Guild (Executor Nominate of the late James Young Russell) v Commissioners of Inland Revenue

The House of Lords held that a residuary gift to the Town Council of North Berwick for the use "in connection with the Sports Centre in North Berwick or some similar purpose in connection with sport" qualified for the charitable exemption from capital transfer tax under paragraph 10 of Schedule 6 to the Finance Act 1975, read with section 51 of that Act and the definition of "charity" in the Income and Corporation Taxes Act 1970. The Court treated the words of the gift by applying the technical English law of charity (Pemsel and subsequent authorities) for tax purposes and construed the phrase "some similar purpose in connection with sport" benignly so as to require characteristics comparable to the Sports Centre (notably recreational facilities available to the public at large), bringing the gift within section 1 of the Recreational Charities Act 1958.

The court rejected reliance on the terms of the cy-pres scheme as determinative of charitable status and accepted that Scottish courts must adopt the English technical meaning of "charity" for the purposes of United Kingdom tax statutes. The House therefore allowed the appeal, set aside the Inland Revenue determination and ordered costs to the appellant.

The appellant, the executor nominate under the will of the late James Young Russell, sought a charitable exemption from capital transfer tax for a residuary bequest to the (now abolished) Town Council of North Berwick for the Sports Centre or "some similar purpose in connection with sport". After local government reorganisation the Sports Centre had vested in East Lothian District Council and the appellant obtained a cy-pres scheme from the Court of Session for administration of the bequest. The Commissioners of Inland Revenue issued a determination (8 June 1990) that the transfer was not an exempt charitable transfer under paragraph 10 of Schedule 6 to the Finance Act 1975. The appellant appealed to the First Division of the Court of Session (as Court of Exchequer in Scotland) which by majority dismissed the appeal on 15 March 1991; the appellant then appealed to the House of Lords.

Issues framed by the court included:

• whether the residuary gift was "given to charities" within paragraph 10(1) of Schedule 6 to the Finance Act 1975 (and thus exempt);
• whether the bequest, including the phrase "some similar purpose in connection with sport", was of a charitable character within the meaning of section 1 of the Recreational Charities Act 1958;
• whether the terms of the cy-pres scheme should be determinative; and
• the extent to which Scottish courts must adopt the technical English law of charity for tax purposes.

The House of Lords reasoned that for tax purposes Scottish courts must apply the technical English law of charity (Pemsel and authorities). It accepted the appellant's submission that the Sports Centre's purposes fell within the Recreational Charities Act 1958: facilities were provided for recreation, available to the public at large and satisfied the public benefit requirement. The court rejected a restricted construction of "social welfare" that would confine charity to provision for the socially deprived, following the approach in Commissioner of Valuation v. Lurgan Borough Council and the dissenting Court of Appeal view in McMullen. Applying the benignant approach used in construing charitable gifts, the House concluded that "some similar purpose in connection with sport" should be read to require similar characteristics to the Sports Centre (notably recreational facilities available to the public), and therefore to be charitable. The House allowed the appeal, set aside the Inland Revenue determination and awarded costs to the appellant.

Appeal allowed. The House held that the residuary bequest expressed a general charitable intention and, applying the technical English law of charity for tax purposes, the gift (including the clause "some similar purpose in connection with sport") fell within section 1 of the Recreational Charities Act 1958 and thus satisfied paragraph 10 of Schedule 6 to the Finance Act 1975 as a gift to charity. The cy-pres scheme was not to be treated as determinative of charitable status and a benignant construction was applied to give effect to the charitable intention.

Action in the Court of Session (multiplepoinding and exoneration) with interlocutor 5 April 1986 ranking the appellant's administrative claim; cy-pres scheme approved by the Inner House on 14 June 1988. Commissioners' determination issued 8 June 1990 denying exemption. Appeal to the First Division of the Court of Session as Court of Exchequer in Scotland dismissed by majority on 15 March 1991. Appeal to the House of Lords allowed ([1992] 2 AC 310; [1990] UKHL 10).