Universal Project Management Services v Fort Gilkicker Ltd

This was an application for permission to continue a derivative action brought by a member of a limited liability partnership which owned all the shares in the company alleged to have been wronged. The court considered whether the common law recognised multiple (including double) derivative actions prior to the Companies Act 2006 and, if so, whether the 2006 Act abolished them.

The court held that the common law derivative action was a flexible procedural device that, before 2006, could be applied to permit persons other than immediate members of the wronged company (for example members of a parent entity) to sue on the company’s behalf where wrongdoer control disabled the company from suing. Section 260 and Chapter 1 of Part 11 of the Companies Act 2006 created a comprehensive statutory code for derivative claims by members of the wronged company, but did not, either expressly or by necessary implication, abolish the remainder of the common law device permitting multiple derivative claims. The court therefore granted permission to continue the multiple derivative action and proposed a short stay to permit negotiation.

The applicant, Universal Project Management Services Limited, sought permission to continue a derivative action on behalf of Fort Gilkicker Limited (the company which allegedly owned the cause of action). The applicant itself was not a shareholder of Fort Gilkicker Limited but a member of an LLP which wholly owned that company. The factual matrix concerned a disputed business opportunity in the development of Fort Gilkicker, where the second defendant, a director of the company and joint venture partner, was alleged to have allowed an option to expire and procured acquisition of the property through a company he controlled.

The nature of the application:

• Permission to continue a derivative action at common law (a multiple or "double" derivative action) on behalf of the company.
• The court was also asked to consider whether, if such claims survived, permission should be refused in the exercise of discretion or stayed for negotiation.

Issues framed:

• Whether multiple derivative actions were recognised by English common law prior to the Companies Act 2006.
• Whether the Companies Act 2006 (in particular section 260 and Chapter 1 of Part 11) ousted those common law multiple derivative actions.
• If the common law claim survived, whether permission should be granted in the exercise of the court’s discretion.

Reasoning and outcome:

The judge reviewed the historical common law doctrine of the derivative action, the authorities in which locus standi had been extended to members of holding companies, and persuasive authorities from other common law jurisdictions (notably Waddington). The court concluded that before 2006 the derivative action was a single flexible procedural device capable of accommodating claims brought by suitably interested persons who were not immediate members of the wronged company. On statutory construction the court accepted that Parliament created a comprehensive statutory code for derivative claims brought by members of the wronged company but did not clearly or necessarily intend to abolish the remainder of the common law device. The judge therefore held that multiple derivative actions survived the 2006 Act. On the facts, the Particulars of Claim disclosed a prima facie case of breach of fiduciary duty and wrongdoer control. The court granted permission to continue the multiple derivative action and proposed a short stay to encourage negotiation and mediation as a case management measure.

The judgment also addressed and rejected objections based on the intermediate owner being an LLP and alternative remedies such as an oral joint venture claim or an unfair prejudice petition, concluding those remedies were insufficient to displace a multiple derivative remedy on the present facts.

Permission granted to continue the multiple derivative action. The court held that (a) the common law derivative action was a flexible procedural device that could extend to members of an intermediate owning entity where wrongdoer control prevented the company from suing, and (b) the Companies Act 2006 did not clearly or necessarily abolish that common law device. On the facts a prima facie case was disclosed and permission was granted subject to case management measures including a short stay for negotiation.