Charities (Protection and Social Investment) Bill

Written evidence submitted by Bircham Dyson Bell LLP (CHB 18)

1 We are grateful to the Public Bill Committee for the opportunity to comment on the Charities (Protection and Social Investment) Bill (the Bill).

About Bircham Dyson Bell LLP

2 We have a long-established charities practice, advising charities across the spectrum, whether large or small, operating locally, nationally or internationally. We advise across all aspects of establishing and running a charity, including on charity regulation. We deal regularly with the Charity Commission for our clients.

3 A member of our charities team is also a member of the Charity Law Association (CLA) Working Party which was formed originally in 2013 in response to the Government’s consultation, Extending the Commission’s Powers, and in that capacity gave evidence to the Joint Committee at pre-legislative scrutiny stage in December 2014.

Our concerns

4 We have set out below our main concerns on the Bill. We should also note that we have had the benefit of reading the written evidence supplied to the Committee by the CLA Working Party and we share the concerns raised in that evidence. We have not repeated here all the points made in that evidence, choosing instead to concentrate on some key concerns. We do, however, support all the points made in the CLA Working Party evidence.

5 The key concerns we aim to highlight in this evidence are:

5.1 the assumption in the Bill that official warnings (clause 1) will be published and the lack of an appeal from a warning;

5.2 the lack of clarity over whether a direction not to take action under new section 84A (clause 6) may continue beyond a statutory inquiry; we consider it should be made clear that it cannot.

5.3 the lack of safeguards and clarity in clause 11.

6 We would also propose some amendments in respect of the power to make social investments (clause 15).

Clause 1 - Official warnings

7 We note that it has been suggested by the Minister that an appeal from an official warning would be disproportionate and could tie up the Charity Commission in red tape, but also that there is a "right of appeal" in the form of judicial review [1] .

7.1 However, judicial review is not a right of appeal, but a review process, which is resource-heavy and beyond the means in practice of the vast majority of charities.

7.2 Although the "red tape" argument seems to have been raised many times in respect of this power in its journey to Parliament, we have not seen evidence to support it. Indeed, it is often said that the Tribunal is under-used. It is also not clear to us why it should be assumed that the mere fact that someone exercises a right of appeal given to them by Parliament in statute is necessarily abusive – if an appeal is abusive, we would expect the Tribunal to strike it out.

8 We remain of the view that there should be an appeal against an official warning. The fact of a warning being issued against an individual or a charity could have serious reputational consequences, out of proportion to what we are told would be a lower level breach.

9 We believe that the risk of damage arising from an official warning would be mitigated if warnings are not published. Given the lower level nature of the misconduct concerned, it is not immediately apparent that there is a public need for transparency. If warnings are published, we consider there is a significant risk that the public and the media will not distinguish warnings from serious misconduct, with grave consequences both for the charities/trustees concerned and for charities in general. Where there are lessons for the wider sector, these can still be published on an anonymous basis.

10 We also consider that the current provision in proposed new section 75A(5)(b) is not clear and could be misinterpreted as a power to direct. (The Joint Committee did not support a proposal (proposal 10) to allow directions to be made outside a statutory inquiry [2] ). We agree with the proposal from the CLA Working Party that the point would be clarified by amending section 75A(5)(b) to make clear that it is advice or guidance which is being provided, e.g.:

"such advice or guidance as the Commission considers may assist in remedying the breach specified in the grounds in (a) above;"

Clause 6 – Power to direct specified action not to be taken

11 Clause 6 was introduced after the Joint Committee recommended revisiting what had been proposal 13 in the 2013 consultation, a proposal designed to address "issues of a temporary nature …" [3] . At the same time, as noted at paragraph 10 above, the Joint Committee did not support a proposal to permit the use of directions outside a statutory inquiry.

12 At present, it is not clear in the Bill that an order made under the power in clause 6 could not be extended beyond the lifetime of the statutory inquiry under which the order is made. We consider it is important that this point is made clear. To do so should not impinge on the effectiveness of the power: clause 6 is intended to address temporary issues; if those issues still subsist, then the statutory inquiry should not be closed.

13 We consider that it should be made clear on the face of the Bill that an order made under the power in clause 6 expires on the closing of the statutory inquiry within which the order was made.

Clause 11 – Power to disqualify from being a trustee

14 The power set out in clause 11 of the Bill is extraordinarily wide. We appreciate that it is intended to be wide and not overly-prescriptive but, as drafted, it does not contain sufficient safeguards on the face of the Bill to balance the breadth of the power.

15 In particular, the power appears to be a three-stage test and to be subject to conditions, but such apparent safeguards are illusory.

15.1 Condition F is so wide as to negate the need for conditions A to E.

15.2 Whether or not someone is "unfit" is entirely undefined and is, in any case, a subjective decision of whether or not the Commission is "satisfied" of such.

15.3 The third requirement, that the Commission be satisfied that it is "desirable in the public interest in order to protect public trust and confidence in charities generally or in the charities or classes of charity specified or described in the order", is not obviously a check on the other two conditions. As with the other two requirements, it is not clear in what circumstances this test may (or may not) be satisfied.

16 As drafted, the power offers no guidance to the Charity Commission as to its proper use, or to the Tribunal as to how to judge any appeal against such use. This contrasts with equivalent, existing, jurisdictions, such as that under the Company Directors Disqualification Act 1986, which provide for considerably more defined circumstances for disqualification. In particular, in the company directors disqualification jurisdiction it is the court which makes the disqualification order. In clause 11, the Commission is made judge of its own decision to disqualify, leaving it to individuals to seek to appeal a decision after it is made, if they have the resources to do so.

17 We endorse the evidence provided by the CLA Working Party in respect of this clause. We do not support inclusion of the power in its current form.

Clause 15 - Social investment

18 We support a new power to make social investments. However, we would support the following amendments, which have also been proposed by a CLA Working Party on this part of the Bill.

18.1 New section 292A Meaning of "social investment" – Remove the word "directly" in section 292A(2)(a). This is because it is not clear what the word "directly" adds and it risks narrowing the meaning of "social investment" in a manner which we believe is not intended by Parliament.

18.2 New section 292A Meaning of "social investment" – Add a new sub-section 292A(6)(c): "(c) it achieves any other form of financial return". This is to maintain the flexibility which we believe is intended by the sub-section. As drafted, we consider there is a risk it could be interpreted more narrowly than intended.

18.3 New section 292B – extend the power to charities established by legislation or by Royal Charter. It is unclear to us why this group of charities should be excluded; no explanation is offered in the explanatory notes. It is already acknowledged that it can be more difficult for such charities to make changes to their constitutions (hence this is a point which was included in the Law Commission’s current charity law project). Given the clear rationale behind introducing the statutory power, we would suggest that, absent a good reason to exclude such charities (which has not been forthcoming), the power should be extended to them.

18.4 Delegation of the power to make social investments – at present the Bill does not appear to allow delegation of the power to make social investments. This stands in contrast to the statutory power of investment for trustees, in the Trustee Act 2000, where the trustees are permitted to delegate any function relating to the investment of assets subject to the trust (section 11(3)(b)). To be practical, we consider that charity trustees should also be able to delegate the power to make social investments, subject to appropriate safeguards.


19 We note the amendments which have been put forward to date. We do not comment on such amendments, save to note some concern that a number of the amendments go into wider areas of charity law (such as public benefit) which we would suggest require more detailed consideration. Our understanding is that the focus of the Bill is intended to relate to new regulatory powers for the Charity Commission and implementation of the Law Commission’s recommendations on social investment. We note the comments made in the House of Lords at Report Stage (20 July 2015) by Lord Hodgson of Astley Abbotts relating to "Christmas tree Bills" [4] and would hope that Parliament will be cautious in the extent to which it allows the Bill to expand beyond its original aims.

January 2016


Prepared 6th January 2016