Introduction
Since charities have had to register under the Charities Act to obtain charitable tax status, there have been a number of cases which have dealt with professional organisations. At the heart of these cases is the issue of whether such professional organisations are for the benefit of their members or the benefit of the public.
In August 2013, the High Court released its decision granting an appeal of the Plumbers, Gasfitters and Drainlayers Board (PGDB) against a decision of the Charities Registration Board (the Board) to deregister the PGDB.
Background
The PGDB was established under the Plumbers, Gasfitters and Drainlayers Act 2006 (the PGDA). It was registered as a charitable entity by the Charities Commission on 30 June 2008 (since replaced by the Board).
The PGDA provides that the purposes of the PGDA are to protect the health and safety of members of the public by ensuring the competency of persons engaged in the provision of sanitary plumbing, gasfitting and drainlaying services and to regulate persons who carry out sanitary plumbing, gasfitting and drainlaying.
Section 137 of the PGDA sets out the extensive functions of the PGDB. They essentially involve registration, licensing, education, qualification, complaints and prosecution.
The Charities Commission (as it was then known) received a complaint from a member of the public alleging that the PGDB was not entitled to be registered as a charitable entity. The Charities Commission had to decide whether the PGDB’s purposes are charitable as falling within “any other matter beneficial to the community” – the fourth head of charity under the Charities Act.
The law
To be charitable within this head of charity, the purposes of the entity in question must confer a benefit on the public or a section or the public, and the purpose must come within the spirit of the preamble to the Statute of Elizabeth 1601.
The Preamble provides a list of charitable uses as follows:
The relief of the aged, impotent, and poor people; the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools and scholars in universities; the repair of bridges, ports, havens, causeways, churches, sea banks and highways; the education and preferment of orphans; the relief, stock or maintenance of houses of correction; the marriages of poor maids; the supportation, aid and help of young tradesmen, handicraftsmen and persons decayed; the relief or redemption of prisoners or captives and the aid and ease of any poor inhabitants.
Interestingly, the Judge in this case did not put much emphasis on the Preamble, but instead focussed on the purposes of the PGDA.
The Board’s decision
The Charities Commission was replaced by the Board during the course of this case.
The Board determined that protection of the health and safety of the public through the regulation of the subject industries is not the PGDB’s exclusive purpose. It found that the PGDB has an independent purpose, which is to regulate plumbing, gasfitting and drainlaying for the benefit of individuals working within the subject industries. This was because of the considerable benefits conferred on those particular occupations. The implication of this was that, according to the Board, the PGDB was not entitled to be registered as a charity under the Charities Act.
This was a similar decision to that of the High Court in Re New Zealand Computer Society Inc. In that case the importance of maintaining high standards in the IT profession could not be equated with the medical profession or the nursing profession. The Computer society case demonstrates that generally an organisation that benefits its members will not be charitable.
There are a number of other similar cases which establish that organisations that are formed for the purpose of benefiting their own members are not charitable, unless they also hold purposes benefiting the public and the private benefits are merely incidental to those purposes.
In Commissioner of Inland Revenue v Medical Council of New Zealand, the Court of Appeal decided that, although the Medical Council‘s main purpose was the registration of medical practitioners, this purpose was charitable because it provided protection to the public regarding the
delivery of medical services. There was a clear and obvious public interest in ensuring high standards in the practice of medicine, and any benefit to medical practitioners was merely incidental.
The Board distinguished the PGDB from the Medical Council as the Medical Council was exclusively established for the protection of the public in relation to the quality of medical and surgical services. Benefits to the medical profession were incidental to that primary benefit to the public and not an independent purpose of the Council. Conversely, the Board found that PGDB has an independent purpose to regulate plumbing, gasfitting and drainlaying for the benefit of the subject industries.
The appeal
On appeal, the Judge reviewed the PGDA – constituting legislation of the statutory body – including reviewing the overall purpose of the organisation. The Judge discussed that the list of functions (covering registration, licensing, education, qualification, complaints and prosecution) would provide benefit to those working within the subject industries. However, the Court held that the main purpose of the PGDB is to maintain standards for the safety of the public. Any benefits to individual members were ancillary. The Judge relied on the Medical Council case and overturned the decision of the Board.
Commentary
Often when charitable organisations look to become registered, it is important that the focus is not solely on the words in the constituting document. What the organisation actually does in practice is going to have far greater influence on the Board’s decision regarding whether to proceed with registration. This case demonstrates the importance of both – the words in the constituting document played a significant part in the Judge’s decision. The essence of this case is that the overall purpose of an organisation must be for the public benefit. If there are benefits for a subset of the public as well, that may not necessarily affect the ability for an entity to be registered.
Charities Law in New Zealand is constantly evolving – even though the law in this area dates back to the 1600s. The pace of change in the law is perhaps not in line with the rate society is changing. For example, many members of the public could argue that maintaining high standards in the IT profession is for the public benefit in this day and age but obviously would not be within the spirit of the statute of Elizabeth, as was decided in the Re New Zealand Computer Society Inc.
If you would like further information please contact Jessica Middleton on 07 958 7436.
