London Borough of Merton Council v Nuffield Health [2023] UKSC 18

Background:

Nuffield Health is a registered charity with the question of whether the premises were used for charitable purposes to be decided by reference to the activities carried on there alone. Its purpose
is “to advance, promote and maintain health and healthcare of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit.” It also operates private
hospitals and clinics and provides gym facilities with charged fees. Nuffield Health’s charitable status is well established for its public benefit purposes. Since acquiring the Merton Abbey gym in 2016,
Nuffield Health has claimed 80% relief from non-domestic rates under section 43(6) of the Local Government Finance Act 1988. To access the gym, a Nuffield Health gym membership is required. This is priced at £80 per month or £71 per month if one committed to a longer membership period as of April 2019. The gym provides various facilities: a swimming pool, spa pool and sauna. Certain limited free services are offered to non-members, including health checks, health advice events, and consultations with physiotherapists. Additionally, two schools use the swimming pool for a modest fee during term time.

Proceedings:

The council of the London Borough of Merton (“Merton”) challenged the charitable status of the gym, arguing that the fees charged were set at a level that prevented individuals with modest means
from enjoying the gym facilities. Hence, the gym fails the public benefit requirement, which was quintessential of the charitable status, and Nuffield Health should not be entitled to rates relief
for the Merton Abbey gym.

However, Nuffield Health succeeded in the proceeding at both the first instance and in the Court of Appeal. The judge (Stuart Isaacs KC) first clarified that whether section 43(6) applies depended on whether “Nuffield Health was using the Merton Abbey gym for the pursuit of its charitable purposes, viewed in the context of its charitable activities as a whole.” The question should not only concern the activities conducted within the contested premises. Applying the above test, it was held that Nuffield Health succeeded even though persons with modest means may be excluded from
the gym because of the fees charged. It was also held that when viewed individually, the activities carried out in the gym satisfied the public benefit requirement as its fees did not actually exclude persons of modest means.

The Court of Appeal (David Richards, Peter Jackson and Nugee LJJ) dismissed Merton’s appeal by a majority. Their Lordships agreed with Stuart Isaacs KC on the first point but unanimously reversed him on the second. On appeal to the Supreme Court, Merton renewed its challenge to the interpretation of section 43(6), while Nuffield Health submitted that the Court of Appeal was wrong to reverse the first instance decision on the second point. The Supreme Court [Lord Briggs and Lord Sales (with whom Lord Kitchin, Lord Hamblen and Lord Leggatt agree)], in handing the judgment, dismissed Merton’s appeal on its first point, rendering the second point irrelevant when discussing the case. Thus, the judgment was centralised particularly on the charitable status.

Judgment:

The Supreme Court reviewed principles and statutes for organisations to establish charitable purposes and agreed with Nuffield Health that Merton Abbey Gym should be entitled to rate reliefs.
Two conditions must be satisfied to establish charitable status pursuant to the Charities Act 2011. It was common ground that Nuffield Health fulfils section 3(1)(d) “the advancement of health or the saving of lives” purpose, and hence, there is no dispute around its fulfilment of the section 2(1) charitable purpose.

The second public benefit requirement is in section 4 of the 2011 Act and the Charity Commission’s guidance. Clearly, the ‘benefit’ aspect was easily evidenced through the nature of Nuffield Health’s charitable purpose. However, the ‘public’ aspect was at issue as no matter how broadly ‘public’ was defined, this requirement will not be fulfilled if it excludes the poor: see In re Resch’s Will Trusts [1969] 1 AC 514, 543-544 (“Re Resch”). But it does not follow that a purpose must benefit both the rich and the poor to be charitable. This was explained in an example where a body promotes health for all, regardless of financial background, it charges a membership fee that does not exclude the poor or rich. The body would only be charitable when serving the poor and would be disqualified from its charitable status if it serves the rich. This line of reasoning was further analysed in independent school contexts, as reviewed in the ISC case, where it was held that fee-paying schools are charitable. Hence, the well-established legal principle was reiterated to underline that a charity would satisfy the ‘public’ aspect by generally benefitting the public, including the rich. It was held that a charity’s activities should be viewed as a whole rather than scrutinising a particular place where activities are carried out.

After establishing Nuffield Health’s charitable status, the Supreme Court turned to construing the legal requirements in section 43(6). The requirements revealed to be a two-step enquiry: (1) identify
charitable purposes and (2) whether, in fact the sole or main use of the premise is for charitable purposes or sufficiently closely connected to the said purposes. The first step was already completed by establishing Nuffield Health’s charitable purpose. The Supreme Court found for Nuffield Health in the second stage. It ruled that the Merton Abbey gym was used to directly fulfil its charitable purposes and distinguish it from incidental activities unrelated to its charitable purposes. Plainly, Nuffield Health was benefitting the rich, and whether persons with modest means were excluded from the gym was irrelevant. With the rich being a sufficient part of the public, Nuffield Health was held to use the gym wholly or mainly for its charitable purposes and is therefore entitled to mandatory relief under section 43(6).

Commentary:

This Supreme Court decision is important and would be of significant use for assessing rates of relief for charities. The judgment was clear and communicated directly to the rating authority that they should not value the particular activities in one specific premise for the entitlement to mandatory rates relief but should take into account the overall operation of the charity and determine whether the property in question is wholly or mainly for its charitable purposes. The highly valued clarity and legal certainty in this decision also have an important practical impact on charities operating on a larger scale with diverse property portfolios.

However, some may find the decision controversial as the Supreme Court effectively shut down the requirement for Nuffield Health to prove that the premise at issue is used for the public benefit as it ruled it irrelevant to the appeal. All enquiries required by the Supreme Court on the part of the rating authority were based on the overall operation of charities. It may, therefore, be argued that the judgment may lead to a lack of transparency for rates relief entitlement and giving established charities virtually secured access to rates relief.

Written by Michelle Chan