Lehtimäki v The Children's Investment Fund Foundation (UK) & Ors

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.

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:

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:

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:

The letter proceeded to refer to contributions of US$40 million to the “New Foundation” (later BWP) to be made by Sir Christopher and Ms Cooper. In this respect, the letter said:

The April agreements were taken forward in July 2015 by a further series of documents. A company associated with Sir Christopher and Ms Cooper executed deeds of covenant in respect of the $40 million gifts that they were to make to BWP (subject, in Ms Cooper’s case, to the Grant being approved). Ms Cooper also executed a deed providing for her resignation as a member and trustee of CIFF. CIFF told BWP in a letter that it would make a grant to it of US$360 million on condition that the Charity Commission or the Court approved. The Grant was “intended to establish an endowment fund for the Recipient … to enable it to generate income for the benefit of children and young persons in low-income countries around the world”. It seems that the potential impact of section 217 of the Companies Act 2006 was not appreciated at this stage.

On 20 December 2016, a company associated with Sir Christopher paid BWP US$40 million pursuant to the deed of covenant entered into in July 2015.

The present proceedings were issued by CIFF on 15 June 2016, the Charity Commission having authorised them under section 115 of the Charities Act 2011 on 7 June. In essence, CIFF sought Court approval of the Grant.

When the matter came before the Chancellor, he identified the following as the main issues (in paragraph 11 of his judgment):

It will be seen that these issues referred to sections 215 and 217 of the Companies Act 2006. Those provisions are concerned with payments for loss of office. Section 215 defines “payment for loss of office” to include a payment to a director or past director of a company “as consideration for or in connection with his retirement from his office as director of the company” (section 215(1)(c)) and states that, for the purposes of sections 217 to 221, “payment to a person connected with a director … is treated as payment to the director” (section 215(3)(a)). Section 217(1) provides that a company “may not make a payment for loss of office to a director of the company unless the payment has been approved by a resolution of the members of the company”.

Section 217 of the Companies Act 2006 is referred to in section 201 of the Charities Act 2011. The latter provision, headed “Consent of Commission required for approval etc. by members of charitable companies”, says this:

The Chancellor summarised his conclusions as follows (in paragraph 157 of his judgment):

As regards paragraph 20(v) above, the Chancellor said this:

There is no challenge to the Chancellor’s conclusions in paragraph 20(i)-(v). The focus of the appeal is exclusively on paragraph 20(vi). So far as that sub-paragraph is concerned, the Chancellor concluded that members of CIFF “owe fiduciary duties to act in the best interests of CIFF and not to act under a conflict of interest in considering a section 217 resolution”, observing, among other things, that it would be “contrary to the whole regime established by the increasingly prescriptive legislative regime reflected in the Charities Act 2011 if the member of a company such as CIFF could vote in his own interests or in a manner detrimental to the charitable objects of the company” (see paragraphs 137 and 145 of the judgment). Going on, the Chancellor said this:

It is also to be noted that the Chancellor explained:

In paragraph 135 of his judgment, that he was:

In paragraph 150 of his judgment, that he took the view that the Charity Commission “should be given its statutory opportunity in the light of this judgment to consider whether to approve the making of a members’ resolution under section 217 of the Companies Act”.

Mr Guy Morpuss QC, who appeared for Dr Lehtimäki, submitted that the Chancellor had no jurisdiction to direct his client to vote in favour of a resolution to approve the Grant. According to Mr Morpuss, CIFF’s members are not fiduciaries, but the Court would not be entitled to intervene even if they were. Dr Lehtimäki, Mr Morpuss said, has had a role assigned to him by section 217 of the Companies Act 2006, and the Court could interfere with his exercise of his discretion only if he were acting in breach of duty, which he is not. Mr Robert Ham QC, who appeared for Sir Christopher, agreed.

In contrast, Lord Pannick QC, who appeared for Ms Cooper with Mr Simon Taube QC and Mr Edward Cumming QC, supported the Chancellor’s decision, as did Mr Mark Mullen, who appeared for the Attorney General. Lord Pannick and Mr Mullen each submitted that the Chancellor was right to conclude that Dr Lehtimäki owed fiduciary duties. The leitmotiv of Lord Pannick’s submissions was, however, that the Court has an inherent jurisdiction to supervise, control, and give directions for the regulation of the administration of a charity, where the Court considers this expedient. Lord Pannick maintained that Dr Lehtimäki is subject to this jurisdiction whether or not he is to be regarded as a fiduciary. The Chancellor was, in the circumstances, so Lord Pannick said, entitled to order Dr Lehtimäki to approve the Grant so as to prevent him from frustrating the Chancellor’s (unappealed) determination that it is in the best interests of CIFF.

Mr Morpuss suggested that four ingredients can be extracted from paragraph 154 of the judgment, in which the Chancellor explained the legal basis for his decision. One is that “the trustees of CIFF bound CIFF in relinquishing their discretion to the court”. A second is that the Charity Commission “contemplated that the court might make directions aimed at procuring the passing of any necessary section 217 resolution”. The third and fourth are encapsulated in the sentence, “The member does not have a free vote in this case because he is bound by the fiduciary duties I have described and is subject to the court’s inherent jurisdiction over the administration of charities”: in other words, the Chancellor was relying on (a) the fact (as he saw it) that members of CIFF have fiduciary obligations and (b) the Court’s inherent jurisdiction over charities.

The battleground before us was on these last points. We did not understand either Lord Pannick or Mr Mullen to contend that the Court could direct Dr Lehtimäki how to vote merely because the Charity Commission envisaged that directions might be given in relation to a section 217 resolution or because there had been a surrender of discretion. They were, moreover, right not to advance such submissions. The fact that the Charity Commission contemplated the possibility of directions in connection with a section 217 resolution cannot have served to confer on the Court a power to override Dr Lehtimäki that it did not otherwise have. Further, CIFF’s trustees had surrendered their discretion to the Court, but had, as we see it, no power to surrender any discretion that Dr Lehtimäki enjoyed, and Dr Lehtimäki himself has been very clear that he is not surrendering any discretion.

In the circumstances, the issues we need to address are these:

Is Dr Lehtimäki subject to any (and, if so, what) fiduciary duties (“the Fiduciary Duties Issue”)?

Is the Court’s inherent jurisdiction in relation to charities extensive enough to allow it to order a member to exercise a discretion in a particular way regardless of whether there is evidence of breach of duty on the part of the member (“the Inherent Jurisdiction Issue”)?

In the light of the answers to the previous questions, was the Chancellor entitled, on the facts of the present case, to direct Dr Lehtimäki to vote for a resolution under section 217 of the Companies Act 2006 approving the payment of the Grant (“the Present Case Issue”)?

We shall take these points in turn, but should first note that, while helpfully drawing the Court’s attention to certain matters, Mr William Henderson, who appeared for CIFF, sensibly did not advance substantive submissions.

As a general rule, the directors of a company are subject to fiduciary duties but its shareholders are not. Although the case law contains statements to the effect that members of a company must exercise their votes “bona fide for the benefit of the company as a whole” (stemming, it seems, from Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656, at 671), it has also been “repeatedly laid down that votes are proprietary rights, like other incidents of shares, which the holder may exercise in his or her own selfish interests even if these are opposed to those of the company” (Gower’s Principles of Modern Company Law, 10^th ed., at paragraph 19-4). As Dixon J observed in Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457, the shareholders of a company “are not trustees for one another, and unlike directors, they occupy no fiduciary position and are under no fiduciary duties”. “They vote”, Dixon J continued, “in respect of their shares, which are property, and the right to vote is attached to the share itself as an incident of property to be enjoyed and exercised for the owner’s personal advantage”.

Mr Morpuss argued that, in this respect, the members of a charitable company limited by guarantee are in no different position. Far from having fiduciary obligations, Mr Morpuss said, they are entitled to vote in their own interests, without regard to the interests of the charity.

Mr Morpuss sought support for his submissions in passages from textbooks on charity law (Picarda, “The Law and Practice Relating to Charities”, 4^th ed., at 287, and Tudor on Charities, 10^th ed., at paragraphs 17-003 to 17-005). He also referred us to the highly influential work by Finn J (as he was later to become), “Fiduciary Obligations”, dating from 1977. Finn J observed (in paragraph 13 of “Fiduciary Obligations”) that those recognised as fiduciaries “possess certain common characteristics”:

To illustrate the problems to which an imposition of fiduciary duties would give rise, Mr Morpuss cited the National Trust. It would, he said, be impossible to police fiduciary obligations owed by the very large number of members of such an organisation. Further, members would be unable to vote if, say, a resolution were proposed to remove the right to free parking at National Trust properties.

Mr Morpuss also drew a comparison with section 220 of the Charities Act 2011 (by which Parliament expressly stipulated that each member of a charitable incorporated organisation (or “CIO”) “must exercise the powers that the member has in that capacity in the way that the member decides, in good faith, would be most likely to further the purposes of the CIO”) and relied on Bolton v Madden (1873-74) LR 9 QB 55. That case concerned a charity whose objects were selected by its subscribers. It was agreed between the parties, who were both subscribers, that the plaintiff would vote for an object favoured by the defendant, who, in return, would vote at the next election for an object favoured by the plaintiff. The defendant having failed to fulfil his promise, a question was raised as to whether it was enforceable. The Court of Queen’s Bench held that it was. Blackburn J, giving the judgment of the Court, said:

For his part, Mr Ham said that, unlike its directors, CIFF’s members “sit outside the company”. He also invoked the principle that “a power can be exercised only for the purpose for which it is conferred, and not for any extraneous or ulterior purpose” (to quote from Millett J’s judgment in In re Courage Group’s Pension Schemes [1987] 1 WLR 495, at 505), manifested in the trust context in the “fraud on a power” doctrine. This means, Mr Ham said, that any exercise of his voting rights by a member of a charitable company for an improper purpose (e.g. to obtain a personal benefit for himself from the charity) would be invalid irrespective of whether he is a fiduciary. There can therefore, Mr Ham suggested, be no question of needing to recognise fiduciary duties to prevent such conduct.

On the other hand, membership of a charitable company limited by guarantee is very different from ownership of shares in a non-charitable company. A company cannot be charitable without being “established for charitable purposes only” (see section 1(1) of the Charities Act 2011). Its assets will be devoted exclusively to charitable purposes, not the private interests of its members. While, therefore, a share is property and the right to vote attached to it “an incident of property to be enjoyed and exercised for the owner’s personal advantage”, membership of a charitable company confers no proprietary rights. It brings with it, not property, but functions in connection with assets appropriated to charity in which the member has no personal stake. In the particular case of CIFF, the point is reinforced by the provisions mentioned in paragraph 6 above (stipulating, for example, that “property and funds of the Charity must be used only for promoting the Objects and do not belong to the members of the Charity”).

Turning to the “common characteristics” that Finn J identified in “Fiduciary Obligations”, the arguments for saying that a member of CIFF lacks them do not appear to us to be compelling. In the first place, there is, as it seems to us, a very strong case for considering such membership to exist for the benefit of the charity, not the member. After all, as we have already said, CIFF is “established for charitable purposes only” and its assets “must be used only for promoting the Objects and do not belong to the members”. Secondly, while the provisions of a company’s constitution “bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions” (section 33(1) of the Companies Act 2006), “the articles of association of a company differ very considerably from a normal contract” (per Dillon LJ in Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693, at 696) and they derive their binding force “not from a bargain struck between parties but from the terms of the statute” (per Steyn LJ in the Bratton Seymour case, at 698). Moreover, the powers and duties of members of a charitable company, like those of its directors, will depend on the general law as well as the memorandum and articles. Thirdly, we do not see why the limited extent of members’ powers or the fact that a regulator such as the Charity Commission can potentially intervene in certain circumstances should be taken to mean that they do not have sufficient responsibility for determining how their powers are exercised. The focus must be on the extent to which they are constrained in the powers that they do have, and they are less obviously exposed to Charity Commission supervision than directors, who are undoubtedly fiduciaries.

It is also to be noted that Finn J said this on the subject of “who is a ‘fiduciary’” in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 as a member of the Federal Court of Australia (at paragraph 177):

In the present case, a member of CIFF can, we think, be said to assume by his membership “a responsibility to [CIFF] as would thereby reasonably entitle [CIFF] to expect that he or she will act in [CIFF’s] interest to the exclusion of his or her own or a third party’s interest” and to acquire powers “to promote … the interests of [CIFF] alone”.

Several cases dealing with the status of power-holders in private trusts also, as it seems to us, lend at least a degree of support to the proposition that members of CIFF have fiduciary duties. The earliest such case to which we were referred is Re Skeats’ Settlement (1889) 42 Ch D 522. That case concerned a marriage settlement which empowered the husband and wife to appoint any “other” person to be a trustee or trustees. They purported to appoint the husband and another person as trustees, but the appointment was held invalid, in part on the basis that the power had a “fiduciary character”. Kay J said (at 526):

The next case, Vestey’s Executors v Inland Revenue Commissioners [1949] 1 All ER 1108, involved a trust under which the trustees were required to invest at the direction of “authorised persons” (initially, the settlors). The House of Lords held that the authorised persons’ power of direction was (in the words of the headnote) “a fiduciary power and must be used, not to benefit themselves, but in the best interests of the beneficiaries”. Lord Simonds said (at 1115):

In the final case, Inland Revenue Commissioners v Schroder [1983] STC 480, a trust provided for the settlor to have power to appoint members of a “committee of protectors”, which itself could appoint and remove trustees. Vinelott J said this about these powers (at 500):

Powers relating to the administration of trusts have thus been held to have a fiduciary character. An analogy can be drawn with the powers that members of CIFF have in connection with its administration. It is noteworthy, too, that the Charity Commission has said as regards “Members’ voting obligations” that it “considers that the rights that exist in relation to the administration of a charitable institution are fiduciary, regardless of the identity of the person or persons on whom the rights are conferred” (see “RS7 – Membership Charities”).

We do not think that Bolton v Madden shows otherwise. Mr Morpuss himself spoke of the decision as an “indicator”, not an “answer”. It related to subscribers rather than members and there is no mention in the report of fiduciary duties.

In all the circumstances, we agree with the Chancellor that members of CIFF owe fiduciary duties. It seems to us that, contrary to Mr Ham’s submissions, members do not “sit outside the company” but are (as the Chancellor said) “part of the administration of the charity” with “powers that are all directed at aspects of the management and administration of the charity designed to achieve the charity’s exclusively charitable objects” (see paragraphs 141 and 145 of the judgment).

It does not necessarily follow that members of charities such as the National Trust also have fiduciary obligations. Since we are not dealing with such an organisation, we do not need to decide whether their members are in the same position as CIFF’s. There may possibly, moreover, be scope for argument as to whether it is less reasonable to expect those belonging to mass-membership charities to act exclusively in the charities’ interests. That said, it is far from clear that it should be legitimate for members of, say, the National Trust to vote to obtain benefits for themselves from an entity with exclusively charitable objects.

Mr Ham reminded us of these well-known words of Frankfurter J in Securities & Exchange Commission v Chenery Corporation 318 US 80 (1943):

Like the Chancellor, we do not think it necessary to rule on the precise scope of the fiduciary duties owed by members of CIFF. It is sufficient to say that a member of CIFF owes, in our view, a duty corresponding to that specifically imposed on members of CIOs by section 220 of the Charities Act 2011. In other words, the member must exercise the powers that he has in that capacity in the way that he decides, in good faith, would be most likely to further the purposes of CIFF. It should be stressed that this duty is subjective: in other words, that what matters is the member’s state of mind (compare e.g. Regentcrest plc v Cohen [2001] 2 BCLC 80, at paragraph 120, dealing with company directors).

The next question is whether the Court’s inherent jurisdiction in relation to charities is extensive enough to allow it to order a member to exercise a discretion in a particular way regardless of whether there is evidence of breach of duty on the part of the member.

In general, the Court is slow to interfere with the exercise of discretion by fiduciaries (such as we have held members of CIFF to be). Numerous trust cases show that to be the case. In Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705, Robert Walker J explained (at 717) that trustees must “act in good faith, responsibly and reasonably” and “inform themselves, before making a decision, of matters which are relevant to the decision”. As, however, Lord Walker (as he had by then become) noted in Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108 (at paragraph 73), it is not enough to justify judicial intervention to show that “the trustees’ deliberations have fallen short of the highest possible standards, or that the court would, on a surrender of discretion by the trustees, have acted in a different way”. Rather longer ago, Lord Truro LC said in Re Beloved Wilkes’s Charity (1851) 3 Mac & G 440 (which, as the name indicates, related to a charity) (at 448):

Ms Cooper and the Attorney General, however, maintain that different principles apply in relation to charities. It is their case that the Court can give directions to members of charitable companies (or, as appropriate, directors of such companies or trustees of charitable trusts) where it considers that expedient in the administration of the charities.

It is, of course, very well-established that the Attorney General and the Court have important functions in relation to charities. In Gaudiya Mission v Brahmachary [1998] Ch 341, Mummery LJ observed (at 350) that “[u]nder English law charity has always received special treatment” and that “[a]lthough not a state institution, a charity is subject to the constitutional protection of the Crown as parens patriae, acting through the Attorney-General, to the state supervision of the Charity Commissioners and to the judicial supervision of the High Court”. In Stanway v Attorney General (5 April 2000, unreported), Sir Richard Scott V-C said:

Lord Pannick relied on Construction Industry Training Board v Attorney General [1973] Ch 173 and In re J. W. Laing Trust [1984] Ch 143 as demonstrating the breadth of the Court’s jurisdiction in relation to charities. Taking these in reverse order, the J. W. Laing case involved an application by the trustee of a charity for a scheme enabling the trustees for the time being to be discharged from an obligation to distribute capital within 10 years of the settlor’s death. The trustee contended that the scheme should be ordered under either section 13 of the Charities Act 1960 (dealing with cy-près schemes) or the inherent jurisdiction of the Court. Peter Gibson J decided that section 13 was not applicable, but approved the scheme in exercise of the inherent jurisdiction, taking the view (at 155) that the requirement as to distribution of capital was “inexpedient in the very altered circumstances of the charity”. He had earlier (at 153) accepted a submission that, in the context of the inherent jurisdiction, “the court is not fettered by the particular conditions imposed by section 13(1)(e)(iii) [of the Charities Act 1960], but can, and should, take into account all the circumstances of the charity, including how the charity has been distributing its money, in considering whether it is expedient to regulate the administration of the charity by removing the requirement as to distribution within ten years of the settlor's death”.

We do not think that this authority is of any help in the present case. Schemes are a distinctive feature of charity law. There is more than one species. A scheme may be made (by the Attorney General on the Crown’s behalf under the sign manual if no trust has been imposed and otherwise by either the Charity Commission or the Court) where property is given for charity, but the purposes are uncertain. A cy-près scheme involves altering a charity’s purposes. An administrative scheme enables changes to be made to the administrative provisions governing a charity. In the J. W. Laing case, Peter Gibson J approved a scheme of the last of these types. In the present case, in contrast, no one has ever applied for any kind of scheme and there is nothing in either the Chancellor’s judgment or his order to suggest that he was approving a scheme. In the course of his oral submissions, Lord Pannick suggested that “the term ‘scheme’ is simply the label given to an order in relation to its judgment as to what is expedient, advantageous, in the interests of charity”, but we do not think that is right. The Chancellor cannot, as we see it, be taken to have made an order for a scheme when no one had asked him to do so and he was not purporting to exercise any scheme jurisdiction. In that connection, it is noteworthy that in Chinachem Charitable Foundation Ltd v The Secretary of Justice [2015] HKCFA 35, Lord Walker NPJ referred to a scheme as “a written instrument approved by the court to regulate, in whole or in part, the future management and administration of the trust”. The Chancellor’s order did not provide for the approval of such a “written instrument”. The circumstances in which the Court can make a scheme are not, in the circumstances, relevant. In any case, we cannot see either how a scheme could obviate a need to comply with section 217 of the Companies Act 2006 or that the Court’s scheme jurisdiction could enable it to interfere with a member’s vote on a resolution under that provision where it would not otherwise be entitled to do so.

Turning to Construction Industry Training Board v Attorney-General, the question here was whether the Construction Industry Training Board was registrable as a charity. This turned on whether it was “subject to the control of the High Court in the exercise of the court’s jurisdiction with respect to charities” within the meaning of section 45(1) of the Charities Act 1960 (see now section 1(1) of the Charities Act 2011). The Court of Appeal had to consider the significance of (a) “the court’s jurisdiction with respect to charities” and (b) “subject to the control of the High Court”. With regard to the former, Russell LJ, having noted that the term “charity proceedings” was defined to refer to proceedings “brought under the court’s jurisdiction with respect to charities, or brought under the court’s jurisdiction with respect to trusts in relation to the administration of a trust for charitable purposes”, said this (at 181):

The Court divided on whether the Construction Industry Training Board was “subject to the control of the High Court”, the majority (Buckley LJ and Plowman J) considering that it was and, hence, that it was a charity, Russell LJ disagreeing. As to this, Russell LJ said (at 184):

Lord Pannick submitted that the broad nature of the Court’s jurisdiction can be seen in, for example, Buckley LJ’s observation that “an order approving a scheme for the administration of the charity which has been laid before the court … is not the only way in which the court can exercise jurisdiction in respect of a charity or over charity trustees” and Russell LJ’s reference to the Court having “power generally to supervise and direct the administration”. We do not think, however, that the Construction Industry Training Board case in fact casts any light on whether the Court can give directions to members, directors or trustees of a charity wherever it considers that expedient, in the absence of either a scheme or a breach of duty. The Court did not need to consider, and did not attempt to rule on, any such issue. Its concerns were essentially as to, first, whether “the court’s jurisdiction with respect to charities” extended beyond scheme-making (in particular, to the Court’s “general jurisdiction in respect of enforcement of trusts”) and, secondly, whether powers that the Minister of Labour had in relation to the Construction Industry Training Board rendered it insufficiently “subject to the control of the High Court”.

Lord Pannick also made reference to the rule in Saunders v Vautier (1841) Beav 115. The rule is summarised in Snell’s Equity, 33^rd. ed., as follows (at paragraph 29-030):

For his part, Mr Mullen took us to Attorney General v Gleg (1738) 1 Atk 356, a decision of Lord Hardwicke LC. The brief report includes this:

Mr Mullen relied, too, on Attorney General v Dedham School (1857) 23 Beav 350. That case, however, involved an order for a scheme and so is not in point here. Nor, for similar reasons, is In re Royal Society’s Charitable Trusts [1956] Ch 87, a case to which we were taken by Lord Pannick, where Vaisey J concluded (at 92) that the Court had jurisdiction, “at the instance of the trustees … where the Attorney-General consents or does not object”, to authorise certain proposals “by way of scheme”.

Support for the view that the Court does not have as wide a jurisdiction to give directions as Lord Pannick and Mr Mullen suggested is to be found, for example, in the passage from Re Beloved Wilkes’s Charity quoted in paragraph 50 above; in Lewin on Trusts, 19^th ed., which (at paragraph 29-338) expresses the view that charitable trusts are covered by the “Principle of non-intervention” applicable to private trusts; and in the decision of the Upper Tribunal (Tax and Chancery Chamber) (Warren J and Upper Tribunal Judges Alison McKenna and Elizabeth Ovey) in R (Independent Schools Council) v Charity Commission [2011] UKUT 421 (TCC), [2012] Ch 214. When considering what a school with charitable status must do to operate for the public benefit (in accordance with the Charities Act 2006), the Tribunal said (at paragraph 220 of its decision):

The upshot, in our view, is that, apart from its scheme-making powers, the Court has no wider jurisdiction to control the actions of fiduciaries in the context of charities than, say, private trusts. The Court cannot, accordingly, direct a fiduciary (including a member of CIFF) how to exercise his powers unless he is acting in breach of duty. Important though its role in relation to charities is, the Court is not entitled, absent a breach of duty, to substitute its view for that of the fiduciary. If, contrary to the conclusion we reached above, a member of CIFF were not subject to any fiduciary duties, the Court could have no more (in fact, less) power to control the member. In short, the answer to the question posed in paragraph 49 above is “No”.

That does not strike us as a surprising conclusion. It is very far from evident that the Court should be able to override the views of a charity’s duly appointed organs if they are fulfilling their roles properly, the more so since those organs will typically be more familiar with the charity’s affairs and work than a Judge. In fact, we agree with Mr Ham that there would be a risk of dis-incentivising not only donors, but also members and trustees, if the Court could order a charity’s trustees and members to exercise their powers in ways that they did not consider appropriate merely because the Court thought that expedient.

In the present case, there is a further reason for thinking that the Court could not be justified in intervening unless it were apparent that Dr Lehtimäki was acting improperly. Between them, section 217 of the Companies Act 2006 and section 201 of the Charities Act 2011 require a payment such as the Grant to be “approved by a resolution of the members of the company” with “the prior written consent of the [Charity] Commission”. It is significant that Parliament has entrusted this responsibility to the members of a company, not only for the generality of companies but specifically and expressly for charitable companies. The Chancellor considered that the Charity Commission should be afforded “its statutory opportunity … to consider whether to approve the making of a members’ resolution under section 217 of the Companies Act”, but made an order denying Dr Lehtimäki any choice as to whether to approve the transaction in accordance with section 217. In effect, Dr Lehtimäki is being prevented from playing the part that, in the circumstances, Parliament has assigned to him. We do not think that it could be appropriate to interfere with the statutory scheme in such a way unless there were impropriety.

The conclusions we have arrived at thus far mean that the Chancellor would not have been entitled to order Dr Lehtimäki to vote for a resolution under section 217 of the Companies Act 2006 approving the payment of the Grant unless there was evidence of Dr Lehtimäki acting in breach of fiduciary duty.

In that connection, the Chancellor said this (in paragraph 152 of his judgment):

In our view, however, there was (and is) no significant evidence that Dr Lehtimäki was acting (or proposing to act) in breach of duty. As already mentioned (paragraph 23(i) above), the Chancellor himself recorded that he was “not saying that no reasonable trustee or fiduciary could disagree with [his] view” or that “anyone who disagreed with [his] view would automatically be acting in bad faith”. Now that the Chancellor has concluded that the Grant is in the best interests of CIFF, Dr Lehtimäki should obviously consider his views with care, but it remains the case, we think, that it is reasonably open to Dr Lehtimäki to disagree. After all, the Chancellor found the decision “not … entirely straightforward”, recognised that “it is not entirely clear why disposing of assets of US$360 million should be regarded as being in the best interests of CIFF” and noted that he had arrived at his conclusion “perhaps counter-intuitively” (see paragraph 128 of the judgment, quoted in paragraph 21 above).

The Chancellor spoke of Dr Lehtimäki making an “eccentric” decision, on the basis that Dr Lehtimäki had “made it abundantly clear that he is motivated entirely by an economic approach and regards himself as only acting in the best interests of unspecified beneficiaries of the charity” (paragraph 152 of the judgment). In that connection, Dr Lehtimäki (an economist with degrees from Stanford and Harvard Universities) had said the following in a witness statement in which he explained his “decision-making process”:

Although Sir Christopher was a very dear friend, he took his fiduciary duties seriously and would not allow his judgment to be impaired by personal factors;

“The focus should always be on the best interests of CIFF’s beneficiaries”;

The arguments for and against the Grant could be divided into “Direct factors” (comprising “The net effect on CIFF’s charitable work” and “Solving the governance problem”) and “Secondary factors” (“The overall impact on the UK charitable sector” and “The negative precedents of making the Grant”);

“I would reiterate that the only people I have a fiduciary duty towards are the intended recipients of CIFF’s charitable work. While my reasoning is abstract, I find it useful to visualize the person to whom I am answerable for when taking decisions. To me, this is the HIV positive young woman with her HIV negative child I met in Mutare Hospital in Manicaland, Zimbabwe (whose husband was beating her up because taking the necessary medicines was an embarrassment for his family). I am not a ‘soft’ person, but with that image in mind, choices become much easier”;

“Thus the only consideration to the Grant is whether it is a net benefit to the children in developing countries. If it is, then it should be paid. If it is not, then it should not be paid. It is that simple”; and

The analyses that he had carried out made him think that it was “very difficult – on the currently available evidence – to decide whether the Grant is in the best interests of CIFF’s beneficiaries”.

Dr Lehtimäki’s evidence evidently jarred with the Chancellor, but we cannot see that it betrays any breach of duty on Dr Lehtimäki’s part. It does not show Dr Lehtimäki to be acting otherwise than “in good faith, responsibly and reasonably” or to be failing to “inform [himself], before making a decision, of matters which are relevant to the decision” (to adapt slightly Robert Walker J’s words in Scott v National Trust for Places of Historic Interest or Natural Beauty). In fact, we did not understand Lord Pannick or Mr Mullen to press any argument to the contrary.

In all the circumstances, we do not, with the greatest respect, consider that the Chancellor was entitled to order Dr Lehtimäki to vote in favour of the Grant’s approval.

The appeal will be allowed.