Introduction
A derivative claim, under English company law, lets a shareholder begin legal action for a company against a director (or another party) for harm done to the company. This process addresses situations where the company, controlled by the accused party, does not take action. The rules for derivative claims are set out in Part 11, Chapter 1 of the Companies Act 2006. Key conditions for bringing a derivative claim include showing a prima facie case and obtaining court permission. The decision in Bridge v Daley gives practical guidance on managing these claims, particularly the evidence needed at each phase.
The Two-Step Process for Derivative Claims
The Companies Act 2006 sets out a two-stage process for derivative claims. The first stage requires the shareholder to get court permission to move forward with the claim. This stage acts as a filter to dismiss weak claims. Here, the court checks whether the evidence supports a prima facie case. The second stage, if permission is given, involves a full hearing on the claim’s substance. Bridge v Daley clarified the evidence standards for each stage.
Prima Facie Case: The Permission Requirement
The term “prima facie case” is key to the first stage of a derivative claim. Bridge v Daley stressed that this requirement does not demand final proof at the start. Instead, the claimant must provide enough evidence to indicate a realistic chance of success. This includes identifying a valid legal claim against the director and showing harm to the company. The court should avoid in-depth review at this stage and instead decide whether the evidence supports a believable case. The judgment confirmed that this initial check should accept the claimant’s evidence as correct unless clearly contradicted.
Evidence and Permission: Avoiding Early Detailed Review
A central point in Bridge v Daley is the need to limit thorough examination at the permission stage. The court cautioned against settling factual disagreements or analyzing evidence too soon. The aim of the first stage is not to determine the final result but to decide whether the claim deserves a full hearing. This method cuts delays and costs in weak claims. The judgment explained how evidence should be reviewed at this stage, focusing on whether the alleged harm is reasonable and the company’s capacity to seek redress.
The Company’s Interests
Section 263(2) of the Companies Act 2006 lists factors the court must consider when deciding whether to allow a derivative claim. A main factor is whether a director following section 172 (duty to act in the company’s interests) would take the claim forward. Bridge v Daley reaffirmed this, noting that the court must judge the claim based on the company’s best interests. This involves balancing the costs and benefits of litigation, such as harm to reputation and the chance of recovering losses.
Outcomes and Later Cases
Bridge v Daley gave practical direction on handling derivative claims. The judgment clarified the evidence needed at the permission stage, stressing the need to avoid early detailed analysis. This clarity helps create a more efficient, cost-aware process for claimants and companies. Later cases, including Mission Capital Plc v Sinclair [2008] EWHC 1339 (Ch) and Franbar Holdings Ltd v Patel [2010] EWCA Civ 298, followed Bridge v Daley, further shaping the rules for starting and defending derivative claims. These decisions together form a clear method for such cases, safeguarding the interests of shareholders and companies.
Conclusion
The judgment in Bridge v Daley shaped the framework for derivative claims under English company law. It set out the evidence required at the permission stage, confirming that a prima facie case must be shown without detailed scrutiny. The case highlights the benefit of a clear process for early review of claims, reducing delays while balancing shareholder and company interests. Alongside the factors in Section 263(2) of the Companies Act 2006, including the review of directors’ duties, it provides a straightforward framework for these procedures. Later cases, applying Bridge v Daley’s principles, have further defined the rules for derivative claims, ensuring fairness and openness in company law.
