An East London charity is being sued at the High Court by its local council over the repayment of £850,000 of funding plus interest.

Rich Mix Cultural Foundation operates an independent arts centre and cinema in Shoreditch. According to the register of charities, Rich Mix last accounts showed it had an income of £2.7m in the year to 31 March 2014.

Jane Earl, chief executive of Rich Mix, said the legal action stems from 2003, when Tower Hamlets Council provided the charity with £850,000 after renovation costs went over budget. The council have since said this was a loan, not a grant, and asked for the money to be paid back, plus interest, which amounts to a little over £1m.

However the charity claims that the council owes it £1.5m as part of a separate agreement. 

In 2008 a property developer paid Tower Hamlets council £1.5m as part of a section 106 agreement - an agreement that a developer will fund community facilities as part of their planning permission. The charity says this was promised it as an endowment.

Earl has said the council should use this money to pay off the debt.

Rich Mix and representatives of the council will exchange witness statements at a preliminary hearing on May 29. A full three-day hearing at the High Court is scheduled to take place in July.

Earl told Civil Society News that “although a loan agreement was drawn up at the time by the council, it was never seen or signed by anybody at Rich Mix”.

Earl also said that the charity has also offered to repay the money in instalments of £30,000 drawn from the charity’s annual surplus.

“The council rejected this resolution,” says a statement on the charity’s website, “and continue to spend council tax payers' money on unnecessary legal action.”

Earl said that Rich Mix have been receiving pro bono legal support from a local branch of international law firm Latham & Watkins. Earl estimated that without the support of the firm, the charity would already have had to pay “over £750,000 in legal fees, which we simply wouldn’t have been able to afford”.  

So far over 12,000 people have signed up to an online petition on change.org to “save Rich Mix” from closure.

Paralysis due to upcoming mayoral elections

The charity has been unable to make progress on the issue after the recent removal of former mayor Lutfur Rahman and his Tower Hamlets First party for electoral fraud.

While Earl called the situation “very frustrating”, she said that the charity was hopeful of being able to come to some sort of arrangement with the new mayor “once he or she is in place” after the election, scheduled for June 11.

In a statement to Civil Society News, a spokeswoman from Tower Hamlets Council said: “It would be inappropriate for the council to comment on either ongoing litigation or associated settlement discussions.

"The council’s grounds for pursuing repayment of this outstanding loan debt will be a matter for the courts to determine should it be pursued. The Rich Mix made a legal counter claim for additional funding for £1.5m when the council began its action to secure the outstanding debt owed by Rich Mix. This claim failed.

"The authority remains open to discussion regarding future funding arrangements and remains in constructive dialogue with Rich Mix management.”