Unfair prejudice and beneficial shareholders: A confused noise

While the position regarding the standing of struck off companies in BVI is relatively clear (see last year’s English Commercial Court decision of Maritime Investment Holdings Inc v Underwriting Members of Syndicate 1183 Lloyd’s and Others), the question as to the standing of another class of litigant, one who holds the beneficial – but not legal – ownership of shares in a BVI company, and who wishes to enforce his rights as a shareholder, remains a matter of debate.

There are several circumstances in which a beneficial owner of shares may wish to bring an action for unfair prejudice without the participation of the legal owner of his shares. These include where the legal shareholder holds shares both for his own benefit and on trust for others, as often seen in family companies; or where a nominee is the legal shareholder for numerous different beneficial owners who may have competing interests.

Headstart Class F Holdings Ltd and another v Y2K Finance Inc BVIHCV 278 of 2007; Citco Global Custody NV v Y2K Finance Inc HCVAP 22 of 2008

In Headstart Class F Holdings Ltd and another v Y2K Finance Inc (BVIHCV 278 of 2007), the claimant, Headstart, brought an unfair prejudice claim in relation to shares registered in the name Citco. Headstart said that it was the beneficial owner of the shares and Citco was its nominee. Citco was joined to the proceedings, and the defendant, Y2K, applied to strike out the claim on the basis that there was no evidence of the nominee/beneficiary relationship, so Headstart did not have standing.

The judge at first instance considered the English case of Atlas Ltd & ors v Brightview & ors [2004] BCC 542, and found that s184I permits “applications made by both nominee shareholders and beneficial owners of shares”.[1] She went on to conclude, however, that (i) the claimants had not adduced sufficient evidence to prove the nominee/beneficiary relationship, so Headstart had to be struck out of the claim, and (ii) such of the claim that remained after Headstart was struck from the claim did not amount to an allegation of unfair prejudice by Citco.

On appeal by Citco (Headstart was not a party to the appeal), the Court of Appeal noted that the judge at first instance concluded “that section 184I of the BVI Business Companies Act can be interpreted to include applications made by both nominee shareholders and beneficial owners of shares”,[2] though it did not express any view on this or refer to the decision in Atlas.[3] The Court allowed the appeal on the ground that the judge had applied the wrong test when considering whether or not there was evidence of the nominee/beneficiary relationship, and so had erred in striking out the claim.

The current position in the BVI therefore appears to be that a claim under s184I may be brought by either a legal shareholder or a beneficial owner.

Problems with the current position

The difficulty is that the finding by the first instance judge in Citco Global was based on a clear misreading of the Atlas case, where she confused the English Court’s findings in relation to nominee shareholders (who can bring a claim for unfair prejudice) and in relation to beneficial owners (who cannot, unless the claim is already being brought by a the legal holder of its shares).

While the BVI first instance judge correctly cited and followed the authority in relation to nominee shareholders,[4] she overlooked the relevant discussion and findings in the judgment regarding the petitioners who were beneficial owners. In the Atlas case, Jonathan Crow (sitting as a deputy High Court judge) held that:

  • Section 459 of the Companies Act 1985, which governs unfair prejudice proceedings in England and Wales, confers a right of petition only on ‘a member of a company’ and on those to whom shares have been transferred by operation of law.[5]
  • It was common ground that the beneficial owner Claimant was not registered as a shareholder … and that no shares had been transferred to her by operation of law.[6]
  • The right to petition the court under s459 is conferred only on members and those to whom shares have been transferred by operation of law, and the beneficial owner Claimant did not fall within those categories.[7]
  • There was no proper basis on which the beneficial owner Claimant could be joined as a petitioner.[8]
  • There is some latitude in the range of respondents who can properly be joined … but there is no such latitude in the joinder of petitioners.[9]
  • No rights were conferred on them by s459, and although there may be room for nominal defendants in certain types of proceedings, there was no room for nominal petitioners in this context.[10]
  • A procedural provision such as CPR rule 19.2(2)(a) could not expand the class of claimants on whom a cause of action is conferred by primary legislation. Indeed, the very wording of the rule shows that that was not its intended purpose. The court's power to add parties under rule 19.2(2)(a) is confined to cases where it is desirable ‘so that the court can resolve all the matters in dispute in the proceedings’ … Since it is impossible for a ‘dispute’ under s459 to arise at the suit of a person who is not a member, the rule cannot be invoked to support the joinder of a non-member as a party.[11]
  • The beneficial owner Claimant was to be removed as petitioner.[12]

Grounds to challenge beneficial owner’s 184I claim?

It therefore appears that, in circumstances where a Defendant challenges the standing of a beneficial owner to make a claim under s184I without a legal shareholder as a co-Claimant, a judge of the BVI Commercial Court may decide to follow the decision in Citco Global, on the basis that that aspect of the first-instance decision was not expressly disapproved by the Court of Appeal,[13] and to accept the beneficial owner’s standing to bring the claim, despite the fact that this is based on a clear misinterpretation of the Atlas case.

If such a decision was to be appealed, however, in light of the clear misreading of Atlas, there are good grounds for expecting that the Court of Appeal would re-consider a beneficial owner’s standing to make such a claim without a legal shareholder as a co-Claimant.


[1]        BVIHC(Com) 2007/0278 at [38] (Hariprashad-Charles J); however, her Ladyship noted at [33] that it was “not in contention, that if Citco did act as the nominee for Headstart, then Headstart will be the beneficial owner of the shares in Y2K and thereby, have locus standi in this matter.”

[2]        BVIHCVAP 2008/022at [22].

[3]        It should be noted that Y2K had not cross-appealed the first-instance decision on the ground that the judge was wrong to find that a beneficial owner of shares did not have standing to bring the claim (perhaps because it had not disputed this at first-instance), so the Court of Appeal had not been asked to consider this aspect of the judge’s decision.

[4]        BVIHC(Com) 2007/0278 at [37].

[5]        [2004] BCC 542 at [29].

[6]        Ibid. The provision of the English legislation that confers standing on a person to whom shares have been transferred by operation of law does not have an analogous provision in the BCA.

[7]        Ibid at [31].

[8]        Ibid.

[9]        Ibid.

[10]       Ibid.

[11]       Ibid.

[12]       Ibid at [34].

[13]       It is worth observing that the question of a beneficial owner’s standing to bring an unfair prejudice claim was not material to the decision of the Court of Appeal, which turned on the test applied by the first instance judge. As such, if the Court of Appeal may be taken to have approved the judge’s finding as to a beneficial owner’s standing, this may be regarded as obiter.