Garcha & Ors v The Charity Commission for England and Wales

Sri Guru Singh Sabha Southall (“the Charity”) is a registered charity whose objects include the advancement of the Sikh religion. It is an unincorporated association governed under the provisions of a Scheme approved by the Court in 1993 (as subsequently amended). By clause 13 of the Scheme the management of the Charity is in the hands of an Executive Committee which consists of 21 members of whom 15 are office bearers. Whilst the Charity land and the capital monies arising from it are vested in trustees (under clause 34 of the Scheme), all other monies (whether income, donations or capital) are held in trust accounts at banks, and no cheque or other order for payment can be issued without the authority of the Executive Committee (see clauses 43 and 45 of the Scheme). The assets of the Charity amount to some £25m, and its gross annual income to some £2.5m (of which £1m is expended on meeting the current costs of its work).

The Executive Committee and office holders are subject to periodic election by the members. There are 10,000 members and, unsurprisingly, they form factions. In the 2010 Proceedings (to which I will refer) there is reference to the Falcon Group and the Lion Group. Until 2008 Mr Sohi was the President of the Charity and of its Executive Committee. He belonged to the falcon Group. But in 2008 he lost office and a new President and Executive Committee took over. They belonged to the Lion Group. The handover of power was not entirely smooth: I do not know why and it does not matter. But on the 6 June 2010 the then incumbent Lion Group committee (“the Old Committee”) passed a resolution expelling Mr Sohi from membership of the Charity (and also expelling Dr Garcha, the former General Secretary and a close associate of Mr Sohi).

On the 23 August 2010 Mr Sohi commenced proceedings (“the 2010 proceedings”) against the Old Committee for a declaration that the resolution passed on the 6 June 2010 was null and void. He named as Defendants the Old Committee and said that they were “sued on their own behalf and on behalf of all other members of [the Charity]”. He joined the Attorney General as an additional Defendant. That was because the Charity Commission had given him permission to commence the proceedings on the footing that there was a serious dispute about the management of the affairs of the Charity which needed to be ruled upon by the Court.

Mr Sohi sought to achieve a summary disposal of the 2010 Proceedings in his favour by seeking a mandatory interim injunction that he be restored to membership in order to enable him to stand for election again. But in this he was unsuccessful before Warren J and Morgan J at hearings on 23 August 2010 and 3 September 2010. In refusing a summary disposal the Court must have taken the view that there was a serious issue to be tried and that it did not have the requisite degree of assurance about the outcome to grant a mandatory order: and, indeed, an expedited trial was fixed for 4 days commencing on 29 November 2010.

In the 2010 Proceedings the Old Committee retained BSG LLP as their solicitors (“BSG”): and BSG instructed Mr Warwick of Counsel to attend the two hearings on the 23 August 2010 and the 3 September 2010, to prepare evidence and a Defence, and to appear at the trial. Mr Sohi’s Particulars of Claim had alleged that in exercising the power of expulsion the Old Committee had to act in a quasi-judicial capacity; he had also alleged that the procedure for expulsion laid down in the Scheme was internally inconsistent, that one part had to prevail over the other, and that the Old Committee had followed the wrong part; and he asserted that the complaints against him were groundless. But the Old Committee’s Defence denied that they were bound to act in a quasi-judicial way (relying upon Calvin v Carr [1980] AC 574), asserted that they had followed the correct procedure, and alleged that they had proper grounds to expel Mr Sohi (because he had not procured a full hand over of all relevant documents to the Old Committee and had not explained payments of £109,756.00 to a Mr Sharnbir Singh Sanga which did not appear to have been approved by the Executive Committee); and that the proceedings were an attempt to ask the Court to sit as a Court of Appeal from the determination of the Old Committee.

The matter did not come to trial because, after the delivery of the brief to Mr Warwick on 20 November 2013 there was mediation on the 23 November 2010 at which the case settled. This resulted in a consent order dated the 20 December 2010 to which Mr Sohi and the Old Committee agreed and to which the Attorney General did not object. Under the consent order it was agreed that Mr Sohi would remain a member of the Charity and would be entitled to stand at the next election: and it was agreed that the Scheme governing the Charity should be further amended to clarify the procedure for the termination of membership. Annexed to the consent order was a schedule dealing with the costs. By its terms:-

Under these provisions Mr Sohi was paid £193,391.00. So this means that his costs must have been approximately £300,000.00 for an action which commenced on the 23 August 2010 and finished on the 23 November 2010 and had had two hearings in Court. The total of these costs was not agreed by the Old Committee but by their successors. The Attorney General was paid £14,750.00. BSG were paid £169,084.00. It has become clear from an exchange at the conclusion of the hearing before me that BSG’s costs were approved by the Old Committee: by it is not clear from the material at present available that the Old Committee sought the approval of the Attorney General or, indeed, anybody else.

At the next election the Old Committee was displaced. Mr Sohi was restored as President and his associate Dr Garcha is now in the replacement committee (“the New Committee”). It looks as though the Falcon Group may again be in the ascendant. According to the evidence the New Committee was elected on a specific mandate to seek to recover for the Charity the sums paid out of its assets in respect of the 2010 Proceedings. From the claims which have been made and the terms of the correspondence which has been undertaken this mandate is directed to recovering the costs and disbursements paid to BSG for representing the Old Committee. That is because it was the New Committee that approved the total costs sum to be paid to Mr Sohi. I shall assume that the New Committee obtained the approval of the Attorney General to Mr Sohi’s costs bill of £300,000.

On the 7 January 2013 Solicitors retained by the New Committee wrote to each member of the Old Committee in these terms:-

“We have been instructed by the current Committee to ascertain the circumstances surrounding the expenditure of funds upon legal costs (or the incurring [of] liability for legal costs) by or on behalf of [the Charity] leading up to that order being made”.

What was sought was the delivery up to the New Committee of “the files, documents, invoices and ledgers” of BSG to be considered by the New Committee’s legal advisors. In response to that request 19 of the 21 members of the Old Committee have given their agreement to such delivery up. One member of the Old Committee was not approached for consent since it is said he did not approve the Old Committee’s Defence. There was no consent on behalf of a former member of the Old Committee who has subsequently died, and whose representatives became to engage with the issue.

At the same time a letter was written to the Charity Commission seeking consent to the making of an application for the delivery up of the documents. From this arose a considerable volume of email correspondence between the New Committee’s solicitors and the Charity Commission. In the course of this the Charity Commission enquired:-

“Why are the trustees questioning the basis of the ex-trustees’ Defence of the earlier proceedings, when subsequently mediation was conducted between both sides and the outcome agreed through the Consent Order?”

So far as I can see, this question has not been directly answered by or on behalf of the New Committee.

Eventually the Charity Commission refused to grant permission for the commencement of proceedings by the New Committee for a declaration that they were entitled to delivery up and inspection of “the legal files (including invoices and client account ledger held by [BSG] and correspondence files)”.

By this application the New Committee seek the approval of the Court to the commencement of just such proceedings. The principles to be applied to a consideration of that application are these:-

Mr Lederman on behalf of the New Committee was at pains to emphasise that these issues must be addressed by reference to the precise proceedings which the Court was being invited to authorise, and not by reference to any wider considerations. Whilst I agree that the precise proceedings intended to be commenced must be the focus of attention, I do not agree that the wider view is to be excluded. To change the metaphor, there is no point in taking the first step if the journey is likely to go nowhere.

I turn to apply those principles to the evidence.

First, I am satisfied that the New Committee has a legally sustainable claim for delivery up of (a) the correspondence passing between BSG and the Old Committee and between BSG and the Charity commission in reference to the 2010 proceedings; (b) for all instructions to and written advice tendered by Counsel instructed by BSG in relation to the 2010 proceedings; and (c) the annexures to the letter dated 7 June 2013 sent by BSG to the Charity Commission (save insofar as those annexures relate to the constructive dismissal claim bought by Mr Sangha, which has also featured in the dispute between the Old Committee and the New Committee but does not feature in the application before me). Although BSG argue that this material is subject to legal professional privilege or to obligations of confidentiality I consider that the New Committee can fairly argue (whether successfully or not remains to be seen) that BSG were retained by the Old Committee acting as agents of the general body of members and neither they nor the Old Committee can assert either privilege or confidentiality as against the New Committee acting as agents for the general body of members.

Second, in my judgment it cannot fairly be said on the information at present available that this legally sustainable claim is being advanced in bad faith. I strongly suspect that a degree of factionalism between the Lion Group and the Falcon Group has played its part in the desire to examine doings of the Old Committee. That may be important. But it would certainly not be right to find that the individual members of the New Committee do not genuinely hold the view that an examination of the circumstances in which £169,000.00 of the Charity’s money was paid to lawyers acting for the Old Committee on behalf of the Charity ought to be undertaken on its own merits and as a matter of principle.

Third, the particular proceedings in view can be conducted without frittering away the assets of the Charity on an internal dispute. The New Committee have obtained the services of their present solicitors under a conditional fee agreement. They have not secured the services of Counsel upon the same terms: but they are willing themselves personally to bear those costs without resort to Charity funds. That, of course, does not address the possibility of an adverse costs order. But there the New Committee is prepared to indemnify the Charity up to the sum of £18,000 in respect of an adverse costs order. That is plainly not satisfactory (particularly since the 2010 Proceedings seem to have generated costs of about half a million pounds in 3 months and the New Committee’s costs of the present half day application are £75,000): but the Court could impose a condition that the New Committee must provide the Charity with unlimited personal guarantees against the risk of an adverse costs order in the event that appropriate ATE insurance was not available within a tightly circumscribed period. Furthermore, the New Committee is prepared to undertake not to seek to recover from the assets or income of the Charity any of the costs of analysing or investigating such material as is produced as a result of the prospective proceedings (including the costs of any correspondence). In this way the assets of the Charity could be protected from any financial consequences caused by the institution of the prospective proceedings.

My real difficulty lies with the last stage namely whether authorising the commencement of the intended litigation is “the least worst option”. In addressing that question one cannot take a narrow view of “the dispute”.

“The dispute” on which one must focus is the request for and the refusal of production of the legal papers I have described (although the New Committee have also required production of BSG’s attendance notes which, on the evidence so far before the Court, there is no ground to think BSG can be compelled to produce). But that is not the entirety of “the dispute”. The true “dispute” is whether the New Committee can obtain restitution from the Old Committee of any part of the £169,084.00 which the Old Committee authorised be paid out of the Charity’s funds to BSG.

In oral argument it was suggested that one way in which the Charity might restore its funds is if it could be established from any papers produced by BSG that either BSG or Counsel was negligent in the Old Committee’s Defence of the 2010 Proceedings. What was suggested was that the Old Committee ought to have been advised not to defend the 2010 Proceedings but to have mediated their differences with Mr Sohi. But it was Mr Sohi who commenced litigation, to which the Old Committee was purely reactive and in which (so far as I can gather from the terms of the correspondence) their complaint was that Mr Sohi should not have sought (and the Charity Commission should not have given) permission to litigate. A negligence claim against BSG or Counsel is wildly speculative and (simply looking at the relevant statements of case) is a journey upon which the New Committee ought not to be encouraged to embark.

The real focus of the correspondence and the evidence is not the recovery of compensation from third parties but rather an order for restitution against the Old Committee for breach of trust (a) in having defended the 2010 Proceedings from improper motives or (b) in having agreed BSG’s costs and disbursements in an unreasonably large sum. So convinced are the New Committee of success in this endeavour (even before obtaining any documents) that Mr Sohi and Dr Garcha have signed accounts for the Charity for the ended 3 January 2011 which treat the Old Committee as creditors, Note 11 to the accounts saying:-

“The amount of £376,003 due after more than one year represent (sic) legal costs incurred by the previous executive committee that the current executive committee believe is recoverable from the members of the previous executive committee personally”.

(The figure of £376,003 must include costs relating to Mr Sangha’s constructive dismissal claim which is not treated as relevant to the present application). The essence of this Note is repeated (in slightly different terms) in Note 8 to the 2013 Accounts.

As to the first, it is suggested that if proceedings for the recovery of documents are authorised then those documents may well show that the Old Committee knew that the proceedings ought not to have been defended and that they were only defended out of “political” motives. In this connection the New Committee’s solicitors have said in correspondence

“It is our contention that the expulsion was motivated on political grounds i.e. to expel the strongest opponent from standing as a candidate for the elections in 2010.”

The New Committee think this view of events is supported by part of a letter of advice from BSG (which the New Committee has obtained) which records:-

“With regard to the missing monies and the failure to hand over the documents you [sc. the Old Committee] have said that you do not necessarily want to press that if the membership is simply terminated of Sohi and Garcha.”

I do not accept these arguments. Mr Sohi chose to litigate. The fact that the Charity Commission gave him authority to do so shows that there was an actual issue about who was eligible to stand for election which had to be settled by the Court. The Charity Commission could not resolve the issue itself. The fact that the Court refused summary mandatory relief shows that the issue was a real one. The suggestion that the Old Committee should itself have taken the view that the matter was entirely straightforward and that there was no real issue, and should accordingly have submitted to judgment without incurring any legal costs at all, is not maintainable. The terms of the press statement do not assist. The press statement was issued after a mediation: that mediation is an impenetrable screen. Who knows what disclosures, what answers to outstanding queries, what anxiety to produce a public reconciliation, what compelling desire to let bygones be bygones, or what other non-legal issues outside the scope of the strict legal claim produced the settlement and the statement?

Moreover Mr Sohi was party to the very agreement that dealt with costs. He did not insist that his costs be paid by the Old Committee personally and he agreed that the Old Committee could take their own costs and of the Charity funds. It does not appear to have occurred to him that he was assisting in a breach of fiduciary duty by the Old Committee in assenting to a bargain in those terms. I think it would be extraordinarily difficult for the New Committee under the leadership of Dr Garcha to get back from the Old Committee what Mr Sohi agreed they should have.

Further, the bargain was not objected to by the Attorney General. Counsel for the New Committee submitted that the Attorney General did not know what was going on. But the Attorney General was there precisely because he was protecting the interests of the Charity (not those of Mr Sohi or of the Old Committee) and I decline to accept that the Attorney did not discharge his duties or did so incompetently, although I readily accept that his role at the mediation was limited.

In short, it seems to me that if the documents are sought to be produced in order to demonstrate that the Old Committee was guilty of a breach of fiduciary duty in taking any costs out of the funds of the Charity then it is a first step on a journey that will lead nowhere.

It is the second limb that represents the New Committee’s better case. This is a challenge to the amount of the costs taken. The case here is that the Old Committee approved BSG’s costs without any scrutiny. All of BSG’s invoices are in the possession of the auditors of the Charity. The New Committee did not put them in evidence but they were annexed to Mr Lederman’s supplemental skeleton argument. They are in conventional narrative form.

Mr Lederman submits that there is no evidence that BSG’s costs were ever scrutinised by the Old Committee (although there is equally no evidence that Mr Sohi’s costs were ever scrutinised by the New Committee of which, say BSG in correspondence, Mr Sohi was then in control): and there is no evidence that the Attorney General’s agreement was ever sought. He submitted that although the New Committee handed the invoices rendered by BSG it was not possible for a cost draughtsman to assess their reasonableness without access to BSG’s working files. He submitted that although Mr Warwick’s brief was delivered on 20 November 2013 a four-day case starting on 29 November 2013 perhaps his brief these should have been reduced because the case settled on 23 November 2013. These are the points that the New Committee wishes to examine before considering whether to start restitution proceedings (although as I have pointed out the Charity accounts approved by the New Committee already treat the claim as having wholly succeeded).

The points (a) that the Consent Order of 20 December 2010 may have addressed the principle of costs but did not address the amount of costs and (b) that the amount of costs has been paid from the Charity’s funds without evidence of examination by the Old Committee or approval by the Attorney General are both points of some weight.

Against them must be weighed the present view of the likely impact of their pursuit. There are two points. First the New Committee has specifically approved Mr Sohi’s costs in the sum of approximately £300,000 (and paid £193,391 as representing two thirds of that). The possibility of demonstrating that the costs of the Old Committee in the sum of £169,084 are disproportionate and unreasonable seems remote.

Second, the process of quantifying the excess which the Old Committee paid to BSG in breach of fiduciary duty seems fraught with difficulty. These costs were paid prior to March 2011. The circumstances in which paid costs can be made the subject of an order for assessment are tightly circumscribed. Section 70(3) of the Solicitors Act 1974 says that if an application for an order for assessment is made by the party chargeable with the bill after the bill has been paid but before the expiration of 12 months from the payment of the bill then an order can only be made “in exceptional circumstances”. Mr Lederman said there were exceptional circumstances here. That may depend on when BSG’s paid invoices were sent to the auditors. But in any event I do not see how establishing “exceptional circumstances” helps the New Committee because the assessment process is being commenced outside the 12 month period to which s.70(3) refers: and section 70(4) the 1974 Act says that no assessment can be sought after the expiration of 12 months from the payment of the bill.

The New Committee could have (but did not) seek assessment, certainly up to the end of 2011. They must now establish breach of duty and quantify it in some other way. This is a journey on which I do not think they should embark.

I would hold that giving the New Committee authority to commence proceedings for the delivery up of what I will shortly call “the legal papers” is not the least unsatisfactory way of resolving the dispute. The least unsatisfactory way is not to pursue the dispute at all: as I put it to Counsel in argument, “not to rake over the ashes”.

I think the Charity Commission got it right when it wrote:-

“These prospective proceedings to recover the Litigation papers will serve no good purpose as the Litigation papers relate to a legal claim that has been compromised in full and final settlement and with the approval of the Attorney General…. The terms of the Consent Order and the two schedules, particularly the Second Schedule which sets out how the costs of the parties were to be paid, are a key consideration for the Commission in deciding whether the Commission should exercise its discretion to give consent….[I]t is clear from the papers that internal disputes are a persistent feature in the administration of this charity, with rival groups failing to co-operate and regularly making accusations against the other. Each election appears to bring with it a fresh set of accusations and disputes which cannot be in the best interests of the Charity”

I note also that the Attorney General in a letter dated 25 October 2013 shares the view that “it is not in the general interest of charity to prolong disputes and incur the further costs (both financial and resources) of litigation….”.

The decision to refuse permission is, however, my own exercise of the original jurisdiction conferred by s.115.

This is my reserved judgment. At the end of the hearing on 28 July 2014 I delivered (beginning at 4.pm) an extemporary judgment reaching the same conclusion for the same reasons. At its conclusion Mr Lederman asked for permission to appeal because in the course of it I had referred to an approval by the New Committee of part of BSG’s bill, which he said was an incorrect finding. I said that if I had misunderstood or misrecollected either the evidence or Counsel’s answer to a question I had put then I must reconsider the matter, and I withdrew my extemporary judgment, saying that I would deliver a reserved judgment.

It is a hazard of delivering extemporary judgments that they may contain material misremembered from a rapid pre-reading of a substantial body of evidence, argument and authority (four files in the instant case for a half day hearing), misunderstood from compressed oral argument, or misread from one’s notes for judgment: so I readily recognised the risk and had no difficulty in accepting that I may have made a mistake. I plainly had jurisdiction to reconsider my judgment, for no order had been formally pronounced, let alone drawn up. I considered that fidelity to my judicial oath required me to exercise that jurisdiction (as it would a judge correcting a transcript or amending a circulated draft): and so also did the requirement to deal with the case “justly” in accordance with CPR 1.1. If I had made a mistake then it ought to be corrected and the outcome of the application reconsidered on the correct and not the mistaken basis. I had in mind particular guidance which I have now traced to Robinson v Fernsby[2003] EWCA Civ 1820 at paragraph [120] though I am sure the relevant principles are stated elsewhere.

On reconsidering the matter I can see that I did make a mistake by misreading one of my notes for judgment. The approval by the New Committee was only of Mr Sohi’s costs. Eliminating the mistake did not however alter the conclusion I reached in my oral judgment.

Whilst I was writing the reserved judgment Mr Lederman sent me a note in these terms:

“The Claimants will seek permission to appeal the decision to “withdraw” the Judgment. That decision was not consistent with the overriding objective or the approach indicated by the authorities noted at White Book Volume 1 40.2.1.0.1 … the Claimant (sic) will seek permission to appeal from the Court of Appeal”

This judgment is my reserved judgment on the Part 8 claim. Permission to commence proceedings against the Old Committee for delivery up of the legal files is refused.