Lehtimäki and others v Cooper

The Supreme Court allowed the appeal and held that, in a charitable company formed as a company limited by guarantee, a member may in relation to certain exercises of membership rights (including a members' approval under section 217 of the Companies Act 2006) owe fiduciary duties to the charity's purposes. The court considered the scope of the non-intervention principle and concluded that, in exceptional circumstances, the court may exercise its supervisory jurisdiction over charities to direct a member how to vote where the trustees have validly surrendered their discretion to the court and the court has decided the transaction is in the charity's best interests.

The court rejected the alternative route of treating the member's refusal to follow the court's decision as necessarily a threatened breach of fiduciary duty for the purpose of founding jurisdiction. It held that the court's power to give directions flows from the charity supervisory jurisdiction as an exception to the non-intervention principle; the Companies Act 2006 and the Charities Act 2011 are not to be read as implicitly ousting that inherent jurisdiction in the circumstances of the case.

Background and parties:

• CIFF is a charitable company limited by guarantee with substantial assets. A proposed transaction (the Grant) would transfer funds to a new charity established by one of CIFF's founders, Ms Cooper, in exchange for her resignation as a member and trustee.
• The trustees sought the court's approval of the Grant after the Charity Commission authorised proceedings. The Chancellor approved the Grant and directed the sole unconflicted member, Dr Lehtimäki, to vote in favour of the section 217 resolution. The Court of Appeal set aside that part of the Chancellor's order. The Supreme Court heard the appeal.

Nature of the application:

• The relief sought was approval of the proposed Grant and, consequentially, a direction that the only unconflicted member should vote in favour of the members' resolution required by section 217 of the Companies Act 2006.

Issues framed by the court:

1. Whether a member of a charitable guarantee company (such as CIFF) is a fiduciary in relation to the charitable objects for the purposes of exercising membership rights relevant to a disposition of charitable assets.
2. If a member is a fiduciary, whether circumstances had arisen in which the court could exercise its jurisdiction over that fiduciary in relation to the section 217 resolution (the non-intervention principle and its exceptions).
3. Whether section 217 (and the related Charities Act 2011 provisions) precludes the court directing a member how to vote when Parliament provided for members to approve such payments.

Reasoning and disposition:

• The Court held that members of charitable guarantee companies may owe fiduciary duties to the charity's objects in relation to powers that effect dispositions of charitable assets; those duties are adaptable to the corporate context and are not necessarily co-extensive with all trustee duties.
• The court accepted the non-intervention principle as the general rule but identified that, in rare and exceptional circumstances, the court's supervisory jurisdiction over charities can be exercised (by direction, not only by scheme) so as to protect the charity's purposes where trustees have surrendered their discretion to the court and the court has decided the transaction is in the charity's best interests.
• The court concluded that the Companies Act 2006 (section 217) and Charities Act 2011 (section 201) do not implicitly prevent the court from making such a direction; statutory requirements for a members' resolution and Charity Commission consent remain, but they are not an insurmountable bar to an appropriate court direction in exceptional cases.
• The court disapproved of founding jurisdiction solely on the proposition that a member who votes contrary to the court's decision is ipso facto in breach of duty; rather the court's jurisdiction must be established (here by exception to non-intervention) before giving directions.

Procedural history:

• First instance: Chancellor of the High Court approved the Grant and directed the member to vote ([2018] Ch 371).
• Court of Appeal: allowed the member's appeal and set aside the direction ([2018] EWCA Civ 1605; reported at [2019] Ch 139 in discussion).
• Supreme Court: allowed the appeal and would restore the Chancellor's direction in the circumstances explained.

Appeal allowed. The Court held that (1) members of charitable guarantee companies may owe fiduciary duties to the charity's purposes in respect of membership powers that effect dispositions of charitable assets; (2) despite the non-intervention principle, in exceptional circumstances (here where trustees surrendered their discretion and the court decided the transaction was in the charity's best interests) the court can exercise its supervisory jurisdiction to direct a member how to vote; (3) the court's power to give such directions is not impliedly ousted by section 217 of the Companies Act 2006 or by the Charities Act 2011, though statutory requirements (including Charity Commission consent) remain. The Court rejected the alternative theory that jurisdiction could be founded simply on a threatened breach of fiduciary duty in these circumstances.

The application was determined by the Chancellor of the High Court who approved the Grant and directed the member to vote (Chancery Division, reported [2018] Ch 371). The Court of Appeal allowed the member's appeal and set aside that part of the Chancellor's order ([2018] EWCA Civ 1605). The matter was then heard by the Supreme Court ([2020] UKSC 33) which allowed the appeal.