BVI: Privy Council Considers Approach to Winding Up in "Deadlock" Cases

The Judicial Committee of the Privy Council has handed down judgment in the case of Chu v Lau  [2020] UKPC 24 (on appeal from the British Virgin Islands) on 12 October 2020. Walkers' Partner Rosalind Nicholson and Associate Renell Benjamin appeared for the successful Appellant, Mr Lau. The Board's decision is an important one and brings welcome clarity to the approach which the Court will adopt in considering whether a shareholder is entitled to the remedy of winding up on the just and equitable ground. Since BVI law is similar to English law in this area, the decision is likely to be of interest to English practitioners as well as to BVI practitioners dealing with shareholder remedies.

Chu v Lau concerned a shareholders dispute between the two equal shareholders in a BVI company, Ocean Sino Limited ("Ocean Sino"), which was operated as a quasi-partnership between them. Over time, the relationship between the two partners deteriorated and, following unsuccessful attempts to separate their business interests,  Mr Lau ultimately filed an application in the BVI Commercial Court to wind up Ocean Sino on the just and equitable ground. The trial Judge (Justice Roger Kaye QC (Ag.)) found that that there was an irretrievable deadlock and breakdown in relations between Mr Lau and Mr Chu, at the time the proceedings had been commenced and which continued at the date of the trial and made an Order winding up Ocean Sino. Mr Chu appealed to the Eastern Caribbean Court of Appeal ("ECCA") who allowed the appeal and overturned Justice Kaye's Order. The ECCA also refused Mr Lau leave to appeal to the Privy Council. However, having granted Special Leave and expedited Mr Lau's Appeal, the Judicial Committee of the Privy Council allowed the Appeal and reinstated the Order of Justice Kaye.

The Board's advice addresses a number of issues which frequently arise on a shareholder's application to wind up a BVI company on the just and equitable ground, including the importance of the applicant's responsibility for the breakdown in the relationship between the shareholders and what is to be deemed an "alternative remedy" which renders the applicant's pursuit of a winding up unreasonable. In particular, Lord Briggs and Lady Arden in separate speeches, considered the question of deadlock between the shareholders as a grounds for just and equitable winding up. Lord Briggs identified "functional deadlock", that is a situation where the shareholders are unable to co-operate in the management of the company with the result that the company ceases to function as board or shareholder level, as proving grounds for winding up, whether or not the company is a quasi-partnership. By contrast, however, an irretrievable breakdown of the relationship between the shareholders such that the trust and confidence is grounds for winding up only where the relationship is one of quasi-partners and as such subject to equitable considerations due to the nature of that relationship.