Homes for England v Nick Sellman (Holdings) Ltd & Anor

For derivative claims concerning limited liability partnerships, CPR 19.9C applies only the procedural provisions identified in the rule. It does not import the substantive permission test in section 263 of the Companies Act 2006. The applicable test remains the common-law rule in Foss v Harbottle and its established exceptions.

Under the relevant fraud exception, the claimant must show financial loss to the members, fraud in the sense of a deliberate and dishonest breach of duty, and a personal benefit to the alleged wrongdoer at the company’s expense. A new pure point of law may be raised on appeal where the opposing party has adequate time to respond, has suffered no irremediable prejudice, and can be protected in costs.

Homes for England, a 50% member of Bromham Road Development LLP, sought permission to continue a derivative claim on the LLP’s behalf against the other 50% member, Nick Sellman (Holdings) Ltd. The claim concerned an alleged delay in refinancing property owned by the LLP, said to have caused additional redemption costs.

The County Court at Central London applied section 263 of the Companies Act 2006 and granted permission. On appeal, Holdings argued that section 263 did not apply to LLPs and that the common-law test should instead govern. The central issues were the applicable permission test and whether the new point could be raised for the first time on appeal.

1. Appeal allowed. Holdings was permitted to appeal and to raise the new point that the common-law test, rather than section 263 of the Companies Act 2006, governed the application. Homes for England was ordered to pay Holdings’ costs of the appeal. The County Court’s costs order was undisturbed.
2. Applicable test. Section 260 of the Companies Act 2006 abolishes the common-law derivative action for companies, subject to the statutory scheme. The Limited Liability Partnerships Act 2000 and the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 did not apply sections 260 to 264 to LLPs.
3. CPR 19.9C applies the procedure under sections 261, 262 and 264 as if the LLP were a company. It does not apply section 263. The omission was deliberate. The rule is procedural, whereas section 263 makes a substantive change to the permission test. Section 261(4) also confers no broad, unfettered discretion and does not itself prescribe the applicable test.
4. At common law, the relevant exception to Foss v Harbottle required consideration of whether the pleaded case established financial loss to the members, fraud involving a deliberate and dishonest breach of duty, and a personal benefit to Holdings at the expense of the LLP. The pleading alleged no dishonest breach and did not allege the necessary personal benefit. The common-law test was therefore not satisfied.
5. The new point could nevertheless be raised on appeal. The proceedings below were interlocutory, the point was pure law, no further factual inquiry or evidence was required, Homes for England had ample time to address it, and any prejudice could be compensated in costs. The balance of justice favoured allowing the point.

• High Court (Chancery Division): appeal from the order of HHJ Saunders dated 11 July 2019. The appeal was allowed.