Mountstar (PTC) Ltd v Charity Commission for England & Wales (2013)
The Charity Commission for England and Wales had acted lawfully in deciding to open a statutory inquiry into a charity and in appointing an interim manager on the basis of concerns that the charity's sole trustee might be conflicted by virtue of the charity's involvement in a gift aid tax fundraising scheme in whose success one of the trustee's directors had a personal interest.
The applicant charity trustee (M) applied to quash the decisions of the respondent commission to open an inquiry under the Charities Act 2011 s.46 into its charity, and to appoint an interim manager of the charity.
M was the charity's sole trustee. One of M's directors (J), who was also a partner in a company (HNWTAP) giving tax advice, introduced a gift aid tax fundraising scheme to the charity. As trustee, M resolved to enter into a fundraising agreement with a company in January 2010 under which the charity agreed to pay that company to pay financial intermediaries for introducing clients to HNWTAP. In practice, therefore, the charity was funding a client base which would pay HNWTAP's fees directly for tax advice relating to the scheme. Pursuant to the scheme, the charity submitted a gift aid claim for 2009/10 to HMRC, who responded that gift aid payments would be withheld until they had conducted enquires. In March 2012, the commission determined that it would not re-engage with the charity until HMRC had resolved the gift aid claim. In January 2013, a newspaper published an article which was critical of HMRC and the commission, describing the scheme as a massive tax avoidance scheme and alleging that HMRC and the commission were unfit to police charity tax avoidance. The following day, the commission published a regulatory case report explaining the history of the matter and why it had decided to disengage with the charity, and it obtained and scrutinised the charity's latest accounts. Owing to concerns that if J controlled or influenced key elements of the scheme as a partner in HNWTAP he might be conflicted as M's director when making decisions for the charity relating to the scheme, the commission decided in April 2013 to open a statutory inquiry and to appoint an interim manager.
M argued that the commission's decision to open the inquiry was unlawful because it was motivated by a desire to vindicate its own reputation following criticism from the press and Parliament. It further contended that there had been no mismanagement or misconduct to warrant the appointment of an interim manager under s.76 of the Act.
(1) It was important to focus on the commission's internal records and the contemporaneous documentation. They revealed that, on the day after the publication of the newspaper article, rather than opening an inquiry immediately as a knee-jerk reaction to media and Parliamentary scrutiny, the commission did nothing other than publish the regulatory case report and scrutinise the charity's accounts. In doing so it maintained the stance that it had adopted the previous year, namely that it would not re-engage with the charity until the gift aid claim had been resolved. M could only succeed if it could be shown that the documentation did not reveal the commission's actual reasoning, but that there was another ulterior or hidden agenda. Those who had decided to open the inquiry on the commission's behalf were honest, diligent and conscientious servants, and there was nothing in their evidence to suggest any motive other than the discharge by the commission of its function as regulator of charities. The commission had ample grounds for concern to justify opening an inquiry. Whilst it was clear that the commission's chairman was concerned about the commission's reputation, there was no evidence to suggest that he had pressured or influenced the decision to execute statutory powers in order to salvage that reputation. There was no evidence that the commission had acted improperly or unlawfully in deciding to open the inquiry. Given M's unjustifiable failure to provide information to HMRC or to respond to the commission's own requests for information, the commission was justified in concluding that a statutory inquiry was required (see paras 106, 109, 111-112, 130-131 of judgment). (2) In considering whether M was conflicted, the relevant question was whether, in managing the charity, M had acted as an ordinary prudent man of business would when conducting his own affairs, independent of any influence from any conflicted director; if M had not, that would amount to mismanagement and misconduct without the need to look at the substance of the decisions themselves. J had a great personal interest in the charity maintaining its gift aid claim, including his own personal reputation as well as ongoing access to those financial intermediaries who introduced the donor clients to HNWTAP. The structuring of the scheme meant that he was financially interested in the success of donors' claims by dint of the contingency fee to HNWTAP. M's failure to require a full and proper declaration of J's interest in the scheme or to question his involvement amounted to serious mismanagement. The ordinary prudent man of business would have made those enquiries and would have taken legal advice about the merits and tax effectiveness of the scheme, the breadth and depth of the embedded conflicts, and any risks to the charity and himself of attracting other sanctions. M had not equipped itself with sufficient information to properly consider whether to adopt the scheme. It was incapable of acting consistently with the fiduciary duties of a charity trustee due to J's involvement. Accordingly, it was necessary for the interim manager to continue in post to protect the charity and its property from unnecessary risks, and to carry out his functions pending the outcome of the inquiry (paras 146, 156-157, 164, 170, 172, 239, 241).
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