Bermuda Bar Council v Walkers (Bermuda) Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hodge,Lord Reed,Lord Kerr,Lord Briggs,Lady Arden |
| Judgment Date | 10 June 2019 |
| Neutral Citation | [2019] UKPC 25 |
| Docket Number | Privy Council Appeal No 0060 of 2017 |
| Court | Privy Council |
| Date | 10 June 2019 |
[2019] UKPC 25
Privy Council
Trinity Term
From the Court of Appeal for Bermuda
Lord Reed
Lord Kerr
Lord Hodge
Lord Briggs
Lady Arden
Privy Council Appeal No 0060 of 2017
Appellant
Michael Todd QC
Kevin Taylor
Philip Gillyon
(Instructed by BDB Pitmans LLP)
Respondent
Lord Pannick QC
Delroy Duncan
Paul Luckhurst
(Instructed by Harcus Sinclair LLP)
Heard on 29 January 2019
( with whom Lord Reed, Lord Kerr and Lord Briggs agree)
Bermuda has sought by legislation and regulation to promote and preserve local control over its economic life. The Companies Act 1981 (“the 1981 Act”) draws a distinction between local companies incorporated in Bermuda and controlled by Bermudians, which may carry on business in Bermuda, and other companies, which, unless exempted, must be licensed by the Minister of Finance to carry on such business. The principal question in this appeal is the nature of foreign control over a local company which would prevent it from being “controlled by Bermudians” and thus require it to be licensed by the Minister.
In the past, legal services in Bermuda were provided exclusively by sole practitioners or partnerships with few partners. Since 2009 Bermudian lawyers have been able to offer professional services in Bermuda through the medium of limited liability companies (“professional companies”) under Part IVA of the Bermuda Bar Act 1974 (“the 1974 Act” (Part IVA having been inserted by section 10 of the Bermuda Bar Amendment Act 2009)). The shares in such professional companies must be legally and beneficially owned by one or more barristers who have valid practising certificates and, as a general rule, all the directors of the professional company must be barristers with such certificates. Section 16C of the 1974 Act empowers the Bermuda Bar Council (“the Bar Council”) to issue a certificate of recognition to a professional company and to cause a list of the names of recognised professional companies to be published in the Gazette.
In May 2015 Walkers Global (“WG”), a partnership established under the laws of and based in the Cayman Islands which has developed an international offshore law business in several jurisdictions, announced that it would expand its business by opening an office in Bermuda and that it would be “the first major international offshore firm to enter the Bermuda market”. Thereafter, in October 2015 Walkers (Bermuda) Ltd (“WBL”) was incorporated as a local company. All of the shares of WBL have been and are held by Bermudian barristers with valid practising certificates. Mr Kevin Taylor, who is the sole director of WBL, holds 99 of the 100 shares. His wife, Rachael Barritt, held the other share. In November 2016 she transferred her one share to Mr Jonathan Betts.
The proposed business relationship between WG, WBL and Mr Taylor does not involve WG having any legal control over or beneficial interest in the shares of WBL. Two draft agreements, a Licensing and Services Agreement (“LSA”) and a Loan Agreement (“LA”) will, if executed, govern the relationship. The LA provides for WG to lend up to US$5m to fund the start-up and operation of WBL's business. The LSA authorises WBL to provide professional services in and from Bermuda under “the Walkers brand” in consideration of a licence fee and enables WBL to draw on extensive services procured by WG, including those of operational management, compliance, finance support, human resources, marketing, information technology, training and project management. Kawaley CJ in his judgment dated 12 January 2017 summarised the proposed contractual arrangements in the following terms at para 16 (and his summary has not been challenged):
“The main elements of the proposed contractual arrangements are as follows:
a) Walkers Global will retain ownership [of] the global brand name ‘Walkers’ and license its exclusive use by [WBL] in Bermuda for a fixed quarterly fee with either party having the right to terminate the contract on 12 months' notice;
b) Walkers Global will supply [WBL] with a comprehensive suite of administrative/managerial support services at rates comparable to those charged to other licensees elsewhere;
c) Walkers Global will provide substantial financial support on terms which reflect a symbiotic relationship between licensor and licensee with Walkers Global in a dominant position.”
The Chief Justice went on to state that the proposed arrangements “clearly propose to confer on Walkers Global a considerable amount of commercial influence over [WBL]” (para 17).
Mr Taylor applied to the Bar Council for a certificate of recognition of WBL as a professional company under section 16C of the 1974 Act. The Bar Council, after corresponding with Mr Taylor, decided on 10 June 2016 to refuse to grant the certificate on the grounds that the terms on which WBL proposed to operate in Bermuda in relationship with WG would contravene section 114 of the 1981 Act which requires local companies which carry on business in Bermuda to be controlled by Bermudians.
WBL appealed by Notice of Originating Motion against the Bar Council's decision. The Chief Justice allowed WBL's appeal, holding that the proposed arrangements regulating the operation of WBL as a professional company were not contrary to section 114 of the 1981 Act or contrary to public policy. In essence, the Chief Justice interpreted section 114 of the 1981 Act when read with Part I of the Third Schedule as prohibiting a local company from carrying on business in Bermuda without a permit from the Minister (a) if there was foreign ownership (legal and/or beneficial) of more than 40% of its shares, (b) if there was foreign control over the voting power of the shares of the majority Bermudian shareholders or (c) if less than 60% of the board were Bermudian directors. He stated (para 51), “local companies … must be in substance as well as in form at least 60% owned and controlled by Bermudians”. He held that the commercial control which the proposed arrangements gave WG over WBL did not infringe section 114 and as a result the Bar Council had erred in its decision.
The Court of Appeal for Bermuda (“Court of Appeal”) (Baker, President, and Bell and Clarke JJA) disagreed. The court interpreted the relevant provisions of the 1981 Act as extending beyond control over the voting power of shareholders to include the substance and reality of commercial control. As a result the court found that a company owned and directed by Bermudians may be controlled (directly or indirectly) by non-Bermudians by means of commercial arrangements which that company has with another party. In reaching this view, the Court of Appeal stated that the Chief Justice had misread the 1981 Act and the judgment of the Board in Bermuda Cablevision Ltd v Colica Trust Co Ltd [1998] AC 198 (“ Bermuda Cablevision”).
The Board is persuaded that, subject to one qualification in para 31 below, the Chief Justice was correct in his interpretation of the 1981 Act and that the Court of Appeal erred in overturning his ruling. As the appeal turns on a question of statutory interpretation, it is necessary to set out the relevant provisions.
Under the 1981 Act there are three types of company: the local company, the exempted company and the overseas company. This appeal is not concerned with the exempted company, which is defined in section 127 of the 1981 Act, or with the overseas company, which is defined in section 2 of the Act as “any body corporate incorporated outside Bermuda other than a non-resident insurance undertaking”. Section 2 defines a local company as “any company incorporated in Bermuda other than an exempted company”.
Part IX of the 1981 Act, which begins at section 113, contains provisions relating to local companies. Section 114 of the 1981 Act (as amended by section 13 of the Companies Amendment Act 1996) sets out the circumstances in which a local company may carry on business in Bermuda and, so far as relevant, provides:
“(1) No local company shall carry on business of any sort in Bermuda unless —
(a) it is a company which, at the relevant time, complies with Part I of the Third Schedule or is a wholly-owned subsidiary of such a company; …” (Emphasis added)
It is sufficient to note at this stage that subsection (1)(a) sets out two options: the local company must comply with Part I of the Third Schedule or it must be a wholly-owned subsidiary of a company which so complies.
Part I of the Third Schedule contains provisions with which a local company carrying on business in Bermuda must comply, unless it is otherwise authorised to do so under section 114. It provides:
“1(1) The company shall be controlled by Bermudians.
(2) Without prejudice to the generality of sub-paragraph (1), at least 60 per centum of the total voting rights in the company shall be exercisable by Bermudians.
2(1) The percentage of Bermudian directors, and the percentage of shares beneficially owned by Bermudians, in the company shall not be less than 60 per centum in each case:
Provided that the company shall not be deemed to be in breach of this paragraph in so far as, and so long as, it is acting in accordance with sub-paragraph (2).
(2) The company shall act in accordance with this subparagraph if the percentage of shares beneficially owned by Bermudians in it falls below 60 per centum by virtue of factors which are beyond its control and it gives notice in writing to the person who is not Bermudian and whose ownership of shares results in the percentage so falling, as soon as the directors become aware of that fact, that —
(a) he must divest himself of his interest in those shares as soon as may be and, in any event, not later than three years from the date upon which he receives the notice; and
(b) he must...
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