Gill v Thind & Ors

Permission is required before a shareholder may continue an ordinary derivative claim, and comparable common-law principles govern double derivative claims. At the substantive permission stage, the claimant must show more than a prima facie case, but need not establish a strong case. The court must avoid conducting a mini-trial. If the threshold is met, the court exercises a fact-sensitive discretion, including consideration of good faith, the company’s interests and any alternative personal remedy. An alternative remedy is not an absolute bar, but an unfair prejudice petition may be preferable where the dispute is essentially between quasi-partners. Vague pleadings, unsupported allegations and claims contradicted by the available documents will not satisfy the permission threshold.

The claimant brought seven proposed derivative or double derivative claims concerning payments, loans, property acquisitions, rent and distributions involving companies connected with a family nursing-home business. He alleged breaches of directors’ duties by members of his family and sought permission to continue claims for the benefit of the relevant companies.

The court considered the statutory permission regime for ordinary derivative claims, the common-law regime for double derivative claims, the evidential threshold, alternative remedies and procedural objections. The central issue was whether any proposed claim disclosed more than a prima facie case and, if so, whether permission should nevertheless be refused in the court’s discretion.

1. Outcome. Permission to continue was refused for all seven pleaded derivative or double derivative claims. The claimant’s personal claims were unaffected.
2. For ordinary derivative claims under Part 11 of the Companies Act 2006, the court applies a two-stage process. At the permission hearing, the claimant must establish more than a prima facie case, meaning a case which, if unanswered, would entitle him to judgment. The claimant need not show a strong case. The court must not conduct a mini-trial: paras [35]-[37].
3. The court must consider whether a person acting in accordance with section 172 would seek to continue the claim. This is a fact-sensitive commercial assessment. Relevant considerations include the claim’s strength and value, costs, funding, recoverability, disruption and potential damage to the company: paras [36]-[39].
4. An alternative remedy is a factor rather than an absolute bar. However, an unfair prejudice petition under section 994 may be preferable where the dispute concerns the rights and dealings of quasi-partners, because the company need not fund or bear the costs risk of derivative litigation: paras [40]-[42], [88]-[90].
5. Double derivative claims remain maintainable at common law. The claimant must show a prima facie case that the company is entitled to relief, that qualifying wrongdoing occurred, that the claimant suffered the relevant loss, that the wrongdoers control the company in a broad sense, and that an independent board could consider proceedings appropriate. The court retains a discretion whether to grant permission: paras [43]-[45].
6. Claims concerning pension payments, loans, rent and the purchase of Sherwood House failed because the pleadings were unsupported, vague, contradicted by the documents or disclosed no plausible breach of duty. The claim concerning Simicare’s distributions passed the threshold because the authenticity and validity of dividend minutes raised a factual issue which could not be resolved without a mini-trial: paras [46]-[86].
7. Permission was nevertheless refused for the Simicare claim in the exercise of discretion. The dispute was modest, concerned the alleged arrangements between quasi-partners and had an eminently suitable alternative remedy in an unfair prejudice petition: paras [87]-[91]. Procedural failures and alleged bad faith did not provide the basis for the decision: paras [92]-[95].