Lehtimaki v CIFF [2018] EWCA Civ 1605

WTLR Issue: Summer 2018 #172

DR MARKO LEHTIMÄKI

V

(1) THE CHILDREN’S INVESTMENT FUND FOUNDATION (UK)

(2) H.M. ATTORNEY GENERAL

(3) SIR CHRISTOPHER HOHN

(4) JAMIE COOPER

Analysis

The Children’s Investment Fund Foundation (UK) (‘CIFF’) was incorporated as a company limited by guarantee without a share capital on 8 February 2002 with the aim of improving the lives of children in developing countries. It had been founded by two of the respondents, Sir Christopher Hohn and his then wife, Jamie Cooper. Each of them, both of whom were members and trustees, had contributed to the charity’s success. The only other member, though not a trustee, was the Appellant. The present litigation had its origins in the breakdown of the relationship between Sir Christopher Hohn and Jamie Cooper, giving rise to difficulties in the management of CIFF. In April 2015, however, the various parties entered into agreements by which it was hoped would resolve the problems. This included a proposal for CIFF to make a grant of US$360m (‘Grant’) to a charity set up by Jamie Cooper that became known as Big Win Philanthropy (‘BWP’). CIFF agreed to make the Grant subject to approval from either the Charity Commission or the Court. It was also agreed that after Jamie Cooper’s resignation as a member and trustee of CIFF, Sir Christopher Hohn would arrange for what became BWP to benefit from a further $40m. CIFF issued proceedings with the authority of the Charity Commission seeking Court approval of the Grant. One of the issues was whether the Grant would be a payment for loss of office by Jamie Cooper so as to require the approval of the members of CIFF under s217 of the Companies Act 2006. The Chancellor concluded that the making of the grant would be a payment for loss of office so as to require the approval of the members of CIFF because it would constitute consideration for and in connection with Jamie Cooper’s retirement from office as a trustee of CIFF and a payment to a person connected with her, namely BWP. However, as both Sir Christopher Hohn and Jamie Cooper could not vote because of a conflict of interest, the Appellant (being the only other member of CIFF) was directed to vote in favour of a resolution of CIFF approving the Grant. The Appellant appealed on the ground that the Chancellor had no jurisdiction to direct him to vote in favour of a resolution to approve the Grant.

 

Held (allowing the appeal):

In general, the members of a company, unlike directors, were not subject to fiduciary duties. They were required to exercise their votes in good faith for the benefit of the company. Votes were proprietary rights, being incidents of shares, which the holder may exercise in his or her own interests. However, membership of a charitable company limited by guarantee was very different from ownership of shares in a non-charitable company. The assets of a charitable company, being established for charitable purposes only, were devoted exclusively to charitable purposes, not to private interests of its members. It brought with it, not property, but functions in connection with assets appropriated to charity in which a member had no personal stake. Thus, a member of CIFF assumed a responsibility to the charity as would thereby reasonably entitle the charity to expect that he or she would act in the charity’s interest to the exclusion of his or her own or a third party’s interest and to exercise the powers which they did have to promote the charity’s interests. By analogy to case law on powers relating to the administration of trusts which have been held to have a fiduciary character, the Chancellor was correct to conclude that members of CIFF owed fiduciary duties in the exercise of their powers directed at aspects of the administration of the charity designed to achieve the charity’s exclusively charitable objects. The duty corresponded to the duty imposed by s220 of the Charities Act 2011 on members of charitable incorporated organisations to exercise the powers they have in that capacity in the way that they decide, in good faith, would be most likely to further its charitable purposes. It should be stressed, however, that this duty was subjective. In other words, the member must exercise the powers that he has in a way that he decides, in good faith, would be most likely to further the purposes of 
CIFF.

There was no authority in case law that cast light on whether the Court could give directions to members, directors or trustees of a charity wherever it considers that expedient, in the absence of either a scheme or a breach of duty. Apart from its scheme-making powers, a Court had no wider jurisdiction to control the actions of fiduciaries in the context of charities than private trusts. Accordingly, a Court could not direct a fiduciary (including a member of CIFF) how to exercise his powers unless he was acting in breach of duty. In the present case, there is a further reason for thinking that the Court could not be justified in intervening unless it was apparent that the Appellant was acting improperly; between them, s217 of the Companies Act 2006 and s201 of the Charities Act 2011 required a payment such as the Grant ‘to be approved by a resolution of the members of the company’ with ‘the prior written consent of the [Charity] Commission’. Parliament had entrusted this responsibility to the members of a company, not only for the generality of companies but specifically and expressly for charitable companies. The Chancellor considered that the Charity Commission should be afforded its statutory opportunity to consider whether to approve the making of a members’ resolution but made an order denying the Appellant any choice as to whether to approve the transaction in accordance with s217 of the Companies Act 2006. In effect, he was being prevented from playing the part that Parliament had assigned to him and, for that reason, it would be inappropriate to interfere with the statutory scheme in such a way unless there were improprieties. It followed, therefore, that the Chancellor was not entitled to order the Appellant to vote for a resolution approving the payment of the Grant unless there was evidence that he was acting in breach of fiduciary duty and, on the facts of this case, there was no significant evidence to suggest that the Appellant was acting, or proposing to act, in breach of duty. Accordingly, the Chancellor was not entitled to order the Appellant to vote for the approval of the Grant.

<![CDATA[ Judgment LADY JUSTICE GLOSTER (VICE-PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION), LORD JUSTICE DAVID RICHARDS AND LORD JUSTICE NEWEY: [1] The origins of charity law long pre-date the recognition of companies limited by guarantee in the Companies Act 1862. Nowadays, however, many charities are companies limited by guarantee without a share capital. They …
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Counsel Details

Mr Guy Morpuss QC instructed by Macfarlanes LLP (20 Cursitor Street, London, EC4A 1LT, tel 020 7831 9222, fax 020 7831 9607) for the appellant.
Mr William Henderson (Serle Court, 6 New Square, Lincoln’s Inn, London WC2A 3QS, tel 020 7242 6105, fax 020 7405 4004) instructed by Linklaters LLP (One Silk Street, London, EC2Y 8HQ, tel 020 7456 2000, fax 020 7456 2222, e-mail: enquiries@linklaters.com) for the first respondent.
Mr Mark Mullen (11 New Square London, London WC2A 3QB, tel 020 7831 0081 fax 020 7405 2560 e-mail: swilliams@radcliffechambers.com) instructed by the Government Legal Department (One Kemble Street, London WC2B 4TS, e-mail: thetreasurysolicitor@governmentlegal.gov.uk) for the second respondent.
Mr Robert Ham QC (Wilberforce Chambers, 8 New Square, Lincoln’s Inn, London WC2A 3QP, tel 020 7306 0102, fax 020 7306 0095) instructed by Withers LLP (16 Old Bailey, London, EC4M 7EG, tel 020 7597 6364, fax 020 7597 6543, e-mail: enquiries.uk@withersworldwide.com) for the third respondent.

Lord Pannick QC (Blackstone Chambers, Blackstone House, Temple, London, EC4Y 9BW, tel 020 7583 1770, fax 020 7822 7350, e-mail: clerks@blackstonechambers.com), Mr Simon Taube QC (Ten Old Square, Lincoln’s Inn, London WC2A 3SU, tel 020 7405 0758, fax 020 7831 8237, email: clerks@tenoldsquare.com) and Mr Edward Cumming QC (24 Old Buildings, Lincoln’s Inn, London WC2A 3UP, tel 020 7691 2424, fax 0870 460 2178, e-mail: clerks@xxiv.co.uk) instructed by Bates Wells Braithwaite LLP (10 Queen Street Place, London, EC4R 1BE, tel 020 7551 7777, fax 020 7551 7800, e-mail:mail@bwbllp.com) for the fourth respondent.

Cases Referenced

Legislation Referenced

  • Charities Act 1960, s13
  • Charities Act 1960, ss45
  • Charities Act 2011, s1
  • Charities Act 2011, s115
  • Charities Act 2011, s201
  • Companies Act 1986
  • Companies Act 2006, s215
  • Companies Act 2006, s217
  • Companies Act 2006, s33