Memorandum from Bircham Dyson Bell (DCH
97)
INTRODUCTION
1. Bircham Dyson Bell is one of the leading
law firms in the charities field, being the second largest charities
practice according to 2004 edition of the Top 3,000 Charities
law table (with 116 clients in the top 3,000). Charity clients
range from major national and international charities to smaller,
grant-giving charitable trusts; they include family charities,
learned societies, royal charter companies, heritage trusts, membership
organisations, service providers and research institutes.
2. We comment on the draft Bill as follows.
3. Clause 3—We believe that
there should be no statutory public benefit test. The common law
has, over four centuries, developed a sophisticated and flexible
test, compared to which a "one size fits all" definition
would be rigid and likely to disregard the crucial concept of
indirect public benefit. The existing presumption should also
be left untouched because its removal:
3.1 could render the purposes of a significant
number of existing charities too narrow to satisfy a public benefit
test shorn of the presumption, without affording some scope to
modify their objects; and
3.2 would introduce an unacceptable degree
of uncertainty in a crucial area of charity law.
We say this because we believe that the presumption
currently depends on either direct statements or implications
of decisions made by judges over the years. Removing parts of
those decisions on which the current law depends would lead to
very great uncertainty about the state of the resulting law.
4. Generally there is a strong argument
for an inclusive approach, so that property which is given for
public purposes is retained in the charity fold and protected,
rather than being excluded and left unprotected. We also believe
that it would be helpful to establish that charities may properly
charge reasonable fees for their services, for otherwise a great
deal of current charitable activity will be lost.
5. An added reason for retaining the old
test is that it would avoid the very difficult question of what
is to happen to the property of charities which may be removed
from the register because they are found not to have the necessary
public benefit. The law would appear to require that it should
be applied cy-pre"s. If that were to be applied strictly
to existing and fully functioning charities, we believe that there
would be a strong adverse public reaction. It would create a very
strong disincentive to charitable giving, and could have disastrous
social consequences.
6. Clause 4—We consider that
there is a risk that making the Commission an incorporated Crown
body will prejudice its independence in its quasi-judicial functions,
a potentially dangerous position.
7. Clause 5—We are concerned
that the objectives (particularly the compliance objective) should
be less vague. It is not clear whether the Commission will ever
achieve this objective and it could become an excuse for excessive
interference with charities' administration. We also believe that
the new section 1C(2) 5 should require the Commission and Ministers,
when exercising their powers, to have regard to the extent of
the burden which would be imposed on individual charities in any
case.
8. Chapter 2—The Charity Appeal
Tribunal—Generally we welcome this innovation, but believe
that much more detail is necessary before it can be considered
satisfactory.
8.1 There is insufficient indication of
the nature of the membership apart from the legal qualifications
of some. Clearly it will need sufficient "weight" to
be authoritative. Will it have the power to award costs or charge
fees? Will it operate at a level of efficiency sufficient to make
it accessible to those who need to use it?
8.2 It is not clear what the effect will
be on an inquiry where there is an appeal to the Tribunal against
the institution of a s8 inquiry. If the inquiry continues, regardless
of the appeal, costs may well be incurred unnecessarily. There
should be provision for the payment of those costs by the Commission
if they were at fault in starting the inquiry.
8.3 Similar questions arise under the proposed
new s19A and 19B where the Commission will have power to direct
persons to do things in certain circumstances. There is no clarity
about the position pending an appeal, and the possible losses
which may flow from compliance with an order—eg an order
to transfer property to someone whom the recipient of the Order
believes to be a rogue, and who turns out to be so, but only after
the property has been transferred.
9. Clause 7—The new section
3(7) would allow the Commission to remove from the register without
warning any charity which was voluntarily registered. Voluntary
registration is vital to small charities because it establishes
authoritatively their charitable status for the purpose of grant
applications etc. To remove such charities at any time would leave
them greatly exposed, not only by removing that valuable presumption
but also by exposing them to suggestions that they are not being
honest in representing themselves as registered when they are
not. Note that this is a criminal offence under s63 Charities
Act 1992 in the context of fundraising.
10. Clauses 12 and 15—Whilst
we would welcome a more relaxed approach to the practical application
of the cy-pres doctrine, we are concerned that the introduction
of 13(1A)(b) might give rise to the spirit of the original gift
being eclipsed by the Charity Commission's view of prevailing
"social and economic" circumstances and that this could
well undermine public confidence; we would therefore recommend
that the donor's original intentions should always be accorded
priority where that is possible.
11. Clause 16—We have commented
(para 6.3 above) about Orders under the new ss19A and 19B. In
our view there is a severe risk that the Commission will be tempted
to enter upon the administration of charities by the use of these
powers, and we consider that wholly undesirable, while accepting
that there may be occasions when there is a need to ensure that
recalcitrant trustees comply with their obligations. There are,
however, existing means of achieving this.
12. We note that the effect of the new s20
will be to relieve charities of the costs of advertising, but
note also that the Commission's refusal to draft schemes in advance
of an application would reduce the charity trustees' control of
the position because it would cease at the point when publicity
would otherwise be required. This is a further retrograde step
in giving the Commission power to act in the administration of
the charity.
13. Clause 20—We generally
welcome the widening of this power but we are concerned by the
suggestion that employees should be able to seek advice of this
kind. Such advice could, if given, well lead to damaging conflicts
within the charity; employees are likely to have less than full
information on which to base the request, and should, if necessary,
rely on existing whistle-blowing legislation or comment to the
Commission.
14. Clause 21—We are concerned
about the breadth of this power of entry. We believe that the
power is draconian and unjustified. We further believe that, if
it is to be retained, the person making the entry should be required
(a) to provide a copy of the warrant under which he enters to
the occupier of the premises and (b) to provide that person with
a copy of any statement he makes under the proposed new s31A(7).
There should also be provision requiring the Commission to justify
their retention of anything taken away for longer than a specified
period. The removal of such records etc has the prospect of being
extremely damaging to the operation of a charity and could well
cause its demise. There should also be provision for the payment
of compensation to charities damaged as a result of such action
when it proves not to have been justified, as that would do something
to protect the charity and would also discourage the Commission
from using the power inappropriately.
15. Clause 22—We deal with
a considerable number of small charities whose income just exceeds
the £10,000 income limit and thus require an independent
examination. This causes them costs which are proportionately
greater than larger charities and we believe that the limit could
safely be increased without serious damage to the sector and that
that should be done.
16. Clauses 24 and 25—We welcome
the relaxation of section 64 of the Charities Act 1993.
17. Clause 26—These provisions
will result in increased and excessive regulation and undermine
public confidence in charities generally. This tendency will be
compounded if the Commission's power to block amalgamation of
CIOs and the transfer of a CIO's undertaking (a power the Charity
Commission does not enjoy over companies limited by guarantee)
is retained. Our specific criticisms are:
17.1 Too much is left to later regulation.
In particular, there is ambiguity regarding the removal of a CIO
from the register of charities and whether this automatically
leads to the dissolution of the CIO. The implication that there
will be mandatory provisions for the constitution will make this
form even more unattractive;
17.2. Requiring registration as a condition
of the validity of all amendments to a CIO's constitution with
the Charity Commission is excessively onerous;
17.3. The provisions as drafted do not adequately
take account of the interaction between the proposed new Charities
Act provisions, the Companies Act and the parts of the Insolvency
Act that apply to all bodies corporate;
17.4. There is nothing in the CIO form that,
from the standpoint of a charity, cannot be achieved through a
company limited by guarantee (CLG) less onerously;
17.5. The provisions for conversion to a
charity form of incorporation and amalgamation should be reworked
so as to benefit the existing large number of CLGs and the CIO
should be dropped;
17.6. Applicants for conversion need an
indemnity for liability properly incurred whilst unincorporated;
17.7. If the CIO is to be pursued it should
be made consistent with generally familiar company law, eg a resolution
to change the constitution should be on 21 days notice (the Bill
does not appear to require any);
17.8. Schedule 5A paragraph 9(a) would reverse
the existing position under which members of companies must vote
in the interest of their own organisation, not the entity of which
it is a member, eg a charity, which is a member of an umbrella
body, must vote in its own interest and not in the interest of
the umbrella body. This reversal should be removed.
18. Clause 28—We suggest that
criminal sanctions represent too heavy handed a means of enforcing
the provisions to prevent conflict of interest. They would introduce
a further deterrent to volunteering and will make it more difficult
to recruit trustees.
19. Clause 29—While we welcome
this, we believe that there should be provision to allow appeals
to the Charity Commission Appeals Tribunal and that the protection
of trustees should go much further. It should limit the liability
of charity trustees to the assets in their hands unless they acting
are in breach of trust, and place them in a position analogous
to that of directors involved in fraudulent/wrongful trading.
20. Clause 34—The fact that
notification of mergers is voluntary and not mandatory will mean
the register is incomplete and its value as a source of information
will be diminished.
20.1. The drafting appears to be deficient,
in that the new section 75D(5) provides for all the property of
the transferor to be transferred by operation of law on the registered
termination date as defined in subs (6). That date cannot be determined
without the merger being registered. Registration depends on notification
(s75C(3)) and (s75C(5)) that notification can not be given until
a time after "the transfer of property involved in the merger
has taken place"—or the last of a number of transfers
has taken place. This appears to give rise to an inescapable circle.
If all the property must have been transferred before the notification
can be given, how is s75D(5) ever to operate?
20.2. Furthermore, it is not clear whether,
assuming that it can operate, section 75D(5)) will obviate the
need for an appropriate document of transfer. If it does:
20.2.1. It would possibly prejudice the
rights of third parties such as landlords or mortgages and could
invalidate guarantees of such obligations;
20.2.2. it could lead to trustees, whose
property is thus transferred automatically, retaining their obligations
in respect of that property but having no means of discharging
those obligations.
21. Clause 36—This drafting
of this clause is not sufficiently definite. It will not be clear
to those affected if it is applicable eg privacy is not defined;
it is unlikely that the Human Rights Act will apply in these circumstances;
and it is possible that a person will not know if they have committed
an offence as "persistently fails" is not defined.
22. Clause 37—The widening
of the definition of a public place will increase the costs of
fundraising.
23. Clause 38—The requirement
to have both a Certificate of Fitness and a permit appears to
increase the burden of regulation and the costs of fundraising.
24. Clause 39—We believe that
there will be difficulties in determining the meaning of the expression
"local in character" and that clarification is required.
25. Clause 40—It is not clear
whether or not an application for a Certificate of Fitness in
more than one local authority area can be a national application;
we believe that a Certificate of Fitness should apply to a charity
nationally.
25.1. We believe that a Criminal Records
Bureau check on individuals should be used?
26. Clause 41—Charities should
be able to apply for a national permit to make a public charitable
collection in any local authority on the same day. There should
be no need to apply for a permit where a collection is made with
the consent of the occupier of the land. Permits should only be
issued to holders of a Certificate of Fitness when the charity
has given consent to the local authority for the collection.
Finally, if the Bill is introduced and passed,
we hope that there will be arrangements made for a Consolidation
Bill to be brought forward without delay, because the law will
be very awkward to describe until that is done.
June 2004
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