New Lanark Trust-owned businesses’ charitable status upheld by Inner House

The respondents, New Lanark Hotels Ltd and New Lanark Trading Ltd, had argued on appeal to the Upper Tribunal that they provided a public benefit in terms of the Charities and Trustee Investment (Scotland) Act 2005.

The appeals were heard concurrently by the Lord Justice Clerk, Lady Dorrian, sitting with Lord Malcolm and Lord Doherty.

Large turnovers

All of the shares in both respondents were owned by New Lanark Trust (NLT), the body responsible for managing the UNESCO World Heritage Site at New Lanark, a former 18th century village built around a cotton spinning mill. The first respondent operated hospitality premises within New Lanark village, while the second operated a visitor attraction with related trading activities. The principal purpose of each respondent was to produce income to be donated by gift aid to NLT.

The appellant refused to enter the respondents on the register as it considered that they did not meet the charity test set out in the 2005 Act, in particular because they did not provide or intend to provide “public benefit”, a term not defined by the 2005 Act, in Scotland or elsewhere.

In respect of NL Trading, the appellant acknowledged that while some of its activities were charitable, certain activities such as the mill shop and ice cream manufacturing had large turnovers that were neither in furtherance of a charitable purpose nor incidental to them. Similar reasoning was used in respect of the NL Hotels application.

The applicant explained that a distinction had to be drawn between activities which directly advanced a charitable purpose, and non-charitable activities undertaken with the aim of generating profits to be applied for charitable purposes. The fact that some activities may result in public benefit did not mean that the organisation’s activities as a whole did so. These decisions were upheld by the First-tier Tribunal.

Inevitable balancing exercise

On appeal, the Upper Tribunal concluded that the FtT had failed to provide proper, adequate, and intelligible reasons for its decision. Having accepted that commercial or trading activity could further an organisation’s charitable purposes, the FtT required to consider in each case whether the activities in question were or were not in furtherance of such a purpose. It directed that both respondents should be entered in the register.

In its reasoning, the UT accepted that the respondents could not pass the charity test purely based on them donating their profits to NLT for charitable purposes. However, “public benefit” was clearly capable of including circumstances where there was some degree of private benefit or public dis-benefit, as well as circumstances where reasonable fees and charges were imposed. Where a commercial activity furthered a charitable purpose, it was irrelevant that at the same time it raised funds intended to be applied for its own benefit.

It was submitted for the appellants that the UT erred in concluding that a balancing exercise was inappropriate where an applicant for entry to the register had dual purposes. The scheme of the Act bound the appellant to consider an applicant’s activities “as a whole” when determining the question of public benefit, which would inevitably involve a balancing exercise.

In relation to the production of ice cream, in particular, the appellants argued that the UT erred in concluding that this advanced NL Trading’s charitable purposes solely because “the facility for demonstrating the use of local produce behind a glazed screen has educational value”. This was a trivial and wholly insufficient basis for meeting the public benefit element of the charity test.

Philanthropic intent

The opinion of the court was delivered by Lady Dorrian. On the nature of the proposed charitable purpose, she said: “The UT assessed the activities of the respondents within the context of [its] particular findings relating to New Lanark which it considered almost to be unique. The activities in question were held by the UT as a matter of fact, to advance the charitable purposes in respect of the maintenance of New Lanark as a living village and promoting the understanding of the philanthropic intent at the heart of its founding.”

She continued: “Unlike the Christmas card example, where the sale of cards could not advance a charitable purpose of, say, finding a cure for cancer, the findings of the UT were that the activities here –all of them – contributed to the vitality which was central to the presentation of New Lanark as a World Heritage Site.”

Addressing the ice cream production business specifically, Lady Dorrian noted: “Far from being the ‘sole basis’ of the decision, the [glazed] screen was of subsidiary importance, the key point being the presentation of the village as a functioning entity which was at the heart of both decisions.”

She concluded: “Another tribunal might have reached a different decision, but standing the evidence and the acceptance of the uniqueness of the village, and the aim of presenting it as a living, working community, the UT was entitled to make the findings which it did.”

For these reasons, the appeal was refused.