Litigation presents serious and significant risks to the reputation and assets of charities and not-for-profits. Even though they may not wish to do so, charities and not-for-profits should be aware that they may be required to take or defend a variety of legal actions. However, before doing so, they should consider a number of issues and weigh up the potential benefits and drawbacks that court proceedings could have on the organisation.
The desired outcome
The first question that all decision-makers of a charity or not-for-profit should ask themselves is whether or not litigation will achieve what the organisation wants. Much of this will depend on the nature of the dispute.
Often courts are limited to granting a select number of remedies. It is not uncommon for courts to award monetary compensation where there has been a breach of some duty by the person sued. However, if your charity or not-for-profit is seeking something more than a financial pay-out, litigation is often not the best avenue.
Do you simply want an apology or an admission of wrongdoing from the other party? Are you after an injunction stopping the other party from continuing an act that is harmful or detrimental to your organisation? Whatever the issue, it is important that charities and not-for-profits are clear about the outcome they are after and what they are willing to pay to obtain it.
"Do you simply want an apology or an admission of wrongdoing ...?
...If your charity is seeking something more than a financial pay-out, litigation is often not the best avenue."
When weighing up these factors, the directors of the charity or not-for-profit have a duty to act exclusively in the best interests of the organisation and for a proper purpose. Any decision to litigate must therefore be made in good faith, and with one eye on whether the litigation will further the purpose of the charity or not-for-profit. It will not always be in the best interests of the organisation to bring legal action against a party that has wronged it. In making this decision, the directors should consider obtaining legal advice about the prospects of success and whether litigation is a proportionate response to any harm that may have been suffered.
We have previously written about the UK case of two charitable institutions which incurred over £400,000 in legal fees by litigating a trademark dispute (“Trade Mark Disputes- where legal advice saves money”). In this case, the conduct of both parties was met with scathing criticism by the judge.
“I have one final observation which I think should be expressed even though it is self-evident. I now know that between them the parties, both charities, have incurred well over £400,000 on fees in this litigation. A very strong recommendation to settle at the case management conference was not taken up. The laudable cause of encouraging adult education will presumably have to endure an equivalent cut in funding solely because this dispute was not resolved at an early stage. Such an outcome is much to be regretted.”
To put it simply, court proceedings are expensive. If you are not being represented pro bono, the cost of obtaining representation can escalate very quickly. If you are successful in your litigation, a costs order will normally be granted in your favour. However, although a court order may enable you to recover a majority of your costs, very rarely will you recover all of your costs.
Legal proceedings can also cost charities and not-for-profits valuable time. Instead of focusing on fulfilling the purpose of the charity or not-for-profit, employees and volunteers will be distracted by the thought of and preparation for a pending court hearing. This is one more headache that charities and not-for-profits can avoid if they resolve the dispute without litigation.
No matter the outcome of the legal proceedings, litigating can have a harmful effect on the reputation of a charity or not-for-profit. Once again, the directors should take all necessary steps to ensure that they act in the best interests of the organisation, and this includes upholding its reputation.
It may well be that litigating will best protect the charity’s assets, please its supporters and maintain its ability to provide for its beneficiaries. However, a reasonable member of the public might think that a charity or not-for-profit aggressively litigating a matter is actually misallocating its resources.
"... directors, should take all necessary steps to ensure that they act in the best interests of the charity, and this includes upholding its reputation."
Court proceedings appear in the public record. They can also attract considerable media scrutiny if the organisation or individual has a public personality. Just ask Barbra Streisand. In 2003, she tried to remove a photograph of her Malibu beachfront property from a collection of some 12,000 photographs taken as part of the California Coastal Records Project on coastal erosion. Prior to Streisand filing the lawsuit, the image of her property had been downloaded only six times – twice by Streisand’s lawyers. In the month following the lawsuit, the image was downloaded 420,000 times. This is better known as the Streisand Principle, where an attempt to hide or censor some piece of information inevitably leads to people wanting to know more about it, even if they never cared about it earlier.
Charities and not-for-profits can learn from the Streisand Principle. There is a benefit to having your matter settled confidentially via an informal negotiation or mediation, even if your charity or not-for-profit does not have anything to hide.
Alternative dispute resolution has numerous benefits when compared with litigation. It is more efficient, it is cheaper and it allows charities and not-for-profits to devote their resources to the things they do best – helping those who need help the most. Processes such as mediation, conciliation and arbitration can give the parties a stronger chance of reaching a mutually beneficial resolution, and can provide charities and not-for-profits with a confidential setting to hear the matter.
If you are unsure about what steps you should take to protect your charity or not-for-profit, the team at Emil Ford Lawyers is happy to help and advise you on how you should proceed. Please contact