Iesini v Westrip Holdings

The claimants sought permission under section 261 of the Companies Act 2006 to continue a derivative claim on behalf of Westrip arising out of alleged breaches by directors and third parties relating to the purchase of Rimbal Pty Ltd and the consequences of rescission of the share sale agreements (SSAs). The court applied the statutory two-stage derivative procedure (sections 260–263) and the considerations in section 172 when deciding whether a director acting in good faith would seek to continue the claim.

The judge held that (i) the board were not culpable in accepting the rescission of the SSAs because they had taken and followed detailed legal advice and any estoppel or waiver arguments were weak or inconsistent with the facts; (ii) the conspiracy and restitution claims and the challenge to the board’s acceptance of rescission were so weak that permission to continue was refused; and (iii) the claim that Rimbal held Licence 2005/17 on trust for Westrip was arguable and of a different character, so the court adjourned the derivative application in respect of the trust claim and directed the board to reconsider its defence to the Australian proceedings. The injunction over the Northern and Southern licences was continued pending that reconsideration, subject to an unlimited cross-undertaking in damages.

Background: Westrip Holdings Ltd was formed to develop Greenland mineral licences held by Rimbal Pty Ltd. The parties entered into share sale agreements (SSAs) under which Rimbal shares were to be transferred to Westrip in consideration for redeemable preference shares in Westrip. Due to numerous procedural defects in Westrip’s internal steps the compliant redeemable preference shares were not validly allotted by the settlement/redemption dates. Rimbal exercised contractual rights to rescind the SSAs and re‑transferred its shares. Westrip entered joint venture arrangements (later involving GGG) for licences derived from Rimbal’s interests. The claimants, minority shareholders, applied under section 261 Companies Act 2006 for permission to continue a derivative claim on behalf of Westrip alleging breaches of duty, conspiracy, estoppel/waiver arguments against rescission, a restitution claim and that Rimbal held certain licences on trust for Westrip.

Relief sought: permission to continue a derivative claim under Part 11 Chapter 1 of the Companies Act 2006 seeking (among other things) reversal of the alleged asset stripping, declarations of beneficial ownership of licences and restitutionary relief; continuation of injunctive/freeze relief over assets.

Issues framed:

• whether the claimants disclosed a prima facie case and whether a director acting in accordance with section 172 would seek to continue the claim (section 263(2)(a));
• whether the rescission of the SSAs was effectively a sham, or whether estoppel/waiver or affirmation could prevent rescission;
• whether a restitutionary claim lay against Rimbal/other defendants;
• whether license 2005/17 (later split into Northern and Southern licences) was held by Rimbal on trust for Westrip, and the consequences for Westrip’s joint venture and GGG shares;
• whether injunction/freeze relief should remain.

Reasoning and findings: the court analysed the statutory framework for derivative claims (sections 260–263 and the duty in section 172). It found that the alleged internal failures to allot redeemable preference shares meant Rimbal had contractual rights enabling rescission; the new board sought and followed eminent counsel and solicitor advice and were not guilty of actionable breach in accepting rescission. Estoppel/waiver arguments were weak and inconsistent with documentary facts (including variation agreements and contemporaneous letters), and statutory restrictions (e.g. rules on payments out of capital) militated against an estoppel by convention. The restitution claim as pleaded was not a derivative cause of action falling within Chapter 1 and would be a matter for section 994 proceedings. By contrast the trust claim (that Rimbal held Licence 2005/17 on trust for Westrip) raised issues independent of director default and appeared to have some force given contractual recitals, the Side Deed and warranties relied on in the joint venture documentation; it therefore warranted further consideration by the board rather than dismissal.

Disposition: permission to continue the derivative claim was refused in respect of the conspiracy allegation, the challenge to the rescission acceptance and the restitutionary claim. The application was adjourned in respect of the trust claim and the court directed the board to reconsider its defence to the Australian proceedings. The court continued the injunction in respect of the Northern and Southern licences pending that reconsideration, on condition of an unlimited cross-undertaking in damages by the claimants.

This was a first instance decision. The court refused permission under section 261 Companies Act 2006 to continue the derivative claim in respect of the conspiracy allegation, the decision to accept rescission and the restitution claim because those elements were weak and the board had acted on considered legal advice. The trust claim that Rimbal held Licence 2005/17 on trust for Westrip was potentially arguable and distinct from director default; the court adjourned the derivative application in relation to that claim and directed the board to reconsider its defence to the Australian proceedings. The injunction was continued limited to the Northern and Southern licences pending the board’s reconsideration, on condition of an unlimited cross‑undertaking in damages. Rationale: statutory derivative procedure and duty in section 172, the board’s reliance on specialist legal advice, inconsistency and weakness in estoppel/waiver arguments, and the separate character and reasonable prospects of the trust claim warranted further consideration rather than dismissal.