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Tribunal decision protects charity from conflicts of interest

The cy-pres doctrine and s62 of the Charities Act 2011 (the Act) enable property belonging to a charity where the charity’s original purposes cannot be carried out to be applied for other charitable purposes as similar as possible to the first charity’s original purposes. An application to the Charity Commission (CC) to apply the doctrine is required and the CC will then produce a Scheme setting out the new purposes and related administrative provisions.

An appeal process to the First Tier Charity Tribunal against CC orders exists under the Act. This was exercised in the recent case of Miller v The Charity Commission and the London Borough of Ealing , a case which illustrates the need for trustees always to remember their position, act in the best interests of the charity and avoid conflicts of interest, particularly if they are also  involved in the decision making process in another capacity.

The Miller case

The charity’s property in this case was real property situated in Ealing and forming part of a complex of property.  The London Borough of Ealing (Ealing) owned part of the property (the Town Hall) outright whilst Ealing was the sole trustee of the charity property (the Victoria Hall and the Prince’s Hall) that formed the rest of the complex. The charity property had been placed into trust in 1893 with the intention that it should be used for community meetings, activities and entertainments with any profits being distributed to Ealing charities.

Ealing had over the years forgotten that part of the complex was charity property and had been mixing funds arising from the charity property with Town Hall funds. As the charity was uneconomic (especially as it had no permanent endowment) a plan was formulated by Ealing involving the transfer of the Town Hall and the charity property on a 250 year lease to a property developer. It was planned that Ealing as trustee of the charity would be a sub- tenant of part of the property. To implement the plan a CC Scheme was required applying the charity property cy-pres and the relevant order was made by the CC.

The appeal

Two Ealing residents who were members of local community groups appealed against the Scheme on the following two grounds:

  • That a cy-pres occasion had not arisen or
  • If a cy-pres occasion had arisen, the cy-pres order was inappropriate.

The Tribunal held that a cy-pres occasion had arisen as the original purposes of the trust could not be carried out in the present day. The trust was not self-sustaining as the underlying charitable purpose was not to provide income to preserve the charity property but to apply if for the benefit of the beneficiaries.

However, the Tribunal also held that the current Scheme was not the most appropriate one and the matter was remitted back to the CC to make a new Scheme. The Tribunal particularly emphasised the fact that some of the terms of the current Scheme did not protect the interests of the charity. It advised that the new Scheme should include provisions to manage potential conflicts of interest between Ealing (in their Borough capacity) and the charity. Ealing (as Trustee) must, from a governance perspective, recognise this, and act only in the best interests of the Charity, when agreeing to the final terms and conditions with the property developer. The Tribunal felt that the current rent-free occupation by Ealing of part of the charity property was inappropriate, and that all parties needed to collaborate to avoid harm to the charity.

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Jacqui Lazare

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Bristol, Southampton and London
Jacqui advises private clients on UK-based tax and estate planning, estate administration and philanthropy and also advises charities on a range of issues.
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