London Borough of Merton Council v Nuffield Health Ltd – UKSCBlog

In this post, Lisa Fox, a senior associate in the litigation team at CMS, previews the decision awaited from the Supreme Court in London Borough of Merton v Nuffield Health Ltd.

Factual Background

Nuffield Health acquired Merton Abbey (the “Premises”) on August 1, 2016, when it bought the business of Virgin Active. It applied to the London Borough of Merton (“Merton”) for mandatory and discretionary rate relief. The application for mandatory relief was initially granted (representing 80% of the rates otherwise payable). However, following a visit by Council officers in November 2016, Merton withdrew the relief on the basis that the Premises was not being wholly or mainly used for charitable purposes.

Nuffield Health is a registered charity established”to advance, promote, and maintain health and health care of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit.” Among other things, it runs 112 fitness and wellbeing centers, including the Premises. The facilities at the Premises are primarily available to fee-paying Nuffield Health Gym members.

The issue before the judge in the High Court was whether Nuffield Health is entitled to mandatory relief from non-domestic rates in respect of its occupation of the Premises under the Local Government Finance Act 1988 (the “1988 Act”), s. 43(6)(a) of which applies where:

the rate payer is a charity or trustees of a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities).”

The High Court found in Nuffield Health’s favour, holding that the charity is and, at all times since 1 August 2016, has been entitled to mandatory relief from non-domestic rates in respect of the Premises. Merton appealed to the Court of Appeal.

Court of Appeals

Merton’s appeal of the High Court’s decision was advanced on four grounds as follows:

  1. Ground 1 is that the judge was wrong to hold that Nuffield Health was not required to show that the Premises were being used for the public benefit, as an aspect of showing that the Premises were being used wholly or mainly for its charitable purposes.
  2. Ground 2 is that the judge failed to apply the correct standard of public benefit for Nuffield Health’s use of the Premises.
  3. Ground 3 is that, even if he applied the correct standard, the judge errored in his evaluation of whether the public benefit requirement was satisfied.
  4. Ground 4 is that the judge was wrong to conclude that the Premises were not being used wholly or mainly for fundraising.

Grounds 2 and 3 arise only if Merton is successful on Ground 1, while Ground 4 can be seen as a free-standing ground.

Ground 1

In the appeal, as in the High Court, Merton relied on the express terms of section 43(6)(a) (“the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)“), read with sections of the Charities Act 2011 (the “2011 Act”), ss. 2 and 4 which require a charitable purpose both to fall within the list in the 2011 Act, s. 3(1) and to be “for the public benefit” (as explained in the 2011 Act, s. 4). Merton claimed the judge was wrong to treat the public benefit as relevant only to the purpose or status of the charity, and not to the use of the heredity. It was incumbent on Nuffield Health to show that its use of the Premises was not only for the advancement of health but was also for the public benefit.

Nuffield Health submitted that it was the duty of charity trustees to operate the charity to advance the public benefit and that, in assessing whether the trustees were performing that duty, the correct approach was to look at the activities of the charity as a whole. The requirements under s. 43(6)(a) was that the heredity be used wholly or mainly in the pursuit of charitable purpose(s), and this was to be judged by reference to the activities of the charity as a whole. Nuffield Health argued that the use of the Premises viewed in isolation does not have to be charitable, but it must be of material benefit to the delivery by the charity of its charitable purposes. Relying on Oxfam v Birmingham City Council [1976] AC 126 (“Oxfam”), it was submitted that the rating authority is simply needed to consider whether the user of the premises was using them for charitable purposes or for investment or fundraising purposes.

Lord Justice Jackson took a purposive approach and preferred the broader construction of s. 43(6)(a) that treats the charitable purpose including the public benefit requirement as being part and parcel of the status of the charity rate payer. To sense check this conclusion, he also looked at the legislative history behind the 1988 Act including the Pritchard Report which led to the Rating and Valuation Act 1961 for insights into the legislative purpose. He concluded, in particular by reference to the Pritchard Report’s general preference for clear, broad-brushed solutions over some anomalies in terms of the organizations that are eligible for rate relief that may otherwise be considered underserving, that eligibility for rate relief could be challenged at the level of charitable status by a local authority. Lord Justices Jackson and Nugee agreed that the case law (Oxfam and Glasgow Corporation v Johnstone [1965] AC 609) did not support an argument that Nuffield Health must show that there is a public benefit specifically on the premises in question. They also preferred the arguments that local authorities are ill-suited and -qualified to judge whether a charity is performing its responsibilities, and that the Charity Commission as regulator is best placed to do this. Lord Justice Nugee summarised that the question would be best framed, on the basis of statutory interpretation of s. 43(6)(a) as whether the charity was using the premises for a purpose which is one of its charitable purposes (rather than whether the use constitutes the charitable purpose). Lord Justices Jackson and Nugee dismissed the appeal on this ground by a majority.

ground 3

The Lord Justices agreed that Ground 2 was not the correct question to answer on the facts and therefore focused on Ground 3.

Under this ground, Merton argued that Nuffield Health needed to show that it was using the Premises for the public benefit and that it failed to do so, by reason of the level of membership fees and the absence of any sufficient public benefits in the provision of services to non-members.

In examining this question, Lord Justice Richards considered case law on the meaning of ‘poor’ in Re Resch’s Will Trusts [1969] 1 AC 514 and on the extent of public benefits required in R (Independent Schools Council) v Charity Commission [2011] UKUT 421. He established that in order to be for the public benefit, a charity must not exclude the poor (the meaning of poor to include those of modest means and not to equal to ‘destitute’), and that provisions for the poor must go beyond a de minimis or token benefit. No one size fits all amount of benefit is prescribed, rather, in any given case, it is for the trustees, in accordance with their obligations, to decide the level of benefit that would be adequate which any reasonable trustee could be expected to provide. While Lord Justice Richards found that there was a lack of evidence for the judge’s finding that monthly fees were affordable to those of modest means in the demographic which Nuffield Health was serving at the Premises, he considered it relevant that other gyms in the area were offering similar services and facilities at materially lower membership charges, as this suggests there was a demand at more affordable levels. He then went on to consider the evidence added by Nuffield Health regarding the services provided to members of the public free of charge. These services include Health MOTS, Meet our Experts sessions and free one-day gym passes, as well as access for local schools to the pool for a charge. Lord Justice Richards concluded that the services available to non-members were very limited. In many cases, he found them to be typical of services provided by commercial operators for promotional reasons, and as such he deemed them tokens and therefore insufficient to satisfy the public benefit and charitable use test.

This was the unanimous view of the three Lord Justices, with Lord Justice Jackson commenting obiter that Nuffield Health’s failure on Ground 3 may not be without consequences in the context of charity law given that its trustees are obliged to satisfy themselves in the good faith that its provision is for the public benefit.

ground 4

Ground 4 is concerned whether the first instance Judge had been wrong to find that the Premises were not being used for fundraising. Lord Justice Richards found that because this case was concerned specifically with the use of the Premises (rather than gyms operated by Nuffield Health more generally) this ground would succeed only if Nuffield Health’s main use of the Premises was fundraising. Merton had no additional evidence to show the budgeted and actual income and surplus generated by the operations at the Premises, and the uses to which Nuffield Health put any surplus. Even if evidence had been before the court, their existence of a surplus does not automatically mean that the premises in question are being used mainly for fundraising. In addition, it was not for Nuffield Health to prove the negative proposition, so he found himself against Merton.

By a majority (Lord Justices Jackson and Nugee, with Lord Justice Richards dissenting on Ground 1), the Court of Appeal dismissed Merton’s appeal.

Supreme Court

The Supreme Court gave Merton permission to appeal this decision. Lord Briggs, Lord Kitchin, Lord Sales, Lord Hamblen and Lord Leggatt will hear the appeal on 7 and 8 March 2023. The Supreme Court is asked to decide whether Nuffield Health is entitled to this mandatory relief in respect of its occupation of premises at Merton Abbey. The decision in the Supreme Court is likely to revisit Grounds 1 and 3 from the Court of Appeal decision, with the ultimate relevance of Ground 3 anticipated to again depend on how the Supreme Court decides on Ground 1.


Leave a Reply

Your email address will not be published. Required fields are marked *