Those who owe a fiduciary duty are bound by strict rules and may face personal liability for a breach of that duty.

It is therefore important to know when a fiduciary relationship arises. The duties of a fiduciary have been defined by the courts: “A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter, in circumstances which give rise to a relationship of trust and confidence. A fiduciary must act in good faith; he must not make a profit out of his trust; and he must not place himself in a position where his duty and his interest may conflict,”[1]

The courts have decided in a number of cases that members of a commercial company limited by shares do not owe a fiduciary duty to their institution. As owners of the shares in their own right, members may exercise their votes in accordance with their own personal interests. The question of whether this company law principle extends to companies limited by guarantee without a share capital, and particularly to charitable companies, is a more vexed question. However, some light has been shed on this area in the case of The Children’s Investment Fund Foundation (UK) v H.M. Attorney General and Others [2017].

In deciding whether or not to direct a member of The Children’s Investment Fund Foundation (“CIFF”) to vote in favour of a substantial grant to another charitable company, the court held that the member in question had an obligation to exercise his vote in the best interest of CIFF. The members of CIFF (of which there are only 3) did not stand outside of the charity; they were part of the administration of the charity and could not lay claim to any private interest.

The court noted that its judgement was made in line with the regime of the Charities Act 2011, ‘the whole thrust of which is to ensure that the assets of [a charitable company] are used for its exclusively charitable objects and for no other purpose.’ The Act prevents members of a charity from benefitting personally from their membership. For this reason, members of a charitable company do not generally own shares in their company and so do not have the personal interest in the company that an owner of shares would have. It would go against the thrust of the charity law regime if a member of a company such as CIFF could vote in his own interests in a manner detrimental to the charitable objects of the company.

It is important to note that this judgement was made on the above specific facts of the case; a case of exceptional character which involved a number of questions of law. Further, whether the members owed a fiduciary duty was not a contested issue in the case and so it may not have received the same degree of scrutiny if the parties had disagreed. Nonetheless, this judgement appears to establish for the first time that the members of a charitable company are not free to exercise their votes in their own interests and it is a judgement that will be of great significance to anyone who maintains a position as a member of a charity.

For further information relating to the points raised in this article, please contact Mark Honeywell or a member of the Charities and Social Enterprises Team.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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