Lehtimaki v Cooper

The Court of Appeal allowed the appeal and set aside the Chancellor’s order that a single voting member be directed to vote in favour of a members’ resolution under section 217 of the Companies Act 2006 approving a US$360 million grant. The court held that members of a charitable company such as CIFF can, in appropriate circumstances, owe fiduciary duties analogous to the duty in section 220 of the Charities Act 2011, so that they must exercise membership powers in good faith to further the charity’s purposes. However, the inherent jurisdiction of the court in relation to charities does not permit the court to direct a member how to exercise his vote in the absence of evidence that the member is acting in breach of duty. Applying those principles, the Chancellor was wrong to compel Dr Lehtimäki to vote because there was no material evidence that he was acting in breach of his fiduciary obligations; the statutory role entrusted to members under section 217 and the prior consent requirement in section 201 of the Charities Act 2011 cannot be displaced without such a basis.

This appeal concerned an application to approve a significant grant (US$360 million) by The Children’s Investment Fund Foundation (UK) (CIFF), a company limited by guarantee and a registered charity. CIFF sought court approval for the grant after trustees, the Charity Commission and interested parties had become involved because of potential conflicts and the possible application of provisions governing payments for loss of office under the Companies Act 2006.

The High Court (Sir Geoffrey Vos C) had approved the grant as being in the best interests of CIFF and charity generally, and concluded that the grant amounted to a “payment for loss of office” within section 215 such that approval under section 217 by the members was required; the Chancellor further ordered that the sole voting member, Dr Marko Lehtimäki, be directed by the court to vote in favour of the section 217 resolution.

Issues for the Court of Appeal included:

• whether members of a charitable company limited by guarantee owe fiduciary duties in respect of their membership votes;
• whether the court’s inherent jurisdiction in relation to charities justified directing a member how to exercise a statutory voting power absent a breach of duty;
• whether, on the facts, the Chancellor was entitled to direct Dr Lehtimäki to vote in favour of the resolution.

The Court of Appeal held that (i) members of CIFF do owe fiduciary duties in principle, of a subjective character comparable to the duty imposed on members of a CIO by section 220 of the Charities Act 2011 (that is, to exercise powers in good faith to further the charity’s purposes), but the court need not define the full scope of those duties for present purposes; (ii) the court’s inherent jurisdiction and supervisory role in charity law does not permit the court to direct a fiduciary member how to exercise his powers unless there is evidence of breach of duty (the court will not substitute its judgment for that of properly acting fiduciaries); and (iii) on the facts there was no sufficient evidence of breach by Dr Lehtimäki to justify compelling him to vote, so the Chancellor’s order was not sustainable. The appeal was allowed.

The court also noted the exceptional and unusual character of the case and declined to determine whether the same analysis would apply to mass-membership charities such as the National Trust.

Appeal allowed. The Court of Appeal held that members of a charitable company like CIFF can owe fiduciary duties to exercise membership powers in good faith to further the charity’s purposes (a duty analogous to section 220 of the Charities Act 2011), but the court cannot, by virtue of its inherent jurisdiction in charity matters, direct a member how to vote on a statutory members’ resolution under section 217 of the Companies Act 2006 in the absence of evidence that the member is acting in breach of duty. On the facts there was no such evidence against Dr Lehtimäki, so the Chancellor’s order directing him to vote for the resolution was set aside.

Appeal from the High Court of Justice, Chancery Division (Sir Geoffrey Vos, Chancellor of the High Court): [2017] EWHC 1379 (Ch). This Court (Court of Appeal) allowed the appeal: [2018] EWCA Civ 1605.