Summary
Permission for a statutory derivative claim involves a structured assessment under Companies Act 2006. At an inter-parties hearing, the court may treat the preliminary prima facie stage as having been passed and decide directly whether permission should be granted. The court must assess the statutory criteria, including good faith, the company’s interests, the merits, alternative remedies, ratification, costs and the company’s position.
Retrospective permission is available to validate procedural steps taken without permission. The appropriate framework is relief from sanctions under the Denton principles, rather than the service-validation test under CPR r 6.15 or an unstructured best-interests-of-justice test. Serious default does not necessarily defeat relief where the breach was inadvertent, the defendants suffered little prejudice, and refusal would prevent potentially viable company claims from being pursued.
Factual background
Wilton UK Ltd sought permission to continue derivative proceedings on behalf of Banks Mount Oswald Ltd against directors and associated companies concerning alleged breaches of fiduciary duty, misuse of confidential information and conspiracy arising from the acquisition and development of a golf-course site.
The claim form was issued within the limitation period, but the claimant served the claim form and particulars of claim without first obtaining the permission required by Companies Act 2006 and CPR Part 19. The defendants challenged jurisdiction and service. The court had to determine whether prospective permission should be granted and whether permission could and should be granted retrospectively.
Held
- Prospective permission. The court treated the first-stage prima facie assessment as having been passed, but held that this did not prevent the court from concluding at the inter-parties stage that the case was insufficient. The better approach was to decide directly whether permission should be granted, rather than conduct two unnecessarily complicated stages.
- Under ss 260 and 263 of the Companies Act 2006, permission had to be refused only if the statutory refusal conditions were established. Otherwise the court had to consider the statutory factors, including good faith, the importance a director acting under s 172 would attach to continuation, ratification, the company’s decision, and whether the claimant had a personal remedy.
- The pleaded claims were substantial and not weak. The evidence supported an arguable legal interest of BMO in the replacement acquisition opportunity. The potential direct claim was not clearly an adequate alternative, including because it might be barred by reflective loss while the derivative claim could succeed. Costs and funding were relevant, but carried little weight on these facts. A dormant or insolvent company could benefit by recovering damages and becoming solvent.
- Retrospective permission. The court had jurisdiction to validate service and other procedural steps taken without permission. The issue concerned authority to continue derivative proceedings, principally between the claimant and the company, rather than the protection afforded to defendants by originating-process service rules. The applicable structured approach was the Denton relief-from-sanctions framework: seriousness and significance of the breach, the reason for it, and all the circumstances.
- The breach was serious and the explanation unsatisfactory. Nevertheless, it was not abusive, the defendants suffered little practical prejudice, the underlying claims were potentially viable, and refusal would risk preventing company causes of action from being pursued. Limitation did not justify refusal. Retrospective and prospective permission were therefore granted, subject to completion of disclosure, with further case-management directions to be agreed or determined.
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Key cases cited
15 authorities cited.
- Burnden Holdings (UK) Limited v Fielding and another [2018] UKSC 14
- Barton v Wright Hassall LLP [2018] UKSC 12
- Williams v Central Bank of Nigeria [2014] UKSC 10
- Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Associated Industrial Finance Pty Ltd, Third Party) [2004] UKPC 39
- Wishart v Castlecroft Securities Ltd [2009] CSIH 65
- Roberts v Gill & Co & Anor [2008] EWCA Civ 803
- Bridge v Daley [2015] EWHC 2121
- Stimpson & Ors v Southern Private Landlords' Association & Ors [2009] EWHC 2072 (Ch)
- Franbar Holdings Ltd. v Patel & Ors [2008] EWHC 1534 (Ch)
- Bradstock Trustee Services Ltd v Nabarro Nathanson [1995] 1 WLR 1405
- McDonald v Horn [1995] ICR 685
- Bishopsgate Investment Management Ltd. v Maxwell (No. 2) [1994] 1 All ER 261
- Wallersteiner v Moir (No 2) (Moir v Wallersteiner) [1975] QB 373
- In re Field deed (Field v Firmenich & Co) [1971] 1 WLR 555
- In re Duomatic Ltd [1969] 2 Ch 365
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Cases citing this case
1 later case · 1 caution
Most senior citing decisions:
- Woodward & Anor v Phoenix Healthcare Distribution Ltd [2019] EWCA Civ 985 distinguished
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