Mohamed & Ors v Abdelmamoud & Anor

A director or member of a company is not, merely by holding that office or status, “directly affected” by a judgment against the company for the purposes of CPR 40.9. An authorised challenge must ordinarily be brought by the company.

Individual directors cannot use CPR 40.9 to circumvent the board’s collective responsibility for management. Individual members likewise cannot assume powers vested in the board. This applies with particular force to a charitable company, whose members have no economic interest in its assets. CPR 40.9 is not a general case-management power: direct effect on the applicant is a precondition to relief.

The respondent obtained a default judgment against the Egyptian Association in Great Britain Ltd, a charitable company limited by guarantee, for repayment of a loan. Four members of the company applied under CPR 40.9 to set aside the judgment, asserting that three of them were also directors or charity trustees.

A Deputy Master set aside the judgment and permitted the applicants to defend in the company’s name, subject to an indemnity. On appeal, a Deputy High Court Judge reversed that decision in [2015] EWHC 1013 (Ch). He held that the applicants lacked standing and that the company had no real prospect of successfully defending the loan claim.

The principal issue before the Court of Appeal was whether the applicants were “directly affected” by the default judgment within CPR 40.9. The merits of the proposed defence arose only if they had standing.

1. Appeal dismissed unanimously. The appellants were not “directly affected” by the default judgment against the company and therefore lacked standing under CPR 40.9. The merits of the proposed defence did not arise.

2. CPR 40.9 does not confer an unrestricted power to set aside a judgment whenever that course appears appropriate. Direct effect upon the non-party applicant is a precondition. Ordinarily, a defendant decides whether to defend a claim. A non-party application would also make little sense unless the applicant could defend either on the defendant’s behalf or by advancing a defence of its own.

3. The alleged status of three appellants as directors or trustees did not make them directly affected. Management was vested in the board collectively. If the board, or directors acting under delegated authority, had authorised the application, the company could have applied in its own name. Without such authority, individual directors had neither a personal interest in the judgment nor power to conduct the company’s defence. Permitting them to proceed under CPR 40.9 would subvert the allocation of management responsibility to the board.

4. Membership of the company did not confer standing either. Members could not assume powers which the articles vested in the board. Membership rights in a charitable company were even less capable of being directly affected by a judgment against the company than shares in a commercial company, because the members had no economic interest in the charity and their rights had no financial value. CPR 40.9 could not be used to avoid the statutory requirements governing derivative claims.

5. Part 11 of the Companies Act 2006 was capable in principle of applying to charitable companies. The court nevertheless considered that permission for such a derivative claim would be difficult to obtain given the supervisory functions of the Charity Commission and the Attorney General’s protective role. No derivative claim had in fact been commenced.

1. Court of Appeal (Civil Division): Dismissed the members’ appeal and affirmed that they lacked standing under CPR 40.9.
2. High Court, Chancery Division: In [2015] EWHC 1013 (Ch), a Deputy High Court Judge allowed the claimant’s appeal. He held that the members lacked standing and, alternatively, that no real prospect of a successful defence had been shown.
3. Deputy Master: Set aside the default judgment and third-party debt order. He permitted the members to defend in the company’s name, subject to an undertaking to indemnify the company against relevant costs.