

Changes of these kinds might well please the Elizabethan authors and Lord Camden LC.  

First Published in New Zealand Law Journal, March 2011.