FORTHCOMING CHANGE: The Charities Act 2022 (CA 2022) received Royal Assent on 24 February 2022 and the plan, as set out in Charities Act 2022: implementation plan is for its provisions to come into force in three defined groups over three stages, on 31 October 2022, on 14 June 2023 and in ‘early 2024’. For a summary of the provisions in CA 2022 which have been implemented so far, see: Charities Act 2022: information about the changes being introduced. CA 2022 implements the majority of the recommendations from the 2017 Law Commission report, ‘Technical Issues in Charity Law’. For a summary (as at 9 April 2021) of the recommendations that have been accepted, see News Analysis: Government response to Law Commission report ‘Technical Issues in Charity Law’ The term ‘charity trustee’ is defined in section 177 of the Charities Act 2011 (CA 2011) as anyone who has general control and management of the administration of a charity. As such, charity trustees can encompass directors of charitable companies and community

Most charities will have some form of liquid assets and a desire to maximise the investment potential of those assets. In this context, it is essential that trustees are aware of what they can and cannot do in respect of investment. The term 'investment' is generally defined as any asset that produces income but it has to be distinguished from the term 'income' used in trust law which would exclude capital gains. With charities the term can include income in the conventional sense as well as capital gains. Definition of investment Rather oddly, the main legislation dealing with investment in a trust\charity context, the Trustee Act 2000 (TrA 2000), does not define the term investment. Currently, the legal meaning of 'investment' is limited to its statement in Harries v Church Commissioners as: property held by the trustees for the purpose of generating money, whether income or capital growth, with which to further the work of the trust The judgment went on to use the phrase 'best financial return….appropriate to risk'. Having reviewed all the evidence

Investment and trading There are a number of ways that charities can receive their income, and investment must be distinguished from trading. Sometimes the distinction is difficult to make such as in the case of land. Where land is purchased by a charity with the intention of letting it out at a rent, this is an investment. However, if they purchase the land with the purpose of selling it on for, say, development at a higher price, they will be involved in trade. In such a situation it could be argued that while the charity held the land it was in effect an investment and only became a trade asset when it was sold. This will not hold water if the intention was always to sell it on at a higher price. The critical factor will be the charity's original intention. As was said in Trustees of BT Pension Schemes & Others v Clark (HM Inspector of Taxes): If the legal or commercial characteristics of a transaction point unequivocally

Before and during the acquisition and disposal of land, trustees have a number of matters they should consider. Before acquisition • consider the purpose of the acquisition, eg is it functional, investment or for purposes • whether the trustees are agreed that the acquisition is necessary to further the aims of the charity and it is the interests of the charity to do so • ensure there is power in the governing instrument to acquire the land, and if not, on what basis can they legally justify the purchase • determine if the transaction needs to be financed and, if so, how • decide if the property is to be acquired in the names of the trustees or, perhaps, vested in the Official Custodian • consider the VAT status—where the seller/landlord has opted to tax or made a real estate election or the property id under three years old, an acquisition may not make sense unless: ◦ the supply will be zero-rated because the property is brand new and will be used for a 'relevant charitable purpose' ◦ where

Identifying charity land Charity land can be held by any person or group of persons. The purpose for which the land is held determines whether or not it is charity land. In many instances land is held by a registered charity. However, it is possible that a company (whether limited by shares or guarantee), a local authority, a body of trustees or an unincorporated association might be holding land on the terms of a charitable trust without necessarily even being aware that it is doing so. See below for the statutory definition of ‘charity land’. Different types of charity for the purpose of land transactions There are three types of charity for the purpose of disposal, each of which requires a different procedure: • exempt charities—any charity listed in Schedule 3 to the Charities Act 2011 (CA 2011) is an exempt charity (this includes academies, foundation and voluntary schools, sixth form college corporations and most universities, certain museums and galleries and various charitable societies (eg housing associations) • non-exempt charities—although the term 'non-exempt charity' does not actually feature

ARCHIVED: This Charity litigation key case has been archived and is not maintained. The Supreme Court case of Children's Investment Fund Foundation (UK) v Attorney General provides an illustration of the way in which a large philanthropic trust can become embroiled in matrimonial disputes and a number of issues relating to charity litigation. Key facts The Children's Investment Fund Foundation (UK) (CIFF) was a charity and a company limited by guarantee formed and registered in 2002 by a husband (H) and his then wife (W). H and W were trustees of the charity and members of the company. The only other member of the company was Dr Marko Lehtimäki. Following the breakdown of their marriage, H and C agreed that W would resign as a member and trustee of CIFF. In exchange, CIFF would make a grant of $360m to a new charity founded by W. First instance judgment and appeal A company cannot make a payment for loss of office to a director (as envisaged

ARCHIVED: This Charity litigation key case has been archived and is not maintained. The case of HM Attorney General v Zedra Fiduciary Services provides a practical illustration of: • the court’s approach to construing the meaning of a charitable trust • the court’s initial consideration of different types of schemes • procedural points relevant to charity litigation of this nature See News Analysis, which includes a case summary: National debt fund worth £500m is held on charitable trusts (Attorney General v Zedra Fiduciary Services). Key facts In 1928 a donor settled an initial sum of £500,000 plus income and profits to be held on trust until the date when—either alone or together with other funds available for the purpose—the fund was sufficient to discharge the national debt of the UK. The belief in 1928 was that the cost of the First World War should be borne by the current generation rather than being passed on to future generations and at the time of the trust being established

ARCHIVED: This Charity litigation key case has been archived and is not maintained. Key facts A husband (H) and wife (W) had been passionate about preserving Chinese tigers, a highly endangered species. In line with recent trends in the philanthropic sector, they had used the wealth generated by H to set up a single-issue cross-border philanthropic venture with this objective as the aim. In 2000, H and W established a UK charity called Save China's Tigers UK (SCT UK), and then in 2002 a Mauritian trust was established called Chinese Tigers South Africa Trust (CTSAT). SCT UK became the sole beneficiary of CTSAT, and CTSAT came to have assets of £25m deriving from H’s work. H was the settlor of CTSAT and the initial protector. By the time of the financial remedy proceedings, H was not the protector and H and W had been irrevocably excluded from becoming beneficiaries. There was a professional trustee. Although the terms of CTSAT were described as ‘very wide’ they were not unusual for offshore trusts of this nature. First

Charity proceedings relate, broadly speaking, to the internal administration of a charity or its domestic affairs. Charity Proceedings may only be initiated: • by the charity, any of the charity trustees, any ‘person interested’ in the charity, or for a local charity two or more inhabitants of the relevant area, and • if the Charity Commission has, by order, authorised them The exceptions to the above two points are: • proceedings by the Attorney General • proceedings by the Charity Commission under the powers conferred upon it by the Charities Act 2011 (CA 2011) • proceedings relating to an exempt charity (except where the increased regulation of exempt charities has effect in relation to the charity or class of charity in question) What are charity proceedings? CA 2011, s 115(8) says: ‘In this section “charity proceedings” means proceedings in any court in England or Wales brought under (a)the court's jurisdiction with respect to charities, or (b) the court's jurisdiction with respect to trusts in relation to the administration of a trust for charitable purposes.’ The

Charity trustees engaged in litigation will have an ongoing requirement to monitor the possibility of reaching a settlement with the other party/ies which could achieve some of the objectives of the process while bringing an end to legal costs and minimising any risk where this would be in the best interests of the charity. Compromising litigation will often involve complex issues and specialist advice will be required at the earliest opportunity. Subjects such as taxation considerations which may arise are outside the scope of this overview note. The general requirement on litigants to attempt to settle disputes Parties to litigation in England and Wales are required under the Civil Procedure Rules to explore the possibility of alternative dispute resolution (ADR), and there are sanctions which may be imposed if a party refuses to do so. This is no different for charitable litigants. For example: • a court may refuse to allow charity litigation to proceed further until ADR has been explored. In Muman v Nagasena the judge said: ‘In this case very substantial sums of money have been spent on litigation

Costs The cost of contested litigation in England and Wales can be significant. There is a risk under the Civil Procedure Rules 1998 that the court orders one party, usually the unsuccessful party, to pay part or all of the costs of the other party/ies. There are a number of interlinked sets of considerations for charities who are, or are considering becoming, involved in litigation. The cost rules for civil litigation in England and Wales The starting point is that—subject to particular exceptions and to the provisions of the Civil Procedure Rules 1998—the costs of civil proceedings (whether involving a charity or not) are at the discretion of the court. See Overviews: Principles of costs recovery—overview and Costs orders—overview (available subject to subscription). The cost rules for litigation involving the Attorney General and relators Where the Attorney General is required to be made a party to proceedings, the court must have regard to the nature of the proceedings and the character and circumstances in which the Attorney General appears and, in the exercise of its discretion,

Charitable trustees who are contemplating either initiating or defending litigation need to consider a number of issues which arise from the duties they owe: • as trustee • under charity law • where relevant, under company law This Practice Note sets out considerations for trustees of charities—whether CIOs, corporates, trusts, membership bodies or otherwise—who are involved in or contemplating civil litigation. It does not cover criminal proceedings, challenges to decisions of the Charity Commission, or the drafting and settling of schemes. General principles—charity trustee decision making Litigation is expensive and risky. Any party to litigation, whether charitable or not, must: • consider the potential risks against the benefits. Risks include the cost of representation, the risk of an adverse costs order, the time and energy taken up by the process and the possibility of adverse publicity. Benefits may include the value of the relief which is sought from the court, the benefit of preventing an adverse claim from succeeding or the negotiating leverage provided by a robust claim or defence, and • then reach