Mohamed & Ors v Abdelmamoud & Anor [2018] EWCA Civ 879

[2018] EWCA Civ 879Case No A3/2015/1564
IN THE COURT OF APPEAL (CIVIL DIVISION)
[2015] EWHC 1013 (Ch)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
(Mr Edward Murray, sitting as a Deputy High Court Judge)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 23/04/2018
Before
LORD JUSTICE LONGMORELORD JUSTICE McCOMBELORD JUSTICE NEWEY
Between
(1) MOSTAFA RAGAB MOHAMEDAppellants(2) SHENOUDA SHALABY(Applicants)(3) SHADY ISSAAppellant(4) AZIMA MADKOURAppellant
Mr Adam Johnson QC and Mr Donny Surtani of Herbert Smith Freehills LLP (Acting Pro Bono) for AppellantsMr Andrew Clutterbuck QC (instructed by Vincent Solicitors) for Mr Gamal AbdelmamoudHearing Hearing date: 15 March 2018
Judgment Approved
[1]This appeal concerns a default judgment that the claimant, Mr Gamal Abdelmamoud, obtained against the defendant, the Egyptian Association of Great Britain Limited (“EAGB”). The appellants, Mr Mostafa Ragab Mohamed (“Mr Ragab”), Dr Shenouda Shalaby, Mr Shady Issa and Mr Azima Madkour, who are all members of EAGB, applied for the judgment to be set aside, and their application succeeded before Deputy Master Smith. An appeal having, however, been allowed by Mr Edward Murray, sitting as a Deputy High Court Judge, the appellants now challenge his decision in this Court. The case raises issues as to when a non-party can be said to be “directly affected” by a judgment or order for the purposes of CPR 40.9, which provides:
“A person who is not a party but who is directly affected by a judgment or order may apply to have the judgment or order set aside or varied.”

Narrative

[2]EAGB, a company limited by guarantee and a registered charity, was incorporated in 1997. Its memorandum of association provided for members to pay up to £10 each in the event of the charity being wound up and also barred the payment or transfer of income or property to members. The articles of association stated that, subject to certain exceptions, the business of the charity was to be “managed by the trustees who may exercise all the powers of the Charity”. “The trustees” was defined to refer to EAGB’s directors. As “persons having the general control and management of the administration of a charity”, the directors of a charitable company are also “charity trustees” within the meaning of section 177 of the Charities Act 2011.[3]EAGB appears to have adopted a “Constitution” in 2009. This provided for a management committee with 11 members, who were to be elected at the annual general meeting. The committee was, among other things, to “[p]rovide governance to the Egyptian Association, represent it to the community and accept ultimate legal authority for it”.[4]It is, as I understand it, common ground that Mr Ragab was a director/trustee of EAGB before he resigned as such in 2011. At that stage, Mr Omar Ismail became a director/trustee.[5]On 12 July 2012, an extraordinary general meeting was held (or purportedly held) at which, according to the appellants, 12 individuals were elected as “new trustees” for EAGB. They included three of the appellants: Mr Ragab, Dr Shalaby and Mr Issa. The validity of the appointments is, however, disputed by Mr Ismail, among others.[6]On 2 December 2012, an emergency meeting of EAGB’s board was held (or purportedly held). It was chaired by Mr Ismail. The minutes recorded that the board agreed that EAGB should enter into a loan agreement with Mr Abdelmamoud, the proceeds of which were to be used to fund litigation against Mr Ragab. The minutes also stated that Mr Ismail was “delegated and authorised by the Board of Directors to take all legal actions against [Mr Ragab] in respect of any and all actions needed to be taken to ensure the return of any monies and or properties belonging to [EAGB]”. There was reference in the minutes to Mr Ragab having sold “the 50 visas Hajj licence” and “allegedly pocketing this money which belongs to the Company/charity” and to his refusing to pay back £80,000 which “he took from the Egyptian Association”. It was also stated that Mr Abdelmamoud agreed to provide funding: “providing that all legal matters are in place and that contract must be signed, proof that we are the Directors/Trustees acting on behalf of the Egyptian Association and that the Board of Directors are agreeable”.[7]On 14 December 2012, Mr Abdelmamoud entered into a contract the parties to which were identified as himself and EAGB. The contract, which was signed on behalf of EAGB by Mr Ismail, provided for Mr Abdelmamoud to lend EAGB £30,000 to be used only for the purpose of meeting legal expenses and to be “repayable in full immediately upon formal demand at any time”. Interest was to be paid at 10% per annum, but:
“In the event of default of payment of interest or delayed repayment of the Principal Sum beyond the due date interest shall accrue from the event of default at the rate of 25% … per annum on the defaulted balance together with any accrued but unpaid interest.”
[8]At the beginning of January 2013, EAGB applied for injunctive relief against Mr Ragab. When the proceedings (“the Ragab Proceedings”) came before Briggs J on 9 January, the application was adjourned with Mr Ragab giving an undertaking to the Court to tell a meeting/Christmas dinner taking place the next day that there was a dispute as to who the proper chairman and head of EAGB was and to send emails to similar effect to all members of EAGB.[9]The application was disposed of by consent at a hearing before Proudman J on 10 April 2013. Mr Ragab and Mr Ismail each gave undertakings to the Court. Mr Ragab undertook, among other things, not to hold himself out as the chair or officer of EAGB “unless so elected at the meeting requisitioned by [EAGB] pursuant to the Memorandum and Articles 1997”. For his part, Mr Ismail undertook, among other things, to requisition a general meeting of EAGB “pursuant to the Memorandum and Articles 1997” to be held on or before 15 June at which “the existing directors and charity trustees shall resign for the purposes of enabling the members to vote on and elect not less than three new directors (who shall also be appointed trustees)”.[10]On 29 April 2013, Mr Abdelmamoud appears to have made a formal demand for his “loan of £30,000” to be repaid. This was followed up by a “Pre-legal action Notice” dated 6 May. On 16 May, Mr Abdelmamoud issued the present proceedings in the Queen’s Bench Division. He claimed £30,000 plus interest of £7,500 on the basis that EAGB was to pay “interest of 25% per annum on the defaulted balance” in the event of default.[11]On 15 June 2013, there was held (or purportedly held) a general meeting of EAGB that is said to have been “supervised by an independent panel”. According to the panel, Mr Ismail, Mr Moustaf El-Sayed and Mr Ossama Abdel Hamid were elected as directors/trustees of EAGB. The appellants, however, dispute the validity of this election.[12]On 26 June 2013, Mr Abdelmamoud obtained judgment in default against EAGB for the £37,500 he had claimed plus costs of £525. On the following day, he applied for a third party debt order to be made in his favour in respect of EAGB’s accounts with National Bank of Egypt. An interim third party debt order was made on 3 July, and a final order followed on 4 September.[13]On 14 October 2013, by which time Mr Abdelmamoud’s proceedings had been transferred to the Chancery Division, the appellants issued an application for the default judgment against EAGB to be set aside. The application came before Deputy Master Smith, who gave judgment on 30 July 2014. He concluded that there was a real prospect of EAGB successfully defending Mr Abdelmamoud’s claim and, further, that the appellants had standing to apply to set aside the default judgment. With regard to the latter point, the Deputy Master said this (at paragraph 49 of his judgment) after referring to CPR 40.9 and Latif v Imaam Inc [2007] EWHC 379 (Ch):
“Latif did not purport to set out the limits to CPR 40.9. If anything, the case demonstrates that the situations in which CPR 40.9 can be relied on are rather wider than the reported authorities and that cases should be decided on their own facts. CPR 40.9 is in wide terms. It requires only that a person be directly affected by a judgment or order. In my view the Applicants, as members of the charity who claim to dispute the election of the present management committee, are directly affected by the default judgment even if they have no proprietary interest in the Charity’s funds. They have an interest in protecting the funds of the Charity of which they are members. Of course, it would be inappropriate to set judgment aside if the Applicants were unable to defend the claim on behalf of the Charity but, in line with the notes at paragraph 40.9.5 of The White Book, it seems to me that the Applicants as members of the Charity should be entitled to apply to defend the proceedings in the name of the Charity on suitable indemnities being given in circumstances where the registered directors of the Charity are not proposing to defend the claim.”
[14]The order made by the Deputy Master provided, by paragraph 2, for the default judgment and the third party debt order to be set aside and for the appellants to “have permission to defend the action in the name of the Defendant [i.e. EAGB]”. By virtue of paragraph 1 of the order, paragraph 2 was to take effect only if the appellants filed and served a written undertaking to indemnify EAGB against any costs subsequent to 4 September 2013 for which it might be held liable to Mr Abdelmamoud.[15]Mr Abdelmamoud appealed against Deputy Master Smith’s decision. The appeal came before Mr Edward Murray, sitting as a Deputy High Court Judge, who, on 20 January 2015, held that the appeal should be allowed. He summarised his conclusions in these terms in paragraph 75 of the judgment he handed down on 17 April 2015:
“The Applicants did not have standing under CPR Rule 40.9 to bring their application to set aside the default judgment obtained by Mr Abdelmamoud. If my view on that is wrong, the Applicants did not, in any event, establish that they would have a real prospect of successfully defending the claim by Mr Abdelmamoud against the EAGB for repayment of the loan. In my view, there is no other good reason why the default judgment should be set aside or the Applicants allowed to defend the claim on behalf of the EAGB. Mr Abdelmamoud’s appeal is therefore granted.”
[16]In the meantime, by an order made by Master Matthews on 16 April 2014, the Ragab Proceedings had been stayed until EAGB obtained permission for them from the Charity Commission under section 115 of the Charities Act 2011. On 4 November, the Charity Commission gave such permission, authorising EAGB to take proceedings against Mr Ragab for inquiries, an account and other relief. Thereafter, EAGB was granted permission to effect amendments to seek the relevant relief.[17]On 15 July 2016, Master Matthews made an order by consent in the Ragab Proceedings which laid down directions for the taking of an account and inquiries and, subject to that, stayed the proceedings on the basis of terms set out in a schedule. The schedule is not available, but it appears that Mr Ragab paid EAGB about £65,000 at this stage.[18]On 27 September 2016, the Charity Commission made an order under section 80 of the Charities Act 2011 for two people from each of the rival camps (including Mr Ismail and Mr Issa) to be “appointed as the trustees (being charity trustees) of the charity”. The persons so appointed were authorised and directed to hold an annual general meeting according to the provisions of its “governing document” (i.e. its articles of association) within two months. The appointments were stated to expire on the earlier of(a) the end of the annual general meeting so called or(b) two calendar months from the date of the order unless a written extension was provided by the Commission. The deadline was subsequently extended to 2 September 2017, but no annual general meeting was in fact convened.[19]On 22 May 2017, Deputy Master Lloyd stayed the Ragab Proceedings, with permission to any party to apply, on the basis that an issue had arisen “as to the authority of the Claimant’s legal representatives to proceed with the claim”.[20]In an email of 7 March of this year, the Charity Commission said that it had “disengaged” and would not be making a further order under section 80 of the Charities Act 2011. The email explained:
“The Commission has put a great deal of resource into assisting the charity to get back on track and cannot continue to do this indefinitely and that is why we have disengaged and our position remains the same. It is not an effective use of our resources to constantly revisit the same issue without success. In view of this we will not be issuing a further s80 Order and have therefore closed our case today.”

Issues

[21]The appellants appeal against Mr Murray’s decision of 20 January 2015. The appeal gives rise to two issues: i) Do the appellants have standing to apply for the default judgment against EAGB to be set aside as persons “directly affected” by the judgment within the meaning of CPR 40.9 (“the Standing Issue”)? ii) If “yes”, does EAGB have a real prospect of successfully defending Mr Abdelmamoud’s claim on the merits (“the Merits Issue”)?

The Standing Issue

[22]Before the advent of the Civil Procedure Rules, there was no rule in quite the same terms as today’s CPR 40.9. There were nonetheless circumstances in which a non-party could successfully apply for a default judgment to be set aside. The relevant principles were discussed by the Court of Appeal in Jacques v Harrison (1883) 12 QBD 136. In that case, the lessee under a building lease had allowed the landlord to obtain a default judgment, but it was set aside at the behest of the liquidator of equitable mortgagees of the lease under RSC O.27 r.15, which provided:
“Any judgment by default … may be set aside by the Court or a judge upon such terms as to costs or otherwise as such Court or judge may think fit.”
Bowen LJ, delivering the judgment of the Court, observed (at 170) that this rule “was not designed to give a locus standi to persons who had none, but to enable judgments by default to be set aside on terms by those who had or who could acquire a locus standi”. On the facts, the liquidator was “interested in the matter”, or was “affected by the judgment”, which was a “blot upon the title of the mortgagees” (see 167), and he was given “liberty to defend the action in the defendant’s name” (see 171).[23]The scope of the present-day CPR 40.9 is limited by the requirement that an applicant must be “directly affected” by the judgment or order which he wishes to have set aside. We were referred to three first instance decisions in which this restriction fell to be considered. In the earliest of them, Hepworht Group Ltd v Stockley [2006] EWHC 3626 (Ch), [2007] 2 All ER (Comm) 82, Judge Behrens, sitting as a Judge of the High Court, rejected an application under CPR 40.9 on the footing that the applicants had “no direct right to claim a transfer” of the property at issue and so were not “directly affected” by the relevant order (see paragraph 62). In the most recent of the three, Ipcom GmbH & Co KG v HTC Europe Co Ltd [2013] EWHC 2880 (Ch), Roth J concluded (at paragraph 44) that CPR 40.9 “is broad enough to cover the case where a non-party seeks to contend that inspection of a document ordered against a party will involve disclosure of its confidential business secrets, at the very least in a case where … that non-party’s interest is sufficiently clear to be referred to in the order itself”. Neither authority seems to me to cast any significant light on whether CPR 40.9 is applicable in the rather different circumstances of this case.[24]It was the remaining case, Latif v Imaan Inc [2007] EWHC 3179 (Ch), that was the subject of most debate before us. There, the claimants (“Hamra”) had obtained a default judgment against the defendant (“Imaan”) in respect of an alleged loan and, on the strength of the judgment, a third party debt order under which the tenants of two properties vested in Imaan were to pay their rents to Hamra. On top of that, Imaan had executed a charge in favour of Hamra over one of the properties as security for the supposed loan. In other proceedings, however, a company called Lexi Holdings plc (“Lexi”) was given permission to amend its particulars of claim to include a challenge to the charge that Imaan had granted to Hamra. Lexi maintained that the charge and the loan it was said to secure were merely devices designed to put beyond its reach assets within the control of a Mr Luqman, who it claimed had committed a substantial fraud. On its application, Lexi was joined as an additional defendant to the proceedings between Hamra and Imaan.[25]Lexi now sought to have the default judgment against Imaan set aside under CPR 40.9. Hamra objected that Lexi had no proper interest in seeking to intervene, but Briggs J decided otherwise. Briggs J considered that the amendments for which Lexi had obtained permission in its own proceedings gave it a “reason to put in issue the question whether there was any loan by Hamra to Imaan on the basis of which this judgment stands” because “the existence or non existence of that loan is a highly material fact relevant to the validity or otherwise of the Imaan/Hamra charge” (paragraph 11 of the judgment). In the circumstances, it seemed to Briggs J “perfectly appropriate and proper for Lexi to be treated as having a sufficient interest in the matters recorded by the judgment, namely the making of the loan and its non-payment, to intervene to have that judgment set aside” (paragraph 12). Briggs J went on (in paragraph 13):
“One has to ask, how could Lexi pursue, as against Hamra and Imaan, a claim that Hamra has no proprietary interest arising out of the charge, by alleging that there never was any loan to support it in the first place for as long as it remains a party to proceedings in which there is a judgment, which effectively purports to recognise that there was. [Counsel for Hamra] submitted that no issue estoppel would arise purely from a default judgment, but nonetheless, in my view it is perfectly proper for that default judgment to be sought to be set aside to enable Lexi to pursue that claim.”
[26]It can be seen from Briggs J’s judgment that he had very recently given judgment in the Lexi proceedings against Imaan for a large sum and declared that the properties over which Imaan had granted a charge in favour of Hamra “were to be treated as subject to an equitable charge in Lexi’s favour by reason of having been acquired by Imaan with monies misappropriated from Lexi” (see paragraph 7). In the light of this, Mr Andrew Clutterbuck QC, who appeared for Mr Abdelmamoud, suggested that Lexi had a proprietary interest that was capable of being adversely affected by the existence of a judgment recognising the validity of a loan said to be secured by a competing charge. It is not clear to me, however, what significance Briggs J attached to the equitable charge that he had held Lexi to have. There is no mention of it in paragraphs 11-13 of the judgment. Briggs J seems to me to have focused more on the fact that a judgment given in proceedings to which Lexi was a party was inconsistent with the case that it was advancing in the other proceedings.[27]Be that as it may, I do not think that Latif v Imaan Inc, any more than Hepworht Group Ltd v Stockley or Ipcom GmbH & Co KG v HTC Europe Co Ltd, is of any real assistance with the issues before this Court. Mr Adam Johnson QC, who appeared for the appellants with Mr Donny Surtani, suggested that Latif v Imaan Inc indicates that CPR 40.9 is flexible and can be used as a platform for case management. It is clear from its terms, however, that CPR 40.9 does not empower the Court to set aside a judgment or order wherever it might think that appropriate. It is a precondition that the applicant is “directly affected” by the judgment or order. That the power should not be untrammelled makes obvious sense. In general, a defendant to a claim should be left to decide for himself whether to defend it. Further, it could hardly be appropriate to allow a third party to apply to have a judgment set aside unless he would then be in a position either to defend the claim on the defendant’s behalf or to put forward a defence of his own.[28]More specifically, none of the three cases dealing with CPR 40.9 (in chronological order, Hepworht Group Ltd v Stockley, Latif v Imaan Inc and Ipcom GmbH & Co KG v HTC Europe Co Ltd) was concerned (as we are) with whether (and, if so, when) individual directors/members can be “directly affected” by a judgment or order against their company for the purposes of CPR 40.9. In the present case, Mr Johnson argued that the appellants should be seen as “directly affected” by the default judgment against EAGB both because they are members of the company and because three of them are directors/trustees of it.[29]There is, of course, a dispute as to whether any of the appellants has in fact been a director/trustee of EAGB at any relevant time. The appellants contend that Mr Ragab, Dr Shalaby and Mr Issa were duly elected as such on 12 July 2012 (see paragraph 5 above), but Mr Ismail and his allies appear both to deny the validity of that exercise and to maintain that none of the appellants can have been a director anyway since 15 June 2013, when they are said to have failed to be elected at the general meeting “supervised by an independent panel” (see paragraph 11 above).[30]Even assuming, however, that (as they claim) three of the appellants were directors/trustees of EAGB in the period between the issue of the application to set aside the default judgment (in October 2013) and the date of Mr Murray’s decision (January 2015), I cannot see how that fact can have meant that any of them was “directly affected” by the judgment. The management of a company is conventionally entrusted to its board as a whole rather than to one or more individual directors. EAGB is no exception: its articles of association state that its business is to be managed by “the trustees” and contain provisions dealing with “Proceedings of trustees”. Of course, with EAGB, as with other companies, a decision need not require the concurrence of every director. Questions can be decided by a majority (see article 42 of EAGB’s articles) and without every director being present at a board meeting (in EAGB’s case, article 43 of its articles stipulates that the quorum for transaction of the business of the trustees is to be “not less than one third of their number or two trustees, whichever is the greater”). It by no means follows, however, that any group of directors numbering in excess of the quorum requirement can decide matters on their own. Except to the extent (if any) to which a company’s articles provide otherwise, every director of a company must be given notice of a board meeting if it is to be duly convened (see e.g. Baker v London Bar Co Ltd [2011] EWHC 3398 (Ch), [2012] BCC 69). “No doubt a bare quorum is capable to act and bind the company at a meeting duly convened, with proper notice given to the other directors, at which therefore all the directors may, if they please, be present” (to quote from the judgment of North J in In re Homer District Consolidated Gold Mines (1888) 39 Ch D 546, at 550), but that is obviously not to say that a “bare quorum” can proceed without any notice to other directors. Particular directors are not, therefore, entitled to make decisions without involving their fellows unless they have been authorised to do so by the entire board.[31]In the circumstances, I doubt whether an application to set aside a judgment against a company under CPR 40.9 can ever be justified on the basis that the application is made by one or more directors of the company. If the board as a whole has resolved that an application should be made to set aside the judgment, the company itself can apply and CPR 40.9 is irrelevant. The position will be the same if authority to make such an application has been delegated to the relevant director(s) by the board: once again, an application can be made in the name of the company. If, on the other hand, a director or directors have not been authorised to apply on the company’s behalf, I cannot see how they can do so as persons “directly affected” by the judgment. Their status as directors would give them neither a personal interest nor decision-making powers except as members of the wider board. To allow individual directors to apply under CPR 40.9 would subvert the allocation of responsibility for management to the board. That point is underlined by the fact that such an application would seem to make little sense unless the applicant director(s) could be given permission to defend the claim in the company’s name (as the Deputy Master ordered in this case), yet the director(s) will have no right to do so under the company’s articles. The intentions of the corporate organ to which such matters are entrusted (viz. the board) would be liable to be frustrated.[32]In the present case, the appellants do not suggest that they were the only directors/trustees appointed on 12 July 2012. On their own case, 12 people were elected as trustees on that occasion. There is, however, no evidence that the appellants have been authorised by that larger group to apply to set aside the judgment against EAGB and, if they had been, they would not have needed to resort to CPR 40.9. As it is, the three appellants who are said to have been appointed as trustees must be taken to have sought the setting aside of the judgment without the sanction of the trustees as a whole even though EAGB’s articles provide for its business to be managed by “the trustees”. In short, I do not think that the fact that three of the appellants are said to have been elected as trustees is of any assistance to them. More specifically, they cannot claim to have been “directly affected” by the judgment on that basis.[33]In any event, I do not think any of the appellants can now be a trustee of EAGB. As mentioned in paragraph 18 above, the Charity Commission appointed four people as “the trustees” on 27 September 2016. The natural inference is, I think, that those individuals were to be the only trustees, and that conclusion is reinforced by the fact that (as Mr Clutterbuck pointed out) it is hard to see how section 80 of the Charities Act 2011, pursuant to which the order was made, can have empowered the Commission to make any appointment otherwise than under section 80(2)(a): in other words, “in place of a trustee removed by the Commission”. In fact, Mr Johnson accepted that the persons appointed under the order became EAGB’s only trustees. His position was that, when the order expired, the previous trustees resumed their roles. Mr Clutterbuck, however, submitted that there is no question of trustees having been in “suspended animation” and so that, when the appointments made by the Commission lapsed, EAGB ceased to have any trustees. In my view, that must be correct.[34]If the appellants could not apply under CPR 40.9 as directors/trustees, were they able to do so as members of EAGB? Mr Johnson submitted that they could. One of the points advanced in his skeleton argument was that the appellants, as members of EAGB, could be called upon to contribute up to £10 each in the event of a liquidation. Mr Clutterbuck poured scorn on this suggestion in his skeleton argument and it was not pursued at the hearing. In his oral submissions, Mr Johnson stressed the scope for the appellants to bring a derivative claim in respect of a cause of action vested in EAGB. An appropriate course, he suggested, would be to set aside the default judgment against the company, to allow the appellants time to institute a derivative claim and then to consolidate the two sets of proceedings. Mr Murray, Mr Johnson said, should have opened his mind to the possibility of such a procedure (and others) that would allow the merits of Mr Abdelmamoud’s claim to be properly ventilated.[35]Derivative claims are nowadays provided for in Part 11 of the Companies Act 2006. By section 261 of that Act, a member of a company who brings a derivative claim must apply to the Court for permission to continue it. If the material put before the Court does not disclose a prima facie case for permission to be given, the application will be dismissed at that stage (see section 261). The application can otherwise be expected to proceed to a hearing at which the Court will consider whether permission should be given having regard to the various matters identified in section 263.[36]Part 11 of the Companies Act 2006 is in principle capable of applying to charitable companies as well as to companies with commercial objects. I find it quite difficult, though, to envisage circumstances in which the Court would give permission for a derivative claim on behalf of a charitable company. Not only are charities overseen by the Charity Commission, whose functions include “taking remedial or protective action in connection with misconduct or mismanagement in the administration of charities” (see section 15(1) of the Charities Act 2011), but the Attorney General acts as the protector of charity and has a duty “to intervene for the purpose of protecting charities and affording advice and assistance to the court” in the administration of charities (see Wallis v Solicitor General of New Zealand [1903] AC 173, at 181). If the Commission or Attorney General is persuaded that there has been misconduct, it can be addressed without a derivative claim being brought. If, on the other hand, neither the Commission nor the Attorney General sees the need to intervene, it may be hard to persuade a Court that a derivative claim should be sanctioned. I would add that, on the face of it, an application to continue a derivative claim would require the blessing of either the Commission or the Court under section 115 of the Charities Act 2011 and that the Attorney General would seem to be a necessary party to such an application.[37]Be that as it may, the appellants have not attempted to launch a derivative claim. More than four years have passed since they applied to set aside the default judgment against EAGB, getting on for four years since the Deputy Master gave judgment and three years since Mr Murray handed down his decision. Yet there is still no derivative claim.[38]In any case, EAGB’s articles of association, as already noted, provide for the business of the company to be “managed by the trustees”, not by four specific members such as the appellants nor even the members as a whole. In John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113, Greer LJ explained (at 134):
“If powers of management are vested in the directors, they and they alone can exercise these powers. The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering their articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders.”
The authorities indicate that there can be circumstances in which, exceptionally, a company in general meeting can exercise powers vested in the board. A company in general meeting was, for example, held to have power to appoint additional directors where “[f]or practical purposes there [was] no board of directors at all” in Barron v Potter [1914] 1 Ch 895. Such cases lend no support, however, to any suggestion that one or more individual members of a company can take it upon themselves to exercise powers which the articles of association confer on the board.[39]In this connection, Mr Clutterbuck took us to Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] 1 Ch 204, where a shareholder alleged that directors of the company had issued a circular to its members containing a fraudulent misrepresentation as to the value of certain assets. The Court of Appeal observed (at 224):
“When the shareholder acquires a share he accepts the fact that the value of his investment follows the fortunes of the company and that he can only exercise his influence over the fortunes of the company by the exercise of his voting rights in general meeting.”
A little earlier in its judgment, the Court said this (at 223):
“The plaintiff’s shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property. The deceit practised upon the plaintiff does not affect the shares; it merely enables the defendant to rob the company.”
[40]The Court of Appeal thus considered that shares in a commercial company were not “directly affected” by wrongdoing against the company. It is still clearer that membership rights in a charitable company cannot be so affected, since members of such a company have no economic interest in it and their membership rights do not have any financial value. Likewise, individual members of a charitable company such as EAGB (or, in fact, of an ordinary commercial company) cannot be considered to be “directly affected” by a judgment or order against the company. Any other conclusion would allow particular members to take upon themselves matters allocated to the board and, moreover, to do so without having to satisfy requirements such as those laid down by the Companies Act 2006 for derivative claims.[41]Mr Murray said in his judgment (at paragraph 61):
“Company law provides various remedies for members who are unhappy with the conduct of the business of a company, but this does not extend to usurping the function of the directors in, for example, deciding whether or not to defend proceedings against the company.”
That strikes me as correct.[42]In all the circumstances, I agree with Mr Murray on the Standing Issue. Unlike EAGB, the appellants have not been “directly affected” by the default judgment and so cannot apply to have it set aside under CPR 40.9.

The Merits Issue

[43]My conclusion on the Standing Issue means that this issue does not arise.

Conclusion

[44]I would dismiss the appeal.[45]I should like, finally, to thank Mr Johnson and Mr Surtani for representing the appellants on a pro bono basis.[46]I agree.[47]I also agree.

Cited in 6 later judgments