If your charity is considering litigation it might find recent guidance from the Charity Commission of England and Wales useful. It sets out some principles which should guide trustees.
The Charity Commission in its guidance notes:
There are some important principles that should guide trustees if they are considering taking or defending legal action. These are that:
- trustees have a duty to protect or secure their charity’s assets and, where, necessary, to recover, assets belonging to the charity; taking or defending legal action to might be one way to fulfill this duty
- a charity’s funds must be spent on carrying out its aims and the trustees have a duty to act in the best interests of their charity – a decision to take or defend legal action must be made exclusively in the best interests of the charity, having considered whether or not another course of action is available
- in making their decision, the trustees should:
- take and consider legal advice
- consider and assess the economic prospects of success or failure and the impact on the charity
- consider whether their intended actions are proportionate in the circumstances
- decide whether it is necessary or appropriate to ask for the commission’s consent or advice
- whatever the outcome of legal action, the downsides are typically that it will cost the charity time and money and may have a negative impact on its reputation – even if the charity wins it may not recover all its legal costs
- unless time constraints for bringing or responding to an action prevent it, the commission will expect trustees to explore and, if appropriate, rule out all other reasonable options open to them to resolve the issue, such as alternative dispute resolution or agreeing a legal compromise
- unless a charity has the necessary in house expertise, in order to make a proper decision it will usually be appropriate to take and consider professional legal advice, as well as whatever other specialist advice they might need to inform their decision
- transparency about the reasons for taking legal action is very important in explaining why the trustees decided on this course of action – the trustees must be able to justify their decision because the charity’s actions may have an impact on the charity’s reputation and supporters
-in some circumstances, the trustees may be liable for pay any legal costs personally, for example if:
- the court considers that the costs have not been properly and reasonably incurred
- trustees are not able to demonstrate that they have considered all the relevant principles in making their decision
- in the case of unincorporated charities, the charity has insufficient funds to meet them
Here is a text of a press release from the Charity Commission on the new guidance.
Press release: Commission publishes new litigation guidance for charities
Posted: 03 Aug 2016 02:08 AM PDT
The Charity Commission (‘the commission’), the independent regulator of charities in England and Wales, has today published Charities and litigation: a guide for trustees (CC38).
The prospect of taking or defending legal proceedings is often a difficult and complex matter for trustees that can present significant risk to a charity. This brand new guidance clarifies the issues that trustees need to consider when faced with litigation and helps them comply with their legal obligations as well as their duty to act in the best interests of their charity.
Decisions on whether or not to take or defend legal action should be made in accordance with the principles set out in the commission’s existing guidance on decision making, It’s your decision: charity trustees and decision making (CC27). Trustees should also identify and address the potential risks and impact of litigation on their charity and its beneficiaries. In applying those principles to decisions involving litigation, the guidance highlights the need for trustees to take and consider legal advice, to assess the economic prospects of success or failure and the impact on the charity, and consider whether their intended actions are proportionate in all the circumstances and in the best interests of the charity. The guidance also indicates when trustees need to protect themselves against the adverse risk of costs and outlines alternative ways to resolve the issue in dispute that trustees should explore before legal action such as mediation and negotiation.
The guidance also contains detailed information on charity proceedings, a specific category of legal claim concerning the internal administration of charities which require authorisation from the commission. This includes how to make an application to seek the commission’s consent, to help trustees prepare for these typically time sensitive situations.
The commission finalised the guidance following valuable input from the Charity Law Association’s specialist working group.
Kenneth Dibble, Chief Legal Advisor at the Charity Commission said:
Legal action can present significant risk to a charity’s beneficiaries, assets, and reputation, but in some circumstances it may be the best or only option. This guidance aims to help trustee bodies reach a justified decision on litigation and crucially, to manage risk effectively by assessing the challenges and costs their charity might face and deciding how to deal with them.
We encourage any trustees thinking of engaging in litigation to read our new guidance, apply the principles set out in our existing guidance on decision making, and to contact us as a matter of priority if they require our protection from adverse costs or authorisation to proceed.
The full guidance and legal underpinnings, as well as a checklist highlighting the key actions and processes that trustees must consider before making a decision on litigation, can be found at GOV.UK.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.