Court Rules That Unincorporated Charity Members May Be Fiduciaries

In the recent case of Jaffer v Jaffer and others [2021], the Court had to consider a dispute involving the appointment of various roles within a large charity.

Jaffer v Jaffer and others

Background

The unincorporated Charity in question was the World Federation of the Khoja Shia Ithna-Asheri Muslim Communities, a religious Charity in respect of the Shia Ithna-Asheri faith, a branch of Islam. In 2020, an election took place for the position of president of the Charity. The winner was Mr Safder Jaffer with 53.03 points with the second-place individual only obtaining 18.26 points of the 88 points available. Mr Jaffer was therefore the clear winner.

What then ensued was a dispute about the election and subsequent events. The Charity’s constitution affirms that the president is to be an elected official and the three office-bearers were to be appointed at the Conference, which took place every third year with the final two office bearers being appointed by the incoming president. The Claimant, being a member of the Charity, issued proceedings seeking to annul and re-run the 2020 election.

Court proceedings

The Court had to determine two competing applications as set out below:

  1. The Claimant issued an application seeking the appointment of a receiver to oversee the fresh presidential elections.
  2. The Defendants applied for:
    1. Permission to vote to seek affirmation of the first Defendant as president and to conduct a new election;
    2. That the Defendants be authorised to act as office bearers until the Conference (which had been delayed as a result of the involvement of Charities Commission); and
    3. Permission to conduct the Conference remotely.

When considering such a dispute, the Court will always consider the constitution of the unincorporated charity, as that acts as a binding contract between the members. This point was championed by the Claimant’s Counsel, Mr Smith. Mr Justice Mellor’s view on this was, however, set out at paragraph 41 of the judgment in which he said:

“Those principles have much greater application at any trial of these proceedings but have less significance (a) at this interim hearing where (b) the Court is having to deal with circumstances which are not dealt with in the contract between the members. In order to break the stalemate which exists between the two sides in this dispute, it is necessary, in my view, to consider what course to take in the best interests of the Charity.”

The Defendant’s Counsel however submitted that:

  1. “The responsibility for considering the Claimant’s claims about the election rests in the first instance with the Conference.
  2. Its members are fiduciaries in relation to the exercise of their powers.
  3. The Conference has power to order a fresh election, and it should be permitted to consider whether to do so.
  4. The Court should not take that responsibility out of its hands; and finally,
  5. The question whether to order a fresh election does not fall within the class of special cases in which the Court would be justified in pre-empting the exercise of a fiduciary discretion.”

In dismissing the Claimant’s application for a receiver but allowing the rest of the application to continue to the case management conference, Mr Justice Mellor confirmed:

“It may be that the appointment of an independent person (and three very promising candidates were presented in the Claimant’s evidence) to oversee a fresh election process for the position of President of the Charity would be a very good way forward, in the sense that it would more or less put an end to this costly and unfortunate litigation. However, at least in the first instance, such a process can only be initiated by a decision of Conference. I point out that if Conference does not resolve to hold a fresh election for the position of President of the Charity, then the Claimant’s claim continues with the prospect that, if it cannot be resolved by agreement, at some point in the future when a trial of his claim can take place, the Court will have to resolve the disputes over the conduct of the 2020 Election and the ExCo meeting of 25 July 2020. Those disputes may be resolved in the Claimant’s favour or they may not – I express no view on that. However, a resolution in the Claimant’s favour say next year has the potential to cause further disruption in the affairs of the Charity.”

In respect of the Defendants’ application, the Judge:

  1. Appointed the interim office bearers to hold office until the next conference;
  2. Authorised the conference to take place remotely; and
  3. Held that the interim office bearers and election supervisors had obligations to act in the best interests of the charity.

The most important point that comes from the case of Jaffer v Jaffer is that the Judge found as follows:

“In brief, this means that each participant must vote in the best interests of the Charity and not, for example, with regard to any personal allegiance they may hold to one candidate or another or to one side of this dispute or the other.”

Members of unincorporated charities should therefore be clear that they should always act in the best interests of the charity when taking any step involving the charity and that if they do not do so, the step or decision reached could be challenged.

Jaffer v JafferHow Nelsons can help

Kevin Modiri is a Partner in our expert Charities team.

If you wish to discuss any matters involving a charity, please feel free to contact Kevin or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.