Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
The Law Commission
You are here: BAILII >> Databases >> The Law Commission >> SHAREHOLDERS REMEDIES [1997] EWLC 246(1) (24 October 1997)
URL: http://www.bailii.org/ew/other/EWLC/1997/246(1).html
Cite as: [1997] EWLC 246(1)
[New search] [Help]
PART 1
INTRODUCTION
Terms of reference
1.1 In February 1995, the Lord Chancellor and the President of the Board of Trade requested us, in consultation with the Scottish Law Commission:
... to carry out a review of shareholder remedies with particular reference to:- the rule in Foss v Harbottle (1843) 2 Hare 461 and its exceptions; sections 459 to 461 of the Companies Act 1985; and the enforcement of the rights of shareholders under the articles of association; and to make recommendations.~(1)~
1.2 The focus of the project was on the remedies available to a minority shareholder (2) who is dissatisfied with the manner in which the company of which he is a member is run. This may be because there has been a breach of duty by the directors; or it may be because of the way in which the majority shareholders have used their voting power to cause the company to act in a manner which unfairly prejudices the interests of the minority shareholder; or it may simply be that the requirements of the companys constitution have not been properly complied with. We were not able, in the context of our limited terms of reference, to undertake a wider review of company law as a number of commentators have suggested would be desirable. (3)
1.3 So far as directors duties are concerned, we explained in the consultation paper (4) that the project is concerned only with the machinery by which the duties owed in law can be enforced. The content of those duties is outside the scope of the project, as is the accountability of directors to shareholders in listed companies. (5)
Problems identified in the consultation paper
1.4 In the consultation paper we identified two main problems. The first is the obscurity and complexity of the law relating to the ability of a shareholder to bring proceedings on behalf of his company. He may wish to do so to enforce liability for a breach by one of the directors of his duties to the company. (6) Generally it is for the company itself, acting in accordance with the will of the majority of its members, to bring any such proceedings. This is as a result of principles commonly known as the rule in Foss v Harbottle. However, if the wrongdoing director(s) control the majority of votes they may prevent legal proceedings being brought. There are therefore exceptions to the rule which enable a minority shareholder to bring an action to enforce the companys rights. But our provisional view was that the law relating to these exceptions is rigid, old fashioned and unclear. (7) We pointed out that it is inaccessible save to lawyers specialising in this field because, to obtain a proper understanding of it, it is necessary to examine numerous reported cases decided over a period of 150 years. We also explained that the procedure is lengthy and costly, involving a preliminary stage which in one case took 18 days of court time to resolve. (8)
1.5 The second main problem which we identified in the consultation paper relates to the efficiency and cost of the remedy which is most widely used by minority shareholders to obtain some personal remedy in the event of unsatisfactory conduct of a companys business. This is the remedy for unfairly prejudicial conduct contained in sections 459-461 of the Companies Act 1985. Although the remedy can be used in companies of any size and for unfairly prejudicial conduct of any kind, (9) we pointed out (10) that it is often used where there is a breakdown in relations between the owner-managers of small private companies and one of them is prevented from taking part in management. The dissatisfied shareholder can obtain a variety of types of relief but the most popular is a court order requiring the majority shareholder(s) to purchase his shares. As at 3 August 1997, there were some 1,080,671 private companies in Great Britain. (11) Our statistical survey of petitions filed under section 459 at the High Court in London (12) has indicated that 97% of petitions related to private companies and 93% of petitions related to companies with 10 or fewer members. 76% of petitions involved companies where all or most of the shareholders were involved in the management, and 64% of petitions included an allegation of exclusion from management.
1.6 Our provisional view was that proceedings under section 459 are costly and cumbersome. Unfair prejudice cases which go to trial often last weeks rather than days, (13) and the costs of the litigation can be substantial. (14) There is also a significant cost on the tax payer. (15)
1.7 We expressed the view that small owner-managed companies are particularly affected by this problem. (16) This is because the case law on section 459 enables members of those types of companies to resort to this remedy more easily than members of other types of companies; and because the consequent delays and lost management time are particularly detrimental to such companies. While the dispute between the shareholders is continuing, the companies business can be brought to a standstill.
1.8 A third problem which we examined in the consultation paper is the enforcement of shareholders contractual rights under the articles of association. This includes the extent to which a shareholder can insist on the affairs of the company being conducted in accordance with the articles of association. However, our provisional view was that no hardship was being caused by any difficulty in identifying personal rights conferred by the articles. (17)
Guiding principles
1.9 In the consultation paper we set out six guiding principles for our proposals in relation to the reform of the law and procedure relating to shareholder remedies. These were as follows:
(i) Proper plaintiff
Normally the company should be the only party entitled to enforce a cause of action belonging to it. Accordingly, a member should be able to maintain proceedings about wrongs done to the company only in exceptional circumstances.
(ii) Internal management
An individual member should not be able to pursue proceedings on behalf of a company about matters of internal management, that is, matters which the majority are entitled to regulate by ordinary resolution.
(iii) Commercial decisions
The court should continue to have regard to the decision of the directors on commercial matters if the decision was made in good faith, on proper information and in the light of the relevant considerations, and appears to be a reasonable decision for the directors to have taken. (18) In those circumstances the court should not substitute its own judgment for that of the directors.
(iv) Sanctity of contract
A member is taken to have agreed to the terms of the memorandum and articles of association when he became a member, whether or not he appreciated what they meant at the time. The law should continue to treat him as so bound unless he shows that the parties have come to some other agreement or understanding which is not reflected in the articles or memorandum. (19) Failure to do so will create unacceptable commercial uncertainty. The corollary of this is that the best protection for a shareholder is appropriate protection in the articles themselves.
(v) Freedom from unnecessary shareholder interference
Shareholders should not be able to involve the company in litigation without good cause, or where they intend to cause the company or the other shareholders embarrassment or harm rather than genuinely pursue the relief claimed. Otherwise the company may be "killed by kindness", (20) or waste money and management time in dealing with unwarranted proceedings. The importance of this principle increases if the circumstances in which the individual shareholders can bring derivative actions are enlarged. Nuisance or other litigation of this nature has to be identified on a case by case basis. This means that the requisite control has to be exercised by the courts, with increased powers if necessary.
(vi) Efficiency and cost effectiveness
All shareholder remedies should be made as efficient and cost effective as can be achieved in the circumstances. This is largely a matter for the courts and the report prepared by Lord Woolf on the civil justice system in England and Wales, (21) but it has to be considered whether any additional powers are needed in the case of shareholder litigation.
1.10 We went on to say that we provisionally considered that all save the first two of these principles were applicable to all kinds of shareholder remedies. The first two were relevant only to derivative actions. (22) The fifth had only limited relevance to proceedings under section 459, since, in general, such proceedings do not require the company to take an active role (although, in small owner-managed companies, section 459 proceedings may well result in lost management time). However, if a member seeks a winding up order as an alternative to relief under section 459 in circumstances in which this is unjustified, then the relevance of the fifth principle was increased.
1.11 Applying these principles, we reached three basic provisional conclusions. The first of these was that, within proper bounds, the rule in Foss v Harbottle (23) should be replaced by a simpler and more modern procedure if a satisfactory procedure could be devised. The second was that the court must have all necessary powers to streamline minority shareholder litigation so that it is less costly and complicated. The third was that we should provide a "self-help" remedy (or range of remedies) to avoid the need for shareholders to resort to the court to resolve disputes.
1.12 There was virtually unanimous support for these principles from those who commented on consultation. (Indeed, perhaps not surprisingly, consultees were unanimous in approving the sixth principle). In the light of this clear expression of opinion we have applied these principles in framing our recommendations in this report. Thus a key feature of the new structure for shareholder remedies recommended in this report is strong judicial control. In some contexts, the control consists of the exercise of a discretion (or residual discretion) conferred by procedural rules or statute which for good reason has to be open-textured to deal with the variety of cases that come within it. (24) In other contexts in the field of shareholder remedies, such as the derivative action, we have so far as we can specifically pointed the court to the relevant considerations which are derived from the guiding principles as set out above. One of the advantages in controlling the derivative action by a rule of court is that the form of the rule can be strengthened, extended or clarified if that proves necessary to achieve the policy behind the guiding principles. (25) Again, in the light of this strong expression of opinion, we have it in mind that, in so far as the court is free to decide how to exercise its control over shareholder actions, it too would apply the same policy.
Provisional recommendations
1.13 In the light of the principles and conclusions set out above, (26) we proposed three main approaches in the consultation paper to deal with the problems identified. First, we proposed that there should be a new derivative action governed by rules of court which would replace the main exception to the rule in Foss v Harbottle. (27) More modern, flexible and accessible criteria for leave to bring a derivative action would replace the current "fraud on the minority" exception. (28) It was suggested that not only would this be desirable in itself, in simplifying and modernising the derivative action, but it may also encourage members to bring this claim rather than the wide-ranging proceedings under section 459 in appropriate cases. (29) The proposal for a new derivative action is also in line with international developments, notably in Australia, Canada, Hong Kong, Japan, South Africa and New Zealand. (30)
1.14 Secondly, we proposed that the courts should be given all necessary powers to streamline shareholder litigation so that it is less costly and complicated. (31) A range of case management techniques was put forward. Some of these involved new powers drawn from the reforms recommended in the Woolf Report; others involved greater use of existing powers. Although this approach is clearly relevant to all shareholder proceedings, it is in dealing with the often cumbersome and factually complex claims which are brought under section 459 that we considered that effective case management would be of particular benefit.
1.15 One option which we canvassed to assist in streamlining shareholder litigation (although no provisional recommendation was made) was the introduction of a new remedy for small owner-managed companies. This would be directed at the situation where a shareholder entitled to management participation is wrongly excluded, (32) and provide a more focused alternative to proceedings under section 459.
1.16 Thirdly, we proposed a "self-help" approach which would seek to avoid the need to bring legal proceedings at all. (33) Three draft regulations were set out in the consultation paper (34) which we suggested could be inserted into Table A: a shareholders exit article for smaller private companies; an arbitration article; and a valuation procedure article.
1.17 A number of other suggestions for reform were also canvassed. (35)
Response to consultation and summary of main recommendations
1.18 We received 109 responses to the consultation paper. The vast majority of these agreed with our identification of the two main problems, and our approach to reform. In particular, there was widespread support for the increased use of effective case management techniques to deal with the length and cost of proceedings under section 459, and the introduction of new articles of association to try to avoid disputes arising which have to be brought before the courts. (36)
1.19 The proposals for a new unfair prejudice remedy for smaller companies (37) received a mixed response and, as explained below, (38) we do not favour the introduction of such a remedy. However, we do recommend the introduction into sections 459-461 of presumptions that, in certain circumstances, there has been unfairly prejudicial conduct and that, where a purchase order is made, the shares should be valued on a pro rata basis. (39) Although this is a rather different approach, we consider that it can achieve much the same as the proposed new remedy without some of the disadvantages. (40)
1.20 A number of other reforms canvassed in respect of proceedings under section 459 received support from respondents, notably proposals for a limitation period and for the addition of winding up to the remedies available to the court on a finding of unfairly prejudicial conduct.
1.21 The vast majority of respondents agreed that the operation of the rule in Foss v Harbottle is unsatisfactory. Some concerns were expressed about the proposals for a new derivative action, and in particular whether they were really necessary when derivative actions are brought so rarely in practice. Nevertheless, for the reasons given below, (41) we still consider that it would be desirable for a new derivative procedure to be introduced along the lines of the provisional recommendations. However, in the light of the responses received, we do recommend some changes to the proposals put forward in the consultation paper.
1.22 Respondents agreed with the provisional view that no hardship is being caused by difficulties in identifying personal rights conferred by the articles and we maintain our view that no reform is necessary in this respect.
1.23 Accordingly, our main final recommendations are as follows:
(i) the problems of the excessive length and cost of many proceedings brought under section 459 should be dealt with primarily by active case management by the courts;
(ii) there should be presumptions in proceedings under section 459 that in certain circumstances (a) conduct will be presumed to be unfairly prejudicial, and (b) where the court grants a purchase order in favour of the petitioner the shares will be valued on a pro rata basis;
(iii)a number of other amendments should be made to proceedings under section 459, notably that there should be a limitation period in respect of claims under the section and that winding up should be added to the remedies available;
(iv) a draft regulation should be included in Table A to encourage parties to sort out areas of potential dispute at the outset so as to avoid the need to bring legal proceedings;
(v) there should be a new derivative procedure with more modern, flexible and accessible criteria for determining whether a shareholder should be able to pursue the action;
(vi) there is no need for reform in relation to the enforcement of the rights of shareholders under the articles of association.
Scottish Law Commission
1.24 We have continued to act in consultation with the Scottish Law Commission which agrees with the content of this report.
1.25 Copies of the consultation paper were circulated in Scotland by the Scottish Law Commission. Six responses were received by the Scottish Law Commission and these also broadly supported the approach to reform and the provisional recommendations. The consultation identified the need for a different mechanism for Scotland to achieve a similar practical result to that proposed for England and Wales in the new derivative procedure. We are informed by the Scottish Law Commission that under Scots law, there is no recognised representative or derivative action; the shareholders right to seek a remedy for the company is conferred by substantive law and not by procedural rules. Amendment of the law relating to that right requires separate legislative provision to fit with the substantive rules of Scots law relating to title and interest to sue. The Scottish Law Commissions consideration of the shareholders action to seek a remedy for the company, and their recommendations which parallel our recommendations contained in Part 6 of this report, are set out in Appendix D.
1.26 As regards section 459 proceedings, consultation supported, and the Scottish Law Commission agrees, that active case management is a matter for rules of court to be drawn up by the appropriate authority. Where appropriate, the power of the Secretary of State under section 411 of the Insolvency Act 1986 to make rules, so far as it relates to a winding up petition, is also available to a petition under section 459. (42) In so far as matters which we discuss in this report might appropriately be matters for rules of court for Scotland, any further consultation required in that regard will be a matter for the appropriate rule-making authority.
Northern Ireland
1.27 The Law Reform Advisory Committee for Northern Ireland has worked closely with us in the preparation of this report and is in full accord with its contents and the recommendations for law reform which we make. The Committee proposes to recommend to the Secretary of State for Northern Ireland that parallel legislation should be introduced in Northern Ireland to give effect to our recommendations in this report.
The Woolf Report
1.28 In July 1996, shortly before the publication of our consultation paper, Lord Woolf published his final report ("the Woolf Report") setting out the results of his review of the civil justice system. This was accompanied by a draft of the general rules which were to form the core of a new combined code of rules for civil procedure ("the Draft Civil Proceedings Rules"). Our proposals for case management were largely modelled on the Woolf reforms, and we envisaged that our new derivative procedure would tie in to the new procedural framework.
1.29 Since then, the statutory basis for the new procedural rules, the Civil Procedure Act 1997, has come into force and work is proceeding within the Lord Chancellors Department on completing the drafting of the rules. (43) Under the 1997 Act, the rules must be approved by the Civil Procedure Rule Committee. (44) The Lord Chancellor has, however, invited Sir Peter Middleton to undertake a review of current plans for the reform of both the civil justice system and legal aid to see if they can be improved. (45) The Lord Chancellor has made it clear that he is anxious to maintain the positive momentum for change which has been generated, but while the review is in progress, there must inevitably be some degree of uncertainty about the future of the proposals contained in the Woolf Report. Should the review recommend, and the Lord Chancellor accept, that the proposed reforms of the civil justice system should be implemented, the planned date for the new rules to come into effect is 1 October 1998. (46)
1.30 So far as our own proposals are concerned, we believe that the new derivative procedure could still be introduced with little adaptation, whether or not the new rules are implemented in their current form. Only three of our case management proposals are dependent on new powers contained in the new rules, (47) and as we make clear below, (48) we do not consider that it is appropriate to introduce any separate provisions to deal solely with shareholder proceedings in respect of these particular matters. Most of our other recommendations on case management involve greater use of existing powers and need not be affected by the current review.
Structure of the report
1.31 In the consultation paper we examined the proposals for a new derivative action before our other provisional recommendations for reform. However, it is clear that the derivative action is of much less importance in practical terms than the statutory remedy under section 459. This is apparent from the reported cases and was confirmed by the responses received. We therefore propose to deal first with those recommendations which have most significance for proceedings under section 459. Accordingly, in Part 2 we deal with the proposals which relate to case management of shareholder proceedings; in Part 3 we reconsider the proposals for a new unfair prejudice remedy for smaller companies and set out our alternative recommendation for presumptions that, in certain circumstances, there has been unfairly prejudicial conduct and that, where a purchase order is made, the shares should be valued on a pro rata basis; and in Part 4 we deal with the other changes proposed in the consultation paper in respect of section 459 proceedings.
1.32 In Part 5 we set out our revised views on the proposals for new draft regulations to be inserted in Table A. In Part 6 we deal with the proposals for a new derivative action. In Part 7 we set out our recommendations on the other reform options canvassed in the consultation paper. Finally, in Part 8, we summarise our final recommendations for reform.
Acknowledgements
1.33 We are grateful to all those who responded to our consultation paper and those who have subsequently provided comments or assistance on our proposals. They are listed in Appendix K. We are also grateful to the officials of the Companies Court who assisted us in our updated statistical survey referred to in Appendix J. We would like to express our particular thanks to Professor D D Prentice of the University of Oxford, and Ms Brenda Hannigan of the University of Southampton, who have acted as our consultants throughout this project.
(1) The original terms of reference continued: "The review is to be conducted under the present law and under proposals to be made by the Department of Trade and Industry as to the reform of the law relating to duties of the directors of companies and as to Part X of the Companies Act". The Department of Trade and Industrys ("DTI") work on directors duties was, however, delayed and our review was conducted only under the present law.
(2) Ie one or more members not holding the majority of voting rights capable of being cast at general meetings. A shareholder who holds a majority of the voting rights will not usually need to resort to the remedies under consideration in this project, although he may be able to claim to have been unfairly prejudiced; see the comments of Knox J in Re Baltic Real Estate Ltd (No 1) [1993] BCLC 498, 501, and in Re Baltic Real Estate Ltd (No 2) [1993] BCLC 503, 506-507.
(3) See Rees, "Shareholder Remedies" [1997] 5 ICCLR 155. See also John Lowry, "Restructuring Shareholder Actions: A response to the Law Commissions Consultation Paper: Shareholder Remedies"; C A Riley, "The Law Commission Consultation Paper on Shareholder Remedies: Problems, Principles and Evidence"; and David Sugarman, "Enhancing Access to Justice, or Rouge on the Unacceptable Face of Capitalism". All three papers were delivered to a joint workshop on Consultation Paper No 142, under the joint auspices of the SPTL Company Law Section and the Institute of Advanced Legal Studies Centre for Corporate Law and Practice, 13 December 1996.
(4) See Consultation Paper No 142, para 1.5.
(5) In this connection, the Hampel Committee is carrying forward the work of the Cadbury Committee on the Financial Aspects of Corporate Governance and the Greenbury Committee on Directors Remuneration. The Hampel Committee published an interim report on 5 August (Committee on Corporate Governance, Preliminary Report (August 1997)) and intends to publish a final report in December 1997.
(6) These duties include fiduciary duties of loyalty and good faith, which mean that directors are obliged to act honestly and in good faith in the interests of the company, to exercise their powers for a proper purpose and not to place themselves in a position where their interests conflict with their duties to the company. They also include duties of skill and care in relation to the management of the companys business.
(7) See Consultation Paper No 142, paras 1.6 and 14.1-14.4.
(8) Smith v Croft (No 2) [1988] Ch 114.
(9) Including breaches of directors duties.
(10) See Consultation Paper No 142, para 1.7.
(11) Unaudited figure supplied by Companies House.
(12) See Appendix J, and see para 3.13 below. The statistics related to petitions filed between January 1994 and December 1996. A total of 254 petitions were recorded as presented during this period, of which 233 section 459 petitions were inspected.
(13) We have examined the cases reported in Butterworths Company Law Cases for the last ten years (1988-1997). Fourteen cases were shown to have gone to a full trial and the average length of the hearing was just over three weeks (16 days). One of the most extreme examples of lengthy trials to which we drew attention in the consultation paper was the unreported case of Re Freudiana Music Co Ltd 24 March 1993 (unreported, Jonathan Parker J) where the hearing lasted for a year and extended over some 165 court days.
(14) There is little information available about the costs of section 459 proceedings. However, in Re Elgindata Ltd [1991] BCLC 959 the hearing lasted 43 days, costs totalled £320,000 and the shares, originally purchased for £40,000, were finally valued at only £24,600. In Re Macro (Ipswich) Ltd [1994] 2 BCLC 354 the hearing of s 459 proceedings and a related action lasted 27 days at first instance alone. The parties subsequently claimed that they were entitled to recover total costs of £725,000 under orders of the court; see Re Macro (Ipswich) Ltd [1996] 1 WLR 145, 148. This did not include the costs of the subsequent appeal hearing: Re Macro (Ipswich) Ltd 22 May 1996 (unreported, CA).
Some research has been done on costs in civil litigation in connection with Lord Woolfs Inquiry into Access to Justice (see paras 1.28-1.30 below). This research was based on a survey of the costs allowed to the winning party in a sample of 673 cases of various types submitted to the Supreme Court Taxing Office (SCTO) in 1994/5. These cases had terminated at various stages in the litigation. No figures are available for s 459 cases alone. The survey contained a number of findings. For instance, the survey showed that the average costs allowed to the winning party in cases where the value of the claim was between £50,000 and £100,000 was £23,760 (with the lowest allowed being £4,667 and the highest costs allowed being £121,545 (Access to Justice, Interim Report to the Lord Chancellor on the Civil Justice System in England and Wales (June 1995), Annex III)). Later research was done on a sample of 2,184 cases submitted to SCTO between 1990 and 1995. The sample was analysed according to case type, weight and claim value (where applicable). There was no specific type for s 459 cases. For the Bankruptcy/Companies Court case type the median costs allowed to the winning party for claims having a value between £50,000 and £100,000 was £9,015, but this calculation included cases of different weight, duration and claim value. The median costs allowed for the heaviest and lightest weight of cases where any value was claimed were £170,129 and £5,559 respectively. Median costs in the Bankruptcy/Companies Court case type where the amount claimed was between £50,000 and £100,000 was 15% (Access to Justice, The Final Report to the Lord Chancellor on the Civil Justice System in England and Wales (July 1996), Annex III). The figures in the annexes to Lord Woolfs reports were based on the costs of the winning party submitted to taxation. The total costs of all parties would be substantially higher.
(15) A working figure for the cost to the taxpayer of a day in the High Court is about £2,000 (figure provided by the Court Service, based on costs for 1995-6). This figure does not take into account the cost of providing Legal Aid where that is available and is granted.
(16) See Consultation Paper No 142, paras 1.7 and 14.5; see also para 1.5 above.
(17) Ibid, at para 14.9.
(18) See generally Howard Smith v Ampol Petroleum Ltd [1974] AC 821 (PC) at pp 832-835. The requirement that directors should have acted reasonably can be seen, for example, in the judgment of Slade J in Re Burton & Deakin Ltd [1977] 1 WLR 390, 397; in Smith v Croft (No 2) [1988] Ch 114, 189, per Knox J and in Re D'Jan of London Ltd [1994] 1 BCLC 561, 563, per Hoffmann LJ (sitting as an Additional Judge of the High Court). Section 727(1) of the Companies Act 1985 provides a defence for directors who are sued for breach of duty as follows:
If in any proceedings for negligence, default, breach of duty or breach of trust against an officer of a company ... it appears to the court hearing the case that that officer ... is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case, ... he ought fairly to be excused ... that court may relieve him, either wholly or partly, from his liability ... .
(19) In some situations this principle may have to give way to the jurisdiction under s 459.
(20) Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, 221.
(21) Access to Justice, The Final Report to the Lord Chancellor on the Civil Justice System in England and Wales (July 1996). See paras 1.28-1.30 below.
(22)However, there may be some overlap between the second principle and the approach of the court under s 459 to trivial or technical infringements of the articles; see Re Saul D Harrison & Sons plc [1995] 1 BCLC 14, 18, per Hoffmann LJ.
(23)As restated in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; see para 6.2 below.
(24) See, for example, the discussion at paras 4.3-4.15 below.
(25) It is particularly important in derivative actions in public companies that the procedure should not facilitate litigation brought either to obtain a personal benefit for the claimant or to establish a point of principle rather than obtain redress for a wrong. Moreover, if shareholder remedies are too readily available in those companies, this may lead directors to favour a course which provides benefits to shareholders rather than make a more balanced judgment and take a decision which they would otherwise feel free to take. In the larger companies, the derivative action has to be seen in the context of a complex web of control mechanisms, which include regulatory action, institutional investor attitudes, DTI inquiries, and so on.
(26) Paras 1.9-1.11.
(27) Consultation Paper No 142, paras 14.13 and 15.2-15.3.
(28) Ibid, at paras 4.7-4.18, and see paras 6.4-6.6 below.
(29) Ibid, at para 15.5.
(30) See paras 6.8-6.9 below.
(31) See Consultation Paper No 142, paras 14.13 and 15.5.
(32) Which our statistical analysis showed to be the most common allegation in unfair prejudice cases; see Consultation Paper No 142, para 18.6, and see para 1.5 above.
(33) See Consultation Paper No 142, paras 14.13 and 15.6.
(34) Ibid, at Appendix H.
(35) See ibid, Part 20.
(36) Although, the draft arbitration article which we provisionally suggested was not so well received. As we explain below (paras 5.34-5.48), we no longer recommend that the draft arbitration and valuation procedure articles should be included in Table A.
(37) Which we did not recommend, but merely put forward for discussion.
(38) See para 3.19-3.25.
(39) See para 3.8 below for a brief explanation of the difference between a "discounted" and "pro rata" basis of valuation.
(40) See paras 3.28-3.29 below.
(41) See paras 6.4 and 6.8-6.14 below.
(42) Section 461(6) of the Companies Act 1985. See para 2.6, n 9 below.
(43) See, for example, Lord Chancellors Department, Access to Justice, Judicial Case Management, the Fast Track and Multi-track, A working paper (July 1997) ("LCD Working Paper on Judicial Case Management") and Lord Chancellors Department, Access to Justice, Civil Procedure Rules about Costs, Consultation Paper (August 1997). Further working papers on other aspects of the rules are expected in October. The rules are to be renamed the Civil Procedure Rules; see s 1 of the Civil Procedure Act 1997. For the purposes of this report we continue to refer to the Draft Civil Proceedings Rules.
(44) The members of this Committee were announced on 16 July 1997; Lord Chancellors Department, Press Notice No 156/97.
(45) See Lord Chancellor's Department, Press Notice No 108/97.
(46) LCD Working Paper on Judicial Case Management, para 1.4.
(47) Power to dismiss a claim or part of a claim or defence which has no realistic prospect of success (recommendation 8.2(2)); exclusion of issues from determination (recommendation 8.2(5); and costs sanctions (recommendation 8.2(6)).
(48) See para 2.34.