In a significant ruling concerning charity governance and regulatory oversight, the High Court in Atwal and another v The Charity Commission for England and Wales [2024] EWHC 3451 (Ch) addressed critical issues related to the management of religious charities, trustee accountability, and the role of the Charity Commission. The case sheds light on the complexities of internal charity disputes and the challenges in ensuring compliance with the Charities Act 2011.
Atwal & Anor v Charity Commission for England and Wales [2024]
Background of the Case
The dispute revolved around the Guru Nanak Gurdwara in Wednesfield, Wolverhampton, a Sikh place of worship that serves over 600 members. The claimants, comprising ten former members of the management committee and twelve members of the congregation, sought permission under section 115 of the Charities Act 2011 to bring legal proceedings against the current trustees of the Gurdwara. The core allegations included:
- Failure to register the institution as a charity despite legal obligations to do so;
- Financial mismanagement, including the lack of proper accounts and concerns over private benefits accruing to trustees or their associates;
- Controversial building works undertaken without congregation approval, allegedly benefiting a trustee who is a builder;
- Allegations of favoritism in hiring practices, including the appointment of a new head teacher without an open recruitment process;
- The presence of individuals related to the trustees occupying Gurdwara premises under questionable circumstances; and
- The establishment of a new Charitable Incorporated Organisation (CIO) by the trustees.
The claimants contended that the majority of the congregation supported the removal of the trustees, but the governing document of the charity remained in dispute—whether the original declaration of trust or a 2014 constitution applied.
The Charity Commission’s position
The Charity Commission refused permission for the claimants to initiate charity proceedings, arguing that:
- Alternative Dispute Resolution (ADR) should have been exhausted before resorting to litigation; and
- The Commission possessed the statutory powers necessary to intervene and resolve the issues.
However, the claimants argued that their attempts at mediation had been obstructed by the trustees, and despite numerous complaints, the Commission had failed to act decisively.
The High Court’s decision
Presiding over the case, Mr. Justice Michael Green acknowledged the gravity of the allegations and the importance of ensuring proper governance within the charity sector. The Court considered whether allowing litigation was the “least unsatisfactory course” given the competing interests.
Key findings of the judgment included:
- The Charity Commission had displayed “remarkable disinterest” in enforcing registration requirements and addressing governance concerns;
- While the Commission had broad regulatory powers, there was little confidence that it would take timely action if litigation was not permitted;
- The claimants had demonstrated a legitimate cause of action with a reasonable prospect of success;
- Given the urgency of the matter and the risk of continued mismanagement, the Court granted permission for the proceedings to proceed; and
- To encourage regulatory intervention and possible mediation, the Court imposed a stay of proceedings, allowing the Commission to act promptly while preserving the claimants’ right to litigate if necessary.
Implications for charity governance
This ruling underscores several critical points for the charity sector:
1. The role of the charity commission: The case highlights concerns about the Commission’s responsiveness in addressing governance failures. While it has broad regulatory powers, its reluctance to act proactively can leave charities vulnerable to prolonged mismanagement.
2. The importance of internal governance documents: Disputes over governing documents can significantly impact charity management. Ensuring clarity in constitutional provisions is crucial to avoiding internal conflicts.
3. Accountability of trustees: The ruling reinforces the necessity for trustees to act transparently and in accordance with legal obligations. Failure to provide financial accounts or engage with regulatory bodies can lead to legal challenges.
4. Litigation vs. alternative dispute resolution: While Courts favour ADR to resolve disputes efficiently, litigation remains a necessary option when trustees refuse to engage in mediation or when regulatory bodies fail to intervene effectively.
Comment
The Atwal case serves as a cautionary tale about the challenges of charity governance and the need for proactive regulatory oversight. It highlights the delicate balance between judicial intervention and regulatory enforcement, emphasising the necessity for charities to operate with transparency and accountability. As the case progresses, it will be a crucial test of whether the Charity Commission steps up to its responsibilities or whether the Courts will need to take further action to protect charitable assets and governance integrity.
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Kevin Modiri is a Partner in our expert Dispute Resolution team, specialising in civil disputes, insolvency, inheritance disputes, data breach claims and defamation claims.
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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