On Wednesday, 25 March, Mr Justice Megarry delivered the interlocutory judgment which, it was hoped by the NAMH, would be in such terms as to obviate any further proceedings. He described the scope of the motion before him, the constitution and objectives of the NAMH and the 'Church' of scientology and the relevant NAMH Articles about resignation by members; and then he came to the memorandum which, in January 1968, the scientologists had insisted on putting in as an addition to their 'statement of Claim'. This Memorandum, he said, contained twenty-one paragraphs about the behaviour of the NAMH; and he continued:
I think I can sufficiently indicate the tone of the document by reading half a dozen of these, correcting the spelling mistakes.
4. Becoming a party to a conspiracy to bring about a reign of terror in the land by discrediting any peaceful, rational and law-abiding approach to the State's problems with the sick and insane, the Defendant seeking to discredit the right of others to approach the problem and so discover an unsavoury condition of wilful injury and murder for profit, advocated and conducted by the Defendant for their own gain, thus damaging others like the Plaintiff who urge a humane approach to the problem but which would deny the Defendant revenue from brutal treatments and extortion.I should also refer to a three-page circular letter dated 5 February 1969, and signed by the first plaintiff, which was sent to the Public Relations Officer of the Association. The first page of this letter reads as follows:
10. Becoming, knowingly or unknowingly, party to a conspiracy to deny the State data and skills of vital use in the country's defences by seeking to discredit the Plaintiff.
12. The Defendant did insinuate one of its officers, Kenneth Robinson, into the Government to use his position to: (a) attempt to secure a monopoly for the friends of and for psychiatry (b) attempt to foster legislation to secure monopolies (c) to misappropriate public funds for the use of the private association (d) to further the clientele of the said Defendant by providing it with Ministry officers who could procure new patients for the Defendant under threat of electric shocks and other tortures, and (e) to rid the Defendant and its friends of rivals of whatever kind, the said officer having no qualifications or skill in the field of healing.
13. The Defendant did pretend charitable offices and actions in registering, but in actual practice hides the unfit children and insane relatives of the aristocracy at enormous charges and is no institution of the people, thus bringing harm to the Plaintiff and other innocent actual institutions.
15. The Defendant has brought and advocated injury, brutality and murder into the field of mental healing, injuring any bona fide activity in the general field of the mind but not with the insane or ill.
21. The Defendant using its false name and charitable registration, acts as an advertising agency for a minority school of mental healing and pours out literature using its false and misrepresenting names to stimulate business and pour funds into the pockets of this group, thus attempting a monopoly to the harm of the Plaintiff.
Dear Opposite Number: How does it feel to be hit? The public sentiment against psychiatry has been bad for years. Lately it has worsened. I have a good idea that it will get much, much worse. Raping women patients, murdering inmates, castrating men, committing without real process of law - the psychiatrist has been a very bad boy. You exist, of course, to get psychiatry its per cent of the mental healing market. Psychiatrists and psychologists have only 16 per cent. The GP medical doctor has 28 per cent. It is very dull to attack Scientology. It has exactly NO per cent of your market. Its organisations draw the line at mental patients. Medical doctor's don't like psychiatrists. They are very obliging in turning in factual case histories concerning psychiatric murders; for they protect their 28 per cent of the market.This provides an example of the epistolary style of the plaintiff who was later to be put forward for the office of chairman of the Association. In March 1969, on two occasions, about ten people who appeared to be Scientologists demonstrated outside the Association's offices, with banners reading 'Crossman backs legal murder', 'Psychiatrists make good butchers', 'Buy your meat from a psychiatrist', and so on.
There have also been put in evidence copies of issues of a publication entitled 'Freedom Scientology'. Each is stated to be published either by the Church of Scientology or by the Hubbard College of Scientology, each of Saint Hill Manor, East Grinstead, Sussex. Each copy is marked 'Copyright 1969 by L. Ron Hubbard'. Many of the articles are stated to be by him. There are nearly twenty somewhat crude cartoons, many of them depicting the shrouded figure of death, bearing a scythe inscribed 'Psychiatry' which is sometimes dripping with what well may be blood. A smaller number of cartoons depict psychiatrists dictating (sometimes with instruments of torture) to members of Parliament.
Again I give only brief extracts.
Concerning Ely and other Psychiatric Death Camps - the instigators of these Death Camps is a private psychiatric front group of which Lord Balniel is an officer. Kenneth Robinson was a Director of it. Scientologists have found they instigate these Death Camps throughout the US and Commonwealth. They control large sections of Governments and attack anyone who opposes their new fascist state. They seek the right to seize and kill any man, woman or child who opposes them. Cecil King was one of them. He was to be the new Hitler in England. Immigration and Health Ministries were totally controlled by them throughout Commonwealth and US. Nelson Rockefeller through his US Foundation was to be the new Fuehrer in the US. These people are merciless and seek to destroy any opposition with Death Camps.Then there is a further paragraph (and I do not know whether it belongs to the one that I have read) which runs as follows:
The public can expect Cardiff Hospital Staff to get sacked and blamed while they were only following orders. Lord Balniel, Kenneth Robinson, Cecil King and all the very posh overlords of this conspiracy will crucify their henchmen to try to keep their own shirts clean. Death Camp orders come from the very top. A psychiatrist, Dr Watt, once told me years ago he would be sacked if he refused to follow Health Ministry orders to torture and kill patients. He gave me the data on what was happening in these Death Camps. When he protested his orders from superiors he himself died, and I was never satisfied by official accounts of his death. This goes to the very top of society. The names connected with these atrocities are astonishing. ...That appears to be signed 'L. Ron Hubbard'.
A further extract reads:
A psychiatrist kills a young girl for sexual kicks, murders a dozen patients with an ice pick, castrates a hundred men. And they give him another million appropriation. One can only conclude that psychiatric terrorism is not limited to the families of mental patients. It must extend all the way to the top. Extortion, kidnapping, murder - these are crimes. Yet where are the Security Forces? Thousands of miles away tending to other people's business.That comes from an article signed 'L. R. Hubbard'. Finally, there is an extract which reads:
There are no insane. There are only the physically ill. 'Insanity' is a non-existent malady invented to mystify and horrify the public Any person who looks or acts irrational is either: (a) physically ill and in suppressed pain and agony or (b) is in terror at being declared 'insane'. There is no illness one could call 'insanity'. To 'treat' it by electric shocks or brain operations is only to brutalize a person suffering from easily recognizable medical symptoms or to confirm his terrors.The publications contain a number of derogatory references to the Association.
It is against that background that I have to consider the events of last October and November. The average rate of applications for membership of the Association was formerly somewhere between ten and fifteen a month. In the first nine months of 1965, the rate quickened a little to about twenty a month. In October, however, 227 joined; and the Council accepted all those applications. However, no applications made since midday on 31 October have been accepted, and the 135 applications made in November, with others, still await consideration by the Council. It was observed that many of the applications in November were made in circumstances suggesting some connection with scientology.
The Annual General Meeting of the Association had been duly convened for 2 p.m. on Wednesday, 12 November. Under Article 35 (vii), a notice of intention to propose a candidate for election as an ordinary member of the Council must (unless the candidate is recommended by the Council) be left at the registered office of the Association not less than three nor more than twenty-one days before the date appointed for the meeting. On Friday, 7 November, five days before the meeting, a bundle of nominations was delivered at the Association's registered office by solicitors. These included a nomination of the first plaintiff as chairman, and nominations of the second to seventh plaintiffs (inclusive) as members of the Council. There were also nominations of a Dr West as vice-chairman and a Mr Small as honorary treasurer. In every case, I think, the person proposed, the proposer, and the seconder was a person who had joined the Association in 1969, many of them in October. All appear to be scientologists.
In those circumstances the Council met at short notice on Monday, 10 November, after weekend consultations. The Council decided to take action under Article 7 (b) in respect of 302 members of the Association 'known or reasonably suspected of being scientologists', as Lord Balniel puts it. The first plaintiff accepts that about 150 scientologists joined the Association in 1969, but that there may be others. On that day, two forms of letter were sent out to the 302. One was sent to those who had been proposed for office and the other was sent to those who had not. I need read only the first of these forms, as the one difference is that it is only in this form that the last three sentences appear. The letter reads:
Dear ... At a meeting of the Council of Management which was duly convened and held today at 12 noon at 39 Queen Anne Street, London, W1, it was resolved that, in accordance with the provisions of regulation 7 (b) of the Articles of Association (a copy of which is enclosed), you be requested to resign as a member of the Association. I was instructed by the resolution to give you this notice in writing of the resolution of the Council of Management, and I have to draw your attention to the right of appeal which is open to you under the terms of regulation 7 (b) of the Articles of Association. As you are aware, the Association have received a nomination, in accordance with regulation 35 (vii) of the Articles of Association, for your name to be put before the twenty-third Annual General Meeting of the Association to be held on 12 November, for election as an ordinary member of the Council of Management of the Association. In accordance with the provisions of the Articles of Association you cease to be a member of the Association on the posting of this letter and thereby automatically cease to be eligible for such election. I have accordingly sent a copy of this letter to the sponsors of your nomination.It is then signed by the General Secretary of the Association.
As I have mentioned, two days later, on Wednesday, 12 November, the writ and notice of motion were issued. On that morning I granted an ex parte injunction restraining the holding of the meeting save for the purpose of adjourning it; and adjourned it has stood ever since. The original motion, relating to the meeting of 12 November, has now become inappropriate, and the motion has been argued on the footing of an expanded notice of motion, claiming injunctions under four heads. They are directed to the defendants by their Council of Management servants agents or howsoever. The first is mandatory, ordering the defendants 'to afford to the Plaintiffs and the persons represented by the Eighth Plaintiff until the trial of this action or further order all rights of membership of the Defendant Association'. Alternatively, three prohibitory injunctions are claimed, restraining the defendants 'from proceeding with their adjourned Annual General Meeting unless the Plaintiffs and the persons represented by the Eighth Plaintiff are given notice thereof and of any adjournment thereof and permitted to attend and vote thereat'; restraining them 'from proceeding with the elections for Council members and for Vice-Chairman unless the persons duly nominated for such offices are allowed to go forward as candidates'; and finally, restraining them from 'holding any meeting or engaging in any other of its objects or activities without affording to the Plaintiffs and the persons represented by the Eighth Plaintiff the same rights (if any) in respect thereof as they afford to undisputed members of the Association'. The writ, I may say, claims a declaration, two injunctions and a representation order.
With that outline of the facts, I now tum to the contentions. Mr Pain, who appeared for the plaintiffs, put his case under four heads; and Mr Neill, for the Association, was content to meet him on the same footing. First, said Mr Pain, Article 7 (b) was void as being in conflict with the Companies Act, 1948, section II. If that is right, of course, the Council had no power to do what it did. Second, either Article 7 (b) was void as conflicting with the requirements of natural justice, or else the action of the Council was invalid in that the provisions of Article 7 (b) had been applied without complying with the principles of natural justice, and in particular, without giving the members affected a hearing. Third, on the true construction of the articles, the Council's letters to the 302 did not forthwith terminate their membership, but left them members while they pursued their right of appeal, as some of them had, including all the plaintiffs. Fourth, the Council had acted in breach of its fiduciary duty of acting for the benefit of the Association as a whole, and either the expulsions were invalid, or else, if valid, the court would nevertheless intervene to restrain the Council from abusing its powers.
Of these four heads, the major bone of contention has been the complex of issues that developed concerning natural justice. Most of the forty or fifty authorities put before me related to this, and I must consider this head at some length. I therefore propose to deal with the other three issues first; for they may be disposed of with relative brevity, even though much of the territory appears to be untrodden.
I accordingly turn to the validity of Article 7 (b). Mr Pain's submission was based on section 11 of the Companies Act, 1948. I may say that section 11 of the Companies Act, 1929, is identical, so that nothing turns on which Act applies. Section 11 reads as follows: 'The form of:- (a) the memorandum and articles of association of a company limited by shares; (b) the memorandum and articles of association of a company limited by guarantee and not having a share capital; (c) the memorandum and articles of association of a company limited by guarantee and having a share capital; (d) the memorandum and articles of association of an unlimited company having a share capital; shall be respectively in accordance with the forms set out in Tables B, C, D and E in the First Schedule to this Act, or as near thereto as circumstances admit.' When one turns to Table C, which is the relevant Table, one finds articles which contain nothing resembling Article 7 (b). Therefore, says Mr Pain, these articles are not in accordance with the form set out in Table C. Furthermore, there is not a shred of evidence to show that circumstances required any departure from Table C, and in the absence of any such evidence, Article 7 (b) must fall to the ground as failing to comply with the requirements of the statute.
This is a corner of the law which seems to be unblessed by authority. Table C, I may observe, contains not a skeleton but substantially completed copies of a memorandum and articles of association. They are concerned with establishing a school, and all seven named subscribers to the memorandum are school-masters. Table B, for a steam packet company, and Table D for a hotel company, each has seven gentlemen of the same name; but there they are all merchants. Table E, for a company making stereotype plates, also has seven merchants, six of the same name as in the other tables, and one of a different name. These gentlemen are long-lived, for they were all at work in the Acts of 1929 and 1908, and maybe earlier than that. Table C was for a school in 1929, but in the corresponding form in the 1908 Act it was for a mutual ship insurance company. Even a cursory survey of Tables B, C, D and E indicates that they were intended to provide models and not strait-jackets. Section 11 is in terms concerned with the form of the articles, and I cannot conceive that 'form' was here intended to embrace content. In my judgment, it is for the draftsman to mould his articles to the needs of the company as the promoters see it at the time. He should bear in mind what he finds in Table C, as well, of course, as the terms of the Act. But provided he follows the general form of the relevant table, setting out matters in numbered paragraphs and dividing the subject matter between memorandum and articles in the manner suggested by the Table, I cannot see why he should not be free to add, subtract or vary as the needs of the case suggest.
A further consideration is that there is nothing in section 11 to indicate what are to be the consequences if the articles are not as near to the form set out in Table C as circumstances admit. There is no provision corresponding to the words in, for example, section 21 (1), which in terms enacts that certain provisions in the memorandum and articles 'shall be void'. I should be very slow to impute to the language of section 11 an intent to strike with invalidity any provisions in articles which do not comply with such indefinite requirements, or to make it necessary for those who seek to support such articles to adduce evidence which would establish that at the time when the articles were adopted (which might be many years back) there were circumstances which in some way required a deviation from Table C. In my judgment the words of section II are merely directory in their effect.
Mr Neill drew my attention to the form of articles of a society limited by guarantee without a share capital set out in Palmer's Company Precedents (17th edition, 1956), part 1, p. 662, relating to a committee of management. This gives the committee a discretionary power to admit to membership, and a power to require a member to withdraw, with a cessation of membership one month thereafter. Such provisions have no counterpart in Table C; and the same applies to many other provisions contained in this section of Palmer. The views of a draftsman of precedents, however eminent, cannot of course override the provisions of a statute; but in construing a statutory provision which seems to be devoid of any direct authority on the point, I think I am entitled to pay some regard to a book of precedents of high repute which must have provided a foundation for a very large number of sets of articles now in use. At all events, it does not seem to me that the view that I take is out of accord with the practice of draftsmen.
Mr Neill also relied upon a combination of section 15 of the Companies Act, 1948, with sections 6, 10 and 20, as establishing the validity of the articles. Section 15 (1) reads as follows: 'A certificate of incorporation given by the registrar in respect of any association shall be conclusive evidence that all the requirements of this Act in respect of registration and of matters precedent and incidental thereto have been complied with, and that the association is a company authorised to be registered and duly registered under this Act.' Basing himself in the main on a passage in Lord Wrenbury's speech in Cotman v. Brougham (1918) AC 514 at 522, 523, dealing with a memorandum of association, Mr Neill contended that the registrar's certificate of incorporation established that the articles were at all events valid as to form. However, he accepted, as I think he had to, that this could not cure any failure to comply with a statutory requirement as to substance; and on that footing I do not think that the argument provided much of a defence to an attack based on non-compliance with the requirements of section 11. The same applies to section 20 (1), making the articles, when registered, bind the company and the members to the same extent as if they had been signed and sealed by all members, and so on. In any case, I should be most reluctant, without a clear mandate from Parliament, to impose upon the registrar the duty of considering all deviations from Table C, and enquiring whether the circumstances required such a deviation, on the footing that every failure to comply with the Act which he failed to detect would be cured by his certificate. I do not have to decide this point and, having expressed my doubts, I refrain from deciding it. It suffices for me to say that, for the reasons which I have given, Article 7 (b) is in my judgment not invalidated by section 11 of the Act, and so does not need to be validated by section 15 or anything else. Mr Pain's first point accordingly fails.
Omitting the question of natural justice for the moment, I turn to Mr Pain's third point, to the effect that the 302 remained members of the Association despite the letters from the Council which were despatched on 10 November. He submitted that on the true construction of Article 7 (b), a member to whom a request was made under the article remained a member for seven days and, if he appealed within the seven days, until the appeal was decided. As I have mentioned, all the plaintiffs have in fact appealed within the seven days. Mr Pain's chosen instrument for mitigating the effect of the word 'forthwith' in Article 7 was Article 7 (a) which showed, he said, that 'forthwith' could not mean 'immediately'. He also stressed that the word used in Article 7 (b) was 'resign' and so, he said, there could be no cessation of membership until the member affected in fact resigned. A provision for forfeiture required clear language, and here the language had tied itself in knots. The words 'ab initio' at the end of Article 7 (b) were virtually unnecessary. Thus ran the argument.
These contentions seem to me to be wholly untenable. As I read Article 7, a member of the Association forthwith ceases to be a member if he is requested by the Council to resign. What terminates his membership is the request, and not any consequent or supervening resignation. The word 'resign' is used in Article 7 (b) in a somewhat euphemistic sense. If under Article 7 (a) the member gives notice of resignation, then he ceases to be a member forthwith upon receipt of the notice by the Association. And I can see nothing in Article 7 (a) to negative the natural operation of the word 'forthwith' upon Article 7 (b). Furthermore, the result of a successful appeal is that the resolution requesting the member to resign becomes 'void ab initio', and this form of expression, as Mr Neill rightly pointed out, emphasises that the member had ceased to be a member instanter. In my judgment there is nothing in the point taken by the plaintiffs under this head save a demonstration of the ingenuity of counsel.
That brings me to Mr Pain's fourth point. The first limb of this soon disappeared, never to re-emerge. If the Council had acted in breach of its fiduciary duty towards members of the Association, this could hardly mean that the Council's acts were invalid. A breach of trust is not a nullity but a ground for complaint. Accordingly, it was on the second limb, that the court would intervene to prevent the Council from abusing its powers that the argument turned. The Council, said Mr Pain, had exercised its powers without considering the interests of the scientology section of its membership; instead, the Council had acted in the interests of its non-scientological members. Mr Pain relied heavily on Hogg v. Cramphorn Ltd (1967) Ch. 254. In that case, an issue of shares with special voting rights which would alter the balance of power was set aside on the ground that it was an exercise of a fiduciary power with an improper motive and, being so, it was immaterial that the directors believed in good faith that the issue was in the interests of the company. Without attacking the honour of the members of the Council, Mr Pain contended that they had acted with improper motives; and he said that if the power exercised was a fiduciary power, it mattered not whether the object of the improper exercise of the power was to provide reinforcements for those exercising it or to decimate the opposition.
This contention ignores, as it seems to me, an essential distinction in the powers. In a passage in Punt v. Symons & Co. Ltd (1903) 2 Ch. 506 at 515, cited by Mr Justice Buckley in Hogg v. Cramphorn Ltd at page 267, Mr Justice Byrne pointed out that the directors' power to issue shares was primarily given to them for the purpose of enabling them to raise capital when required for the purposes of the company. The issue of shares with the object not of raising capital needed by the company or any other proper purpose, but of affecting the balance of voting power, is thus an exercise of powers made with a purpose that is ulterior, and not a purpose for which the power was intended. In such a case, no genuine belief in the propriety of the act done can cure the defect. In the present case, the power is a direct power to deprive a member of his membership: it is not a power to reduce capital (if that could be good) which is being employed with the ulterior purpose of depriving a member of his membership.
The question, then, is whether that power of deprivation of membership has been exercised by the Council in good faith for the purpose for which it was conferred. Such a power is, I think, plainly conferred in order that it may be exercised in the best interests of the Association. The Association is, of course, an artificial legal entity, and it is not very easy to determine what is in the best interests of the Association without paying due regard to the members of the Association. The interests of some particular section of sections of the Association cannot be equated with the Association, and I would accept the interests of both present and future members of the Association as a whole, as being a helpful expression of a human equivalent: see Palmer's Company Law (21st edition, 1968), p. 531, and for a possible alternative expression see Greenhalgh v. Arderne Cinemas Ltd (1951) Ch. 286 at 291. In this sense, did the Council act as they did in the bona fide belief that it was in the best interests of the Association?
I think the answer is plainly 'Yes'. Lord Balniel in terms deposes that the decision of the Council was taken in good faith and in what were believed to be the best interests of the Association and the members as a whole; and this is not impugned. The basic reason for the decision is stated to be 'the threat that Scientology posed to the Association and all that it stood for'; and various other factors are set out, including the loss of moral and active support for the Association, loss of revenue, and the Association's responsibility to those in its charge. The evidence before me provides ample grounds for saying that at the very lowest this is a possible view to hold. Accordingly, in my judgment the plaintiffs' fourth point also fails.
Let me add this. I am not in the least concerned with the question whether, for instance, it is the views held by psychiatrists or those held by scientologists which are right. That is in no way before me for decision. Nor am I concerned with the right of those who believe in Scientology to consort together and to propagate their views by any lawful means. I am concerned with an entirely different and much narrower question, namely, the right of the Council of the Association to use Article 7 (b) to exclude from the Association those who are known or reasonably suspected of being scientologists. It is beyond question that scientologists have for long been attacking the Association in a variety of ways. The attacks have been virulent, and like the sentiments, the language, I think, speaks for itself. I need say no more about it than that much of it cannot be described as moderate and reasoned argument designed to persuade those who hold what are conceived to be erroneous views.
At the same time, I must bear in mind that it has not been established how far each of the plaintiffs before me subscribes to the acts done and the language used. One may support a club, an association, a political party or any other group of persons without thereby agreeing with every word that other members use. Indeed, such is the variety of human opinions that it would often be impossible to do so. Furthermore, even if the plaintiffs fully supported all that has been said and done in the name of scientology, they are persons who are, like all others, entitled to justice according to law. Indeed, the more extreme their views, the more they are likely to need what the law can give them.
I should also say that Mr Neill made some comment about the scientologists having made a 'take-over bid' for the Association. Mr Pain, on the other hand, said that it was no 'take-over bid', but merely an attempt to get the voice of scientology heard within the Association, and to 'make a splash', after previous attempts to have discussions with the Association had failed. No contention, I may say, has been advanced that the scientologists were seeking to join the Association only to destroy it. Furthermore, in his affidavit sworn on 8 December the first plaintiff says that as he has a reasonable prospect of being elected chairman and this might damage the Association in the present climate of public opinion he is prepared to withdraw his candidature for the chairmanship, and that Mr Small is prepared to withdraw his candidature for the office of Honorary Treasurer. This is done without prejudice to the plaintiffs' contentions. These considerations, it seems to me, have little to do with what I have to decide. It matters not whether a plaintiff is a new member or an old, whether he joins by himself or with cohorts of his fellow believers, or whether he remains inert or at once becomes active in his membership. A member is a member, and has his rights as such.
I now turn to the second of Mr Pain's points, and the last that I have to deal with, namely, that of natural justice. The first limb of this is one that I can dispose of quite shortly. The contention was that Article 7 (b) was void as being contrary to natural justice. I have heard nothing which seems to me to provide any real support for that contention. To say that the powers conferred by the Article can be exercised only in accordance with natural justice is one thing; to say that the Article is void in toto is very much another. The former proposition leaves the power of expulsion in being but regulates its exercise. The latter proposition strikes out the power of expulsion altogether. Indeed, at one stage Mr Pain accepted that it did not matter to him which proposition was right, provided that one of them was. I have been able to perceive nothing in any of the authorities cited, or in any submissions put forward, which indicates that even on the most liberal interpretation the principles of natural justice could invalidate the power. I accordingly reject that contention.
That leaves me with the second limb of the argument on the principles of natural justice; and this is much more substantial. If these principles apply, it seems to me plain that the plaintiffs have been denied their rights. They were given no warning, informed of no charge, and afforded no opportunity of speaking in their own defence. The Council simply passed the resolutions and the plaintiffs were expelled. They have not been accorded even the most elementary form of natural justice. The question, then, is whether the principles of natural justice apply at all in the circumstances of this case.
Mr Pain said that Article 7 (b) was subject to an implied term to the effect that every member had a right to be heard before being expelled. Furthermore, he contended that this was a term which could not be excluded by any provision to the contrary. In support of his contention he led me through many of the leading authorities on the subject, emphasising those that supported him and distinguishing or criticising those which were less favourable, or positively adverse. In response to a question from the Bench, he confessed that he had been unable to find any authority on the application of the principles of natural justice to a company limited by guarantee.
Mr Neill's basic submissions, in their simplest form, were as follows. First, the principles of natural justice had found no foothold in company law, and did not apply to companies, including a company limited by guarantee. The directors are not, however, unfettered in their powers. They are subject to their duty under company law to exercise their powers in what they bona fide believe to be the interests of the company; but that is all. There is no superadded obligation to observe the principles of natural justice. Second, even if the principles of natural justice can apply to a company limited by guarantee, they are confined to cases where the article in question is phrased in terms not of confiding an unlimited discretion to the directors, but of giving a power to exclude a member for some stated reason or reasons, e.g. for misconduct. Only in the latter case is there an issue which is justifiable according to the rules of natural justice. Accordingly, since Article 7 (b) is expressed in unlimited terms, the principles of natural justice do not apply. There were a number of subsidiary propositions, but I think I have sufficiently indicated the line of argument.
In spite of the assistance of counsel, I have found this a difficult part of the case. Nothing has been put before me to show what test has to be applied to determine whether or not the principles of natural justice apply to any particular decision. It is clear that those principles are not universal in their embrace. It has long been accepted, for example, that a master may dismiss his servant instanter without affording him the opportunity of saying a word in his defence. The contract of service is terminated forthwith and the servant is left to any remedy that he may have for wrongful dismissal: see generally Ridge v. Baldwin (1964) AC 40 at 65, per Lord Reid. Again, local planning authorities refuse thousands of planning applications each year without giving the applicant any hearing, leaving him to his remedy by way of appeal to the Minister, when a full hearing is given; yet I know of no suggestion that local planning authorities are thereby universally acting in contravention of the principles of natural justice. Marshall's Natural Justice (1959) contains the most valuable examination and classification of the many cases on the subject that I have seen; but I have been unable to find in it any satisfactory test for determining whether a case is one in which the principles of natural justice apply. It may be that there is no simple test, but that there is a tendency for the Court to apply the principles to all powers of decision unless the circumstances suffice to exclude them. These circumstances may be found in the person or body making the decision, the nature of the decision to be made, the gravity of the matter in issue, the terms of any contract or other provision governing the power to decide, and so on. This, of course, does little by way of providing a clear test; but as the authorities stand, it may not be possible to do much more than say that the principles of natural justice will apply unless the circumstances are such as to indicate the contrary. Certainly I would say that the cases show a tendency to expand the scope of natural justice rather than constrict it. The ambit of natural justice is indeed a subject worthy of further academic research.
Now altogether neither Mr Pain nor Mr Neill could refer me to any case deciding whether or not the principles of natural justice apply to companies limited by guarantee, Mr Neill did put before me a line of cases which he said showed that those principles appeared not to comply to companies limited by shares. Some of these cases related primarily to the exercise of discretionary powers in relation to the transfer of shares to an assignee, so that the main question was that of the admission of a new member: but it was urged that these cases also related to the cessation of membership, in that the transferor was seeking to cease to be a member.
I did not find this point very impressive, since it did not involve stripping a man of his rights against his will. Re Gresham Life Assurance Society, ex parte Penney (1872) 8 Ch. App. 446, fell into that category, establishing that under a provision that a share was not to be transferred 'without the special leave of the board of directors', the members of the board need not disclose their reasons for rejecting a transferee: if they had fairly considered the question, then in the absence of evidence to the contrary the court would assume that they had acted fairly and bona fide. Re. Coalport China Co. (1895) 2 Ch. 404, appears to extend that principle to a case where the right to refuse to register a transfer is confined to certain stated grounds, including the directors being of opinion 'that the proposed transferee is not a desirable person to admit to membership'.
Borland's Trustee v. Steel Brothers & Co. Ltd (1901) 1 Ch. 279, however, seems to be a little more in point. There, the articles provided that, with certain exceptions, the directors might give any shareholder notice requiring him to transfer his shares, and that if he did not do so within fourteen days, he was deemed to have given a transfer notice. The effect of the transfer notice was to create an obligation to transfer the shares to a manager or assistant in the company at a fair price not exceeding their par value. A directors' notice was given when the shares were, it was said, worth about four times their par value. Even though the article was confiscatory in its effect, and many objections were urged, no point seems to have been taken on natural justice, and Mr Justice Farwell upheld the transaction.
I turn to Phillips (Albert) and Albert Phillips Limited v. Manufacturers Securities Limited (1917) 116 LT 290, 86 LJ Ch. 305. This is a case which may be said to have been reported somewhat distributively: the judgment of Mr Justice Peterson is to be found in the Law Times Reports, there is a statement of the facts and a report of the arguments in the Court of Appeal in the Law Journal Reports, and the judgments of the Court of Appeal appear in both series. It is a striking case. The company was formed in aid of a trade federation which had the object of protecting the trade of manufacturing bedsteads and preventing price cutting. The articles provided that the company in general meeting, by a three-quarters majority, might determine that the shares of a member should be offered for sale to other members, and that the price paid to the member should be not less than 5p per share. A resolution was passed requiring a member's shares to be sold for 5p a share, although each share was then admittedly worth at least £1. It was admitted that this resolution was passed in order to punish the member for leaving the federation. The Court of Appeal unanimously affirmed the decision of Mr Justice Peterson holding that the attack on the transaction had failed. Running through the judgments is the principle that no more had been done than had been authorised by the articles to be done. Fraud, mala fides and oppression were discussed and dismissed, but there is nothing to indicate that the issue of natural justice was raised. Further, as the member was, in fact, given notice of the meeting and of the resolution proposed to be passed, I cannot attach any great significance to the decision as an authority on natural justice, even sub silentio. Its importance, I think, is as an illustration of the extent to which the courts will go in enforcing the articles of a company even if they appear capable of working harshly.
The last case cited to me in this line is Sidebottom v. Kershaw, Leese & Co. Ltd (1920) I Ch. 154, in which the Phillips case was followed. The main question was that of the validity of a special resolution inserting into the articles a provision which enabled the directors to give notice to any shareholder who carried on any business in direct competition with the business of the company, or who was a director of any company carrying on such a business. The notice was to require him forthwith to transfer all his shares in the company, and he was thereupon to be bound to transfer the shares to any person nominated by the directors, upon payment of the par value of the shares as ascertained under the articles. The Court of Appeal held that as a provision for buying out or expelling a member might have validly been inserted in the original articles (as the Phillips case showed), it could therefore be inserted into the articles by amendment, provided that insertion was made bona fide for the benefit of the company as a whole. The Court also rejected the contention that because it was to the detriment of a member to be bought out or expelled, this process could not be said to be for the benefit of the company as a whole, in that it was detrimental to at least one of the corporators.
I cannot see that the authorities cited by Mr Neill either collectively or individually establish his proposition. They are not concerned with an instantaneous expulsion; companies limited by guarantee are not necessarily in the same category as companies limited by shares; and in any case the authorities do not in terms deal with natural justice. That, however, does not dispose of the matter: a proposition is not necessarily wrong merely because it is not established by the authorities cited. Mr Pain, of course, contended that it was wrong. On the footing that the principles of natural justice do not apply to a company limited by shares but do apply to clubs and trade unions, he said that the right course was to add companies limited by guarantee to the second category rather than the first, particularly as in such companies the emphasis is on membership rather than the ownership of a share. In any case, he said, it would be odd if a club, to which the principles of natural justice apply, could be stripped of those principles merely because the club had been turned into a company limited by guarantee.
I do not think that Mr Pain is right in these submissions. In the case of a company, whether limited by shares or guarantee, a new legal entity comes into existence, namely, the company; and many of the powers have to be exercised for the benefit of that entity. This distinguishes a company from an ordinary club, which is not a legal entity distinct from its members; and although a trade union, of course, possesses some of the characteristics of corporate personality, it is not a corporation either. The conversion of a club into a limited company, too, is no mere formality, but a change of substance. Where there is corporate personality, the directors or others exercising the powers in question are bound not merely by their duties towards the other members, but also by their duties towards the corporation. These duties may be inconsistent with the observance of natural justice, and accordingly the implication of any term that natural justice should be observed may be excluded. Furthermore, Parliament has provided a generous set of statutory rules governing companies and the rights of members, as contrasted with the exiguous statutory provisions governing trade unions and the even more exiguous provisions governing clubs. Yet again, the authorities cited by Mr Neill, though not establishing his proposition, do indicate the extent to which the courts will go in enforcing the provisions of the articles, even where those provisions appear to operate harshly or unjustly. These considerations seem to me to militate against the application of the principles of natural justice in this field.
I turn from that to a case which seems to me to be of a special value in relation to the implication of terms in relation to natural justice. In Russell v. Duke of Norfolk (1948) 1 All ER 488, (1949) 1 All ER 109, there was a power for the stewards of the Jockey Club to withdraw or suspend a licence 'in their absolute discretion'. Both Lord Goddard, the Chief Justice, and Lord Justice Tucker held that this language made it impossible to imply a term that the rules of natural justice had to be observed; see at pages 490, 491 and pages 114, 115. It may indeed be that the courts are ready to imply a term that natural justice is to be observed, even in cases where this cannot be said to be necessary in order to enable the contract to be carried out (see John v Rees (1969) 2 WLR 1294 at 1332, 1333): but I do not think the courts will do this in the teeth of sufficient indications that the principles of natural justice are not to apply.
In the present case, my conclusion is that there are indications a-plenty to exclude any implication of the requirements of natural justice. First, as I am concerned with a corporation, there is the duty owed by the Council to the corporation to exercise their powers in what they bona fide believe to be the interests of the corporation. The power under Article 7 (b) is one which must be exercised thus, and the exercise of this power is one in which the question may arise not only whether it is to be exercised, but when. Where, as in the present case, their duty may impel the Council to exercise the power with great speed, whereas natural justice would require delay, I think that this indicates that the Council is intended to be able to exercise its powers unfettered by natural justice.
Second, the cases on companies limited by shares indicate that provisions in the articles of a company for expropriation or expulsion are valid, even though they deprive the member of valuable property rights. Companies limited by guarantee are, in a sense, in a position a fortiori; for the element of expropriation is lacking, at any rate to any appreciable extent. A member who joins does so on the terms of the articles, including Article 7 (b), so that what he gets is not an absolute right of membership, nor a right of membership until expelled for misconduct, but a right of membership until that membership is terminated by the Council acting bona fide in what they believe to be the interests of the Association. The terms of the contract which bind the members must at least be of some importance.
Third, the wording of Article 7 (b) seems to me to militate against the implied term. True, it lacks any phrase like 'in their absolute discretion', such as appeared in Russell v. Duke of Norfolk: but it is a wholly unrestricted power, not confined to cases of misconduct, and so on. In other words, if the power had been confined to cases of misconduct or the like, that would have been some indication that the principles of natural justice ought to apply: for since there could be expulsion only if misconduct were established, not only would the machinery of natural justice in making and adjudicating on the charge be readily applicable, but also reputation might well be at stake. It is otherwise where, as here, the power given is absolute in its terms.
Fourth, the cases in which the principles of natural justice have been held to be applicable have in the main been cases in which what was at stake was liberty, property or a means of livelihood (as in the trade union cases). That does not exhaust the field. Thus in Cohen v. National Union of Tailors and Garment Workers (1962) Times, 13 January, what was in issue was not membership of a trade union but the right to hold office in a trade union, and on motion Mr Justice Plowman held that the principles of natural justice applied. But I think that one of the elements which points to the applicability of the principles of natural justice is the importance and gravity of what is at stake. The mere membership of the Association, involving no real interest in property, and no question of livelihood or reputation, does not seem to me to be prima facie a matter in respect of which there is any strong claim to have the principles of natural justice applied, at any rate on motion.
As I have indicated, one of the more difficult problems of the doctrine of natural justice is to determine what cases fall within its ambit; and despite the extensive citation of authority before me, I certainly cannot say that I have explored every possibility. All that I can say is that I do not consider this to be a case in which the doctrine applies. In saying that I have to some extent been proleptic: for I have borne in mind Mr Neill's second point. When one examines the cases cited by Mr Pain on the application of natural justice, says Mr Neill, one finds that some are cases in which the rules conferred a discretion which was not absolute but merely exercisable for cause. No case was cited, he said, where the principles of natural justice had been applied to expulsion under a rule conferring an absolute discretion. This distinction is taken in Citrine's Trade Union Law (3rd edition, 1967), pages 278-283. The rule may provide for expulsion either without restriction, giving an absolute discretion, or it may provide for expulsion only for some stated cause, such as misconduct. The principles of natural justice, which apply where the rule is of the latter type, do not apply where it is of the former type, subject to the possible qualification that if the power is exercised on some stated ground which impeaches the character or conduct of the member and is intended as a penalty for it, he must be given notice and a hearing. It is conceivable that this qualification applies where the ground is not stated but is established by evidence aliunde . It has not been suggested that this qualification applies in the present case, and so I can deal with the primary distinction between an unrestricted power of expulsion and one that is restricted.
Of the cases relied on by Mr Pain, I may mention that in Wood v. Woad (1874) LM 9 Ex. 190, the power was exercisable 'if the committee shall at any time deem the conduct of any member suspicious, or that such member is for any other reason unworthy of remaining in the society'. Again, in Dawkins v. Antrobus (1881) 17 Ch. D. 615, where in fact the court did not interfere, the phrase was 'conduct of any member ... shall ... be injurious to the character and interests of the club'. Weinburger v. Inglis (1919) AC 606, discussed on page 280 of Citrine, was a case of the exercise not of a judicial power of expulsion but an administrative power of annual re-election. The line between expulsion and non-re-election may be thin; but although some authorities have placed reliance on the views of Lord Birkenhead, the Lord Chancellor, at page 616 and Lord Parmoor at page 637, it seems to me that these are fully countered by the views of Lord Buckmaster at page 621, Lord Atkinson at page 626, and Lord Wrenbury at pages 640, 641. These views show, I think, that in such a case the power may be exercised without observing the principles of natural justice.
I do not propose, however, to attempt a comprehensive survey of all the relevant authorities. I readily acknowledge that I have had a sufficiency of them put before me; and all, I think, that I need say is that after considering these authorities, with some others, I have reached the conclusion that there is a substantial body of authority in support of the distinction urged by Mr Neill. There are also, let me say, some authorities the other way. But on the view that I take of this case that does not, I think, affect the result. For this is a motion for interlocutory injunctions, not the trial of the action, and there is a limit to the extent to which on motion it is right to attempt a final resolution of a difficult point of law, enmeshed in a complex of authorities. For the purposes of the motion, I would merely say that I tend towards accepting the distinction. If the discretion conferred is absolute and unfettered, and no charge is made, then I find it difficult to see how there could be any requirement to provide what Lord Hobson in Ridge v. Baldwin (1964) AC 40 at page 132 regarded as two of the three outstanding features of natural justice, namely, 'the right to have notice of charges of misconduct' and 'the right to be heard in answer to those charges'. But these are deep waters which one day will no doubt be better charted than they are today.
A further point put before me was whether there is any rule of public policy which prevents the principles of natural justice from being ousted by an express term which excludes them. On this, too, some authorities were cited to me; and I see from Citrine (at pages 283, 284) that there are a number of others. Support may be found for either view. I observe that on page 284 of Citrine there is the statement that on this point in Lawlor v. Union of Post Office Workers (1965) Ch. 712, Ungoed-Thomas J. studiously avoided adjudicating between the conflicting opinions. I propose to follow my brother's example. For the purposes of this motion I am content to assume that such a term cannot exclude the application of the principles of natural justice. On that footing, I shall have to consider whether the case before me is one in which the principles apply at all: only if they do can the question arise whether they have been ousted by an express term. In deciding whether the circumstances are such as to exclude those principles, I do not think that I am required to omit from consideration the terms of the articles here in question, and in particular Article 7 (b); as it seems to me, I ought to consider them in conjunction with all other relevant factors. However, if I am required to ignore them, or to ignore Article 7 (b), I think that I should still reach the same conclusion.
In the result, then, I consider that on the law this is not a case in which the principles of natural justice have any application. That being so, no question of Article 7 (b) being void as being contrary to those principles can arise, nor can there be any implied term that those principles shall apply. I base my decision on the existence of circumstances sufficient to prevent the application of those principles, and in particular upon the company being a company limited by guarantee. It follows that in my judgment the injunctions sought must be refused. If I am wrong in that, then I consider that the injunctions should be refused as a matter of discretion. For it is plain that I do not regard the plaintiffs as having shown a strong prima facie case for the existence of the right claimed or that they are likely to succeed: see Harman Pictures, N.V. v. Osborne (1967) 1 WLR 723 and 738, per Mr Justice Goff. Nor do I think that the balance of convenience lies in favour of granting the injunctions. There is evidence of the prospect of serious damage to the Association, in the form of loss of valuable support, staff and revenue, if the injunctions are granted; and there is no countervailing evidence on the plaintiffs' part. Nor can I regard the loss of an opportunity of 'making a splash' as being of any great weight. Whatever success the plaintiffs may have at the trial of the action, I do not think they are entitled to interlocutory relief, and I therefore dismiss the motion.
I cannot part with the case, however, without mentioning one other matter. This is a case of a block expulsion of 302 members, all of whom, I presume, have duly paid their subscription of two guineas. I understand that at least one of the 302 has asked for the return of his subscription, only to be met with a refusal based on Article 9, providing that he is not entitled to be repaid the subscription or any part of it. Included among the 302 there are probably many who joined only a short while before their expulsion, as in the case of those who joined in October 1969, when the Association admitted 227 new members. Of these, there may well be some who, though 'reasonably suspected of being Scientologists', in fact have nothing to do with scientology. Suspicions that are honestly held may yet be wholly unfounded. My enquiry on the matter was met by Mr Neill's answer that he would advise the Association to consider the matter of offering to repay the subscriptions, or part of them, but that it was relevant that the Association had been put to great expense by the action of the scientologists.
Whatever may be the position of avowed scientologists, I cannot but view with distaste the possibility of the Association accepting in October a member who in fact was unconnected with scientology, taking his two guineas from him, expelling him in November and not offering to repay any of the money. Under the articles a member may not be entitled to be repaid anything; but whether in good conscience the Association can insist on its right to keep the money is another matter. The expense to which the Association has been put is at least in part due to the Council having admitted in October over ten times the usual number of members. Had the Council not done this, the need for wholesale expulsions would probably have never arisen. However, this matter is not before me for decision, and I say no more than that the reputation of the Association is in the hands of its Council and members; and to their sober reflections this matter may be consigned.
1. i.e. from another source or in another way.