Mary Kathryn Leslie & Anor v Robert James Ball & Ors

A shareholder authorised to bring a derivative claim is ordinarily treated as the company’s agent and may ultimately obtain an indemnity for properly incurred costs. That principle does not automatically justify a pre-emptive indemnity.

Where the same allegations are advanced in a simultaneous unfair prejudice petition seeking a personal buy-out, the shareholder is acting both for the company and as a principal pursuing personal relief. The court must consider the risk of unfairly improving the shareholder’s position in the wider litigation. A high degree of assurance that an indemnity would be appropriate after trial is required before granting a pre-emptive indemnity. Substantial overlap between the proceedings may also mean that no derivative-claim costs can properly be isolated.

The claimants were authorised to pursue a double derivative claim on behalf of Arnbrow Ltd and Westridge Estates Ltd concerning alleged fiduciary breaches in the transfer of property from Arnbrow. They simultaneously pursued an unfair prejudice petition against the individual defendants, relying on substantially the same allegations and seeking a buy-out reflecting any loss suffered by the companies.

The claimants sought a pre-emptive indemnity for costs already incurred, future costs up to inspection after disclosure, and adverse costs. The defendants resisted the application, relying on the overlap with the petition, the claimants’ personal interest in the outcome, and the uncertainty of any post-trial indemnity.

1. Effect of permission. Once permission to continue a derivative claim has been granted and remains in force, the claimant must be treated as properly authorised to act as the company’s agent. The defendants could not reopen the foundations of that permission at the indemnity hearing without first setting it aside. The derivative claim was also the proper vehicle for alleged misconduct against the subsidiary, whereas unfair prejudice proceedings addressed the broader alleged mismanagement and relationship breakdown.
2. Scope of the Wallersteiner principle. The principle in Wallersteiner v Moir (no. 2) is based on the shareholder acting as agent for the company and pursuing the company’s benefit. It does not determine the appropriate order where the shareholder simultaneously advances substantially the same allegations for personal benefit in a petition seeking a compulsory buy-out.
3. Pre-emptive indemnity. A court should exercise considerable care before ordering an indemnity in advance of trial. It should have a high degree of assurance that an indemnity would be appropriate after trial. The grant of permission establishes only that an independent board could reasonably authorise the proceedings; it does not establish that the claimant will ultimately be entitled to an indemnity.
4. The proposed indemnity would create a manifest inequality of arms in the petition. It could burden the defendants’ interests in Westridge with the claimants’ costs even if the defendants defeated both claims, and could materially influence buy-out negotiations. The position was inconsistent with the overriding objective in CPR 1.1.
5. The petition expressly incorporated the derivative allegations. Although the remedies differed, proving the petition would require substantially the same investigation into the alleged transfers and subsequent dealings. The claimants therefore failed to identify costs properly referable only to the derivative claim.
6. The application for a pre-emptive indemnity was dismissed. The judgment did not affect any later application for an indemnity after trial.

The judgment describes an earlier permission decision by Adam Johnson J on 27 May 2022, granting permission for the double derivative claim to continue. This court dismissed the separate application for a pre-emptive costs indemnity.