Lehtimäki v The Children's Investment Fund Foundation (UK) & Ors

Members of a charitable company limited by guarantee can owe fiduciary duties even though shareholders of an ordinary company generally do not. Their powers concern assets dedicated exclusively to charitable purposes, rather than proprietary rights in those assets. A member must exercise those powers in the way he or she decides, in good faith, is most likely to further the charity’s purposes. The duty is subjective. The court’s supervisory jurisdiction over charities does not generally permit it to substitute its view for that of a fiduciary or direct a vote merely because it considers another course expedient. Outside scheme-making, intervention requires breach of duty. Where legislation entrusts approval to members, that statutory role cannot be removed without impropriety.

The charitable company CIFF sought approval for a US$360 million grant to Big Win Philanthropy, a charity associated with Jamie Cooper, a former trustee. The High Court held that the grant required member approval under section 217 of the Companies Act 2006 and directed Dr Lehtimäki, the only member entitled to vote, to vote in favour after the necessary approvals.

The appeal was limited to that direction. The issues were whether CIFF’s members owed fiduciary duties, whether the court’s inherent jurisdiction over charities permitted it to direct a member’s vote without breach of duty, and whether the order was justified on the facts.

1. The appeal was allowed. The Chancellor was not entitled to direct Dr Lehtimäki to vote in favour of the resolution approving the grant.
2. Members of a charitable company such as CIFF do not hold proprietary interests in its assets. Their membership gives them functions in the administration of property dedicated exclusively to charitable purposes. Unlike ordinary shareholders, they may therefore occupy a fiduciary position. The court agreed with the conclusion that CIFF’s members owed fiduciary duties.
3. The precise scope of those duties did not need to be determined. A member’s duty corresponds to the obligation imposed on members of a charitable incorporated organisation by section 220 of the Charities Act 2011: the member must exercise the powers held in that capacity in the way he or she decides, in good faith, would be most likely to further the charity’s purposes. The duty is subjective.
4. The court’s jurisdiction over charities is important but, apart from its scheme-making jurisdiction, is not wider than its jurisdiction over private trusts. It may restrain or control a fiduciary where there is breach of duty, but cannot substitute its own view merely because it would have reached a different decision. The authorities concerning schemes did not justify an order directing a vote where no scheme had been sought.
5. Sections 217 of the Companies Act 2006 and 201 of the Charities Act 2011 entrusted approval of the transaction to the company’s members, subject to the Charity Commission’s consent. That statutory role could not properly be removed without impropriety. The evidence did not show that Dr Lehtimäki was acting, or proposing to act, in breach of fiduciary duty. His disagreement with a difficult and counter-intuitive decision was reasonably open to him and was not itself bad faith.

1. Court of Appeal (Civil Division) The appeal was allowed.
2. High Court of Justice, Chancery Division Sir Geoffrey Vos, Chancellor of the High Court, ordered Dr Lehtimäki to vote in favour of the resolution approving the grant: [2017] EWHC 1379 (Ch) .