(Sir William Page Wood VC was appointed as Lord Chancellor after he had decided the Merryweather cases, and became Lord Hatherley.)
83 The first two paragraphs just quoted are, with respect, capable of misleading. The notion of the law appointing someone to be the representative of a company does not necessarily involve the court granting any leave to use the company's name. It can be sufficient if an individual shareholder sues on behalf of himself and other shareholders in circumstances where the law recognises that he is entitled to do so. That way of reading the words of Wigram VC is in my view more in accord with the immediate context in which the few words that Lord Denning quotes from Foss v Harbottle appear (that immediate context being set out at para [73] above), and with the flow of thought of the judgment as a whole.
84 Further, when Lord Denning says that in the first of the Merryweather cases "it was accepted there that the minority shareholders might file a bill asking leave to use the name of the company", the reference that he gives, at 259 of Hemming & Miller's report (ER 462-3) is to a passage of argument, not to the judgment. In the course of that argument, reported on p 259, Mr Rolt QC, counsel for the company, said:
"The onus of shewing that the bill has been adopted by the company relies on the minority filing it; but the shareholders have by the amendment, which was finally carried, negatived the adoption of the bill, and expressed their wish to refer the whole matter to arbitration… It is not shewn that the Plaintiffs have done their best to get leave to use the name of the company, which is essential. A bill might be framed, although not in the present form, to do justice, if necessary."
85 The "leave to use the name of the company" that Mr Rolt mentioned may well refer to leave from the company itself. In any event, the notion of a plaintiff obtaining leave to use the name of the company does not appear anywhere in the Vice-Chancellor's judgment in the first of the Merryweather cases. As well, the second Merryweather case was not an "initial application" - it was as final as litigation can be, for the orders made (at LR Eq 468-9n; LJ Ch 39) included orders for Merryweather to repay the purchase money with interest and deliver up the certificates for the shares with which he had been issued, and that the company be wound up. Sir William Page Wood said nothing about the "circuitous course" not being necessary only if fraud "could be proved on the initial application" - indeed he said nothing about "initial applications" at all.
86 The other two judges in the Court of Appeal did not join in Lord Denning's account of the history of the derivative action. In these circumstances Wallersteiner v Moir (No 2) is not authority for leave to commence a derivative action ever having been part of the procedure under the general law.
87 A procedural device of the plaintiff in a derivative action approaching the court at an early stage to seek the approval of the court to the continuance of the action was suggested in Wallersteiner v Moir (No 2). The English Court of Appeal was there considering a situation in which a shareholder who had brought a derivative action had achieved some success in the action, but the action was not complete, and the shareholder was concerned about his potential future liability for costs. The potential avenues through which he might obtain such protection were listed by Lord Denning MR at 389H as being:
"(1) indemnity from the company;
(2) legal aid; and
(3) contingency fee."
88 All members of the Court of Appeal held that legal aid was not available, Lord Denning MR, at 395, would have allowed a derivative action to be brought on the basis of a contingency fee arrangement with solicitors, but Buckley LJ, at 403, and Scarman LJ, at 407, would not permit contingency fees in those circumstances. However all three members of the Court of Appeal approved a procedure that was adapted from that available to a trustee of seeking directions of the court concerning the conduct of litigation. If a trustee conducted the litigation in accordance with such directions, the trustee was entitled to an indemnity for costs from the trust estate. Lord Denning put it this way, at 392:
"In order to be entitled to this indemnity, the minority shareholder soon after issuing his writ should apply for the sanction of the court in somewhat the same way as a trustee does: see In r e Beddoe, Downes v Cottam [1893] 1 Ch 547, 557-558. In a derivative action, I would suggest this procedure: the minority shareholder should apply ex parte to the master for directions, supported by an opinion of counsel as to whether there is a reasonable case or not. The master may then, if he thinks fit, straightaway approve the continuance of the proceedings until close of pleadings, or until after discovery or until trial (rather as a legal aid committee does). The master need not, however, decide it ex parte. He can, if he thinks fit, require notice to be given to one or two of the other minority shareholders - as representatives of the rest - so as to see if there is any reasonable objection. (In this very case another minority shareholder took this very point in letters to us.) But this preliminary application should be simple and inexpensive. It should not be allowed to escalate into a minor trial. The master should simply ask himself: is there a reasonable case for the minority shareholder to bring at the expense (eventually) of the company? If there is, let it go ahead."
89 Buckley LJ, at 404F-5C, was of a similar opinion:
"After issuing his writ a minority shareholder plaintiff could apply by summons in the action for directions as to whether he should proceed in the action and, if so, to what stage without further directions. I think that such an application should in the first instance be made ex parte. In a relatively simple case the court may feel able to deal with the matter without joinder of any other party. When the summons comes before the court, directions could be given as to whether the company or another minority shareholder or the defendants or any of them or anyone else should be made respondents and whether any respondent should be appointed to act in a representative capacity for the purposes of the summons. The court might at this stage think it desirable to require the plaintiff to circularise or convene a meeting of other minority shareholders and to place their views, so far as ascertained, before the court. The summons should be supported by affidavit evidence of any relevant facts, to which instruction to counsel and his opinion thereon should be exhibited. The respondent or respondents to the summons, if any, would also be permitted to file evidence. The evidence of other parties would not be disclosed to the defendants in the action unless the court so directed, and the defendants, if made respondents to the summons, would not be permitted to be present when the merits of the application were discussed. Upon the effective hearing of the summons the court would determine whether the plaintiff should be authorised to proceed with the action and, if so, to what stage he should be authorised to do so without further directions from the court. The plaintiff, acting under the authority of such a direction, would be secure in the knowledge that, when the costs of the action should come to be dealt with, this would be on the basis, as between himself and the company, that he has acted reasonably and ought prima facie to be treated by the trial judge as entitled to an order that the company should pay his costs, which should, I think, normally be taxed on a basis not less favourable than the common fund basis, and should indemnify him against any costs he may be ordered to pay to the defendants. Should the court not think fit to authorise the plaintiff to proceed, he would do so at his own risk as to the costs. A procedure on these lines could, I think, be adopted without any amendment or addition to the rules of court, although it might well be thought desirable that an appropriate rule should be made."
90 Scarman LJ, at 407D, agreed with the procedural proposed by Buckley LJ, saying it: "… would be suitable and should be adopted until such time as a rule of court is made which covers the situation."
91 It is to be observed that the procedure thus endorsed by the Court of Appeal was not seeking leave to commence the action, but applying for directions in the action at an early stage after it was commenced. Further, there was no compulsion on a member bringing a derivative action to make any such application. Rather, the making of such an application was envisaged to be an act of self-protection on the part of the member, to provide some assurance that his or her costs would ultimately be paid from the company's assets, and that there was nothing to stop a member from pressing on with the action without such protection if he or she chose to do so.
92 Mr Leeming submits that Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 shows the possibility of obtaining leave to proceed with a derivative action, at general law. Prudential was a decision on an appeal to the English Court of Appeal from orders made at the final hearing of a derivative action. The trial judge had held that two directors had conspired to injure the company, and that the plaintiff-shareholder was entitled to prosecute an action on behalf of the company to obtain a remedy concerning that conspiracy. Before the final hearing, the defendants in the action had applied to have a preliminary issue decided concerning whether the plaintiff was entitled to maintain the claim against them. The trial judge refused that application, and there was no interlocutory appeal from his decision to do so. The trial judge refused the application for a preliminary determination of the question notwithstanding that it was clearly put to him (extracted at 211-2) that, at least by that time, the defendants had neither shareholding nor board control, and an independent board had decided, with the abstention of the one defendant who remained a director, to defend the action.
93 In the course of the appeal from the final orders in the case, the Court of Appeal (Cumming-Bruce, Templeman and Brightman LJJ) made some obiter observations, as follows, at 221:
"… we have no doubt whatever that Vinelott J erred in dismissing the summons of May 10, 1979. He ought to have determined as a preliminary issue whether the plaintiffs were entitled to sue on behalf of Newman by bringing a derivative action. It cannot have been right to have subjected the company to a 30-day action (as it was then estimated to be) in order to enable him to decide whether the plaintiffs were entitled in law to subject the company to a 30-day action. Such an approach defeats the whole purpose of the rule in Foss v Harbottle and sanctions the very mischief that the rule is designed to prevent. By the time a derivative action is concluded, the rule in Foss v Harbottle can have little, if any, role to play. Either the wrong is proved, thereby establishing conclusively the rights of the company; or the wrong is not proved, so cadit quaestio."
94 The course their Lordships were here recommending was the trial of a preliminary issue of the plaintiff's standing to bring the action, not an application for "leave to proceed".
95 At the time, Order 33, rule 4 of the English Rules of the Supreme Court 1965 provided:
"(1) In every action begun by writ, an order made on the summons for directions shall determine the place and mode of the trial …
(2) In any such action … one or more questions or issues may be ordered to be tried before the others."
96 The type of "preliminary issue" that their Lordships contemplated was an unusual one. They said (at 221H-2B):
"… we do not think that the right to bring a derivative action should be decided as a preliminary issue upon the hypothesis that all the allegations in the statement of claim of 'fraud' and 'control' are facts, as they would be on the trial of a preliminary point of law. In our view, whatever may be the properly defined boundaries of the exception to the rule, the plaintiff ought at least to be required before proceeding with his action to establish a prima facie case (i) that the company is entitled to the relief claimed, and (ii) that the action falls within the proper boundaries of the exception to the rule in Foss v Harbottle . On the latter issue it may well be right for the judge trying the preliminary issue to grant a sufficient adjournment to enable a meeting of shareholders to be convened by the board, so that he can reach a conclusion in the light of the conduct of, and proceedings at, that meeting."
97 I say it is procedurally unusual because usually a preliminary issue in a case involves a decision, on a final basis, of one of the issues in the case, and not merely the establishment of a prima facie case. Even accepting this unusual feature of the "preliminary issue" that their Lordships propose, an application for trial of such a preliminary issue presupposes that there is litigation on foot in which that preliminary issue can be determined.
98 Prudential Assurance v Newman provides no support for the notion that under the general law leave was necessary before a representative action could be commenced.
99 Eventually in England Order 15, rule 12A was added to the Rules of the Supreme Court in 1994 (to apply to actions commencing on or after 1 September 1994), which provided, inter alia:
"(1) This rule applies to every action begun by writ by one or more shareholders of a company where the cause of action is vested in the company and relief is accordingly sought on its behalf (referred to in this rule as a "derivative action").
(2) Where a defendant in a derivative action has given notice of intention to defend, the plaintiff must apply to the Court for leave to continue the action.
…
(9) If the plaintiff does not apply for leave to continue the action as required by paragraph (2) within the time laid down in paragraph (4), any defendant who has given notice of intention to defend may apply for an order to dismiss the action on any claim made in it by way of derivative action.
…
(13) The plaintiff may include in an application under paragraph (2) an application for an indemnity out of the assets of the company in respect of costs incurred or to be incurred in the action and the Court may grant such indemnity upon such terms as may in the circumstances be appropriate."
100 Even under this new English practice leave was not required to start a derivative action, only to continue it.
101 An application for leave nunc pro tunc to commence and continue a derivative action was considered by de Jersey CJ in Virgtel Ltd v Zabusky [2006] QSC 66; [2006] 2 Qd R 81, but closer examination of the case does not assist Mr Leeming's contention. In Virtgtel the company whose rights were said to be infringed was a Nigerian corporation. Under Nigerian law a derivative action could only be brought with the leave of the Federal High Court, and no such leave had been obtained (at 88 [43]). De Jersey CJ, at 88 [43], accepted evidence of a Nigerian lawyer that that requirement applied only to proceedings in Nigeria. Further, his Honour held that the question of whether a derivative proceeding had been duly commenced was a procedural question, and thus was determined in accordance with Australian law (at 88-91 [44]-[58]). (That part of his Honour's decision need not be considered for the purpose of this appeal.) At 93 [67], his Honour said of the application for leave to commence the proceedings:
"What the applicants in reality seek through their application is a preliminary adjudication of the competence of the proceeding, a preliminary determination of the character mentioned in Prudential Insurance Company Ltd v Newman Industries Ltd , 221-222. That is effectively what the applicants seek through their prayer for a grant of leave nunc pro tunc . I approach their application on that basis."
102 The order actually made, at 100 [106] was a declaration that the applicants "were entitled to commence, and may continue this proceeding, as a derivative action on behalf of the [Nigerian company]." As a declaration, it had the status of a final determination of the right of the plaintiff to bring the action - it was not a preliminary granting of leave to bring the action.
103 In discussing the historical development of the derivative action, neither B S Prunty, "The Shareholders' Derivative Suit: Notes on its Derivation" (1957) 32 NYU L Rev 980 nor A J Boyle, "The Minority Shareholder in the Nineteenth Century: A Study in Anglo-American History" (1965) 28 Mod L Rev 317 make any mention of leave to commence a derivative action ever having been part of the English law concerning derivative actions.
104 To the extent to which the judgment of Lord Millett NPJ in Waddington Final Appeal at [49]-[51] suggests that an application for leave was ever part of the nineteenth century procedure in England it does not, with respect, seem correct.
105 To summarise, a plaintiff who seeks to bring a derivative action under the general law must allege, in the initiating process, facts that show that he or she falls within a recognised exception to the prima facie rule that the proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is the corporation itself. If the initiating process fails to make those allegations, it is liable to be struck out if the defendant chooses to apply to have it struck out. If the initiating process makes allegations which, if true, would suffice to enable the plaintiff to enforce a right owed to the company in which the plaintiff was a shareholder, but the defendant asserts that the allegations are so insubstantial that the matter should not go to trial, the defendant can move to seek summary dismissal of the claim. If trial of the merits of the action would be long and complicated, a defendant might choose to have a question of the plaintiff's standing to bring a derivative action decided as a preliminary question. But there is no requirement under the general law relating to derivative actions for leave to be obtained before a plaintiff commences such an action.
106 This is a sufficient reason why Barrett J was right in refusing to give the type of relief that Mr Oates sought to enable him to enforce rights of CCL UK, identified in para [39] above.
107 There was lengthy argument about whether, if CCL Australia were to bring proceedings seeking leave to bring action under the general law against CCL UK, those proceedings for leave would be "proceedings on behalf of" CCL Australia, within the meaning of section 236. In accordance with what this judgement has already decided, that question does not arise. However, as it has been argued, I shall state my views concerning it, on the counterfactual hypothesis that such leave proceedings are possible.