[1] Royal Westminster Investments S.A. [2] Bhagwan Mahtani [3] Sunder Dalamal [4] Nari Dalamal Appellants v [1] Nilon Ltd [2] Manmohan Varma Respondents

• Jurisdiction: British Virgin Islands
• Judge: BENNETT, J.A.
• Judgment Date: 16 January 2012
• Neutral Citation: VG 2012 CA 1
• Judgment citation (vLex): [2012] ECSC J0116-2
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: HCVAP 2010/034 AND HCVAP 2011/001 (CONSOLIDATED)
• Date: 16 January 2012

[2012] ECSC J0116-2

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Hugh A. Rawlins Chief Justice

The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mr. Sydney A. Bennett, QC Justice of Appeal [Ag.]

HCVAP 2010/034 AND HCVAP 2011/001 (CONSOLIDATED)

In the matter of a claim for breach of contract and rectification of the register of members of Nilon Limited

In the matter of section 43 of the BVI business Companies Act, 2004

Between:

[1] Royal Westminster Investments S.A.

[2] Bhagwan Mahtani

[3] Sunder Dalamal

[4] Nari Dalamal

Appellants

and

[1] Nilon Limited

[2] Manmohan Varma

Respondents

Appearances:

Mr. Philip Marshall, QC and Mr. John Carrington for the Appellants

Mr. Scott M. Cruickshank for the First Respondent Company

Mr. Richard Snowden, QC and Mr. Ray Ng for the Second Respondent

Civil appeal - Oral joint venture agreement made in another jurisdiction - Rectification of share register - Section 43 of the BVI Business Companies Act, 2004, Act No. 16 of 2004, Laws of the Virgin Islands - Section 359 of the English Companies Act 1985 - The effect of subsection 3 of section 359 of the Companies Act 1985 - Whether the appellants' claim against the first respondent as pleaded raises a 'real issue' between them which it would be reasonable for the court to try - Whether the appellants have a viable cause of action for rectification - Rule 7.3(2)(a) of the Civil Procedure Rules 2000 - Service of claim form on another person who is outside the jurisdiction and who is a necessary and proper party to the claim - Whether the second respondent is a necessary and proper party to the claim - Whether rectification proceedings would be suitable for trial of the disputes between the appellants and the second respondent - Forum non conveniens - Whether the BVI is the appropriate forum for trial of this matter

On 26 ^th October 2002, the second, third and fourth appellants entered into an oral joint venture agreement ("the JVA") with the second respondent, Manmohan Varma ("Varma"), to carry on the business of importing and selling rice in Nigeria. This agreement was made at Rochester, Kent, in England. Under the terms of the JVA, the business was to be carried out through the facility of the first respondent company, Nilon Limited ("Nilon"), incorporated in the British Virgin Islands as a holding company. Each of the appellants involved in the JVA ("the joint venturers") was to contribute to the capital of and to subscribe for shares in that company in certain agreed proportions. The company was to be managed by Varma, who undertook to procure the issue of shares in the company to the joint venturers in the agreed proportions.

Varma arranged the incorporation of Nilon on 7 ^th November 2002 in the BVI and business was subsequently carried out under his management. All three joint venturers, as well as the first respondent company, 1 contributed capital to Nilon and received payments simulating dividends. However, the appellants contended that unknown to them, and in breach in the terms of the JVA, Varma procured that shares in Nilon were allotted only to himself; none of the appellants had been issued any shares in Nilon or its subsidiary companies or had any right to participate in its management.

The appellants initially brought a claim against the respondents in the BVI, seeking rectification of Nilon's register of members on the basis that they were entitled to be registered as holders of shares in the company. On 5 ^th May 2010, the appellants sought permission under rule 7.3(2)(a) of the Civil Procedure Rules 2000 ("CPR") to serve the claim out on Varma, who resided in England. However, at the hearing held on that date, the trial judge pointed out that as the pleading then stood, there was no 'real issue' between themselves and Nilon which it was reasonable for the court to try and to which Varma could be a necessary and proper party. Permission to serve out was refused. The appellants reformulated their pleadings, and on the basis of the amended claim, the judge gave orders for them to serve the claim out of the jurisdiction on Varma in England. On 11 ^th May 2010, the appellants issued proceedings against Nilon and Varma and they were served on Nilon in the territory as of right. On 7 ^th June 2010, service was effected on Varma in England.

On 5 ^th July 2010, Nilon filed an application for a declaration that the court should not exercise its jurisdiction in respect of the claim against it. Alternatively, it sought an order

that the proceedings against it be stayed on the ground of forum non conveniens. Also, on 6 ^th August 2010, Varma applied to the court to have service upon him set aside, arguing that there was no serious issue between the appellants and Nilon to which he could be a necessary and proper party. He argued, in the alternative, that service should be set aside because the BVI was not the appropriate and proper forum.

By judgment delivered on 21 ^st October 2010, the trial judge rejected Nilon's application that the court should decline to exercise its jurisdiction in respect of the claim. He concluded however, that the claim as pleaded did not demonstrate that there was a real issue which it was reasonable for the court to try as between the appellants and Nilon, so that the threshold provided by CPR 7.3(2)(a)(i) was not met and service on Varma out of the jurisdiction should be set aside. Moreover, he concluded that even if the appellants could have shown a plausible claim against Nilon, Varma could not be a necessary and proper party to that claim.

Nilon subsequently applied to strike out the appellants' amended claim against it, or alternatively, for summary judgment on that claim. The appellants argued in opposition to this application, stating that they had a cause of action against Nilon for rectification of its register pursuant to section 43 of the BVI Business Companies Act, 2004 2 ("the BVI Act"). By judgment delivered on 21 ^st December 2010, the judge rejected the appellants' argument, holding that none of the appellants could show that they had a viable cause of action against Nilon under section 43. Nilon's application was granted, and costs were awarded to the company. The appellants appealed.

Held: allowing the appeal; setting aside the order of the trial judge made on 21 ^st December 2010 as well as his decision made on the same date striking out the appellants' claim in this action against the first respondent; deeming the appellants' service of the claim form upon the second respondent in England proper and effective service and restoring the appellants' claim against the first respondent; ordering that the respondents pay the appellants' full costs in this court and the court below, with costs to be assessed unless agreed within twenty one days of the date of this order; and remitting the matter to the Commercial Court for directions for the further conduct of the matter, that:

• 1. The effect of section 359(3) of the English Companies Act 1985 is to give the court a wide discretion as to the scope of the circumstances in which it can be demonstrated that the inclusion or omission is 'without sufficient cause'. The discretion is broad enough to permit inquiry into the substantive cause for the inclusion or omission.

  Re Hoicrest Ltd. [2000] 1 B.C.L.C. 194 applied.

• 2. In the instant case, the court would have jurisdiction to rectify the register where questions concerning the applicant's right to have his name entered on it have arisen between the members or alleged members inter se without involving the company. It is not necessary for the company to be in breach of any of its

  obligations to the applicant for the court to exercise its jurisdiction under section 43 of the BVI Act. The Court may rectify the register notwithstanding that the company is not responsible for the relevant omission or inaccurate entry.

• 3. The discretion conferred on the court by section 43(2) of the BVI Act, to determine any question relating to the right of a party to rectification proceedings to have his name entered in or omitted from the register of members, even if that question arises between the members or alleged members and does not involve the company, requires the court in such proceedings to have regard to equitable as well as legal rights vested in such a party. If the court finds that the applicant has established a beneficial interest to the shares in question, it is empowered to give effect to that interest by declaration and by rectification of the register to accord with the declared entitlement of the appellant to registration as legal owner of the shares.

• 4. Although the information required by section 41 of the BVI Act comprises the names and addresses of persons who hold or are immediately entitled to hold legal title to registered shares in the company, the court is not obliged to strike out an application for rectification of the register where the party claiming such relief is unable to assert a present entitlement to registration.

  Re Starlight Developers Limited [2007] B.C.C. 929 applied;

• 5. To obtain a judgment for rectification, the appellants will have to establish their beneficial ownership of the percentages of issued shares in the first respondent company which are the subject of the claim. Although the outcome of the rectification proceedings will turn on the resolution of a question arising between the appellants and the second respondent, those proceedings will involve an issue to be tried between the appellants and the company: a claim for rectification is primarily against the company and the registered holders of the shares whose registration is in question, if not the applicant.

  Morgan v Morgan Insurance Brokers Ltd. and Others [1993] B.C.C. 145 applied.

• 6. Although there may be some evidential and practical difficulties in the way of the appellants in establishing their claim, it cannot be...