Can a party who is only (at best) beneficially interested in shares in a BVI company maintain an action for unfair prejudice?
That was one of the central questions posed in TIPP Investments PCC -v- Chagala Group Limited in proceedings before the BVI Commercial Court.
In his judgment (delivered on 9 November 2016), Justice Davis-White (Ag) emphatically answered that question in the negative. Nothing short of establishing membership of a company, that is, appearance of one's name on the register of members in accordance with Section 41 of the BVI Business Companies Act, 2004 would suffice.
In the case, the Claimant acquired an interest in the Defendant Company's shares (which were listed on the London Stock Exchange) via the CREST trading system. It held that interest by way of depositary interest. Claiming to have suffered unfair prejudice, the Claimant commenced proceedings in the Commercial Court against both the Company and its Directors.
The Defendants took the point that the Claimant was not a shareholder in the Company, since its name did not appear on the register of members. Only the name of the nominee under the relevant depositary interest arrangements appeared. A strike out application was launched. The Claimant sought to argue, inter alia, that its beneficial interest in the shares was sufficient to maintain the action, on the basis, principally, of an earlier decision of the BVI High Court, Headstart Class F Holdings Limited et al -v- Y2K Finance Inc (BVIHCV2007/0278).
The Court in Chagala disagreed and considered that Headstart, to the extent that it lent support to the notion that a mere beneficial interest in shares was sufficient to maintain unfair prejudice proceedings, was wrongly decided. Membership of a company, by way of inclusion in the company's register of members was a necessary component for bringing such an action. Accordingly, since the Claimant failed to satisfy this requirement, the claim failed. Arguments as to estoppel were similarly dismissed. However, on the basis of a late amendment to assert a (double) derivative trust claim, based on the depositary interest saved the claim from being struck out.
The case is a salutary lesson for claimants whose title to BVI shares is not evidenced on the register of members: they must either have themselves entered on to the register of members (for example, collapsing any relevant trust structures) or seek alternative redress.
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