Staray Capital Limited And Another V Cha, Yang – Privy Council, On Appeal From The Court Of Appeal Of The Eastern Caribbean Supreme Court (British Virgin Islands)

The Privy Council has upheld changes to a BVI company's Articles of Association, despite these changes being motivated by a desire to exclude a minority shareholder. In doing so, the Privy Council has provided a welcome confirmation of the principles applicable to this contentious area and the case provides an instructive worked example of how to apply these principles when amendments to a company's Articles of Association are challenged.

The Facts

Mr Chen (80%) and Mr Cha (20%) agreed to participate together in a project, with Staray Capital Limited (the Company) being the project vehicle. The relationship swiftly broke down and Mr Chen accused Mr Cha of misrepresenting his legal credentials at the outset, including his job title and his qualification to practise in China and New York.

Mr Chen caused Mr Cha to be removed as a director and passed a shareholders' resolution amending the Company's Articles of Association. The amendments gave the Company an option, upon notice, to compulsorily redeem a shareholder who, inter alia, had made 'material misrepresentations (whether fraudulent or negligent) in the course of acquiring its shares.'

Pursuant to this newly granted power, the Company purported compulsorily to redeem the 20% shares held by Mr Cha on the basis of the alleged misrepresentations concerning his legal credentials. Mr Cha objected and commenced proceedings under section 184I of the BVI Business Companies Act, 2004 (colloquially known as the unfair prejudice provision) seeking relief including the removal of the amendments to the Articles of Association and the cessation of attempts to compulsorily redeem his shares.

The Decision

Mr Cha was successful both at first instance and on appeal in the Court of Appeal. When the matter reached the Privy Council, the Board considered in turn (i) whether the amendments to the Articles of Association should be upheld and (ii) if they should, whether they were properly relied upon in the circumstances.

(i) The Amendments

The Privy Council applied the summary of principles in Re Charterhouse Capital Ltd [2015] EWCA Civ 536. Applying these, the burden falls on the person impugning the validity of the amendment of the Articles of Association to satisfy the court that there are grounds for doing so. This is not an easy task, having in mind in particular that:

A power to amend will be validly exercised if it is exercised in good faith in the interests of the company. It is for the shareholders...