Nilon Ltd and another v Royal Westminster Investments S.A. and Others
| Jurisdiction | UK Non-devolved |
| Judge | Lord Collins |
| Judgment Date | 21 January 2015 |
| Neutral Citation | [2015] UKPC 2 |
| Date | 21 January 2015 |
| Docket Number | Appeal No 0043 of 2012 |
| Court | Privy Council |
[2015] UKPC 2
Lord Mance
Lord Sumption
Lord Carnwath
Lord Toulson
Lord Collins
Appeal No 0043 of 2012
Privy Council
From the Court of Appeal of the British Virgin Islands
Appellants
Richard Snowden QC Stuart Ritchie QC
(Instructed by PCB Litigation LLP)
Respondents
Phillip Marshall QC James Mather
(Instructed by Peters & Peters Solicitors LLP)
Heard on 23 rd and 24 th July 2014
These are appeals from a judgment of the Court of Appeal, Eastern Caribbean Supreme Court (Territory of the Virgin Islands). The primary questions which were the subject of argument were (1) whether a claimant (A) can bring proceedings for rectification of the share register of a company (D1) when the reason for rectification is an untried allegation that a defendant (D2) has agreed to allot shares in D1 to A; and (2) if so, whether D2 is a necessary and proper party to A's claim against D1 and whether the BVI is an appropriate forum for A's claim against D.
The first claimant, Royal Westminster Investments SA, is a Panamanian company and is alleged to be the nominee of the second claimant, Mr Mahtani, who is a businessman resident in Nigeria. The third claimant, Mr Sunder Dalamal, is the father-in-law of Mr Mahtani, and was, when these proceedings were instituted, resident in London. The fourth claimant, Mr Nari Dalamal, is the brother of Mr Sunder Dalamal and was resident in London. It is now said by the claimants that the third and fourth claimants are resident in India. The first claimant plays no substantial role in these proceedings and can be ignored for present purposes, and the claimants will be referred to as "the Mahtani parties."
The first defendant, Nilon Ltd ("Nilon") is a BVI company which was incorporated on November 7, 2002 by the second defendant, Mr Manmohan Varma ("Mr Varma"), who is resident in London. Mr Varma is registered as the sole shareholder of the issued shares in Nilon in Nilon's register of members.
The Mahtani parties have brought proceedings in the BVI against Mr Varma for breach of a contract to procure the issue of shares in Nilon to the Mahtani parties, and against Nilon for rectification of its share register to show the Mahtani parties as shareholders. The principal issue on this appeal was whether permission should have been given by the BVI court to the claimants to serve Mr Varma out of the BVI, but there is also an issue whether the claim against Nilon should have been struck out on the basis that there was no sustainable cause of action for rectification. Whether there was a cause of action against Nilon is, as will appear, also central to the question whether permission to serve Mr Varma outside the BVI should have been given, and for that reason Nilon is a party to this appeal, although it has taken no active part in it.
The Mahtani parties allege that it was agreed orally between Mr Varma and them at a meeting in Rochester, Kent in England on October 25, 2002 ("the Joint Venture Agreement") that:
(1) A new company would be incorporated in the BVI to be called Nilon, which would be operated from Jersey as the holding company of Nigerian operating companies, whose businesses involved the importation and sale of rice to Nigeria.
(2) The executive decision making powers of Nilon would be in the hands of Mr Varma and/or companies associated with him, who would be paid a management fee for managing Nilon and/or the operating companies owned by Nilon.
(3) The Mahtani parties and Mr Varma as joint venture partners would remit an initial down payment to a bank account to be opened in Jersey in the name of Nilon as capital for the joint venture.
(4) Each joint venture partner would be entitled to an equal profit share for the rice cargo venture business run by Nilon, which was to involve the importation of rice from Nigeria and onwards sale.
(5) Mr Varma would procure and/or co-operate in procuring the issue of voting shares in Nilon (in accordance with their entitlement to profits derived from the establishment of a rice cleaning plant which was to involve initially the importation of brown rice from India and the processing of it in Nigeria) in these proportions: Mr Varma would own 37.5% of the issued shares in Nilon; 5% would be allotted to a local Nigerian investor to be agreed between the joint venture partners; and the remaining 57.5% would be allotted to the Mahtani parties in the following proportions: 37.5%, 10%, 10%.
The Mahtani parties allege that they contributed funds to Nilon in pursuance of the Joint Venture Agreement and received dividend payments from Nilon pursuant to it. They claim to be legal and/or beneficial owners in Nilon, but that Mr Varma failed to procure the allotment of shares in Nilon to them, or the entry of their names in its register of members, or the issue of share certificates to them. Consequently they claim declarations that they are owners of the agreed proportions of the issued shares in Nilon, and an order that the share register be rectified pursuant to section 43(1)(a) of the BVI Business Companies Act 2004 ("the BVI Act") to give effect to the Joint Venture Agreement. They also claim an order for specific performance of the Joint Venture Agreement, and damages in lieu of or in addition to specific performance.
In his defence Mr Varma accepts that there was an agreement reached on October 25, 2002 concerning certain terms of a joint venture between him and the Mahtani parties. Those agreed terms included: (1) the incorporation of Nilon in the BVI to operate in Jersey as the holding company for the operating companies of the joint venture; (2) the opening of a joint venture bank account in Jersey into which each joint venture partner would make an initial contribution by way of loan; (3) profit-sharing arrangements in respect of (i) the importation business (25% each) and (ii) the manufacturing business (in the proportions claimed by the Mahtani parties); (4) all control and decision-making powers would vest in him or his group of companies, who would receive a management fee. He accepts that sums were remitted by the Mahtani parties, but says that these were loans and were not remitted for shareholdings in Nilon, and that the sums paid by Nilon to them were not dividends.
Nilon filed a separate defence, in which ( inter alia) it denies that the Mahtani parties are entitled to rectification of the register and denies that it has refused to give effect to any legitimate rights of the Mahtani parties in it.
The Mahtani parties applied to the BVI Commercial Court (without notice) for permission to serve Mr Varma out of the jurisdiction. The procedural background is complex, but for the purposes of this appeal, it is only necessary to say that Bannister J initially refused permission to serve out of the jurisdiction because there was no real issue between the Mahtani parties on their rectification claim, since the Mahtani parties were not shareholders in Nilon and there was no allegation that Nilon itself had agreed to allot shares to them, and for essentially the same reason he subsequently struck out the claim against Nilon. The Court of Appeal allowed appeals by the Mahtani parties and decided that there was an arguable claim against Nilon, to which Mr Varma was a necessary and proper party. The principal point of law, whether there is a sustainable claim for rectification of Nilon's share register, is the same in both appeals, and the Board, like the parties, will treat Mr Varma's appeal as the principal appeal.
The application to serve Mr Varma out of the jurisdiction was made under BVI CPR 7.3(2)(a) which provided at that time as follows:
"(2) A claim form may be served out of the jurisdiction if a claim is made —
(a) against someone on whom the claim form has been or will be served, and —
(i) there is between the claimant and that person a real issue which it is reasonable for the court to try; and
(ii) the claimant now wishes to serve the claim form on another person who is outside the jurisdiction and who is a necessary and proper party to that claim."
This Rule was substantially similar to the present rule in England (CPR Practice Direction 6B, para 3.1(3)), except that where the BVI rule refers to "necessary and proper party" the English rule (like its Order 11 predecessor since the 19 th century) uses the expression "necessary or proper party." Nothing turns on the difference in this appeal.
The BVI Rule has subsequently been amended to use the expression "necessary or proper party" and a new head of jurisdiction has been added to allow service out of the jurisdiction if the subject matter of the claim relates to ( inter alia) "the ownership or control of a company incorporated within the jurisdiction" (Rule 7.3(7), introduced by the Eastern Caribbean Supreme Court Civil Procedure (Amendment) Rules (SRO 47 of 2011, in force from October 1, 2011).
The applicable principles relating to service out of the jurisdiction were set out, with references to the prior authorities, in AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7, [2012] 1 WLR 1804, at para 71, per Lord Collins. On an application for service out of the jurisdiction, three requirements have to be satisfied. First, the claimant must satisfy the court that in relation to the foreign defendant there is a serious issue to be tried on the merits, i.e. a substantial question of fact or law, or both. Second, the claimant must satisfy the court that there is a good arguable case that the claim falls within one or more classes of case in which permission to serve out may be given. In this context "good arguable...
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