Olivier Desmarais & Anor v Misbourne Investment Corporation & Ors

The claimants sought first-stage permission to bring derivative proceedings on behalf of Misbourne Investment Corporation (a Liberian company) to obtain a declaration that Misbourne had no liability under a purported 2015 loan from Green Services International GSI Ltd. The court applied the two-stage permission procedure in CPR 19.17 and the Companies Act 2006 s.261 standard as adapted by the authorities. The judge found that the claimants had standing and that, on the evidence before the court, there was a prima facie case on the merits against GSI based on an arguable "sham" transaction. However, the application failed because the claim did not fall within the proper boundaries of the Foss v Harbottle exception (the "fraud on the minority" exception): there was no prima facie case that those in control of Misbourne had perpetrated or benefitted from the wrong such as to place the company under wrongdoer control. Accordingly first-stage permission was refused.

The claimants, the executor and a beneficiary under the will of the late Philippos Embiricos Coumoundouros (acting on behalf of Misbourne Investment Corporation), applied for first-stage permission to continue derivative claims on behalf of Misbourne against GSI and Libra. The underlying dispute arose after a demand by GSI in December 2024 for repayment of a purported loan (originally described as €45 million, said to have accrued to c. €72 million) and the contemporaneous resignation of both of Misbourne's directors leaving the company without directors in breach of Liberian law.

Nature of the application: first-stage permission to bring a derivative claim under CPR 19.17 (applying the procedure of Companies Act 2006 s.261) for a declaration that Misbourne was not liable under the alleged loan agreement; permission to serve out of the jurisdiction and a stay of dismissal were also addressed.

Issues framed by the court:

• whether the applicants had standing to bring derivative proceedings for a foreign company;
• whether the evidence disclosed a prima facie case on the merits that the loan was a sham and that Misbourne had a defence to GSI;
• whether the proposed derivative claim fell within the proper boundaries of the Foss v Harbottle exception (the "fraud on the minority" or wrongdoer-control exception);
• whether the court had or was likely to have jurisdiction and whether service out should be permitted; and
• residual discretionary considerations relevant to permission (including the likely choice of forum and whether a reasonable board would pursue the claim in England).

Court's reasoning and conclusion: the judge accepted that the two-stage permission procedure applied (CPR 19.17 and Companies Act s.261) and that the applicants had prima facie standing (either Adriana as beneficiary under the will or Olivier as executor with ancillary letters). On the merits, the factual material reasonably supported, at the first-stage filter, an arguable case that the loan might be a sham (insufficient commercial documentation, the involvement of related companies and family members, and contemporaneous events concerning Piraeus Bank). The judge considered the correct legal test for a "prima facie case" at stage one and was satisfied that, on the evidence then before the court and in the absence of any answer by GSI, the applicants had made a compelling case that demanded an answer.

Despite that, the application failed because it did not fall within the established common-law exception permitting derivative claims: there was no prima facie case that the wrong (or benefit from it) was attributable to those in control of Misbourne so as to place the company under "wrongdoer control". The putative wrong was a threatened third-party claim by GSI, not a fraud by those who controlled the company (and the directors who had resigned were not alleged to have benefited from the loan or colluded with GSI). The court therefore dismissed the application for first-stage permission. The judge stayed the dismissal pending any application for permission to appeal and gave limited rulings on service and costs.

The application for first-stage permission to continue derivative proceedings on behalf of Misbourne is dismissed. Although the applicants have standing and there is a prima facie case on the merits against GSI (an arguable "sham" loan), the claim does not fall within the proper boundaries of the Foss v Harbottle exception because there is no prima facie case of "wrongdoer control" or that those in control of Misbourne perpetrated or benefitted from the wrong such that a derivative action is justified. The dismissal is stayed pending any appeal application for permission to appeal.