Enshrining the independence principle
Obvious as it is, the independence principle often seems 'to be overlooked by charity trustees, says Stephen Roberts
Solicitors working with charities will know that the principle of charities' independence is recognised by law and runs like a golden thread through much of the Charity Commission's guidance to trustees. The principle requires trustees to put the interests of their charity first, and not be unduly influenced by outside interests or concerns. But what is the legal basis for this, given that independence is not explicitly prescribed in law?
There are two legal aspects of independence. First, a charity must be independent in terms of its status, in that it can not be formally controlled by another organisation.
Case law has found that organisations established in such a way that control over the organisation lies in the hands of a government body can not be charities (Construction Industry Training Board v Attorney General [1973]). The question here revolves around the extent to which the courts have jurisdiction over an organisation. If the courts are effectively excluded, the organisation cannot be a charity.
Governmental organisations
This does not mean that governmental organisations are prevented from establishing a charity, that charities can't be set up to carry out governmental functions or that government or local authorities cannot have a power to appoint trustees. What is crucial, however, is that the organisation must be set up to fulfil its charitable purposes, not for the purpose of implementing the policies of another organisation such as a government body.
This aspect is relatively straightforward, in that concerns around the independent status of an organisation can be looked at prior to its registration as a charity.
The second aspect of independence relates to trustees' duties to administer their charities independently. Trustees must ensure that they run their independently constituted charity in such a way that they take only the charity's best interests into account when making decisions '“ a duty of loyalty.
Loyalty duty
This might appear a fairly obvious duty, which the commission should not need to spell out in its guidance. But problems in this area often crop up in the commission's case work.
Such problems on occasion occur where local authorities act as the corporate trustees of a charity. In the commission's experience, the members of the corporate trustee body '“ usually elected councillors '“ sometimes may neglect to take their local authority hats off when making decisions on behalf of the charity. They may allow themselves to be unduly influenced by the wider interests of the local authority '“ perhaps political or financial interests '“ rather than considering only those of the charity or its beneficiaries. Often, problems revolve around the trustees' administration of charity land or assets.
Happily, the importance of the independence principle is clearly widely recognised. Lord Hodgson's recently published review of the 2006 Charities Act is entitled 'Trusted and Independent: Giving charity back to charities'. In the report, Lord Hodgson writes that 'the independence of the sector must remain paramount.'
He writes that the sector 'must continue to be seen as more than an outlier to local or national government' and says that 'how independence can best be promoted and safeguarded must be an important feature of any debate on the future of the sector.'
This is a view the commission shares wholeheartedly. We would invite solicitors to join that debate '“ ensuring the trustees they advise understand their duties and responsibilities in this regard.