When is a trust a charity? Dealing with charity proceedings under the Charities Act 2011?

You might think you know what a charity looks like but there are occasions when not everyone can agree, as a recent judgment from His Honour Judge Bird sitting in the County Court at Manchester shows.

The case of Ashurst v Jackson (unreported, 16 October 2023) concerned a Spiritual Society in Dearnley, Greater Manchester. The dispute centred on the management and ownership of the property of the Dearnley Spiritualist Church (referred to in the judgment as ‘the Temple’). Spiritualism is recognised as a religion, with a belief in God but also in the ability of spirits to communicate with the living via mediums.

The buildings from which the Society operated – including the Temple or Church where worship took place – were registered in the names of the Defendants as trustees for the members of the Society as an unincorporated association. The Claimants all said they were members of the Society (although that was in dispute) and claimed they had passed a motion at a meeting of the membership requiring the Defendant trustees to transfer the property of the Society, including the Church building to new trustees who were three of the Claimants.

Oddly, the proceedings had been started as CPR Part 55 possession proceedings, although they were nothing of the sort (as the judgment makes clear). The relief sought was an order requiring the Defendants to execute a transfer of the property to the new trustees. If there was a cause of action it was more properly under the Trusts of Land and Appointment of Trustees Act 1996 or pursuant to the contract between the members of an unincorporated association.

The Defendants defended the proceedings. As part of their Defence they raised the issue of whether the proceedings were ‘charity proceedings’ which required the consent of the Charity Commission to proceed. This came before HHJ Bird as a trial of a preliminary issue.

Pausing here, section 115 of the Charities Act 2011 makes provision for ‘charity proceedings’ which are proceedings brought by, amongst others, ‘any person interested in a charity’. Such proceedings cannot be brought without the consent of the Charity Commission.

This restriction effectively acts as a triage for litigation against charities which has the potential to waste resources meant to be applied to charitable purposes. The Charity Commission has a wide range of tools for intervening in the operation of charities including, for example, by directing the trustees to take certain actions and determining disputes relating to membership.

The crucial distinction between charity proceedings and other proceedings is that the former relate to the administration or internal workings of a charity. To put it another way, they are proceeding the subject matter of which is something the Charity Commission is capable of resolving using its powers.

In Ashurst v Jackson by the time of the trial of the preliminary issue, both sides were agreed that, if the trust (of which the Defendants were trustee) was charitable then the proceeding would be charity proceedings.

So the important question in dispute was: what is a charity and was the trust one?

To be a charity under section 1 of the 2011 Act, an institution (which includes a trust) must be established for charitable purposes only. A charitable purpose is defined in section 2 of the 2011 Act as one which falls within a list of purposes in section 3(1) and is for the public benefit.

In Ashurst it was not disputed that the Society was religious in nature and therefore fell within the purpose of ‘the advancement of religion’. What was in dispute was whether the Society was established only for that purpose and whether it provided a public benefit.

The Claimants argued that the trust instrument itself, dating back to 1900, simply provided that the property (including the Church) be held for the benefit of members of the Society and this opened up the possibility that it could be used for purposes other than strictly religious or charitable purposes. They urged the Judge not to focus on the trust instrument only and interpret the purpose of the trust from that, ignoring the constitution of the Society (known as the ‘Rubrics’).

If the Judge was minded to look at the Rubrics, then the Claimants’ position was that they were wide enough – because of the inclusion within the aims an objectives of the Society to ‘encourage the use of the building for society and social events and not for personal gain’ – to permit more than just religious activity.

Finally, the Claimants pointed to the use of part of the trust property – a house attached to the Church which was rented out to tenants – as a purpose that was not charitable.

The Judge rejected all these submissions, preferring the Defendants’ case that the trust deed could not be read in isolation and had to be seen in light of the purposes of the Society which were clearly for the advancement of religion and, therefore, charitable.

The Judge held that the use of the Church for social events was part of the mission of the Society to conduct outreach within the local community and, even if that was not the case, any social events were ancillary to the main purpose for which the Church was used. Similarly, the letting of the house connected to the Church was not, properly understood, a separate purpose but advanced the religious purposes of the Society with the rental income used for the benefit of the Church.

As a result of those conclusions, the Judge held that the proceedings were charity proceedings and should be stayed pending a referral to the Charity Commission for consent to proceed (or for resolution outside of court).

This is a useful lesson for anyone thinking of issuing proceedings threatening the internal workings of any organisation or trust which appears to be charitable in nature. The consequences of the Claimants initiating proceedings in the way they did were significant, not least in costs which already stood at around £50,000 at the end of the preliminary issue.

Costs

Upon the stay, the Claimants initially argued costs other than of the preliminary trial itself should be reserved for consideration following the disposal of the application to the Charity Commission, asserting that if the proceedings were then permitted an order now that the Claimants pay from an earlier date would effectively result in a windfall to the Defendants for costs normally dependant on the outcome of the substantive issues.

There was some, but limited, merit in this. The Defendants recognised this so sought costs only from the service of the Defence, which had put in issue the need for Commission approval.

The Judge accepted that the ten months wrangling between the defence and the order for a preliminary trial involved costs principally arising from the Claimants resisting Commission involvement, albeit he limited detailed assessment to 80% of costs claimed given the possibility of other maters being included. From the order for a preliminary issue trial, costs were to be assessed at 100% claimed. A handsome payment on account of £30,000 was ordered and the claim was ordered to stand struck out (with all remaining costs to be assessed) if the Commission refuses permission or the Claimants fail to meet stringent commitments in pursuit of that permission.

Adam Smith-Roberts represented the successful Defendants, instructed by Russell-Cooke LLP.

Article by Adam Smith-Roberts and Richard Wilkins, Legal Director at Russell-Cooke LLP