Patrick Hughes v Martin Bellamy & Ors

Permission to continue a common-law double derivative claim requires more than pleading an arguable breach. The claimant must show, on the totality of the evidence, at least a prima facie case that the company can recover, that the alleged wrongdoing falls within the fraud-on-the-minority exception, and that the claimant has standing. The court must also ask whether a reasonable board could properly pursue the claim and, if so, whether it would do so in the company’s best interests. An adequate alternative remedy may weigh decisively against permission. Aspirational valuations and a shareholder buy-out offer did not establish an undervalue, while suspicion did not establish dishonesty or personal benefit. The application was dismissed, particularly in light of overlapping Isle of Man proceedings likely to resolve control and value issues.

Patrick Hughes applied for permission to continue a double derivative claim on behalf of AI Pathfinder Inc Limited and for an indemnity from it for the costs. The proposed claims concerned the sale of AIP’s business and assets to APA Asset Co Limited, an employee management-buy-out vehicle, and alleged undervalue, breach of duty, conspiracy, knowing receipt and invalidity of director appointments.

Edwin Johnson J had earlier found a prima facie case on the papers and directed a substantive hearing. The application was heard against extensive evidence and parallel Isle of Man unfair-prejudice proceedings between Mr Hughes and Martin Bellamy concerning their 50/50 parent company. The central questions were whether the common-law exception to the rule preventing shareholders from suing for wrongs to a company was engaged, and whether permission was appropriate in light of the evidence and alternative proceedings.

Disposition. The application dated 23 January 2026 was dismissed. Permission to continue the double derivative claim was refused, and the claim for an indemnity from AIP for the costs did not arise.

1. Applicable principles. A double derivative claim is governed by the common law. Part 11 Chapter 1 of the Companies Act 2006 and CPR 19.14 to 19.20 do not directly apply, but permission is required by settled practice: Boston Trust Co Ltd v Verhoef [2021] EWCA Civ 1176. The starting point remained the rule in Foss v Harbottle (1843) 2 Hare 461.
2. The claimant had to establish more than a merely seriously arguable case. The court had to assess the totality and quality of the evidence and form a provisional view of the claim’s strength, without conducting a mini-trial. He had to show at least a prima facie case that AIP was entitled to the relief, that the claim fell within the fraud-on-the-minority exception, and that he had standing.
3. The exception required actual fraud or wrongdoing from which the alleged wrongdoers had benefited, together with wrongdoer control linked to the alleged wrong. Simple breach of duty or unreasonable commercial misjudgment was insufficient. The claimant also had to act bona fide for the company and the minority shareholders, rather than for an ulterior purpose.
4. The board inquiry had two stages. First, a reasonable board had to be capable of deciding to pursue the claim. Secondly, the court had to assess how a reasonable board would decide within the range of reasonable responses, including matters of timing and funding. An adequate alternative remedy was a further reason to refuse permission.
5. Mr Hughes failed to establish a prima facie undervalue. The £500 million seed-round figure and the £80 million shareholder buy-out offer were false comparators. They concerned different circumstances and did not provide evidence of the value of the assets transferred. Nor did the evidence establish dishonesty, personal benefit, Mr Bellamy’s involvement on both sides of the transaction, or the alleged conspiracy. The Employees’ preparatory conduct was permitted by the letter of intent, and the claims against SAI consequently failed at the relevant threshold.
6. The Isle of Man proceedings substantially overlapped with the issues in the proposed derivative claim. They were likely to resolve control, responsibility for the collapse in value and the parties’ economic interests. A reasonable board would await their outcome before committing AIP to the costs and disruption of these proceedings.

Edwin Johnson J found a prima facie case on the papers and directed a substantive hearing. No appeal is stated.