Charity Law and Governance e-alert - Winter 2020
1 December 2020
A lot has happened in the world since our last update so we start this edition with an overview of what we have learned during the pandemic so far.
We also look at a couple of recent cases: the first of which considers whether the members of charities are fiduciaries, and whether the court can direct the exercise of their voting rights; and the second of which examines the application of the charities' exemption in the Equality Act 2010.
We explain the need for an arms-length arrangement whenever a charity wishes to provide funding to its trading subsidiary and set out the consequences of not getting it right. And we consider what might be next for the Charity Commission now that Baroness Stowell has announced that she will not be seeking a second term as Chair.
We hope this update is useful. If you have any questions on any of the matters discussed, please do contact us.
What have we - and the sector - learned during the pandemic (so far)
As we go to press, it will be 253 days since the UK first entered lockdown. As individuals, in the eight months or so since midnight on 23 March, we have learned many things: how to go to work while also not going to work; the detailed geography of the North East and the huge advances in ophthalmology that have been made in that part of the world; and that a Cornish pasty does not, in itself, constitute a substantial meal, even though it was originally designed to be precisely that.
But charities have been disproportionately affected by the pandemic, and have learned some rather more salient lessons since everyone was first told to stay at home, protect the NHS and save lives. So, we thought that it would be helpful to share what we think has most affected the sector, and perhaps provide some insight into what charities can do to prepare themselves for future waves – or indeed the next set of unforeseen circumstances. Because that’s the irritating thing about unforeseeable circumstances: it is all too foreseeable that there will be some.
Supreme Court case report 1: are a charity’s members fiduciaries?
Earlier this year, the Supreme Court had the final word in the long-running case of Lehtimäki and others v Cooper, following decisions from the High Court and the Court of Appeal in 2017 and 2018. In particular, the case considered whether the court has jurisdiction to direct members of a charitable company on how to exercise their voting rights (spoiler alert: it does) and it could have interesting implications for the members of charitable companies, and perhaps even membership charities generally, giving them fiduciary duties in some circumstances. However, the case was unusual and turned very much on its facts: it's likely that the various legal arguments made will be revisited in the future. This article sets out some of the key points to consider, at least for the time being.
Supreme Court case report 2: when is it lawful for a charity to discriminate?
The October judgment of the Supreme Court in the case of R (on the application of Z) v Hackney Borough Council and Agudas Israel Housing Association was a useful reminder that, in certain circumstances, charities can discriminate in favour of a group which shares one of the characteristics protected by the Equality Act 2010 – even if this means excluding other protected groups from benefit. But was the decision entirely correct?
How to fund a trading subsidiary…
A newly established trading subsidiary is likely to need start-up capital if it is to operate. But there can be tax consequences if a charity's investment in its trading subsidiary turns into financial support.
And finally...All change at the Commission
It was revealed last month, albeit without the fanfare that usually accompanies these things, that Tina, Baroness Stowell of Beeston MBE PC, the Tory peer, former Leader of the House of Lords, former Lord Privy Seal and current Chair of the Charity Commission, will not be standing for reappointment and that her tenure will therefore come to an end in February after only three years in the role. What – or who - might be next for the regulator?