Wednesday, 27 February 2013

UK: England and Wales: multiple derivative actions not abolished by the Companies Act 2006

Judgment was given yesterday in Universal Project Management Services Ltd v Fort Gilkicker Ltd & Ors [2013] EWHC 348 (Ch). This is an important and interesting decision in which the trial judge held that the Companies Act 2006 did not remove the multiple derivative action at common law. The trial judge, Briggs J., observed (paras. [44] to [46]):

I have come on balance to the conclusion that the 2006 Act did not do away with the multiple derivative action. My reasons follow. First, there was before 2006 a common law procedural device called the derivative action by which the court could permit a person or persons with the closest sufficient interest to litigate on behalf of a company by seeking for the company relief in respect of a cause of action vested in it. Those persons would usually be a minority of the company's members, but might, if the company was wholly owned by another company, be a minority of the holding company's members. These were not separate derivative actions, but simply examples of the efficient application of the procedural device, designed to avoid injustice, to different factual circumstances.

In 2006 Parliament identified the main version of that device, namely where locus standi is accorded to the wronged company's members, labelled it a "derivative claim" and enacted a comprehensive statutory code in relation to it. As a matter of language, section 260 applied Chapter 1 of Part 11 only to that part of the old common law device thus labelled, leaving other instances of its application unaffected.

Applying the well established relevant principle of construction, Parliament did not expressly abolish the whole of the common law derivative action in relation to companies, even though by implication from the comprehensiveness of the statutory code it did do so in relation to derivative claims by members (as defined) of the wronged company. Beyond that, the assertion that the remainder of the common law device was abolished fails because abolition was neither express nor a clear or necessary implication.

Update (28 February 2013) - a summary of the judgment has been provided by the ICLR: see here.

Update (14 February 2014) - the conclusion and reasoning of Briggs J was endorsed yesterday by Mr Justice David Richards in Abouraya v Sigmund & Ors [2014] EWHC 277 (Ch).

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