Once clear that an action is improperly constituted, it should not be allowed to proceed.
Those in control of a company have the duty to manage that company in accordance with its constitution.
The Sherlock Holmes International Society Limited (the “Company“), appealed a winding up order against the Company. Days before the appeal, the Respondent applied for a declaration that the appointment of the sole director of the Company had been invalid or, if valid, had expired and as such the appeal should be dismissed. The District Judge found that the appointment was valid but had expired and that the appeal should be dismissed. The Company brought an appeal against that decision based on the doctrine of “laches” – that the Respondent had lost the right to bring the application because of delay.
The Court of Appeal confirmed that a claim of lack of authority should be raised as soon as possible, however, once it was clear that an action was improperly constituted, it should not be allowed to proceed. The court further explained that those in control of a company have the duty to manage that company in accordance with its constitution. As such, the doctrine of laches was not sufficient to base the appeal on.
Furthermore the court found that it was right to weigh the chance of the Company’s success in the appeal against the chaos that allowing the appeal could cause. In the circumstances there would be no director to give instructions on behalf of the Company and allowing the appeal would also likely lead to a great deal of further litigation.
The court dismissed the appeal.