Charities Act 2022: What is happening with ex gratia payments?

This article was originally published in Charity Finance.

On 7 March 2024, the third tranche of Charities Act 2022 provisions were implemented, with one notable absence: sections 15 and 16 (the provisions amending the current ex gratia regime in s106 of the Charities Act 2011) remain outstanding. In this article we look at what has happened and where we are now.

Current law

An “ex gratia payment” is a payment made by a charity for which there is no legal power but in respect of which the charity trustees regard themselves as under a moral obligation. It includes both a payment of charity funds or transfer of charity property, and the waiver of a charity’s legal entitlement to money or property not yet received.

Ex gratia payments are most commonly seen in relation to legacies. For example, if a testator leaves their residuary estate to a charity and then subsequently gives instructions to amend their Will but dies before the amendments are made, or amendments are made but are ineffective, the charity trustees would likely consider it immoral for the charity to receive its full entitlement under the Will and would seek an order from the Charity Commission under s106.

Less commonly, charities such as Universities, Colleges and museums have sought to use the ex gratia regime to deal with the repatriation of cultural artefacts. In this case, the charity trustees consider there to be a moral obligation to return the artefacts, but have no legal power to do so and must seek Charity Commission authorisation. However, national museums and galleries (which are statutory charities) are currently unable to make use of the ex gratia regime.

Background to the reforms

The changes set out in the Charities Act 2022 were the result of recommendations in the 2017 Law Commission’s report into technical issues in charity law. Three key recommendations were made in respect of ex gratia payments:

1. To allow charity trustees to delegate the decision to apply to the Charity Commission to authorise an ex gratia payment.
2. Charities to have power to make smaller payments without Charity Commission approval.
3. The above changes to apply equally to statutory charities as they do to other charities.

It is the final recommendation which has recently caused concern and resulted in delays in implementation.

The Law Commission’s report made express reference (at paragraph 10.48) to the case of Attorney General v Trustees of the British Museum [2005] 1089 EWHC (Ch) 397, in which it was held that the Attorney General (and, by extension, also the Charity Commission) had no power to authorise the British Museum to return four drawings which had been looted by Nazis from the Feldmann collection. The report recommended the inclusion of statutory charities in that specific context. Despite this, the impact of the recommendation appears not to have been fully appreciated by the Government at the time.

Problems with repatriation

Under current law, statutory charities are subject to their governing Act of Parliament, and it is not possible for the Charity Commission to authorise an ex gratia payment which is prohibited by statute. Accordingly, national museums and galleries cannot repatriate cultural artefacts and would need authorisation by Parliament through further legislation in order to do so.

The implementation of sections 15 and 16 as drafted would have removed this Parliamentary oversight and given the Charity Commission power to authorise ex gratia payments by statutory charities (including cultural repatriations). Once the government realised the impact of the reforms in this context, the political ramifications have been huge. For example, discussions regarding the repatriation of the Parthenon Marbles, currently held in the British Museum, have been going on for years, but the Government has consistently maintained that the Marbles will not be returned to Greece. The new Charities Act 2022 provisions could have removed that decision from Parliament and placed it entirely in the hands of the charity trustees and Charity Commission.

Where are we now?

In January 2024, the Minister for Arts and Heritage wrote to the Charity Commission confirming the Government’s policy that national museums and galleries should continue to be bound by their governing legislation, and would be expressly excluded from the commencement of sections 15 and 16 of the Charities Act 2022. Additionally, in respect of all other charities, to prevent them from repatriating artefacts without oversight from the Charity Commission, the power for charities to authorise ex gratia payments themselves will only apply where the recipient is in the UK.

Conclusion

It is now expected that sections 15 and 16 of the Charities Act 2022 will come into effect in autumn 2024. Until then, charities need to continue to seek Charity Commission consent for any payments where they have no legal power but feel morally obliged to make. Once the new provisions have been implemented, making ex gratia payments should be substantially simpler and less costly for the vast majority of charities. However, the new rules will not provide a simpler route for statutory charities to make cultural repatriations.