Petitioner: Barne; Tods Murray

Respondents: R.N. Thomson, QC, Motion, solicitor advocate; Brechin Tindall Oatts

25 November 2009

[1] Following the issue of the Opinion of the Court dated 21 July 2009 ([2009] CSIH 65), the petitioner applied for an award of expenses against the first respondents, Castlecroft Securities Ltd ("the Company"). The court was invited to find the Company liable to the petitioner in the expenses of process to date, on an agent and client, client paying, basis. That application was made on the basis that, since the court had held that the petitioner should be indemnified by the Company in respect of the expenses incurred to date in the derivative proceedings, it should for the same reasons hold that the petitioner was entitled to be indemnified by the Company in respect of the expenses incurred to date in the application for leave. Taxation on an agent and client basis was sought in order to ensure that indemnification was obtained in respect of all expenses reasonably incurred.

[2] That application was opposed on behalf of the Company. It was submitted that it remained to be seen whether the petitioner had been justified in seeking leave to bring the derivative proceedings: it might turn out, as the Company maintained, that the petitioner had brought the present petition in bad faith and for reasons of his own, rather than for the benefit of the Company.

[3] We decided that the motion made on behalf of the petitioner should be granted. It is appropriate that we should record briefly our reasons for reaching that conclusion.

[4] The logic of derivative proceedings, as explained in the earlier opinion of the court, is that the proceedings are brought by the member on behalf of the Company. In those circumstances, the member falls within the scope of the principle that "representative persons are entitled to the costs necessarily incurred in the interests of their constituents" (Gibson v Caddall's Trustees (1895) 22R 889 at page 893 per Lord McLaren). Where leave to bring derivative proceedings is granted, that principle applies to the application for leave as well as to the derivative proceedings themselves. It follows that the member ought ordinarily to be indemnified by the company in respect of the expense incurred in relation to the application for leave.

[5] We also note that, as explained in the earlier opinion, one of the objectives of the legislation introducing the requirement that leave be obtained was to achieve consistency in company law throughout the United Kingdom. In England and Wales, provision is made by the Civil Procedure Rules for the court to order the company for whose benefit a derivative claim is brought to indemnify the claimant against liability for costs incurred in the permission application as well as in the derivative action (Rule 19.9E). It is undesirable, against that background, that the legislation should be applied in Scotland in a manner which makes it more difficult in practice for a shareholder to bring derivative proceedings.