Litigation in any context will always pose a multitude of risks and difficulties for parties involved in it. There are specific considerations to be taken into account depending on the situation and the nature of the parties. One such example of this is litigation concerning charities and their respective directors/trustees. Potentially damaging factors regarding the charity’s reputation, assets, and the interests of its beneficiaries can all play a factor. This article provides guidance on how charity directors should handle the process.
Legal Action Against Charities
Situations may arise where actions are brought against charities. In these circumstances, charity directors should collectively, with legal assistance, seek to avoid litigation and resolving disputes peacefully where possible. This usually involves gathering and compiling data and evidence.
As charities have limited capital, legal actions successfully brought against them and failed actions brought on their part, can have devastating financial effects on the charity. To avoid leaving the charity exposed, charity directors should look to put in place financial controls and also enquire into what liability insurance, if any, covers the charity.
Best Interests of the Charity
The primary determination charity directors should make before entering into any legal proceedings is if it is the best interests of the charity. That is, does it advance the purpose of the charity and can I be held accountable to the members? Charity directors must also be careful to only act within the powers given to them by law.
This usually involves a charity’s directors making a justification to stakeholders as to why they think litigation is the right path to pursue. This reassurance should be made with the input of external consultants who have validated it and better informed the directors. Members should also be given the opportunity to present any concerns they have to directors.
Exploring Alternative Dispute Resolution
Alternative Dispute Resolution is also an option that can be explored as an alternative to litigation. There are a number of alternative dispute resolution methods, including negotiation, mediation and arbitration.
- Negotiation is whereby both parties try and settle the disputes between each other, with the option to have an adviser in attendance.
- Mediation differs from negotiation in that an impartial third party adjudicates the dispute and makes recommendations which the parties can choose whether to adopt.
- Arbitration, the last of the methods before litigation, is where an independent party is entrusted to settle and make the decision on behalf of the parties.
These three resolution methods should be considered before going to court. The limited nature of funds available to charities means that less litigious approaches should be favoured over legal action in court.
Charities should seek legal advice or contact the Australian Charities and Not-for-profit Commission if they are facing legal action. Need further assistance in identifying litigation risk and managing legal proceedings as a charity trustee? Call LegalVision’s corporate governance team on 1300 544 755.