Welcome!

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



Monday, 8 September 2014

Derivative Claims: Where are we Part III

After an initial surge of derivative claims after the introduction of the new statutory procedure, the cases have calmed seemingly more focused on whether the specific facts themselves should allow cases to continue rather than any substantive comments on the law itself. Some inferences may be drawn from the discretion by academic commentators and lawyers to ascertain when a claim would or would not be allowed but it seems observations from the court as to the operation of the procedure itself has dwindled. My Part I and Part II posts on 'where are we?' can be found here and here respectively.

In 2014 there have been two claims heard, one of which was an appeal to the Court of Appeal, the first to be considered at this level. The initial hearing in the High Court was Re Singh Brothers Contractors (North West) Ltd [2013] EWHC 2138 (Singh EWHC) and appealed as Singh v Singh [2014] EWCA Civ 103 (Singh EWCA). The second case to be heard this year was Abouraya v Sigmund [2014] EWHC 277. This case was considered under the old common law rules rather than the statute but a brief consideration is worthwhile. Unsurprisingly both cases were denied permission to continue. An updated table appears below of all cases now to be considered under the new procedure - Thus Abouraya does not appear in the table.

Of note from these cases: In Singh EWCA, the court made reference to the availability of another remedy. Hughes v Weiss [2012] EWHC 2636 was cited at [23] that in claims of this nature, the purchase of shares was not required and thus a derivative claim would be more appropriate. However, the court dismissed this as a reason to permit a claim to proceed since the remedy for a section 994 petition gives wide discretion to the court to rectify the position of the claimant if the petition is made out. Thus, it seems to clarify the decision in Hughes, where a claim was allowed even though another remedy was available because the nature of that remedy was not appropriate for what was being complained of. However, in Singh, the s.994 remedy could be adapted and order a purchase of shares, using court discretion, to rectify the position. This may raise questions in some circles as to allowing shareholders to obtain a purchasing order through a section 994 petition when the initial claim was based on a corporate wrong. It may be seen as a luxury afforded to shareholders but not creditors.

In Abouraya the primary consideration for denying permission to continue was that the claimant was trying to use his position as shareholder of a parent company to advance his position as creditor of a wholly owned subsidiary. The court said that to do so would be to grant a remedy not available to other creditors, see at [59]-[60]. This seems to reflect a position taken in Cinematic Finance Ltd v Ryder [2010] EWHC 3387 that a court will not allow a derivative claim to be used to side-step other rules or advance your position vis-a-vis creditor.

As well as these two company cases the derivative claim discretion was also considered in respect of a partnership, Partners of Henderson PFI Secondary Fund LLP v Henderson PFI Secondary Fund LLP [2012] EWHC 3259. In this case it was held that whilst the merits of a claim may be considered but no threshold needs to be met, the judge held that merits play little part in the courts discretion unless they favour one side clearly, see at [37]. This offers weight to my own argument that the courts need to find one solid reason to dismiss a claim they will tend to do so and that if the legal merits of a claim are weak they are unlikely to grant permission, albeit, as stated in Stainer v Lee [2010] EWHC 1539, it is not impossible. Reference here was again made to Hughes v Weiss that the availability of another remedy is 'plainly a factor to be taken into account when deciding whether there are special circumstances' at [39].

From these cases both Henderson and Abouraya had issues relating to conflicts of interests. However, Singh did not and is now 2 of 15 cases not to concern such a breach of duty.

With this new decision to give a breakdown of statistics of cases considered under part 11:
Refused/permitted
Claims permitted: 33.3%
Claims refused: 66.7% - this figure includes Fanmailuk.com Ltd v Cooper [2008] EWHC 2198 - case was adjourned rather than refused
N = 15

Breakdown: x% - refused claims only; (x%) all claims
Claims refused for no prima facie case: 0% - NB: Re Seven Holdings Ltd [2011] EWHC 1893 - court would have refused for no prima facie case if the procedure had been followed
Claims refused for mandatory bar: 44% (28%)
Claims refused at court's discretion: 56% (36%)
N = 9 (14) - Fanmailuk.com not included


Case Name
Dismissed For/Allowed
Significant Circumstances Considered
Bamford
Dismissed at court’s discretion
Wrongdoer control
Cinematic Finance
Dismissed at court’s discretion
Majority bringing derivative claim; wrongdoer control; side-stepping insolvency rules
FanmailUK
Case adjourned
Case adjourned
Franbar
Dismissed at court’s discretion
Strength of legal claims; ratification; alternative remedy
Hughes
Permission granted
Strength of legal claims; ratification; alternative remedy
Iesini
Mandatory Bar
Weak legal claims
Kleanthous
Dismissed at court’s discretion
Independent review of whether litigation was beneficial; strength of legal claims; alternative remedy; and benefit would be small
Kiani
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
Parry
Permission granted
Strength of legal claims; ratification; good faith; alternative remedy
Phillips
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
Singh
Mandatory Bar
No director would continue the claim if acting in accordance with s.172; fides of the claimant in question; s.994 more appropriate
Stainer
Permission granted
Strong grounds that there had been a breach of duty; strength of legal claims; disinterested shareholders deceived in to approving the loan
Stimpson
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

 

 

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