It took about a month but the full decision from Justice Deeny of the Northern Ireland Courts has now been published in the case related to the request of the Presbyterian Church in Ireland to be allowed to transfer £1 million to an assistance fund for investors in the failed Presbyterian Mutual Society.
IN THE HIGH COURT OF JUSTICE IN NORTHERN IRELAND
CHANCERY DIVISION
IN THE MATTER OF THE TRUSTS OF THE PRESBYTERIAN CHURCH IN IRELAND
-and-
IN THE MATTER OF THE CHARITIES ACT (NI) 1964
BETWEEN:
THE TRUSTEES OF THE PRESBYTERIAN CHURCH IN IRELAND – Plaintiff;
-and-
HER MAJESTY’S ATTORNEY GENERAL FOR NORTHERN IRELAND – Defendant.
Now, regarding the actual decision, that the church could contribute these funds, there is nothing new here. However, there are some details that I found interesting that were not included in the summary.
For example, I did not pick up the rushed nature of this case. Mr. Deeny writes:
[2] The plaintiff had
asked for this matter to be listed for early hearing before the court as an
urgent decision was required to facilitate the creation of the access fund
prior to the adjournment of the Assembly on 24 March. The court was told at
the hearing on 9 March that the General Board of the Presbyterian Church was
actually meeting the next day 10 March and were anxious to have a judgment by
then. This is far from ideal. The court has been able to facilitate this
request by announcing it’s ruling on 10 March.
The judge also makes several comments about the Mutual Society and how investors might have thought they had more security than they actually did:
[3] It is necessary, for
present purposes, to recall the factual background to this application. The
Presbyterian Mutual Society Limited received monies by way of investments or
loans akin to deposits from persons, largely in Northern Ireland. It was not,
but might have been mistaken for, a building society. Rather it was a Society governed
by the provisions of the Industrial and Provident Societies Act (NI) 1969.
This meant that it was not covered by Government guarantees extending to banks
and similar institutions when there was a run on such institutions after they
had lost the confidence of the public. The Society went into administration on
17 November 2008.
and
[4] By the Rules of the
Society the persons who invested up to £20,000 in the Society were credited
with shares in the Society… Sums invested
over and above that level, attracted by the interest rates which the Society paid,
were treated as loan capital to the Society. This had an unintended effect that
these different investments, without the original investors very largely being
aware of it, had a very different status in law once it became apparent that
the Society would be unable to recover all its loans…
and
[6] The Presbyterian
Church in Ireland had no legal responsibility for the Presbyterian Mutual
Society Limited. That is clear. But I accept the averments of Rev Dr Donald
Watts, Clerk of the General Assembly and General Secretary of the Presbyterian
Church in Ireland that this distinction was not apparent to very many members
of the Church. They tended to consider the Church responsible for the
Society.[8] It is important to bear in mind… what the membership of the Society was… “Membership shall only be available to members of the Presbyterian Church in Ireland over the age of 18 years and their families… Any Corporation or unincorporated body shall be admitted to membership if the Board is satisfied that the Corporation is representative of members of the Presbyterian Church in Ireland.” Therefore the perception that the Presbyterian Church owed a moral obligation for the Society is not only a matter of nomenclature or encouragement to invest but also because members of the Society had to be Presbyterians. [emphasis in the original]
Regarding the legal tests it turns out that if properly structured by the Northern Ireland Government this hearing would not be necessary and the church would be free to make the contribution to “relieve the poverty of individual members.” When the General Assembly originally authorized the use of the money it was termed a “Hardship Fund.” In the rescue package put together by the government it is now a “mutual access fund.” Considering the nature of the arrangement even the Attorney General did not want to authorize the expenditure, something “He was empowered to but
he thought it “preferential” (ie. preferable) to put the matter before the court.” (paragraph 13).
Beginning in paragraph 14 the decision begins with the legal restriction that “a charity is not allowed to make disbursements for
non-charitable purposes” but goes on to consider the case law regarding the situation when a charity has “a moral obligation to do so.” There is an interesting reference in para. 17 regarding the British Museum and the “moral obligation” to grant an exception “so as to permit
restitution of cultural objects of which possession was lost during the Nazi
era (1933-1945).”
Why the court is involved is then clearly outlined:
[19] The
attention of the court has been drawn to the briefing note regarding the mutual
access fund which accompanied the Minister’s letter of 26 January 2011. From
that one learns that “there has been extensive opposition from PMS members to
the use of means testing and lobbying that the fund should operate on a formula
basis and Ministers are now prepared to adopt this approach.” It is the
absence of means testing which deprives the gift of the sum of £1m of its
charitable character.
The decision, having considered the situation and the case law, now focuses on the specific decision at hand:
[20] What is a moral obligation? …It might be said that a person or organisation is under a moral obligation to act in a particular way towards another not by reason of law or force but because, on account of some earlier promise or the relationship with that other person or some other reason, their own conscience or that of right thinking people generally would consider they behaved honourably and well if they acted in that way but badly and wrongly if they failed or neglected so to do. How would that apply here? In his affidavits [the Clerk] gave a few moving examples of the hurt felt by some of these small savers deprived of an investment, modest by some standards but substantial to them. These people will benefit by the scheme proposed to a considerable extent. If the Church does not contribute it may well be that the scheme does not proceed and therefore the persons exposed to poverty will not be assisted. By operation of law and the realities of the state of the Society it is extremely unlikely that they would receive any of their money back without such external assistance.
[21] It is interesting to note that the [General Assembly] resolution of 2010 referred to the gift going to a solution which included a hardship fund i.e. that it would not be exclusively for those in hardship. I bear in mind that any saver who finds themselves deprived of money which they had invested in an apparently reputable financial institution in the United Kingdom may be aggrieved to find themselves deprived of it when others in apparently similar circumstances have been compensated or indemnified.
[22] Perhaps the matter goes further. It can be seen that the contribution of the Church is a modest one compared to the contribution to be made by taxpayers in Northern Ireland and throughout the United Kingdom. It would be paradoxical if the general body of taxpayers consisting of Anglicans, Catholics, atheists, agnostics, Moslems and Jews (as well as Presbyterians and many others) contributed to this solution but the only Church to which the members of the Society could belong did not make any contribution. I am satisfied that [the Clerk’s] apprehension that the Presbyterian Church would be considered very widely to have acted badly in such circumstances is a correct one. I am satisfied that the surrounding circumstances, including in particular the promise previously given by this resolution, constitute a moral obligation on the Church which enables and allows the court to authorise the payment of up to £1m towards this mutual assistance fund.
The decision continues a bit further to distinguish between “convenient” and “expedient” and just at the end make an interesting observation about the impact on the ministry of the PCI. It points out that not only does this contribution deprive other charitable work of needed funds but that the Mutual Society issue has negatively impacted financial contributions to the church and this use of the money might improve that perception:
…I [that is Justice Deeny] take into account that there is a loss to the funds of the charity
i.e. the Church by the disbursement of this money but that the disbursement
will lead to very considerable benefit to a considerable number of members of
the Church and thereby in both the reputational and in all likelihood financial
sense to the Church itself, bearing in mind [the Clerk’s] report of some diminution
in contributions which may be caused not by the current economic difficulties
but by the controversy over the Presbyterian Mutual Society. It is in the
broader interests of the Church.
So, not as easy of a read as the Summary but still a fairly understandable, straight-forward and interesting decision.
In the month since the decision was handed down matters have progressed with the resolution of this specific issue. The Administrator sent out the proposed settlement last Friday and the shareholders have a month to approve the package and if they approve it must also be approved by the courts. If everyone agrees savers may get their money by June or July. In a press release the Administrator warns “if the scheme is rejected the offer of money from the government and the Presbyterian Church will be withdrawn and the alternative will be liquidation of the Society’s assets.” In the event of liquidation those shareholders in the smaller category will get nothing and the creditors with larger amounts would get about 72% of their investment back.
The scheme is moderately complicated with a sliding scale and proposed deferment of some monies to the creditors for ten years to allow for the smaller shareholders to get nearly complete recovery of their investment. The scheme ensures that all savers will receive at least 77% of their outstanding holdings returned to them and small savers should get at least 97% returned.
So, after 30 months this saga appears to be finally coming to a resolution and, for some, a close. It is of course far from over since the series of approvals are needed and even after approval the Administrator will still be working to repay a government loan and larger savers will be waiting the return of their deferred money. But considering how long this situation went on with little news and occasional rumors, this is very significant forward progress.