Aidiniantz vThe Sherlock Holmes International Society Ltd

An objection that proceedings brought in a company’s name lack proper authority should be raised promptly. Once the proceedings are shown to be improperly constituted, they should ordinarily be brought to an end.

However, the equitable doctrine of laches may prevent a late challenge where allowing it would be practically unjust. The court must assess the length of the delay, the conduct during the interval, the company’s governance and instructions, the likely consequences of continuation, and the balance of justice. A laches-based refusal to entertain the challenge does not validate future acts by an unauthorised person.

The Company opposed a creditors’ winding-up petition and appealed against an order requiring it to be wound up. The appeal was conducted by Stephen Riley, who had been appointed as a director in May 2014. The Deputy Judge accepted that Riley was eligible for appointment and that the appointing board was quorate, but held that his appointment ended on 31 December 2014 because no annual general meeting had been held.

The Deputy Judge therefore found that the Company had no director and no valid instructions for continuing the appeal, and directed that the appeal be dismissed. Riley appealed, arguing that the challenge to his authority was too late and should be barred by laches. The central issue was whether practical justice required the Company’s appeal to continue despite the absence of a director.

The appeal was dismissed. The Deputy Judge had correctly directed himself and was entitled to conclude that the Company’s appeal could not continue.

1. An objection that proceedings in the name of a company are improperly constituted for want of authority should be raised at an early stage. If the defect is discovered later, it may be raised then, but not as a defence to the substantive claim. Once the defect is established, the proceedings must be dismissed, struck out or stayed so that they are brought to an end. These principles were drawn from Russian Commercial and Industrial Bank v le Comptoir d’Escompte de Mulhouse [1925] AC 112 and Airways Limited v Bowen [1985] BCLC 355 (CA).
2. Laches may nevertheless prevent a challenge to corporate authority. It is an equitable and fact-sensitive doctrine. The court must consider whether the challenger’s conduct amounts to waiver, or whether delay and intervening acts have placed the other party in a position in which it would be practically unjust to grant relief. The length of delay and the nature of the acts done during the interval are important. The principles in Re Bailey, Hay & Co Limited [1971] 1 WLR 1357, Erlanger v New Sombrero Phosphate Co. (1877-78) LR 3 App Cas 1218 and Villatte v 38 Cleveland Square Management Limited [2002] EWCA Civ 1549 were properly considered.
3. In applying that inquiry, the Deputy Judge was entitled to weigh the practical consequences of both courses. Riley was no longer a director, the Company had no director and there were no valid instructions for its future participation. Continuation would likely generate further litigation concerning membership, deadlock and a just and equitable winding up. Refusing the challenge on laches grounds would not validate Riley’s future acts or prevent a future office-holder from holding him accountable.
4. The possibility that the underlying appeal had real prospects of success was relevant but did not outweigh those considerations. The Deputy Judge’s conclusion was materially different from Villatte, where the challenger had held himself out as a director and allowing the challenge would have caused a gross injustice.
5. Where articles provide that a board-appointed director holds office only until the next annual general meeting, and no meeting is held, the appointment ends on the last lawful date for holding that meeting. Riley therefore ceased to be a director on 31 December 2014. The direction dismissing the Company’s underlying appeal was upheld.

• Court of Appeal (Civil Division): [2017] EWCA Civ 1875. Riley’s appeal was dismissed.
• High Court, Chancery Division (Companies Court): On 23 May 2016, the Deputy Judge held that Riley had ceased to be a director on 31 December 2014 and directed that the Company’s appeal against the winding-up order be dismissed.
• High Court, Chancery Division: Registrar Derrett ordered the Company’s winding up on 11 March 2015.