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To Be or Not to Be… In the Charity's Best Interests

on Tuesday, 06 November 2018.

The question of whether members of a company, limited by guarantee and incorporated for a charitable purpose owe fiduciary duties to the charity was considered in the case of...

...Dr Marko Lehtimäki v The Children's Investment Fund Foundation (UK), H.M. Attorney General, Sir Christopher Hohn and Jamie Cooper [2018] EWCA Civ 1605.

Trustees have fiduciary duties. Duties such as to avoid conflicts of interest and to make decisions which are in the best interests of the charity. Until now, it was not clear whether members also had such duties.

Background

Sir Christopher Hohn and Ms Jamie Cooper, a divorcing couple, were members and trustees of The Children's Investment Fund Foundation (UK) (CIFF), a charity incorporated as a company limited by guarantee. The company had several trustees and a third member, Dr Marko Lehtimäki.

As part of the divorce, it was agreed that CIFF would grant $360m to a charity run by Ms Cooper. The trustees sought court approval of this transaction.

High Court's Judgement

The Court's key rulings were that:

  1. the grant would be in the best interests of CIFF because it would end the governance issues caused by the disputing couple, and prevent the couple from reneging on previous agreements
  2. Sir Christopher and Ms Cooper, as members, could not approve the grant because there was a conflict of interest
  3. because he owes a fiduciary duty to the charity to act in its best interest, Dr Lehtimäki must approve the grant, and he would be ordered to do so

Court of Appeal Decision

Dr Lehtimäki appealed the decision, questioning whether he owed fiduciary duties to the charity and, if so, what these were.

The Court of Appeal agreed with the High Court's ruling. The judges believed that members do not "sit outside the company" but are "part of the administration of the charity" with "powers that are all directed…to achieve the charity's exclusively charitable objects".

In relation to the extent of the duties, the Court held that "a member of CIFF owes… a duty corresponding to that specifically imposed on members of CIOs by section 220 of the Charities Act 2011."

What about charities with a large membership group, such as the National Trust? It was commented that it would be "less reasonable" to expect members of charities with "mass-memberships" to "act exclusively in the charities' interests". This suggests that the duties of members could differ from charity to charity.

Conclusion

Members of certain charities, namely those company law members of charities incorporated as companies limited by guarantee, owe fiduciary duties. The scope of the duties is similar to those of members of Charitable Incorporated Organisations in that they must "exercise the powers… in the way that the member decides, in good faith, would be most likely to further the purposes of the CIO."


 For more information, please contact Kate Parkinson in our Charity Law team on 0117 314 5460.

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