Key Facts
- •Hitesh Gandesha (Claimant) sought permission to continue derivative claims against his brothers (Defendants) and Milestar Limited (Company) under s.261 Companies Act 2006.
- •Claims included: a bank mandate claim, a cash claim, a directors' loan account claim, and a trust income claim, all alleging financial misconduct by Narendra and Surendra Gandesha.
- •The Company, a dispensing chemist, was incorporated in 1982 and had experienced family disputes leading to prior litigation.
- •Hitesh argued that the Defendants misused Company funds and acted against its best interests.
- •Defendants argued that Hitesh acted in bad faith and that the claims lacked merit.
- •Prior litigation included s.994 proceedings for unfair prejudice, dismissed against Hitesh in 2019 and a property dispute resulting in a loss of Company premises.
Legal Principles
Derivative claims require court permission under s.260(1) and (2) Companies Act 2006.
Companies Act 2006
Permission is a two-stage process under s.261 Companies Act 2006: a prima facie case on the papers, followed by a hearing on the merits.
Companies Act 2006
Section 263 Companies Act 2006 outlines factors for the court's consideration when granting permission, including whether a director acting in accordance with s.172 (duty to promote success of company) would pursue the claim.
Companies Act 2006
Section 172 Companies Act 2006 requires directors to act in good faith to promote the success of the company.
Companies Act 2006
The existence of an alternative remedy (e.g., s.994 proceedings for unfair prejudice) is a factor to consider, but not a bar to granting permission.
Case law (Iesini, Wishart, Nexbell)
Indemnity for the claimant's costs may be granted under CPR r.19.19, but the court must exercise caution and consider the merits of the claim and potential for injustice.
CPR r.19.19, case law (Wallersteiner, Wishart, Leslie, Bhullar)
Outcomes
Permission granted to continue the derivative action.
The court found that a director acting in accordance with s.172 would consider the claims important and worth pursuing, despite some evidential gaps.
Company ordered to indemnify Hitesh for costs up to the exchange of witness statements.
Indemnity deemed necessary to encourage minority shareholders to pursue claims beneficial to the company; however, limited to a specific stage to address potential changes in circumstances.
Application adjourned to allow for further evidence and potential modification of the order.
To allow defendants to provide additional evidence and revisit the need for permission and indemnity if circumstances change.