Abdelmamoud v The Egyptian Association In Great Britain Ltd

The court allowed the claimant's appeal and restored the default judgment and the final third party debt order. The primary legal conclusions were that the applicants (disputed members of the charity) did not have locus standi under CPR Rule 40.9 to apply to set aside the default judgment, and that the Deputy Master was wrong to conclude the applicants had a real prospect of successfully defending the claim under CPR Rule 13.3(1)(a). The judge held that the Companies Act 2006 (in particular ss.39, 42 and 161) and the applicable civil procedure tests meant the applicants had not discharged relevant burdens of proof and that the purported defences based on lack of capacity or lack of authority were not likely to succeed.

Subsidiary findings included that section 42(1)(b) imposes on the applicants the burden of proving the claimant knew the act exceeded constitutional powers, which was not discharged; and that section 161(1) protects the validity of acts by a person acting as a director even if a defect in appointment later emerges. The Deputy Master's separate reliance on the absence of Charity Commission consent under section 115 of the Charities Act 2011 was held to be speculative and insufficient to justify setting aside the default judgment under the alternative limb of CPR 13.3(1).

This appeal concerned a claim for repayment of a loan of about 30,250 advanced pursuant to a loan agreement dated 14 December 2012 to The Egyptian Association in Great Britain Limited (a charitable company). The claimant obtained judgment in default on 26 June 2013 and a final third party debt order on 4 September 2013. Certain members of the charity (the applicants) applied to set aside the default judgment and the third party debt order on grounds including lack of capacity of the charity to borrow, lack of authority of the person who entered the loan on behalf of the charity, and failure to obtain Charity Commission consent for litigation under section 115 of the Charities Act 2011.

The Deputy Master set aside the default judgment and the third party debt order, concluding inter alia that the applicants were "directly affected" under CPR Rule 40.9 and that they had a real, not fanciful, prospect of defending the claim under CPR Rule 13.3 because the loan might have been beyond the charity's powers or entered into without authority. The claimant appealed.

The High Court (Deputy Judge Edward Murray) refused the applicants' belated application to cross-appeal and proceeded on a review of the Deputy Master's legal conclusions. The court framed two principal issues: (i) whether the applicants had standing under CPR Rule 40.9, and (ii) if so, whether they had a real prospect of defending the claim, with subsidiary questions on the charity's capacity to borrow, the alleged director's authority, and the viability of a restitutionary claim.

The court reasoned that "directly affected" requires a legal or equitable interest capable of recognition by law that is materially and adversely affected; ordinary membership of a company, even a charity, does not by itself amount to such an interest. On the substantive points the judge held that the applicants had not discharged the evidential burden under section 42 of the Companies Act 2006 to show the claimant knew the loan was beyond the charity's power, and that section 161(1) protected the enforceability of the loan where the claimant had relied on the statutory register and a directors' resolution. The Deputy Masters other reasoning under the second limb of CPR 13.3(1) (involving the absence of Charity Commission consent) was viewed as speculative and insufficient. Accordingly, the appeal was allowed and the prior default judgment and final third party debt order were restored.

The court commented on the fraught factual background of internal disputes within the charity, the limited nature of the hearing (a review rather than a re-hearing), and the absence of evidence to discharge statutory burdens. The judge also noted procedural shortcomings (late delivery of the appeal bundle) but found no substantial prejudice.

Appeal allowed. The Deputy Master's order setting aside the default judgment and the final third party debt order was overturned. Rationale: the applicants lacked locus standi under CPR Rule 40.9 and, even if they had standing, they did not show a real prospect of successfully defending the claim under CPR Rule 13.3(1)(a); statutory protections in the Companies Act 2006 (notably s.161 and the burden under s.42) and the absence of sufficient evidence undermined the alleged defences. The Deputy Master's alternative reliance on the absence of Charity Commission consent under section 115 of the Charities Act 2011 was speculative and insufficient to justify setting aside the default judgment under the second limb of CPR 13.3(1).

Default judgment entered in the Queen's Bench Division on 26 June 2013; interim third party debt order 3 July 2013 and final third party debt order 4 September 2013. Applicants applied and Deputy Master Smith set aside the default judgment and stayed/varied the third party debt order (order dated 30 July 2014). The claimant appealed to the Chancery Division; the appeal was heard and allowed by Deputy Judge Edward Murray, reported [2015] EWHC 1013 (Ch). There was an interlocutory procedural step before Mr Justice Norris on 6 January 2015 concerning out-of-time cross-appeal material, but the applicants' cross-appeal was refused at the hearing below and not allowed to proceed on this appeal.