Welcome!

To all those reading this I am David Gibbs; I am a Lecturer in Company and Commercial Law at the University of Hertfordshire.

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


Wednesday, 12 April 2017

Derivative Claims Until 2017

As reported on Westlaw, there have now been 20 derivative claims heard. To keep information updated on this as I write my paper the most recent decision was heard in November 2016, Zavahir v Shankleman [2016] EWHC 2772 (Ch). The claim was refused for a mandatory bar, namely no director would continue the claim when acting in accordance with the Companies Act 2006, s 172, to act in the company's best interests.

This takes the figures to the following:
Permission: 40% (8/20)
Refused: 60% (12/20)
Mandatory Bars: 35% (7/20)

It has been said that the success of the reform would depend on whether the claim was accessible to meritorious claims, so looking at the above numbers may not be particularly edifying. Descriptive data may be more useful if one focuses on those claims that had some merit to them, i.e. that did not succumb to a mandatory bar.

Therefore, the figures would be as follows:
Permission: 61.5% (8/13)
Refused: 38.5% (5/13)

By bringing the claim on to clearer grounds the intention of reform was to create access to meritorious claims, but also deter frivolous ones. By looking at the data on derivative claims, my current working paper is looking to assess whether that has happened.

The investigation is premised on the general concept that while a law may intend to do one thing, the outcome may be different. Take the example of 'criminal conversations', a particular offence in legal history for what is now referred to as adultery. The claim is brought by the husband against the adulterer. While the offence was intended to deter men from having adulterous relationships with married women, the law created incentives for married couples to dupe unsuspecting men of wealth in to sexual relations with the woman to extract compensation settlements from them, either in or out of court. There was such evidence of this in cases such as Cibber v Sloper and Worsley v Bisset. However, in both cases the jury, while finding in favour of the claimants, only awarded £10 and one shilling respectively, to reflect the limited injury suffered.

Moving back in to context, the same can be said of derivative claims. Will putting the claim on clearer footing make it more accessible or will it result in frivolous litigation? Speaking generally, the literature acknowledges that a legal system and its institutions generally need to be aligned if a particular outcome is to be achieved. Otherwise there is a risk in introducing a new mechanism or law that is not aligned may irritate the legal system, producing unexpected outcomes.

Therefore, given that it is generally accepted that the UK legal system and its institutions are generally set up against derivative enforcement, it seems unlikely that the new procedure will enable access for meritorious claims. However, making it clearer when claims can be brought to shareholders might be seen to encourage frivolous litigation where an attractive settlement or other benefit might be derived from pursuing the litigation, even if success is unlikely. Given that 30% of claims so far can be described as frivolous, since they failed to overcome the relatively low hurdle that no director would continue the claim if acting in accordance with s 172, suggests that some shareholders might be doing just that.

Case Name
Dismissed For/Allowed
Significant Circumstances Considered
Bamford
Dismissed at court’s discretion
Wrongdoer control
Bridge
Mandatory Bar
No reasonable director would pursue the claim; alternative remedy; company decision; independent views; wrongdoer control
Cinematic Finance
Dismissed at court’s discretion
Majority bringing derivative claim; wrongdoer control; side-stepping insolvency rules
Cullen Investments
Permission granted
Hypothetical director would question if full and frank disclosure was given for authorisation; and case was simple on this premise; significant sum could be recovered based on lack of evidence to contrary; no basis for lacking good faith; hypothetical director would attach considerable importance; claim being funded by C so no financial risk to company and possible benefit; claimant’s action may give rise to action in own right but this was not a decisive consideration since the defence necessitated it and as a precaution since the company was entitled to some or all of the relief
FanmailUK
Case adjourned
Case adjourned
Franbar
Dismissed at court’s discretion
Strength of legal claims; ratification; alternative remedy
Hook
Permission Granted
Good faith; 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
McAskill
Permission granted
Good faith; Alternative remedy; director would attach weight to the claim under s.172
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
Zavahir
Mandatory Bar
No director acting in accordance with section 172 would continue the claim. If incorrect little weight would be attached due to the costs involved were less than potential recovery, and there was an alternative remedy



Case
Type of company
Costs indemnity sought
Financial State of the company
Shareholding % (respondent/claimant)
Amount Claimed for*
Concerned a conflict of interest?
Length of proceedings
Bamford
Ltd
Yes
Solvent
50/50
£3,500,000
No
1 day
Bridge
Plc
Yes
Solvent
Minority (1.83%)/Director
N/A
Yes
2 days
Cinematic Finance
Ltd
N/A
Doubtful solvency
0/100

N/A
Yes
N/A
Cullen Investments
N/A
No
N/A
N/A
“Scant evidence”
Yes
N/A
Fanmailuk
Ltd
N/A
Solvent
Majority/minority
£70,000,000
Yes
N/A
Franbar
Ltd
N/A
Solvent
75/25
N/A
Yes
2 days
Hook
Ltd
Yes
Solvent
Minority/Majority

Yes
2 days
Hughes
Ltd
Likely
To be dissolved
50/50
£100,000+
Yes
1 day
Iesini
Ltd
N/A
Doubtful solvency
Majority/minority
N/A
Yes
4 days
Kleanthous
Ltd
N/A
Solvent
84.5/15.5
£120,000,000
Yes
4 days
Kiani
Ltd
Yes
Solvent
50/50
£296,000
Yes
1 day
McAskill
Ltd
Yes
Solvent
50/50
£197,640
Yes
1 day
Mission Capital
Plc
N/A
Solvent
N/A
N/A
Yes
N/A
Parry
Ltd
N/A
No assets
50/50
£248,577.24
Yes
1 day
Phillips
Ltd
N/A
Solvent
50/50
N/A
Yes
2 days
Seven Holdings
Ltd
N/A
Effectively no assets
50/50
£1,693,212.32
No
1 day
Singh
Ltd
Yes
Solvent/not trading
50/50
£873,000
Yes
1 day
Stainer
Ltd
Yes
Solvent
87/0.08
£7,000,000
Yes
1 day
Stimpson
Ltd by guarantee
N/A
No assets
Majority/minority
£5,300,000
Yes
4 days
Zavahir
Ltd
Yes
Solvent £20,000 only
Equal
£136,000
No
N/A


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