Floreat Real Estate Ltd v XYZ et Al

• Jurisdiction: British Virgin Islands
• Judge: Farara JA
• Judgment Date: 03 May 2024
• Judgment citation (vLex): [2024] ECSC J0503-1
• Year: 2024
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: BVIHCMAP2023/0017

Between:

Floreat Real Estate Limited

Appellant

and

[1] XYZ

[2] Chia Hsing Wang

[3] Real Assets (RA) Global Opportunity Fund I Ltd

Respondents

Before:

The Hon. Mde. Vicki Ann Ellis Justice of Appeal

The Hon. Mr. Trevor Ward Justice of Appeal

The Hon. Mr. Gerard St. C Farara Justice of Appeal [Ag.]

BVIHCMAP2023/0017

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Interlocutory appeal — Appeal against order appointing joint provisional liquidators — Standing — Whether Mr. Wang had standing to apply for the appointment of joint provisional liquidators over RAGOF — Bare trusts — Whether XYZ held the XYZ shares on a bare trust for Mr. Wang — Derivative claims — Whether there were special circumstances entitling Mr. Wang to seek the appointment of joint provisional liquidators over RAGOF on a derivative basis — Abuse of court — Subsequent interlocutory proceedings — Whether a subsequent interlocutory application involving the same parties and same issues runs afoul of the abuse of court principles — Whether the dismissal of Ladd v Marshall applications precludes an applicant from introducing that same evidence in the subsequent interlocutory application — The rule in Hollington v Hewthorn — Whether the rule in Hollington v Hewthorn applies to the reliance on decisions of another court in interlocutory applications

The appellant, Floreat Real Estate Limited (“FRE”), is a professional fund incorporated in Jersey and is part of what has been described as the Floreat Group of Companies (“the Floreat Group”). At all material times, FRE served as the investment adviser of Real Assets (RA) Global Opportunity Fund I Limited (“RAGOF”), a fund incorporated under the laws of the Territory of the Virgin Islands (“the BVI”). The Floreat Group, at all material times, managed the assets of RAGOF, which includes real property in England known as ‘Springs Farm’. Certain shares in RAGOF are registered in the name of the first respondent, XYZ a company registered in England (“the XYZ shares”). It is common ground that the XYZ shares are ultimately beneficially owned by Mr. Chia Hsing Wang (“Mr. Wang”), the second respondent. The XYZ shares are held by XYZ subject to a written nominee agreement titled ‘Agreement Concerning Transactions with Non-Traditional Investment Products (NTIP) by [XYZ]’ between Mr. Wang and XY, a Bank, which is the parent company of XYZ (“the XY Nominee Agreement”). The XY Nominee Agreement is governed by the laws of Switzerland and XYZ is not itself a party to the said agreement.

In August and September of 2021, Mr. Wang brought two related sets of proceedings before the Commercial Court in the BVI. In Claim No. 144/2021, he sought and obtained an order of Wallbank J appointing joint receivers over the XYZ shares from Wallbank J. In Claim No. 150/2021, Mr. Wang and the court appointed joint receivers sought an order winding up RAGOF and, in the meantime, an order appointing joint provisional liquidators (“JPLs”) over RAGOF (“the First JPL Application”), which application was granted by Jack J. These orders were made ex parte and were both discharged and not continued by Wallbank J on 19 ^th August 2022 (“the Discharge Judgment”), which decision was upheld by this Court in a judgment delivered on 6 ^th June 2023 (“the First Appeal Judgment”).

On 20 ^th June 2023, some 14 days after the delivery of the First Appeal Judgment, Mr. Wang filed a second application for the appointment of JPLs over RAGOF (“the Second JPL Application”). Mr. Wang asserted that he had standing to move the court to appoint JPLs over RAGOF on the bases that (i) he holds signed instruments of transfer in respect of certain shares held as his nominee by Bank Julius Baer & Co in RAGOF (“the JB shares”), and he was therefore a person to whom shares in a company had been transferred within the extended meaning of ‘member’ in section 2 of the Insolvency Act 2003; (ii) in separate proceedings, he had sought retrospective rectification of RAGOF's share register to record his ownership of the JB Shares; (iii) the application was being pursued on a derivative basis in respect of the XYZ shares which are beneficially owned by him; and (iv) as an applicant for a winding up order over RAGOF, he was entitled to seek the appointment of JPLs.

On 20 ^th July 2023, at an inter partes hearing and in an ex tempore judgment, Wallbank J granted the Second JPL Application. He found that Mr. Wang had standing to maintain the Originating Application brought in Claim No. 150/2021 on 30 ^th August 2021 for the compulsory liquidation of RAGOF derivatively on behalf of XYZ as the registered shareholder of the XYZ shares. Accordingly, Wallbank J ordered that Claim No. 150/2021 be reconstituted so that Mr. Wang becomes the sole applicant and that XYZ becomes the third respondent in the said proceedings. This is the order from which FRE has appealed.

By notice of appeal filed on 11 ^th August 2023, FRE relied on 4 grounds of appeal and in a counter notice of appeal filed on 28 ^th August 2023, Mr. Wang relied on 2 grounds of appeal. However, broadly speaking, two main issues fell to be determined by this Court. These are: (i) Whether Mr. Wang had standing, whether in the derivative sense or as a member of RAGOF within the extended meaning of ‘member’ in section 2 of the Insolvency Act as the owner of the JB shares in RAGOF, to apply for the appointment of JPLs over RAGOF; and (ii) Whether the Second JPL Application was an abuse of process, whether Wallbank J had applied the wrong test and whether his finding of special or exceptional circumstances in granting the Second JPL Application and making the order appointing JPLs, was wrong. Additionally, on Mr. Wang's counter notice of appeal, if the order appointing JPLs were to be set aside, whether Wallbank J's dismissal of Mr. Wang's application for certain alternative relief, including injunctive relief, was wrong.

Held: dismissing the appeal with costs to Mr. Wang, dismissing ground 3(a) of the counter appeal and making no order on ground 3(b) with costs in relation to ground 3(a) to FRE, and making the orders set out at paragraphs 246 and 247 below, that:

• 1. Section 184C of the BVI Business Companies Act 2004 applies only to applications by a shareholder/member to bring a derivative claim or to intervene in existing proceedings in which the company is a party in the name and on behalf of the company. There is no provision in the Insolvency Act 2003 or in any other applicable statute law which provides for an application for permission to bring a derivative claim based on the existence of a bare trust or, absent a bare trust, upon demonstrated ‘special circumstances’. These concepts were developed by the courts to facilitate actions brought by beneficiaries for reliefs to protect and preserve the assets of a trust or trust property, especially in circumstances where such assets or trust property are in real danger of being dissipated or misappropriated, and the trustee refuses or is unable to act to protect the assets or property of the trust. These species of derivative actions are not to be likened to the derivative actions of a ‘member’ of a company brought or undertaken in the name of the company under section 184C, as the beneficiary of the trust is not the registered owner of the shares in the company, and hence not a ‘member’ of the company.

  Section 184C of the BVI Business Companies Act 2004 Act No. 16 of 2004 of the Laws of the Virgin Islands considered; Section 170 of the Insolvency Act 2003 Act No. 5 of 2003 of the Laws of the Virgin Islands considered.

• 2. Separate and apart from the provisions of section 184C of the BVI Business Companies Act 2004, BVI law recognizes and has adopted as part of its procedural and substantive law, the legal concept of derivative claims brought by beneficiaries of shares held in a company. Derivative claims based upon the existence of a bare trust or on the existence of special circumstances requiring the court to act to protect the property or assets of a trust, are available to beneficiaries and may be brought with respect to statutory remedies under the BVI's company law and insolvency regime, including in relation to applications to appoint provisional liquidators. Accordingly, section 184C has no application to ‘derivative trust proceedings’ brought by a beneficiary under a bare trust or in special circumstances. Section 184C was therefore not engaged in the Second JPL Application and no permission of the court below was required for Mr. Wang to bring the Second JPL Application on a derivative basis. In relation to that limb of the Second JPL Application, Mr. Wang was seeking relief not as a shareholder of RAGOF, but in his capacity, purportedly, as the beneficiary under a bare trust of the XYZ shares in RAGOF.

  Roberts v Gill & Co[2010] UKSC 22 applied; Joseph Hayim Hayim and another v Citibank N.A. and another[1987] AC 730 applied; Tipp Investments PCC v Chagala Group Limited et al BVIHC(COM) 2016/102 (delivered 9th November 2016, unreported) followed; Thelma Paraskevaides and another v Citco Trust Corporation Ltd and others BVIHCMAP2018/0046 (delivered 30th March 2020, unreported) followed.

• 3. The concept of an economic interest to be protected, while permitted by virtue of the expanded meaning of the term ‘member’ in section 2 of the Insolvency Act 2003 must be subject to the specific and mandatory terms of the articles of the company in question. Pursuant to Article 17.5.1 of RAGOF's Articles, the prior approval of the Board of Directors of an intended transferee is a mandatory requirement. It is not in dispute that this provision was not complied with by Julius Baer prior to signing the instruments of transfer of the JB Shares in RAGOF to Mr. Wang. In fact, when an attempt was made to seek the approval of the directors, this was done by Mr. Wang's BVI lawyers, and not by the registered shareholder Julius...