Update: charity law

Reports of inquiries instituted under s.8 of the Charities Act 1993 are routinely published on the Charity Commission's website. The reports give a useful indication of the circumstances in which the Charity Commission is prepared to intervene and exercise its statutory powers. The facts of a particular case may give some insight into the Commission's interpretation and application of the law, while its analysis of the wider lessons to be learned from the inquiry may provide some helpful guidance for trustees of other charities.

The Commission's report of its inquiry into the St John and Elizabeth Charity (the 'Hospital Charity') and the Brampton Trust (the 'Trust') was published in December 2008. Since 1856, the residents of North London have been served by the charitable Hospital of St John and St Elizabeth, originally run by Roman Catholic nuns. Alongside the hospital is a hospice.

The objects of the Hospital Charity in modern form read as follows:

'(a) to provide a hospital for the reception, care and treatment of patients without distinction, and in particular (but without prejudice to the generality of the foregoing) for patients requiring palliative care; and

(b) to serve the sick and the dying and to care for the physical, spiritual and emotional needs of patients irrespective of nationality or religion.'

In the 1990s the Commission made a scheme to provide that the objects should be carried out 'in accordance with the spiritual and ethical principles of Roman Catholic teaching and traditions '¦' and 'shall be conducted in accordance with the ethics of the Roman Catholic Church in communion with the see of Rome. The trustee shall take all reasonable steps to ensure that all persons working within the hospital shall comply with this requirement and be fully informed on the subject. In the event of any difference of opinion arising as to these ethics or the application thereof then such difference will be submitted to the Archbishop of Westminster, whose decision shall be final and conclusive'.

It would appear that there were no similar provisions in the earlier governing documents of the Hospital Charity.

The Trust's objects are to apply its property for the purposes of the hospital charity or any other Roman Catholic charity. In practice, a hospital building is owned by the Trust and the Trust permits the Hospital Charity to occupy this at a 'peppercorn' rent. The Trust also applies a proportion of its annual income to the Hospital Charity.

The Hospital Charity and the Trust sought consent from the Commission to charge their properties as security for borrowing. This was to enable the Hospital Charity to obtain finance for a redevelopment of part of the hospital. One of the proposals for servicing the debt was the grant of a lease to a GP practice, raising concerns among Catholics opposed to the provision of contraceptive services and abortion counselling '“ a requirement for NHS GP practices.

The Commission report evidences that a number of the issues that were the subject of the inquiry arose due to problems with the direction contained in the 1990s scheme, although the report does not explain why the direction was considered by the Commission to be suitable for inclusion in the objects. Instead, the report focuses on the poor governance of the Hospital Charity and the series of events that led to the grant of a sub-lease of part of the hospital buildings to a GP Practice. In particular, the charity trustees of the hospital charity found themselves in disagreement over whether the operation of a GP practice would be a breach of the objects, given the seemingly irreconcilable Code of Ethics issued by Cardinal Cormac Murphy-O'Connor on the one hand, and the codes of practice binding on GPs and nurses and issued by the NHS and their respective professional governing bodies on the other.

For reasons that are not clear, the charity trustees, presumably as a means of extricating themselves from this irreconcilable position, resolved to sell the hospital, and then they changed their minds. However, during the same time period, the trustees agreed to grant the sub-lease to the GP practice. The Commission concluded that it had been misled by the trustees of the Hospital Charity into giving consent to charge the charity's land, in that it had been informed that the terms of the sub-lease included a covenant by the GP practice to comply with the Cardinal's Code of Ethics. But there was an undisclosed '“ yet important '“ exception, which was that the tenant would not be in breach if it was carrying out its contractual arrangements as a registered medical practitioner. In other words, it would not be a breach if the NHS required it to provide contraceptive services.

The charity trustees failed to satisfy the Commission that they had properly considered the need to comply with the Code of Ethics. The Commission concluded that the decision to enter into the sub-lease may have been inconsistent with the direction in the Scheme. Many of the original charity trustees have now resigned and it falls to the newly constituted charity trustees to reconcile the existence of the GP practice with the objects of the Hospital Charity.

This is an unsatisfactory outcome and the provisions of the scheme should be carefully considered. There may be a case for revising the changes introduced to the objects clause in the 1990s.

Charities providing social housing

A recent case of importance for those who represent registered social landlords (a large number of which are charities) or their tenants is R (on the application of Weaver) v London and Quadrant Housing Trust 2009 1 All ER 17 (Administrative Court) Richards LJ and Swift J. The court held that the defendant (Quadrant), a registered social landlord, was a functional or hybrid public authority for the purposes of s.6(3)(b) of the Human Rights Act 1998, and that it followed that not only did the appellant have a right of action under s.7 of that Act, but Quadrant was also amenable to judicial review on the usual general principles of administrative law. The claim failed on its facts, but the principles established are important.

Quadrant was a non-profit-making charity with objects that embraced meeting housing need for the poor, the aged, the disabled and the chronically sick. It was a Housing Association and registered social landlord regulated by the Housing Corporation under the Housing Act 1996. About 10 per cent of its housing stock had been transferred from local authorities and the remaining stock had either been built by Quadrant or purchased on the open market.

Quadrant was governed by rules and run by its board and shareholders, and it had complete control over its allocation of housing, subject only to a statutory duty to cooperate with local authorities. The appellant had become a tenant of Quadrant. Quadrant gave notice to quit seeking possession on one of the mandatory grounds under the Housing Act 1996. The tenant claimed that there was a legitimate expectation that only discretionary grounds would be used. In order to succeed the tenant needed to establish that Quadrant was carrying out a public function in allocating social housing.

After a detailed review of the authorities to date, the court held that Quadrant was carrying out a public function and was a functional public authority. The court stressed a number of factors. Quadrant operated in the field of social housing, which was permeated by state control and influence, and in which registered social landlords operated closely with and took the place of local authorities. There was substantial public subsidy paid to registered social landlords, directed towards increasing the available stock of social housing. There was a duty to cooperate with local authorities in allocating housing according to need.

Quadrant's situation was very different from that of an ordinary commercial business.

Fraud now a serious concern?

The case of Van Kwawagen v RNLI and Cancer Research UK highlighted continuing problems with the security of original wills held by a testator. The action was brought in the High Court by the daughter and widow of Bertrand Ciebrant ('the deceased') against two well-known charities both of which rely upon legacies as a major source of income.

Although they never divorced, the deceased and his wife had lived apart for decades and there was very limited contact between the deceased and his daughter in the later years of his life. Originally from the Netherlands, the deceased lived in London and had a relationship with a woman who subsequently died. She and the deceased made mirror wills in 1974 with residuary gifts to the charities. At the time of his death the deceased owned a lease of a valuable property in London.

Ms Ciebrant alleged that the deceased had not left a will, that he had therefore died intestate, and that she and her mother were entitled to his estate. The charities brought a counterclaim seeking a declaration that the deceased had in fact left a will. This was based upon evidence from two neighbours of the deceased who said that they had come across a will in the process of assisting the daughter in marshalling various documents left in the deceased's flat. The daughter denied that a will had been found.

Evidence was given by an elderly, retired solicitor that she had prepared the wills in 1974 and could recall specific detail of the contents of the wills, including the gifts to the charities. Unsurprisingly, her file was no longer available.

The judge found on the facts that the will had existed at the date of death and that it was highly unlikely that the witnesses should both suggest the existence of a will if there had not been one. Probate was granted of a reconstituted copy of the will based on the testimony of the witnesses as to its contents.

Where the original will was last known to be in the possession of the testator, but cannot be found after death, it is settled law that a presumption arises that the testator had at some point destroyed the will with the intention of revoking it. The presumption is rebuttable, but the evidence must be clear and satisfactory. There is a presumption against fraudulent abstraction, but circumstances making such abstraction possible must be given due weight.

The number of reported cases involving fraud of one kind or another in relation to wills, be it by forgery or suppression, continues to grow. This is a matter of concern to the charity sector in particular. Practitioners need to be alive to the possibility of fraud, even by close family members. Most solicitors offer a will storage service, but the importance of security is often not discussed with the client. The potential problems of the testator retaining their original will should not be underestimated. A simple registration system may be a solution in the longer term.