London Borough of Merton Council v Nuffield Health [2023] UKSC 18 (07 June 2023)

Lord briggs and Lord Sales (with whom Lord Kitchin, Lord Hamblen and Lord Leggatt agree):

Introduction

Section 43(5) and (6)(a) of the Local Government Finance Act 1988 (“section 43(6)”, for short, and “the LGFA 1988”, respectively) provides for a mandatory 80% relief from business rates where:

“the ratepayer is a charity or trustees for a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)”.

The respondent Nuffield Health is a registered charity, which operates some 31 hospitals, 112 fitness and wellbeing centres, five medical centres and over 200 further gyms and health assessment facilities in workplaces across the United Kingdom for the purposes described in its Memorandum of Association as follows:

“to advance, promote and maintain health and healthcare of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit.”

One of those fitness and wellbeing centres is a members-only gym known as Merton Abbey, located in the London Borough of Merton, the council of which is the appellant (“Merton”). Merton took the view that, viewed on its own, the Merton Abbey gym failed to qualify as being used for charitable purposes because the fees being charged to its members were set at a level which excluded those of modest means from enjoying its facilities. Accordingly the public benefit requirement, which is an invariable condition of charitable status, was not satisfied.

Nuffield Health challenged that view and succeeded, both at first instance and in the Court of Appeal. The judge (Stuart Isaacs KC) decided first that section 43(6) did not require the question whether the premises were used for charitable purposes to be decided by reference to the activities carried on there alone. Rather, the question was whether Nuffield Health was using the Merton Abbey gym for the pursuit of its charitable purposes, viewed in the context of its charitable activities as a whole. Applying that test Nuffield Health succeeded, even if persons of modest means were excluded from using the facilities at the Merton Abbey gym by reason of the fees charged there. But secondly he decided that, even viewed separately from the rest of Nuffield Health’s activities, and looking only at the activities carried on at the Merton Abbey gym on its own, it satisfied the public benefit requirement because its fees did not in fact exclude persons of modest means.

The Court of Appeal (David Richards, Peter Jackson and Nugee LJJ) decided by a majority that the judge was right about the first point but unanimously reversed him on the second. The result was that Merton’s appeal was dismissed. In this court Merton has renewed its challenge to the construction of section 43(6), while Nuffield Health maintains that the Court of Appeal ought not to have reversed the judge on the second point. This court has decided that Merton’s appeal on the first point should be dismissed. The second point does not therefore arise and we say nothing more about it.

The construction of section 43(6) is of course a pure question of law, the outcome of which is not fact-sensitive. Nonetheless we summarise the relevant facts, most of which are either common ground or based on unchallenged evidence, so as to provide some real-life context against which the task of construction can be carried out.

The Facts

Nuffield Health is a company limited by guarantee without share capital. Its purposes are “to advance, promote and maintain health and healthcare of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit.” Its focus is on the prevention of illness and the maintenance of health, principally through the provision of gym facilities. It also operates private hospitals and clinics, which charge fees. Its approach is to link the promotion of fitness, emotional wellbeing and health education as a means of maintaining good health with the identification, assessment and containment of health risks and the treatment of diagnosed health problems, including rehabilitation following treatment.

It is common ground that, as the judge found, the purposes of Nuffield Health are, taken together, for the public benefit, as is necessary for it to have charitable status. Also, Merton accepts that the trustees responsible for conducting Nuffield Health’s affairs are acting in accordance with their fiduciary obligations and not in breach of trust.

Nuffield Health has claimed the mandatory 80% relief under section 43(6) from non-domestic rates in the period from 1 August 2016 onwards, on which date it acquired the Merton Abbey gym from a commercial gym operator, Virgin Active.

The facilities at the Merton Abbey gym are provided primarily to those with Nuffield Health gym membership. They include a swimming pool, spa pool and sauna; a gym with ancillary rooms for exercise classes and consultations; a crèche available to members’ children only; and car parking for members. As at April 2019, when Nuffield Health issued these proceedings against Merton, the standard fee for membership was £80 per month, or £71 per month if one committed to a longer period of membership.

Certain limited free services are on offer at or through the Merton Abbey gym to non-members, comprising “Health MOTs” (basic health checks) at periodic intervals and for certain groups, “Meet our Experts” events offered about four times a year to provide health advice (together with a one-day gym pass) and a free 15 minute initial consultation with a physiotherapist and free one-month gym membership for those starting treatment. In addition, non-members can pay a fee for physiotherapy services at the gym. Two local schools use the swimming pool weekly during term time for a modest fee.

The History of the Applicable Law

The question of construction raised by this appeal lies on the intersection between two venerable bodies of English law, namely charities and rating. They originated by coincidence in the same session of Parliament at the end of the reign of Queen Elizabeth I in the form of the Charitable Uses Act 1601 (for charities) and the Poor Relief Act 1601 (for rating). It is worth outlining the history of the development of both those streams of law, because it sheds some useful light on the question of construction of the legislation in its present-day form, in the LGFA 1988 and the Charities Act 2011 (“the 2011 Act”).

The law on charities developed from consideration of, in particular, the preamble to the Charitable Uses Act 1601 which set out a long list of purposes which were taken to be charitable. These included the “releife of aged impotent and poore people”, the “maintenance of sicke and maymed Souldiers and Marriners” and to provide “schooles of learninge”. Public benefit, namely benefit to the community or a relevant section of the community, was regarded as inherent in the concept of charity. Over time, this came to be regarded as a separately identified requirement which had to be satisfied before a purpose could qualify as charitable in the eyes of the law. What was meant by public benefit for these purposes was explored and articulated in case-law. The history is traced in detail in the judgment of the Upper Tribunal (Warren J and Judges Alison McKenna and Elizabeth Ovey) in R (Independent Schools Council) v Charity Commission for England and Wales [2011] UKUT 421 (TCC), [2012] Ch 214 (“ISC”), paras 42-53, and does not need to be rehearsed here.

As has been noted in several cases, charity is a legal term of art the definition of which, including the public benefit requirement, does not always accord with the general public understanding of what is and what is not charitable: see, eg, Inland Revenue Comrs v McMullen [1981] AC 1, 15 per Lord Hailsham of St Marylebone LC.

There have been a number of Acts of Parliament dealing with charities. The law relating to charities was comprehensively revised and restated in the Charities Act 2006, which was the legislation under review in the ISC case. That has now been replaced by the 2011 Act, which was and is the legislation in force at all material times in this case.

Lord Sumption explained the background of the rating legislation in Woolway (Valuation Officer) v Mazars LLP [2015] UKSC 53, [2015] AC 1862, para 1, as follows:

“Local authority rates are the oldest tax in continuous existence in England, having originally been introduced in the reign of Queen Elizabeth I by the Poor Relief Act 1601 (43 Eliz 1, c 2). Historically, they were payable in respect of the rateable occupation of hereditaments, and that continues to shape the law in this area even though non-domestic rates are today imposed on unoccupied hereditaments also. The core concepts underlying the assessment of rates are that they are a tax on property and not on persons or businesses, and that the ‘hereditament’ is the unit of assessment. Each hereditament is separately identified in the rating list and separately assessed, notwithstanding that the same occupier may have more than one. …”

Lord Briggs and Lord Leggatt also examined the historical background in their judgment in Rossendale Borough Council v Hurstwood properties (A) Ltd [2021] UKSC 16, [2022] AC 690 (“Rossendale”), paras 20-24. The LGFA 1988, as amended, sets out the current law in relation to rates. Under the Act rates are charged on non-domestic hereditaments, subject to the detailed regime set out in it.

The formulation of the mandatory relief for charities in section 43(6) can be traced back to section 11 of the Rating and Valuation Act 1961 (“the 1961 Act”). There was no statutory basis for relief for charities from rates prior to 1955, but in practice rating authorities reduced the rates levied upon them as a matter of grace. The background is set out in the report of a committee set up under the chairmanship of Sir Fred Pritchard (“the Pritchard Report”, Cmnd 831, 1959), at paras 7-46.

The Pritchard committee was set up to make recommendations in respect of the rating of property owned by charities and similar bodies after the Local Government Act 1948 transferred responsibility for valuation for rating purposes to officers of the Board of the Inland Revenue with effect from 1 February 1950. The 1956 rating valuation list required hereditaments to be valued in accordance with uniform standards. As a holding measure to protect charities from the potential financial implications of this change while a policy review took place, section 8 of the Rating and Valuation (Miscellaneous Provisions) Act 1955 introduced an interim system of relief. It did not affect the assessment of the rateable value of property but limited the amount chargeable for rates and conferred discretionary powers to give further relief.

After a careful review, the Pritchard Report stated that it was impracticable to eliminate all elements of arbitrariness in formulating the grant of reliefs to charities and similar bodies, but emphasised that its object was “to find a reasonable balance of conflicting arguments and interests, consistent with simplicity, certainty and economy in administration”: para 65. It recommended that relief should be made uniform and mandatory for charities: paras 88 and 91-95. The availability of the relief should depend upon the application of the general law in relation to the definition of a charity, as the committee could “see no justification in principle for redefining the term ‘charity’ for rating purposes only”: para 92, also para 153(15). The report recommended that “relief should be given only in respect of those hereditaments which are occupied for the purposes of the charity and not, for example, in respect of hereditaments held as an investment”: para 95, also para 153(16). It recommended that charities should have 50% mandatory relief from rates: para 125.

The Pritchard Report recommendations in relation to charities were given effect by section 11 of the 1961 Act which conferred relief on “any hereditament occupied by, or by trustees for, a charity and wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)” at a rate of 50%. Section 11 of the 1961 Act became section 40 of the General Rate Act 1967, which was a consolidation statute.

Local taxation was the subject of general reform in the LGFA 1988. However, the terms of eligibility for mandatory relief for charities in respect of rates were not changed, although the rate of relief was increased to 80%: see section 43(6).

Principles Relevant to the Construction of Section 43(6)

A: Charity

To qualify as a charity a body must have purposes all of which are charitable. This is because it must be established for charitable purposes only: see section 1(1)(a) of the 2011 Act. This reflects what the law has always been. Thus a trust for “charitable or benevolent purposes” has, where the descriptive words are used disjunctively, been held to fail because some benevolent purposes may not be charitable. This means that if we correctly describe a body as a charity, or are required to assume that it is a charity, then it must have been established for exclusively charitable purposes. If a body is registered as a charity then, for as long as it remains so registered, it is conclusively presumed to have been established, and still to be established, for charitable purposes only: see section 37(1) of the 2011 Act. That is what being a charity means. The definition provision in the LGFA 1988 confirms at section 67(10) that it is in this sense that the term charity is used in that Act: “A charity is an institution or other organisation established for charitable purposes only or any persons administering a trust established for charitable purposes only”. This involves reference back to the general law on charities, as the Pritchard Report had recommended.

To be established for charitable purposes under the 2011 Act, each of those purposes (viewed separately if more than one) must satisfy two main conditions:

(i) It must fall within section 3(1): see section 2(1)(a),

(ii) It must be for the public benefit as defined in section 4: see section 2(1)(b).

The identification of the purposes for which a body is established is mainly to be ascertained by reference to its written constitution: see ISC, paras 187-188. In the present case Nuffield Health plainly satisfies the section 2(1)(a) test. It is established for the advancement of health within section 3(1)(d). That much is not in dispute.

The public benefit requirement is set out in section 4. By section 4(3) any reference in the relevant chapter of the 2011 Act to the public benefit is a reference to the public benefit as that term is understood for the purposes of English charity law. As explained by Nugee LJ in the Court of Appeal in the present case at para 141, the public benefit requirement in English charity law has two aspects to it (see also ISC, para 44). The first is the nature of the purpose. Again, it is common ground that the purpose for which Nuffield Health is established, namely (in short) the advancement of health, satisfies the first aspect of the public benefit requirement. The second is a matter of scope. It requires that the specified benefit is available to a sufficient section of the public, so that the provision of that benefit is for a public rather than private purpose. That section of the public may be defined by a variety of contours, such as residents of a particular locality, or even by age. Thus the inhabitants of a small village or large town will be a sufficient section of the public, but the entirety of the current and former employees of a large corporation will not, however numerous: see Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297, 305-307. The old and the young may each be a sufficient section of the public: see Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney General [1983] Ch 159 for the old and In re Sahal’s Will Trusts [1958] 1 WLR 1243 for the young. But however broadly defined, the purpose will not be for the benefit of a sufficient section of the public if it excludes the poor (meaning, in modern parlance, not the destitute but those of modest means): see In re Resch’s Will Trusts [1969] 1 AC 514, 543-544 (“Re Resch”), and ISC, paras 178-179.

It by no means follows that a purpose (other than of course the relief of poverty) which serves both the rich and the poor only satisfies the public benefit requirement so as to be charitable in the benefit which it provides to the poor members of its beneficial class. On the contrary, the “scope” element of the public benefit requirement is satisfied by reference to the whole of the section of the public thereby benefitted, rich and poor alike. Even if this may perhaps not accord with the perception of every modern-thinking person untrained in charity law, this is true both as a matter of logic and authority. Logically if a body, established for the purpose of promoting the health of all comers paying a membership fee which did not exclude the poor or the rich, was only charitable in the service which it provided to the poor, then having a (non-charitable) purpose also to serve the rich would mean that it was not established for charitable purposes only. Such a body would not be a charity. If this were so it is hard to imagine how any fee-paying independent school could be charitable; but, as reviewed in ISC, many fee-paying schools are charitable.

The ISC case was about the public benefit requirement in relation to independent fee-paying schools. The point is firmly and correctly stated by the Upper Tribunal at paras 195, 214 and 229. This extract from para 195 encapsulates the principle:

“In the case of a school which is a charity and is operating in accordance with the public interest, the provision of education to all of its students, including those who pay full fees, is carried out as part of this public benefit requirement.”

Although the ISC case has not been without its academic critics: see Tudor on Charities, 11^th ed (2023), para 1-182, this aspect of the Upper Tribunal’s reasoning is, as the editors of Tudor note, well supported by earlier authority. In Jones v Williams (1767) 2 Amb 651 the gift was for supplying the inhabitants of Chepstow (not just the poor inhabitants) with water. Holding that purpose to be charitable, Lord Hardwicke LC said (at p 652):

“definition of charity; a gift to a general public use, which extends to the poor as well as to the rich.”

In the celebrated case of Income Tax Special Purposes Comrs v Pemsel [1891] AC 531, 583, Lord Macnaghten said that trusts for the advancement of education or religion and other trusts beneficial to the community:

“are not the less charitable in the eye of the law, because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do either directly or indirectly.”

In In re Macduff [1896] 2 Ch 451, 464 Lindley LJ said:

“I am quite aware that a trust may be charitable though not confined to the poor; but I doubt very much whether a trust would be declared to be charitable which excluded the poor.”

Both Jones v Williams and In re Macduff were approved by the Judicial Committee of the Privy Council in the opinion delivered by Lord Wilberforce in Re Resch (at pp 543-544).