Keep it legal: Trustee liability

It seems that charities are increasingly taking a more assertive role in their campaigning.

Examples of this include charities going to court to challenge the decisions of primary care trusts or - in the case of the Alzheimer's Society - the National Institute for Health and Clinical Excellence, the agency that decides what treatments are provided by the NHS. 

However, there are special risks for trustees when charities become embroiled in litigation. Apart from exposure to damages awards, charity litigants risk liability for potentially substantial legal costs - both their own and those of other parties.

In the case of unincorporated charities, trustees bear these risks personally and have to seek indemnification out of charity funds, trusting that the charities in question will have sufficient funds to cover liability. Moreover, all charity trustees run the ultimate risk that they might be called to account for any losses caused as a result of any breach of duty on their part.

When litigation goes wrong, it is easy to point the finger at trustees who are responsible for taking decisions to litigate or refusing to settle claims. Charities can and should assert their rights - in court if necessary - but trustees should be aware of the risks and take steps to protect themselves from personal liability.

The simplest step is to apply to the Charity Commission for advice under section 29 of the Charities Act 1993. Trustees acting in line with such advice are deemed to be acting in accordance with their trust, provided they disclose all material facts in writing when applying to the regulator for advice. This means trustees can obtain advice on whether they would be acting in accordance with their duties if their charities bring or defend legal action or, perhaps, settle on particular terms.

The commission will want to be satisfied that it is expedient for charities to litigate. Before providing advice, it will usually want to make sure that trustees are acting on clear legal advice, that there have been rigorous cost-benefit analyses and that the charities involved have explored the possibility of avoiding litigation through some form of alternative dispute resolution such as mediation.

- Richard Langley is a partner and head of litigation at law firm 


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