The Charities Act 2022 explained: Costs and Tribunal proceedings

How is the new Charities Act expected to reassure trustees when it comes to costs incurred at the Tribunal? Our latest blog takes a look.

What do you need to know?

One option for a charity wishing to challenge a decision of the Charity Commission is to issue legal proceedings at the First-tier Tribunal (General Regulatory Chamber) (Charity) (‘the Tribunal’).

The Tribunal is intended to be a more user-friendly and cost-effective forum for challenging Commission decisions than bringing a claim through the courts. Generally speaking, the Tribunal is a “costs neutral” environment, and there is a general principle that a charity trustee is entitled to be indemnified for costs and expenses incurred in the discharge of their function as trustee, including reasonable legal costs and expenses.

Costs neutral: unlike most cases at court where the starting point is the “winner takes all” – although costs are largely at the court’s discretion the losing party is usually ordered to pay the winning party’s costs (or at least a large chunk of them) – at the Tribunal the starting point is that each side must bear their own legal costs, whether they win or lose.

However, there is a risk that trustees (particularly trustees of unincorporated charities) could be personally liable for costs and expenses. As such before commencing proceedings at the Tribunal, charity trustees may want to ensure that any legal costs and expenses they incur will ultimately be recoverable from the charity’s funds.

Prior to 31 October 2022, there was no specific rule that allowed a charity trustee to apply to the Tribunal directly for its blessing in respect of the costs the trustee would incur in the Tribunal proceedings.

In theory a trustee could apply to the High Court for a Beddoe Order seeking the court’s blessing to bring Tribunal proceedings, which would entitle the trustees to be indemnified for any costs and expenses they may incur out of charity funds (assuming always the charity has sufficient funds). However, this rarely, if ever, happened in practice because the risk of the Tribunal making a costs order against them if they lost is low and the costs of applying to the High Court for a Beddoe Order can be significant and the process time consuming. Going to the High Court for a Beddoe order is therefore not an attractive or practical option.

This is why the Charities Act 2022 has introduced a new statutory power for the Tribunal to make “authorised costs orders”, which came into effect on 31 October 2022

Such orders will be made in relation to prospective or current proceedings before the Tribunal (or on appeal from the Tribunal), to authorise payment out of the charity funds of any costs already incurred, or to be incurred by:

• the charity
• the charity’s trustees; or
• any other person, so far as the charity or its charity trustees are ordered by the Tribunal to bear them.

The new rule also permits the charity itself, as well as any of the trustees, to apply for an authorised costs order.

The order would cover both the charity’s own legal costs, as well as any other costs the Tribunal might order the charity to pay.

What does this mean for your charity?

Now that the relevant provisions in the Act have come into force, if you are faced with a Charity Commission decision that you’re not happy with, obtaining an authorised costs order could give some comfort and greater confidence to challenge the decision in the Tribunal. Ideally, you should do this before proceedings are formally commenced at the Tribunal and significant costs are incurred.

If you have already started proceedings before the new rules came into force it isn’t too late to apply for an authorised costs order: even if costs have already been incurred, the charity or the trustees can apply to the Tribunal for it to authorise any incurred or prospective costs to be paid from the charity’s funds.

The Charities Act 2022, which came out of Lord Hodgson’s review of the Charities Act 2006 back in 2012 and the Law Commission’s report on Technical Issues in Charity Law in 2017, is intended to make life easier for charities by reducing regulation and clarifying grey areas in the law. In this new blog series, we untangle the new Act to pull out the key points your charity will need to know, action now and plan for. Catch up with all the blogs in the series here.

If you would like to discuss any of the changes we’ve outlined above, or if you’d like advice on your options for challenging a Charity Commission decision or order, or on starting proceedings at the Tribunal, please get in touch with Robert Oakley or Jaqui Symcox. We’ll be very happy to help.