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The changing legal landscape for charities

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The changing legal landscape for charities

Charities are facing a changing legal landscape and are under increasing scrutiny from law makers and the media alike.

Relatively recent, high profile scandals – such as the closure of Kids Company and allegations of pressurised fundraising tactics – have put the charitable sector in the spotlight, with the public becoming more cautious of organised charity activities.

In this demanding environment, charities need to ensure they have access to experienced legal partners with specialist charity and not-for-profit sector lawyers who can help them navigate the special requirements such organisations face.

And there a number of current developments on the horizon for charities that they should be aware of:

1. Opt-in fundraising system under consideration for regulator’s code

A new proposal compelling charities to approach only people who have signed up for contact could become part of the Fundraising Regulator code.

The proposal comes from The National Council for Voluntary Organisations (NCVO) along with a number of the UK’s biggest charities and is aimed at controlling data sharing by charities which has caused some people to be bombarded with fundraising requests.

Under the proposals, charities would still be able to buy data but could only call or mail people if they had given permission to be contacted by the named charity. Currently people agree to being “happy to receive marketing from selected third parties”.

2. Law Commission consultation into charities closes in October

A consultation by the Law Commission looking at how charities governed by Royal Charter and acts of Parliament amend their governing documents closes at the end of October.

The commission – a statutory independent body created to keep the law of England and Wales under review and recommend reform where needed – is keen to see a legal system for charities that provides trustees with flexibility and freedom when carrying out their duties for the charity but without exposing the charity’s assets, its beneficiaries and its trustees to undue levels of risk.

Along with the focus on governing documents, the consultation will address issues arising from a review of the Charities Act 2006, including: the procedures by which charities change their purposes and the administrative provisions of their governing documents, the regulation of the acquisition, disposal and mortgage of land by charities, remuneration of a charity trustee for the supply of goods to the charity, the power for trustees to make ex-gratia payments out of the funds of the charity and the power of the Charity Commission to require a charity to change its name, and to refuse to register a charity unless it changes its name.

3. New Charity Commission power could be punishing for charities

A new Charity Commission power to issue official warnings could affect charity recipients for two years. The Commission can make the sanction – which remains on its website for two years –

if it believes a charity has breached trust, duty or been involved in other misconduct or mismanagement that falls short of a full inquiry.

But a group of organisations responding to a consultation on the new power – including the Charity Finance Group, the NCVO and the Charity Law Association working party on warnings – has said it lacks clarity and could be used as a “lightning bolt” to punish charities if, for example, they attract negative media attention.

Other comments from the organisations suggested the official warning could be seen mistakenly as serious as a statutory inquiry, that the 14-day notice period before publishing the warning was too short and that it was unclear when the power would be used.

The commission said it will consider the points raised as it develops the final version of the guidance and added it would not issue warnings “out of the blue”.  

4. Charities and IT providers need to agree responsibilities for new EU data compliance

A new EU data protection law will demand greater responsibility from both charities and the IT companies they use to process data.

The EU General Data Protection Regulation – which comes into effect from May 2018 – places an equal duty on charities and IT companies to ensure data activities are compliant with the law.

And one of the most important elements of the new regulations relates to consent: people whose data a charity holds must give explicit and informed consent for their data to be processed, meaning a person knows how their data is protected, how it’s used and the associated risks.

While charities will need to inform IT companies that consent is in place, IT providers will need to explain their methods of protecting privacy.

5. Clarity “missing” from new Commission power to disqualify charity trustees

Charity trustees could face disqualification from their role and be barred from holding a senior management position in a charity under a new law.

The Charities (Protection and Social Investment) Act 2016 gives the Charity Commission power to disqualify charity trustees based on a person being unfit to be a charity trustee and that disqualification is necessary to protect public trust and confidence in charities.

Also, before disqualifying a trustee one of six conditions must be met such as the person has been cautioned for an offence involving a charity for which a conviction would bring automatic disqualification or HM Revenue & Customs finds the person is not a ‘fit and proper person’ to be a manager of a charity, etc.

However, voices from the charity sector have asked that the new guidance clarify how and when the new power will be used adding that, overall, it does not help the reader to understand the process that the commission will follow in determining whether an order should be made. 

6. Legal case protects charities’ costs when challenging wills

A recent case has set legal precedent for charities facing costs when needing to prove the instructions given in a will.

A party can give notice that they do not raise any positive case, but can insist in the will being proved in ‘solemn form’, without setting out any objections regarding the validity of the will. This is called ‘passive defence’ and it is pursuant to CPR 57.7(5). In considering passive defence in the case of Elliot v Simmonds, the defendant was allowed to investigate issues of capacity and issues of knowledge or approval of the attesting witness to the will. Cross-examination raised no doubt regarding the validity of the will. 

Ordinarily, when faced with challenges to the validity of a will (regardless of the merit of the challenge), charity beneficiaries will agree a compromise or make a nuisance payment as the ‘no costs rule’ under CPR 57.7(5.b) has previously encouraged charities to compromise / settle for fear of incurring significant irrecoverable costs in having to prove a will. The case of Elliot v Simmonds should give charities and other beneficiaries greater confidence in such circumstances, as the Judge in this case ordered that the Defendant should pay the Claimant’s costs, notwithstanding the general rule that there be no order as to costs.

Elliot v Simmonds is a firm reminder to anyone looking to challenge a will. If the challenge has no merit, it can expose the challenging party to a large cost liability or a bill.”