Bushell v Faith

First, the court was not merely resolving some internal disagreement among the trustees. It was at the trustees’ unanimous request making the decision about the merits of the Grant for the company itself, exercising for that purpose its inherent jurisdiction in relation to the administration of the company as a charity, with the consent of the Charity Commission. CIFF was, in recognition of that, joined as a party, for the purpose of being bound by the outcome. As the organ charged with the overall direction and management of CIFF the trustees were beyond question the appropriate body within CIFF to put that question before the court on CIFF’s behalf. While it is true that this is not a case of deadlock (because the members are, in respect of proposed payments for loss of office, entitled under section 217 to overrule the trustee directors), the court became seized of the issue as to the merits of the Grant by a legitimate alternative route.

Secondly, the underlying question whether the making of the Grant was in furtherance of CIFF’s charitable purposes was the determinative question for both the trustees and for the members, although they were different fiduciary organs of the company. This is not a case (as it would usually be in the case of an ordinary commercial company with non-fiduciary members) where the two organs might legitimately have a different agenda from each other. There is no sense in which it could be said that Dr Lehtimӓki as a member might legitimately bring different objectives into his decision making, from those actuating the trustees. For both of them, the decisive question was the same: would the making of the Grant further the charitable purposes of CIFF? If it would, then they both had a duty to see that it happened.

Thirdly the court was astute to make CIFF’s members, and Dr Lehtimӓki in particular, parties to the proceedings, both to obtain their assistance in the making of a difficult decision, in the form of evidence and submissions, and to bind them into the outcome.

It is in my view nothing to the point that Parliament has by section 217 given the members of a company their own decisive say in relation to the making of payments for loss of office to directors, and confirmed it in relation to charitable companies in which the members will usually be fiduciaries. The members’ decisive role is given to them as a control upon what would otherwise be the uncontrolled discretionary power of the directors (here the trustees). It was no part of Parliament’s purpose to give fiduciary members of a charitable company the like control over the court’s exercise of power over the company under its jurisdiction in relation to charities. That does not mean that section 217 was thereby disapplied, or for that matter the requirement for the approval of the transaction by the Charity Commission under section 201 of the 2011 Act, as the Chancellor recognised by the terms of his order.

Lady Arden was kind enough to read a draft of my judgment, which ended at para 224 above. She has, in paras 174 and following of her judgment set out at length why she disagrees with the breach of duty route. I must explain why I have not been persuaded by her analysis. I mean no disrespect by doing so briefly.

First however, I acknowledge the awkwardness of a point which asserts a threatened breach of duty when this was not in the forefront of the arguments which the court heard. But this is a really important point: can a fiduciary whose duty is to further the purposes of a charity stand aloof from a final decision of the court, made for the charity, on that very point, in proceedings in which he had been both joined and heard, so as to exercise a veto over what the court has decided would best further those purposes, or would it be a breach of duty to do so? I have not been persuaded by Lady Arden’s reasons for not affirming the judge’s conclusion that such conduct would be a breach.

Lady Arden says (at paras 178 and 181) that she prefers the submission of Mr Morpuss that the court had no jurisdiction over Dr Lehtimӓki as a member merely because it had accepted a surrender of the trustees’ discretion. I agree. But having joined Dr Lehtimӓki, the court’s jurisdiction to require him to vote in favour of the Grant arose because his threat not to do so was a threatened breach of duty.

Lady Arden acknowledges, at para 178, that the breach of duty point was, albeit briefly, taken on Ms Cooper’s behalf in her Grounds of Appeal. The Court asked Lord Pannick during his opening of the appeal whether he adhered to the argument that Dr Lehtimӓki would be in breach of duty if he voted against the Grant after its approval by the Chancellor and he said, again briefly, that he did. So the point remained to be decided, even though little was thereafter said about it during the hearing.

More to the point, as I have sought to explain, the breach of duty point was precisely the basis upon which the Chancellor decided to direct Dr Lehtimӓki to vote in favour of the Grant. True it is that the Court of Appeal disagreed with the Chancellor’s reasoning, but that is why there is an appeal to this court. It must be open to this court on a second appeal to conclude that the first instance judge was right in his analysis, save perhaps where all parties to the appeal are for good (rather than tactical) reasons united in the view that he was wrong. There was no such unanimity in the present case.

I am unable to agree with Lady Arden’s next point (at paras 184-186), which is that if (as the Chancellor recognised) the Charity Commission retained its power to approve or disapprove the transaction under section 201 of the 2011 Act, then there could be no valid distinction with Dr Lehtimӓki’s power as a member under section 217. First, the Charity Commission is not a fiduciary subject to the court’s general jurisdiction in relation to breach of duty. It is a separate public body with its own statutory jurisdiction. Secondly the Charity Commission was not joined as a party to the proceedings, or heard on the merits of the Grant. The relationship between the court and the Charity Commission is quite different from that between the court and a fiduciary who is also a party to the proceedings, and its detail is beyond the scope of the issues in this appeal. Leaving aside change of circumstances, it seems very unlikely that the Charity Commission would prohibit the making of the Grant by a refusal under section 201, where the court had already finally decided that it would further the purposes of CIFF, and directed Dr Lehtimӓki to vote in favour of it under section 217.

Lady Arden makes a number of points which may be loosely characterised as suggesting that the breach of duty route would have ramifications adverse to the willingness of members of the public to become engaged in the affairs of charity by becoming donors or members of charitable companies. Thus she says that the decision that Dr Lehtimӓki was threatening a breach of duty would undermine the subjective basis of fiduciary liability, that it would be contrary to the benevolent treatment of charity trustees by the court, that donors would react adversely to the court preferring its own views to those of members and trustees, and that it would discourage membership by shifting the balance of power from the membership to management and the court.

I accept that the principled basis upon which the Chancellor decided to direct Dr Lehtimӓki to vote (with which I agree) does involve some limited departure from a purely subjective assessment of the question whether a fiduciary has committed, or is threatening to commit, a breach of duty. But the test for breach of fiduciary duty has never been purely subjective. The fiduciary’s belief has to be both bona fide and reasonable, if he or she is to act upon it without risking breach of duty. In Cowan v Scargill [1985] Ch 270, 289, Sir Robert Megarry V-C said this, of the trustee’s duty in relation to investment:

Nor can such conduct, in the face of a final decision of the court after hearing full argument, be equated with the type of bona fide mistake referred to by Lord Eldon LC in Attorney General v Exeter Corpn 2 Russ 45 . He contemplated that the court would readily give directions as to future conduct by the trustee, but be merciful in relation to punishment for the past. No-one is suggesting that Dr Lehtimӓki should be punished. Nor should anyone be discouraged from becoming a fiduciary for a charity (as a trustee or a member) by the prospect that, in unusually difficult cases like the present, the court may give such directions, in the expectation that they will be complied with. The fact that the court is there to lend its assistance when the fiduciaries are divided, or cannot make up their minds, should be an encouragement to those uncertain whether to undertake what may occasionally be a challenging role.

I fully agree with Lady Arden that membership of corporate charities should be encouraged, and that members should also be encouraged to play their constitutional part in decision making about the charity. But there will, very occasionally, be decisions of great difficulty, sometimes of great controversy, with which the court is there to assist, in its general supervisory role over charity. That this is just such a case is the foundation of Lady Arden’s judgment as much as it is of mine. I do not think that this very unusual case will tend to shift the balance of power away from members towards management and the court. In the present case Dr Lehtimӓki was, by his joinder, encouraged to put his own view of the merits of the Grant before the court, although it was the trustees who placed the matter before the court. In fact the originators of the proposal to make the Grant, Sir Christopher and Ms Cooper, were both members as well as trustees.

I would therefore allow the appeal, and restore the Order made by the Chancellor, essentially for the reasons which he gave.

With some reluctance, as I found the judgment of the Court of Appeal more persuasive than have your Ladyship and your Lordships, but in deference to the unanimity of the other members of the court as to the outcome of this appeal, and bearing in mind that the facts of this case seem unlikely ever to be replicated, I concur in the order proposed.