Stainer v Lee [2011] 1 BCLC 537

Facts

• Stainer v Lee involved an application for a derivative claim under Part 11 of the Companies Act 2006, allowing shareholders to pursue legal action on behalf of a company against its directors for alleged breaches of duty.
• Section 260(3) of the Act lists breaches including carelessness, failure of duties, and trust breaches as eligible grounds.
• The applicant in this case sought permission to continue a claim alleging breaches of directors’ duties.
• The court was required to review the application in accordance with the procedures established in sections 261 and 263 of the Companies Act 2006.

Issues

1. Whether the claim satisfied the initial threshold under section 261 for permission to proceed as a derivative claim.
2. How the mandatory bars in section 263(2), including the hypothetical director test, should be applied.
3. What role discretionary considerations in section 263(3), such as good faith and applicant’s motives, should play in the court’s decision.
4. What type and standard of evidence is required to support a derivative claim application.

Decision

• The court reiterated a two-stage process under section 261: first, assessing whether the claim had sufficient merit, then considering the statutory bars and factors in section 263.
• It clarified the operation of the mandatory bars in section 263(2), especially that a claim must be refused if a hypothetical director, acting under section 172, would not pursue it, or if the complained-of act had received proper approval.
• The judgment confirmed that, under section 263(3), factors including the applicant’s good faith, the company’s decision not to act, and the possibility of later ratification are to be weighed.
• The court stressed that mere assertions were insufficient; factual and credible evidence was required at all stages.
• It held that the presence of mixed motives did not necessarily prevent an application from succeeding, provided the principal aim was to benefit the company.

Legal Principles

• Derivative claims under the Companies Act 2006 must pass a two-stage judicial scrutiny: an initial merits review, followed by consideration of statutory bars and discretionary factors.
• Under section 263(2)(a), the hypothetical director test requires an objective assessment based on factual evidence, rather than solely on the applicant's allegations.
• Section 263(3)(a) regards the applicant’s good faith and intention to benefit the company as key considerations, though mixed motives do not automatically disqualify a claim.
• Sufficient factual evidence is essential to support the permission stage of a derivative action; bald assertions are inadequate.

Conclusion

Stainer v Lee provides clear guidance on the process and evidential thresholds for derivative claims under the Companies Act 2006, underscoring the objective application of the hypothetical director test and the importance of good faith and supporting evidence in such applications.