Multiple Derivative Actions In The BVI: Tried But Not Tested?

On 8 August 2013, the Court of Appeal issued its ruling in the case of Microsoft Corporation v Vadem Ltd1 . The judgment at first blush appears quite definitive, that "BVI law does not permit double derivative proceedings". The manner in which the case was presented however and recent developments in English case law suggest that, whilst the BVI Business Companies Act 2004 does not provide for double derivative actions, at common law the jurisdiction may well live on.

Background

At first instance, Microsoft made an application for leave under section 184C to bring a derivative claim in Delaware in the name of and on behalf of Vadem Ltd ("Vadem BVI"). Microsoft held just under 12% of Vadem BVI. Vadem BVI itself had a wholly owned subsidiary, Vadem Inc ("Vadem California"), which was the owner of certain patents that were subsequently transferred to another company called Amphus. Microsoft commenced claims in Delaware against Amphus which were struck out on the basis that inter alia Microsoft had not obtained the leave of the BVI court under s184C to bring those claims derivatively in the name of Vadem BVI. It was argued against Microsoft that although it could seek leave in the BVI to bring a derivative claim in the name of Vadem BVI, it could not seek leave to bring such a claim in the name of Vadem California, in effect, a "double derivative" action. At first instance, Bannister J. held that the question was one of pure construction, and the section could not be read as enabling the Court to give the member leave to bring proceedings in the name of and on behalf of "some other company". Proceedings could not be brought "on behalf of" a company unless they were proceedings which the company itself is in a position to bring. In other words, leave given to Microsoft to commence derivative proceedings in Delaware was expressly restricted to enable it to prosecute causes of action belonging to Vadem BVI but not those belonging to Vadem California. Bannister J. specifically rejected Microsoft's submission that the forum in which it intended to prosecute the proceedings (Delaware) recognised the right to a double derivative claim. In His Lordship's view, the member's right to sue was limited to causes of action vested in the BVI company only. It had no authority to prosecute claims vested in a third party.

Appeal

Microsoft appealed. The Appeal Court agreed that the question as to whether Microsoft could bring claims on behalf of Vadem California...