Mohammad Aqeel Alam And Tahir Shah, On Behalf Of Icu (europe) Ltd Against (first) Saquib Ibrahim And (second) Icu (secure) Ltd
| Jurisdiction | Scotland |
| Judge | Lord McGhie,Lord Justice Clerk,Lord Malcolm |
| Neutral Citation | [2016] CSIH 62 |
| Docket Number | XA119/15 |
| Date | 14 July 2016 |
| Published date | 26 July 2016 |
| Court | Court of Session |
SECOND DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 62
XA119/15
Lord Justice Clerk
Lord Malcolm
Lord McGhie
OPINION OF THE COURT
delivered ex tempore by LADY DORRIAN, the LORD JUSTICE CLERK
in the cause
MOHAMMAD AQEEL ALAM and TAHIR SHAH, on behalf of ICU (EUROPE) LTD
Pursuer and Appellant;
against
(FIRST) SAQUIB IBRAHIM and (SECOND) ICU (SECURE) LTD
Defenders and Respondents:
Act: McIlvride, QC; Harper Macleod LLP
Alt: G MacColl; MacRoberts LLP
14 July 2016
Background
[1] This appeal relates to an application raised by two shareholders on behalf of the pursuer company as a derivative action in terms of section 265(1) of the Companies Act 2006 (“the 2006 Act”). The action was directed against (i) a director of the pursuer company and (ii) a rival company said to be operated by the first defender in competition with the pursuer. The causes of action were breach of fiduciary duty by the first defender whilst a director of the pursuer and knowing participation by the second defender in the first defender’s breach. After debate the sheriff concluded that leave should not be given, and because a somewhat unusual procedure had been adopted, also dismissed the action.
The statutory procedure
[2] The procedure which should be followed in terms of section 266 and OCR 46.1 is clear. A written application must be lodged, addressed to the sheriff clerk, specifying the cause of action, and summarising the facts upon which the proceedings are to be based. At that stage the application is not to be served upon any party. It is then placed before a sheriff for consideration without a hearing. If the court considers that a prima facie case is not disclosed, it must refuse the application. If the application is not refused on such a basis, the alternative is not that the application is granted. Rather the application is effectively deemed to merit further consideration. At this point the applicant must serve the application on “the company” (s 266(4)(a)) by which is clearly meant the company of which the applicant is a member and in protection of the interests of which the application has been made. At the same time, the sheriff may order the production of certain evidence, and may adjourn proceedings for that purpose. Moreover, from now on the company “is entitled to take part in further proceedings upon the application” (s 266(4)(c)). On hearing the application the court may grant, refuse, or adjourn the application, with orders for further procedure.
[3] If there were any doubt that this is the procedure to be followed in terms of section 266, it is removed on consideration of section 268 which makes provision for the circumstances in which the court must refuse an application or in respect of the matters which the court must take into account in reaching its decision. These include matters of fact which would be likely to be in the exclusive knowledge of the company - see eg s 268(2)(d) and (e). OCR 46.1 also clearly envisages that after service of intimation in terms of section 266(4) (ie where the court has determined that there appears to be a prima facie case) the company may be heard on the application on giving due notice to that effect (OCR 46.1(5)) and the next stage will be a hearing at which both the applicant and the company may be heard (OCR 46.1(6)). The hearing is to be notified to the applicant and the company (OCR 46.1(7)).
[4] It is noteworthy that at no stage in this process is there any entitlement for the potential defenders in the proposed derivative action to be heard. That is what one would expect, since there is no action at this stage, and the only live issue is one between the company and the members who are making the application. The only provision for notice to the defender is once an application has been granted (OCR 46.1(8)). However, once an action has been raised, it would be open to the defender to challenge the competency of the action on the basis that leave had not been granted, which is effectively what happened here in due course.
[5] That the appropriate procedure is as outlined above is also made clear in the case of Wishart v Castlecroft Securities 2010 SC 16, para 9 in the opinion of the court delivered by Lord Reed. The sheriff was therefore wrong (para 20) to consider that the correct course is that for applications which are not refused the court should grant leave and then fix a hearing. The purpose of the hearing is to consider whether the application should be granted. In practice, of course, as noted in Wishart, the parties may agree to telescope this procedure by dealing with the application in its entirety at a single hearing.
The procedure adopted in the present case
[6] The pursuer applied for leave in terms of OCR 46.1(1). The court pronounced an interlocutor, on 25 September 2014 in which it ordained the applicant to serve a copy of the application and supporting documents on ICU (EUROPE) Limited, ordaining that company if it wished to be heard within 21 days to lodge written submissions setting out its position. Accordingly, the proper procedure was followed up to this point. The intimation to the company was intimation in terms of OCR 46.1 (4) and (5) and section 266(4).
[7] We think it would probably be a convenient approach, in most cases, when an interlocutor such as this is pronounced, that the court should also fix a hearing to take place at an appropriate time for final determination of the leave application. However, not only did that not happen but at the same time that this interlocutor was pronounced, a warrant to cite was issued by the sheriff clerk in terms of OCR 3.3. Accordingly, the writ and warrant was served also on the defenders in terms of that warrant. Thereafter the defenders seem to have entered appearance and on 31 October 2014 on joint motion of the parties the action was sisted for settlement negotiations. The sist was recalled on the pursuer’s motion on 7 January 2015. On neither occasion did the defenders challenge the competency of proceedings on the basis that leave had not been granted. On the latter date, the sheriff, overlooking the fact that leave had not been granted, ordained the defenders to lodge defences. The defences were lodged and contained no challenge to competency. Such an issue was raised by adjustment on 10 April 2015. There followed several case conferences, and eventually, a debate took place on 4 August 2015.
[8] At debate counsel for the defenders challenged the competency of the action on the basis that leave was required but had not been given. He was entitled to do so, although his submissions did stray into the question of whether leave should be given, which is understandable in the unusual circumstances of the case. Counsel for the defenders also attacked the pleadings as fundamentally irrelevant and sought dismissal. It appears that the solicitor for the pursuer did not address the sheriff at all on the question of leave, and on the issue of relevancy did not defend the terms...
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