Community Housing Trust Not Charitable

Re Queenstown Lakes Community Housing Trust CIV 2010-485-1818, McKenzie J, 24 June 2011

So far all appeals from adverse decisions of the Charities Commission have been unsuccessful and that track record has continued with the High Court’s recent decision in Queenstown Lakes Community Housing Trust CIV-2010-485-1818, McKenzie J 24 June 2011. The decision is a reminder that good intentions and altruistic motives do not necessarily amount to charitable objects.

What is slightly different about this case is that the Trust in question was originally accepted for registration by the Charities Commission, subsequently reviewed and then deregistered in August 2010.  The Trust appealed that decision and it was temporarily restored to the register pending the hearing of the appeal.
The Trust was established to promote and/or provide housing for households that contributed to the social, cultural, and economic and environmental wellbeing of persons living within the district of the Queenstown Lakes Council at a cost within their means.  There were ancillary purposes directed at supporting that primary purpose.

Justice McKenzie noted that some changes to the purpose clause had been proposed but he said his conclusions did not turn on a close consideration of the objects and the changes would not have altered his conclusions.

The Trust was an initiative which sprang from a realisation that housing affordability was a factor affecting the ability of the Queenstown Lakes to attract and retain key workers vital to the functioning and operation of the community.  The main mechanism through which the Trust sought to achieve its purposes was a “shared ownership programme”.  This saw applicants contribute to the purchase price of housing according to their means, with the balance being picked up by the Trust and ownership shared accordingly.  The programme was only available to support the acquisition of a primary residence, it was limited to households below certain income levels and was subject to other limitations such as a minimum percentage deposit to be raised by the applicants themselves.

The effort to ensure such people could afford housing in Queenstown Lakes might well be regarded as beneficial to the community generally but that was not necessarily enough to attract charitable status in the circumstances.

The Trust also undertook, through a subsidiary, construction of homes to be sold through the shared ownership programme to eligible residents.  The Trust’s funds were derived from grants from Housing New Zealand and from contributions of land, buildings or funds from private local developers.  In addition, Housing New Zealand had made a substantial interest-free loan to the Trust to be forgiven over 10 years.
The Charities Commission investigation into the eligibility of the Trust was prompted by questions raised by an unsuccessful applicant for registration with apparently similar purposes.  After analysing the position, the Commission concluded that the objects of the Trust fell short of being charitable under the head of relief of poverty.  While the shared ownership programme was an initiative that clearly helped people to buy a type of house in an area they could not otherwise afford, the Commission was not satisfied the programme was aimed at people who were suffering genuine financial hardship or people who do not have access to the normal things of life that most people take for granted.

While the Commission accepted that poverty is not equated with destitution and can include those of moderate means, most of the people assisted by the Trust seemed to have at least moderate means and did  not suffer a need that required relief through the assistance of the Trust.

The Commission also considered whether the Trust might qualify as charitable as generally “beneficial to the community”.  It concluded that a purpose of this type must be within the spirit and intendment of the Statute of Elizabeth and that not all purposes beneficial to the community will be charitable.  It could find no connection with the spirit and intendment of the Statute.  It also concluded that private benefits seemed to be an end in themselves rather than ancillary or incidental to the achievement of public benefits.

Additional evidence was brought before the Court by way of further affidavits allowed by the Judge.  The Judge said that the special nature of an appeal under the Charities Act justified some relaxation of the usual tests of cogency, credibility and freshness, and thought that the appropriate focus was on whether the Court would be assisted by the new evidence, and whether the Commission would have an adequate opportunity to respond to it.  The Judge then turned to consider the general principles of charity as applicable in this case.

He reiterated that the definition of “charitable purpose” in the Charities Act is used in the particular technical sense the law has ascribed to it.  He adverted to the Statute of Elizabeth and Pemsel’s case and noted that the origin of meaning in that statute does not mean that the law of charities is fixed in the 17th or 19th centuries.  The list of purposes in the statute is not definitive and the test has been applied by analogy and expansion, according to whether a particular purpose can fairly be said to be within the spirit and intendment of the preamble to the statute.

It was necessary, moreover, to ensure that the purposes of the charity confer a benefit upon the public or a section of the public rather than private or personal benefits.

Based on this, the case presented two aspects.  The first was whether the Trust was for the relief of poverty.  The second was whether it was for a purpose beneficial to the community.
On the first of these matters, the Judge concluded there is no single fixed criterion for what constitutes property for the purposes of charity, but even applying a flexible approach, those who were eligible to participate in a shared ownership programme are not, even in a relative sense, poor.  Their inability to meet housing needs relates to a particular form of housing in a particular location.  The particular feature, he said, in this case was that Queenstown district was expensive and if housing assistance was not provided, people who were within the Trust’s eligibility criteria may be unable or unwilling to settle in the district.  That was not sufficient to bring the case within the “relief of poverty” head.  Considerations as to the effect on the community of having people reside within it carried little weight for the Judge in terms of the relief of poverty head of charity.  He concluded that the Commission was right to decide that the Trust’s purposes were not charitable under the relief of poverty head.

He then turned to consider whether there were other purposes beneficial to the community.  He noted the slightly circular requirement that to be charitable a purpose must be beneficial in a way the law regards as charitable, but said this simply emphasised the need for the purpose to be within the spirit and intendment of the Statute of Elizabeth preamble.

The Commission took the view in argument that to fall within this head of charity, a trust must have a purpose that is fundamentally recognisable as charitable, and it is not enough that a scheme is generally a good idea or even that it is entered into for altruistic reasons.
The Judge noted that on this issue the focus was on benefits which the provision of assistance might bring to the wider community of the Queenstown Lakes district.  He cited a somewhat analogous case in Re Tennant [1996] 2 NZLR 633, which had dealt with a case where a substantial land developer had settled land for use in establishing a church, public hall, school and creamery.  The land was to be transferred to the creamery owner after completion and the essential issue was whether the site for the creamery was held for charitable purposes.  The Court held in that case that it was, because the intention had been to create a community “cluster” of which the creamery was part, and that it would be unrealistic to view the creamery in isolation from the other elements of community developments.  The principal rationale for the decision was that the intention for the creamery site was to benefit the locality.

The Judge noted in that respect that gifts for the benefit of a specified locality are charitable if expressed in general terms but where a gift for the benefit of a locality is expressed according to a specified purpose, it will not be charitable unless the purpose itself is charitable.  He held that in the instant case the Trust was for a specific purpose so the focus had to be on whether that purpose was charitable, no matter that it might provide benefits to the community at large.

He held, taking support from the decision of the Court in Canterbury Development Corporation v Charities Commission that a gift which provides a private benefit conferred on a private business which ultimately is hoped to benefit a community, is not a charitable purpose.  The promotion of an industry within which a private business is engaged may potentially be a charitable purpose, but the manner of promotion is also relevant to whether it is charitable.

The Judge sought in relation to his examination of charity and the promotion of business, to distinguish Australian authorities noting that not every instance of assistance to business and industry which provides a public benefit, would be charitable.  The question is whether the particular form in which that assistance is provided falls within the fourth head of charity.

Having examined these cases, the Judge noted that the present case was not about the promotion of business as a potential charitable purpose but he saw the business-related cases as demonstrating a wider proposition relevant to this one.  They showed that in a case involving assistance to business and industry which does confer a public benefit, the existence of that benefit is not sufficient to make the provision of assistance charitable per se.  Applied in the instant case, the nature of the public benefit claimed under the fourth head was the betterment of the community said to arise from retaining in the district, useful members of society.  He held that purposes which are directed to the composition and social cohesion of a particular community are capable of falling within the fourth head of charity by analogy with gifts for the benefit of a locality and with the promotion of urban and rural regeneration (clearly recognised as charitable the authorities).  Thus the claimed benefits in this case were capable of falling within the fourth head of charity.  The next question, however, was whether the means by which they were achieved was a charitable means. 
The instant case saw the intended benefit to the community in workers and other persons whose presence in the community is important for its overall welfare being able to live in the district.  That public benefit was indirect.  The means by which the public benefit was achieved involved conferring a private benefit on private individuals in meeting housing costs where they had been selected as meeting the Trust’s criteria.  By contrast, the Judge referred to the way in which the Charity Commissioners in England deal with trusts or organisations directed towards urban and rural regeneration for public benefit.  They apparently follow quite detailed criteria to assess whether or not an area is in need of regeneration and whether the public benefit from an organisation’s activities outweighs any private benefit.

In the end, it was this last point which caused the Judge to find against the Trust.  The individual benefits provided as a result of the shared ownership programme, though directed ultimately towards achieving an object beneficial to the community, were simply too great and too direct to permit the conclusion that the Trust’s purpose was charitable under the fourth head of charity.

Though the Queenstown Lakes District Council in supporting the formation of a trust was motivated to address the issue of housing affordability for the general good of its community, its motive and purpose were not the same thing.  The Trust’s principal purpose was to provide housing to selected householders and that was not, in the Judge’s view, charitable, because of the emphasis on individual benefits.

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