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

Permission for a derivative claim should be refused where the statutory requirements are not met or where, after a provisional assessment of the merits, a reasonable director acting under Companies Act 2006 s.172 would not regard continuation as being in the company’s interests. The court must assess the claim’s strength, likely value, cost, funding, disruption, recoverability and effect on the company. A strong claim may still be unsuitable where its benefit is unclear, its remedy is uncertain, and litigation would materially delay or jeopardise the company’s survival. A derivative claim is distinct from a minority shareholder’s personal unfair-prejudice remedy.

Minority shareholders sought permission under Companies Act 2006 s.261 to continue proceedings on behalf of a biotechnology company against its two directors. The proposed claims concerned ownership of patents and improvements, alleged consequential tax and investment liabilities, and allegedly excessive royalties under licence agreements.

The court provisionally assessed the merits and considered the mandatory and discretionary grounds in s.263, including the hypothetical director’s interests under s.172, the claimants’ good faith, alternative remedies and the views of disinterested members. The central issue was whether permission should be granted for the company to pursue the proposed derivative claims.

1. Permission refused. The alternative consequential-loss claim was speculative and the excessive-royalties claim was removed as a live issue by the first defendant’s undertaking as to the royalty calculation. These claims therefore engaged mandatory grounds for refusal.
2. The court applied the principles in Iesini v Westrip Holdings Ltd [2009] EWHC 2526 (Ch). At the permission stage the court must do the best it can on the evidence. It must form a provisional view of the claim’s strength, without conducting a mini-trial, because that assessment is required when considering whether a director acting under s.172 would continue the claim.
3. The patent-ownership and improvements claims appeared reasonably strong. However, the evidence did not establish that recovery would produce substantial value or materially improve the company’s position. The company already had extensive exclusive licence rights, while the proposed remedies, limitation issues and possible joint ownership created uncertainty.
4. The hypothetical-director assessment required consideration of the claim’s importance, cost, funding, prospects of satisfying judgment, disruption, and effect on the company’s ability to obtain investment. The litigation would be complex, expensive and prolonged. The company could not fund it and the dispute itself was preventing further investment. The risks outweighed the uncertain benefit.
5. The claimants were not acting in bad faith, but their collateral aims of removing the directors or obtaining a buy-out were relevant. An unfair-prejudice petition under s.994 could provide a personal remedy, but that was materially different from a derivative claim and did not justify permission.
6. The court also considered the views of disinterested shareholders. Their evidence did not counterbalance the other factors. No reasonable director, and in any event no clear majority of reasonable directors, would continue the claim in the company’s interests.