The Sherlock Holmes International Society Ltd v Aidiniantz

Company articles may be amended informally by unanimous assent under the Re Duomatic Ltd principle. Where assent is inferred from conduct, the conduct must show, on the balance of probabilities, both an intention to amend the articles and an intention to make the particular amendment relied upon. A sole director may constitute a quorum where the articles provide for a minimum of one director and otherwise specify a quorum of two. Laches should not prevent a late challenge to a director’s authority where refusing relief would leave a company without a director and create practical uncertainty. A company cannot continue an appeal without valid authority from its office-holders.

The Company appealed against a winding-up order made by Registrar Derrett on 11 March 2015. During the appeal, the petitioner applied for declarations that Mr Riley had not been validly appointed, or had ceased to hold office, and therefore could not authorise the Company’s appeal or instruct solicitors.

The issues were whether the membership requirement in the articles had been informally amended; whether the Company was estopped from relying on it; whether Mr Riley’s appointment was invalid for want of a quorum; whether his appointment had expired because no annual general meeting was held; whether laches barred that challenge; and whether the Company’s defence should be struck out because of falsified board minutes.

1. Informal amendment. The articles constituted a contract between the members and could be amended informally. Conduct could amount to assent, including acquiescence where the members knew that assent was sought or conscience required an earlier objection. The conduct relied upon had to establish both the intended amendment and its particular terms. The repeated appointment of non-members as directors, with the knowledge and participation of both members, most compellingly showed an intention to amend the membership requirement so that the Riley siblings could serve as directors. The amendment was therefore effective.
2. Estoppel. The estoppel argument did not arise because the appointments were valid. In any event, the Company had not established the necessary detriment or identified a proper claimant. The late challenge could not be answered by an estoppel asserted by a person who lacked authority to act for the Company.
3. Quorum. Article 30 expressly permitted a minimum of one director. Article 39 was construed so that a sole director could transact business, either because a quorum of one was unnecessary where only one director existed or because the sole director implicitly determined that one was the quorum.
4. Expiry and laches. Under article 32, Mr Riley’s appointment expired on 31 December 2014, the last date on which the next annual general meeting could lawfully be held. Laches did not bar the challenge. Practical justice required the court to declare the Company’s true position, since allowing an unauthorised appeal to continue would generate further uncertainty and litigation.
5. Abuse of process. Although falsified minutes had been deployed, striking out the defence would have achieved no practical benefit and had not affected the fairness of the hearing.

The court declared that Mr Riley ceased to be a director on 31 December 2014.

• High Court (Chancery Division): Registrar Derrett made a winding-up order on 11 March 2015. Permission to appeal was granted by Henderson J on 19 June 2015. In this judgment, the court determined the authority application within the appeal and declared that Mr Riley ceased to be a director on 31 December 2014.