Durnont Enterprises Limited v Fazita Investment Limited & Ors

A member seeking to continue a derivative claim for an overseas company must establish a prima facie case under the applicable common-law principles. The case must be sufficiently strong that, absent an answer, it would entitle the company to judgment, assessed on all the evidence.

Contractual machinery for repayment which exists for a creditor’s benefit does not, without express wording, prevent that creditor accepting early payment from a third party. A claimant must also show that the alleged breach caused the company’s loss; remote wrongdoing by others will not suffice. A director’s duty to act in good faith turns on the director’s honest belief, and broad allegations which do not identify the alleged breach, loss or profit cannot justify permission.

Durnont, a minority shareholder in a Cypriot property-investment company, sought permission to pursue derivative claims on the company’s behalf. It alleged that the Bank and its present and former board appointees were responsible for losses following the early redemption of bonds, arrangements for the Bank’s proposed sale of shares, and later enforcement sales of the company’s investment certificates.

At second stage, the High Court granted permission against several defendants but refused it as against the Bank, Mr Czeremcha and Mr de Makay: [2023] EWHC 1294 (Ch). Durnont appealed only that refusal. The central question was whether its amended pleading and evidence disclosed a prima facie case in contract, under article 415 of the Polish Civil Code, or for breach of fiduciary duty.

1. Appeal dismissed. Newey LJ, with whom Arnold and Warby LJJ agreed, held that an overseas-company derivative claim was governed by CPR 19.17 and the common-law framework stated in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204. The claimant had to establish a prima facie case both that the company was entitled to the relief and that the claim fell within the exception to the rule in Foss v Harbottle. Section 263 of the Companies Act 2006 did not apply.

2. The Bank’s contractual repayment arrangements were for its benefit. Neither the SSA nor any pleaded implied term prevented it from accepting M-JWK’s early payments. There was no adequately pleaded duty to notify the company before payment, no evidence that consent was legally required, and no pleaded basis on which earlier notification would have improved the company’s position. The later default judgment and certificate sales were too remote, and outside the Bank’s contemplation, to establish loss caused by any alleged breach.

3. The proposed share sale remained conditional on compliance with pre-emption rights. On the reasoning in Coroin [2013] EWCA Civ 781, that did not itself transfer the Bank’s shares or confer a proprietary interest on the buyer. The Annex nevertheless gave rise to a plausible argument that, after the Bank retained the deposit, it granted rights over the shares contrary to the Articles and the SSA. That point could not assist Durnont because no prima facie case showed that the breach caused the company’s loss.

4. The article 415 claims failed for substantially the same reasons. The evidence did not demonstrate unlawful conduct, fault, or an adequate causal connection between the Bank parties’ conduct and the alleged loss. The fiduciary-duty claims were also insufficiently particularised. The duty to act in good faith is subjective, as explained in Regentcrest plc v Cohen [2001] 2 BCLC 80, and the pleading did not identify acts which either director honestly believed should be taken for the company but deliberately omitted. It also disclosed no prima facie case of causative loss or relevant profit.

• Court of Appeal (Civil Division): [2024] EWCA Civ 299. Durnont’s appeal was dismissed. The refusal of permission to continue derivative claims against the Bank, Mr Czeremcha and Mr de Makay was upheld.

• High Court (Chancery Division): [2023] EWHC 1294 (Ch). Permission was granted for specified derivative claims against other defendants, but refused as against the Bank, Mr Czeremcha and Mr de Makay for want of a prima facie case.