04/04/2024

‘Durnont’ provides important Court of Appeal decision on permission to continue a derivative action under CPR Part 19

Philip Riches KC and Andrew Dinsmore recently appeared in Durnont Enterprises Ltd v Fazita Investment Ltd [2024] EWCA Civ 299, one of a number of recent Court of Appeal decisions on the requirements to bring a derivative action under CPR Part 19.

The claim concerns an alleged €100 million fraud by certain shareholders in a Cypriot company and certain directors and others. It is said to have resulted in the company being illegitimately stripped of certificates in a fund investing in Polish real estate. Philip and Andrew act for a minority of shareholders who seek to bring the action on behalf of the defrauded company in circumstances where the company cannot do so because of deadlock procured by the fraudsters.

At first instance – [2023] EWHC 1294 (Ch) – Tom Smith KC (sitting as a deputy high court judge) granted CPR Part 19 permission for the claim to continue against certain of the defendants, and granted permission to serve out the claim against them under CPR Part 6. However, the court refused permission in relation to three defendants (the shareholder bank and its two directors), and Asplin LJ gave permission to appeal that decision to the Court of Appeal.

Newey LJ gave judgment on behalf of the Court of Appeal. He gave a comprehensive overview of the legal framework, building on another recent Court of Appeal decision on derivative actions – McGaughey v Universities Superannuation Scheme Ltd [2023] Bus LR 1614 – in which Asplin LJ gave comprehensive guidance on the operation of CPR Part 19. Both judgments will be of interest to practitioners contemplating a derivative action.

The growth of derivative action litigation forms part of a wider move towards ‘non-traditional’ litigation, including group litigation (under CPR Part 19) and that backed by litigation funders. Durnont v Fazita is important in demonstrating the court’s willingness to grant permission to continue actions in relation to companies incorporated overseas, as well as those incorporated in England to which the Companies Act 2006 applies.