Charities face the same litigation matters that arise at any company; however, they must balance the need to run worthwhile cases against the risk of allegations they are wasting donations on legal fees.
To protect themselves from personal liability, trustees contemplating litigation often seek a Beddoe Order, which provides the Court’s permission for costs incurred in the proceedings to be met from the trust’s funds rather than the trustees’ pocket. Although sometimes similar security can be provided by the Charity Commission under the Charities Act 1993, experience suggests the Commission can be reluctant to grant this protection. A Beddoe Application can be costly and time-consuming, with costs sometimes reaching £500,000.
This is frustrating given that a Beddoe Order does not automatically benefit the case, as the proceedings continue thereafter before a different judge. An alternative is, however, available. By utilising litigation insurance mechanisms, both charity and trustee may get protection against the cost risk in the event of a loss, potentially avoiding the need for a Beddoe Order. Insurance goes further as it also protects the charity’s funds and reduces the costs of proceedings. Obtaining insurance can also improve the charity’s negotiating position, demonstrating that an independent insurer is prepared to “invest” in the case.
Furthermore, the insurance premiums often increase as the case progresses and can, therefore, act as an incentive to the opponent to settle early. The option to transfer the cost risk of litigation is likely to have a resounding positive impact upon charity litigation. Most importantly, products such as Mishcon Protect enable charities to decide whether to bring proceedings solely on the case’s merits knowing they have minimised the cost implications and without the risk of negative publicity regarding how they spend their donations.