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Can permission to continue a derivative action be obtained retrospectively?

Wilton UK Limited v John Shuttleworth & Ors [2017] EWHC 2195 (Ch)

Derivative claims 

Under the common law, the proper claimant for a wrong against a company is the company itself. The courts will not interfere with the internal management of a company acting within its power: Foss v Harbottle [1843] 2 Hare 461, and the power to decide whether or not to litigate lies with the directors.

The advent of the Companies Act 2006 (“the Act”) widened the circumstances in which a member could bring a claim in respect of a cause of action vested in the company. Under Part 11, such a claim may be brought against a director or third party where the cause of action arose from an actual or proposed act or omission involving negligence, default, breach of duty and/or breach of trust (s.260(3)).  This includes the directors’ duties prescribed under Part 10.

The requirement for permission

There is no requirement to obtain permission to issue a derivative claim but there is such a requirement under s.261(1) to continue it (also CPR 19.9A). The court’s permission must be obtained before any other step is taken in the proceedings.

Wilton UK Limited v John Shuttleworth & Ors

The High Court was faced with a claim where permission to continue the proceedings had not been obtained prior to service, the 4-month expiry period for service of the claim form had long expired and a new claim was statute-barred by the Limitation Act 1980. Was the claim beyond hope?

The Court held that:

  • Any steps taken in the absence of permission were not valid until set aside by the court; that gave insufficient weight to the statutory regime requiring permission and insufficient protection to the company or other defendants concerned;
  • The court did however have jurisdiction to retrospectively validate steps taken in the absence of permission; that was consistent with the principles underlying derivative actions, and the court’s “filtering” role whereby it retained control over such actions.

Whilst the decision does not offer guidance on when the jurisdiction will be exercised (the court is still due to decide whether to grant retrospective permission), the fact it has been held to exist at all offers defaulting parties a glimmer of hope, opening the door to some interesting further argument on the relevant factors pertaining to the exercise of that jurisdiction.

Hannah Laithwaite / 18th Dec 2017


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