Should the Trustees of a Charity not agree with the decision of the Charity Commission, they have two options in terms of challenging that decision: 1. an application to the Courts; or 2. an application to the First Tier Tribunal (General Regulatory Chamber) (Charity) (Tribunal).
Applications to Court are generally more expensive and formal than applications to the Tribunal. Further, the biggest differentiating factor is the treatment of legal costs in the two forums. In the Courts, whilst legal costs of an action are at the discretion of the presiding judge, the starting position is always that the losing party pays the winning party’s costs. The further complicating factor for Charity Trustees (especially for unincorporated charities) is whether they will be liable for the costs of the proceedings personally.
In the Courts, Paragraph 1 of Practice Direction 46 to the Civil Procedure Rules deals with the starting position for indemnity of Trustees from the Charity’s funds. It states:
“1.1 A trustee or personal representative is entitled to an indemnity out of the relevant trust fund or estate for costs properly incurred. Whether costs were properly incurred depends on all the circumstances of the case including whether the trustee or personal representative (‘the trustee’) –
(a) obtained directions from the Court before bringing or defending the proceedings;
(b) acted in the interests of the fund or estate or in substance for a benefit other than that of the estate, including the trustee’s own; and
(c) acted in some way unreasonably in bringing or defending, or in the conduct of, the proceedings.
1.2 The trustee is not to be taken to have acted for a benefit other than that of the fund by reason only that the trustee has defended a claim in which relief is sought against the trustee personally.”
Whilst as a starting position, it provides some comfort for Trustees, it does leave a discretion as to whether the Trustees of a Charity will definitely be indemnified and, if so, by how much. If a Trustee wishes to be certain that their costs will be indemnified by the Charity in Court (or indeed in Tribunal) proceedings, they could make an application for a Beddoes order. A Beddoes order is an order of the Court authorising Trustees to take part in proceedings and their costs of doing so.
Until the Charities Act 2022, there was no corresponding application in the Tribunal. If a Charity Trustee wanted to have some certainty, they would have to apply for a Beddoes order in the Courts and then apply to the Tribunal. Often this meant in practice that Charity Trustees would not see the benefit in pursuing a Beddoes application. This was largely because the starting position for costs in the Tribunal is that each party bears its own legal costs. Notwithstanding this position, there is still a risk in extreme circumstances that a costs order could be made either against the Charity or the Trustees themselves or both.
Section 36 of the Charities Act 2022, inserts a new Section 324A into the Charities Act 2011 in the following form:
“(1) The Tribunal may make an authorised costs order on the application of a charity or charity trustees of a charity.
(2) An authorised costs order is an order—
(a) made in respect of proceedings brought, or proposed to be brought, before the Tribunal or on appeal from it, and
(b) authorising payment out of the funds of the charity of costs falling within subsection (3).
(3) Those costs are costs incurred, or to be incurred, in connection with the proceedings—
(a) by the charity,
(b) by its charity trustees, or
(c) by any other person, so far as the charity or its charity trustees are ordered by the Tribunal or the Court hearing the appeal to bear them.”
Given that, once the Charities Act 2022 is in full force, a Beddoes type order is available through the Tribunal, it would be advisable for Charity Trustees to seek such an order before commencing an application to the Tribunal.
According to the Government’s implementation plan in respect of the Charities Act 2022, it is expected that Section 36 will be implemented in Autumn 2022.
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Kevin Modiri is a Partner in our expert Dispute Resolution team.
If you have any questions concerning the subjects discussed in this article, please do not hesitate to contact Kevin or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online enquiry form.
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