The Inner House of the Court of Session has upheld the Upper Tribunal’s decision that New Lanark’s commercial organisations meet the charity test and can be registered on the Scottish Charity Register (OSCR v a Decision of the Upper Tribunal concerning (1) New Lanark Hotels Limited and (2) New Lanark Trading Limited  CSIH 7). The full judgment can be found here.
New Lanark is a purpose-built 18th century mill village and UNESCO World Heritage Site managed by New Lanark Trust. New Lanark Hotels Limited (“NL Hotels”) operates a hotel on site, and New Lanark Trading Limited (“NL Trading”) operates a visitor attraction on site. Both are limited companies – the shares of which are wholly owned by New Lanark Trust – and both donate a proportion of their revenue to the Trust.
Both NL Hotels and NL Trading applied to OSCR for entry on the Scottish Charities Register. OSCR refused their applications on the ground that neither provided public benefit.
Section 5 of the Charities and Trustee Investment (Scotland) Act 2005 (“the 2005 Act”) provides that OSCR may enter an applicant on the register only if it considers that the applicant meets the charity test.
Section 7(1) of the 2005 Act provides that a body meets the charity test if: (a) its purposes consist only of one or more charitable purposes; and (b) it provides or intends to provide public benefit in Scotland or elsewhere. The term “public benefit” is not defined.
OSCR recognised that some of NL Trading’s activities, such as the production of woollen yarn, hydro-electric power, and attractions of the visitor centre were in furtherance of charitable purposes. However, it said that their mill shop, mill cafe and ice-cream manufacturing did not.
In respect of NL Hotels, OSCR stated that a charity should not be carrying out large scale and/or significant activities which did not further its charitable purposes. OSCR accepted NL Hotels intended to contribute financially to New Lanark Trust. However, they argued 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.
NL Hotels and NL Trading appealed OSCR’s decision to the General Regulatory Chamber of the First-tier Tribunal for Scotland (exercising its charity appeals jurisdiction) (the “FTT”). The FTT upheld OSCR’s decision, finding that the companies’ commercial activities outweighed their charitable activities.
The NL companies appealed to the Upper Tribunal (“UT”). The UT quashed OSCR’s decision, saying that the FTT had failed to give adequate reasons for its decisions and had failed to address the point at issue between the parties.
OSCR’s position was that commercial activity could not also be charitable. The FTT had disagreed with this point, stating that commercial activity could contribute to charitable purposes. The fact that an entity carried out activity that was commercial did not mean that that activity did not further its charitable purposes. However, in its judgment, the FTT did not address itself to the question of whether or not NL Hotels’ and NL Trading’s commercial activities were or were not in furtherance of charitable purpose, and provide reasons for its decision on that question.
The UT ordered that both companies be included in the Scottish Charities Register. OSCR appealed to the Inner House of the Court of Session.
The Court noted that OSCR’s appeal was no more than disagreements with the UT’s conclusions on matters of fact.
The UT found that “It is a crucial feature of the New Lanark site that it is not merely preserved, but maintained as a living village so that visitors may, so far as is practicable, experience the original concept which has led to its World Heritage designation. [The court] accept that this feature distinguishes New Lanark from many (though not necessarily all) other heritage sites, where the presentation of the site as a living community may not be of central importance. At New Lanark the availability of commercial facilities to visitors is, on the evidence, an integral part of that presentation, contributing to the experience which has given the site its reputation and thereby providing public benefit.”
In relation to the specific grounds of appeal, the Court held that:
- It was not necessary to carry out the sort of balancing exercise or assessment which would have been needed if some activities had advanced the charitable purposes and some had not. All of the activities advanced the charitable purposes.
- The UT did not reject OSCR’s guidance. However, any guidance issued by OSCR could not be determinative of the legal interpretation of the statute.
- The UT did not consider individual elements of the activities on their own. All of the elements enhanced the presentation of New Lanark as a living village, contributing to the visitor experience which gives the site its reputation.
As a result, both companies are now registered on OSCR’s Scottish Charities Register.
It’s important to remember that every case turns on its own facts, and this case concerned a very unusual situation. The Court of Session noted that another tribunal might well have reached a different decision, but the UT was entitled to make the decision it did.
The Court highlighted that neither the FTT nor the UT were considering the validity of the decision made by OSCR: neither were exercising a supervisory jurisdiction. The function of the relevant tribunal was to make a decision “of new” whether the NL Hotels and NL Trading should be entered in the Charity Register, in light of the facts and circumstances established. The UT decided they should.
Importantly, the FTT took the view that OSCR’s position that commercial activity could not also be charitable was wrong. The FTT noted that the fact that an entity carried out activity that was commercial did not mean that that activity did not further its charitable purposes.
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This will no doubt have implications for other charities in similar situations. If you have any questions or concerns about how this judgment may affect your organisation, please contact a member of our specialist Charities & Third Sector team.