Trustees Personal  Liability under the new Charities Bill
 
Ann Philips, Partner, Stone King

The Charities Bill contains some welcome news for charity trustees concerned about their personal liability for breaches of trust. The Charity Commission is to be given a new power to provide relief from personal liability.

The High Court has long exercised jurisdiction to relieve trustees from personal liability where they have acted honestly and reasonably. Over the years cases have acknowledged the need to be lenient towards charity trustees who have made honest mistakes, not least so as not to discourage others from taking on charity trusteeship.

Trustees of charitable trusts and directors of charitable companies are also able to apply to the court for statutory relief, under s.61 Trustee Act 1925 or s.727 Companies Act 1985, as the case may be. These provisions allow the court to grant full or partial relief for breach of trust if a trustee has acted honestly and reasonably and ought fairly to be excused for the breach. Relief is discretionary, taking account of course of all circumstances of the case. What is clear from decided cases however is that the court’s leniency towards charity trustees will not generally be extended to paid trustees.

Although there are undoubtedly cases where breaches of trust arise from failure to act honestly, in the great majority of cases, errors tend to arise through honest mistake or ignorance, often compounded by trustees lacking sufficient time to devote to the charity’s affairs.

In practice in most cases of breach of trust, the Commission will advise charity trustees whether or not it considers a claim for restitution should be pursued against an errant trustee or trustees. However, although there are many cases in which the Commission considers the breach of trust does not merit further action, the position is somewhat unsatisfactory, as the potential liability for breach of trust remains hanging over the trustee concerned.

The new provisions in the Charities Bill will help to resolve the unsatisfactory elements of the current position. The Charity Commission itself will have statutory power to relieve a trustee who is or may be in breach of trust. The trustee can be relieved from liability wholly or partially if the Commission considers “that he has acted honestly and reasonably and ought fairly to be excused for the breach of trust or duty”. This new power will apply to past breaches of trust, not just breaches occurring after the Charities Bill enters the Statute Book.

The Charities Bill is now before Parliament. With fortune and a fair wind this “Bill without enemies” as it has been called, should complete the legislative process in advance of the General Election.

(c) Stone King 2005

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