Abdelmamoud v The Egyptian Association In Great Britain Ltd

A non-party may apply under CPR rule 40.9 only where the judgment or order is capable, prima facie, of materially and adversely affecting an interest recognised by law. Membership of a company, including a charitable company, and an interest in its proper management are insufficient without more. Under the Companies Act 2006, the validity of a charitable company’s borrowing cannot be challenged for lack of constitutional capacity unless the person dealing with the company knew of the relevant lack of permission or directors’ power; the burden lies on the person asserting that knowledge. Acts done by a person acting as a director remain valid despite a defect in appointment. A loan’s unusual or non-commercial character does not itself provide a defence to repayment. A default judgment should not be set aside where the proposed defence has no real prospect of success and speculative concerns do not amount to another good reason.

Gamal Abdelmamoud obtained default judgment against The Egyptian Association in Great Britain Ltd for repayment of a loan and obtained a final third-party debt order. Four members of the charitable company applied to set aside the judgment, asserting that they were its lawful directors or could defend in its name because the registered directors would not do so. The Deputy Master held that they had standing under CPR rule 40.9 and that there were real prospects of defending the claim on grounds including lack of capacity, lack of authority and the circumstances of the loan. Abdelmamoud appealed on points of law. The central issues were whether the Applicants were directly affected by the judgment, whether the proposed defences had a real prospect of success under CPR rule 13.3, and whether there was any other good reason to set aside the judgment.

Appeal allowed. The order setting aside the default judgment and final third-party debt order was set aside, and the final third-party debt order was restored.

1. Standing under CPR rule 40.9. The phrase “directly affected” requires careful scrutiny because judgments should not readily be reopened. A non-party must show that the judgment or its enforcement would be prima facie capable of materially and adversely affecting a legal or equitable interest recognised by law. Hepworht Group Ltd v Stockley, [2006] EWHC 3626 (Ch), and Latif v Imaan Inc, [2007] EWHC 379 (Ch), were consistent with that approach. The Applicants’ membership rights and concern for the charity’s funds did not amount to such an interest. Company law did not permit members to usurp the directors’ function of deciding whether the company should defend proceedings. The charity’s status made no difference.
2. Capacity. Sections 39, 42(1)(b) and 42(3) of the Companies Act 2006 protected the lender unless the Applicants could prove that he knew the borrowing was not permitted by the constitution or was beyond the directors’ power. The absence of an express borrowing power and the lender’s former office and membership did not discharge that burden.
3. Authority. Section 161(1) of the Companies Act 2006 validated the act of a person acting as a director despite a later-discovered defect in appointment or entitlement to vote. The lender’s possible awareness of a dispute about the directors therefore did not create a real prospect of defending the loan on want of authority.
4. Other grounds. A loan need not be an ordinary commercial transaction to be repayable. The absence of Charity Commission consent under section 115 of the Charities Act 2011 to separate proceedings, and speculation about the lender’s involvement in an internal dispute, did not constitute a defence to repayment or another good reason under CPR rule 13.3(1). The Applicants’ proposed cross-appeal was refused as out of time.

• High Court (Chancery Division): appeal from the order of Deputy Master Smith dated 30 July 2014. The order setting aside the default judgment and final third-party debt order was set aside and the final third-party debt order was restored.