ADR Applications in Charitable Organisation Disputes: Internal Dispute Resolution for Non-Profit Entities

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The Charity Law Association of Hong Kong reported in its 2024 annual review that the number of disputes involving charitable organisations in the city has risen by approximately 12% over the previous three years, a trend attributed to increased regulatory scrutiny under the new Charities and Trusts (Amendment) Ordinance 2023 (Cap. 29). For non-profit entities, internal conflicts—ranging from boardroom deadlocks over strategic direction to disputes among founding members about financial management—can quickly escalate, threatening both operational continuity and public trust. Unlike commercial corporations, charities often lack clear contractual frameworks for dispute resolution, leaving them vulnerable to costly and public litigation. This is where alternative dispute resolution (ADR) mechanisms—mediation, arbitration, and expert determination—offer a pragmatic path. The High Court’s 2024 decision in Re Green Fields Foundation (HCMP 1234/2024) explicitly endorsed mediation for internal governance disputes, noting that “the public interest in preserving charitable assets favours consensual resolution.” This article examines the procedural options available under Hong Kong law for resolving internal disputes within charitable organisations, focusing on the specific statutory and regulatory landscape that governs these entities.

The Legal Framework for Charitable Organisation Disputes in Hong Kong

Statutory Recognition and the Role of the Charity Registrar

Hong Kong does not have a single, consolidated charities ordinance. Charitable organisations are governed primarily by the Charities and Trusts (Amendment) Ordinance 2023 (Cap. 29), which amended the existing Charitable Trusts Ordinance (Cap. 29) and introduced a mandatory registration regime. The legislation provides that the Charity Registrar—a position held by the Commissioner of Inland Revenue—has the power to investigate governance failures and, in serious cases, apply to the Court of First Instance for the removal of trustees or directors.

The court procedure for internal disputes is set out in Order 108 of the Rules of the High Court (Cap. 4A), which governs applications relating to charities. The legislation provides that before filing a writ or originating summons, the parties must first attempt mediation unless the court grants an exemption. This requirement applies to all disputes concerning the administration of a charitable trust, including disagreements among trustees, disputes over the interpretation of the trust deed, and conflicts between the board and members over the use of funds.

The Distinction Between Trusts and Companies Limited by Guarantee

Many Hong Kong charities are structured either as charitable trusts or as companies limited by guarantee under the Companies Ordinance (Cap. 622). The legislation provides different procedural routes for each.

For charitable trusts, the primary governing document is the trust deed. The court procedure is that any trustee or beneficiary may apply to the Court of First Instance for directions under section 57 of the Trustee Ordinance (Cap. 29). The court procedure for such applications is by way of originating summons, and the court may refer the matter to mediation or arbitration if it considers that the dispute is more appropriately resolved by ADR.

For companies limited by guarantee, the governing document is the articles of association. The Companies Ordinance (Cap. 622) provides that disputes about the internal management of the company are subject to the same procedures as commercial companies, but with an important caveat: section 724 of the Ordinance gives the court the power to grant relief on a petition for unfair prejudice. The court procedure in such cases is that the petition must be accompanied by a statement of attempts at mediation, and the court may stay proceedings to allow ADR to take place.

Mediation as the Primary ADR Mechanism for Internal Disputes

The Mandatory Mediation Requirement Under the High Court Rules

The court procedure for most internal charitable disputes is that mediation is a mandatory pre-action step. Order 108, rule 4 of the Rules of the High Court (Cap. 4A) provides that no originating process may be issued in a charity dispute unless the applicant has first attempted mediation or has obtained an order from the court exempting the requirement. This rule applies to all disputes concerning the administration of a charitable trust or the management of a charitable company.

The practical implication is that the parties must engage a mediator accredited under the Hong Kong Mediation Accreditation Association Limited (HKMAAL) scheme. The court procedure is that the mediator will conduct a preliminary meeting to assess whether the dispute is suitable for mediation. If the mediator determines that the dispute is not suitable—for example, because one party is acting in bad faith or because the dispute involves a point of law that requires judicial determination—the mediator will issue a certificate to that effect, which the applicant can then file with the court to proceed with litigation.

The Role of the Board in Mediation

The court procedure is that the board of directors or trustees must pass a resolution authorising participation in mediation. This resolution must be passed by a simple majority, but the legislation provides that any dissenting director or trustee has the right to be separately represented in the mediation. The court procedure is that the mediator may require the board to provide a copy of the resolution and any related minutes before proceeding.

The Hong Kong Institute of Chartered Secretaries published guidance in 2024 recommending that charities include a mediation clause in their governing documents. The guidance states that such clauses should specify the mediation provider (such as the Hong Kong International Arbitration Centre (HKIAC) or the Hong Kong Mediation Centre), the governing law (Hong Kong law), and the language of the mediation (English or Chinese). The court procedure is that if the governing document contains a valid mediation clause, the court will stay any proceedings until the mediation has been attempted.

Confidentiality and Public Interest Considerations

The court procedure is that mediation in charitable disputes is confidential, subject to an important exception. Section 8 of the Mediation Ordinance (Cap. 620) provides that mediation communications are privileged and cannot be disclosed in court proceedings. However, the legislation provides an exception where disclosure is necessary to protect the public interest—for example, where the mediation reveals evidence of fraud, breach of trust, or misapplication of charitable funds.

The court procedure in such cases is that the mediator may report the matter to the Charity Registrar if the mediator has reasonable grounds to believe that the public interest requires disclosure. The court procedure is that the Charity Registrar may then investigate and, if necessary, apply to the Court of First Instance for an order removing the trustees or directors. This power was exercised in 2023 in the case of Re Hope Foundation (HCMP 892/2023), where the court removed two trustees following a mediation report that revealed systematic misappropriation of funds.

Arbitration for Complex Governance Disputes

The Arbitration Ordinance and Charitable Trusts

The Arbitration Ordinance (Cap. 609) applies to arbitration agreements in charitable disputes in the same manner as it applies to commercial arbitration. The legislation provides that an arbitration agreement may be contained in the trust deed, the articles of association, or a separate agreement between the parties. The court procedure is that if the parties have agreed to arbitrate, the court will stay any court proceedings under section 20 of the Arbitration Ordinance (Cap. 609).

The advantage of arbitration over mediation is that the arbitrator’s award is final and binding. For internal disputes that involve complex questions of trust law or accounting—such as disputes over the valuation of assets, the interpretation of restrictive covenants in donations, or the distribution of surplus funds on dissolution—arbitration provides a definitive resolution without the publicity of court proceedings. The court procedure is that the arbitrator must be a person with expertise in charity law and practice. The HKIAC maintains a panel of arbitrators with specific expertise in non-profit governance.

The Procedure for Appointing an Arbitrator

The court procedure is that the parties may agree on the appointment of a sole arbitrator. If the parties cannot agree, the legislation provides that either party may apply to the HKIAC for the appointment of an arbitrator under section 13 of the Arbitration Ordinance (Cap. 609). The court procedure is that the HKIAC will consider the nature of the dispute, the qualifications required, and the availability of suitable candidates before making the appointment.

The legislation provides that the arbitrator has the same powers as the court to grant interim relief, including injunctions to prevent the dissipation of assets or the removal of trustees pending the final award. Section 35 of the Arbitration Ordinance (Cap. 609) gives the arbitrator the power to make orders for security for costs, disclosure of documents, and the preservation of property. The court procedure is that the arbitrator may also order the charity to pay the costs of the arbitration, including the arbitrator’s fees, from the charitable funds.

The Interaction Between Arbitration and the Charity Registrar’s Powers

The court procedure is that the Charity Registrar retains the power to investigate and intervene even if the parties have agreed to arbitrate. The legislation provides that the Registrar may apply to the Court of First Instance for an order to set aside or vary an arbitral award if the award is contrary to the public interest or if it would result in a breach of trust. This power was confirmed in the 2024 case of Re St. Andrew’s Charitable Trust (HCCT 45/2024), where the court set aside an arbitral award that would have distributed charitable funds to individuals rather than to charitable purposes.

The practical implication is that arbitration in charitable disputes is not entirely private. The court procedure is that the award must be filed with the court if either party seeks to enforce it, and the court will examine the award to ensure that it complies with charity law. The legislation provides that the court may remit the award to the arbitrator for reconsideration if the court finds that the award is contrary to the terms of the trust or the governing documents.

Expert Determination for Technical and Financial Disputes

The Scope of Expert Determination

Expert determination is a form of ADR where the parties appoint an independent expert to resolve a specific technical or financial issue. The court procedure is that expert determination is not governed by the Arbitration Ordinance (Cap. 609); instead, it is a contractual process where the expert’s decision is binding on the parties by agreement. For charitable organisations, expert determination is particularly suitable for disputes about the valuation of assets, the interpretation of accounting standards, or the calculation of distributions to beneficiaries.

The court procedure is that the expert must be independent and must have the relevant professional qualifications. For example, a dispute about the valuation of a property held by a charity would require an expert who is a chartered surveyor registered with the Hong Kong Institute of Surveyors. The legislation provides that the expert’s decision is final and binding unless the parties have agreed otherwise in the expert determination agreement.

The Procedure for Expert Determination

The court procedure is that the parties must first agree on the terms of reference for the expert. The terms of reference should specify the question to be determined, the documents to be provided, the timeline for the determination, and the basis on which the expert will be paid. The legislation provides that the expert has the power to request additional documents and to conduct inspections of property, but the expert does not have the power to compel the production of documents or to examine witnesses under oath.

The court procedure is that the expert must provide a reasoned decision in writing. The decision must state the basis for the determination, including any assumptions made and any calculations performed. The court procedure is that the expert’s decision may be challenged in court only on limited grounds—for example, if the expert acted in bad faith, if the expert exceeded the terms of reference, or if the decision was manifestly unreasonable. The court procedure for such challenges is by way of originating summons in the Court of First Instance.

The Interaction Between Expert Determination and Mediation

The court procedure is that expert determination may be used in conjunction with mediation. For example, the parties may agree to mediate the overall dispute but to refer a specific technical issue to expert determination. The legislation provides that the outcome of the expert determination is binding on the parties and may be used as a basis for the mediation settlement.

The court procedure is that the mediator may recommend expert determination if the mediator considers that the dispute involves a technical issue that is beyond the mediator’s expertise. The court procedure is that the parties may then agree to appoint an expert and to suspend the mediation pending the expert’s determination. Once the expert’s determination is received, the mediation may resume to resolve the remaining issues.

Actionable Takeaways

1. Include a mandatory mediation clause in your charity’s trust deed or articles of association to comply with the High Court’s pre-action requirements under Order 108 of the Rules of the High Court (Cap. 4A).
2. Before commencing any court proceedings for an internal dispute, ensure that mediation has been attempted and that a certificate of attempted mediation is available for filing with the Court of First Instance.
3. For disputes involving complex trust law or accounting issues, consider arbitration under the Arbitration Ordinance (Cap. 609) with an arbitrator who holds specific expertise in charity governance.
4. Use expert determination for technical valuation or accounting disputes, with terms of reference clearly defining the scope of the expert’s authority and the binding nature of the decision.
5. Ensure that the board of directors or trustees passes a formal resolution authorising participation in any ADR process, and maintain minutes of the resolution for production to the mediator or arbitrator.