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In this post, James Warshaw, an associate in the Dispute Resolution team at CMS, comments upon the decision handed down by the UK Supreme Court in the matter of Lehtimäki and Ors v Cooper [2020] UKSC 33. 

On 29 July 2020, the Supreme Court ruled upon whether it had jurisdiction to direct members of a charitable company in respect of how to exercise their powers.  It follows decisions from the High Court and the Court of Appeal in 2017 and 2018 respectively.

The High Court Judgment – 9 June 2017

The Children’s Investment Fund Foundation (UK) (“CIFF”) is a substantial English charity incorporated as a company limited by guarantee in 2002. Its claim (authorised by the Charity Commission) was based upon seeking court approval for the making of a grant of US$360m to another English charity, Big Win Philanthropy (“BWP”).

CIFF had obtained the bulk of its funding from companies operated by Sir Christopher Hohn and had assets of more than US$4bn. The charity had been co-founded by him and his now ex-wife (Ms Jamie Cooper – the Appellant in the Supreme Court).

BWP was a new charity incorporated by Ms Cooper. Its establishment and the intention that CIFF make a grant to BWP had arisen from the break-up of the marriage between Sir Christopher and Ms Cooper in 2011. In pursuance of this, a series of agreements were made in 2015 whereby the trustees of CIFF agreed to the making of a grant to BWP, provided court or Charity Commission approval was obtained. In addition, Ms Cooper agreed to resign as a member and trustee of CIFF once this had been determined.

An important feature of this case was the fact that, being a company rather than a charitable trust, CIFF had members which were distinct from its directors (or “trustees”). These members were Sir Christopher, Ms Cooper and a Dr Lehtimäki.

The High Court ruled that the grant was in the best interests of the charity (including but not limited to the fact that it would end the governance issues that existed) and directed, (subject to Charity Commission consent), that the sole unconflicted member Dr Lehtimäki must vote in favour of a resolution approving it under s 217 of the Companies Act 2006. The court held that members of CIFF owed fiduciary duties to act in the best interests of CIFF, and, whilst members of CIFF must pass a resolution under s 217 to approve the grant, it would not be open for them to vote against that resolution once the court and Charity Commission had approved it (as the court had already done so).

Consequently, Dr Lehtimäki would not have a free vote because he was bound by fiduciary duties and subject to the court’s inherent jurisdiction over the administration of charities. Since the court had decided what was in the best interests of CIFF, a member would not be acting in its best interests if it contradicted that decision.

The Court of Appeal Judgment – 6 July 2018

The appeal was based on the ruling that Dr Lehtimäki be ordered to vote in favour of this resolution under s 217: to make a grant of US$360m to BWP. Dr Lehtimäki argued that the High Court had no jurisdiction to direct him to vote in favour of a resolution, and members of a charitable company were not fiduciaries. Furthermore, the court would not be entitled to intervene even if they were. Dr Lehtimäki had a role assigned to him under s 217 of the Companies Act, and the court could interfere with this discretion only if he were found to be acting in breach of this duty.

The Court of Appeal agreed with the High Court that members of CIFF did owe fiduciary duties to the company. However, the court could not direct a fiduciary (including a member) how to exercise their powers unless they were acting in breach of such a duty. Consequently, the court overturned the High Court and ruled that it was not entitled to order Dr Lehtimäki to vote in favour of a resolution unless there was evidence (which there wasn’t) that he would be acting in breach of a fiduciary duty.

The Supreme Court Judgment – 29 July 2020

 The Supreme Court were essentially asked three questions:

  • Is Dr Lehtimäki, as a member of CIFF, a fiduciary in relation to the objects of the charity?
  • If he is a fiduciary, have circumstances arisen with respect to the s 217 resolution in which the court can exercise its jurisdiction over fiduciaries in relation to Dr Lehtimäki?
  • Does s 217 allow the court to direct a member to exercise his discretion in a certain way when Parliament has provided for members to pass the resolution?

Each of these issues was ultimately decided in the Appellant’s favour.

  • Is Dr Lehtimäki a fiduciary?

The court said that it is generally accepted that the key principle is that a fiduciary acts for and only for another. It took the view that any duty is owed not to the charitable company i.e. CIFF, but to the charitable purposes or objects of the charity.

It expressed surprised that the issue of whether a member is a fiduciary had never been decided before and concluded that there was a fiduciary relationship between the charitable objects of CIFF and Dr Lehtimäki in his capacity as a member. This duty is one of “single-minded loyalty” and would require Dr Lehtimäki to consider whether the resolution should be passed solely by considering the best interests of the objects of the charity.

  • Could the court exercise its jurisdiction over fiduciaries in relation to Dr Lehtimäki?

Having decided that Dr Lehtimäki owed fiduciary duties in respect of the way he votes on the s 217 resolution, the court had to then decide whether it could intervene to direct Dr Lehtimäki that exercise his discretion in a particular way.

It was submitted by the Respondents that the court could not intervene unless there was an actual or threatened breach of duty or the fiduciary had surrendered their discretion. The members had not surrendered their discretion and there was no question of any breach of duty.

The court accepted that there is a well-established “non-intervention principle” meaning that the court would not seek to interfere in the exercise of a discretionary power unless it is exercised improperly or unreasonably. However, in this case it held that it did have jurisdiction to intervene through an exception to this principle. As Lady Arden wrote at para 201:

“On the second issue, I conclude that the fundamental principle is the non-intervention principle under which the court does not seek to substitute its judgment for that of a fiduciary. Any departure from this principle must be approached with considerable caution by the court…However, in my judgment, the present case is a rare exception to that principle. The trustees of CIFF have surrendered their discretion to the court and the court’s priority is to see that fiduciaries for the charity perform their duties in the way most likely to achieve its continued existence notwithstanding what has been held to be in effect an existential threat to the proper governance of the charity. I also consider that the court has jurisdiction to give a direction to Dr Lehtimäki to vote in favour of the section 217 resolution…”

In contrast to Lady Arden’s conclusion that a direction should be made by way of an exception to the non-intervention principle, in his concurring judgment (with which Lord Wilson and Lord Kitchin agreed) Lord Briggs’ concluded that reliance on an exception to the non-intervention principle was unnecessary and the court could simply direct a member how to vote as it had determined what was in the best interests of the charity. This followed similar reasoning to the High Court which had said at para 154: When the court has decided what is expressly in the best interests of a charity, a member would not be acting in the best interests of that charity if he gainsaid that decision (i.e. there would be a breach of duty by a member to threaten to, or to actually vote against, a s 217 resolution when the court had reached the decision that the grant should be approved and, therefore, the court could intervene on this basis).

  • Does s 217 allow the court to direct a member to exercise his discretion in a particular way?

On the final issue it was submitted that, in the absence of breach of duty, the court could not override the members’ powers under s 217. However, the court held that s 217 did not prevent the court making such an order:

“…CIFF’s trustees having surrendered their discretion to the court, and the court having reached the unchallenged conclusion that it is in the best interests of the charity for the Grant to be made, the court can give a direction to a fiduciary as to the manner in which he votes on the section 217 resolution and that the 2006 Act does not by implication prevent the court from making such an order” (para 202).

Comment

The Supreme Court found that the Court of Appeal was in error in not making a direction to Dr Lehtimäki. Whilst there was agreement that members of charitable companies were indeed fiduciaries (the first time this has been expressly ruled upon) the court held that it did have jurisdiction to direct a member how to vote, whether through an exception to the non-intervention principle or through the breach of duty route.

This judgment is useful not only in terms of its conclusions that members owe fiduciary duties but also regarding the different routes the justices used to decide that the court was capable of founding jurisdiction over how a member should vote. It will be interesting to see in due course the implications that this judgment has on the development of charity law.