Court case confirms that members of charitable companies are fiduciaries and owe duties as such. We look at what this means for charitable companies.
What was the court case about?
The court case concerned the Children's Investment Fund Foundation (CIFF), founded by Sir Christopher Hohn and Ms Jamie Cooper, which became difficult to manage when their marriage broke down. To resolve the difficulties, Sir Christopher and Ms Cooper agreed that, in return for a grant of $360m to be paid by CIFF to Big Win Philanthropy (founded by Ms Cooper), Ms Cooper would resign as a member and trustee of CIFF. CIFF's members had to approve the grant. However, as Sir Christopher and Ms Cooper each had a conflict of interest, they had to absence themselves from the vote. It therefore fell to the one remaining member, Dr Marko Lehtimaki, to vote on the proposal. The Supreme Court found that Dr Lehtimaki was a fiduciary when acting as a member of CIFF and (finding that the grant was in the best interest of CIFF) ordered him to vote for the resolution approving the grant.
What does it mean for members of charitable companies?
The Supreme Court has confirmed that members of charitable companies owe a fiduciary duty to act with single-minded loyalty in the best interests of the purposes of the charity, in accordance with their governing document and in accordance with company, charity and other law.
They must also avoid any conflict of interest from their position. Practically, members must therefore declare any such conflicts and remove themselves from discussion and not participate in decisions of the members, where their interests (or those of a third party to which they are connected) conflict with those of the charitable company.
Finally, the Supreme Court said the duties owed by a member of a charitable company need to be considered according to the particular circumstances that apply and the governing document of the charity. However, these general principles will apply to all charitable companies, whether with small or large memberships. Therefore, members of all charitable companies must be familiar with the articles of association of their charitable company and their fiduciary duties at large.
What if a charitable company is itself a member?
Sometimes, a charitable company may be a company law member of another organisation (for example, if it forms part of a group structure with other charities). The charity trustees of the member company will need to balance their trustee duties to act in the best interests of their charity with the charity's fiduciary duty as a member of another charitable company. This reiterates the importance of managing conflicts of interest within a group structure.
Where does the judgment leave us?
The judgment leaves some unanswered questions regarding the administration of charitable companies and their memberships, which include:
- what information a member can require from their charitable company;
- whether a member has a duty to attend and vote at member meetings of their charitable company; and
- whether a charitable company would be entitled to compensation from a member who exercises a right to vote in breach of fiduciary duty.
It is hoped that the Charity Commission will, as invited by the Supreme Court, issue guidance on the nature of member fiduciary duties and what this means in practice for charitable companies.
Originally published by Wrigleys Solicitors, August 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.