This article has been prepared to help trustees of a charitable trust or committee members of a charitable society governing the charity more readily to understand the obligations they assume when appointed or elected. Because committee members of a charitable society are effectively “trustees” of the society they are referred to as “trustees” in the balance of this article.
A trustee’s first obligation is to become familiar with:
- The trust instrument establishing the charity (such as the trust deed, or will, or the rules of the charitable society), generally referred to in these Notes as the charity’s constitution, which governs what can and cannot be done, especially the charity’s purposes,
- The charity’s property and records,
- Any limitations to which the charity is subject,
- The charity’s strategic plan and policies (which must always be consistent with the charity’s purposes), and then
- Never to forget the purposes and terms of the trust. It has been said that too many trustees accept appointment without fully understanding that being a trustee involves serious and onerous duties and a commitment of potentially significant time. Being a trustee may be a complex burden, involving not only an understanding of the trust but also being acquainted with relevant legal rules and principles. This article may help to redress those deficiencies, but it is of limited value for two reasons. First, this article is not specific to the circumstances of any particular charity and, second, the detail which may be found in text books cannot be included in such a relatively short article (rather more detailed notes are available to charities which are clients of Bannister & von Dadelszen).
A Summary of the Duties of Charitable Trustees
Those in governing a charitable trust or a charitable society (the “charity”) must:
- Remember that the charitable purposes of the charity set out in the document constituting the charity (its “constitution”) are always paramount,
- Be aware of the history of the charity and its powers under its constitution
- Understand the serious duties and obligations imposed on them by the charity’s constitution and by other laws,
- Be familiar and comply with (and understand) the charity’s constitution,
- Understand the “spirit” of the charity’s constitution (how the words are translated into actions through the charity’s meetings and activities),
- Understand that (unless trustees have a daily “hands-on” role) they “govern,” and do not “manage,”
- Be familiar with any strategic plan and policies of the charity,
- Be familiar and comply with the charity’s annual obligations (completion of accounts, audit, filing with regulatory authorities, AGM, etc.),
- Be able to attend regular meetings of the charity – if not, they should resign,
- Not “profit” personally from the charity,
- Be conscious of conflicts of interest (not just financial), declare them and then avoid involvement in related decision-making,
- Not delegate governance responsibilities unless the charity’s constitution specifically permits this,
- Ensure that prescribed processes are followed to appoint or elect those in governance and record retirements or removals of those in governance, including advising the Charities Board,
- Appreciate that trustees have personal and collective responsibilities and obligations – legal duties to observe the terms of the charity’s constitution, moral duties to be mindful of the history, “spirit” or “essence” of the charity, and personally to commit to spend sufficient time to do justice to the obligations of office, and
- Understand that there can be serious personal consequences for individuals governing a charity if it fails to comply with its constitution and various statutes, and that they have potential liability to the charity itself and to third parties (including those served by the charity) under the Charities Act 2005 and on any liquidation or winding up, and potentially under criminal law.
Explanation of the Meaning of “Charity” and “Charitable”
The definition of what is “charitable” develops over time to reflect changing social and economic conditions. However, once established, a charitable trust will not fail, and if a charity’s purposes cease to accord with social conditions the Courts may direct a different application of the trust property.
The Charities Act 2005 contains, in section 5(1), a definition of “charitable purpose”, namely “In this Act, unless the context otherwise requires, charitable purpose includes every charitable purpose, whether it relates to the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community.” Similar definitions are found in the Charitable Trusts Act 1957 and the Income Tax Act 2007. Those definitions all owe their origin to what are known as the Statute of Elizabeth I and Pemsel’s case (the House of Lord’s decision in the House of Lord’s decision in Commissioner for Special Purposes of Income Tax v Pemsel  AC 531).
While statutory definitions are helpful, as observed in a High Court decision (D V Bryant v Hamilton City Council  3 NZLR 342 at 347-348, affirmed on appeal Hamilton City Council v D V Bryant Trust Board  1 NZLR 41 (CA)) there remain some difficulties in defining a charity; “There is no intrinsic legal definition of a charity. As a matter of technique, Courts can only describe the attributes of charities. And the essential attribute required is that a charitable activity must seek the public weal: or, to put it another way, a charity is not concerned with the conferment of private advantage.”
Bearing those cautionary words in mind, we come to the four broad categories of charity:
Relief of poverty
Poverty is interpreted broadly in law. People who are in need, aged, or who are suffering financial hardship from a change in their circumstances are likely to qualify for assistance. By way of example, the Courts have found the following purposes to “relieve poverty”:
- Caring for the aged, children, or orphans,
- Caring for the infirm, blind, war veterans, or disabled,
- Caring for the intellectually disabled, discharged prisoners, or alcoholics,
- Providing accommodation for elderly people, patients’ relatives, staff at hospitals and emergency shelters, and
- Helping other needy people (for example, refugees or providing disaster relief).
Advancement of religion
The “advancement of religion” means the promotion of spiritual teaching in a wide sense and the maintenance of associated doctrines and practices. It implies that the purpose of the organisation must be for the benefit of a religion and must ensure that a religious faith is passed on to others. Examples of the accepted purposes advancing religion include:
- Celebrating religious services in public,
- Conducting foreign missionary work,
- Providing and maintaining grounds and buildings to be used by churches or other religious organisations,
- Maintaining cemeteries or burial grounds for a particular religion,
- Providing superannuation schemes for the retired ministers of religion,
- Supplying religious literature, and
- Providing religious education through Sunday schools, theological colleges, and conducting religious retreats.
Advancement of education
The concept of education as a charitable purpose includes formal education, training and research in specific areas of study and expertise. To be considered charitable for these purposes an organisation’s purpose must be to provide some form of education and ensure that learning is passed on to others. Examples of the accepted educational purposes include:
- Providing education through early childhood centres, schools and universities,
- Providing scholarships and prizes for academic achievement,
- Founding and supporting schools, technical colleges, and universities,
- Providing or improving sporting facilities for students of schools or universities,
- Providing museums and libraries,
- Developing the character or young people (for example, some youth groups), and
- Delivering vocational training.
Other public purposes
This is a vague “catch-all” meaning of what may be charitable. For trusts for public purposes to be accepted as charitable, the benefit must be identifiable and must be available to the general public, or to a wide section of the public.
Examples of the purposes accepted as being “beneficial to the community” include:
- Promoting public health (such as providing education, counselling, and rehabilitation services),
- Providing public works and services (such as building roads, maintaining a water supply, and providing cremation or burial services),
- Providing public amenities and recreational facilities (such as public halls, libraries, museums, statues, fountains, playing fields, gymnasiums, swimming pools, parks, and botanical gardens),
- Protecting the environment (such as re-vegetation, afforestation, and conservation),
- Protecting human life (such as providing emergency rescue services),
- Preventing cruelty to, and protecting the welfare of, animals (such as providing animal shelters or sanctuaries),
- Facilitating social rehabilitation (such as integrating people back into the community who have a disability or some form of deprivation), and
- Promoting the efficiency of the armed forces.
In addition, section 61A of the Charitable Trusts Act 1957 provides express recognition for various public benefit, social welfare charities, including:
- Provision of facilities at public halls, community centres and women’s institutes, and
- Provision and maintenance of grounds and buildings for the purposes of recreation of leisure-time occupation
if the facilities are intended to improve the conditions of life of users and the facilities are available to the public at large, or the need for the facilities arises as a result of youth, age, infirmity, disablement, poverty, race, occupation, or social or economic circumstances.
Despite the enactment of the Charities Act in 2005, a number of politicians and academics have called to a review of what is “charitable,” and early in 2018 the Government announced a fresh review. The United Kingdom’s Charities Act 2011 is contains a more detailed definition of “charity” than our 2005 statute (see the April 2016 issue of the New Zealand Law Journal at  NZLJ 121 for an article on “Charitable Purposes” written by Mark von Dadelszen).