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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Wilson & Anor v. Inverness Retail Business Park Ltd & Anor [2003] ScotCS 6 (15 January 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/6.html Cite as: [2003] ScotCS 6

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Wilson v. Inverness Retail Business Park Ltd [2003] ScotCS 6 (15 January 2003)

OUTER HOUSE, COURT OF SESSION
CA132/02	OPINION OF LORD EASSIE in the cause ALAN BAXTER WILSON AND PAUL DOCHERTY Pursuers; against (FIRST) INVERNESS RETAIL AND BUSINESS PARK LTD AND (SECOND) JAMES SHAW Defenders:   ________________

 

 

Pursuers: Scott, Q.C., E. Robertson; Brodies, W.S.

Defenders: Davidson, Q.C., Howlin; Blacklock Thorley

15 January 2003

1. The pursuers in this action are two individuals holding shares in a company named Jaymarke Developments Limited ("Jaymarke"). Together they hold 37% of the issued share capital, the remaining 63% being held by the second defender, Mr James Shaw. The pursuers are accordingly minority shareholders in Jaymarke.
2. Jaymarke holds 50% of the issued share capital of the first defender, Inverness Retail and Business Park Limited ("IRBP"), which shareholding is averred by the pursuers to have been acquired in 1993 from another company Jaymarke Walker Street Limited ("Walker Street"). The remaining 50% of the issued share capital of IRBP is held by a company named Narden Services Limited ("Narden"). None of the parties to this litigation holds shares in Narden.
3. IRBP was formed to develop a substantial site on the outskirts of Inverness. It is averred by the pursuers that in 1988 Walker Street and Narden entered into an agreement that the profit realised by the IRBP development should be paid to Walker Street and Narden equally and that Jaymarke succeeded to Walker Street's interest in the agreement consequent upon its acquiring Walker Street's shareholding in IRBP. It is further averred by the pursuers that, put shortly, the first stage of the development was completed in 1997 with the sale of part of the site to a supermarket company for a sum of approximately £7 million; that in 1999 the remainder of the site was sold for a sum of approximately £30.3 million; and that payment of the 50% share of the profit arising from these transactions has been made to Narden but no equivalent payment has been made to Jaymarke.
4. The pursuers also aver that since the 1980s the first pursuer (Mr Wilson) and the second defender (Mr Shaw) had been engaged in a number of business ventures involving the acquisition development of retail sites. The usual method involved the use of a single purpose limited liability company, the profits from the development being realised by the individuals through their shareholding in the company. The first pursuer was the minority shareholder, the second defender being the majority shareholder but each was a director of the companies in question. In 1996 differences arose between the first pursuer and the second defender in consequence of which Mr Wilson, the first pursuer, resigned his directorships of the companies, including Jaymarke. The second defender, Mr Shaw, continues in office as the director of Jaymarke.
5. The pursuers further aver, in summary, that since the first pursuer resigned his directorship of Jaymarke that company has failed to hold any annual general meeting; that its annual accounts have consistently been filed with the registrar of the companies very late; and that there has been a consistent refusal or neglect to provide the pursuers with any information relating to the company's affairs. In consequence of those, and other matters, the present pursuers have made application to the Sheriff Court in Aberdeen in terms of Section 459 of the Companies Act 1985.
6. The accounts of Jaymarke for its accounting period to 31 August 2000 were not signed by the second defender, the sole director of Jaymarke, until 21 December in the succeeding year. They were filed some time later and disclosed a net deficit of £2,585,176 which contrasted with the positive position of the other joint venture participant in IRBP, namely Narden. It is to be inferred from the pursuers' averments that the proffered explanation for that differing financial position lies in the absence of any distribution by IRBP to Jaymarke of a share of the profits in the Inverness development equivalent to that made to Narden. Given the absence of any distribution of an equivalent share to Jaymarke (a matter not actively disputed by the second defender in his somewhat reticent defences) the pursuers point in averment to a note to the annual accounts of IRBP for the year to 31 May 2000 which is in these terms:

"On 15 October 1998 the company entered into a Declaration of Trust whereby a one half pro indiviso share in the company's property was transferred to the Trustees of an Employee Trust. Following this Declaration of Trust the company holds this one half pro indiviso share absolutely for the Employee Trust. Consequently the property remains in the company's balance sheet at 31 May 2000.

The same Declaration of Trust requires any income arising from the Employee Trust interest in a one half pro indiviso share in the company's profits, also to be held absolutely for the Employee Trust. Included in other creditors is an amount of £1,193,468 (1999 - £168,39) 1 [sic] in respect of this share of income".

The pursuers aver that the amount contained within that trust was some £8.5 million. The pursuers further aver that in 1998 Jaymarke and Narden entered into a new joint venture agreement superseding the earlier agreement between Narden and Walker Street. It is averred that the new joint venture agreement was procured by the second defender, Mr Shaw, fraudulently and in breach of his fiduciary duties to Jaymarke, the new joint venture agreement being one whereby Jaymarke's share of the profit from the development was diverted to the Employee Trust.

7. The pursuers go on to aver that the beneficiaries of the Employee Trust are either employees of the first defenders or persons connected to those employees. The second defender is averred to be an employee of the first defender and is believed by the pursuers to be the only employee of that company. No substantial answer is made to those averments by the first defenders. Mr Shaw in his defences simply refers to the answers for the first defenders beyond which a simple denial is put forward. The answers for the first defender admit that 50% of the development profit has been paid to Narden but as respects the other 50% and the Employment Trust no explanation is tendered. Both defenders oppose the pursuers' obtaining any access to the Declaration of Trust referred to in the notes to the first defender's accounts lodged with the Registrar of Companies.
8. Condensing the pursuers' averments yet further the essential contention advanced by them in this action is accordingly that following the emergence of the disagreements between Mr Wilson and Mr Shaw in 1996 and the resignation of Mr Wilson of his directorship in Jaymarke the second defender, Mr Shaw, in breach of his fiduciary duty to Jaymarke procured the diversion of the 50% share of the profits payable to Jaymarke (matching the equivalent amount which it is admitted has in fact been paid to Narden) by the mechanism of making that share the subject of an employee trust of which he, and possibly others connected to him, is a beneficiary. The pursuers relate that diversion of Jaymarke's share of the profit from the Inverness development back to the further joint venture agreement entered into in 1998. They seek reduction of that joint venture agreement, and the consequent declaration of trust, which failing payment to Jaymarke of a sum by way of damages representing the loss to the company sustained by the alleged diversion of its share of the profits in the development to the Employee Trust.
9. The basis upon which this action is brought is that it is a derivative action by the minority shareholders in Jaymarke, the objective of the action being reversal of the arrangements procured by the majority shareholder - the second defender - whereby funds were diverted from Jaymarke to the Employment Trust, failing which the payment of money to Jaymarke. In other words, the action is one brought on behalf of Jaymarke by its minority shareholders.
10. Both defenders plead that the action is incompetent and irrelevant and the action was appointed to debate on those pleas.

Submissions for the Defenders

11. In opening the debate junior counsel for both defenders, Mr Howlin, moved for dismissal of the action on the ground that it was incompetent and observed that the plea to the relevancy of the action had been tendered essentially as an ancillary to the leading plea of incompetence. There were, said Mr Howlin, essentially two prongs to the defenders' submissions, the first being that the action was incompetent since the pursuers had arrogated to themselves the right to bring a derivative action without having first obtained the permission of the court. Counsel then referred to Barrett v Duckett and Others [1995] 1 B.C.L.C. 243 and the summary of English law and procedure on the bringing of derivative actions commencing at page 249h which is in these terms:

"The general principles governing actions in respect of wrongs done to a company or irregularities in the conduct of its affairs are not in dispute:

1. The proper plaintiff is prima facie the company.

2. Where the wrong or irregularity might be made binding on the company by a simple majority of its members, no individual shareholder is allowed to maintain an action in respect of that matter.

3. There are however recognised exceptions, one of which is where the wrongdoer has control which is or would be exercised to prevent a proper action being brought against the wrongdoer: in such a case the shareholder may bring a derivative action (his rights being derived from the company) on behalf of the company.

4. When a challenge is made to the right claimed by a shareholder to bring a derivative action on behalf of the company, it is the duty of the court to decide as a preliminary issue the question whether or not the plaintiff should be allowed to sue in that capacity.

5. In taking that decision it is not enough for the court to say that there is no plain and obvious case for striking out; it is for the shareholder to establish to the satisfaction of the court that he should be allowed to sue on behalf of the company.

6. The shareholder will be allowed to sue on behalf of the company if he is bringing the action bona fide for the benefit of the company for wrongs to the company for which no other remedy is available. Conversely if the action is brought for an ulterior purpose or if another adequate remedy is available, the court will not allow the derivative action to proceed."

The paragraphs within that summary of English law and procedure which counsel for the defenders particularly invoked at this point in his submission were paragraphs 4 and 5. They indicated, said counsel, that a minority shareholder wishing to bring a derivative action required to obtain the prior permission of the court. Mr Howlin then submitted that the question whether the minority shareholder ought to be allowed to proceed could not be decided simply as a matter of debate upon the pleadings. In support of that proposition Mr Howlin referred to the decision of the Court of Appeal in Prudential Insurance Co Ltd v Newman Industries Ltd [1982] 1 Ch. 204 in which the judge at first instance (Vinelott J.) had declined to decide as a "preliminary issue" whether the plaintiffs in that action might maintain a derivative action but had allowed enquiry into the substantive allegations of corporate inpropriety. Counsel for the defenders referred in particular to the passage at 221g:

"... The second observation which we wish to make is merely a comment on Vinelott J's decision that there is an exception to the rule in Foss v Harbottle whenever the justice of the case so requires. We are not convinced that this is a practical test, particularly if it involves a full-dress trial before the test is applied. On the other hand 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 exceptions to the rule, the plaintiff ought at least to be required before proceeding with this 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."

12. In England, the Civil Procedure Rules 1998 provided in rule 19.9.(3) that a claimant seeking to prosecute a derivative claim required at an initial stage to obtain the court's authority to proceed. Whether the present pursuers should be allowed to proceed could not therefore be decided as a matter of debate in the present action. Authority had to be sought in what counsel described as "appropriate proceedings". Those appropriate proceedings, as I understood counsel, were proceedings under Section 459 of the Companies Act 1985 in which the pursuers would have to show unfair prejudice before obtaining, under Section 461, authority to proceed with an action in the name of the company. By raising this action the pursuers were seeking to circumvent the judicial control which would otherwise apply in England.
13. In what he described as an essentially alternative second "prong" to his argument Mr Howlin submitted that the action was premature since the proceedings under Section 459 in the Sheriff Court in Aberdeen had not been determined and the pursuers were thus not yet able to say that they had been unfairly prejudiced. Having raised those proceedings in the Sheriff Court the pursuers had, said counsel, made their bed and they should therefore be constrained to lie upon it.
14. Although the defenders had not tabled a plea of all parties not called, junior counsel for the defenders further submitted that, as provided in rule 19.9 of the English Civil Procedure Rules, it was necessary to convene Jaymarke as a defender. The rationale was that if the company were not a party to the action it would not technically be bound by its result - Spokes v The Grosvenor and West End Railway Terminus Hotel Company Limited [1897] 2 Q.B. 124, particularly per Chitty L.J., 128. Further, in so far as by its recently amended conclusion, the pursuers now sought reduction of the new joint venture agreement between Jaymarke and Narden, it was also necessary to convene Narden as a defender.
15. Senior Counsel for the defenders adopted his junior's submissions. The pursuers, said Mr Davidson, were bedevilled by proceeding down a route for which there was no real Scottish authority. The case of Anderson v Hogg 2000 S.L.T. 634; 2002 S.L.T. 354 (from which junior counsel for the pursuers in his response to Mr Howlin's submissions had derived the propositions that (a)  derivative actions were available in Scotland; (b)  their availability did not debar Section 459 proceedings and vice-versa and (c)  where both were available there was no need for the minority shareholders to elect) was an unsatisfactory decision since there had been effectively only argument for one party at first instance and the Inner House discussion of the matter was general. Derivative actions had been an English development and, said senior counsel, the Scottish courts should not go "galloping along" in disregard of English authority. Barratt v Duckett contained a summary of English law undisputed in that case. In recording, in paragraph 5 of that summary, that it was not enough for the court to say that there was no plain and obvious case for striking out, the court in that case indicated that mere averment of a prima facie case was not sufficient. Something more had to be established by the pursuing minority shareholders. While the existence of the possibility of a derivative action might not prevent the bringing of Section 459 proceedings (Anderson v Hogg) the converse did not follow. Since in paragraph 6 of the summary the court in Barratt v Duckett stated that a derivative action would not be allowed to proceed were another alternative remedy to be available, Section 459 might thus bar a derivative action if it were thought to be an appropriate remedy. In the Section 459 application in the present case the pursuers were seeking, among others, an order for the purchase of their respective shareholding. If what they sought occurred, the pursuers could have no continuing interest in the company. They were therefore acting for an ulterior motive and thus in conflict with the terms of paragraph 6 of the summary in Barratt v Duckett. Everything relating to conflict in the shareholders' relationships inter se could be dealt with in Section 459 proceedings by an order for a buy-out.

Submissions for the Pursuers

16. Counsel for the pursuers invited the repulsion of defenders' preliminary pleas and the allowance of a proof. In regard to Mr Howlin's submission that some form of preliminary proof or enquiry was necessary and that the competency of this action could not be decided in a debate on the pleadings, junior counsel for the pursuers, Mr Robertson, pointed out that in their note of proposals for further procedure the defenders themselves had sought this debate and dismissal of the action on the basis of the pleadings. In so far as the submission for the defenders proceeded on English rules of procedure, those rules were of no assistance when one was concerned with substantial right and in respect of procedure Scotland followed its own rules and principles. The procedure in Scotland was discussed in Palmers Company Law at paragraph 8.817. It did not support the suggestion that some preliminary inquiry was required. In Anderson v Hogg the Lord Ordinary had carried out an extensive review of the authorities and rejected a contention that the existence of Section 459 prevented the bringing of a derivative action. His view that the remedy consisting in a derivative action was ground for refusing the Section 459 petition in that case was not accepted on appeal to the Inner House which held that the existence of the possibility of a derivative action did not make incompetent the minority shareholders' petition under Section 459. Although one of the members of the court (Lord Prosser) was of the opinion that the petition proceedings, though competent, were inappropriate, the contributor to Palmer correctly observed (paragraph 8.817 in fine) that it was difficult to see any proper basis upon which a court might dismiss an admittedly competent petition merely on the ground that it was "inappropriate". Junior counsel submitted that there were but two essential features necessary before the minority shareholder might bring a derivative action namely (a)  averment that the company had suffered harm through the "fraud" of those in charge of the company ("fraud", for these purposes, having the extended meaning used by Lord Davey in his speech in Burland v Earle [1902] A.C. 83, 93; c.f. Palmer, paragraph 8.814) and (b)  averment that the person or persons having committed that fraud remained in control of the company and were thus preventing the company from taking steps in its own name to remedy that fraud. The present action met those tests. In Scotland whether an action fell to be dismissed depended on whether it was relevant and competent. It was clear from the decision in Anderson v Hogg that a derivative action, meeting the foregoing tests, was a competent action in Scotland; the availability of a derivative action did not prevent Section 459 proceedings and vice-versa; and there was no requirement of irrevocable election. Barratt v Duckett, in paragraphs 4, 5 and 6 of the summary, might accurately summarise English procedure and practice but it was not an accurate account of Scottish procedure and practice in which the sole tests were competency and relevancy.
17. As respect the defenders' contention that it was necessary to convene as defenders both Jaymarke and, following the amendment seeking reduction of the new joint venture agreement, also Narden, junior counsel ventured the argument that since the action was a derivative action it was essentially the company which was the pursuing party and it accordingly did not make practical sense also to convene the company as a defender when the controlling shareholder whose attitude prevented the company taking steps had been convened. As respects Narden, counsel stated that Narden had expressed a neutral attitude having no interest in the half share of the profit which was not theirs and accordingly little practical purpose would be served by convening them.
18. Senior counsel for the pursuers, Mr Scott, adopted his junior submissions and, in addressing in particular what had been said by senior counsel for the defenders, expressed his surprise at the suggestion by senior counsel for the defenders that the derivative action was to be seen as some novelty in Scots law. Mr Scott pointed to the catalogue of Scottish authorities to which reference was made by the Lord Ordinary in Anderson v Hogg and particularly to Hannay v Muir (1898) 1 F. 306; Harris v A. Harris Limited 1936 S.C. 183; Oliver's Trustees v W.G. Walker & Sons (Edinburgh) Limited S.L.T. 140. There was no doubt that, if viewed as a matter of competency, the minority shareholders' derivative action existed in Scots law. The tests for the relevancy of such an action were those which had been set out by his junior. There was, in this case, no suggestion by the defenders that the current action was irrelevant on those counts. Junior counsel for the defenders had mooted the need to surmount a procedural hurdle, other than relevancy, to demonstrate some entitlement to start an action in the first place. That suggestion was wholly inconsistent with Scottish civil procedure which had its tests of relevancy and the general principle that if competent as a form of action and relevant in terms of setting out the averments necessary to warrant the legal result sought the pursuing party was entitled to pursue the action. There was nothing in Scottish authority to suggest that the derivative action - which ante-dated the statutory predecessor of Section 459 - was in a different position as requiring special leave on a criterion or criteria other than relevancy and competency.
19. Senior counsel for the pursuers then turned to Barratt v Duckett and the particular points in the summary propositions of English procedure invoked by the defenders. What was said in paragraph 4 (requirement to decide as a preliminary issue) was not a matter of deciding title to sue. The basis for that paragraph 4 appeared to stem from Prudential Assurance Co Ltd v Newman Industries Ltd and Others in which the court at first instance had not recognised at an early stage in the proceedings before it that a requirement of the derivative action was that the delinquent charged with injuring the company remained in majority control of the company thus preventing the company's bringing an action for redress of the wrong done to it. The plaintiffs in Prudential Assurance were accordingly not able to make - in Scottish terms - the averments essential to the relevancy of a derivative action. As was evident from the opinion of the appellate court at 221C, the court at first instance had applied a different test leading to what senior counsel described as a costly procedural fankle. The case was not authority for the proposition that in Scotland a derivative action was incompetent or irrelevant without some preliminary procedure or enquiry for which Scottish procedural rules made no provision. Paragraph 5 in the summary in Barratt v Duckett was not readily intelligible in terms of Scots law. The requirement in Scotland was to plead a relevant case by making appropriate averments in its support. Paragraph 6 was yet more so a matter of English civil procedure. It had never been the case in Scotland that a relevant action might be dismissed on the ground that some other remedy existed but even so the two cases in England mentioned in the leading judgment in Barrett v Duckett in apparent support of this point were cases in which liquidation of the company had been offered by the defending party. Where a company is in liquidation the wrongdoer no longer had control and the basis for the exception to the rule in Foss v Harbottle therefore disappeared. If an alternative remedy were available to a pursuer it was in principle for the pursuer to select which of those remedies he chose to pursue. The derivative action was designed to restore to the company that which was the company's and involved the two tests of fraud and continuing control by the wrong-doer. The derivative action existed prior to the introduction of what is now Section 459 proceedings. Those proceedings involved a different test of unfair prejudice and might embrace a wide variety of matters which could not be encompassed by a derivative action. There was nothing in the statutory provisions of Sections 459 and 461 of the Companies Act to suggest that a derivative action was either incompetent or in some way subject to the potential pursuing party passing the test set out in Section 459.
20. The defenders' preliminary pleas should accordingly be repelled. As respects the question of convening the company and Narden counsel indicated that if that were thought appropriate he would have no objection to pursuing that course

Discussion.

21. As is indicated by the foregoing synopsis of the argument for the defenders, a central feature of that argument was the contention that the summary of English procedure and practice contained in Barratt v Duckett required to be followed in Scotland. In advancing that contention counsel for the defenders suggested that the derivative action was an English creation for which, apart from the Outer House decision in Anderson v Hogg, there was really no Scottish authority. While it is no doubt true that there is not an extensive body of case law in Scotland on the topic, in my view the competency of the derivative action is vouched in Scottish authority going back at least to 1898 when the Lord Ordinary in Hannay v Muir having considered, amongst others, the general rule in Orr v Glasgow Railway Company 3 MacQ. 799 and Foss v Harbottle said:

"But to these general rules there are exceptions.

Thus if a company is defrauded by a person who can command a majority of votes and who thereby stifles inquiry, a minority of the shareholders, or even a single shareholder, can sue (Mason v Harris, 11 Ch.D. 97; Atwool v Merryweather, 5 E.464).

That is the case which is alleged here. The pursuers aver that Sir John Muir has defrauded the company and has used the voting power under his control to prevent the pursuers obtaining redress through the company. I am therefor of the opinion that, assuming these averments to be true, the pursuers have a good title to sue."

It may be observed that the issue (which was, I think properly, conceived as an issue of title to sue) was addressed on the customary Scottish basis of taking averment pro veritate. The soundness of that approach was not questioned in the Inner House. In Olivers Trustees and Harris the title of the minority to sue was not questioned. I am unable to detect within the opinions of the members of the court in the Inner House decision in Anderson v Hogg any suggestion that the derivative action as such was incompetent or unknown in Scotland. Acceptance of its existence is also evident from Palmer 8.817 and the cases there cited. I therefore reject the suggestion by senior counsel for the defenders that the current proceedings have the pioneering rôle of "blazing a trail" which, in his words, Mr Davidson sought to attribute to them.

22. Further, in my opinion, counsel for the pursuer were also correct in submitting that the essential tests for the admissibility of the derivative action were that there had been fraud - in the wider Burland v Earle sense - resulting in the diminution of the patrimony of the company and that those responsible for that fraud and diminution remained in majority control thus preventing institution of proceedings at the instance of the company. The rationale for admitting such an action is I think not difficult to perceive, namely that those who have caused, by such fraud, a loss to the company and thus indirectly to the minority shareholders, should not be able to avoid their making restitution or reparation to the corporate patrimony through their continuing exercise of majority shareholder control. The pleadings in the present case set out averments which meet those tests and thus satisfy the requirements of relevancy. I did not understand the submission of counsel for the defenders to suggest otherwise.
23. The existence of the derivative action was established in Scotland prior to the introduction of wider protection for the interests of minority shareholders in statutory provisions which, with amendment, have their current destination in Section 459, read with Section 461 of the Companies Act 1985. Those provisions were intended to improve the lot of the minority. There is nothing in the terms of those sections of the Companies Act 1985, or their predecessors, which removes the derivative action from the aggrieved minority shareholder's forensic arsenal or subjects the use of the material in that arsenal to some prior judicial pass or permission. It was not submitted by counsel for the defenders that any such exclusion or restriction was effected by the statutory provisions.
24. Instead the defenders invoked the summary of English practice and procedure in Barratt v Duckett, particularly the points mentioned in paragraphs 4, 5 and 6 of the summary.
25. For the reasons advanced by counsel for the pursuers I consider that the invocation of those points as grounds for holding this action incompetent is misconceived. Points 4 and 5 may be taken together. They both concern essentially English procedure, rather than any substantive test of competency or relevancy. In Scottish procedure and terminology a "preliminary issue" of competency or title to sue may of course be addressed but it is addressed normally by the tabling of an appropriate preliminary plea of incompetence or no title to sue, which may then be dealt with either by debate, or if need be, by a proof before answer on a question of competency or title to sue in the event that the averments pertinent to such an issue are disputed in fact. I can see no reason wherefor the normal tests and procedures should not apply in an action such as the present. Nothing in the Scottish authorities suggests otherwise. It is I think notable that in advancing the Barratt v Duckett summary as applicable in Scottish procedure counsel for the defenders, who had requested a debate on their preliminary plea, then submitted that the matter of the pursuers' entitlement to sue could not be decided by the debate on the pleadings which they had sought in the first place. It was not suggested by counsel for the defenders that there be a proof on any particular disputed averment relating to title to sue and it appeared to me that in the context of Scottish procedure counsel for the defenders were effectively at a loss to give any content to their reliance on points 4 and 5 of the Barrett v Duckett synopsis other than to suggest that in the present case the "preliminary issue" fell to be addressed in the Section 459 proceedings in the sheriff court. In short, despite profession by counsel for the defenders to the contrary, the submission for the defenders effectively has to resolve into the proposition that a derivative action may only be brought if the intending pursuer has already obtained in Section 459 proceedings permission to bring such action by virtue of an order under Section 461(2)(c). But that is plainly not the import of points 4 and 5 of the Barratt v Duckett summary. The defenders' reliance on that part of the summary, which is essentially concerned with English procedure, is accordingly misplaced. Similarly, their invocation of the rules of procedure in the courts of England and Wales - the Civil Procedure Rules 1998 - is equally misplaced, it being clear, to my mind, that rules of procedure are matters for the lex fori and the Civil Procedure Rules 1998 have no application outwith England and Wales.
26. For the reasons already given, I do not consider that the admissibility of the derivative action is removed by any provision in the legislation relating to what are now Section 459 proceedings. Point 6 of the Barratt v Duckett summary raises issues as to the English courts' power to control proceedings on the basis of both good faith and the appropriateness of other proceedings. In the very special factual context of Barratt v Duckett - to which context my attention was drawn by counsel for the pursuers - one can understand the court's concern with those issues. But as counsel for the pursuers pointed out, in that case the plaintiff had admittedly, and for other ultroneous reasons, opposed the defendants' efforts to put the corporate assets into neutral control by means of liquidation. The other cases from which proposition 6 was derived were similarly liquidation cases. In my view, as counsel for the pursuers indicated, the same point might been seen in Scotland from the perspective of relevancy, namely the absence of a continuing insistence by the alleged wrong-doer on his maintaining control of the company so as to prevent its suing for reparation. In my opinion neither the court in Barratt v Duckett nor the judges in the decisions referred to by way of elaboration of point 6 were stating that proceedings under Section 459 of the Companies Act constitute an alternative remedy which either absolutely, or possibly, depending on the discretion of the court, precluded the bringing of a derivative action.
27. It is of course the case that the Section 459 proceedings and the derivative action are not directly equivalent or co-extensive. The former is wider in scope. As counsel for the pursuers pointed out in the present case the Section 459 proceedings in the sheriff court were brought in ignorance of the fraud (in the wider sense) now alleged in these proceedings. Reduction of the deeds in issue, and consequent restoration to the company of its entitlement to its share of the profits from the Inverness development, does not necessarily resolve the issues of unfairness to the minority extensively canvassed in the sheriff court proceedings. Reduction is not a remedy available in those proceedings. Furthermore I agree with counsel for the pursuers that there is no evident basis upon which this court may dismiss a competent and relevant action on the view that it is "inappropriate" in the light of some alternative means of proceeding. I therefore reject the submission for the defenders that the action falls to be dismissed on the ground that its brought for an ulterior motive in neglect of an alternative remedy.
28. In these circumstances I consider that the defenders' principal ground of challenge to the competency and relevancy of this action must fail. There remains the issue whether it is necessary to convene as defenders the company and Narden. I appreciate that it may possibly be that convening them is essentially a formality. I also appreciate that there is no plea of "all parties not called". However, for the technical reason given in Spokes v The Grosvenor and West End Railway Terminus Hotel Co Limited case I consider that the company ought to be convened. It is to be observed that such accords with what appears to have been done in the Scottish authorities to which I was referred. The necessity of convening Narden as a party to the contract or agreement which the pursuers now seek to reduce is, I think, self-evident. Senior counsel for the pursuers indicated his willingness to cause such service to be made and in these circumstances I shall simply put the case out By Order for the purpose of making the requisite order for service and for preliminary discussion of future arrangements for the proof which, depending on the terms of any additional defences lodged consequent on such service, I would presently be minded to allow.