The Supreme Court has dismissed an appeal by two shareholders in Fatstrippa companies, affirming a High Court ruling that they could not pursue derivative claims on the companies’ behalf against two directors. The appeal concerned who could bring the claims, not whether the alleged wrongdoing occurred.
James Glynn and Kevin McCabe had alleged wrongdoing by Jonathan Owen and Allan Owen in connection with the Fatstrippa business. They argued that the Owens controlled the companies, so the claims fell within an exception to the rule that a company must bring claims for wrongs done to it. They also argued that the interests of justice justified allowing them to proceed.
The case arose from a business established by five men to manufacture and sell Fatstrippa, a product designed to separate oil and water. Each held 20% of the shares and served as a director. The High Court heard evidence on a preliminary issue about whether Glynn and McCabe were entitled to bring the derivative claims. It did not require them to establish a prima facie case of wrongdoing, and considered control and the broader justice argument.
The trial judge found that Stephen Leyland, the third director whose vote was central to the control question, acted independently and according to his view of the company’s best interests when he voted with the Owens. The Supreme Court said that finding was supported by the evidence and could not be disturbed. With Leyland not part of a block with the Owens, the court found no basis to conclude that they controlled the companies for the purpose of preventing the companies from pursuing the claims.
The court also rejected the appeal under the proposed wider interests-of-justice exception, assuming such an exception exists. It said the plaintiffs had not shown compelling facts warranting it. Their lack of legal representation was not enough.
The Supreme Court emphasised that its decision did not determine the merits of the allegations against the Owens. It also did not decide whether the shareholders might have other routes, including personal claims, statutory proceedings for oppression or claims under the shareholders’ agreement. Those matters were not before the court.
The appeal was dismissed and the High Court order affirmed. The Supreme Court’s judgment was delivered by O’Donnell J. on 23 February 2012.