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Litigation and the pursuit of charitable purpose

Alice Holt examines the court’s approach to 
a charity’s application to engage in legal 
proceedings relating to an internal dispute

11 June 2012

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Litigation and the pursuit of charitable purpose

In Numan v Magasena [2000] Mummery LJ commented on the courts power to prevent charities from frittering away money subject to charitable trusts in pursuing litigation relating to internal disputes.
Trustees have a fundamental duty to ensure their charitys assets are applied to further its charitable purpose. For this reason, the law requires trustees to seek our consent or, if we refuse, the consent of a Chancery Division judge before they can engage in legal proceedings relating to the internal or domestic affairs of their charity.
We, in turn, are bound by section 115(3) of the Charities Act 2011 to refuse permission if we decide that we can deal with the underlying problem using our powers (in the absence of special reasons). Trustees then still have the option of seeking the consent of a judge.
This is what Rai and others [2012] EWHC 1111 (Ch) did in a recent case during which Mr Justice Norris considered the approach of the court to applications under section 115(5), where the commission has refused leave for charity proceedings and gave the following guidance.
The Chancery Division is exercising its own jurisdiction, and these cases are not appeals against a commission decision.
The jurisdiction is conferred in unrestricted terms but the experience of previous cases will be helpful.
The applicant must have a legally sustainable claim but this alone will not be sufficient for leave to be granted. The principle is that charity resources should not, wherever possible, be frittered away on proceedings about the internal administration of a charity, even where the applicant has a real prospect of success as opposed to a mere fanciful case.
The focus for the judge is what is in the best interests of the charity, not of the parties. Consent will only be given if this represents the best or least bad course of action to deal with the dispute as a whole for the charity.
The applicant must make sure the right issues and the right parties come before the court in the first place as otherwise legal costs will be wasted.
The applicant must follow the right procedure the applicant will be at risk of paying the legal costs personally if they issue ex parte if the other side have a reasoned view that the main action has no prospect of success. The judge will want to hear their case, so the initial hearing should then be inter parties.
The judge is dependent on the applicant putting in evidence and the court should at least have the information that the commission considered.
The fact the commission has refused permission is part of the evidence. The commissions decision is entitled to be accorded an appropriate degree of respect because of the weight of its expertise. In practice, the commissions refusal letter should be before the court.
In this case the proceedings were adjourned for two months to allow the parties to resolve the issue out of court.
The commissions approach to a request for section 115 consent mirrors this approach of the court. We expect charity trustees to take seriously any threat of litigation about internal disputes, take appropriate legal advice and make genuine attempts to settle disputes out of court. Even if there is an internal dispute, if the charity is furthering its purpose for public benefit and its assets are not at risk, it will need a strong case before charitable funds should be spent resolving the dispute. The commission applies its risk framework in deciding whether or not it can and will take steps itself to resolve the dispute (www.charity-commission.gov.uk/Our_regulatory_activity/Our_approach/Risk_...).

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