QC’s opinion on charitable trust reform meets little resistance from trustees

Shetland Charitable Trust must be substantially reformed if it is to maintain its status as a charity, according to the leading lawyer hired jointly by the trust and the council to give his opinion on the way it operates.

Roy Martin QC, a former Dean of the Faculty of Advocates, was appointed in November last year after trustees disagreed vehemently with each other over demands from the charities regulator OSCR for the trust to distance itself from Shetland Islands Council.

In a 39-page report delivered last week and issued to the media today, Mr Martin says the trust must demonstrate greater independence from the SIC by drastically reducing the number of councillors who are also trustees. At present 21 of the 23 trustees are councillors, with Lord Lieutenant John Scott and Anderson High School head teacher Valerie Nicolson the remaining two.

Councillor-trustees are expected to act in the best interests of both organisations and as such face potential irreconcilable conflicts of interest. Without reform to dilute the influence of councillors, Mr Martin argues, the trust is at risk of breaching the Charities and Trustee Investment (Scotland) Act 2005 which prescribes how charities should function.

Although he makes no firm recommendation on the number of trustees, arguing that the number is not as critical as the balance between independents and councillor-trustees, Mr Martin suggests that were 15 chosen as a “desirable total” there should be no more than four councillor-trustees. With a quorum of eight, that would mean trustees could not make a decision without the support of at least one non-councillor trustee.

“In my opinion, this would be an important factor in affirming and demonstrating the independence of the Trust from the Council in all circumstances and of the fact that its decisions were being made entirely in the interests of the Trust and not because of the particular interests of those Trustees who were members of the Council,” he states.

Mr Martin does not offer a view on whether trustees should be elected or appointed.

Trustees met in secret today for a “workshop” to discuss Mr Martin’s advice which is expected to cost the council and the trust around £20,000. The trust’s own lawyer, Simon Mackintosh of Edinburgh-based Turcan Connell, gave his interpretation of the QC’s opinion and answered trustees’ questions.

The workshop and sandwiches lasted two hours. Afterwards trust chairman Bill Manson said he had not heard a dissenting voice to the QC’s opinion that the trust must submit to radical change. He was pleased that trustees now acknowledged the need for reform and he thought OSCR would also welcome the “release of the logjam” which had been exasperating it since progress ground to a halt in February last year.

Trustees did not spend a lot of time weighing up what might be the best permutation of councillor-trustees and outsiders.

A decision on the way forward could be made as early as the next scheduled public meeting of the trust next month but Mr Manson said he may need to call a special meeting a bit later instead.

Explaining the decision to exclude the public, Mr Manson said outside the meeting that he felt trustees were entitled to understand the “multiple pages of legalese” in private before facing possible questions from the media and the public.

The QC’s opinion is due be published on the trust’s website this evening.

Mr Martin’s report follows a bad-tempered trust meeting in September last year at which council convener and trustee Sandy Cluness succeeded in winning support to appoint a leading legal figure to give his opinion. In the process trustees rejected reform proposals put forward by Mr Scott, Jonathan Wills and Gary Robinson.

Mr Cluness was absent from yesterday’s workshop, along with at least three other councillor-trustees. The convener had previously vowed to defend councillors’ dominance of the trust even if it meant going to the highest court in the land, the House of Lords, to fight off demands for reform by OSCR.

But Mr Martin’s opinion, along with a recent report from OSCR on the risks faced by charity trustees, which singled out Shetland Charitable Trust as a case study and highlighted the dangers of conflicts of interest, will intensify pressure for change.

He was asked by the trust and the council to consider whether the constitution of the trust required to be changed to comply with current law and practice and, if so, what would be necessary to “meet the minimum requirements of achieving compliance”.

Mr Martin says: “[I]t is my opinion that the constitution of the Trust as presently established, or at least the way in which it requires to function, may not in all circumstances be able to satisfy current law and practice. As a result, it would be advisable to alter the arrangements for the appointment of Trustees in order to address that concern.”

He states that a bare minority of councillor-trustees would not be enough to ensure the independence of the trust from the council. In those circumstances the trust would not necessarily be accountable for the decisions made and nor could such decisions be seen to have been made free from the actual or perceived influence of the council.

“Having said that, I am conscious of a desire on the part of the Trustees that because there are seven wards within the Council area, there should be seven councillor Trustees … With seven councillor trustees, one solution would be to increase the total number of Trustees to [29] with a quorum of [15]. This would obviously be cumbersome and undesirable and I can well understand why Trustees would not wish it, not least because of the desire which they have already stated to reduce the existing number of Trustees.

“In that situation, there may be other ways of addressing the same principles and appearance of independence. If, for example, the proposed quorum were to be increased to say nine or [10], and the Administrative Regulations were to be amended to require that no decision could be taken unless at least a minimum number of non-councillor Trustees had voted in favour of the decision, then it would be seen that in no situation could a decision be taken by the councillor Trustees alone. Such an arrangement would require that the total number of Trustees be increased from [15] to [18] so that in a situation where all of the councillor Trustees had declared an interest, there would still be sufficient non-councillor Trustees to form a quorum.”

Mr Martin draws on case law as far back as 1854 to point out conflict of interest between two organisations as a legal principle, which is enshrined in both Scots and English law. He cites the decision of the House of Lords in Aberdeen Railway Company v Blaikie Brothers. The managing director of Blaikie Brothers, a firm of iron founders, was also director and chairman of the railway company at a time when Blaikie sought to enforce the performance of a contract for the delivery of iron chairs to the railway company. The Lord Chancellor ruled that he could not at one and the same time act in the best interests of both organisations.