Privy Council Provides Clarification On The Grounds Of A Just And Equitable Winding Up For BVI Quasi-Partnerships: Chu v Lau

• Published date: 28 October 2020
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Walkers
• Author: Miss Rosalind Nicholson and Eleanor Browne

In a recent decision, Chu v Lau [2020] UKPC 24 on appeal from the Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands) (the "Court of Appeal"), the Judicial Committee of the Privy Council (the "Board") reviewed the law in the British Virgin Islands (the "BVI") surrounding a just and equitable winding up where the company in question is a quasi-partnership.

Executive Summary

Upon a review of the case law, and relying heavily on the well-known English authority, Ebrahimi v Westbourne Galleries Ltd (In re Westbourne Galleries Ltd) [1973] AC 360 ("Ebrahimi"), the Board concluded that an irretrievable breakdown in trust and confidence between the participating members may justify a just and equitable winding up, essentially on the same grounds as would justify the dissolution of a true partnership. Further, the dissolution could be ordered even where both parties were to blame for the breakdown, as the operation of the equitable doctrine of clean hands is expressed in this context by the requirement that the applicant should not have been the sole cause of the breakdown in trust and confidence or of the deadlock.

The Board considered that, while it is well-established that winding up is a shareholders' remedy of last resort, that does not mean that winding up is unavailable to members if they have any other remedy.

On the facts presented to them, the Board concluded that there was a quasi-partnership and that there had been an irretrievable breakdown in trust and confidence between the parties. The Board rejected the contention that there were alternative remedies available to Mr Lau and considered that the Court of Appeal had erred in reversing the decision of the trial judge.

This review of the law is a useful clarification of the factors that the BVI High Court (the "BVI Court") will consider when deciding whether to grant a winding up on just and equitable grounds for a quasi-partnership, and confirms the necessary hurdles that a respondent must meet in order to resist such an application.

Background

Chu v Lau concerned two experienced Hong Kong-based businessmen, Mr Lau and Mr Chu who became friends and colleagues, investing in a number of enterprises together. One such investment involved a BVI company called Ocean Sino Ltd ("OSL") in which they each owned one of the two issued shares and were the only directors. OSL had a wholly owned subsidiary, PBM Asset Management Ltd ("PBM"), a Hong Kong company of which Mr Lau and Mr Chu were again the only directors. OSL and PBM were the corporate vehicles for a joint venture with a stateowned entity of the People's Republic of China. The joint venture company was Beibu Gulf Ocean Shipping (Group) Ltd ("Beibu Gulf").

From early 2014 there was a breakdown in the relationship between Mr Lau and Mr Chu that led to an ultimately abortive attempt to sever their many business relationships by agreement and then to various legal claims and cross-claims, mainly in the Hong Kong courts. In 2015, Mr Lau applied to the BVI Court for the winding up of OSL on the just...