New guidelines for Charities and Litigation
In recent years there has been a rise in the frequency of charities being involved in litigation in the High Court. These cases typically involve a legacy in a Will which is disputed. This can result in cost implications and negative media attention for the charity involved. It is therefore necessary that charities approach any litigation with caution.
The Charity Commission have helpfully published guidance to assist charity Trustees who are faced with potential litigation. Click here to view the guidance in full.
Overview of the guidance:
The guidance applies to all charities and is relevant to all areas of litigation. The guidance covers the following topics:
- Circumstances in which charities should pursue or defend legal action
- The decision process Trustees should undertake when deciding on whether to make a claim
- Advice on managing the costs of legal action
- What charity proceedings are, when the Commission needs to be involved and the role of the Commission
- The procedure for applying for consent to pursue charity proceedings
- Advice on alternatives to litigation such as Alternative Dispute Resolution (ADR)
What does the guidance mean for Trustees?
The guidance is clear in its advice in relation to litigation. Whilst litigation is not necessarily always the answer and presents numerous risks to the charities involved, the guidance also makes it clear that avoiding litigation is also not always the best option.
Points to consider when pursuing a claim
Trustees have a duty to protect and secure and where necessary recover assets belonging to the charity. A decision to pursue or defend legal proceedings must be in the best interests of the charity. In making a decision the guidance advises that the Trustees consider the following:
- Secure and consider legal advice
- The prospects of the charity succeeding or failing with a claim and the economic consequences – and, in light of this, whether legal action is proportionate
- Whether there are other methods of resolving the dispute
- Whether it is necessary to obtain consent or advice from the Commission
The Charity Commission has a regulatory role in ensuring the decision made by the Trustees is in the best interests of the charity. The Trustees will need to prove that when a claim is issued the guidance has been considered and all other options have been exhausted. A Trustee can in some circumstances become personally liable to pay legal costs, so a Trustee must be able to justify their decision.
The Charity Commission will often only accept the decision to bring or defend litigation if all other ADR are considered before proceeding to litigation.
ADR can involve entering a compromise in the form of mediation or negotiation. Mediation is where a third party will assist the parties to come to an agreement. If Mediation is successful, this results in a binding agreement between the parties to settle the dispute without going through the litigation process.
The court will look at any attempts made to settle the dispute at an early stage therefore if ADR has not been considered; the court may refuse to look at the case.
Charity Trustees should familiarise themselves with this guidance and are advised to ensure that consideration and reconsideration of the issues in the guidance are well documented in their minutes when issuing a claim.