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 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.

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.

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.

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.

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.

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.403404, per Buckley LJ:

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:

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]:

In essence the claimants contend that the normal rule is that an indemnity is justified wherever the action is for the benefit of the company. Insofar as the pay-as-you-go aspect of the application is concerned, the claimants rely on the form of order in fact granted in the Jaybird Group v Greenwood case, which appears from page 329 to have involved payment of costs on a pay-as-you-go basis. Mr Kitchener refers me however to two cases which emphasise the caution to be exercised before making a pre-emptive costs order. The first case is Halle v Trax [2000] BCC 1020. This involved a company that was deadlocked, each of the two shareholders and directors holding 50 per cent of the shares. One accused the other of breaches of duty and brought a derivative action. He sought an indemnity out of the company’s assets. Sir Richard Scott V-C held as follows at page 1023F-H:

The second case is Bhullar v Bhullar [2016] 1 BCLC 106. This was an action by a minority shareholder as a double derivative common law claim. Morgan J reviewed all the authorities including Wallersteiner v Moir, Iesini, Wishart and Halle and Trax. His conclusion is accurately summarised at paragraph 5 of the headnote:

So far as the pay-as-you-go aspect is concerned Mr Kitchener relies on Smith v Croft [1986] 1 WLR 580, at 597D-H, per Walton J:

In the light of these authorities, Mr Todd submits that the claim in this case is clearly brought for the benefit of the companies, each of which is on the claimants’ case the victim of Mr Wojakovski’s misappropriation of funds. It is, he says, demonstrably a case that would have been, and indeed was, authorised by an independent director. Once that is accepted, he submits that it follows that it is appropriate that the companies’ funds are used to pay for the action. For Mr Wojakovski, Mr Kitchener contends that that is an oversimplification. This is, he says, in substance a shareholder dispute, because it is Mr Wojakovski’s case that Mr Matyas not only consented to the extractions made by Mr Wojakovski but also indemnified Mr Wojakovski against any claims that may be made in relation to those extractions.

At this stage it is clearly impossible for me to conclude whether Mr Matyas or Mr Wojakovski will succeed at the end of trial. Each side has shown me evidence which, on its face, provides support for their position. I accept in the first place these are claims which properly belong to the companies. If Mr Wojakovski is correct, that all the extractions were authorised, then that might constitute a defence to the companies’ claims, but it does not in itself turn the issue into a shareholder dispute. On any view, given the nature of Mr Wojakovski’s defence - which is in essence that the extractions were structured in the way they were in order to evade tax and deceive investors, all of which was approved by Mr Matyas - it is possible that his actions constituted a breach of duty to the companies irrespective of any question of authority. Equally however, if that is right, then Mr Matyas’ actions (which he admits) in extracting substantial sums for himself via his own companies in a similar way, at least so far as evading tax is concerned, would also constitute a breach of duty to the companies by him, although I emphasise that Mr Matyas has recently made voluntary disclosure to HMRC in an effort to remedy the tax position. But while the actions are properly brought by the companies, it is in the context of this case appropriate to consider the economic reality that these companies are essentially in wind-down, with a view to the remaining assets being distributed to the shareholders. The only substantial asset in the Hotels Group is a single remaining hotel in Cardiff and some cash balances. The only evidence I have in relation to the hotel is that the secured lenders, as a condition to extending the term of lending, have imposed a timetable for its early sale.

In other words, the companies here have no substantive continuing purpose other than to be wound down for the benefit of their shareholders. In these circumstances, while it is true that the claims are for the benefit of the companies, the dividing line between benefit to the companies and benefit to Mr Matyas as a shareholder is far less obvious that it might be in other cases. I consider the approach to be followed is that identified in Halle v Trax and Bhullar v Bhullar: can I be confident that the court would at the end of the proceedings – and whatever the outcome – burden the companies and thus, to the extent that he is a 50 per cent shareholder, Mr Wojakovski with the costs of pursuing them? As to this, if Mr Wojakovski were to succeed, I find it virtually impossible to conceive the court would consider burdening any part of his interest in the companies with the costs of pursuing the claims against him. It would, to adopt the language of the Vice-chancellor in Halle v Trax, be quite wrong.

That, however, is not an end of the matter because Mr Todd stressed that any order he seeks would not be intended to operate that way. It would be without prejudice to the court adjusting the rights of the shareholders in such a way that, if he won, Mr Wojakovski’s economic interests in the companies would not be burdened with any part of the claimants’ costs. In other words, in reality the claimants are not seeking an irrevocable undertaking that the companies bear the costs at all, rather that Mr Matyas’ economic share in the companies’ assets, using that term in a colloquial not a legal sense, should be used to fund the costs of the proceedings in the interim on an ongoing basis. Mr Matyas’ real problem is that, because of the deadlock in the companies, it is impossible for him to access any part of his ‘share’, for example through a distribution of profits. If it were clearly the case that Mr Matyas’ share of the companies’ assets was sufficient to cover the costs between now and the end of the proceedings, then the approach advocated by the Vice Chancellor in Halle v Trax and by Morgan J in Bhullar could be said to be irrelevant. There would be no unfairness in Mr

But I do not think the financial position of the Hotels Group, as disclosed by such evidence as there is, enables me to reach that conclusion. There was no evidence adduced as to the ability of Mr Matyas to fund the action without an indemnity. I accept that such evidence is not a precondition to an indemnity, but it is a relevant consideration to put into the balance when considering the potential unfairness of burdening Mr Wojakovski’s interest in the companies with the claimants’ costs.

Taking the claimants’ evidence at its highest, and recognising that Mr Wojakovski has not had the opportunity to challenge it, assuming the hotel was sold at its full anticipated value and minimal costs or other debts, there would be headroom of just over £5 million. It seems to me that there is more than a minimal risk that the unknown potential liabilities to HMRC and investors would reduce this sum substantially further. When combined with the risk that the sum realised on the sale of the hotel, taking into account costs of sale in particular, may be less than £25 million and the risk that further running costs will dissipate the available cash further, then I can have no confidence that anything other than a relatively small sum would remain by the time of the trial of this action.

For those reasons, I consider the words of the Vice Chancellor in Halle v Trax are apposite. If the action fails, it would be unfair to Mr Wojakovski that his investment in the company should be burdened with any part of the companies’ costs of the unsuccessful action. Accordingly, I refuse the application for an indemnity in relation to the yellow companies.

Turning to the red companies, the financial position here is somewhat different. It is common ground that the TGL Group holds a substantial amount of cash. Mr Wojakovski’s own position has for some time been that his share of TGL is worth more than the value of the claim against him, ie it is worth more than £15 million. It necessarily follows that Mr

Accordingly, if the action were to continue as a double derivative action and Mr Matyas was required to seek an indemnity, then given, as Mr Todd made clear, the indemnity sought would not be such as to prejudice Mr Wojakovski’s right, if he was to succeed, to have all the costs apportioned against Mr Matyas’ beneficial interest in the group, unfairness of the kind envisaged in Halle v Trax should be avoided.

In any event, I consider that where, as here, TGL as a member is capable of pursuing its statutory derivative claim, there is no basis for ordering a double derivative claim. Mr Kitchener contends that derivative actions are merely procedural devices, designed to ensure that practical justice can be done and to avoid the risk that the form of corporate control of companies leads to an inability of the victims of injustice to obtain relief. Accordingly, he contends the court has a broad discretion as to which form of derivative action should be permitted.

There was no authority cited for that proposition. In fact, the authorities point firmly in the opposite direction. In each of Burland v Earle [1902] AC 83 at 93-94, Universal Project Management Services v Fort Gilkicker [2013] EWHC 348 (Ch) and Prudential Assurance v Newman Industries No 2 [1982] Ch 204, at 211, the rationale for the derivative action is stated as being that “otherwise a grievance could never reach the court”. In Gilkicker for example the right to bring the claim was extended at common law to shareholders of a parent company “where the parent company itself is in the same wrongdoer control”.

The common law derivative action is available only where the exceptions to the rule in Foss v Harbottle are established. These include the company being in control of the wrongdoers. In other words, where a company has a claim which it is able to bring because it is not in the control of the wrongdoers then a common law derivative claim is not available.

That conclusion disposes of Mr Wojakovski’s argument that TGL’s directors have a conflict of interest which precludes them making the decision that the action should be brought as a statutory derivative claim as opposed to a common law derivative. Mr Kitchener suggested that the very existence of the conflict, precluding Mr and Mrs

Even if I am wrong, however, for the reasons I have already outlined in considering whether it would have been appropriate to grant an indemnity to Mr Matyas in relation to the assets of TGL I conclude as a matter of discretion that a statutory derivative action is the appropriate course here. In this context, Mr Wojakovski’s argument that the directors of TGL have a conflict of interest does fall to be dealt with. Given, however, the fact that permitting TGL to bring the action as a statutory derivative claim is without prejudice to the question as to whether any part of the costs fall on Mr Wojakovski’s economic share of the assets, and it is clear that the assets of TGL are sufficient to ensure that, if it be appropriate, the entirety of the companies’ cost could be borne by Mr Matyas’ share of the assets, then I do not consider there is any relevant conflict of interest in fact.

The potential for conflict arises in relation to the question as to whether the costs should ultimately be borne by the company so as to fall to any extent on Mr Wojakovski’s share or only on Mr Matyas’ share. But for the reasons I have already given that question would not be determined by any order I make permitting TGL to continue the action.

That leaves Mr Wojakovski’s application for an injunction to restrain TGL from using its assets to fund the proceedings. This is put on two bases: first, that TGL be injuncted against using its assets to fund its own claims, including its own direct claims and the derivative claims it holds; secondly, that TGL be injuncted against using its assets to fund the shareholders’ separate claims and defences.

It is accepted that the principles of American Cyanamid apply. First, is there a serious issue to be tried? If so, second, would damages be an adequate remedy? If so, third, where does the balance of convenience lie?

I will deal first with the issue whether TGL should be prevented from using its assets to fund its own claims. Mr Wojakovski claims there are three serious issues to be tried. First, that there is a breach of contract - the contract being an indemnity provided by Mr Matyas against claims being brought against Mr Wojakovski. Secondly, the contention in the section 994 petition that bringing the proceedings is itself unfairly prejudicial conduct. Thirdly, bringing this claim is a breach of fiduciary duty, it being brought in bad faith. Mr Todd contends that there is no basis for saying that the proceedings are brought in bad faith, or breach of fiduciary duty, particularly when Mr Wojakovski admits to the extractions. It seems to me, however, that if Mr Wojakovski is correct, that all the extractions were authorised and agreed to by Mr Matyas, then there is at least an arguable claim that the proceedings are in breach of the indemnity and or in breach of the alleged understanding that the extractions were permitted, subject to a final reckoning to be undertaken. 31. As to the second and third question, Mr Kitchener relies on Jones v Jones [2002] EWCA Civ 961. In that case, somewhat similar to this case, there were two 50 per cent shareholders/directors. The company brought a claim for breach of duty against one of them, who had started a competing business. This was procured by the vote of the other shareholder/director and his wife. The defendant director alleged that the agreement between the two shareholders was that there was an intentional deadlock, so the wife’s vote could not validly be relied upon to authorise commencement of the proceedings. He commenced unfair prejudice proceedings and sought an injunction to restrain the company’s assets being used to fund its claim. Having concluded that there was a serious issue to be tried, the Court of Appeal does not appear to have addressed, separately, the question whether damages were an adequate remedy. At [31] Arden LJ simply noted that the appellant argued that “Damages is not an adequate remedy and Edward cannot be compensated in money terms for the unfair advantage, obtained by William, using the resources of the company in this litigation”.

At [45] Arden LJ turned straight from considering the serious issue to be tried to the question of balance of convenience. As to that, she concluded as follows:

In my judgement, the single most important distinction between this case and Jones v Jones, is the financial position and state of TGL. As I have already described, it has no continuing business, but is in the process of being wound down for the sole purpose of distributing the remaining cash to its shareholders. It is, as Mr Todd put it, essentially, a cash shell, holding well over £24 million in liquid assets and substantial further assets. On any view, one-half of its net assets will, in due course, be returned to Mr and Mrs Matyas. For the moment, however, the cash is trapped in the corporate structure. As a result, in large part, of the fact that Mr Wojakovski’s extractions have not been fully accounted for, TGL is not in a position to produce accounts and accounts are an essential pre-requisite to any dividend being declared and paid.

As I have already explained, I am satisfied on the evidence that there is more than sufficient headroom in the available cash within TGL to ensure that any costs paid between now and the trial will fall comfortably on Mr and Mrs Matyas’s ultimate share of the assets, on any eventual distribution. Importantly, any arguments that Mr Wojakovski has, on the assumption that he succeeds in these proceedings, that none of the company’s costs should be apportioned against his share of the assets, are preserved. If I were to refuse the injunction, that would be wholly without prejudice to such arguments as he may have in that respect at the end of the trial. Thus if it turns out that it was wrong not to grant an injunction, the prejudice suffered by Mr Wojakovski can be remedied by something akin to damages, that is by adjustment after trial as to which assets of TGL should be burdened with its and with his costs. In other words, damages, or an appropriate equivalent remedy, are a sufficient remedy in the circumstances of this case.

Mr Kitchener points to the fact that TGL may itself be subject to further claims by HMRC and investors, arising out of the extractions. Such claims would have to be in an enormous amount to leave insufficient assets within Mr Matyas’s share, to fund the company’s pursuit of these claims. Even if they were, then the fact is that it is in the company’s interests, taking into account the interests of all its stakeholders including its creditors, that the claim against Mr Wojakovski is pursued. Of course, if there is a risk that creditors’ claims may not be met, then it may be that the company ought to be considering pursuing Mr Matyas as well, in relation to the extractions he admits to have taken. At the moment however, neither side is contending that there is such a risk.

Finally, Mr Kitchener also contends that there is a form of damage which Mr Wojakovski will suffer, if an injunction is not granted, which cannot be adequately compensated by damages. That is, that Mr Matyas will be afforded an unfair advantage by having access to the company’s resources to fund the litigation. This appears to be the argument which found favour with the Court of Appeal in Jones v Jones. Translated to the facts of this case, however, I think the point loses much of its force. That is because, on the basis that TGL is, in substance, a cash shell in wind-down, with substantial liquid assets to which Mr and Mrs Matyas would be entitled on a distribution, an injunction here would in effect be to deprive Mr and Mrs Matyas of access to what will ultimately be their own share of the assets.

As against this, Mr Wojakovski admits that he has extracted many millions of pounds from the company. While Mr Kitchener has made clear on instructions that his solicitors are not accepting payment from the extracted funds, to a large extent those funds were extracted many years ago, such that it is likely now to be difficult to distinguish, in relation to Mr

For those reasons, I decline to order the wider form of injunction sought by Mr

Second, I do consider it would be appropriate to impose some limited restriction on the quantum of funds of TGL which may be used to fund its claims. This arises more properly, however, in the context of the narrower form of injunction sought, to which I now turn.

The narrower form of injunction would prohibit TGL from using its assets to fund the shareholders’ own legal expenses. The principal objection to it is that the company and, more importantly, its solicitors, have stated in clear terms that they have not and will not use the company’s assets to pay any part of the personal costs of Mr and Mrs Matyas. Mr Wojakovski says that the refusal by TGL to give an undertaking to the court that it will not do so constitutes, in itself, sufficient evidence of risk to justify an injunction. I disagree. An injunction can only be granted if there is: “Concrete, strong and tangible risk that an injunction is required in order to do justice in all the circumstances”, see Merck Sharp Dohme Corporation and Teva Pharma, [2013] EWHC 1958, at [56]-[57]. A party is only entitled to demand undertakings in lieu of an injunction in the same circumstances.

Mr Kitchener also points to correspondence which he says demonstrates, at the very least, confusion on the part of TGL’s solicitors, as to how the costs are properly apportioned. An inherent problem here, is that there is always room for reasonable disagreement as to how costs should be apportioned, between four sets of proceedings (the main claim, the part 20 claim, the petition and the shares claim, in which the Matyas’s claim recovery of the shares that were gifted to Mr Wojakovski many years ago). That room for reasonable disagreement is enhanced where there are certain central issues, common to two or more of the claims. If I do not grant an injunction, then there is a risk that Rosling King’s approach might turn out to be wrong, such that a part of the personal costs are paid by the companies. Equally, it is possible that a part of the company’s costs would be paid by the shareholders. Mr Kitchener contends that Rosling King are in a hopeless position of conflict, because they can only determine how to apportion costs in discussion and agreement with Mr Matyas. I do not think that is right. The question as to which of the actions their work should be apportioned is an objective question on which they are bound to exercise their own professional judgement and not merely follow what Mr Matyas tells them.

But if I grant an injunction, the risk of errors in apportionment remains. It is just that there is a vastly increased sanction, including threat of imprisonment, for those who get the apportionment wrong. Mr Wojakovski has demonstrated, by issuing an application to commit Mr Matyas to prison, that he is fully capable of taking such steps. In my judgement, assuming that the risk of mistakes in apportionment is enough to constitute a serious issue to be tried, the injunction sought is not justified on the facts of this case for reasons similar to those I have given in relation to the wider form of injunction. That is, even if Rosling King get it wrong, there is sufficient headroom in Mr Matyas’s share of the assets of the group on any distribution to allow for adjustment at or after trial, so that no part of Mr Wojakovski’s share is ultimately burdened with those costs.

Even if that is wrong as a complete answer, then as a matter of discretion, I would refuse the injunction in the circumstances where (1) it does not solve the problems of apportionment; (2) the apportionment has been undertaken by solicitors; (3) it is inherently inappropriate for the task of apportionment to be undertaken against the backdrop that a mistake could lead to accusations of contempt and risk of imprisonment; and (4) the financial consequences of any error can be dealt with through an adjustment at the end of the trial. Nevertheless, I think that, in addition to the undertakings already offered by the claimants, to which I have referred, there is a third level of protection which is warranted (returning to the point I left over, when dealing with the wide form of injunction).

The evidence educed by the claimants is that TGL’s estimated costs of the main action, being the only aspect where it is entitled to use its assets to pay costs, is £4.5 million. That is, I am told by Mr Todd, however, on the assumption that none of the other proceedings continue. It is therefore before any consideration has been given to the extent to which those costs should be apportioned, as between the main action and any other of the actions.

A further layer of protection I intend to order is that TGL’s ability to use its assets to fund the main action is limited to a specific amount. This is a bright line restriction, which it is easy to comply with and incorporates none of the risks of uncertainty of apportionment which the injunction sought would produce. Without some limitation on the amount which TGL can spend there is at least a theoretical risk that such amounts could exceed the

In conclusion therefore, the result on each of the various applications is as follows: (1) I give permission to Mr Matyas to continue the actions brought by the yellow companies, as double derivative actions; (2) I give permission to TGL to commence derivative actions on behalf of the red companies; (3) I refuse Mr Matyas’ application for an indemnity out of the assets of the yellow companies, in respect of his costs of pursuing their claims as derivative actions; (4) I refuse Mr Wojakovski’s application for an injunction restraining TGL from using its own assets to fund its own costs; and (5) I refuse Mr Wojakovski’s application for an injunction restraining TGL from using its own assets to fund the personal costs of Mr and