Hardy & Anor v Hoade & Ors, Re North Harrow Tennis Club

Between 1927 and 2012, the North Harrow Tennis Club [“the Club”] operated a small tennis club in Cumberland Road, Harrow in Middlesex. The Club’s premises consisted of a 17,500 sq ft plot of land on which there were three tarmacadam tennis courts, a pavilion and two huts. Unlike other local clubs, the Club did not boast either floodlights (thereby limiting its use during the winter) or parking facilities. The lack of parking became more of an issue over the years as the streets around the Club became increasingly congested with residents’ own cars. In recent years, membership dwindled until the Club eventually ceased operating in 2013.

The claimants were longstanding members and officers of the Club. For many years, they were the backbone of the Club, tirelessly striving to make a success of this small club for the benefit of all members. Joyce Hardy joined in 1968. She was, for some 27 years, the Club’s Secretary and thereafter its Chairman. Diane Owen joined in 1967. She became the Club’s Treasurer in about 1970. Although not formally appointed Secretary, she latterly acted in that role for want of any other volunteers. The two women are now the sole trustees of the Club. Furthermore, they hold the title to the Club’s freehold property as trustees.

Membership in 2012 was at an all-time low. Mrs Hardy and Mrs Owen told me that efforts to attract new members had failed and indeed the last regular tennis four stopped playing during 2012 as further members left for other clubs. No members came forward to renew their membership in 2013 and the claimants concluded that the Club could no longer continue to operate. As a result, they did not call an AGM in the spring of 2013. As they put it to me, there were no members to convene a meeting.

By this claim, the claimants sought the Court’s directions as to the proper winding up of the Club’s affairs. Specifically, they sought a declaration that they might sell the Club’s land and directions as to the distribution of the net proceeds of sale.

The question of sale has been dealt with. On 4 May 2017, District Judge Goldberg granted a declaration that the claimants held the freehold land on

In order to ensure that all potential claimants might be identified, on 30 November 2016, District Judge Goldberg ordered that the claimants should place advertisements in newspapers and display a notice on the property seeking a response from any members or former members who might seek to claim a share of the proceeds of sale. The claimants complied with such directions and twenty former members came forward. They were duly added as defendants.

At the hearing on 4 May 2017, District Judge Goldberg ordered both the claimants and the defendants to file witness statements supporting their own claims for a share of the net assets. The claimants and fifteen of the defendants filed statements. Finally, on 14 July 2017, the judge ordered that the claimants should give specific disclosure of the Club’s records to any defendant so requesting. He also gave permission for the defendants to serve replacement statements although, in the event, none did.

The issue before me is to determine how the trustees should distribute the Club’s assets. Mr Walker argues that:

While four defendants have filed skeleton arguments, only the Eleventh (Amit Ruparelia) and the Twentieth (Anish Ruparelia) Defendants have made submissions as to the proper construction of the rules. Both of their skeleton arguments assume that rule 18 applies but make helpful submissions as to the proper construction of the terms “Members” and “playing membership”, and as to the qualifying period under rule 18. I shall consider these arguments in due course, but first I must determine the general basis for distribution.

In support of the general principle, Mr Walker cites the following passage from Halsbury’s Laws of England (Vol. 13), at para. 291:

“On the dissolution of a members’ club the property and assets are sold and realised, and after the discharge of the debts and liabilities of the club the surplus is divisible equally amongst the members for the time being, other than the honorary members, subject to any provisions in the rules to the contrary.”

There is some conflict in the authorities as to the true default position. In a number of cases, the Courts have ordered the division of the net assets in proportion to the amounts contributed by the members:

Yet in other cases, the Courts have preferred a simple per capita approach:

In St Andrew’s (supra), Ungoed-Thomas J. sought to reconcile the two lines of authorities, at p.238, when preferring the per capita approach:

“It is conceivable that a basis for distinguishing the friendly and mutual benefit society cases may be that, whereas in the club cases enjoyment ab initio and equality are contemplated, yet in the friendly and mutual benefit society cases what are contemplated are advantages related to contributions.”

In Re. Sick & Funeral Society (supra), Megarry J. suggested, at p.59, that much of the difficulty had arisen from confusing the property-law concept of resulting trusts with the essentially contractual questions of the payment of subscriptions and receipt of benefits through the membership of a club. While not being entirely persuaded by the tentative reasons given by UngoedThomas J. for distinguishing the friendly society cases, Megarry J. preferred the per capita approach. He said, at pp.59-60:

“… membership of a club or association is primarily a matter of contract. The members make their payments, and in return they become entitled to the benefits of membership in accordance with the rules. The sums they pay cease to be their individual property, and so cease to be subject to any concept of resulting trust. Instead, they become the property, through the trustees of the club or association, of all the members for the time being, including themselves. A member who, by death or otherwise, ceases to be a member thereby ceases to be the part owner of any of the club’s property: those who remain continue owners.

If, then, dissolution ensues, there must be a division of the property of the club or association among those alone who are owners of that property, to the exclusion of the former members. In that division, I cannot see what relevance there can be in the respective amounts of the contributions. The newest member, who has made a single payment when he joined only a year ago, is as much a part owner of the club or association as a member who has been making payments for 50 years. Each has had what he has paid for: the newest member has had the benefits of membership for a year or so and the oldest member for 50 years. Why should the latter, who for his money has had the benefits of membership for 50 times as long as the former, get the further benefit of receiving 50 times as much in the winding up?”

In my judgment, this reasoning is particularly apposite in the case of a tennis club. Those who have been members for 50 years have had the opportunity to play tennis and use the club’s other facilities for five decades. They have only paid in more because they have been entitled to the benefits of membership for longer. There may be a different rule in the case of a friendly society in which the purpose of membership is to build the assets of the society for distribution according to the members’ contributions. Accordingly, I am satisfied that the proper default position in the case of a tennis club is for the per capita distribution of the net assets among the members at the time of the club’s dissolution.

This debate is, however, to put the cart before the horse. Since, as Megarry J.

The land was acquired for the Club on 30 January 1930 by its original trustees, Frederick Thomas Dyke and Arthur Thomas Dawson. The two men held the property pursuant to the terms of a trust deed of the same date to permit the Club’s members to use it in accordance with the Club’s rules and regulations. By clause (iii) of the trust deed, the trustees were empowered to sell the land upon a resolution supported by two-thirds of the Club’s members. Clause (iv) provided:

“ALL money arising from any sale … shall be assets of the Club in like manner as if the same had arisen from the subscription of Members.”

Over the years, the land was transferred from the outgoing officers of the Club to their successors. While the paper trail is not complete, the land was transferred to Mrs Hardy and to the late Brian William Hall by a conveyance dated 10 January 1994. Following Mr Hall’s death, Mrs Owen was appointed as trustee of the Club at an EGM on 23 October 2012. By an undated form TR1, the now registered title to the land was vested in the claimants’ joint names. They expressly held the land on trust for the Club’s members.

The Club amended its rules from time to time, most recently at the EGM on 23 October 2012. As events unfolded, that was the last meeting of the Club’s members. While the minutes do not record any indication that the Club was about to close imminently, they do record that the future did not “look very bright” and called on all members to put effort into recruiting new blood.

The minutes recorded that the Club’s rules needed updating and that specific changes had been recommended by HMRC. Among other changes, rule 12 was deleted. Save that it was re-numbered in consequence of the deletion of rule 12, there was no change to what was now rule 18, which provided:

“If the club resolves at a General Meeting not to continue it’s (sic) activities then the assets of the Club shall, after payment of all the Club’s liabilities, be divided proportionately as between past and present Members in the ratio of the length of playing membership, which division in no event shall be applicable to any person with less than three years playing Membership.”

The word “three” was, however, struck through in manuscript and replaced with “five”, thereby purporting to extend the qualifying period before new members might have an interest upon a dissolution of the Club. The minutes of the October EGM were silent as to this amendment.

Rule 19 also requires citation in full:

“Provided that no person whose Membership has been determined in accordance with rule twelve or a member who has defaulted in Payment of his or her annual subscription shall be entitled to any part of the Club’s assets. Provided and notwithstanding Rule 18, that no alteration of this rule shall be made except with the consent of such a number of persons as would be jointly entitled to two thirds or more of the Assets of the Club, if the date of the proposed alteration were treated as the date of the discontinuance of the Club’s activities.”

There is an immediate problem in Mr Walker’s construction argument since rule 18 is qualified by its opening words:

“If the club resolves at a General Meeting not to continue it’s (sic) activities …”

No such resolution was passed at a general meeting. Mr Walker seeks to circumvent this difficulty by invoking the observations of Sir Robert Megarry V.-C. in Re. GKN Bolts & Nuts Ltd (Automotive Division) Birmingham Works Sports & Social Club [1982] 1 W.L.R 774, at p.776:

“As is common in club cases, there are many obscurities and uncertainties, and some difficulty in the law. In such cases, the court usually has to take a broad sword to the problems, and eschew an unduly meticulous examination of the rules and resolutions. I am not, of course, saying that these should be ignored; but usually there is a considerable degree of informality in the conduct of the affairs of such clubs, and I think that the courts have to be ready to allow general concepts of reasonableness, fairness and common sense to be given more than their usual weight when confronted by claims to the contrary which appear to be based on any strict interpretation and rigid application of the letter of the rules. In other words, allowance must be made for some play in the joints.”

While there is force in these observations, the rules of a club, like any other contract, fall to be construed in accordance with the well-known principles identified by the House of Lords and the Supreme Court in a series of recent cases. Such principles were authoritatively summarised by Lord Neuberger in Arnold v. Britton [2015] UKSC 36, [2015] AC 1619, at [15]:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’, to quote Lord Hoffmann in Chartbrook Ltd v. Persimmon Homes Ltd [2009] AC 1101, para 14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”

Here, there is no doubt that the natural and ordinary meaning of rule 18 is that it only applies in the event of there being a resolution at a general meeting to dissolve the club. That is plainly a very significant factor in the exercise of construing rule 18. Indeed, as Lord Neuberger observed, at [18]:

“… the clearer the natural meaning the more difficult it is to justify departing from it.”

There is no other provision in the rules that applies directly although rule 19 does merit further consideration. Implicit in the second sentence of rule 19 (cited in full at para. 22 above) was the expectation that the assets of the Club would be distributed in accordance with rule 18 upon dissolution.

I then consider the question of overall purpose. The rules were plainly intended to provide a scheme for governing membership of this club. It may well be that rules 18 and 19 were intended to provide a comprehensive solution to the question of the distribution of assets upon dissolution, but that is not how the rules were drafted.

In Arnold, Lord Neuberger said, at [22]:

“… in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention. An example of such a case is Aberdeen City Council v. Stewart Milne Group Ltd [2012] UKSC 240, where the court concluded that ‘any … approach’ other than that which was adopted ‘would defeat the parties’ clear objectives’, but the conclusion was based on what the parties ‘had in mind when they entered into the contract.”

Such observation is apposite in this case in that the rules appear to have assumed that dissolution would only be by resolution of the members. This left a lacuna in that they failed to deal with the situation where the members simply drifted away such that the Club stopped operating without any positive resolution to that effect. Equally, the rules failed to provide a solution to the problem of the officers of the Club being unable to convene a quorate general meeting in order to vote upon a resolution for dissolution.

I turn then to commercial common sense. In my judgment, it is here that the observations of Sir Robert Megarry in GKN might properly be brought into play. The court should, in other words, recognise that the rules of a club might well be somewhat informal and badly drafted and, together with the court’s consideration of the overall purpose of the rules, the court might be persuaded to look to a common-sense construction consistent with the parties’ broad purpose.

There are, however, limits to this approach. Whether it be a club case or not, the court is bound by the limits identified by the Supreme Court. In Arnold, Lord Neuberger said, at [17]:

“… the reliance in some cases on commercial common sense and surrounding circumstances … should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.”

Taking these matters in the round, there are indications that the members might well have intended rules 18-19 to provide a comprehensive scheme for the distribution of assets upon dissolution but that they simply failed to foresee dissolution occurring other than by way of resolution. In my judgment, such considerations might well be important when considering what terms might be implied to fill the vacuum, but, at this stage of the enquiry, they do not justify a departure from the clear words used in rule 18. For these reasons, I reject Mr Walker’s submission that the Court should construe rule 18 to apply to all cases of dissolution.

As Lord Neuberger observed in Marks & Spencer plc v. BNP Paribas

In BP Refinery (Westenport) Pty Ltd v. Shire of Hastings (1977) 180 CLR 266 (PC), Lord Simon said, at p.283:

“for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

In the Marks & Spencer case, Lord Neuberger added six comments to this summary of the law, at [21]:

“First, in Equitable Life Assurance Society v. Hyman [2002] 1 A.C. 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract …

Secondly, a term should not be incorporated into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term.

However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable.

Fourthly, …. although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied.

Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posed by [him] with the utmost care’, to quote from Lewison, The Interpretation of Contracts …

Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

At first blush, it might be thought that there is no need to imply a term to deal with the consequences of dissolution other than by a members’ resolution since the common law provides a default position as discussed at paras 10 to 16 above. That is, however, to misunderstand the basis on which such general principle operates. Subscriptions to a tennis club are paid in return for the privileges of membership and, accordingly, as demonstrated above, the proper approach to the distribution of the assets of a private members’ club is to consider the matter in contract law. Indeed, the authorities defer to any contrary contractual provision, typically found in the individual club’s membership rules. In Re. Bucks. Constabulary Widows’ and Orphans’ Fund Friendly Society (No. 2) [1979] 1 W.L.R. 936, Walton J. rejected a submission that the proper distribution of the net assets of a dissolved friendly society was a matter of equity, observing, at p.953:

“The members are not entitled in equity to the fund, they are entitled at law. It is a matter, so far as the members are concerned, of pure contract, and, being a matter of pure contract, it is in my judgment, as far as distribution is concerned, completely divorced from all questions of equitable doctrines.”

Properly understood, I therefore consider that the authorities are not setting out some immutable rule of law which applies upon the dissolution of any

Starting from this position, I consider that rules 18-19 clearly indicate a contrary intention, namely that the assets of the Club are upon dissolution to be distributed in accordance with the length of playing membership of each of the members. In my judgment, this is a case in which the members simply failed to foresee that there might be dissolution other than following a members’ resolution. If asked whether rules 18-19 were intended to be a comprehensive scheme for the distribution of the Club’s assets on dissolution, I am satisfied that the members would have replied positively. Put another way, they would not, in my judgment, have intended that there be a very different distribution of assets upon dissolution depending upon the matter of chance of whether the dissolution was preceded by a resolution at a general meeting or the members simply drifted away. I am fortified in this by the terms of rule 19 which assume that distribution will necessarily be in accordance with rule 18 upon a dissolution.

For these reasons, there was, in my judgment, an implied term in the rules that the net assets of the Club would be distributed in accordance with the provisions of rules 18-19 upon a dissolution other than following a resolution of a general meeting.

There is a further issue as to whether the qualifying period under rule 18 requires three years’ membership (as the typed version of the October 2012 rules provides) or five years’ membership (as the manuscript alteration suggests). As to this, there are six versions of the rules before me. I take them in chronological order:

The minutes of the October 2012 EGM do not record any amendment having been made to the qualifying period. Mrs Owen told me that the manuscript amendment to the 2012 rules was in her handwriting, but she could not now explain it. In any event, both Mrs Hardy and Mrs Owen confirmed that they had always understood the qualifying period to be one of three years, although I note that Mrs Hardy had offered the contrary view at para. 15 of her second witness statement. Neither woman recalled any discussion about amendment of the qualifying period during the many decades in which they were involved with the Club.

Accordingly, it does not appear that there was ever a decision of the members to lengthen the qualifying period to 5 years. Rather it appears likely that a mistake was made in retyping the rules for the purpose of typing up version 2 (as enumerated in my analysis at para. 41) back in the days when a document could not simply be amended in a word processing package. That might be, as Mrs Hardy suggested in evidence, because the typist was working from a faint copy of an earlier set of rules. In any event, even if the rules were at one time amended to lengthen the qualifying period to 5 years, I am satisfied on the balance of the evidence before me that the final version of the rules as approved by the members at the October 2012 EGM only provided for a three-year qualifying period.

Rule 19 excludes the claims of any member whose membership had been determined in accordance with the former rule 12. On the evidence, this was a theoretical issue only since there was no evidence of the Club’s ever having exercised such power. Indeed, its efforts had always been focused on attracting new members rather than expelling those that it had.

There is a further exclusion for those in default. In my judgment, Mr Walker was right to submit that former members could not be held to be in default by virtue of having decided not to renew their membership. The concept of

In some club cases, distribution is limited only to certain classes of member. There is no such restriction in rule 18. Distribution is to be between past and present members provided only that they have at least three years’ qualifying playing membership. In identifying the share of each member, one must then calculate the length of their playing membership. In my judgment, this term includes years of playing membership both as a junior and an adult.

Twenty-two claims are before the Court, namely the claims of the two trustees as members and those of the twenty former members who registered claims and were added as defendants to these proceedings. The Fifth, Sixth, Seventh, Eighth and Thirteenth Defendants failed to file any evidence. The remaining fifteen defendants filed witness statements. None of the defendants attended the trial, although, as indicated above, I received helpful skeleton arguments from four defendants.

Evidence at trial should, subject to any contrary provision in the rules or order of the court, be given by oral evidence: r.32.2 of the Civil Procedure Rules 1998. That said, this claim proceeds under Part 8 and the Court has not made an order under r.8.6(2) requiring parties to give oral evidence at the hearing. I therefore take into account the witness statements filed by the defendants. I also take into account the arguments presented in the skeleton arguments lodged by four of the defendants.

Of course, it would be difficult for any of us to remember the precise dates of our membership of a club. Bare assertions, not backed up by documents or other evidence to explain why a particular party is now able to provide the dates of his or her membership with accuracy, are not therefore likely to be as reliable as the written records of the Club. Accordingly, I have been provided with five lever arch files from the Club’s archives. Specifically, I have:

I have been greatly assisted by the industry of Mr Walker in marshalling all of this information in order to verify the competing claims before the Court.

In my judgment, two claims fail entirely. Katia and Shaff Mughal (the Fifth and Sixth Defendants) claim only to have been members in 2012/3. Neither has filed any evidence and their claims do not derive support from the Club’s records. That said, they might well have been two of the new members who paid the club coach, Bob Rodgers, in cash but whose names were never passed to Mrs Owen. As it happens, they have not, however, been prejudiced by their failure to file witness evidence since their claims would in any event fail by reason of the fact that they were not members for the minimum qualifying period of three years.

Each of the other claims before me succeeds to the extent set out below after each member’s name:

In my judgment, the trustees have throughout this matter acted reasonably and with admirable attention to detail. They plainly needed the Court’s directions given the impossibility of convening an effective general meeting of the Club. Given the uncertainty created by the rules, they reasonably required guidance from the Court as to the proper approach to distribution of the net assets. Further, in view of the width of the class of members and former members entitled to a share of the net proceeds of sale, they reasonably required the assistance of the Court in evaluating the competing claims.

Of course, the trustees faced a conflict of interest in that they were also longserving members of the Club with potentially significant claims in its dissolution. Far from seeking to maximise their own shares, I have been impressed by the fair and even-handed way in which they have sought to evaluate members’ individual claims. I have no hesitation in ordering that the trustees are entitled to an indemnity from the proceeds of sale in respect of the costs and expenses properly incurred in dealing with the property, the sale and these proceedings.