Ex-tremely hopeful for the proposed ex-gratia changes

Ex-tremely hopeful for the proposed ex-gratia changes


When the phrase ‘ex-gratia’ is mentioned, it’s perhaps fair to say that charity and legal individuals alike somewhat grimace at the thought. There are often many administrative, legal and procedural hoops we are required to jump through in order to process such requests.

Although ex-gratia payments don’t have a strict legal definition, the Charity Commission describes an ex-gratia payment as one where:

The trustees believe that they are under a moral (but not legal) obligation to make the payment; and

The trustees have no power under the governing document of the charity to make the payment; and

The trustees cannot justify the payment as being in the interests of the charity.

In the context of legacy administration, such requests often arise when gifts are left to charities within a person’s Will. A common example is where a testator gave clear instructions for a new Will or Codicil but unfortunately died before they executed it, resulting in their wishes or intentions not being fulfilled. In those circumstances, evidence may subsequently show that the person had changed their mind and did not intend for the charity to benefit from their estate. Here, the charity may feel under a moral obligation to ensure the estate is distributed in accordance with the testator’s more recent instructions.  

Current position

As it stands under the Charities Act 2011 ('the 2011 Act') charity trustees are required to apply charitable funds and property 'only in furtherance of the purposes of the charity, and in ways which are laid down or permitted by the charity's governing document'.[1] 

However, the case of Re Snowden Dec' d [1970] provided an exception to this. The judge ruled that charity trustees could agree to making ex-gratia payments “where it could be fairly said that if the charity were an individual it would be morally wrong to refuse to make payment.”[2] Where such payments were deemed appropriate, authority was originally sought from either the Court or the Attorney General.

The 2011 Act further extended the core principles from the Re Snowden case to allow ex-gratia applications to be made to the Charity Commission. This is where matters currently stand today, with charities frequently making applications to the Charity Commission for authority to approve ex-gratia payments, where deemed appropriate to do so.

Helpfully, the Charity Commission confirmed in its Operational Guidance that it would not need to be involved with “de minimis” payments, which are ‘a relatively small amount of say £1,000 or less’. This is of course to be taken on a case-by-case basis and would need to be proportionate to the overall size of the charity in question – however, this does mean that charities do not need to adhere to the administrative tasks of making a full (and arguably in such circumstances, disproportionate) application to the Charity Commission where they have sufficient evidence on file, the amount is within an accepted “de-minimis” level and a moral obligation clearly exists.

Full applications to the Charity Commission can be time-consuming, administratively heavy and require a lot of fact-finding and evidence gathering. This is all necessary to ensure that the charity trustees have sufficient information to be satisfied that a moral obligation exists to agree to the payment. Consequently, this in turn no doubt creates a large amount of work for the Charity Commission when considering the high volume of documents and information-heavy requests.

Proposed changes

It will come as no surprise therefore, that when proposed changes to the ex-gratia laws were announced back in early 2022, charities largely welcomed the news with great positivity.

The changes announced under the Charities Act 2022 (‘the 2022 Act’) included a new power for charities to make 'small' ex-gratia payments without needing to seek authority from the Charity Commission.[3] Unlike ‘de-minimis’ payments which were previously referred to as ‘say £1000 or less’, the new changes appear to be more prescriptive with their figures and provide greater flexibility for charities. What is deemed to be 'small' would depend upon the charity's gross income, calculated by its prior financial year. For example:

Charity's gross income Payment that can be made without authorisation
£25,000 £1000
£25,001 - £250,00 £2500
£250,001 - £1,000,000 £10,000
Over £1,000,000 £20,000
It’s worth noting however, that charities would still be obliged to report these payments on an annual basis and any requests over and above the permitted amount(s) would still require authorisation from the Charity Commission.
Under the 2022 Act, when considering ex-gratia requests, a new test is implemented; namely that a payment can be made where charity trustees could "reasonably be regarded as being under a moral obligation to make it."[4] This is therefore a move away from the previous subjective test (i.e. a personal decision made by the charity trustees) to a wider, more objective test.
The new provisions would permit charity trustees to delegate the function of making payment decisions to authorised individuals (or groups/teams) within their charity. This is in stark contrast to the previous provisions, which only allowed trustees to make such decisions. One clear advantage here is that payment decisions could therefore be made by the relevant persons who manage the cases on a daily basis, rather than by the trustees who might not be familiar with Legacy Management.
In turn, this cuts down on potentially lengthy delays (such as waiting for trustee availability and meetings), and subsequent associated costs. It is widely hoped therefore that the ex-gratia provisions in the 2022 Act would enable charity legacy departments to operate more effectively and more efficiently. This is something which will no doubt be a welcome change to our friends in private practice who often have to wait many months for an ex-gratia decision to be made on behalf of their client(s).
It’s also worth noting that this ability to delegate the decision making would apply irrespective of the payment value. So for example, even if the payment amount exceeds the threshold in the above table, the authorised individual(s) to whom the power has been delegated could make the application to the Charity Commission instead of the trustees. Again, this reduces the need for trustee involvement. However, charities of course need to bear in mind that the ultimate accountability does still remain with their trustees.
This freedom would therefore allow for greater flexibility and hopefully quicker decision making; with the scope to make better use of all parties time, skillsets and knowledge. Of course, if a charity would prefer, they could amend their governing document to expressly exclude or restrict the new powers if they so wish.
Why were the changes postponed?
So, with it all looking so largely positive for charities, solicitors, the Charity Commission and all other parties involved in ex-gratia payments (in terms of hopefully being able to administer requests in a more streamlined, efficient manner) – why then, did the proposed changes not come into force on 31 October 2022 as anticipated?
Unfortunately, uncertainty arose regarding whether the newly proposed changes could in fact lead to unforeseen and unintended consequences. Specifically, uncertainty as to whether the new ex-gratia provisions could be used to allow museums and other heritage institutions to transfer or return items and cultural artefacts to their country of origin, based on moral grounds.
Civil society minister Lord Kamall said the government would now defer implementation of sections 15 and 16 of the Charities Act 2022 “until we fully understand the implications for national museums and other charities”. He added “it is important that we understand the legal implications ” noting “we also recognise that restitution cases are complex and that every situation is different.”
Consequently, sections 15 and 16 have been removed from the timeline on the Government’s Charities Act 2022 implementation plan and are now simply “under further consideration prior to commencement”.
What next?
In light of these further considerations, there is little we can do but wait for the highly-anticipated and most welcome proposed changes to hopefully come into force. For now, charities will need to continue to act in accordance with their own governing documents and the provisions set out within the 2011 Act. Trustee involvement will continue to be necessary for most decisions, with the exception of ‘de’minimis’ requests.
The difficulty charities will continue to face with requests of this nature is that the provisions of the Charities Act and the requirements of the Charity Commission must still be adhered to. Where gifts are proposed which are not correctly made through a person’s Will or Codicil, the above-mentioned tests must be met and, unfortunately, it is not simply a matter of whether charities agree with the merit of the request(s), no matter how much we may wish to.
In terms of practicalities, charities may want to consider the scope of their own internal documentation including their delegated authority in readiness for when the new laws hopefully are agreed and implemented. We often come across ex-gratia requests and queries so if we can be of any assistance, please feel free to reach out to our team and we will do our best to help.
Together we will beat cancer.
Megan Paul, Legacy Management Specialist
[1] Charity commission for England and Wales, 'Ex gratia payments by charities (CC7)
[2] (Re Snowden Dec’d [1970] 1 Ch 700; [1969] 3 WLR 273; [1969] 3 All ER 208)
[3] S15-16 Charities Act 2022
[4] S16 Charities Act 2022

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