Court of Appeal Explores Limits of Judicial Powers to Supervise Charities

16/07/2018


Charities are subject to close supervision by the courts to ensure that their funds are properly used to achieve the worthy objectives for which they were founded. A Court of Appeal ruling in respect of a charity’s proposed $360 million grant showed, however, that there are limits on judicial powers of intervention.

The children’s charity, established as a company limited by guarantee, had assets in excess of $4 billion. It was founded by a wealthy couple who, together with a family friend, were the charity’s trustees. Managerial issues had, however, become acute following the couple’s divorce. The wife wished to go her own way and it was proposed that the charity would make the grant to a new philanthropic body that she had set up with a view to making independent use of her considerable talents.

However, the friend, who held the balance of power as the third trustee, refused to assent to the grant. After the High Court was called upon to resolve the resulting impasse, a judge ordered the friend to cast his vote in favour of the grant after finding that the transaction would serve the best interests of the charity’s beneficiaries.

In upholding the friend’s appeal against that ruling, the Court found that the judge had no power to constrain his discretion to vote as he wished. In his role as a trustee, he was under a duty to exercise his powers in good faith and in a manner which he subjectively considered would be most likely to further the charity’s purposes.

The Court could not invoke its inherent powers in respect of charities in order to make him vote one way or the other and could only intervene if satisfied that he was acting improperly. Although his refusal to approve the grant had been described as eccentric by the judge, there was no significant evidence that he had acted, or was proposing to act, in breach of duty. He had made it clear that he regarded himself as having acted in the best interests of the charity’s beneficiaries.

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