Staray Capital Limited and another v Cha, Yang

A company’s alteration of its articles is valid if made in good faith in the interests of the company. The shareholders, rather than the court, decide whether an alteration benefits the company, unless no reasonable person could regard it as beneficial. Adverse impact on a minority shareholder, even if intended, is not alone sufficient to invalidate it. Materiality of an alleged misrepresentation under a compulsory-redemption provision is judged in context, from the company’s perspective and by practical relevance to the shareholder’s expected role. A respondent seeking to vary or reverse an appellate order must obtain permission to cross-appeal.

The respondent acquired a 20% shareholding in Staray Capital Ltd after making representations about his legal qualifications. Following a breakdown in relations, the majority shareholder amended the company’s articles to permit compulsory redemption of shares held by a shareholder who had made material misrepresentations. A redemption notice was then served on the respondent.

Bannister J upheld the amendment but held the redemption notice invalid. The Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands) dismissed both the appeal and counter-appeal in its judgment dated 14 July 2014. The Privy Council considered whether the respondent could raise issues under the BVI Business Companies Act 2004 without permission to cross-appeal, and whether the amendment and notice were valid.

The Board dismissed both the appeal and cross-appeal. It granted permission to cross-appeal on the issues arising under section 184I of the BVI Business Companies Act 2004.

Scope of the appeal

Appeals are against orders, not judgments. A respondent may argue in the written case that an order should be upheld on grounds different from those relied on below without cross-appealing. However, a respondent seeking to vary or reverse the order must obtain permission to cross-appeal. Permission was appropriate because the issues had been fully argued below, the material was available, the appellants had been able to respond, and full argument had been heard. The absence of an express declaration in the lower court’s order had also contributed to the procedural uncertainty.

Validity of the amendment

The Board applied the principles stated in Citco Banking Corp NV v Pusser’s Ltd [2007] UKPC 13; [2007] 2 BCLC 483, as summarised in In re Charterhouse Capital Ltd [2015] EWCA Civ 536; [2015] 2 BCLC 627. An amendment is valid if made in good faith in the company’s interests. The shareholders determine whether it benefits the company, subject to the limit that no reasonable person could regard it as beneficial. The fact that it adversely affects, or is intended to adversely affect, a minority shareholder does not by itself invalidate it.

The Board respected the trial judge’s evaluation of the evidence and applied the appellate restraint described in Central Bank of Ecuador v Conticorp SA [2015] UKPC 11; [2016] 1 BCLC 26. The amendment was reasonably regarded as protecting Staray by ending its association with the respondent. It was therefore valid.

Validity of the redemption notice

The notice required proof that the representations were both false and material. Materiality was to be assessed in the particular context of the redemption clause and the company’s circumstances. The relevant question concerned the practical relevance of the representations to the respondent’s expected role, rather than abstract definitions or the majority shareholder’s subjective reaction. His technical ability to practise formally in China or New York had no practical significance to the company’s expected activities. The notice was therefore invalid.

The Board found it unnecessary to rule on the admissibility of the further evidence concerning the respondent’s Chinese qualification. It observed that a later annulment, even if expressed to have retrospective effect, could not alter the historical position at the material time. Costs, including those raised in the notice of appeal, were left for written submissions within four weeks.

• Privy Council — The Board granted permission to cross-appeal on the section 184I issues and dismissed both the appeal and cross-appeal: [2017] UKPC 43.
• Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands) — In a judgment dated 14 July 2014, the court dismissed the appeal and counter-appeal and ordered the appellants to pay the respondent’s costs.
• High Court of the British Virgin Islands — Bannister J upheld the amendment to the articles, held the redemption notice invalid, declined to include a final injunction in the order, and awarded the respondent 40% of the relevant costs.