Boston Trust Company Ltd v Szerelmey Ltd & Ors

The court considered a second‑stage permission application by Boston to continue a multiple common‑law derivative action on behalf of three operating companies. The core legal questions were (i) whether Boston had sufficient interest (standing) to pursue derivative claims at common law, (ii) whether each pleaded head of claim met the interlocutory threshold for a prima facie case, (iii) whether the fraud‑on‑the‑minority / wrongdoer control exception to Foss v Harbottle applied, and (iv) whether it was appropriate to permit a derivative action rather than using alternative remedies.

The judge found that Boston had shown prima facie merit for all four pleaded heads of claim (management fees, asset transfers, loans, and a labour broking business claim) and that the evidence supported an inference of wrongdoer control by the majority stakeholder (satisfying the fraud on the minority exception). The court also found on the balance of probabilities that Boston had validly been appointed trustees of the relevant trust.

However, the court concluded that Boston did not at the present time possess sufficient legal or recognised beneficial title to the relevant Tellisford shares to establish common‑law standing: any equitable interest identified was insufficient in law to found a common‑law derivative claim in these circumstances. For that reason the permission application could not be granted. The judge noted the merits and that, but for the standing defect, permission would have been granted, and that the remedy and form of order following the judgment (including possible conditional or stay terms) would be considered further on submissions.

Background and procedural posture. This was a contested second‑stage permission application to continue a multiple common‑law derivative claim. Boston, acting as trustees of a discretionary trust said to hold indirect minority interests in three operating companies, sought permission to pursue four heads of derivative claim against a majority stakeholder (Mr Verhoef) and various recipient companies. First‑stage permission had been granted ex parte in September 2019 for some heads; the present hearing considered continuation of that permission. A parallel rectification claim to update the Tellisford share register was pending.

Parties and facts. The dispute arose from a breakdown in the long‑running relationship between two principal stakeholders who effectively controlled a group of companies. Boston alleged that, from about 2016, the majority stakeholder dishonestly arranged inter‑company payments, transfers and loans that disadvantaged the operating companies and benefited entities under his control. The four pleaded heads were: (i) management/consultancy fee invoicing to related recipient companies, (ii) transfers of assets to a related entity and licence/leaseback arrangements, (iii) substantial unsecured loans to related Heritage‑entities, and (iv) transfer of a labour broking business to a related group company. The defendants denied dishonesty and relied on explanations of legitimate risk management, profit‑sharing practice, or that any loss was neutralised by a one‑third interest said to be held by the minority in recipient companies.

Issues framed by the court. The court framed a structured analytical matrix. Key issues were standing (sufficient interest at common law), whether each claim met the interlocutory prima facie threshold, whether the fraud‑on‑the‑minority / wrongdoer control exception applied, whether Boston had suffered reflective loss, whether the operating companies’ boards were independent, whether an ulterior purpose or adequate alternative remedy (notably an unfair prejudice petition under s.994 Companies Act 2006 or a personal claim between principals) made a derivative route inappropriate, and whether a hypothetical independent board could conclude it was appropriate to bring the claims.

Court’s reasoning and findings. On standing the judge analysed the distinction between legal title, beneficial ownership and lesser equitable rights such as a right to seek rectification or an equitable/contractual right to require execution of transfer instruments. The court held that Boston had been validly appointed as trustees of the trust on the balance of probabilities, but that they could not show legal title to the Tellisford A or B shares and that any lesser equitable interest they could demonstrate (for example an entitlement to rectification or to procure transfer instruments) was not sufficient in the existing authorities to found common‑law standing for a multiple derivative action. The judge accepted authority (including Jafari‑Fini and Fort Gilkicker) that beneficial ownership can, in exceptional cases, suffice, but considered that those exceptional circumstances were not established here.

On the merits the court found that Boston had comfortably met the interlocutory threshold in respect of each of the four pleaded heads: contemporaneous records and chronology supported an inference that the majority stakeholder exercised dominant influence and that the impugned transactions were capable of being dishonest extractions benefiting related recipient companies. That meant the fraud‑on‑the‑minority exception was satisfied at the interlocutory stage. The court rejected the defendants’ ‘swings and roundabouts’ argument as a bar to reflective loss on the present evidence.

On appropriateness the judge found no cogent evidence of an ulterior motive by Boston and concluded that an unfair‑prejudice petition or a narrow personal claim were not adequate or more appropriate remedies for the allegations of serious wrongdoing and the range of restorative and restitutionary remedies sought on behalf of the companies. Considering the Iesini/Bhullar factors the court concluded that an independent board could reasonably decide to litigate.

Disposition. The application for continuation of permission was not granted because Boston lacked sufficient standing at the present time. The judge recorded that, but for that standing defect, permission would have been granted, and left open the question of the precise form of order and next steps (including the effect of the pending rectification claim or possible conditional permission) to be resolved on further submissions.

The court refused to grant continuation permission for Boston to pursue the common‑law derivative claims because Boston did not currently possess sufficient legal or recognised beneficial title to the relevant Tellisford shares to establish common‑law standing. The judge nevertheless found that (i) Boston had been validly appointed as trustees of the trust on the balance of probabilities, (ii) each of the four pleaded heads of claim met the interlocutory prima facie threshold and (iii) the fraud‑on‑the‑minority / wrongdoer‑control exception was made out on the available evidence. The refusal turned on the standing defect; the judge left the precise consequential order (including any conditional route linked to the Rectification Claim) to be addressed on submissions.