The common law jurisdiction of the English courts over foreign company derivative claims has not been revoked by the Companies Act 2006.

The Claimant owned 50% of the Third Defendant, a company incorporated in the BVI. It commenced English proceedings, both in its own right and in a derivative action on behalf of the Third Defendant. The claims were brought against the First Defendant, the owner of the other 50% of the Third Defendant, for breaches of, amongst other things, a shareholders’ agreement, and against the First Defendant’s representative director on the board of the BVI company, the Second Defendant, for breaches of fiduciary duty.

The First and Second Defendant applied to the English court for, inter alia, an order setting aside permission to serve the English proceedings out of the jurisdiction.

The High Court acceded to the application to set aside permission in respect of both the claims in the Claimant’s own name and the derivative claims, holding that:

  1. The Claimant had established a real case that the common law jurisdiction over foreign company derivative claims had not been revoked by the operation of Part 11, Chapter 1 of the Companies Act 2006. The court drew support from the decisions of Briggs J in Universal Project Management Services ([2013] EWHC 348 (Ch)) and David Richards J in Abouraya ([2014] EWHC 277 (Ch)) which were consistent with the conclusion that the whole of the common law relating to derivative claims had not been abolished (Paragraphs 27-30).
  2. As a matter of English conflicts law, the law of the country of incorporation of the company governed the right of a shareholder to bring a claim in England (following Konananeni [2002] 1 WLR 1269). Section 184C of BVI Business Companies Act 2004, requiring a member of a BVI company to seek to leave in the BVI court, was a substantive condition precedent to the bringing of a derivative claim in relation to a BVI registered company and thus a requirement that must be complied with as a matter of English conflicts law before such a claim could be brought in England. The Claimant had failed to show more than a fanciful case that it had the right to commence derivative proceedings in the absence of such permission and accordingly permission to serve out in respect of the derivative claims would be set aside (Paragraphs 31-46).
  3. In respect of its personal claims, permission would also be set aside because the Claimant had failed to show that it had more than a fanciful claim for damages which were not reflective of the losses suffered by the Third Defendant (Paragraphs 54-61).

While this was held sufficient to grant the application, the judge went on to bolster his reasoning by considering that the Claimant had failed to establish an arguable case in respect of the alleged breaches of the shareholders’ agreement or a realistic case that the declarations sought would be granted.

Finally, the judge noted that he would have concluded that England was the most appropriate forum giving most weight to the exclusive jurisdiction clause in the shareholders’ agreement than to other factors such as the familiarity of the courts of the country of incorporation with the law applicable to the claims concerning breach of fiduciary duty (given the unlikelihood of material differences with English company law).

Novatrust Ltd v Kea Investments Ltd [2014] EWHC 4061 (Ch), 10 December 2014