The High Court has ruled in a summary judgment that a former trustee of Smile Train UK should repay the cleft lip and palate charity more than £633,000 he received in unauthorised payments.
Brian Mullaney, a co-founder of Smile Train Inc in the US and its former chief executive, helped establish STUK in 2006 and became a trustee. But STUK claimed that in the financial years 2007, 2008, 2010 and 2011, but not in 2009, Mullaney received a series of unauthorised payments amounting to £633,509 for his work for the UK charity.
A hearing was held on 4 November before Master Marsh of the High Court Chancery Division and a summary judgment issued on 18 December. A summary judgment is a civil law proceeding that generally takes less time and involves less expense than a full trial.
STUK told Third Sector it contended that because Mullaney was a trustee he should not have received the payments without first receiving written authorisation. It also argued that no written consent was obtained and the payments made went against UK charity law and Charity Commission guidance on payments to trustees; the payments also went against STUK’s memorandum and articles of association.
The judgment said that Mullaney had argued that Smile Train Inc had agreed to him receiving part of the payments due to him from Smile Train Inc through STUK for the work he had done generating money in the UK; Smile Train’s US and UK auditors and its solicitors had known about the payments, and payments to Mullaney were also listed in STUK’s annual accounts.
But the judgment concluded that Mullaney had "no real prospect of defending the claim" and added: "In view of the strict requirements of the memorandum and articles and the strict requirements relating to charitable companies, the payments were not lawful." It said that Mullaney should repay £633,509 plus interest and costs.
Emma Read, the barrister who represented Mullaney at the hearing, issued a statement that said: "The claim made by STUK against Mr Mullaney was for monies to which he was contractually entitled from Smile Train Inc, the US parent of STUK. He was contractually entitled to these sums as part of his overall remuneration for services to Smile Train as its chief executive in the US.
"There has not been a trial of this claim – the decision is a result of a summary judgment application heard by a High Court Master. At the application, the Master accepted that the payments were authorised by the US parent of Smile Train UK, Smile Train Inc.
"Judgment has been entered for Smile Train UK, based upon a finding that payments made by Smile Train UK to Mr Mullaney at Smile Train US Inc’s request failed to comply with the articles of association of Smile Train UK. Master Marsh stated further that Mr Mullaney has a remedy against Smile Train Inc. Mr Mullaney has not been ordered to pay any sums immediately. There is a further hearing of the matter in late January 2014 and no payment is currently due from Mr Mullaney until after the outcome of this further hearing."
She added that Mullaney was considering his options, including appeal and further legal action in the UK. STUK said it now intended to pursue Mullaney to reclaim the money.
Mullaney left Smile Train Inc in 2012 and stopped being a trustee of STUK in 2011. He is now chief executive of Wonderwork, a charity he co-founded that helps children dying from medical problems that can be solved by surgery.
Susannah Schaefer, a trustee of STUK, said: "STUK is pleased with this judgment and it is determined to ensure the charity is fully compensated for these unauthorised payments Mullaney received between 2007 and 2011."
A spokeswoman for the charity said that four new trustees had been appointed since the payments were discovered last year.