UK Supreme Court Blog

EDITORS: Dan Tench, Emma Cross, Zainab Hodgson, Francesca Knight, James Warshaw and Natalie Haefner (CMS)
Hugh Tomlinson KC, Matthew Ryder KC, Dévante Gravesande-Smith and Rebecca Khan (Matrix)

In this post, James Warshaw, an associate in the Dispute Resolution team at CMS, previews the decision which is awaited in the matter of Lehtimaki and Ors v Cooper, which concerns whether the court has jurisdiction to direct members of a charitable company on how to exercise their powers absent a breach of fiduciary duty. 

The Supreme Court has been asked to rule upon whether it has jurisdiction to direct members of a charitable company as to how to exercise their powers in the absence of any breaches of a fiduciary duty.

The case was heard on the on 14 and 15 January 2020 with judgment awaited this year. It follows decisions from the High Court and the Court of Appeal in 2017 and 2018 respectively.

High Court Judgment – 9 June 2017

The claimant ((The Children’s Investment Fund Foundation (UK)) (“CIFF”) was 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 (the second defendant) and had assets of more than US$4bn. The charity had been co-founded by him and his now ex-wife (the third defendant, Ms Jamie Cooper – now 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 Lehtimaki.

The High Court made the following rulings at first instance:

• This was a case in which the trustees of CIFF had surrendered their discretion to the court in relation to the making of the grant.
• The grant would confer a material benefit on Ms Cooper under CIFF’s Memorandum of Association such as to require approval of the Charity Commission.
• The grant was a payment for loss of office under section 215 of the Companies Act 2016 so as to require the approval of CIFF’s members under section 217. This is because it would be a payment made as consideration for Ms Cooper’s retirement as a trustee of CIFF and a payment to a person connected to her (i.e. BWP).
• Sir Christopher and Ms Cooper were deprived of their right (as members of CIFF) to vote on the section 217 resolution, as they were contractually obliged not to do so.
• The grant to BWP would be in the best interests of CIFF; including but not limited to the fact that it would put an end to the governance problems that existed within the charity.
• Subject to the consent of the Charity Commission being obtained , the grant must be approved by the members of CIFF under section 217 (of whom only Dr Lehtimaki was entitled to vote). The court ruled 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 section 217 to approve the grant, it would not be open for them to vote against that resolution once the court and Commission had approved it (as the court had already done so above).

Consequently, and key to the Court of Appeal decision below, Dr Lehtimaki 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.

Court of Appeal Judgment – 6 July 2018

The appeal against the High Court decision was based solely on the sixth ruling above; that Dr Lehtimaki be ordered to vote in favour of a member’s resolution under section 217: to make a grant of US$360m to BWP.

A key passage from the High Court ruling is found at paragraph 154:

“The member does not have a free vote in this case because he is bound by the fiduciary duties I have described and is subject to the court’s inherent jurisdiction over the administration of charities. 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. It is not a case of evaluating where on any scale the court’s approval is located. The court has approved the Grant as being in the best interests of CIFF and charity in the exercise of its discretion and its decision must be respected.”

In the Court of Appeal Dr Lehtimaki argued that the High Court had no jurisdiction to direct him to vote in favour of a resolution to approve the grant. According to his submissions, members of a charitable company, like shareholders of a company, are not fiduciaries. Furthermore, the court would not be entitled to intervene even if they were. Dr Lehtimaki had a role assigned to him under section 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.

In contrast, the respondents submitted that the High Court had an inherent jurisdiction to control and give directions for the regulation of a charity and that Dr Lehtimaki was subject to this whether or not he was a fiduciary.

The Court of Appeal held that:

• Members of CIFF did owe fiduciary duties to the company. Whilst it was not deemed necessary to rule on the precise scope of the duties owed, it was held that such members must exercise the powers that they had, in the way they decided, in good faith, would be most likely to further the purposes of the charity.
• The court (apart from its scheme-making powers) had no wider jurisdiction to control the actions of fiduciaries in the context of charities than, for example, private trusts, and could not direct a fiduciary (including a member of CIFF) as to how to exercise their powers unless they were acting in breach of duty.
• Therefore, the court was not entitled to order Dr Lehtimaki 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.

Consequently, the Court of Appeal overturned the High Court decision – whilst Dr Lehtimaki did owe fiduciary duties to CIFF, the court could not direct him on how to vote, absent a breach of duty on his part. Whilst Dr Lehtimaki should consider the views of the High Court that such a grant would be in CIFF’s best interests, it was reasonably open for him to disagree with this in his assessment.

 Comment

The Supreme Court’s decision will have interesting implications with regards to the role of members within charitable companies. It will remain to be seen whether the court agrees with the High Court and the Court of Appeal that members do owe fiduciary duties, whether it indeed goes further and expands on what these duties encompass, and how it approaches the question as to the circumstances in which the court has jurisdiction to control the actions of such fiduciaries.