British Virgin Islands: The Privy Council Provides Guidance On The Use Of Share Register Rectification Claims To Determine Title To Shares

Walkers is often asked to advise on the extent to which section 43 of the BVI Business Companies Act 2004 ("BCA"), which provides for the rectification of a BVI company's share register, can be relied on to determine disputes concerning legal title to shares. The Judicial Committee of the Privy Council in London (the "Privy Council") has recently clarified this issue in the BVI case of Nilon Ltd and another v Royal Westminster Investments SA and others [2015] UKPC2. This article tracks the development of that case from the BVI Commercial Court (the "Commercial Court") and the Eastern Caribbean Court of Appeal (the "Court of Appeal") to the Privy Council. The guidance given by the Privy Council is to be welcomed for clarifying the law in this area.

Section 43 of the BVI Act provides as follows:

"(1) If information that is required to be entered in the register of members under section 41 is omitted from the register or inaccurately entered in the register, or (b) there is unreasonable delay in entering the information in the register, a member of the company or any person aggrieved by the omission, inaccuracy or delay, may apply to the Court for an order that the register be rectified...

(2) The Court may in any proceedings under subsection (1) determine any question relating to the right of a person who is a party to the proceedings to have his name entered in or omitted from the register of members, whether the question arises between (a) two or more members or alleged members; or (b) between members or alleged members and the company; and generally the Court may, in the proceedings, determine any question that may be necessary or expedient to be determined for the rectification of the register of members.".


The Nilon Ltd case concerned a Joint Venture Agreement (the "JVA") that the Claimants alleged had been made orally with Mr Manmohan Varma ("Mr Varma"), who was one of the Defendants, which provided for a new company, Nilon Limited ("Nilon"), to be incorporated in the BVI as a holding company for various operating companies in Nigeria whose business involved the importation and sale of rice. It was alleged by the Claimants that Nilon was to be controlled by Mr Varma on the understanding that he would procure the issue of voting shares in Nilon to them. Together with Mr Varma, they were then going to advance capital to the joint venture in return for an equal profit share in the business.

The Claimants claimed that they contributed funds to Nilon and had received dividend payments from it pursuant to the terms of the JVA. On this basis the Claimants said they were legal and/or beneficial owners in Nilon but alleged that Mr Varma had failed to allot shares in Nilon to them, to enter their names in the register of members or issue them with share certificates. The Claimants accordingly sought, amongst other things, declarations that they were the owners of the agreed proportions of the issued shares in Nilon and an order for the rectification of Nilon's share register pursuant to section 43 of the BCA. Mr Varma, although accepting the alleged reasons as to why Nilon had been incorporated and acknowledging the existence of the profit-sharing arrangements, argued (i) that the contributions the Claimants had made were loans; and (ii) the sums that Nilon had paid the Claimants were not dividends.

The principal issue on the appeal before the Privy Council was whether permission should have been given to the Claimants to serve Mr Varma out of the BVI and whether the claim against Nilon should have been struck out on the basis that there was no sustainable cause of action for rectification. Regarding the rectification claim, the principal point was whether the effect of section 43 of the BCA is that the Court has power to determine the right of the Claimants "to have [their] name entered in...the register of members" on the basis that "the question arises between...members or alleged members and the company." If the answer to that question was no, the Court would not need to consider the service out issue.

The Commercial Court and The Court of Appeal Judgments

At first instance Bannister J found, essentially, that (i) there was no evidence that the name and address of any of the Claimants had been omitted from Nilon's register of members or was inaccurately entered in that register (as was required by section 43(1) of the BCA; (ii) even if the Claimants' contractual claims against Mr Varma under the JVA were successful, those claims would only result in an in personam order against Mr Varma requiring him to procure Nilon to issue new shares, and such an order would give the Claimants no interest in any shares in Nilon; (iii) the jurisdiction to order rectification would not arise unless and until Nilon actually allotted shares to the Claimants which it then neglected to register; and (iv) section 43(2) only has application if section 43(1) is engaged and it cannot be used to determine whether a defendant is in breach of a contract to procure that a company would issue shares.

Bannister J's first instance decision was appealed to the Eastern Caribbean Supreme Court of Appeal. In overturning Bannister J's judgment, the Court of Appeal reasoned that (i) where a person has legal title to the shares the registration of which is in issue, the question which arises will generally be between that person and the company; (ii) that it was plain from section 43(2) of the BCA that the Court would have jurisdiction to rectify the register where questions concerning the applicant's right to have his name entered on the register arose between the members or alleged members inter se without involving the company; and (iii) that it was therefore 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. In determining that the discretion conferred by section 43(2) of the BCA requires the Court to have regard to equitable as well as legal rights and that such questions typically arise when the holder of the shares refuses to clothe the person claiming rectification with legal title, it found that (i) even though the information required by section 41 of the BCA comprised the names and addresses of persons who held or were immediately entitled to hold legal title, the Court was not obliged to strike out an application for rectification where the party claiming the relief was unable to assert a present entitlement to registration; and (ii) that section 43(2) permitted the Court to decide disputes as to entitlement to registration and the Court had ample powers of case management to enable it to determine any such dispute prior to deciding whether or not to permit rectification. In reaching its decision, the Court of Appeal applied the decision of the Court of Appeal in England in the case of Re Hoicrest Ltd [200] 1 WLR 414, which was a decision based on section 125 of the English Companies Act 2006, the statutory equivalent of section 43 of the BCA.

The Ruling of the Privy Council

In Nilon the Privy Council ultimately decided that Bannister J was correct and the Court of Appeal (and the Appeal Court in Re Hoicrest) was wrong. Following an extensive review of the English authorities it noted that there were two points that emerged from the cases: (1) the English Courts have made it clear that the summary nature of jurisdiction makes it unsuitable for resolving substantial factual questions; and (2) Re Hoicrest Ltd appeared to be the only case where it had been decided that it would be sufficient for the applicant for an order for rectification to have a prospective right against the company, and not an immediate right, to be entered on, or removed from, the register. In so concluding, it found that:

"In the view of the Board, proceedings for rectification can only be brought where the applicant has a right to registration by virtue of a valid transfer of legal title, and not merely a prospective claim against the company dependent on the conversion of an equitable right to a legal title... It follows that Re Hoicrest Ltd was wrong as a matter of principle."


This decision brings welcome clarification from the Court of Appeal on the limits of section 43 of the BCA and is to be welcomed. Rectification will only be possible where the applicant has a right to registration by virtue of a valid transfer of legal title. Where, as was the case with Nilon, a Claimant has a prospective right to registration as a member of a BVI company that is dependent on a conversion from an equitable right to a legal title, that entitlement (or otherwise) will be a matter for trial in the Courts of an appropriate jurisdiction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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