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Case No: CHANF: 99/0550 A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION) MR JUSTICE NEUBERGER
Royal Courts of Justice
Strand, London, WC2A 2LL
Thursday, 3rd February 2000
B e f o r e :
LORD JUSTICE HENRY
LORD JUSTICE ROBERT WALKER
and
MR JUSTICE SCOTT BAKER
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FLETCHER
& ANR
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Appellants
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-
and -
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ROYAL
AUTOMOBILE CLUB LTD
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Respondent
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Mr R Tager QC and Mr T Lowe (instructed by Class Law) for the
Appellants
Lord Grabiner QC and Mr J Cone (instructed by Slaughter & May) for
the Respondent)
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Judgment
As Approved by the Court
Crown Copyright ©
Thursday, 3 February 2000
JUDGMENT:
LORD JUSTICE HENRY:
This is the judgment of the court.
The events giving rise to this appeal are well known. The Royal Automobile
Club Ltd (the Company) was a company limited by guarantee, and the Royal
Automobile Club (the Club) was the property of that Company. Under Articles 6
and 7 of the Articles of Association of the Company, only those who were life
members or full members of the Club were eligible to be members of the Company.
Importantly, overseas members of the Club were not members of the Company. As
such they could not attend or vote at Company meetings.
The assets of the Company thus included the well-known motoring services
organisation, held through RAC Motoring Services Ltd. At the end of March
1998, the Company received an approach from a would-be purchaser of that
motoring services organisation. We are told that by letter dated
27th March 1998, the Chairman of the Club and Company
"coincidentally" and "without consultation with the board of the Company" wrote
to all full and life members of the Club expressing the view that it was no
longer appropriate for the Club to control the large commercial undertaking
that the motoring services organisation had become. The letter attracted
wide-spread publicity.
In the event, the purchase went through (albeit to a different purchaser) for
a total price of about £450 million, of which £416.3 million was to
be divided among the share-holders of RAC Holdings Ltd, who were the members of
the Company. Each got a sum in the region of £30,000. The proposals
required the approval of the Members of the Company (given on 19th
June 1998) and of the court (given by Mr Justice Neuberger on 8th
July 1998). The Committee of the Club had earlier determined that it would not
elect any new full members of the Club after 27th March, 1998 - the
cut-off date.
Since then various proceedings have been started against the Company and
others by Overseas Members claiming they were in truth Full Members and
entitled to their share of the windfall.
This is the first of those actions to reach the Court of Appeal. It reveals
that those events took place against an unconnected but confused background in
relation to the categories of membership.
For an account of the Rules of the Club until the events of July 1996, and the
events thereafter, we adopt the summary in the judgment of Mr Justice
Neuberger, incorporating certain comments of our own in square brackets.
"Up until certain changes were approved by the Committee of the Club ("the
Committee") in 1996, the Rules of the Club ("the Rules") included the
following:
"4. The Club shall consist of (a) Life Members .... (c) Full Members (d)
Overseas Members .... and such other classes of Members as The Committee may
from time to time decide.
"7. The Club shall be governed by a Committee. The Board of Directors for
the time being of RAC Limited shall constitute The Committee of The Club.
"23. Subject as provided in these Rules and unless The Committee shall
otherwise order the membership of each Member shall be from the date of his
election until the 31st December next following and thereafter from year to
year. Subject as provided in these Rules, all Members shall be subject to
annual re-election, which shall be in the absolute discretion of The Committee.
Such re-election shall be deemed to take place, except in the case of any
particular Member or Members concerning whom The Committee decides that a
specific election shall take place. Members not re-elected shall cease to be
Members.
"33. A Country Member is a Full Member who does not for three months or more
in aggregate in any calendar year (i) reside, (ii) have a residential address,
(iii) have a principal place of business or (iv) regularly attend premises to
carry on a business occupation within 150 miles of the Club House.
"34. On ceasing to be eligible for Country Membership through non-compliance
with the foregoing conditions, a Country Member shall give written notice to
the Club Management and his subscription for the current year be raised to the
usual subscription for Full Members."
I interpose here to mention that, although the concept of a Town Member is not
to be found in the Rules, the parties all refer, and everyone in practice seems
to refer, to a Full Member who is not a Country Member as a Town Member.
I shall divide Rule 40 into three parts, although it is not so divided in the
Rules:
"40[1] An Overseas Member is a member who does not for three months or more on
aggregate in any calendar year (i) reside, (ii) have a residential address,
(iii) have a principal place of business, or (iv) regularly attend premises to
carry on a business occupation within the United Kingdom.
"[2] Any Member leaving the United Kingdom can, on written application to The
Committee, become an Overseas Member from the 1st January following his
application, and he shall while abroad pay the current subscription for
Overseas Members provided he complies with the above definitions of an Overseas
Member from the 1st of January to the 31st December each year.
"[3] An Overseas Member must notify the Club Management in writing immediately
he ceases to qualify as an Overseas Member, and the balance of his full
subscription shall become due, and shall be paid to The Club within one month
of his ceasing to be an Overseas Member.
"41. If an Overseas Member fails to notify The Club and to pay the balance of
his full subscription within one month of his ceasing to be an Overseas Member,
he shall, although remaining liable for the balance of his full subscription,
cease to be a Member of the Club. The Committee shall have power to restore
his membership at any subsequent time on receiving a satisfactory explanation
of the failure to notify The Club as above and/or to pay the subscription
due.
"47. Entrance fees and subscriptions shall be as from time to time fixed by
The Committee. Subscriptions shall be paid by Variable Direct Debit or by such
other method or arrangement as The Committee may approve from time to time
...."
It will be appreciated that there were different levels of fees for Town
Members, Country Members and Overseas Members, each of those three classes
paying a progressively lower subscription. [By way of illustration, for the
year of the change, 1997, a Full Member would pay £599, a Country Member
would pay £436 and an Overseas Member £300. If the Member was over
65, or had 25 years continuous membership, the Full Member would pay £248,
and the Overseas Member £124.]
Finally, Rule 76, which again I shall divide into two parts, although it is
expressed as a single paragraph:
"[1] These Rules may be added to or altered by Resolution at any General
Meeting ....
"[2] The Committee shall also have power to alter any existing Rule or to make
any new Rule but any such alteration or addition shall have effect only until
the next General Meeting."
On 24th July 1996 the Committee resolved to amend certain Rules with effect
from 1st January 1997, including Rules 33 and 40. [The reason for this was
that, since 1993, there had been concern about the increasing number of
Overseas Members, the usage of club facilities by Overseas Members, and the
subscription level. The remedy agreed on by the Pall Mall board and thereafter
the Club Committee (see Mr McGovern's affidavit, paragraphs 17 to 23) was
effectively to require Overseas Members who resided and/or worked regularly or
for part of the year in the European Union to take up Country Membership, which
was, of course, Full Membership. Overseas Membership was restricted to those
who lived and worked outside the E.U., and had been a Member of the Club for a
year.] Rule 33 was changed so that it read:
"A Country Member is a Full Member who is ordinarily resident in a European
Union Country (the United Kingdom excepted) or who does not for three
months or more in aggregate in any calendar year (i) reside, (ii) have a
residential address, (iii) have a principal place of business or (iv) regularly
attend premises to carry on a business occupation within 150 miles of the Club
House" (emphasis supplied).
Rule 40 was amended so that the reference to the "United Kingdom" was replaced
by a reference to the "European Union". In relation to renewal subscriptions
in November 1996 the Club wrote to members inviting them to renew. The
covering letter said:
"As you will know, all subscriptions are due on or before 1 January, and I
would ask you to check the enclosed Invitation to Renew and advise of any
amendments by 8th December."
The enclosure with the letter stated:
"To qualify for Overseas membership, members must live and work outside the EU
and have been a member for one year.
"If you feel you belong in a different category of subscription than that for
which your membership renewal shows, please contact the membership
department."
The next General Meeting of the Club was its Annual General Meeting in May
1997. At that meeting, no resolution to alter the Rules was put. This appears
to have been due to an oversight. Whatever alterations there had been to the
Rules in July 1996 as a result of the decision of the Committee therefore
lapsed in accordance with rule 76[2].
It had previously been agreed at a meeting of RAC Pall Mall Club House Limited
on 28th November 1995 that "any restrictions or revision to subscription rates
subsequently recommended should not apply to Overseas Members elected pre-1947
or aged 65 or with over 25 years continuous membership." I shall refer to this
as the "1995 dispensation".
The 1995 dispensation was not reflected or referred to in the amendment of the
Rules approved at the meeting of the Committee held on 24th July 1996.
Nevertheless, it appears to have been treated as if it had been taken into
account in the amendments approved on 24th July 1996 when those amendments were
implemented. Accordingly, the referred November 1996 letter and enclosure were
not sent to members residing in the EU Community who were over 65; further,
they were not sent to members residing in the EU for whom no contact address
was available to the Club.
Although the Rule change effected by the Committee pursuant to Rule 76[2] in
July 1996 lapsed also pursuant to Rule 76[2] in May 1997 when it had not been
approved at the AGM, it is clear, both from the affidavit evidence and from the
documentary evidence before me, that the arrangements for the renewal of
membership of EU [residents] from 1st January 1997 were repeated when such EU
residents came up for re-election as members with effect from 1st January 1998.
Accordingly, EU resident Members, who were under 65 and for whom the Club had
contact addresses, renewed on the basis that they had become Country Members,
whereas EU resident Members who were over 65, or for whom the Club had no
contact address, continued to be treated as Overseas Members.
In those circumstances, EU resident Members who were under 65 and for whom the
Club had contact addresses, being treated as Country Members, were Full Members
of the Club and therefore members of RAC; whereas EU resident Members who were
over 65, or for whom the Club did not have a contact address, being treated as
Overseas Members, were not Full Members of the Club and were therefore not
members of RAC."
Those were the facts in outline.
The matters came before Mr Justice Neuberger by an unusual route. On 24 June
1998 the Company petitioned the Companies Court under section 425 of the
Companies Act 1985 for approval of a Scheme of Arrangement between itself and
its Members. That scheme was opposed by certain Overseas Members, who claimed
that they should have been treated as Full Members. In this they were
unsuccessful, and the judge on 8th July 1998 approved the scheme.
But matters did not end there. By writ dated 18th December 1998 this action
was started, the Plaintiffs seeking to set aside the judgment approving the
scheme. The main ground relied on was that the judge had been misled - he had
been told, and it was the Company's case, that there had been a change of
practice but no rule change, and, as set out in the analysis above, there had
been a rule change made by the Committee, but this change ceased to be
effective after the next General Meeting in May 1997. The Company's response
was to take out a Summons seeking, inter alia, dismissal of the action under
Order 14A. The judge made such an order on 19th February 1999 and
the matter now comes to us on appeal with the permission of Lord Justice Robert
Walker.
The Notice of Appeal raises one ground of appeal only, set out in paragraph 1
of the Grounds of Appeal, and expanded upon in paragraphs 2-6. That ground
is:-
"Having held that the "EU Members of the Royal Automobile Club ... became "Full
Members" of the Club when Rules 33 and 40 of the Club Rules changed with effect
from 1st January 1997 and they were disqualified from overseas membership
status, the learned judge ought to have held that they remained Full Members
when the Rules were changed back to their original form."
In his judgment Mr Justice Neuberger set out the argument of leading counsel
then representing the Company to the effect that the rule change could not as a
matter of construction lead to the result for which the plaintiffs contended
(that question of construction is the only issue on the appeal). The argument
is fairly elaborate, involving no fewer than nine steps set out in separate
paragraphs (and leading to the conclusions in the tenth and eleventh
paragraphs). It is best to set out all nine steps, although only two points
were taken in opposition to them before Mr Justice Neuberger, and only one of
those has been pressed on appeal:
"First, Members of the Club are all re-elected annually with effect from 1st
January in each year (Rule 23)
Secondly, the identity of Members was frozen as at 27th March 1998.
Thirdly, the Register of Members was accordingly governed by the Rules as at
1st January 1998 or later.
Fourthly, the Committee's decision on 24th July 1996 took effect under Rule
76[2] with effect from 1st January 1997.
Fifthly, accordingly, so long as that decision applied all Members of the Club
living within the EU, whether over 65 or not, appear to have been Country
Members and therefore Full Members, and not Overseas Members, of the Club.
Accordingly, they were Members of RAC.
Sixthly, as the Committee's decision was not approved or even voted on at the
May 1997 General Meeting, it lapsed under Rule 76[2].
Seventhly, accordingly with effect from May 1997 or from 1st January 1998 and
thereafter, the original Rules applied.
Eighthly, therefore the membership list of the Club should have been compiled
with effect from May 1997 or January 1998, on the basis of no change to the
original Rules.
Ninthly, accordingly, EU resident Members were Overseas Members from, at the
latest, 1st January 1998, and whether over 65 or not they should have been
charged and treated as Overseas Members, and not as Full Members, of the
Club."
At first instance leading counsel then appearing for the plaintiffs challenged
steps six and seven (on the basis that the rule change had been "effectively
re-implemented" by the Committee after May 1997) and steps eight and nine (on
the basis that an Overseas Member who had become a Country Member - that is, a
type of Full Member - could not thereafter lose his full membership and become
an Overseas Member again without his making a fresh application under rule
40[2].
The judge rejected both of these arguments. In doing so he said (echoing part
of the plaintiffs' submissions as to the "automatic reversion" of an EU
resident to full membership in January 1997),
"Accordingly, when, after May 1997, the change in the Rules lapsed, as I
believe it did, the EU resident Members, who had previously been Overseas
Members but had become Full Members because of the Rule change in July 1996,
reverted automatically to Overseas Membership. It seems to me that that is the
effect of the change to Rule 40 in July 1996 and its reverting to its original
form after May 1997."
Leading Counsel now representing the appellant plaintiffs (Mr Romie Tager QC)
attacks that conclusion. It is an important part of his submissions that the
rule change made on 24 July 1996 took effect at once. Against that Lord
Grabiner QC, who is now representing the Company, submits that the rule change
took effect from 1 January 1997. While seeking to uphold the judge's reasoning
he also puts forward as his preferred analysis the proposition, set out in a
respondent's notice, that neither of the changes in the rules (in July 1996 and
May 1997) did more than alter the qualifying conditions for membership; neither
operated, by itself, to transfer any member from one class of membership to
another.
So the competing views can be summarised (very briefly and no doubt with
considerable over-simplification) as follows: the judge held that there was an
automatic change on both occasions; Mr Tager says that he should have held that
there was an automatic change in July 1996, but not in May 1997; Lord Grabiner
says that there was not an automatic change on either occasion, but a change in
qualifying conditions.
In order to decide between these views it is helpful to start with some
general observations on the proper approach to determining the meaning and
effect of the rules of a social club. Lord Grabiner submitted, correctly, that
the approach should be practical and purposive (to accept that submission does
not require the court to accept the proposition, half-implicit in the
submission as it was put by Lord Grabiner, that the court would not adopt a
similar approach to banking or other commercial documents).
This approach can be supported by authority, including the observations made
in Re Courage Pension Schemes [1987] 1 WLR 495, 505-6 by Millett J, who
saw an analogy between clubs and pension schemes. After making his first point
about the need to give reasonable and practical effect to the arrangements, he
added,
"Secondly, in the case of an institution of long duration and gradually
changing membership like a club or pension scheme, each alteration in the rules
must be tested by reference to the situation at the time of the proposed
alteration, and not by reference to the original rules at its inception. By
changes made gradually over a long period, alterations may be made which would
not be acceptable if introduced all at once."
That case was not cited to us but the points are not controversial.
We approach the construction of the rules, and the effect of the rule changes,
on that basis. The rules of the Club are by no means incompetently drafted
although they have some obscurities (such as rule 43, short visits; the
relationship of this rule to rule 40 is far from clear but we need not go into
it). The rules do not however display the precision expected of the
parliamentary draftsman, who generally uses a single word to describe the same
thing, and means to describe different things if he uses two or more words. We
do not therefore see any particular significance in the variation in language
as between rule 34 (which refers to a member "ceasing to be eligible for
Country membership" and directs that "his subscription shall for the current
year be raised to the usual subscription for Full Members") and rule 40[3]
(which refers to an Overseas Member ceasing "to qualify as an Overseas Member"
and directs that "the balance of his full subscription shall become due").
Nor do we attach much importance to the words "Any Member leaving the United
Kingdom" at the beginning of rule 40[2]. In our judgment they are an
understandably abbreviated reference to the relatively complicated conditions
for qualification as an Overseas Member stated (in negative terms) in the four
subparagraphs of rule 40[1]. The effect of the rules was that no one could be
an Overseas Member from the moment of his first election, even if he were
permanently resident on the other side of the world. He could do so only by
applying for re-election as an Overseas Member as from the 1st
January next. But his "leaving the United Kingdom" would in such a case be as
notional as his re-election under rule 23.
We do however attach considerable importance to the general scheme of the
rules in basing membership of the Club on calendar years, with an annual
re-election (rule 23) and an annual subscription (rule 49). It is true that
the annual re-election is, in the vast majority of cases, (perhaps, in some
years, in every single case) highly notional (in that it is "deemed to take
place"). Nevertheless it is part of the scheme of the rules and it provides
the answer to the debate between leading counsel as to whether the rule change
resolved on by the Committee in July 1996 took effect at once, or only on
1st January 1997.
The effect of that rule change was not expressly deferred until the following
1st January, and for some members (such as a Town Member who in July
1996 knew that he was about to be transferred for several years to a post in
another EU country) it would have had immediate (negative) consequences (in the
example, that there was no point in his applying to become an Overseas Member
from 1st January 1997). But for existing Overseas Members living or
working in EU countries (and not having the benefit of the 1995 dispensation)
the practical effect of the rule change was deferred until November 1996, when
they were invited to renew their memberships and pay their subscriptions for
1997. They were no longer qualified to be Overseas Members, and they had to
choose between paying the appropriate subscription for a Full Member, or
ceasing to be a member of the Club (the appropriate subscription would normally
have been that of a Country Member, although we were told that a small area of
north-west France and south-west Belgium is within 150 miles of Pall Mall).
That is the effect of a letter sent in August 1996 by the Club's membership
secretary to Overseas Members for whom the Club had a residential address
within the EU (a specimen is included in the core bundle). These letters
cannot alter the effect of the rule change but they are entirely consistent
with the analysis for which Lord Grabiner contends.
On that analysis, what occurred in the course of 1997 (when through
inadvertence the Club's Annual General Meeting was not asked to make the rule
change permanent, so that it lapsed) was not essentially different from what
had occurred in the course of 1996, but in reverse. There was of course a very
important practical difference, which was that the Club's committee and
membership secretary did not at that stage realize that the rule change had
lapsed, and so they took no action to draw attention to the fact. In November
1997 all members for whom the Club had addresses received invitations, in the
customary fashion, to renew their membership for 1998 and pay their
subscriptions for that year. That was the crucial stage because of the
imminence (unknown to anyone at that time) of the cut-off date.
We accept the submission (more prominent in the appellants' written skeleton
argument than in their leading counsel's oral submissions) that the lapse of
the rule change, in mid-1997, did not put the clock back as if the rules had
never changed. On the contrary, the rule change in 1996 had already had
important consequences for the Club's membership during 1997. The potential
significance of its lapse was for renewals of membership for 1998, but because
the lapse was unintended, and for many months unnoticed, it seems unlikely that
any single member's reaction to the renewal invitation which he received in
November 1997 was influenced by the lapse.
There is indeed only a limited number of possibilities to be considered at
that crucial stage. If a member resident in an EU country had applied for
re-election as a full member in November 1996 and was in November 1997 (in
common, it seems, with everyone else concerned with the Club) unaware that the
rule change had lapsed, then unless he had in the meantime moved outside the EU
he was apparently faced with the same choice as the year before: leaving the
Club or renewing his full membership. If he decided to leave the Club he might
have a grievance about not having been told that the status of Overseas Member
was again open to him, but it was not a grievance that would lead to
participation in the windfall. If he decided to renew as a full member, he
would share in the windfall and would have no grievance. On any view his
failure to opt for the status of Overseas Member could not by itself give him
the status of full member, if he did not apply for re-election as a full member
and did not pay the appropriate full member's subscription.
For these reasons we prefer the analysis put forward in the respondent's
notice to the theory of automatic reversion which the judge favoured. We do
not accept the submissions (contrary to each of the above analyses) put forward
by Mr Tager.
Mr Fletcher and Mr O'Hea, the actual appellants, had the benefit of the 1995
dispensation and so did not have to make the choice between leaving the Club
and paying for full membership, either in 1996 or in 1997. Mr Tager accepts
that they could not take any direct benefit from this appeal, whatever the
outcome, unless they were to obtain permission to make fundamental amendments
to their claim or were to become parties to another action seeking different
relief. The would-be interveners in the appeal (Mr Summers and Mr Chartouni
and those whom they represent in the action CH 1998 S No.6314) are however
mostly outside the scope of the 1995 dispensation, so that the appellants'
success in the appeal would have been one step (although only one step) towards
success in their action.
Since we have come to the conclusion that the appeal must be dismissed, it is
not necessary to rule on, or to discuss further, the arguments which we heard
for and against permitting the intervention.
Order: Appeal and application to intervene dismissed; costs on the
standard basis against the appellants - named interveners and those whom they
represent; costs to be joint and several. Solicitors to preserve the
documentation and names of the members of the RAC Overseas Members Appeal Fund.
(Order does not form part of approved judgment.)
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