LTD v Robert Cooper & 5 ORS (2008)


The court directed that a company director's application for permission to bring a derivative claim on behalf of his company should be adjourned until the determination of a related claim by another company that would, once concluded, influence the necessity for the director to continue his application for permission.


The first applicant company (F) applied for a declaration that the share capital of the fifth respondent company (D) was held in trust for it. The second applicant company director (B) applied for permission to pursue a derivative claim for the benefit of D against the directors of D. F had been set up by B and the third respondent with its investors including the first and second respondent. An idea for the development of a system whereby bonus airtime for mobile phones could be earned at supermarket checkouts was conceived and D was formed to develop and market the idea. No agreement was reached about the intended beneficial ownership of D's shares and it was F's case that all the shares were held in trust for it as the party that had procured the incorporation of D. Relationships between B and the others involved with D deteriorated and the others transferred the benefit of the project to a new company of their own creation. Later, the totality of D's rights and interests in the project were transferred to the new company, leaving D effectively moribund. The assignment was approved in a board meeting which B did not attend. All subsequent development and marketing of the scheme took place through the new company without any involvement from D. B submitted that there had been a breach of fiduciary duty by the directors of D.


The issues in the claim brought by F were wholly separate and distinct from the issues in the claim brought by B. F's claim was premised on the resolution of the question relating to the ownership of shares in D which was of little or no relevance to B's claim in breach of fiduciary duty. However, although there was no overlap in the issues as between the two claims, the outcome of F's claim would be of significance in relation to the procedural framework of the claim being pursued by B. Indeed, if F succeeded in its claim it would wholly control D and, on that basis, there would be no need for B to pray in aid an exception to the rule in Foss v Harbottle 67 ER 189 Ct of Chancery, Harbottle considered. F would be able to procure that the directors of D could decide for themselves whether or not D should continue the claim currently framed as a derivative action. If, however, F's claim failed then B's claim would have to proceed, if at all, as a derivative action. Accordingly, the unusual circumstances of the case justified the conclusion that F's claim should be tried as a preliminary issue in the action and that B's permission to bring a derivative action should be adjourned until the close of the preliminary matter.

Directions given