Resolving disputes between charity trustees

Given the fundamental importance of the charity trustees to the management of a charity, where a dispute arises between one or more trustees, this can cause significant problems for the charity.

Depending on the charity’s structure, ultimate control usually rests with members who usually have powers to appoint and remove trustees and so can collectively exercise their powers to resolve the dispute. It is therefore essential that charities are clear on who their members are by reference to their constitution and internal membership records.

The trustees are the governing body of the organisation and can exercise all the powers of the charity, save for those powers reserved to the members under the law or constitution. So if staff disagree with a trustee decision, the trustees’ decision will prevail and staff are bound to follow it except in very limited circumstances, for example where it might be unlawful.

What happens when trustees disagree amongst themselves? This can lead to serious problems where trustees are unable to agree particular decisions required to effectively manage the charity which in itself can damage the charity’s reputation. If a dispute is left unresolved it can lead to a breakdown in effective governance and can paralyse the day to day operations of the charity. The trustees of the charity are themselves responsible for trying to resolve a disagreement or dispute in the best interests of the charity. Failure to do so could of itself constitute a breach of the trustees’ duties.

Trustees are free to make decisions for their charity, so long as they are acting within the law and within the rules of the charity’s governing document. The Charity Commission's guidance on charity trustees and decision making requires trustees to:

• act within their powers
• act in good faith and only in the interests of the charity
• make sure they are sufficiently informed
• take account of all relevant factors
• ignore any irrelevant factors
• manage conflicts of interest
• make decisions that are within the range of decisions that a reasonable trustee body could make

Where there is disagreement in relation to a particular decision or a wider dispute between factions of trustees, the Commission will only get involved in exceptional circumstances.  The Charity Commission has made it clear that it will not substitute its own judgement for that of properly appointed trustees and its role as charity regulator is not one where it decides on disputes or issues that arise between trustees or between different factions within a charity.

Disputes within trustee boards are usually resolved before they escalate by simple maths. In most organisations a majority decision of trustees is all that is required to reach a decision or pass a resolution. Just because some trustees disagree with a decision doesn’t invalidate the decision – those that disagree are bound by collective responsibility for the trustee decision. The minority may feel so strongly that the decision is wrong that they cannot continue to serve. However, trustees in this position do not always decide to resign and the disagreement can rumble on…

As mentioned above, the trustees of the charity must try to resolve a disagreement or dispute themselves and there is a clear reluctance from the regulator to get involved in disputes that don’t directly require it to exercise their regulatory powers to protect the charity.  The Commission suggests that if the dispute is about the way your charity is run, you could approach the charity’s national or umbrella body, or, if the charity is a religious charity, ask an appropriate figurehead, spiritual leader, local church leader or community elder for help. In some circumstances, a major donor or Patron may be in a position to help resolve the dispute or act as a mediator.

Sometimes an issue can be resolved by seeking a members’ vote, where the charity has members, but this can itself be difficult to achieve if, for example one group of trustees is excluding another group of trustees from accessing the membership register.

If none of these “amicable” routes work the parties often seek to get the Charity Commission involved. This usually involves one group of trustees making allegations about the behaviour of the other group. Given the Commission cannot readily assess the arguments it is reluctant to get involved or arbitrate.

In its Guidance on disagreements and disputes in charities the Charity Commission states that it will generally not get involved in internal disputes and will say that it is for the charity trustees and members to work together to settle any differences they have.

The Commission can only get involved in internal disputes when:

• there are no trustees (or correctly appointed trustees) in place, or
• you can show that all attempts to resolve the dispute have failed.

Any trustees must have been appointed following the directions laid out in the charity’s governing document. If the charity doesn’t have any properly appointed trustees, the Commission may step in to help it appoint a full body of trustees.  If the Commission finds evidence of misconduct or mismanagement that put the charity’s funds or users at risk, it may step in and provide advice and guidance or even escalate to more serious regulatory interventions.

When the Commission does feel it can get involved, it will still usually encourage the trustees to work together to come up with a solution before exerting its powers. Only if the Commission thinks a solution will not be reached, will it be likely to exercise its regulatory powers.

A marginal decision which causes great upset can cause factions to arise and be the source of really challenging disputes where one group of trustees seeks to challenge the validity of a particular decision. Was proper notice given? Was the decision made in accordance with the correct procedures? Were those participating in the process properly entitled to do so?

Often, questions will be asked about whether a trustee or trustees is or are validly appointed.

We have acted for a number of charities where there are disputes as to who the validly appointed trustees of the charity are, and where factions have arisen within the board itself.  These types of disputes can lead to serious issues where, for example, one group of trustees asserts the others are not properly appointed or are no longer trustees, and they seek to hold meetings and make decisions in the absence of the others.

We see decisions to remove the other trustees from the bank mandates, remove the other trustees’ names from the register of charities or to change the locks on the charity’s premises.  

Disputes of this nature can be extremely difficult, time consuming and costly for the charity to deal with and they put the assets and the reputation of the charity at significant risk. In practice, the trustees taking the decisions in the absence of the full body of trustees are probably in breach of the governing document by not allowing the other trustees to participate and are exposing themselves to allegations of breach of trust and ultimately a claim for costs incurred by the charity in seeking to resolve such a dispute.

With any dispute, the trustees should first see if the charity’s governing document includes a dispute resolution clause which sets out procedures to help manage a dispute. Even if it doesn’t, trustees should do everything they can to reach an agreement amongst themselves – their duty is to seek to achieve the charity’s purposes and not “win” an argument at any cost.

Keeping a clear record of decisions and communications is helpful from the outset. Who called a particular meeting? Was notice given to the correct people? Was it clear how and when to participate? It can be difficult, but trustees on both sides will want to evidence that they followed the governing document to the letter. Remember these records may be presented to the Charity Commission or the court in the future.

But what if the trustees have tried to resolve the matter amongst themselves and the dispute is one that the Commission will not get involved in and you can’t move forward? In that case you may need to consider some independent external help. 

An independent third party such as a mediator will help both sides identify their concerns and come up with new ways to resolve the dispute.  They can also assist in taking out the “heat” which comes with disputes.

Mediation is a private and confidential process which can be quick and cost-effective. The mediator will be an independent person who meets with both sides, helping them to reach a solution which both sides must agree to.  This can lead to a lasting and effective method of resolving a dispute.  Mediation is significantly cheaper and less public than instigating court proceedings which could damage the reputation of not only the individuals involved, but, more importantly, the charity.

Disputes regarding the administration and operation of charities, referred to as ‘charity proceedings’, are governed by the Charities Act 2011.  If your dispute is taken to court, you will be expected to have tried mediation first and you will need to apply to the Charity Commission first to obtain permission to pursue court proceedings. The Commission will likely insist that trustees seek to resolve disputes before going to court.

The recent case of Hussain v Chowdhury [2020] EWHC 790 (Ch) supports the Commission’s position that, before giving permission to commence charity proceedings, the Commission can expect the parties to have actively engaged with alternative dispute resolution procedures in trying to resolve their dispute. 

This case involved a dispute amongst trustees of a religious charity regarding the purchase of a building for the charity. The Commission refused to give permission for the claimant to commence proceedings until the parties had engaged with mediation. The claimant applied to the court for permission and the matter came before His Honour Judge Jarman QC who was not satisfied that litigation was the least worst course in the interest of the charity and explained that the parties must put the interests of the charity above their own and engage in mediation prior to bringing the matter to court.

We are experienced in advising trustees on their options when a dispute arises, and how they might achieve a resolution. Such resolution may occur before mediation is needed or if mediation is required we can advise on the process and instruct an appropriate mediator experienced in resolving such issues in charities. 

Court proceedings should only be considered as a last resort and should only be pursued once other options including mediation have been pursued as the unknown costs and potential damage to the charity’s reputation from negative coverage of the proceedings can be extremely damaging.