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Supreme Court rules on the fiduciary duties of members of charitable companies

Posted: 20/08/2020

The Supreme Court’s decision in Lehtimӓki v Cooper on 29 July 2020 has confirmed that members of charitable companies can, in some circumstances, owe fiduciary duties to the objects of the charity (rather than to the charity itself) when carrying out their role as members. This is arguably also applicable to others fulfilling similar roles, such as shareholders of a charitable community benefit society, and is consistent with the approach taken in legislation in relation to members of charitable incorporated organisations (which requires them to use their powers in the way they decide, in good faith, would be most likely to further the purposes of the CIO). This judgment is in line with the Charity Commission’s guidance on membership charities, which states ‘charity members have an obligation to use their rights and exercise their vote in the best interests of the charity of which they are member’. However, the Supreme Court clarified that the duty was more narrowly drawn than the duty which applies for CIO members. It is instead a duty of ‘single minded loyalty’ and is subjective.

The case concerned a large donation to another charity, which had to be approved by the charity’s members. The Supreme Court found that the member had a duty to exercise a power in the best interests of the objects of the charity.

The court stressed that the circumstances of the case were exceptional, and therefore may not apply to all member decisions – in this case, the membership was small (effectively reduced to one member as others recused themselves) and had been involved in the decision-making process. However, similar circumstances may also be applicable to other small closed membership charities.

The case raises an interesting point in relation to duties over conflicts of interest, which have previously not been thought to be applicable to company members. There may now be situations in which members’ actual or potential conflicts of interest would need to be considered. However, this will be limited to those decisions that are actually put to members, which are usually less wide-reaching than for trustees/board members.

The Supreme Court was keen to stress that the courts would not generally intervene unless there was a breach of duty, and provided members act reasonably and in good faith, this is likely to be unusual. The scope and requirements of the duty will also vary depending on the circumstances of the relevant decision. The decision leaves many questions unanswered as to how far the duty stretches (for example, whether it requires declarations of interest to be made); however, it is something of which charity members should be aware.

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