Kiani v Cooper & Others
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE PROUDMAN |
| Judgment Date | 04 February 2010 |
| Neutral Citation | [2010] EWHC 577 (Ch) |
| Docket Number | Case No: 20539 OF 2009 |
| Court | Chancery Division |
| Date | 04 February 2010 |
[2010] EWHC 577 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mrs Justice Proudman
Case No: 20539 OF 2009
MR NIGEL DOUGHERTY (instructed by Messrs Laderman & Co) appeared on behalf of the CLAIMANT
MR PETER IRVIN (instructed by Messrs Gepp & Son) appeared on behalf of the DEFENDANT
APPROVED JUDGMENT
: This is the return date of an application under section 261 of the Companies Act 2006 by Mrs Kiani, a director and shareholder of the second defendant, Woodlands Properties 2006 Limited, to bring and continue a derivative action as defined by section 260 on behalf of the company against Mr Cooper and the third defendant, DPM Property Services Limited, whom I shall call DPM. Mrs Kiani and the first defendant, Dean Ryan Cooper, are the sole directors and shareholders of the company. The company was formed to sell and develop a particular property at Woodlands Road in Essex, but it is common ground that by a subsequent agreement another development was undertaken of properties in Essex, known as Red Croft Cottages and Cranham Gardens.
The dispute between Mrs Kiani and Mr Cooper is part of a wider dispute also involving Mrs Kiani's husband in relation to development ventures undertaken by Mr and Mrs Kiani and Mr Cooper. I am told that many properties are involved and there are several sets of proceedings to which Mr and Mrs Kiani, Mr Cooper and DPM are parties.
The application with which I am concerned is in respect of various alleged breaches of fiduciary duty by the first defendant, Mr Cooper. It extends to applications restraining the presentation of winding up petitions threatened by Mr Cooper and DPM as alleged creditors of the company.
Interim permission to commence the derivative action was given on paper by Arnold J on 6 November 2009. On 9 November Lewison J made without notice orders restraining Mr Cooper and DPM from petitioning for the winding up of the company as creditors. I have not seen the note of that hearing. On 16 November Mr Cooper and DPM agreed to the continuation of that order until the determination of this hearing. I should add that on 30 November 2009 Norris J granted an injunction against Mr Cooper restraining him from advertising a petition he presented on 23 November on the just and equitable ground in his capacity as a member of the company. That just and equitable petition is not before the court today but the claimant says that as the petition positively asserts that the company is insolvent Mr Cooper could not disclose any tangible interest as a member entitling him to relief. I am told that Mr Cooper intends to amend his petition. Mrs Kiani's application to strike out that petition on various grounds is to be heard by the registrar on 29 April 2010.
Before me today are the two issues of permission to continue the derivative claim and of continuation of the restraint of Mr Cooper and DPM from petitioning to wind up the company as creditors.
A derivative claim is defined by section 260 as a claim brought by a member seeking relief on behalf of a company in respect of a cause of action vested in the company. Although the cause of action may be against a director of the company or another person or both, it must arise from an actual or proposed act or omission by the director involving negligence, default, breach of duty or breach of trust (see section 260(3)).
Permission to continue a derivative action is required by section 261. The court must by that section dismiss the application for permission if there is no prima facie case for giving permission. Otherwise it may give directions as to the evidence to be provided and adjourn the proceedings to enable such evidence to be obtained. It has very wide powers to adjourn the application, to give directions and to give or refuse permission. It has wide powers to impose terms on the grant of permission.
Section 263 specifies the criteria for permission. Section 263(2) is mandatory and states that permission must be refused if the court is satisfied that a person acting in accordance with the duty imposed by section 172 to promote the success of the company would not seek to continue the claim, or where the cause of action arises from an act or omission which has been pre-authorised or has been ratified by the company.
Section 263(3) sets out the factors which the court must in particular take into account in deciding whether to give permission. They are: whether the member is acting in good faith in seeking to continue the claim, the importance that a person acting in accordance with section 172 would attach to continuing it, whether the cause of action could be authorised or ratified by the company, whether the company has decided not to pursue the claim and whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company. Further, the court is required by section 263(4) to have particular regard to any evidence before it as to the views of members of the company who have no personal interest, direct or indirect, in the matter. In this case there are no such persons.
Although Mrs Kiani and Mr Cooper were the only two directors and members of the company, Mr Kiani was the driving force behind his wife's involvement and for present purposes they have an identity of interest. No question of authorisation or ratification arises or is likely to arise. The crucial factors of those listed in section 263(3) are therefore likely to be good faith, the availability of an alternative remedy and, in particular, the attitude of a person acting in accordance with the duties imposed by section 172 of the Act.
The provisions of the Companies Act 2006, to which I have referred, came into force on 1 October 2007 under and by virtue of the Companies Act 2006 (Commencement Number 3, Consequential Amendments, Transitional Provisions and Savings) Order 2007 ( SI 2007/2194). There are transitional provisions which, because some of the alleged defaults took place before 1 October 2007, require the court to consider the grant of permission on the basis of restrictions immediately before that commencement date. However, I am told that nothing turns on this in the present case as there are no relevant distinctions under the applicable law immediately before that date.
The authorities on the approach of the court under section 263 were examined by Lewison J in Iesini and Others v Westrip Holdings Limited and Others [2009] EWHC 2526(Ch). He said at paragraph 78:
“The Act now provides for a two-stage procedure where it is the member himself who brings the proceedings. At the first stage, the applicant is required to make a prima facie case for permission to continue a derivative claim, and the court considers the question on the basis of the evidence filed by the applicant only, without requiring evidence from the defendant or the company. The court must dismiss the application if the applicant cannot establish a prima facie case. The prima facie case to which section 261 (1) refers is a prima facie case 'for giving permission'. This necessarily entails a decision that there is a prima facie case both that the company has a good cause of action and that the cause of action arises out of a directors' default, breach of duty (etc.). This is precisely the decision that the Court of Appeal required in Prudential. As mentioned, Norris J considered the application on paper, and considered that there was a prima facie case. Hence the hearing before me.”
Pausing there, it seems to me that in the same way Arnold J considered the first stage of the test in the present case. A very substantial body of evidence has now been adduced on both sides. Lewison J went on to say at paragraph 79:
“However, in order for a claim to qualify as a derivative claim … at all (whether the cause of action is against a director, a third party or both) the court must, as it seems to me, be in a position to find that the cause of action relied on in the claim arises from an act or omission involving default or breach of duty (etc.) by a director. I do not consider that at the second stage this is simply a matter of establishing a prima facie case (at least in the case of an application under section 260) as was the case under the old law, because that forms the first stage of the procedure. At the second stage something more must be needed. In Fanmailuk.com v Cooper… Mr Robert Englehart QC said that on an application under section 261 it would be 'quite wrong … to embark on anything like a mini-trial of the action'. No doubt that is correct; but on the other hand not only is something more than a prima facie case required, but the court will have to form a view on the strength of the claim in order properly to consider the requirements of section 263 (2)(a) and 263 (3)(b). Of course any view can only be provisional where the action has yet to be tried; but the court must, I think, do the best it can on the material before it.”
By section 263(2) the court must refuse permission if satisfied that a person acting in accordance with the duty imposed by section 172 to promote the success of the company would not seek to continue the claim. Of course some directors might properly in accordance with that duty wish to continue the claim while others equally properly would reach the opposite conclusion. As Lewison J went on to say in Iesini:
“There are … a number of factors that...
To continue reading
Request your trial
-
Inderjit Singh Bhullar v Jatinderjit Singh Bhullar and Others
...should reserve leave to the company to apply for the finding to be modified in the event of a material change of circumstances." 65 In Kiani v Cooper [2010] BCC 463, one of two equal shareholders (who were also the only directors) wished to bring a derivative claim against the other. The co......
-
Re Singh Brothers Contractors (North West) Ltd
...together with no less than ten case law authorities. Mr Horne has this morning added one further case law authority, the case of Kiani v Cooper [2010] EWHC 577 (Ch), reported at [2010] BCC 463, a decision of Mrs Justice Proudman. Mr Horne has addressed me for just over an hour this morning......
-
Malitskiy and Filipenko v Oledo Petroleum Ltd; Oledo Petroleum Ltd v Adamovsky and Stockman Interhold S.A.
...in the long-term gains to be expected from their exploitation rather than be bought out of the company; (b) in Kiani v. Cooper [2010] E.W.H.C. 577 (Ch) the claimant wanted the company to continue to pursue its development projects and wanted to remain a member of it; and (c) in Suzy Belinda......
-
Shareholder Derivative Actions - Update
...a derivative action will be granted. Since January 2010, permission to continue a derivative claim has been granted in Kiani v Cooper [2010] B.C.C. 463. Facts of the A shareholder (X) sought permission to continue a derivative claim against another director and shareholder (Y) for breach of......