Do you need Charity Commission permission when legacy disputes rear their head?

There has been a flurry of correspondence recently about suggestions that Charity Commission permission is required before a charity may bring or defend proceedings relating to legacies. The correct position is that there are two situations in which charities need to obtain the consent of the Charity Commission or the Court before litigating. Neither applies in the great majority of legacy disputes.

1. Charity Proceedings

This is a technical term defined by s33(8) of the Charities Act 1993. Broadly it means proceedings which are internal to the charity. For example, an action against a charity trustee (or former trustee) for fraud or breach of trust; or an argument about what the charity’s governing instrument means.

It does not include causes of action external to the charity, such as claims by or against a supplier of goods or services to the charity or about a charity’s entitlement to a legacy. Say you want to sue your IT supplier for example; then you do not need consent under s33. You will of course need appropriate legal advice. The same goes for that minority of disputes over legacies which are not resolved in pre-litigation correspondence.

2. Significant External Claims

In the case of a charitable trust, s31(1) of the Trustee Act 2000 says a trustee may pay out of the trust funds expenses properly incurred on behalf of the trust. Charities with a corporate form often have a similar power in their governing document (eg articles of association). In most cases, provided charity trustees act prudently and take appropriate legal advice, that will be sufficient protection. For example, as above, suing your IT supplier, or becoming involved in a legacy dispute.

If however the sums involved are ‘substantial’ and therefore the costs exposure is also significant, then trustees should consider obtaining either (1) (in the case of a charitable trust) a Beddoe Order from the Court or (2) formal advice from the Charity Commission (pursuant to the Commission’s powers under ss26 or 29 Charities Act 1993). Either procedure will have the same effect. In other words provided the charity trustees make full disclosure to the Charity Commission or the Court, and provided they comply with any directions given, then they will be protected from any claims that they should not have spent charity funds litigating (provided of course the charity has the funds to pay all the costs).

The meaning of ‘significant’ will depend on the size of the individual charity but, provided there is advice that the charity trustees have a good case for litigating, the costs exposure will have to be material to the charity’s functioning before it would merit an application to Court or the Charity Commission. In any event it is important to bear in mind that either route will involve additional costs which should not be incurred lightly.

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