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Judgment of the Court of Appeal in Lehtimäki v The Children’s Investment Fund Foundation (UK) and others [2018] EWCA Civ 1605

Mark Mullen appeared for HM Attorney General before the Court of Appeal in Lehtimäki v The Children’s Investment Fund Foundation (UK) and others [2018] EWCA Civ 1605.

In the claim, the claimant (‘CIFF’), a company limited by guarantee and a registered charity, sought approval of the making of a grant of $360 million to a new charity established by one of its directors.

CIFF was founded by Sir Christopher Hohn, and his then wife, Ms Jamie Cooper. It had assets in excess of $4 billion and its charitable activity was focused on children’s health in the developing world. As a result of the breakdown of the relationship between Sir Christopher and Ms Cooper, the charity encountered governance difficulties and, to resolve these, it was agreed that Ms Cooper would found a new charity, Big Win Philanthropy (‘BWP’), and retire as a director of CIFF. Subject to the approval of the Court, CIFF would make a grant of $360 million to BWP and it was further agreed that Sir Christopher would cause a further $40 million to be donated to it. If the grant were to be approved by the Court, Ms Cooper agreed that she would donate a further $40 million to the new charity.

The Chancellor, at first instance, approved the grant in the exceptional circumstances of the case, but determined that it would constitute a ‘material benefit’ to Ms Cooper such as to require the approval of the Charity Commission under the terms of CIFF’s constitution. It further constituted a payment to a director for loss of office for the purposes of sections 215 and 217 of the Companies Act 2006 and would thus require approval by a resolution of members of the company, with the prior consent of the Charity Commission.

The Chancellor went on to consider the nature of the interest of a member of a charitable company and whether such a member could be directed to vote in favour of a resolution approving the payment of the grant under 217 of the Companies Act 2006.

He concluded that the members of CIFF owed fiduciary duties to act in its best interests and not to act under a conflict of interests when considering the resolution. The members of the company were part of the administration of the charity and subject to the Court’s inherent jurisdiction over its administration. The sole unconflicted member, Dr Marko Lehtimäki, was bound by his fiduciary duty and could not gainsay the decision of the Court that the making of the grant was in the charity’s best interests. The Court had jurisdiction to direct him to vote in favour of the resolution and did so.

Dr Lehtimäki appealed, contending (i) that he was not a fiduciary and (ii) that, in any event, the Court could not direct him how to vote.

The Court of Appeal (Gloster, David Richards and Newey LJJ) approved the Chancellor’s finding that Dr Lehtimäki was a fiduciary and part of the administrative machinery of the charity but, again following the Chancellor, declined to give guidance as to whether members of other charities, such as those with large memberships, would similarly have fiduciary duties. Dr Lehtimäki, in the circumstances of this case, owed equivalent duties to members of a Charitable Incorporated Organisation, that is to say that he was required to exercise the powers that he has in that capacity in the way that he decided, in good faith, would be most likely to further the purposes of CIFF.

Absent breach of duty by the fiduciary, however, the Court was not entitled to direct his vote. He court did not consider that Dr Lehtimäki’s evidence betrayed any breach of duty on his part. The Court therefore considered that the Chancellor was not entitled to direct Dr Lehtimäki’s vote.

The full judgment is available here.