The Charity Commission was right to open a statutory inquiry and appoint an interim manager to the corporate trustee of the Cup Trust in April this year, the Charity Tribunal has ruled.

However, the regulator’s earlier decisions not to take any action against the charity are “difficult to understand”, the Tribunal added.

The Tribunal has today published its 59-page judgment on the Cup Trust case, which exonerates the Charity Commission’s decision to take action against the charity’s corporate trustee Mountstar PTC  this year, but also admonishes the regulator for not doing so earlier.

“There was ample material to justify the Commission in wishing to ‘look and see’ into the affairs of the charity,” the Tribunal said.

It advised that the Commission’s new inquiry should not be confined only to considering the apparent conflicts of interest between the various participants in the tax reclaim scheme operated by the Cup Trust, but should also revisit the question of whether the charity was established for the public benefit, or for the private benefit of the operators and donors involved.

The Tribunal found that there is an “overwhelming public interest in having a full and proper inquiry” and in the continued appointment of the interim manager, in order to determine  whether the decisions to run the scheme and submit the gift aid claims were proper decisions for the charity to make.

Regulator's decision not to act in 2010 was 'an error'

The judges found that the Commission was wrong not to consider these questions when it examined the Cup Trust’s operations in 2010, and its excuse that tax affairs were a matter for HMRC was an error of judgment.

While the Tribunal agreed that it is not the Commission’s remit to adjudicate on the tax-efficency of the scheme, it was its duty to determine whether the charity trustee had acted as an “ordinary prudent man of business would”, and it should have opened a rigorous and vigorous investigation.

The Tribunal considered that there should now be full investigation into the conflicts of interest between Matthew Jenner, who founded the charity, promoted the scheme to the charity and was the principal director of its corporate trustee, and all those associated with him.

This investigation should also consider whether any fees or benefits received should be passed on to the charity.

Background

The Charity Commission opened a statutory inquiry into the Cup Trust on 12 April this year and appointed Jonathan Burchfield from Stone King as interim manager on 26 April.

These actions came a few weeks after The Times exposed the fact that the Cup Trust was operating a gift aid claim scheme which aimed to net £55m for around four or five hundred higher-rate taxpayers, and £46m for the charity, if HMRC agrees to pay out the tax reliefs claimed. The circular scheme runs in such a way that the donors only needed to outlay £155,000 in order to effect the tax reliefs.  

The Charity Commission had looked into the operation of the scheme when it first started but closed its investigation without taking any action because it concluded that the tax-efficiency of the scheme fell under the remit of HMRC rather than itself.

Mountstar's case

Mountstar’s case before the Charity Tribunal was that the Commission only decided to re-open its investigations into the Cup Trust because it wanted to salvage its own reputation in the wake of heavy criticism from the press and MPs.

But the judges did not accept this. They said that they found the Charity Commission’s investigations officers Michelle Russell and Steve Law, who both gave evidence to the hearing, to be “honest, diligent and conscientious public servants…there was nothing in their evidence to suggest they had any motive other than the discharge by the Commission of its functions as regulator of charities”.

Mountstar contended that there was no mismanagement or misconduct and that the Commission’s actions were disproportionate. Matthew Jenner insisted that the Cup Trust is perfectly within its rights to exploit the loophole in the gift aid legislation that enables the scheme to operate, and that he had legal advice supporting this view.

But the Tribunal found that Jenner was more concerned with advancing or protecting the donors’ tax relief claims than focusing on the best outcomes for the charity. The judges said he was not open and frank about how he and his family would personally benefit from the scheme.

Getting information like 'pulling teeth'

“Obtaining information from Mountstar has been like pulling teeth, only to find once successful that a new denture has already been fashioned and placed to cover the hole.”

The judges added that a letter sent by Bates Wells Braithwaite on behalf of Mountstar on 26 October 2011 in response to a request for information from the Commission, contained “inaccurate information” and was “misleading”.

The judgment said: “In our judgement, even when viewed in isolation, the provision by Mountstar of inaccurate and misleading information to the Commission in the BWB letter constitutes serious mismanagement.”

Commission response

The Charity Commission said it accepted that its approach of awaiting action by HMRC "was mistaken and that we should have gone further in considering the detail of the scheme and the conflicts inherent in relationships involved more closely".

It went on: "We have already acknowledged that our approach to tackling mismanagement has, at times, been overly cautious and that we must strengthen our work in this area. Under the leadership of William Shawcross and the new board, we are making changes."

It added that the judgment would have "significant implications for the Commission’s regulatory approach, particularly the extent to which we are resourced to carry out such investigations and compliance work".