Quickpoints
Dartford Charitable Land Case
16th March 2010
When is land given “in perpetuity” not “in perpetuity”: the Dartford Borough Council charity property case:Hot on the heels of the Seevaratnam case earlier this month, we have just seen another case decided by the Tribunal, which has also come to a different conclusion from the Charity Commission.
In Maidment and Ryan[1], Dartford Borough Council had sold recreational land to a developer in breach of trust.
The Tribunal
- Granted retrospective consent to the sale, upholding the Commission’s decision to approve the sale
BUT
- Found that the Commission had mistakenly concluded that a cy-près occasion had arisen
- Found that the continuing arrangements for the management of the trust failed to deal with the potential for conflict of interest in the council’s role as sole trustee
- Criticised Solicitors for both the council and the developers for failing to identify the charitable nature of the trust and
- Noted that the Commission’s internal Decision Review had failed to correct the flaws in its own decision.
Background
Dartford Borough Council held land on trust for recreational purposes. It sold part of the property to a local developer in breach of the terms of the trust, which required it to be held “in perpetuity”. The sale was challenged by local residents, who referred it to the Charity Commission. The Commission acknowledged that the trusts were charitable and that a breach of trust had occurred, but gave retrospective consent to the sale by means of a scheme, on the basis that a cy-près occasion had arisen. Local residents challenged the scheme, finally appealing the Commission’s decision to the Tribunal.
The case for cy-près
The Commission had initially considered whether it was appropriate cy-près to re-state the trust’s objects. However, at the hearing, the Commission conceded that the original purposes had not failed. On the face of it, therefore, the Commission had no jurisdiction to issue a scheme that changed the objects of the trust. When the appellants had originally challenged the scheme, requesting the Commission for a Decision Review, the Commission’s review did not expose this error and simply recommended that the scheme should be sealed.
Interestingly, the Commission has a concurrent power to alter the objects of recreational charities under the Recreational Charities Act 1958. In this case, however, the Tribunal found that the suggested rewriting of the objects did not improve clarity and was likely to cause future controversy. The Tribunal ordered the original objects to be restored.
Designated or “specie” land
The Tribunal considered the nature of the original gift; in particular, whether the trustees were entitled to sell the land. The terms of the original gift provided that the land was to be “used in perpetuity as a public recreation ground and for no other purpose whatsoever”, in other words that it was designated or “specie” land. However, the Tribunal followed Oldham[2] in finding that the words “in perpetuity” did not apply to the land itself but to the purposes of the trust. Furthermore, because it decided the precise location of the land was not integral to the purpose of the charitable gift, it held that its location was a mere administrative provision, which might be altered by order of the Commission, without recourse to cy-près.
The Oldham case specifically gave the example of recreational space, which might be located on any suitable land, and contrasted it with the example of a particular heritage building or site of scientific interest, which would not be transferable. The LA was therefore permitted to sell the land, subject (1) to obtaining the Commission’s consent; and (2) to purchasing suitable recreational land elsewhere, to be held on exactly the same trusts.
The solicitors’ advice and the issue of “good faith”
Originally, solicitors for the council and for the developer had examined the trust and concluded it was not charitable. Consent of the Commission had therefore never been sought and the sale had proceeded in breach of both the trust (which contained no power of sale) and s.36 of the Charities Act 1993 (“the Act”). The appellants argued that the developer had not purchased the land in good faith (as required by s.37(4) of the Act to rely on those “automatic validation” provisions) and that the sale was therefore not valid.
The Tribunal shared their concerns and noted with surprise that solicitors describing themselves as “charity specialists” (not the writer’s firm!) had not identified the trust as charitable. However, it found that the appellants had not demonstrated that the developer had not acted in good faith. The developer had simply relied upon bad advice and the purchase could rely on was valid. The “good faith” test was one of subjective honesty rather than a question of what a reasonable person, properly advised, should have been assumed to have known.[3]
Governance issues
The Commission’s published guidance[4] suggests that local authorities acting as sole trustees should be asked to consider stepping aside to allow a representative and non-conflicted board of trustees to take their place. However, in this case, the Commission found that it was appropriate for the council to remain as trustee of the continuing property of the trust, since it was effectively marooned within other council property. However, the Tribunal found that inadequate governance mechanisms were in place to deal with the council’s potential for conflicts of interest. It ordered that the committee responsible for managing the property should include a quorum of non-conflicted members who are not otherwise connected to the council.
Self-dealing
Accepting that, following Oldham, the Council was entitled to sell the land (subject to obtaining the Commission’s consent), the Tribunal noted that the land proposed as replacement land was the property of the council. It would therefore also be necessary, it noted, for the Commission’s consent to be given for the disposal of council land to the trust, since it represented “self-dealing”.
Procedural points
Interestingly, the appellants represented themselves in this case and the Tribunal assisted them in doing so. Unusually, respondent’s Counsel opened the hearing, so as to assist the appellants in presenting their evidence. One of the reasons the appellants had represented themselves was the delay they experienced in getting pro bono advice from the Chancery Bar Association. It has since been reported that the Bar Association will endeavour to respond faster to requests for free legal advice.
Conclusions
- Donors of open land specifically intended for recreational purposes in that place shall need to take note and if needs be add further safeguards to ensure this intention is indeed carried out.
- It is anticipated that the Commission will take note of the implied criticism of its Decision Review process.
- Although it appears that the Commission overstepped its cy-près powers in this case, it is to be hoped that it is not discouraged from using these powers in appropriate cases in future.
- Finally, in this case, whilst the council and the developer did not ultimately greatly suffer from obtaining bad advice, clients should be cautious about their choice of professional advisers in such a specialist area.
[1] Derek Maidment and Lennox Ryan v the Charity Commission, 16 November 2009
[2] Oldham Borough Council v AG [1993] 2 All ER 432
[3] Francesca Quint’s analysis of Bayoumi and Perkins v Women’s Total Abstinence Educational Union Limited (2003) The Times, 5 November.
[4] Operational Guidance 56 B1
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