Journal of Business Law

2009
Drawing boundaries between derivative claims and unfairly prejudicial
petitions
Brenda Hannigan
Subject: Company law. Other related subjects: Civil procedure
Keywords: Derivative claims; Reflective loss; Unfairly prejudicial conduct
Legislation: Companies Act 2006 Pt 11, s.994 , s.996
Cases: Anderson v Hogg [2002] B.C.C. 923 (IH (Ex Div))
Atlasview Ltd v Brightview Ltd [2004] EWHC 1056 (Ch); [2004] B.C.C. 542 (Ch D (Companies Ct))
Bhullar v Bhullar [2003] EWCA Civ 424; [2003] B.C.C. 711 (CA (Civ Div))
Charnley Davies Ltd (No.2), Re [1990] B.C.C. 605 (Ch D (Companies Ct))
Chime Corporation, Re [2004] HKCFAR 546 (PC (HK))
Clark v Cutland [2003] EWCA Civ 810; [2004] 1 W.L.R. 783 (CA (Civ Div))
Foss v Harbottle (1843) 2 Hare 461 (Ct of Chancery)
Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] UKPC 26; [2007] 4 All E.R. 164 (PC (Jer))
Gardner v Parker [2004] EWCA Civ 781; [2005] B.C.C. 46 (CA (Civ Div))
Giles v Rhind [2002] EWCA Civ 1428; [2003] Ch. 618 (CA (Civ Div))
Prudential Assurance Co Ltd v Newman Industries Ltd (No.2) [1982] Ch. 204 (CA (Civ Div))
*J.B.L. 606 Introduction
In Gamlestaden Fastigheter AB v Baltic Partners Ltd 1 (considering the Jersey statutory equivalent2 of
Companies Act (CA) 2006 ss.994-996, the unfairly prejudicial remedy) the Privy Council accepted
that a cause of action vested in a company could be prosecuted to judgment on an unfairly prejudicial
petition and that the court could order that damages be paid by wrongdoing directors to the company.
The petitioners in Gamlestaden were minority shareholders in a joint venture and the essence of their
allegation was that the directors had negligently allowed the bulk of the company's assets to have
been lost rendering it insolvent (in effect the assets were withdrawn from the business for no
consideration by the majority shareholders). The minority shareholder had lent the company DM
165.5 million and an award of damages to the company, while it would not restore the company to
solvency, would at least offer some prospect for the minority as creditors to recover some of these
loans.3
The respondent directors unsuccessfully applied to have the petition struck out on the basis that relief
had to be of benefit to the petitioner in his capacity as a member rather than for the benefit of the
creditors. The Privy Council concluded that, given the width of the jurisdiction to give relief under what
is CA 2006 s.996, exceptionally the court may grant relief though the company is insolvent and will
remain insolvent (meaning that the petitioner cannot *J.B.L. 607 benefit in his capacity as a
shareholder) so long as the petitioner derives some real financial benefit from the petition, 4 the
exceptional element in Gamlestaden being that the company was a joint venture formed on the basis
of an agreement between the joint venturers that the company be funded through share and loan
capital. These funding arrangements were so closely connected to the petitioner's membership of the
joint venture that if the relief sought was of real value to the joint venturer in recovering some part of
his investment, then, in their Lordships' opinion, he ought not to be precluded from relief on the
ground that it would benefit him as a loan creditor and not as a member.5