Emma Millar looks at a recent Court ruling in divorce proceedings which has attracted much debate in the charity sector
A High Court ruling this summer in Children's Investment Fund Foundation (UK) v Attorney General and others [2017] confirms that members of a charitable company owe a fiduciary duty to the charity. They are not necessarily free to make decisions in their own interest where this would conflict with the best interests of the charity.
While not a definitive ruling by the courts, this view from the High Court is consistent with the approach long-taken by the Charity Commission. It brings charities which are incorporated as companies limited by guarantee into line with charities incorporated as charitable incorporated organisations.
Background
This decision unusually arose from acrimonious divorce proceedings. It involved the charitable activities of a husband and wife and a proposed multi-million pound donation from one charitable company to another in return for the wife's resignation as a trustee/director of the husband's charitable foundation. The court determined that this donation to the wife's charity was in fact a payment for loss of office to the wife in connection with her resignation from her ex-husband's charitable foundation. The payment would therefore require consent from the charity's members (under the Companies Act 2006) and from the Charity Commission (under the Charities Act 2011).
As part of its review, the Court considered the duty of members of charitable companies where their approval was required and the power of the Court to direct the members on their voting obligations. In this instance, one of the foundation's members – and because of contractual agreements entered into between the husband and wife, the only member of the foundation entitled to vote on the transaction – indicated that he would vote against the payment.
The Decision
The Court distinguished the position with non-charitable company members. Charity members "do not generally have a personal proprietary interest in their shares, as they cannot benefit personally from their membership". Going further, the Court resolved that a member voting to further his own interests in a charitable company would be contrary to, and have the potential to undermine the exclusively charitable objects of the charity. This has been the approach of the Charity Commission in its guidance and has been expressed as a statutory requirement for members of charitable incorporated organisations. Taking this into account, the Court has built upon this shift of assumed fiduciary duties to determine that charity members "do not stand outside the charity; they are part of the administration of the charity, and they cannot lay claim to any private interest".
Implications of the decision
This specific decision is unlikely to be appealed and it very much turned on its unusual facts. However, the underlying rationale for the judgment is clear. It gives rise to other questions, especially in relation to the detailed nature and extent of the fiduciary duty. Future consideration of this previously 'grey' area of charity law is likely to develop this premise to protect the assets of a charity and to ensure they are only applied for charitable purposes.
Emma is an Associate in the charities team at Taylor Vinters. She specialises in governance issues and fundraising.
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