In March 2024, the Charity Commission produced guidance on the acceptance, refusal and return of donations. This is the first formal guidance it has produced on the topic. The twin issues of refusal and return have been of interest to charities in recent years, as a result of increased focus on the commercial activities of philanthropists, greater expectations around standards of business, and a heightened concern with sustainable business practices, with a particular focus on equality and climate change. Examples of cases where donations have been refused by UK charities include the National Portrait Gallery’s agreement with the Sackler Trust not to proceed with a large gift from the Sackler Trust and the refusal by Save the Children of a £750,000 donation from Neptune Energy. The Presidents Club case in 2018 also highlighted the issue of return of donations.
The legal backdrop to refusal of donations stems from case law with the main case being Harries v Church Commissioners[1]. The judgment confirmed that charities were required (when investing) to maximise their assets unless to do so would conflict with the charity’s purposes or would alienate donors or supporters. This means, by implication, that a donation cannot be refused purely on the basis of reputational concerns but requires consideration of how reputational issues might be quantified so as to show a hindrance to the charity in pursuing its purposes or in encouraging future donors.
The Charity Commission’s guidance considers return and refusal of donations in a range of circumstances, including those set out below.
Where it is necessary for the charity to refuse or return the funds.
Examples cited include donations which come from illegal sources or with illegal conditions attached, donations from a donor who lacks capacity to donate, donations where the donor cannot legally give (e.g. because he/she does not own the property donated) or donations which are accompanied by an obligation to return the funds.
Examples are given of scenarios where return (once a donation has been received) would likely be necessary include donations for purposes that fall outside the charity’s objects, donations which would cause a claim to be brought against the charity, donations which might undermine the charity’s independence (for example, by giving the donor rights in respect of charity decision making), donations where the burden might outweigh the benefit, and donations with unacceptable levels of private benefit.
Where the charity makes an ex gratia payment.
The ex gratia regime allows trustees to return or waive the charity’s rights to charity property (of whatever nature) where they could reasonably be regarded as being under a moral obligation to do so. The case underpinning the law is Re Snowdon[2] where moral obligations were considered against the backdrop of a legacy dispute where a testator did not intend the charity to benefit to the extent it had. In that case, a moral obligation was implied because the monies had been received by the charity as a result of an oversight or legal technicality. The ex gratia regime requires the charity trustees to obtain the Charity Commission’s consent before making the payment. Recent changes to the legislation (in the Charities Act 2022) allow trustees to make small ex gratia payments without Charity Commission consent. This can apply to all types of charity and is available unless the charity’s governing document prohibits the making of an ex gratia payment. Without regulatory consent, the payment would likely represent a non-charitable use of the charity’s funds. There is now also a power for the Charity Tribunal to review ex gratia payment decisions, meaning that disappointed charities will be able to apply to the Tribunal to review a decision of the Charity Commission in respect of an ex gratia payment.
Where there is a failed appeal.
It sometimes happens that charities raise funds without expressly considering the possibility of a failed appeal. In those circumstances, it may be necessary for the charity to return the funds, unless Charity Commission consent to retain the funds for a different purpose can be obtained. This might occur where donations to the appeal are surplus to the funds needed to carry out the purpose, donations to the appeal are insufficient to carry out the purpose or the appeal, or there is a change in circumstances meaning that the charity cannot carry out the purpose of the appeal (for example, it is unable to purchase the land required to construct a building).
Where it is in the charity’s best interests to refuse the donation.
The Commission’s guidance states that a charity can refuse or return a donation if it is in the charity’s best interests. This appears to be the Commission’s statement of the principles set out in Harries v Church Commissioners which contemplated a decision not to invest in circumstances which would conflict with the charity’s purposes or alienate donors or supporters. The ‘best interests’ framework certainly encompasses the two situations described in Harries, but it is wider and to that extent it is difficult to contemplate whether it allows a broader range of circumstances to be considered in permitting the refusal of a donation.
When making a decision to return a donation based on the charity’s best interests, the Charity Commission guidance highlights the need to identify the factors relevant to the charity and to have robust evidence to support the trustees’ decision making process. Factors identified by the Commission as being potentially relevant are:
- the value of the donation;
- the financial loss associated with refusing or returning it;
- the extent and seriousness of any potential conflict between the donation and the charity’s purposes;
- the risks involved in accepting and refusing the donation and how serious they are;
- donors’/stakeholders’ views about accepting and refusing the donation, where it is proportionate to seek them;
- reputational damage and how long-lasting the damage might be; and
- whether it is possible to accept the donation and manage reputational risks, for example, by negotiating with the donor in relation to the terms of the donation.
The balancing of the various factors will, in certain cases, be an intricate exercise which will require careful consideration of the surrounding evidence. It is also likely that consideration will need to be given to the weight of evidence, particularly in relation to issues which require consideration of future events (for example, how long-lasting reputational damage might be) as well as areas which relate to the views of those outside the charity (donors or other stakeholders).
The Commission’s guidance contemplates the drafting of a policy on the acceptance, refusal and return of donations. It is of course important that any policy is capable of operating in a sufficiently flexible manner to envisage the changing nature of situations where trustees refuse to accept, or wish to return, donations.
[1] Harries v The Church Commissioners for England [1992] 1 WLR 1241
[2] Re Snowdon [1970] Ch 700
For further information, please contact Neasa Coen, Legal Director in the Private Client department or, alternatively, telephone on 020 7693 5847.
Neasa’s comments on the topic also featured in The New Law Journal. Read more now: https://www.phb.co.uk/wp-content/uploads/2024/07/Profession_Charity-law_Coen_28-June-2024.pdf
