From 9 July 2018, derivative actions commenced in Bermuda may not be continued without leave from the Supreme Court. Until now the right to pursue claims derivatively was governed exclusively by the common law, and in particular the various exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461. The introduction of a formal requirement of judicial leave brings Bermuda into line with other common law jurisdictions such as the Cayman Islands and BVI, and should provide additional protection against frivolous or vexatious shareholder claims.
The requirement comes by way of amendments to the Rules of the Supreme Court 1985. A new Rule 12A has been added within Order 15, in terms which replicate an equivalent provision in the Cayman Islands’ Grand Court Rules 1995. Notable aspects of the new rule include:
- The application is one for leave to continue proceedings, rather than to commence them, and is therefore made after both the writ has been filed and a defendant has entered an appearance.
- It must be brought within 21 days of the date of service of the statement of claim or the entry of the first appearance – whichever is later. If the plaintiff does not apply within that period, any defendant who has entered an appearance may apply to have the claim dismissed.
- The claim must be supported by an affidavit verifying the facts on which the claim and the entitlement to sue on behalf of the company are based.
- The obligation to file a defence is suspended until the leave application is determined.
- On the hearing of the application the Court may (a) grant leave to continue the action, for such period and upon such terms as it thinks fit; (b) dismiss the action, or (c) adjourn the application and give directions for the joinder of parties, the filing of further evidence, discovery, cross-examination of deponents and otherwise as it may consider expedient.
- The plaintiff may seek an indemnity out of the assets of the company in respect of costs incurred or to be incurred in the action, with such application to be heard at the same time as the leave application.
If recent Cayman authority is to be followed, leave under Rule 12A will not be required for the commencement of derivative proceedings in the name of a Bermudian company in another jurisdiction: see Top Jet Enterprises Limited v Sino Jet Holding Limited [FSD 106 of 2017 (NSJ)].
It is not clear whether leave would be required in order to continue a multiple derivative action in Bermuda. The Bermudian judiciary has not yet recognised the availability of such claims, but given the widespread acceptance in other jurisdictions that they now form part of the common law, it seems probable the same approach would be adopted in Bermuda if the opportunity arose. However Rule 12A applies to actions “begun by writ by one or more shareholders of a company where the cause of action is vested in the company and relief is accordingly sought on its behalf”. On its face that requires the claimant to be a shareholder of the company which has suffered loss. The identical Cayman Rule has been interpreted as extending to multiple derivative actions – see Renova Resources Private Equity Ltd v Gilbertson and Others [2009 CILR 268] – but the authorities do not seem to explain the basis for that.
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