Charities (Protection and Social Investment) Bill [HL]
Debate between Lord Bew and Lord Bridges of Headley(9 years, 4 months ago)
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Lord Bridges of Headley
My Lords, I thank the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, for their explanation of the amendment. This has indeed been an illuminating debate and I thank them for it. As has been alluded to, an amendment along these lines was first proposed by the Henry Jackson Society in its submission to the Joint Committee on the Bill, and the submission was published in the committee’s report on the evidence it received. It is worth pointing out that the Joint Committee did not recommend changing the law as proposed in that submission.
Perhaps I may briefly summarise our view around this point. As noble Lords will know, “charity” is a status rather than a legal structure. Organisations can choose from a range of different legal structures when establishing a charity. An unincorporated structure, as has been said, has no separate legal identity of its own, and so the trustees must hold the charity’s property and enter into contracts for the charity, where this is required, in a personal capacity. Unincorporated structures are usually simpler, and have fewer and less demanding reporting obligations than corporate structures, as the noble Baroness, Lady Barker, pointed out. The downside is that a trustee’s personal assets are at risk if the charity is sued and its assets cannot pay the debt. This personal liability is often a reason that many charities choose to adopt a corporate structure. Even so, many smaller organisations opt for an unincorporated form, such as a trust or unincorporated association, as the noble Lord just said.
In a corporate structure, the charity itself has a legal identity enabling it to hold property and enter into contracts in its own name. As directors, the trustees act as agents of the charity. If they act properly, they and the charity’s other members have the benefit of limited liability, protecting their assets from being available to creditors in the event that the charity’s assets are exhausted. However, the accounting, reporting and insolvency requirements that apply to corporate structures are usually more demanding. Many charities choose the structure of a company limited by guarantee, and an increasing number of small and medium-sized charities are opting to incorporate as charitable incorporated organisations—a structure designed specifically for charities and implemented in 2012.
If an individual or entity commences litigation against an unincorporated charity, usually all the trustees of that charity would be named as parties. This is because an unincorporated charity has no separate legal identity. This would include proceedings for tortious liability against a charity trustee in his capacity as a trustee of that charity or an employee in the course of his employment. The trustees of an unincorporated charity are jointly and severally liable for their actions, where taken on behalf of an unincorporated charity. If damages were awarded against the trustees, they ordinarily would be entitled, if they have acted properly and reasonably, to indemnify themselves from the assets of the unincorporated charity under the charity’s governing document. They could, however, be jointly and severally liable for any shortfall where the charity’s assets are insufficient to meet the level of damages awarded.
As an employer, the trustees of an unincorporated charity would be vicariously liable for the actions of an employee if they were acting on behalf of the charity and the same principles would apply, enabling a claim to be paid out of the charity’s assets. Indeed, a person suing the trustees of an unincorporated charity could seek redress from the assets of the charity and the personal assets of the trustees. For an incorporated charity, in the absence of any charity assets, there is limited redress against the directors and members. If a third party reasonably believes a trustee is acting on behalf of a charity, it may sue all the charity’s trustees. Ordinarily, the trustees would be entitled to an indemnity from the funds of the charity under the charity’s governing document. However, a trustee in breach of trust or duty would be unlikely to be able to rely on this indemnity, so would remain personally liable. In either case of a trustee or employee acting on behalf of a charity, liability is not likely to be, nor should be, automatic, as the amendment seems to propose; it would still need to be established by the court where the liability should lie, based on the facts of the case.
In our view, the current legal position already supports the provisions within the amendment that damages may be recoverable from the assets of the charity, whether it is incorporated or unincorporated. Apportionment of liability between the trustees of an unincorporated charity is already possible under the Civil Liability (Contribution) Act 1978 if a claim is not brought against all of the trustees. The amendment would also run counter to the long-established principle that unincorporated associations do not have legal personality. I would be delighted to meet the noble Lord, Lord Bew, and the noble Baroness, Lady Deech, to discuss all this further, but, in the mean time, I invite the noble Lord, Lord Bew, to withdraw his amendment.
