England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
His Honour Judge Seymour QC
HQ08X03780 and HQ09X01955

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th October 2010

Lord Justice Patten :

1. This is an appeal by the claimants against an order of HHJ Seymour QC dated 29^th July 2010. The first claimant is the owner of the Corby Castle Estate in Cumbria which includes fishing rights along the River Eden. In that capacity it is also a member of the Eden Owners' Association ("the Association"). This is an unincorporated association, membership of which is limited to the owners of fishing rights on the River Eden or one of its tributaries. It has two classes of members: ordinary members and contributing members. The latter are members who founded the Association and contributed financially to setting it up. They include the first claimant. The Association was formed in 1986 and is governed by rules contained in a written constitution ("the Constitution") which was adopted in 1989. These are, of course, binding contractually on its members. Under the rules the Association is run by a committee elected by the members and its property is held by trustees on behalf of the members in accordance with the rules.
2. One of the objects of the Association is:-

"To represent the interests of the members of the Association in furthering the River Eden as a salmon, sea trout and brown trout fishery".

The rules go on to provide that an AGM should be held each year for the purpose of electing a chairman, secretary, treasurer and committee who hold office until the next AGM. Each member present at an AGM has one vote. But clause 16 of the Constitution which relates to property held by the trustees of the Association on behalf of its members provides that such property shall be held for members in proportion to their net contributions to the purchase of the property and that any decision to dispose of such property or to amend the provisions of clause 16 shall be made only by the contributing members whose votes are to be weighted in proportion to the value of their net contributions to the acquisition of the property.

3. The first claimant is wholly owned by the second claimant, Lord Ballyedmond, who is also its chairman and managing director and represents it at meetings of the Association. A dispute has arisen as to the running of the Association. This has culminated in the issue of two sets of proceedings. The first claim was brought against Mr James Carr, both personally and in his capacity as a representative of the Committee of the Association, and concerns events up to and including the AGM of the Association which took place on 16^th May 2008. I shall refer to this as Claim 1. The second action was brought against Mr Carr and Mr Garnett who were then respectively the secretary and chairman of the Association. I shall refer to this as Claim 2. It relates to the conduct of the 2009 AGM held on 20^th March 2009 at which the Association purported to ratify various decisions taken at the 2008 AGM.
4. In Claim 1 the claimants allege that no AGMs were held between 2003 and 2007; that no officers had been elected since 2002; that the property of the Association was not properly vested in the trustees and that no accounts had been prepared or audited. The other pleaded complaint is that the unelected officers of the Association had threatened to make representations to the detriment of a group known as the Solway haaf netters which were not in the long-term interests of the Association and had not been the subject of any proper consultation within the Association. I shall explain what this refers to in paragraph 7 below.
5. In the claim form as issued the claimants seek mandatory injunctions against Mr Carr compelling him to resign as the secretary of the Association and orders preventing him from holding himself out as secretary or as an authorised representative of the Association. Disclosure is sought of correspondence written by him in his capacity as secretary. In particular, orders are sought requiring disclosure of any steps taken by him on behalf of the Association in relation to what are referred to as the Judicial Review Proceedings. I shall explain what this means later in this judgment. A declaration is also sought to the effect that the 2008 AGM was not conducted in accordance with the Constitution and the Court is asked to order the Committee to re-convene an AGM.
6. Mr Carr has fishing rights along a stretch of the River Eden down stream from the Corby Castle Estate. The second claimant says in his evidence that although they were once social friends, their relationship has changed since he refused to sell to Mr Carr the salmon coops owned by the Estate. Part of the River Eden runs parallel to Corby Castle and through a structure which may have been a Roman lock but was later converted into salmon coops which continue to be used by the Estate under licence to catch salmon. These coops were established before Magna Carta which outlawed the catching of salmon in this way but permitted what, in modern parlance, are referred to as accrued rights. They have led to controversy with other riparian owners over the years and it is said that Mr Carr has since then used every opportunity to cause friction with the regulatory authorities in an attempt to have the licence for the salmon coops revoked. There is therefore a distinct element of personal animosity in the history of this dispute.
7. The haaf netters referred to in the pleading are fishermen who, under licence from the Environment Agency, are allowed to use nets ("haafs") to catch salmon and sea trout in the shallow waters of the Solway Firth. This type of fishing is limited to 150 licences each year and takes place only on the Solway. In 2007 new limitations on the number of nets were proposed by the Secretary of State in the form of a new Net Limitation Order ("NLO"). In early 2008 plans existed for a challenge to be made to the new restrictions by way of judicial review on behalf of the Solway Haaf Netters Association. These are the Judicial Review Proceedings referred to in the prayer in Claim 1.
8. The issue of the haaf netters appears to have been the other catalyst for the present litigation. Mr Carr took the view that haaf netting was damaging to the interests of the members of the Association because it depleted the number of fish swimming up the Eden. He therefore proposed to write to the Environment Agency to this effect and suggested the commencement of proceedings for judicial review by the Association against the regulatory authority. The second claimant says in his witness statement that, unlike Mr Carr, he formed the view that there should be co-operation between the Association and the haaf netters in order to share the resources of the river equitably between them and that this disagreement also led him to investigate and discover that the Association had not been run in accordance with its Constitution and that its officers were, in effect, self-appointed and unaccountable.
9. A meeting of the Association took place on 9^th January 2008 in order to discuss the issue of the haaf netters at which it is alleged that Mr Carr indicated that every effort should be made to stop them fishing in the Solway. It was at this meeting that the possibility of some form of application for judicial review against the Environment Agency was discussed as well as the sending of a letter to Mr Daffyd Evans who was the Head of Fisheries at the Agency.
10. The second claimant says that he proposed holding a meeting with the haaf netters to see if some common ground could be found and that this took place on 7^th March 2008. He says that he was not informed about the timing of the meeting until the morning of the day in question and that it was therefore attended by his son, Mr Edward Haughey, on his behalf. The short notice given prompted solicitors' letters and a request by Mr Haughey that the meeting should be adjourned to a date when his father could attend. The meeting was adjourned but was not in fact re-convened.
11. On 25^th March 2008 the claimants were given notice through their solicitors of an AGM of the Association to be held on 16^th May 2008. This prompted further correspondence as to whether the AGM should be held before the adjourned meeting with the haaf netters. The documents served with the notice of the AGM included a report on the meeting of 7^th March 2008. This stated that Mr Haughey had disrupted the meeting; that he had advised the haaf netters that the representatives of the Association were acting ultra vires and that his father disagreed with their position on the NLO; and that he repeatedly refused to allow any of the other Association members present to speak. These allegations are denied. But relations between the claimants and the Association were not assisted by the disclosure at the AGM of a letter written by Mr Carr on behalf of the Association to the Environment Agency in October 2006 which complained about work carried out by the claimants to their salmon coops.
12. The business of the AGM included the appointment of the Committee and the election of officers. Mr Garnett was elected chairman and Mr Carr the secretary of the Association. The second claimant objected to Mr Carr's election on the ground that he had acted against the interests of the first claimant by writing to the Environment Agency in 2006 about the salmon coops. This was inconsistent, he said, with the provision in the Constitution (referred to in paragraph 2 above) that the Association should represent the interests of all of its members. The meeting then proceeded to approve the minutes of the 9^th January 2008 meeting and the accounts, again despite objections raised by the second claimant.
13. The other matter discussed at the AGM was the issue of the haaf netters. The Association was asked to pass various resolutions approving the representations which had been made to the Environment Agency about the new NLO and rejecting "all suggestions that the Association entered into any form of conspiratory arrangement with the Environment Agency". Again despite the opposition of the second claimant, the motions were passed by all the other members present.
14. The meeting then proceeded to pass further resolutions instructing Mr Carr and the other Committee members to meet the haaf netters and expressing regret about the actions of Mr Haughey in breaking up the 7^th March meeting. Lord Ballyedmond responded that this amounted to a libel and later issued libel proceedings which have now been compromised.
15. In the particulars of claim in Claim 1 it is alleged that the decisions taken at the 2008 AGM were of no effect. This claim is based on the chairman's alleged failure to establish whether or not those present at the meeting were entitled to vote and the defendants' failure to provide the claimants on request with information about the eligibility of those listed as members of the Association to be members. It is not alleged that any of those who were present or who voted at the AGM were not in fact entitled to do so.
16. The other part of Claim 1 is an attack upon the impartiality and conduct of Mr Carr. In paragraph 10 of the particulars of claim the claimants plead a number of terms which they say should be implied into the Constitution to supplement the express provisions referred to earlier. These include:-

"a. Insofar as the Constitution grants authority to the committee to take decisions on behalf of the members of the EOA, this authority must be exercised reasonably, in accordance with the principle of natural justice and in accordance with the constitutional aims of the EOA.

b. A person may only be elected as Chairman, Secretary or to the Committee of the EOA if he does not have a conflict of interest between his personal interests or those of the member organisation he represents and the interests of the other members of the EOA.

c. In acting or purporting to act on behalf of the EOA, the officials of the EOA must act in accordance with the interests of the EOA and not in accordance with any other interests.

d. The Committee and the officers of the EOA must act on behalf of the interests of all the members of the EOA and not merely the interests of a majority of the members of the EOA.

e. The Secretary or acting Secretary of the EOA must disclose relevant documents in the possession or control of the Secretary to any member of the EOA upon reasonable request."

17. The defence denies paragraphs 10(a), (b), (d) and (e) and also denies paragraph 10(c) in so far as it purports to impose a different duty from that set out in clause 11(b) of the Constitution. This provides that:

"(b) The Committee shall manage the affairs of the Association in such manner as it shall think fit but at all times in the best interest of the Association."

18. But the defence (in paragraph 18) does, however, aver that the following terms are to be implied into the Constitution; namely:-

"(1) When exercising powers under clause 11(b) of the Constitution, the Committee will act in good faith in accordance with the objects of the EOA as set out in the Constitution.

(2) When exercising powers under clause 11(b) of the Constitution, the Committee will act in what it honestly considers to be the best interest of the Association as a whole;

(3) When exercising powers of a quasi-judicial nature, the Committee will comply with the principle of natural justice."

19. What is alleged against Mr Carr is that he has allowed his personal interests to conflict with those of the members of the Association; that in particular in 2006 he acted without authority and contrary to the interests of the claimants in contacting the Environment Agency about the salmon coops; that he has promoted a policy in respect of the haaf netters which is contrary to the long-term interests of the members of the Association including making representations to the Environment Agency in relation to the judicial review proceedings proposed by the haaf netters; and that at the 2008 AGM he gave incomplete disclosure about his dealings with the haaf netters. On this basis, the claimants sought his removal and the other orders referred to in paragraph 5 above.
20. I can take Claim 2 more shortly. The claim form in Claim 1 was issued and served on 1^st October 2008. In January 2009 the claimants were given notice of an AGM to be held on 20^th February 2009. At this meeting both Mr Carr and Mr Garnett sought re-election and motions were to be proposed ratifying the decisions taken at the 2008 AGM. This latter step was presumably taken out of an abundance of caution as a result of the challenge to the validity of the 2008 resolutions contained in Claim 1.
21. Following the threat of an application for an injunction by the claimants, it was agreed in correspondence between solicitors that the AGM would be adjourned to a later date and that any decisions taken at the 2008 AGM that were put forward for ratification at the 2009 AGM would be tabled for consideration individually rather than en bloc.
22. The AGM was held on 20^th March 2009. In Claim 2 the claimants allege that Mr Carr circulated to all members as part of the documentation prepared for the meeting a note which falsely accused Mr Haughey of breaking up the meeting with the haaf netters held on 7^th March 2008. They also say that Mr Carr and Mr Garnett failed in the documentation for the AGM to put right various inaccuracies about the meeting with the haaf netters and gave a materially misleading report of the outcome of the libel action which followed the 2008 AGM. These and other failings in relation to the material presented at the 2009 AGM are said to have caused the claimants loss and damage by prejudicing members against their position in relation to the re-election of the defendants as officers and on the issue of how to deal with the haaf netters in the future. It also obliged them to incur legal fees in obtaining advice about the conduct of the defendants.
23. The relief sought in Claim 2 was a declaration that the defendants had failed properly to discharge their obligations as secretary and chairman of the Association; injunctions compelling them to resign; an injunction compelling the defendants to provide a full and candid account to all members of the meeting with the haaf netters held on 7^th March 2008 and the outcome of the subsequent libel action; and damages and costs.
24. This relief was predicated upon the same legal basis as the claims in Claim 1. Paragraphs 1 to 9 of the particulars of claim in Claim 2 rely upon essentially the same implied terms in the Constitution and the earlier history leading up to and including the 2008 AGM. The allegations contained in Claim 2 about the failure of the defendants to put right inaccuracies about the haaf netters meeting held on 7^th March 2008 are also unintelligible without reference to the facts and matters pleaded in Claim 1.
25. Not surprisingly therefore on 28^th January 2010 Master Eyre ordered both actions to be tried together. But in February 2010 both Mr Carr and Mr Garnett resigned. As a consequence, most of the injunctive relief sought in both actions to compel their resignation and to prevent them from continuing to represent the Association became unnecessary. In Claim 1 this left only the declaratory relief sought in respect of the conduct of the 2008 AGM and the claim for costs. In Claim 2 it left the claim for a mandatory injunction to provide a report about the haaf netters meeting and the libel action and the claim for damages and costs.
26. This turn of events led to further correspondence between solicitors as to what relief was now sought by the claimants in the two actions and ultimately to the application by the defendants which has led to this appeal. The tone of much of this correspondence on the claimants' side was, in my view, unnecessarily confrontational and included one letter (of 26^th February 2010) commenting on Mr Carr's state of health which should never have been written. The claimants' solicitors rejected the suggestion that they should discontinue Claim 1 and maintained that the claimants should have the costs of the claim even though it was no longer necessary to seek any further relief in those proceedings. I should mention at this point that in a letter of 11^th March the claimants' solicitors indicated that their clients were no longer seeking the declarations about the validity of the resolutions passed at the 2008 AGM because these had been re-considered at the 2009 AGM. Nor, for the same reason, was it any longer necessary to ask for an order re-convening a general meeting. It has also been made clear to us by Mr Fenwick QC, on behalf of the claimants (and is evident from the particulars of claim in Claim 2), that although claims for damages are maintained against Mr Carr and Mr Garnett for failing to act properly in their conduct of the 2009 AGM, the validity of the resolutions passed at that meeting is not challenged.
27. On 26^th March 2010 the claimants' solicitors wrote a letter confirming that the only relief which they continued to seek in the two actions were damages and costs. This meant that Claim 1 was now being pursued merely to recover the costs of that action. It is also to be noted that, although claimed as damages in Claim 2, the items of special damage comprise the legal costs incurred by the claimants in obtaining advice from solicitors and counsel about the ongoing dispute. There will obviously be a serious issue as to whether these items are properly recoverable as damages at all but it means that both actions continue to be pursued largely (if not wholly) to recover the legal costs involved.
28. In the letter of 26^th March the claimants' solicitors invited the defendants to withdraw their defences and to agree to pay the damages and costs claimed. The defendants' response was that they would continue to prepare for trial in Claim 2 but that in Claim 1 the most proportionate way of dealing with the action was for the parties to agree to an order under which the claim would be discontinued but the question of costs would be dealt with by the judge at the same time as the costs in Claim 2 on the basis that the costs orders in both actions "will turn on similar issues".
29. In the light of the confirmation by the claimants that they would limit their claims to damages and costs, an order of this kind was strictly unnecessary. The trial judge could have been informed of the change in circumstances which had led to the abandonment of most of the relief claimed and would then go on to decide what remained in issue in the actions. But it was obviously sensible for directions to be given for the conduct of the trial given the changed position and for the parties to consider with the Court whether the matters in issue could now be limited with a view to saving costs. The most obvious question was whether the trial judge need determine all the issues raised by the particulars of claim in Claim 1 in order to decide the incidence of costs in those proceedings. In general, that is a course to be avoided. But the judge will often be able to form a view about the likely outcome of the action without the need for the in-depth analysis provided by the full trial process. How far he needs to go into the various matters is a question for him to decide having regard to the weight which he thinks it right to attach to the likely success or failure of the parties on these issues when determining what order for costs to make.
30. On 6^th May 2010 the defendants issued an application for an order dismissing the claim in Claim 1 save for the question of the costs of and occasioned by the claim. They sought a direction that those costs should be determined at the same time as the costs in Claim 2. The witness statement in support of the application by Mr Grogan of Messrs Dickinson Dees exhibited the correspondence between solicitors on this issue and repeated that the costs of Claim 1 could conveniently be dealt with at the same time as the costs in Claim 2 because they would turn on similar issues. The reason given for the application was that Mr Carr wished to seek confirmation that the first claim should be dismissed in line with what the claimants' solicitors stated in their letter of 26^th March 2010. The purpose of the application was therefore to limit the claimants to seeking relief in the form of costs. No directions were sought limiting the basis upon which the issue of costs in Claim 1 should be determined. But it was obviously contemplated that the judge would make his decision having heard evidence and argument on most of the relevant issues in the context of the trial in Claim 2.
31. In her skeleton argument in support of the application, Miss Banks invited the Court to deal with the matter as one of case management and to limit the trial to the issues relevant to the determination of Claim 2. This was, I think, a refinement of the defendants' position and one which had an obvious impact on the proposal that the costs in claim 1 should be determined at the same time as those in Claim 2. The claimants' position was that, in order to determine the question of costs in Claim 1, it was necessary for the judge to consider the issues raised by paragraphs 29 to 31 of the particulars of claim in Claim 1. These are the complaints made to the Environment Agency in 2006 about the salmon coops; Mr Carr's opposition to the haaf netters and their application for judicial review of the NLO; and the incomplete disclosure given to the 2008 AGM of his dealings with the haaf netters. Mr Fenwick maintains that all of the relevant earlier history is in fact brought into Claim 2 by paragraphs 8-9 of his pleading but that may (if correct) amount to little more than what was being suggested by the claimants at the time of the application. Neither party, however, invited the judge hearing the application to treat it as anything other than a case management issue designed to get things in order for the trial. It was not suggested on either side that the judge could or should attempt to decide the remaining issues in the action or to dismiss Claim 1 on its merits. But that is what Judge Seymour has in effect done.
32. Unprompted and without giving the parties any advance opportunity to make any submissions on the matter, the judge proceeded to decide the application by reference to the likely outcome of the claim in Claim 1. He concentrated on the construction of the Constitution of the Association and the alleged implied terms pleaded by the claimants which, as I mentioned earlier, are the legal foundation of both claims. In paragraphs 23-4 of his judgment he said this:-

"23. In considering whether it is appropriate to accede to the application to dismiss claim 1, it is necessary to consider to some extent the likely outcome of claim 2, the likely outcome of claim 1 and the extent to which the likely outcome of claim 2 will lead to a conclusion in respect of the issues in claim 1. It is appropriate, in my judgment, to adopt that approach in the circumstances of the present case because the claims in claim 1 and the claims in claim 2 all depend upon the terms of the constitution of the EOA and whether any, and if so which, terms are to be implied into that constitution.

24. Notwithstanding that I have not had the benefit of detailed submissions as to the construction of the constitution or as to whether the implied terms contended for satisfy the well-known requirements to be satisfied if terms are to be implied as terms of a written agreement, it does seem to me that I am in a position at least to reach a preliminary conclusion on those questions."

33. Although making it clear that his conclusions were what he described as preliminary, the judge went on to say that it was likely that the trial judge would conclude that Claim 2 and therefore Claim 1 would fail both in respect of the claim based on the alleged implied terms and in respect of the construction of clause 2(a) of the Constitution. It was therefore likely that the claimants would be ordered to pay the costs in both actions:

"30. The appropriate order, in my judgment, in the circumstances on the application on behalf of Mr Carr, is to dismiss the claim, which I do and to order that the issue of what order as to costs should be made in respect of claim 1 should be decided by the judge trying claim 2 or be the subject of directions given by that judge for the resolution of whatever issues seemed that judge, having tried claim 2, to be necessary to be resolved in order to reach decisions in justice and fairness in relation to the costs of claim 1.

31. Because I have (albeit on a preliminary basis) reached a fairly firm view as to the substance of the issues in claim 1 and claim 2, it seems to me that the order which I make is appropriate because it seems to me likely (doing the best I can) that the trial judge will find that claim 2 fails because the terms upon which the claims in claim 2 depend will be found not to be terms appropriate to imply into the constitution. That will very largely resolve the issues which would have arisen in claim 1, had claim 1 continued."

34. In my judgment this was the wrong approach for the judge to have taken to the application and the wrong basis upon which to exercise his discretion. Neither party had invited him to decide whether the claims were legally sustainable and he had heard no proper argument on the point. A decision about the likely result of the litigation was unnecessary in order to decide whether to make the order sought. The judge was asked to give practical directions designed to enable the trial judge to decide the remaining issues in both claims. He was not required nor was it appropriate for him to attempt to decide the issues in the claims. The result of his approach is, as Mr Fenwick submits, that the action appears to have been dismissed because the judge considered it was likely to fail and this may well prejudice the outcome and fair disposal of the trial.
35. What Judge Seymour should have done was simply to consider what directions were necessary to enable the trial judge to deal with the remaining issue of costs in Claim 1. Paragraph 3 of his order in fact achieves this and is unobjectionable in itself. The appeal has, for the reasons explained, concentrated on paragraph 1 of his order (the dismissal of Claim 1) and the reasons given for the making of that order.
36. Because the judge has exercised his case management powers on a wrong basis, it falls to this Court to re-exercise the relevant discretion. It seems to me that it makes no real difference whether Claim 1 is dismissed or merely stayed provided that the dismissal of the proceedings (except as to costs) is not taken to be a judgment on the merits of the claim or a bar to the trial judge being free to consider and decide whatever factual and legal issues are necessary for the proper disposal of the costs issues in Claim 1. Purely in order to emphasise that this is the combined effect of our order, I propose that paragraph 1 of the judge's order should be varied so as to stay rather than dismiss Claim 1.
37. There was some suggestion in the course of argument that we should go further and attempt to draw up a list of issues for the judge to try. I think this would be unwise. This is a matter for the trial judge to decide at a pre-trial review which should be heard at the earliest convenient opportunity. He or she will have to take a view as to what issues will fall for determination in Claim 2 as it stands and whether and to what extent the parties should be at liberty to raise further issues relevant to the costs in Claim 1.
38. I would therefore allow the appeal and substitute a stay of Claim 1 for paragraph 1 of the judge's order. It will be for the trial judge (unaffected by the judgment under appeal) to decide, after full argument, whether the claimants' case on the construction of the Constitution and on the implication of terms is correct as a matter of law and whether the defendants have or have not conducted themselves in accordance with their duties under the Constitution. I would only echo what Rix LJ said at the conclusion of the hearing, which is that litigation of this kind, pursued only to recover costs, can be both dangerous and destructive. It is to be hoped that, even at this late stage, some sensible steps can be taken to resolve what has, I think, become a completely unnecessary dispute.

Lord Justice Moore-Bick :

39. I agree.

Lord Justice Rix :

40. I also agree.