Judicial Control of Derivative Actions
International Company and Commercial Law Review, Vol. 8, p. 335, 2005
Posted: 26 Apr 2005
Abstract
Under Civil Procedure Rules, Rule 19.9(3) a claimant must apply to the court for permission to continue a derivative action and may not take any other step in the proceedings except where the court gives permission. However, as Henderson QC, sitting as a deputy judge of the High Court, stated in Portfolios of Distinction Ltd v Laird and others far from being a mere technicality, the provisions of the Rule reflect the real and important principles that the Court of Appeal re-affirmed in Barrett v Duckett and underline the need for the court to retain control over all the stages of a derivative action. It is the purpose of this article to look into the traditional, and less familiar, aspects behind the need for the court to retain control over a derivative action.
The article suggests that the Law Commission's proposal that a new derivative action on a statutory basis will be subject to tight judicial control (Law Commission Shareholder Remedies Law Com Report No 246 1997 para 6.13), essentially, serves a very useful purpose, namely strengthening the features that contribute positively toward derivative actions being understood as a positive social force. The procedural requirements in CPR Rule 19.9 that fosters court screening of the action coupled with the requirement that the claimant refers back to the court for approval of any offer of settlement of the suit provide an important check that should contribute positively to the view of the derivative action being seen as an important social mechanism. This purpose behind the judicial control of a derivative action is almost invariably lost sight of.
Keywords: Judicial Control, Derivative Actions, shareholders, remedies, Civil Procedure Rules
JEL Classification: K22
Suggested Citation: Suggested Citation