Children's Investment Fund Foundation (UK) v Attorney General and Others
| Jurisdiction | England & Wales |
| Neutral Citation | [2020] UKSC 33 |
| Court | Supreme Court |
2020 Jan 14, 15; July 29
Charity - Charitable company - Jurisdiction of High Court - Extent of court’s jurisdiction over members of charitable company - Payment of grant to new charity requiring resolution of company’s members - Whether members owing fiduciary duty to company - Whether court having jurisdiction to direct member how to vote on resolution -
The claimant, an English registered charity and a company limited by guarantee without a share capital, was founded by the second and third defendants, who were two of its directors and, along with the fourth defendant, its only members. Following a breakdown in the relationship between the second and third defendants, an accommodation was reached under which the third defendant agreed to resign as a member and director of the claimant and the claimant agreed to make a substantial grant to a new registered charity, also a company limited by guarantee without a share capital, established by the third defendant. Pursuant to the authorisation of the Charity Commission, the claimant applied to the court for approval to make the grant. The judge held that the payment of the grant was a payment for loss of office to a director of the claimant, within section 215 of the Companies Act 2006F1, with the consequence that by section 217 it could not be made unless it had been approved by a resolution of the claimant’s members. Finding that the making of the grant would be in the best interests of the claimant, the judge directed the fourth defendant to vote in favour of such a resolution. The Court of Appeal allowed the fourth defendant’s appeal, holding: (i) that the claimant’s members, including the fourth defendant, owed fiduciary duties to act in its best interests, thus engaging the court’s jurisdiction over fiduciaries; but (ii) that the court could not direct the fourth defendant how to exercise his fiduciary powers since he was not acting, or proposing to act, in breach of duty; and (iii) that it would be against the express intention of Parliament for the court to direct the fourth defendant how to exercise his discretion under section 217 of the 2006 Act since there had been no impropriety on his part.
On appeal by the third defendant—
Held, allowing the appeal (Lord Reed PSC dubitante but concurring in the order), (1) that a member of a charitable company limited by guarantee whose memorandum and articles of association contained restrictions preventing members from receiving profits from the company owed a fiduciary duty of single-minded loyalty to the charitable purposes or objects of the company; that, in the context of a resolution under section 217 of the Companies Act 2006 which involved a disposition of assets that would otherwise be available for application by the company towards those objects, that duty required a member to consider whether the resolution should be passed by considering only the best interests of the objects of the company; and that, accordingly, the fourth defendant was a fiduciary in relation to the objects of the claimant (post, paras 44–45, 50, 72, 78–83, 100–101, 200, 205, 215).
(2) That (per Lord Briggs, Lord Kitchin JJSC and Lord Wilson), like other charitable trustees, the directors of a charitable company had the power to surrender to the court the exercise of their fiduciary discretion about a particular matter, which surrender the court might or might not accept; that once the court had accepted such surrender, it would exercise that discretion in accordance with what it considered would best further the charitable purposes of the company, after hearing evidence and submissions from interested parties and the Attorney General; that if the surrender related to the approval or disapproval of a particular proposed transaction the court would have to decide whether the transaction was, or was not, in furtherance of the company’s charitable purposes; that once the court’s decision on the merits of the transaction had been made it was binding and the duty of the charity’s fiduciaries, whether or not they had been joined as parties, was to use their powers to ensure that the decision was implemented, both generally and in accordance with any directions which the court had given for that purpose; that, therefore, since the claimant’s directors had surrendered to the court their discretion whether to make the grant and the court had decided that the making of the grant furthered the claimant’s charitable purposes, the fourth defendant would commit a plain breach of his fiduciary duty if he were to decline to vote on the resolution under section 217 of the 2006 Act in accordance with that decision; or that (per Lady Arden JSC) the exceptional circumstances of the present case represented an exception to the non-intervention principle under which the court would not substitute its judgment for that of a fiduciary unless he was acting, or threatening to act, in breach of duty; and that, accordingly, in the circumstances the court could exercise its jurisdiction over fiduciaries in relation to the fourth defendant (post, paras 137, 201, 206–208, 218).
(3) That the purpose of section 217 of the 2006 Act was not to veto transactions in which a director or a connected person had an interest but to ensure there was adequate disclosure and approval by the company in general meeting; that the protection given by Parliament by section 217 was, in any event, subject to being rendered less effective by the company exercising other powers, such as the right to attach special rights to shares; that, therefore, there could not be any policy objection from the perspective of company law preventing a court, under the law of charities, from directing a member how to vote on a section 217 resolution; that where the directors or trustees of a charity had surrendered their discretion to the court and the court had reached the unchallenged conclusion that it was in the best interests of the charity for the resolution to be passed, the court could give a direction to a fiduciary as to the manner in which to vote on the section 217 resolution and the 2006 Act did not by implication prevent the court from making such an order; and that, accordingly, it was open to the court to make an order which compelled the fourth defendant to vote on the section 217 resolution in a particular way (post, paras 157, 159, 162, 165, 173, 202, 205, 210).
The following cases are referred to in the judgments:
Andrews v M‘Guffog (
Arklow Investments Ltd v Maclean [
Armitage v Nurse [
Ashton Charity, In re (
Assénagon Asset Management SA v Irish Bank Resolution Corpn Ltd (formerly Anglo Irish Bank Corpn Ltd)
Attorney General v Bishop of Worcester (
Attorney General v Black (
Attorney General v Brown (
Attorney General v Dean and Canons of Christ Church (
Attorney General v Dedham School (
Attorney General v Exeter Corpn (
Attorney General v Governors of Christ’s Hospital [
Attorney General v Governors of Foundling Hospital (
Attorney General v Governors of Sherborne Grammar School (
Attorney General v Haberdashers’ Company (
Attorney General v Harrow School (
Baden’s Deed Trusts, In re [
Bolton v Madden (
Bristol and West Building Society v Mothew [
Bushell v Faith [
Chapman v Chapman [
Chinachem Charitable Foundation Ltd v Secretary for Justice
Citibank NA v MBIA Assurance SA
Clephane v Lord Provost of Edinburgh (
Comrs for Special Purposes of Income Tax v Pemsel [
Construction Industry Training Board v Attorney General [
Cowan v Scargill [
Egerton Trust Retirement Benefit Scheme, In re (unreported) 1995, Robert Walker J
F & C Alternative Investments (Holdings) Ltd v Barthelemy (No 2)
French Protestant Hospital, In re [
Garnham v PC [
Gaudiya Mission v Brahmachary [
Girls’ Public Day School Trust Ltd, In re [
Goldcorp Exchange Ltd, In re [
Grimaldi v Chameleon Mining NL (No 2)
Hampden v Earl of Buckinghamshire [
JW Laing Trust, In re [
John Shaw & Sons (Salford) Ltd v Shaw [
Kerr v British Leyland (Staff) Trustees Ltd [
Lacey, Ex p (
Letterstedt v Broers (
Liverpool and District Hospital for Diseases of the Heart v Attorney General [
National Anti-Vivisection Society v Inland Revenue Comrs [
Northern Counties Securities Ltd v Jackson & Steeple Ltd [
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