Before any legal action is taken by a charity – whether to bring or defend a claim – the trustees must consider whether or not this will be in the charity’s best interests. This will often mean that legal advice should be sought before any decision is taken.
In addition to this overarching requirement, particular rules apply in relation to internal disputes, termed “charity proceedings.”
What are charity proceedings?
Charity proceedings might arise for a variety of reasons, and could concern matters such as:
- Conflicts regarding the use of a charity’s resources;
- Applications to remove trustees; or
- Claims for breach of duty on the part of trustees.
They could even include proceedings brought against trustees for legal action which is not in a charity’s best interests.
The reason why it is important to differentiate charity proceedings from regular disputes involving charities, i.e. in relation to contracts with third parties or claims to protect their intellectual property, is that charity proceedings must usually be commenced once The Charity Commission’s approval has been obtained.
This approval takes the form of an order under s115 of the Charities Act. According to Government guidance in relation to charity proceedings, The Charity Commission will:
“generally only authorise charity proceedings where matters are contentious, intractable, and difficult and cannot be resolved in any other way whether by the commission or anybody else.”
This, of course, ties in to the overriding duty to make sure that any action is in the best interests of the charity, and is not, for example, motivated by external factors such as personal disagreements between trustees.
It is important to keep in mind that applications to The Charity Commission do not impact the ordinary Court rules in relation to deadlines and limitation periods. If any of these are pressing then the guidance specifically permits that the appropriate steps be taken when it is urgent to do so, even if the order has not been obtained.
This is understandable considering the considerable obligations placed on parties when applying for the s115 order. These will often include the following (taken from the guidance):
- a formal request for a s.115 Order (the commission’s powers only apply once a request is made)
- a copy claim form/defence and statements of truth
- the legal opinion on merits and prospects of success; this doesn’t necessarily need to be from Counsel depending on the complexity and risks of the issue
- the costs estimate
- the value of assets involved – if appropriate
- up to date information about the charity’s finances
- an evaluation of benefits and risks which will/may flow from successful legal action
- an assessment of risks associated with proceeding (including to the reputation of the charity)
- the prospects of mediation/compromise – the details should be set out in full
It will often be the case, therefore, that as with other disputes involving charities, legal assistance will be required.
How Nelsons can help
If you have any questions in relation to charity proceedings or any related subjects, please contact a member of our expert Dispute Resolution team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.
Contact us