By Karen Dixon, Trainee Solicitor

In Office of the Scottish Charity Regulator, Appellant [2021] CSIH, the Inner House of the Court of Session dismissed two appeals by the Office of the Scottish Charity Regulator (OSCR). As a result, two trading subsidiaries of a charity will be entered onto the Scottish Charities Register because their activities were deemed to provide a public benefit whilst also being of a commercial nature.


The Facts

The case related to two limited companies, New Lanark Trading Ltd and New Lanark Hotels Ltd, the shares of which are wholly owned by the New Lanark Trust which is the body responsible for managing the Unesco World Heritage Site at New Lanark.  Both of the commercial enterprises’ purposes were to trade profitably with all net profits being donated to the New Lanark Trust by gift aid.  New Lanark Hotels Ltd operates a hospitality premises at the New Lanark village site in the form of a hotel, conference centre and wedding venue whilst New Lanark Trading Limited operates a visitor attraction within New Lanark village, in addition to a café and retail shop. 

OSCR, in refusing the companies’ applications to be entered onto the Scottish Charity Register, recognised the companies’ activities as contributing to the public benefit but concluded the commercial activities did not further nor were incidental to charitable purposes. It was therefore decided the companies did not meet the required “charity test” as set out in section 7(1) the Charities and Trustee Investment (Scotland) Act 2005 (“the 2005 Act”)The First-tier Tribunal upheld OSCR’s decision.

On appeal to the Upper Tribunal it was decided that the First-tier Tribunal had failed to provide proper, adequate and intelligible reasons for its decision.  The Upper Tribunal re-made the decision and determined that the two companies ought to be entered onto the Register. The case was then appealed to the Inner House by OSCR.


The Charity Test

In order to be registered with OSCR a charity must pass the following two-limbed charity test:-

An organisation must;

  1. Have only charitable purposes; and
  2. Have activities which provide public benefit in Scotland or elsewhere.

Having charitable purposes will not on its own mean that the charity test is met; an organisation’s activity must also provide public benefit. 

This case provides some clarity on what is deemed to be providing a public benefit in terms of the charity test. In this instance the courts had to consider whether the companies’ commercial activities could also be deemed to further charitable purposes.  The scheme of the Charities and Trustee Investment (Scotland) Act 2005 bound OSCR to consider the companies’ activities, as a whole, when determining the question of public benefit.

The Decision

The Upper Tribunal found the commercial activities of each of the companies was in furtherance of their charitable purposes and directed the companies should be entered onto the Scottish Charity Register.  The Upper Tribunal concluded that a balancing exercise was appropriate where an application to the register had dual purposes.

The Lord Justice Clerk, Lady Dorrian, delivered the opinion of the Inner House and refused the appeal against the Upper Tribunal’s decision.  The commercial activities which the companies undertook were held as a matter of fact to advance the charitable purposes in respect of the maintenance of New Lanark as a living village and promoting the understanding of the philanthropic intent at the heart of its founding.  In coming to the decision, the Inner House contrasted the companies’ activities to that of selling Christmas Cards and considered that where, “the sale of cards could not advance a charitable purpose of, say finding a cure for cancer, the findings of the UT were the activities -all of them- contributed to the vitality which was central to the presentation of the New Lanark as a World Heritage Site.”

This decision of the court allows both New Lanark Trading Ltd and New Lanark Hotels Ltd to be entered onto the Scottish Charity Register.  The decision whilst unique to the circumstances of the New Lanark Village has provided clarity as to how the public benefit aspect of the charity test is applied to commercial activities of applicants.