Neutral Citation Number: [2011] EWHC 2560 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL

Date: Wednesday, 29 June 2011

BEFORE:

MR JUSTICE MANN

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BETWEEN:

DAVIES
Appellant
- and -

BARNES WEBSTER & SONS LTD
Respondent
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(Official Shorthand Writers to the Court)
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MR S GOODFELLOW appeared on behalf of the Appellant

MR I COLLETT  appeared on behalf of the Respondent
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Judgment

1.	MR JUSTICE MANN:  This is an appeal from the decision of District Judge Crispin, given on 20 December 2010, in which he declined to set aside a statutory demand served by Barnes Webster & Sons Limited on Mr David Goronwy Emlyn Davies. Barnes Webster & Sons Limited are builders who have carried out works on land owned by Romford and Gidea Park Rugby Football Club, an unincorporated association.

2.	The contract for works was a substantial one.  It was dated 28 July 2008 and the main sum referred to in it is £954,878.  Like many other major contracts, it is on the JCT 2007 terms and it provides for the payment of that sum of money, “or such other sum as shall become payable under this contract”.  The works were done over a period of a year or so thereafter.  As well as works comprised in that sum the builders claim to be entitled to an additional sum of some £147,000-odd in respect of proper variations under the contract.  There was originally in the context of this dispute a dispute as to whether or not those sums had yet been proved to be properly due.  However, by a process of certification completed only very recently, and since the judgment appealed from, that particular aspect of the matter has fallen away.  There is no practical dispute as to whether that sum on money is owing under the contract.  The question is by whom is it owing?

3.	The Rugby Club is an unincorporated association.  Mr Davies is the President and one of the trustees.  As one of the trustees he holds the club property including the club playing premises.  He did not sign the contract.  The contract was signed by Mr Smith, who was at the time the treasurer of the club.  Although he obviously signed using his name, the employer in the contract is described as, “Romford and Gidea Park Rugby Football Club” with a “Registered office” at Crow Lane, Romford.

4.	Although he did not sign the contract himself, Mr Davies has been served with a statutory demand.  The statutory demand is dated 7 July 2010.  It demands the payment of £148,000-odd which, allowing for some retentions, is the sum said to be still due and owing under the contract.  The £148,000 is the sum due over and above the £954,000 sum to which I have referred.

5.	The statutory demand is, therefore, predicated on the fact that Mr Davies is liable.  It is addressed to a “Dai G E Davies (as Trustee of Romford and Gidea Park Rugby Football Club”.  The point has been taken that as trustee Mr Davies cannot be liable for the debt.  That is a point which is not going to detain me, as will appear in due course.

6.	Mr Davies applied to set that statutory demand aside.  He did so on the footing that he was not liable for this debt “as trustee of Romford and Gidea Park Rugby Football”.  He provided a witness statement which strikes me as being very carefully drafted to give as little information as possible about the position of the committee of this club, whose position is of significance for reasons to which I will come.

7.	The district judge, having heard the argument, declined to set aside the statutory demand.  He set out the arguments of counsel before him and concluded that although Mr Davies did not sign the contract, as was obvious, he was nonetheless liable for the sums.  He describes the sums in question as being an “overspend”.  As Mr Collett, who appears for the creditor builder, has pointed out, that is not an entirely appropriate description of the sums.  They are sums which have been certified as properly due under the contract, rather than being some form of wilful overspend.  That must be borne in mind.

8.	The reason that the district judge holds Mr Davies to have been liable is summarised in paragraph 32 of his judgment, which is a summary of what appears from paragraphs 24 to 31.  Paragraph 32 reads as follows:

“I can see no arguable alternative to a court making a finding that the debtor has ratified the incurring of the overspend debt.  He has done this as president of the club by his witnessing the signing of the contract by Mr Smith.  He gave his approval of the contract by his vote at the special meeting.  In his position as trustee of the club’s land he had to have given his approval for the development and, thereby, for the incurring of funds to carry this out.  As club president he has been kept informed of progress and, as I say, there is no evidence that he has ever raised any objections to the variations or the incurring of extra costs, being the overspend sum.”
(Quote unchecked) [TRANSCRIBER TO CHECK QUOTE] 

9.	What the district judge is saying in essence is that Mr Davis is liable because he has ratified Mr Smith’s acts.  He can only have ratified Mr Smith’s act in a meaningful sense, so as to make himself liable, if Mr Smith was or is to be taken as contracting on behalf of Mr Davies.  

10.	The reason is amplified a little in the preceding paragraphs as I have indicated.  He first deals with a question of a counterclaim, which no longer arises.  In paragraph 26 he observes that Mr Davies appears to have been kept regularly informed as to the progress of development by way of emails.  In paragraph 27 he observes that the JTC contract itself provides for variations.  In paragraph 28 he amplifies his finding about the special meeting.  That special meeting was a special meeting of the whole club, held on 23 September 2008, at which the whole club passed the following resolution:

“That the voting members of Romford and Gidea Park RFC authorise the trustees of Romford and Gidea Park RFC to charge the property of the club to the Royal Bank of Scotland as security for the funding facilities for the current 2008 clubhouse redevelopment project.”
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Mr Davies’ name is there as one of the unanimous 41 members voting in favour of the resolution, and he is also marked as being a member of the management committee, which he was, and as a trustee, which he was.

11.	At paragraph 29 the district judge observes that the debtor attended and voted at the special meeting:

“And thereby gave his personal approval and authorisation for funds to be raised for the performance of the contract.”
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12.	The he goes on to say:

“Further, the debtor is a trustee with a responsibility for the management of the club’s land and the legal title to the land is vested in him as co-owner. The development project could not have proceeded without his consent.  He must accordingly be seen as having given his approval to the contract.  He has been kept informed as to its progress and I am not aware of any objections made by him at any stage of the development.  Although he did not sign the contract ...(reading to the words)... it would be impossible for him to argue that in so doing he was not giving his complete and wholehearted approval to it and as president was authorising Mr Smith to sign the contract.”
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13.	There is, therefore, a mixture of reasons for saying that Mr Davies was liable for the contract signed by Mr Smith.  Filtering out the elements they seem to be that he was kept informed, that he voted at the special meeting, that he witnessed the signature of Mr Smith (which he did), and that he was a trustee and as a trustee he must have been kept informed and he must have been involved in the process.  The district judge went on to observe that the court was bound to take notice of the debtor’s position as president of the club who never raised any concerns.

14.	The district judge having refused to set aside the statutory demand, Mr Davies then appealed with, as I understand it, the permission of the district judge.  The debate before me has taken a slightly different course and has focused on different aspects of the law.  The district judge did not have quite the benefit of all the authorities that have been placed before me.  In particular, he did not have the assistance of Bradley Egg Farm Ltd v Clifford [1943] 2 All ER 378.

15.	Mr Goodfellow, who appears for Mr Davies, says that the decision of the district judge is wrong.  His primary factual case is that only Mr Smith is liable on this contract.  If anyone other than Mr Smith is liable on the contract then there is no evidence that anybody, whether Mr Davies or not, could or should be liable for any more than the basic contract sum of £954,000.  In particular there is no evidence that any excess was authorised.  In the witness statement Mr Davies seeks to give the impression that he did not authorise any of what he describes as an “overspend.  There is nothing in the rules or in the meeting which authorised the overspend.  Even if Mr Davies knew of what was going on, mere knowledge as a member of the club or otherwise does not mean that he is banned by the increase in expenditure authorised, assuming it was authorised by Mr Smith, and he relies on the authority of Wise v Perpetual Trustee Company Ltd [1903] Appeal Cases 139.  Other cases relied on by the district judge are distinguished by Mr Goodfellow.  He disputes the district judge’s finding that Mr Davies must have known of and approved of the terms of the contract, especially in the light of the fact that Mr Davies says in terms he did not read it.

16.	It seems to me that the district judge was right in his conclusion, although my analysis would not quite be his.  A mature reflection, which is often more available on an appeal, demonstrates that the focus of attention in this case should be shifted slightly.  The basic position is that prima facie members of an unincorporated association such as this club are not personally made liable for the acts of those who enter into contracts in the course of the affairs of the club.  Exactly who is liable depends on the constitution of the club and what acts of authority and ratification have occurred.  It is possible for all the members to be liable if they give appropriate authority, either in terms of the general rules of the club or in respect of particular transactions.  But the general starting point is of course that that is not their intention.  A member of a club is prima facie not liable for more than his or her subscriptions or other regular dues.

17.	The Bradley Egg case is a useful summary of the sort of inquiry that a court ought to be conducting in seeking to ascertain who is liable upon the engagements of a club.  In that case Scott LJ said this about the sort of circumstances in which club contracts are entered into:

“In these circumstances, what is the function of the law?  Surely it is to imply an intention on the plaintiff’s part to make their contract with a person or persons to whom alone in the circumstances of the case the law regards as a person responsible. That cannot be the society for it does not exist.  The law, therefore, has to choose from the various persons associated together under the umbrella of the society’s name those most concerned in the function of making contracts, those of the associated persons who are most directly concerned and to discard those who were, for any reason, least directly concerned. In the latter category stand the mere members who under the society’s rules have no liability beyond their annual membership subscription and have no right to participate now or on winding up, in the funds of the society.  But the body of members want to see the purposes of the society implemented almost in the same way as in the case of a charity (in the popular sense); and they appoint an executive council to carry out those purposes.  Making a contract, whether for employment of servants for purchase of office furniture, for keeping a bank account or for carrying out tests to assist the branch of farming which produced utility poultry is essentially a function which cannot be performed without somebody accepting personal responsibility to perform the contract and pay money; and the businessmen who accept the office of being on the executive council, seem to me to be the persons whom the law must regard as pledging their own credit in order to perform the duties which they voluntarily undertake for their so-called ‘society’; just as do the committee men of a club.”

18.	Scott LJ was thereby indicating that prima facie it is the committee entrusted with the management of the affairs of the club who are prima facie going to be liable on the contract, although the facts must vary in each case.

19.	That analysis also appears from the section on clubs and their members and contracts in Halsbury’s Laws of England, volume 13 at 266 to 273.  At paragraph 272 this is said:

“272.  Liability of Management Committee.  Where the steward or secretary orders goods on credit by the authority of members of the managing committee, such of the members as gave the authority or acquiesced on the dealing on credit are personally liable.  It is not necessary to show that members who are sought to be made liable specifically authorised or acquiesced in the particular transaction, or even that they had actual knowledge of it.  It is sufficient if they knew of and acquiesced in other transactions of the same kind and so held themselves out or allowed themselves to be held out as having authorised dealings on credit.”

20.	Then in paragraph 273:

“273.  Personal Liabilities of Clubs Officers and Agents.  Trustees, members of the management committee or other agents contracting or purporting to contract on behalf of a club may incur a personal liability, either by reason of the form or terms of the contract or because in making the contract they are acting in excess of their authority. 

If persons contract in their own names they are prima facie personally liable and may be sued, joining other members of the club, even though they may have been duly authorised to enter into the contract on behalf of the members generally.  If they were so authorised the other contracting party may either elect to sue them as having contracted personally or to sue the members as the principals on whose behalf the contract is made.  This rule applies whether the principals were or were not disclosed at the time of the making of the contract, except in the case of deeds and bills of exchange or other negotiable instruments.”

21.	Paragraph 266 makes it clear that the general principles of agency apply.  

22.	In accordance with the approach set out in those paragraphs in Halsbury, not all of which I have read into this judgment, and the approach in the Bradley Egg case, it is necessary to look to see who had authority to do what under the club’s constitution.

23.	I have seen the constitution, Clause 1 deals with the name, clause 2 deals with the objects, clause 3 deals with membership.  Clause 4 deals with the president, and I should refer to it because Mr Davies was at the time, and I think remains, the president of the club:

“At each general meeting the club shall elect a president.  The holder of this appointment shall be deemed the most senior member of the club and will represent the club on civic, sport and related occasions and liaise with the club’s vice presidents as necessary.”

24.	It shows that the president as such has no function in the terms of the management of the affairs of the club.  However, as will appear, he is an ex officio member of the management committee and that is different.

25.	Clause 5 deals with the officers and makes clear who they are, and they include the president.

26.	Clause 6 deals with management and is important:

“6.  Management.  The club shall be managed by an [sic] management committee consisting of the following officers: president, chairman [other members who do not need to be listed], who shall be selected annually ...  Five of the above members will form a quorum with the chairman having the casting vote if necessary.  The management committee will meet at least ten times annually and will appoint bespoke and ad hoc sub committees to further the objects and the administration of the club, which will report and be responsible to the management committee.”
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27.	There is then a provision for the trustees to stand possessed of the club’s land and buildings under a duly executed trust deed.  Mr Davies holds the land on such a deed.

28.	Clause 9 deals with the application of assets on a dissolution.  Any surplus after satisfying creditors, “will be applied only for approved sporting or charitable purposes”.

29.	Clause 13 is the only other potentially relevant clause.  It deals with a bank mandate and borrowing powers and says this:

“The management committee shall appoint cheque signatories capable for effecting disbursements to suppliers and third parties relating to the supply of goods and services to the club ...  If at any time the club in a general meeting shall pass a resolution authorising the executive committee to borrow money, the committee shall be empowered to borrow up to the stipulated borrowing limit for the purposes of the club at such a market rate of interest and in such a manner as shall be specified in the resolution and may charge all or any of the property and funds of the club with payment of the amount so borrowed and interest thereon.  All members of the club whether voting on such a resolution or not and all persons becoming members of the club after the passing of such a resolution shall deem to have assented to the same as if they had voted in favour of such a resolution.”
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Although that rule refers to an executive committee, I am not sure that any other rule does.  It may be a misdescription of the management committee.  

30.	What those rules show is that, as with so many clubs, the management of the club is in the hands of the management committee.  They also show that Mr Davies is an ex officio member of the management committee and there had been no dispute, but that he was a member of the committee at the relevant time.

31.	The correct analysis of the problem before the district judge and before me is, therefore, the application of the principles of agency to the present situation.  It seems to me that in the circumstances of this case the management committee was entrusted with the development of the club and one would expect the management committee to be liable for debts incurred by officers of the club and those dealing with it.

32.	Prima facie and without more one would expect to find that the management committee had somehow authorised Mr Smith to sign the contract.  Nobody else would do that and one would have expected the matter to be in the hands of the management committee.  However, one looks in vain for such authorisation in the evidence in this case, or in any minutes of the committee.  It seems to me that Mr Davies has been careful not to go down that line and indicate what the evidence is in that respect.  If the club is even half well run there ought to be some minutes, and the existence of the minutes of the minutes of the general meeting of the members authorising borrowing demonstrates that somebody bothered to keep proper minutes to some extent.

33.	It is therefore not possible to say in this case, by looking merely at the minutes, that the management committee did decide to enter into this building contract and authorise Mr Smith to sign it.  Had there been such a resolution then that would have been sufficient to make the management committee liable on the contract.  Somebody must be liable upon it.

34.	The club’s solicitor, acting historically for the club and for Mr Smith when served with a statutory demand has said on behalf of Mr Smith that he could not be liable on the contract and invited the attention of the builders to the trustee.  The builder seems to have fallen for this and that is why the builder has served a statutory demand on Mr Davies as a trustee.  It is one of the ironies of this litigation that when that happened the very same solicitors again acted on behalf of Mr Davies and pointed out how it was inappropriate to serve a statutory demand on him as trustee.  However, the statements of the solicitors as to who was and was not an appropriate recipient of a statutory demand do no bind me.  I must analyse the situation.

35.	The case of Mr Collett, who appears for the builder creditor, is that there is sufficient evidence in the papers to point to the fact that this is a case in which there is a management committee entrusted with the management.  That committee would be liable on contracts within that management and which it authorises, and that this was just such a contract.  It is clear from the rules that the second of those propositions is true, there was a management committee which was entrusted with the management of the affairs of this club and prima facie one would expect it to be liable on the contracts which the club entered into.

36.	It is apparent from the face of the contract that Mr Smith did not consider that he was entering into the contract purely on his own behalf.  The counter party to the contract was expressed to be not to Mr Smith personally, but the club. Mr Smith obviously thought he was contacting on behalf of somebody else.  I am sure he was right.  On whose behalf was he contracting?  In accordance with normal principles it was not the client.  Who is the only other candidate?  It seems to me that it can only be the committee.  As I have indicated there are no minutes exhibited which deal with that one way or the other.  Also as I have indicated, I think that that is likely to be deliberate and so far as necessary I will draw an inference from Mr Davies’ failure to exhibit any minutes in order to clarify the position.  Mr Davies’ excuse for not exhibiting any minutes is that he was simply dealing with his position as described in the statutory demand, which is his position as a trustee, and he was seeking to deal with the allegation that he was liable as trustee.  His original case was he was not just liable because he was a trustee.  That case is no doubt right.  However, I think the evidence borders on the disingenuous on failing to go into the position more thoroughly.

37.	However, despite that there are indications in his own witness statement that the committee was, as one would expect, in play in this case.  In paragraph 4 of his witness statement he says this:

“I witnessed the signature on the agreement, which was that of the treasurer of the club and the work was done on behalf of the club and on behalf of the members of the club by the duly authorised treasurer, who was the man in charge of the project.”
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There is no indication there that the committee had anything to do with it but it is inconceivable that it did not.  But he goes on later in the witness statement to say this at paragraph 7:

“John Smith was the treasurer who dealt with matters and he reported back to the committee, and that was done in June or July 2009.  And it is fair to say that the works were delayed and that eventually they were six to eight months late on the original completion date that we, as members, had been given.  I reiterate that everything we were told by members of the club by the person delegated by the committee to deal with the creditors in this matter I was not kept especially informed because I was a trustee, I was told along with all the other members.”
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What is apparent from the emphasis in that sentence, which is mine, is that Mr Smith was acting under a delegated authority, delegated by the committee.

38.	In paragraph 9 he says this of the project:

“It was a matter that the committee picked up and dealt with and it fell to John Smith to run with ball, so to speak, and to deal with things on a day-to-day basis, but reporting back to the committee and indeed to general meetings and at the functions which people attended.”
[TRANSCRIBERS TO CHECK QUOTE]

39.	It is quite plain from this material, and from one or two other references in the bundle, that the committee was behind Mr Smith in this case.  It seems to me that the proper inference, and the irresistible inference, from this material, especially in the absence of any positive material, pointing the other way put in by Mr Davies, is that Mr Smith was, as one would naturally expect, acting on the authority of the committee.  In accordance with the authorities that makes the committee liable on the contract.  Mr Davies was not incontestably a member of the committee.  He was the president and ex officio a member.  

40.	Accordingly, Mr Davies is personally liable on this contract.  True it is that others are personally liable with him, but he is liable and he does at least have the benefit of having club property in his hands from which he can satisfy any properly incurred liability.

41.	It therefore seems to me that, although on not quite the same reasoning on mine, the district judge was correct in the conclusion to which he came.  His decision not to set aside the statutory demand is based on the decision that Mr Davies is liable, and I agree with his conclusion, although, as I have indicated, I reason it slightly differently.  I certainly give less weight than he does to certain matters.  I think that no weight is to be given to the witnessing by itself of the contract, as part of a pattern in which Mr Davies knew what was going on and approved it.  It may be a fact of some significance, but it is for this purpose almost incidental.  I also give no particular weight to anybody’s participation at the general meeting of the club, to which I have referred, in mid-2008, because that does not really go to the question of the proper authority for this contract.  

42.	Accordingly it seems to me that it is right to infer first that the committee gave authority for a contract to be entered into and, second, that it should be taken to be authority for this particular contract to be entered into.  The significance of this particular contract is that it provides for additional contract sums to be payable.  Those additional contract sums are the sums which are the subject of the statutory demand.

43.	So statutory demand is made in respect of a liability which is properly the liability of Mr Davies and it does not fall to be set aside.  I shall dismiss the appeal.

44.	I shall, however, add one further qualification, and I add this without any serious opposition from Mr Collett on behalf of the builder (and that is a credit to the builder in this case).  It is this.  The liability is not a liability which anybody expects Mr Davies to satisfy out of his own funds, although if he has to he has to.  It is a liability in respect of which he is likely to be entitled to an indemnity from the club.  However, it will take him some time to organise that.  He has of course had some considerable time, as Mr Collett pointed out, in order to try to satisfy this debt.  Mr Collett sought to explain that there have been inexplicable delays in sorting the matter out.  I did not go into that detail.  I do not think it matters for present purposes.  It would be unduly oppressive to Mr Davies suddenly to find himself the subject of a bankruptcy petition in say 21 or 28 days time.  Under rule 6.5 of the Insolvency Rules I can and should specify a time after which the creditor is able to petition on the basis of this demand.  It seems to me to be right and in accordance with justice in this case that I should specify a longer period than the 21 or 28 days that one normally sees and I shall specify that the creditor should be at liberty to commence bankruptcy proceedings based on the statutory demand at any time after three months from today.  That gives Mr Davies and the club three months to try and bring some order to the financial affairs of Mr Davies and this club.  That all seems to me to be very much needed.

45.	For avoidance of doubt, the stay of the costs below is removed.