Dr Marko Lehtimäki v The Children's Investment Fund Foundation (UK)

Hearing dates: 16–17 April 2018

Lady Justice Gloster (Vice-President of the Court of Appeal, Civil Division), Lord Justice David Richards and

The origins of charity law long pre-date the recognition of companies limited by guarantee in the Companies Act 1862. Nowadays, however, many charities are companies limited by guarantee without a share capital. They include the claimant, The Children's Investment Fund Foundation (UK) (“CIFF”).

Charity law having to a great extent been developed in the context of charitable trusts rather than charitable corporations, it is not always clear how its principles apply to the latter. In re The French Protestant Hospital [1951] Ch 567 and Liverpool and District Hospital for Diseases of the Heart v Attorney-General [1981] Ch 193 each involved such issues. In the French Protestant Hospital case, Danckwerts J held (at 570) that the governor, deputy governor and directors of a charitable corporation were “as much in a fiduciary position as trustees in regard to any acts which are done respecting the corporation and its property” and that they were, “to all intents and purposes, bound by the rules which affect trustees”. In Liverpool and District Hospital for Diseases of the Heart v Attorney-General, Slade J concluded (at 214) that the position of a charitable company in relation to its assets had “at all times been analogous to that of a trustee for charitable purposes” and that that “suffices to give rise to the jurisdiction of the court to order a cy-près scheme”.

The present appeal similarly stems from features of CIFF which would not exist if it were a charitable trust: the existence of members distinct from its directors (or “trustees”) and the application of section 217 of the Companies Act 2006. In accordance with a judgment handed down on 9 June 2017 ( [2017] EWHC 1379 (Ch), [2018] 2 WLR 259), Sir Geoffrey Vos C ordered the appellant, Dr Marko Lehtimäki, who is a member of CIFF, to vote in favour of a resolution under section 217. Dr Lehtimäki now challenges that order in this Court.

Narrative

CIFF was founded by Sir Christopher Hohn and his then wife, Ms Jamie Cooper, each of whom is a respondent. It now has assets in excess of US$4 billion. Its funding has primarily come from Sir Christopher's businesses, but Sir Christopher and Ms Cooper have each contributed to the charity's success. Until 2013, Ms Cooper was its (unpaid) chief executive officer.

CIFF was incorporated as a company limited by guarantee without a share capital on 8 February 2002. In practice, its aim has been to improve the lives of children in developing countries, but its objects are expressed widely in its memorandum of association as:

“the general purposes of such charitable bodies or for such other purposes for the benefit of the community as shall be exclusively charitable as the Trustees may from time to time determine”.

The memorandum also provides for CIFF to have power to co-operate with other bodies (clause 4.4), to support, administer or set up other charities (clause 4.5), to make grants (clause 4.13) and to do anything else within the law which promotes or helps to promote its objects (clause 4.27).

Other parts of the memorandum are designed to ensure that CIFF's assets are applied exclusively for charitable purposes. Clause 5.1 states that the “property and funds of the Charity must be used only for promoting the Objects and do not belong to the members of the Charity”. Clause 8 provides that, in the event of dissolution, surplus assets must be transferred to another charity or otherwise dealt with in a manner consistent with charitable status.

Clause 5.2 of the memorandum prohibits a “Trustee” (i.e. a director of CIFF) from receiving “any payment of money or other material benefit (whether directly or indirectly)” from CIFF subject to certain exceptions (reasonable out-of-pocket expenses, for example). The only exception of relevance to the present litigation is that found in clause 5.2.5, which permits:

“in exceptional cases, other payments or benefits (but only with the written approval of the Commission [i.e. the Charity Commission for England and Wales] in advance)”.

The term “material benefit” is defined as “a benefit which may not be financial but has a monetary value”.

CIFF's articles of association state that the trustees “as charity trustees have control of the Charity and its property and funds” (article 3.1) and article 6 authorises them, among other things, “to exercise any powers of the charity which are not reserved to a general meeting” (article 6.8). Trustees are, moreover, empowered by article 1.5.4 to remove a member of CIFF “on the ground that in their reasonable opinion the member's continued membership is harmful to the Charity”. For their part, the members have power to elect persons to be trustees to fill vacancies (article 2.8.4) and, in certain circumstances, to remove trustees (article 3.7.5). The articles also provide for an AGM to be held each year at which, among other things, the members “discuss and determine any issues of policy or deal with any other business put before them” (article 2.8.7).

CIFF has only ever had a few members. They are now Sir Christopher, Ms Cooper and Dr Lehtimäki, a university friend of Sir Christopher and Ms Cooper. Dr Lehtimäki, who had been a member from the outset, ceased to be one in 2009, but he was reappointed as such in 2012.

There have been more trustees. These have included Sir Christopher, Ms Cooper and, until he resigned in 2009, Dr Lehtimäki (so that he is at present a member but not a trustee). However, CIFF has also had, and still has, a number of other trustees.

The present litigation has its origins in the breakdown of the relationship between Sir Christopher and Ms Cooper. Ms Cooper began divorce proceedings in 2012 and the couple were divorced in the following year. Subsequently, Ms Cooper was paid some US$530 million by Sir Christopher pursuant to an order made in December 2014.

Lord Malloch-Brown, who was a trustee of CIFF between 2011 and 2016, has explained that the “severe and challenging differences between Sir Christopher and Ms Cooper” gave rise to real difficulties in the management of CIFF. In April 2015, however, the various parties entered into agreements which it was hoped would resolve the problems. At the heart of what was agreed was a proposal for CIFF to make a grant of US$360 million (“the Grant”) to what became Big Win Philanthropy (“BWP”), a charity that Ms Cooper set up in mid-2015. Under the April agreements, CIFF, by a letter written on its behalf by Lord Malloch-Brown, agreed to make the Grant subject to approval from either the Charity Commission or the Court. For their part, Sir Christopher and Ms Cooper sent CIFF's board a “Letter of Intent” in their “capacity as Members and Trustees” reporting that “all outstanding matters and all conflicts have now been settled” and then stating:

“In a letter from [Ms Cooper's] solicitors to the trustees' solicitors dated 13 February 2015, [Ms Cooper] requested a grant from [CIFF] in an amount of $500m for the purposes of enabling her to establish a new UK charitable foundation (the ‘New Foundation’). In a letter from [the trustees' solicitors] to us dated 11 March 2015, the trustees responded to [Ms Cooper's] request by proposing a grant in the amount of $360m (the ‘Proposed Grant’) to the New Foundation …. [Ms Cooper] now accepts that $360m is the appropriate amount for the Proposed Grant from [CIFF] and [Sir Christopher] has agreed to support the application before the Board of [CIFF], and in the board's application for approval to the Charity Commission or any tribunal or court that may have jurisdiction. For the avoidance of doubt such support shall not require any active steps to be taken by [Sir Christopher] beyond confirming the same in writing in the form of Appendix 1 when required to do so ….

Because both of [Ms Cooper] and [Sir Christopher], as trustees of [CIFF], have a conflict of interest, neither will vote on the Proposed Grant.

After the Board's approval of the Proposed Grant … and its submission to the Charity Commission, [Ms Cooper] will forthwith recuse herself from all involvement with [CIFF], whether as a member, trustee or otherwise, save to pursue payment of the Proposed Grant through the Charity Commission, relevant tribunal or court, which recusal will remain in place pending her resignation as a trustee and member of [CIFF]. … [Sir Christopher] will take no steps, directly or indirectly, through a third party or otherwise, to indicate that he is in opposition to the Proposed Grant. [Ms Cooper] will resign as a trustee and member of [CIFF] with immediate and permanent effect on the determination in respect of the Proposed Grant by the Charity Commission / tribunal / court as the case may be, and for the...