Charities, just like any other commercial organisation, may come across issues such as breach of contract; employment issues, property disputes, and many more. Legal action is often likely to be a significant risk to a charity, its reputation, and its trustees.
When faced with a potential claim, either in the making or defending of legal action, charity trustees must make every decision based on what would be in the best interest of the charity. This, along with all of the other legal obligations that trustees have, governs each decision that is made, or not made, by the trustees, at every point when dealing with the matter in dispute.
Trustees should ascertain whether other options such as negotiation and mediation, are feasible. In order to make informed decisions, trustees should consider legal advice even at the early stages of a dispute, particularly if the trustees are not experts in the area of dispute. By not taking legal advice at an early stage trustees may risk jeopardising the best interest of the charity. In certain circumstances, it may even be a legal requirement for the trustees to take appropriate advice.
Legal advisers can help trustees explore the options of resolving the dispute and provide tailored advice about the options available to the charity and our expert recommendation about the most appropriate route for the charity to take. When there are tight time constraints, trustees should not delay seeking legal advice, if necessary.
Trustees need to have proper consideration and management of the potential costs involved. Trustees should ask their legal advisors for reasonable cost estimates and find out whether they have legal expenses covered under any insurance policy that the charity may have. It is important for trustees to understand that even if they successfully make or defend a claim, not all of the costs incurred will be recoverable if any.
In certain circumstances, trustees should consider whether it is necessary to obtain consent or advice from the Charity Commission before deciding to litigate, such as for an order to authorise the use of charity funds for litigation.
Trustees should also be wary that they can be held personally liable for any consequences or losses that may result if the trustees breach their legal duties and make ill-founded decisions in relation to the dispute.
The Charity Commission has issued a checklist for trustees to help them with deciding whether or not to make or defend a claim.
The decision to litigate is not an easy decision for trustees to make and although it needs to be carefully balanced with all factors, it will not be, in most cases, in the best interest of the charity to delay or avoid dealing with the dispute or to delay the decision about whether it is in the charity’s best interest to engage in pre-action correspondence or start legal proceedings.
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