The Privy Council judgment in Nilon
Ltd and another v Royal Westminster Investments SA and others [2015]
UKPC 2 handed down today is important in two respects. First, it clarifies the
scope and ambit of the Court’s statutory powers to rectify a company’s register
of members (s. 43 of the BVI Business Companies Act 2004; s. 125 of the
Companies Act 2006). Secondly, provides a helpful and concise statement of the
law both as to the “necessary and proper party” gateway for service out of the
jurisdiction and the proper approach towards issues of appropriate forum.
The case
“If foreigners incorporate companies in the
BVI they must expect to have to come to the BVI to litigate disputes going to
the membership and administration of such companies”. This sweeping statement
by the BVI Court of Appeal raised the spectre of shareholders of BVI companies
being dragged before the BVI Courts to respond to claims in which the
underlying facts have nothing at all to do with the BVI. The present dispute was just such a case. It
related to an agreement made in England between individuals to operate a
commercial venture through one of the BVI’s 700,000+ holding companies, and a
dispute as to who under the agreement were to be the shareholders.
The Claimants sought to have
their alleged (but disputed) shareholdings recognised by bringing a claim to
rectify the register of members of the company, Nilon, and to join the existing
shareholder, Mr Varma, as a necessary and proper party to that rectification
claim. Throughout, Mr. Varma’s contention was that the BVI was the wrong forum
for the contractual dispute about the venture to take place. Mr Varma succeeded
before the Judge in setting aside initial permission to serve him out of the
jurisdiction, and Nilon had the claim struck out. However, the Court of Appeal
in BVI reversed that decision, holding that rectification proceedings were a
suitable vehicle for the hearing of the underlying contractual dispute and that
BVI was clearly the appropriate forum for such proceedings.
The Privy Council held that
rectification proceedings could not be used to determine questions of
beneficial interests in shares, finding that the English Court of Appeal
decision in Re Hoicrest Ltd [2000] 1 WLR 414 on which the Respondents and
BVI Court of Appeal had placed much reliance was wrongly decided. Although that
finding was determinative of the appeal in favour of Mr Varma and Nilon, the
Privy Council went on to consider the Court of Appeal’s approach to appropriate
forum given that it raised a point of general principle. Before the matter reached the Privy Council
the BVI had introduced new civil procedure rules with a new “gateway” allowing
the BVI Court to assert jurisdiction in any claim that relates to the ownership
of a BVI company, subject to the Court being satisfied BVI is the appropriate
forum. The Privy Council made it clear that the BVI Court of Appeal’s approach
was wrong. The fact that Nilon is a BVI
company was not a factor that outweighed the many factors pointing away from
BVI as the appropriate forum such as where the agreement was made and the
location of the parties and witnesses.
The case has important
implications for the shareholders of the 700,000+ BVI holding companies who
could not have expected to face claims in the BVI Court about ownership of
shares of the company, where the underlying facts have nothing to do with the
BVI.
Stuart Ritchie QC was instructed
in the Privy Council with Richard Snowden QC by PCB Litigation LLP.
Click here for a link to the judgment.
