CHANCERY DIVISION
Rolls Building, Fetter Lane, London, EC4A 1NL |
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B e f o r e :
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DERBY TEACHING HOSPITALS NHS FOUNDATION TRUST AND 16 OTHERS |
Claimants |
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- and - |
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DERBY CITY COUNCIL AND 44 OTHERS -and- CHARITY COMMISSION FOR ENGLAND AND WALES Intervener |
Defendants |
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Amanda Tipples QC and Matthew Smith (instructed by Sharpe Pritchard LLP) for the Defendants
Christopher McCall QC and Naomi Hart (instructed by Charity Commission for England and Wales) for the Intervener
Hearing dates: 4 – 8 November 2019
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Crown Copyright ©
MR JUSTICE MORGAN:
Introduction
"Whether the Lead Claimant is a charity for the purposes of section 43(6) of the Local Government Finance Act 1988?"
"1. Is a ratepayer required to be subject to the control of the High Court exercising its jurisdiction relating to charities in order to qualify for mandatory relief from non-domestic rates pursuant to sub-section 43(5) and 43(6) of the Local Government Finance Act 1988?
2. If the answer to question 1 is in the affirmative, is each of the Claimants so subject?
3. What are the purposes of the Claimants?
4. Does each of those relevant purposes fall within section 3(1) of the Charities Act 2011? ["Relevant purposes" means "purposes relevant for the law of charities so as to exclude, for example, purposes that are merely subsidiary or incidental to a charitable object and which cannot be pursued independently of a charitable object.]
5. Are the Claimants "established" for charitable purposes only notwithstanding that their assets on dissolution might not be applied for charitable purposes?
6. Are each of the purposes identified in answer to question 3 above for the public benefit within the meaning of section 4 of the Charities Act 2011?"
The evidence
Representation
The 1988 Act
"A charity is an institution or other organisation established for charitable purposes only or any person administering a trust established for charitable purposes only."
The organisation of the NHS
The Secretary of State
NHS Bodies
NHS Trusts
NHS foundation trusts
The functions of an NHS foundation trust
"43 Provision of goods and services
(1) The principal purpose of an NHS foundation trust is the provision of goods and services for the purposes of the health service in England.
(2) An NHS foundation trust may provide goods and services for any purposes related to—
(a) the provision of services provided to individuals for or in connection with the prevention, diagnosis or treatment of illness, and
(b) the promotion and protection of public health.
(2A) An NHS foundation trust does not fulfil its principal purpose unless, in each financial year, its total income from the provision of goods and services for the purposes of the health service in England is greater than its total income from the provision of goods and services for any other purposes.
(3) An NHS foundation trust may also carry on activities other than those mentioned in subsection (2) for the purpose of making additional income available in order better to carry on its principal purpose.
(3A) Each annual report prepared by an NHS foundation trust must give information on the impact that income received by the trust otherwise than from the provision of goods and services for the purposes of the health service in England has had on the provision by the trust of goods and services for those purposes.
(3B) Each document prepared by an NHS foundation trust under paragraph 27 of Schedule 7 (forward plan) must include information about—
(a) the activities other than the provision of goods and services for the purposes of the health service in England that the trust proposes to carry on, and
(b) the income it expects to receive from doing so.
(3C) Where a document which is being prepared under paragraph 27 of Schedule 7 contains a proposal that an NHS foundation trust carry on an activity of a kind mentioned in subsection (3B)(a), the council of governors of the trust must—
(a) determine whether it is satisfied that the carrying on of the activity will not to any significant extent interfere with the fulfilment by the trust of its principal purpose or the performance of its other functions, and
(b) notify the directors of the trust of its determination.
(3D) An NHS foundation trust which proposes to increase by 5% or more the proportion of its total income in any financial year attributable to activities other than the provision of goods and services for the purposes of the health service in England may implement the proposal only if more than half of the members of the council of governors of the trust voting approve its implementation."
"44 Power to charge for accommodation etc.
...
(6) According to the nature of its functions, an NHS foundation trust may, in the case of patients being provided with goods and services for the purposes of the health service, make accommodation or further services available for patients who give undertakings (or for whom undertakings are given) to pay any charges imposed by the NHS foundation trust in respect of the accommodation or services.
(7) An NHS foundation trust may exercise the power conferred by subsection (6) only to the extent that its exercise does not to any significant extent interfere with the performance by the NHS foundation trust of its functions."
"46 Financial powers
(1) An NHS foundation trust may borrow money for the purposes of or in connection with its functions.
...
(4) An NHS foundation trust may invest money (other than money held by it as trustee) for the purposes of or in connection with its functions.
(5) The investment may include investment by–
(a) forming, or participating in forming, bodies corporate,
(b) otherwise acquiring membership of bodies corporate.
(6) An NHS foundation trust may give financial assistance (whether by way of loan, guarantee or otherwise) to any person for the purposes of or in connection with its functions."
"47 General powers
(1) An NHS foundation trust may do anything which appears to it to be necessary or expedient for the purpose of or in connection with its functions.
(2) In particular it may–
(a) acquire and dispose of property,
(b) enter into contracts,
(c) accept gifts of property (including property to be held on trust for the purposes of the NHS foundation trust or for any purposes relating to the health service),
(d) employ staff.
(3) Any power of the NHS foundation trust to pay remuneration and allowances to any person includes power to make arrangements for providing, or securing the provision of, pensions or gratuities (including those payable by way of compensation for loss of employment or loss or reduction of pay).
(4) "The purposes of the NHS foundation trust" means the general or any specific purposes of the trust (including the purposes of any specific hospital at or from which services are provided by the trust)."
The constitution of a foundation trust
The Constitution of the Derby FT
i) Paragraph 2 is headed: Principal Purpose;
ii) Paragraph 2.1 is the same as section 43(1);
iii) Paragraph 2.2 is the same as section 43(2A);
iv) Paragraph 2.3 is the same as section 43(2);
v) Paragraph 2.4 is the same as section 43(3);
vi) Paragraph 3 is headed: Powers, Functions, Framework and Commitments;
vii) Paragraph 3.1 states that the powers of Derby FT are set out in the 2006 Act; although the constitution does not appear to set out the wording of section 44 of the 2006 Act, this general provision in the constitution has the effect of incorporating the provisions of section 44;
viii) Paragraph 3.4 is the same as section 47(1) and (2);
ix) Paragraph 3.5 is the same as section 47(3);
x) Paragraph 3.6 is the same as section 46(1);
xi) Paragraph 3.7 is the same as section 46(4) and (5);
xii) Paragraph 3.8 is the same as section 46(6);
xiii) Paragraph 3.9 is similar to section 43(2); and
xiv) Paragraph 3.10 is similar to section 43(3).
Other provisions as to foundation trusts
Monitor
Caselaw on foundation trusts
"5. NHS foundation trusts were introduced as part of the Government's ten-year programme of reform known as "the NHS plan" in 2000. Under the NHS plan the Government have a commitment to increase the scope and range of private sector activity with NHS services by creating independent public interest corporations with foundation status. Under the Government's proposals foundation status organisations would have NHS assets transferred to their ownership and control; be granted a licence to operate by an independent regulator; be freed from certain NHS controls; be run on a not-for-profit basis; and be accountable not to the Secretary of State for Health but to a board comprising employers, staff and local residents, some of whom would be locally elected. Foundation status would mean greater freedom to generate income. While they would not be allowed to sell their core assets, they would be allowed to raise finance for new facilities from the capital markets, subject to the Government's overall borrowing limits, and to set up joint ventures with the private sector. According to the Department of Health's guide to NHS foundation trusts, published in December 2002, the top performing NHS hospital trusts would be allowed to apply for foundation status.
6. NHS foundation trusts were introduced by Part 1 of the Health and Social Care (Community Health and Standards) Act 2003 and are now governed by Chapter 5 of Part 2 of the National Health Service Act 2006, a consolidating Act. In accordance with the NHS plan the statute gives them broader freedoms than NHS trusts: under the legislation they have greater financial freedoms, they are not subject to direction by the Secretary of State and they can retain any operating surpluses they generate. Instead of being centrally managed, they are supervised by the independent regulator, Monitor. The legislative scheme is explored at greater length below."
The legislation as to charities
"1 Meaning of "charity"
(1) For the purposes of the law of England and Wales, "charity" means an institution which—
(a) is established for charitable purposes only, and
(b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.
(2) The definition of "charity" in subsection (1) does not apply for the purposes of an enactment if a different definition of that term applies for those purposes by virtue of that or any other enactment."
"2 Meaning of "charitable purpose"
(1) For the purposes of the law of England and Wales, a charitable purpose is a purpose which—
(a) falls within section 3(1), and
(b) is for the public benefit (see section 4).
(2) Any reference in any enactment or document (in whatever terms)—
(a) to charitable purposes, or
(b) to institutions having purposes that are charitable under the law relating to charities in England and Wales,
is to be read in accordance with subsection (1).
(3) Subsection (2) does not apply where the context otherwise requires.
(4) This section is subject to section 11 (which makes special provision for Chapter 2 of this Part onwards)."
"3 Descriptions of purposes
(1) A purpose falls within this subsection if it falls within any of the following descriptions of purposes—
…
(d) the advancement of health or the saving of lives;
…
(j) the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage;
…
(m) any other purposes—
(i) that are not within paragraphs (a) to (l) but are recognised as charitable purposes by virtue of section 5 (recreational and similar trusts, etc.) or under the old law,
(ii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of paragraphs (a) to (l) or sub-paragraph (i), or
(iii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes which have been recognised, under the law relating to charities in England and Wales, as falling within sub-paragraph (ii) or this sub-paragraph.
(2) In subsection (1)—
…
(b) in paragraph (d), "the advancement of health" includes the prevention or relief of sickness, disease or human suffering,
…
(e) paragraph (j) includes relief given by the provision of accommodation or care to the persons mentioned in that paragraph, and
..
(3) Where any of the terms used in any of paragraphs (a) to (l) of subsection (1), or in subsection (2), has a particular meaning under the law relating to charities in England and Wales, the term is to be taken as having the same meaning where it appears in that provision.
(4) In subsection (1)(m)(i), "the old law" means the law relating to charities in England and Wales as in force immediately before 1 April 2008."
"4 The public benefit requirement
(1) In this Act "the public benefit requirement" means the requirement in section 2(1)(b) that a purpose falling within section 3(1) must be for the public benefit if it is to be a charitable purpose.
(2) In determining whether the public benefit requirement is satisfied in relation to any purpose falling within section 3(1), it is not to be presumed that a purpose of a particular description is for the public benefit.
(3) In this Chapter any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.
(4) Subsection (3) is subject to subsection (2)."
The order in which I will consider the questions arising
Questions 3 and 4
"The distinction is between ends, means and consequences. The ends must be exclusively charitable. But if the non-charitable benefits are merely the means or the incidental consequences of carrying out the charitable purposes and are not ends in themselves, charitable status is not lost."
i) The provision of goods and services for the purposes of the health service in England i.e. the NHS (see section 275(1)): section 43(1); this is described as "the principal purpose"; this is plainly a purpose of a foundation trust;
ii) The provision of goods and services for any purposes related to the provision of services provided to individuals for or in connection with the prevention, diagnosis or treatment of illness: section 43(2)(a); although section 43(2)(a) states that a foundation trust "may" carry out these activities, the sub-section does not provide that the foundation trust may carry out these activities for the purpose of achieving its principal purpose so it cannot be said that these activities are subservient to achieving its principal purpose or a means to that end; thus, section 43(2)(a) identifies a further purpose;
iii) The provision of goods and services for any purposes related to the promotion and protection of public health: section 43(2)(b); the above comments as to section 43(2)(a) apply here also;
iv) "goods" include accommodation (see section 275(1)) and "goods and services" include, in particular, facilities, education and training (see section 65(2)).
i) The carrying on of activities for the purpose of making additional income available in order to carry on its principal purpose: section 43(3); as explained above, the principal purpose of a foundation trust is the provision of goods and services for the purposes of the health service in England; this is plainly a power which is to be used in order to help a foundation trust achieve its principal purpose;
ii) Borrowing money for the purposes of or in connection with its functions: section 46(1); if this had been limited to borrowing "for the purposes of its functions" then it would plainly be a power which is to be used for the purpose of the various functions of a foundation trust; however, it is to be noted that the borrowing may be "in connection with" its functions;
iii) Investing money for the purposes of or in connection with its functions: section 46(4); again, the provision extends to investing money "in connection with" its functions;
iv) Giving financial assistance to any person for the purposes of or in connection with its functions: section 46(6); again, the provision extends to providing financial assistance "in connection with" its functions;
v) Doing anything which appears to it to be necessary or expedient for the purpose of or in connection with its functions; again, the reference is to "in connection with" its functions.
"There can be no doubt that the expression "relating to" is extremely wide but it is also vague and indefinite. Clearly enough it predicates the existence of some kind of relationship but it leaves unspecified the plane upon which the relationship is to be sought and identified. That being so all that a court can do is to endeavour to seek some precision in the context in which the expression is used. With this in mind it may be said with some certainty that an examination of the language of the exempting provision shows that it does not admit of its application to an instrument merely because it makes a reference to the existence of a relationship of master and servant between the parties to it, or still less, because it refers to the existence of a master and servant relationship between persons who are not parties to it. It is, I think, not open to argument that "relating to", in the context in which it appears, is equivalent to "referring to" and the "relationship" must be based upon some more substantial ground."
"I think an institution could be connected with the advancement of religion without being itself an institution for the advancement of religion."
Questions 1 and 2
Question 5
Question 6
The preliminary issue answered