All England Law Reports, All ER 1995 Volume 2, Nutting and others v Baldwin and others
[1995] 2 All ER 321
Nutting and others v Baldwin and others
CONTRACT
CHANCERY DIVISION
RATTEE J
27, 28 OCTOBER, 18 NOVEMBER 1994
Contract - Penalty - Forfeiture provision - Association formed to finance prosecution of claims - Association rules providing that any member failing to pay additional subscriptions disentitled to share in recoveries - Rule constituting forfeiture provision - Whether rules amounting to penalty clause - Whether equitable relief available.
The plaintiffs were the members of the committee of an association formed for the purpose of co-ordinating and financing the prosecution of claims by Lloyd's names in respect of the activities of the managing agent of two Lloyd's syndicates and 81 members' agents which the members alleged had caused them loss. Under its rules, the association had power to levy additional subscriptions from members, provided that any such proposal was supported by a resolution passed by two-thirds of the members present and voting at a general meeting or by a majority on a postal ballot. At a general meeting of the association held on 31 October 1990 the committee's proposal to levy additional subscriptions was given unanimous approval. Thereafter written notices were sent to the members requiring payment of the additional subscriptions by 1 February 1991. Although reminders were sent out, by 5 July 19 members had failed to pay their additional subscriptions. The committee subsequently purported to exercise its discretion under r 6.6 of the association rules to declare them to be 'defaulting members', and as such they were precluded by r 9 from sharing in the distribution of any proceeds which the association might recover. The actions brought by the association were later compromised by an agreement under which it was to receive 116m. The plaintiffs then brought proceedings against the 19 defaulting members, seeking declarations that the association was entitled to distribute the 116m on the footing that no defaulting member was entitled to share in the distribution and that each of the 19 defendants was a defaulting member for the purposes of the rules. The issues which arose for determination by the court were: (i) whether the power under rr 6.6 and 9 to declare a member who failed to pay an additional subscription a defaulting member and exclude him from sharing in any proceeds recovered was a penalty and therefore unenforceable, (ii) whether the equitable doctrine of relief from forfeiture was applicable so as to enable a defaulting member to claim relief, and (iii) whether it was a precondition for declaring a person to be a defaulting member that the committee should have conducted a detailed investigation into the member's financial means.
Held - The questions in the summons would be answered in the negative for the following reasons-
   (1) The essence of the contract between the members of the association was that the burden and benefit of enforcing their claims against the Lloyd's agents should be shared between them. There was a pooling of all such claims and of contributions in the form of subscriptions for the purposes of financing the contemplated litigation, and it was an essential part of the arrangement that if a member ceased to contribute to the cost of pursuing the claims there should be power for the committee on behalf of all the members to determine that he321 should cease to share in the pool of benefit represented by the proceeds of such claims. Accordingly, the power in r 6.6 of the association rules to deprive a member who failed to pay his share of financing the litigation brought on behalf of all the members of the right to share in the fruits of that litigation was not a penalty for breach of contract but an essential part of the scheme of pooling the benefits and burdens of the contemplated litigation (see p 327 a to d and p 330 g h, post).
   (2) Although the power to exclude a defaulting member from sharing in the proceeds of any recovery was a forfeiture provision, the object of that provision was to ensure that all those who were going to share in the fruits of the litigation should share in the attendant risks by requiring the payment of additional subscriptions towards the financing of the litigation within a strictly limited period. It followed that, whatever the individual circumstances of the defendants, it would be wrong in principle for the court to grant relief against forfeiture, since it would defeat the object of the forfeiture provision and one of the fundamental objectives of the association itself to allow a defaulting member to share in the fruits of the litigation when there was no longer any risk, even on terms that he paid the overdue subscriptions with interest (see p 328 j to p 329 b and p 330 g h, post); dictum of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] 1 All ER 90 considered.
   (3) It was clear that the members who adhered to the rules of the association did not intend that the committee should be bound to carry out some investigation into a member's financial means prior to declaring him to be a defaulting member, particularly since the purpose conferred on the committee by r 6.6 was to enable it to further the object of the association as part of the scheme of pooling the benefits and burdens of the contemplated litigation (see p 330 e to h, post).
Notes
For equitable relief against penalties, see 16 Halsbury's Laws (4th edn reissue) paras 894-896, 900, and for cases on the subject, see 20 Digest 891-893, 6656-6664.
Cases referred to in judgment
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, [1914-15] All ER Rep 739, HL.
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348, [1989] QB 433, [1988] 2 WLR 615, CA.
Jobson v Johnson [1989] 1 All ER 621, [1989] 1 WLR 1026, CA.
Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, The Scaptrade [1983] 2 All ER 763, [1983] 2 AC 694, [1983] 3 WLR 203, HL.
Shiloh Spinners Ltd v Harding [1973] 1 All ER 90, [1973] AC 691, [1973] 2 WLR 28, HL.
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 All ER 113, [1939] 2 KB 206, CA; affd [1940] 2 All ER 445, [1940] AC 701, HL.
Sport International Bussum BV v Inter-Footwear Ltd [1984] 2 All ER 321, [1984] 1 WLR 776, HL.
Summons
By a summons dated 2 June 1994 the plaintiffs, Peter Robert Nutting and 11 others, being members of the committee of the Outhwaite 1982 Names Association, which had been formed to co-ordinate and finance claims brought by members of two Lloyd's syndicates against their managing agent and322 members' agents, sought determination of the questions (i) whether certain rules of the association, which enabled it to declare any members who did not pay their additional subscriptions when levied to be defaulting members and thereby prevent them from sharing in any recoveries subsequently obtained, constituted an unenforceable penalty clause, (ii) whether the equitable doctrine of relief from forfeiture was applicable so as to enable a defaulting member to claim relief, and (iii) whether it was a necessary precondition for declaring a person to be a defaulting member that the committee should have conducted a detailed investigation of that person's means. The plaintiffs' summons was issued following the commencement of proceedings on 22 April 1993 against a number of defaulting members, who included, Ronald P Baldwin, Richard Charles Chandos Hardy, Patrick F Headon, John Arthur Evans, Daniel G Keating, Peter Herbert Lewis, Stuart P Mabon, Graham Brian Douglas McIntosh, Said Hamed Mutawa, Michael D Riordan and David W Riordan as personal representatives of Jacqueline M Phillips, deceased, Loren A Schultz, Russell M Tolley and Stuart K Weinstein, seeking, inter alia, declarations that the association was authorised to distribute the proceeds of two actions brought against the Lloyd's agents to members on the footing that defaulting members would not be entitled to share in the proceeds, and that each of the defendants was a defaulting member under the rules of the association. The thirteenth and eighteenth defendants had died since the issue of the summons and were not represented. The summons was heard in chambers but judgment was given in open court. The facts are set out in the judgment.
Michael Hart QC and Brian Green (instructed by Richards Butler) for the plaintiffs.
Mark Dencer (instructed by Strain Keville & Co) for the fourth defendant.
John Lockey (instructed by Berwin Leighton, Lawrence Graham, D J Freeman, Baker & McKenzie, Lane & Partners, Epstein Grower & Co, Michael Freeman & Co) for the other defendants.
18 November 1994. The following judgment was delivered.
RATTEE J. The plaintiffs are the members of the committee of the Outhwaite 1982 Names Association (the association). The association was formed for the purpose of co-ordinating and financing the prosecution by members of Lloyd's syndicates 317 and 661 of claims against the managing agent of the syndicates (RHM Outhwaite (Underwriting Agencies) Ltd) and 81 members' agents in respect of those agents' activities on their behalf relating to the syndicates' 1982 year of account, which activities the members alleged had caused them loss. The defendants are some of the members of the association. 986 Lloyd's names joined the association, which in their names prosecuted two actions against the managing agent and the 81 members' agents. The two actions were tried together between 7 October 1991 and 30 January 1992. They were eventually compromised by an agreement under which the defendants to the two actions collectively agreed to pay 116m to the plaintiffs' solicitors.
   The rules of the association (as amended) contain the following relevant provisions.
   Rule 2.1 declares the objects of the association to be:

   '... the co-ordination financing and prosecution of claims common to members of the association for compensation for losses suffered as a result of being members of the syndicate [defined as Lloyd's syndicates 317 and 323661] for the 1982 year of account and to make provision for the apportionment of such compensation between the members of the association and its subsequent distribution to them.'
   Rule 2.2 provides:

   '... the association by its committee shall have power to do anything which in the opinion of the committee is calculated to facilitate, or is conducive or incidental to, the achievement of the objects of the association.'
   Rule 3.1 provides that any person alleged to be liable as a member of the syndicate in respect of the 1982 year of account is eligible for membership of the association.
   Rule 3.2 provides that any applicant for membership shall pay the subscriptions provided for by the rules and shall sign an application in a form set out in Sch 2 to the rules. That form includes a declaration that the applicant has read and understood the rules and agrees to be bound by their terms.
   By r 4.1 each member (a) gives authority to the association and its solicitors to commence, carry on and compromise proceedings in his name for the purpose of achieving the objects of the association and to give a receipt for the fruits of any such proceedings and to apply them in the manner provided for by the rules; and (b) agrees to indemnify the committee of the association against all liability incurred in the exercise or purported exercise of their powers under the rules.
   Rule 6.1 provides that the subscriptions payable by each member shall be (a) an initial subscription of 250 and (b) a 'litigation subscription' of 40 per 1,000 of line written by the member on the syndicate in the year of account, which was defined as the syndicate's year of account for 1982.
   Rule 6.2 provides:

   'If in the opinion of the committee it is desirable that further sums be raised for any purposes the committee may subject to r 6.3 below raise the same levying an additional subscription or subscriptions.'
   Rule 6.3 provides that the levying of any additional subscription under r 6.2 shall be supported by a resolution passed by two-thirds of the members present and voting at a general meeting or by a majority on a postal ballot.
   Rule 6.4 provides that subscriptions shall always be calculated as a sum per 1,000 of line written on the syndicate in the year of account.
   Rule 6.5 is in these terms:

   'All additional subscriptions shall become due in full within 60 days of written notice to that effect being given to members provided that: (1) the committee may in its discretion defer collection of all or any part of any subscription upon such terms as to security as it thinks fit (including but not limited to requiring members to lodge with the association within the said period of 60 days post-dated cheques or other instruments) in which case any amount or amounts so deferred shall become due within 60 days of written notice to that effect being given to members; and (2) where the collection of any additional subscription or any part or parts thereof has been deferred in accordance with this rule and any member wishes to pay any deferred amount or amounts prior to their due date or dates the committee may in its absolute discretion accept from such member a lesser sum in full settlement of such amount or amounts.'
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Rule 6.6 provides:

   '... if a member fails to satisfy any requirement of r 6.5 above the committee may declare him to be a defaulting member.'
   Rule 9 provides that 'recoveries', which are defined as, in effect, the fruits of any proceedings brought in the names of members, shall be held by the association upon trust to apply them firstly in paying or providing for the payment of any outstanding liabilities of the association, and then by distributing the balance among the members of the association other than defaulting members in the proportions inter se in which such members have been liable to subscribe to the funds of the association.
   Rule 10 contains provisions for the election of the members of the committee by the members of the association.
   Rule 11.1 provides:

   '... so far as not otherwise provided in these rules and subject to any directions which may be given by a resolution of the association in general meeting the affairs of the association shall be controlled and directed by the committee which shall have an absolute discretion as to the manner of exercise of the powers vested in it on behalf of the association ...'
   Rule 21 provides that any written notice shall be deemed to be given to a member if it has been sent by post or delivered to the last address notified by him to the secretary of the association.
   At the annual general meeting of the association held on 31 October 1990 unanimous approval was given to the committee's proposal to levy the following additional subscriptions under r 6.2: (a) a subscription of 30 per 1,000 of line to be payable within 60 days of written notice being given to members; and (b) a subscription of 100 per 1,000 of line to be deferred in full, but secured by each member lodging within 60 days of written notice a UK bank or building society cheque in the required sum post-dated to 1 April 1992, or other appropriate security.
   Notices of the additional subscriptions were sent to members at their last notified addresses on 30 November 1990 requiring payment and lodgment of the appropriate sums and securities as required by the resolution of the annual general meeting to which I have referred by 1 February 1991. Reminders were sent on either 19 or 22 April to those who failed to respond to the original notice. By 5 July only the 19 defendants had failed to provide the additional subscriptions due from them, and the committee alleges that it declared them defaulting members pursuant to r 6.6. Two of the defendants, that is the fourth and twelfth defendants, do not admit that the committee did declare them to be defaulting members. The remaining defendants have by pleadings delivered in the action admitted that the committee has in fact declared them to be defaulting members.
   Under r 9 such persons as have been declared defaulting members are not entitled to share in the distribution under that rule of the proceeds of the compromise of the actions brought by the association to which I have referred earlier in this judgment. The defendants or some of them have raised various arguments to the effect that they should not be treated as defaulting members even though they admittedly failed to pay the additional subscriptions due from them within the time allowed by the rules. Accordingly the plaintiffs, the members of the committee, commenced the present action against the325 defendants seeking declarations that the association is entitled to distribute recoveries as defined in the rules on the footing that no person who has been declared a defaulting member is entitled to share in such distribution, and that each of the defendants is a defaulting member for the purposes of the rules.
   The writ commencing the action was issued on 22 April 1993. All those defendants who have delivered defences in the action raise the following two defences.
   (1) The power purportedly conferred on the committee by r 6.6 to declare a member who fails to pay an additional subscription a defaulting member, in conjunction with the exclusion by r 9 of defaulting members from sharing in recoveries, is a penalty and therefore unenforceable.
   (2) The court has and should exercise an equitable jurisdiction to relieve a member who has failed to pay his additional subscription in time from what is said by the defendants to amount to forfeiture of his right to share in the proceeds of inter alia his own cause of action against the underwriting agents.
   Those defendants sought leave at the hearing before me to amend their respective defences to plead in addition that the power to declare a member who fails to pay his additional subscription on time a defaulting member and thereby exclude him from sharing in recoveries is so onerous a term of the rules that it is ineffective or unenforceable against a member unless it was 'drawn fairly to the [member's] attention' at the time he joined the association, and that it was not so drawn to the attention of the defendants.
   The fourth defendant alone also pleads in his defence a fourth point, namely that there is to be implied into the rules a term that, before declaring a member who has failed to pay his subscription on time a defaulting member, the committee must conduct a detailed investigation into the member's financial means, which the committee did not do in the case of the fourth defendant.
   In an understandable attempt to bring the four arguments raised on behalf of the defendants or some of them to as speedy a resolution as possible the plaintiffs, on 2 June 1994, issued the summons now before me seeking their determination as points of law under RSC Ord 14A. I turn, then, to consider each of the four points in turn.
(1) Penalty
   The defendants submitted that the rules constitute a contract between the members, and that the failure by the defendants to pay their additional subscriptions as required by the rules was a breach of contract. The power in r 6.6 for the committee to exclude the members in breach from their shares in the fruits of inter alia their own causes of action against the agents amounts to an unenforceable penalty on the well-established principle expounded in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, [1914-15] All ER Rep 739. The amount of a defaulting member's forfeited share of recoveries does not represent a genuine pre-estimate of damage caused by the breach of contract. Its forfeiture is a penalty. It does not cease to be a penalty because it is not a provision for payment of a sum of money by the party in breach of contract. For this last proposition the defendants rely on, inter alia, Jobson v Johnson [1989] 1 All ER 621, [1989] 1 WLR 1026.
   In my judgment, this argument is, as the plaintiffs submitted, misconceived. True it is that the rules of the association constitute a contract between the members, and true it is that by failing to pay their additional subscriptions in accordance with the rules the defendants are in breach of that contract.
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   However, I accept the plaintiffs' submission that it would be wrong to regard r 6.6 as a penalty for breach of contract. In my judgment the essence of the contract between the members of the association is that the burden and benefit of enforcement of the members' claims against the agents should be shared between all the members. There is a pooling of all such claims and a pooling of contributions in the form of subscriptions for the purpose of financing the enforcement of such claims. It is an essential part of the arrangement that if a member ceases to contribute to the pool of financial contributions to the cost of pursuing the claims there should be power for the committee on behalf of all the members to determine that he shall cease to share in the pool of benefit represented by the proceeds of such claims. In other words, a member who fails to shoulder his share of the burden of this essentially multilateral arrangement runs the risk of being excluded from his share of the benefit of the arrangement. This is not a penalty for breach of contract. It is an essential part of the pooling arrangement thereby effected.
   Thus, in my judgment, the defence based on the penalty argument is bad in law.
(2) Relief from forfeiture
   The case put by the defendants under this head, as refined in argument by Mr Lockey of counsel, is as follows. The combined effect of the power for the committee to declare a member who fails to pay his additional subscription on time a defaulting member and the exclusion of defaulting members from sharing in the recoveries under r 9 is a forfeiture provision-forfeiting the defaulting member's beneficial interest in the recoveries. The court has power to relieve against such forfeiture on such terms as the court thinks fit. Whether it should exercise such power in the case of any of the defendants will depend on the circumstances prayed in aid by each individual defendant. Between them the defendants plead a variety of reasons why the court should exercise its power to grant relief in his or her case. Some plead that they did not have actual notice of the demand for additional subscriptions, some that illness or financial hardship prevented their complying with such demand. It is common ground between the parties that I cannot on this summons determine whether it would be appropriate to grant relief in the case of particular defendants. I am asked only to decide whether the court has power to consider the grant of relief in the case of any of the defendants. The defendants, of course, say it has. The plaintiffs that it has not.
   Mr Hart QC, counsel for the plaintiffs, argued that the relevant provisions of the rules do not constitute a forfeiture provision within the equitable doctrine because the doctrine applies only to proprietary or certain possessory rights. For this proposition he relied on Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana, The Scaptrade [1983] 2 All ER 763, [1983] 2 AC 694 and Sport International Bussum BV v Inter-Footwear Ltd [1984] 2 All ER 321, [1984] 1 WLR 776. Mr Hart submitted that the effect of a member joining the association was an equitable assignment to all the members of his right of action against the Lloyd's agents, leaving the individual member with only the right to future performance of the contract between him and all other members constituted by the rules.
   I do not accept this submission. In my judgment, by virtue of r 9 each member was left with a proprietary interest in the form of his beneficial interest under the trust declared by that rule. It seems to me that if the rules had provided for automatic loss of this beneficial interest by a member who failed to pay his327 subscription on time, that would have been a forfeiture provision for the purposes of the doctrine of relief against forfeiture. The fact that forfeiture only takes place on a determination being made by the committee to that effect in my judgment makes no difference.
   A classic statement of the nature of the court's equitable jurisdiction to grant relief against forfeiture is to be found in the speech of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] 1 All ER 90 at 101, [1973] AC 691 at 723:

   '... it remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word "appropriate" involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach.' (My emphasis.)
   Mr Hart, on behalf of the plaintiffs, stresses the words from Lord Wilberforce's speech which I have emphasised. He submits that even if (as I find it does) r 6.6 constitutes a forfeiture provision, the doctrine of relief as stated by Lord Wilberforce is not available to relieve the defendants or any of them, because the result which was the primary object of r 6.6 can no longer be effectively attained if relief is granted. The object of r 6.6 was to give the committee on behalf of all the members of the association power to ensure that all those who were going to share in the fruits of the litigation against the Lloyd's agents should share in the risks inherent in the litigation by requiring the payment of additional subscriptions towards the financing of the litigation within a strictly limited period. Far from being attained, submitted Mr Hart, that object would be entirely defeated by the court granting relief from the effect of r 6.6 after the litigation has been completed. For to allow a defaulting member to share in the fruits of the litigation now, even on terms that he pays the additional subscriptions with interest, would allow him to share the fruits of the litigation without having borne his share of the risk of its prosecution.
   Mr Lockey, with the support of Mr Dencer, on behalf of the defendants sought to counter this argument by submitting that the object of the rules relating to subscriptions was to ensure that each member bore a pro rata share of the costs of the litigation. That can be attained by the defendants now being allowed to pay up their overdue subscriptions with interest.
   I prefer the submission of Mr Hart on this point. I agree that the object of the rules of the association was to achieve a situation in which the rights of action of all the members against the Lloyd's agents were enforced together for the benefit of all the members at the shared risk of all the members, the risk being borne by the members inter se in proportion to their interests in the fruits of such enforcement. To allow a member who has not undertaken his share of the risk by paying his subscriptions on time to come in after the litigation has been successfully concluded, so that there is no longer any risk, and still share in the fruits of the litigation on payment of his overdue subscription would, in my judgment, undermine rather than attain the object of the forfeiture provision328 against which relief is sought, and indeed one of the fundamental objectives of the constitution of the association. This being so, whatever the individual circumstances of the defendants, and whatever the reasons for their default, it would in principle be wrong for the court to grant relief against forfeiture. However hard the result may bear on individual defaulting members they must, in my judgment, be held to the arrangement constituted by the rules of the association to which they expressly agreed when they signed their application to join the association.
(3) Onerous nature of r 6.6
   This is the new point sought to be introduced by an amendment to the defences of the defendants. The submission of Mr Lockey on the point was (and I quote from his very helpful skeleton argument):

   '... where clauses incorporated into a contract contain particularly onerous or unusual terms, the party seeking to enforce those terms must show that the onerous terms have been brought reasonably and fairly to the attention of that other party.'
   For this proposition Mr Lockey relied, he said, on a decision of the Court of Appeal in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348, [1989] QB 433. In that case the plaintiff carried on the business of lending photographic transparencies. It delivered to the defendant 47 transparencies with a delivery note containing nine printed conditions, one of which provided that unless all the transparencies were returned within 14 days a fee of 5 per day would be charged on each transparency returned thereafter. The defendant had not dealt with the plaintiff before and did not read the conditions. They returned the transparencies four weeks later and were presented with a bill for over 3,000. The Court of Appeal held the defendant not bound by the condition to which I have referred, and which was described by Bingham LJ as an 'unreasonable and extortionate clause' (see [1988] 1 All ER 348 at 357, [1989] QB 433 at 455). Dillon LJ expressed the principle the court was applying as follows ([1988] 1 All ER 348 at 352, [1989] QB 433 at 439):

   '... if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party.'
   In my judgment that principle can have no application in the present case. As I have already said, the power in r 6.6 for the committee to deprive a member who failed to pay his share of the financing of the litigation brought on behalf of all the members of the right to share in the fruits of that litigation was an essential part of the scheme of pooling of the benefits and burdens of the contemplated litigation which was the whole object of the association. It cannot be characterised, as could the relevant condition in the Interfoto Picture Library case, as an unusual term included in usual terms in a contract. The whole constitution of the association was unusual in the sense that it was conceived and drafted to deal with a particular situation. In the context of the essential purpose of the constitution as I have described it, in my judgment the provisions of r 6.6 were neither onerous nor unusual, save to the extent that the whole nature of the association was unusual.
   Because I consider the proposed new defence bad in law I refuse leave to make the suggested amendment to the defendants' pleadings.
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(4) Implied term
   As I indicated earlier in this judgment, only the fourth defendant seeks to raise this defence. It is pleaded in the fourth defendant's amended defence as follows:

   'It was an implied term of [the rules] that in the event of the committee believing, or having good reason to believe that a member's circumstances were such that not to waive or postpone payment of the whole or part of a subscription (including any additional subscriptions) would cause extreme financial hardship to the applicant the committee would take all reasonable steps to conduct a detailed investigation into the applicant's means before declaring him to be a defaulting member and that in such circumstances it was a condition precedent to the exercise of the said power to declare a member to be a defaulting member that such reasonable steps had been taken.'
   It is not disputed by the plaintiffs that the fourth defendant notified the committee before any decision was taken to declare him a defaulting member that he was in financial difficulties. The only basis on which Mr Dencer, counsel for the fourth defendant, submitted that the implication for which he contended fell to be made was the 'officious bystander' test formulated by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 All ER 113 at 124, [1939] 2 KB 206 at 227. In other words, submitted Mr Dencer, the term for which he contends is 'something so obvious that it goes without saying'.
   I cannot accept this submission. It seems to me far from obvious that the members who adhered to the rules of the association must have intended that, despite the provision in r 11.1 that the committee should have an absolute discretion as to the manner of exercise of the powers vested in it by the rules, the committee should be bound to carry out some such investigation into the means of defaulting members as is alleged by the fourth defendant, particularly since the purpose of the discretion conferred on the committee by r 6.6 was, in my judgment, to enable it to further the object of the association, namely to prosecute the causes of action of members against the Lloyd's agents for the common benefit of those members who shouldered their shares of the burden of such prosecution.
   Thus, in my judgment, the defendants fail on all four of the points of law or construction raised or sought to be raised by them or some one or more of them by way of defence to the plaintiffs' claim in the action. I shall therefore answer the questions raised by sub-paras (1), (2) and (3) of para 1 of the plaintiffs' summons dated 2 June 1994 in the negative, and will consider with counsel the form of declaration which I should now make under para 2 of that summons.
Order accordingly.
Celia Fox Barrister.
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