UK: England and Wales: common law derivative claims

The ICLR has published a summary for the recently reported decision McGaughey v Universities Superannuation Scheme Ltd [2022] EWHC 1233 (Ch): see here. To quote directly from the summary:

"In order to establish that they had standing or a sufficient interest to continue a claim, it was essential for derivative claimants to demonstrate both that the subject company had suffered a loss and that that loss was reflective of their own loss. The availability of an alternative independent claim against the wrongdoer, for example a breach of trust claim, did not prevent the derivative claimant from having standing. A derivative claimant relying on the fraud on a minority exception to the general rule had to establish a prima facie case that the defendants had committed a deliberate or dishonest breach of duty or that they had improperly benefitted themselves at the company’s expense. It did not provide much assistance to adopt the analysis of a fraud on a power".

UK: England and Wales: multiple derivative claims

A very quick post to say: I see that permission to continue various claims has been refused by Mr Justice Leech in McGaughey & Anor v Universities Superannuation Scheme Ltd & Anor [2022] EWHC 1233 (Ch). Some claims were found not to be multiple derivative claims, as the claimants argued they were, while in respect of another - alleged breaches of directors' duties where directors continued to invest in fossil fuels without an immediate plan to divest contrary to the company's long-term interests - the judge held that the claimants lacked a sufficient interest or standing.

Hong Kong: the statutory derivative action and charitable companies

Earlier this month, judgment was given by the Court of Appeal in Chung v Soka Gakkai International of Hong Kong Ltd [2022] HKCA 480. The decision is an important one because the court has confirmed that a member of a charitable company has standing to bring a statutory derivative claim under sections 732 and 733 of the Companies Ordinance (Cap 622).

Hong Kong: Foss v Harbottle, 'fraud on the minority', and the common law derivative action

A recent decision of the Court of Appeal concerning the common law derivative action, Wang Pengying v Ng Wing Fai [2021] HKCA 100, will be of interest beyond Hong Kong - and in particular in England because of the discussion it contains about whether Harris v Microfusion 2003-2 LLP [2016] EWCA Civ 1212 was wrongly decided in holding that, for the purposes of the 'fraud on the minority' exception to what is known as the rule in Foss v Harbottle(1843) 2 Hare 461, personal benefit by the wrongdoers was required in cases of breach of duty not involving fraud.   

Two of the three appellate judges - Kwan VP and Yuen JA - expressed a view, albeit obiter: in their opinion, the appropriate test for the purposes of the 'fraud on the minority' exception was not personal benefit by the wrongdoers, or in loss to the company, but in the lawfulness of the majority vote releasing the defaulting director from liability. Yuen JA stated that the requirement for personal benefit by the wrongdoers, as set out in Microfusion, was "difficult to justify, because if ... not met, even the most egregious breach of duty cannot be brought to court" (para. 86.1). 

UK: England and Wales: in reality a derivative claim?

His Honour Judge Eyre QC gave judgment last Friday in Zedra Trust Company (Jersey) Ltd v The Hut Group Ltd [2020] EWHC 5 (Ch). The decision is of interest because of the discussion it contains concerning the boundaries between the unfair prejudice remedy (Part 30 of the Companies Act 2006) and the statutory derivative claim (Part 11 of the 2006 Act). The case arose in the context of an application to strike out a petition under Part 30 as being an abuse of process on the grounds that it was, in reality, a derivative claim.

UK: England and Wales: shadow and de facto directorships

Judgment was delivered earlier this week by HHJ Hacon in Popely v Popely [2019] EWHC 1507 (Ch). This first instance decision - concerning a double derivative action - is noteworthy for the discussion it contains of the distinctions between de facto and shadow directorships and whether it is possible for an act to be simultaneously carried out in both of these capacities (no was the judge's answer). Of note, too, is the reliance placed on a decision of Guernsey's Royal Court: Carlyle Capital Corporation Ltd v Conway (Judgment 38/2017; available here for registered users; registration is free).

South Africa: shareholders' derivative claims and good faith

The Supreme Court of Appeal gave judgment last week in Lazarus Mbethe v United Manganese of Kalahari (503/2016) [2017] ZASCA 67: see here or here (pdf). This is an important - and now leading - authority on the operation of the derivative action in South Africa under section 165 ("Derivative actions") of the Companies Act 71 of 2008. A short summary of the decision is available here (pdf). At issue was the good faith requirement imposed on the applicant under section 165(5)(b). The court held, amongst other things, that the requirement of good faith did not require the absence of a collateral purpose; however, any collateral purpose was relevant when considering (under section 165(5)(b)) whether the proceedings involved a serious question of material consequence to the company.

UK: England and Wales: the Bhullar family derivative claim litigation

In the early summer of 2015, Mr Justice Morgan, in Bhullar v Bhullar [2015] EWHC 1943 (Ch), granted permission to continue certain parts of a derivative claim under Part 11 of the Companies Act 2006.  The case involved a family well known to company lawyers (see [2003] EWCA Civ 424). The claim was heard in January this year and the next episode in the story - the judgment Bhullar v Bhullar [2017] EWHC 407 (Ch) - published a few days ago. The trial judge held that the claim for equitable compensation for breach of fiduciary duty was successfully made.

UK: England and Wales: LLPs and derivative claims

Last week, in Harris v Microfusion 2003-2 LLP [2016] EWCA Civ 1212, the Court of Appeal gave judgment in a case concerning a derivative claim brought by a member of a limited liability partnership. The judgment is noteworthy for a couple of reasons: (1) the discussion of the fourth exception ("fraud on the minority") to the rule in Foss v Harbottle (1843) 2 Hare 461; (2) the endorsement it provides of several first instance authorities in this field including Abouraya v Sigmund & Ors [2014] EWHC 277 (Ch). With regard to the fourth exception, Lord Justice McCombe observed (para. [33]):

.... people are free to join as members of corporate entities upon whatever terms they choose, formulated in articles of association, partnership deeds for LLPs or shareholders' agreements. They are bound by such arrangements and if majority rule is provided for, the minority is bound by the wishes of the majority. The majority can choose to excuse breaches of duty by directors, provided that the majority have not used their voting powers to confer benefits upon themselves in breach of duty and are not using the self-same powers to prevent the company from recovering the loss caused to it, in effect expropriating the minority in the process. The constraints imposed by equity make an exception to the rule in Foss v Harbottle in cases where the controlling members are precluded from ratifying the relevant breach by exercise of their majority votes. Thus, the "fraud on the minority" exception prevents directors from improperly benefitting themselves at the expense of the company".

Isle of Man: derivative actions under Manx law

His Honour Deemster Doyle (First Deemster and Clerk of the Rolls), sitting in the High Court of Justice, gave judgment at the end of May in Gulf Hibiscus Limited v Lime Petroleum Plc (Ord, 2016/1): see here (part 1 of 2) and here (part 2 of 2). This is an important decision concerning derivative actions under the regime introduction by the Isle of Man Companies Act 2006 (pdf) and the Rules of the High Court of Justice 2009.

Deemster Doyle refused a shareholder's claim to bring a derivative action under section 175 of the 2006 Act and in doing so considered the meaning and operation of those factors the court is required to take into account in exercising its discretion (including, for example, whether the shareholder was acting in good faith). Reference was made to authorities from England and also to a couple of recent decisions from the Eastern Caribbean Supreme Court, Deemster Doyle noting that Tynwald had appeared to follow British Virgin Islands legislation - section 184C of the BVI Business Companies Act 2004 - rather than English legislation in respect of derivative actions brought on behalf of companies formed or re-registered under the Companies Act 2006.

South Africa: prescription and the nature of derivative claims

The Supreme Court of Appeal gave judgment at the end of April in Off-Beat Holiday Club v Sanbonani Holiday Spa (20231/2014) [2016] ZASCA 62: see here, here (rtf) or here (pdf). The case is important (and interesting) because of its discussion of the nature of derivative claims under section 266 ("Initiation of proceedings on behalf of company by a member") of the Companies Act 61 of 1973 (now section 165 of the Companies Act 71 of 2008) and, in particular, whether such claims are subject to the Prescription Act 68 of 1969.

Singapore: Court of Appeal considers the statutory derivative action

The Court of Appeal has in Petroships Investment Pte Ltd v Wealthplus Pte Ltd [2016] SGCA 17 provided important guidance on the operation of the statutory derivative action under section 216A of the Companies Act (Cap 50, 2006 Rev Ed) and, in doing so, held that such actions cannot be brought where a company is in liquidation. A copy of the court's judgment, delivered by Andrew Phang Boon Leong JA (the other justices being Sundaresh Menon CJ and Chao Hick Tin JA), is available here (pdf).

UK: England and Wales: listed company shareholder's application for permission to continue derivative claim declined

A copy of the extemporary judgment of His Honour Judge Hodge QC (sitting as a judge of the High Court) in Bridge v Daley [2015] EWHC 2121 (Ch), which was delivered in June this year, was added to the BAILII database this week. The case concerned an application for permission to continue a derivative claim under Part 11 of the Companies Act 2006. Permission to continue was refused and the shareholder was ordered to pay the costs of litigation. Unusually, the claim was brought by a shareholder in a publicly listed company (Elektron Technology plc, with a listing on AIM). This fact, and the potential for minority shareholders to act in ways detrimental to the other shareholders, was noted by the judge (para. [80]):

"An extraordinary feature of the case is ... that the company in question is a public limited company, rather than a private company; but shareholders have to be protected from a minor minority individual shareholder seeking to pursue a claim on behalf of the company of which they are shareholders when they do not wish the company's assets to be applied for that purpose. That is the whole purpose of the derivative claim procedure".

Extraordinary is, perhaps, too strong a word to use: this is not the first decision concerning a derivative claim and a listed public company under Part 11 (see Mission Capital Plc v Sinclair [2008] EWHC 1339 (Ch)). Note too that, according to a market announcement by Elektron, the unsuccessful shareholder - Mr Bridge - has indicated that he will be appealing the decision: see here.

UK: England and Wales: permission granted to continue a derivative claim

Judgment was given yesterday by Mr Justice Morgan in Bhullar v Bhullar [2015] EWHC 1943 (Ch). The case concerned an application for permission to continue a derivative claim, under Part 11 of the Companies Act 2006, involving a family that is already well known to company lawyers (see [2003] EWCA Civ 424). Permission to continue was granted in respect of certain payments made to another company but the judge concluded that it was not appropriate to grant a pre-emptive indemnity as to costs out of company assets. The judgment contains some brief discussion of double (or multiple) derivative claims (the trial judge proceeded on the basis that the court had the jurisdiction to permit such claims).

UK: England and Wales: High court endorses earlier decision on multiple derivative actions

Judgment was given yesterday in Abouraya v Sigmund [2014] EWHC 277 (Ch). The decision is noteworthy because the trial judge, Mr Justice David Richards, explicitly endorsed the reasoning and conclusions of Mr Justice Briggs (as he then was) in Universal Project Management Services Ltd v Fort Gilkicker Ltd [2013] EWHC 348 (Ch), [2013] Ch 551. In this latter case, a summary for which is available here, Briggs J. held that the English common law recognised multiple derivative actions before the coming into force of the Companies Act 2006 and that they had survived the Act's introduction.

Guernsey: Royal Court considers law on the derivative action

The Royal Court (Ordinary division) gave judgment earlier this year in Jackson v Dear and others (10/2013). The proceedings concern what is believed to be the first derivative action placed on the court rôle of the Royal Court. A copy of the judgment has recently been published within the unreported judgments section of the Guernsey Legal Resources website (registration is required to view the judgment).

The judgment is noteworthy for several reasons, three of which will be noted here. First, Lieutenant Bailiff Patrick John Talbot QC accepted, following Flightlease Holdings (Guernsey) Ltd v Flightlease (Ireland) Ltd. 2009-10 GLR 38, that it was appropriate to look to English law company law where the matter was not covered by Guernsey statutes or customary law. Second, the Lieutenant Bailiff held that Guernsey's customary law permitted the bringing of double derivative actions. In doing so, reference was made to Waddington Ltd v Chan Chun Hoo (2008) 9 HKCFA 63 and Universal Project Management v Fort Gilkicker [2013] EWHC 348 (Ch). Third, the Lieutenant Bailiff held that the rule in Foss v Harbottle, as it stood in England before the introduction of section 260(3) of the UK Companies Act 2006, applied in Guernsey. In this regard he stated (at para. 16): "In my judgment, any change in our law to replace the rule in Foss v Harbottle so as to allow cases in negligence or breach of duty as a new exception to the rule must be a matter for the States to consider, and not for me to decide is necessary or appropriate".

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).

Isle of Man: Treasury begins consultation on company law consolidation and reform

The Isle of Man Treasury has published for consultation a draft Companies Bill 2013 and draft Foreign Companies Bill 2013. The purpose of the Companies Bill 2013 is to consolidate and update the existing company law framework (as found in the Companies Acts 1931-2004). A stand alone Foreign Companies Bill 2013 is proposed to replace Part XI of the Companies Act 1931.

An overview of the consolidation and proposed changes is available here (pdf). The draft Bills are available here. A table of derivations is available and this usefully identifies new provisions: see here (pdf). Amongst the changes being proposed is the codification of directors' duties (along the same lines as the UK's Companies Act 2006) and the introduction of a statutory procedure for bringing a derivative claim on behalf of the company.

UK: England and Wales: limited partnerships and derivative claims

The ICLR, as part of its free case summary service, has published a summary for the recent High Court decision Certain Limited Partners in Henderson PFI Secondary Fund II LLP (a firm) v Henderson PFI Secondary Fund II LLP (a firm) and others [2012] EWHC 3259 (Comm): see here. The summary's headnote reads: "A derivative claim brought by limited partners in a partnership, in the partnership’s name, against the partnership’s manager was permitted where there were special circumstances to justify such a claim."

UK: England and Wales: derivative claims and wrongdoer control

The ICLR has provided a summary for the recent High Court decision Bamford v Harvey [2012] EWHC 2858 (Ch): see here. A copy of the decision has not yet been published on BAILII. The headnote from the ICLR's summary reads as follows: " 'Wrongdoer control' of a company was not an absolute preclusive condition for the bringing of a derivative claim [under Part 11 of the Companies Act 2006]. However, where proceedings clearly could have been brought in the name of the company and no objection was raised on that ground, they should be so brought."

Update (5 November 2012) - a copy of the judgment has been added to BAILII: see here.