Durnont Enterprises Limited v Fazita Investment Limited & Ors

The court considered two principal applications: second stage permission under CPR r.19.15 to continue a derivative action on behalf of a Cyprus‑incorporated company, and permission to serve the amended claim form and related documents out of the jurisdiction under CPR rr.6.36–6.38 and Practice Direction 6B. The court applied common law derivative‑action principles (Prudential v Newman Industries and related authorities), concluded that Cypriot law (the place of incorporation) governs the right to bring a derivative claim, and examined whether a prima facie case had been made on the pleaded facts.

The judge found that, on the material before the court, there was a prima facie case under Article 415 of the Polish Civil Code and a prima facie case in relation to fiduciary duty and certain contractual (SSA) claims against the First to Fifth Defendants arising from an alleged sequence of transactions and enforcement steps which had led to loss of the company’s investment certificates. Permission to continue derivative claims and to serve out was therefore granted in part (principally as against Defendants 1–5) and refused in part (principally as against Defendants 6–8). The court also granted permission to amend the particulars and to rely on the expert evidence on Cypriot and Polish law, but refused various applications to remove earlier witness material from the court file.

Background and nature of the proceedings.

• The claimant, Durnont Enterprises Limited (a Cypriot company and 27.94% shareholder), sought (i) second‑stage permission under CPR r.19.15 to continue derivative proceedings on behalf of Polish Real Estate Investment Limited (the Company, also Cypriot‑incorporated) and (ii) permission to serve the amended claim form and other documents out of the jurisdiction under CPR rr.6.36–6.38 and Practice Direction 6B. The claims arise from a complex factual matrix concerning alleged improper transfers, a subrogation claim, a default judgment and subsequent bailiff sales and certificate issuances in respect of the Fund in which the Company held all investment certificates.
• The defendants did not attend the hearing; the Company did not file evidence or appear. The court conducted an interlocutory assessment on the basis of the evidence before it, including factual witness statements and expert reports on Polish and Cypriot law.

Issues framed by the court.

• Whether, applying the common law and the authorities on derivative claims in relation to foreign companies, the claimant had demonstrated a prima facie case entitling it to permission to continue derivative claims (with the law of the place of incorporation — Cypriot law — governing entitlement to bring derivative proceedings).
• Whether the pleaded facts disclosed prima facie causes of action under Article 415 of the Polish Civil Code (tort/extra‑contractual liability), fiduciary duties under Cypriot law, and breach of the Share Subscription Agreement (SSA), and whether limitation or the reflective‑loss rule barred the claims.
• Whether the court should exercise its discretion to determine the permission question or leave it to the courts of the place of incorporation.
• Whether the claimant established a serious issue to be tried and satisfied the relevant Practice Direction 6B gateways so as to permit service out of the jurisdiction and whether England was the proper forum.
• Whether the claimant established grounds to set aside the default judgment (alleged to have been procured by fraud) and to pursue restitution or other remedies flowing from it.

Summary of reasoning and outcome.

• The judge accepted that Cypriot law governs the right to bring a derivative action but considered that, given the strong English connections and the close similarity between Cypriot and English law on derivative actions, it was appropriate for the English court to decide the permission application.
• The expert evidence on Polish law (Article 415) and Cypriot law supported that, on the pleaded facts, there is a prima facie case that (i) those who caused the alleged chain of events (notably the Jaroszewiczes and certain associated entities) acted unlawfully and at fault under Article 415, (ii) the named directors owed fiduciary duties under Cypriot law which were prima facie breached, and (iii) there was a prima facie contractual (SSA) claim against Fazita. By contrast, the evidence did not disclose a prima facie case against the Bank and two bank‑nominated directors for the principal pleaded claims.
• Accordingly, the court granted second‑stage permission to continue derivative claims and granted permission to serve out of the jurisdiction in relation to the claims effectively against the First to Fifth Defendants (and related direct claims where appropriate), but refused permission in relation to the Sixth to Eighth Defendants on the evidence before the court.

Other procedural matters: permission was given to rely on the Polish and Cypriot expert reports and to amend the particulars of claim (the APOC), but the application to remove from the court file earlier versions of a witness statement was refused and related interim injunctive relief was declined without notice.

At first instance the court granted in part the claimant’s applications. The court gave second‑stage permission under CPR r.19.15 to continue derivative claims on behalf of the Company insofar as those claims are directed against the First to Fifth Defendants (including Article 415 claims, fiduciary duty claims against the principal directors, contractual claims under the SSA against Fazita, and the claim to set aside the Default Judgment and for restitution against M‑JWK and the Jaroszewiczes). Permission was refused in respect of claims against the Sixth to Eighth Defendants (the Bank and two bank‑nominated directors) for lack of a prima facie case on the evidence. The court also granted permission to serve the relevant claims out of the jurisdiction (principally in respect of Defendants 1–5) under Practice Direction 6B gateways and granted permission to amend the particulars and to rely on the Polish and Cypriot expert reports. The orders refusing removal of prior witness material from the court file and refusing without‑notice injunctive protection over those materials were upheld. The court’s reasoning rested on the existence of a prima facie case on the pleaded facts for specified claims, the application of Cypriot law to derivative entitlement, the applicability of Article 415 (Polish law) and the presence of sufficient England‑connected factors to make England the proper forum for these claims.