LexisNexis Q&A – Derivative Claims

Articles
29 Mar 2023

On which companies’ behalf can a statutory derivative claim pursuant to sections 260-264 of the Companies Act 2006 (CA 2006) be brought in the English and Welsh courts? The definition of ‘company’ under CA 2006 appears to extend to any company incorporated in the UK (ie companies with registered offices in England, Wales, Scotland or Northern Ireland) whereas CA 2006, s 260(1) refers to ‘England and Wales or Northern Ireland’, or is it just be companies registered in England and Wales as suggested by para [36] of the (ex parte) decision in Zulfiqur Al-Tanveer Haider v Delma Engineering Projects Company LLC [2023] EWHC 218 (Ch))?

The Companies Act 2006 includes two distinct sets of provision in relation to derivative claims. Sections 260 – 264 set out the law and (primarily) procedure in relation to derivative claims in England and Wales and Northern Ireland. Sections 265 – 269 set out the same in relation to derivative ‘proceedings’ in Scotland. Although the procedures are largely the same, it is apparent that sections 260 – 264 cover both claims brought in the Courts of England and Wales and claims brought in the Courts of Northern Ireland. This is apparent from the fact that (for example) in section 261(1), what is described as permission in England and Wales is described as leave in Northern Ireland.

Sections 260 – 264 do not expressly state that only claims in respect of English or Welsh companies may be brought in the Courts of England and Wales and vice versa. Outside of the scope of the statutory regimes, Courts in England and Wales do have jurisdiction (in certain circumstances) to determine derivative claims in respect of foreign companies (Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 W.L.R. 1269). The Civil Jurisdiction and Judgments Act 1982 does not confer exclusive jurisdiction on the component jurisdictions of the United Kingdom over derivative claims in respect of companies incorporated within those component jurisdictions.

Para [36] of the (ex parte) decision in Zulfiqur Al-Tanveer Haider v Delma Engineering Projects Company LLC [2023] EWHC 218 (Ch) states (of sections 260 – 265 [sic]):

“they do not in and of themselves apply to companies, such as Delma Engineering, which are incorporated outside England and Wales.”

In context it is not clear that Peter Knox KC was intending to suggest that a derivative claim under the statutory regime brought in England and Wales can relate only to a company incorporated in England and Wales and not to a company incorporated in Northern Ireland. There do not appear to be any direct authorities on the point, however, if the point came to be tested, it is likely that a Court would confine the statutory regime in this way. Due to the separation of the regimes under sections 260 – 264 from those in sections 265 – 269, a statutory derivative claim could not be brought in England and Wales in respect of a company in Scotland, or vice versa. It is, therefore, difficult to see why the position should be different as between England and Northern Ireland.

No particular injustice or absurdity arises from this conclusion given that common law derivative claims could be brought in England in respect of companies incorporated in Northern Ireland, subject to arguments in relation to forum conveniens.


LexisNexis Q&A – Phillip Patterson

Author

Phillip Patterson

Call: 2008

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