Charity disputes and ADR

The recent case of Hussain v Chowdhury [2020] EWHC 790 (Ch) makes clear that, before giving permission to commence charity proceedings, the courts expect the parties to actively engage with alternative dispute resolution (ADR) procedures in trying to resolve their dispute.

Charities Act 2011 and CPR

Disputes regarding the administration and operation of charities, referred to as ‘charity proceedings’, are governed by the Charities Act 2011. The Charity Commission, attorney general or a person specified in section 115(1) of the act are permitted to bring charity proceedings. However, any person specified in section 115(1) must obtain permission from the Charity Commission to commence charity proceedings. If permission is refused, a party may seek permission from a High Court judge of the Chancery Division. The procedure for obtaining permission of the court is governed by Civil Procedure Rule 64.6 and Practice Direction 64A, paragraph 9.1 (see also the Chancery Guide and Rai v Charity Commission of England and Wales [2012] EWHC 1111 (Ch)).

Hussain v Chowdhury

The claimant and defendants were trustees of a religious charity and a dispute arose concerning the purchase of a building for the charity. The Charity Commission concluded that there had been various breaches of the act and recommended corrective measures and for the parties to engage with mediation. The commission also refused to give permission for the claimant to commence proceedings until the parties had engaged with mediation. The claimant applied to the court for permission and the matter came before His Honour Judge Jarman QC.

Jarman refused to grant permission and stayed the claim to enable the parties to engage with mediation. The judge noted the unsatisfactory manner in which the parties had engaged in litigation and emphasised the need for the parties to ‘engage fully with mediation, which to be successful usually requires give and take on both sides’. Jarman also referred to Rai in which Norris J said: ‘Last, the approach which I intend to adopt is to ask: if the applicants have a legally sustainable dispute, is the commencement of litigation the best (or the least worst) course in the interests of the charity as a whole to deal with that dispute? Litigation may be the best course for the applicants to pursue to achieve their objective. But it is the charity’s interest (not that of the applicants or proposed respondents) that is the focus of the inquiry.’

On the information before him, Jarman was not satisfied that litigation was the least worse course in the interest of the trust and explained that the parties must put the interests of the trust above their own. The judge also noted the adverse impact the pandemic was having on the charity’s finances and explained that the dispute ‘is likely to be harming the trust financially. It is also likely to be harming its charitable activities. Litigation is likely to make matters even worse’.

His concise judgment provides a helpful reminder that the courts will, in charities disputes, expect the parties to consider and actively engage with an appropriate ADR procedure before proceedings are permitted to commence. This ADR obligation is particularly important during the pandemic. A positive engagement with ADR can lead to the settlement of a dispute, which can thereby avoid a charity incurring substantial and unpredictable litigation costs.

Furthermore, ADR empowers the parties to craft a solution to the particular circumstances of their dispute and can help to maintain the parties’ relationships. It is interesting to note that Jarman not only ordered the parties to engage with mediation, but went further by emphasising that the parties ‘should make utmost efforts to ensure that mediation is successful’. This may be taken as an indication that ADR is becoming compulsory for charity disputes, because the parties will be expected to not only participate with an appropriate ADR procedure, but also to ensure that disputes settle during the ADR process.

Regardless of whether the latter point on the issue of ADR compulsion is accepted, what is clear is that Hussain is another decision which is consistent with the increasingly pro-ADR approach taken by the civil courts (see for example Lomax v Lomax [2019] EWCA Civ 1467 and more recently DSN v Blackpool Football Club Ltd [2020] EWHC 670 (QB) and BXB v Watch Tower and Bible Tract Society of Pennsylvania [2020] EWHC 656 (QB)).

Masood Ahmed is an associate professor at the University of Leicester and a member of the Civil Procedure Rule Committee