Mohamed & Ors v Abdelmamoud & Anor

This Court considered whether individual members or directors of a charitable company could be regarded as "directly affected" by a default judgment against the company for the purposes of CPR 40.9 and so have standing to apply to set aside that judgment. The court held that membership or individual directorship does not of itself make a person "directly affected" where the companys articles vest management in the board as a whole. The Court explained that, absent authority from the board or a company application, individual directors or members cannot usurp the boards management powers by invoking CPR 40.9. The court also emphasised the particular supervisory role of the Charity Commission and the Attorney General in relation to charity matters and the limited role of derivative claims in the charity context (Companies Act 2006 Part 11 and Charities Act 2011 provisions were discussed). On those grounds the appeal was dismissed.

This is an appeal from an order of Mr Edward Murray (sitting as a Deputy High Court Judge) allowing an appeal against a Deputy Masters order that had set aside a default judgment obtained by Mr Gamal Abdelmamoud against the Egyptian Association in Great Britain Limited (EAGB) and given four individual applicants permission to defend the action in the name of EAGB.

Background and parties:

• EAGB is a charitable company whose articles vest management in its trustees/directors. The dispute arose after a loan agreement was entered into between Mr Abdelmamoud and persons acting on behalf of EAGB.
• Mr Abdelmamoud obtained a default judgment against EAGB for £37,500 and a third party debt order in respect of EAGBs bank accounts.
• The appellants (four individuals who asserted membership and, for some, directorship/trusteeship of EAGB) applied to set the default judgment aside; Deputy Master Smith allowed that application subject to indemnities and granted permission to defend the claim in EAGBs name.
• Mr Abdelmamoud successfully appealed to the High Court (Chancery Division) (Mr Murray), which held the appellants had no standing under CPR 40.9 and/or had no real prospect of defending the claim; the appellants then appealed to the Court of Appeal.

Issues:

1. Whether the appellants were "directly affected" by the judgment within the meaning of CPR 40.9 so as to have standing to apply to set aside the default judgment (the Standing Issue).
2. If they had standing, whether EAGB had a real prospect of successfully defending the claim (the Merits Issue).

Courts reasoning:

• The Court analysed prior authorities on CPR 40.9 and historical principles about locus standi in default judgment applications (including Jacques v Harrison). It observed CPR 40.9 requires the applicant to be "directly affected" and emphasised that the management of a company is vested in the board as a whole under the companys articles.
• Individual directors cannot, absent board authorisation, exercise powers vested in the board; permitting individual directors or members to act under CPR 40.9 would subvert corporate governance and circumvent statutory and procedural protections such as the Companies Act 2006 derivative claim regime (Part 11, sections 261 and 263) and the supervisory role of the Charity Commission and the Attorney General in charity matters (Charities Act 2011).
• The Court concluded that the appellants were not "directly affected" by the default judgment merely by virtue of membership or asserted individual directorship/trusteeship and so lacked standing under CPR 40.9. Because of that conclusion, it did not need to decide the merits issue.

Relief sought: The appellants sought setting aside of the default judgment and permission to defend the claim in the name of the defendant company; the Court dismissed the appeal and refused that relief.

This was an appeal and the appeal was dismissed. The Court held that the appellants were not "directly affected" by the default judgment for the purposes of CPR 40.9 because membership or individual directorship does not confer upon individuals the power to act in the name of the company without board authority; permitting individual members or directors to apply under CPR 40.9 would subvert the allocation of management to the board and circumvent statutory and procedural safeguards in company and charity law. For that reason the appellants lacked standing and the Court did not need to decide the merits.

Default judgment obtained by Mr Abdelmamoud against EAGB on 26 June 2013; interim and final third party debt orders made July and September 2013. Appellants applied to set aside that default judgment; Deputy Master Smith set aside the default judgment and third party debt order and granted permission to the appellants to defend on 30 July 2014. Mr Abdelmamoud appealed to the Chancery Division (Mr Edward Murray, sitting as a Deputy High Court Judge), which allowed the appeal ([2015] EWHC 1013 (Ch) as recorded in the cover sheet) and reinstated the default judgment. The appellants then appealed to the Court of Appeal ([2018] EWCA Civ 879).