Bhullar v Bhullar & Ors

The court retains common-law jurisdiction to permit a double derivative claim; sections 260 to 264 of the Companies Act 2006 do not remove it. The claimant must show a prima facie case that the company is entitled to relief. The court should consider the evidence as a whole, without assuming the allegations are true or conducting a mini-trial. Dishonest fiduciary breach may avoid the limitation period. The fraud-on-the-minority exception requires actual fraud or, for other breaches of duty, a prima facie benefit to the wrongdoer. An independent board need only be able to consider proceedings appropriate. A prospective costs indemnity is discretionary, requires considerable care and a high degree of assurance, and is not automatic.

A minority shareholder sought permission under CPR 19.9 to continue a double derivative claim on behalf of two companies wholly owned by their holding company. The claim alleged that the first defendant, a director, had caused payments to be made to his wholly owned company and had acquired development land from one of the companies.

The application raised issues concerning common-law jurisdiction, the prima facie case threshold, limitation, the fraud-on-the-minority exception to Foss v Harbottle, wrongdoer control, the availability of proceedings under section 994 of the Companies Act 2006, and a prospective indemnity for costs.

Disposition. Permission was granted to continue the derivative claim concerning the payments to Torex, but refused in relation to Southgate B. No pre-emptive costs indemnity was ordered. The claim was stayed for three months to allow mediation.

1. Jurisdiction. The court followed Universal Project Management Services Ltd v Fort Gillicker Ltd [2013] Ch 551 and Abouraya v Sigmund [2014] EWHC 277 (Ch). The common-law jurisdiction to permit a double derivative claim survived sections 260 to 264 of the Companies Act 2006.
2. Prima facie case and limitation. The court applied the approach in Abouraya v Sigmund, treating a prima facie case as higher than a seriously arguable case, while recognising that disputed facts and credibility should generally await trial. The payments to Torex disclosed a prima facie dishonest breach of fiduciary duty. Under sections 21(1) and 21(3) of the Limitation Act 1980, the claim was therefore not statute-barred.
3. Fraud on the minority. Applying Foss v Harbottle (1843) 2 Hare 461, the payments involved dishonesty and a benefit to the director through his wholly owned company. The evidence did not establish a prima facie undervalue or dishonesty concerning Southgate B. That part of the claim therefore did not satisfy the exception, subject to possible review if better valuation evidence emerged.
4. Control and appropriateness. Wrongdoer control was established on a prima facie basis because the alleged wrongdoing implicated the other controlling shareholder, who could block proceedings with the first defendant. The relevant question was whether an independent reasonable board could consider proceedings appropriate, applying the factors identified in Airey v Cordell [2007] BCC 785 and Iesini v Westrip Holdings Ltd [2010] BCC 420. The availability of a section 994 petition did not require refusal of permission.
5. Costs indemnity. The court had power to make a prospective indemnity order, but the authorities, including Wallersteiner v Moir (No. 2) [1975] QB 373, required considerable care and a high degree of assurance that the order would be proper after trial. The possible failure of the dishonesty case and the unfair transfer of costs risk to the companies justified refusing the indemnity. Permission was unrestricted as to litigation stage, subject to permission to apply for review.