English common law recognised multiple derivative actions before the coming into force of the Companies Act 2006 and they had survived the coming into force of that Act.

Briggs J so held when granting the applicant, Universal Project Management Services Ltd, permission under section 261 of the Companies Act 2006 to continue a double derivative action on behalf of the first respondent, Fort Gilkicker Ltd (“the company”), against the second respondent, Ian Pearce, a director of the company and the third respondent, Fort Gilkicker Properties Ltd, a company owned and controlled by the second respondent. The applicant was not a shareholder in the company in which the cause of action was alleged to be vested but was a member of a limited liability partnership (“LLP”) which owned all the shares in that company.

BRIGGS J said that the questions were: (1) whether a multiple derivative action was known to English law before the coming into force of the 2006 Act; and (2) if so, whether the multiple derivative action (of which the double derivative action was a sub-species) had survived the coming into force of the 2006 Act. His Lordship referred to Prudential Assurance Co Ltd v Newman (No 2) [1982] Ch 204, Wallersteiner v Moir (No 2) [1975] 1 QB 373; Smith v Croft (No 2) [1988] Ch 114, Halle v Trax BW Ltd [2000] BCC 1020, Truman Investment Group v Societe General SA [2003] EWHC 1316 (Ch) and Airey v Cordell [2007] Bus LR 391. The question whether the common law permitted the extended form of derivative claim (whether called double or multiple being merely a matter of classification) was fully reviewed by the Hong Kong Court of Final Appeal in Waddington Ltd v Chan Chun Hoo Thomas [2008] HKCU 1381. The question was answered in the affirmative for reasons which appeared as applicable to English as to Hong Kong common law. The common law procedural device called the derivative action was, at least until 2006, clearly sufficiently flexible to accommodate as the legal champion or representative of a company in wrongdoer control a would-be claimant who was either (and usually) a member of the company or (exceptionally) a member of its parent company where that parent company was in the same wrongdoer control. That flexibility was not described in terms of separate forms of derivative action, whether headed “ordinary”, “multiple” or “double”. Rather it was a single piece of procedural ingenuity designed to serve the interests of justice in appropriate cases calling for the identification of an exception to the rule in Foss v Harbottle (1843) 2 Hare 461. The question as to the effect the 2006 Act had wrought upon the common law procedural device of the derivative action in relation to companies was ultimately a question of construction of the Act. The main bone of contention arose from the restrictive definition of a “derivative claim” in section 260(1). Academic commentary on the effect of the 2006 Act upon multiple derivative actions had been evenly divided. On balance the 2006 Act did not do away with the multiple derivative action. The second and third respondents submitted that whatever might have been the ambit of the common law derivative action, it did not extend so far as to permit members of an LLP to bring proceedings on behalf of a company wholly owned by that LLP and that although the unfair prejudice remedy had been afforded to members of LLPs, they had been given no statutory means of bringing a derivative claim where the LLP was in wrongdoer control. Those objections were not persuasive. Once it was recognised that the extension of the locus standi beyond the immediate members of the wronged company was based upon the need to find a suitably interested claimant to pursue the company’s claim when it was disabled from doing so, the precise nature of the corporate body which owned the wronged company’s shares was of no legal relevance, provided that it was itself in wrongdoer control and had some members at least who were interested in seeing the wrong done to the company put right. It was irrelevant that the LLP’s members had no recourse to a statutory derivative claim. That lacuna (if such it was) related to the remedies for wrongs done to the LLP, rather than to the company which it owned.