Charity Commission to "further consider" draft guidance on new power to issue warnings

30 September 2016

The Charity Commission has confirmed that it will "further consider" its guidance on how to will exercise its new power to issue official warnings and make them public.

The power, included in the Charities (Protection and Social Investment) Act 2016, will come into force on 1 November 2016.

The Charity Commission has recently conducted a public consultation on its draft guidance, which faced various criticisms from the NCVO, the Association of Charitable Foundations, the Charity Finance Group, the Charity Law Association and the Directory of Social Change.

The draft guidance states that the new power will supplement the Charity Commission’s existing powers to issue official advice and to launch statutory inquiries to deal with wrongdoing within charities.  The Commission will be able to issue an official warning to a trustee where it considers that he/she has committed a breach of trust or duty, or other misconduct or mismanagement.  The Commission will also be able to issue an official warning to a charity where it considers that a breach of trust or duty, or other misconduct or mismanagement, has been committed.

However, a concern within the voluntary sector is that the Charity Commission's new power is too broad and allows little opportunity for a charity to challenge the warning and its publication, which may otherwise cause significant reputational damage to the charity.

The Charity Commission's current proposal is to allow a charity and its trustees only fourteen days to respond to a notification of its intention to publish a warning.  This seems an unnecessarily short time period, particularly given the voluntary nature of the trustee role, within which trustees will need to consider the issues at hand, gather evidence, take legal advice and formulate a response on behalf of the charity.  This step is especially important because there is no statutory right of appeal to the Charity Tribunal against the official warning; an application for judicial review is the only way to challenge an official warning.  So it is absolutely key that trustees are given a proper opportunity to forestall the official warning.

The Charity Commission’s current default position is that any warning should be made public and then remain on its website for two years.  The Commission may decide to vary or withdraw a warning once published, but it is not clear from the draft guidance what the process for this will be. 

There is also concern within the voluntary sector that the Charity Commission could use its new power to issue official warnings to address media criticism and censure charities engaging in lawful activities which are potentially controversial.  After all, media criticism – whether fair or not – could in the Commission’s eyes constitute reputational damage amounting to mismanagement.

It is therefore particularly important that the Charity Commission does not opt to issue official warning simply because it lacks the time and resources to devote to a proper statutory inquiry into the issues.

After all, the independence of the voluntary sector is fundamental to its ability to innovate, which must surely include discretion to further charitable purposes by unpopular or novel means. I am also reminded of the dictum in Scargill & Cave v Charity Commission that:

“The court should, in principle, be slow to find fault with charitable trustees who, while doing their best, made honest, even stupid mistakes”

The Charity Commission has stated that it will further consider the sector’s criticisms but also asked the sector to have faith that the Commission will not abuse its powers. We are hopeful that the final guidance will provide more clarity and reassurance so that charities do not feel wary or restrained by the threat of overbearing regulatory enforcement.

Chris Hook is an associate solicitor based in Newcastle upon Tyne. He provides specialist legal advice to charities, social enterprises and educational institutions on a wide range of charity, commercial and public law matters. You may also be interested in his other articles below.

Disclaimer: This article contains information which is necessarily general.  It does not constitute legal advice.  It is essential that, before proceeding with a particular course of action, you take specialist legal advice on any relevant considerations which may apply in your specific circumstances so that you can properly assess your options and any associated risks and benefits.

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