Privy Council Hands Down Decision in Nilon Limited v Royal Westminster Investments

Ian Mann, Partner, Harneys

The Privy Council handed down its decision in Nilon Limited v Royal Westminster Investments SA [2015] UKPC 2 clarifying the power of the courts to rectify the share register of a British Virgin Islands company under s. 43(1)(a) of the BVI Business Companies Act 2004.

The background facts are quite complex, but in essence they revolve around an oral agreement which was entered into between Mr. Varma on the one hand, and several members of the Mahtani family on the other. There was some dispute as to the terms of that oral agreement, but the Mahtani family alleged that Mr. Varma had agreed to incorporate a company (Nilon Limited) in BVI and procure that shares were issued to members of the Mahtani family. The Mahtani family members paid money (which they said were subscription monies, and Mr. Varma claimed were loans) to Nilon Limited, and received interim payments back (which they said were dividends, and Mr. Varma claimed were interest payments) but no shares were in fact ever issued to the Mahtani family members. They brought claims against Mr. Varma for breach of contract, and against Nilon Limited for rectification of the share register to show that they were holders of the shares which they claimed had been agreed in the oral contract.

The issue which the Privy Council had to decide was whether the Mahtani family members had a “good arguable case” against Nilon Limited for rectification of the share register. If they did not, then the claim against Nilon would need to be struck out, and the claim against Mr.Varma would also fail because Nilon was the “anchor defendant” in BVI upon which the claim against Mr. Varma relied (Mr. Varma was not resident in BVI, and so the BVI courts would not otherwise have had jurisdiction over him).

The claim of the Mahtani family against Nilon relied heavily upon the decision of the English Court of Appeal in Re Hoicrest Ltd [2000] 1 WLR 414. At First Instance, Justice Bannister had ruled that Re Hoicrest was incorrectly decided, and struck out the claim. But the Eastern Caribbean Court of Appeal had reversed his decision, holding that Re Hoicrest was good law. The parties then appealed to the Privy Council, and the decision was handed down by Lord Collins.

Lords Collins agreed with Justice Bannister and reversed the Court of Appeal, holding that Re Hoicrest was anomalous in that every other decision in common law legal history had held that there was no right to rectify the share register in such circumstances. Accordingly, the only claim which the Mahtani family had was for alleged breach of the oral contract, and that was a claim which would need to be brought in the English courts, not the BVI courts.

Although this was sufficient to dispose of the appeal, Lord Collins went on to add some obiter dictum comments in relation to the doctrine of forum non conveniens generally. Lord Collins was critical of comments made by the Court of Appeal that because the underlying subject matter of the dispute was shares in a BVI company this meant that “BVI was clearly the appropriate forum for trial as a preliminary issue of the questions arising between the members and alleged members of Nilon.” Lord Collins disagreed, confirming that the primary issue here was the validity of the contract, and the question of which court was the most appropriate forum should be viewed as a matter of contract rather than company law. Given Lord Collins’ status as editor of the leading textbook, Dicey Morris & Collins on the Conflict of Laws, those comments will attract great weight.