13 March 2015

Conflicts of interest –

why do they matter?

Helen Furneaux,

Head of Charities Team

Key issue for charities

• Updated guidance

• Area of regulatory focus

• Failure to deal can lead to:

disputes

flawed decision making

damage to reputation of charity

What is meant by ‘conflict of interest’?

Rules from trust and charity law

• Cannot be in a position in which duty to charity

and other interest conflict

• Rule against dealing with yourself – e.g. as

buyer and seller, or employer & employee

• Cannot profit from role as trustee

• Voluntary nature of trusteeship

• Obligation to act in best interest of charity

Company Law

• Director must avoid a situation in which he has

or can have a direct or indirect interest that

conflicts, or possibly may conflict, with the

interests of the company s175 Companies Act

2006

• Director duty to promote success of company in

achieving its charitable purposes s172

• Similar rules apply to CIOs under relevant

legislation

More than preventing fraud by trustee

“A man acting for himself may indulge his

own caprices, and consider what is

convenient or agreeable to himself, as well

as what is strictly prudent...Trustees of a

charity within the limits of their authority,

whatever that may be, should be guided

only by a desire to promote the lasting

interest of the charity” Lord Langdale 1840

case AG v Kerr”

Goes beyond acting in good faith

“The [Charitable Fund] trustees owe duties to no

one but their charitable objects and have no

powers to benefit any but their charitable

objects” Hart J in 1999 Public Trustee v Cooper

& others

Strict principles to reflect trust based

nature of charity trustee’s role

What means in practice?

Conflict between duty to charity and trustee’s

direct interest.

Financial – property, employment - whether

loss or benefit

Other material loss or benefit – e.g. charity

acquiring neighbouring premises

Conflict between duty as charity trustee

and indirect interest

Again financial or other material loss or benefit

Typically where involves “connected person”

• Family member

• Employer or business associate

• Company or firm or society with which director is associated

• Trust or charity of which director is trustee

• Local authority of which director is member

How to approach?

Identify

Avoid/Prevent

Manage

Record

Where conflicts can be permitted

• Out of pocket expenses

• 185-188 Charities Act

• Governing Document permits

• Charity Commission Order

• Failure to comply can make trustees/directors

personally liable

Is your charity fully equipped?

• Systems to identify conflicts

• Power in your Governing Document to

manage

• Conflict of interest policy

• Always consider how it might look to outsiders

Case Study

The Oakworth

Heritage Railway Trust

4 trustees

• Peter & Bobby -brother &

sister

• Mr Perks – retired

railwayman

• Mrs Smith – local councillor

Peter & Roberta, Mr Perks, Mrs Smith

Scenario 1:

• Peter runs internet model railway

business

• Proposes to Board to take lease of

empty building owned by Trust as shop

Peter & Bobby, Mr Perks, Mrs Smith & ?

• Peter & Bobby’s sister is wealthy banker

living in London

• She offers loan to the Trust at interest

rate lower than they would get from their

bank.

Peter & Bobby, Mr Perks, Mrs Smith & ?

• Mr Perks is trustee of another local

charity concerned with the local canal

network

• He know both charities are looking to

apply to be on a popular TV programme

regarding heritage projects

Peter, Roberta, Mr Perks, Mrs Smith & ?

• Mrs Smith local councillor

• Council has been major grant funder for

many years

• Council recently cut funding and

threatening legal action claiming

misleading figures from charity

ConflicConfo• Conflicts of Interest Matter

• Expect and prepare for them

• Recognise the potential dangers they

present

• Ensure you know the rules and the

implications for your charity

• Take legal advice where appropriate

About us:Helen Furneaux

Head of Charities Team

Stephens Scown Solicitors

1 High Cross Street

St Austell

Cornwall

PL25 4AX

Tel: 01726 74433

E-mail: charitylaw@stephens-scown.co.uk

The information in this presentation is intended to be general

information only and should not be interpreted as legal advice.

English law is subject to change so whilst Stephens Scown LLP

seeks to ensure the information contained in this presentation is up to

date and accurate, the law can change quickly and no guarantee is

made as to its accuracy which means the information should not be

relied upon. Presentation slides should not be viewed as an

alternative to professional advice and Stephens Scown LLP does not

accept liability for any action taken or not taken as a result of this

information.

Disclaimer