Fiduciary duties owed by university members of charitable companies

Out-Law Analysis | 28 Oct 2020 | 4:22 pm | 3 min. read

A recent decision by the UK's highest court has clarified that where universities are members of charitable companies they will owe fiduciary duties to those charities in certain circumstances. This applies to the formal role of 'member' of a company limited by guarantee.

The case relates to all such members, but this article is specific to where universities – which are themselves charities – occupy the role of member.

Unlike the fiduciary duties owed by the trustees or directors of the charity, the fiduciary duties owed by a member of a charitable company are limited to that company's charitable purposes as set out in its articles and memorandum of association. The member may still, for example, receive incidental benefits from the charity where permitted by the articles and memorandum.  These limitations mean that a university will not always be required to put the interests of the charitable company of which it is a member above its own interests.

Universities are frequently members of separately constituted charitable companies, such as publishers or research organisations.

What did the Supreme Court decide?

The Supreme Court was ruling in a dispute that arose between the members of the Children's Investment Fund Foundation (CIFF), a charitable company limited by guarantee. CIFF was set up in 2002 by married couple Jamie Cooper and Sir Christopher Hohn. Following their divorce in 2014, Cooper agreed to resign as a member and trustee in exchange for a $360 million grant to be paid to her new charity, Big Win Philanthropy (BWP).

Chris Thomas

Legal Director

The role of a member of a charitable company is a context-specific one, governed by the memorandum and articles of the charitable company.

The charity trustees approved the grant but, under company law, its members – Cooper, Hohn and a third individual, Dr Marko Lehtimäki – were also required to do so. Cooper and Hohn stepped back due to the conflict of interest and, in 2017, the High Court directed Lehtimäki, as the only member without a conflict of interest, to approve the payment. However, Lehtimäki argued that the court did not have the power to require his approval, and that he should be permitted to form his own view on the proposed grant based on the best interests of CIFF.

The Court of Appeal found in favour of Lehtimäki, overturning the High Court's order. However, the Supreme Court, in an appeal brought by Cooper, restored the High Court's finding that Lehtimäki was a fiduciary. This meant that, once the court had decided what was in the best interests of the charity, then Lehtimäki was required to carry out that decision.

The decision is significant because, in the words of Lady Arden, "the issue whether a member is a fiduciary has never before been decided". There are now some 33,000 guarantee companies which are registered charities to which the decision applies.

The extent of a member's fiduciary duties

A fiduciary must act only for the benefit of another for matters covered by the fiduciary duty. They cannot, at the same time, act for themselves. However, the court went on to point out that it is not sufficient to say a person is a 'fiduciary' - instead, it is necessary to ask to what that person owes their fiduciary duties.

The role of a member of a charitable company is a context-specific one, governed by the memorandum and articles of the charitable company. The member's powers are usually very limited – for example, to the appointment of directors, or certain powers on the winding up of the company. The Supreme Court also considered that members of charitable companies sometimes receive benefits from their role. Its judgment makes clear that the fiduciary obligation does not prevent the a member from acting completely in their own private interests in many matters, so long as those matters do not have implications for the purposes or objects of the charity.

In the words of Lady Arden, the fiduciary duties of a member are owed "not to [the charitable company itself], but to the charitable purposes or objects of the charity".

Where a university, as a charity, is a member of a charitable company, then in the majority of cases the subsidiary charity's objects will either be the same as those of the member university, or form part of the objects of the member university. Depending on the precise details, this should allow the member university to consider the overall best way to support those objects without having to put the interests of the charitable company of which they are a member above their own interests.