A member of a charity has a fiduciary duty to act in the best interest of the charity?
July 2020 | Insights | Jon Cheung and Seak-King Huang
On 29 July 2020, the Supreme Court of the United Kingdom handed down its judgment in Lehtimäki and others v Cooper  UKSC 33, which confirmed that members of charitable companies in the United Kingdom are fiduciaries and must therefore make decisions and act in the companies’ best interests (that is, to serve the purposes of the charities) to the exclusion of their own or any other party’s interests.
The issues in Lehtimäki centered on a proposed $360 million grant from The Children’s Investment Fund Foundation (‘CIFF’), a United Kingdom charitable company, to another charity, Big Win Philanthropy. CIFF applied for judicial approval to make the grant. This grant had to be approved by the members of CIFF. Dr. Mario Lehtimäki was the only member able to vote on the proposed grant. At the center of the case were the questions about whether he could be ordered by the Court to vote in favor of the grant and how his vote should be exercised. The matter was on appeal to the Supreme Court after decisions at the first instance in the High Court (Chancery Division) and a subsequent appeal to the Court of Appeal (Civil Division).
The Supreme Court’s decision was that:
- Dr. Lehtimäki had a fiduciary duty as a member to act in the best interests of CIFF;
- as a fiduciary, circumstances had arisen such that the court could exercise jurisdiction to intervene in the exercise of the discretion Dr. Lehtimäki had as a member; and
- in the circumstances, the Court had power direct Dr. Lehtimäki to exercise his discretion in a particular way.
In its unanimous decision, the Supreme Court described the relationship of Dr. Lehtimäki and CIFF as a “contract-and-statute-based model” as it arose from both the contract that is formed between a member and the company upon admission of the member to membership and UK company law.
While the circumstances that led to the case are unique, notably, the Supreme Court also indicated that the fiduciary relationship between charities and their members apply to charitable companies with small and large memberships.
Implications for Australian charitable companies
In the Australian context, Lehtimäki could be persuasive in Australian courts for the view that a member of a company limited by guarantee (a very common legal structure for charities in Australia) should also be seen as a fiduciary who must act in the interest of the company to the exclusion of his or her own or a third party’s interest.
However, as stated in Lehtimäki, ‘the precise circumstances in which the member of a charitable company has fiduciary duties in relation to the charitable purposes and the content of those duties will have to be worked out when they arise’. That is to say, the duty is a subjective one.
There is logic to this where a charity is concerned because it is fundamental that a charity is ‘other focussed’ – a charity exists for its purposes, for the benefit of others rather than the charity or its members themselves. Member rights (and certainly, member entitlements) are not charitable purposes.
Already, responsible persons (directors and board members) of Australian registered charities have a duty to act in good faith in the charity’s best interests and to further the purposes of the registered charity.
Implications of these principles for Australian charitable companies include the considerations and conduct of members, particular when voting in a general meeting in respect of matters such as:
- significant transactions and payments
- property acquisitions and divestments
- mergers and disaggregations
- disputes resolution.
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