Supreme Court Judgment on Children’s Investment Fund Foundation

On 29 July 2020, the Supreme Court issued its Judgment in relation to the charity law case Lehtimaki and others v Cooper [2020] UKSC 33 which is also known as the CIFF case.

The recent Judgment in this case by the Supreme Court is significant with the Court finding that members of a charitable company, in addition to its trustees, owe the charitable company a fiduciary duty. A fiduciary is someone who is in a position of trust and confidence and a fiduciary relationship arises between a trustee and beneficiary in the context of a charity.

The case involved the Children’s Investment Fund Foundation, a charitable company, founded by a married couple who are known throughout the case as Sir Christopher Hohn and Ms Cooper. Following the relationship breakdown, Ms Cooper set up a new charitable company called Big Win Philanthropy (“BWP”) and it was agreed that Ms Cooper would then resign as a member and trustee of CIFF. One of the conditions of Ms Cooper’s resignation was that BWP would receive a $360m grant from CIFF.

Sir Christopher Hohn and Ms Cooper were both trustees and members of CIFF whilst Dr Marko Lehtimaki was the only third member. The members had to vote on this agreement but due to conflicts of interest Sir Christopher Hohn and Ms Cooper surrendered their decision to the Court with Dr Lehtimaki being the only member able to vote.

In the High Court, Dr Lehtimaki was ordered to vote in favour of the resolution approving the grant in line with the High Court’s view that a grant would be in the best interests of both charities and it was held that the members owed fiduciary duties to the charitable company when voting on certain decisions.

On appeal, the Court found that it could not direct Dr Lehtimaki to exercise his powers in a particular way but, importantly, upheld the view that members of a charitable company owe the company a fiduciary duty and must take decisions in the best interests of the company.

Ms Cooper appealed the Court of Appeal’s decision and on 29 July 2020, the Supreme Court ordered that Dr Lehtimaki vote in favour of the resolution approving the grant. The Supreme Court held that Dr Lehtimaki was a fiduciary as a member of a charitable company and as such was required to vote in the best interests of the charity. Consequently, the Court was able to direct a member how to vote.

Whilst it has been acknowledged in the Judgement that the circumstances in this case are quite “rare”, it is interesting that the Supreme Court has now confirmed that a member of a charitable company (in this case a company limited by guarantee) also owes the charitable company a fiduciary duty. The case is important as it impacts on members with voting rights within charitable companies as they must take decisions and vote for the furtherance of the charity’s purposes rather than for their own individual motives.

Throughout the Judgment, it is clear that the extent and nature of the fiduciary duty of members is dependent on the specific circumstances of a charitable company with the Court stating that members will have to work out the scope of their fiduciary duties as and when the duty arises.

In the case, a question also arose as to whether members of charities where there is mass membership are also fiduciaries, however, the Court agreed to leave these issues for the time being but it was decided that all the principles within the case would apply to charitable companies “large or small”.

Therefore, the case is important as it demonstrates that members of charitable companies will have to exercise fiduciary duties particularly in relation to the furtherance of the charities objects and purpose but the extent of these duties depend on the charitable purposes and the individual circumstances of the charity and the decision that is being made.

Posted on: 20/08/2020

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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