NICHOLAS PRINSE v LANDMASTERS (OVERSEAS) LTD & Ors

A majority shareholder may bring a common-law derivative claim despite holding more than 50 per cent of the shares where a legal or practical bar outside the shareholder’s control gives the alleged wrongdoers practical control of the company. That exception is highly unusual.

A shareholder who has voluntarily accepted restrictions preventing the exercise of voting rights cannot use a derivative claim to circumvent those restrictions, particularly where the substantive dispute is before a foreign court. Permission to continue a derivative claim requires more than a merely arguable case, although no fixed merits threshold applies. A freezing order requires a good arguable case and solid evidence of a real risk of unjustified dissipation. A proprietary injunction requires a serious issue to be tried and a favourable balance of convenience.

The claimant sought permission to continue a common-law derivative action on behalf of Landmasters (Overseas) Ltd, incorporated in Cyprus, and a common-law double derivative action on behalf of Landmasters Developments Ltd, an English company.

The claims concerned alleged breaches of duty by the claimant’s uncles, who were directors of the companies, and alleged knowing receipt by one uncle and Landmasters Development UK Ltd. The claimant also sought amendment of the claim, joinder of LDUK, disclosure, proprietary relief and freezing orders.

The proceedings had previously been stayed by consent pending Cyprus proceedings concerning the validity of the transfer of shares which gave the claimant an 85 per cent registered shareholding in Overseas. The central issues were whether the stay should be lifted, whether permission should be granted to continue either derivative claim, and whether interim relief should continue.

1. The stay was lifted only to determine the applications. There had been a material change of circumstances because the relief now sought in England was substantially wider than the urgent interim protection sought when the stay was imposed.

2. Both claims were governed by the common law. The common law recognises double and multiple derivative claims. The court nevertheless requires permission to continue such claims by analogy with CPR 19.9.

3. A majority shareholder is not ordinarily treated as an aggrieved minority for common-law derivative purposes. However, a registered majority shareholder may qualify where matters beyond his control prevent him from voting the shares and give the wrongdoers practical control. That was the exceptional situation contemplated in the authorities.

4. The claimant did not satisfy that exception. His inability to exercise control resulted from a consent order which he had accepted, and which restricted steps to remove the directors. Permitting the claims would circumvent that agreement and effectively disregard the Cyprus court’s order. Judicial comity and the pending Cyprus proceedings also weighed against permission.

5. In any event, the merits did not justify permission beyond the level required for an account. The claimant had to show more than a merely prima facie case, but no fixed threshold applied. The claim was just about one which a properly advised company might pursue. Permission would not have been granted because the proceedings would immediately be stayed and disclosure would never be reached.

6. Permission was refused for both derivative claims, and both actions were dismissed. The earlier orders governing the companies fell away. The remaining applications therefore did not arise.

7. Had interim relief been required, the freezing-order test would have required a good arguable case, a real risk of unsatisfied judgment caused by disposal of assets, and justice and convenience. The evidence did not establish a real risk of unjustified dissipation. A proprietary injunction required a serious issue to be tried and the American Cyanamid balance of convenience; no sufficient fund or favourable balance was shown.

8. The proposed amendment and joinder would have been allowed in principle, subject to correcting and particularising the draft pleading. The disclosure application would have been refused as premature. Outstanding freezing and proprietary orders were set aside, with inquiries into damages available to LDUK and Mr Chris Nicolaides. Costs were to be addressed in the consequential order.