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Hastings and St Leonards Foreshore Charitable Trust
Trustees’ Annual Report for the year ended
31 March 2007
Hastings and St Leonards Foreshore Charitable Trust
Trustees’ Annual Report for the year ended 31 March 2007
Information
1. Trustees Peter Field (resigned 24 November 2006) Jerry Le Sueur Hugh Marriage OBE Alan Rogers (resigned 6 July 2006)
Councillor Anne Bird (from 18 June 2007) Councillor Trevor Webb Councillor Roy Tucker (from 10 August 2006 to 18 June 2007) Councillor Matthew Lock (resigned 10 August 2006)
2. Charity Correspondent Neasa Coen Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA
3. Charity number 1105649
4. Financial Adviser BDO Stoy Hayward LLP Emerald House East Street Epsom Surrey KT17 1HS
5. Legal adviser Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA
Hastings and St Leonards Foreshore Charitable Trust
Trustees’ Annual Report for the year ended 31 March 2007
6. Structure, Governance and Management
Overview 6.1 The Hastings and St Leonards Foreshore Charitable Trust (the “Trust”) was registered as a charity in 2004. Hastings Borough Council (the “Council”) had acted as Trustee in all respects up to that point and continued to exercise full control over the Trust until a board of Trustees was appointed by a Scheme of the Charity Commission on 22 March 2006 (“the Scheme”). However, for reasons which are set out in this Report, the Trustees are still having to leave the day-to-day running of the “business” activities of the Trust to the Council whilst attempting, with the Charity Commission and professional advisers, to resolve the conflicts of interest and other issues arising from the former governance and control of the Trust.
6.2 One important unresolved issue is establishing the opening balance sheet of the Trust and amounts due to the Trust from the Council for historic surpluses arising from various activities on Trust property, principally car parking and revenue from leases.
6.3 Because the Trustees are not able to exercise day-to-day control over the Trust’s income generation, they have worked with the Council in establishing acceptable working practices to enable activity to continue on Trust property. All monies of the Trust are held by the Council within its bank accounts.
6.4 The Trustees, as a board, are responsible for the governance of the Trust. There are no employees.
7. Constitution
7.1 The Hastings and St Leonards Foreshore Charitable Trust was established under a conveyance from the Crown dated 8 September 1893 as amended by the Hastings Borough Council Act 1988, as supplemented by a Charity Commission Scheme on 22 March 2006. The Trust is a registered charitable Trust and is, therefore, unincorporated. It is not a corporate body.
7.2 The objects of the Trust are to hold the foreshore for the common use, benefit and enjoyment of all Her Majesty’s subjects and of the public for the time being for ever.
8. Appointment of Trustees
8.1 The Council is the Custodian Trustee and appoints two nominated Trustees, who may or may not be Councillors. If they are Councillors and are subsequently appointed to Cabinet, then, in order to avoid a possible conflict of interest, they resign as Trustees. This has happened in the case of Councillors Matthew Lock and Roy Tucker. Councillor Aileen McDonnell, who resigned before 1 April 2006, did so when she left the Council. Resignations take effect one month after notice has been given.
8.2 Alan Rogers chaired the Trustees until his resignation. Hugh Marriage has done so since.
8.3 The Scheme which was sealed on 22 March 2006 appointed six Trustees, including two Councillors. Following the guidance of the Charity Commission (sought by the Council), the non-Councillor Trustees were people who had no direct connection with Hastings, including not living in the town. No appointments have been made to replace the two non-Councillor Trustees who have resigned.
8.4 Discussions are in progress with the Charity Commission and The Council over the possibility, providing that a number of other matters can be settled first, of the Council being re-appointed as the Trustee for all purposes, perhaps in 2008. Because of the financial and organisational circumstances of the Trust, there are now no plans to appoint any more non-Councillor Trustees.
9. Risk management
9.1 One of the first tasks of the Trustees was to identify the major risks to which the Trust is exposed, using expert legal and financial advice to supplement the Trustees’ experience in charities, management and government. The Trustees’ principal priorities have been to tackle issues arising over the previous governance of the Trust and put in place a better system of governance for the future.
9.2 However, because of the difficulties of operating the Trust effectively under the terms of the Scheme, the Trustees have not been able to take over the day-to-day running of the Trust. The Trust therefore remains without staff, a bank account or any funds which it holds on its own account as all the Trust’s day-to-day business, including the keeping of accounts for the Trust, continues to be handled by The Council.
Complications with the operation of the Trust 9.3 The finances were only one complication of the position which the Trustees took over in March 2006. The Scheme seems to have been put in place quickly in order to try to resolve possible conflicts of interest in the sale of Marina Pavilion land, as part of the Seaspace development and, as a result, insufficiently close consideration may have been given as to how the Trust might operate in the longer term as a standalone charity. For instance, there were no cash funds available to the Trustees to operate the charity, no bank account and no staff or other resources. In addition, the Council had not maintained charity compliant accounts for the Trust, in accordance with the Statement of Recommended Practice for Charities (“SORP”), which meant that it was impossible for the Trustees to determine the extent of the assets and liabilities of the Trust.
Uncertainty over the borders and extent of the Trust’s land 9.4 There is also uncertainty over the exact land borders of the Trust’s land owing to the age and condition of the original plans as well as changes in the foreshore itself. This is a problem which the Trustees have attempted to address. At the time of writing it is proposed to instruct a surveyor to clarify the position so that the Trustees can reach agreement with the Council on the definition of these boundaries.
Lack of administrative support 9.5 It was originally considered that the Council would provide administrative support to the Trustees but it was soon realised that this would not be possible as any Council employee working with the Trustees would be subject to a conflict of interest, particularly as the Trust began to challenge the Council on finances. The Trustees have therefore had to make do without administrative support and that remains the position.
Liability of Trustees 9.6 It is now common practice for charities to be formed as companies limited by guarantee in order, in this or some other way, to limit the personal liability of Trustees. The Scheme contains no such provisions for the Trust. The Trustees have, therefore, taken out public liability and personal indemnity insurance at a cost of £1800 a year.
9.7 A small number of individuals have approached the Trust following injury whilst on Trust land and these inquiries have been dealt with by our legal adviser.
Difficulties arising from the position of the Council as Custodian Trustee 9.8 The scheme makes the Council Custodian Trustee of the Trust. This means that the Trust’s land continues to be owned on the Trust’s behalf by the Council, although the Trustees are the beneficial owners. This arrangement gives rise to direct conflicts of interest. The Trust’s revenue comes mainly from car parking and leases in the area around the Stade. The Council operates the car parks and manages these leases on a day-to-day basis, but this is not a practice which a Custodian Trustee is legally able to perform. The Trustees have considered this position with some care as the Council continuing to provide these services is irregular and has to be resolved. This arrangement also raises issues regarding the VAT position of the Trust.
9.9 In order to try to address these issues, the Trustees considered four main options, none of which is without its difficulties.
1. One option is to establish the Trust as an independent organisation to take over all its work: but the overheads in doing this would almost certainly consume most of the Trust’s operating surplus and be of little added benefit. Moreover, running a business of this size would be a full-time job for the Trustees. As volunteers, most of whom did not live in Hastings, the Trustees were unwilling to take over the direct management of the car parks and the leases and expose themselves personally to the liabilities involved: besides the Trust does not have the operating capital to allow this to happen.
2. A second option is to sell off the car parking and leases as franchises, for instance for 25 years, for a capital sum and so convert the Trust into a straightforward grant-making charity: but this seemed to the Trustees to remove too much local control of the foreshore from the people of Hastings.
3. A third option is for the Trustees to recognise that the technical and legal problems of operating this Trust are simply too great for voluntary Trustees and that the Trust should be managed by a professional administrator/ receiver. But this is also likely to be expensive and, like the second option, would almost certainly lead to the car parking and leases being sold off outside Hastings. As Custodian Trustee, the Council is not able to buy the car parking franchises, nor lease the car parks or any part of the foreshore, from the Trust.
4. A fourth option is to explore the possibility of returning the trusteeship to the Council, but with modern charity law safeguards on how the Trust is to be administered in future. The Trustees are well aware that this is not likely to be welcomed by all sections of the community in Hastings: nevertheless this is the option which the Trustees are trying to pursue because they believe it is in the best long-term interests of the residents of Hastings.
9.10 However, before anything along the lines of option 4 can take place, the Trustees are bound under law to obtain a settlement for the past breaches of trust which took place when the Council was the Trustee in all respects (see section 13). The Charity Commission has made it clear that settlement of such a claim must be reached before the Commission will consider significant changes to the governance of the Trust. This means that option 3, for instance, still cannot at this stage be ruled out.
Meetings held by Trustees 9.11 The Trustees have met, in Hastings or London, on the following dates
· 4 July 2006 · 20 September 2006 · 5 October 2006 · 12 October 2006 · 28 March 2007 · 19 April 2007 · 19 November 2007
9.12 Trustees have had a series of additional meetings with legal and financial advisers; with the Charity Commission: with HM Revenue and Customs; with the Leader of the Council and his advisers; and with the Member of Parliament for Hastings.
Making it possible for Trustees to conduct their business 9.13 Under the Scheme, (a) the business of the Trust could broadly be conducted only through actual face-to-face meetings and (b) there had to be a quorum of three of the six Trustees. Both of these provisions gave rise to practical difficulties.
9.14 Having to do all business by face-to-face meetings meant that the day-to-day business of running the Trust could not properly be carried out by telephone or email and this proved to be much too inconvenient and restricting. Accordingly at a Trustee meeting on 12 October 2006, the Trustees unanimously agreed regulations under clause 21 of the Scheme to allow them to do business by telephone and email.
9.15 As far as the quorum is concerned, when the Trustees were working to agree an outline settlement with the Council, the Councillor Trustees were prevented from taking part in this process by reason of their conflict of interest. This meant that reaching a quorum of three became impossible as there were by then only two remaining non-Councillor Trustees.
9.16 The Trustees explored a number of ways of overcoming this difficulty, including the use of powers of attorney and trying to find additional non-Councillor Trustees who lived outside Hastings, but it became clear that the most effective way forward was simply to reduce the quorum. Accordingly, in September 2006, using powers under section 74D of the Charities Act 1993 as inserted by section 42 of the Charities Act 2006, the Trustees unanimously passed a resolution reducing the quorum to two. This allows the settlement agreement with the Council to be signed off on the Trustee’s behalf by the two remaining non-Councillor Trustees.
Approvals for activities on Trust land 9.17 Trustees have considered a number of requests for activities to take place on Trust land. The applications agreed by the Trustees include the annual bonfire; classic car rally; cricket; lifeguard station; a march in support of Conquest Hospital; a multi-use games area; the Old Town Carnival; Radiator Arts; rugby; a sculpture to be placed on the foreshore; the Stade Education Project; and the Seafood and Wine Festival. The Trustees have also agreed that the Council’s dog control orders should cover the Trust’s land.
9.18 Most of these applications are uncontroversial. The Trustees considered carefully before agreeing that a march in support of the hospital could cross Trust land as this could be construed as a political activity, which charities should avoid. As far as the proposal for a multi-use games area, including volleyball, on Trust land next to the trampolines on Pelham Beach is concerned, it is a matter of record that the Trustees have enthusiastically supported this from the start. The Trustees have also supported, and offered reasonable maintenance costs towards, the community sculpture which will shortly be placed on the foreshore, providing planning permission is granted.
9.19 The Trustees also received an inquiry from East Sussex County Council about a claimed footpath on land near the Stade. Since the Trustees have a duty to maintain public access to the beach, it did not seem right for specific paths to be established and our legal adviser has lodged the Trustees’ objections to this claimed footpath with East Sussex County Council.
10. Objectives
10.1 The original 1893 conveyance stated that the foreshore was to be held “upon trust for the common use benefit and enjoyment of all Her Majesty’s subjects and the public at large for the time being for ever”. The Trustees have approached the Charity Commission over how this widely drafted phrase should be interpreted and have received guidance that the principal beneficiaries of the Trust can generally be regarded as the people of Hastings. This clarification by the Commission has greatly assisted the Trustees in considering the future of the Trust.
11. Activities
11.1 The principal concern of the Trustees is to enable the Trust to deliver local benefit whilst safeguarding the Trust’s assets and putting the Trust on a proper footing for the future. The current governance arrangements are deeply unsatisfactory as there are still significant conflicts of interest with the Council and the Council is undertaking functions which are not appropriate for a Custodian Trustee. Unfortunately resolving the difficulties which the Trustees inherited and putting in place new governance arrangements in line with modern charity law takes a considerable time and, in spite of the Trustees’ efforts to limit costs, is expensive.
11.2 Nevertheless, it is fair to say that significant progress has been made with the Council and the Charity Commission. The Trustees believe that, subject to the co-operation of the Council, it should be possible to finalise the settlement on the Trustees’ claim in the near future and that, following proper and full local consultation conducted principally by the Charity Commission but in which the Trustees are willing to take an active part, new governance arrangements for the Trust should be in place within the next 12 months or so.
12. Achievements and performance
12.1 Day-to-day activity of the Trust, and on Trust property, has been delivered by the Council. The Trustees have not been in a position to take on the management and administration of the activities (save as referred to in paragraphs 9.17 to 9.19 above). The Trustees have looked forward and are working on proposals to pass the trusteeship back to the Council providing that an outstanding claim described in section 13 is settled and satisfactory safeguards for the future governance of the Trust can be agreed.
13. Financial review
13.1 The Annual Report and Financial Statements of the Trust, for the year ended 31 March 2005, were submitted by The Council on 30 January 2006. For a number of reasons, many of which formed the basis for a claim made by the Trustees against the Council, the Trustees are not able to agree that the Income and Expenditure Accounts submitted as part of these, for the years 2003-04 and 2004-05, are correctly stated.
13.2 For reasons which have been explained, the Council has continued to manage and maintain car parks on the Trustees’ behalf and the Council has also provided street and beach cleaning. The associated income and expenditure has been processed through the Council’s systems and statutory returns.
13.3 As the Trustees have not been involved in the day-to-day management of these activities, they have not been in a position to manage contracts or services. The Council, by agreement with the Trustees, has processed all transactions of the Trust, integrated within its general ledgers. The Trustees have not been responsible for entering into contracts nor the detailed collation of income and expenditure for the period and so have had no control over expenditure on Trust business. The Trustees regard this as unsatisfactory, which is why so much work is in hand to develop alternative arrangements.
13.4 As previously disclosed by the Council, a separate sets of accounts has not been maintained, nor has the Trust been treated as a separate legal entity. The Trustees are therefore not in a position to instruct auditors to assess independently the Trust’s financial position for the year ended 31 March 2007. The Trust is currently in negotiation with the Council over the opening position and ongoing revenue.
13.5 With the information that they have available to them, the Trustees are unable to prepare a set of financial statements which would, in the opinion of our financial adviser, give a true and fair view of the state of affairs of the Trust and of the surplus of the Trust for the year.
Financial position of the Trust as set out by the Council 13.6 The Trustees can, however, present some information about the financial position of the Trust on the basis of the Council’s accounts to 31 March 2007 which are available on www.hastings.gov.uk/finance/accounts2006.aspx and which were audited by the District Auditor, who signed his unqualified opinion on 28 September 2007. Extracts from these accounts identify a net income position for the Trust of £254,584 for 2006-07; a provision in favour of the Trust of £1.35m; and identify that the fixed assets of the Trust are currently disclosed within the Council’s balance sheet.
13.7 The position is set out by the Council in their Notes to the Core Financial Statements for Hastings Borough Council, year ended 31 March 2007 as follows:-
“The Foreshore Trust has recently been constituted in accordance with a conveyance on Trust from the Crown to Hastings Corporation in 1893 to hold an area of the foreshore on Trust for the common good of all Her Majesty's subjects. Until recently the Trust had not been activated. During 2006-07 the net income from Trust activities (mostly car parking and seafront entertainments) was assessed at £254,584.
“With the setting up of the Foreshore Trust the Trustees have come to an agreement with the Council that a sum of £1.35m should be paid in recognition of the past few years foreshore activities that include car parking and other revenue generating activities. The Charity Commission need to sanction this arrangement and there are still detailed terms to be resolved, including whether part of this sum is dealt with by land transfers. A provision of £1.35m has been created in the accounts in anticipation of the settlement. Note 26 shows that the activities in 2006-07 generated £254,584 which is being held within the accounts for The Foreshore Trust to use.
“Certain seafront car parks and other land and buildings along the seashore are in the ownership of the Foreshore Trust. These are currently managed by the Council and historically figure in the assets shown in the Balance Sheet. It is envisaged that during 2007-08 these will be separated from the Council's accounts when agreement is reached with the Trustees acting for the Trust. This will lead to a significant reduction in the value of the Council's fixed assets and consequent net worth.”
13.8 The Trustees do not believe that there is sufficient cost/benefit in asking their financial adviser to do any further work in trying to reconstruct accounting records for earlier periods in order to try to derive figures for statutory accounts purposes. Because of the potentially high costs involved, the Trustees believe that such a use of charity funds would be to the detriment to the Trust.
Claim made by the Trustees for past breaches of trust by the Council 13.9 When the Trustees took office, the financial position of the Trust, as declared to the Charity Commission and the Trustees, was said to be evenly balanced, with income almost exactly matching expenditure and expected liabilities and so no reserves had therefore built up. However the true position was unknown as the Council had never submitted accounts for the Trust which complied with charity law.
13.10 With the help of expert advice from their financial adviser, BDO Stoy Hayward LLP, the Trustees tested this position and concluded that the Trust had an annual operating surplus of between £200k and £300k per annum, at least in recent years. Accordingly a claim was notified to the Council for breach of trust and, in May 2007, an outline settlement was reached with the Council for approximately £1.35m: this included some element for the Trustees’ legal costs. This settlement reflected the sums which the Trustees considered were owing to the Trust, but taking into account also the difficulty of estimating the sums from previous years, largely because of the changing financial systems of the Council and the expense of professional time in obtaining more accurate figures or conducting, inevitably costly, litigation.
13.11 Accordingly an application was made by the Trustees to the Charity Commission for an Order under section 26 of the Charities Act 1993 authorising the settlement of the claim for breach of trust on the terms agreed between the Council and the Trustees. This Order was sealed on 8 January 2008.
13.12 When making an Order under section 26, the Commission tests the care and diligence exercised by the Trustees in reaching a settlement and the Order puts the settlement’s legal status beyond doubt. The sealing of the Order clears the way for the Council to finalise the settlement (by way of signing a settlement agreement) and make the appropriate payments to the Trustees. The Trustees have always indicated that they would be willing to receive part of the settlement from the Council in additional land to add to the Trust’s holding. As at the date of this report, the Council has not signed the settlement agreement.
Liability to maintain sea defences 13.13 One of the possible liabilities which the Trust could be considered to have – and if so, it could be a considerable expense – would be to maintain the foreshore’s sea defences. The Trustees have taken legal advice on this point and are satisfied that, regardless of the ownership of the land, the Council, in its role as the Coast Protection Authority for the area under the Coast Protection Act 1949 has the responsibility for ensuring Hastings is defended from the sea.
Cost of professional advice 13.14 Soon after taking office it became clear to Trustees that they would need professional advice in order to be able to tackle the difficulties facing the Trust. An open competition was organised, on the Trustees’ behalf, by the Council following which the Trustees appointed Berwin Leighton Paisner LLP as the Trustees’ legal adviser and BDO Stoy Hayward LLP as the Trust’s financial adviser. These two firms work closely together on Trust business.
13.15 The Trust’s professional advisers have provided extensive work, on the direction of Trustees, on:
1 governance issues and liaison with the Charity Commission; 2 identifying a claim for breach of trust and negotiating a settlement with the Council; 4 advice to the Trustees on reconstituting the Trust to enable it to better benefit “Her Majesty’s subjects” and particularly the people of Hastings and visitors to Hastings and formulating safeguards to provide for the proper administration of the Trust in the future.
13.16 It is thanks to the quality of professional advice which the Trustees have received that so much progress has been made in tackling the Trust’s problems. The cost of professional advice to the Trustees between April 2006 and the end of December 2007 has amounted to £365,000 (including VAT).
Trustees’ expenses 13.17 In common with the Trustees of other charities, the Trustees give their time and effort to the Trust without charge as volunteers. Trustees are, however, allowed to reclaim their reasonable expenses, which is mainly for travel to meetings: between March 2006 and December 2007 these came to a total of £350. Over the same period the cost for room hire for meetings in Hastings has been £280. When Trustees’ meetings are held in the offices of Berwin Leighton Paisner LLP in London, no charge is made for room hire.
14. Achievements and Performance 14.1 There have been no activities of the Trust other than those already described.
15. Financial review15.1 This report has set out the financial position of the Trust as realistically as the Trustees are currently able. The Trustees consider that they are close to an agreement with the Council over how the Trust’s finances should be handled in future.
16. Plans for the future16.1 As will already be clear, the Trustees consider that the best future for the Trust lies in new governance arrangements which will safeguard the foreshore for the people of Hastings for the future without giving rise to excessive overhead costs associated with operating a stand-alone enterprise. 17. Responsibilities of the Trustees 17.1 Since assuming office in March 2006, the Trustees have taken professional advice on their duties as charity trustees and have done all in their power to try to get the Trust onto a proper footing so that it can move forward and benefit the people of Hastings. The Trustees are anxious that, in future, as much of the Trust’s operating surplus as possible is disbursed as charitable grants for the benefit of the people of Hastings.
18. Concluding remarks
18.1 This has been a problematic and troubling 18 months or so for the Trust and the Trustees are conscious that not all of their difficulties are yet over. But the Trustees would like to express their thanks for the support and comments which they have received from people in Hastings. Where these comments have not been complimentary, this has served to remind the Trustees of the anxieties which Hastings people have about the way the foreshore and the Trust have been managed. The Trustees are anxious to secure the best possible future for the Trust.
18.2 It is hoped that this report, which the Trustees have decided should cover slightly longer than the statutory financial year in order to give a fuller and more rounded picture of the position of the Trust, will provide valuable background for the serious discussions which now need to take place about the future of the Trust.
Approved by the board of Trustees and signed on its behalf by:
Chair: (signed) Hugh Marriage OBE
Date: 23 January 2008.
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