The Supreme Court held that the only member free to vote in a charitable company could be directed to approve a $360 million grant once the court had decided that the grant was in the charity’s best interests. The grant was the agreed means of separating the management of the Children’s Investment Fund Foundation (UK) after the marriage of its founders, Sir Christopher Hohn and Ms Jamie Cooper, broke down. The appeal was allowed and the direction restored, although the Justices did not agree on whether a contrary vote would itself be a breach of duty.
The grant and the missing vote
The trustees of the Children’s Investment Fund Foundation proposed a US$360 million grant to another charity as part of arrangements to separate the management of two foundations. The court had approved the grant as being in CIFF’s interests after the trustees surrendered their discretion. The remaining obstacle was member approval.
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The only members were the two founders and Dr Marko Lehtimäki. The founders were conflicted, so only Dr Lehtimäki was to vote. Approval by the members was required under section 217 of the Companies Act 2006. That section prevents a company from making a payment for loss of office to a director, or to a person connected with a director, unless the members approve it. The grant to Ms Cooper’s charity, made in connection with her retirement, was treated as such a payment. Under section 201 of the Charities Act 2011, the members’ approval would also be ineffective without the Charity Commission’s prior written consent.
The courts below
The Commission did not approve the transaction. It authorised CIFF to ask the court to consider the grant and the resolution. The trustees surrendered their discretion. On a surrender, the court does not merely review a decision the trustees have already made. It decides for itself what should be done in the charity’s interests.
Sir Geoffrey Vos, the Chancellor, held that the grant was in CIFF’s best interests. The parties should not abandon an agreement made in good faith; Ms Cooper would contribute a further $40 million; and approval would end the dispute and avoid further costs. He did not say that no reasonable trustee or fiduciary could disagree, or that disagreement would automatically be bad faith. He held that a member of a charitable company is a fiduciary and directed Dr Lehtimäki to vote in favour. Dr Lehtimäki wanted to decide for himself. He saw a clear benefit in ending the governance crisis, but was concerned about the cost of transferring $360 million to a charity with little record.
The Court of Appeal agreed that the members were fiduciaries. It described a subjective duty: a member must exercise his powers in the way he decides, in good faith, would be most likely to further CIFF’s purposes. It set the direction aside. Without a breach of duty, the court does not replace a fiduciary’s own judgment. Parliament had entrusted approval to the members, subject to the Commission’s consent, and reasonable disagreement was open. The Supreme Court was not asked to revisit the surrender or the finding that the grant was in CIFF’s best interests. Dr Lehtimäki had not surrendered his discretion.
The member’s duty
Lady Arden held that Dr Lehtimäki was a fiduciary when voting on this resolution. Lord Briggs agreed, and Lord Wilson and Lord Kitchin agreed with Lord Briggs. A fiduciary must act with single-minded loyalty and must not use the relevant power for his own benefit. Lady Arden held that the duty is owed to the charitable purposes. It is narrower than the Court of Appeal’s formulation and is shaped by CIFF’s constitution and the Companies Acts. The constitution dedicates the assets to the objects and generally prevents members from taking profits. On a resolution which would pay away assets otherwise available for those objects, the member must consider the objects’ interests. The duty does not give him more information than company law already allows a member to have, and it does not arise in the same way on every members’ resolution. Lady Arden left its precise limits to later cases. She did not accept that the result changes merely because a charity has a very large membership. Lord Briggs left open whether members of a mass-membership charity, such as the National Trust, are fiduciaries.
Power to direct the vote
The court does not normally tell a fiduciary how to exercise a discretion unless there is a breach of duty or the fiduciary has surrendered the decision. The Justices differed on how that rule applied, although the appeal was allowed.
Lord Briggs, with whom Lord Wilson and Lord Kitchin agreed, held that a vote against the grant would be a breach of duty once the court had finally decided the question. The trustees had properly placed CIFF’s decision before the court, and Dr Lehtimäki had been joined and heard. Trustees and member had the same obligation: to further CIFF’s charitable purposes. There was no longer a legitimate debate. A fiduciary who could not in conscience give effect to the decision should resign. Section 217 still required a resolution, and section 201 still required the Commission’s consent, but those controls are directed at decisions by directors. They do not give a fiduciary member a veto over the court.
Lady Arden rejected that reasoning. Dr Lehtimäki’s duty was to form his own good-faith view, the Chancellor had accepted that reasonable disagreement was possible, and the trustees could not surrender his discretion. She held that the court may nevertheless intervene, exceptionally, where that is needed to see that a charity’s purposes are carried out. A contrary vote would block the agreed response to what she described as an existential threat to CIFF’s governance. The court could give a direction without making a scheme for the charity’s future administration. Section 217 did not prevent the direction, because the resolution and the Commission’s consent both remained necessary. Lord Briggs said that, had there been no breach or threatened breach, he too would have treated these unusual facts as an exception. Lord Reed concurred in the order with reluctance. He found the Court of Appeal more persuasive, and noted that the facts seemed unlikely to be repeated.
Verdict: The Court allowed Ms Cooper’s appeal and restored the direction requiring Dr Lehtimäki to vote for the resolution, subject to prior written Charity Commission consent. The justices differed on the legal basis for the direction. They did not define the duties of all members in every charity.
