Are individual directors or shareholders of a company entitled to apply under CPR 40.9 to set aside a judgment against the company?
No, said the Court of Appeal in Mohamed v Abdelmamoud  EWCA Civ 879.
CPR rule 40.9 states:
“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 appellants (As), each of whom was both a director and a shareholder of the second respondent company, applied under CPR 40.9 to set aside a default judgment against the company. They were successful at first instance but the decision was overturned on appeal. They appealed to the Court of Appeal.
The Court of Appeal noted that CPR 40.9 did not empower the court to set aside a judgment whenever it might think it appropriate. It was a precondition that the applicant was “directly affected” by the judgment. Furthermore, it could hardly be appropriate to allow a third party to apply to set aside a judgment unless he would be in a position to either defend the claim on the Defendant’s behalf or to put forward a defence of his own.
The Court of Appeal held that As were not “directly affected” by the judgment and therefore they had no standing to bring an application under CPR 40.9.
Their status as directors gave them neither a personal interest nor decision-making powers, except as members of the wider board of directors. To allow individual directors to apply under CPR 40.9 would subvert the allocation of responsibility for management to the board.
Meanwhile, members of a company (whether a charitable company or an ordinary commercial company) could not be considered to be “directly affected” by a judgment against the company. Any other conclusion would allow particular members to take upon themselves matters allocated to the board and, moreover, to do so without having to satisfy requirements such as those laid down by the Companies Act 2006 for derivative claims.
In unanimously dismissing As appeal, the Court of Appeal has provided some helpful guidance on the circumstances in which a party may be permitted to make an application under CPR 40.9.
Winston Jacob / 27th Jun 2018
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