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Members of Charitable Companies - Doing The Right Thing

on Monday, 27 July 2020.

Members of charitable companies have roles in their charity involving voting, electing and approving. Are they free to do this as they wish, to suit their own purposes? Or, must they act in the interests of the charity, like charity trustees?

It seems surprising that a question of such seemingly fundamental importance about powers held by significant numbers of people around the country has no clear legal answer yet. If its importance isn't immediately clear, consider some of the very real consequences the answer has:

  • If there is no duty, would members with their own agenda contrary to the charity's interests and purposes be free to pursue them through their membership rights? 
  • If there is a duty, what is it and how far does it go?  If you join a worthy cause as a member, are you lining yourself up for a potential legal claim if the AGM papers languish at the bottom of your inbox, or you own a car and vote for the candidate whose vision includes free parking for members?

These two unpalatable options may have something to do with the reason the question has gone unanswered and perhaps why, as the Supreme Court wrestles with some of these issues, there may be no simple answer.

For all the ambiguity, the area is not devoid of legal authority, guidance or ideas.  It is well established that members of commercial companies don't have this sort of fiduciary duty to act in the interests of the company and can exercise (or not) their powers as they choose. The published view of the Charity Commission on the other hand, at least since its 2004 'RS7-Membership Charities' is that where charities are concerned, "charity members have an obligation to use their rights and exercise their vote in the best interests of the charity of which they are member." 

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The Commission's reasoning being that if members were free to exercise their functions in the company otherwise than in its charitable interests, could it be a charity at all?  For CIOs, the matter is clearly and simply settled by section 220 of the Charities Act 2011.  Members of a CIO must use their powers in the way they decide, in good faith, would be most likely to further the purposes of the CIO.  It is perhaps a little sobering to think of this fiduciary duty as you tick the boxes on the CIO AGM proxy card, but it is not an extensive duty.  For a duty captured in so few words, it is surprisingly apt for the circumstances, including just good faith and the members' subjective view of what the interests of the charity are.

For the members of charitable companies, it seems likely that some sort of answer is imminent from the Supreme Court, which has had an opportunity to clarify the issue. The case in question concerns the charity, The Children's Investment Fund Foundation (CIFF). The circumstances have made the exercise of member functions of acute and very significant importance.  The charity proposes to resolve governance difficulties by making a substantial donation in favour of another charity, established by one of the CIFF trustees.  Once certain steps had been taken towards that outcome, the trustee in question would then depart CIFF.  The particular legal framework means that the donation must be approved by the CIFF members, a small group now reduced effectively to one, as the others recused themselves from the decision.

Therefore, the case does not reflect the typical engagement of members of mass-membership charities.  It concerns a small membership, facing a special legal situation, with which it is highly and diligently engaged, performing an essential function in order to dispose of a matter of considerable importance for the charity.  A key issue for the Supreme Court is to find an answer which makes sense of the case before it and makes sense of all those other interactions with charities that members have in so many diverse contexts.

For legal advice for your charity, please contact Andrew Wherrett in our Charities team on 07787 746 721, or complete the form below.

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