England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANY COURT
Neutral Citation Number [2004] EWHC 426 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		10 March 2004

Mr Justice David Richards:

1. This is an application to strike out a petition under section 459 of the Companies Act 1985. The petition relates to The Oasis (Poole) Management Limited ("the Company"), a company limited by guarantee and not having a share capital. The Company manages a residential complex called The Oasis in Poole, Dorset, which comprises 66 flats, with communal gardens and a leisure centre for the residents' use. Each flat is held on a 999-year lease and the members of the Company are the leaseholders. The Petitioner, Anthony Branch, is a leaseholder and a member of the Company. There are five named Respondents to the Petition. Four of the Respondents are leaseholders, who are the directors of the Company subject to a central issue raised in the Petition as to the validity of their appointments. The fifth Respondent, Steven Owens, is not a member but is the proprietor of Owens & Porter, which acts as the managing agent for The Oasis.
2. The application to strike out the Petition was issued on 9 July 2003, on behalf of all the Respondents. There are two further applications before the Court. Mr Owens has applied by notice issued on 2 December 2003 for an order that the Petition be discontinued against him on the additional ground that he is not a director of the Company. Mr Branch has applied by notice issued on 26 November 2003 for the appointment of a receiver of the Company.
3. All parties are unrepresented and appear in person.
4. At the hearing before me there were disagreements and misunderstandings about orders previously made in the petition. Accordingly, I have read the court file and, for the sake of clarity, I will describe the material procedural steps which have been taken and orders made before turning to the substance of the present applications.
5. The petition was presented on 12 May 2003, supported by a witness statement by Mr Branch and exhibits. At that stage there was an additional respondent, Mrs S. Carmichael, a solicitor of 23 years' standing and a partner in the firm of Turners, who had been advising the Company. It was in that capacity that Mrs Carmichael was named a respondent; she was not a member or leaseholder. Turners acted on behalf of all the respondents. On 20 May 2003 Lewison J. heard and refused an application by Mr Branch for interim relief, including an order that Owens & Porter be suspended as managing agents. By an Order of Registrar Derrett made on 6 June 2003, each party was required to give standard disclosure to every other party by list by 27 June 2003 and any request for inspection or copies of disclosed documents was to be made by 11 July 2003. The petition was adjourned for further directions to 1 August 2003. Lists of documents were served by all parties by 27 June 2003.
6. On 11 July 2003 Turners acting on behalf of all the respondents filed an application to dismiss the petition on the grounds that:

"the Petition shows: (1) no evidence that the 5^th and 6^th Respondents [Mrs Carmichael and Mr Owens] have any standing as shadow directors (2) that the Company and its members have suffered no unfair prejudice (3) that no losses are shown to have been sustained by the Company or any shareholders nor indeed are pleaded as such. In the circumstances the proceedings are wholly misconceived."

The application was supported by four witness statements.

7. At a hearing on 1 August 2003, at which Mr Branch appeared in person and the respondents appeared by counsel, Registrar Jaques gave permission to amend the respondents' application so as to add the following grounds:

"(4) In consequence the proceedings should be dismissed pursuant to Part 3.4 CPR in that the case discloses no reasonable grounds for bringing the case and the Statement of Case is an abuse of the Court process. (5) Alternatively the Respondents apply for dismissal of the action on the basis of summary judgment pursuant to Part 24 CPR that the case has no reasonable prospects of success."

Mr Branch has suggested that at this hearing counsel for the respondents withdrew the application to strike out or dismiss the petition, but in the light of this Order for permission to amend the application it is clear that this suggestion is wrong. The Registrar also made directions for inspection by Mr Branch of disclosed documents and gave him permission to amend his petition and to serve any supporting evidence by 5 September 2003. There were difficulties in relation to inspection and Mr Branch did not amend the petition at this stage.

8. At a hearing before Registrar Simmonds on 26 September 2003, at which Mr Branch appeared in person and the respondents appeared by counsel, further directions were made for inspection by Mr Branch and he was given further permission to amend the petition and to re-serve it as amended by 31 October 2003. The application to strike out or dismiss the petition filed on 11 July 2003, as amended on 1 August 2003, was adjourned to be heard by a judge.
9. Towards the end of October 2003 Turners ceased to act for the respondents other than Mrs Carmichael, on the grounds of the allegations being made in the petition against Mrs Carmichael personally. She explained in a witness statement made on 6 November 2003 that Turners did not cease to act because of any doubts about the integrity of the other respondents. On 4 November 2003 Mr Branch gave notice of discontinuance against Mrs Carmichael.
10. Mr Branch amended the petition on 31 October 2003 and the petition as amended was filed on 3 November 2003. One of the amendments was to remove Mrs Carmichael as a respondent. Mr Branch subsequently indicated that he would seek to re-join Mrs Carmichael.
11. There was a hearing before Registrar Simmonds on 13 November 2003. Mr Branch had prepared a revised petition with further amendments on 7 November 2003. He was ordered to serve copies of the amended petition and the order further provided that:

"as a strike out Application is listed for 10 December 2003 the said Petition be adjourned generally with liberty to restore pending the outcome of that Application."

Pursuant to the order, Mr Branch served his re-amended petition on the respondents and filed it at court on 14 November 2003. The Registrar also directed that the notice of discontinuance against Mrs Carmichael should stand.

12. Mr Branch took a point before me that the application to dismiss the petition did not relate to the amended petition as filed on 14 November 2003, but only to the petition in its unamended form. I rejected that submission. There would be no point in a hearing of an application to dismiss a petition in an earlier form, only for a further application to be heard to strike out the later amendments. When the matter first came on for hearing before me, I adjourned it to enable Mr Branch to answer witness statements which had been lodged by the respondents. At the adjourned hearing he addressed me on the application on the basis that it applied to the latest form of amended petition.
13. The respondents prepared witness statements in support of their applications, which were served on Mr Branch on 1 December 2003. At the first hearing before me, Mr Branch told me that he understood that evidence was not admissible in support of an application for dismissal and that argument was confined to issues of law. In view of the grounds of the application issued on behalf of all the respondents, as amended, this was a misunderstanding on his part. I gave him an opportunity over the adjournment to file evidence in response and he did so in a witness statement dated 14 December 2003.
14. It is evident from the petition, witness statements and submissions that a great deal of bitterness exists between Mr Branch and at least some leaseholders including the respondents, which has poisoned what should be the straightforward workings of this owner-occupiers' management company. It is not however the function of the court on this application to apportion blame, but to determine whether there is a sustainable basis for a claim to relief under section 459 in all or any of the allegations made in the amended petition.
15. The Company was formed in 1990 by the developers of The Oasis who were entitled to control appointments to the board until all the flats had been sold. This had occurred by 1996 and in that year Mr Branch and other members took steps to ensure that, as intended, control of the board should pass to the leaseholders. Six members of the Company were appointed directors in place of the developer's appointees and their appointment was approved at an extraordinary general meeting on 31 March 1996. Mr Branch was one of the new directors and became chairman. Owens & Porter were appointed as managing agents. For reasons unconnected with these proceedings Mr Branch resigned as a director shortly after his appointment.
16. Putting it broadly, the matters of which Mr Branch complains in his petition fall into the following categories:

i. The appointment of directors at general meetings held in 2002 and 2003 was invalid, such that there are now no validly appointed directors in office.

ii. Defects in the Accounts for 2002, and in a budget statement for 2003 and a failure to keep proper books of accounts.

iii. Failure by the directors to ensure that the Company's funds are under proper control.

iv. Resolutions passed at the 2003 annual general meeting for indemnities against legal costs which are said by Mr Branch to be void.

v. Defamation of Mr Branch and threats against him.

vi. As against Mr Owens, a variety of allegations, principally relating to custody of the Company's funds.

The petition seeks wide-ranging relief, including orders that the 1^st to 4^th respondents be formally removed from their purported offices as directors, that Owens & Porter be removed as managing agents and account for the Company's funds, that an independent firm of chartered accountants be appointed to investigate the Company's affairs and finances, that such civil proceedings be authorised by the Company as the court may direct, and that the court make such orders and directions as it sees fit in the light of the report of the investigating accountants.

17. Paragraphs 16 to 20, 30 to 36 and 45(A) and (B) of the Petition deal with the appointment of directors. It is Mr Branch's case that under the Companies Acts and the Company's articles a director is validly appointed at a general meeting only if the notice of the meeting contains his name as a candidate for appointment. Although he says that there have been no valid appointments since 1997, his complaints in the petition relate to the appointment of directors in 2002 and 2003. It is clear from the documents exhibited by Mr Branch that the notices of the various general meetings in 2002 and 2003 did not contain the names of directors to be proposed for appointment, following the practice adopted since 1997. The issue is whether the names of prospective directors should have appeared in the notices of meetings in 2002 and 2003. For the reasons which I give below the answer is no and his case that the appointments in those years were invalid is misconceived. Before addressing the legal issue, it is necessary to set out briefly the material facts relating to the meetings and deal with various other complaints made in relation to them.
18. By the end of 2001 the directors were Mrs R.M. Hammond and Mrs A. Turner, who had been appointed some years earlier, and Mr B.G. Burry and the 2^nd respondent Mr J.W. Hancock. Mr Burry and Mr Hancock had been appointed to the board by the directors on 28 June 2001 pursuant to article 12(h) of the Company's articles of association. Mrs Turner and Mr Burry resigned on 18 April 2002. The annual general meeting for 2002 was called for 18 April 2002 by notice dated 21 March 2002. The business of the meeting stated in the notice included the "Election of Directors". At the meeting, Mrs Bagley and Mr Paice (the 1^st and 3^rd respondents) were appointed directors, joining Mrs Hammond and Mr Hancock. The meeting was attended by 26 members in person, including Mr Branch. No votes were cast against the appointments of Mrs Bagley and Mrs Paice. Mr Branch did not at the meeting complain that their appointments were invalid but he did suggest that a method should be found of circulating the names of prospective directors before the meeting. Mrs Hammond resigned as a director on 13 July 2002. On 15 July 2002 Mr Branch commenced proceedings in the Bournemouth County Court against the 1^st to 3^rd respondents. The claim form stated that it was a claim under sections 459-461 of the Companies Act 1985 and the claim was stated to be to protect the Company's assets, remove the existing directors and protect the Company's books and papers. Amongst the grounds for this relief put forward by Mr Branch was a claim that the appointment of directors at the meeting on 18 April 2002 was void because the notice of meeting did not state their names. By an order dated 6 August 2002 Judge Anthony Thompson QC struck out the proceedings as an abuse of process. As appears from his written reasons for refusing permission to appeal, the Judge struck out the proceedings under CPR Pt 3.4 as being wholly misconceived and an abuse of process and refused permission to appeal on the grounds that a claim under sections 459 and 461 of the Companies Act had to be made by petition to the Companies Court. Mr Branch applied for permission to appeal but at an oral hearing Lawrence Collins J. refused permission on the grounds that the Judge was plainly right to decide that the proceedings should have been by petition to the Companies Court. There was some disagreement before me as to whether Judge Anthony Thompson QC had struck out the proceedings on the merits of the claim, as well as on procedural grounds. The respondents believed that the Judge had done so. Since the hearing I have read the official transcript of the proceedings before Judge Thompson filed on Mr Branch's application for permission to appeal It is clear that his decision was based entirely on procedural grounds, so that there has not been a decision on the merits of any of the issues raised in the present petition.
19. In the meantime the Company, on advice, took the position that there had been a defect in the appointment of directors at the annual general meeting on 18 April 2002. This was not on the basis that the notice convening the meeting should have contained the names of the prospective directors, but on the basis that the articles of association of the Company required their names to be circulated to members before the meeting, unless they had been recommended by the directors. It was therefore assumed that the election of Mrs Bagley and perhaps Mr Paice as directors at the annual general meeting had been defective. I shall return briefly to this point when I deal with Mr Branch's case that the notice of meeting was required to state their names.
20. The directors took the view that it would be sensible, as they saw it, to regularise the position. Accordingly notice dated 26 July 2002 was given to members for an extraordinary general meeting to be held on 23 August 2002. It was stated in the notice that all the directors proposed to resign and the first item of business was stated to be the appointment of at least two directors. This replaced a notice dated 23 July 2002 for an annual general meeting to be held on 16 August 2002. Mr Branch suggests that the fact of this earlier notice invalidates the later notice and the meeting held on 23 August 2002 but there is no substance to this point.
21. In his petition, Mr Branch makes a number of complaints about the way in which the meeting on 23 August 2002 was convened. First, he says that the notice was defective because it does not state the names of the persons to be proposed as directors. I will return to that issue. Secondly, it is alleged that the notice "wilfully breached Section 62 of Table A for the 48 hour rule for Lodging Proxies". This appears to be a complaint that the notice, or form of proxy sent out with the notice, should state that forms of proxy must be lodged not later than 48 hours before the meeting. There is nothing in this point, since neither the Companies Act nor the Company's articles nor those provisions of Table A incorporated into the articles require any such statement. What regulation 62 of Table A requires is a statement of the place at which forms of proxy are to be lodged, if different from the registered office. The notice complied with that requirement. The notice stated that proxy forms should be sent "in advance of the meeting". No-one has complained that in reliance on that statement they sent a proxy form less than 48 hours before the meeting and it is certainly not open to Mr Branch to do so as he did not lodge a proxy form at all. Objection is also taken to Mrs Bagley being named as the person to whom proxy forms should be sent. Mrs Bagley was the Company secretary, and therefore an obvious choice of person to whom proxy forms should be sent. Even if there was any defect in her appointment as secretary there was no unfair prejudice to Mr Branch in directing that forms of proxy be sent to her. Thirdly, it is alleged that it was a contempt of court to convene the meeting after Mr Branch had commenced his proceedings in the Bournemouth County Court. There is no legal basis for that suggestion. Fourthly, it is alleged that a letter dated 16 August 2002 from Mrs Bagley as company secretary to members changed the "nature" and "the conditions and agenda" for the extraordinary general meeting convened for 23 August 2002. Neither that letter, which states that Mr Hancock will not, as previously stated, resign as a director immediately before the meeting but will remain as an officer so as to chair it, nor the letter enclosed with it did any such thing and certainly had no effect on the validity of either the convening or the holding of the meeting.
22. Minutes of the meeting were prepared and circulated to the members. The petition complains that this was done in order "to defame, insult, humiliate, vilify and harass Mr Branch." The minutes reflect what was no doubt a strongly worded debate at which feelings ran high, but the affairs of the Company were in something of a crisis, the meeting was attended by about half the membership and there was a legitimate interest in the minutes being circulated to the members. The petition continues by alleging that the minutes contain "unanswerable evidence" that the 1^st to 3^rd respondents are not fit to be directors of the Company and that "their actions reflect wilful, unfair and vindictive prejudice against the petitioner and any other member who might dare to require that the Company's affairs are operated on a legal basis…". I have carefully read the minutes and they are in my judgment incapable of providing a basis for these allegations.
23. In paragraph 45 (D) of the Petition, Mr Branch alleges that contrary to what members had been told Mr Hancock did not resign at the meeting. In fact the minutes make clear that he did resign and was re-elected. Even if he had not done so, I do not see that this could amount to unfairly prejudicial conduct or that Mr Branch who did not attend the meeting could complain of it. The same paragraph alleges that forms 288A, recording the resignations and re-appointments of the 1^st to 3^rd respondents were not filed at Companies House. Even if true, this oversight causes no prejudice to Mr Branch as a member. Nor does it support the allegation that the 1^st to 3^rd respondents were not validly re-appointed at the meeting.
24. In addition to the 1^st to 3^rd respondents, Mrs A. Turner, Mrs J. Watson and Mrs K. Browning were appointed as directors at the meeting on 23 August 2002 but they all resigned during September 2002. The 4^th respondent, Mr I. Stocks was appointed to the board by the directors in October 2002. Since the presentation of the petition, the annual general meeting of the Company for 2003 has been held on 1 August 2003. The Company's articles do not require existing directors to retire and stand for re-election at annual general meetings. The 1^st to 4^th respondents therefore continued in office and, although not necessary, a resolution was passed to ratify the appointment of Mr Stocks. A member, Mr R.M. Hewitt, had been nominated for appointment and a resolution was passed unanimously to elect him as a director. As in previous years, the notice of the meeting did not contain the names of any candidates for election but simply specified the relevant business as "to deal with election of directors". It was however stated that nominations should be made by notice no later than 14 July 2003 and that the names of those proposed for election would be circulated by 18 July 2003.
25. I deal now with the issue as to whether it was necessary for the notices of general meetings to set out the names of persons who were proposed for appointment as directors at those meetings. It is on this basis that Mr Branch alleges that all the appointments at the annual general meetings on 18 April 2002 and 1 August 2003 and at the extraordinary general meeting on 23 August 2002 were invalid. He therefore also alleges that Mr Stocks was not validly appointed because the directors who appointed him were not, on Mr Branch's case, themselves validly appointed. There is nothing in the Companies Acts which imposes this requirement. It is of course open for the articles of association of a company to impose it, but historically under most articles of association, including the standard form regulations contained in successive forms of Table A, it has not been a requirement: see Choppington Colleries Ltd v Johnson [1944] 1 All ER 762 and Betts & Co Ltd v Macnaghten [1910] 1 Ch 430.
26. When Table A was re-enacted by the Companies (Tables A to F) Regulations 1985, some new regulations relating to the appointment of directors were introduced. The Company's articles contain provisions which largely reproduce all but one of these regulations. It is convenient first to look at the position under Table A. Regulation 38 includes the following

"An annual general meeting and an extraordinary general meeting called for the passing of a special resolution or a resolution appointing a person as a director shall be called by at least twenty-one clear days' notice….The notice shall specify the time and place of the meeting and the general nature of the business to be transacted and, in the case of an annual general meeting, shall specify the meeting as such."

The words "an extraordinary general meeting called for the passing of……. a resolution appointing a person as a director" were new.

Regulations 76 , 77 and 78 provide as follows:

"76 No person other than a director retiring by rotation shall be appointed or reappointed a director at any general meeting unless-

(a) he is recommended by the directors; or

(b) not less than fourteen nor more than thirty-five clear days before the date appointed for the meeting, notice executed by a member qualified to vote at the meeting has been given to the company of the intention to propose that person for appointment or reappointment stating the particulars which would, if he were so appointed or reappointed, be required to be included in the company's register of directors together with notice executed by that person of his willingness to be appointed or reappointed.

77 Not less than seven nor more than twenty-eight clear days before the date appointed for holding a general meeting notice shall be given to all who are entitled to receive notice of the meeting of any person (other than a director retiring by rotation at the meeting) who is recommended by the directors for appointment or reappointment as a director at the meeting or in respect of whom notice has been duly given to the company of the intention to propose him at the meeting for appointment or reappointment as a director. The notice shall give the particulars of that person which would, if he were so appointed or reappointed, be required to be included in the company's register of directors.

78Subject as aforesaid, the company may by ordinary resolution appoint a person who is willing to act to be a director either to fill a vacancy or as an additional director and may also determine the rotation in which any additional directors are to retire."

Regulation 77 was an entirely new provision.

27. The effect of those provisions in Table A is that, while at least 21 days' notice must be given of annual general meetings and of extraordinary general meetings at which directors are to be appointed, notice of the intention to propose a director (unless he is recommended by the board) must be given to the company not less than 14 days before the meeting, and notice of the names of the candidates for appointment must be given to the members not less than 7 days before the meeting. It is clear from the timetable laid down by these regulations that there can be no requirement for the notice of the meeting to contain the names of the persons to be proposed as directors. Further, the reference to "a resolution appointing a person as a director" does not relate to annual general meetings and so could not be relied on as requiring the names of proposed directors to be included in the notice of an annual general meeting. However, there is no doubt that directors may be, and indeed usually are, appointed at annual general meetings and there would be no sense in a regime which required names to appear in the notice of extraordinary general meetings but not of annual general meetings. When regulation 38 refers to "an extraordinary general meeting called for the passing of…a resolution appointing a person as a director", it is in my judgment clear from the context that it refers to any extraordinary general meeting convened for the appointment of directors, whether or not they are named, and is making provision for the length of notice for such meetings, not for the content of the notice.
28. Although the articles of association of the Company exclude regulations 38, 76, 77 and 78 of Table A they contain provisions which are largely the same as regulations 38, 76 and 78, but they contain no equivalent of regulation 77. Article 8(a) of the Company's articles includes the following:

"An Annual General Meeting and an Extraordinary General Meeting called for the passing of a Special Resolution or a Resolution appointing a Member as a Director shall be called at least 21 clear days notice. All other Extraordinary General Meetings shall be called by at least 14 clear days notice………"

The wording is therefore identical to the equivalent part of regulation 38 in Table A, except that it refers to a resolution appointing a member, rather than a person, as a director. This small change is made because only members may be directors: article 12(c). Articles 12(f) and (g) are in substantially the same terms as regulation 77 and 79, as follows:

"(f) No member shall be appointed a director at any general meeting unless either:-

(i) he is recommended by the Directors: or

(ii) not less than fourteen nor more than thirty-five clear days before the date appointed for the General Meeting, notice signed by a Member qualified to vote at the General Meeting has been given to the Company of the intention to propose that Member for appointment, together with notice signed by that Member of his willingness to be appointed.

(g) Subject to paragraph (f) above, the Company may by Ordinary Resolution in General Meeting appoint any Member who is willing to act to be a Director, either to fill a vacancy or as an additional Director."

29. In my judgment the same analysis applies to these Articles as applies to the provisions of the 1985 Table A. Mr Branch, as I understand him, principally based his argument on article 8(a). For the reasons which I have given in relation to regulation 38 of Table A, that article does not require that the notice should contain the names of the proposed directors. It would be inconsistent with the timetable laid down in article 12(f) and it would also be inconsistent with article 12(g).
30. I therefore conclude that Mr Branch's case that the appointments of directors at the meetings in 2002 and at the annual general meeting in 2003 were not valid, because their names were not stated in the notices of those meetings, is not sustainable as a matter of law, nor are there any other grounds for saying that those meetings were not validly convened and held. If I had any serious doubt on this point, I would have directed a general meeting for the appointment of directors under section 371 of the Companies Act 1985 which empowers the court to direct meetings of its own motion, and would not have regarded a claim for relief under sections 459-461 as sustainable. It is relevant to note here that the directors in question were appointed with no opposing votes at the annual general meetings in 2002 and 2003 and by substantial majorities in most cases at the meeting on 23 August 2002. There is no basis in fact or in law for Mr Branch's allegations that the directors have "repeatedly and wilfully ignored and flouted" the requirements of the Companies Acts and the Company's articles. I should add that the concession made in July 2002 that the appointments at the annual general meeting on 18 April 2002 were defective, because the names of candidates for appointment had not been circulated before the meeting, need not have been made. The exclusion of regulation 77 of Table A and the absence of any article to the same or similar effect meant that there was no obligation to do so. The concession may have sprung from a misunderstanding of the effect of article 12 (f). Its reference to giving notice "to the company" of an intention to propose a member for appointment as a director does not mean notice to the members, but means notice to the company itself.
31. The next group of allegations in the petition concern the Company's Accounts and related matters. In paragraph 45 (I) it is alleged that the 1^st to 4^th respondents have continuously failed to keep proper books of account in accordance with the Companies Acts. This allegation is entirely unparticularised and there is no evidence before the Court which could support it. If the suggestion is that the directors cannot delegate to Owens & Porter the task of maintaining the necessary books of account, there is no legal basis for it.
32. In paragraphs 45 (J) and (K), Mr Branch goes on to allege that the respondents are guilty of false accounting in relation to the Accounts for the year to 31 December 2002 and that such Accounts are fraudulent. These serious allegations are, in my judgment, without any foundation at all.
33. There are a number of particulars given of these allegations. First, it is said in paragraph 45 (K) (1) and (2) that the Accounts failed to state that the Company had no money in its possession or under its control and that all its funds were paid to Owens & Porter. As managing agents, Owens & Porter collect the service charges from the flat-owners and make payments for the maintenance of The Oasis complex out of those funds. As Mr Branch puts it in paragraph 12 of the petition, they were appointed (in 1996) as managing agents

"to operate the management function of the Company in order to provide experienced management and confidentiality and independence from members over the collection of charges and the day to day Management/Maintenance Function."

Owens & Porter maintain a Global Client account with Barclays Bank into which charges collected from their various clients are initially paid. It is a single account held for all its clients including the Company, with separate ledgers maintained for each property. In addition, separate accounts are held in the names of clients with Nationwide Building Society to which funds in the Global Client account are transferred. There are two such accounts in the name of the Company, for which Mr Branch exhibits statements. Payments for supplies and services to The Oasis are funded from the No. 1 Account, which had a credit balance of £10,996.45 in January 2003, and surplus funds are held in the No. 2 Account, which had a credit balance of £77,887.40 in January 2003. Mr Branch's evidence shows that these accounts were established in 1996.

34. With the Company's funds being held in designated accounts with Nationwide Building Society or in the client account of Owens & Porter, I see no basis for the suggestion that the 2002 Accounts are wrong, still less fraudulent. Even if the funds credited to Owens & Porter's client account are not technically cash at bank, but should be shown in a different category of current assets, I see no basis for any suggestion that this gave rise to any unfair prejudice.
35. The next particular of the allegation that the 2002 Accounts are fraudulent is that they failed to declare future expenditure for external decoration of approximately £45,000 (paragraph 45 (K) (3)). Mr Branch exhibits a letter dated 22 April 2003 from Owens & Porter to all residents referring to the proposed external decoration. From this letter it is clear that there was not at that date any contract or other commitment for the external decoration. Clearly no actual or contingent liability in respect of this work existed as at 31 December 2002 and it was not appropriate under the accounting provisions of the Companies Act 1985 to include it in the 2002 Accounts: see for example, Schedule 4 para. 12(b). It would make no difference if a contract for the work had been placed by the time the Accounts were approved by the directors on 24 June 2003.
36. A further particular of the allegation is that the 2002 Accounts failed to declare "the future expenditure of over £50,000 of Company funds that the Respondents saw fit to disclose in a privileged letter of 24 June 2003 from Turners" (paragraph 45 (K)(4)). No such expenditure nor any commitment for it occurred during 2002 and, like the cost of external decoration, would not properly be included in 2002 Accounts. In any event the letter does no more than give rough estimates of the likely costs of various possible courses of action.
37. Mr Branch complains in his written statements that the Company's annual accounts have not been audited. So far as concerns the accounts in evidence, for the years 2000 – 2002, the Company was exempt from the requirement for an audit of its accounts under section 249A of the Companies Act 1985, as is correctly stated in each of those accounts.
38. In paragraph 45 (L) of the petition, Mr Branch alleges that on 3 July 2003 the 1^st to 4^th Respondents "issued a bogus and fraudulent budget statement for the calendar year 2003 to deliberately deceive the Members" which omitted expenditure of £95,000, comprising the external decoration at £45,000 and the figure of £50,000 referred to above. This too is a groundless allegation. The budget is issued in order to show how the service charge is calculated. The budget includes all items of recurring annual expenditure and also includes a figure for transfer to a sinking fund. The purpose of a sinking fund in arrangements of this sort is to provide for the larger and less frequent items of expenditure such as external decoration. In view of the letter exhibited by Mr Branch and sent to all residents on 22 April 2003 which dealt in detail with the proposed external decoration, over two months before the budget was issued, members can have been under no misapprehension as regards the proposed expenditure on that work.
39. The third group of allegations relates to the arrangements with Owens & Porter for custody of the Company's funds. I have described those arrangements earlier in this judgment. The arrangements have been in place since 1996 and whatever the precise terms of the mandate on the Company's accounts with Nationwide Building Society, there is no basis for Mr Branch's allegations that the 1^st to 4^th respondents were "giving away the Company's funds to [Mr Owens] to do with that which he wished" (paragraph 45 (P)) or were "allowing [Mr Owens] to act without any contract and take the Company's funds without any such contract" (paragraph 45 (Q)). Owens & Porter had been appointed as the managing agents and it was in that capacity that funds were, to the extent permitted by the mandate, under their control. Any expenditure of those funds had to be for the proper purpose of managing The Oasis complex. There clearly is a contract with Owens & Porter, whether or not it is in writing. The extent to which prior board authority is required for expenditure and the extent (if any) to which a board member's signature is required is a matter for the judgment of the directors. If Mr Branch disagrees with their decision on these issues he is entitled to raise it at the annual general meeting, but he has not done so. Mr Branch pleads no facts on which to base an allegation that the 1^st to 4^th Respondents were in breach of duty as directors or in some other way acted in a manner unfairly prejudicial to Mr Branch and other members in "failing to ensure that the Company's funds were under the control of the Company at any time" (paragraph 45 (P)).
40. Related to this is an extraordinary allegation in paragraphs 45 (M) and (N) that the directors failed to act "on being advised that the Nationwide Building Society confirmed on 11 August 2003 that Owens & Porter were being investigated for moneylaundering/fraud in respect of the Company's funds" and failed to secure those funds following disclosure of "the fraud investigation". In fact, as the Nationwide Building Society stated in a letter dated 19 November 2003 to Mr Owens, it was Mr Branch who had made allegations to them and those allegations were investigated in accordance with their obligation to investigate all such allegations.
41. As a separate point Mr Branch alleges in paragraph 38 that the Company's funds were improperly used to pay a fee of £500 plus VAT for legal advice given by Turners to Mr Hancock personally. Mr Owens' evidence is that this is for advice given to the Company in relation to the extraordinary general meeting and in Mrs Carmichael's witness statement filed in July 2003 she confirms this to be the case. Mr Branch has no evidence to support his allegation that it was for personal advice.
42. The fourth head of claim against the 1^st to 4^th respondents is set out in paragraph 45(S) of the petition which alleges that they have:

"sought to invoke wide ranging full indemnities that are void under the Companies Act and the Company's Articles, as per the minutes of the Meeting of 1 August 2003 (pages 179 to 185) to vindictively pursue and persecute the Petitioner with worthless personal litigation to recklessly and unlawfully seek to spend and dissipate the Company's funds, in conjunction with R5, on such unlawful activities."

The minutes of the annual general meeting on 1 August 2003 exhibited by Mr Branch record that two resolutions relevant to this allegation were passed. The first was for an indemnity in respect of the costs of proceedings brought by Mr Branch:

"To resolve that the Directors, Solicitors and Managing Agents be fully indemnified in respect of legal costs incurred in connection with litigation commenced by Mr Branch."

The minutes record that at the start of the debate on this resolution article 22(a) of the Company's articles of association was read out. It provides as follows:

"Every Director or other officer or Auditor of the Company shall be indemnified out of the assets of the Company against all losses or liabilities which he may sustain or incur in or about the execution of the duties of his office or otherwise in relation thereto, including any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application under Section 727 of the Act in which relief is granted to him by the Court, and no Director or other officer shall be liable for any loss, damage or misfortune which may happen to or be incurred by the Company in the execution of the duties of his office or in relation thereto. But this Article shall only have effect in so far as its provisions are not avoided by Section 310 of the Act"

Section 310 of the Companies Act 1985 provides as follows:

"(1) This section applies to any provision, whether contained in a company's articles or in any contract with the company or otherwise, for exempting any officer of the company or any person (whether an officer or not) employed by the company as auditor from, or indemnifying him against, any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust of which he may be found guilty in relation to the company.

(2) Except as provided by the following subsection any such provision is void.

(3) This section does not prevent a company- (a) from purchasing and maintaining for any such officer or auditor insurance against any such liability, or (b) from indemnifying any such officer or auditor against any liability incurred by him-

(i) in defending any proceedings (whether civil or criminal) in which judgment is given in his favour or he is acquitted, or

(ii) in connection with any application under section 144(3) or (4) (acquisition of shares by innocent nominee) or section 727 (general power to grant relief in case of honest and reasonable conduct) in which relief is granted to him by the court."

43. It is clear, both as a matter of law and from the fact that the relevant article was read out at the meeting, that the resolution is subject, so far as applicable, to the restrictions imposed by section 310. So far as the action commenced by Mr Branch in the Bournemouth County Court is concerned, it had been struck out on 6 August 2002 and there is no ground on which the directors could not properly have the benefit of the indemnity in respect of their costs. So far as this petition is concerned, allegations of breach of duty are made against the directors and the effect of section 310(3)(b)(i) is that a company may indemnify its directors against the costs of defending proceedings for alleged breach of duty, but only if judgment is given in their favour. The evidence before the court shows that £9,000 was paid in about November 2003 to Turners in respect of their costs when acting for the respondents to the petition. It was funded by a levy of £151 per flat and it is therefore not clear whether the payment was made out of the Company's funds or out of members' personal funds. If the former, Mr Branch relies on it as a breach of duty and as unfair prejudice. In a very recent letter to the court he suggests that the accounts for 2003 show that a total of £24,922 of the Company's funds has been spent in this way. In my judgment, Mr Branch cannot demonstrate any unfair prejudice to himself as a member arising from this. In all other respects, I have held his petition to be unsustainable. It follows that it should be struck out and there will then be no bar under section 310 on the Company indemnifying the respondents for their costs in defending this petition. If it is the case that the Company's funds have been used for this purpose a little earlier than permitted under section 310, it has in this case caused no unfair or material prejudice to Mr Branch.
44. The second resolution passed at the meeting which is relevant to this allegation is recorded in the minutes as follows:

"To resolve that the Directors instruct Turners as Solicitors to commence proceedings against Mr Branch in respect of unpaid service charges and legal costs incurred in respect of earlier litigation commenced by Mr Branch and to consider action to be taken to minimise future legal costs and proceedings relating to Mr Branch."

There can be no conceivable objection to a resolution authorising the directors to instruct solicitors to bring proceedings to recover debts which remain unpaid. So far as instructing solicitors to consider action to be taken to minimise future legal costs and proceedings, the difficulties resulting from Mr Branch's actions as perceived by the directors and others are set out in a letter dated 3 July 2003 from Owens & Porter to all members. The resolution is recorded as being passed by 30 votes with no votes against it. In my judgment, the members were unarguably entitled to authorise such expenditure and there is no basis for Mr Branch's allegations that it was designed "to vindictively pursue and persecute the petitioner with worthless personal litigation."

45. The final group of allegations are that the respondents have "repeatedly defamed and threatened" Mr Branch. These allegations have no place in a petition under section 459. I should also mention that Mr Branch complains vigorously that he has been the subject of anti-semitic comments in a letter to shareholders. The respondents told me that they were appalled to be described as anti-semitic. In dealing with the present application I need only say that the allegation provides no arguable basis for this petition.
46. Additional allegations are made against Mr Owens. The main thrust of these allegations relate to his control of the Company's funds held in the designated accounts with Nationwide Building Society. I have already held these allegations to be incapable of founding this petition. In addition, in paragraph 46 (K) to (N), Mr Branch makes allegations in relation to a transfer of £60,000 from the funds of a different management company to one of the Company's accounts with Nationwide Building Society. It is quite obvious that this was an error, which was corrected when it was discovered. There can be no suggestion that it involved any prejudice to the Company or its members. Paragraph 46 (S) raises an entirely irrelevant allegation in relation to a different property of which Owens & Porter are the managing agents. It also appears from Mr Owens' evidence to be wrong.
47. I am satisfied that there is no sustainable basis for Mr Branch's petition and that I should strike it out under CPR Part 3.4 on the application made by all the respondents. It is not necessary to consider Mr Owens' separate application on which I make no order and it follows that I dismiss Mr Branch's application for the appointment of a receiver.
48. The petition and Mr Branch's supporting evidence, including his correspondence, are littered with allegations of dishonesty and bad faith. There is no basis for these allegations, which should never have been made. I have sought to deal with each of the issues raised by Mr Branch on its merits, and have concluded that all of them are devoid of merit. There is one point of law, namely whether notice of general meetings of the Company should contain the names of candidates for appointment as directors, which required some analysis. Although I have held that Mr Branch's argument is clearly wrong in law, the point could have been raised in a sensible way in proceedings which could not then have been described as vexatious. As it is, however, Mr Branch has made a serious of wholly unfounded allegations couched in extreme language which in my judgment render these proceedings vexatious. As well as being devoid of merit they have subjected the respondents, four of whom are unpaid volunteers, to harassment and unnecessary expense. Accordingly, I strike out the petition.