The English High Court recently dealt with the controversial issue of double derivative claims and the availability of a pre-emptive indemnity for costs. Morgan J in Bhullar v Bhullar  EWHC 1943 (Ch) gave permission for derivative claims to be continued on behalf of two companies, Bhullar Developments Limited and Bhullar Bros Limited (subsidiaries of Bhullar Limited). The judge held that the statutory regime did not apply and a double derivative claim could be brought at common law, following the recent case of Universal Project Management Services Ltd v Fort Gillicker Ltd  Ch 551. The judge emphasised relevant common law principles, specifically the requirement to establish a prima facie case. Whilst the judge commented that this lacked some clarity, in practice the Court would have to form a view as to the strength of the claim in the context of its assessment of whether a reasonable board of directors of the company might consider it appropriate to bring a claim against the defendant.
In deciding whether the applicant should be granted a pre-emptive indemnity in respect of costs of the proceedings, the judge held that such an order would not be appropriate, partly because it would give the applicant a considerable advantage in the context of the broader shareholder dispute. However, the prospect of the Court granting an indemnity for costs at the proceeding's end was left open. The judge concluded that after analysing the relevant authorities concerning pre-emptive indemnities for costs in derivative claims "the Court should exercise considerable care when deciding whether to order a pre-emptive indemnity. The Court should have a high degree of assurance that such an indemnity would be the proper order to make following a trial on the merits of the claim". This decision provides a useful reminder that under the common law "double derivative" action remains available and minority shareholders do have the option of challenging wrongs done to companies further down the chain, regardless of the precise nature of the overall corporate structure.
See Court decision here.