Published May 2012
Charities live in the real world and are therefore by no means immune from disputes which can readily distract Trustees/ Directors/Managers from running the Charity and providing the service or other charitable aim which the Charity was set up for.
Disputes can also be a drain on financial resources. In some cases a dispute may threaten the existence of the Charity itself.
Disputes can be external disputes with third parties as a consequence of entering into contracts to provide or receive services, acquire or hold land and buildings, purchase goods, inherit property or engage in other activities which could lead to disagreement.
Disputes may also be internal either with employees or disputes within the trustee body. Disputes within the management structure which nearly always involves some kind of personality clash are among the most damaging which a Charity can suffer.
There can also be disputes with authorities where there is an increased risk of conflict with local or central government or other public authorities. Charities, like any commercial organisation, have the opportunity to minimise the possible consequences of disputes with external third parties by having terms and conditions subject to which they will provide the charitable service or acquire goods or services from a third party. Even if, as is common, the third party requires you to conduct business on their terms and conditions, those terms and conditions can sometimes be negotiated particularly if the provider wants your business. Contracts involving repeat supplies involving a substantial expenditure (in proportion to the Charity’s overall financial position) should certainly be considered very carefully and areas of possible dispute identified so that the risk can be minimised. A report on the potential consequences of liability under a particular contract or series of contracts should always be commissioned where there is potential substantial exposure putting the Charity’s assets at risk.
It is advisable to consider whether there should be included in the contract a dispute resolution clause which requires the parties to conduct any dispute which might arise through a particular process rather than allowing one of the parties to resort to court proceedings. One of the most cost effective and common ways of dealing with disputes is by mediation. Mediation is where the parties to a dispute meet usually with their legal advisers with a third party neutral mediator. The purpose of the mediation is to try to work out a solution to the problem rather than have a decision imposed upon the parties by a Court or adjudicating authority. The intention is that the parties will reach an agreement so that both parties can move on with their respective businesses and possibly actually continue to do business with each other notwithstanding the dispute.
Our litigation Department has extensive experience of resolving disputes by mediation. However, if Court proceedings are required either by the Charity or against the Charity the Charity would be well advised to make an application to the Court for approval to take or defend the legal proceedings. If the Court gives the necessary approval it will be on the basis that Trustees will be indemnified as to any costs from the Charity’s funds.
Litigation should be regarded as a last resort in view of the inevitable costs and the uncertainty of the outcome but disputes will arise, as they do in all commercial organisations and advice should be sought both in connection with the Charity’s terms and conditions of business, its constitutional documents and as soon as possible when a dispute looks as if it is about to arise.