The Charity Commission for England and Wales v Pesh Framjee and Others

Hearing date: 3 rd July 2014

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

In this action, which I heard on 3 July 2014, the Charity Commission for England and Wales ("the Commission") seeks declarations and directions in relation to a fund comprising donations paid by members of the public to an unincorporated charity called the Dove Trust. The claim is brought under section 78 of the Charities Act 2011, following the appointment by the Commission on 6 June 2013 of the first defendant, Mr Pesh Framjee, as interim manager of the Dove Trust pursuant to sections 76(3)(g) and 78(1) of the Act. By virtue of section 78(3), the functions of an interim manager are to be discharged by him under the Commission's supervision, and subsection (5)(b) empowers the Commission to apply to the High Court "for directions in relation to any particular matter arising in connection with the discharge of those functions." The High Court may then give such directions, or make such orders declaring the rights of any persons, as it thinks just: subsection (6).

The Dove Trust was established on 16 June 1983 by a declaration of trust (the "Trust Deed") made between the settlor, the late Thomas Arthur Colman, and two individual trustees, one of whom was his son Keith Thomas Colman ("Mr Colman"). The trust was registered as a charity by the Commission on 12 July 1983. Mr Colman remained a trustee from its inception until his voluntary resignation on 3 December 2013. He is the fourth defendant, and is separately represented by solicitors and counsel.

The remaining three defendants are either former or present trustees of the Dove Trust. Each of them has filed an acknowledgment of service saying that he or she did not intend to contest the claim. Two of them (Mr Bryan Gunn, the second defendant, and Ms Donna Naghshineh, the third defendant) recently indicated that they would like to have an opportunity to address the court for a few minutes; but although I gave them this opportunity, neither of them in the event took advantage of it. The fifth defendant, Mr Peter Farley, filed a witness statement and expressed his willingness to help the court in any way he could, but made it clear that he did not wish to play any part in the hearing.

The representation of the parties at the hearing was as follows. Mr Tim Akkouh appeared for the Commission. Ms Charlotte Ford, instructed by Pinsent Masons LLP, appeared for the interim manager Mr Framjee. Ms Francesca Quint, instructed by Russell-Cooke LLP, appeared for Mr Colman. I am grateful to all of them for their clear and helpful submissions.

Background

The Dove Trust was established with an initial trust fund of £50, to which it was envisaged that either the settlor or other persons would make later additions. Clause 2 of the Trust Deed directed the trustees to hold the Trust Fund and its income, without distinction between capital and income, "Upon Trust for such charitable purposes as the Trustees with the consent of the Settlor during his life shall in their discretion from time to time think fit." Clause 3 authorised the trustees themselves to engage in charitable activities and use the Trust Fund to pay the expenses thereof, provided that they should not receive any personal benefit other than the reimbursement of out of pocket expenses. As is common in charitable trusts, clause 5(a) enabled the trustees to act by a majority. Clause 5(e) was an exoneration clause of a then familiar kind, exempting any trustee from liability for any loss to the property of the trust:

"…by reason of any mistake or omission made in good faith by any Trustee hereof or by reason of any other matter or thing other than the wilful and individual fraud on the part of the Trustee who is sought to be made liable."

The trustees had wide powers of investment, and various other administrative powers to which it is unnecessary to refer.

In 2004 the trust established a website for charitable giving called www.charitygiving.co.uk ("the Website"). The purpose of the Website, broadly speaking, was to facilitate charitable giving by members of the public by inviting them to make donations to the Dove Trust for the benefit of other charities or good causes of their choice. The donations would normally be paid by credit or debit card, and the Dove Trust would then augment them by gift aid which it would claim on eligible donations, subject to charging an administration fee of 3.99% on such donations. No administration fee was charged in respect of donations which did not qualify for gift aid, for example because the donor was not an individual or because the donor was not a UK taxpayer. In effect, therefore, the Dove Trust took its fee from the tax reclaimed from HMRC. The Website gave a worked example:

"Thus, on a £100 donation to a nominated charity which qualified for Gift Aid, the administration fee would be £3.99 from the Gift Aid recovered on the donation (which, on £100 at basic rate, would be £25). The nominated charity would accordingly be entitled to receive £121.01."

I will need to return later to examine the statements on the Website which may throw some light on the way in which donations were to be treated and the nature of the legal relationship between donors and the Dove Trust. It is enough at this stage to record that it is common ground:

(a) that donations were made to the Dove Trust acting through its trustees as a principal, and not merely as an agent for the intended ultimate recipients of the gifts;

(b) that gift aid was accordingly claimed by the Dove Trust in it own right on donations made by individuals who had given the necessary gift aid declaration relating to the gift, even if the same gift made directly to the intended ultimate recipient may not have qualified (for example because it was not a charity under English law); and

(c) that the "terms and conditions" section of the website says nothing expressly about the nature of the legal relationship between donors and the Dove Trust.

In this last respect, the position differs significantly from that of superficially similar arrangements made by well-known charities such as the Charities Aid Foundation ("CAF"), where the legal relationship with donors is clearly spelt out in the terms and conditions which apply to a donor's account with the charity. The position is also different from that of some other websites which facilitate charitable giving, e.g. www.virginmoneygiving. com and www.justgiving.co.uk, where it is made clear to donors that the operator of the website acts only as an agent for the charity nominated by the donor.

From 2004 onwards, the running of the Website was the main activity of the Dove Trust. Nearly all of the donations made via the Website were made by members of the public, often in support of a sponsored charitable activity undertaken by a family member, friend or colleague who set up a fundraising page. Occasionally, an account would be set up by a smaller charity in the interests of accessibility or administrative efficiency. The evidence contains examples of many charities and other good causes, both in the UK and abroad, which have benefited from donations made through the Website. Some of the recipients have been heavily dependent on the continued flow of donations through the Website, others less so. In general, there is no reason at all to doubt that the Website was used in complete good faith by donors as a convenient way to facilitate their charitable giving.

Unfortunately, it appears that the administration of the Website by the Dove Trust left a great deal to be desired. I am not concerned in the present proceedings to explore the reasons for this or to apportion blame, and it is only right to record that all allegations of misconduct are strenuously denied by the trustees concerned. The fact remains, however, that a situation developed where the trust regularly found itself obliged to have recourse to incoming donations in a later month in order to fund the payment to ultimate recipients of donations made in a previous month – a process apparently known in some quarters as "teeming and lading", an expression which I confess was unfamiliar to me, although the phenomenon has a generic similarity to the typical method of operation of a pyramid or Ponzi scheme. Furthermore, there were long delays in the filing of the trustees' annual reports and financial statements (even now, the latest filed accounts are for the year ended 5 April 2009); complaints began to be received from members of the public that donations made through the Website had not reached the intended beneficiaries; and concerns were raised that apparently improper loans had been made, without independent advice and without proper procedures being followed, to companies connected with Mr Colman.

In these circumstances, on 25 August 2011 the Commission established a statutory inquiry into the Dove Trust pursuant to section 8 of the Charities Act 1993 (now section 46 of the 2011 Act). The grounds of concern were set out in a letter from the Commission to Mr Colman. They...