NICHOLAS PRINSE v LANDMASTERS (OVERSEAS) LTD & Ors

The claimant sought permission to continue a common law single derivative action (under Cypriot law) on behalf of Landmasters (Overseas) Ltd and a common law double derivative action (under English law) on behalf of Landmasters Developments Ltd, together with proprietary and freezing relief against Landmasters Developments UK Ltd and personal freezing relief against two individual defendants. The court lifted the stay imposed in 2018 for the purpose of determining the applications but refused permission to continue either derivative claim. The judge held that under the common law the procedural device of a derivative claim requires wrongdoer control and although a majority shareholder can, in very exceptional circumstances, bring a derivative claim, the claimant here had voluntarily agreed by consent court orders to suspend the exercise of his voting rights; accordingly he was not in the exceptional position of an "aggrieved minority" and permission was refused.

The judge also found that, on the evidence, the claimant had shown at best a “good arguable case” but not the necessary risk of dissipation to justify freezing relief, and there was insufficient evidence of any identifiable fund to support a proprietary injunction against LDUK. The existing interim proprietary and freezing orders therefore fell away with the dismissal of the claims.

Background and parties:

• Claimant: Mr Nicholas Prinse, registered as 85% shareholder of Landmasters (Overseas) Ltd (a Cypriot company) following a contested transfer of shares by his grandfather Costas in July 2018.
• Defendants: Landmasters (Overseas) Ltd; Landmasters Developments Ltd; Mr George Nicolaides; Mr Chris Nicolaides; Mr Christopher Takis Christoforou. Non-defendant respondent: Landmasters Development UK Ltd (LDUK).
• Properties at issue: 39 Camden Mews (owned by Overseas) and 65 Inverness Terrace (long leasehold owned by Landmasters).

Nature of the application:

• The claimant applied for continuation of derivative and double derivative claims, permission to lift a stay imposed by a 2018 consent order, amendments and joinder of LDUK, and interim proprietary and freezing relief (and disclosure and ancillary orders).

Procedural posture:

The matter was first stayed in 2018 by a consent order while Cypriot proceedings disputing the share transfer were pursued. Interim proprietary and freezing orders were made subsequently (in respect of sums said to belong to Landmasters) and then varied and in parts discharged on later return dates.

Issues framed by the court:

• Whether the English court should lift the 2018 stay for the purposes of the present applications (CPR 3.1(7), CPR 19.9(4)).
• Whether permission should be given to continue the common law single derivative claim (Cyprus law) and the common law double derivative claim (English law) given the rule in Foss v. Harbottle and the requirement of wrongdoer control.
• Whether interim proprietary or freezing relief should be continued or granted against LDUK and/or against the individual defendants (tests for freezing orders and proprietary injunctions).
• Whether amendments and joinder should be permitted and whether disclosure should be ordered.

Court’s reasoning and conclusions:

• The stay was lifted for the purpose of deciding the applications because circumstances and the relief now sought in England differed from those in 2018.
• On the law of derivative actions the court applied common law principles (the Foss v. Harbottle exceptions, the doctrine of wrongdoer control) and followed authority recognising double derivative claims at common law and the settled practice of requiring permission to continue such claims. Though a majority shareholder can in very exceptional cases bring a derivative claim, the claimant here had earlier consented to orders (including covenants not to remove directors or call meetings) which prevented him exercising his voting rights; he had therefore not been prevented from exercising control by the wrongdoers but had agreed to that state of affairs. For that reason, and having regard to judicial comity with the Cypriot court then seised of the substantive dispute about the share transfer, the court refused permission to continue both derivative claims and dismissed the action.
• On interim relief, the claimant had established at best a good arguable case but failed to show a real risk of dissipation by the respondents; there was delay in bringing the freezing application after the forensic account, and there was no recent evidence of dissipation. Further, there was insufficient evidence of any identifiable fund in LDUK’s bank account to support a proprietary injunction. Accordingly, the freezing and proprietary orders would not be renewed and in any event fell away on dismissal.
• The court declined to order early disclosure or grant other ancillary relief. The judge commented on conduct and procedural irregularities by the claimant’s solicitors but did not find them decisive to the outcome.

Wider observations:

• The judgment emphasises the continued importance of "wrongdoer control" under the common law derivative action, the limited and exceptional circumstances in which a majority shareholder may bring such a claim and the relevance of prior consent orders and parallel foreign proceedings to the exercise of the court's discretion.

This was a first instance decision. The court dismissed the claim: permission to continue both the common law single derivative action (for Overseas) and the common law double derivative action (for Landmasters) was refused. The judge held that the common law derivative remedy requires wrongdoer control and that the claimant, having entered into consent orders which suspended his voting rights and given the Cypriot court’s continuing jurisdiction over the share-transfer dispute, was not in the exceptional position of an aggrieved minority; furthermore, there was insufficient evidence of a real risk of dissipation or of an identifiable fund to justify interim freezing or proprietary relief. Consequentially existing interim proprietary and freezing orders fell away.