The Sherlock Holmes International Society Ltd v Aidiniantz

The court was asked to declare that the Company had not authorised the appeal because its purported sole director, Mr Riley, was not validly in office. The judgment applies principles about the amendment of articles by unanimous agreement (the Duomatic principle), the requirement that directors must be members if so required by the articles, and the effect of a director's tenure expiring where the articles provide that an appointed director holds office only until the next annual general meeting.

The judge found that the members had by their conduct, and on the balance of probabilities, assented to an amendment (or a state of affairs equivalent to amendment) so as to permit the Riley siblings to hold office as directors without being members. That meant the initial appointments were objectively intended and effective. However, the articles provided that a director appointed by the board holds office only until the next annual general meeting, and the last date on which the 2014 AGM could lawfully be held was 31 December 2014. The court held that Mr Riley's tenure therefore ceased on that date.

The court rejected the respondent's estoppel argument and also rejected an application to strike out the defence for abuse of process, although the judge recorded serious concern about falsified minutes and misleading evidence adduced on behalf of the Company. Having found that Mr Riley's appointment had expired, the court declared that he ceased to be a director on 31 December 2014 and that he therefore lacked authority to cause the Company to bring or continue the appeal.

Background and procedural posture: The appeal originated from a winding-up order made by the Registrar. The petitioner Mr Aidiniantz obtained the winding-up order and the Company purported to appeal. An interlocutory application within that appeal sought a declaration that the Company had not authorised the appeal because its purported director, Mr John Riley, was not validly appointed or had ceased to hold office.

Nature of the application:

• to declare that the Company had not authorised the appeal because the person purporting to act for it was not a properly appointed director;
• incidental applications included a strike-out for abuse of process and challenges based on quorum and expiry of appointment under the articles.

Key factual background: The Company is a company limited by guarantee established in 2004. The only members were agreed for the purposes of the application to be Mr Aidiniantz and his late mother Grace. Various family disputes led to repeated changes of directors, and the Riley siblings were at times recorded as directors despite not being members. There was very limited sworn evidence and a number of minutes were later shown to have been altered after the dispute became live.

Issues for decision:

• whether the articles had been effectively amended (or effectively varied by unanimous assent) so that non-members could be appointed directors;
• whether Mr Riley could rely on estoppel from the conduct of others;
• whether the board was inquorate at the time of his appointment;
• whether his appointment, even if validly made, had expired because no AGM was held and article 32 provides that a director appointed by the board holds office only until the next AGM;
• whether the Company's defence should be struck out for abuse of process and falsification of minutes.

Reasoning and conclusions: The judge reviewed the law that articles can be amended by unanimous informal assent (Duomatic principle) and that such assent can in appropriate cases be inferred from conduct. On the limited available materials, and accepting the parties' context and contemporaneous conduct, the judge concluded on the balance of probabilities that the members intended to permit the Riley siblings to serve as directors without being members, and that this intention had been evinced by 1 April 2011 (or by May 2013 at the latest).

Estoppel by convention did not assist the purported director because the party seeking to rely on any estoppel (the Riley siblings) had not been joined or put forward the necessary evidence; in any event the pleadings and conduct (including falsified minutes) undermined a straightforward estoppel claim. On the quorum point, the articles permitted a single director and a single director effectively constitutes the quorum where only one director is appointed. On the tenure point the judge accepted authority that a director appointed to hold office until the next AGM ceases to be a director on the last date upon which that AGM could lawfully be held; because no AGM was held in 2014, Mr Riley's tenure expired on 31 December 2014.

The judge rejected laches as a bar to determination of the question and refused to strike out the defence, while recording serious concern about falsified board minutes and misleading evidence deployed in the litigation. The court therefore granted the declaration sought and declared that Mr Riley had ceased to be a director on 31 December 2014.

The court granted the application and declared that Mr John Riley ceased to be a director of The Sherlock Holmes International Society Limited on 31 December 2014. The judge held that, on the evidence, the members had by their conduct (the Duomatic principle) evinced an intention to permit the Riley siblings to be directors without becoming members, so the original appointments were objectively intended; but that under article 32 a director appointed by the board holds office only until the next annual general meeting and, because no AGM took place, Mr Riley's tenure expired on the last date on which the 2014 AGM could lawfully have been held (31 December 2014). The court rejected estoppel as invoked, refused to strike out the defence despite falsified minutes, and rejected laches as precluding the declaration.

This judgment is on appeal from the decision of Registrar Derrett (winding-up order made 11 March 2015). Henderson J granted permission to appeal on 19 June 2015. The appeal was heard in the High Court, Chancery Division (Companies Court).