Olivier Desmarais & Anor v Misbourne Investment Corporation & Ors [2025] EWHC 813 (Comm)

[2025] EWHC 813 (Comm)Case No CL-2024-000669
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 04/04/2025
Before
Paul Stanley KC(sitting as a Deputy High Court Judge)
Between
OLIVIER DESMARAISClaimantsADRIANA OLGA EMBIRICOS COUMOUNDOUROSClaimantMISBOURNE INVESTMENT CORPORATIONDefendantsGREEN SERVICES INTERNATIONAL GSI LIMITEDDefendantLIBRA HOLDINGS LIMITEDDefendant
Paul Mitchell KC (instructed by CJJ Law) for Claimants for The Defendants did not appear and were not representedHearing Hearing date: 14 March 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on 4 April 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................

PAUL STANLEY KC:

[1]Philippos Embiricos Coumoundouros was a businessman. His business included shipping interests. He died on 20 November 2021, aged 78. He left two daughters, Adriana and Nitzia. Adriana is married to Olivier Desmarais; together they are the applicants here. I shall call them “Adriana” and “Olivier”. Nitzia is married to George Logothetis. I shall call them “Nitzia” and “George”. Mr Coumoundouros’s will provided for most of his “maritime interests” to pass to Adriana, and for his other assets to be shared equally between Adriana and Nitzia. Its executors are Olivier and George.[2]One of the companies that formed part of the Coumoundouros estate was Misbourne Investment Corporation, registered in Liberia. This case concerns that company. It was not specifically mentioned in the will. So Mr Coumoundouros’s ownership of Misbourne will either pass to Adriana alone (if it forms part of his “maritime interests”) or be shared between his daughters.[3]Mr Coumoundouros’s death has been followed by disputes and litigation between the family members and their associated companies. Adriana and Olivier are pitted against Nitzia and George, and companies associated with them, including a Bermudian company called Libra Holdings Limited (“Libra”).[4]In early December 2024 both directors of Misbourne resigned. At almost that very moment, a Cypriot company called Green Services International GSI Ltd (“GSI”), which is ultimately controlled by Libra, demanded that Misbourne repay a large loan. GSI asserted that Misbourne owed more than €72 million under a loan granted in 2015, and demanded payment in short order.[5]Adriana and Olivier maintain that that the “loan” is not genuine, that Misbourne owes nothing to GSI. They suspect that the directors’ resignation was designed to leave the company exposed to GSI’s claim. They seek to bring derivative claims in this court, on behalf of Misbourne, to forestall the consequences of what they consider to be a wrongful demand.[6]I must decide whether, as a preliminary matter, the court may give them permission to continue those claims as derivative claims. That application was made (properly) without the participation of the defendants.[7]All that I must (and should) decide at this stage is whether the evidence before me discloses a prima facie case for the grant of permission to bring a derivative claim on behalf of Misbourne. That is two stages removed from any decision on the merits. For what will follow, if I grant “first stage” permission, is a second permission stage at which the question whether to allow the claim to continue as a derivative claim will be decided. Then (if permission is given) there will be proceedings leading to the determination of the case on its merits. I have to consider whether that evidence discloses a prima facie claim. But nothing I say is intended to express definitive conclusions on the merits of the case, based as it is on the evidence now before the court, with all its inevitable limitations.[8]For the reasons given below, I do not consider that first stage permission should be given. Although I consider that there is a prima facie case on the merits so far as GSI is concerned, and that the applicants have standing to bring derivative proceedings, I do not accept that there is a prima facie case that the claim falls within the proper boundaries within which derivative claims are permissible. It follows that I must dismiss the application.

Legal principles: in outline

[9]CPR Part 19 contains, in rules 14–18, provisions governing the procedure to bring derivative claims. A derivative claim is made when someone brings a case on behalf of someone else. Derivative claimants do not assert that they have any relevant right to be vindicated. Instead, they say that someone else (a legal person in which they have, directly or indirectly, a financial interest) possesses such a right. They ask to be permitted to enforce it on that other person’s behalf, by way of exception to the usual principle (Foss v Harbottle (1843) 2 Hare 461, 67 ER 189) that it is the company that must normally sue to enforce its rights. The derivative action is a “procedural device designed to prevent a wrong going without a remedy”: see Universal Project Management Services v Fort Gilkicker Ltd [2013] EWHC 348 (Ch), [2013] Ch 551, at [24], citing Nurcombe v Nurcombe [1985] 1 WLR 370.[10]For an English registered company, a member’s ability to bring a derivative claim is regulated by the Companies Act 2006 Part 11, together with s 994. Those provisions do not apply to a company that is not registered under the Act (see the definition of “company” in the Companies Act 2006 s 1). However, CPR 19.17 sets out the procedure that applies to a derivative claim where “a body corporate to which Chapter 1 of Part 11 of the Companies Act 2006 does not apply … is alleged to be entitled to a remedy” and “a claim is made by a member for it to be given that remedy”. (I shall sometimes refer to such a body corporate as a “foreign company” since that is what this case concerns, though the provisions sweep wider.) In such a case:
“(2) the member who starts, or seeks to take over, the claim must apply to the court for permission to continue the claim … (4) the procedure for applications in relation to companies under section 261 … of the Companies Act 2006 applies to the permission application as if the body corporate … were a company.”
[11]CPR 19.17 refers to cases where a “member” of the foreign company starts a claim. In some cases (of which this is possibly one) the ability to bring a derivative claim extends beyond those who are members of the legal person whose rights are asserted. Nevertheless it is the settled practice to treat such claim analogously: see Boston Trust Co Ltd v Szerelmy Ltd [2021] EWCA Civ 1176, [2022] 1 All ER (Comm) 1013, at [20].[12]What CPR 19.17 applies is the procedure for applications, set out in section 261 of the Companies Act 2006. That provides:
“(1) A member of a company who brings a derivative claim under this Chapter must apply to the court for permission … to continue it. (2) If it appears to the court that the application and the evidence filed by the applicant in support of it do not disclose a prima facie case for giving permission …, the court—(a) must dismiss the application, and (b) may make any consequential order it considers appropriate. (3) If the application is not dismissed under subsection (2), the court—(a) may give directions as to the evidence to be provided by the company, and (b) may adjourn the proceedings to enable the evidence to be obtained. (4) On hearing the application, the court may—(a) give permission … to continue the claim on such terms as it thinks fit, (b) refuse permission … and dismiss the claim, or (c) adjourn the proceedings on the application and give such directions as it thinks fit.”
[13]Thus, as Newey LJ explained in Durnont Enterprises Ltd v Fazita Investment Ltd [2024] EWCA Civ 299, [2024] BCC 791, at [20] there is a two-stage process. At stage one, the court filters out applications which do not disclose a “prima facie case for giving permission” on the applicants’ evidence. If the application passes that filter, the court may give directions for the company to file evidence. The case proceeds to a second stage at which the court decides whether permission should be given. This case is at the first stage.[14]However, as Newey LJ also pointed out in Durnont Enterprises, at [21], CPR 19.17 is all about procedure in the narrow sense. It does not apply the requirements and discretionary factors that the Companies Act 2006, s 263 applies to derivative actions for English companies. Instead the court looks to common law principles.[15]That gives rise to one preliminary question. Are those requirements to be treated as procedural (subject to the lex fori), or as substantive rules which might arguably be subject to the law under which the company is incorporated? I did not hear full argument on that point. Clearly the law of the place of incorporation may be indirectly relevant for various purposes (e.g. when deciding whether the claimants’ rights are such as to give them standing, or whether there is a prima facie case that the company has been the victim of a wrong, or who controls it). It might also be relevant to the exercise of any discretion. But the essential limits of derivative claims seem, in principle, to be a matter of procedure. The law of incorporation might give wider, or narrower, scope for derivative actions than English law. It might not have any conception of them at all. That should not be determinative. The case is not, after all, about “title to sue” in the sense of “who has the right”. In a derivative claim that is clear: it is the company. The question is about identifying the proper claimant to assert those rights, and that is a matter of procedure. In answering that question, although the English court may incidentally need to understand the rights and procedures that the law of the place of incorporation lays down, it properly applies its own principles on the circumstances in which a derivative action is permitted.[16]What are those principles? I shall need to address some of them in more detail later in this judgment, so for present purposes I shall set them out in summary form. They are as follows: i) The applicant must have standing. The classic case is where the applicant is a shareholder in the company on whose behalf the claim is to be brought. But the class of those who may have standing is not strictly limited to members. Standing is generally established by showing that the company concerned has suffered a loss, and that the loss impacts upon (or “is reflected in”) a loss to the applicant: see McGaughey v Universities Superannuation Scheme [2022] EWHC 1233 (Ch), [2022] Bus LR 797, [30] and the cases there cited. ii) The applicant must establish that there is at least a prima facie case that the foreign company is entitled to the relief claimed: see Durnont Enterprises, at [22], citing Prudential Assurance Co Ltd v Newman Industries Ltd [1982] Ch 204, at 221. A “prima facie case” in this context is “a higher test than a seriously arguable case”: it is a “a case that, in the absence of an answer by the defendant, would entitle the claimant to judgment”: see Durnont Enterprises, [22], citing Abouraya v Sigmund [2014] EWHC 277 (Ch), [2015] BCC 503, at [53] (David Richards J). The court considers the totality of the evidence. iii) The applicant must establish that the derivative claim “falls within the proper boundaries of the exception in the rule in Foss v Harbottle.” In other words, there must be a valid reason to permit the applicant to make the claim, instead of leaving it to the company to decide whether it wishes to do so. The central difficulty raised in this case concerns this aspect of the test, and I shall have to consider it in considerable detail later. iv) Finally, there are discretionary factors: see McGaughey at [46], Fort Gilkicker at [53]. Even if the court does consider that the company has a prima facie claim, and that a derivative action would fall within the bounds of one of the exceptions to the rule in Foss v Harbottle, it may refuse permission to a particular applicant to bring a derivative action if, for instance, it considered that the applicant was not an appropriate person to bring the claim, or was not able to do so effectively. Although the discretionary factors are, by their nature, not capable of being comprehensively stated, a key consideration is whether “a reasonable board of directors would consider it to be in the best interests of the company to pursue the proceedings”: see Abouraya at [26].[17]There is a source of possible confusion here. Section 261 of the Companies Act 2006 refers to the court considering that the evidence does not disclose a “prima facie case for giving permission”, and the common law rules as explained by Newey LJ in Durnont Enterprises require that the company should have a “prima facie case” on the merits. These are related, but different, requirements. The purpose of “stage one” is to filter out cases where permission—for any reason, including but not limited to the strength of the merits—is not appropriately given. So, at that stage the court is looking for a prima facie case that the claim satisfies all the requirements, including but not limited to, the existence of a prima facie case on the merits. A preliminary conclusion at that stage that the claim does satisfy those tests including the merits test will not prevent the company from inviting the court to form a different view, or the court from forming a different view, at the second stage of the permission process.

The facts

[18]At this stage I am dependent entirely on evidence provided by the applicants. That is based on incomplete information, because the applicants do not have access to the entirety of Misbourne’s records, or individual knowledge of all the relevant events. And neither GSI nor Misbourne is yet a participant in the proceedings. The following account is drawn from that evidence. But its limitations should be kept in mind.[19]Misbourne was established in 1981. It originally had bearer shares, which were held by Mr Coumoundouros. In 2019, those were replaced by registered shares and then certified shares. Mr Coumoundouros continued as the sole shareholder, and was the sole shareholder at his death. As far as its purpose is concerned, Misbourne seems to have been used as an investment vehicle and for related purposes. That is how Mr Coumoundouros described it in an email in 2019. Its directors were family members and trusted advisors. After Mr Coumoundouros died, it was left with two directors: Mr John Markianos-Daniolos and Mr Ioannis Vasiliakis.[20]The purported loan agreement consists of a document that expresses itself to have been made “as of 26 November 2015” (it bears no actual date). It records that GSI has agreed to make a €45 million loan available to Misbourne to be repaid in 2016 “or such other date as may be agreed in writing”, with annual interest at 6.85 percent. It contains an English choice of law agreement and a non-exclusive jurisdiction clause in favour of the English courts. For GSI it was signed by Felix Bitzios, who was Libra’s CEO. For Misbourne it was signed by Stephen Kines, purportedly under power of attorney from Misbourne. Mr Kines was the general counsel of Libra, based in London. The applicants’ lawyer has not seen any board resolution authorising the loan agreement, nor any power of attorney. But for present purposes that tells one little, because that the applicants are not insiders and do not have access to a complete set of corporate records.[21]There is email correspondence, however, which shows that the directors of Misbourne, and its shareholder, were aware of the loan agreement. In 2017, Mr Markianos was asked by Mr Kines to sign an extension (“as our auditors are demanding a copy soonest”). That seems not to have happened, since Mr Kines asked again for a copy (“for our records”) in 2018. Mr Markianos consulted Mr Coumoundouros, who in turn consulted George, who told him that the extension should be signed. In 2020 he was asked to sign another extension, and did so. Three further variations have been produced, dated 18 September 2021 (extending the term to 31 December 2021), 24 September 2021 (extending the term to 31 December 2023), and 8 February 2024 (extending the term to 31 March 2024).[22]The applicants say that there is no evidence that Misbourne ever received €45m, or any sum, under the loan. Again, however, there are limits to how far the absence of evidence can be regarded as evidence of absence.[23]In 2016, Misbourne seems to have bought various parcels of shares in Piraeus Bank from a number of different Cypriot companies, all based at the same address: Danron Holdings, Verinare Limited, Alvok Establishment, Rastramo Energy Investments Ltd, Averita Investments Ltd. On 19 May 2016, at around this time, Mr Markianos emailed Mr Coumoundouros to say that he was “being asked by Libra to sign various documents (presumably for Misbourne). Sometimes the documents contain no information and I am being asked to fill in the blanks. … As I have no knowledge of the transactions, I am somewhat uncomfortable about these signatures. Do I have your instructions to sign all documents sent by Libra?” There is an email from Mr Coumoundouros the following day: “Yes, as I stated in my previous message you can rely on libra group team’s instructions”.[24]On 17 March 2017, Misbourne’s board resolved to charge 11.7 million shares in Piraeus Bank, said to be owned by Misbourne, in favour of Piraeus Bank itself. (That would, by my calculation, amount only to part of the shares that were acquired.) The applicants consider that it is possible or likely that the loan was in some way connected to the acquisition (or apparent acquisition) of those shares, which were pledged to secure the indebtedness of a company called Baywest to Piraeus Bank. Baywest was a company owned by George’s father, Mr Michailis Logothetis.[25]The applicants suggest that this is connected to events involving Piraeus Bank which have attracted attention in Greece. The applicants largely depend on published news reports for their information about this affair, and accept that Baywest’s role is unclear. It is alleged that Baywest acquired personal indebtedness from certain Piraeus Bank executives as a bribe for them allowing Libra to acquire debts owed by shipping companies to Piraeus Bank at undervalue, and in circumstances where Greek law prohibited capital transfers, and made cash transfers to the Logothetis family. The applicants’ working theory is that the apparent purchase by Misbourne, and pledge (to Piraeus) of shares in Piraeus Bank played some part of these corrupt arrangements, and that George was “using” Misbourne as a camouflage. This, they point out, would have involved no commercial benefit to Misbourne. The “loan” would have been a piece of paper designed to explain to outsiders how Misbourne had acquired the shares, or why it was prepared to pledge them in accordance with George’s wishes for the benefit of his family.[26]Piraeus Bank was subsequently instructed by Libra’s group compliance officer to sell the pledged shares, and to use them to reduce the indebtedness of Baywest to Piraeus Bank.[27]There are, at present, some evidential gaps in this story: i) There is no direct documentary link between the loan (purportedly made in 2015) and Misbourne’s acquisition of shares in Piraeus Bank in 2016, and the subsequent pledge of at least some of those shares. One can say “post hoc” (indeed, if the loan was executed in 2015, some time post hoc), but not propter hoc. ii) There is no evidence about the reasons for the pledge or the circumstances in which it was given. iii) The connection with Piraeus Bank, given the alleged activities of Mr Michailis Logothetis in the so-called scandal, excites suspicion. But the claimants do not seek directly to explain how they fit together. On the face of it, the most that can be said—if all the other parts of the applicants’ reconstruction are accepted—is that Misbourne ostensibly borrowed money from a company connected with Libra which was then used to buy (or ostensibly buy) Piraeus Bank shares, at least some of which were in turn used to secure lending granted by Piraeus Bank to a company associated with George’s father.[28]Mr Coumoundouros died in November 2021, in Paris. When he died, he was habitually resident in Panama and had his home there. He left a holographic will, of which Olivier and George are executors, which provided as I have set out above. The Greek court held that he had died domiciled in Panama, and that as a matter of Greek law succession to his estate is governed by Panamanian law. The expert evidence in this case is that Liberian law would also look to Panama to determine succession, and that in its turn Panama would permit that. Under Panamanian law, a person to whom assets are bequeathed succeeds automatically to them and that although executors may be appointed, succession proceeds automatically whether they are or not. That means that, under the terms of Mr Coumoundouros’s will, Adriana is entitled to be recognised as the owner of at least 50 percent of the shares in Misbourne.[29]In the year or so following Mr Coumoundouros’s death there was occasional mention of Misbourne, which Adriana says George thought should go to her. During this period the debt allegedly owed by Misbourne to GSI was not mentioned. According to Adriana, the first she heard of it was in around July 2023. It was discussed at a meeting in 2023 when, on Adriana’s account, George said he had previously forgotten about it, that it was “messy” because “bad shit happened”, and that he would deal with it by getting Libra to take control of Misbourne and writing off the debt. It was thereafter mentioned from time to time in correspondence. That correspondence, however, covers so many topics (almost none of which were explained in the evidence) that it is difficult to draw any reliable conclusions from it.[30]A little later Mr Markianos told Adriana that he remembered her dad was “trying to help [George] in relation to an investment in Piraeus Bank which turned sour” and that it was “possible” that George’s investment was “done through Misbourne”. He provided copies of resolutions relating to the purchase and pledge of shares and emails relating to the extension of the loan. He has not provided evidence that €45 million (or anything) was received by Misbourne, or that casts any light on the commercial or family rationale for the loan.[31]On 2 December 2024, GSI made a demand for payment, addressed to Misbourne’s Board of Directors. It asserted that a loan of €45 million had been made on 26 November 2015, that €9.46 million had been repaid by set-off (there are oddities about the set-off, since it seems to have involved setting off a debt ostensibly due from Misbourne against a liability allegedly arising to another company, but I do not think that for present purposes they advance matters much), and that €35.53 million in principal and interest bringing the total to €72.22 million was due. GSI demanded repayment in five business days to an account of “Arabella Group Limited”. It threatened that if payment was not made, an event of default would have occurred and it reserved the right to initiate legal proceedings “forthwith and without further reference to the Borrower”. That threat was repeated in a further letter dated 16 December 2024, which purported to give notice of default.[32]On 2 December 2024, both the directors of Misbourne resigned. Both have said that they resigned before the letter of demand was received (which Mr Markianos says was on 3 December 2024). Although the applicants are sceptical, there is no evidence to show that the resignations and the demand were causally connected. The effect of the resignations was, however, to leave Misbourne without directors and in breach of Liberian law, which required it to have at least one director.[33]Apart from the loan agreement, the claimants know little about Misbourne’s assets or liabilities. It is thought to have some investment interest, and a bank account that is either slightly in credit or slightly in debit.[34]This claim was issued on 11 December 2024. On 7 March 2025, a probate judge in Liberia granted Olivier ancillary letters of administration. That order authorised him to take action to preserve the assets of Misbourne, to conduct a fact investigation into its affairs, and expressly to bring this action.

Standing

[35]I can deal briefly with standing. For reasons that I have already explained (namely that the maintenance of a derivative action is primarily a matter of procedural law governed by English law as lex fori), it does not seem to me that the express grant by the Liberian court of power to maintain this action derivatively is decisive. But it is quite clear that either Adriana, as one of those entitled under the will and therefore under Panamanian law, or Olivier, as executor and pursuant to the ancillary letters of administration granted in Liberia, has the requisite standing. One, or the other, or both, is a shareholder of Misbourne. Adriana, directly or indirectly, stands to lose or gain by the depletion or augmentation of its assets. If that were not enough, Olivier, as executor, must be able to make the claim. It does not seem to me to be necessary to resolve the question whether both have standing. One or the other undoubtedly must, if a derivative action is otherwise appropriate.

Prima facie claim

[36]The claim form seeks declaratory relief against GSI and Libra who are the two active defendants (Misbourne is also a defendant, because that is required for a derivative action). There are no particulars of claim, but there is a draft. The claim form indeed indicates that its primary objective is to seek “to defend” the claims asserted by GSI. But in substance the claim is for a declaration (against both GSI and Libra) that Misbourne has no liability to GSI. There is no claim for monetary relief.[37]I pressed Mr Mitchell KC, who appeared for the applicants, about the nature of the claim against Libra. While reserving his clients’ position for the future, Mr Mitchell did not strongly assert that there was, as things stand, a cogent basis upon which he could assert that Misbourne had a prima facie claim against Libra. Libra was not a party to the GSI loan agreement. It does not purport to have been; it is not threatening any proceedings; and it is not alleged to have received anything itself as a result of that agreement. He tentatively suggested that Libra might be joined because it had relevant information. But that is not a legitimate basis for joining a person as a party (other than to Norwich Pharmacal proceedings). For present purposes, I am not satisfied that there is a prima facie basis for granting permission to continue a derivative action against Libra.[38]That still leaves the question whether Misbourne has a prima facie claim against GSI. The claim form makes it clear that the derivative claim is for a declaration that Misbourne is not liable under the alleged loan agreement. It does not set out the factual or legal basis on which that claim is advanced. The draft particulars of claim advance two arguments.[39]The first argument is that the loan agreement is a “sham”. To prove that the loan agreement was a sham, Misbourne would have to establish that when it was concluded neither Misbourne nor GSI genuinely intended it to operate according to its terms. The loan agreement will be a “sham” if, as Diplock LJ famously put it in Snook v West Riding [1967] 2 QB 786 at 802, the documents were “intended by [the parties] to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create”.[40]The second argument advanced by the applicants is that the loan agreement reflected an arrangement where Misbourne acted “as bare trustee for the true beneficial owner of the moneys loaned (i.e. Libra)”. Although presented as an alternative argument, I do not think it is a true alternative, but a different way of expressing the same point. Misbourne could not have been a bare trustee of its obligation to repay the loan: that would make no sense. What the argument offers is an account of what the true position would be if the loan was a sham. It would simply mask an arrangement under which the parties truly intended Misbourne to hold shares in Piraeus Bank as trustee for Libra (or GSI). If the loan was a genuine loan, the fact that Misbourne entered into it qua trustee or in order to finance the purchase of shares that would be held for Libra would not affect its liability to GSI. So, in the end, it all depends on the “sham” argument.[41]That argument is viable as a matter of law. If Misbourne can establish that the loan agreement was a sham, then it would not be liable to GSI. Is the totality of the evidence sufficient to disclose a prima facie case in fact?[42]The language used by David Richards J in Abouraya and approved by Newey LJ in Durnont Enterprises is not entirely easy to apply in the context of an application such as this. On the one hand, it might be interpreted to mean that the claimant surmounts the hurdle if it has a claim that “if unanswered” would suffice. That would invite one to imagine that the defendant simply offers no defence. But if so it would be a hurdle that would be crossed in every case which was not either demurrable or so far-fetched as to be completely unworthy of belief. I am sure that is not what David Richards J or Newey LJ intended, for that would not be “a higher test than a seriously arguable case”. On the other hand, it might be interpreted to mean a case where there is “no answer available”. But that would lurch to the opposite extreme, and reserve derivative actions to cases so strong that they would be routinely disposed of by summary judgment in the claimant’s favour. That cannot be right. What I think David Richards J had in mind was something different. What he had in mind is that the case must be one where the evidence is sufficiently compelling that it demands an answer. If the defendant said “I decline to provide any explanation”, the court’s proper response would be to conclude that if no answer is provided, that is because the claimant’s contentions are probably correct. If, as Morgan J pointed out in Bhullar v Bhullar [2015] EWHC 1943 (Ch), [2016] 1 BCLC 106 at [25], an answer is offered, the court will then ask whether the answer is one that should be accepted without disclosure, cross-examination, or trial.[43]Moreover, at the first stage of permission, the court should be especially careful to hold the right balance. On the one hand, it should be reasonably rigorous in subjecting suspicion to a bracing dose of realism. On the other hand, it should not be too quick to imagine possible answers, or it will end up insisting upon the unanswerable claim. It cannot be, at this stage, for the court to construct speculative answers which a defendant has not offered. It will naturally refuse permission if the claim is legally unsustainable, or if there is a ready answer that carries such force that it is bound to be made and accepted. It will be looking, even at the first stage, for a case which is more than seriously arguable. But not for one that is incapable of rational refutation.[44]In his skeleton argument and orally, Mr Mitchell summarised the core points that the applicants make as follows: i) The loan agreement does not appear to be an arm’s length document. It lacks the sort of detailed terms one would expect in commercial lending on this scale (such as security). It was signed on behalf of the borrower by the general counsel of the lender’s parent, though there is no obvious reason why that should have been done. ii) No reason is known why Misbourne—a wealthy man’s investment vehicle—would have needed, for its own purposes, to borrow €45 million from GSI. The only explanation that has been offered (by Mr Markianos) is that it was done to assist George. But how could George be assisted by Misbourne borrowing money? On the other hand, it is not difficult to see how he might be assisted by Misbourne pretending to borrow money, in order to conceal the true ownership of Piraeus Bank shares (or in other ways, such as by inflating GSI’s assets for audit purposes). iii) That this was the purpose of the document is supported by the fact that on at least one occasion when the loan was rescheduled, this was specifically said to be being done for the purpose of providing a document to auditors. There was no question of the borrower asking for time to pay: it was simply the lender asking for a document for its records. The evidence about other occasions gives the impression that it was being left entirely to Libra to decide what would happen with the loan and the Piraeus Bank shares. There is no indication that any of the arrangements served Misbourne’s own business purposes. iv) It is also supported by the apparent connection to the Piraeus Bank affair. The fact that George was mixed up in dealings involving Piraeus Bank would explain why he decided to cloak his ownership of Piraeus Bank shares in this way. v) This is consistent also with the otherwise inexplicable absence of the loan from any discussion between Mr Coumoundouros’s family until 2023. The explanation that George has given for that absence (forgetfulness) is incredible; the alternative explanation (that the loan was not mentioned because there was no loan) is far more credible. It is consistent too with the fact that the shares pledged were dealt with by Baywest or Libra without reference to Misbourne, seemingly without any consequent reduction in the loan amount, when those shares seem to have had some connection with the “loan”. vi) The loan only “emerged” in the context of the dispute that had broken out between the heirs. Even then, George’s approach (including speculation that the loan would simply be forgiven) would be insouciant in the extreme if this was a genuine loan, but readily explained if it was not.[45]Against those points, I bear in mind the following: i) There are evidential gaps in the story. It assumes a connection between the loan (in 2015) and the acquisition of Piraeus Bank shares (on an unknown date) and their pledge (in 2017) which are not clearly evidenced. It draws a connection with the Piraeus Bank “scandal” without being able to put a finger on what that connection is. ii) Some of the conduct is equally consistent with the loan being genuine, but informal. Between companies in the same group, and between companies owned by close and trusted family members, a degree of informality is common. Security may not be required. Repayment may not be demanded. That does not in itself mean that the resulting legal relationships are not genuine. iii) The same goes for the proposition that the loan was to “help” George. It could have been to help him, and yet have been genuine. It is possible to imagine a genuine agreement by which Misbourne would have purchased the shares and held them and them beneficially, owing money to GSI, and then (at an opportune moment) have repaid the loan by selling the shares or returning them to GSI as an in specie repayment. It would have been possible to “warehouse” the Piraeus Bank shares with Misbourne through a genuine loan and a genuine sale.[46]Those counterpoints may well be worthy of consideration. If GSI does in provide an answer, it may be compelling. If it produces bank statements showing €45 million being transferred to Misbourne, and can explain why that was done, the case may look entirely different. But, for the reasons I have given, that does not seem to me to be the right yardstick. I am not tasked with devising answers that have not been given, or with assessing the value of evidence that is not before the court. Although GSI did send a letter, after the application was made, making various largely procedural points, it did not produce (for instance) documentary evidence of payment. That is not something that I hold against GSI, which is entitled to say “prove your case”. But it underlines my reluctance to speculate about possible answers which have not yet been advanced. I am to ask whether the case the applicants is cogent enough that if it was left unanswered—if no other credible explanation of the transactions was offered—the court would accept it. In my judgment, at this stage of proceedings, it meets that standard.[47]I should deal finally with questions of jurisdiction, which GSI raised in a letter it wrote after the proceedings were commenced. The applicants’ primary case was that such questions are better left until later. I do not agree. It seems to me that, either as a matter of establishing a prima facie case or as part of the exercise of discretion, the court would not permit the continuation of a derivative claim unless satisfied that the claim was one in respect of which it had, or was likely to have, jurisdiction.[48]The loan agreement contains a jurisdiction agreement, and a choice of English law. Under CPR 6.33(2B)(b), a claim can be served without permission if it contains “a contract contains a term to the effect that the court shall have jurisdiction to determine that claim”. And, so far as Misbourne is concerned, CPR 6.33(2B)(c) provides that a claim can be served without permission if it “is in respect of” such a contract—words wide enough to include, the applicants suggest, the joinder of Misbourne.[49]It might be thought that if the contract is a “sham”, then it should not be treated as a contract containing such a term. But Mr Mitchell points out that jurisdiction clauses are separable, and that separability has been widely interpreted, even in cases where the claims include claims that a contract is invalid: see Deutsche Bank v Asia Pacific Broadband Wireless Communications Inc [2008] EWCA Civ 1091, [2008] 2 CLC 520 at [24]–[25].[50]I am not myself sure that Deutsche Bank goes quite as far as the applicants suggest: there must be limits to separability. Longmore LJ recognised this in Deutsche Bank at [26]:
“If, of course, (on analysis) it appears, as it did in Bols Distilleries ([2007] 1 WLR 12) that no agreement was concluded because the parties were still in the realms of negotiation then one can see that there was no agreement about anything (including any jurisdiction clause which might well have been agreed as part of any concluded agreement)”
[51]It might well be said that if the claimant’s case is that an agreement is a sham—not intended to create legal relations—then to describe it as a “contract” is a misnomer: it is a document “dressed up” as a contract, but not in fact one at all. Why, in such a case, should the jurisdiction agreement (however separable or separate) be treated as any less sham than the rest of the instrument?[52]However, it is not necessary to decide that question, or to attempt to define precisely how far the separability doctrine may stretch. For PD 6B para 3(8) permits the court to give permission to bring a claim where “A claim is made for a declaration that no contract exists where, if the contract was found to exist, it would comply with the conditions set out in paragraph (6).” Those conditions include a case of a contract which, if it existed, would be governed by the law of England and Wales. I see no reason why this should apply only if the non-existence of the purported contract is because of a defect in, say, agreement or authority, and not a defect in the intention to create legal relations. Since the loan agreement, if it existed, would be governed by the law of England, that gateway is met.[53]Had I been otherwise satisfied that I should grant permission to bring the derivative claim, I would have granted permission to serve out. I would have been satisfied, for the reasons I have given, that there was a sufficiently arguable case on the merits, and I would also have been satisfied, in view of the terms of the agreement (whether or not genuine) and that English law is the putative applicable law that England is clearly and distinctly the most appropriate forum for the trial of any dispute.

Does the case fall within a category where derivative actions are permitted?

[54]In Daniels v Daniels [1978] Ch 406 Templeman J identified four exceptions to the rule in Foss v Harbottle. Of those, it is the fourth that represents a true exception giving rise to a derivative action. (The others are cases where the shareholders are enforcing their own rights under the company’s constitution.) The applicants here rely only on the fourth exception. Templeman J explained (at 408):
“The exceptions are four in number … The first exception is that a shareholder can sue in respect of some attack on his individual rights as a shareholder; secondly, he can sue if the company, for example, is purporting to do by ordinary resolution that which its own constitution requires to be done by special resolution; thirdly, if the company has done or proposes to do something which is ultra vires; and fourthly, if there is fraud and there is no other remedy. There must be a minority who are prevented from remedying the fraud or taking any proceedings because of the protection given to the fraudulent shareholders or directors by virtue of their majority.”
[55]The archetypal case in which the fourth exception applies is where the majority, in control of the company, have defrauded it. They cannot rely on their control to legitimate their fraud. But, unless a derivative action is permitted to the minority shareholders, they will in practice get away with it. The innocent minority is therefore permitted to bring a derivative action to recover the company’s loss.[56]This case is different in at least two respects. First, the applicants do not seek to recover any loss for the company. They say that the company has a defence to a contractual claim that a third party might bring, and that they should be able to bring an action to pre-emptively assert that defence. Secondly, the applicants do not say that the company is controlled by the wrongdoers. Their case is that they (Adriana under the will, and Olivier as executor) have rights to participate in the company’s management, but that in the absence of any board of directors, the company has no human agent. The need to obtain recognition of their rights following Mr Coumoundouros’s death and to replace the directors who have resigned mean that there is no immediate practical way of taking effective corporate action, so that a derivative claim should be permitted to fill that gap.[57]As to the first point, Mr Mitchell’s research has identified no case where a derivative action has been permitted to enable the company to assert a defence. He says, however, that there is no good reason why it should not be. If an action is permitted to remedy a loss, why not to prevent one? I accept this. If a fraudulent majority threatens to do something that would damage the company, in breach of its rights, the court should not insist that the minority stand by until the damage has been done. Whether quia timet relief is justified may raise discretionary questions at the fourth stage, because the value of precautionary action is often open to debate. But there is no reason in principle why a derivative action could not be wide enough to cover such a claim in an appropriate case. I bear in mind that in Abouraya, at [56], David Richards J regarded it as essential for the derivative claimant to show that the company had suffered a loss. But I do not think he intended, in that comment, to address a case where loss was threatened rather than actual. His concern was, rather, to ensure that derivative actions are properly directed at protecting the assets of the company, rather than at some collateral purpose of the claimants themselves. Such a purpose and connection may be present where apprehended loss is to be prevented, as much as where existing loss is to be remedied.[58]The second difference between this case and the typical one is, however, more fundamental. The nineteenth-century case law that established the relevant exception regarded it as a response to “fraud on the minority”. As stated in those cases, the exception rested on two foundations: that there had been improper conduct adverse to the interests of the company or to its constitutional structure, and that the perpetrators were in control of the levers of corporate power. Thus, in Mason v Harris (1879) 11 Ch D 97, at 107, Jessel MR said “one exception to the rule … is, that where a fraud is committed by persons who can command the majority of votes, the minority can sue. The reason is plain, as unless such an exception were allowed it would be in the power of a majority to defraud the minority with impunity.”[59]It seems likely that “fraud” in this context had its equitable meaning of “improper use of power” (i.e., it was not limited to cases of deceit or dishonesty in the narrow sense). By the turn of the twentieth century it was recognised that common law fraud or conscious dishonesty was not required, so that the exception was extended to the diversion of corporate opportunity (see Cook v Deeks [1916] 1 AC 554). In Daniels, Templeman J was prepared to regard the exception as engaged when directors acted (negligently) in breach of duty which benefited the majority, saying (at 414):
“If minority shareholders can sue if there is fraud, I see no reason why they cannot sue where the action of the majority and the directors, though without fraud, confers some benefit on those directors and majority shareholders themselves. It would seem to me quite monstrous - particularly as fraud is so hard to plead and difficult to prove - if the confines of the exception to Foss v Harbottle … were drawn so narrowly that directors could make a profit out of their negligence.”
[60]There was, therefore, a gradual expansion of the “fraud on the minority” exception. Daniels however, showed that limits remained. Templeman J focused on the fact that the directors and majority shareholders had benefited from the alleged breach of duty (“if … the husband and wife who control 60 per cent. of the shares were responsible for a sale by the company to the wife at an undervalue, which they knew or ought to have known, then a remedy for the minority shareholders ought to lie”: 414). It was on that basis that Templeman J distinguished Pavlides v Jensen [1956] Ch 565, in which Danckwerts J held that no derivative claim lay simply because directors were alleged to have disposed of assets at a negligent undervalue. Moreover, Daniels was clearly a case where the alleged wrongdoers remained in control of the company. Both the Law Commission report on shareholder remedies, which examined the case law in detail, and modern authority, require that the wrongdoing should have benefited those who are and remain in control of the company: see Abouraya at [21].[61]The applicants do not assert that the permitting the execution of the loan agreement (assuming it to have been a sham) was a wrong done to the company from which the directors or sole shareholder benefited. It may arguably have been wrongful, since it may have exposed the company to potential liabilities because of the existence of a misleading document, which might perhaps have been shown to third parties. But even that is not the basis of the applicants’ case; that chicken has not come home to roost. The applicants simply wish to establish that there is no liability as between its ostensible contracting parties. As between GSI and Misbourne, the gravamen of the threatened wrong would lie in GSI’s cynical reliance on a document that was never, so far as GSI and Misbourne were concerned, intended to have legal effect. It would not be a wrong threatened by or with the participation of Misbourne’s management, but by GSI upon the company. And, come what may, it could not be said Mr Coumoundouros or the other directors benefited financially from the agreement. On the contrary, the applicant’s case is that Mr Coumoundouros allowed the loan agreement to be signed as a favour to George, in order to help him. Foolish perhaps, but not venal. That is the sort of allegation that Pavlides holds would not engage any exception to the rule in Foss v Harbottle.[62]In any case, even if it did, it does not seem to me that the applicants can show that the company is under “wrongdoer control”. Mr Mitchell’s contention is that the resignation of the directors suffices. He says that by resigning the directors have left the company—at least temporarily—short of the minimum number of directors required under Liberian law, and unable to take effective corporate action. The court should permit the applicants to step into the breach. I am prepared to accept that it arguable that the directors breached a duty under Liberian law in resigning. However, even if that were so, there is no prima facie case that it forms part of any concerted action with GSI. Suspicious as they may be, the applicants do not have evidence that this was done in conjunction with GSI, or for the financial benefit of the directors: they do not assert that the evidence is sufficient to show a conspiracy between the resigning directors and George.[63]But, says Mr Mitchell, they do not need to do so. The exception, he says, should apply because the case falls within the essential rationale, which is to ensure that a prospective wrong should not go without a remedy. He draws attention to judicial references to the exceptions as “a procedural device to avoid the injustice that would occur where a wrong is suffered for which no redress could be claimed by the affected party” (McGaughey, at [21] and the cases there cited). Mr Mitchell also referred me to Lord Denning MR’s explanation, in Wallersteiner v Moir (No 2) [1975] QB 373 (CA), at 390, that the exception exists to ensure that the law does not “fail in its purpose” and that there should not be “injustice … without redress”.[64]Lord Denning’s comments, however, were made in the context of a very classic exposition of the fraud exception:
“But suppose [the company] is defrauded by insiders who control its affairs—by directors who hold a majority of the shares—who then can sue for damages? Those directors are themselves the wrongdoers. If a board meeting is held, they will not authorise the proceedings to be taken by the company against themselves. If a general meeting is called, they will vote down any suggestion that the company should sue them themselves. Yet the company is the one person who is damnified. It is the one person who should sue. In one way or another some means must be found for the company to sue. Otherwise the law would fail in its purpose. Injustice would be done without redress.”
[65]In my view, the applicants’ argument wrongly treats the rule as coextensive with one part of its rationale. It is true that a reason for the exception is to address a particular situation in which there is an obvious risk that injustice will be done without redress. This does not mean that the exception applies in every case where there is otherwise a risk of injustice. Where wrongdoers who have benefitted from wrongdoing control a company and will stymie any attempt to redress their conduct, an exception applies. There are specific reasons for that. Those who control the company and have acted fraudulently or benefitted from the wrong are disentitled from validly ratifying, condoning, or forgiving their own breach of duty. What lies at the heart of the exception is not simply the justice of remedying wrongs, but the impossibility of those in control to be permitted to take valid decisions for the company where they are caught in an irreconcilable conflict between their own interests and those of the company they run.[66]In Prudential Assurance Co Ltd v Newman Industries Ltd [1982] Ch 204, the Court of Appeal considered an argument akin to the one that the applicants press. In that case, the trial judge had held that an exception applied if “the interests of justice do require that a minority action should be permitted” (see Prudential Assurance Co Ltd v Newman Industries Ltd, at 212). The Court of Appeal regarded that as “widening the scope of the accepted exception”. The court noted that, for procedural reasons, it had not had to consider and had not heard full argument on the scope of the rule. The court nevertheless felt able to make some comments, and in particular to note that they were not convinced that the “interests of justice” test applied by the judge at first instance was a “practical test” (at 221).[67]It does not therefore follow that in any case where there is a risk that the company will not or cannot itself take prompt action to redress a putative wrong done to it by a third party, an exception should be made. For a vague exception would then swallow a principled rule. The rule is that in general the courts leave it to the ordinary corporate processes to decide when and how to act. They do so not because of any Panglossian optimism that those processes always run smoothly, but because an individual shareholder’s basic right is to participate, as a shareholder, in those processes. Their effect may quite often, and for a variety of reasons, be that the company does not or cannot pursue a claim it might otherwise have made. It may not have the money to do so; it may be suffering from some sort of administrative impasse (as here, where the directors have resigned); or there may be some other difference of opinion within the company. Faced with all such practical difficulties, English procedural law generally insists that they should be worked through and worked out using the company’s corporate constitution assisted, if need be, by those courts (here, of Liberia) which supervise and regulate its affairs. That was a point made by the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd, at 224 “The rule in Foss v Harbottle is founded on principle but it also operates fairly by preserving the rights of the majority. We were invited to give judicial approval to the public spirit of the plaintiffs who, it was said, are pioneering a method of controlling companies in the public interest without involving regulation by a statutory body. In our view the voluntary regulation of companies is a matter for the City. The compulsory regulation of companies is a matter for Parliament. We decline to draw general conclusions from the exceptional circumstances of the present case. But the results of the present action give food for thought.” The court went on to discuss the apparently limited benefit that the company would have derived from the proceedings, given their cost.[68]I consider, therefore, that although the interests of justice form part of the rationale for the exception, they do not mark its boundary. Put at its highes, the applicants’ submission comes down to saying that a derivative action is permitted when the interests of justice require it. But the common law proceeds more narrowly. It starts not from a broad and discretionary right to bring derivative actions, but from a general principle whereby the shareholder’s interests operate through established corporate processes (imperfect as they often are). It allows an exception for a particular category of cases, properly defined as those where(a) there is a prima facie case that a wrong has been done to the company,(b) the wrong involves fraud (in the broad equitable sense) or the misuse (including the negligent misuse) of corporate power or assets for the benefit of the company’s management or shareholders and(c) the wrongdoers are in control of the company’s decision-making process and using that control, despite their conflicting interests, to prevent the company taking action that is in its own best interests. The exception therefore applies not simply where there is some practical problem which stands as an obstacle to rapid corporate action, but where a particular conflict of interest strikes at the heart of the ordinary corporate processes.[69]This case is far removed from that. It seemed to me, following the oral hearing, that to put it at its highest, it is a case where the directors and (perhaps) sole shareholder of the company caused it to execute a document for the benefit of a third party (not a director or shareholder), which that third party is now threatening to turn that to the company’s disadvantage, but where the company cannot immediately take swift action (for reasons that are not directly related to that) though it may well be able to do so in the future. Sympathetic as I am to the applicant’s concerns, I cannot regard such a case as permitting derivative action. It would not fall within the proper bounds of any exception to the rule that the company is the proper person to complain of wrongs done to it. Although the precise boundaries of “control” may involve a penumbra of uncertainty, this case falls outside the shadow of any doubt.[70]The applicants’ counsel received my judgment in draft. Mr Mitchell submitted that the characterisation of the applicants’ case, as set out above, was wrong. He accepted that the breach of duty which the derivative action seeks to remedy is that of a third party, GSI. He accepted that GSI does not control Misbourne in the sense of directing or managing its affairs. But, he said, there had still been a wrong—fraudulent in the relevant sense—in the resignation of the directors. That wrong is, on the present evidence, unrelated to the existence of the loan document. But it is still a wrong. And, he submitted, it leaves GSI effectively in control of Misbourne because there is nobody in effective control of Misbourne:
“Misbourne, not being controlled by its board, is, in relation to such claim as GSI has threatened to bring, effectively controlled by GSI”
. There is, he suggested, a “direct connection” between the (alleged) fraud on the company (the directors’ resignation) and the exposure to harm. This connection, he said, meant that there was more than a mere risk of injustice. Even if it went beyond the typical case where the exception is engaged, it was legitimate to combine the wrongful act of the directors (in resigning), the wrongful threats by GSI, and the effect of the first on the company’s ability to address the second, to find that an exception is engaged.[71]The invitation to me to reconsider my provisional conclusion was perfectly proper, and I have carefully done so with the assistance of Mr Mitchell’s additional submissions. But, for the reasons given in this and the next paragraph, I have not changed my mind. I still think that the exception, properly circumscribed, is not engaged by the existence of an arguable wrong against the company that the derivative action seeks to rectify and unrelated misfeasance by those who are in control of the company. It depends on a particular interconnection between them—on the ability of wrongdoers who are the target of the derivative action, by their control of the company, to allow their own wrong to go unremedied with impunity. Here, GSI may be advantaged by the company’s inability to act; but that is not something it has brought about, and it does not “control the company”. The company’s current inability to act promptly is not the result of the wrong that the derivative action seeks to correct: GSI did not procure the directors’ resignation. (The applicants reserved their position on the point; but they rightly did not contend that they could currently advance such an allegation.) The internal wrongdoing which is said to justify recourse to a derivative action (the directors’ resignation) is not the wrong that it seeks to remedy: the directors are not parties, and this court would not be the proper forum in which to hold them to account. These are ships that pass in the night.[72]The requirement of “wrongdoer control”, as conventionally understood and consistently required in the cases, does not mean simply “control by wrongdoers” (much less “lack of effective control as a result of some wrongdoing”). It means “control by those who are responsible for or benefit from the wrong that the derivative action seeks to address”. Take a simple case. A third party wrongs the company. The directors decide to do nothing about it. A shareholder says:
“the directors are behaving badly; reasonable directors would act; that is wrongful; it harms the company; therefore I can take action derivatively”
. The premises of the argument are sound, but the conclusion is not. It would expand the scope of derivative actions well outside the established boundaries. In such situations, the shareholders’ recourse is to the ordinary corporate processes: remove the directors, replace the board, proceed to take the action that should be taken. The exception does not attempt to grapple with every failure by those who control a company, or even most of them. It is concerned with a specific category of such cases—where those who control the company are the alleged perpetrators or have benefited from the wrong that the derivative action seeks to address. That is not this case: GSI may benefit from or plan to perpetrate the alleged wrong that is the subject of the action; but it does not control the company. The former directors, whose resignation places Misbourne in the position that it is, are not alleged to have benefited from the wrong that is the subject of the derivative action, or to benefit from it being left unremedied, or to have participated in it, or to have acted with the purpose of avoiding its prevention. They are not the target of the derivative action. If their actions have harmed the company, the remedy for that is not this action in England, but an action by Misbourne relying on Liberian law in an appropriate forum.[73]That does not leave Misbourne without remedy, though it may be slower and less effective than it might wish. Olivier (as executor, now recognised as such by the Liberian courts), or Adriana (as at least 50 percent owner of the shares under Liberian and Panamanian inheritance law) can take steps to take control of the company. Moreover, my decision deals only with the situation as it stands. If those steps were met by corporate action from George or Nitzia within Misbourne attempting to frustrate proper decision-making, then the position may be different. For then it might be said that, since George appears to have benefited from the wrong, a relevant exception could apply. So it might, too, if there were solid evidence that the directors’ resignation was procured by or carried out in concert with GSI. But not as things stand.[74]In submissions made after my judgment was handed down in draft, the applicants suggested that even if this case involved some extension beyond the clearly established cases, it was an extension at least sufficiently narrow to show a prima facie case, sufficient to surmount the first hurdle and lead to an inter partes hearing. I do not agree. Despite the attractive way Mr Mitchell advanced the argument to bring this case within the fourth exception, it falls well outside any real penumbra of uncertainty. It would require not a small and incremental step from the established categories of exception to accommodate this case, but a large one.

Residual discretionary factors

[75]Because I do not think that there is a prima facie case that this case falls within an exception to the rule in Foss v Harbottle, I must refuse permission. But even if I had thought that it did fall within an exception, I would not have found the discretionary questions simple. Why would the board of Misbourne, if it existed, decide to take positive action in this jurisdiction to seek a negative declaration? Why would it not simply wait and defend itself against a claim by GSI, if such a claim is made? The applicant’s arguments came down to saying that it would do so because of the risk that GSI might proceed somewhere other than England (as, since the jurisdiction agreement in the loan contract is non-exclusive, it might), and that it would be better—in the interests of Misbourne—for proceedings to be in England.[76]I need not decide this. It does not seem self-evident that a reasonable board of directors would decide to seek negative declaratory relief in England. It should not be assumed that a Liberian company would prefer to be a claimant in England (an expensive jurisdiction to litigate in) rather than a defendant in, say, Liberia. Nor am I persuaded, as the applicants submitted, that the directors would be properly influenced by the fact that this is the preference of Olivier and Adriana, bearing in mind that George and Nitzia may also have interests. Indeed, without knowing more about the company’s assets, it is not immediately clear whether it has much real advantage in taking any action at all.[77]However, although I think these are matters which would require further consideration, I would have been content at the first stage of a derivative action to say that a prima facie case had been made out in relation to them. The critical factor would have been that the dispute will revolve around the application of English contract law, and that it is at least plausible that the company (if it has assets worth defending) might be properly advised to prefer those issues to be resolved in England, and disinclined to take the risk that GSI might establish jurisdiction in another forum, not necessarily Liberia, where it would enjoy strategic advantage. I would have regarded those factors as sufficient to establish a prima facie case that the discretion should be exercised in the applicant’s favour, while expecting that it might need to be revisited at the second stage, at which the company could make submissions and where its financial position might well be clearer.

Conclusion

[78]Because I do not consider that there is a prima facie case that this action falls within the proper bounds of a derivative action, I must refuse permission. Mr Mitchell made written submissions as to the proper form of the order. As to this: i) I agree that the principal order to be made is simply that the application should be dismissed. ii) I agree that since no other person has been served, there is no reason to make any order for costs. iii) I do not think it should be left for the court to communicate the order to the company (or the other defendants). GSI at least is aware of the action, and I think the claimants should communicate the result to them. I make it clear that such communication will not amount to service of the claim form, or any order. iv) I initially assumed that the right order would be an order striking out the action. That is on the basis that, as constituted, it is a derivative claim only, but cannot (in light of my decision) continue as such. The court would have power to strike out the claim. However, Mr Mitchell rightly points out that it is possible that Misbourne might decide to take it over, and I can see no legitimate prejudice to GSI if it lies on the court file as a presently un-served claim form. Moreover, striking out the claim might cause prejudice to the applicants if any appeal from my decision succeeds. v) The applicants also sought permission to appeal, and a stay of the dismissal of the application pending appeal. I do not grant permission to appeal. I do not consider that an appeal has a real prospect of success. I am sure, especially with the benefit of the applicants’ further submissions, that I have not mischaracterised the case they make (though I have not accepted it). Although the boundaries of the derivative action may involve fine questions, this case falls well outside them, and I do not think that there is a realistic prospect that the Court of Appeal will consider that the application discloses even a prima facie case for the grant of permission to bring a derivative action. Finally, although the general subject-matter of the case is not without interest, and despite my sympathy for the applicants’ concerns, I do not think that they present a “compelling reason” to reconsider the established scope of the exception as it applies to foreign companies. vi) So the applicants will have to seek permission to appeal from the Court of Appeal. They ask for a stay, on the basis that there is a risk of injustice if a stay is refused: Hammonds Suddard v Agrichem [2001] EWCA Civ 2065 at [22]. I am not sure that a stay is necessary, but I am willing to grant one. If it turns out that the applicants are right, but my dismissal of the application without a stay has enabled GSI to take action against Misbourne which turns out to be improper (for example by obtaining default judgment in another jurisdiction) which the pendency of this application would have prevented, that would be unjust. On the other hand, the pendency of this application causes no unfair prejudice to the defendants, and does not prevent GSI from taking any proper step to enforce any right it legitimately has. I shall therefore stay my dismissal of the application until the later of 21 days after this judgment is given or (if an appellant’s notice is filed) the determination of the application for permission to appeal and any appeal.[79]I wish to add one postscript. This case came before me, sitting in the Commercial Court, because the claimants chose to commence it here. But, although perfectly properly within the business of the Commercial Court, it raises no technical issue of commercial law. What it did raise is questions about the common law of derivative actions, in relation to which the Judges of the Chancery Division have unique experience. The applicants did not invite me to take steps to transfer it to the Chancery Division. I considered doing so of my own motion. I decided not to because a direction had been given by a judge who had considered the papers for the case to be listed in this court for an oral hearing, the applicants had prepared on that basis, with the assistance of counsel I was able to be provided with the relevant authorities and arguments, and it seemed desirable for all parties that there should be no further delay at an early preliminary stage. Had I given first-stage permission, I would have been likely to take steps transfer the case to the Chancery Division for the second inter partes stage. If any similar cases arise in the future, it seems to me that (unless the merits of the case demand some expertise that the Commercial Court is particularly well placed to offer), this sort of case should be commenced and proceed—at least during the permission stages—in the Chancery Division. ADDENDUM: 7 May 2025 At the request of the Incorporated Council of Law Reporting, as this application was attended by only one party, I add the statement required by paragraph 6.1 of Practice Direction (Citation of Authorities) [2001] 1 WLR 1001 that this judgment purports to establish a new principle or to extend the present law.

Cited in 1 later judgment