Home Information Cases Portfolios of Distinction Ltd v Donald Ian Laird & Ors (2004)

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Portfolios of Distinction Ltd v Donald Ian Laird & Ors (2004)

Summary

It would be wrong to rule on a summary judgment application in a derivative action before deciding the logically prior question of whether the claimant shareholder should be permitted to continue with the derivative action on behalf of the company under CPR r.19.9.

Facts

The claimant (P) applied for summary judgment and an interim payment in a derivative action. P owned 49 per cent of the shares in the second defendant company (S). The first defendant (L) owned the remaining 51 per cent of the shares in S and was a director. The other defendants were companies controlled by L or unincorporated businesses which L carried on under similar names. P's case was that S was incorporated as a business venture between P and L which involved the purchase of debt portfolios from blue-chip companies with funds subscribed by investors to whom the scheme was marketed by promising a high return on the investment. During the course of 2003 nearly 200 investors paid a total of about £3.2 million for the acquisition of debt portfolios and for some months at least some investors received the monthly payments which they had been promised. At the end of the year L informed investors that all transactions were "frozen" and he resigned as a director. It appeared that the debt portfolios had been bought by L in his own name and that investors' moneys were paid into L's personal account. L's case was that he purchased the debts personally and sold them on to S. P contended that the investors had been defrauded by L and that L had systematically looted S of its assets in breach of his fiduciary duties owed to that company and the Companies Act 1985 s.320 . The claim was issued as a derivative claim under CPR r.19.9 by P in its capacity as a shareholder of S. A number of investors applied for five of their number to be joined to the action in a representative capacity. Although P had sought permission under CPR r.19.9(3) to continue with the derivative claim on behalf of S, no such permission had yet been given.

Held

(1) It would be wrong to rule on the summary judgment application before deciding the logically prior question of whether P should be permitted to continue with the derivative action. The latter question could only properly be dealt with at a hearing at which the investors were represented. (2) It was unfortunate that the need to comply with the mandatory provisions of CPR r.19.9 for permission to continue with the derivative action had been forgotten. Far from being a technicality, the provisions of the rule reflected the important principles set out in Barrett v Duckett [1995]~ 1 B.C.L.C. 243 which required the shareholder to establish a positive case for being allowed to sue on behalf of the company. (3) Although the investors were not yet parties to the action, they had a pending application to be joined and it would be unrealistic to disregard their evidence in considering whether P should be allowed to continue with the derivative action. In the light of the evidence available there might be serious questions about P's good faith in purporting to act for S and about the possible availability of alternative remedies. Accordingly the summary judgment application would be adjourned until the question of permission to continue the derivative action had been determined at a hearing at which the investors were represented.

Petition dismissed.

Chancery Division
L Henderson QC
Judgment date
3 August 2004
References

​LTL 10/8/2004 : (2005) BCC 216 : (2004) 2 BCLC 741

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