To all those reading this I am David Gibbs; I am a Lecturer in Law at the University of East Anglia.

I created this blog as a general out-let of ideas for my research, as well as keeping those interested up-to-date on my research and general interests.

I completed my PhD thesis at the University of East Anglia in 2014. The thesis was recommended for the award of PhD with no corrections. My external examiner was Prof. Simon Deakin (Cambridge) and internal examiner was Prof. Morten Hviid.
My PhD research centred on directors' duties and company law. The thesis was titled 'Non-Executive Self-Interest: Fiduciary Duties and Corporate Governance'. It was a doctrinal and empirical study on whether self-interest was suitably controlled amongst non-executive directors.

My supervisors were Prof. Mathias Siems, Prof. Duncan Sheehan, Dr. Sara Connolly and Dr. Rob Heywood

All opinions of any existing or future blogpost are my own. They do not necessarily represent the views of any of my associated institutions.
ORCID 0000-0002-6596-8536

Tuesday, 10 September 2013

Derivative Claims: Where are we part II

Summer is over and I have not blogged in a while due to several holidays! I thought I would start back light with some information on UK derivative claims. Below is a table of all 14 cases brought in England and details of the significant relevant issues that were addressed by the court in applying its discretion as to whether a claim should be allowed to proceed. (see end for full citations of claims)

NB: whilst I am familiar with these cases the table below may not detail all factors considered but only those that were of significance. 

Case Name
Dismissed For/Allowed
Significant Circumstances Considered
Dismissed at court’s discretion
Wrongdoer control
Cinematic Finance
Dismissed at court’s discretion
Majority bringing derivative claim; wrongdoer control; side-stepping insolvency rules
Case adjourned
Case adjourned
Dismissed at court’s discretion
Strength of legal claims; ratification; alternative remedy
Permission granted
Strength of legal claims; ratification; alternative remedy
Mandatory Bar
Weak legal claims
Dismissed at court’s discretion
Independent review of whether litigation was beneficial; strength of legal claims; alternative remedy; and benefit would be small
Permission granted
Failure of defendant to produce any evidence to the contrary; alternative remedy
Mission Capital
Dismissed at court’s discretion
Alternative remedy; little weight to a claim for wrongful dismissal of a director
Permission granted
Strength of legal claims; ratification; good faith; alternative remedy
Permission granted
Alternative remedy; matter of urgency case was brought to recover sums taken from the company without good reason
Seven Holdings
Mandatory Bar
Claims did not relate to a breach of duty, care, negligence or default
Permission granted
Strong grounds that there had been a breach of duty; strength of legal claims; disinterested shareholders deceived in to approving the loan
Mandatory Bar
The impact an action would have on the interests of the employees; claim of little value compared to cost of claim; legal claims were not realistically arguable

To raise a couple of points. Iesini is probably viewed as the most authoritative source for general interpretation of the new procedure as it has been cited in detail by most of the proceeding cases. 

A second point is that of the significance of the legal merits of a claim. Previously under the common law claim, a claim of fraud on the minority would be dismissed where legal merits did not meet a certain threshold. (see, for example, Law Commission Shareholder Remedies (Consultation Paper No 142 1996) paras 6.6, 14.1-4, 16.21; Law Commission Shareholder Remedies (Report Law Com No 246) (Cm 3769, 1997) para 6.4; Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch. 204; MacDougall v Gardiner (1875) 1 Ch. D. 13; Edwards v Halliwell [1950] 2 All E.R. 1064; Estmanco (Kilner House) Ltd v Greater London Council [1982] 1 W.L.R. 2).

Reform wished to do away with having claims assessed on their legal merits and allow claims based on all relevant circumstances (see Consultation Paper at para 16.22 and Report at para 6.73). However the Commission noted that it would be inappropriate to allow a completely hopeless claim to proceed (See, Commission Report Para 6.71). Thus whilst they wished to do away with having claims assessed on the legal merits it seems they still form part of the assessment.

The cases heard so far have taken differing views as to how significant the legal merits are to a claim. Franbar and Stimpson have dismissed claims on the basis, inter alia, that there was no obvious breach of duty and that claims were not realistically arguable. Iesini has said "something more" was needed when the court applies its discretion than when deciding whether there is a prima facie case. Cases such as StainerHughes and Kleanthous have dissented from Iesini to the extent a claim has to show sufficient legal merit although it is considered by this author that these three cases did not carefully consider the wording of Iesini but the cases do raise interesting points on the assessment of legal merits to a claim. 

As a result, whilst the reform wished to remove claims being assessed on the merits it seems that this still forms a significant part of the court's discretion as to whether they will allow a claim to proceed. 

Bamford v Harvey [2012] EWHC 2858 (Ch); [2013] Bus. L.R. 589; Cinematic Finance Ltd v Ryder [2010] EWHC 3387 (Ch); Fanmailuk.com Ltd v Cooper [2008] EWHC 2198 (Ch); [2008] B.C.C. 877; Franbar Holdings Ltd v Patel [2008] EWHC 1534 (Ch); [2008] B.C.C. 885; Hughes v Weiss [2012] EWHC 2363 (Ch); Iesini v Westrip Holdings Ltd [2009] EWHC 2526 (Ch); [2010] B.C.C. 420; Kleanthous v Paphitis [2011] EWHC 2287 (Ch); (2011) 108(36) L.S.G. 19; Kiani v Cooper [2010] EWHC 577 (Ch); [2010] B.C.C. 463; Mission Capital Plc v Sinclair [2008] EWHC 1339 (Ch); [2008] B.C.C. 866; Parry v Bartlett [2011] EWHC 3146 (Ch); Phillips v Fryer [2012] EWHC 1611 (Ch); [2013] B.C.C. 176; Re Seven Holdings Ltd  [2011] EWHC 1893 (Ch); Stainer v Lee [2010] EWHC 1539 (Ch); [2011] B.C.C. 134; Stimpson v Southern Landlords Association [2009] EWHC 2072 (Ch); [2010] B.C.C. 387