Charities & not-for-profit

Court of Appeal decision about the duties of members of charitable companies
29 August, 2018

It all started with a …..divorce.

 

In 2013, hedge fund billionaire, Sir Christopher Hohn and his then wife, Ms Jamie Cooper were the subject of a high profile divorce

 

Following their divorce they both continued as members and trustees of the charity they created: The Children’s Investment Fund Foundation (UK) (CIFF). CIFF was set up to improve the lives of children in developing countries and, crucially in the context of what happened next, is a charitable company limited by guarantee.

 

Predictably perhaps, the differences between the couple gave rise to “real difficulties in the management of CIFF” and in April 2015 an agreement was reached which it was hoped would resolve the problems.

 

The crux of the proposal was for CIFF to make a grant of £280 million to a new charitable foundation (Big Win Philanthropy) set up by Ms Cooper. This grant was subject to approval by either the Charity Commission or the court and once the payment of the grant was approved, Ms Cooper agreed to remove herself from all further involvement with CIFF.

 

On paper it sounded pretty straightforward. However, the Charity Commission decided this was a matter for the courts and before the court could approve (or not) the making of the grant, it had to grapple with a long running debate, namely the potential conflict between company law and charity law in relation to charitable companies.

 

In April this year the case reached the Court of Appeal and the key questions for the court were these:

Question 1

Do members of a charitable company owe fiduciary duties in connection with their functions? In other words, is a member required to exercise their voting rights for the benefit of the charity.

Or are the voting rights of a member of a charitable company proprietary (as with a limited company) meaning, they can exercise their voting rights for their own selfish interests even if these potentially conflict with the interests of the company.

Question 2

If members of a charitable company do owe fiduciary duties to the charity, does the court have jurisdiction to direct members how to act in the absence of a breach of that duty?

 

The Court of Appeal decided that ‘Yes’, members of a charitable company do owe fiduciary duties in connection with their functions.

 

Unfortunately, the judgment did not give any detailed guidance on the extent of the duty other than to equate the duty with that of members of charitable incorporated organisations (CIOs) which doesn’t take us much further as s220 Charities Act 2011 simply says:

Each member of a CIO must exercise the powers that the member has in that capacity in the way that the member decides, in good faith, would be most likely to further the purposes of the CIO.

However, the Court did stress that the duty is subjective – what matters is the member’s state of mind, as long as the decision is made in good faith.

 

Furthermore, the judgment did not consider the extent to which those same duties apply to other types of charitable companies such as charitable community benefit societies, charitable unincorporated associations, or Royal Charter or Act of Parliament charities.

 

The decision did consider briefly whether members of charities with very large memberships would also owe fiduciary duties to the charity suggesting (but not deciding) that it would be unrealistic for members of say the National Trust to be regarded as fiduciaries. What would happen for example if members were asked to vote on whether free parking for National Trust Members should be removed? (One way round this issue is to offer non-voting membership often described as ‘supporters’ or ‘friends’ of the charity)

 

Finally, the Court decided that it did not have jurisdiction to direct a member to exercise their discretion in a particular way (unless there is evidence of breach of duty).

 

In the present case, the only voting member is Dr Marko Lehtimaki as Sir Christopher and Ms Cooper accept that they are conflicted on this issue. Dr Lehtimaki indicated in evidence that he will vote against the grant and the Court of Appeal did not consider this to be a breach of duty. Interestingly, the High Court (who decided they did have jurisdiction to direct Dr Lehtimaki to vote in a certain way) directed Dr Lehtimaki to vote in favour of the grant partly it seems to avoid the costs and disruptive effect of further litigation. However, even the High Court recognised that the decision is not straightforward and said “it is not entirely clear why disposing of assets of US$360 million should be regarded as being in the best interests of CIFF

 

This decision has been long awaited and still begs a number of questions. However, we do at least now have some clarity regarding the nature of charitable company membership.

 

If you require advice on the appropriate vehicle for your charity, please contact Kate Arnold.

 

Link to judgment: Lehtimaki v Children’s Investment Fund Foundation (UK) and others [2018] EWCA Civ 1605 (6 July 2018)

 

 


Digital trustees: digital savviness keeps charities current
1 August, 2018

In the digital era in which we live,  evolving with the marketplace and changing modes of communication is essential.  While some charities may prefer to avoid the digital realm, daunted by the uncertainty it presents, this will arguably become an untenable position.

 

Legally speaking, trustees owe a fiduciary duty and must act in the best interests of the charity; failing to consider digital opportunities or not safeguarding against digital fraud is increasingly likely to be considered a failure of that fiduciary duty. 

 

The changes to the Data Protection Act (as a result of the EU’s General Data Protection Regulation) burden companies and charities with the responsibility to protect sensitive information.  Ignorance of the technology involved and the law is no longer sufficient excuse.

 

Duty aside, ‘going digital’ presents opportunities in areas such as efficiency, marketing and fundraising.  As  just one example, exploiting digital working spaces, enabling employees (or volunteers) to work flexibly from multiple sites or even from home, can reduce running costs and may increase employee efficiency.

 

Through digital media reaching new and existing audiences and connecting with them in real time becomes possible; platforms such as Twitter provide a self-perpetuating advertising network which can increase a fundraising pool. Despite these clear opportunities, the Charity Digital Skills Report 2018 states 31% of charities do ‘use digital’ but with no strategy around the way it is used.  Further, last year the Civil Society and the Charity Commission published a report observing most charity boards do not necessarily reflect the communities they serve, with the majority of trustees being aged between 55 and 64.    Younger generations are comfortable in the  digital world, and this is a market charities need to unlock. 

 

Think about appointing a ‘digital trustee’ or ambassador; one who is able to embrace the technical age and demonstrate your charity’s commitment to the future.  This could be an employee or volunteer with a comprehensive understanding of social media and the digital world; or a current trustee willing to apply themselves to learning about the opportunities (and threats) presented by the digital world. 

 

To hear more about trustee responsibilities in the digital world please contact kate.arnold@cripps.co.uk.


Employing trustees: why charity should not begin at home
12 July, 2018

case report published this month by the Charity Commission has highlighted the legal and reputational risks which arise where a charity employs and pays a salary to one of its trustees.

 

This report followed an investigation into the acquisition by a local branch of the RSPCA of a cattery, and its appointing as the cattery manager, with live-in accommodation, a trustee of the charity and daughter of the branch’s Chair (and also Chair of the national charity).  While the purchase of a property to use as a cattery was found to be legitimate and justified, there were significant failings in how the cattery manager was appointed.

 

Conflicts of interest and the no-profit rule

At the heart of this investigation was the principle that charity trustees have a legal duty to act only in the best interests of the charity, and must avoid any situation where their personal and professional connections or interests may conflict with their duties as a trustee, or could lead to decisions which are not in the best interests of the charity.  There are also strict limits (the “no-profit rule”) on the circumstances in which trustees, or persons connected to them, can receive payment or other material benefits from the charity which they manage and administer.

 

The Commission’s conclusions

The branch had taken steps to ensure a fair recruitment process for the cattery manager post, and taken some steps to manage conflicts of interest once the Chair’s daughter made known her intention to apply for the role, with the Chair stepping away from the recruitment process and enlisting a selection panel from the national society. However, there was no written record of the cattery manager resigning as a trustee before she was offered the cattery manager position, nor any relevant references in the minutes of the trustees’ meetings and AGM, and in fact she continued to attend trustee meetings after her appointment and was also still listed as a trustee in the charity’s annual reports.

 

The Commission concluded that the connections of the selection panel members to the Chair created a real risk to the perception of independence of the recruitment process and so jeopardised public confidence in the charity. Because the cattery manager was still a trustee when she was appointed, the Commission’s authorisation of her appointment was required under the Charities Act 2011.  Her receipt of salary and accommodation was in breach of the branch rules which prohibited a committee member receiving remuneration or other material benefit. However, in the circumstances the Commission concluded that it was likely that she would be entitled to an equitable allowance for the benefit received.

 

The Commission also identified failures in the governance and record-keeping of the charity, including the quality of its minutes of meetings and its annual reports.  These conclusions resulted in the issue of a strict action plan setting out the steps required to resolve weaknesses in the charity’s management and administration and to ensure that its trustees meet their legal duties.

 

Lessons for trustees

This investigation and case report highlight clear lessons for the trustees of charities in the areas of managing conflicts of interest, avoiding unauthorised payments to trustees, and making and recording decisions as charity trustees.

 

If your charity has any queries about its employment practices and procedures, please contact Patrick Glencross.  

 


Charities: the health & safety aspects of running fundraising events
16 May, 2018

As we finally move into warmer months, there will be a noticeable increase in the number of  charities running events, especially outdoor physical ones.

 

“Health and safety” is often used as an excuse to prevent events taking place, but with good planning and organisation, it is possible to put on an event that will be fun and safe for all, and to raise lots of money for charity!

 

Getting started

The level of detail in your planning should be proportionate to the scale of the event and the degree of risk.

 

The event organiser should carry out a series of risk assessments, identifying the scale, type and scope of the event; the type and size of audience; the location and time of day and year the event will be held. This information will then help create a safety plan. 

 

Liaising with others

Liaise with the venue owner or management, emergency services and, where appropriate, the local authority Safety Advisory Group for advice and information relevant to your planning. Discuss with them how you can control risks.

 

You will also need to ensure you have suitable insurance in place and will need to liaise with them over the planned event.

 

Planning

There are a number of further elements to planning for a charity event including:

 

  • Determining the number of people who will attend as many arrangements will depend on the size of the crowd

 

  • Assess the venue/site suitability

 The event venue/site should enable attendees to assemble, enter, move around and exit the space safely, and to evacuate quickly to a safe space in an emergency

 

  • Creating a crowd management plan

The event organiser and others involved in crowd management must think about what may cause harm to event staff and visitors through crowd movement, dynamics and behaviour as people arrive, enter, move around a venue, exit and disperse.

 

Reasonable steps must then be taken to eliminate or reduce the risks.

 

  • Planning for incidents

You need to ensure that plans are in place to respond effectively to health and safety incidents and other emergencies that might occur at the event that you are holding.

 

This emergency plan should be in proportion to the level of risk presented by event activities and the potential extent and severity of the incident. A fun run in a park is not going to have the same emergency plan as a sky dive!

 

Emergency procedures should be developed that staff and volunteers will need to follow during a significant incident or emergency, for example if there is sudden very bad weather, a fire outbreak or a structural failure. These procedures will include getting people away from immediate danger; dealing with injuries; and liaising with the emergency services where appropriate.

 

  • Serious incidents

You will also need to consider your response to more serious emergencies, including major incidents that may not be specific to the event you are holding. For example, the National Counter-terrorism Security Office have produced specific advice to help mitigate the threat of a terrorist attack in crowded places. The key message for the public is ‘Run, Hide, Tell’.

 

It may also be appropriate to have someone first-aid trained onsite, or to arrange for an ambulance to be there if there is a greater risk of someone injuring themselves.

 

Managing an event

The event organiser is responsible for ensuring that overall safety at the event is maintained so that, as far as reasonably practicable, people setting up, breaking down and attending the event are not exposed to risks to their health and safety.

 

Once the event has started, this role will be less about planning and more about effectively managing and monitoring the event, and co-ordinating with any volunteers, workers or contractors throughout the event.

 

Debrief after the event

A debrief will help evaluate what went well, and what could be done better next time. This will feed into the planning done for any similar events held in the future.

 

Total up the money raised

Count up how much money you have raised for your charity from your successful, well planned event!

 

For further information, see this Guidance on the Health and Safety Executive website

 

 

 

 


Charities dreaming of a pay-cut for sleep-in shift workers
15 May, 2018

Sleep-in shift workers should not be entitled to the national minimum wage for time spent asleep at work, according to the UK charity Mencap.

 

Mencap recently argued its case in the Court of Appeal challenging an employment tribunal decision (and subsequent appeal hearing) which ruled in favour of an employee’s claim for full minimum wage pay during her sleep-in shift at the home of someone she cared for.

 

If upheld by the Court of Appeal, the employment tribunal ruling will have a significant financial impact on organisations operating in the charity sector who have been paying sleep-in shift workers less than the minimum wage for hours spent sleeping since employees will be entitled to claim for the unlawful deduction from their wages.

 

Stay tuned for the decision which is expected later this year.


1 2 3 5