North East: let's be charitable

For lawyers in the North East the choice used to be quite simple: join the commercial department of one of the larger Newcastle firms, or work in one of the small high street firms as a local solicitor. That is, if you could find a firm in the first place, because, with only 331 firms, the North East has the lowest number of firms in the country '“ only 3.2 percent of the total number of firms in the country are based in this corner of England. There are even more solicitors working abroad (2,389) than there are working in private practice in the North East (2,215). It also had the lowest number of trainees last year (152), although was top for gender diversity with 70.2 per cent of women trainees.

What was perhaps not expected is that it would now be a welcoming ground for charity lawyers. Though local lawyers would be the first to ask why this should be so surprising. Newcastle has been leading a regional regeneration spurring a cultural and commercial renaissance. First Antony Gormley's Angel of the North made heads turn northwards in 1998. Other projects soon followed: the Millenium Bridge has become a national landmark and the Baltic Centre for Contemporary Arts has placed the region back on the artistic map. And the announcement last week that the Nissan Leaf, the world's first zero-emission car, would be assembled in Sunderland, is the latest sign that significant inwards investment has been coming back to the area, where new technologies are taking the place of the old industries.

The charity scene is equally active, including large organisations such as the Percy Hedley Foundation for disabled people, St Oswald's Hospice, St Cuthbert's Care, and The Sage Gateshead, as well as regional arms of national organisations such as Age Concern.

Local law firms have been taking an interest in the third sector for a while, but Hempsons' opening in Newcastle in September 2009, with partner Catherine Rustomji as head of the charity team, is an indicator of the value law firms place on the market.

Hempsons has always had a strong presence in the North of England, servicing local clients from its Manchester and Harrogate offices. The rationale behind the opening in Newcastle was to improve on service delivery for clients based in the North East and build a new base camp to attract new clients.

While the firm's head of third sector is still based in London, Rustomji says it was seen as essential to have a local base for local clients, and that the response to the new office has been 'hugely positive'. One year in, the new office turned a corner, and its regular client seminars are regularly oversubscribed.

Hempsons is possibly best known for its healthcare work, and, quite naturally, many of its local charity clients operate in this sector, including a number of NHS charities but also charities concerned with elderly welfare or leisure activities for people with learning difficulties.

Much as charities have, like anybody else, been tightening their belts, they have also had to work harder to generate consistent revenue streams. For most involved in delivering services with public sector organisations, this has meant revisiting the way they can team up with other charities to bid for and secure contracts.

Advice on procurement rules, therefore, has become a key area for lawyers. In practice, the work involved is ranging from forming joint ventures for one-off tenders to advising on the possible grounds to challenge a local authority's decision.

One trend specific to the North East, according to Rustomji, is the high level of inquiries relating to governance. 'We have been doing a lot of work with charities to review their constitutions in the wake of the entry into force of new rules under the Companies Act 2006 and Charities Act,' she says. 'Several are also looking at strengthening their position to get through the recession, for instance reconsidering their objects.'

According to Rustomji, many charities are asking themselves whether they should scale back if it appears they may have gone beyond their objects. Others are looking at expanding their objects if their activities are outgrowing the original objects, so they can't be held in breach of trust for using the charity's assets according to their powers.

'When times were good people didn't worry too much about this, they just got on with things. Now they are concerned that the Charity Commission may be looking over their shoulder and are keener to ensure they comply,' she says.

Imaginative solutions

Another significant strand of work involves charity mergers and joint ventures, often to ensure the parties can exploit common goals more efficiently in particular when bidding for public contracts. Typical examples include tendering for work relating to services such as work with ex-prisoners, drug users, ethnic minorities or health issues.

'Many charities have been reluctant to take such radical steps as merge,' Rustomji says. 'We tell them they don't have to, that there are other ways to achieve these goals. Some clients have come up with imaginative structures: 25 charities got together in a holding company which, as an entity, is more competitive on fees and passes on service delivery to individual member charities. The charities continue to exist independently and can do their own work if they want to, but they also have access to new work under a separate brand.'

Around the corner, Ward Hadaway has counted charities among its clients since its inception in 1988, offering the whole spectrum of services ranging from governance, trustees' responsibilities, fundraising, grant-making, mergers and collaborative working to property, litigation, intellectual property and employment.

Earlier this year, associate Fiona Wharton joined the firm from Wrigleys, the specialist private client firm based in Leeds. Wharton grew up in North Yorkshire and has a natural affinity with the North East so she doesn't see her move as a coup, but it nonethelessreinforces the impression that charities are a significant market for North East firms.

Like Rustomji, Wharton reports a rise in inquiries about governance following the Companies and Charities Acts, with trustees looking to update their constitutions.

She also confirms the pressure on funding streams and the rise in trading issues.

'The recession has increased the competition between charities so they have to think more imaginatively about how they operate,' she says. 'We have been working with some of our clients to set up trading subsidiaries, and with others on full-blown mergers or on the outsourcing of particular functions to other charities in partnership arrangements to deliver certain objectives.'

Wharton's CV includes time as in-house legal adviser at Comic Relief in London, and latterly in private practice in London, so she has a wide perspective on the market. The type of work in the North East, she says, is not so different from the rest of the country but it has picked up recently. 'There were lots of inquiries before I joined, so it was clear to us that there was a need for specialist advice,' she says.

Whether the budget and the election will change the deal is an open question, Wharton continues, 'but charities can only get more professional in their outlook because the market will really be up for grabs'.

With 65 partners, Dickinson Dees is Newcastle's largest firm and reaches clients nationwide, including in the third sector.

Ros Harwood, the firm's head of charities, qualified in London before moving north in 2000 and joining Dickinson Dees in 2005.

'London clients are still with me and new national clients are coming to me on the basis of recommendations '“ it's a very close-knit sector where word of mouth is very important,' Harwood says. 'National charities come to us for the quality of the service and better value. I spend a lot of time getting out and about and building the practice, and the standard of work we get is the same quality as we would get in London.'

Room for growth

According to Harwood, her firm's success is in part due to the fact that there are few true specialist charity firms that can offer a complete service beyond contentious probate work or charity regulatory advice.

Most of her competitors, she says, are either private client firms that have branched out into charity law, or litigation firms that have developed their non-contentious business. 'By contrast, our background is corporate/commercial, which means we can offer genuine support across all aspects of a charity's requirements, not just in regulatory or trust work but also in employment, IP and even banking,' she says.

Like other charity lawyers, Harwood reckons the level of activity in the third sector can only grow further as charities continue to provide services on behalf of the public sector.

One of her own clients, which started off as a small mental health charity, is now a multi-million pound organisation as a result of government contracts.

'We have already passed a turning point in terms of size with a lot of charities, which have got big to the point they are businesses that need to be more commercial,' she says. 'Trustees will also need to be more aware of the risks and duties.'

One feature specific to the third sector in the North East is that many local charities have been dependent on public funding or other finance from grant-making organisations, according to Hugh Welch, senior partner at 20-partner firm Muckle, which has been acting for The North Music Trust, the organisation behind The Sage Gateshead, since the charity's incorporation six years ago.

The recession has made life difficult for these charities which have not been used to operating commercially and have had to go through painful cost cuttings and tackle governance issues. But as the local economy picks up, so should they; and having re-engineered themselves, they should come back in a stronger position than before. All good news for their legal advisers.