Bridge v Daley & Ors

The court refused permission to continue a derivative claim brought under the Companies Act 2006 because the statutory and discretionary tests in sections 260, 261 and 263 were not satisfied. The judge applied the framework in Iesini and Stimpson and held that an independent board and a substantial body of disinterested shareholders opposed continuation, there was no prima facie case against some defendants, and the claim against one defendant was barred by a settlement agreement. The judge also found the claim raised matters more appropriately pursued by an unfair prejudice petition, and that the applicant was not a suitable person to conduct the derivative litigation. Costs were ordered against the applicant, with indemnity costs from 1 October 2014 and interim payments on account.

This was a first-instance hearing of an application for permission under the Companies Act 2006 to continue a derivative claim on behalf of Elektron Technology plc by a minority shareholder holding 1.83%.

The claimant sought a wide range of remedies including an inquiry, restitution to the company, suspension or annulment of the JSOP and other share schemes, removal or suspension of directors, and indemnity for costs. The pleaded complaints alleged mismanagement, misleading market statements, market manipulation, unfair implementation of incentive schemes and other breaches by the directors.

The court framed the issues principally under the statutory tests in sections 260, 261 and 263 of the Companies Act 2006: whether the applicant had disclosed a prima facie cause of action arising from breach of duty by a director; whether a director acting pursuant to section 172 would seek to continue the claim (mandatory bar under s263(2)(a)); and, if not barred, whether permission should nonetheless be refused by reference to the factors in s263(3) and the special regard to disinterested members required by s263(4).

The judge proceeded on the pragmatic two-stage approach reflected in Stimpson, considering the strength of the claim on the evidence filed. He reviewed the company’s consultation with major shareholders and the minutes of the Annual General Meeting, and accepted the independent board’s considered decision that the company should not pursue the litigation. He found that:

• the settlement agreement operated to bar the claim against the third defendant;
• the particulars of claim did not sufficiently particularise breaches by the second, third and fifth defendants so as to establish a prima facie cause of action against them;
• alleged dilution and non-consultation about the JSOP did not, on the evidence, demonstrate breach of duty to the company;
• the mass of governance complaints were better suited to an unfair prejudice petition than to a derivative claim;
• the applicant, although genuinely aggrieved, had conducted himself and the litigation in a manner that made him unsuitable to conduct a derivative claim.

On that basis permission was refused (mandatory bar established and, alternatively, discretionary refusal under s263(3) and (4)). The court ordered costs against the applicant: standard basis up to 1 October 2014 and indemnity basis thereafter, with interim payments on account to the individual defendants and to the company.

The application for permission to continue the derivative claim is dismissed. The judge found that the mandatory bar in section 263(2)(a) was satisfied because no director acting in accordance with section 172 would pursue the claim, as evidenced by the independent board and the views of disinterested shareholders; alternatively the court would refuse permission in the exercise of its discretion under sections 263(3) and (4) because the claim lacked sufficient particularity and merit against several defendants, one defendant was released by a settlement, the alleged loss to the company was inadequately pleaded, and the claimant was unsuitable to conduct the litigation.