Smith v Croft: ChD 1986

Walton J was concerned with two appeals from the Master. The first appeal was from an order made ex parte ordering the company to indemnify the claimant against costs. The appeal against that order was allowed, and Walton J decided that there was so little substance in the claim that no indemnity was appropriate. The second appeal was against an order permitting the claimants to tax their bills at intervals, without waiting for the outcome of the action.
Walton J expressed concern at the implications of a minority shareholder being permitted to litigate at the expense of the company. He said: ‘It is, of course, not for me to question the correctness of the decision of the Court of Appeal in Wallersteiner v Moir (No. 2), but I may observe that the justice of an order which may throw upon a company which, in the event, is proved to have no cause of action whatsoever against the other defendants, who may prove to be completely blameless, the entire costs of an action which it did not wish to be prosecuted, is extremely difficult to comprehend. The real injustice of the situation lies in the encouragement which the Court of Appeal gave to the application for such an order being made at the commencement of the action, at a time when, of necessity, the plaintiffs believe that they have a good case, and will with hand on heart swear that they have, and before the completion of discovery and inspection, which may well show that their beliefs, though honestly enough held, are not in fact well founded. It is to be observed that in Wallersteiner v Moir (No. 2) the application was made at a late stage in the proceedings, after Mr. Moir (who was the plaintiff by counterclaim) had already substantially succeeded, but who had no powder and shot left to finish the battle. The manifest justice of such an order in favour of a person in such a position is plain enough.’
As to the second appeal: ‘Early payment – i.e. before the conclusion of the trial – does indeed impose an additional liability. That may become necessary: if, for example, the plaintiff is a person who literally has no resources of his own, then it may well be that an order for interim payment should be made in order to ensure that the action proceeds at all. Without the supplementary order, the original order may stand in danger of being stultified.
It therefore appears to me that in order to hold the balance as fairly as may be in the circumstances between plaintiffs and defendants, it will be incumbent on the plaintiffs applying for such an order to show that it is genuinely needed, i.e. that they do not have sufficient resources to finance the action in the meantime. If they have, I see no reason at all why this extra burden should be placed upon the company.’
Walton J
[1986] 1 WLR 580, [1986] 2 All ER 551, [1986] BCLC 207
England and Wales
CitedWallersteiner v Moir (No 2) CA 1975
The court was asked whether Moir would be entitled to legal aid to bring a derivative action on behalf of a company against its majority shareholder.
Held: A minority shareholder bringing a derivative action on behalf of a company could obtain . .

Cited by:
See AlsoSmith v Croft (No 2) 1987
A registered shareholder who is absolute beneficial owner can vote as he pleases, subject only to rather imprecise constraints imposed by company law.
It is essential to the exception to the rule in Foss v Harbottle that the alleged wrongdoing . .
See AlsoSmith v Croft (No 3) ChD 1987
Knox J said: ‘Ultimately the question which has to be answered in order to determine whether the rule in Foss v. Harbottle applies to prevent a minority shareholder seeking relief as plaintiff for the benefit of the company is, ‘Is the plaintiff . .
CitedIesini and Others v Westrip Holdings Ltd and Others ChD 16-Oct-2009
The claimants were shareholders in Westrip, accusing the Defendant directors of deliberately engaging in a course of conduct which has led to Westrip losing ownership and control of a very valuable mining licence and which, but for their . .

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Updated: 11 May 2021; Ref: scu.551035