Background
On 29 July 2020, the Supreme Court ruled upon whether it had jurisdiction to direct members of a charitable company in respect of how to exercise their powers.
The concerns in Lehtimäki focused on a propositioned $360 million grant from The Children’s Investment Fund Foundation (‘CIFF’), to Big Win Philanthropy. Judicial approval was applied by CIFF to award this grant. However, the grant had to be accepted by CIFF members. The only member able to vote on the proposed grant was Dr. Mario Lehtimäki.
Decision
The Supreme Court Judgment made on the 29th of July 2020, outlined the following:
- As a member Dr. Lehtimäki had a fiduciary duty to act in the best interests of CIFF;
- The Court had the power to exercise authority to intervene in the exercise of the decision Dr. Lehtimäki had as a member; and
- Given the conditions, the Court had ability to guide Dr. Lehtimäki to exercise his discretion in a particular way1.
Consequences for Australian charitable companies
It may be determined that Lehtimäki is persuasive in the Australian legal system. It is likely to be agreed that that an individual who is a member of a company, will be viewed as a fiduciary who is obligated to act in the best interest of the company and not in his or her own interest.
Nevertheless, it is important to note that the Court decided that the duty is a subjective one and the content of the duties will be established as they arise.
Many have applauded this judgement, as a charity is ultimately created and exists for the benefit of others, rather than for the members themselves. The members individual rights are unlikely to be seen as charitable purposes, therefore they need to ensure they only consider the charity and not themselves or a third party.
As it stands, directors and members of registered charities hold the responsibility to act in the best interests of the charity.
Ultimately, the effect of these principles for Australian companies that are charities include the impact on the behaviour of members when voting in respect to:
- significant transactions and payments;
- property acquisitions and divestments;
- mergers and disaggregation’s;
- disputes resolution2.
Furthermore, it is important to note that the Court can only intervene when there is an actual or threatened breach of duty or the fiduciary has relinquished their power. The non-intervention principle demands that the Court only interfere if a discretionary power is exercised inappropriately.
However, although there was an absence of a breach of duty in the matter of Lehtimäki, as the trustees surrendered their discretion to the Court, the Court was able to provide direction to the fiduciary.
Finally, the judgement is beneficial as it established that members owe fiduciary duties and it defined the diverse routes used to determine how the court was capable of exercising jurisdiction over how a member should vote.
1 Jon Cheung and Seak-King Huang, “A Member Of A Charity Has A Fiduciary Duty To Act In The Best Interest Of The Charity?”, Prolegis Lawyers (Webpage, 2021) https://www.prolegis.com.au/insights_detail.php?A-member-of-a-charity-has-a-fiduciary-duty-to-act-in-the-best-interest-of-the-charity-50.
2 “Case Comment: Lehtimäki And Ors V Cooper [2020] UKSC 33”, Ukscblog (Webpage, 2021) http://ukscblog.com/case-comment-lehtimaki-and-ors-v-cooper-2020-uksc-33/.
