Timothy Carlisle, who is acting for the 5th defendant in a multi-party case, has recently been successful with the other defendants in stalling the claimants who brought a multiple derivative claim: Boston Trust Company Ltd v Szerelmey Ltd & Ors
Anyone contemplating such a claim should be aware that where the minority shareholding is by way of a parent company, the claimants must have legal ownership in the shares as recorded in the company’s Register of Members. Generally, it is insufficient to have a beneficial interest in the shares let alone any kind of lesser equitable right.
Background to the case
The claimants are the trustees of an off-shore trust company. They claim as members of Tellisford that by way of indirect minority holdings in the Szerelmey group of companies, held through Tellisford the parent company, they have sufficient interest to prosecute claims on a derivative basis on the basis of the well-established exception to the rule in Foss v Harbottle, a fraud on the minority; as alleged currently against the 5th defendant.
Therefore, this is a multi derivative claim. This type of claim has survived and operates in common law outside the statutory derivative claim regime set out in sections 260-263 of the Companies Act 2006.
The claimants’ first problem was that they, the trustees, are not registered as the owners of any shares in Tellisford’s share register. The relevant share register entry is in the name of the trust. A trust is not a legal entity, therefore it is incapable of owning or holding shares.
The claimants’ associated problem was that they, the trustees, could not prove that they are the owners of, as it turned out, any shares of any class.
The claimant trustees’ legal argument
The claimant trustees had alleged in the pleadings that if they were not the legal owners of the shares, nevertheless they held the beneficial interest and that gave them sufficient standing as ‘members’ to bring the action.
The concept of a trustee holding a trust asset in a beneficial capacity is instinctively incomprehensible. It is unsurprising that this was not pushed with any great force during the hearing.
It was argued that the trustees had acquired a lesser equitable interest in the shares by their right to seek rectification of Tellisford’s share register following proper execution of stock transfer forms into their name from those who were said to be the current owners, the former trustees.
The claimants relied, inter alia, upon Jafari-Fini v Skillglass Ltd. [2004] EWHC 3353 (Ch). In that case HHJ Rich QC, sitting as a judge of the High Court, decided, as a preliminary issue, that in exceptional circumstances where the interests of justice allow, prospective derivative claimants can proceed on the basis of their beneficial interest in shares. (In that case the principal wrongdoer was also the prospective claimant’s nominee shareholder).
But the case of Jafari-Fini is no authority beyond its own facts.
In any event the judge in this case decided that whatever interest the claimants might have had was insufficient to give them standing to succeed in their application for the claim to continue as a multi derivative claim. He was not persuaded to extend the law beyond its current parameters. The claimants not being members therefore have no standing – as matters stand.
Attempts at rectification
The trustee claimants belatedly and shortly before the hearing had launched a separate application to rectify Tellisford’s register so as to register their purported ownership of the shares, under section 125 of the Companies Act 2006.
This is a familiar tactic: the writer acted for the successful defendant, Bass, in the case of Blindley Heath Investments Ltd v Bass [2014] EWHC 1366 (Ch), [2014] All ER (D) 82 (Jun), which later went to the Court of Appeal reported as Dixon v Blindley Heath Investments Ltd and others [2015] EWCA Civ 1023, [2017] 1 aller (Comm) 319: recently cited by the Privy Council: Nilon Ltd and another v Royal Westminster Investments SA and others [2015] UKPC 2.
Many interesting points are likely to arise in that forthcoming application. To be continued.
You can read the judgment in Boston Trust Company Ltd v Szerelmey Ltd & Ors [2020] EWHC 1136 (Ch) (07 May 2020) ([2020] EWHC 1136 (Ch) on Bailii.