A Supreme Court ruling has reaffirmed that members of charitable companies have fiduciary duties and can be controlled by the courts – unlocking $4oom for UK charity Big Win Philanthropy.
The Supreme Court has this morning (29 July) unanimously allowed an appeal brought by philanthropist Jamie Cooper against a 2018 decision of the Court of Appeal. The Supreme Court’s ruling confirms that members of charitable companies have fiduciary duties and can be controlled by the courts, and will lead to the unlocking of $440m for UK charity, Big Win Philanthropy.
Bates Wells acted for Jamie Cooper in the High Court, Court of Appeal and Supreme Court. Partner Leticia Jennings, who led on the litigation for Bates Wells commented:
“This is the most important charity law case in many years. It has clarified many issues relating to members of charitable companies and their duties, as well as resolving frictions found in company law when it comes to charitable companies. This was the right decision in law and the right decision for charity.”
The case centred on whether The Children’s Investment Fund Foundation (CIFF) should make a grant to Big Win Philanthropy. CIFF was co-founded by Jamie Cooper and her then husband, Sir Chris Hohn. Following their divorce, Cooper set up Big Win Philanthropy.
Back in 2017 the High Court decided, on the application of The Children’s Investment Fund Foundation’s (CIFF) trustees and with the support of Cooper and HM Attorney General, that it was in CIFF’s best interests to make a grant of $360m to the charity, with Cooper stepping down from the Foundation.
The High Court decided that company law required a single, unconflicted member of CIFF to approve the grant and ordered Foundation member Dr Lehtimaki to approve it on the grounds that he was a fiduciary who should not be permitted to take a different decision once the court had decided what was in CIFF’s interests.
This was challenged successfully in the the Court of Appeal but the Supreme Court has now overturned the Court of Appeal’s decision that such an order was only possible if there was an actual or threatened breach of duty and the money must now be granted.
Bates Wells’ Head of Charity and Social Enterprise, Philip Kirkpatrick commented:
“The issue here is actually surprisingly simple. The Supreme Court has confirmed that the courts can control the members of charitable companies just as it can control their trustees. Charitable companies are different from other companies and their members do not have a special status standing outside the charity but are part of its administrative machinery.”
Jamie Cooper founding Chair and President of Big Win Philanthropy said:
“I am extremely gratified by the Supreme Court’s decision. This will enable Big Win Philanthropy to significantly expand its support to African leaders pursuing ambitious initiatives to improve the lives of children and young people. I am very grateful to my legal team who worked so hard to achieve this result.”
A summary of the case
Leticia Jennings, a Partner in Bates Wells’ Dispute Resolution & Litigation team, summarises the significance of the case. She leads on a variety of contentious matters with a particular focus on litigation relating to charities, charity governance and charity legacies. She regularly speaks at industry events and contributes commentary and know-how to leading publications on these issues.
The Children’s Investment Fund Foundation (UK) (“CIFF”) is a charitable company limited by guarantee. Its stated mission is to improve the lives of children in developing countries. CIFF was established in 2002 by Sir Christopher Hohn and Ms Jamie Cooper, who were then married.
Governance issues arose when their marriage broke down. An agreement was reached to resolve those issues whilst ensuring that Ms Cooper could continue to deploy her considerable talents and commitment to philanthropy. The parties agreed that Ms Cooper would resign as a member and trustee of CIFF, and that CIFF would make a grant of $360 million to Big Win Philanthropy, a new UK charity founded by Ms Cooper. Complementary agreements reached by the parties were intended to result in a total of $440 million available for Big Win Philanthropy’s important work supporting African leaders pursuing ambitious initiatives to improve the lives of children and young people.
The parties agreed that CIFF would seek permission from the Charity Commission or the High Court to make the grant. The Commission declined jurisdiction but did give CIFF permission (under s.115 Charities Act 2011) to seek the High Court’s approval of the grant.
In 2017 the High Court ( EWHC 1379 (Ch)) decided that the making of the grant was in CIFF’s best interests, but that as it represented a technical payment for loss of office it required a members’ vote under s.217 Companies Act 2006 and s.201 Charities Act 2011.
The High Court ordered the only non-conflicted member (Dr Marko Lehtimäki) to vote in favour of the grant. The High Court also found that, as a member of CIFF, Dr Lehtimäki was a fiduciary and that, once the Court had approved the grant, he would be in breach of his fiduciary duty if he voted against it.
Despite having no personal interest in the matter, and despite not appealing the Court’s decision that the making of the grant was in CIFF’s best interest (in fact, at no point during the five years since the original deal was done has Dr Lehtimäki openly stated how he would vote if he had a free vote), Dr Lehtimäki appealed the High Court’s decision to direct him how to vote.
Whilst the Court of Appeal ( EWCA Civ 1605) agreed that Dr Lehtimäki is a fiduciary, they overturned the High Court’s decision to direct Dr Lehtimäki how to vote, on the basis that (in the Court of Appeal’s view) the Court cannot direct a fiduciary how to exercise his powers (including voting powers) unless he is acting in breach of duty.
The Court of Appeal found that, apart from its scheme-making powers, the Court has no wider jurisdiction to control the actions of fiduciaries in the context of charities than in private companies or private trusts. The Court of Appeal declined to find that CIFF being a charity made any difference at all.
Ms Cooper appealed to the Supreme Court ( UKSC 33). The question that the Supreme Court had to answer was does the Court have jurisdiction to direct members of a charitable company how to vote absent a breach or threatened breach of fiduciary duty? The Court was also asked to decide (by Sir Christopher and Dr Lehtimäki) whether both the High Court and Court of Appeal were right to find that Dr Lehtimäki is a fiduciary.
The Supreme Court unanimously allowed Ms Cooper’s appeal and reinstated the High Court’s judgment. The Supreme Court found that as a member of CIFF Dr Lehtimäki is a fiduciary and that the Court does have jurisdiction to direct him how to vote.
Find out more about Big Win Philanthropy.