Bamford & Ors v Harvey & Anor

Permission for a statutory derivative claim may be refused where the company itself can bring the proceedings effectively. Wrongdoer control is not an absolute precondition for a derivative claim, but the availability of company proceedings remains a relevant discretionary consideration. The court should apply the flexible permission framework in Companies Act 2006, Part 11, while preserving the principle that the company is normally the proper claimant for a wrong done to it. Where proceedings could properly be issued in the company’s name and no practical objection exists, the derivative claim should be reconstituted as an ordinary company claim.

The claimant and the first defendant were the company’s two directors and equal shareholders. The claimant alleged that the first defendant had improperly received a £3.5 million company loan and sought permission to continue proceedings derivatively under Part 11 of the Companies Act 2006. The company’s shareholders’ agreement provided that a director conflicted in relation to an alleged breach would be excluded from decisions concerning proceedings against him. The issue was whether the claimant could procure proceedings in the company’s own name and, if so, whether permission for the derivative claim should nevertheless be granted.

1. Permission refused and claim reconstituted. The claimant could have arranged for the company to commence proceedings against the defendant under the shareholders’ agreement. The derivative claim was therefore not permitted to continue and was ordered to be reconstituted as an ordinary claim in the company’s name.
2. Part 11 establishes a two-stage permission procedure. Under section 263, permission must be refused on the mandatory grounds in section 263(2). If those grounds do not apply, the court must consider the factors in section 263(3), together with the members’ views under section 263(4). Those matters do not exhaust the relevant discretionary considerations.
3. The availability of proceedings by the company is relevant even though wrongdoer control is not an absolute condition for a derivative claim. The court followed the flexible approach in Wishart v Castlecroft Securities Ltd [2009] CSIH 65, while maintaining the proper-plaintiff principle identified in Cinematic Finance Ltd v Ryder [2010] EWHC 3387 (Ch).
4. On the proper construction of clause 11 of the shareholders’ agreement, the claimant had full authority on behalf of the company to litigate the claim against the defendant. The defendant was excluded from the relevant decision-making. There was also no evidence that the company could not fund the litigation.
5. The possibility of uncertainty about the claimant’s authority, or an objection by the defendant to proceedings under clause 11, might in an appropriate case justify a derivative claim. Neither feature existed here. The failure to identify the contractual mechanism before issuing the derivative claim was an oversight.