The Charity Commission has published new guidance for trustees about when to take or defend legal action, Charities and litigation – a guide for trustees (CC38), in consultation with the Charity Law Association (CLA).

In its recent newsletter for trustees, the Commission said: “Legal proceedings can present significant risk to a charity, and this guidance will provide advice on what trustees need to know when thinking about taking or defending legal action, and when we need to be involved. The decision whether or not to initiate or defend litigation must only be made in the best interests of the charity and be balanced against the risks and consequences that any legal action could bring.”

The introduction to the Guidance points out that legal action can present significant risks to a charity; and the Commission expects trustees to be able to show that they have applied the principles of the Guidance where their charity is involved in legal action. Trustees have a general duty to act in the best interests of their charity. They have a duty to protect, and where necessary, to recover, assets belonging to the charity. The decision whether or not to initiate or defend a legal action must only be made in the best interests of the charity and be balanced against the risks and consequences that any legal action could bring.

Decisions on whether or not to take or defend legal action should be made in accordance with the principles set out in the Commission’s existing guidance on decision making, It’s your decision: charity trustees and decision making (CC27). Trustees should also identify and address the potential risks and impact of litigation on their charity and its beneficiaries. In applying those principles to decisions involving litigation, the guidance highlights the need for trustees to take and consider legal advice, to assess the economic prospects of success or failure and the impact on the charity, and consider whether their intended actions are proportionate in all the circumstances and in the best interests of the charity.

The guidance also indicates when trustees need to protect themselves against the adverse risk of costs and outlines alternative ways to resolve the issue in dispute that trustees should explore before legal action such as mediation and negotiation. The Commission expects trustees to consider legal action only after they have explored and, where appropriate, ruled out any alternatives for resolving the dispute.