James McCallum, partner, and Clare Garbett, solicitor, both in the charity and social business team, look at the recent Hackney Empire case involved the claimant charity pursuing the defendant insurer for payment of the interest due on a sum under a bond. It was held that, when calculating the interest rate due to the charity, regard should be had to the fact that most of its funds were received from grants and private donations, rather than by way of a loan on the open market. As a 'typical small to medium-sized charity' Hackney Empire Limited was 'likely to be an organisation which would probably have to borrow money on the open market to make up a proportion of any shortfall in funds, whilst looking to private donors and grant giving bodies to provide the rest by way of either gift or interest free loan'.
As such, it was held that to award interest at a rate that would be appropriate for a small business 'would be to give it a substantial windfall', and the charity was accordingly awarded 2% interest rather than the usual 4-5%. The windfall comment is probably fair in the circumstances: the basis of damages in this country is that they are supposed to compensate a party for what they have actually lost. What the case highlights, though, is that charities cannot, because of the way they operate and are funded, claim exactly the same remedies as commercial organisations when it comes to litigation. Another example, which we consider here, is what a charity could claim for business interruption.