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Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the noble Lord, Lord Best, for having raised this important issue. It is one that deserves proper consideration. Along with many other noble Lords, I received the briefing from the Independent Schools Council on which some of the arguments and background to this amendment rest. But while I understand the argument and the strength of the argument, I am by no means convinced that this approach is the right way to tackle the problem the noble Lord raises and which needs to be addressed. I say that for three reasons.

The first reason is simply that a trustee is a trustee is a trustee, and a trustee must take full responsibility for the operation of the organisation of which he or she is a trustee. To introduce a category of transactions for which trustees are not fully responsible, in that they have to seek Charity Commission advice, is undesirable. We run the risk of having a two-tier type of trusteeship. That is the wrong approach to follow.

The second part is the argument advanced by the noble Lord about inequality of arms. On one side are the well resourced, experienced people of the acquiring non-charitable company and on the other are the inexperienced trustees of a failing institution. That is a poor reason for introducing this change in our primary legislation. The fact is that trustees need to inform themselves. In this connection, it is interesting that I have just become a trustee of a charitable foundation. The Charity Commission sent me a most extraordinarily helpful set of documents. I will not quote from them in extenso but there are a couple of paragraphs that show that even if you are the least experienced babe in the woods as far as trustees are concerned, if you just read what the Charity Commission tells you, you will get round the point that the noble Lord made.
 
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I shall quote two paragraphs of the letter addressed "Dear New Trustee":

"You might find it helpful to make an induction plan identifying and prioritising what you need to do to familiarise yourself with your new role.

You do not need to be a financial or legal expert to run your charity, but you will need to consider carefully when to take specialist advice. While risk of personal liability is small, you are more likely to be at risk if your charity suffers a loss because you didn't take specialist advice when you should have done".

With this comes an easy-to-read welcome from the Charity Commission. There are a couple of pages but the part that is worth quoting is as follows:

"Your liability as a charity trustee: In principle, you may be personally liable if your charity loses money as a result of a mistake you have made. However, this is unlikely to happen if you have: acted reasonably; worked within the governing document; and taken proper and appropriate professional advice where you don't know enough to make a decision, or where you are required to by law".

Within the guidance that people receive that is not complicated or difficult to understand. There is every reason to believe that trustees can and should familiarise themselves with their wider and broader responsibilities.

The third and more practicable concern I have about the noble Lord's amendment is that introducing the Charity Commission to the circumstances envisaged in the amendment could make things worse. A failing charity, like a failing company, is always in a weak position and it is ingenuous to suppose that automatic involvement with the Charity Commission will somehow in reality strengthen the position of the weaker company. It takes us into a whole series of other legal and corporate legal concepts, in particular the issue of trading while insolvent. Let us consider the example the noble Lord has given of a school that is no longer able to trade effectively and is therefore being forced to accept an offer from an outside organisation. The fact is that it will not be a question of waiting for a week or two while the Charity Commission decides, but a question of whether the directors or trustees can order the weekly milk, because they will be liable for that if they continue to trade knowing that they will not be able to meet that debt as it falls due.

So there is a real danger that we will introduce ossification to the process. Indeed, we might increase the risk of inexperienced trustees being exposed to trading while insolvent claims, which are a very serious breach of company law. In my experience in the corporate sector, speed is of the essence where companies and indeed charities begin to fail. Failure compounds extraordinarily quickly and is catastrophically steep at the end. I feel that the Charity Commission will not be able to facilitate and help that process.

My final point concerns the law of unintended consequences. We raise here a particular set of circumstances. I accept what the noble Lord has said about the dangers, but if we were to put that into the primary legislation that we are discussing today, we will be stuck with it for 14 or 15 years until the next charity Bill comes along. I am not quite clear whether
 
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the thread that the noble Lord introduces, with the very best of intentions, might not take us in a way that is undesirable.

So while I accept that there is an issue, I would hope that it can be addressed by a degree of self-regulation by organisations such as the Independent Schools Council writing to their members offering them a helpline and advice, and telling them of the dangers that they may find themselves in if they begin to fail. In those circumstances, it is much better to have this sort of flexibility rather than the inflexibility of primary legislation which carries with it complications and consequences that today we cannot possibly hope to see through.

Lord Phillips of Sudbury: My Lords, I do not think that I received the briefing to which everyone is referring. I hope that that is not because I pursued an amendment with regard to public interest that was not favoured by the Independent Schools Council. Indeed, it cannot be, because the noble Lord, Lord Best, had his name to the same amendment.

I should like to make two quick points. First, surely, in the example that the noble Lord, Lord Best, gave, there would be an action for negligence against the surveyor. The difference between the value he certified the property as bearing and the real value as realised shortly after the acquisition by the predatory buyer was so enormous that there must have been negligence.

Secondly, granted that I have had to try to understand this new section from the lips of the noble Lord, Lord Best, without any background information, it seems that the check to sales of this sort which the noble Lord, Lord Best, seeks to insert in the Bill simply is not there. Unless I have misread it, all that the trustees have to do in the event of a sale of functional land is to certify that in their opinion it is expedient for the charity to make the sale. There is an implicit opinion for every sale that trustees ever make. They do not make sales unless they think that it is expedient to make the sale. I do not see how there is a remedy here to the very real problem that the noble Lord, Lord Best, identified when he opened his argument in support of the amendment.

The Earl of Caithness: My Lords, in defence of surveyors, I would merely point out to the noble Lord, Lord Phillips, that in the instance that the noble Lord, Lord Best, gave, there might well have been a substantial difference between a valuation and a purchase price. That is not necessarily the surveyor getting the price wrong. It is the decision of the owners, whether they be trustees or a private individual, under the circumstances in which they will sell. If there was a potential for huge development and, therefore, the valuer valued it on that basis, but the trustees or owners decided to sell it for another use that did not release that potential for development, of course there would be a different price.

But my point of concern with the amendment of the noble Lord, Lord Best, is that it would negate what trustees ought to be doing in the first place. Under the amendment, trustees would be able to hide behind the
 
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Charity Commission. Surely that is not the position we want trustees to be in. Trustees for a particular charity should be competent to run it and, where necessary, should bring in expertise. If a charity is failing or not fulfilling its original purpose, the trustees are obliged to bring on board another trustee who knows about the problem or to bring in at an early stage expert advice. To hand it over to the Charity Commission would be, in my view, a retrograde step.

Lord Bassam of Brighton: My Lords, like the noble Lord, Lord Hodgson of Astley Abbotts, I have some sympathy with what the noble Lord, Lord Best, has said. But as will become clear in the next few minutes, a different solution from his is preferable. Like other noble Lords who have contributed to this short debate, while we agree that this is something of a problem, the solution constructed in the proposed new clause is not one that finds our support. We too think that it may bring into play the operation of the law of unintended consequences. I am also very much drawn to the point made by the noble Earl, Lord Caithness, on the importance of relying on the good sense of the trustees and making them face up to their responsibilities. That is very important. To offer the option of hiding behind the Charity Commission by asking it to intervene in situations of this kind is probably unwise.

I agree with the principle put forward by the noble Lord, Lord Best, that there should be safeguards preventing charity trustees disposing of their property at an undervalue. Indeed there is a general principle of law that charity trustees must obtain the best terms reasonably achievable in the circumstances when they dispose of any of their assets, except where the disposal furthers a charitable purpose. That point is understood.

Before 1992, there was a requirement in charity law that trustees had to obtain the Charity Commission's consent by order before disposing of any land that had at any time, not just in the previous few years, been occupied for the purposes of the charity. That requirement was repealed as unduly bureaucratic and over-regulatory and replaced by the present arrangements set out in Part V of the Charities Act 1993. Under those arrangements, charity trustees do not need to obtain a Charity Commission order for the sale of their property if they follow a prescribed procedure. That procedure requires trustees to obtain a written report on the proposed disposal from a qualified surveyor acting exclusively for the charity to market the property in the way recommended by that surveyor—unless he recommends that it should not be marketed—and to satisfy themselves that the terms of the disposal are the best reasonably obtainable; which is the important principle. Regulations made by the Home Secretary prescribe the information that the surveyor must include in his report to the trustees.

Where we part company with the noble Lord, Lord Best, is over his belief that the best safeguard against disposals at an undervalue is to give back to the Charity Commission the role of inspecting the terms of the transaction. In my view, that role is best left in the
 
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hands of an expert in the valuation and sale of property, which a qualified surveyor is, but the Commission—with due respect—is not. However, we are willing to contemplate a review of the Charities (Qualified Surveyors' Reports) Regulations 1992. These regulations set out what matters the surveyor must cover in his report to trustees on any projected disposal of land. Our review of these regulations, which we would begin after the Bill has been enacted, would ensure that a surveyor was required to alert trustees to any factors, such as development potential or ransom value, which charity trustees should take into account when agreeing the terms of a disposal. Our review of the regulations will involve full consultation with schools and other landowning charities—obviously we would want to take on board the views of the profession itself.

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