Robert Glew & Denton And Co Trustees Ltd & Anor v Matossian-Rogers & Ors

The claimants sought permission under section 261 of the Companies Act 2006 to continue proceedings as a derivative claim on behalf of Amro Biotech plc against two directors for alleged breaches of duty. The court applied the statutory tests in ss.260–263 CA 2006 and the guidance in Iesini v Westrip Holdings Ltd, considering whether a director acting in accordance with s.172 CA 2006 would continue the claim.

The judge found that, although the principal intellectual property claim had reasonable prospects on the merits, the claimants had failed to show that the claim was of sufficient commercial value or importance to justify the costs, delay and risk to the company. The judge also concluded that mandatory grounds for refusal applied in respect of the alternative tax/EIS consequential loss claim and, following an undertaking given by the first defendant, the excessive royalties head of claim. Permission to continue the derivative claim was refused because no sensible director acting under s.172 would pursue the litigation given the company’s inability to fund expensive proceedings, the speculative or limited commercial benefit, and the likely prejudice to the company.

Background and parties:

• The claimants were two minority shareholders who sought permission for Amro Biotech plc to bring a derivative claim against the first and second defendants (majority shareholders and directors) alleging breaches of directors’ duties in relation to ownership and exploitation of patents and related intellectual property.
• The principal contracts in issue were the 1999 Patent Licence Agreement and Service Agreement and a later 2016 Patent Licence Agreement. The dispute concerned ownership of improvements and subsequent patents (2005 and 2014), alleged improper amendments to licence terms, and consequential tax/EIS risks and royalties.

Procedural posture and relief sought:

• This was a first instance application for permission under section 261 Companies Act 2006 to continue the claim as a derivative claim on behalf of the company.

Issues framed by the court:

1. Whether the statutory mandatory bars to permission applied (in particular whether a director acting in accordance with s.172 would pursue the claim under s.263(2)(a));
2. The strength, size and commercial importance of the proposed claims (IP ownership, alternative tax/EIS consequential loss, and excessive royalties);
3. Whether the member claimants were acting in good faith and whether alternative remedies (for example s.994 unfair prejudice) were more appropriate;
4. Whether views of independent members favoured permission and whether the company could fund litigation.

Court’s reasoning and conclusions:

• The court applied the two-stage derivative claim framework and the factors identified in Iesini, focusing on the commercial judgment a director would make under s.172 CA 2006 (including size and strength of claim, cost, funding, disruption and impact on the company).
• On the IP ownership claim the judge considered the contractual provisions, the wide definition of "improvements" in the 1999 PLA and the SA, and the lack of detailed evidence from the registered inventor as to how the later patents arose entirely outside the scope of company-funded R&D. The judge concluded the IP claim was reasonably strong on the merits but insufficiently shown to be of substantial commercial value or necessary to secure investment.
• The alternative consequential loss (tax/EIS) claim was speculative and inadequately evidenced; the judge found a mandatory ground for refusal in relation to it. The excessive royalties point was removed by an undertaking from the first defendant not to assert the broader construction the claimants feared.
• The company’s precarious financial position, inability to fund lengthy litigation, difficulty of funding the claim and the likelihood of further delay and disruption weighed decisively against granting permission.
• The court therefore refused permission to continue the derivative claim. The judge noted potential case management issues if permission had been granted (indemnity, need for substituted particulars, ADR, possible transfer to IP lists) but declined to permit the claim.

Permission to continue the derivative claim is refused. The court concluded that, applying ss.260–263 Companies Act 2006 and the s.172 test, no director acting in accordance with s.172 would pursue the claim given the company’s inability to fund the litigation, the speculative or limited commercial benefit of the principal claims and the prejudice to the company. A mandatory ground for refusal applied to the alternative tax/EIS claim, and the excessive royalties claim was neutralised by an undertaking.