Charities (Protection and Social Investment) Bill [HL]

Lord Watson of Invergowrie Excerpts

Tuesday 23rd June 2015 Grand Committee

[Lord Watson of Invergowrie (Lab)]

My Lords, I am very pleased to welcome the noble Lord, Lord Bridges, to his first Committee. I am sure that we will have some productive discussions over this and the other Committee sessions, and, indeed, beyond that.

When I looked at the amendment in the names of the noble Baroness, Lady Barker, and of the noble Lord, Lord Wallace of Saltaire, I thought that there is not really much to disagree with, but because they are Lib Dems I thought it was worth a go anyway. As it appeared, we on these Benches reached the conclusion that we could not really see anything untoward about it. But perhaps not unsurprisingly, given his legal brain, the noble and learned Lord, Lord Hope of Craighead, has raised an issue that certainly had not occurred to me.

With noble Lords’ indulgence, as a brief aside, the noble and learned Lord and I take our titles from the same county, Perth and Kinross. I am more towards the eastern end, on the outskirts of Dundee where I grew up. The noble and learned Lord mentioned the word “how” and how such a small word could, perhaps, have significant meaning. Let me just enlighten noble Lords that, in Dundee, “how” has a different meaning than is more normally associated with it. If you are at your desk at work in Dundee and you turn to your colleague and say, “It’s 15.47, I’m going home now”, he or she might say to you, “How?”. You might say, “By train or bus”, but the answer would be, “Because I’m not feeling very well”. “How” tends to mean “why” in Dundee. I use that as an illustration of the fact that the noble and learned Lord, Lord Hope, was indeed right in pointing out that that little three-letter word can contain a bit more than might at first be obvious.

More seriously, I take the noble and learned Lord’s point that it could be seen to be narrowing the wording in the Bill. It is certainly right that, wherever possible, individuals should not be identified unless the Charity Commission is very clear that that is the appropriate thing to do. If they are to be identified, they have to have as much notice as possible and an indication of the form in which the commission proposes to publish the warning. Whether that means them saying, “We will put it in these newspapers”, or whether they say just “in the media”, or “on such and such a date” I do not think is of huge concern. But I accept that the main thrust of this part of the legislation should be to ensure that the individual is given the protection that he or she deserves until such time as the commission reaches its conclusions.

Like other noble Lords, I was a member of the Joint Committee that looked at the draft Bill. In response to the Joint Committee’s report, the Government set out new criteria in Clause 1, which are very welcome. However, the remarks we have heard, particularly those from the noble and learned Lord, Lord Hope, mean that we should perhaps return to this issue on Report with a view to coming up with some wording that would be more appropriate. I am not going to suggest anything off the top of my head because I initially thought there was nothing to which you could object in this amendment. Given what we have heard, it may well be that further consideration is needed. It is important for the commission to have this power, but the individual has to be given some consideration. What happens to charities is important, and it is the Charity Commission we are talking about, but let us not forget that individuals as trustees do invaluable work for charities and we have to give them due consideration.

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[Baroness Barker]

My Lords, as a member of the committee, I want to support the noble and learned Lord, Lord Hope. I love going to Hampton Court. When you go there, particularly if you are a kid, you get to understand how this term came to be. We are not in Tudor times but it is a very important matter. A number of the charities we talked to in the course of our discussions work internationally. They work in very difficult situations, such as in war situations around the world, and at times it can be quite difficult to ascertain the extent to which the trustees know what is happening in their charities.

On the last set of amendments, the noble Baroness, Lady Hayter, tried to take us to a place where we could understand the difference between management and governance. We are talking very much about governance here, not about the people who run or manage charities and are therefore close to the day-to-day activities of those charities. If the question is about the extent to which trustees in a position of governance need to know what is being done by their charities or can inadvertently be assumed to have known that something adverse happened, then that is absolutely wrong.

I am always interested in things that clarify governance for trustees. Governance is very difficult to pin down. This change of language is an attempt to help the trustees of today understand that distinction between governance and management, and that is laudable.

[Lord Watson of Invergowrie]

My Lords, I start by saying that the Opposition support these amendments as well. One of the issues arising among a number of organisations in response to the Bill is that it lacks clarity in various ways. If one of the more straightforward means of overcoming some of that lack of clarity is changing the wording as suggested here, then we should all welcome that.

The noble and learned Lord, Lord Hope, mentioned the recommendation of the Joint Committee and that the wording “aware of” was suggested. In response to the committee’s recommendations, the Government stated in their report of March this year:

“The Government will explore implementing the Committee’s recommendation to replace ‘privy to’ with ‘aware of’ with Parliamentary Counsel. The term ‘privy to’ is already widely used in the existing legislation and we want to carefully consider the implications of any change before committing to a change of wording”.

Following that consideration, the Bill was not changed and, of course, “privy to” remains in it.

The noble and learned Lord, Lord Hope, told us why he came back with amended wording. My only thought on the matter is that a former Law Lord’s understanding of the law would be something to which I would give weighty consideration—to put it mildly. Can the Minister say why, and indeed whether, Parliamentary Counsel continues to believe that that wording is right? This is a fairly straightforward change that should be made to the Bill.

[Lord Bridges of Headley]

My Lords, I stand with some trepidation to debate with the noble and learned Lord, Lord Hope, on this matter. Mention has been made of my right honourable friend the Justice Secretary and his remarks yesterday. I have been very careful in this debate not to use “impact” as a verb. I am also very intrigued by this area. This debate over the word “privy” makes me wonder whether it needs to be modernised in terms of the Privy Council, but I do not want to get into that right now.

It strikes me that what we are debating is what the layman understands versus what is legally accurate and watertight. The Joint Committee that considered the draft Bill, chaired by the noble and learned Lord, recommended, as the noble and learned Lord just said, that the term “privy to” be removed and replaced with “aware of”, so that the Bill referred to a person who was aware of an action that constituted misconduct.

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[Lord Hodgson of Astley Abbotts]

My Lords, having served on the pre-legislative scrutiny committee, I understand the concerns about the width of this clause, but if we were to accept this amendment, we would go from a very broad power to a very narrow one. As I read it, we have to take into account, first, the effect of a person’s behaviour within the charity about to be inquired into and secondly, the conduct of that person in any other charity. That does not seem satisfactory because there are clearly issues that range more widely. The behaviour of a trustee in general life is an indication of their seriousness. For example, the existence of county court judgments would indicate that their personal financial behaviour may be a bit erratic. It may be that they had been a director of a commercial company which had gone bankrupt and which had been unfavourably commented upon by the companies’ inspectorate. It might even have resulted in them being banned as a company director for a time. These are all issues which the Charity Commission might reasonably take into account when considering a particular situation, if what can be seen as a proven rotten apple is likely to result in damage to the position, reputation, trust and confidence in the charitable sector generally.

While I have some sympathy with the concerns of the noble Baroness, I do not think striking out subsection (3)(b) of new Section 76A is the right answer. It would be too narrow a prism and the Charity Commission would have its hands unduly tied. We must find some better way to sort it out.

[Lord Watson of Invergowrie]

My Lords, we think this clause in its generality provides an important addition to the powers of the commission. It is appropriate that a person’s activity outwith their work with or for a charity should be taken into consideration. That is not to say that we are uncritical of the wording of the two paragraphs referred to in these amendments in the name of the noble Baroness, Lady Barker.

One reason it is a useful addition is that it would only apply after a statutory inquiry had begun. That would be a sign that the Charity Commission already believed that there was evidence of misconduct or mismanagement. That is clear from the last two lines of page 2 of the Bill. Of course, there are concerns—some of which noble Lords have referred to in the Joint Committee’s report. It is again a question of provisions being drawn too widely and lacking clarity.

The Government’s response to the Joint Committee’s report stated that they would,

“look to revise the draft Bill to make this clearer”.

Unfortunately that has not been done. I invite the Minister to say why the Government eventually proved unable or unwilling to do so. It is regrettable, although I do not think it constitutes a reason to remove the wording completely from the Bill. I do not think that is appropriate. We agree with comments that have been made about the need to refine the wording, and perhaps some attention might be given to the report published yesterday by your Lordships’ Select Committee on the Constitution on this and two other Bills. Paragraph 41 of the Select Committee’s report was critical of new Section 76A to be inserted by the Bill. I am sure the Minister has already read that report and taken it on board. It is important that that should be considered further before Report.

The final paragraph of that report states:

“The concerns identified by the JCHR from a human-rights perspective are mirrored by corresponding constitutional concerns on the grounds of legal certainty. We draw these concerns to the attention of the House”.

That simply adds to the arguments we have already heard in relation to these amendments.

An important suggestion of the Select Committee’s report is that conduct should be qualified in terms of its seriousness. It must be recalled that this activity does not need to lead to a charge or a conviction. On these amendments, and I think in a previous amendment, the noble Baroness, Lady Barker, mentioned that things that you do at one stage in your life these days follow you around through social media. It is very possible that a person a lot younger than me and a lot more able on social media might well do something that seems relatively trivial but that could come back to haunt them in later years. That has to be borne in mind.

The noble and learned Lord, Lord Hope, referred to evidence that the Joint Committee received about political causes. That is a concern. It could be that somebody who was publicly critical of government policy or of the Charity Commission might find that coming back to them. I do not mean that as a trivial point. The point is that we do not know what would be regarded as something that could effectively add to charges already assembled by the Charity Commission in targeting an individual. It is a question of uncertainty. We have heard this point several times this afternoon. In light of what the Minister has heard, I hope he will reconsider this matter, possibly with a view even to bringing forward a government amendment on Report. Given those remarks and the report of the Select Committee on the Constitution, I hope we may be able to look forward to that when we consider this matter again.

[Lord Bridges of Headley]

My Lords, this has been a very stimulating debate and I pay tribute to the noble Baroness, Lady Barker, for provoking it. I shall first address Amendment 5 about the proposed powers of the commission to take into consideration the conduct of a person outside a charity. I recognise that these are broad powers in that they allow the commission to take into account any outside conduct. However, these powers are necessary to enable the commission to address conduct which could seriously damage public trust and confidence in charities and need to be viewed in the context of the other criteria that apply to their use, along with the various safeguards in place.

Just as we have to place a large degree of trust in charity trustees to exercise their discretion properly in running their charities, we need to trust the Charity Commission to regulate independently and in the public interest. Of course, there is a range of safeguards, not least the independent judicial oversight provided by the Charity Tribunal, which has shown since it started work in 2008 that it is not afraid to criticise the Charity Commission in the few cases where it considers that the commission has overstepped the mark and acted disproportionately.

As I and others said on Second Reading, the Bill seeks to achieve a balance. The powers that it would confer on the Charity Commission need to be broad enough to make them useful. If they are too narrow they would be impractical and go unused—a point that my noble friend Lord Hodgson made. But charities need to know the circumstances when the powers may be used and I believe that the Bill achieves that balance.

The purpose of the noble Baroness’s first amendment would be, as we have discussed, to limit the other conduct that the Charity Commission could take into account when considering the exercise of its compliance powers. It is important that we retain this part of the clause as it prevents the undermining of public trust and confidence in charities, as all relevant—I stress “relevant”—conduct ought to be taken into consideration before the commission determines how to act accordingly. The commission could not take account of any irrelevant conduct. Indeed, I argue that the commission could be criticised for failing to act, or for taking only weak regulatory action, if it were unable to take into account relevant evidence of misconduct of an individual outside of a charity.

I shall illustrate this with an example. The Charity Commission opens an inquiry into charity A regarding concerns of financial mismanagement. It establishes misconduct and mismanagement against trustee X, an accountant, as large payments have been taken out and not accounted for. Blank cheques have also been signed by trustee X. The commission then approaches other relevant regulators which provide them with information that trustee X has had two cases of professional misconduct for accountancy irregularities in previous employment. Under Clause 3 as proposed, the commission would be able to take this other evidence into account before deciding what action it would be proportionate to take in the circumstances. If the amendment were to be accepted, the commission would be able to give no weight to this other, potentially compelling, evidence.

I emphasise that safeguards would be in place to ensure that any conduct outside of a charity would be only that which was relevant to the decision being considered by the commission. I shall illustrate those safeguards. First, there must be a statutory inquiry open and the Charity Commission must be satisfied that there is misconduct or mismanagement linked to the individual in the charity under inquiry before it can rely on any conduct from outside the charity as a makeweight in its decision-making.

Secondly, the commission, when exercising its powers, must provide a statement of reasons under Section 86 of the Charities Act 2011, which would set out the evidence it relied on in making the decision. This would include any evidence it relied on from outside the charity. No amendment to the Bill is needed to ensure that that is the case; we can amend the Explanatory Notes to make that clear.

Thirdly, as with all the Charity Commission’s compliance powers, the commission would have to be satisfied that the exercise of the power would be in line with the principles of best regulatory practice, including that it is proportionate, accountable, consistent, transparent and targeted only at cases where action is needed, as set out in Section 16 of the Charities Act 2011.

Finally, there is, of course, a right of appeal to the Charity Tribunal in relation to the exercise of the commission’s compliance and remedial powers, ensuring judicial oversight of the exercise of the relevant power.

The noble Baroness’s second amendment would remove the condition that enables the Charity Commission to consider disqualification on the basis of conduct likely to damage public trust and confidence in charities. The power to disqualify from charity trusteeship and senior management positions is indeed a significant power. As such it is important that the process is rigorous but fair, and, once again, balanced.

I shall explain what that will mean in practice. First, the individual must have met tougher new criteria to become a trustee and not be automatically disqualified in the first place. Secondly, before the commission can decide to disqualify an individual, three new conditions need to be met, as set out in the guidance issued by the Charity Commission. First, one of criteria A to F is met; secondly, the individual is considered to be unfit to be a charity trustee, defined by that guidance; and, thirdly, the commission considers it,

“desirable in the public interest in order to protect public trust and confidence”,

in charities.

The commission then has to give notice of its intention to disqualify and give a period for representations to be made before any decision is made. If a decision is made to disqualify, the disqualification could take effect only after a period of time has elapsed in which the individual can lodge an appeal with the tribunal—that is, 42 days. If the decision is appealed to the tribunal, obviously the tribunal would be able to confirm or overturn the disqualification. In making a decision, the tribunal would consider the case entirely afresh on the basis of all the evidence before it; it would not simply review the Charity Commission’s original decision. Lastly, all the commission’s actions in this process would have to abide by Section 16 of the Charities Act 2011.

As was said just a moment ago, the Joint Committee that undertook pre-legislative scrutiny agreed that there was a,

“need for a broad power to disqualify an individual in certain instances, not all of which can be specifically identified and encapsulated in legislation”.

The noble Baroness, Lady Barker, referred to one scenario and asked whether a person could be disqualified on the basis of an overseas conviction in a country where homosexuality is illegal. An overseas conviction is not enough on its own. As I have said, the commission must also be satisfied that a person is unfit to be a charity trustee and that disqualification is in the public interest to protect public trust and confidence in charity. Furthermore, the conviction must concern a charity; on its own, it would not trigger disqualification. I draw the noble Baroness’s attention to that point in the little box on page 3 of the guidance, where it talks about a,

“conviction abroad for bribery or terrorist financing in connection with a charity or similar body”,

and says that such a conviction,

“would take account of any concerns raised about any court or other legal processes, their compliance with right to a fair trial … and whether the standards of evidence and justice would not be accepted in a UK or European court”.

I think that that is all pretty relevant with regard to her scenario.