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25 July 2017

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Children’s Investment Fund Foundation (UK) v Attorney General and others [2017] EWHC 1379 (Ch)

8-11 May; 9 June 2017 Chancery Division: Sir Geoffrey Vos C

Charity — Charitable company — Payments for loss of office — Trustee of claimant charitable company agreeing to resign and set up another charitable company — Claimant’s trustees agreeing to make grant to new charity — Whether payment of grant “payment for loss of office to a director” requiring sanction of claimant’s members — Whether requirement applying to charitable company — Whether when considering resolution members owing company fiduciary obligation — Whether court having jurisdiction to direct member how to vote — Whether court to approve making of grant — Companies Act 2006 (c 46), ss 215, 217 — Charities Act 2011 (c 25), ss 69, 105, 201

The claimant was a substantial English registered charity and a company limited by guarantee without a share capital. It was founded by the second and third defendants, who were two of its trustees and, along with L, its only members. As a result of the breakdown in the relationship between the second and third defendants it was agreed that the third defendant would resign as a member and trustee of the claimant and that she would found another registered charity, also a company limited by guarantee without a share capital. If the payment of the grant was a “payment for loss of office to a director” of the claimant for the purposes section 215 of the Companies Act 2006, it would, by section 217, prima facie require to be sanctioned by a resolution of the claimant’s members before it could be paid.

On the claim for directions as to the passing of a resolution under section 217 of 2006 Act approving the payment of the grant—

Held, grant approved. Sections 215 and 217 of the Companies Act 2006 applied as much to charitable companies as to ordinary trading companies. In the circumstances, the grant would be a payment for loss of office within the meaning of section 215 of the Companies Act 2006 so as to require the approval of the claimant’s members under section 217 of the 2006 Act, since it would be a payment made as a consideration for and in connection with the third defendant’s retirement from her office as a trustee of the claimant, and a payment to the new charitable company, a person connected with the third defendant. The second and third defendants, having agreed in a letter of intent not to vote on the grant proposal, were contractually bound not to vote on a section 217 resolution. The question, therefore, was whether L, as the claimant’s sole member entitled to vote, could take the decision for or against the grant by voting on the resolution. Members of the claimant owed fiduciary duties to act in the best interests of the claimant and not to act under a conflict of interest in considering a section 217 resolution. A member of a company limited by guarantee without a share capital with exclusively charitable objects was bound in to the regime now contained in the Charities Act 2011, the whole thrust of which was to ensure that the assets of the company were used for its exclusively charitable objects and for no other purpose. In those circumstances the members of the claimant did not stand outside the charity; they were part of the administration of the charity and they could not lay claim to any private interest. It would be contrary to the whole regime established by the increasingly prescriptive legislative regime reflected in the 2011 Act if the member of a company such as the claimant could vote in his interests or in a manner detrimental to the charitable objects of the company. Whilst the members had to pass a resolution under section 217 of the 2006 Act to approve the grant, it was not open to any member of the claimant to vote against the resolution, once the court and the Charity Commission had approved the grant. The member did not have a free vote in the present case because he was bound by fiduciary duties owed to the claimant and was subject to the court’s inherent jurisdiction over the administration of charities. When the court had decided what was expressly in the best interests of a charity, a member would not be acting in the best interests of that charity if he gainsaid that decision. Subject to the consent of the Charity Commission under section 201 of the 2011 Act and under clause 5.2.5 of the claimant’s memorandum of association, the making of the grant, which in the unique circumstances was in the claimant’s best interests, had to be approved by the claimant’s members. Therefore, L would be added as a defendant and directed by the court to vote in favour of the resolution to approve the grant (paras 79, 88, 101, 103, 107, 109, 128, 131, 137, 144, 145, 146, 154, 156, 157, 158).

Appearances: William Henderson (instructed by Linklaters LLP) for the claimant. Mark Mullen (instructed by Government Legal Department) for the Attorney General. Jonathan Crow QC (instructed by Withers LLP) for the second defendant. Simon Taube QC (instructed by Bates Wells & Braithwaite London LLP) for the third defendant. Guy Morpuss QC (instructed by Macfarlanes LLP) for L. Richard Vallat (instructed by Solicitor, Revenue and Customs Comrs) for the commissioners.

Reported by: Celia Fox, barrister.

Solicitors Journal case digest is prepared by the Incorporated Council of Law Reporting for England and Wales (ICLR)

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