The outcome of the Cage judicial review against the Charity Commission has left the position of charities unclear and could make them more conservative in their funding decisions, sector experts have warned.
The advocacy group Cage brought the review against the commission after the regulator sought and received assurances from Joseph Rowntree Charitable Trust, which had previously given Cage £271,000 in funding, that it would never fund Cage again.
The assurances, given after what JRCT called "intense regulatory pressure", were demanded by the commission after Cage said Mohammed Emwazi, the alleged Islamic State executioner known as Jihadi John, had been "beautiful young man" who had been radicalised by the attention of the UK security services.
The case, which was heard last week, was withdrawn after the commission agreed to issue a statement acknowledging that it had no power to fetter trustees in their future funding decisions.
Cage, with JRCT appearing as an interested party, had argued that the commission's demands were tantamount to an order it did not have the power to make. The commission had contended that it had been giving advice and guidance, with which JRCT could have refused to comply, and had been motivated by its duty to increase public trust and confidence in charities.
Jay Kennedy, policy and research director at the voluntary sector training and publishing body the Directory of Social Change, warned this week that the case could leave charities feeling unclear about the commission’s powers.
"It would have been good to have had a ruling from the court to put some context around the commission's current interpretation of public trust and confidence," he said.
"It seems to be moving towards an interpretation based on the personal opinions of board members about particular charities or types of charities, or of purportedly 'what the public think or expect' in relation to unpopular or controversial causes, rather than the law," he said.
Kennedy said that the Charities (Protection and Social Investment) Bill, which is awaiting its second reading in the House of Commons and proposes giving the commission broad powers to disqualify trustees, was "a huge cause for concern and a threat to charity independence".
He said: "The regulator needs to understand charity law and regulate clearly according to it, not invoke public trust and confidence as a reason for making any decision in the interests of expediency.
"We have to remember that charities don’t exist to be popular — delivering public benefit isn’t the same thing as being popular or well thought of by those in power.
"Charities have to be able to take risks and to represent people who are marginalised or whom the established parts of society won’t help or don’t want to know about.
"It’s going to make trustees more conservative in who they fund – charities need to take risks and that’s going to stop if they’re afraid to fund anyone controversial that powerful people won’t like."
Nicola Evans, a senior associate at the law firm Bircham Dyson Bell, agreed the lack of a ruling had left charities unclear.
"The commission’s statement confirms what we saw as law already - that it can’t direct trustees outside of a statutory enquiry and it can’t fetter discretion," she said. "I don’t know that it changes anything.
"It’s always down to trustees to behave appropriately in fulfilling the objectives of their charity – it’s up to them."
She called for the commission and the Association of Charitable Foundations to issue further guidance on funding non-charitable organisations.
"This case has been more about how we got there than what happened when we did," she said.
"We had the highest judge in the land say that if the two parties had talked more, we wouldn’t have been there, and it would be helpful to have some guidance come out of that for the future."
Another senior lawyer at a different firm, who asked not to be named, said the outcome of the case would make trustees’ jobs more difficult.
He said it left an "unavoidable tension" between the duties of trustees and the statutory duty of the regulator, but it had not helped to clarify the situation.
A Charity Commission spokeswoman said: "Maintaining public trust and confidence in charity generally is one of the commission’s statutory objectives set out in the Charities Act, not a discretionary activity. We have explained publicly how we aim to achieve this in our statement of regulatory approach.
"Ultimately we serve the public as the regulator of charities and occasionally that means we take decisions with which individual charities disagree. By failing to act where the commission considers public trust and confidence to be threatened, the whole sector is in danger of reputational damage."
She added that there was "very good support" among charities for the measures contained in the Charities Bill.