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Court of Appeal Judgment in Lehtimäki v The Children’s Investment Fund Foundation (UK) and others [2018] EWCA Civ 1605, 6 July 2018

  • United Kingdom
  • Corporate

10-10-2018

The Court of Appeal has overturned a High Court ruling ordering the charity The Children's Investment Fund Foundation (“CIFF”) to award £280 million to Big Win Philanthropy (“BWP”) as part of a divorce settlement. CIFF is constituted as a company limited by guarantee.

1. Background

In summary, the High Court had ruled last year that CIFF — jointly founded by Sir Christopher Hohn and his then wife, Jamie Cooper — must award a grant of £280 million to BWP, Ms Cooper's new charity, upon her resignation as a CIFF trustee. CIFF's sole independent member, Dr Marko Lehtimäki (the other members being Sir Christopher and Ms Cooper) was ordered by the court to approve the grant. Dr Lehtimäki appealed the ruling, however, contending (i) that he did not owe fiduciary duties to CIFF as a member only of CIFF; and (ii) that, in any event, the court could not direct him how to vote.

The Court of Appeal ruled that: (i) Dr Lehtimäki did owe fiduciary duties and therefore any vote he cast should be cast in the best interests of CIFF; but that (ii) the court could not direct him on how to vote, absent a breach of duty on his part.

Dr Lehtimäki may appeal the judgment of the Court of Appeal to the Supreme Court.

2. Importance for charities

2.1 Duties of members of charitable companies with small memberships

The judgment implies that members of charitable companies with small memberships, such as CIFF, may owe a duty to exercise their powers in the way that they decide in good faith would be most likely to further the charity’s purposes. It may be prudent therefore for members of such charitable companies to assess their powers accordingly, or for the trustees to consider whether they should put in place policies regarding conflicts of interest and/or potential breaches of duty by members (although this only happens rarely).

The Court declined to find that members of all charitable companies owe such a fiduciary duty, as it was of the view that such a finding would have significant, and perhaps unintended, consequences (the Charity Commission recognises that people sometimes become members of a charity with a view to receiving tangible benefits, such as reduced admission fees or free parking).

2.2 Equivalence of duties between members of charitable companies and members Charitable Incorporated Organisations (“CIOs”)

The judgment implies that in some cases, like CIFF’s, members of charitable companies owe the same duties to their charity as members of a CIO further to section 220 of the Charities Act 2011 by which Parliament expressly stipulated that each member of a CIO:

must exercise the powers that the member has in that capacity in the way that the member decides, in good faith, would be most likely to further the purposes of the CIO.

This is a subjective test, and what matters is the member’s state of mind when they exercise that power.

The case underlines the difference in features of the various charity legal forms in England and Wales, and the sometimes uneasy application of historic legal principles (the appeal stems from features of CIFF which would not exist if it were a charitable trust e.g. that its members are distinct from its trustees, or that it must comply with Companies Act 2006 provisions regarding members’ approval for certain payments by the charity).

2.3 Acknowledgement of the limits on the court’s jurisdiction to supervise charities

The judgment implies that (aside from its scheme-making powers) the court does not have “inherent” jurisdiction to supervise, control, and give directions for the regulation of the administration of a charity, where the court considers it expedient.

In general, the court is slow to interfere with the exercise of discretion by fiduciaries. It is acknowledged that different principles, or “special treatment” applies to charities than, say, private trusts, as entities operating within the framework of public rather than private law. However, a court should not be able to override the views of a charity’s “duly appointed organs” if they are fulfilling their roles properly, especially since those organs will be typically be more familiar with the charity’s affairs than a judge. If a judge could do this, this would risk dis-incentivising donors, members and trustees alike.

However, it is worth noting that a court will always have jurisdiction, and will intervene, where there is evidence of a breach of duty on the part of a member (or trustee).

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