Charity Proceedings

In a recent High Court case, the High Court refused to grant permission to pursue charity proceedings and stayed the claim to enable the parties to engage in mediation. This has also highlighted the requirement for The Charity Commission to authorise charity proceedings by Order. In the absence of an Order from The Charity Commission the Court cannot deal with charity proceedings.

Charity proceedings are relevant to disputes concerning internal administration of the charity and are not relevant to disputes between a charity and third parties that are outsiders.

Charity proceedings can only be brought by the charity, any of the charity's trustees, any person interested in the charity, or in the case of a local charity - two or more residents.

In terms of who is "interested in the charity" the Court of Appeal has previously stated that:

"A person generally needs to have an interest materially greater than or different from that possessed by ordinary members of the public."

For example, a member of a charity with a wider voting membership may, in some circumstances, be deemed a person "interested in the charity".

Charity proceedings include:

• Proceedings for breach of a charitable trust
• Judicial review proceedings of a charity' actions where applicable; and
• A claim by charity trustees to an indemnity or contribution from an incorporated charity to which the charity's assets had been transferred.

The following have been held by the Court not to be charity proceedings:

• A dispute as to whether a charitable trust has been declared;
• Claims to enforce common law rights (e.g. in tort or contract); and
• A claim by a charity for possession of land where there was no dispute about the charity's decision-making process.

If charity proceedings are started without The Charity Commission's authority, the Court will stay the proceedings so that the relevant application to The Charity Commission can be made.

This process is designed to prevent charities' funds from being wasted in pursuing legal action relating to internal disputes.

In the recent High Court case the Judge reminded the parties that they must put the charity's best interests above their own. The Judge noted that the charity's financial position was not healthy in part because its activities had been suspended due to the Covid-19 situation. The Judge further noted that the dispute was harming the charity's finances and the fulfilment of its charitable activities and that Court action was likely to make matters worse. The Judge therefore ordered that the claim be stayed to enable the parties to engage in mediation with a professional mediator.

The High Court decision confirms that a Court will focus on the best interests of the charity itself rather than those of the applicants or proposed respondents to pursue court proceedings to deal with a legal dispute.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.