The Hong Kong Court has held that a shareholder in a BVI company seeking to bring a derivative claim in Hong Kong must first obtain the permission of the BVI Court under Section 184C of the BVI Business Companies Act, 2004.
In Wong Ming Bun v Wang Ming Fan and Others1, the Plaintiff sought to bring derivative proceedings on behalf of Creative China Limited, a BVI incorporated company in which he was a shareholder ("the Company"). The Company's principal asset was a majority stake in a Hong Kong Listed company. The Defendants applied to strike out the Claim on the footing that the Plaintiff required, and had not obtained, the permission of the BVI Court under Section 184C of the BVI Business Companies Act, 2004 ("the Act") before commencing derivative proceedings. This application succeeded: the Claim was struck out.
The issue for the Court in Wang was whether BVI law or Hong Kong law governed the Plaintiff's locus standi to mount a derivative action. The Hong Kong Court held that the question whether a shareholder can commence a derivative action in the name and on behalf of the company is a matter of substantive law, and, accordingly, is governed by the law of the place of incorporation. In so doing, the Court followed the decision of the Hong Kong Court of Appeal in East Asia Satellite Television (Holdings) Ltd. v New Cotai LLC  3 HKLRD 734 and that of Lawrence Collins J in Konamaneni v Rolls Royce Industrial Power (India) Ltd.  1 WLR 1269.
The BVI common law principles relating to derivative actions on behalf of BVI companies have been replaced by Section 184C of the Act. Any member wishing to bring an action in the name and on behalf of a BVI company must follow the procedure set out in that section.
Section 184C(1) of the Act provides that the BVI Court may, on the application of a member of a BVI company, grant leave to that member to:
(1) bring proceedings in the name and on behalf of that company; or
(2) intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company.
In deciding whether to grant leave under Section 184C(1) of the Act, the Court must take the following matters into account:
(1) whether the member is acting in good faith;
(2) whether the derivative action is in the interests of the company taking account of the views of the company's directors on commercial matters;
(3) whether the proceedings are likely to succeed;
(4) the costs of the proceedings in relation to the relief likely to be obtained; and
(5) whether an alternative remedy to the derivative claim is available.
Section 184C(3) of the Act provides that leave to bring or intervene in proceedings may be granted under Section 184C(1) only if the Court is satisfied that:
(1) the company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or
(2) it is in the interests of the company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders or members as a whole.
Section 184C(6) of the Act provides that except as provided in the section, a member is not entitled to bring or intervene in any proceedings in the name of or on behalf of a company.
In Nigel Gray v Allan Leddra and Pro-Flex Packaging Co Limited BVIHC (COM) 79 of 2011, Bannister J, sitting in the BVI Commercial Court, set out the position on derivative actions under BVI law as follows and held that to attempt to bring a derivative claim without the permission of the Court is an abuse of process. He explained his reasons thus:
"A derivative action requires permission under section 184C. In considering whether to grant permission, the Court here is mandated to take into account a number of important considerations. The Court may not give permission unless it is satisfied that the company itself does not intend to make the claim and that it is in the interests of the company that conduct of the proceedings should not be left to the company or to a majority of its board or of its members. These conditions are of so stringent a nature that in my judgment it is an abuse of the process to attempt to mount a derivative claim without the consent of the Court under section 184C."
It followed, therefore, that had the Plaintiff in Wong brought his claim in the BVI without first obtaining leave of the BVI Court, it would have been liable to be struck out as an abuse of process (as a matter of BVI law). In Wong, it was held by the Hong Kong Court that BVI law governed the position in Wong and as under BVI law, a shareholder can only commence a derivative action in the name and on behalf of the company with leave of the BVI Court, and no leave from the BVI Court had been obtained, the Claim was an abuse of process and was struck out.
The Court also observed (obiter) that there was (i) no suggestion and no authority to support a suggestion that leave from the BVI Court could be obtained retrospectively after a derivative action had long been commenced and (ii) no authority to support the proposition that such retrospective leave, even if permissible under BVI law, could be obtained, not from the BVI Court, but from a Hong Kong Court.
Wong therefore establishes that, as a matter of Hong Kong law, a derivative Claimant must obtain the permission of the BVI Court to pursue a derivative claim in respect of a BVI company in Hong Kong. Interestingly, the BVI Commercial Court itself has yet to be asked to consider the question whether a foreign court can give such permission effectively. Many issues in connection with the cross border elements of derivative relief therefore remain.
Conyers Dill & Pearman acted for the Company in Nigel Gray v Allan Leddra and Pro-Flex Packaging Co Limited BVIHC (COM) 79 of 2011.
1  HKCFI 82;  1 HKLRD 1108; HCA1985/2012 (21 January 2014)
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