Durnont Enterprises Ltd v Fazita Investment Ltd

The Court of Appeal refused permission to continue derivative claims on behalf of Polish Real Estate Investment Limited because the appellant had not established a prima facie case against the Bank, Mr Jan Czeremcha or Mr Maciej de Makay. The court applied the two-stage permission procedure reflected in CPR 19.17 and the Companies Act 2006 s.261 principles as explained in Prudential Assurance Co Ltd v Newman Industries Ltd (No. 2) and related authorities. The judge’s decision was upheld on the basis that (i) the contractual documents (the SSA, the FFSA and the Escrow Agreement) did not plainly prohibit the Bank from accepting early repayment of bonds and there was expert material suggesting under Polish law the Bank could accept third‑party payment, (ii) there was insufficient evidence that the Bank or its representatives were involved in or had knowledge of the later events that caused the Company’s loss (the default judgment, the bailiff sales and the issue of new certificates), (iii) alleged breaches of the SPA and its Annex were conditional and did not demonstrate a clear transfer of proprietary rights or a causal link to loss, and (iv) the pleaded fiduciary duty allegations lacked particularity and did not show causation or that the directors subjectively acted other than in good faith.

This appeal arose from a second‑stage permission decision of Tom Smith KC in which Durnont sought permission to continue derivative claims on behalf of PREI against a number of defendants, including the Bank (formerly Raiffeisen Bank Polska SA) and two of its appointees to PREI’s board, Mr Jan Czeremcha and Mr Maciej de Makay.

Background and parties:

• PREI is a Cyprus company holding investment certificates in a Polish closed‑ended fund; Durnont (a Cypriot company) holds B shares representing c.27.94% of PREI. The SSA, FFSA and Escrow Agreement, governed by English law, regulated the Bank’s subscription for shares and convertible bonds issued by PREI.
• In 2015–2016 M‑JWK (an indirect subsidiary of the Fund) paid amounts to the Bank which gave rise to a subrogated claim against PREI leading to a default judgment and subsequent bailiff sales of Certificates. PSPT brought separate proceedings and obtained a further default judgment and execution.

Nature of the application: Durnont applied under CPR 19.17 for permission to continue derivative claims on behalf of the overseas company PREI. At first stage Meade J granted paper permission; the hearing before Tom Smith KC was the second stage.

Issues: The court considered whether Durnont had established a prima facie case that the Bank, Mr Czeremcha and Mr de Makay (i) were liable under Article 415 of the Polish Civil Code, (ii) breached the SSA (including clauses referring to the Company’s articles and pre‑emption provisions) by accepting early bond repayment or by the Bank’s SPA and Annex with PSPT, and (iii) breached fiduciary duties as directors or appointees.

Reasoning and holding: The Court of Appeal agreed with the Judge. In summary: (i) there was no clear contractual prohibition in the SSA/FFSA/Escrow preventing the Bank from accepting early repayment, and expert evidence (relying on Polish law) indicated the Bank could accept payment from a third party without PREI’s consent; (ii) there was insufficient evidence linking the Bank or its representatives to the critical later events that caused the Company’s loss (default judgment, bailiff sales, dilution by new certificate issues), so causation was not established; (iii) although the Annex to the SPA arguably created rights in favour of PSPT, the transfer remained conditional on pre‑emption procedures in the Articles and the pleadings did not show that any breach caused compensable loss to PREI; and (iv) fiduciary duty claims were inadequately pleaded, failed to identify particular breaches or subjective dishonesty, and did not show resulting loss or unjust enrichment.

The court therefore dismissed the appeal and refused permission in respect of the Bank, Mr Czeremcha and Mr de Makay.

The appeal is dismissed. The Court of Appeal agreed with the first‑instance judge that Durnont had not shown a prima facie case against the Bank, Mr Jan Czeremcha or Mr Maciej de Makay. The contractual instruments did not clearly forbid the Bank accepting early repayment and there was expert material suggesting Polish law permitted acceptance of third‑party repayment; there was insufficient evidence linking the Bank or its nominees to the subsequent events causing PREI’s loss; alleged SPA/Annex breaches were conditional on pre‑emption rights and did not show causation of loss; and the fiduciary claims were insufficiently particularised and did not establish subjective bad faith or resulting loss.

Appeal from Tom Smith KC (sitting as a Deputy High Court Judge), Insolvency and Companies List (ChD), High Court of Justice, Business and Property Courts of England and Wales, judgment [2023] EWHC 1294 (Ch). First‑stage paper permission was granted by Meade J on 16 September 2022; second‑stage permission was considered by Tom Smith KC (judgment delivered 26 May 2023); the Court of Appeal heard the appeal and dismissed it on 26 March 2024 ([2024] EWCA Civ 299).