Summary

The Supreme Court has today delivered a landmark judgment on issues of equity and charity law. In Cooper v Lehtïmaki; Re The Children’s Investment Fund Foundation (UK) [2020] UKSC 33, the Supreme Court held that the members of a charitable company stood in a fiduciary relationship vis-à-vis the objects of the charity, and that the court had an “inherent” and “exceptional” jurisdiction to direct a (fiduciary) member of the charity to vote in favour of a resolution to approve a payment of US$360 million to a charity under the management of a retiring trustee.

Ryan Turner was instructed by Charles Lloyd and Richard Hoggart of Macfarlanes LLP on behalf of the principal respondent as part of a counsel team led by Guy Morpuss QC, along with Professor Sarah Worthington QC and Theo Barclay.

Maitland Chambers is described as “one of the go-to sets for charities law” in Chambers & Partners. Barristers of all seniorities — from leading silks to junior-juniors — are regularly instructed to appear in, and advise on, contentious charity matters.

Facts

The proceedings occurred in the wake of the divorce of the appellant, Ms Jamie Cooper, and the fourth respondent, Sir Christopher Hohn. Both Ms Cooper and Sir Christopher were “trustees” and members of a well-known charitable company limited by guarantee, the Children’s Investment Fund Foundation (UK) (the “foundation”). In order to bring about a separation between Ms Cooper and the foundation, Ms Cooper and Sir Christopher agreed that they would cause the foundation to make a grant of US$360 million to a new charity established by Ms Cooper and that Ms Cooper would resign from the foundation.

In order for the foundation to make the grant, the approval of the members was required under s 217 of the Companies Act 2006. Ms Cooper and Sir Christopher contractually agreed not to vote on an approval resolution, so that the passage of the resolution turned on the assent of the (independent) third member of the charity. The time for the independent member to vote on the resolution had not yet arrived and the independent member had not yet decided whether he would, or would not, vote in favour of the grant. As Lady Arden recorded in her judgment, the independent member had taken a neutral stance, but had conscientiously set out how he would approach the decision and the considerations that he would take into account if he were allowed to have a “free” vote.

The “trustees” of the charity surrendered to the court the power to make the grant on behalf of the foundation and, at first instance, Chancellor Vos determined that it was in the best interests of the charity for the grant to be made (albeit that a reasonable trustee or fiduciary could reach a different view). On the basis of that assessment, Chancellor Vos then directed the independent member (who had not surrendered his discretion to the court) to vote in favour of a resolution approving the grant. It was in these circumstances that the Supreme Court was concerned with two questions:

(1) Whether the members of the company were fiduciaries and, therefore, subject to the control of the court as such; and

(2) Whether the court had jurisdiction to direct the independent member how to vote on the resolution.

Held

The Supreme Court held that the members of a charitable company (generally — and not only the members of this foundation) stand in a fiduciary relationship vis-à-vis the charitable objects of the company, but not the charitable company itself. As such, the Supreme Court held, the members of the foundation were amenable to the control of the court in the performance of that fiduciary office. Helpfully, Lady Arden provided some (obiter) guidance in the course of her judgment as to what a fiduciary member should and should not do, but at the same time held that the duties of the fiduciary member will need to be worked out in the particular circumstances of each charity as a question in respect of these duties arises (at [200]). The guidance that Lady Arden has given and the general conclusion reached by the Supreme Court is likely to give charity practitioners and the administrators of charities considerable pause for thought in managing membership-based charities. It will require the administrators of charities to consider whether change to the constitutional architecture is necessary or desirable, as well as whether changes in practice are required to allow members to duly perform their fiduciary office.

The Supreme Court also held that it had jurisdiction to direct the (fiduciary) member how to exercise his vote on a resolution under s 217 of the Companies Act 2006. The source of that jurisdiction, and the principled basis for it, is less clear from the judgment of Lady Arden (see paras [119], [123], [129], [137], and [157]). As a result, it will be necessary in future to work out the limits of the jurisdiction exercised in this instance.

Lord Briggs (with whom Lord Wilson and Lord Kitchin agreed) wrote a concurring judgment in which they agreed with the conclusions of Lady Arden. However, Lord Briggs also attempted a shorter route to the same conclusion (albeit it was a shorter route that Lady Arden expressly and forcefully dissented from). On Lord Briggs’ analysis, the determination by the Chancellor that the grant was in the best interests of the charity was the end of the matter. If the (fiduciary) member proposed to act other than in accordance with the Chancellor’s determination, he would be acting in breach of his “fiduciary duty” (see [208]). This was so notwithstanding that the independent member had not surrendered the performance of his fiduciary office to the court, that he might bring different skills, evidence, and knowledge to bear on his decision, and that, absent the Chancellor’s determination, the member would be acting in good faith in the way that he considered to be in the best interests of the charity despite reaching a different conclusion.

The reasoning of Lady Arden and, in particular, Lord Briggs on the jurisdictional question is likely to have consequences beyond charity law where power under a trust is granted to a protector or enforcer who occupies a fiduciary office. It follows from Lord Briggs’ reasoning that if the consent of such a protector or enforcer is required to a proposed course of action by a trustee, the trustee may surrender their power to the court (if one of the limited grounds for surrender is made out) and obtain a determination that a proposed course of action is in the best interests of the beneficiaries of the trust, and by joining the protector or enforcer, bind them to the court’s determination. Indeed, this may provide a work-around if faced with an obstinate protector or enforcer who occupies a fiduciary office.

The judgment has been reported with neutral citation Cooper v Lehtïmaki; Re The Children’s Investment Fund Foundation (UK) [2020] UKSC 33. Further commentary is available on the Supreme Court’s website here.