Speechley & Ors v Allott & Ors [2014] EWCA Civ 230

[2014] EWCA Civ 230

Case No B2/2012/3183

IN THE COURT OF APPEAL (CIVIL DIVISION)

Venue ON APPEAL FROM LEEDS COUNTY COURT

RECORDER RAWLINGS

0HX00023

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Monday 10 th March 2014

Before

LORD JUSTICE SULLIVAN

LORD JUSTICE McFARLANE

LORD JUSTICE LEWISON

Between

SPEECHLEY & ORSAppellant

ALLOTT & ORSRespondent

(Transcript of the Handed Down Judgment of

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Mr Mark Halliwell (instructed by Direct Access) for Appellant

Mr Steven White (instructed by Wilkinson Woodward) for Respondent

Hearing Hearing date : 26 February 2014

Judgment

Introduction

[1]The Blakeborough Social & Sports Club is a working men’s club registered under the Friendly Societies Act 1974 and governed by a set of written rules, the relevant provisions of which are set out in an Appendix to this judgment. It consists principally of a clubhouse at 42 Bradford Road, Brighouse (which houses a bar), a bowling green at Lane End, Brighouse and a football ground which is leased to Brighouse Town FC. The clubhouse is the club’s registered office. There are more than 600 members of the club. Although in theory members may use all the club’s facilities, in practice some members mainly use the bowling green and others mainly use the clubhouse and bar. The former have been referred to as the bowling members, and the latter as the social members. The bowling members are sometimes referred to as the Albion Bowling Club, although that is not a separate entity. The club has been in financial difficulties for some years; and this internal dispute between club members has been precipitated by proposals to sell the bowling green to alleviate those difficulties.

[2]The issues that arise on this appeal from the decision of Mr Recorder Rawlings are: i) Whether a meeting (“the AGM”) that took place on 24 July 2011 validly elected trustees and officers of the club. ii) Whether the Appellants are entitled to require the officers of the club to account for payments made to them. iii) Whether the Appellants are entitled to inspect the books and records of the club. iv) Whether the judge should have ordered the convening of a general meeting of the club.

[3]Mr Mark Halliwell presented the appeal, and Mr Steven White presented the response.

Background

[4]Proposals to sell the bowling club have been on the table since the end of 2008. Not surprisingly they have been passionately opposed by the bowling members. A rowdy meeting of the club took place in mid-November 2009, but it had to be abandoned. Following that the bowling members attempted what was, in effect, a palace revolution aimed at securing the removal of the club’s existing management and its replacement with officers of their own choice. To that end, they purported to requisition a Special General Meeting; and also called in the police to investigate allegations of financial irregularities in the management of the club. The judge found that for a variety of reasons the Special General Meeting had not been validly called, and that the business purportedly transacted at that meeting, which took place on 17 December 2009, was itself invalid. There is no challenge to that conclusion. The police investigation did not result in any prosecution. It may be, however, that documents seized by the police are still within their custody.

[5]Mr Speechley is a bowling member. He has been in the forefront of the fight to save the bowling green. He began the current proceedings (together with other bowling members) in January 2010. The defendants are social members, sued as representatives of the club. Originally the Particulars of Claim claimed possession of the club. However, the Particulars of Claim were amended to claim a number of declarations about the validity of the meeting held on 17 December 2009. They also claimed in the alternative an order that the Defendants convene an AGM. In the Defence and Counterclaim dated 3 June 2010 it was alleged that the purported meeting held on 17 December 2009 was invalid as a result of failure to comply with the rules. On 20 June 2011 DJ Lingard made an order that required the parties to consider “whether it would be in the interest of the parties and in particular the interests of the club, whether a General Meeting should be called to elect an Officer of the Club.” As a result a meeting was held on 24 July 2011. Following the holding of that meeting the pleadings were re-amended to allege failures to comply with the rules in relation to the meeting held on 24 July 2011.

[6]One might have thought that in this febrile atmosphere, with one meeting already under challenge for non-compliance with the rules and an order of the court recommending a further meeting, care would have been taken to ensure that the rules of the club were scrupulously complied with. Unfortunately that did not happen. It is this hostile and fractious context that plays an important part in my conclusion.

The meeting on 24 July 2011

[7]The judge noted that there were six objections to the validity of the election that took place on 24 July 2011. They were: i) There was no validly elected Finance Committee with power to fix the date of the AGM under rule 8 (a); ii) If there was a validly elected Finance Committee it did not resolve that it was expedient to hold the General Meeting; iii) Fourteen days’ notice was not given in any part of the club to which members had access, contrary to rule 8 (c); iv) There was no ballot as required by rule 10; v) The ballot to elect the President and Treasurer did not take place in the week after the AGM, contrary to rule 10; vi) Five members of the club were purportedly expelled from the club and deprived of their votes.

[8]The judge found the following facts. The election of the Finance Committee was said to have taken place on 14 March 2010. The judge found that on 26 February 2010 a notice was put on the notice board at the clubhouse notifying members of a ballot to take place on Sunday 14 March (some sixteen days later). That notice also contained the names of the candidates. The members were offered an opportunity to vote between 10 a.m. and 6 p.m. on 14 March. However, there was a dispute about whether a meeting took place as required by rule 20 (a). The judge found that it did not. He held, therefore, that although the election of the Secretary complied with the rules, the election of the Trustees and the Treasurer did not. Nevertheless, despite a failure to comply strictly with the rules, the election as a whole was valid. The judge went on to find that an SGM took place on 3 July 2011, one purpose of which was to tell the membership that it was proposed that an AGM would be convened to appoint new officers, trustees and committee members and to seek nominations. Although there were no minutes of that meeting, and no relevant minutes of any Finance Committee meeting, the judge found that the Finance Committee did decide to hold the AGM on 24 July. That disposed of the first two objections.

[9]As far as notice of the AGM was concerned the judge found that notice of the meeting was given in three ways. First, it was advertised in the local newspaper. Second, notice was posted on the notice board in the clubhouse. Third, notice was posted on the front door of the clubhouse. These latter two notices were in place from 3 July 2011. In fact the clubhouse was closed between 3 July and 24 July when the AGM took place. But the judge held that posting the notice on the door of the clubhouse was sufficient compliance with the time provisions contained in rule 8 (c). The notice itself was not produced to the judge and there was no direct evidence about its contents. The judge had to be satisfied that it gave sufficient indication of the business to be transacted at the AGM in order to comply with the remainder of rule 8 (c). Having considered a quantity of circumstantial evidence he concluded that sufficient notice of the business to be transacted had been given so as to comply with rule 8 (c). That disposed of the third objection.

[10]It was accepted before the judge that all elections were conducted by a show of hands at the meeting on 24 July, rather than by ballot as required by the rules. Moreover, the election of the President and the Treasurer should have taken place by a ballot conducted in the week following the AGM rather than at the AGM itself. The judge concluded that the election of the Trustees had taken place in accordance with the rules since no ballot was required. But the election of the President and the Treasurer had not complied with the rules. Thus the fourth and fifth objections were partially made out on the facts.

[11]As far as the sixth objection was concerned, the judge found that the purported expulsions of five members did not take place in accordance with the rules and were thus invalid. However, since none of them attempted to stand for election, attend the meeting or vote, that made no difference to the outcome of the AGM.

[12]Despite these failures to comply with the rules the judge held that the meeting of 24 July 2011 validly elected the committee and officers of the club. The Appellants complain that in so holding the judge has, in effect, torn up the rule book.

Account of drawings

[13]The judge considered payments made by the club to Mr Allott, Mr Taylor and Mr French. He found that Mr Allott had been appointed as President of the club at the AGM on 3 July 2009. Mr Allott said that he had received £150 from the club as an honorarium, despite the fact that the trial balance of the club’s accounts showed a payment of £300 to him. The judge accepted his evidence. He also accepted the evidence of Mr Taylor that despite the absence of any minutes of the Finance Committee that Committee had approved the payments to Mr Allott in accordance with rule 10.

[14]The judge found that Mr Taylor was a member of the committee, but not an officer of the club. He received four payments of £150 each. He found that the making of payments to Mr Taylor was not authorised by the rules, but that Mr Taylor was unaware of the breach of the rules and was not dishonest.

[15]Mr French was the club’s acting Treasurer. The judge found that he had not been formally appointed as such despite being shown in the club’s accounts for the year ending 30 December 2008 as Treasurer. The judge found that he was not paid any honorarium as Treasurer. But he was paid expenses of £40 per month, and also for working behind the bar on Sundays. He held, therefore that the payments made to Mr French were authorised by the rules.

[16]Despite his finding that payments to Mr Taylor were not authorised by the rules he declined to order an account apparently on the basis that no fraud was involved.

Inspection of books and records

[17]The judge recognised that under rule 22 a member is entitled to inspect the club’s books and records. But he held that, apart from some computer records, Mr Speechley was unable to point to any document or class of document that he had been unable to inspect during the course of the proceedings. He also noted that a police investigation, conducted with the aid of a forensic accountant, had not found any evidence of dishonesty. He declined to order inspection on the ground that he was not satisfied that there were further records in the possession of the club beyond those that had been disclosed in the proceedings.

Order to convene a meeting

[18]The judge was asked to order the defendants to co-operate with the claimants in convening an AGM or an SGM. The judge refused to make the order. As far as the SGM was concerned he pointed out that no valid requisition for such a meeting had been made under the rules. If and when a valid requisition had been made the question might arise, but until then it was premature. The purpose of convening an AGM was said to be to resolve disputes about the validity of the elections that took place on 17 December 2009 and 24 July 2011. As I read his judgment the judge held that since he had determined the validity of those elections, no useful purpose would be served by ordering a further AGM to be held.

Events since trial

[19]In fact an AGM was held on 24 March 2013. There has been no challenge to the legality of that meeting. We were told that the next one will be called towards the end of March or the beginning of April 2014, once the club’s accounts have been finalised.

[20]We were also told that the bowling green closed in December 2012 and has not reopened since. An attempt was made to secure an interim mandatory injunction requiring it to be reopened, but that attempt failed in the Leeds County Court.

[21]It is common ground that the club rules amount to a contract between all its members. In Dawkins v Antrobus

(1881) 17 Ch D 615

Sir George Jessel MR said:

“I think it is my duty to construe the rules fairly and in the same way as I should any other contract and I have no right to give the words other than their ordinary meaning, or to construe the rules otherwise than in their ordinary sense.”

[22]Thus in Labouchere v Earl of Wharncliffe

(1879) 13 Ch D 346

Sir George Jessel MR held that the purported expulsion of Mr Labouchere from the Beefsteak Club was invalid because the rules had not been followed. Young v Ladies' Imperial Club Ltd

[1920] 2 KB 523

was another case of expulsion. This court held that the purported expulsion of Mrs Young from the Ladies’ Imperial Club was invalid for two reasons. First, one member of the executive committee had not been given notice of the meeting, even though she would not have attended it. Second, the notice of the meeting did not adequately disclose what business would be transacted. Lord Sterndale MR held that the first of these reasons of itself invalidated the meeting; and Warrington LJ said that it was “the more important defect”. He added that:

“It seems to me of great importance that rules which have been made for the purpose of regulating the proceedings of the committee in respect of such a matter ought to be strictly adhered to.”

[23]R v Tidd Pratt (1865) 6 B & S 672 concerned the purported alteration of the rules of a friendly society which the registrar had refused to register. The two alleged defects were: i) The meeting of the society was held in Manchester (where the majority of members lived), rather than in Liverpool as the rules required; ii) The meeting was held at 2 p.m. although the rules contemplated night meetings.

[24]There were also objections to the new rules themselves, but those objections did not relate to the conduct of the meeting. Cockburn CJ said in argument that those objections were small and could be cured. However, the meeting was nevertheless held to have been invalid. The essential point was that although the society itself could change the place of meeting, the officers could not. The consequence was that:

“The meeting was at a place where it could not legally be held, which renders the rules agreed to at it altogether null and void…”

[25]In considering whether a failure to comply with the provisions of the rules invalidated the various actions, the judge relied principally on two decisions of Megarry J (subsequently V-C). In the first of these, Re Sick and Funeral Society of St John's Sunday School Golcar

[1973] Ch 51

, Megarry J emphasised that the rules of a club were contractual. In the second, Re GKN Bolts & Nuts Ltd

[1982] 1 WLR 774

, Megarry V-C said:

“As is common in club cases, there are many obscurities and uncertainties, and some difficulty in the law. In such cases, the court usually has to take a broad sword to the problems, and eschew an unduly meticulous examination of the rules and resolutions. I am not, of course, saying that these should be ignored; but usually there is a considerable degree of informality in the conduct of the affairs of such clubs, and I think that the courts have to be ready to allow general concepts of reasonableness, fairness and common sense to be given more than their usual weight when confronted by claims to the contrary which appear to be based on any strict interpretation and rigid application of the letter of the rules. In other words, allowance must be made for some play in the joints.”

[26]Since the judge placed heavy reliance on the phrase “play in the joints” I should set out the issue to which these observations went. The case concerned a sports and social club associated with GKN, whose members were all employees of GKN. The main issue in the case was whether the club had ceased to exist. But one subsidiary issue was whether a meeting had been validly convened. The club rules required 14 days’ notice to be given, but in fact only three days’ notice were given. Notice of the meeting was posted in the company’s canteen, to which all the members had access. However, the requirement of 14 days’ notice had hardly ever been followed. Seven or three days’ notice were not unusual and there was no evidence that anyone had ever objected to short notice. The subject matter of the meeting was to discuss the sale of the club’s sports ground, and Megarry V-C found that “with the prospect that a sale would bring some money to each member of the club, it seems obvious that news of the meeting would speedily reach all, if not quite all, of the members of the club.” It was in those circumstances that he held that despite short notice, the resolution to sell the sports ground was validly passed. However, the same meeting (convened by the same notice) also passed resolutions altering the way in which the proceeds of sale of the sports ground would be distributed among the members, and Megarry V-C held that insufficient notice of that business had been given, with the consequence that those resolutions were invalid.

[27]The principal criticism of the judge’s approach is that he gave too little weight to the contractual nature of the rules. In short it is argued that the judge did what Megarry V-C said should not be done and ignored the rules. It is striking that of all the cases that we were shown, with the exception of one of the points argued in ReGKN Bolts & Nuts, failure to comply with the rules had been held to invalidate decisions made.

[28]There are, in my judgment, two separate questions: i) What do the rules require? ii) What is the effect of non-compliance with those requirements?

[29]The answer to the first of these questions is a question of interpretation of the rules. In answering that question, the rules are to be interpreted in the same way as any other contract, making due allowance for the fact that the rules are intended to be operated by non-lawyers. In our case, with one possible exception (to which I will return) there is no real doubt about what the rules mean. The answer to the second question involves a rather different inquiry. The point was well-made by Sir Stanley Burnton in Newbold v The Coal Board

[2013] EWCA Civ 584

, which concerned the validity of notices of subsidence damage. He said at [70]:

“In all cases, one must first construe the statutory or contractual requirement in question. It may require strict compliance with a requirement as a condition of its validity. In Mannai at 776B Lord Hoffmann gave the example of the lease requiring notice to be given on blue paper: a notice given on pink paper would be ineffective. Against that, on its true construction a statutory requirement may be satisfied by what is referred to as adequate compliance. Finally, it may be that even non-compliance with a requirement is not fatal. In all such cases, it is necessary to consider the words of that statute or contract, in the light of its subject matter, the background, the purpose of the requirement, if that is known or determined, and the actual or possible effect of non-compliance on the parties. We assume that Parliament in the case of legislation, and the parties in the case of a contractual requirement, would have intended a sensible, and in the case of a contract, commercial result.”

[30]In my judgment the observations of Megarry V-C in Re GKN Bolts & Nuts are, on analysis, directed to the second question.

Statutory underpinnings

[31]Since the club was a registered (but unincorporated) friendly society, a number of statutory provisions applied to it. Section 30 of the Friendly Societies Act 1992 gives effect to Schedule 12 of that Act. Paragraph 1 of that Schedule provides, so far as material:

“(1) Every friendly society … shall in each year hold a general meeting as its annual general meeting (in addition to any other meetings in that year) (2) No more than 15 months shall elapse between the date of one annual general meeting and that of the next.”

[32]If there is a default in compliance with that obligation, the Financial Services Authority (now the Financial Conduct Authority) may call or direct the calling of an AGM: paragraph 3 (2).

Was there a validly elected Finance Committee?

[33]The judge began his consideration of the validity of the AGM purportedly held on 24 July 2011 by considering whether there was a validly elected Finance Committee with power to fix the date of the AGM. He held that despite procedural defects, there was. We did not hear argument on whether he was right or wrong. We took the view that it did not matter on the facts of this case, for three reasons. First, in the Particulars of Claim Mr Speechley had asked for an order requiring the defendants to convene an AGM. That proposal was supported by the order of the District Judge. It hardly lay in Mr Speechley’s mouth to complain that the defendants had done exactly what he had asked them to do. Second, the primary obligation both under the rules and under Schedule 12 of the 1992 Act was to hold an AGM every year. The precise identity of the persons calling that meeting was plainly subsidiary to that overriding obligation. Third, if the de facto Finance Committee did not have power to fix the date of the meeting, it was impossible to see who had that power. The club would have been caught in an impossible Catch-22 situation, since the Finance Committee itself had to be elected at a general meeting. Although Mr Halliwell suggested that the pre-March 2010 Finance Committee would have had that power, they had in fact resigned, and it was not suggested that their resignations were ineffective.

What did the rule require?

[34]What did the rules require? Rule 8(a) required that the AGM should take place on a date “fixed by the Finance Committee”. The persons to be elected at the AGM were (a) the President

(b) the Treasurer

(d) the trustees and

(e) the ordinary committee members. Rule 10 provides that: i) The President and the Treasurer are to be “elected by ballot in the week following the Annual General Meeting”; ii) The Secretary is to be “elected by ballot”; iii) The trustees are to be appointed “only at a General Meeting by a resolution of the majority of members present and entitled to vote”. iv) Rule 20 provides that the members of the Committee “shall be elected by ballot at a General Meeting by a resolution of the majority of the members present and entitled to vote.”

No resolution to fix the AGM

[35]The next objection raised before the judge was that the Finance Committee did not fix the date of the General Meeting by resolution. The meeting in question was an Annual General Meeting, rather than a Special General Meeting. Accordingly it fell within the ambit of rule 8 (a) rather than rule 8 (b). There was no evidence before the judge of a meeting of the Finance Committee at which the date of the AGM was fixed. However, he heard the evidence of Mr Taylor to the effect that the “March 2010 committee did organise both the meeting of the 3rd July and that of the 24th July. There is no evidence to contradict Mr Taylor’s assertions.” The judge pointed out that rule 8 (a) does not require the Finance Committee to hold a meeting in order to decide to convene the AGM; and that since no member of the committee objected either before since or at that date, the date was validly fixed.

[36]In the case of a company the principle usually known as the Duomatic principle (see In re Duomatic Ltd

[1969] 2 Ch 365

) holds that where all the members of a company agree to something which the articles require to be decided by resolution, then the unanimous agreement of all the members of the company is as good as a formal resolution passed by a majority. The same principle applies to meetings of directors: Barron v Potter

[1914] 1 Ch 895

; Runciman v Walter Runciman plc

[1992] BCLC 1084

. In my judgment the same principle must also apply to club committees. Although the judge did not expressly find as a fact that all members of the Finance Committee positively agreed to the date of the meeting, it seems to me to be the irresistible inference that they did. Accordingly, in my judgment the absence of a meeting or resolution of that Committee fixing the date of the AGM did not invalidate it from the start.

Inadequate notice

[37]There are two points that are taken about the adequacy of notice. First, it is said that notice was not posted “in” the club as required by rule 8 (c). Second it is said that the business of the Annual General Meeting was not “named in the notice of the meeting” as required by rule 9.

[38]The judge found that the meeting was advertised in the local newspaper, and that although the club house was closed during the relevant period, notice was posted on the club notice board and also on the front door. The judge placed no reliance on the advertisement in the local newspaper but he said at [59] that:

“I am satisfied that in spite of the fact that the [club house was] closed between the 3rd of July and 24th of July that the posting of the notice in the Club and on the front door of the Club some 21 days before the AGM is sufficient notice of the AGM in accordance with the rules.”

[39]I find it difficult to accept that the posting of a notice on the club’s notice board complies with rule 8 (c) if during the whole of the period during which the notice is displayed the members have no access to the club house; and hence are unable to see the notice. That would mean that there was no real possibility of the notice serving its evident purpose, namely to alert the members to the fact that there was to be a forthcoming AGM. But what of the posting of the notice on the door of the club house? It may well be debatable whether that was strict compliance with rule 8 (c) because the front door is not “in” the club house. But posting the notice on the front door at least means that members are able to see it. It may be argued that the purpose of the rule requiring the notice to be posted in the club house is intended to bring about a situation in which the members naturally resort to the club house and hence see the notice, whereas if the club house is closed they have no occasion to visit it and hence no occasion to see the notice. But on balance I have come to the conclusion that, bearing in mind that the meeting was also advertised in the local newspaper, the judge was entitled to find that posting the notice on the club house front door was not so egregious a failure to comply with the rules as to invalidate the notice on that account.

[40]So far as the contents of the notice are concerned, the judge noted that no copy of the notice had been produced to him. That was in itself surprising given that there had been disputes between the rival factions in the club that had already gone on for some years. One might have thought that in those circumstances a determined effort would have been made to retain the necessary paper trail. Not only did the judge record that he had not seen a copy of the notice, but he also said at [61] that “evidence as to the nature of the notice and its contents is unsatisfactory.” The evidence to which he referred was a notice showing that Mr Redford and Mr Halliwell were proposed and seconded as President and Treasurer and the minutes of the meeting of 24 July themselves appointing the officers whose names had been posted since 3 July. However, the judge found, on the basis of that unsatisfactory evidence that there had been “sufficient notice that the business to be transacted at the AGM on the 24th of July would include the election of trustees, officers and committee members.”

[41]Although the judge did not make it entirely clear, I infer that what he found was that notice was given that officers, including the President and Treasurer, would be elected at the AGM. However, as I have said the rules do not envisage that the President and Treasurer would be elected at the AGM. They were to be elected by ballot during the following week. Thus the judge noted at [62] that the election of the President and the Treasurer did not take place in accordance with the rules. Nor did the notice (on the judge’s findings) say that elections were to be conducted by a show of hands rather than by ballot. The judge’s finding, then, was that notice was given of something that the rules did not permit. No notice was given that a change in the rules themselves was proposed. I would hold that this was a serious failure to give proper notice of the business to be transacted at the meeting.

[42]Although the judge found that notice of the meeting had been posted on the front door of the club, he made no finding about nomination sheets. The evident purpose of nomination sheets is that members may propose and second candidates for election to the committee. That omission might have been overlooked if the names of the candidates had been posted on the club house door. But the judge made no finding that they were. The judge thus made no finding that the names of the candidates for election were made known to club members in advance of the meeting. Nor did members have any opportunity to nominate candidates themselves.

Conduct of the meeting

[43]The minutes of the meeting of 24 July show that all the officers (including the President, the Treasurer, the Trustees and the committee members) were elected either by acclamation or by a show of hands. The rules required the Trustees to be elected by resolution (rule 10). The committee members (rule 20) are to be elected by ballot although rather confusingly rule 20 also says that the committee members are to be elected by resolution. The President and the Treasurer are to be elected by ballot in the week following the meeting (rule 10).

[44]As Mr White accepted, the rules contemplate elections to most offices by ballot. In order to evaluate the significance of failure to comply with the rules it is necessary to ask why they have been framed as they have. The ballot is important. The ordinary meaning of “ballot,” according to the dictionary is:

“1. Originally: a small coloured ball placed in a container to register a secret vote; (hence, by extension) a ticket, paper, etc., so used. 2. Such a system or method of voting, originally by means of balls placed in an urn or box, now typically by the placing of marked papers in a box; (also) an instance of this, a round of voting; the whole number of votes thus recorded.”

[45]Thus part of the essence of a ballot is that it is a secret vote. In the case of this club that is reinforced by rules 20 (b) and 21 which provide for the ballot to be conducted by non-candidates and for the ballot papers to be sealed after counting. Thus the candidates will not know who has voted for or against them. Nor will the members know which way their fellow members have cast their votes. This voting process is quite different to a show of hands in what might be a heated meeting, or a meeting between bitterly opposed factions, where a minority might feel compelled by the atmosphere of a meeting not to make public their dissent from the majority. In the case of the election of the President and Treasurer, the ballot is to take place in the week following the AGM. This means that the electorate is potentially wider than those who are able to attend the General Meeting itself. A ballot that takes place after the meeting is also another safeguard for members. It again avoids a member being pressurised by the atmosphere of a heated meeting from casting his vote in accordance with a vociferous faction rather than doing so on his own and after a period of reflection.

[46]In our case the very purpose of the meeting was to ensure that officers were elected in accordance with the rules, and not according to some other procedure. In my judgment the failure to hold a ballot was also a serious breach of the rules in the context of the facts of this case.

Expulsion of members

[47]The judge found that five of the bowling members were invalidly expelled from the club in breach of the rules. However, he held that the invalid expulsion of those members did not affect the validity of the meeting of 24 July, for two reasons. First, none of those five members attempted to attend the meeting or vote. Second, even if they had done, their votes would have made no difference to the result.

Play in the joints

[48]Having identified the defects that he found

the judge reasoned at [66] as follows:

“Are the defects in the process of election of the officers and committee members on 24 July “play in the joints” or must the requirements be strictly adhered to? Notwithstanding the seriousness of the business purportedly conducted on 24 July, in my judgment, they fall into the category of “play in the joints” for the following reasons (a) I have found on the balance of probabilities that proper notice of the business to be conducted at the AGM was given to members; (b) This was not a contested election, every one who was proposed and seconded was appointed unopposed and unanimously; and (c) The committee in accordance with the rules are to be appointed at the AGM (albeit by ballot). The Secretary is to be appointed by ballot although the ballot is not required to take place at or by reference to the timing of an AGM. It is only the election by ballot of the President and the Treasurer which should take place at a different time to the AGM … In my judgment the defects make no practical difference to the opportunity that the members of the Club had (i) to understand that the meeting would deal with the election of officials, trustees and committee members and (ii) to vote on those appointments. The failures to comply strictly with the process of appointing the officers and committee members in my judgment are … failures of form and not of substance….”

[49]The judge therefore declared the elections valid. In reaching his conclusion the judge did not mention that the purpose of the meeting was to resolve differences between the factions over compliance with the rules. It was intended to put the validity of the elections beyond doubt. That is the critically important context in which the significance of the failures to comply with the rules is to be evaluated. In my judgment the judge did not do that.

[50]For the reasons I have given I do not agree with the judge that an election by acclamation or show of hands, when the rules require a ballot, is a failure of form rather than substance. Nor did the notice given to members about the business to be transacted at the meeting alert them to the possibility that the election, even if it was to take place at the meeting, would not be an election by ballot. Although the judge placed reliance on the fact that the election was unanimous, unanimity is easier to achieve in an open election than in a secret ballot. It is of itself a reason why it is important that elections be conducted by ballot rather than by acclamation or show of hands in an open meeting. Moreover, since there had been no opportunity given to the members to nominate alternative candidates, the mere fact that those who had been proposed and seconded were unanimously elected is not of great weight. I cannot therefore agree with the judge either that adequate notice of the business to be transacted at the meeting was given, or that the irregularities were mere matters of form. It follows from this that the President and the Treasurer were not validly elected.

[51]So far as the committee members are concerned, the position is more confused. This is the one point on which the rules are not clear. As I have said rule 20 says that the committee members “shall be elected by ballot at a General Meeting by a resolution of a majority of the members present and entitled to vote”. Thus the rule contemplates two methods of election. I do not therefore think that a secret ballot is mandatory. Accordingly, in my judgment the fact that the committee members were elected at the AGM by a show of hands would have been sufficient compliance with the second method of election. However, as I have said, the absence of nomination sheets for the three weeks preceding the meeting means(a) that the names of the candidates were not publicised in advance of the meeting, and

(b) there was no opportunity to propose alternative candidates. In my judgment that was again not a mere matter of form. I would therefore hold that the members of the committee were not validly elected either.

[52]Mr White forcefully submitted that the previous practice of the club had been to conduct elections by show of hands, and that ballots had only been used where elections were contested. But the judge made no finding to that effect, and it was not the basis of his decision. Moreover, once again the context of the AGM held in July 2011 is important. There had already been challenges to meetings electing officers on the ground that there had been non-compliance with the rules. The sole business of the July 2011 AGM was to elect officers in accordance with the rules, so as to resolve the disagreement between the rival factions. In that context it was all the more important for the rules to be scrupulously complied with. Whatever may be the position in the case of a club which is harmoniously managed, ours is not that case.

[53]I would therefore hold that the AGM of 24 July 2011 was not validly convened, and the business purportedly transacted at it was ineffective.

[54]I must, however, stress that for the reasons I have given for rejecting the complaint that the March 2010 committee did not have power to fix the date of the July 2011 AGM, the invalidity of the elections at that meeting does not affect the validity of the March 2013 AGM. Moreover, there has in fact been no challenge to the legality of that latter AGM.

Account of payments

[55]There are three persons against whom an order for an account was sought: Mr Ronald Allott, Mr Andrew Taylor and Mr Paul French. The rules in play on this part of the appeal are rule 10 (which permits an honorarium or expenses to be paid to officers of the club) and rule 13 (which prohibits profit or remuneration to members of the committee).

[56]Mr Allott. Mr Allott told the judge that he had been the president of the club from mid-2007 to 24 July 2011, when he resigned. The validity of his appointment was disputed. The judge referred to the minutes of a committee meeting of 1 May 2007 which showed “Mr Allott being proposed, seconded and appointed as President”. He also noted that the minutes of the AGM of 3 July 2007 made “no clear reference to the election of Mr Allott as President”. He found that on the balance of probabilities Mr Allott was appointed President at the AGM on 3 July 2009. There was no direct evidence before the judge of what happened at that AGM (apart from statements that Mr Allott was “appointed” President at the AGM), and he based his conclusion on inferences drawn from the minutes. These were findings of fact with which I consider we should not interfere. Indeed no serious challenge to them was mounted in argument.

[57]Under rule 10 the officers of the club (who include the President) may receive “ such honorarium … as may be decided by the Finance Committee from time to time”. Mr Allott accepted that he had been paid an honorarium of £150. It was alleged, based on the club’s computerised records which included a trial balance for the calendar year 2008, that in fact he had been paid an honorarium of £300; but the judge accepted Mr Allott’s evidence that he had in fact only received £150. The question then arose whether that payment had been authorised by the committee, despite the absence of any minute recording that authorisation. He accepted Mr Taylor’s evidence that before submitting accounts to the AGM the committee would always consider and approve them.

[58]The highest that Mr Speechley can put his case is that Mr Allott received £150 more than he should have. In the overall context of this case that is, with respect, a trivial amount. But in my judgment the judge was entitled to prefer the evidence of Mr Allott to the inferences that Mr Speechley sought to draw from the accounting records.

[59]Mr Taylor. Mr Taylor was a member of the committee but not an officer of the club for about ten years until July 2011. He accepted that, as Subscription Secretary, he received four payments of £150 each. The judge decided that these payments amounted to salary, remuneration or profit within the meaning of rule 13, and that the payments made to Mr Taylor were a breach of the rules. However, he also found that Mr Taylor was unaware of the breach, and that he was not dishonest in receiving the payments. It was on that basis that he refused to order Mr Taylor to account for the payments that he had wrongly received.

[60]As a committee member Mr Taylor was in the position of a fiduciary. A fiduciary is not entitled to an unauthorised profit at the expense of his beneficiary. The fact that he acted honestly does not necessarily excuse him. However, the remedy is an equitable remedy, and even in the case of an express trustee the court has power under section 61 of the Trustee Act 1925 to excuse a trustee from liability for breach of trust if he has acted “honestly and reasonably” and “ought fairly to be excused”. In my judgment the judge was exercising a dispensing power by analogy with this statutory provision. On his findings of fact, and the unchallenged evidence that it had for many years been the practice to pay honoraria to the Subscription Secretary, I do not consider that his exercise of discretion should be upset by this court.

[61]Mr French. Mr French’s evidence contained in his witness statement was that he had been a member of the committee since 2005, and that from about December 2007 he helped out as acting Treasurer until a new Treasurer could be appointed. He was paid travel expenses and help towards his mobile phone bill. The payments amounted to £40 a month for a period of about two years in 2008 and 2009. He denied that he had received a Treasurer’s honorarium. He did not recall the committee voting on these payments. He also said that he had worked behind the bar and that he had been paid wages by the club for that.

[62]The judge found that Mr French had never been appointed as Treasurer. He went on to say that it was “only by being appointed to that role that he would become a member of the committee.” I find that statement impossible to understand. First, it is clear from rule 20 (a) that members of the committee may be elected by the members by resolution at a general meeting. The Treasurer, by contrast, is to be elected under rule 10 by ballot in the week following the AGM. It was, therefore, quite possible for Mr French to have been elected as a member of the committee before any election as Treasurer. Second, Mr French’s own evidence was that he had been a member of the committee for some two years before he began helping out as acting Treasurer. The judge did not explain whether he rejected that evidence (and if so why) when, as far as I can see, it was unchallenged.

[63]So as I see it, the first question is whether the reimbursement of expenses falls within rule 13 and is thus prohibited by the rules. In my judgment it is not. Rule 13 is concerned with profit or remuneration and not with reimbursement of expenses. It is a reflection of the principle that a fiduciary is not entitled to prefer his own interest to those of his beneficiary. But no one doubts that a fiduciary is entitled to be reimbursed any expenses that he incurs on behalf of the beneficiary. In my judgment, therefore, rule 13 did not preclude the club from reimbursing Mr French his expenses. I would also accept that the principle would extend to help with his mobile phone bill, on the basis that he used it in part on club business.

[64]So far as wages for working behind the bar are concerned, the judge’s finding was that Mr French received the minimum wage. It is well established that in circumstances in which equity orders a fiduciary who has made an unauthorised profit to account to his principal, the court has an inherent jurisdiction to allow the defaulting fiduciary fair remuneration for what he has done. In my judgment it is inconceivable that Mr French would be allowed less than the minimum wage as recompense for his work behind the bar.

[65]Accordingly I consider that the judge was justified in refusing to order an account.

Inspection of books and accounts

[66]Under rule 22 a member has the right to inspect the club’s books and accounts at the registered office or at the place where they are kept. This right tracks the statutory right given to members by section 62 of the Friendly Societies Act 1974.

[67]The judge acknowledged at [80] that Mr Speechley had relied on the trial balance which referred to the payment of £300 to Mr Allott but said that beyond that, Mr Speechley was unable to point to any document or class of document that that he had not had the opportunity to inspect during the course of the proceedings. He recorded the evidence of the defendants that there were no more documents to be seen. At [81] he recorded the fact that there had been a police investigation into the club and that the club’s records had been taken away and examined by a police forensic accountant. That accountant did not report any missing records. The judge refused to order an inspection because he was:

“… not satisfied that there are further records in the possession of the club beyond those that have already been disclosed to the Claimants in these proceedings.”

[68]I do not consider that the fact that the police had investigated the records and found no evidence of crime is a strong factor against the application. The police were investigating whether any crime had been committed; and that would have involved dishonesty. A member is prima facie entitled to investigate whether breaches of the rules have taken place; and those, as the judge found in relation to Mr Taylor, may take place without any dishonesty. However, a weightier objection is the judge’s view that there was no more to inspect: the claimants had seen what there was to see.

[69]The judge noted that Mr Speechley was interested in particular in computer records. Four pages of these had been disclosed in hard copy form during the course of the proceedings, and their format suggested that there would have been other such records. For example one page which we were shown was marked “page 16”, so on the face of it there were twelve more undisclosed pages. Although the judge did not make findings to this effect, it ultimately became common ground before us that in addition to disclosing the hard copies, the defendants had also disclosed a computer disk which contained the contents of the club’s computerised accounting records. Mr Speechley attended at the club’s solicitors’ offices at least twice in order to inspect the contents of the disk on a computer loaded with the appropriate software. However, he was not able to understand what he saw and asked for a hard copy print out, which was not provided to him.

[70]The short answer to his contention is that all that rule 22 entitles him to is the right to inspect what the club has. If the club keeps its records on computer, he is entitled to inspect the computerised records, with the aid of the appropriate software. He is not entitled under the rule to require the club to convert its information into a different form.

[71]I would not disturb the judge’s conclusion on this issue.

Convening a fresh meeting

[72]The claimants sought an order that the defendant co-operate with them in convening a general meeting (either an SGM if requisitioned or an AGM). They relied on section 76 of the Friendly Societies Act 1974. That provides for the resolution of certain disputes. However, section 76 (3A) provides that:

“This section does not apply to a dispute if— (a) the registered society concerned is a registered friendly society; or (b) the registered branch concerned is a branch of a registered friendly society.”

[73]Thus the case proceeded upon a wrong assumption about the basis on which the court could act. Section 76 of the 1976 Act has been superseded by section 80 of the Friendly Societies Act 1992, although it is in similar terms.

[74]However, as I have said an AGM took place in March 2013, and a further AGM will be called in March or April of this year. If there is a failure or refusal to call an AGM then once 15 months have elapsed since the date of the last AGM, the Financial Conduct Authority may intervene. There is no reason to suppose that the AGM will not take place as currently proposed, and there is no reason to suppose that the remedy available via the FCA will be inadequate.

[75]I would not therefore disturb the judge’s refusal to order the convening of a general meeting.

Result

[76]I would therefore allow the appeal only to the extent I have indicated. Thus: i) I would declare that the President, the Treasurer and the committee members were not validly elected at the meeting on 24 July 2011; ii) I would not make an order requiring Mr Allott Mr Taylor or Mr French to account for payments that they have received; iii) I would not make an order entitling Mr Speechley to inspect the records and accounts of the club; iv) I would not make an order requiring the claimants and the defendants to co-operate in convening an AGM of the club.

[77]I should also record that the judge declared that because Mr Speechley and his fellow claimants had been unlawfully expelled from membership of the club they remained members of it. There has been no cross-appeal against that decision, which is embodied in the declaration that the judge made. Unless subsequent events have intervened (as to which we were given no information) the position remains that Mr Speechley is entitled to participate in the running of the club in accordance with its rules. Lastly I should stress that it will be of the utmost importance that the forthcoming AGM is conducted strictly in accordance with the rules, and that the paper trail is scrupulously kept, otherwise this unhappy saga will have no end.

[78]I agree

[79]I also agree APPENDIX THE RULES The relevant provisions of the rules are as follows:

“8 (a) The Annual General Meeting shall be held in February, or as soon after as possible, on a date to be fixed by the Finance Committee. (b). A Special General Meeting shall be held whenever the Finance Committee think expedient and whenever one-fifth of the total number of ordinary members so request in writing signed by them and delivered to the Secretary 21 days before the required date. (c). Fourteen days’ notice of any General Meeting, stating the business to be transacted at such meeting, shall be posted in the Club. (d). All General Meetings shall be held at the Registered Office unless the Finance Committee (either generally or in a particular case) otherwise decide. (e). At all General Meetings, the President, or if he be not present, an elected chairman shall preside. Twenty members shall form a quorum. No meeting shall become incompetent to transact business from the want of a quorum after the chair has been taken. (f). Every Ordinary Member present shall have one vote. 9. No other business other than that named in the notice of the meetings shall be brought before an Annual General Meeting or Special General Meeting, unless notice thereof is given to the Secretary in writing at least seven days prior to such meeting. 10. The Club shall have the following Officers: Three Trustees, a President, a Treasurer & Secretary. The Trustees shall be appointed only at a General Meeting by a resolution of the majority of members present and entitled to vote thereat, and shall remain in office during the pleasure of the Club. A copy of such Resolution shall be entered in the Minutes of the Meeting at which the Trustee is appointed, and notice of such Resolution signed by such Trustee shall be forwarded within 14 days by the Secretary to the Registrar in the form prescribed by the Treasury Regulations. The President and Treasurer shall be elected by ballot in the week following the Annual General Meeting (or in the succeeding week), and shall remain in office until their successors are appointed. The Secretary shall be elected by ballot and shall remain in office during the pleasure of the Club…. The Officers of the Club shall receive such honorarium or expenses or such salaries as may be decided by the Finance Committee from time to time…. 11. (a) The Finance Committee (hereinafter called “the Committee”) shall consist of the President, the Secretary and Treasurer, three Trustees and elected or co-opted Committee members. In addition each of the Sports sections shall be allowed to elect a Committee member. 13. … No goods or labour shall be supplied, nor any contract entered into for work to be done for the Club nor any office or salary, profit or remuneration be held by any member of the Committee. 20. (a) The members of the Committee shall be elected by ballot at a General Meeting by a resolution of a majority of the members present and entitled to vote thereat. At least three weeks before the date fixed for the meeting, nomination sheets shall be posted in the Club, on which the names of all candidates for the Committee vacancies must be entered. Such sheets shall remain open until seven days before the General Meeting. Scrutineers (b). The Ballot shall be carried out under the directions of the Committee who are not themselves candidates for office, who will act as scrutineers. 21. The scrutineers shall seal up the ballot papers, and hand them to the Secretary, who shall retain them for 7 days. A scrutiny shall take place if a written demand be presented to the Secretary within 7 days from the close of the ballot … 22. Any member or person having an interest in the funds of the Club, shall, at all reasonable times, be entitled to inspect all books and accounts at the registered office, or at any place where they are kept, and it shall be the duty of the Secretary to produce them for inspection. 23. All disputes between a member or a person aggrieved who has ceased to be a member … and the Club or any officer of the Club, shall be referred to the Finance Committee or the persons appointed by them, whose decision shall be final.”