In Derby Teaching Hospitals NHS Foundation Trust & Ors v Derby City Council & Ors [2019] EWHC 3436 (Ch) the 17 Claimants were NHS Foundation Trusts authorised under Chapter 5 of Part 2 of the National Health Service Act 2006.

The Claimants accepted that they occupied properties (mostly hospitals) on which they were liable to pay non-domestic rates to their local rating authorities. Under s.43(5) & (6) of the Local Government Finance Act 1988 Act, the ratepayer is entitled to an 80 per cent reduction in the amount payable by way of non-domestic rates 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)

Each of the NHS trusts asserted that it was a charity and that the relevant property was wholly or mainly used for charitable purposes.

The parties agreed that the issues in the case 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?” .

Morgan J came to the following conclusions:

• On Question 1, “if a foundation trust satisfied all other tests for a charity, then the statutory provisions which establish it do not substantially oust the powers of the High Court to control it in the exercise of its jurisdiction with respect to charities”, notwithstanding the fact that a foundation trust is regulated [106]. (Question 2 therefore fell away.)
• On Questions 3 and 4, the conclusion was that “a foundation trust is not established for charitable purposes only and therefore the preliminary issue should be answered by holding that a foundation trust is not a charity for the purposes of section 43(6) of the 1988 Act.
• Question 5 arose because57A and 65LA of the 2006 Act provide for the possibility of the dissolution of a foundation trust “whereupon its remaining assets are transferred to the Secretary of State, who is not restricted in the use which may be made of those assets” [108]. Morgan J concluded that, having decided that a foundation trust was not a charity for quite separate reasons,  Question 5 did not need to be answered in order to determine the preliminary issue in the case [113].

To summarise: the ruling was that “Derby Teaching Hospitals NHS Foundation Trust [and, therefore, the other NHS Foundations Trusts] is not a charity  for the purposes of section 43(6) of the Local Government Finance Act 1988” [115] – so it is not eligible for the 80 per cent charity reduction.

A spokeswoman for the Charity Commission said it welcomed the decision.

“This was a significant case: charity has a distinct status in law, and it also has a special meaning in the eyes of the public. It is crucial that this special status is protected for the benefit of the public.”

Kevin Downs, executive director of finance and performance at University Hospitals of Derby and Burton, of which Derby Teaching Hospitals NHS Foundation Trust became part last year, said:

“We are one of 17 trusts that decided it would be in the interest of our patients to be involved in a national review to test the possibility of NHS foundation trusts receiving rating relief, which is money that could be spent improving services for our patients. We will take further advice from the legal team, who are representing the 17 trusts involved, on next steps.”