The leave of court requirement for instituting derivative actions in the UK: A ten-year jurisprudential excursion

Abstract

The judiciary-exclusive role to allow or deny the commencement or continuation of contemporary derivative litigation is one of the critical aspects of such proceedings. Before the 2006 codification, derivative actions were brought under the common law as exceptions to the rule in Foss v Harbottle (1843) 67 ER 189. However, after realising intolerable deficiencies in the common law, the United Kingdom Law Commission (the Law Commission) recommended that there should be a new derivative procedure that met modern demands. This resulted in a statutory derivative remedy which can be activated in terms of Chapter 1 of Part 11 of the Companies Act, 2006 (United Kingdom). The effectiveness of legislative regulatory devices generally, and commercial law-related ones in particular, may to a greater extent depend on judicial interpretation and application. A conservative and literal interpretive approach that is purpose-neutral will significantly undermine the prospect of the current derivative remedy regime’s achieving the intended policy objectives. To that end, this contribution examines several court decisions handed down after the enactment of the 2006 Act and spanning over a period of approximately ten years. Ultimately, it will be considered whether the leave requirement in English derivative litigation is proving to be an invaluable and indispensable procedural prerequisite or an implausible barrier to honest litigants.