Shareholder fallouts happen! Protection of rights is the necessary next step.

The two predominant types of claims brought by shareholders are unfair prejudice petitions, brought by the shareholder on their own behalf, and derivative claims, brought by the shareholder on behalf of the company. A wrong which can be pursued by way of a derivative claim can often also found an unfair prejudice petition, however there are practical differences between the two claims. For example, a shareholder bringing a derivative action will first need to obtain the court’s permission to proceed with the claim. Also, broader forms of relief are available in unfair prejudice proceedings, including relief that benefits the petitioner (such as an order that the majority shareholder buy out of the petitioner’s shares), as well as the company (such as damages or restitution), ie dual relief. As a result, unfair prejudice petitions are often more attractive and so more common, although derivative claimants are usually able to obtain a costs indemnity from the company.

In Ntzegkoutanis v Georgios Kimionis [2023] EWCA Civ 1480, the English Court of Appeal considered whether a case which could have been brought as a derivative claim should be permitted to proceed by way of unfair prejudice proceedings, providing useful guidance on the interplay between the two actions.

At first instance, the court relied on the Hong Kong Court of Final Appeal’s decision in Re Chime Corp Ltd  (2004) 7 HKCFAR 54 (which was previously cited in a number of English cases, including by the Privy Council, as well as in other Commonwealth jurisdictions) and struck out certain of the petitioner’s claims for not being in the form of a derivative action. In Chime, it was suggested that only in “rare and exceptional” circumstances will the court permit a claim to proceed as an unfair prejudice petition which could otherwise have been brought by way of derivative action.

The Court of Appeal chose not to apply Chime, holding that its principles did not represent the law in England, and found instead that, inter alia, an unfair prejudice petition will only be an abuse of process where either (a) solely relief in favour of the company is sought, or (b) the claimant is seeking dual relief but clearly has no genuine interest in obtaining the shareholder relief.

The court’s refusal to follow Chime  brings welcome clarity to this area and assists legal practitioners in determining the appropriate cause of action to pursue.

You can access a copy of the full judgment here.