Durnont Enterprises Limited v Fazita Investment Limited & Ors

Permission to pursue a derivative claim on behalf of a foreign company may remain available at common law, notwithstanding the statutory derivative-claim regime for English companies. The court must be satisfied that there is a prima facie case both that the company is entitled to the relief claimed and that the claim falls within the recognised exception to the rule in Foss v Harbottle.

For a foreign company, the law of its place of incorporation governs the shareholder’s right to sue derivatively. The English court may nevertheless determine permission where England has the closest connections with the underlying dispute and the place of incorporation has no material connection beyond incorporation.

Service out requires a serious issue to be tried, an applicable jurisdictional gateway and England being the proper forum.

The claimant, a Cypriot company shareholder, sought second-stage permission under CPR r. 19.15 to continue derivative claims concerning the alleged diversion and loss of the ninth defendant company’s Polish investment-fund assets.

The claims relied on Polish tort law, Cypriot fiduciary law, alleged breaches of an English-law share subscription agreement, and fraud in procuring an English default judgment. The claimant also sought permission to serve proceedings outside the jurisdiction on defendants principally based in Poland.

The court had to determine whether the claimant had shown prima facie entitlement to relief and to bring derivative claims, whether the claims raised a serious issue to be tried, whether the jurisdictional gateways applied, and whether England was the proper forum.

1. Derivative permission. The court granted permission for the Article 415 claims against Fazita Investment Limited, Wladyslaw Jaroszewicz, Michael Jaroszewicz, M-JWK-Management and Anna Bandurska, but refused it against Jan Czeremcha, Maciej de Makay and BNP Paribas Bank Polska S.A. It granted permission for the Cypriot fiduciary-duty claims against Wladyslaw and Michael Jaroszewicz, but not against Czeremcha or de Makay. It granted permission for the share-subscription-agreement claims against Fazita, but not against the Bank.
2. The common-law test required a prima facie case that the company was entitled to the relief and that the claim fell within the exception to Foss v Harbottle. A prima facie case meant a case which, absent an answer by the defendants, would entitle the claimant to judgment. The evidence disclosed such a case against the first five defendants on the principal claims, but not against the Bank or its directors.
3. The law of Cyprus, as the place of incorporation, governed the claimant’s right to bring derivative proceedings. Cyprus recognised derivative claims on substantially similar principles to English law. The English court was nevertheless the appropriate court to determine permission because the underlying claims, the English-law agreement, the English default judgment and related proceedings had substantial English connections, whereas Cyprus had no material connection beyond incorporation.
4. The pleaded Article 415 case involved harmful conduct, damage, adequate causation, unlawfulness and fault. A person who incited, aided or knowingly benefited from the damage could also be liable under article 422, jointly and severally under article 441(1). The evidence disclosed a prima facie case against the first five defendants, but insufficient evidence against the Bank and its representatives.
5. The court accepted a prima facie case that clause 24.1 of the SSA extended to the conduct of directors appointed by a shareholder. The evidence also supported, at this stage, the possible implication of duties of good faith in a long-standing joint-venture relationship.
6. There was a prima facie case to set aside the Default Judgment for fraud. The alleged procurement of the judgment formed part of a chain which allegedly enabled the later bailiff sales. The inherent jurisdiction to set aside a judgment obtained by fraud was not excluded by CPR Part 13. Delay and acknowledgments were matters for trial, not sufficient at this stage to defeat the prima facie case.
7. For service out, the claimant had to establish a serious issue to be tried, a good arguable case that a jurisdictional gateway applied, and that England was the proper place. The 4A and necessary-and-proper-party gateways applied to the permitted claims. England was the proper forum because related proceedings and the English-law claims were already proceeding here, avoiding duplication and inconsistent judgments.

Permission to serve out was granted substantially in relation to the claims against the first to fifth defendants and refused in relation to the claims against the sixth to eighth defendants. Permission was also granted to rely on the relevant expert reports and to amend the Particulars of Claim, subject to consequential amendments.

First-instance decision. The judgment determined applications for derivative-claim permission and service out of the jurisdiction.