In Dekel v Clerkenwell Lifestyle Limited, the Commercial Court of the British Virgin Islands declined to grant leave for a minority shareholder to pursue substantial claims on behalf of a capital raising vehicle incorporated in the British Virgin Islands.

Ryan James Turner acted on behalf of Clerkenwell Lifestyle Limited (the “Company”), along with Andrew Willins and Tamara Cameron at Appleby (BVI).

The Case

A mid-sized real estate asset manager had raised approximately £20 million to fund a development project in Clerkenwell, London. The asset manager would go on to manage the project over the subsequent seven years. However, the development was affected by the onset of the pandemic and its consequences for the lending market, among other things, with a substantial impact on the return to subscribers. In those circumstances, the Claimant sought leave to pursue wide-ranging claims against the de jure directors and an alleged shadow director for breaches of their duties under ss 120, 121, and 122 of the BVI Business Companies Act 2004 (“BCA 2004”), and third parties alleged to have been involved in their wrongdoing and therefore to be liable as accessories.

The Company resisted the claim for leave on the basis that the substantive claims had no merit (among other grounds). Mr Justice Mithani agreed. The Judge observed, among other things, that he could not “see any basis for a claim in negligence against RE Capital and/or [the managers of RE Capital] or any other proposed defendant” or how those claims were said to have caused any loss (at [76], [77]), and that the dishonesty-based claims “cannot even get off the ground” due to the absence of any evidence of dishonesty (at [71], [75]).

There are three parts of the judgment that may be of broader interest.

Mr Justice Mithani held that a de jure, shadow or de facto director would benefit from an indemnity in the Articles of Association that had been granted in terms that mirrored s 132 BCA 2004. The directors and a person said to be liable as such were, therefore, excused from liability for any non-fraudulent wrong that might have been committed. The indemnity appears to be in wide use in the articles of British Virgin Islands companies and the judgment confirms the analysis of such an indemnity by the Guernsey Court of Appeal in the well-known judgment in Emerald Bay Worldwide Limited v Barclays Wealth Directors (Guernsey) Limited.

Mr Justice Mithani held that a “director” for the purpose of BCA 2004 includes de jure and de facto directors, but not the category of persons ordinarily labelled “shadow” directors (at [55]). A “shadow” director only has liability under the BVI Insolvency Act 2003, insofar as those provisions are capable of applying, or possibly under the general law (the Judge declining to resolve the conflict in the English authorities in the latter respect).

The claim for leave was premised on the permission of the British Virgin Islands’ Court being required to commence a derivative action on behalf of a BVI company before the English Court. However, Mr Justice Mithani made a number of obiter observations about s 184C(6) of the BCA 2004 and the need for the prior permission of the BVI Court at the beginning of his judgment that are likely to give rise to considerable debate in the British Virgin Islands.

The full judgment is available here