Jeremy Sinclair Clarke & Anor v Yasmin Azim Lakha & Ors (Re Bramber Road Management Limited)

The court held that the company’s articles, read as a whole, originally conferred the power to appoint directors on the board but that the members had, by a long course of conduct, effectively amended the articles so that upon registration as a member each unit owner is entitled to appoint one director by notice to the company (the Duomatic principle and conduct-based amendment of articles). The court found that this informal practice was established by 1990 and applied thereafter.

The court also held that the Claimants were entitled to be registered as joint holders of the Unit 3 share: the transfer lodged by 10 October 2019 and, because the company did not register or validly refuse within two months, the company lost any right of refusal. By notice to the company the Claimants validly appointed Mr Lawson as director.

Other operative findings included: the 28 November 2018 board meeting and its resolutions (appointment of Mr Clarke as company secretary; confirmation of registered office; Mr Blake as sole chairman) were valid; the purported June 2021 written members' resolution and the 17 November 2021 board resolution were invalid and of no effect (procedural defects and deliberate exclusion of a director); filings at Companies House inconsistent with the true position were criticised; and the court made credibility findings about witnesses which affected reliance on several of the Defendants' assertions.

Background. Bramber Court comprises four units. Bramber Road Management Limited (the Company) holds the courtyard and exists to manage it. There were long-standing informal practices by unit owners about appointment of directors and management of Company affairs. The Claimants are the freehold owners of Units 3 and 4; the Defendants claim rights in respect of Units 1 and 2.

Nature of the application. This Part 8 claim by two unit owners sought multiple declarations and consequential relief, including declarations as to: entitlement of unit owners on registration to voting rights and to appoint one director by notice; rectification/registration of members (Unit 1, 2, 3 and 4 entries); that Mr Clarke was company secretary from 28 November 2018; that Mr Lawson was appointed a director on 9 May 2019; invalidity of a June 2021 purported written resolution and a November 2021 board resolution; and correction of Companies House filings. The Schedule of Issues identified Issues 1–10 addressing those points.

Issues framed and decided. The court addressed, inter alia: (i) whether each Unit Owner, upon registration as a member, is entitled to appoint one director by notice and to remove/replace that director by notice (issue 2); (ii) whether the Claimants were properly registered in respect of Unit 3 and Unit 4 (issues 3 and 4); (iii) whether Mr Clarke was company secretary from 28 November 2018 and whether the 28 November 2018 meeting was valid (issues 5 and 6); (iv) whether Mr Lawson was validly appointed and remained a director (issue 7); and (v) validity of the June 2021 and 17 November 2021 resolutions (issues 9 and 10). The court also considered the proper approach to construction of articles, the Duomatic principle and the two-month time limit in s.771(1) CA 2006 for refusing transfers.

Reasoning and findings. The court construed the articles and concluded that article 19 vests the company’s general powers in the directors, such that, in the absence of express members' provisions, appointments could be made by directors. However, on a careful review of the historic minute book, registers and practice, the court found a longstanding, consistent course of conduct from about 1989–1992 by which each (registered) unit-owner appointed or replaced its own nominee director by notice to the company, without formal board or general meeting resolutions. Applying Duomatic and authorities on amendment by conduct (including EIC Services v Phipps, Re Sherlock Holmes International Society and Re Bailey), the court concluded that the articles had been effectively amended by conduct so that, upon registration as a member, each unit-owner is entitled to appoint one director by notice (issue 2). This informal amendment was found to have taken effect by 1990.

The court made credibility findings adverse to the First Defendant (Mrs Lakha) and found parts of the Defendants' evidence (including claims of appointment at a members' meeting in 2011/12) unreliable; the court found instead that certain filings claiming earlier appointments (e.g. forms filed in 2008 and 2015) did not evidence properly convened board or members' resolutions and sometimes reflected unilateral filings by accountants on instruction.

On the share transfer for Unit 3, the court found the transfer had been lodged with the company by 10 October 2019 (by email and TR1) at the latest; the directors did not validly refuse within two months, so s.771(1) CA 2006 and Table A Regulation 25 meant any right of refusal was lost by 10 December 2019. Consequently the Claimants were entitled to be entered as members in respect of Unit 3 and were entitled to appoint Mr Lawson as director (issue 4 and 7). The 28 November 2018 board meeting and its resolutions were valid; Mr Clarke remains company secretary. The June 2021 emailed written resolution and the 17 November 2021 purported board resolution were invalid and of no effect because they were not validly authorised, there was no permitted virtual members' written resolution process, and a director (Mr Lawson) was deliberately excluded.

Remedy and next steps. The court invited parties to cooperate to regularise the company’s registers and indicated it would hear submissions on costs and any consequential relief. The judgment directed parties to lodge a draft order for hand-down.

First instance: The court made a series of declaratory findings and directed steps to regularise the company’s records. In short, the court found that the articles had been effectively amended by conduct so that, upon registration as a member, each unit owner is entitled to appoint one director by notice to the Company; the Claimants were entitled to be registered as joint holders of the Unit 3 share (any right of refusal by directors was lost by expiry of two months from lodging); Mr Lawson was validly appointed and remains a director; the 28 November 2018 board meeting and its resolutions (including appointment of Mr Clarke as company secretary) were valid; the June 2021 written resolution and the 17 November 2021 purported board resolution were invalid and of no effect; and the parties were directed to regularise the Company’s registers. The court reached these conclusions on construction of the articles, findings of long course of conduct (Duomatic and related authorities), statutory timings under s.771(1) CA 2006 and credibility findings about witnesses.