Nilon Limited and another v Royal Westminster Investments S.A. and others

Rectification of a company’s register of members is available only where the applicant has a present right to registration through a valid transfer of legal title. A prospective right, dependent upon specific performance of a contract to allot or transfer shares, is insufficient.

Permission to serve a foreign defendant as a necessary or proper party requires a viable claim against the defendant within the jurisdiction. The claimant must also show that the chosen forum is clearly or distinctly appropriate. Incorporation within the jurisdiction does not establish that requirement where the real dispute concerns an external contract rather than the company’s internal management.

The respondents alleged that Mr Varma had agreed in England to procure the allotment of shares in Nilon Ltd, a company incorporated in the British Virgin Islands. They claimed specific performance against Mr Varma and rectification of Nilon’s register under section 43 of the BVI Business Companies Act 2004.

The Commercial Court held that the respondents had no present entitlement to shares, struck out the rectification claim and refused permission to serve Mr Varma outside the jurisdiction. The Court of Appeal reversed those decisions, holding that section 43 permitted the underlying entitlement to be determined and that Mr Varma was a necessary and proper party.

The central questions were whether rectification could be founded upon an unresolved contractual claim to an allotment of shares and, if so, whether the BVI was clearly the appropriate forum for the claim against Mr Varma.

1. Appeals allowed. Proceedings for rectification may be brought only where the applicant has a present right to registration arising from a valid transfer of legal title. They cannot be founded merely upon a prospective claim which depends on converting an equitable or contractual right into legal title through an order for specific performance. Re Hoicrest Ltd [2000] 1 WLR 414 was wrong in principle to the extent that it permitted the latter course, although its procedural result was understandable as case management.

2. Sections 41 to 43 of the BVI Business Companies Act 2004 are principally concerned with legal title. Section 43(2) permits the court, within properly constituted rectification proceedings, to decide questions necessary or expedient to determine whether a party has the right to be entered in or removed from the register. It does not create an independent jurisdiction to adjudicate a claim for specific performance of an agreement to procure an allotment.

3. The respondents had no present right to registration. Their asserted entitlement could arise only after establishing the alleged contract against Mr Varma and obtaining performance of an obligation to procure an allotment or issue of shares. There was consequently no viable rectification claim against Nilon to which Mr Varma could be joined as a necessary and proper party. The artificiality of using the summary rectification procedure, together with the need to try substantial underlying factual disputes, required the claim against Nilon to be struck out.

4. The Board also concluded, although this was unnecessary to the disposition, that the BVI was not clearly or distinctly the appropriate forum. The Court of Appeal had treated the dispute as one concerning corporate organisation or internal management. In substance, it concerned the terms of an alleged contract made in England to which Nilon was not a party. The witnesses and documents were mainly in England or Jersey, while the business concerned Nigeria and India. Nilon’s BVI incorporation was the only material connection with the BVI.

5. A gateway permitting service out for claims concerning the ownership or control of a BVI company would not remove the separate requirement to establish that the BVI was clearly the appropriate forum. Permission to serve Mr Varma outside the jurisdiction was set aside. Costs were to follow the event, subject to further submissions.

1. Privy Council: The appeals were allowed. The rectification claim was struck out and permission to serve Mr Varma outside the BVI was set aside: [2015] UKPC 2 .

2. Court of Appeal of the Eastern Caribbean Supreme Court: The respondents’ appeals were allowed. The court held that there was an arguable rectification claim against Nilon, that Mr Varma was a necessary and proper party, and that the BVI was the appropriate forum. No citation is stated in the judgment.

3. BVI Commercial Court: Bannister J refused permission to serve Mr Varma outside the jurisdiction and subsequently struck out the rectification claim against Nilon because the respondents had no present entitlement to registered shares. No citation is stated in the judgment.