Close reading of the Trust chair's letter of explanation to members, together with some hard facts about the civil (so-called) 'justice' system in England & Wales ('E&W'), seem to show that the only reasonable decision by the Trust Board was to accept the final offer, and - of necessity - to do so without further consultation of the members.
* Members are, in effect, shareholders in the corporate body that is the 'Trust'. Those on the Board are in effect directors, who owe duties of care and confidentiality to the 'Trust' - which the members do not. A corporate body acts through its directors, not its shareholders, so a duty of confidentiality owed by the Trust means the Board cannot disclose confidential information to members.
* Anyone can join the Trust by paying a small membership fee. Communications to Trust members will, in practice, reach a wider audience, including the intended defendants ('Ds’), or at least that is the assumption that has to be made.
* The Board would thus have breached the confidentiality of the funding/insurance offer (see the letter) had it been revealed to members (as would have been necessary to enable them to make an informed decision on the settlement offer). It is quite usual for funders/insurers to require an offer to be kept confidential pending acceptance, as otherwise the recipient could use it to seek a better offer elsewhere or to negotiate a settlement (with the funder then getting no 'cut', as the funding/insurance agreement would not have been signed). Thus, consultation of the members on the settlement offer would probably have resulted in the offer of insurance/funding evaporating, thereby removing the best card in the Trust's 'hand' against the Ds and risking the settlement offer being withdrawn. (It also appears from the letter that the settlement offer itself was confidential to the Trust, i.e. the Board).
* The 2019 vote of members authorised the Board to litigate, but only if the Board was able to enter into financial arrangements that would adequately protect the Trust from the costs risks. It seems from the letter that the final insurance/funding offer did not meet this pre-condition, so that the Board probably had no mandate from members to litigate. Settlement on the best terms available seems to have been the only option.
* Initial indications seem to have been that adequate funding and insurance was available, and the letter suggests that it was only at the stage of final terms that the inadequacies emerged.
* Aside from the Board's duty of confidentiality as to the offer(s), had the Board consulted its members, it would have had a duty to provide an accurate 'warts and all' picture, i.e. advising members that the Trust was unable to litigate because adequate financial/insurance terms had not been received. As night follows day, that would likely have become known to the Ds, who would have had no incentive to continue to offer the settlement terms. Negotiations are a 'poker game', in which you cannot reveal your 'hand' to the opposition. The Ds knew full well that the Trust would not be able to litigate without adequate litigation funding and insurance.
* Sadly, having a good legal case is not enough to enable one to litigate in E&W without outside funding, unless one is, for instance, a wealthy oligarch or substantial business. Legal costs in a case such as this could have run into millions. Winning does not mean you get all your legal costs reimbursed, but only some of them. If you lose, you pay both your own costs and part of the opponents' costs. That situation is grossly unfair and denies access to civil justice to those without substantial means. It is a national disgrace, but not a matter which brings in votes, so successive governments fail to rectify it. The English Courts are open to Russian oligarchs to litigate their disputes, as they often do, sometimes between themselves. Taxpayers pay for the civil justice system, but most of them cannot afford to use those very courts which they support with their taxes. There are court fees payable by parties, but because there is a cap on such fees, the higher the amount of the claim, the lower the % fee. Large solicitors firms and Queens’ Counsel make huge amounts of money in such cases and argue that if higher court fees were charged, it would discourage such litigation (which is frankly codswallop). If the Chelsea owner wishes to make use of the E&W courts, he - and others like him - should have to pay a realistic amount towards the costs of the justice system, and all E&W taxpayers should be able to have the same access to the courts.
* This was a 'David and Goliath' case. Without adequate finance from a litigation funding company and insurance against the risk of losing, a not-for-profit such as the Trust, run by volunteers, could not take on 'big ticket' litigation such as this. The Trust could easily have found itself on the end of a costs bill it could not afford, with the result that it would have been liquidated by the Ds and its shares sold off.
* Aside from the costs risk, to run litigation of this sort is a big ‘ask’ for a volunteer Board. It needs people who are able to commit large amounts of time and, preferably, to remain in post until the litigation is concluded, as frequent changes can cause issues of continuity and consistency.
* As to the settlement itself, the draft terms which the members approved in 2017 were clearly financially better, but, with the prospect of relegation, the offer appears not to have been pursued by the owners. Since then, relegation has occurred, as has the pandemic. What the 2017 draft terms did show was willingness by the owners to purchase some Trust shares and by the Trust to sell them. It remains a pity, to say the least, that the Trust was not given the chance to sell some shares in 2016 and to participate in the huge financial realisation by other shareholders of their investment in, and work for, the Club over many years.
* As was made clear to members in the past, once funding and insurance terms were signed, the goal of litigation (and settlement) would have to be financial. It would have had to be assumed that success would mean that the Trust would sell all its shares (under a court order or a settlement) and cease to have any formal involvement in the company which owns the Club, and certainly not have a seat on the Board. The funds received would have likely been substantial, but could not be paid out to members. Instead, they would have been a ‘rainy day’ fund, to call upon in the event of the Club getting into financial difficulty in the future - and perhaps buying back some or all of the Club. Of course, that situation might never arise or not arise for many years. The Trust would have become a supporters organisation, like many others, only able to try to influence matters from outside. For those who value the Trust’s seat on the Club Board, that would not have been satisfactory.
* The money to be received at once will replenish the Trust’s coffers and assist in its various activities, provided they are within the scope of its constitution. All the more so if promotion is achieved and further money paid as agreed. Most supporters organisations would be delighted to have such funding. Yes, it’s much less than would have been received in 2016/7 on a partial share sale, but that is not the fault of Board members past or present. Yes, the Trust has been badly treated in the past, and denied justice due to the inadequacy of the E&W civil justice system.
* The 10% post-dilution ‘unprotected’ shares should not be ‘sneezed at’. In terms of shareholder voting, they are no worse than the original 21% shareholding, because anything less than a 25% shareholding means that the shareholder cannot stop a special resolution of shareholders.
* Dilution is of the percentage of the number of shares held, not necessarily of their market value. When new shares are issued in return for investment in the Club company, that should/may increase the value of the company: 10% of a bigger cake is not necessarily less than 21% of a smaller cake, and may be worth more. If the majority shareholders decide to sell, the Trust will have the opportunity (but not the obligation) to sell some or all of its shares (I think that’s what the chair’s letter means) - in other words, the Trust cannot be ‘cut out’ of any deal in the future. If a dividend is paid, the Trust will get its fair share.
* So, going forward, the Trust’s fortunes are linked with that of the majority owners and there is therefore every reason for them to work together, both as directors and shareholders. The Swans Trust may therefore be unique amongst supporters organisations (?) in (i) the extent to which fans can, through the Trust, take part in the Board's management of the Club and (ii) benefit collectively from the Club’s success.
