The answer is important because it determines whether members of charitable companies are able to act in their own interests when exercising their rights as members, or alternatively whether they must act in the best interests of their charity.
In the recent case of The Children Investment Fund Foundation (UK) v Attorney General & others the High Court considered this question. It found that while there is uncertainty regarding the status of members of charitable companies it is correct to conclude that members owe fiduciary duties.
The Chancellor of the High Court agreed with the Charity Commission's interpretation (stated in its RS7 publication) that “members [of CIFF] have an obligation to use their rights and exercise their vote in the best interests of the charity for which they are a member”. He found that it would be contrary to the increasingly prescriptive legislative regime, reflected in the Charities Act 2011, if the member of a charitable company could vote in his own interests or in a manner detrimental to the charitable objects of the company.
The Chancellor found that a member of a charitable company is, "bound in to the regime now contained in the Charities Act 2011, the whole thrust of which is to ensure that the assets of the company are used for its exclusively charitable objects and for no other purpose".
This differs from the position of members of non-charitable companies, who have been found to be under no obligation to act in the best interests of the company. The Chancellor stated that unlike the member of a trading company who has a proprietary interest in his shares, a member of a charitable company has powers that are all directed at aspects of the management and administration of the charity designed to achieve the charity’s exclusively charitable objects.
He concluded that members of a charitable company therefore do not 'stand outside' the charity but are part of the administration of the charity and they cannot lay claim to any private interest.
This decision provides a degree of clarity on what has previously been considered a grey area of charity law and is a good indication of the approach senior courts are likely to adopt in the future.
It is now clear that when exercising his or her rights, a member owes duties to the charity. This will be relevant when members exercise any of their rights such as appointing or removing trustees or amending the articles.
However, a degree of uncertainty remains regarding the nature and extent of a member's fiduciary duties, as it was not necessary to decide these on the facts of this case. Of particular interest is the question of whether a member could be deprived of the right to vote on a member's resolution where he or she has a conflict of interest because he or she owes fiduciary duties as a member.