An unfortunate fact of modern life is that Charities are not immune to disputes with third parties such as suppliers and contractors. Whilst such disputes can be a drain on the resources of the charity their resolution does advance the charity’s day to day activities. A far worse evil for a charity can be an acrimonious internal dispute about the workings and doctrines of the charity itself. In this article the IBB Charities team discusses how to approach such disputes.

internal disputes: how should they be resolved?

Most charities are established by individuals who have a common purpose, i.e. to support a particular need within the community. That purpose can be achieved through a variety of means, and often there is no right or wrong approach for the charity to follow. with faith organisations the position can be far more complex. The charity has usually been established to further the teachings of a particular faith. normally the followers of that faith will also believe that the teachings act as a rule book on how they live their life or how the affairs of the charity should be managed. Therefore the Members involved in the charity not only have to agree on the purpose they are trying to achieve, but also that the manner in which they are going to achieve that purpose is consistent with the particular teachings in question.

This position often leads to internal disputes because:

• Members of the charity start to interpret the teachings of the faith in different ways, sometimes for personal gain or due to a doctrinal split within the faith itself. This can lead to strong opinions being expressed on all sides. however, only in rare occasions can the civil courts make rulings on doctrinal matters. such disputes can boil over to disrupt the way in which the current trustees seek to run the charity.

• splits on theological matters can lead to cliques forming within the Membership of the charity leading to fierce power struggles and heavily contested elections for trustees.

• in some cases the elected trustees avoid taking the necessary steps to hold

ibb soliCitors Charities teaMinternal disputes - how should they be resolved?

this briefing note is only intended to provide general guidanCe and is not intended to Constitute legal adviCe.

elections to appoint their replacements, as they do not wish to relinquish control of the charity.

such internal disputes are often led by a group of the charity’s membership dissatisfied with the current trustees either because of personal issues or because such members are pursuing a split from the strict teachings of their faith.

Resolution of inteRnal disputes

if trustees are faced with an internal dispute of this nature, what should they do to try and minimise the risk to the charity’s day to day operations? The first instinct on both sides is often to involve lawyers and seek to bring the matter before a court at the first opportunity. but is this the correct approach? The trustees’ primary duty is to ensure that the charity’s assets are being applied for the charitable objectives and litigation may not always be a correct use of such assets.

internal disputes of this nature fall within the definition of “charity proceedings” set out in section 115(8) of the Charities act 2011. The act provides that no charity proceedings may be commenced without either the Charity Commission or a Chancery Judge giving permission. The Courts have made it clear that this permission mechanism is there “to prevent charities from frittering away money subject to charitable trusts in pursuing litigation relating to internal dispute” (per Mummery lJ in numan v. Magasena [2000]).

the chaRity coMMission’s appRoach

The Charity Commission take all applications for consent to engage in charity proceedings very seriously. The Charity Commission would generally require the parties to:

• Consider whether the dispute can be resolved by some form of compromise on the part of those involved, maybe deferring to the will of the majority of the Members of the Charity (assuming their intentions comply with the law);

• if that is not possible, the parties would

be encouraged to follow through any form of dispute resolution mechanism that may be set down in the Charity’s constitution or the teachings of the faith.

• if there is no internal process, or that process fails to resolve the dispute, then the Charity Commission would expect the parties to engage in Mediation. Mediation involves the use of a third party independent facilitator (often a solicitor or barrister) who seeks to engage the parties in a constructive confidential dialogue. The Mediator does not seek to impose his or her own decision or judgment on the parties, they merely seek to guide the discussions to a point of resolution. Mediation is a highly successful tool in resolving disputes, however impenetrable they may seem at first.

only once the parties have exhausted those avenues would the Commission be likely to consider the question of consent to issue charity proceedings. The Charity Commission will want to be satisfied that litigation is a proportionate way to proceed. in particular, the Commission will consider:

• whether the dispute is currently disrupting the day to day operations of the charity?

• if the dispute is preventing the charity from being operated so as to further its charitable objects for the public benefit?

• whether the dispute is putting the assets of the charity at risk?

if the answer to those questions is no, then the Commission is unlikely to sanction the taking of charity proceedings.

however in some cases harm can be done to the charity unless the real issues and contending parties come before a forum that can determine the dispute and allow the workings of the charity to continue harmoniously. in those cases consent is more likely to be forthcoming. any parties who engage in charity proceedings should however recognise that notwithstanding the granting

of consent, all other avenues to resolve the dispute should continue to be investigated.

Resolution of disputes - checklist

• Consider whether the dispute can be resolved at an early stage by discussions

• if that is not possible, consider taking legal advice to ascertain whether there is a clear answer to the position, which the trustees can agree to follow;

• put in train any internal dispute resolution mechanism provided for in the charity’s constitution or the teachings of the faith. if there is no such mechanism in place the parties can agree one, or can agree to be bound by the decision of a higher authority within that faith;

• if such processes do not achieve resolution then the parties should engage in Mediation.

• if Mediation fails then, and only then, should the parties consider charity proceedings.

ibb soliCitors Charities teaMinternal disputes - how should they be resolved? / 2

If you or your Trustees would like to discuss the issues raised by this note, please contact: Jo Coleman, partner, ibb solicitors Charities team01895 207809 jo.coleman@ibblaw.co.uk

this briefing note is only intended to provide general guidanCe and is not intended to Constitute legal adviCe.

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