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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Aidiniantz vThe Sherlock Holmes International Society Ltd [2017] EWCA Civ 1875 (28 November 2017) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2017/1875.html Cite as: [2017] EWCA Civ 1875

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (COMPANIES COURT)
MR MARK ANDERSON QC (sitting as a Deputy Judge
of the High Court)
Petition No: 4695 of 2014

		Royal Courts of Justice Strand, London, WC2A 2LL
		28/11/2017

Lord Justice Kitchin:

Introduction

1. The Sherlock Holmes International Society Limited ("the Company") is a company limited by guarantee which from 2004 until 2012 was involved in running the Sherlock Holmes Museum ("the Museum") in Baker Street in London. The Company ceased trading in September 2012.
2. On 1 July 2014, the respondent, Mr John Aidiniantz ("Mr Aidiniantz"), a founder of the Museum, presented a creditors' petition to wind the Company up. The petition debt of £112,449 was due to Mr Aidiniantz under a default costs certificate dated 16 June 2014.
3. The Company, acting by solicitors instructed by the appellant, Mr Stephen Riley ("Mr Riley"), vigorously opposed the petition on the basis that the petition debt was disputed on substantial grounds and that the Company had a cross-claim against Mr Aidiniantz for a much larger sum in respect of admission fees to the Museum which, so it was alleged, he had misappropriated but had later agreed to pay back to the Company. On 1 October 2014, the Company began proceedings against Mr Aidiniantz and various companies which he controlled in order to recover the fees, but these proceedings were stayed pending the hearing of the petition.
4. The hearing of the contested petition took place before Registrar Derrett on 15 January 2015 and on 11 March 2015 she gave judgment. She held that the Company should be wound up and made an order to that effect.
5. On 19 June 2015, Henderson J (as he then was) gave the Company permission to appeal on the basis that the grounds of appeal were arguable and that an appeal would have a real prospect of success. He also stayed the winding up pending the outcome of that appeal.
6. The appeal was fixed for hearing on 3 November 2015 with a time estimate of two days. However, on 27 October 2015, Mr Aidiniantz applied for a declaration that Mr Riley's appointment as a director of the Company was invalid. He contended that only persons who were members of the Company were eligible for appointment and Mr Riley was not and had never been a member. He also sought an order dismissing the appeal on the basis that the Company had no other director with the authority to pursue the appeal or resist the petition any further.
7. The appeal and application came on for hearing on 3 November 2015 before Mr Mark Anderson QC, sitting as a deputy judge of the Chancery Division of the High Court. The parties agreed that the appeal could not proceed until the application had been resolved. It also emerged that Mr Aidiniantz had two additional objections to Mr Riley's appointment, namely that the Board was inquorate when he was appointed and that anyway, his appointment, if valid, had expired. It was not possible to hear the application in view of the late stage at which it had been made and accordingly the deputy judge adjourned it for hearing at a later date and gave directions for the service of particulars of claim and a defence and for the filing of evidence.
8. The application was restored for hearing on 11 January 2016, again before the deputy judge, and lasted for four days. On 23 May 2016, he gave judgment. He found that Mr Riley was eligible for appointment as a director and that his appointment had been made by a quorate board, but that he had ceased to be a director on 31 December 2014. In these circumstances the Company had no directors and could give no instructions for its further participation in the appeal. The deputy judge therefore directed that the appeal against the order of Registrar Derrett be dismissed.
9. By order dated 22 December 2016 Henderson LJ (as he had now become) joined Mr Riley to the proceedings for the purposes of the appeal and gave him permission to appeal.
10. It is now contended on behalf of Mr Riley that the deputy judge fell into error and that he ought to have found that it was far too late for Mr Aidiniantz to assert that Mr Riley was no longer a director of the Company and that justice required the dismissal of Mr Aidiniantz's application and an order remitting the appeal against Registrar Derrett's order to the High Court so that Mr Riley could conduct it on the Company's behalf.

The facts

11. The following narrative is drawn in large part and with gratitude from the judgment of the deputy judge.
12. These proceedings form part of a long running and bitter family dispute between, on the one hand, Mr Aidiniantz and, on the other hand, Mr Aidiniantz's half-siblings, Linda Riley ("Ms Riley"), Jennifer Decoteau ("Ms Decoteau") and Mr Riley (collectively "the Riley siblings"). The mother of Mr Aidiniantz and the Riley siblings, Grace Aidiniantz ("Grace"), was also involved in the dispute until shortly before her death on 28 November 2015.
13. Mr Aidiniantz controls and is a director of three companies, Rollerteam Limited ("Rollerteam"), The Sherlock Holmes Museum Limited and Sherlock Holmes Limited (collectively "the Museum companies"), which between them own and operate the Museum.
14. The Company was incorporated by Mr Aidiniantz in 2004 so as to receive the admission fees generated by the Museum whilst taking the benefit of a VAT cultural exemption scheme. Mr Aidiniantz understood that the Company could receive the admission fees without charging VAT so long as it made no profits and its directors were not financially interested in the Museum. He also understood that he could not be appointed as a director of the Company but that there was no bar to the appointment as director of any other member of his family. Following its incorporation, the Company was granted a right by Mr Aidiniantz and Rollerteam to receive the Museum admissions fees.
15. The memorandum of association of the Company provides, so far as relevant:

"3. The Company's objects are: To provide and promote interest in the Sherlock Holmes legend and to manage the [Museum] in London for the benefit of the public, on a non-profit making basis.

4. The income and property of the Company shall be applied solely towards the promotion of its objects as set forth in this [memorandum] and no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise howsoever by way of profit, to members of the Company and no Director shall be appointed to any office of the Company paid by salary or fees, or receive any remuneration or other benefit in money's worth from the association. …

7. If, upon the winding up of or dissolution of the Company, there remains after the satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the Members of the Company, but shall be given or transferred to some other institution or institutions, having objects similar to the objects of the Company, and which shall prohibit the distribution of its or their income and property to an extent at least as great as is imposed on the Company under or by virtue of Clause 4 hereof, such institutions to be determined by the members of the Company at or before the time of dissolution, and if and so far as effect cannot be given to such provision then to some charitable object."

16. The articles of association of the Company provide, so far as relevant:

"3. The subscribers to the Memorandum of Association and such other persons as the Board shall admit to membership in accordance with the Articles shall be members of the Company. No person shall be admitted as a member of the Company unless he is approved by the Board. Every person who wishes to become a member shall deliver to the Company an application for membership in such form as the Board shall require executed by him.

4. A member may at any time withdraw from the Company by [giving] at least seven clear days' notice to the association. Membership shall not be transferable and shall cease on death.

5. Unless the Company has elected by Elective Resolution to dispense with the holding of Annual General Meetings the Company shall hold a General Meeting in every calendar year as its Annual General Meeting…

30. Until and unless otherwise determined by the Company in General Meeting, there shall be no maximum number of members of the board and the minimum number shall be one.

32. The Board may from time to time and at any time appoint any member of the Company as a Director, either to fill a casual vacancy or by way of addition to the Board, provided that the prescribed maximum be not thereby exceeded. Any member so appointed shall retain his office only until the next Annual General Meeting, but he shall then be eligible for re-election.

33. Only persons who are members of the Company shall in any circumstances be eligible to hold office as a Director.

38. The Office of a Director shall be vacated ….

(C) If he ceases to be a member of the Company.

39. The Board may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they see fit, and determine the quorum necessary for the transaction of business. Unless otherwise determined, two shall be a quorum. …"

17. The subscribers to the memorandum were company formation agents. There was no record of Mr Aidiniantz or Grace being admitted to membership or of the resignation of the original subscribers. However, the parties were agreed for the purposes of the application before the deputy judge that Mr Aidiniantz and Grace became members upon incorporation and were the only members thereafter. Pursuant to article 4 of the articles of association, Grace's membership ceased on her death in November 2015.
18. Grace and Ms Riley were appointed as directors of the Company on the date of incorporation despite, in the case of Ms Riley, the terms of articles 33 and 38(C) of the articles of association. From time to time over the next few years there were various changes to this position, in many cases again contrary to the articles of association. In particular, Mr Riley was appointed as a director on 1 April 2011 but he resigned on 22 August 2011. By the end of 2011, Grace was the only director. That remained the case until 28 October 2012 when a filing at Companies House recorded that Ms Decoteau had become a director too.
19. In late 2012 Mr Aidiniantz and the Riley siblings fell out. Mr Aidiniantz brought about the termination of the right of the Company to receive further admission fees and the parties issued various claims against each other:

i) In October 2012, Rollerteam brought proceedings against the Riley siblings in respect of a sum of £175,000 allegedly taken from Rollerteam's bank account by Ms Riley.

ii) In December 2012, the Company, acting by Grace and Ms Decoteau, brought proceedings against Mr Aidiniantz and the Museum companies alleging that Mr Aidiniantz had misappropriated a large sum of money from the Company representing admissions fees to the Museum ("the Company proceedings").

iii) In February 2013, Ms Riley brought proceedings against Mr Aidiniantz for possession of a property which she owned and in which Mr Aidiniantz lived.

iv) In March 2013, Grace brought proceedings against Mr Aidiniantz and Rollerteam claiming that she owned the entire share capital of Rollerteam.

20. In the course of April and May 2013 all of these proceedings were compromised and the parties agreed to the making of a number of consent orders. The most material for present purposes is a consent order dated 29 May 2013. It is in Tomlin form and brought the Company proceedings to an end. By paragraph 4 of the order, the Company agreed to pay the costs of Mr Aidiniantz and the Museum companies.
21. Unfortunately, by October 2013, the parties had fallen out again. The Riley siblings contended that the various consent orders into which they had entered did not reflect the true intentions of the parties. They maintained that they had reached an agreement with Mr Aidiniantz and Rollerteam in April 2013 to the effect that Mr Aidiniantz and Rollerteam would pay the Company's costs of the Company proceedings and that Mr Aidiniantz would arrange the repayment to the Company of the allegedly missing admission fees. There was also a substantial dispute between Mr Aidiniantz and Rollerteam, on the one hand, and Ms Riley and Ms Decoteau, on the other hand, as to whether Ms Riley had declared trusts over two properties in favour of Rollerteam and over another property in favour of Mr Aidiniantz.
22. This falling out led to the commencement of further proceedings in the Chancery Division ("the Riley proceedings") involving Ms Riley, Ms Decoteau, Mr Aidiniantz and Rollerteam. One of the issues in those proceedings was whether Ms Riley had declared the trusts for which Rollerteam and Mr Aidiniantz contended. Another was whether the parties had entered into an agreement in April 2013 and, if so, what its terms were. It was accepted, however, that the validity of the consent order was not itself an issue because the Company was not a party to these further proceedings.
23. In May 2014 and after the Riley proceedings had begun, Mr Aidiniantz and the Museum companies began detailed assessment proceedings in relation to the costs order they had secured against the Company under the consent order of 29 May 2013. In June 2014 they obtained a default costs certificate for £112,449.
24. In the meantime, on 17 October 2013, Grace had resigned as a director of the Company, leaving Ms Decoteau as its sole director. Then, in May 2014, Mr Riley was appointed as a director once again and, shortly afterwards, Ms Decoteau resigned. Mr Riley was now the only director.
25. In July 2014, Mr Aidiniantz presented a winding up petition against the Company based upon the default costs certificate that he had secured. The Company opposed the petition on the basis that the debt was disputed, and further, that it had a cross-claim for its own costs and for the unpaid fee income which exceeded the petition debt. As the deputy judge explained, in effect, the Company was asserting the Riley siblings' version of the agreement reached in April 2013 and which was in issue in the Riley proceedings.
26. In October 2014, the Company began proceedings ("the 2014 proceedings") against Mr Aidiniantz and the Museum companies seeking, among other things, to enforce the rights it claimed under the April 2013 agreement and to recover its costs of the Company proceedings. These proceedings have been stayed pending a final decision on the petition.
27. Mr Aidiniantz well knew that Mr Riley had been appointed as a director of the Company in May 2014 and was giving instructions to its solicitors to oppose the petition and to pursue the 2014 proceedings. But until October 2015 and the matters to which I shall come, Mr Aidiniantz at no point questioned whether Mr Riley had been properly appointed as a director or had the authority to act on behalf of the Company and to give instructions to its solicitors.
28. In March 2015 Registrar Derrett ordered that the Company be wound up. She later ordered that Ms Decoteau and Mr Riley be joined as respondents to the petition for the purposes of costs only. In a witness statement made on 29 April 2015 in opposition to an application for a personal costs order, Mr Riley expressly asserted that he was not a member of the Company. But again, no point was taken about his authority to act on behalf of the Company.
29. Some three months later, in June 2015, Mr Robert Englehart QC, sitting as a deputy judge of the Chancery Division of the High Court, gave judgment in the Riley proceedings. He held that an agreement had been reached in April 2013 in the terms contended for by Ms Riley and Ms Decoteau.
30. Shortly afterwards, Henderson J gave the Company permission to appeal against Registrar Derrett's order. Mr Aidiniantz thereupon filed a respondents' notice and made what was, in substance, an application for security for the costs of the appeal. Once more, Mr Aidiniantz took no point about Mr Riley's authority to cause the Company to bring the appeal and in fact asserted that Mr Riley was the Company's sole director.
31. By letter dated 16 October 2015 from his solicitors, Mr Aidiniantz adopted a new position. He asserted that Mr Riley was not a director and that he had no authority to act on behalf of the Company, and on 27 October 2015 he made an application for a declaration to this effect. The basis for the assertion and application was said to be that Mr Riley was not a member of the Company. It was not until the morning of 3 November 2015 that counsel for Mr Aidiniantz raised his two further objections to Mr Riley's appointment.

The hearing below and the judgment

32. To recap, Mr Aidiniantz developed the following three challenges to Mr Riley's standing as a director: first, Mr Riley was not a member and so was not qualified to be a director; secondly, Mr Riley was purportedly appointed by a single director, and pursuant to article 39, the board was therefore inquorate and the appointment invalid; and thirdly, under article 32, a director appointed by the board only retains office until the last date upon which the next annual general meeting can be held, and, in the case of Mr Riley, that date was 31 December 2014. He also contended that the Riley siblings had so abused the process of the court by adducing false documents that their defence to the application should be struck out.
33. The Company had two answers to the first challenge. It argued that the articles were amended by an informal agreement, inferred from the conduct of the members, to permit the appointment of any person as a director. Alternatively, Mr Aidiniantz was estopped from relying on the membership requirement to impeach Mr Riley's appointment.
34. As for the second challenge, the Company responded that the minimum number of directors was one and that the articles should be construed to mean that where there was only one director, the quorum was one.
35. As for the third challenge, the Company raised what was in substance a plea of laches. It relied upon the decision of the Court of Appeal in Villatte v 38 Cleveland Square Management Limited [2002] EWCA Civ 1549 as support for the proposition that, where a company has brought proceedings against one of its members, the member should not be permitted to challenge at a late stage the ability of a director to cause the company to pursue those proceedings where it would be practically unjust to allow such a challenge to be made. This, it was argued, was such a case. It would be practically unjust to allow Mr Aidiniantz to pursue his challenge which had only been raised before the deputy judge on the day the appeal against Registrar Derrett's order was due to be heard.
36. Finally and as for the allegation of false documents, the Company accepted that certain evidence filed on its behalf was misleading but submitted that it was withdrawn before it could do any damage and that a full explanation and apology had been provided.
37. The deputy judge rejected Mr Aidiniantz's first challenge. He held that it could be inferred from the conduct of the members, Mr Aidiniantz and Grace, that the articles had been amended so as to render Mr Riley, Ms Decoteau and Ms Riley eligible to serve as directors. More specifically, in Mr Riley's case, Mr Aidiniantz and Grace allowed him to be appointed in 2011 and it was to be inferred that from this time the articles of the company had been amended. In these circumstances it was not necessary for the deputy judge to decide the estoppel point although he expressed doubt as to its merits.
38. The second challenge was rejected by the deputy judge in very concise terms. He pointed to article 30 which states expressly that the minimum number of directors is one. As for article 39, he considered it obvious that a determination that one was a quorum was unnecessary where there was only one director; alternatively, a sole director implicitly determined, every time he or she decided to transact any business, that one should be a quorum for that purpose.
39. The misleading evidence did not trouble the deputy judge either. He held that this evidence had had no impact upon his ability to find relevant facts; nor had it had any impact upon the fairness of the trial of the application except by increasing costs, and this could be addressed at a later stage.
40. The deputy judge accepted the third challenge, however. He found that Mr Riley's appointment as a director came to an end on 31 December 2014. His reasoning ran as follows. He began with two points of common ground. First, Mr Riley was appointed as a director of the Company in May 2014 but no annual general meeting was held in that year. Secondly, since article 32 provided for a director only to hold office until the next annual general meeting, Mr Riley was deemed to have left office on the last possible date upon which the next such meeting could lawfully have been held, that is to say 31 December 2014: see New Cedos Engineering Co Ltd [1994] 1 BCLC 797 at 803; and Re Consolidated Nickel Mines [1914] 1 Ch 883. I should add that it was not contended on behalf of the Company that the articles had been amended by conduct in this respect.
41. It seemed to the deputy judge that, in the end, the only substantive argument raised on behalf of the Company was that it was now too late for Mr Aidiniantz to rely upon the failure to renew Mr Riley's appointment at an annual general meeting. The deputy judge recognised that this point had been taken very late but accepted that this was not deliberate or tactical; it was simply the consequence of the fact that no one acting on behalf of Mr Aidiniantz had thought of it any sooner. The deputy judge also reasoned that those claiming to be in control of the Company were at least equally responsible for they were under a duty to manage the Company in accordance with its constitution and could not complain, when others noticed that they were not doing so, that those others should have noticed it earlier.
42. That brought the deputy judge to the question of practical justice. The heart of his reasoning is contained in this paragraph of the judgment:

"112. In my view practical justice requires that Mr Riley's status be ascertained and declared authoritatively so that everyone dealing with this company, including those who are acting as its solicitors, and its officers, and its members, should all know where they stand. It would not make for practical justice if I were to dismiss an application for a declaration that Mr Riley is not a director when there is not a single argument to be deployed in opposition to it except that it was made late. In Villatte, to allow the application to the Tribunal to proceed was of real benefit to everyone except Mr Villatte, who did not want to pay his fair share of the service charges. Here, to allow this appeal to proceed would cause chaos and would benefit no one. First, it would lead inevitably to further litigation on, I would expect, two fronts: Ms Decoteau would bring a claim to be a member, and Mr Aidiniantz would petition that the Company be wound up on the ground that it would be just and equitable to do so (on the basis that either he is the only member and desires it, or alternatively that there are two members in deadlock). Secondly I cannot see how Mr Riley could continue to perform the functions of a director in the full knowledge that his appointment had expired. If he were to decide, for example, to make an offer to settle any of the litigation to which the Company is or may become a party, no one would safely accept that offer. I do not see how he could even continue to prosecute this appeal or how Pinder Reaux [the solicitors then acting for Mr Riley] could continue to accept instructions from him to do so. A rejection for laches of this application today could not validate anything done by Mr Riley tomorrow or prevent a future office-holder from holding him to account for doing it."

43. The deputy judge also took into account the bitter family feud lying behind the proceedings, that a great deal of money had been spent on the appeal, that the appeal might have real merit and that he was being asked to shut out one side of the dispute on a technical point taken very late. But he felt he could not ignore the fact that the Company had no director. He concluded:

"114. I will not allow laches, an equitable doctrine, to bring about a situation whereby a company appeals against a winding-up order when it has no directors, where I know that it has given no valid instructions for its future participation in the appeal, and where, if the appeal were to succeed, it would generate a further petition to wind it up and further litigation as to the identity of its members."

44. He therefore rejected the plea of laches, accepted the third challenge and made a declaration that Mr Riley had ceased to be a director of the Company on 31 December 2014.

The appeal

45. Mr Riley now contends that the deputy judge has fallen into error in three separate ways, each of which forms a separate ground of appeal: first, he misunderstood the extent of his task by considering that he had to ascertain and declare Mr Riley's status authoritatively so that everyone dealing with the Company would know where they stood; secondly, he was wrong to state that "there is not a single argument to be deployed in opposition to [the application] except that it was made late"; and thirdly, he was wrong to reason that "to allow this appeal to proceed would cause chaos". I will consider each of these grounds of appeal in turn.
46. Mr Thomas Roe QC, who has appeared on this appeal on behalf of Mr Riley, has developed the first ground of appeal in the following way. He submits that the deputy judge was not asked by Mr Riley to validate every past and future act of his as a director or purported director or, to put it another way, to rule generally upon Mr Riley's status as a director. The deputy judge's task was much more limited and was simply to decide whether the appeal against Registrar Derrett's order should be allowed to proceed despite Mr Aidiniantz's last-minute objection to it.
47. Mr Roe continues that there are cases where, even though a court finds a piece of litigation is being pursued in the name of a company without its authority, it is appropriate to allow the person with de facto control of the litigation to continue to pursue it, on the basis that it is just to do so, given the lateness and overall circumstances in which the lack of authority has come to be relied upon.
48. This is just such a case, says Mr Roe. But the judge, having perceived his task in the way that he did, unsurprisingly concluded that he was not prepared to confer some sort of general validation upon Mr Riley. Had he instead focused upon the narrower question actually presented to him, namely whether the appeal should be allowed to proceed at Mr Riley's direction, he might well have come to a different result. His decision should therefore be set aside.
49. Before assessing this submission it may be helpful to say a little about the relevant principles which bear on the present appeal. First, an objection that an action in the name of a company is not properly constituted due to lack of authority should be raised at an early stage of the action and not by way of defence to the claim: Russian Commercial and Industrial Bank v le Comptoir d'Escompte de Mulhouse [1925] AC 112 at 130 per Viscount Cave. If it comes to the attention of the defendant at a later stage of the proceedings, then it can be raised at that stage, but again not as a defence to the action: Airways Limited v Bowen [1985] BCLC 355 (CA) at 359 per Kerr LJ.
50. Secondly, once it is clear that an action is improperly constituted, it should not be allowed to proceed. Whether the action is dismissed, struck out or stayed, the effect must be that the proceedings are brought to an end: see Airways at page 360 per Kerr LJ.
51. Nevertheless and depending on the circumstances, the doctrine of laches may apply to as to prevent an objection of this kind being taken. In Re Bailey, Hay & Co Limited [1971] 1 WLR 1357 an associated company of a company purportedly in voluntary liquidation sought to dispute the validity of the resolution for its winding up. Brightman J (as he then was) held that the resolution must be deemed to have been passed with the unanimous approval of all of the company's corporators. But he also held that the associated company was barred by laches from asserting that the company was not in liquidation. It was setting up a positive case that the liquidator had no status and was wrongly in possession of the company's assets, and the doctrine of laches was just as applicable to this situation as if the associated company were seeking a remedy against the liquidator. In reaching that conclusion Brightman J relied on the following well known passage from the speech of Lord Blackburn in Erlanger v New Sombrero Phosphate Co. (1877-78) LR 3 App Cas 1218 at page 1279:

"In Lindsay Petroleum Co. v. Hurd (1874) LR 5 PC 221, 239, it is said: 'The doctrine of laches in courts of equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct done that which might fairly be regarded as equivalent to a waiver of it, or where, by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases lapse of time and delay are most material. But in every case if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances always important in such cases are the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.' I have looked in vain for any authority which gives a more distinct and definite rule than this; and I think, from the nature of the inquiry, it must always be a question of more or less, depending on the degree of diligence which might reasonably be required, and the degree of change which has occurred, whether the balance of justice or injustice is in favour of granting the remedy or withholding it. The determination of such a question must largely depend on the turn of mind of those who have to decide, and must therefore be subject to uncertainty; but that, I think, is inherent in the nature of the inquiry."

52. Villatte v 38 Cleveland Square Management Limited [2002] EWCA Civ 1549 concerned a dispute between Mr Villatte, a tenant of a flat in premises in Cleveland Square, and the tenants of the other three flats in the same premises about the service charges levied by the landlord management company. The other tenants therefore agreed that the management company should make an application to the Leasehold Valuation Tribunal to determine the reasonableness of the charges. Mr Villatte failed to comply with a procedural direction made by the tribunal and instead, on the morning of the substantive hearing, made an application for the dismissal of the proceedings on the basis that the company had for some seven years been operating without a validly appointed board of directors and that the application to the tribunal had therefore been made without the company's authority. The tribunal dismissed Mr Villatte's application and the Land Tribunal dismissed his appeal. On further appeal to the Court of Appeal, Parker LJ, with whom Mummery and Ward LJJ agreed, held that the doctrine of laches applied to so as to prevent Mr Villatte from challenging the validity of the directors' appointments in the proceedings. After referring to the judgment of Brightman J in Re Bailey, Hay with apparent approval, Parker LJ explained that Mr Villatte had not challenged the validity of the appointments of the directors at any time prior to the application made to the Leasehold Valuation Tribunal but had rather held himself out to his co-directors as being himself a director. In these circumstances it would not merely be "practically unjust" but a gross injustice to allow him to challenge the validity of the directors' appointments.
53. With these principles in mind I now return to Mr Riley's first ground of appeal. As I have mentioned, the deputy judge pointed at the outset first, to the common ground that, since the articles provided for a director only to hold office until the next annual general meeting, the director must be deemed to have left office on the last possible date the meeting could lawfully have been held, namely, in Mr Riley's case, 31 December 2014; and secondly, that it was not suggested that the articles had been amended by conduct. The deputy judge also accepted Villatte as authority for the proposition that the doctrine of laches could be invoked to preclude a challenge to the authority of Mr Riley to cause the Company to pursue the appeal against the Registrar's order if it would be practically unjust to allow that challenge to be made.
54. The deputy judge also had regard to the practical consequences of dismissing Mr Aidiniantz's application when, to his mind, there was not a single argument to be deployed in opposition to it save that it was made late. This, so it seems to me, was precisely what he was required to do. He was bound to consider the practical injustice that allowing Mr Aidiniantz to pursue his challenge would cause. He took into account, rightly in my view, that, if the appeal against the Registrar's order were to proceed, it would lead to further litigation because Ms Decoteau would likely make a claim to be a member and Mr Aidiniantz would petition for the Company's winding up on the ground that it would be just and equitable to do so. He also took into account, again entirely correctly, that Mr Riley would be placed in real difficulty were he to continue to act as a director well knowing that his appointment had expired, for dismissal of the application would not validate anything he did in the future or prevent a future office holder holding him to account.
55. There is nothing in this reasoning to suggest that the deputy judge misunderstood what he was being asked by Mr Riley to do and I think he approached the issue before him entirely correctly. I would therefore reject the first ground of appeal.
56. I come next to the second ground of appeal. Here Mr Roe submits that the deputy judge failed to take into account that the objection was not merely that Mr Aidiniantz's application was late; it was also that it was inconsistent with his earlier conduct. He continues that there was no evidence that the Company had ever had any annual general meetings or that this had ever troubled Mr Aidiniantz in the slightest. Further, Mr Aidiniantz had positively referred to Mr Riley as a director in 2014 even though Mr Riley had been appointed by Ms Decoteau some while after her own appointment must have lapsed. What is more, Mr Aidiniantz continued to refer to Mr Riley as a director and rely upon this fact when seeking security for costs against the Company in 2015. So, continues Mr Roe, the objection to Mr Aidiniantz's application was not just that it had been made too late; it was also that it represented a complete change of position, executed only when it appeared to Mr Aidiniantz to be advantageous to do so. Mr Roe also submits that the language used by the deputy judge strongly suggests that he did not regard the lateness, in itself, as especially serious. Yet this was unduly to down play the authorities that emphasise the importance of taking any point on lack of authority promptly.
57. Attractively though these submissions were advanced, I find myself unable to accept them. I recognise that the deputy judge understood Mr Riley's argument (or at least his primary argument) to be that that it was simply too late for Mr Aidiniantz to rely upon the failure to renew Mr Riley's appointment at an annual general meeting. I also accept that there was no evidence that the Company had ever had annual general meetings and that in 2014 and 2015 Mr Aidiniantz referred to Mr Riley as a director without any objection. However, it must also be borne in mind that Mr Riley was not reappointed as a director of the Company until May 2014, at which point the relations between the Riley siblings and Mr Aidiniantz had completely broken down. I am also far from persuaded that from this time Mr Aidiniantz had any real involvement in the activities of the Company or had any means of knowing whether an annual general meeting had been held or not. In any event, however, it seems to me that the point loses much of its force in light of the express findings made by the deputy judge first, that the lateness of Mr Aidiniantz's application was not deliberate or tactical; secondly, that the point about the annual general meeting was raised as soon as it was thought of; and thirdly, that those in control of the Company were under a duty to manage it in accordance with its constitution and they could not complain when others noticed that they were not doing so, that those others should have noticed it sooner.
58. I also reject Mr Roe's further point. I do not accept that the language used by the deputy judge suggests that he did not regard the lateness as especially serious. He had the relevant authorities and principles well in mind when he carried out his evaluation and he had close and careful regard to the lateness of the application and the consequences of deciding it one way or the other.
59. That brings me to the third and final ground of appeal. Here Mr Roe submits that the judge's statement that to allow the underlying appeal to continue would cause chaos was wrong for it implied that not allowing it to continue would cause less chaos. In this regard Mr Roe has dealt separately with the two sorts of chaos identified by the judge, namely further litigation and the difficulty for Mr Riley of continuing to act as a director and for his solicitors in accepting his instructions.
60. Dealing first with further litigation, Mr Roe focuses on the deputy judge's concern that, if he did not accede to Mr Aidiniantz's application, Ms Decoteau would bring a claim to be a member and Mr Aidiniantz would petition for an order that the company be wound up on the just and equitable ground. As for the possibility of Ms Decoteau bringing a claim, Mr Roe submits that the deputy judge overlooked the fact that she might bring such a claim even if he did accede to Mr Aidiniantz's application. As for the possibility of Mr Aidiniantz petitioning for an order winding the Company up, Mr Roe points out that he had already asserted that the Company should be wound up. Accordingly, says Mr Roe, the deputy judge did not, by his decision, head off either of the types of further litigation which he feared.
61. Turning to the difficulties Mr Riley would face were he to continue to act as a director, Mr Roe submits that the deputy judge's reasoning is summarised in the statement that "I cannot ignore [the fact] that the company has no director and neither can Mr Riley or anyone else ignore it". However, continues Mr Roe, this is tantamount to saying that the Villatte case was wrongly decided, for the logic of that case is that one can ignore such a fact for the purpose of allowing certain proceedings to continue where it would be unjust for it to be relied upon by a person who stands to gain from halting the proceedings.
62. Mr Roe further submits that the deputy judge's concern about the chaos he might cause by refusing Mr Aidiniantz's application led him not to place any real weight on the obvious disadvantage of acceding to it, namely that it would enable Mr Aidiniantz to hang on to an arguably wrong judgment of the Registrar by winding up a company with a substantial claim against him.
63. Again, these are powerful points but in the end I have not been persuaded that the deputy judge has fallen into error here either. My reasons are these. First, this is an unusual case in that, save for laches, neither Mr Riley nor the Company had any answer to the application. The deputy judge found as a fact that Mr Riley was not a director of the Company; indeed the Company had no director at all.
64. Secondly, the deputy judge was, in my view, entirely right to anticipate that allowing the appeal to continue would likely lead to further litigation of each of the kinds he described. Ms Decoteau had indicated that she would seek to resile from the concession that Mr Aidiniantz was the only surviving member of the Company and would assert that she too was a member. If this were to be accepted then the Company would find itself in a state of deadlock. Conversely, however, this would be less likely to happen if the appeal were brought to an end. Similarly, if the appeal were allowed to continue, it was practically inevitable that Mr Aidiniantz would apply to have the Company wound up on the just and equitable ground.
65. Thirdly, I do not accept that the judge's approach was tantamount to finding that Villatte was wrongly decided. In contrast to the position in Villatte, the deputy judge made a finding that the Company had no director and that allowing the proceedings to continue would cause real practical difficulties.
66. Fourthly, I recognise that acceding to the application would bring to an end an appeal which, at the least, had a real prospect of success. But this was a matter which the deputy judge had well in mind and to which he had proper regard. He expressly contemplated the possibility that the appeal might succeed. But he weighed against this the fact that the Company had no director and had not given valid instructions for its future participation in the appeal, and that were the appeal to succeed, it would generate further litigation. To this might be added the further point that the practical effect of a winding up would be to place the conduct of the Company into the hands of the liquidator who could pursue such investigations as might be thought fit.
67. For all of these reasons, I am satisfied that the deputy judge directed himself correctly and there is no basis upon which thus court can interfere with the conclusion to which he came. I would dismiss the appeal.

Lord Justice Floyd:

68. I agree.