Facing Court: A Litigation Guide for NSW NFPs & Charities

Introduction

Facing litigation can be a daunting experience for any not-for-profit (NFP) organisation or charity in New South Wales. The risks to your organisation’s assets, reputation, and ability to fulfil its mission are significant, making it essential to understand your obligations under charity law and the specific steps you need to take.

This guide is designed to help NFPs and charities respond effectively to legal action, highlighting the importance of seeking timely legal advice from a not-for-profit law expert. By understanding your responsibilities and acting promptly, your organisation can better protect its interests and continue serving the community.

How Your NFP Finds Out About Legal Action in NSW

Receiving a Letter of Demand

Your NFP might first learn about a potential legal issue through a letter of demand. This communication typically insists that your organisation:

• take a specific action, such as paying money
• cease a particular activity, like holding a meeting

The letter may also contain a threat of legal action if the demands are not met.

It is important to understand that a threat does not always lead to actual litigation. Sometimes, these threats are used as a tactic to pressure an organisation into compliance. However, every threat should be treated seriously.

It is wise to seek legal advice to understand the likelihood of legal action and to review any insurance policies that might cover the situation.

Being Served with Official Court Forms

The formal commencement of legal proceedings against your charity occurs when you are ‘served’ with official court documents. This process begins when an individual or entity, known as the ‘plaintiff’ or ‘applicant’, files a specific form with a court in NSW. Your organisation is then named as the ‘defendant’ or ‘respondent’.

Once the court stamps the form, a copy is officially delivered to your NFP. In NSW, these documents are typically called a Statement of Claim or a Summons, depending on the court and the nature of the claim.

Receiving such a document is a serious matter that requires immediate legal advice, as strict time limits apply for responding.

Receiving Notices from Tribunals & Commissions

Your organisation may also be notified of legal action through a ‘notice of hearing’ from a tribunal or commission. These bodies, such as the NSW Civil and Administrative Tribunal (NCAT), are specialised and handle specific types of disputes, often requiring the expertise of administrative lawyers, with less formal procedures than traditional courts.

Receiving a notice of hearing means that a complaint or application—the first step in a process that may require an NFP or charity dispute investigation—has been filed against your NFP, naming it as the respondent.

Even if the claim appears to have no merit, it is crucial to seek legal advice. You may be required to lodge specific documents before the scheduled hearing date to properly respond to the action.

Immediate Steps for Your NFP

Seek Immediate NFP Legal Advice

If your NFP receives a letter, court document, or notice of prosecution, you should seek legal advice immediately. Strict time limits often apply to defending legal actions and prosecutions, making a prompt response essential.

Legal advice is particularly important for a charity, as different rules may apply depending on your approach to choosing the right legal structure and the specific prosecuting authority involved.

Read Documents Carefully & Understand Deadlines

It is crucial to read all documents carefully to understand the nature of the legal action. You should:

• Identify who is named as a party to the proceedings
• Look for any information about the legislation that applies to your case
• Pay close attention to any specified timeframes for responding

For example, in NSW, a defendant typically has 28 days to file a defence after being served with a statement of claim.

Ignoring these deadlines can lead to significant negative consequences for your NFP, such as the court issuing a default judgment in favour of the other party. Consulting a legal professional can help your organisation avoid missing these critical deadlines.

Inform the Right People & Notify Your Insurer

You should inform your board or committee of management about any legal action or prosecution. However, be cautious about who else you tell within the organisation.

Discussing the matter widely with staff or volunteers could potentially lead to:

• A defamation claim
• A breach of privacy obligations

Your lawyer can provide guidance on who should and should not be informed.

As soon as your organisation receives any threat of legal action, you must notify your insurer. If you have an insurance broker, they can help identify any policies that might provide coverage for the situation.

Prompt notification is vital, as some insurance policies may have specific conditions regarding legal representation and costs.

Understanding Other Court Documents Your NFP Might Receive

Responding to a Subpoena for Documents or Evidence

Your NFP may receive a subpoena, which is a formal order from a court or tribunal. This document compels a person or organisation to attend a proceeding to provide evidence or to produce specific documents.

Importantly, receiving a subpoena does not necessarily mean legal action is being taken against your charity; it often indicates you hold information relevant to a case between other parties.

It is a legal requirement to comply with a subpoena, and failure to do so without a lawful excuse can amount to contempt of court, leading to fines or, in rare cases, imprisonment.

The party that issued the subpoena must cover your reasonable costs of compliance; nevertheless, if your organisation is served, seek legal advice immediately.

A lawyer can advise whether the subpoena can be set aside. Grounds for setting aside a subpoena can include situations where:

• Complying with the request is excessively burdensome or onerous for your organisation.
• The terms of the subpoena are too broad, oppressive, or amount to a ‘fishing expedition’ for information.
• The documents requested are not relevant to the fair disposal of the legal proceedings.

You should also obtain advice about your NFP’s privacy and confidentiality obligations.

While these duties may not override a court’s request, you may be able to provide documents with sensitive personal information removed or redacted.

Dealing with a Warrant or Order for Entry & Inspection

Across NSW, various laws grant authorities the power to enter property to inspect, search, and seize materials.

For example, under NSW Work Health and Safety legislation, SafeWork NSW may enter a workplace to conduct investigations.

While authorities must follow legal procedures when exercising these powers, obstructing an investigation can attract significant penalties.

If your NFP is presented with a warrant or similar order, seek legal advice as soon as possible after carefully reading the documentation to understand your rights and obligations.

Key Litigation Risks & Considerations for Your Charity

The Financial Cost of Legal Proceedings

Before engaging in litigation, your NFP must consider the significant financial burden involved as part of its strategic financial oversight. Court proceedings are expensive, and the cost of legal representation can escalate quickly, diverting valuable funds away from your charity’s core mission.

Even if your NFP is successful in its legal action, a court order for costs in your favour rarely covers the entire amount spent. This means that a portion of the organisation’s resources will be consumed by the dispute, impacting its ability to serve its beneficiaries.

In addition to direct financial costs, there are also non-financial costs to consider, such as the time spent by employees and volunteers on preparing for a court hearing.

The Potential Impact on Your Organisation’s Reputation

Litigation can have a damaging effect on the reputation of a charity or not-for-profit, regardless of the final outcome. The board has a duty to act in the best interests of the organisation—a key principle of NFP and charity governance—which includes protecting its public image.

A member of the public might view a charity involved in aggressive litigation as misallocating its resources. Since court proceedings are part of the public record, they can attract unwanted media attention.

This public scrutiny can harm your organisation’s standing in the community. Therefore, it is crucial to weigh whether the potential benefits of legal action are worth the risk to your charity’s reputation.

Conclusion

For NFPs in NSW, understanding how legal action is initiated and the immediate steps to take is crucial for a strategic response. Weighing the significant financial and reputational risks of litigation while seeking specialised legal guidance ensures your charity can protect its assets and mission.

To effectively manage these legal challenges and safeguard your organisation’s future, it is essential to contact the experienced not-for-profit lawyers at LawBridge for trusted legal advice tailored to your charity’s unique circumstances when facing litigation.

Frequently Asked Questions