Permission to proceed? Derivative claim denied

It is not easy to obtain permission to proceed with a derivative claim and nor is it common to see fully contested permission applications. In the English High Court, derivative claims do not appear at all frequently; perhaps because they are difficult to bring, and almost certainly because there is an attractive alternative option, namely, the unfair prejudice claim (which is expansive and flexible). The derivative claim has been put on a statutory footing under the Companies Act 2006. Derivative claims under common law principles remain relevant since it is those principles that largely underpin the statutory derivative claim. Furthermore, the Companies legislation in many jurisdictions overseas still use and pay heed to the common law derivative action. The recent decision of Trower J in Hughes v Bellamy and others [2026] EWHC 1871 (Ch), has provided that rare thing: a fully contested permission application to bring a derivative claim brought under the common law in the English High Court. This was because it was a multiple derivative claim. That is a claim where a shareholder of a parent company sues on behalf of its subsidiary to redress a wrong done to the subsidiary, when wrongdoer directors block the subsidiary from bringing claims. Unlike single derivative claims, multiple derivative claims do not fall within Part 11 Chapter 1 of the Companies Act 2006. The judgment provides a careful and thorough analysis of when permission will or will not be given to proceed with derivative claims. The judgment contains clear and authoritative guidance on important aspects of the jurisdiction. In this case, the Judge refused to grant permission.

The dispute arose over the ownership and management of an AI start-up that could have been extremely valuable had things gone as hoped. But the falling out between the principal shareholders destroyed the potential value of the company. The Claimant (Mr Hughes) and the First Defendant (Mr Bellamy) were equal shareholders in the Isle of Man company Mulberry which is the parent of UK-incorporated AI Pathfinder Inc Ltd (“AIP”). AIP was an AI data centre startup and had quickly managed to obtain large investment sums (some £100million) by way of a fundraising round from private investors. As a consequence of the dispute and deadlock between Mr Hughes and Mr Bellamy at Mulberry level, AIP’s remaining directors (the Second to Fifth Defendants, the “Directors”) were forced to unwind the fundraising round, and AIP soon found itself in precarious financial straits and with discontented management.  In that situation, the Directors decided to sell AIP’s business to a buy-out vehicle formed by certain senior employees of AIP.

Mr Hughes’ claim was that the Defendants had been fraudulent, and had conspired to sell AIP’s assets to the Sixth Defendant at an undervalue in order to enrich themselves. Mr Hughes initially obtained permission to bring a derivative claim on behalf of AIP. That was on the papers. Following a heavily contested inter partes hearing, the Court refused the Claimant’s application for permission to continue the double derivative claim

The Judgment provides helpful clarity on a number of points regarding derivative claims, including:

1. That as regards common law derivative claims, permission still requires “the putative claimant to establish either actual fraud or that the defendant has personally benefitted from the wrong to the company in respect of which the claimant seeks to sue” in order to rely on the ‘fraud’ exception to Foss v Harbottle (at [16]-[17]);
2. That the apparent tension between the question of whether an independent board could bring the proposed claim (Airey v Cordell [2006] EWHC 2728 (Ch)) and whether such a board would bring such a claim (Mumbray v Lapper [2005] EWHC 1152 (Ch); Abouraya v Sigmund [2014] EWHC 277 (Ch)) was explained by the fact that ‘could’ was a threshold question, and ‘would’ went to the Court’s discretion whether to grant permission to continue the claim (see [33]-[34]); and
3. That the prima facie test did not, contrary to Mr Hughes’ suggestion otherwise, allow the Court to ignore the evidence filed by the Defendants and assume that the Claimant would succeed on his pleaded case, but rather required evaluating the evidence in the round; establishing a prima facie case was a test which required “the court to ask itself more than just whether a claim by the company would survive an application for reverse summary judgment” (at [26]).

The third of these points provides a particularly salutary lesson for any putative derivative claimants: ignore the Defendants’ evidence at your peril. In Hughes v Bellamy, the Directors had adduced detailed evidence of their decision-making including minutes of their meetings, which substantiated their factual case (see at [136]). Accordingly, in various key respects, Trower J accepted the Defendants’ evidence, supported as it was by the documentary record, over the case theory put forward by Mr Hughes, describing Mr Hughes’ case variously as “fall[ing] well short of establishing a prima facie case” (at [180]), “based on no more than unevidenced suspicion” (at [181]), and “implausible” (at [185]).

Nikki Singla KC and Caspar Bartscherer acted for the successful Second to Fifth Defendants instructed by Parham Kouchikali at Winston Taylor.

For those who want to hear more about this case, Nikki and Caspar will speak about the interaction between the English proceedings and parallel unfair prejudice proceedings in the Isle of Man as part of the Wilberforce Commercial Litigation Conference 2026.

Read the full judgment