Company Law Reform Bill [HL]

moved Amendment No. 134:"Page 109, line 14, at end insert—" ““(1A) If it appears to the court that the application and the evidence filed by the applicant in support of it do not disclose a prima facie case for giving permission (or leave), the court— (a)   must dismiss the application, and (b)   may make any consequential order it considers appropriate. (1B) If the application is not dismissed under subsection (1A), the court— (a)   may give directions as to the evidence to be provided by the company, and (b)   may adjourn the proceedings to enable the evidence to be obtained. (1C) On hearing the application,”” The noble and learned Lord said: My Lords, we spent some time in Grand Committee discussing the provisions on derivative claims. Discussions have continued since then, and I thank all noble Lords and others who have participated. Essentially, the intention in Part 11 was to create a new statutory procedure with criteria for leave based on the Law Commission’s recommendations, differing from the common law in some key respects. First, we did not want the claimant to have to show wrongdoer control, as that may make it impossible for a derivative claim to be brought successfully by a member of a widely held company. We did want it to be possible to bring a claim in cases of negligence, even if it cannot be shown that the directors have profited from the negligence. We did want to achieve a proper balance between the ability of directors to take business decisions in good faith—that is absolutely important—and shareholders’ rights so that shareholders could bring meritorious claims against directors on behalf of the company where appropriate. At the same time, we want unmeritorious claims to be dismissed by the courts at the earliest possible opportunity and without involving companies. We very much supported, therefore, the views of the noble Lords, Lord Hodgson and Lord Sharman, and the noble Baroness, Lady Goudie, that the court should be able to throw out unmeritorious claims at an early stage without involving companies. We recognise the concerns that the Bill’s provisions could do more to achieve this, and therefore we have tabled a package of amendments which will apply to proceedings in England and Wales, Northern Ireland and Scotland, which will have four main effects. First, the amendments will introduce a two-stage procedure for permission to continue a derivative claim. At the first stage, the applicant would be required to make a prima facie case. The court would be required to consider the issue on the basis of the evidence filed by the claimant only, without requiring any evidence from the defendant. The courts must dismiss the application at this stage if what was filed did not show there was a good case. At the second stage, but still before the substantive action begins, the court would consider if the decision of the directors was one which the company could reasonably and independently have taken. Secondly, the amendments make it clear that the court may make any consequential order it considers appropriate—for example, a cost order or a civil restraint order against the applicant. Thirdly, they give the court an explicit power to adjourn the permission application either for a specific event to take place, such as a general meeting or other soundings, or generally so that it can revisit the question of permission at a later stage. Fourthly, they amend the factors which the court must take into account under Clause 242(3) in deciding whether to permit a derivative claim to continue so that it includes,"““any evidence . . . as to the views of members of the company who have no personal interest, direct or indirect, in the matter””." I believe that this will help to address concerns that it is not practicable or desirable for major quoted companies to ask shareholders formally to approve directors’ commercial decisions. I also believe that this package of measures, which has been the subject of very careful consideration, both delivers the Government’s objectives in Part 11 and addresses concerns that the derivative procedure should not be abused. I express my thanks to those who have participated with us in our development of this package. I beg to move.