Tonstate Group Ltd & Others v Edward Wojakovski

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Zacaroli
Judgment Date28 Mar 2019
Neutral Citation[2019] EWHC 857 (Ch)
Docket NumberRef. BL-2018-000544/BL-2018-002541/BL-2019-000304

[2019] EWHC 857 (Ch)

TRANSCRIPT OF PROCEEDINGS

IN THE ROLLS BUILDING AT THE HIGH COURTS OF JUSTICE

Fetter Lane

London

Before:

Mr Justice Zacaroli

Ref. BL-2018-000544/BL-2018-002541/BL-2019-000304

Tonstate Group Ltd & Others
and
Edward Wojakovski
Edward Wojakovski
and
Arthur Matyas & Others
Arthur Matyas & Renate Matyas
and
Edward Wojakovski

Mr Michael Todd QC and Andrew Blake instructed by Rosling King LLP for Arthur and Renate Matyas and companies in the Tonstate Group

Mr Neil Kitchener QC and Patrick Harty instructed by Mischon De Reya LLP for Edward Wojakovski

Ms Ruth Den Besten instructed by [**] for the [**] Respondent

28

th MARCH 2019

Mr Justice Zacaroli
1

By a combination of applications made by, respectively claimants (by which I mean Mr and Mrs Matyas and companies in the Tonstate Group) and the defendant (Mr Wojakovski), I'm asked to determine a number of issues concerning the continuation or commencement of certain parts of these proceedings as derivative actions and the extent to which one or more of the relevant companies' assets may be used to fund the prosecution or defence of the various proceedings.

2

I will address first the application by Mr Matyas, for permission to continue the claims by three companies in the hotels groups – that is TH Holdings Limited, Summer Hill Cardiff Limited and Tonstate Metropole Hotels Limited (the yellow companies, being identified as yellow in the plan attached to the claimant's skeleton). He seeks permission to continue the action as a derivative action by him, as the beneficial owner of 50 per cent of the shares in the ultimate holding company of the group, Overseas Holdings Capital Group Limited, a company incorporated in the British Virgin Islands.

3

The claims were properly commenced by the yellow companies due to the presence on the board of each company of a third director, a Mrs Robertson, who voted in favour of the actions being commenced. However, she has now resigned, so each of the companies is deadlocked and unable to give instructions in relation to the claims. This is an application at common law for what is called a double derivative action, necessitated by the fact that each of the companies in the group is deadlocked, being 50 per cent owned and controlled by each of Mr Matyas and Mr Wojakovski. Mr Wojakovski makes no objection to this application, other than in relation to the funding issues which I will come onto later. Given that, I do not propose to deal in any detail with this issue. In short, for the reasons which are set out in some detail at paragraphs 95 to 116 of the claimants' skeleton, I am satisfied this is an appropriate case in which to make the order sought.

4

The second application is for permission to bring claims by five companies in the TGL group, being Glasgow Airport Hotels Holdings Limited and four other companies (the red companies, being identified as red on the same plan I referred to earlier) as a derivative action by TGL. Each of those companies is deadlocked because Mr Wojakovski is in a position to exert negative control due to holding shares which, albeit in a minority, carry weighted voting rights. Here, too, Mr Wojakovski does not object in principle to the claims continuing by a derivative action, but he says they should be continued by Mr Matyas, pursuant to a common law derivative action – a double derivative action – as opposed to by TGL via a statutory derivative action. The sole reason is because if carried on by TGL, then the only way to prevent TGL using its own assets to fund the pursuit of the claims is via an injunction. Whereas if Mr Matyas was required to be the derivative claimant, then TGL's assets could only be used if Mr Matyas succeeded in obtaining an indemnity from the court. Mr Wojakovski recognises that his chances of preventing TGL's assets being so used are increased if Mr Matyas has the burden of having to continue the claims pursuant to a common law derivative action and apply for an indemnity. Again, given that the essential question of the appropriateness of a derivative action, per se, is not in issue, I need not give lengthy reasons. I am satisfied, for the reasons set out in paragraph 73 to 94 of the claimants' skeleton, that, subject to the question of which sort of derivative claim it should be, this is an appropriate case in which to order the action to continue as a derivative one. The relevant requirements, whether of a statutory or a common law claim, are satisfied. Given that the question as to which sort of claim is appropriate is intimately wrapped up with the question of funding, I will come back to that in the context of the funding issues.

5

Turning to those funding issues, I will start with Mr Matyas' application for an indemnity out of the assets of the yellow companies. It is first important to identify precisely what the claimants seek. By their application, they seek a simple indemnity out of the assets of the companies for their own and any adverse costs. Mr Wojakovski and his counsel have understood that as an application for a right, at the end of the proceedings, to be indemnified out of the assets, whatever the result of the proceedings.

6

Mr Todd QC for the claimants has made it clear however, that he is seeking an order that would lead to the companies paying on a ‘pay-as-you-go’ basis, for all costs incurred to date and hereafter in relation to those proceedings. As to one part of the application, namely the costs incurred to date, that clearly sought an order on such a pay-as-you-go basis, as it sought an order for payment of those costs now, not only after the trial. As to the remainder, it depends on whether the word ‘indemnity’ is to be construed as including a right to payment as and when costs are incurred, or only a right to be indemnified after the trial.

Irrespective of that slightly esoteric point, Mr Kitchener QC for the Mr Wojakovski makes the point that the evidence necessary to support such a claim – evidence, that is, going to the relative financial strength of Mr Matyas on the one hand and the companies on the other hand – is simply missing. So far as the main claim is concerned, by which I mean the claim by the companies for breach of duty by Mr Wojakovski, the estimated costs, on the basis that 25 per cent of the costs of the claim as a whole are apportioned to the claims by the yellow companies, are said to be in the region of £1.5m, going forward.

7

The jurisdiction for awarding an indemnity is now to be found in CPR 19.9E, but its foundation goes back to the case of Wallersteiner v Moir (No.2) [1975] QB 373, at pp.403–404, per Buckley LJ:

“Nevertheless, where a shareholder has in good faith and on reasonable grounds sued as plaintiff in a minority shareholder's action, the benefit of which, if successful, will accrue to the company and only indirectly to the plaintiff as a member of the company, and which it would have been reasonable for an independent board of directors to bring in the company's name, it would, I think, clearly be a proper exercise of judicial discretion to order the company to pay the plaintiff's costs. This would extend to the plaintiff's costs down to judgment, if it would have been reasonable for an independent board exercising the standard of care which a prudent business man would exercise in his own affairs to continue the action to judgment. If, however, an independent board exercising that standard of care would have discontinued the action at an earlier stage, it is probable that the plaintiff should only be awarded his costs against the company down to that stage”.

8

I note that he was there considering only the question of awarding costs after the event. However, in other cases, a pre-emptive from of indemnity has clearly been permitted. The claimants refer in particular to the case of Iesini v Westrip Holdings [2009] EWHC 2526 (Ch), per Lewison J at [125], referring to an earlier decision of Michael Wheeler QC sitting as a deputy in Jaybird Group Ltd v Greenwood [1986] BCLC 319 at 327:

“Thus in my judgment Mr Michael Wheeler QC was right in Jaybird Group Ltd v Greenwood [1986] B.C.L.C. 319, 327 to say that an indemnity as to costs in a derivative claim is not limited to impecunious claimants. The justification for the indemnity is that the claimant brings his claim for the benefit of the company (and ex hypothesi under the new law the court has allowed it to proceed). Once the court has reached the conclusion that the claim ought to proceed for the benefit of the company, it ought normally to order the company to indemnify the claimant against his costs.”

9

The claimants also rely upon Wishart v Castle Crofts Securities Ltd [2010] BCC 161, a decision of the Court of Session, per Lord Reid at [71]:

“As we have explained, the rationale of...

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    • Chancery Division
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