Rating–Oxfam ‘leap-frogs’ its test case claiming relief for its gift shops in the Birmingham area–Shops held not to qualify–Line must be drawn so as to exclude from relief premises used for fund-raising rather than for a charity’s direct purposes
This was an
appeal by Oxfam, a company limited by guarantee, directly from a judgment of
Templeman J in the Chancery Division on June 10 1974 holding that a number of
‘Oxfam gift shops’ operated by the appellants within the area of the respondent
rating authority, City of Birmingham District Council, did not qualify for
relief from rates under section 40 (1) of the General Rate Act 1967.
Mr D G
Widdicombe QC and Mr C S Fay (instructed by Waterhouse & Co) appeared for
the appellants, and Mr N C H Browne-Wilkinson QC and Miss E Appleby (instructed
by Sharpe, Pritchard & Co) represented the respondents.
In his speech
LORD CROSS said that section 40 (1) of the General Rate Act 1967 provided:
If notice in
writing is given to the rating authority that (a) 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); or (b) any other
hereditament, being a hereditament held upon trust for use as an almshouse, is
one falling within this subsection, then, subject to the provisions of this section,
the amount of any rates chargeable in respect of the hereditament for any
period during which the hereditament is one falling within either paragraph (a)
or paragraph (b) of this subsection, being a period beginning not earlier than
the rate period in which the notice is given, shall not exceed one-half of the
amount which would be chargeable apart from the provisions of this subsection.
Subsection (5)
went on to give a rating authority power to reduce or remit the payment of
rates chargeable in respect of (inter alia) any hereditament falling
within paragraph (a) or (b) of subsection (1). Paragraph (a) was somewhat
curiously worded. No body or trust could be a charity unless its objects were
exclusively charitable, and if it was using premises of which it was in
occupation for purposes for which it was entitled to use them, and not in
breach of trust, it must be using them for some purpose or purposes of the
charity. Yet the paragraph clearly contemplated that a charity might be
properly using premises which it occupied for purposes which were not
‘charitable’ purposes of the charity. A line had therefore to be drawn somehow
or other between the user of premises for purposes which were charitable
purposes of a charity within the meaning of the subsection, on the one hand,
and their user for purposes which, though purposes of the charity, were not
charitable purposes of the charity, on the other.
Oxfam’s
memorandum of association as a company limited by guarantee set out its objects
in the following terms:
To relieve
poverty, distress and suffering in any part of the world (including starvation,
sickness or any physical disability or affliction) and primarily when arising
from any public calamity (including famine, earthquake, war or civil
disturbance) or the immediate or continuing result of want of natural or
artificial resources or the means to develop them and whether acting alone or
in association with others; and in particular but without prejudice to the
generality of the foregoing for that purpose: (i) to provide food, healing,
clothing, shelter, training and education and to undertake or assist in work
calculated directly to achieve that purpose; (ii) to promote research into
medical, nutritional and agricultural matters related to the relief of such
poverty, distress and suffering as aforesaid and publication of the results
thereof.
Oxfam’s
activities both as regard fund-raising here and expenditure abroad had expanded
and changed in character very much over the last 30 years. Mr Kirkley, the
charity’s director, had stated in an affidavit that there was now an increasing
emphasis on development aid rather than emergencies. Dealing with fund-raising,
he had said:
Since 1960
the development of Oxfam in this country has been largely dependent upon the recruitment
and organising of
local groups of voluntary helpers, quite apart from over 8,500 voluntary
collectors of monthly donations to the pledged gift scheme. Through this voluntary
unpaid help Oxfam now derives about 50 per cent of its income. The activities
of these groups in support of Oxfam are very varied, including the
dissemination of information, the arranging of meetings and the usual
traditional forms of fund-raising. Increasingly, however, our voluntary helpers
have found that the most effective form of fund-raising is in the organisation
and manning of gift shops. 508 of our groups now concentrate their efforts on
the growing number of shops. The growth of this aspect of their activities is
illustrated by the following figures. In December 1968 the groups were running
192 shops in the United Kingdom; in December 1969, 256 shops; in December 1970,
320 shops; in December 1971, 433 shops; and in December 1972, 508 shops. Of the
last figure, 177 shops were based in rent-free premises loaned to the local
groups for short and long terms by commercial firms. In the case of the
remainder, the rent was usually the full commercial one and was generally paid
by the local groups out of the shop takings. The gift shops are used for the
following purposes:
(1) The reception and sorting of articles given
to Oxfam.
(2) The sale of those donated articles which
cannot be used in the work of Oxfam overseas. The purpose of the sales is to
convert the donated articles into usable form, that is to say, money.
Originally a substantial proportion of the donated goods, particularly
clothing, was used in Oxfam’s work overseas, but latterly most of the donated
goods have been sold. The reason for this is that the cost of sorting and
transporting clothing abroad is very high, and it has been found more effective
to sell such items in the United Kingdom and use the proceeds of sale for
Oxfam’s purposes abroad. Sales of donated goods account for about 80 per cent
of the sales at the gift shops taken as a whole.
(3) The sale of ‘village handicraft’ articles.
These are goods made in various parts of the developing world under Oxfam’s
‘Helping by Selling’ programme, the purposes of which are to encourage village
industries and provide employment in poor countries. This category accounts for
about 7 per cent of the sales of the gift shops taken as a whole.
(4) The sale of other articles, such as
tea-towels and Biros advertising Oxfam’s name, and, at Christmas time, Oxfam
Christmas cards. These articles are produced by Oxfam Activities Ltd, a
wholly-owned subsidiary of Oxfam formed for the purpose of trading. This
company buys and resells, through the shops and by mail order, a limited
variety of specially-made articles such as those mentioned above. The company
employs 12 staff and its profits are totally covenanted to Oxfam. This category
accounts for about 13 per cent of the sales of the gift shops taken as a whole.
The premises
which were the subject of this appeal were nine shops in different parts of
Birmingham. As an example, the first shop on the list, 372 Coventry Road, Small
Heath, was opened in December 1971 and closed in January 1973. During that
period it was open four days a week from 10 to four, and the rent payable was
£8 a week. The sales area was 434 sq ft and the storage area 850 sq ft. The
gross takings from the date of opening to September 30 1972 were £1,574 odd,
and after deduction of rent, electricity charges and water rate amounting to
£458 odd a sum of £1,116 odd was transferred to Oxfam. A breakdown of the sales
showed that by far the greater part of the receipts came from the sales of
donated goods, as opposed to the ‘village handicraft’ articles and the articles
provided by Oxfam Activities Ltd, and that by far the larger part of the
donated goods consisted of clothing.
After the
passing of the 1961 Rating and Valuation Act it was generally assumed by rating
authorities that Oxfam shops were entitled as of right to 50 per cent relief
and eligible for further discretionary relief under section 11 of the 1961 Act
and later section 40 of the 1967 Act. In the year 1971-72, 201 shops were
granted the mandatory 50 per cent relief, 29 relief between 50 per cent and 100
per cent and 135 total relief. But in the light of certain observations by Lord
Denning and Winn LJ in Aldous v Southwark Corporation [1968] 1
WLR 1671 and an opinion of counsel obtained and circulated by the Association
of Municipal Corporations, a number of authorities had recently taken the view
that Oxfam shops did not in fact qualify for relief under section 40. By an
originating summons issued on November 17 1972 by Oxfam against the Birmingham
Corporation, which was in the nature of a test case, Oxfam claimed a declaration
that the nine shops were entitled to the 50 per cent mandatory relief and
eligible for the 50 per cent discretionary relief under section 40. Templeman J
on June 10 1974 decided that Oxfam shops did not qualify for relief, and
granted a certificate for a ‘leap-frog’ appeal.
The wording of
section 40 (1) showed that the legislature did not consider that the mere fact
that the hereditament in question was occupied by a charity justified any
relief from rates. That was justified only if the hereditament was being used
for ‘charitable purposes’ of the charity. So the first question that arose was
what were ‘charitable purposes’ of a charity, as distinct from its other
purposes? The answer must be, so he (his
Lordship) thought, those purposes or objects the pursuit of which made it a
charity, ie in this case the relief of poverty, suffering and distress.
Assuming that to be so, it might be argued that relief from rates could be
granted only if the premises in question were being used for the actual giving
of relief to those in need; if, for example, those in need came to them to
receive food, clothing, money or shelter. But the decision of the House in Glasgow
Corporation v Johnstone and others [1965] AC 609 showed that such a
construction was too narrow. The charitable purpose there was the advancement
of religion by the provision of services in a church owned by the trustees, and
the question was whether a house belonging to the trustees and of which they
were held to be in rateable occupation, but which was used as a residence by the
church officer whose duty it was to look after the church, was being used by
the trustees ‘wholly or mainly for charitable purposes’ within the meaning of
section 4 (2) of the Local Government (Financial Provisions etc) Scotland Act
1962. Lord Reid, with whom his colleagues (other than Lord Guest, who
dissented) were in agreement, said that if the use which the charity made of
the premises was directly to facilitate the carrying-out of its main charitable
purposes, that was sufficient to satisfy the requirement that the premises were
used for charitable purposes. Oxfam, therefore, was entitled to rating relief
in respect of premises which it occupied and which were not being used for the
actual relief of poverty or distress if–to quote Lord Reid–the use which it
made of them was ‘wholly ancillary to’ or ‘directly facilitated’ the
carrying-out of its charitable object, the relief of poverty or distress.
One example of
such a use would be the head office of Oxfam. As Lord Donovan pointed out in United
Grand Lodge v Holborn Borough Council [1957] 1 WLR 1080 at 1088,
every organisation setting out to advance some cause must, if it was of any
size, have an office where the necessary clerical and administrative work was
done, and counsel for the corporation conceded that any office premises
occupied by Oxfam, if they were wholly or mainly used for the organising and
carrying-out of Oxfam’s charitable activities, would be entitled to rating
relief. On the other hand, a line had to be drawn somewhere, and a case on the
other side which the appellants admitted to have been rightly decided was Polish
Historical Institution Ltd v Hove Corporation (1963) 10 RRC 73. The
institution was a charitable organisation whose object was to encourage the
study of modern Polish history. It owned and occupied a house, 53 Brunswick
Square, Hove, the rooms in which it let to lodgers who paid weekly sums for
their use, and the net profits derived from this user of the house were used to
promote the objects of the institution. Lord Wilberforce, before whom the case
came when he was a judge of first instance, said then that the question was
whether the activities carried on on the premises were activities for the
carrying-on of which the organisation existed, and that they
Industrious Blind v Commissioner of Valuation for Northern Ireland
[1968] NI 21, where a shop for sale of goods manufactured by blind persons also
sold goods bought in for resale, about 50 per cent of sales being of the latter
type; and it was held that the premises did not qualify for exemption under an
analogous statutory provision.
Counsel for
the respondents in the present case had conceded that if the Oxfam shops in
question had been mainly used for the sale of the ‘village handicraft’ articles
made under the ‘Helping by Selling’ programme, they would have been entitled to
relief, but of course only a very small percentage of the sales in the shops
was attributable to such articles. Counsel for Oxfam, for his part, was
prepared to concede that if the shops had been mainly used for the sale of the
articles bought by Oxfam Activities Ltd they would not have been entitled to
relief; but here again, only a small percentage of the sales was attributable to
such articles. The premises were undoubtedly mainly used for the sale of
clothing given to Oxfam, and the question was whether such user was a user
‘for’ the charitable purposes of Oxfam. Each counsel had accepted some of the
reasons given for the decision in Aldous v Southwark Corporation,
already referred to. That was a case in which the Dulwich Estate secured relief
from rates in respect of (1) the estate offices, (2) the estate workshop and
stores used in connection with the maintenance and repair of the houses on the
estate, (3) a house used as a residence by the estate bailiff, and (4) a
cottage used as a residence by the wood-keeper. Lord Denning and Winn LJ had
drawn a distinction in their judgments between getting in money for a charity
by managing its existing property and raising money by appealing to the public
for funds. Lord Denning said that a separate office set up by a charity from
which it set out to launch an appeal for funds would not be wholly or mainly
used for charitable purposes and would not be entitled to relief from rates,
but that the management and administration of the Dulwich Estate was wholly
ancillary to the carrying-on of the governors’ main charitable purpose. The
offices, workshops and cottages were essential to that management and
administration, and were accordingly occupied wholly for charitable purposes.
Counsel for Oxfam submitted that the decision in the Dulwich case was right,
but that the distinction drawn by Lord Denning and Winn LJ was not the true
one. He (counsel) maintained that the true distinction was between using
premises for getting in or raising money for the charity, whether by management
of property or appeals to the public on the one hand, and earning money for it
by using the premises as the site of a business on the other. There were, he
submitted, nine points of distinction between an Oxfam shop and an ordinary
shop:
(1) The goods sold in an Oxfam shop had been
given to the charity and had not been purchased like ordinary stock in trade.
(2) The staff was unpaid.
(3) The shops were not open for regular shop
hours.
(4) Although the difference between the receipts
from the sales and the outgoings could be called a profit derived by Oxfam from
the shop, it was not an ordinary trading profit.
(5) The premises, as well as serving as a shop
for the sale of the donated goods, also served to advertise the charity.
(6) In some shops at least, clothes were on
occasion sold at less than the marked prices to persons who appeared to be in
need.
(7) In some cases the shops were occupied
rent-free or at reduced rents.
(8) In such cases the shops were occupied only
for short periods, as for instance between two commercial lettings.
(9) It was reasonable to suppose that some
purchasers of goods in the shops were actuated by a desire to help Oxfam as
much as by a desire to possess the goods which they bought.
Counsel for
the corporation agreed with counsel for Oxfam in submitting that the
distinction between the getting in of money by managing charity property and
its raising by way of appeals for funds could not be supported; but he, of
course, argued that using the premises in the course of managing existing
charity property was just as much on the wrong side of the line as using them
to raise money by appeals or to earn money by carrying on a business. The true
dividing line was, he said, that suggested by Lord MacDermott in the Belfast
Blind Association case, namely, between the use of the premises for
purposes which were directly related to the carrying-out of the charitable
objects and using them to get in or raise money for the charity. A merely
financial nexus was not enough. He (counsel) agreed that a strict application
of this principle would mean that, in the not uncommon case of the office of a
charity being used both for the purpose of carrying on the charitable work and
for the purpose of managing its property and raising fresh funds, it would be
necessary to see which was the main user; but he argued that this was a very
slight difficulty as compared with the difficulty of distinguishing between
user for purposes of management and user for the purpose of carrying on a
business. He submitted that the Dulwich case must have been wrongly decided
unless the various Acts of Parliament and schemes in question (which were not
set out in detail in the reports) could be regarded as having set up a trust
for the management and exploitation of the charity property which had to be
regarded as itself a separate charitable trust. Finally he said that even if
user for management or fund-raising justified relief, it was impossible to
bring Oxfam shops under those headings and to distinguish them from ordinary
shops on the grounds suggested.
He (his
Lordship) was not prepared to put on section 40 (1) a construction which might
involve the drawing of a wholly artificial distinction, and he agreed with
counsel that the choice was between (a) drawing the line so as to exclude from
relief user for the purpose of getting in, raising or earning money for the
charity, as opposed to user for purposes directly related to the achievement of
the objects of the charity, and (b) only excluding from relief user for the
purpose of carrying on a business to earn money for the charity. If the second
were the true view, the further question arose whether Oxfam shops could be
distinguished, for the purposes of the section, from a shop run by a charity on
ordinary commercial lines. He (Lord Cross) thought that the first alternative
was to be preferred. He appreciated that its adoption might involve, in the
case of an office used both for the supervising of the work of the charity and
for managing its property and raising fresh money, an inquiry into what was the
main user. But that objection seemed to be very slight as compared with the
difficulties into which one got if one tried to draw a line between managing
property and running a business. This difficulty was strikingly illustrated by
the facts of the Dulwich case itself. The governors would have had to pay rates
on their woodlands if woodlands had been rateable. How could the fact that the
woods were not rateable justify relief in respect of the cottage occupied by
the woodman whose duty it was to look after them? How could the fact that the houses let on
leases were in the rateable occupation of tenants justify relief in respect of
the workshops used to enable the governors to comply with their obligations of
maintenance and repair, or in respect of the house in which the bailiff
lived? The truth was that the running of
the Dulwich Estate was analogous to the carrying-on of a business, and that all
the hereditaments in question, including the estate office, were being used for
activities which had as little to do with the furtherance of education as the
running of a boarding-house in Hove had to do with research into modern Polish
history. This was not to say that he (his Lordship) regarded the actual
decision in the
suggested by counsel for the respondents, though if so the case was a very
special one which afforded no general guidance on the interpretation of the
section. The difficulty of drawing any satisfactory line between managing
property and earning money was further illustrated by the case of these Oxfam
shops. Counsel for Oxfam said, truly, that the donated clothing was trust
property, and argued that its sale could be regarded as management of trust
property; but if the shop was being run on commercial lines, any stock which
was purchased would equally be property held on trust for the charity. Yet it
would be absurd to describe its sale in the ordinary course of business as an
example of the management of charity property.
For these
reasons he (his Lordship) would dismiss the appeal. He did so with some regret.
The question whether any, and if so how much, rating relief should be given to
charities in respect of premises occupied by them was no doubt a vexed and
difficult one; but it was unfortunate, and hard on the appellants, that
Parliament had drawn the line so vaguely in the 1961 Act that rating
authorities thought for a number of years that Oxfam was entitled to relief in
respect of its gift shops to which, if their Lordships agreed, it was not in
fact entitled. But his (Lord Cross’s) construction of the section in question
had at least the merit of simplicity, and if Parliament considered that it bore
too hardly on charities he hoped that any amending legislation would be framed
with greater precision.
LORD MORRIS OF
BORTH-Y-GEST said that in his opinion user ‘for charitable purposes’ denoted
user in the actual carrying-out of the charitable purposes: that might include
doing something which was a necessary or essential or incidental part of, or
which directly facilitated or which was ancillary to, what was being done in
the actual carrying-out of the charitable purpose. There might, on the other
hand, be things done by a charity, or a use made of premises by a charity,
which greatly helped the charity, and which must in one sense be connected with
the charitable purposes of the charity and which were properly within the
powers of the charity, but yet which could not be described as being the
carrying-out, or part of the carrying-out, of the charitable purposes
themselves. The nature of the user might not be sufficiently close to the
execution of the charitable purpose of the charity. A charity might be entitled
to occupy premises and to use them other than for its charitable purposes: only
if to occupation by a charity there was added user ‘for charitable purposes’
would the benefit given by the section accrue. On this basis, he (his Lordship)
concluded that Oxfam’s shops were used for an activity which was not inherently
charitable, and he would dismiss the appeal, though with a measure of regret.
LORD SIMON OF
GLAISDALE, LORD EDMUND-DAVIES and LORD FRASER OF TULLYBELTON agreed with the
speech of Lord Cross, and the appeal was dismissed. No order was made as to
costs.