Parry v Bartlett & Anor

Permission for a derivative claim requires a staged assessment. The application must first disclose a prima facie case. If it passes that threshold, the court must form a provisional view of the claim’s strength without conducting a mini-trial. Under Companies Act 2006, permission is mandatory where no director acting in accordance with section 172 would continue the claim, but discretionary where some would and others would not. A director controlling a deadlocked company cannot ordinarily rely on ratification of alleged wrongdoing against himself. An additional personal benefit does not defeat good faith where the claim genuinely benefits the company. An alternative remedy is a factor, not an absolute bar.

The claimant and the first defendant were equal shareholders and directors of the second defendant company. After the company sold its only material asset, most of the proceeds were paid to the first defendant or a company under his control. The claimant alleged breach of trust and fiduciary duty and sought permission to continue a derivative claim for the company.

The first defendant relied on alleged prior agreement or ratification, delay, lack of good faith and the availability of an unfair-prejudice petition. The court considered the statutory permission regime, its transitional application to acts occurring before 1 October 2007, and whether the claim should proceed.

1. Permission granted. The claimant was permitted under section 261 of the Companies Act 2006 to continue the derivative claim on behalf of the company.
2. The court applied the two-stage approach explained by Lewison J in Iesini v Westrip Holdings [2011] 1 BCLC. At the first stage the evidence had to disclose a prima facie case. At the second stage the court had to form a provisional view of the claim’s strength. That required more than a prima facie case, but not a mini-trial.
3. There was a strong prima facie case that the company had been deprived of substantial sale proceeds and part of a VAT refund through breach of fiduciary duty.
4. For section 263(2)(a), refusal is mandatory only if no director acting in accordance with section 172 would seek to continue the claim. If some directors would do so and others would not, section 263(3)(b) applies. Fairness between members remained important.
5. The alleged wrongdoing had not been ratified. The company was deadlocked, and the defendant could block proceedings against himself. This was within the common-law exception to the rule in Foss v Harbottle (1843) 2 Hare 461, 67 ER 189.
6. The claimant’s wish to recover sums personally due did not establish bad faith because the proceedings remained substantially for the company’s benefit. An alternative section 994 petition was neither an absolute bar nor a realistic and proportionate alternative.
7. The transitional provision did not prevent permission because the claim would have been allowed under the pre-2007 law.