The aggrieved minority: permission to continue derivative claim against three out of nine defendants in €100m fraud case denied

12 Apr 2024

The Court of Appeal dismissed the appeal in Durnont Enterprises Ltd v Fazita Investment Ltd [2024] EWCA Civ 299 against the refusal of permission to continue a derivative action against the sixth, seventh and eighth defendants to the claim.

Durnont Enterprises Ltd (“Durnont”) brought a derivative claim as shareholder of a Cypriot based company, Polish Real Estate Investment Ltd (“PREI”). The alleged wrongful act against PREI was the misappropriation by the other shareholders of €100m of investment certificates in a fund invested in by PREI for the purpose of purchasing property in Poland.

The Second and Third Defendant (“D2 and D3”) controlled the First Defendant company, Fazita Investment Ltd (“D1”) a shareholder in PREI (“D9”). The Fourth Defendant M-JWK Management (“D4”) was an indirect subsidiary of the Fund said to be controlled by D2 and D3. The Fifth Defendant (“D5”) was an associate of D2 and D3 and involved in the management of D4. The Eighth defendant was a Polish bank (“D8”) and shareholder in D9 which had nominated Mr Czeremcha (“D6”) and Mr de Makay (“D7”) as directors of PREI.

The High Court gave permission  under CPR Part 19 to continue the claim against D1-5 and PREI and refused permission against D6-8 on the basis that a prima facie case against them was not established.


PREI was incorporated in Cyprus as a joint venture to invest in real estate in Poland. It owned 100% of the investment certificates in a closed-ended investment fund (“the Fund”). A share and subscription agreement (“the SSA”) governed by English law set out the relationship between the shareholders.

The Bank subscribed for convertible bonds issued by PREI with a total nominal value of €20 million under the terms of the SSA. By 2014, the Bank wanted to achieve an early exit and agreed to sell its shares in PREI for €8 million to PSPT, a company wholly owned and controlled by D2 and D3. The agreement for the sale of the shares, the “SPA” agreement, was signed on behalf of the Bank by D6.

In 2015, the bonds were redeemed but by D4 pursuant to the SPA. On 1 July 2015, D4 paid the Bank the first instalment for the bonds. Shortly afterwards, the Bank confirmed receipt and the remaining value of bonds to be redeemed as €7,023,260.

By email dated 9 September 2015, the Bank informed D4 that early redemption would be possible after an appropriate statement is submitted by PREI. In response, D4 exerted pressure on the Bank via lawyers to complete the transaction without PREI’s prior consent. The following day, an email was sent on behalf of the “JWK Group companies”, arguing that by virtue of Article 15 of Rome I, Polish law governed the SPA agreement.

Citing Article 356 § 2 of the Polish Civil Code, the JWK Group companies asserted that the Bank may voluntarily accept repayment of the bonds from the Principals earlier, for which PREI’s consent was not needed. On 28 October, D4 transferred, and the Bank received, the remaining sums.

In December 2015, D4 demanded sums of €8,250,678.58 and €7,158,674.19 from PREI alleging its redemption of the Bonds had given rise to “statutory subrogation” [12]. A month later, it issued a claim for €15,409,352.77 against PREI in the High Court (“the Subrogation Claim”).

In April 2016, without the company’s knowledge or authorisation, D2 purported to execute power of attorney authorising another individual to negotiate a settlement on PREI’s behalf. The settlement (“the Collateral Agreement”) required the PREI to transfer all the certificates in the Fund to D4 as collateral in satisfaction of the Subrogation Claim. The transfer was effected on or before 11 May 2016. In late 2018, however, the certificates were returned to PREI.

In the interim, default judgment had been entered in favour of D4 in the Subrogation Claim. By December 2018, D4 enforced the judgment by way of bailiff seizure and sale of the investment certificates. A second such sale took place in 2019.

A third bailiff sale was executed in April 2020 and the remaining investment certificates were sold to a company controlled by D2 and D3. In each sale, Durnont alleged, the certificates were sold for less than their true value.

The result claimed is that PREI was divested of assets worth €100 million, the entirety of which found its way into the hands of entities owned or controlled by D2 and D3. A further complaint was that in 2018, 2019 and 2020, the Fund issued a further series of certificates without PREI’s knowledge, diluting its interest in the fund.


Durnont sought permission under CPR 19.17 to continue its derivative claim on behalf of a foreign company. The procedure for applications in relation to companies under s.261, s.262 or s.264 of the Companies Act 2006 (“CA 2006”) was held to apply to the permission application as if the company in question had been incorporated in the UK. Section 263, however, did not apply and common law principles were instead applicable.

At first instance, the High Court was satisfied the application and evidence filed established a prima facie case under Polish law against D1-5 and permitted service out of the jurisdiction. Permission was, however, denied in respect of D6-D8.

On appeal, Durnont maintained that a prima facie case exists against D6-D8 under Article 415 of the Polish Civil Code against the Bank for breach of the SSA and against Mr Czeremcha and Mr de Makay for breach of fiduciary duty.

Breach of the SSA (D8)

It was argued that the Bank breached the SSA by accepting early repayment of the bonds without obtaining the PREI’s prior consent. Alternatively, that the Bank knew or suspected wrongdoing on the part of D4 with the intention to bring a subrogated claim to which it did not alert PREI [30-31].

The Court held this did not stand any real chance of success [40]. No positive allegation had been made that the repayment required PREI’s consent, nor had any evidence been presented that Mr Czeremcha and Mr de Makay (as personal representatives of the Bank) knew or suspected it to require PREI’s approval [35].

For similar reasons, alternative heads of claim that the Bank, in entering the SPA, had breached PREI’s articles of association and in turn the SSA were rejected.

The High Court had held, and the Court of Appeal agreed, that in any event, the loss sustained was not attributable to any breach of the SSA, but instead derived from PREI having allowed default judgment to be entered and executed by sale of the certificates. The Court concluded that neither the Bank, Mr Czeremcha or Mr de Makay were aware that such misappropriation was intended and that none of them were involved in the events leading up to the sale including, the grant of power of attorney, entry into the Collateral Agreement, the sale itself, or the further issuance of certificates by the Fund [44]. The appeal was dismissed in relation to the Bank’s alleged breach of the SSA [45 and 50].

Breach of fiduciary duty (D6 & D7)

Mr Czeremcha was replaced as director of PREI on 8 March 2016 by Mr de Makay. It was pleaded that, whilst each in the role, the two breached their fiduciary duties towards PREI through “conflict of interest”, “failing to disclose relevant matters” and “failing to act in good faith” resulting in PREI sustaining loss by way of the certificate sales and the issuance of new certificates by the Fund [78]. The pleadings did not take into account that neither Mr Czeremcha nor Mr de Makay were in office throughout the relevant period.

A further difficulty arose in relation to the duty to act in good faith. It was noted that this duty relies on the subjective intention, and that Durnont had not referenced any specific steps which either director believed they ought to take, but nevertheless failed to do so. The claim for breach of fiduciary duty, the Court held, lacked “particularity” [82] but moreover, if established, there was no prima facie case that such breach caused PREI loss. The appeal under this heading was dismissed.


This appeal is the latest instalment in a series of unsuccessful high-profile derivative claims and illustrates the court’s approach to granting permission for claims concerning overseas companies.

For derivative claims brought on behalf of overseas companies, an amalgamation of common law and CA 2006 principles will apply. The case is a useful reminder of the importance of establishing causation in derivative claims; mere wrongdoing will not result in the grant of relief.

Article by Jaysen Sharpe and Phyllida Spackman


Jaysen Sharpe

Call: 2017


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