Kerry Underwood

DERIVATIVE CLAIMS AND CHARITIES

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In Mohamed and others v Abdelmamoud and another [2018] EWCA Civ 879

the Court of Appeal held that directors of a charitable company were not “directly affected” by a judgment in default entered against the charity, and therefore they lacked the standing to apply under CPR 40.9 to have the judgment set aside.

 

CPR 40.9 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.”

 

The Court of Appeal also held that the individual directors could not seek permission to bring a derivative claim in their capacity as members of the charitable company, as such a claim would not be necessary given the powers of the Charity Commission and the Attorney General to act to protect the interests of charities.

Here the Court of Appeal gave guidance on circumstances in which a judgment can be set aside under CPR 40.9, and said that the power should only be exercised where the non-party applying to set aside the judgment would be able either to defend the claim itself, or on behalf of the defendant.

The court doubted that an application to set aside a judgment against a company could ever be justified on the basis that it was made by one or more of the company’s directors.

The judgment is also of interest for the views of the Court of Appeal on the application of the principle of derivative claims to charitable companies.

 

Useful guidance is given in paragraphs 35 and 36 of the judgment.

 

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.

  1. 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.”
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Written by kerryunderwood

May 16, 2018 at 8:25 am

Posted in Uncategorized

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