The Law of Equity and Trusts - Essay Example

?Equity & Trusts work (Final Year LLB Law) Table of Contents Introduction 3 The Law of Equity and Trusts 3 Discussion Whether the Law GoverningCharities Is Unclear 5 Arguments For 9 Arguments Against 10 Conclusion 11 References 12 Introduction Charities form a crucial part of every society. The word “charity” is connoted from a Latin word “caritas,” which means care. Generally, a charity signifies generosity towards needy and poor people. However, the legal meaning of the word, “charity” is much wider. It includes other purposes for the welfare of the community as a whole. It is worth mentioning that charitable trusts in the United Kingdom (UK) are entitled to be governed by law1. In addition, charities are free to take part in public debates in the areas related to policy and legislation along with involving in the political activities with the motive of influencing decisions that will support the work of charity and not for any other purposes. At the same time, it has been affirmed that charities are entitled to guard their independence but they cannot permit political activities to become the reason for their existence. In this regard, the major problem behind the law governing the charities is that this law does not explicitly define the charitable purposes2, knowledge and understanding of the law of equity and trusts. Correspondingly, the focus of the essay is to identify the reasons why it is desirable to encourage, rather than restrict, charities’ advocacy and campaigning role. The Law of Equity and Trusts In order to acquire comprehensive understanding regarding the law of equity and trusts, it would be vital to begin with analysing the historical background related with the origin of the law. In this context, it is worth mentioning that the history of trusts in the UK is originally derived from the principle of equity. During the 12th and the 13th century, possession of land in Britain was derived on the feudal system. When people left to fight in the struggle, they had to pass their land to other people for taking care of it. In general, when those people returned back, the other people had to give back their land to the respective owner. However, at that time the principle of equity was not recognized. Hence, when the actual owner failed to recover his/her land despite claiming in the court, the people plead to king. On their petition the matter was referred to Lord Chancellor. Since then the principle of equity was originated3. There are certain basic principles of equity that act as a guide for courts in deciding whether equitable jurisdiction should be followed. These basic principles are represented below: Equity will not experience a wrong to be without a redressal Equity abides by a law An individual who pursues equity must ensure equity An individual who comes to equity must aim to ensure clean hands ‘Where the equities are equal, the law triumphs’ ‘Equity imputes an aim to realise an obligation’ ‘Equity values act that ought to be done’ ‘Equity is equality’ ‘Equity regards to the intent rather than the form’ ‘Delay defeats equity’ (Source4) Concerning the legislation being exercised in the UK, it has been ascertained that the trust law was originally regulated by the Trustee Act 1925. However, this particular Act is currently replaced by Trustee Act 2000. From a critical analysis of the law of equity and trusts, it has been observed that the Trustee Act 2000 is the most inclusive trust law in the UK particularly in England and Wales. The Trustee Act 2000 is a set of regulations that articulates the duties of trustees and has been enforced throughout England and Wales. The Trustee Act of 2000 fundamentally comprises five aspects related to trust law. These five aspects include duty of trustee, power of trustee to invest, power of trustee to appoint nominee, power of trustee to acquire property and power of trustee to obtain remuneration and other benefits 5 However, the law relating to charities is different from the ordinary law of trust. The earlier law of charities reveals that the inception of trust was originated for charitable category and the legal conduct of charities were the obligation of individual communities and therefore counted under the ecclesiastical or religious courts’ jurisdiction, Over time, Courts of Chancery attained responsibility for charities and organised them as trusts and thus the legislature related with charities and the law of trusts were brought beside each other6. Discussion Whether the Law Governing Charities Is Unclear Charities are regulated by separate legal framework. In England and Wales, charities are generally regulated by the charity commission. Over the years, the commission has augmented its activities, including a wholesale review of registered charities, publication of a wide range of guidance for trustees and a programme for charity visits and investigation. The statutory objectives of the commission include: Increasing public trust and confidence in charities Promoting compliance of charity trustees with legal commitments while ascertaining control along with management of various activities of their charities Endorsing efficient along with effective utilisation of charitable resources Furthermore, as per the Charities Act 2006 a “charity” is defined as an “institution” which can be trust or a company under English law and it should be established solely for the charitable purpose only7. A charitable purpose is defined as one which duly fulfils one of thirteen heads set out in the Charities Act 2011 and it must be for the benefit of the public. In this regard, it can be argued that these definitions of charity and charitable purpose merely propound the function of charity but they lack in precision. Moreover, it can be argued that the definition of charity is nothing more than the list of charitable purposes as this definition basically outlines the purposes of charity rather than explaining the exact meaning of charity. It can be stated that the definitions are being dealt with in this way primarily because the list governing the charitable purposes is comprehensive and has certain similarities to the preamble or the case laws. It is worth mentioning that public benefit has always been a paramount factor for charities. It aids in distinguishing charitable trusts from private trusts and facilitates in rationalizing the taxation treatment afforded to charities. However, English common law does not provide legal definition of charity. Initially, ‘the preamble statute, the Charitable Uses Act 1601’also known as Statute of Elizabeth I provided typical guidance to charitable purposes which were listed as “the relief of aged, impotent, and poor people; free schools and scholars in universities; the maintenance of sick and maimed soldiers and mariners; schools of learning; the repair of bridges, ports, havens, causeways, churches, sea banks, and highways” and many other purposes which served as the basis for modern judicial system for establishing a charitable purpose8. It is worth mentioning that in the Commissioners for the Special Purposes of Income Tax v Pemsel, the court stated that9 “Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community not falling under any of the preceding heads10.” It is worth mentioning that since the 200 years of the enactment, the statute (as Statute of Elizabeth I) attempts to classify the objects or the purpose of the charities were far from any solid definition. The Charities Act 1990 firmly articulated that the purpose of charities under the section 46 is fundamental to the purpose outlined under the law of England and Wales. Correspondingly, it can be stated that Charities Act 1990 did not incorporate any significant changes that would clearly define the purpose of the charities. Consequently, the Charities Act 1990 can be attributed as unclear. However, the Charities Act 2006 now known as Charities Act 2011 for the first time provided statutory definition regarding the charitable purpose. It has been emphasised in the Act that in order to recognise an organisation as a charitable trust, it is essential for the particular organisation to explicitly demonstrate its purposes under the section 2 of the Charities Act 201111. In this regard, it is vital to be stated that the Act in general terms provides a detailed list regarding the charitable purpose but it can be argued that none of them illustrate the presumption that public welfare is robustly provided. Responsively, there are two major elements of the public benefit requirement. In this regard, the first prerequisite in relation to an organisation’s purposes is that it must be capable to generate benefits and demonstrate them which should be further recognisable under law as beneficial. It is vital to note that in no case its purpose should be related to private benefit. Moreover, it has been ascertained that trusts for political purposes are not considered as charitable as stated in the case of McGovern v AG12. This case was preferred for this study over other cases because it clearly reveals that an institution cannot be considered as charitable institution if it is involved in charitable purposes and simultaneously in campaigns promoting changes in law. Under the Commissioners Annual Report for 1981, paragraph 55, a charity may engage in the following activities unless its governing bodies prevent from doing so13. The certain circumstances where charities can actively participate in political activity are represented below: Charities can involve in political debates, if government bodies pursue their suggestion in proposing certain changes in the law Charities can supply information to members of the house where Parliamentary Bills are passed Charities can engage in political activities where charity would be provided increased power as well as it can oppose private bills that are relevant to its purposes Charities are also eligible to participate in the political activities where issues such as government grant related to charities are concerned (Source14) The Arguments For and Against Permitting a Greater Campaigning Role Arguments For It can be argued that tax code is not used as a criterion of regulating elections. However, it has been ascertained that those organisations which enjoy exemption of tax are restricted from participating in political campaigns. Hence, it can be argued that prohibiting charities from participating in campaigning violates certain important rights of the people. In this regard, two major arguments can be made in support for their position regarding permitting the interventions of charities in political campaign. Correspondingly, the first argument can be related with the amendment right of the charities on behalf of the candidates. Notably, prohibiting charities from participating in political campaigns can be firmly attributed to the violation of that right. Furthermore, restriction of charities can also be regarded as the violation of the right proclaiming free speech. Thus, it can be argued that charities have the right to intervene in political campaigns. At the same time, it can be firmly argued that even if the restriction on charities on participating in political campaigning is constitutional, its role in informing general people regarding the certain political issues is essential. It can be argued that prohibiting charities from participating in the political campaign denies them from attaining their charitable objects15. Hence, for ensuring the furtherance of their objects, it is crucial that the charities are engaged in the political activities. Such prohibition to charities for participating in the political campaigning can be regarded as the discriminatory enforcement for particular organisation. It is vital for the government and the legal bodies to enforce fair enforcement of the provision. It can be argued that prohibition of charities regarding the political campaign should be relaxed as the charities have the significant role to play as well as to express their political views. Correspondingly, it is essential to revise the propositions relating to the charities involvement in political campaigning in order to ensure that subsidy is not misused or abused16. Arguments Against It can be argued that allowing the intervention of charities in the political campaigning is more likely to harm the democratic process of the country. At the same time, these organisations are generally involved in promoting public welfare and benefit. Evidently the case of Scottish Burial Reform and Cremation Society v City of Glasgow Corp17 firmly postulated the relationship between the public benefit and charitable trust. Thus, the political intervention by the charities can be regarded as inappropriate. In this regard, it can be further argued that prohibiting charities from intervening in political campaign is beneficial for attaining secular society18. It can be further debated that charities will be misdirected from the core objectives of attaining public welfare if they are allowed to freely participate in the political campaigning. Prohibiting charities from engaging in political campaigning will certify to protect them from the influence of the powerful politicians. Thus, it will also aid the charities from facing pressures from politically dominated parties19. Involvement of non-profit organisations such as charities will increase the possibility of unethical practices like corruptions within the political parties. Moreover, the charities receiving grants from the government may also seek more funds in the exchange of political campaigning for the particular political party. At the same time, by allowing charitable trust to participate in the political campaigning, it may deprive charities from attaining special status in the society20. It can be argued that intervention of the charities in the political campaigning is also inconsistent with the aspects of the public welfare. Thus, it can be firmly argued that such actions of the charities are not in the best interest of the public as it may cause deviation in the objective of charities towards attaining power and funds. It is possible that certain particular charities may gain greater favours and benefits while others may get deprived from attaining benefits21. The chairperson of the public accounts committee, Margaret Hodge also revealed her concern regarding the tax avoidance scheme for registered charity22. Conclusion To sum up, it can be argued that imposing ban on the charities for participating in the political campaign is associated with the violation of certain rights. Correspondingly, it can be further argued that such ban on the charities causes breach of their right associated with freedom of speech and democratic rights. Furthermore, such prohibition may also result in the misuse and the abuse of the grants and funds by the government bodies. On the other hand, allowing charities to participate in the political campaigning can be perceived as a threat to the democratic process. Correspondingly, charities may get deviated from their core mission of public benefits, if they are allowed to participate in the political campaign. The arguments presented above reveal both the positive and the negative consequences of involving charities in the political campaigning. However, it can be firmly argued that despite certain limitations associated with the participation of charities in the political campaigning, it is essential for them to proactively involve in such activities in order to protect their and charitable sector’s interest. References Alastair Hudson, Equity and Trusts. (Routledge, 2012). Alison Dunn, ‘Charities and Restrictions on Political Activities: Developments by the Charity Commission for England and Wales in Determining the Regulatory Barriers’ [2008] (The International Journal of Not-for-Profit Law) accessed 09 November 2013. Brian Galle, ‘The Lds Church, Proposition 8, And the Federal Law of Charities’ [2009] (Northwestern University School of Law) accessed 09 November 2013. Charity Commission, ‘Charities, Politics and Campaigning’ [2013] (MP Factsheet) accessed 09 November 2013. Crown, ‘Speaking out Guidance on Campaigning and Political Activity by Charities (CC9)’ [2008] (Trustees & Governance) accessed 13 December 2013. Crown, ‘Charities and Elections’ [2011] (Charity Commission) accessed 13 December 2013. Debra Morris, Anne Morris and Jennifer Sigafoos, ‘The Impact of the Equality Act 2010 on Charities’ [2013] (University of Liverpool) accessed 09 November 2013. Guru Dhillon, Dr Noor Mohammed and Ng Yih Miin, ‘Equity & Trust’s Law applications in Malaysia, UK and US - In tandem or apart?’ [2012] (Historical Background and Development in UK, Malaysia and US) accessed 09 November 2013. Income Tax Special Purpose Commissioners v. Pemsel [1891] AC 531. Lawskool UK, ‘Equity and Trusts Summary’ [2011] (Introduction to Equity) accessed 09 November 2013. McGovern v Attorney-General [1982] Ch 321. Nuzhat Malik, ‘Defining “Charity” and “Charitable Purposes” in the United Kingdom’ [2008] (he International Journal of Not-for-Profit Law) accessed 09 November 2013. Robert Meakin, The Law of Charitable Status: Maintenance and Removal. (Cambridge University Press 2008). Richard Clements, Ademola Abass, Equity & Trusts: Text, Cases, and Materials. (Oxford University Press 2011). Review of the Charities Act 2006. Robert Meakin, The Law of Charitable Status: Maintenance and Removal. (Cambridge University Press 2008). Rajeev Syal, ‘Charity Commission 'not fit for purpose', says Margaret Hodge’ [2013] (Guardian News and Media Limited) accessed 13 December 2013. Samuel Brunson, ‘Reigning in Charities: Using an Intermediate Penalty to Enforce the Campaigning Prohibition’ [2011] (LAW eCommons) accessed 09 November 2013. Scottish Burial Reform and Cremation Society v Glasgow City Corporation [1968] AC 138. Read More