The Charity Commission for England and Wales v Mountstar (PTC) Ltd

On an application under Charities Act 2011, section 78(5)(b), the court’s role in reviewing a momentous decision by interim charity managers is limited. It should not ordinarily substitute its own view or accept a surrender of discretion. It should ask whether the managers made the decision, acted without conflicts, considered the relevant information, and reached a decision that a reasonable body of properly instructed trustees could properly reach.

Charity trustees cannot speculate with charity assets as freely as a businessman may speculate with his own. Where litigation has negligible prospects and the charity has minimal assets, trustees may require unconditional, adequately secured funding and protection against adverse costs. They are not obliged to accept funding allowing a conflicted person to direct the litigation.

The Charity Commission applied under section 78(5)(b) of the Charities Act 2011 for directions and sanction concerning the Cup Trust. Its interim managers had decided to discontinue an appeal to the First-tier Tribunal (Tax) against HMRC’s rejection of substantial Gift Aid claims arising from a circular tax-avoidance scheme.

Mountstar, the Trust’s corporate trustee, opposed discontinuance. It offered funding through its remaining director, but the offer allowed influence over the choice of counsel and conduct of the litigation and did not provide satisfactory secured protection against potential costs. The central issues were the court’s function under section 78(5)(b), the proper approach to a momentous decision by interim managers, and whether discontinuance fell within the range of decisions rational charity trustees could properly make.

1. Direction and sanction. The interim managers were given liberty to discontinue the Gift Aid claims. Their decision was sanctioned.
2. Statutory role. Sections 78(2) and (3) of the Charities Act 2011 establish that interim managers perform the functions specified in their appointment order under the supervision of the Charity Commission. The statutory scheme generally expects the Commission, rather than the court, to provide advice and protection. Court involvement under section 78(5)(b) is exceptional.
3. Applicable review. The application was analogous to the second category in Public Trustee v Cooper [2001] WTLR 901: the interim managers had made a momentous decision within their powers and sought approval. The court should act cautiously. It should not ordinarily accept a surrender of discretion or decide for itself whether litigation should be pursued. It should be satisfied that the decision was made, that relevant information was available, that the decision-makers were free from conflicts, and that a reasonable body of properly instructed trustees could properly have reached the decision.
4. Prudence and funding. The ordinary prudent trustee standard applies, but trustees do not have the freedom to speculate with trust assets that a businessman may have with his own assets, as explained in Speight v Gaunt (1883) LR 9 App Cas 1 and Learoyd v Whiteley (1887) 12 App Cas 727. The interim managers could rely on competent advice that the claims had negligible prospects without pre-empting the tax tribunal’s decision. Given the Trust’s minimal assets, they could require funding eliminating financial risk and supported by adequate security.
5. Conflicted funding. The interim managers were entitled to reject funding allowing Mountstar or persons connected with it to choose counsel or direct instructions. That was consistent with the reasons for their appointment and the need to protect the Trust from conflicts.
6. Costs. Opting out of ordinary costs rules in the First-tier Tribunal did not eliminate the possibility of an adverse costs order for unreasonable conduct. Ordinary costs principles applied in the Upper Tribunal and higher courts. The proposed unsecured and staged funding did not provide sufficient assurance against the Trust’s own costs or adverse costs.
7. The decision not to pursue the appeal was within the range of decisions to which rational charity trustees could properly come.