Derby Teaching Hospitals NHS Foundation Trust and 16 Others v Derby City Council and 44 Others

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Morgan
Judgment Date12 December 2019
Neutral Citation[2019] EWHC 3436 (Ch)
Date12 December 2019
Docket NumberCase No: BL-2018-000302

[2019] EWHC 3436 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Rolls Building, Fetter Lane, London, EC4A 1NL

Before:

Mr Justice Morgan

Case No: BL-2018-000302

Between:
Derby Teaching Hospitals NHS Foundation Trust and 16 Others
Claimants
and
Derby City Council and 44 Others
Defendants

and

Charity Commission for England and Wales
Intervener

Christopher Tidmarsh QC and Francesca Quint and Luke Wilcox (instructed by Addleshaw Goddard LLP) for the Claimants

Amanda Tipples QC and Matthew Smith (instructed by Sharpe Pritchard LLP) for the Defendants

Christopher McCall QC and Naomi Hart (instructed by Charity Commission for England and Wales) for the Intervener

Hearing dates: 4 – 8 November 2019

Mr Justice Morgan

Introduction

1

There are 17 Claimants in these proceedings. The Claimants are all NHS foundation trusts which are duly authorised under Chapter 5 of Part 2 of the National Health Service Act 2006. The Claimants accept that they occupy properties (mostly hospitals) on which they are liable to pay non-domestic rates to their local rating authorities.

2

Section 43(5) of the Local Government Finance Act 1988 (hereafter “the 1988 Act”) provides that where section 43(6) of the 1988 Act applies, the ratepayer is entitled to a reduction in the amount payable by way of non-domestic rates, so that the ratepayer is only liable for 1/5 of the sum otherwise due. Section 43(6) applies where: (1) the ratepayer is a charity; and (2) the relevant property is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities).

3

Each of the Claimants asserts that: (1) it is a charity; and (2) the relevant property is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities).

4

There are 45 Defendants. They are the rating authorities in whose areas the 17 Claimants occupy relevant properties. In relation to a Claimant in the area of a particular Defendant, that Defendant denies that: (1) the relevant Claimant is a charity; and (2) the relevant property is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities).

5

On 26 July 2018, Chief Master Marsh gave directions which led to the exchange of pleadings in the claim brought by the first-named Claimant, Derby Teaching Hospitals NHS Foundation Trust, against Derby City Council. On 12 November 2018, Master Clark referred to Derby Teaching Hospitals NHS Foundation Trust as the “Lead Claimant” and directed the trial of a preliminary issue in the following terms:

“Whether the Lead Claimant is a charity for the purposes of section 43(6) of the Local Government Finance Act 1988?”

6

This preliminary issue is directed only to the first issue which arises under section 43(6) of the 1988 Act and does not refer to the second issue as to whether, at a relevant time or times, the relevant property is wholly or mainly used for charitable purposes.

7

The preliminary issue raises a point of considerable importance to NHS foundation trusts and to rating authorities. The foundation trusts say that if they succeed in establishing that they can rely on section 43(6) of the 1988 Act, then not only will the issue be cleared up for the future and they will only pay 1/5 of the rates which are otherwise due but they also claim to recover from the rating authorities rates which they have paid in the past (without the 4/5 discount). In the case of Derby Teaching Hospitals NHS Foundation Trust alone, it claims to recover in excess of £17 million in respect of the period of 6 years prior to its claim. Plainly, if a foundation trust can rely on section 43(6) of the 1988 Act and if every foundation trust in the country were to claim repayment of the rates it had paid in the last six years, the sums involved would be very significant.

8

On 30 July 2019, Barling J permitted the Charity Commission for England and Wales to intervene in these proceedings.

9

When Master Clark directed the above preliminary issue in this case, the parties agreed that the issue involved certain questions and only those questions. The agreed questions (as slightly modified by Barling J on 30 July 2019) were as follows:

“1. Is a ratepayer required to be subject to the control of the High Court exercising its jurisdiction relating to charities in order to qualify for mandatory relief from non-domestic rates pursuant to sub-section 43(5) and 43(6) of the Local Government Finance Act 1988?

2. If the answer to question 1 is in the affirmative, is each of the Claimants so subject?

3. What are the purposes of the Claimants?

4. Does each of those relevant purposes fall within section 3(1) of the Charities Act 2011? [“Relevant purposes” means “purposes relevant for the law of charities so as to exclude, for example, purposes that are merely subsidiary or incidental to a charitable object and which cannot be pursued independently of a charitable object.]

5. Are the Claimants “established” for charitable purposes only notwithstanding that their assets on dissolution might not be applied for charitable purposes?

6. Are each of the purposes identified in answer to question 3 above for the public benefit within the meaning of section 4 of the Charities Act 2011?”

The evidence

10

Derby Teaching Hospitals NHS Foundation Trust, Derby City Council and the Charity Commission filed short witness statements. The primary purpose of these statements was to exhibit certain documents which were said to be material to the determination of the preliminary issue. The witness statement for the Foundation Trust stated that the name of the Foundation Trust had been changed on a number of occasions and its current name was University Hospitals of Derby and Burton NHS Foundation Trust. The proceedings have not yet been amended to reflect this change of name. I will refer to the Foundation Trust as “the Derby FT”. The witness statement for the Charity Commission was prepared in support of its application for permission to intervene in these proceedings. In so far as the contents of these witness statements are material to a matter which I have to decide, I will refer to the relevant evidence when I discuss the relevant topic later in this judgment.

Representation

11

The Derby FT was represented by Mr Tidmarsh QC, Ms Quint and Mr Wilcox. Derby City Council was represented by Ms Tipples QC and Mr Smith. The Charity Commission was represented by Mr McCall QC and Ms Hart. I am grateful to counsel for their excellent submissions which were of great assistance to me.

The 1988 Act

12

I have already referred to the effect of sub-sections (5) and (6) of the 1988 Act. Section 67(10) contains a definition of “a charity” in these terms:

“A charity is an institution or other organisation established for charitable purposes only or any person administering a trust established for charitable purposes only.”

The organisation of the NHS

13

The principal Act of Parliament which currently governs the organisation of the NHS in England is the National Health Service Act 2006 (“the 2006 Act”). The 2006 Act has been materially amended by the Health and Social Care Act 2012 (“the 2012 Act”). The 2006 Act is a lengthy statute. I will attempt to summarise those parts of it which might have a bearing on the preliminary issue. In that summary, I will not quote the various sections which provide for the matter being summarised. I will refer in more detail to the purposes or objects and the powers of a foundation trust.

The Secretary of State

14

The Secretary of State must continue the promotion in England of a comprehensive health service designed to secure improvement in the physical and mental health of the people of England, and in the prevention, diagnosis and treatment of physical and mental illness. For that purpose, the Secretary of State must exercise the functions conferred by the 2006 Act so as to secure that services are provided in accordance with that Act. The Secretary of State retains ministerial responsibility to Parliament for the provision of the health service in England. The services provided as part of the health service in England must be free of charge except in so far as the making and recovery of charges is expressly provided for by or under any enactment, whenever passed.

NHS Bodies

15

Part 2 of the 2006 Act contains the sections which provide for a number of entities which are referred to as “NHS Bodies”. These bodies include the National Health Service Commissioning Board, Clinical Commissioning Groups, NHS trusts (dealt with in Chapter 3 of Part 2), Special Health Authorities, NHS foundation trusts (dealt with in Chapter 5 of Part 2) and Trust Special Administrators.

NHS Trusts

16

Although this case is not concerned with NHS trusts, but only with NHS foundation trusts, I will provide a brief summary of the position in relation to NHS trusts before I consider the position of NHS foundation trusts in more detail, if only to explain that the two bodies are different and operate in different ways. NHS trusts were established by order of the Secretary of State to provide goods and services for the purposes of the health service. An NHS trust must not be regarded as the servant or agent of the Crown or as enjoying any status, immunity or privilege of the Crown; and an NHS trust's property must not be regarded as property of, or property held on behalf of, the Crown. Each NHS trust is a body corporate. Each NHS trust has a board of directors consisting of a chairman appointed by the Secretary of State, and executive and non-executive directors.

17

The functions of an NHS trust are specified in the order establishing the NHS trust. The functions which may be specified in an NHS trust order include a duty to provide goods or services so specified at or from a hospital or other establishment or facility so...

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