In the recent decision of The Children’s Investment Fund Foundation v. A.G. et al., the English High Court of Justice (the “Court”) considered a request by a registered charity with substantial assets, The Children’s Investment Fund Foundation (“CIFF”), for direction concerning proposed payment of a US$360 million grant (the “Grant”) to another English registered charity. CIFF is a company limited by guarantee without a share capital governed by the Companies Act 2006 (UK) in England. While the Court’s decision in the CIFF case involves consideration of legislation and case law in England and Wales, given the shared common law jurisprudence, charities in Canada may find the English Court’s novel comments regarding the fiduciary duties of members of charities to be of interest.
Given the complexity of the background facts, it is beyond the scope of this article to provide a complete summary of the CIFF case. However, in general terms, CIFF was co-founded by two spouses, who were both trustees and members of CIFF. There was one additional individual who served as a member of CIFF (“Third Member”); CIFF also had a few other trustees. As a result of the breakdown of the marriage between the founders, it was agreed that the wife would resign as member and trustee of CIFF. It was also agreed that the Grant would be paid by CIFF to a new charity established by the wife.
One of the issues considered by the Court was whether the payment of the Grant was a “payment for loss of office to a director” for purposes of sections 215 and 217 of the Companies Act, 2006 (UK), which would require that the Grant be sanctioned by a resolution of the members of CIFF before being paid. The Court found that the payment of the Grant did constitute payment for loss of office of a director within the meaning of section 215 since the payment was made in connection with the wife’s retirement from office as a trustee. While the wife and husband had earlier agreed in writing not to vote on the Grant proposal, the question remained whether the Third Member could use his discretion to vote for or against the Grant.
The Court stated that since the payment of the Grant was approved by the Charity Commission (which governs registered charities in England and Wales) and was also approved by the Court as being expressly in the best interests of CIFF, the Third Member did not have the discretion to vote against the Grant. Instead, the Court stated that the Third Member was “bound by the fiduciary duties” owed to CIFF and subject to the court’s inherent jurisdiction over the administration of charities. The Court also affirmed its agreement with the Charity Commission’s publication which stated that the “… ‘members have an obligation to use their rights and exercise their vote in the best interests of the charity for which they are a member’.”
In providing reasons to support the Court’s statements indicating that members had a fiduciary duty to act in the best interests of CIFF, the Court stated, “[i]n my judgment, a member of a company limited by guarantee without a share capital with exclusively charitable objects is bound in to the regime now contained in the Charities Act 2011 (UK), the whole thrust of which is to ensure that the assets of the company are used for its exclusively charitable objects and for no other purpose. There are numerous provisions designed to prevent the trustees and members benefitting personally from the assets of the charity. Even on a winding up, the assets must go to other charitable purposes.” As it was not necessary to decide the nature and extent of the members’ fiduciary duties in the context of the CIFF case, the Court did not provide further comments in that regard.