In the second hearing in the case of Boston Trust Company Ltd v Szerelmey Ltd & Ors, the judge gave the claimants conditional permission to bring multiple derivative proceedings dependent upon them entered as shareholders on the company members’ register by rectification proceedings or otherwise.
This follows on from the first hearing in the case : Boston Trust Company Ltd v Szerelmey Ltd & Ors where the learned judge decided, inter alia, that the claimants did not have locus standi to bring multiple derivative proceedings on behalf of the parent company Tellisford. For more detailed discussion of that ‘standing finding’, see Timothy Carlisle successful (with others) in stalling multiple derivative claim on behalf of defendants.
But, back to the second hearing.
Terms of the grant of conditional permission to proceed
In respect of the grant of conditional permission to proceed the judge gave the parties permission to appeal in these terms:
- Whether the Court has jurisdiction to grant conditional permission to continue the Derivative Action in light of (a) the Standing Finding, (b) the Tellisford Register and (c) the pendency of the Rectification Claim; and
- If so, whether the Court was wrong to have exercised its discretion under CPR 19.9(4) to grant conditional permission in such circumstances.
To quote the judge from paragraph 104 of his judgment:
'There is no prior authority or recorded precedent for the grant of conditional permission to pursue a derivative claim in a case of inchoate standing - or, apparently, any other circumstances. The desirability of appellate scrutiny and exposition was acknowledged on all sides, as noted in paragraph 3 above.’
(The idea of an ‘inchoate standing’ might require some thought before the parties appear in the Court of Appeal. It seems an odd proposition that there might be a right in the claimant to bring a claim before there is a right to bring a claim)
During final submissions, the focus of the discussion turned to the provisions of Part 19, and in particular the ‘gateway provision’ for derivative claims by Part 19.9 (4):
‘After the issue of the claim form, the claimant must not take any further step in the proceedings without the permission of the court, other than – (a) a step permitted or required by rule 19.9A or 19.9C; or (b) making an urgent application for interim relief’.
The judge based his jurisdictional decision on what he saw as the lack of circumscription in Part 19.9 (4) on the court’s power to grant or withhold permission for future steps in the proceedings.
What does the judgment mean for similar claims?
As is recognised by the grant of permission to appeal to the Court of Appeal, there are unresolved questions. The rule presupposes the issuance of a claim form, namely, it might be said, a valid claim form, a claim form containing a claim, not a potential claim by someone who might become a claimant.
To circularize the problem, this whole area of derivative action depends upon the suit of someone aggrieved, that someone being a member of the hijacked company, see r 19.9 (1)(a) - which, in this case, the claimants were and are not.
It was not argued that the application in front of the court was of an originating application type, where proceedings in court were on foot due to the application itself; for instance an application under r 25.4 for interim remedy without related claim.
In this case, by the time of the hearings in the court below, the application had no traction itself: it depended upon, and its rationale was, the Claim Form and the underlying cause of action. Without the validation of those, in fact the claimants had no standing to support an application. The application was no more than a piece of paper.
The judgment in Boston Trust Company Ltd v Szerelmey Ltd & Ors [2020] EWHC 1352 (Ch) (26 May 2020) is available on Bailii.