Fanmailuk.com v Cooper

The claim involves two separate causes of action: (i) a proprietary claim by Fanmailuk.com Limited that the issued shares in Dialtime Plus Limited are held on trust for it, and (ii) a derivative claim by Mr Burtenshaw on behalf of Dialtime alleging that former directors diverted a corporate opportunity to MCashback in breach of fiduciary duty. The court treated permission to continue the derivative claim under CPR 19.9 and the Companies Act 2006 (sections 260–263 and relevant transitional provisions) as requiring active case management.

Because the issues in the two claims are distinct with no factual overlap, the judge directed a preliminary trial of Fanmail's proprietary claim before any trial of the derivative claim and adjourned determination of the application for permission to continue the derivative claim. The rationale was that, if Fanmail succeeds it will control Dialtime and the derivative permission question may become unnecessary; CPR 1.4 requires the court to identify and sequence issues for efficient resolution. The court expressly declined to determine the substantive merits of the derivative claim at this stage.

Parties and background:

• Claimants: Fanmailuk.com Limited and Mr Paul Burtenshaw (on behalf of certain Dialtime shareholders).
• Defendants: Robert Cooper, David Cooper, Ahmed Zghari, MCashback Limited, Dialtime Plus Limited and Yvonne Wayne.
• Factual background: Dialtime was created to develop a system for granting mobile phone airtime at supermarket checkouts. Registered shares in Dialtime were held in the names of Mr Burtenshaw, Mr Robert Cooper and Mr Zghari (a fourth share was registered in the name of the Sixth Defendant). Fanmail alleges the registered shareholders hold the shares on trust for Fanmail. The derivative claim alleges that directors transferred Dialtime's intellectual property to MCashback on 6 September 2002, after which Dialtime became moribund and MCashback carried on development and marketing. MCashback later attracted substantial investment from Standard Chartered Bank in February 2007.

Nature of the proceedings and relief sought:

• Fanmail seeks a declaration that the issued share capital of Dialtime is held on trust for Fanmail and an order transferring the shares.
• Mr Burtenshaw brings a derivative claim for the benefit of Dialtime seeking (inter alia) declarations that MCashback holds certain interests on trust for Dialtime, an account of profits for the "Corporate Opportunity" or equitable compensation for breach of fiduciary duty, and alternatively payment under the assignment.

Procedural posture: Lightman J had granted permission to continue a derivative claim on 3 May 2007 (unopposed). The Claimants served Re-amended Particulars of Claim; the First to Fourth Defendants contended further permission was required. On 19 March 2008 Floyd J (by consent) granted permission to re-amend and adjourned the continuance application. The present hearing was an adjourned application under CPR 19.9, considered against the framework of sections 260–263 of the Companies Act 2006 and the transitional provisions in Schedule 3 to the Commencement Order (S.I. 2007/2194).

Issues framed by the court:

1. Whether permission to continue the derivative claim should be refused or granted under CPR 19.9 and the Companies Act 2006.
2. Case management question whether to determine the proprietary claim of Fanmail as a preliminary issue before deciding the application for permission to continue the derivative claim.

Contentions:

• Claimants (Mr Tomlinson QC): the derivative claim is a paradigmatic case for permission because the directors diverted a valuable corporate opportunity to MCashback; substantial sums may be recoverable and an independent board would likely decide to continue the claim (section 172, Companies Act 2006; Airey v Cordell cited).
• Defendants (Mr Kosmin QC): argued the transferred rights were demonstrably worthless, the claim would be expensive with little prospect of recovery, and various conduct and funding features suggested the claim was not bona fide; urged refusal of permission or, alternatively, a preliminary trial of Fanmail's proprietary claim.

Court's reasoning and decision: The judge refused to embark on a mini-trial of disputed facts on the permission application. Applying CPR 1.4 (active case management), and because Fanmail's proprietary claim and the derivative claim are legally and factually distinct with no overlap, the judge directed a trial of Fanmail's claim as a preliminary issue and adjourned resolution of the derivative permission application until after that trial. The principal reason was that a finding for Fanmail would place control of Dialtime with Fanmail and could render the derivative permission question unnecessary. The court gave directions for trial on the first available date after 1 October 2008 and reserved detailed adjudication of the permission application and merits.

The court directed that Fanmail's proprietary claim to the beneficial ownership of the Dialtime shares be tried as a preliminary issue and adjourned the application for permission to continue the derivative claim brought by Mr Burtenshaw. The decision was made as a case management exercise under CPR 1.4 and having regard to CPR 19.9 and the Companies Act 2006 (sections 260–263 and transitional provisions), because resolution of the proprietary claim could make the derivative permission question unnecessary. The court did not decide the substantive merits of the derivative claim.