Does a member of a charitable company have fiduciary duties towards the charity?

An interesting case relating to The Children Investment Fund Foundation (UK) (“CIFF”)  concluded last week, in which the judge explicitly considered the question as to whether members of a charitable company owe a fiduciary duty to the company to act in its best interests when exercising voting rights. This has been a grey area of charity law for some time.

A member of a non-charitable company is definitely not under any obligation to act in the best interests of the company when exercising their voting rights, but may instead vote in accordance with his own interests and wishes, and there has been no legislation or case law to suggest the situation is any different for charitable companies.

Despite this, it has long been the Charity Commission’s position that members of charitable companies do have such a duty. Its approach has been that if it is possible for the administrative rights of any person (and not just a trustee) in relation to a charity to be exercised not in the best interests of the charity, without there being a breach of duty or trust as a result of that exercise of rights, then that must raise the question as to whether the organisation is founded exclusively for charitable purposes. And, if that is the case, the Charity Commission argues that the organisation is not charitable.

In his decision, Sir Geoffrey Vos, Chancellor of the High Court, briefly reviewed the relevant case law and commented that there was a “dearth of clear authority” on the issue. However, on considering the legislation, and the way in which the regime for charitable entities, trusts and companies has been strengthened over time so as to protect the assets of the charity to ensure they are only applied for charitable purposes, he came to the conclusion that:

  • A charity such as CIFF has public interests only;
  • A member of a charitable company does not “stand outside” the company, but is instead part of its administration and cannot lay claim to any private interest;
  • By assuming the membership, the member also assumed “a responsibility to [CIFF] as would thereby reasonably entitle [CIFF] to expect that [the members would] act in [CIFF’s] interest to the exclusion of [the members’] own or a third party’s interest”.

In the circumstances of this case, it wasn’t necessary to decide the nature or extent of a member’s fiduciary duty, but he agreed with the Charity Commission’s approach that a member of a charitable company had an obligation to use his rights and exercise his votes in the best interests of the charity.

This was only a decision of the High Court, and at present it seems that it will not be appealed, so more definitive guidance on this issue is unlikely. However, the decision is fascinating as a very rare consideration of the point in question, and may give an interesting indication of the approach to be taken by more senior courts in the future.

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