The Commission was seeking approval of the interim managers’ decision, arguing that the public trust in charities would be undermined if the charity was required to continue with its tax avoidance claim, which had been initiated by its original trustee, Mountstar, a private trust company incorporated in the British Virgin Islands.

Two partners in Stone King LLP were appointed as interim managers to the Cup Trust in 2013 after the Charity Commission opened a formal investigation into allegations that the charity was established to further the avoidance of tax with only minimal sums given to charitable causes.

Both the Public Accounts Committee (PAC) and the National Audit Office (NAO) produced critical reports of both the operation of the Cup Trust and what they identified as the Charity Commission’s failure to deal with a ‘sham’ charity.

The Cup Trust attracted £176m of payments from participants to the scheme, but gave just £152,292 to charitable causes between April 2009 and March 2013.

The interim managers indicated that they did not want to continue an appeal against HMRC’s rejection of the Cup Trust’s gift aid claims which had been set in motion by Mountstar, on the grounds this would be expensive and highly unlikely to succeed.

This view was challenged by Mountstar. [The Charity Commission for England and Wales and Mountstar (PTC) Ltd (a private trust company incorporated under the laws of the British Virgin Islands), Jonathan Burchfield (joint interim manager of The Cup Trust), Ann Phillips (joint interim manager of The Cup Trust) [2016] EWHC 876 (Ch)].

The High Court heard that Mountstar objected to the interim managers abandoning the gift aid claims and had offered to indemnify them in relation to the costs of instructing counsel to challenge HMRC's refusal of the gift aid refunds.

The interim managers said they had taken legal advice which indicated that the total costs of pursuing the claim could be in the region of £200,000, while the chances of success were very low.

While, from a purely commercial perspective, the large gift aid sum that might be recovered (£46m) compared with the likely costs (£200,000) might make an appeal seem worth pursuing, the lawyer’s opinion was that ‘charity trustees, with their duty to apply their assets prudently, could legitimately consider it inappropriate to put at risk a substantial amount of charity money on what is really no more than speculation at long odds’.

In any case, the charity itself had only £20,000 in funds available. While Mountstar indicated it was prepared to provide funding as a third party, the High Court confirmed that the interim managers were entitled to reject this offer. The judge agreed the interim managers were right to be concerned about the offer, and justified in questioning the rationale behind it.

Mr Justice Snowden said: ‘In conclusion, taking all of the points into account, and even having regard to the very large amount of the Gift Aid claims, I do not think that the interim managers are obliged to accept funding and pursue an appeal against HMRC on the terms offered by Mr. Mehigan and Mountstar.

‘In my judgment, the decision of the interim managers not to accept such funding and to discontinue the Gift Aid claims is within the range of decisions to which rational charity trustees could properly come.

‘I therefore propose to give a direction, as sought by the Charity Commission, that the interim managers should be at liberty to discontinue the Gift Aid claims, and sanctioning their decision to do so.’

Jonathan Burchfield and Ann Phillips of Stone King, the interim managers appointed by the Charity Commission, told CCH Daily: ‘We are pleased that the court has accepted (subject to any appeal) that our decision to withdraw the charity’s gift aid claims was an appropriate one for us to have taken.

'We also welcome the court’s agreement that the exceptional circumstances of this case justified the Charity Commission having referred our decision to the court.’

Chris Willis Pickup, head of litigation at the Charity Commission, said: ‘The judgment is good news for charities and for the public who support them. The public can be confident that charities will not be used improperly as part of tax avoidance schemes, and charity trustees should welcome the court’s clear guidance on their legal duties in tax litigation.

‘The court has accepted the commission’s approach in the case and dismissed the arguments of those who sought to use a charity for tax avoidance.’

The Cup Trust's barrister Keith M Gordon said that he was 'not in a position to comment on any possible appeal'.

The Commission’s inquiry into the Cup Trust is ongoing.

The High Court decision on The Charity Commission for England and Wales and Mountstar (PTC) Ltd (a private trust company incorporated under the laws of the British Virgin Islands), Jonathan Burchfield (joint interim manager of The Cup Trust), Ann Phillips (joint interim manager of The Cup Trust) is here: http://www.bailii.org/ew/cases/EWHC/Ch/2016/876.html