Duties Of Members Of Charitable Companies

• Published date: 03 August 2020
• Subject Matter: Corporate/Commercial Law, Charities & Non-Profits , Corporate and Company Law
• Law Firm: Veale Wasbrough Vizards
• Author: Shivaji Shiva

On 29 July 2020 the Supreme Court confirmed a long-standing view held by some lawyers and others within the sector that the members of charitable companies can owe a type of duty, known as a fiduciary duty, to the company's charitable objects or purposes.

This is an interesting and important decision, although to an extent it raises (rather than answers) a range of associated questions about the duty and its practical implication for charity governance.

It Is All About the Circumstances

It took fairly unique circumstances to bring the issue to the Supreme Court. The case relates to very specific legal and practical circumstances. The decision whether to authorise a very substantial donation to another charity fell to be decided by a member of the charity.

We learned too that circumstances are also at the heart of what duty, if any, is owed by members in other charities and in other situations. In an article earlier this week, before the judgment was handed-down, Andrew Wherrett said:

"The case does not reflect the typical engagement of members of mass-membership charities. It concerns a small membership, facing a special legal situation, with which it is highly and diligently engaged, performing an essential function in order to dispose of a matter of considerable importance for the charity."

Or, as Lord Reed put it in the final paragraph (236) of this 73 page judgment, "the facts of this case seem unlikely ever to be replicated".

In this case, applying a set of principles as to when the law imposes these fiduciary duties, the Supreme Court found that the member in question had a duty to exercise a particular power in the best interests of the objects of the charity. Whilst the Court confirmed that the same principles apply to all membership charities, whether the membership is large or small, what duties apply depend on the circumstances.

Key Points

The fiduciary duties in question are owed, not to the charity itself, but to its charitable objects. This adds a certain clarity. It is not open to members to envisage some interest of the charity separate from its charitable objects. But it also adds uncertainty in some circumstances. What duty would members owe where the objects themselves are the subject of the decision - where the objects are being changed or the charity is dissolving and deciding to distribute the charity's assets to other charities rather than continuing to pursue its own objects.

Although it remains to be decided on a case by case...