Clause 244

Company Law Reform Bill [Lords] – in a Public Bill Committee at 1:00 pm on 13th July 2006.

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application for permission to continue derivative claim

Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

I beg to move amendment No. 489, in clause 244, page 111, line 2, leave out subsection (1) and insert—

‘(1) A member of a company who wishes to bring a derivative claim under this Chapter must receive permission (in Northern Ireland, leave) from the court before proceedings are issued.’.

Briefly, this is a further amendment that has been brought to us by the Institute of Chartered Accountants, which we propose on a friendly basis. It notes that in Scotland leave is needed to commence proceedings. It would seem sensible that permissions from the court be required elsewhere before proceedings are even issued. That would be an effective mechanism to deter members of the company from making frivolous or vexatious claims.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

These provisions reflect the implementation of Lord Woolf’s wider civil procedure reforms. Currently, a derivative claim brought in England and Wales is commenced by the issue of a claim form under part 7 of the civil procedure rules,  which must generally be served within four months after it has been issued. There is no requirement to obtain leave before such a claim may be issued. Civil procedure rule 19.9(3) provides that after the claim form has been issued the claimant must apply to the court for permission to continue the claim and that the application must be supported by written evidence. No further steps may be taken in the proceedings until permission has been obtained. The relevant documents must also be served on the defendant at least 14 days before the court is to deal with the application.

The effect of part 19.9 of the civil procedure rules is to require the claimant’s entitlement to bring the derivative action to be determined at the preliminary issue at the earliest possible time after commencement of the proceedings. Notwithstanding the Woolf reforms, we have been clear from the beginning that we want claims that are motivated by reasons other than the commercial success of the company to be dismissed by the court at the earliest possible opportunity and without involving the companies. That needs to be underlined. That is why we tabled a package of reforms in another place which, by introducing a two-stage procedure for permission to continue with a derivative claim, ensure that the courts can dismiss unmeritorious claims at the earliest possible stage. That is essentially what this is all about.

I hope that, as I believe the hon. Gentleman and I will broadly agree that that should be the position, he will withdraw his amendment.

Amendment, by leave, withdrawn.

Clause 244 ordered to stand part of the Bill.