Welcome to our third Newsletter of the year.
As always, our Newsletter benefits from a number of contributors covering a varied range of topics and opinions relevant to everyone working in the third sector industry.
This quarter, Tara McInnes offers us a round-up of this year’s most influential case law. Penny Wright discusses the impact of the recent NVCO report on fundraising and I offer my views on how best to limit the impact of fraud in charities and other not for profit organisations.
In other news, we were pleased with our progress in our Legal 500 listings, which saw the firm move up into Category 2 for Contested Trusts and Probate whilst also securing our place in Category 3 for Private Client, Charities and not for Profit Organisations. I was also pleased to be mentioned as a leading individual.
Our team’s knowledge pool has also been increased further by Tara becoming an Associate member of ACTAPS, having managed to complete the required three year course in two years. I was also invited to take part in two radio programmes discussing the recent judgement of Ilott v. Mitson which was a lot of fun.
Finally, and in case you were wondering about the photograph, Gardner Leader recently held a ‘1980’s’ day, which afforded a number of fund-raising opportunities for the firm’s charity, Naomi House Hospice. I would like to think it is the only recent example of the firm going backwards rather than always looking forwards!
I hope you find our Newsletter helpful and informative. If the articles provoke any thoughts or questions please do not hesitate to call me or one of the team.
Partner and Head of the Dispute Resolution Team
Fraud is Real – Deal With It
By Alastair Goggins – Partner and Dispute Resolution Team Leader
David Barrowclough, a Cambridge Don of Ely in Cambridgeshire, was recently found guilty of fraudulently claiming £236,000 from the Heritage Lottery Fund over an eight year period in relation to excavation projects that never happened.
He was sentenced at Huntingdon Crown Court on the 24 September 2015 to six years in prison. The fraud was discovered when a letter to him was accidentally sent to the Ely Museum, where Barrowclough was a trustee, and opened by a curator.
A recent judgment, yet his prosecution highlights an old but growing problem.
According to the Centre for Counter Fraud Studies and the accountancy firm BDO, fraud is costing the UK charity sector £1.65bn a year. As some cases are likely to go unreported or undetected, the real figure is probably even higher.
“Many charities and other not-for-profit organisations operate on a shoestring budget, so it can be difficult for them to allocate extra resources to improving counter-fraud measures,” said Jim Gee, director of counter-fraud services at BDO.
However, it is also said that improved measures could save about 40 per cent of the amount lost.
Charities may find it hard discussing fraud, perhaps because they believe in doing so it suggests a lack of trust in their volunteers. It is however very important that trustees discharge their duty to challenge fraud by clearly communicating the message that it is a criminal offence and will not be tolerated within the charity. Having clear policies in place, which should include what the charity deems to be fraud, how the charity will detect it, and how it will respond to it, will mean you are doing all you can to minimise fraud within your charity.
A good starting point is to ask why fraud can happen in the first place.
Are vetting procedures comprehensive enough?
Are there any weak financial controls in place?
Are audits thorough enough?
Is access to sensitive areas of or information held by the charity tightly monitored?
Charities can be more vulnerable if they are funded through cash donations, which can be more difficult to trace and manage, particularly if they rely on volunteers and goodwill. If temporary employees are used, especially in the finance department, are they are vetted sufficiently? Recently insurers have reported a significant rise in the number of employee/volunteer theft related claims. Charities should always take time to properly go through CVs, making sure all information is accurate and true, and contact all references provided.
The board should be seen by everyone to be leading from the front. Senior members should not abdicate the task of carrying out fraud risk assessments, including both prevention and detection methods. Prevention can include clear training. An accepted understanding of roles within the charity is also very important. Detection could involve monitoring the authorisation process. For instance who has the authority to bank funds and make purchases? Occasional spot-checks on cheques and invoices are a good fraud deterrent.
No one should consider themselves above the law. Therefore even those in senior positions need to be subject to checks. A high percentage of charity fraud is carried out by those who understand system weaknesses best, and these are often people in management positions. The case of David Barrowclough is sadly a good example of this. Does your charity have a sign off process? Does your financial processes require countersigning at certain stages? If not it can help to prevent would-be fraudsters taking advantage of your charity.
Having a policy in place regarding whistleblowing within your charity is a very good step to take. Fraud is detected largely through others raising voices of concern, just as we saw in the Barrowclough case. Make sure that employees have guidance and clear procedures to follow regarding who they can talk to in strict confidence.
Finally it is a good idea to have an ‘action plan’ in place for how to deal with fraud if it arises. This means thinking about how you would report fraud to the Charity Commission, Action Fraud and, of course, the police.
Fraud not only robs charities of desperately needed funds but it also destroys hard earned reputations and team morale overnight. Whilst we may never be able to remove the blight of fraud entirely, with well thought out processes in place you can preserve your charities resources and ensure the money raised for good causes gets spent on the needy, and not by the greedy.
Contested Probate Case Update
By Tara McInnes, Senior Associate in the Dispute Resolution Team
Now that we are three quarters of the way through the year, I thought that it would be helpful to provide an update on some of the more important and interesting cases that have been decided this year within the arena of Contested Probate.
Lothian v Dixon and Webb (2014)
This was a proprietary estoppel case and involved a hotel and a claimant who had moved from Scotland to Scarborough to look after the testatrix in the belief that she would inherit the hotel. The deceased had asked Mrs L to come down from Scotland to Scarborough to live with her, care for her during her cancer and run the hotel. The day before she died she gave instructions to a solicitor to change her Will to reflect this promise but unfortunately she died before the Will executed.
The first defendant was a beneficiary under an earlier Will and brought a claim arguing that Mrs Lothian’s entitlement should be limited as she had not suffered any detriment as a result of the move. In fact she had received balancing entitlements of free board. The judge however, disagreed and considered that the support provided by Mrs Lothian and the altering of her lifestyle with no idea of timescale did constitute detriment, She was accordingly awarded the entire estate. This seems a considerable award but was consistent with the testatrix’s intention in the un-executed Will.
Blankley v Central Manchester and Manchester Children’s Hospitals NHS Trust (2015)
This is not a contested probate claim but arose out of a personal injury claim brought by the Claimant under a Conditional Fee Agreement. The claimant in the personal injury matter lost capacity after instructing her solicitor. A Deputy was appointed and the Defendant in the claim settled Quantum in the region of £2.6m plus costs.
The Claimant’s solicitors submitted a costs bill in the region of £372,000.00. The Defendant then challenged the CFA for the period after the Deputy had been appointed arguing that this appointment had terminated the agreement. The decision was ruled in favour of the Claimant and the defendant appealed to the Court of Appeal. The Court of Appeal decided that it could not have been the parties’ intention that the claimant had to give instructions personally and accordingly dismissed the appeal. Whilst not a contested probate claim per se it is significant as many contested probate claims are funded by way of CFAs and with elderly clients who may lose capacity.
This is a claim under The Inheritance (Provision for Family and Dependants) Act 1975 arising out of an adult beneficiary’s claim against her late father’s estate. The testator had two daughters and had divided his estate between them equally. The Claimant argued that in doing so this meant that his will had failed to make reasonable financial provision for her. The Claimant was severely dyslexic and suffering with bipolar affective disorder. Also she argued that she was the one who continued to reside in the family home and provide care for her father prior to his death.
The Claimant applied for permission to appeal the First Instance decision which she had lost. The High Court Considered that the Deputy District Judge had evaluated all the factors sufficiently and that the Claimant was effectively asking to receive an 80/20 split in her favour. This seemed totally unfair and might have prompted the other sister to make a claim under The Act. Permission was accordingly refused. This seems a sensible decision and does promote that the courts have, in recent times at least, attempted to make fair decisions. I would query whether the decision would have been the same had a charity been the other beneficiary. Contrast this decision with that of Ilott (below).
Ilott v Mitson Court of Appeal
The Ilott decision was much awaited as the matter had been proceeding for a number of years. This was an appeal from the lower court’s decision that Heather Ilott should receive £50,000 from the estate of her late, estranged mother.
The Court of Appeal held that the original judge’s decision was wrong as he had failed to consider the effect that any award would have had on Heather’s state benefits. He accordingly set the original award aside. He considered that the charities had never had an expectation of receiving any monies from the estate and increased the award to 1/3 of the value of the estate. He calculated an award that would not affect her state benefits. This case has been held as having widened the ability of adult children to claim under the Act although much has been made of the fact that there were charities on the other side. The court clearly held the view that the charities’ needs and expectations were low and that anything the charities received would amount to a ‘windfall’.
King v The Chiltern Dog Rescue & Others
There haven’t been many deathbed gift (Donatio Mortis Causa) cases in recent times so the King case offers a degree of clarity in this area. The deceased (June) left the bulk of her estate to animal charities. The Claimant was her nephew. He cared for June prior to her death and the court agreed that approximately 6 months before her death she had promised him ‘this will be yours when I go” and gave him the deeds to her unregistered house. The Court at First Instance found that this constituted a DMC.
However, Jackson LJ held that it did not constitute a DMC as it was not made in contemplation of death. He stated that even though at the time of the ‘gift’ June was indeed elderly, she was not contemplating her imminent death. This is, of course, one of the requirements needed for a DMC. The court also considered that the words used did not constitute a gift and were more a statement of testamentary intent. However, the Claimant was awarded £75,000 under the Inheritance Act 1975. This clearly demonstrates that in order to be effective DMCs need to comply strictly with the three requirements; that they are made in contemplation of death, that they are conditional upon death and there must be a delivery of the subject matter of the gift.
Sharp v Hutchins 2015
Sharp is a case which received a lot of media attention mainly because it concerned a builder who received an estate at the expense of family members. It concerned the estate of the late Ronald Butcher, who in 2013 had changed his will to leave everything to a local builder who cleaned his guttering for free. His family considered this was a strange relationship and that Mr Butcher hardly knew the builder. They accordingly tried to overturn his will on the grounds of lack of knowledge and approval. They claimed there were suspicious circumstances surrounding the preparation and execution of the will and therefore the presumption of due execution was rebutted. The Claimant therefore had to prove that the Will was valid.
The High Court Judge found nothing suspicious about the making of the Will and found it had been made with the deceased’s full knowledge and approval. The will was short and the form was consistent with previous wills, it had been correctly executed and the deceased had shown the will to the Claimant and read it to him. Therefore she held that there were no suspicious circumstances surrounding the execution of the Will to excite the suspicion of the court and she pronounced for probate.
McCabe v McCabe 2015
Mary McCabe made her will made when suffering with Alzheimer’s disease. She had changed her will in 2011 to disinherit her younger son in favour of older son. Timothy, the younger son argued that the will was invalid on the grounds it had not been correctly executed, that the testatrix lacked capacity and/or lacked knowledge and approval of the contents of the will. The original attesting witness claimed not to have signed the will in the presence of the testatrix. The court dismissed the execution point and put this down to a lack of recollection. Although the elder son had arranged for the Will to have been executed, the court held this was because he was the only child the testatrix was in contact with and therefore his involvement was understandable.
The court found no other reasons to consider that the testatrix had not known of the contents of her will. In terms of capacity the court held that the ‘Golden Rule’ had not been followed. The Will had not been based on delusion or confabulations and therefore the Will was valid. Whilst not directly related to the ‘Golden Rule’ it does emphasise the need for solicitors to consider obtaining medical evidence on capacity far more often than is currently done. This does demonstrate a change in the court’s view that solicitors should take more responsibility for confirming a testatrix’s capacity at the time they are instructed. This is good news for charities who are considering mounting challenges on the above grounds where the solicitor has not followed the ‘golden rule’.
Dellal v Delllal 2015 Family Division
There have been several Inheritance Act claims this year and this is probably set to rise following the Ilott case. The importance of this claim is that it demonstrates the ability of certain applicants to make claims despite already having received a substantial amount under the will. This was a claim by the second wife of property tycoon Jack Dellal. In his will dated 15 Nov 2006 he left everything to his second wife Mrs Dellal. In 2012, the Sunday Times Rich List had listed him as being worth £445m. Following his death his estate was only valued at £15.4M. The applicant contended that he had deliberately disposed of his assets to children from previous relationships with the intention of avoiding a claim. She claimed under section 10 (amongst others) of the Act. That he had made dispositions meaning to defeat a claim under The Act.
The defendants applied to strike out the application on various grounds including that no assets had been identified within the 6 year period and that the applicant had already been well provided for. The High Court held that the claim was not merely a ‘speculative punt’ and it was not sufficient to say that as she had already been well provided for that her claim was hopeless. Accordingly the court refused summary judgment to strike out the claim. Mrs Dellal is now able to proceed with her claim and it will be an interesting case to follow in the future.
Fundraising Standards Review – How will your charity be affected?
By Penny Wright, Senior Associate, Inheritance Protection Team
In September 2015, the result of a comprehensive review of fundraising was published by the National Council for Voluntary Organisations (the NCVO). The report recommended wide-ranging reforms to the way in which charities conduct their fundraising activities. The report has been endorsed by the Charity Commission and implementation of the proposed new regime will follow in the coming months.
The review was set up by the Minister for Civil Society to respond to widespread criticism of the fundraising practices of some charities, following media reports of their unfortunate and tragic impact. Public concern focused particularly on the use of commercial and professional fundraising agencies; but the new regime recommended by the review will apply to all fundraising activities conducted by charities big and small.
The report emphasised the role of charity trustees, who are ultimately responsible for the charity’s fundraising activities. The review found that trustees don’t always play an active role in controlling and monitoring the way in which funds are raised. Trustees must in future take a stronger lead to ensure that their charity’s fundraising activities are appropriate. This could include:
A proposed amendment to the Charities (Protection and Social investment) Bill will require trustees to make a statement in the charity’s Annual Report about its fundraising practices and how it ensures that the public (particularly vulnerable people) are protected from undue pressure. This reporting requirement will only apply to larger charities (namely those with income over £1million), although the duty to comply with good fundraising practices will apply to all charities and not-for-profit organisations.
The report recommends the establishment of a new Fundraising Regulator which will report to Parliament. At present, regulation of fundraising is governed by a mixture of old legislation, guidance from the Charity Commission and voluntary adherence to codes of practice. The new Regulator will revise the Code of Fundraising Practice and take over all regulatory responsibilities, with strengthened powers to enforce the new Code and sanction those in default (including organisations that are not registered charities such as educational establishments and fundraising bodies).
Stronger regulation of fundraising practices will no doubt be welcomed by charities and the general public. But if the regulation becomes too restrictive, it will hinder charities’ ability to raise funds. A balance must be maintained with on one hand the need to respect people’s privacy and their right not to be disturbed; and on the other hand the need for charities to ask for donations to support the vulnerable people and deserving causes that they help.