Airey v Cordell & Ors

Airey v Cordell & Ors

The court held that the appropriate test for granting permission to continue a derivative action is whether a reasonable, independent board of directors could decide to pursue the claim. On the facts, it could not be said that no reasonable board would pursue the directors by litigation at this stage, as the proposals for alternative arrangements were not sufficiently developed or binding. The claimant's case is at least arguable, and the action should be stayed to allow the parties to negotiate a proposal that adequately protects the claimant's interests. If such a proposal is made and accepted, the derivative action should not proceed; otherwise, the claimant may continue.

Parties
Claimant: Airey; Defendant: Cordell & Others
Jurisdiction
England and Wales
Judgment Date
24 August 2006
Procedural Posture
Derivative Action / Company Law / Application for Permission to Continue Derivative Action and Amend Pleadings
Outcome
Action stayed to allow parties to negotiate; permission to continue derivative action not refused at this stage.
Legal Topics
Derivative Actions, Directors' Fiduciary Duties, Minority Shareholder Protection, Ratification of Director Conduct, Constructive Trusts
Company Law Equity Derivative Actions Directors' Fiduciary Duties Minority Shareholder Protection Ratification of Director Conduct Constructive Trusts

Case Brief

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Parties

Airey

Claimant

Cordell & Others

Defendant

Procedural Posture

Derivative Action / Company Law / Application for Permission to Continue Derivative Action and Amend Pleadings

Legal Issues

  1. 1 Whether the claimant should be granted permission to continue a derivative action on behalf of the company against the directors for alleged breaches of fiduciary duty
  2. 2 Whether the directors acted in breach of their fiduciary duties by diverting corporate opportunities and exploiting company assets for personal benefit
  3. 3 Whether alternative remedies (such as unfair prejudice petitions) preclude the derivative action

Ratio Decidendi

The court held that the appropriate test for granting permission to continue a derivative action is whether a reasonable, independent board of directors could decide to pursue the claim. On the facts, it could not be said that no reasonable board would pursue the directors by litigation at this stage, as the proposals for alternative arrangements were not sufficiently developed or binding. The claimant's case is at least arguable, and the action should be stayed to allow the parties to negotiate a proposal that adequately protects the claimant's interests. If such a proposal is made and accepted, the derivative action should not proceed; otherwise, the claimant may continue.

Court Disposition

Action stayed to allow parties to negotiate; permission to continue derivative action not refused at this stage.

Orders

  • Action stayed for a period to allow parties to agree a detailed proposal or for defendants to put forward a final proposal meeting the court's criteria.
  • If a proposal adequately protecting the claimant's interests is made and accepted, the derivative action will not proceed; otherwise, the claimant may continue.