Changes to the charities “ex gratia” regime are back on the agenda

What matters

What matters next

The government has taken its time to understand how changes to the ex gratia regime for charities set out in the Charities Act 2022 would impact upon restitution claims. Now it has announced what it intends to do, and has confirmed that most of the changes will be introduced later this year.

What is the ex gratia regime?

In October 2022 charities were preparing for the imminent implementation of the first tranche of the Charities Act 2022 (the Act), which was to include the introduction of changes to the “ex gratia” regime. Section 106 of the Charities Act 2011 effectively allows charity trustees to seek authority from the Charity Commission (the Commission) to give away their charity’s property where in all the circumstances they regard themselves as being under a moral obligation to do so. 

This derives from a 1970 court case which established where it could be fairly said that if the charity were an individual it would be morally wrong of them to refuse to make a payment (and where the trustees are not under any legal obligation to make it, and they cannot justify the payment as being in the interests of their charity) then they can apply to the Commission for the necessary authority to make the payment. Charity trustees have to seek the Commission’s authority because their fundamental duty is to act in what they consider to be the best interests of their charity’s purpose and, contrary to popular belief, they cannot just “do the right thing” where this does not advance their charity’s best interests.

Ex gratia orders are most often associated with ex gratia payments by charities to individuals who have not benefited under someone’s last will. Say in circumstances where the benefactor has left a legacy or their residuary estate to a charity, but it is shown that they were on their way to a solicitor’s office to change their will to benefit the individual in question, when they met with an untimely end.

How are restitution claims treated under the ex gratia regime? 

The ex gratia regime is not limited to payments – the legislation specifies “property” - and in August 2022 shortly after being named Art Fund Museum of the Year, the trustees of the Horniman Museum and Gardens agreed, with the blessing of the Charity Commission, to return ownership of a looted collection of treasured artefacts to Nigeria, including its Benin Bronzes, rather than to continue to exhibit and conserve them, because they considered it was the “moral and appropriate” thing to do.

Maybe it was this case that alerted someone in Whitehall to take stock and to truly consider the possible implications of section 16 of the Act, when the eyes of others had glazed over: 

In relation to a charity established by (or whose purposes or functions are set out in) legislation, [the ability of the Charity Commission to authorise trustees to act on an ex gratia basis] is not disapplied only because the legislation concerned prohibits application of property of the charity otherwise than as set out in the legislation.

This seemingly innocuous provision would have undone other legislation that applies to a number of national museums and galleries: a notable example is the British Museum Act 1963 which prevents the museum from disposing of any of its collection except in limited circumstances, in particular, where in the opinion of the trustees’ objects are unfit to be retained in its collections. This was illustrated by the outcome of a 2005 court case brought by the Attorney General which prevented the museum’s trustees from returning drawings to their owners in a holocaust restitution claim, despite the fact they felt under a moral obligation to do so. 

The British Museum and surely its most contentious collection – the Parthenon Sculptures, or “Elgin Marbles” – have been front page news in recent months, with our Prime Minister cancelling a planned meeting with his Greek counterpart over Athen’s continuing claim to the restitution of the Marbles (the current situation being memorably described as like “cutting the Mona Lisa in half”) and reports of the more conciliatory efforts of another former Chancellor of the Exchequer, George Osborne – in his capacity as the Chair of trustees of the British Museum – announcing his hope that the British Museum can soon reach an agreement with Greece that would see the Marbles temporarily returned in exchange for ancient artefacts that have never been seen in the UK.

Government rethink will maintain the status quo on restitution claims

Against that highly charged backdrop, in a letter to the Chair of the Commission the Minister for Arts and Heritage has now set out the Government’s position on the commencement of the Act as it pertains to restitution cases made on an ex gratia basis by charities: 31.01.2024 DCMS letter to Charity Commission

The Government’s policy is that national museums and galleries should continue to be bound by their governing legislation, precluding them from resolving to restitute objects from their collections other than in the limited and specific circumstances expressly provided for in legislation. To that end, the Government will specifically exclude those national museums and galleries from the commencement of sections 15 and 16 of the Act.

Beyond the national museums and galleries, restitution cases can arise in other charities. Currently these charities must apply to the Commission for approval in order to restitute an object, where they are seeking to do so on an ex gratia basis. The Government considers that Commission oversight of these cases provides assurance that the charity’s trustees have undertaken proper due process in reaching their decision, that it would not be appropriate to remove this oversight in restitution cases and so it will exclude from the commencement of sections 15 and 16 any ex gratia payment where the recipient (i.e. the person to whom legal title for the property would be transferred) is located outside the UK. This approach will ensure that all ex gratia cases involving a charity transferring legal ownership of an object to its country of origin outside the UK will have to seek approval from the Commission (as they currently do).

Belated introduction of changes to the ex gratia regime 

Aside from restitution cases, the Minister has also confirmed that from some date later this year, as yet unannounced (and probably more than 18 months after initially intended), Sections 15 and 16 of the Act (as amended) will finally come into force to provide charity trustees with more power within the ex gratia regime in two respects.

Firstly, dependent on their annual gross income, charities will be able to make limited ex gratia payments or other transfers of property without requiring prior authorisation from the Commission (of up to £20,000 for each payment). 

Second, the test to meet in acting on an ex gratia basis will become subjective, rather than objective, and will be whether, in all the circumstances, the charity trustees could “reasonably be regarded” as being under a moral obligation to take the proposed action, rather than “regarding themselves” as being under such an obligation.  

This means that the decision whether to apply to the Commission for authority for an ex gratia order will not necessarily have to be an exercise of the trustees’ own discretion but could be a decision which the board empowers its executive staff to take, in line with any delegated authority and any ex gratia policy (of course, always subject to the continuing overall supervision of the trustee board). 

Some practical pointers for charities to consider now before the changes are introduced

With such a long lead-in time for these new provisions many charities will already have reviewed their approach to ex gratia requests, but by way of a checklist we offer the following:

  • Review/ produce an ex gratia policy, especially when it can be anticipated that charities’ new power to make limited payments without Charity Commission authorisation will receive media attention and raise public awareness and so may lead to more (and possibly speculative) claims.
  • Consider any revision to your governing document, whether to expand your board’s ability to delegate internal decision-making or if your charity wants to specifically exclude its ability to make ex gratia payments.
  • Adopt a more standardised approach to gathering evidence to assess ex gratia claims, perhaps collaborating with other charities on this to ensure a more consistent sector-wide response in anticipation of a rise in such claims.
  • Train your own personnel to manage ex gratia requests, especially where they have been delegated authority to make decisions without reference to your board. 

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2024.

 

Insights

Read the latest articles and commentary from Shoosmiths or you can explore our full insights library.