Bridge v Daley & Ors

Permission to continue a statutory derivative claim requires more than a merely arguable case. The court must form a provisional view of the claim’s strength without conducting a mini-trial. Permission must be refused where no director acting in accordance with Companies Act 2006, section 172 would seek to continue the claim. Relevant factors include the views of disinterested members, the independent board’s commercial judgment, likely costs and risks, and alternative remedies. Allegations against individual directors must be separately and sufficiently pleaded. A derivative claim cannot be used to pursue complaints that are in substance personal shareholder grievances or unfair prejudice complaints.

The claimant, a minority shareholder in Elektron Technology plc, applied for permission to continue a derivative claim against four individual directors and former directors. The claim alleged mismanagement, breaches of duty, market-related wrongdoing, unlawful use of company funds, remuneration and share-option issues, and other corporate misconduct. The defendants and the company opposed continuation, relying on the weakness and lack of particularity of the allegations, the absence of identifiable loss to the company, shareholder opposition, and the decision of an independent board not to pursue the claim. The central issues were whether the statutory permission requirements were met and whether the claim should be refused under Companies Act 2006, section 263.

1. Permission refused. The application to continue the derivative claim was dismissed.
2. Under Companies Act 2006, sections 260 and 261, a derivative claim must concern a cause of action vested in the company arising from an act or omission involving negligence, default, breach of duty or breach of trust by a director. The applicant must show a sufficiently serious case involving an appropriate default and loss or damage to the company.
3. The court must avoid a mini-trial, but must form a provisional view of the strength of the claim so that it can apply section 263. The mandatory bar in section 263(2)(a) applies where no director acting in accordance with section 172 would seek to continue the claim.
4. The court may attach considerable weight to the views of genuinely disinterested members and to the properly reached commercial judgment of an independent board. The absence of wrongdoer control remains relevant, although it is not an absolute statutory bar. Likely costs, disruption, reputational damage, management diversion, prospects of recovery and the conduct of the proposed litigation are also relevant.
5. The claims against Mr Franklin were barred by the settlement agreement. The claims against Mr Acland and Mr Wilson disclosed no prima facie case of breach of duty causing actionable loss to the company. It was insufficient to allege that the directors were all involved. The claim against each director had to identify that director’s alleged breach, knowledge and resulting loss with sufficient particularity.
6. The failure to obtain shareholder approval for the JSOP did not itself establish unfairness or unlawfulness. Section 172 imposed no specific requirement to consult shareholders about it. Alleged dilution of voting rights concerned shareholders rather than loss suffered by the company.
7. In any event, permission would be refused under sections 263(3) and (4). The claim presented no sufficiently clear benefit capable of outweighing its financial and wider risks. Its real focus was shareholder disadvantage and corporate governance, making an unfair prejudice petition a more appropriate remedy. The claimant was ordered to pay costs, assessed on the standard basis up to 1 October 2014 and on the indemnity basis thereafter, with interim payments on account.

Not an appeal. The judgment determined the claimant’s first-instance application and dismissed the application to continue the derivative claim.