Abouraya v Sigmund

The claimant sought permission to continue proceedings as a double (multiple) derivative claim on behalf of Triangle Metals & Minerals Limited (Triangle UK) and for permission to serve out of the jurisdiction under CPR 6.36. The court held that Part 11 of the Companies Act 2006 did not apply because the claimant was not a member of the company in which the causes of action were vested and the holding company was foreign, but that the common law jurisdiction to entertain double derivative claims remained available. The court restated the governing principles (drawing on Prudential Assurance v Newman Industries, Foss v Harbottle and related authorities): a claimant must establish a prima facie case that the company is entitled to the relief claimed and that the action falls within the exception to the rule in Foss v Harbottle (wrongdoer control and the wider equitable concept of fraud or an inability to ratify the wrong).

Applying those principles, the judge found a prima facie case that Triangle UK might have a claim in respect of the UMCOR contract but was uncertain as to the payments made to Triangle Switzerland; importantly the claimant failed to establish prima facie that the alleged wrongdoer had personally benefited or that the holding-company shareholder (the claimant) had suffered reflective loss such as would justify a derivative action. The claimant’s evident motive was to protect his position as a creditor in separate proceedings against Triangle UK; the court considered that permitting the derivative claim for that purpose would be an improper use of the procedure. For case management and practical reasons, including the proximity of the trial of the claimant’s Queen’s Bench action and an unresolved issue as to the beneficial ownership of the transferred share, the court refused permission to continue the derivative claim.

The claimant, Waleed Abouraya, and the defendant, Ms Anja Sigmund, were the two registered shareholders of Triangle Metals & Minerals Trading Limited (Triangle HK), the holding company of Triangle Metals & Minerals Limited (Triangle UK). The claimant sought permission to continue an action against the defendant as a derivative claim on behalf of Triangle UK (a double or multiple derivative claim) and sought permission to serve out of the jurisdiction. The alleged wrongs were payments made by Triangle UK to Triangle Switzerland and the diversion of a business opportunity (the UMCOR contract) to Triangle Switzerland. The claimant also pursued separate creditor claims against Triangle UK in the Queen's Bench Division (the QB action).

Nature of the application: permission to continue a double derivative claim and for service out of the jurisdiction.

Issues framed by the court:

• whether Part 11 of the Companies Act 2006 applied and whether a double derivative action is maintainable;
• the common law criteria for permission to bring a derivative action (prima facie case that the company is entitled to relief; that the action falls within the exception to Foss v Harbottle);
• whether the claimant had a legitimate interest to bring the claim given the dispute over the beneficial ownership of the share registered in his name;
• the effect of the claimant’s personal litigation and motives (his QB creditor claim) on the appropriateness of granting permission; and
• case management considerations, including trial timing and overlap with the QB action.

Reasoning and outcome: The court held that Part 11 did not apply because the claimant was not a member of Triangle UK and the holding company was foreign, but endorsed the availability of double derivative claims at common law (following Universal Project Management Services v Fort Gilkicker and Waddington). The claimant had to show a prima facie case both that Triangle UK was entitled to relief and that the case fell within the Foss v Harbottle exception. The judge accepted there was a prima facie case in relation to the UMCOR contract and was prepared to accept a prima facie case as to the payments viewed solely from Triangle UK’s position, but rejected that the claimant had established the necessary prima facie showing that the defendant personally benefited or that the claimant, as shareholder of the foreign holding company, had suffered the reflective loss necessary to justify the derivative procedure. The claimant’s predominant motive was to protect his position as a creditor in separate proceedings; allowing the derivative claim for that purpose would be an improper use of the procedure. In addition, case management and practical considerations (the imminent QB trial, the risk of wasted time if the QB action failed, and an unresolved substantial issue as to the beneficial ownership of the relevant share) made granting permission inappropriate. Accordingly the court refused permission to continue the derivative claim. The judgment does not state a determination of the CPR 6.36 service-out application.

This is a first-instance decision. Permission to continue the proceedings as a derivative claim on behalf of Triangle UK was refused. The court concluded that although double derivative claims are maintainable at common law and there was a prima facie case as to the UMCOR contract (and doubt as to some payments), the claimant failed to establish the necessary prima facie showing that the alleged wrongdoer personally benefited or that the shareholder had a sufficient reflective loss to justify the derivative procedure; further, the claimant’s motive as a creditor and case management considerations made permission inappropriate.