Closing the floodgates: updates to ex gratia payment provisions

The Charities Act 2022 was passed into law in February 2022, with new provisions to be introduced in stages. We have previously published summaries of the following:

• The first stage of changes that came into effect on 31 October 2022
• The second stage of changes that came into effect on 14 June 2023
• The third stage of changes that came into effect on 7 March 2024

The final changes under the Charities Act 2022 (the Act) are due to be introduced later this year. However, new provisions around ex gratia payments and restitution – in particular their impact on national museums and galleries – have proven to be a sticking point.

Chris Hook, partner, and Anna Glover, paralegal, both in our charities team, discuss the current law, the upcoming changes and why national museums and galleries are an anomaly.

What are ex gratia payments?

In charity law, an ex gratia payment is a payment made where the charity’s trustees (a) have no legal obligation to make the payment, (b) believe that they nonetheless have a moral obligation to make the payment, and (c) cannot justify the payment as being in the best interests of the charity.  

This would also include the transfer of non-monetary assets by the charity and the waiver of the charity’s rights to money or other property to which the charity is entitled but has not yet received.

This most commonly arises when someone leaves a legacy in their will to a charity but later instructs their solicitor to prepare a new will and dies before the new will can be executed.

Ex gratia payments under current law

Under current charity law, all ex gratia payments must be authorised by the Charity Commission. However, the Commission’s guidance states that it is unlikely to challenge cases where the amount of money involved is relatively small (say, £1,000 or less), and the charity trustees feel it would not be administratively sensible to apply for authority to make the payment. 

Also, the law currently does not allow for the ex gratia decision to be delegated by the charity trustees; it must be the charity trustees themselves who feel under a moral obligation to make payment. 

New statutory powers to make or authorise ex gratia payments

Section 15 of the Act will change this, giving charity trustees a statutory power to make small ex gratia payments without requiring authorisation by the Charity Commission.  

For larger ex gratia payments, section 16 of the Act will authorise the Charity Commission, the Attorney General or the courts to make orders authorising larger ex gratia payments and will put the test currently applied by the Charity Commission on a statutory footing.  

Section 16 will also confirm that charity trustees can (but are not required to) delegate the decision to make an ex gratia payment. 

These statutory powers at sections 15 and 16 of the Act will apply to any charity, including charities established by an Act of Parliament or a Royal Charter whose governing Act or documents contain a general prohibition on the charity's assets being used otherwise than for the charity's purposes.

Exclusions for national museums and galleries

However, a bone of contention has arisen in relation to national museums and galleries which have been established through legislation.

These institutions are bound by governing legislation which prevents them from restitution – the return of objects and artefacts to their country of origin – except for in very limited circumstances.

Sections 15 and 16 of the Act would have provided a new route for the trustees of these institutions to circumvent their governing legislation and seek authorisation from the Charity Commission to make ex gratia payments, including restitution of objects and artefacts to their country of origin.

The topic of restitution, which has long been the subject of debate, recently flared up when the Greek Prime Minister called for the return of the Elgin Marbles/Parthenon Sculptures from the British Museum.

In a letter to the Chair of the Charity Commission, the Minister for Arts & Heritage made it clear that opening up a route to restitution was not the intention of the Act when it was introduced.  

The policy of the Government is that national museums and galleries should continue to be bound by their governing legislation, precluding them from making restitution other than in very limited and specific circumstances.  

As such, these national museums and galleries will be excluded from the scope of sections 15 and 16 of the Act.  

What does this mean?

It will remain almost impossible for the trustees of national museums and galleries to obtain authorisation to make an ex gratia payment or restitution. Such payments or restitution would likely contravene a statutory restriction in the charity’s governing legislation and the Attorney General – and therefore also the Charity Commission – has no power to authorise an ex gratia payment in breach of statute.

Beyond national museums and galleries, the Government’s intention is also to exclude from sections 15 and 16 of the Act any ex gratia payment where the recipient is located outside the UK. This will mean that other charities will continue to require the Charity Commission’s authorisation to make any ex gratia payments outside the UK.

It is clear from these latest steps that the Government intends to keep a close eye on restitution.  

These exclusions are likely to receive a frosty reception from those in the cultural sector who had hoped for greater trustee autonomy.  

For example, speaking in relation to the Elgin Marbles/Parthenon Sculptures row, Tristram Hunt, director of the Victoria and Albert Museum, said that museum trustees should be able to “make the case” for whether items should be returned to their countries of origin.  

The Government’s recent decision about how to implement the Act suggests that trustees won’t be invited to “make the case” for restitution any time soon.

To discuss anything raised in the article, or if you have any general charity law queries, please contact Chris using 0191 211 7801 or [email protected].