Airey v Cordell & Ors

This is an application by the claimant for permission to amend his Particulars of Claim to plead a new claim and secondly to carry on the claim as a derivative action on behalf of the fifth and sixth defendants against the first to fourth defendants. There is no dispute about the amendments and I have already given permission for those amendments to be made and I will be referring to the claim as it is reformulated in the course of this judgment. The background is helpfully (and I think sufficiently) set out in the skeleton argument filed on behalf of the claimant.

He is a minority shareholder in the fifth defendant, Hills Number Plate Holdings Plc. The sixth defendant, Hills Number Plates Limited, is a wholly owned subsidiary of the fifth defendant and the operating company of the group. They are said to be UK market leaders in the manufacture and sale of vehicle licence plates and number plate components with approximately 75 employees and operating sites in Birmingham and Glasgow.

The fifth and sixth defendants had developed and applied for patents in relation to the Hilltech number plates. The Hilltech method of number plate manufacturing allows components to be housed discretely in the rear of the plate and hidden behind the vehicle registration details. Using the patent pending Hilltech number plate and radio frequency identification (“RFID”) technology, the fifth and sixth defendants had developed a product known as E-plate. E-plate is a registered trademark of the sixth defendant. An electronic tag embedded in the E-plate allows details of vehicles and their movements to be monitored highly accurately. It offers, according to the claimant, huge potential for the future worldwide commercial exploitation of electronic vehicle identification. According to him, the fifth and sixth defendants have already entered into arrangements to market and distribute E-plate technology in many countries throughout the world.

More contentiously perhaps he says that the fifth and sixth defendants have also expanded their operation to include the development and sale of other electronic technology products, including non number plate applications of the chip developed for use in the E-plate. Examples of the product, he says, include bar code scanning systems for quality tracking and manufacturing purposes and electronic tags to monitoring moving assets. The first to third defendants, together with the claimant, are the shareholders and directors of the fifth defendant, the third defendant holding his shares through a corporate vehicle.

The development of the technology has involved and will involve critically the input of a Mr Boden. As the first defendant says in his witness statement:

“During 2003 he [Mr Boden] introduced us to a company that he was advising that required RFID to track aluminium cores for the print industry. He proposed recommending use of the RFID tag that had been developed for us to use with the Electronic Plate on the basis that he would be paid a commission of £1.00, from a sale price of £8.00, for each device sold and we have recently received an order for 5000 devices from that customer.

… by April 2005, I had agreed with Marcus Boden that he would come and work full time for us and introduce us to his contacts waive previously agreed commission provided that he became a director and received a substantial share holding in a company for which I would obtain adequate financing that was set up to exploit the RFID market with our Electronic Plate as one of its products. By adding Marcus Boden’s expertise and contacts to our sales team, we would obtain some income in the first year from sales of other RFID products.”

It is worth noting at this stage also that in a clearance letter to the Inland Revenue in relation to a de-merger proposal, BDO Stoy Haywood on behalf of the company stated that in addition to its core business of manufacturing and sale of vehicle licence plates:

“For a number of years, the group has also been developing electronic technology products. Examples include bar code scanning systems for quality, tracking and manufacturing purposes and electronic tags for monitoring moving assets”,

the group there being the D5/D6 group.

There is no evidence from Mr Boden about what corporate structure he is or is not prepared to work in. There is nothing to support a suggestion, apart from a statement which might be thought to be self-serving in correspondence emanating from the defendant’s advisers, that he will not work in a company in which the claimant is a shareholder. Indeed, that would be inconsistent with the fourth proposal (which I will come to in due course) which the defendants have put forward.

There have been four proposals by the defendants for dealing with the future involving the development of the technology through a new company, D4 as it turns out, that is E-plate Limited, a company bearing the same name as the product produced by D5 and D6.

The claimant complains that each of these proposals involves the first to third defendants acting in breach of their duties as directors or acting oppressively as shareholders. He says that the actual use made by the fourth defendant of the technology has already resulted in an actual breach of duty in respect of which the fourth defendant must account to the fifth and sixth defendants, in particular since there has been an unauthorised, or at least a not properly authorised, use of trademarks belonging to D6.

The defendants say that the claimant’s real complaint, as the evidence shows, is not so much that the company is being deprived of the benefit of the opportunity to develop the technology but that he, the claimant, is not being allowed to share in the possibility of exploiting it, a complaint which they say is addressed by the fourth proposal. That may be so, but the way as a matter of legal analysis in which the claimant perceives that he can share in the opportunity, is to make sure that it is retained by the fifth and sixth defendants, whereas under a section 459 petition, which is an alternative remedy that the defendants suggest the claimant ought more properly to be pursuing, although he might have his shares bought out on the basis that the assets remain within the fifth and sixth defendants, he loses the speculative right to share in the long-term gains and it is his evidence that he wishes to retain that long-term possibility.

The defendants for their part say that their latest proposal will provide the claimant with precisely that. He will retain initially the same proportionate share as he has in the fifth defendant and has, according to the defendants, better rights overall than he currently has in relation to the fifth defendant. I say “initially”, because outside investors will need to come in and his shareholding will be diluted, and that dilution, although it would also need to take place in relation to a corporate entity in relation to a business carried on within the fifth defendant or sixth defendant itself, would have a rather different diluting effect.

However, an alternative approach which, if it were commercially viable, could not be a matter of complaint by the claimant, would be if the new entity were initially a subsidiary of D5 and outside investors came in to that initial subsidiary as joint venturers and shareholders. The dilution then would be exactly the same as is going to occur under the fourth proposal.

The claimant for his part says that he does not understand why the new company cannot simply be made a subsidiary with the outside investor coming in in the way which I have just indicated. The defendants say in response to that that the economic health of the fifth and sixth defendants is poor (a matter of dispute) and that investors would not be prepared to come in. As to that there is no evidence from the proposal investors that they would or would not be prepared to do so.

The proposals themselves are set out in the pleading and in the skeleton argument on behalf of the claimant. I am afraid I need to cover them, in particular the fourth one.

The first proposal was notified to the claimant in October 2005. Under this proposal, the fourth defendant (of which the first to third defendants would own over 80 per cent of the issued share capital and the claimant would own none) would acquire a licence to produce, manufacture and market E-plate technology from the fifth and sixth defendants. Unnamed investors would lend £600,000 to E-plate Limited, the fourth defendant, as a condition of subscription for the balance of the issued share capital for which they would subscribe.

On 19 October 2005, the claimant was informed that no shares had been allocated to him but that he could invest as a financial investor if he provided a self-certification certificate, and in this sense he was being treated differently and less beneficially than the first three defendants who were getting their shares at par. He made attempts to obtain further information in relation to that proposal so that he could satisfy himself why the matter was not being pursued as an opportunity through the fifth and sixth defendants and that it was a bona fide transaction for their benefit. He considered that the response in relation to the disclosure was wholly inadequate. First of all, no legal or financial advice had been sought; secondly, the proposed new investors were not offered the opportunity to invest in D5 or D6 or a subsidiary and, according to the claimant, the opportunity should have been structured in a way which allowed D5 and D6 and not D1 to 3, who he says were in a clear position of conflict, to maintain majority ownership.

There was an adjourned EGM on 18 November 2005 when the information that the claimant sought was again refused. The first defendant indicated that a licence agreement between D5, D6 and D4 would be entered into very shortly, that he personally wanted nothing to do with the claimant and in relation to the possibility of litigation, was told to put up or shut up. The resolutions were passed by the votes exercised by the first three defendants. These resolutions provided for the licence which I have mentioned and for amendments to the directors’ service contracts so that they would be able to spend some of their time working for the fourth defendant with an anticipated but unspecified charge back for their time.

The claimant received no answer to the question whether new investors would invest other than in the fourth defendant and there is before me no evidence from any of those investors.

The second proposal arose following the EGM. A new proposal was made on 22 November 2005 under which the claimant would be permitted to take shares in the fourth defendant. This was conditional on 100 per cent approval. The claimant did not approve it and this proposal has been abandoned.

The third proposal followed on 28 March by which time, on 23 November, the claim in this action had been issued and on 5 January this application had been issued.

On 28 March the claimant was notified that a further EGM of the fifth defendant was being convened for the purpose of considering three ordinary resolutions. At this time of course he had no shareholding in the fourth defendant. The first resolution was to rescind the resolutions concerning the licence and employment contracts which had been passed on 18 November, approving the acquisition of the shares in the fourth defendant held by the first to third defendant and the outside investor, Parr, then, following Inland Revenue Clearance and either the sanction of the court or approval of all shareholders, to demerge the fourth defendant from the fifth defendant to the shareholders, including the claimant, of the fifth defendant.

On 6 April 2006, this application was further adjourned by consent. The adjournment was on the basis that disclosure would be given. When it was provided, it showed that legal advice had in fact been taken shortly before the first proposal which indicated the risks of complaint by minority shareholder. It revealed that no valuation advice was obtained prior to the first proposal, which had been contrary to the legal advice given and that no financial advice was obtained as to the possibility of pursuing the exploitation of the E-plate technology within the Hills group itself. Finally, it did not disclose any documentary evidence such as minutes of board meetings of any consideration by the board of such a possibility. There were discussions between the parties’ advisers about the third proposal, but it was eventually abandoned.

The fourth proposal arose out of a letter dated 3 July 2006. The first three defendants’ solicitors indicated for the first time that the fourth defendant had not, contrary to the resolution which I mentioned, been acquired by D5 and D6. The reason given was that the accounts to 30 June would show the expenses and losses removed from the group. There was no indication of any other reason for the immediate transfer of the shares not having taken place. In relation to this proposal it is remarked by the claimant that the witness statement of the first defendant, dated 3 July 2006, indicated that the fourth defendant “will continue with its RFID business and will probably act as agent for the fifth and sixth defendants in the event that it finds prospective customers for Hilltech and Hill Security fixings”. By their letter of 4 July, the first three defendants’ solicitor indicated that “E-plate has not become the subsidiary of Hills and there seems little likelihood of this happening in the future”. It was pointed out that this was contrary to the resolutions passed by the votes on 20 April. It would appear to be contrary to the terms of employment contracts of the first two defendants, and that it, on the view of the solicitors, involved a breach of duty of the kind which had previously been adumbrated with the directors improperly appropriating to themselves property or advantages belonging to the fifth or sixth defendants or diverting business to themselves which ought to be given to those defendants.

It was pointed out to me that E-plate is a registered trademark of the sixth defendant, but nonetheless the first three defendants consider it appropriate to carry on business through D4, which bears the name E-plate Limited, and it is suggested that that is the clearest possible evidence of breach of fiduciary duty giving rise to a claim for passing off and breach of trade mark.

On 6 July 2006, Lewison J granted permission to continue the action for the purposes of obtaining disclosure and information relating to this fourth proposal, pursuant to which the first defendant provided a further witness statement indicating that the fifth and sixth defendants have no present intention to grant a licence to the fourth defendant. The fourth defendant would focus on active RFID devices where the tag had its own power source not requiring an expensive network of readers to activate it. It is noted on behalf of the claimant that the E-plate is a form of active RFID device.

The first defendant identified a number of commercial applications of RFID technology, including the managing, the processing and tracing of cores holding newsprint, marine technology, bus management services, ship and containers at ports and identification of vehicles, tyre pressures and axle loadings for commercial vehicles. He does not explain on whose behalf that identification had been effected. The fourth defendant, according to the first defendant, would like to offer electronic plates for sale outside the United Kingdom. There was no current proposal for the fourth defendant to undertake any agency activities for the fifth and sixth defendants. If such a decision were taken, solicitors would be instructed to draw up an appropriate agreement and proper commission structure and that no legal advice had been obtained in relation to E-plate to the fourth proposal.

The proposal is identified in the claimant’s skeleton as involving the following. The first three defendants continue to look through D4 to exploit the E-plate product developed by the fifth and sixth defendants in the future outside the United Kingdom, albeit now through some form of agency relationship rather than through a licence agreement. The terms of the agreement will be agreed in the future. The business of the fourth defendant is separate and distinct from that of the fifth defendant. He says that the fifth and sixth defendants had never been in the RFID market and have only devised a form of number plate that is capable of having an RFID tag concealed in it.

I have already referred to what the first defendant said about Mr Boden and the fact that the fifth and sixth defendants had already secured orders using the RFID tag developed in relation to the print industry. I should now look at the new pleading.

Paragraph 1 explains who the fifth defendant is and what its shareholding is, in particular it shows Mr Airey, the claimant, with 8.6 per cent holding. The sixth defendant is the wholly owned subsidiary whose objects were to manufacture and sell number plates for motorcars and motorcycle, road signs, direction indicators, street signs and name plates of every description and wider objects stated in the Memorandum of Association. Paragraph 3 deals with the claimant’s own position and how he became a shareholder pursuant to a management buy-out. In paragraph 4 he describes the core business of the group and the Hilltech plate.

In paragraph 4.3 he says:

“A further feature of the Hilltech plate is that electronic components can be discretely housed in the back of the plate. According to a number of press articles, the information in relation to which appears to emanate from Plc and/or Hills, in order to exploit the Hilltech technology and as an extension thereof Hills has over the past 4 years and at a cost of over £1m developed technology known and marketed as e-Plate to … with an electronic tag. This technology is known as Radio Frequency Identification, abbreviated as RFID.”

Later in that paragraph:

“It is averred that the ability to exploit e-Plate technology on a worldwide basis offers a potentially highly valuable business opportunity for Hills and Plc.”

Paragraph 5 asserts various fiduciary duties on behalf of the directors. Paragraph 6 deals with the incorporation and shareholdings in E-plate, the shareholders being the first two defendants, Mr Boden and an outside investor, Harringe Proprietary Limited. Mr Airey, the claimant, is not a shareholder. The directors are again Mr Cordell, Mr (inaudible) and Mr George, who is the third defendant, and Mr Boden. It then sets out the four proposals which I have already gone through. Paragraph 8 sets out Mr Airey’s attempt to obtain information which I think I have already dealt with sufficiently.

Paragraph 9 deals with the EGM on 18 November. The amendment introduces a new paragraph 9(a) which deals with the second proposal and 9(b) with the third proposal and 9(c) with the fourth proposal.

Paragraph 10 contains the grounds of complaint. 10.1 relates to the first proposal which has now gone and I suppose is put there to show how the directors had behaved in the past, but the first proposal did not come to fruition and whether or not it would have been a breach of duty to implement it cannot give rise to any claim. Paragraph 10.4:

“It is averred that in failing to procure the transfer of the shares held by them and Harringe Pty Limited to Plc and/or Hills and/or in continuing to act as directors of e-Plate in accordance with the fourth e-Plate Proposal…”

(that is the fourth proposal I have mentioned):

“… and in the manner indicated in Mr Cordell’s fifth witness statement of 28^th July, the Directors have acted and/or propose to act in breach of their fiduciary duties owed to Plc and Hills in that they: Acted and propose to act otherwise than in good faith in the best interests of the Companies; Placed and propose to place themselves in a position in which there is a possible conflict between the interests of the Companies and their personal interests and the interests of e-Plate, a company in which they will have a controlling interest of which they are directors;”

Then, abbreviated, they are going to seek to exploit RFID opportunities which they came across in the course of carrying out their functions as directors of the fifth and sixth defendants and in circumstances where those companies have already taken steps to exploit RFID opportunities in applications other than number plates. There is a complaint about the way that the fourth E-plate proposal is structured to benefit themselves at the expense of the companies.

“The fourth e-Plate Proposal could and should have been structured in such a way that Plc or Hills [the fifth and sixth defendants] should have maintained the majority interest rather than the Directors or their creature companies. Threatened to infringe the registered trade mark of Hills in “e-Plate” and/or to pass off the goods, services and business of Plc and/or Hills by allowing e-Plate Limited to bear that name and trade using that name; Have acted contrary to the resolutions passed by them as members of Plc to procure that the shares they hold directly or indirectly in e-Plate be transferred to Plc at par; Threatened to act in breach of their contract of employment, the variation of which contracts was rescinded.”

Reference is made to Lewison J’s order; at the stage of this amendment, no such legal advice as the judge ordered to be disclosed had been disclosed, so the claimant therefore reasonably apprehended that no or no adequate legal advice has been obtained as to the propriety of the fourth proposal.

In paragraph 11:

“By reason of the Directors’ and Harringe Pty Limited’s holding of 91.4% of the issued share capital of Plc and their control of the board of each of the Companies, it is averred that the Directors control the Companies and will not permit an action to be brought in the name of the Companies in respect of the breaches and anticipated breaches of duties.

It is further averred that the approval of the Licence Agreement and the variation of their employment contracts were not acts which are ratifiable by the Directors and Harringe Pty Limited through the exercise of their own voting rights as shareholders. It is further averred that the entering into the Fourth e-Plate Proposal is not an act which is ratifiable by the Directors...”

The relief sought, paragraph 12:

“It is averred that by reason of the aforesaid breaches of duty on the part of the Directors, the fourth E-plate proposal involves a breach of fiduciary on the part of the directors.”

It did say “and is voidable and liable to be set aside”, but that has been deleted by amendment. What this paragraph claims is not relief, although it appears under the heading relief, but it is perhaps introductory. It is relief so far as concerns the future, which in any event could be personal relief sought by the claimant to restrain the company from implementing transactions which would be a breach of the fiduciary duty of the persons who procured them.

In 12.2.1 it is said that the directors are liable to account for any gain which they had made or will make directly or indirectly by the fourth E-plate proposal and are jointly and severally liable with other persons to compensate the companies in equity for loss or damage resulting from that. In the further alternative, E-plate is liable as constructive trustee for any monies and benefits received pursuant to the alleged breaches of duty.

In the claim for relief, Mr Airey seeks an order that the directors do transfer to the fifth and sixth defendants any shareholdings in E-plate in which they have a direct or indirect interest. That is perhaps a rather speculative result flowing from a breach of duty, even if a breach is established. Whilst I can understand that E-plate itself could be made liable as a constructive trustee in respect of something perhaps, it is not easy to see how the shareholding in this company could be made subject to such a claim. I do not decide that it is not, but it does strike me at the moment as one of the more speculative claims in this litigation.

The defendants accept that there is a prima facie case against them in relation to the E-plate issues but not the RFID technology generally. They must I think accept that the case is in principle within the exception to the rule in Foss v Harbottle. What they say however is that the test to be applied by the court in deciding whether to allow a derivative action to continue is based on what a reasonable, independent board of directors would do. I will come to that aspect later. They say that an independent board would not sue the directors now but they would, counsel submits, wait for developments and, if the fourth defendant were successful, sue for an account of profits. Since the fifth and sixth defendants cannot, according to them, afford to undertake the development of the technology themselves, it is pointless now for the fifth and sixth defendants to sue to prevent exploitation of something which they cannot exploit themselves; it is better to wait and obtain an account of profits later.

The defendants say that the fifth and sixth defendants are not in the RFID business more generally than in relation to the E-plate technology. They say that the fifth and sixth defendants do not own any intellectual property rights in any of the RFID technology and, save for the printing of the core element which I have already mentioned, neither of them have ever been in the business of exploiting RFID technology for any purpose beyond the exploitation of their own E-plate technology.

In contrast, they say that the fourth defendant was set up to exploit RFID technology generally, that is to say beyond just number plates. One of the first and most important of the fourth defendant’s projects they say was to complete the developing and marketing of the E-plate technology worldwide once it had become clear that the fifth and sixth defendants could no longer afford to do so by themselves. The fourth defendant was chosen as an entity able to raise the finance required at a time when there was no realistic prospect that either the fifth or sixth defendants or any subsidiary of theirs could do so. The defendants insist that the licensing was on terms that would amply reward the fifth and sixth defendants for the work that they had done so far. They say that the project has been frustrated by the claimant and say it is of course open to the fourth defendant now to seek other opportunities to exploit RFID technology where it can. That of course is to beg the question as to whether the application of the no profit rule and the no conflict rule, which are notoriously strict in their application, leaves it open to these directors to exploit something simply because the company of which they are directors is not itself able to do so.

I am afraid I must now spend some time reviewing the cases in the light of the submissions which have been made to me about the correct test to apply. The first case is Cook v Deeks where the defendants obtained a contract in breach of duty and were held to be constructive trustees of the benefits of that contract. A subsequent resolution at the general meeting declaring that the company had no interest in the contract was ineffective. It was held that the benefits of the contract belonged to the company and the directors could not validly use their voting power as shareholders to vest it in themselves. The decision turned on the case being effectively an oppression of the minority, but Mr Airey says that that case is really of the greatest support to his own claim in the present case.

In Wallersteiner v Moir at page 391, Lord Denning describes the minority shareholder as the agent of the company and it follows in his view from that, that the agent is entitled to an indemnity. His right is not contractual or quasi-contractual but arises in equity. Buckley LJ dealt with this quite fully in his judgment at page 403 where he says:

“An agent is entitled to be indemnified by his principal against costs incurred in consequence of carrying out the instructions [citing Broom v Hill and Keeble v Woolwich & Leicester]. The next friend of an infant plaintiff is prima facie entitled to be indemnified against costs out of the infant's estate: Steeden v. Walden [1910] 2 Ch. 393. It seems to me that in a minority shareholder's action, properly and reasonably brought and prosecuted, it would normally be right that the company should be ordered to pay the plaintiff's costs so far as he does not recover them from any other party. In all the instances mentioned the right of the party seeking indemnity to be indemnified must depend on whether he has acted reasonably in bringing or defending the action, as the case may be: see, for example, as regards a trustee, In re Beddoe, Downes v. Cottam [1893] 1 Ch. 557. It is true that this right of a trustee, as well as that of an agent, has been treated as founded in contract. It would, I think, be difficult to imply a contract of indemnity between a company and one of its members. Nevertheless, where a shareholder has in good faith and on reasonable grounds sued as plaintiff in a minority shareholder's action, the benefit of which, if successful, will accrue to the company and only indirectly to the plaintiff as a member of the company, and which it would have been reasonable for an independent board of directors to bring in the company's name, it would, I think, clearly be a proper exercise of judicial discretion to order the company to pay the plaintiff's costs. This would extend to the plaintiff's costs down to judgment, if it would have been reasonable for an independent board exercising the standard of care which a prudent business man would exercise in his own affairs to continue the action to judgment. If, however, an independent board exercising that standard of care would have discontinued the action at an earlier stage, it is probable that the plaintiff should only be awarded his costs against the company down to that stage.”

Then at page 405A, he is here considering a suggested procedure in minority shareholders actions for sanction for the continuance of the action and in a costs indemnity, he says this:

“Upon the effective hearing of the summons the court would determine whether the plaintiff should be authorised to proceed with the action and, if so, to what stage he should be authorised to do so without further directions from the court. The plaintiff, acting under the authority of such a direction, would be secure in the knowledge that, when the costs of the action should come to be dealt with, this would be upon the basis, as between himself and the company, that he has acted reasonably and ought prima facie to be treated by the trial judge as entitled to an order that the company should pay his costs, which should, I think, normally be taxed on a basis not less favourable than the common fund basis, and should indemnify him against any costs he may be ordered to pay to the defendants. Should the court not think fit to authorise the plaintiff to proceed, he would do so at his own risk as to the costs.”

At the time of this decision there was no need for a minority shareholder to have the sanction of the court to proceed, provided he could bring himself within the exception from the rule in Foss v Harbottle, he could always proceed as to his own risk as to costs. There was no application of course in Wallersteiner v Moir in relation to continuing the proceedings, and it is quite clear, of course, that had sanction been necessary to continue the proceedings, it would have been given, whatever test was to be applied.

In Prudential v Newman, the Court of Appeal established that the practice should be for the court to determine as a preliminary issue whether a company under the control of those who were practising the alleged fraud on the minority and whether the case should be allowed to continue as a derivative action should be heard as a preliminary issue. There the court said, referring to an earlier case:

“This case highlights what the rule in Foss v. Harbottle is primarily concerned with, namely, is a plaintiff shareholder entitled to prosecute an action on behalf of the company for a wrong done to it, or ought the action to be struck out on the footing that it is for the company and not for a shareholder to sue? That is what Foss v. Harbottle itself was about, and what the first East Pant Du case, 2 Hem. & M. 254, was about. The second East Pant Du case, Atwool v. Merryweather, L.R. 5 Eq. 464, raised a related but different question, namely, if at the end of the day fraud is proved, are the circumstances such that the company is capable of condoning the fraud? Clearly not, if the fraud will only be confirmed by a majority by the use of the fraudsters' own voting power.”

The dividing line between what a majority vote can condone or ratify and what cannot be so condoned or ratified is a difficult one to draw and the many cases are not entirely easy to reconcile. Why did the Privy Council in Cook v Deeks hold that the purported ratification of the directors’ breach of duty by a general meeting where the directors held a majority of the shares was ineffective but the House of Lords in Regal (Hastings) Ltd v Gulliver held that if only the director/shareholders had procured a ratifying vote from a general meeting, their actions would have not been open to challenge? The answer to that is not entirely clear. I do not need to decide it now, but I do need to mention it because of the difficulties in an assertion that, in the present case, matters had been or could in the future be ratified by a general meeting.

The court also said this on page 221, albeit in an obiter passage, but it is much relied on in this case:

“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 exception to the rule, the plaintiff ought at least to be required before proceeding with his 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.”

Just pausing there, I note that the reference is to a prima facie case in relation to (1) and to (2), so it is a prima facie case that the action falls within the proper boundaries of the exception.

“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.”

As I said, it is a minimum of a prima facie case in relation to (1) and (2) so the case may clearly be within the exception to Foss v Harbottle, for instance because, if there is a breach of duty, it is clearly one perpetrated by the majority who are in control, but there may nonetheless be a very weak case on the part of the company itself if it brought proceedings, so that if it did not even amount to a prima facie case the derivative proceedings would not be allowed to continue.

In the present case, if the company has a claim against the directors, the case is clearly within the exception to the rule, but it does not follow that the test, whatever it may be for bringing a derivative claim, is satisfied.

Jaybird Group Limited v Greenwood [1986] BCLC 319, was a claim for an indemnity for costs in a subsisting derivative action where there was no application to strike out the claim. It was held, granting the order down to the completion of discovery and inspection, that in deciding whether or not to grant an indemnity order in a derivative action, the court had to determine whether an honest, independent and impartial board would have authorised the action. That appears from the passage in the learned judge’s judgment at page 321. He refers later in the judgment to the judgment of Lord Denning in Wallersteiner v Moir, and just picking it up at the top of page 323, quoting the last sentence from Lord Denning:

“The master should simply ask himself: is there a reasonable case for the minority shareholder to bring at the expense (eventually) of the company? If there is, let it go ahead.”

Then going to the judge’s judgment:

“I would say here and now that I regard what Lord Denning says in relation to the master as equally applicable to me. But I would stress his comment that this preliminary application should be simple and inexpensive. It should not be allowed to escalate into a minor trial’.”

Notwithstanding that, the hearing in Smith v Croft (No.2) before Oliver J took 15 days.

Then at 327 the learned judge said, in relation to an argument that there was a difference between the type of Wallersteiner v Moir case where it was almost a quasi partnership, the judge says this:

“As to this, I would simply say, as counsel for the plaintiff pointed out, that there is nothing in Wallersteiner v Moir to suggest that the application of the principle which underlay that case is in any way limited to impecunious plaintiffs, and I can well see that, if one had to start to take into account the numbers of possible plaintiffs, their differing interests and so on, one would introduce a factor which would greatly complicate the exercise of the court’s discretion. For my part, I see no reason whatsoever to deprive Jaybird, as to whose finances I have no information whatever, of the sort of protection which was granted to Mr Moir, because I believe the principle to be a principle which is exercisable irrespective of the size of the plaintiff’s interest.”

That is significant in the present case because of course Mr Airey’s interest is only 8.6 per cent. It is quite small. He goes on:

“As to counsel for the second respondent’s third point, he says that if you look at the case realistically, it is not being brought for the company but for the only other shareholder and the only other shareholder should not be protected by the sort of order for which counsel for the plaintiff is asking if, at the end of the day, that other shareholder fails. But here again I find nothing in Wallersteiner v Moir to require me of necessity to take any such element into account, or if I do take it into account, for it to be a decisive element against the making of the order.”

Smith v Croft first came before Walton J. This was a case of the derivative action already commenced where the Master had ordered on an ex parte application a costs indemnity in favour of the plaintiff down to discovery and an inspection. The company applied to set aside that ex parte order. The judge allowed the appeal saying (I read from the second holding in the head-note):

“That, although it was not appropriate to conduct an interim trial as to the truth of the plaintiffs' allegations, the court should have regard to both the agreed and disputed facts in order to assess whether, applying the test of the standard of care exercised by the prudent businessman in the conduct of his own affairs, the action should be allowed to continue at the company's expense; that, accordingly, since it was clear from the undisputed facts that the plaintiffs' action had little chance of success and was being prosecuted against the wishes of the holders of the majority of the independently held shares, it would be unjust to grant the plaintiffs an indemnity for the costs incurred in bringing the action.”

At page 588 he made some trenchant comments about the inappropriateness of bringing the application ex parte notwithstanding that it is what Lord Denning had envisaged in Wallersteiner v Moir. Nothing turns on that for present purposes, but what is more important is what the judge said at letter G at page 590 which supports what is said in the head-note:

“Of course there is no room for a mini trial, of course the court has no ability at this stage to decide the truth of the plaintiffs' allegations. What, however, it can and should do is to look at all the facts, first those which are common ground, then those alleged by the plaintiff but denied by the company, and then those alleged by the company but denied by the plaintiff, and make up its mind. The standard suggested by Buckley L.J. in Wallersteiner v. Moir (No. 2) [1975] Q.B. 373, 404, was that of an independent board of directors exercising the standard of care which prudent businessmen would exercise in their own affairs. Would such an independent board consider that it ought to bring the action?

What he said, I again emphasise he said in relation to costs and not in relation to any application to strike out the derivative action.

After reviewing the evidence, he considered the position of the chairman of the company and whether he could vote or not and he says this:

“In these circumstances this fund cannot fairly be considered as an independent shareholder. I shall have to consider the position of W.T. Ltd. later, but it is obvious from the figures that if this company is to be classed as a genuine independent shareholder, then its voice - at any rate if given upon proper grounds - will as between the independent shareholders be decisive of the matter. For Georgian Investments Ltd. and Sir Reginald Sheffield have both made plain their opposition to the continuance of the action at the expense of the company.”

So there again the judge is focusing on the costs and is not actually saying anything about the action itself proceeding.

In the present case there are no shares which are not held either by Mr Airey or by the majority who are directors said to be in breach of their duties, so that what the judge says is not of direct relevance, but it does show that he is using the independent board test in the context not of whether it is just to allow the action to proceed, but whether it should be allowed to do so at the expense of the company. Whilst one must not lose sight of what was said in the passage I have cited from Prudential that the right to progress a minority action is not to be equated with the absence of grounds for a strike-out in ordinary litigation, the court did there identify the minimum of a good prima facie case. But if it had thought that there was to be an identity between the tests of continuing and action and the test for obtaining a costs indemnity, one might have expected them to say so at that point, and what Buckley LJ says is really inconsistent with the idea that there must always be such a match in the tests.

Barrett v Duckett is a case which helpfully sets out the general rule to identify when a shareholder may bring a derivative action. In this case, the action was struck out because it was not being brought bona fide in the interests of the company but for the personal reasons associated with the divorce of the petitioner from the first defendant. At page 249H

“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 a 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 claim 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.”

In the third of those principles, the judge refers to a proper action being brought. He does not describe what he means by a “proper” action, but he does, in paragraph 6, and I draw attention to this of course because it will feature later, the shareholder is to be allowed to continue where no other remedy is available.

These are general principles but their application must be tempered with the facts of the individual case. There may be special features of the particular case which drive the court to conclude that a derivative action should not be allowed to proceed, notwithstanding that the literal wording of the sixth condition is fulfilled. Indeed, the Prudential v Newman test is the minimum which must be fulfilled, and that is presumably reflected in paragraph 5. But paragraph 5 does not tell us the test of judging how the court is to be satisfied that the shareholder should be allowed to sue on behalf of the company.

Nor does this decision have anything to say about the test to be applied in determining whether a claimant should be entitled to a costs indemnity. The court did say something at page 250G about the possibility of an alternative remedy. They refer to Ferguson v Walbridge and to Fargo v Godfrey. I will not burden this judgment even more with long citation of Ferguson v Walbridge, but both the cases referred to are cases where the facts were that either an independent liquidator could or would be able to bring the action on behalf of the company at that stage or in the reasonably foreseeable future and that it was not necessary therefore for the claimant to be allowed to proceed on her own account, even if she had been bringing the action bona fide in the interests of the company.

Lawrence Collins J had something to say about that in Konamaneni v Rolls Royce. He referred to Barrett v Duckett and said that was a case in which the alternative remedy was a claim by the liquidator since the petition had been presented to wind up the company. Both Beldam and Peter Gibson LJJ considered that the decision whether to pursue an action against directors alleged to have diverted business from the company was best left to the judgment of an independent liquidator. Lawrence Collins J said:

“This is not the occasion to express a final view, but it seems to be that the notion that there must be no alternative remedy expressed in Barrett v Duckett is not an independent bar to a derivative action, but simply an example of a case where there will be no relevant wrongdoer control.”

So Lawrence Collins J was giving a very restricted meaning to the concept of there being no alternative remedy.

In relation to Prudential, in paragraph 31 he says this:

“A dilemma would emerge if the claimant could require the court to assume, as a fact, every allegation made by the claimants, since this would absolve the claimant from the burden of bringing himself within the exception simply by alleging fraud in control. But if the claimant had to prove fraud in the control before he could establish his title to prosecute the action, then the action may need to be brought to a conclusion before the court could decide whether or not the claimant should be permitted to prosecute it.”

So he emphasises the dilemma facing the court which was a dilemma resolved, at least to some extent, by the Court of Appeal in its decision in laying down as a minimum that there had to be a prima facie case. In the present case, it is accepted that there is a prima facie case and that an exception to the Foss v Harbottle principle applies.

What the companies say is that the correct test for allowing the action to continue and for costs too is to be the independent board test and that on the facts a board properly acting would not proceed with this claim. That of itself raises another issue. If the test of a reasonable board is to be applied, it has to be recognised that, in many cases at least, a decision either way could be one which a reasonable board could take. There is a range of reasonable decisions. Where it can be said that no board acting reasonably could decide to take proceedings, for instance because it was wholly disproportionate and cost-ineffective, it will be easy for a judge to apply the reasonable board test. But where there is a range, is he to apply his own view as though he himself were the board, or is he to allow the case to proceed provided that he is satisfied that to do so would be within the range of decisions of a reasonable board? I will need to return to this.

We now have a requirement for permission which is set out in CPR 19.9. There is no reported decision addressing expressly the test which a judge should apply in deciding whether to allow an action to proceed. The rule appears to meet the suggestions of the Court of Appeal in Prudential v Newman, and the suggestions of Buckley LJ in Wallersteiner v Moir. But reference to the Prudential case does not assist in determining, as I have said, the test to be applied in giving or refusing permission, save that a prima facie case is required on both company’s claims and cases falling within the exception to Foss v Harbottle.

Reference to Wallersteiner v Moir, however, does assist. The approach of Buckley LJ from the passage I have quoted in relation to costs reflects the independent board. In particular, if an independent board would have discontinued, the claimant will not get his costs. At page 405 he dealt with his proposals for sanction for a derivative action, albeit in the context of costs protection, but he does talk about the court authorising the proceedings and it is that authority which carries the costs consequence. It would be inconsistent with that approach to costs where there has been no authority, that is to say an approach based on the decision of an independent board, if a weaker test were applied to actual authority which would ordinarily carry a costs protection with it.

Mumbray v Lapper is another decision which I should mention, the decision of HHJ Reid QC sitting as a Judge of this division. In paragraph 1 his approach is to separate the questions of permission to proceed and whether there should be an indemnity as to costs, as indeed CPR 19.9 itself does, and the judge deals with them separately. In paragraph 2 he cites a passage from Nurcombe v Nurcombe, in particular the following:

“It follows that the court has to satisfy itself that the person coming forward is a proper person to do so. In Gower’s Principles of Modern Company Law, 4^th ed, the law is stated, in my opinion correctly, in these terms, at page 652:

“The right to bring a derivative action is afforded the individual member as a matter of grace. Hence the conduct of a shareholder may be regarded by a court of equity as disqualifying him from appearing as plaintiff on the company’s behalf. This will be the case, for example, if he participated in the wrong of which he complains”.”

So conduct can be a relevant issue in relation to a sanction to proceed.

At paragraph 5 he says this:

“In my judgment the true position is that, while the availability of an alternative remedy is a factor, and may well be an extremely important factor, it is not an absolute bar and the fact that it is possible to point to some other alternative method of achieving the desired result does not mean that it is inevitably inappropriate for permission for a representative action to be continued. The central question in any case such as this is “Would an independent board sanction the pursuit of the proceedings?”

Then he deals separately with the costs aspect.

I only need then to refer to the alternative remedies which the judge lists at paragraph 24, he remarks that each of them has a remedy if they see fit under section 459. Before that he has identified other alternative methods pursuant to which, on the facts of that case, the shareholders could have obtained relief.

My conclusion in agreement with Judge Reid is that the appropriate test for bringing proceedings is indeed the view of the hypothetical independent board of directors, but I am also of the view that it is not for the court to assert its own view of what it would do if it were the board, but it merely has to be satisfied that a reasonable board of directors could take the decision that the minority shareholder applying for permission to proceed would like it to take, and I do not think it would be right to shut out the minority shareholder on the basis of the court’s, perhaps inadequate, assessment of what it would do rather than a test which is easier to apply, which is whether any reasonable board could take that decision.

If no reasonable board would bring the proceedings, even though there is a prima facie case, then the court should not sanction the minority shareholder’s action. This may mean that the introduction of a requirement for permission first in the RSC and now in CPR, has narrowed the range of cases which can now be brought compared with the minimum standard that the Prudential case might appear to have laid down and the sort of case which it at least seems possible but Buckley LJ seems to think might have been permitted to continue, not with the sanction of the court but simply to continue at the decision of the minority shareholder at his own risk as to costs.

But it might be said that Buckley LJ did not have in mind the possibility of a strike out of the subsisting claim where there was no sanction by the court. It was certainly not part of his judgment and does not appear to have been the subject of argument.

Finally, I should say that the underlying claim which the claimant wishes to assert on behalf of the company against the directors relates to the exploitation or intended exploitation of certain technology. It is said that there has been a diversion of the opportunity to exploit from the companies to the fourth defendant in which the directors do, but Mr Airey does not himself have a shareholding. There is no need for me to embark, and I do not propose to embark, on the lengthy exegesis of the difficult topic of the directors’ duties in the context of the no profit and no conflict rules discussed by Lewison J in Ultraframe and by myself to some extent in the New Gadget Shop. It is enough, I consider, for present purposes, first to repeat the conclusion of Lewison J in relation to an account for profits which came from paragraph 1355 of his judgment where he said this:

“The law relating to the accountability of a director (or former director) for profits derived from the diversion of corporate opportunities is still developing. As the cases stand it is I think possible to draw the following conclusions:

i)

If a person diverts to himself a business opportunity while in office, he may be liable to account for profits under the “no conflict rule” or the “no profit rule” or both;

ii)

The application of the “no conflict rule” does not depend on establishing that the company has a proprietary interest in the business opportunity that has been diverted;

iii)

After a person ceases to be in office…”

I need not concern myself with that I this case.

In the present case, we are not only concerned with an account of profits, if any are ever made, but with the possible proprietary interests as the result of the imposition of the constructive trust. As I have said, the claimant claims that there is a constructive trust of the shares in D4 itself, whilst not unarguable, as I have said I regard that as one of the more difficult claims. But his case does not depend on that.

The defendants admit that the claims are at least arguable and they say weak, whereas Mr Airey says they are very strong. They say, however, that no reasonable board would, at least at this stage, sue the directors. However, their own approach under proposal 4 recognises that Mr Airey may be entitled to complain if matters simply went ahead with the fourth defendant remaining owned by them and their business partners, to the exclusion of Mr Airey himself. Suppose that that occurred and the fourth defendant made a great deal of money out of, first of all, the E-plate technology, and secondly out of other use of RFID developments, the board of D5 might then think it well worth seeking an account. The curious feature is that the claimant’s claim seeks an account of future profit, but if he obtains such an order, the directors would be unable, probably, to obtain the finance for the venture from outside investors and there would be no profit for which to account.

An independent board would, however, in my judgment, press for some benefit, even at this stage, for the company in return for not taking steps such as obtaining injunctive relief to prevent a breach of duty. As part of that pressure, the board might threaten and might actually take proceedings. But, if the board were to receive an offer which it ought to accept, it would then withdraw the threat of proceedings. It seems to me that the board in those unusual circumstances would be able to take into account wider considerations.

Certainly the court, in considering whether to allow a derivative action to continue, would be entitled, in my judgment, to do so. As is said in Barrett v Duckett in the fifth of the general propositions set 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 and that he should not be allowed to do so where some other remedy is available.”

It is the availability of an alternative remedy which may have some significance in the light of what I am about to say.

Accordingly, assuming a solvent company, it would be open, so it seems to me, for the allegedly oppressive majority to put forward a package under which the development of the technology and its exploitation could take place outside D5 or D6 or an entity controlled by them but under which the interests of the claimant are protected. By protected I mean that he is given an interest under the new arrangements which adequate reflect his interests in the fifth defendant, had it contrary to the facts, been able to exploit the technology within D5 and D6 itself. If the court is satisfied that the investment cannot take place within the fifth defendant or with the fifth defendant as a major shareholder in the new company, and if the claimant is given a share in the new company which reflects his interest, than an independent board could take the view that it should not spend further resources of the company to achieve any different result for its shareholders or, if that is to confuse to an inadmissible extent, the interests of the company and the interests of the shareholders, then I would say that, faced with such a compromise, the court should not allow the minority shareholder to pursue in the name of the company the claim which will achieve no better a position for the claimant than the protection of its interest in Newco.

On the facts of the present case, I consider that at present it cannot be said that no reasonable board would not pursue the directors by litigation. Neither the third or fourth proposals are, I think, sufficiently developed to be capable of acceptance so as to become a binding contract. I rather feel that I have not heard adequate argument to determine whether, on the approach which I have attempted to articulate, there is sufficient to impose a deal on the claimant. I have not been taken through the proposals in the detail which I would wish and, to be fair to counsel, the focus of the case was not on what I now think is the appropriate way to resolve it.

It seems to me, therefore, subject to anything that you want to say, that I should allow a period of time for the parties to see if they can agree a detailed proposal or, if not, to give the opportunity to the defendants to put forward a final proposal which they consider meets the criterion which I have suggested. If the court (and I will reserve this matter to myself) is satisfied that such a proposal affords adequate protection for the claimant, he should not, in my judgment, be allowed to proceed with his derivative claim.

Subject to any further submissions, I hope I have given an indication of the principle which I wish to see applied and I would stay this action for a period to allow that process to be completed.

You must forgive me, when I was giving my judgment, I skipped a paragraph in my notes and there is a big gap in it which might have struck you, because I failed to deal expressly with quite a lot of what you said, and before the passage where I got on to the law, I had intended to include reference to Mr Atkins’ skeleton argument at paragraphs 10 onwards, effectively, where he deals with the weakness of the claimant’s case. If I can just spend three or four minutes giving the big of the judgment that I missed out and it can then be inserted where I had got to before getting onto the law.

“In paragraph 9 it is explained that the fourth defendant was set up to exploit the RFID technology generally, ie, beyond just number plates. One of the first and foremost and most important of D4’s projects was to complete the development, marketing of E-plate technology worldwide. Once it had become clear that D5 and D6 could no longer afford to buy themselves. D4 was chosen as an entity able to raise the finance required at a time when there was no realistic prospect that either D5 or D6 or any subsidiary of theirs could do so, and the defendants insist on terms that would reward them for their work, and that would have been frustrated by the claimant according to them.

In paragraph 10 of his skeleton, Mr Atkins says it is hard to see how the first three defendants have a conflict of interest in allowing the fourth defendant to development the applications of RFID in marketing spheres of business that are wholly unrelated to the businesses of D5 and D6. The defendants may say that, but it seems to me on the evidence that I have seen, that there is a well-arguable case that their activities went far beyond RFID restricted to number plates; there was a technology being developed by Mr Boden who was then a consultant. It is at least an opportunity that the companies could have been intending to exploit, and it seems to me to be a well arguable case that the directors were in breach of their duty in allowing that opportunity to go elsewhere, even if, which is not established on the evidence yet, that D5 and D6 could not themselves progress it.

Then it is said that it is hard to see how any of the first three defendants are seeking to exploit RFID opportunities which they came across in the course of carrying out their functions as directors. It is accepted that there has been one such opportunity, but it is said that the other opportunities are not within that head. It is said in the skeleton, “As noted above”, the claimant has been able to identify only one such opportunity out of five relied on, and given the differences between the businesses of D4 on the one hand and D5 and D6 on the other, it is highly unlikely that any of the others would have come to any of D1 to D3 as directors of D5 and D6, given the nature of those other opportunities, they are far more likely to have come to them as directors of D4.”

As I say, I do not really understand how that can be said with such certainty. It may be right on the facts, but it is at least strongly arguable, in my judgment at the moment, that there would be an obligation to account.

It is then observed in paragraph 11 in relation to the suggestion by the claimant that the fourth proposal had been structured in a way designed to benefit themselves at the expense of D5 and D6. It is said that D4 was owned largely or if it was owned by D5, then the business proposals would not get off the ground because Mr Boden would not work for them and that the finance would not be attracted.

I have already observed that there is no evidence from the investors or Mr Boden about that, but that is to beg the issue of the strict application of the duties on fiduciaries, and it may be, as in older cases, that the directors themselves are the only people in the world, if the no conflict rule applies, who cannot have the benefit of these transactions. It is a different matter when it comes to the company wishing to be able to say that it is in its own interests that these directors should be allowed to take what might apparently be its own opportunity on the footing, first, that it cannot carry it out itself, and secondly that there would be synergies which might help its own business if the other companies were allowed to proceed. It may be, I do not decide, that there are ways in which that could have been achieved and could have been achieved in a way which was binding on Mr Airey. Such procedures may have involved an application to the court for sanction. However, that has not been done, and retrospective validation will be a different matter. It is not something, in my judgment, that I should take into account on this application.

Some other points were made and it is submitted that, in the light of the difficulties of the claims, no independent board acting reasonably could properly authorise the use of the fifth defendant’s, allegedly scant, funds to pursue it. It is weak and, in any event, may yield nothing of value at the end of the day.

The second head of opposition to the claim is based on there being no real benefit to the company, which is what I have just touched on. When I get to the end of this judgment (which of course you have already had) the conclusion will be that there is another and more appropriate way forward which recognises the interest and concern that the claimant has and to which the “no real benefit to the company” point is relevant.

The third reason for resisting the claim relates to alternative remedies, in particular, Mr Atkins relies on unfair prejudice petitioners providing a more appropriate relief, given that apparently from his evidence, Mr Airey’s concerns have been that he is not being treated fairly by the exercise of the directors in the exercise of their powers. It is pointed out that he has actually considered selling his shares in any event.

However, even taken all Mr Atkins’ submission into account, it seem so to me that Mr Airey is entitled to say today that the remedy he wants is one which will preserve his right to a speculative profit in the future. Even if he himself does not want to stick in there, it may be that he would be able to sell to somebody who does want to do so. More importantly, his evidence is that he wants himself to have the benefit of such future profit as there may be, and it would be wrong if he can preserve that right for a minority shareholder’s action, properly brought and pursued to force him into a section 459 remedy.”

That is what I wanted to insert and I am very sorry I skipped a note.