Neutral Citation Number: [2011] EWHC 3146 (Ch)
Case No: 1LS30614
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY

The Court House
Oxford Row
Leeds LS1 3BG

Date: 29/11/2011

Before:

His Honour Judge Behrens 
sitting as a Judge of the High Court in Leeds
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Between:

	CHARLES PARRY	Claimant	
	- and -		
	(1)	GUY BARTLETT
(2)	THE CHARLES PARRY GROUP LIMITED	

Defendants	

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Stephen Howd (instructed by Stratford, Solicitors, Poynton Chambers, 130 London Road South, Poynton Cheshire) for the Claimant
James Malam (instructed by Haworth, Holt Bell Limited of Grosvenor House, 45 The Downs, Altringham WA14 2QG) for the First Defendant

Hearing dates: 4th November 2011
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Judgment

Judge Behrens: 

1 Introduction
1.	This is an application by Mr Parry under section 261 of the Companies Act 2006 ("the Act") for permission to continue a derivative claim made in these proceedings against Mr Bartlett.
2.	Both were 50% shareholders and directors in Charles Parry Group Ltd (“CPG”). By the autumn of 2005 the only asset held by CPG was a property - 30 Grove Road, Wallasey (“the property”). Both Mr Parry and Mr Bartlett agreed it should be sold. Day to day control of CPG was exercised by Mr Bartlett. 
3.	The sale was completed by December 2005. The whole of the proceeds of sale (£133,745.86) were paid into an account in the name of Red-Box that Mr Bartlett had opened. A further £15,573.68 was paid into the account a day or two later.
4.	Between the middle of December 2005 and the middle of January 2006 almost the whole of the above sums were paid to Mr Bartlett and/or Whitegate Consulting Ltd (“Whitegate”) a company under Mr Bartlett’s control. 
5.	Mr Parry complains that the moneys paid to Mr Bartlett and/or Whitegate were paid in breach of trust and/or fiduciary duty owed to CPG. Mr Parry seeks to bring a derivative action to obtain the return of the moneys paid away in breach of trust. Ultimately he wishes to receive his proper share of the proceeds of sale.
6.	Mr Bartlett contends that this is not an appropriate case for the court to grant permission for a derivative claim. He points to the fact that CPG is not trading and has not traded since 2005. He asserts that the payments were ratified by Mr Parry at a meeting held between them on 8th August 2005. He points out that the accounts of CPG including the payments were filed in September 2007. He complains of the long delay in bringing the proceedings and contends that Mr Parry is not acting in good faith and that he has an ulterior purpose in bringing the proceedings.
2 The facts
2.1 Background
7.	Before 1996 Mr Parry carried on an advertising and marketing business through a company Charles Parry Associates Limited (“CPA”). In September 1996 Mr Bartlett commenced employment with CPA in a sales and marketing capacity. In paragraphs 5 to 10 of his witness statement Mr Bartlett sets out events that he says took place between 1996 and 2000. Those events are not relevant to the current dispute and it is not necessary for me to set them out.
2.2 Restructuring
8.	In February 2000 there was a restructuring carried out with the assistance of the company’s accountant – Andrew Ford (“Mr Ford”). Two new companies were incorporated – CPG and Red-Box (CPA) Limited (“Red-Box”). Mr Parry and Mr Bartlett each became directors of CPG and held 50% of the issued share capital. CPA and Red-Box became wholly owned subsidiaries of CPG.
9.	According to Mr Parry he sold his shares in CPA to CPG for £156,621 and loaned this sum back to CPG. In paragraphs 12 and 13 of his witness statement Mr Bartlett says he did not understand the precise arrangement and believed he had become a 50% owner of the group. However, nothing turns on this and it is not necessary to refer to it further.
2.3 Guarantees
10.	As a result of the re-structuring the companies’ bankers required personal guarantees from the directors and cross guarantees between the companies. In the result on 9th November 2000 Mr Parry and Mr Bartlett executed personal guarantees in respect of the liabilities of Red-Box to the Bank. On or about the same date CPG guaranteed the liabilities of Red-Box and CPA, Red-Box guaranteed the liabilities of CPA and CPG and (so far as Mr Parry can recall) CPA guaranteed the liabilities of Red-Box and CPG.
2.4 Resignation of Mr Bartlett from CPA
11.	In paragraphs 14 to 16 of his witness statement Mr Bartlett outlines events from 2000 to September 2003. He was the Group Managing Director, Mr Parry was the Chairman. He had recruited a team of 10 full and part time staff and business was expanding. According to Mr Bartlett it was profitable.
12.	However disagreements arose between them as to Mr Parry’s future role in the business. Mr Bartlett sought to expand further.  Mr Parry was not interested in any such expansion.
13.	Mr Bartlett alleges that at this time he was working long hours with extensive travelling whilst Mr Parry was contributing very little. 
14.	Some time in 2002 Mr Bartlett alleges he made a short term cash loan of £10,000 to Red-Box as working capital.
15.	There were further disagreements between Mr Parry and Mr Bartlett over the future. In the result Mr Bartlett resigned from CPA in August or September 2003. He retained his directorship and shareholding in Red-Box and CPG. In September 2003 Mr Bartlett wrote a letter setting out, as he saw it, the reasons for the split.
16.	Following the resignation the Bank released Mr Bartlett from the guarantee in respect of CPA’s liabilities. According to Mr Parry the joint guarantee was replaced by a personal guarantee signed by Mr Parry dated 6th November 2003.
2.5 Work carried out by Whitegate for CPA.
17.	In early 2004 Mr Bartlett agreed to perform consultancy services for CPA. According to Mr Bartlett Mr Parry needed help with the Sainsbury and other accounts. In any event it was agreed between them that Whitegate could charge at the rate of £45 per hour for its services.
2.6 Transfer of shares in CPA.
18.	According to Mr Parry the shares in CPA were re-transferred back to Mr Parry in February 2004 as CPG had been unable to repay the moneys for the cost of the shares. In paragraph 26 of his witness statement Mr Bartlett asserts that in reality there was no sale in 2000. However as this is not relevant to any of the matters in issue it is not necessary to investigate it further.
2.7 Demand by the bank.
19.	In 2005 the Bank made a claim against Mr Parry under the terms of his personal guarantee. The amount owed by CPA to the Bank was £66,336.12. However after appropriating a credit of £12,371.09 in the Red-Box account there remained a balance of £53,965.03 due to the Bank. This sum was paid by Mr Parry on 9th September 2005. Mr Parry contends that as a result of that payment he is entitled to a contribution of £26,982.51 (that is to say 50% of the amount he paid) from CPG as a co-guarantor.
20.	This claim is important because it is said to constitute the ulterior motive of Mr Parry in bringing these derivative proceedings.
2.8 “Resignation” of Mr Parry 
21.	On 30th April 2005 Mr Bartlett submitted to Companies House two form 288Bs which purport to show that Mr Parry had resigned as a director of both Red-Box and CPG. 
22.	On 1st May 2005 Mr Bartlett submitted two Form 288As confirming the appointment of Joanna Bartlett (Mr Bartlett’s wife) as Secretary of both Red-Box and CPG.
23.	Mr Parry says that none of these forms are genuine. He did not resign from either Red-Box or CPG. There was no resolution appointing Mrs Bartlett as Secretary of either company.
24.	It is Mr Bartlett’s case that in March 2005 Mr Parry orally asked to resign his directorships and that he acted on that request. This is corroborated in the Minute of the Meeting which took place on 8th August 2005 which will be considered in more detail later in this judgment.
25.	In any event it is common ground that on 13th February 2006 two further Form 288As were filed at Companies House re-appointing Mr Parry as director of both Red-Box and CPG. 
2.9 Sale of the property
26.	It is common ground that CPG owned an investment property – 30 Grove Road, Wallasey. It is equally common ground that the property was on the market in the spring and summer of 2005.
27.	According to Mr Parry both he and Mr Bartlett had split the expenses relating to the property. He had spent £8,206.74 and Mr Bartlett £7,927.41. Mr Parry says that it was agreed that the proceeds of sale would be used to repay those expenses and discharge any other liabilities of CPG.  As CPG was not trading any balance would be distributed equally between them.
28.	The property was in fact sold in December 2005. On 12th December 2005 the net proceeds of sale amounting to £133,745.65 were paid into an account with Barclays Bank in the name of Red-Box which Mr Bartlett had opened in August 2005.
29.	Mr Parry says that he did not know about the sale at that stage. He did not learn about it till February 2006 when he received a phone call from Mr Ford.
2.10 The meeting of 8th August 2005.
30.	It is common ground that there was a meeting at 3.30 p.m 8th August 2005 held at Mr Parry’s home between Mr Parry, Mr Bartlett and Mr Travis of NatWest Bank. It is common ground that the meeting was to discuss the repayment of CPA’s liabilities to the Bank. [It will be recalled that Mr Parry repaid the Bank some 4 weeks later.]
31.	Mr Bartlett suggests that there was informal shareholders’ meeting between himself and Mr Parry immediately before the meeting with Mr Travis. He asserts that on 14th August 2005 he prepared a Minute of the Meeting. As will be explained below Mr Parry strongly refutes that there was a meeting of shareholders and has challenged the authenticity of the Minute.
The Minute
32.	In order to demonstrate the authenticity of the Minute Mr Bartlett has exhibited the Properties of the Word document which allegedly created it. The properties page raises a number of queries. 
33.	The title is “Shareholders Meeting 8.8.05”. It describes the author as Mr Parry. It states the document was created on 14th December 2004, was last saved by Mr Bartlett on 14th August 2005 and was the subject of 4 revisions.
34.	In any event Mr Bartlett relies on it to show that the Minute was created by him on 14th August 2005 and was therefore contemporaneous.
35.	The Minute is divided into three sections. The first section is described as Management of the Company. It reads:
The ongoing management of the Company and its subsidiary Red-Box was discussed and the following key points agreed:
a.	[Mr Bartlett] to continue as the executive director for both CPG and Red-Box and to deal with all compliance issues and ongoing debt collection for the foreseeable future.
b.	[Mr Ford]  to resign as a director and company secretary but to remain to assist  with tidying up the accounts issues following the demise of CPA and assist [Mr Bartlett] with any VAT and IR issues arising. To be paid a fee agreed in advance. [Mr Parry] agreed it would be sensible for Joanna Bartlett to replace [Mr Ford] as she had held that role previously for Group Companies.
c.	The decision for [Mr Parry] to retire from all day to day activities and as a Director was also ratified following [Mr Parry]’s verbal request earlier in March after the demise of CPA. – [Mr Bartlett] confirmed that the Companies House paperwork had been completed.
d.	It was agreed that [Mr Bartlett] would levy a fee for his management time for all of the above from [Whitegate], just as had been done when working for CPA on the Sainsbury business before CPA’s liquidation. [Mr Parry] also agreed that [Mr Bartlett] should recover this way the losses sustained in the liquidation
36.	The second section deals with the sale of the property. So far as relevant it reads:
It was agreed that [Mr Bartlett] would continue to work with the agent for the marketing of the property and that he would make regular visits to the house and liaise with [Mr Parry] on any developments as they occurred.
37.	The third section deals with the negotiations with NatWest Bank. It is largely irrelevant to the current dispute. But it concludes:
[Mr Parry] asked [Mr Bartlett] to assist him in the negotiations with NatWest and in return he would look favourably on [Mr Bartlett] retaining more of the sale proceeds (after bills) in return.
Mr Parry’s case.
38.	Mr Parry strenuously denies that there was any meeting between himself and Mr Bartlett before Mr Travis arrived. He points out that he had an appointment with his doctor at 2.40 p.m and did not leave the surgery until 3.05. He says he would not have arrived home until 3.20 to 3.25. He is supported in this by evidence from his wife and to some extent by the records from his surgery. He also says that Mr Bartlett was late for the meeting with Mr Travis and arrived after him.
Other Comments on the Minute
39.	Even if, contrary to Mr Parry’s case, the Minute is an accurate record of the discussions between Mr Parry and Mr Bartlett there are a number of comments that can be made about it:
1.	Subparagraph (b) is inconsistent with the appointment of Mrs Barrett in March 2005 and appears to support Mr Parry’s case that there was no resolution to that effect then.
2.	Even if a fee was agreed for management time the minute is vague as to the rate to be charged and as to the scope of the work covered. It is to be recalled that the rate agreed in respect of the Sainsbury work was £45 per hour.
3.	If Mr Parry’s evidence is correct he was not kept informed of developments in relation to the sale of the property. Mr Bartlett does not address this point in his witness statement.
4.	The final quoted paragraph suggests that there would be discussions between Mr Parry and Mr Bartlett as to the distribution of the proceeds of sale. It certainly does not suggest that all or substantially all of the proceeds of sale would be paid to Mr Bartlett.
2.11 Dissipation of the proceeds of sale
40.	As already noted the sum of £133,745.65 was paid into the Barclays account on 12th December 2005. The statements of the account for 21st December 2005 and 20th January 2006 are in evidence and may be summarised in the following table:
17/08/2005	Account opened			
12/12/2005	Sale of Property		133,745.65 	
13/12/2005	Bill to GP Bartlett	7,927.41 		
15/12/2005	Transfer to 50721174 at 20-53-77	6,731.81 		
15/12/2005	Transfer to 50721174 at 20-53-77	7,461.25 		
15/12/2005	Transfer to 50721174 at 20-53-77	29,962.50 		
15/12/2005	Transfer to 50721174 at 20-53-77	29,962.50 		
15/12/2005	Credit from HM Customs VAT		15,573.68 	
16/12/2005	Bill to FFC	1,997.50 		
19/12/2005	Bill to GP Bartlett	10,000.00 		
29/12/2005	Commission	9.00 		
16/01/2006	Payment to Castletons Annual acs fees	2,115.00 		
16/01/2006	Transfer to 50721174 at 20-53-77	26,120.25 		
19/01/2006	Bill Scottish Power	17.45 		
19/01/2006	Transfer to 50721174 at 20-53-77	20,562.50 		
	Credit Balance		6,452.16	
41.	An analysis of these figures shows that £17,927.41 has been paid to Mr Bartlett and £120,800.81 has been paid to Whitegate (A/C 50721174).
42.	Mr Parry accepts that sums paid to genuine creditors are properly to be deducted from the proceeds of sale. Thus he has no issue with payments of £1,997.50 (to FFC), £9.00 (Commission), £2,115.00 (Castletons) and £17.45 (Scottish Power).
43.	Mr Parry also accepts that Mr Parry was entitled to £7,927.41 in respect of his expenses relating to the property though he comments that he has expenses of £8,206.74 that have not been reimbursed.
44.	Mr Parry does not however accept that Mr Bartlett was entitled to the £10,000 which he alleges was a loan to Red-Box. He does not accept that there was any such loan. He further makes the point that the moneys belonged to CPG and not to Red-Box and thus could not be used to discharge Red-Box’s debt to him.
45.	With limited exceptions he does not accept that any of the moneys that were paid to Whitegate were properly payable.
46.	There are in evidence 4 invoices from Whitegate totalling £58,985. Two are addressed to CPG and two to Red-Box in the following amounts
29/07/2005	CPG	29,962.50 		
03/11/2005	CPG	18,800.00 	48,762.50 	
				
29/07/2005	Red Box	7,461.25 		
03/11/2005	Red Box	2,761.25 	10,222.50 	
				
Total			58,985.00 	
47.	Mr Parry has a number of comments on the invoices:
1.	They only total £58,985 and thus cannot begin to justify deductions of £120,800.81.
2.	No contract was authorised at all
3.	He does not accept that CPG’s assets should be used to pay any of the liabilities of Red-Box.
4.	The invoices specify an hourly rate of £125 which was never agreed and is far more than was agreed in respect of the Sainsbury contract.
5.	The hours claimed are wholly unjustified in the light of the fact that CPG was not trading. They are unparticularised and excessive.
48.	Mr Parry accepts that Whitegate purchased from the liquidator of CPA for £16,345 a debt of £20,138 which was owed by CPG to CPA. He thus accepts that Mr Bartlett was entitled to transfer £16,435 of that sum. 
49.	He has concerns about the VAT refund of £15,573.58 and points out that there is no evidence of what happened to the sum of £6,452.16 held in the account on 19th January 2006.
2.12 Complaints
50.	Mr Parry discovered about the sale of the property in February 2006.  When the matter was raised he received a letter from Mr Bartlett dated 7th February 2006 which included the following paragraph:
I can confirm that the property has now been disposed and the Company also had assets in cash in the Red-Box account (as a wholly owned subsidiary) which were paid to NatWest Bank. Therefore with the available proceeds the outstanding trade debtors and Crown debts have been settled and no cash or other assets are left in the business. …
51.	This shook Mr Parry as CPG had little in the way of trade debts and no outstanding Crown debts.
52.	In May 2006 Mr Parry’s former solicitors wrote a detailed letter to Mr Bartlett complaining amongst other matters of the dissipation of the proceeds of sale of the property.
53.	Mr Bartlett replied on 16th June 2006 and enclosed the Minute of the meeting of 8th August 2005 and the 4 invoices to which I have referred. He asserted that that the management of both CPG and Red-Box was conducted by him at a commercial rate and invoiced by his company as a tax efficient way for his costs to be reimbursed.
2.13 The 2006 Accounts
54.	In his witness statement Mr Bartlett points to the fact that accounts for the year ending September 2006 have been duly filed at Companies House. These were filed after the draft accounts were sent to Mr Parry. According to Mr Bartlett these accounts are drawn up based on the accounting records which include the Whitegate invoices and the VAT rebate.
55.	Mr Bartlett asserts that Mr Parry did not avail himself of the opportunity of complaining at the time. He asserts that this is highly relevant and he queries why Mr Parry did not take action in 2006/2007 when he was in possession of the full facts.
56.	This comment, however, must be seen in its true context. First it is perfectly clear that Mr Parry did complain about the accounts in the summer of 2007. Mr Bartlett has, very properly, exhibited an e-mail exchange between himself and Mr Ford which makes it clear that Mr Parry made a specific request for the accounts to be recast omitting the Whitegate invoices. 
57.	Second, the accounts as filed purport to include a Directors report which asserts that the report and financial statements were approved by the Board on 24th September 2006. On any view this statement contains a typographical error in that the alleged Board Meeting must have taken place after the accounts were prepared – that is to say in the summer of 2007. However it was accepted at the hearing before me that there was no Board meeting at all. There was no agreement or approval of the accounts. The statement in the filed accounts that the accounts were approved was untrue. 
2.14 Delay
58.	Mr Parry seeks to deal with the allegation of delay in paragraph 11 of his second witness statement. He points out that there was a without prejudice meeting in April 2008 and a further invitation to attend a meeting in June 2009. The complaints came back to life in May 2011.
3 The proceedings.
59.	CPG is not trading and has not traded since the sale of the property in December 2005. No further accounts were filed and in due course it was struck off and dissolved. Before he could bring these proceedings it was necessary for Mr Parry to make an application to restore CPG to the register. The application was duly made on 19th July 2011 and the relevant order made in August 2011.As part of the order Mr Parry undertook that CPG would not carry on business or operate in any way other than pursue the litigation in relation to Mr Bartlett.
60.	These proceedings were issued on 8th September 2011. As the Claim Form and the Particulars of Claim make clear Mr Parry is claiming relief under two heads. First (by way of a derivative claim) he seeks on behalf of CPG an account from Mr Bartlett arising out of his breach of trust and/or fiduciary duty in relation to the dissipation of the proceeds of sale of the property and such part of the VAT refund as related to CPG. Under this head he also claims payment of all sums due together with interest.
61.	Second he seeks as against CPG a declaration that he is entitled to a contribution of £26,982.51 in respect the sums paid to NatWest Bank under the personal guarantee and to be paid £8,206.74 in respect of his expenditure on the property. This part of the claim will only be of interest if the first part of the claim succeeds. At present CPG has no assets out of which to pay the contribution.
62.	On 19th September 2011 the derivative claim was considered by Judge Keyser QC on the papers. Judge Keyser QC did not dismiss the claim under section 261(2) of the Act but gave directions under CPR 19.9A(12) for the hearing of the permission application.
63.	The permission application was supported by two witness statements from Mr Parry, one from his wife and one from Mr Ford. It was opposed by a witness statement from Mr Bartlett.
4 The Law
4.1 The statutory framework
64.	The relevant statutory provisions are contained in sections 260, 261 and 263 of the Act. However as the acts complained of occurred in 2006 it is subject to the transitional provisions contained in paragraph 20(3) of Schedule 3 to The Companies Act 2006 (Commencement No.3, Consequential Amendments, Transitional Provisions and Savings) Order 2007 (SI 2007/2194).
65.	Section 260 deals with the circumstances in which a derivative claim may be brought. It says:
'(1) This Chapter applies to proceedings in England and Wales or Northern Ireland by a member of a company--(a) in respect of a cause of action vested in the company, and (b) seeking relief on behalf of the company. This is referred to in this Chapter as a "derivative claim"
(2) A derivative claim may only be brought--(a) under this Chapter, or (b) in pursuance of an order of the court in proceedings under section 994 (proceedings for protection of members against unfair prejudice)
(3) A derivative claim under this Chapter may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company. The cause of action may be against the director or another person (or both).'
66.	Section 261 provides:
'(1) A member of a company who brings a derivative claim under this Chapter must apply to the court for permission (in Northern Ireland, leave) to continue it
(2) If it appears to the court that the application and the evidence filed by the applicant in support of it do not disclose a prima facie case for giving permission (or leave), the court--(a) must dismiss the application, and (b) may make any consequential order it considers appropriate
(3) If the application is not dismissed under subsection (2), the court--(a) may give directions as to the evidence to be provided by the company, and (b) may adjourn the proceedings to enable the evidence to be obtained
(4) On hearing the application, the court may--(a) give permission (or leave) to continue the claim on such terms as it thinks fit, (b) refuse permission (or leave) and dismiss the claim, or (c) adjourn the proceedings on the application and give such directions as it thinks fit.'
67.	Section 263 of the Act sets out the circumstances in which the court is bound to refuse permission; and also contains a non-exhaustive list of the matters that the court must take into account in considering whether or not to give permission. It provides:
'(1) The following provisions have effect where a member of a company applies for permission (in Northern Ireland, leave) under section 261 or 262
(2) Permission (or leave) must be refused if the court is satisfied--(a) that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim, or (b) where the cause of action arises from an act or omission that is yet to occur, that the act or omission has been authorised by the company, or (c) where the cause of action arises from an act or omission that has already occurred, that the act or omission--(i) was authorised by the company before it occurred, or (ii) has been ratified by the company since it occurred
(3) In considering whether to give permission (or leave) the court must take into account, in particular-
(a) whether the member is acting in good faith in seeking to continue the claim; 
(b) the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it; 
(c) where the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be--(i) authorised by the company before it occurs, or (ii) ratified by the company after it occurs; 
(d) where the cause of action arises from an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company; 
(e) whether the company has decided not to pursue the claim; 
(f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company
(4) In considering whether to give permission (or leave) the court shall have particular regard to any evidence before it as to the views of members of the company who have no personal interest, direct or indirect, in the matter.'
68.	Since s 172 plays an important part in the considerations that the court must take into account, it is convenient to quote it now:
'(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term, 
(b) the interests of the company's employees, 
(c) the need to foster the company's business relationships with suppliers, customers and others, 
(d) the impact of the company's operations on the community and the environment, 
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and 
(f) the need to act fairly as between members of the company
69.	Paragraph 20(3) of the 2007 Order provides:
If, or to the extent that, the claim arises from acts or omissions that occurred before 1st October 2007, the court must exercise its powers under [sections 260 to 269] so as to secure that the claim is allowed to proceed as a derivative claim only if, or to the extent that, it would have been allowed to proceed as a derivative claim under the law in force immediately before that date
4.2 The authorities.
70.	I was referred to the following authorities both on the common law position prior to the Act and on the position under the Act – Burland v Earle [1901] AC 83 at 93, Edwards v Halliwell [1950] 2 AER 1064 at 1066G-H, Cook v Deeks [1916] AC 554 at 564, Barrett v Duckett [1995] 1 BCLC 243, Konameneni v Rolls Royce [2002] 1 BCLC 336 at paragraph 29 and Iesini v Westrip Holdings [2011] 1 BCLC. 
71.	I do not intend to lengthen this judgment with extensive quotations from them. It seems to me that considerable assistance can be obtained from the recent decision of Lewison J (as he then was) in Iesini. Not only does it contain an impressive analysis of the present law, it also contains a helpful summary of the law as it was prior to the passing of the Act. 
72.	In those circumstances I shall refer to the authorities only as far as is necessary in analysing the case.
5 Analysis
5.1 Section 263(2)(a)/263(3)(b) – section 172
73.	In paragraph 79 of the judgment in Iesini Lewison J considered the test to be applied at the second stage in relation to the strength of the claim:
the court must, as it seems to me, be in a position to find that the cause of action relied on in the claim arises from an act or omission involving default or breach of duty (etc) by a director. I do not consider that at the second stage this is simply a matter of establishing a prima facie case (at least in the case of an application under s 260) as was the case under the old law, because that forms the first stage of the procedure. At the second stage something more must be needed. In FanmailUK.com v Cooper [2008] EWHC 2198 (Ch), [2008] BCC 877 Robert Englehart QC, sitting as a deputy judge, said that on an application under s 261 it would be 'quite wrong ... to embark on anything like a mini-trial of the action'. No doubt that is correct; but on the other hand not only is something more than a prima facie case required, but the court will have to form a view on the strength of the claim in order properly to consider the requirements of ss 263(2)(a) and 263(3)(b). Of course any view can only be provisional where the action has yet to be tried; but the court must, I think, do the best it can on the material before it.
74.	To my mind there is a strong prima facie case of breach of duty by Mr Bartlett in relation to the moneys in the Barclays account. For the reasons given by Mr Howd the Whitegate invoices are open to serious challenge on a number of grounds (as summarised above). It is not, of course, possible for me to resolve disputed questions of fact. Thus I cannot resolve the question of what was or was not said before the meeting with Mr Travis on 8th August 2005. However even if there was some sort of conversation along the lines of the paragraph (d) of the Minute it does not begin to justify the level and amount of the invoices or the payments to Whitegate over and above the invoiced sums. It is not without significance that Mr Bartlett has made no attempt in the evidence so far produced by him to answer the detailed criticisms of the invoices.
75.	Under these two subsections the Court is bound to consider the attitude of the hypothetical director under section 172. As Lewison J points out in paragraph 86 s263(2)(a) will apply only where the court is satisfied that no director acting in accordance with s172 would seek to continue the claim. If some directors would, and others would not, seek to continue the claim the case is one for the application of s263(3)(b).
76.	CPG is not trading, has no employees and has no reputation that needs protecting. Accordingly the first five factors specified in s172 have no application to this case. Mr Howd, however, relies on the fifth factor “the need to act fairly as between members”. He submits that the action will promote the success of CPG in that it will obtain the return of a substantial sum of money. He submits that what has happened is wholly unfair as between shareholders because as a result of the breach of duty by Mr Bartlett Mr Parry has been left with nothing when he would have expected half of the assets on a liquidation of CPG.
77.	I agree with those submissions. In my view it cannot be said that no director would seek to continue the claim. Rather, in my view the hypothetical director would attach considerable importance to continuing the claim to put right the apparent unfairness to Mr Parry of what has happened.
5.2 Section 263(2)(c)/263(3)(d) –ratification/authorisation
78.	It is plain that the actions of Mr Bartlett have not been ratified after the event. The Company is deadlocked. Mr Parry has not ratified Mr Bartlett’s conduct. Mr Malam submitted that it was sufficient if the conduct was capable of being ratified and, in the absence of fraud, submitted Mr Bartlett’s conduct was capable of ratification. In support of this he relied on the passage in Burland v Earle referred to above. 
79.	I am by no means satisfied that is open to CPG to ratify conduct such as is alleged against Mr Bartlett in this case. However I do not think the passage in Burland is authority for the proposition suggested by Mr Malam. 
80.	There are a number of passages summarising the common law position of which the passage cited is but one. For my part I prefer the summary in paragraph 73 of Lewison J’s judgment:
[73] ……a derivative action was an exception to the general principle (known as the rule in Foss v Harbottle (1843) 2 Hare 461, 67 ER 189) that where an injury is done to a company only the company may bring proceedings to redress the wrong. Allied to this principle was the principle that whether a company should bring proceedings to redress a wrong was a matter that was to be decided by the company internally; that is to say by its board of directors, or by a majority of its shareholders if dissatisfied by the board's decision. The court would not second guess a decision made by the company in accordance with its own constitution. The exception to these principles was necessitated where the company's own constitution could not be properly operated. If the wrongdoers were in control of the company (because they were a majority of the shareholders) they would not in practice vote in favour of taking proceedings against themselves, even though the taking of proceedings would be in the company's best interests. As Lord Denning MR put it in Wallersteiner v Moir (No 2) [1975] 1 All ER 849 at 857, [1975] QB 373 at 390:
'It is a fundamental principle of our law that a company is a legal person, with its own corporate identity, separate and distinct from the directors or shareholders, and with its own property rights and interests to which alone it is entitled. If it is defrauded by a wrongdoer, the company itself is the one person to sue for the damage. Such is the rule in Foss v Harbottle (1843) 2 Hare 461. The rule is easy enough to apply when the company is defrauded by outsiders. The company itself is the only person who can sue. Likewise, when it is defrauded by insiders of a minor kind, once again the company is the only person who can sue. But suppose it is defrauded by insiders who control its affairs--by directors who hold a majority of the shares--who then can sue for damages? Those directors are themselves the wrongdoers. If a board meeting is held, they will not authorise proceedings to be taken by the company against themselves. If a general meeting is called, they will vote down any suggestion that the company should sue them themselves. Yet the company is the one person who is damnified. It is the one person who should sue. In one way or another some means must be found for the company to sue. Otherwise the law would fail in its purpose. Injustice would be done without redress.'
[74] Lord Denning was clearly contemplating a case in which the company's cause of action was a cause of action against the 'insiders' themselves who would be liable for damages. Indeed, that seems to be the usual situation in which derivative actions were allowed to continue. That is why this exception to the rule in Foss v Harbottle was often called a 'fraud on the minority'.
81.	In this case CPG was being controlled on a day to day basis by Mr Bartlett. He is a 50% shareholder and one of two directors and can therefore ensure that any resolution to authorise proceedings against him will not be passed. It seems to me that this is classically a situation which would have been within the exception to the rule in Foss v Harbottle. It was not a ratifiable decision.
82.	Mr Bartlett relies on the meeting of 8th August 2005 as authority for his conduct. However for present purposes the meeting is very much in issue. Furthermore for reasons I have given the Minute of the Meeting cannot begin to justify all of the payments made to Mr Bartlett or Whitegate. 
5.3 S263(3)(a) – good faith
83.	Mr Malam suggests that the application is not made in good faith because Mr Parry has the ulterior motive of seeking contribution for the moneys paid under the guarantee.
84.	The question of good faith is considered in detail in paragraphs 113 – 121 of Lewison J’s judgment where a number of authorities are considered. In paragraph 121 he concludes:
[121] In my judgment, if the claimant brings a derivative claim for the benefit of the company, he will not be disqualified from doing so if there are other benefits which he will derive from the claim. In Nurcombe v Nurcombe Lawton LJ contrasted an action for the benefit of the company on the one hand, and an action brought for some other purpose on the other. Likewise in Barrett v Duckett Peter Gibson LJ drew the same contrast. Neither of them was considering a case in which a claim was brought partly for the benefit of the company, but partly for other reasons as well. In my judgment, in such a case the considerations discussed by Bridge LJ in Goldsmith v Sperrings come into play.
85.	The considerations that Lewison J had in mind were those he cited at paragraph 119:
'The phrase manifestly cannot embrace every advantage sought or obtained by a litigant which it is beyond the court's power to grant him. Actions are settled quite properly every day on terms which a court could not itself impose on an unwilling defendant. An apology in libel, an agreement to adhere to a contract of which the court could not order specific performance, an agreement after obstruction of an existing right of way to grant an alternative right of way over the defendant's land, these are a few obvious examples of such proper settlements. In my judgment, one can certainly go so far as to say that when a litigant sues to redress a grievance no object which he may seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance. On the other hand, if it can be shown that a litigant is pursuing an ulterior purpose unrelated to the subject-matter of the litigation and that, but for his ulterior purpose, he would not have commenced proceedings at all, that is an abuse of process. These two cases are plain, but there is, I think, a difficult area in between. What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired by-product of the litigation. Can he on that ground be debarred from proceeding? I very much doubt it.
86.	I am by no means convinced that Mr Parry’s desire to be reimbursed a contribution under his guarantee and for repayment of the expenses he incurred on the property is a collateral purpose. He is, after all a creditor of CPG in respect of these two sums in so far as the claims are genuine. These sums are significantly less than the sums taken by Mr Bartlett and the claim is in my view still for the benefit of CPG.
87.	Accordingly I reject the submission that Mr Parry is not acting in good faith.
5.4 S 263(3)(f) - Alternative claim
88.	The only realistic alternative claim it has been suggested that Mr Parry might bring is a petition under section 994 of the Act for unfair prejudice. Mr Howd suggests that this is of no use to Mr Parry because the Company is not trading and he does not wish to be bought out. The shares currently have no value. It would, of course be open to the Court in a section 994 petition to order that the Company brings proceedings against Mr Bartlett but that remedy is precisely the same as is being sought in these proceedings. It would plainly be more proportionate to have a derivative claim now.
89.	As Lewison J points out in paragraph 123 of his judgment under the new code the existence of an alternative remedy is only a factor to be taken into account. It is not an absolute bar. 
90.	This is not a complete answer in this case because of the restriction in paragraph 20(3) of the 2007 Order. If there is an alternative claim I have to be satisfied that an alternative remedy was not an absolute bar under the old law. 
91.	As Lewison J points out the position is not entirely clear. However I propose to follow the steer given by Lawrence Collins J (as he then was) in Konamaneni in the passage cited. An alternative remedy is not an independent bar to a derivative claim.
92.	In any event I am not satisfied that a section 994 petition is a realistic alternative remedy on the facts of this case.
6 Conclusions
93.	For all of these reasons I am satisfied that this is an appropriate case for permission to be granted under section 261 for Mr Parry to continue the derivative claim on behalf of CPG. 
94.	In my view there is a strong prima facie case that CPG has been deprived of a substantial part of the proceeds of sale and the VAT refund as a result of breach of fiduciary duty of Mr Bartlett. Mr Bartlett is in a position to block any resolution to institute proceedings by the Company for the recovery of those sums. As Mr Howd said in his closing submissions it is a classic case for a derivative action. I am also satisfied that it would have been a classic case at common law and that the 2007 Order is not a bar to the granting of permission.