Capital WW Investment Ltd ((in Liquidation)) acting through its Directors v Tall Trade Ltd

• Jurisdiction: British Virgin Islands
• Judge: Blenman JA
• Judgment Date: 24 January 2022
• Judgment citation (vLex): [2022] ECSC J0124-2
• Docket Number: BVIHCMAP2020/0025
• Court: Court of Appeal (British Virgin Islands)

[2022] ECSC J0124-2

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Before:

The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mde. Louise Esther Blenman Justice of Appeal

The Hon. Mr. Dexter Theodore Justice of Appeal [Ag.]

BVIHCMAP2020/0025

BVIHCMAP2020/0026

Between:

Capital WW Investment Limited (In Liquidation) acting through its Directors

Appellant

and

Tall Trade Limited

Respondent

Appearances:

Mr. Tom Smith, QC and with him Mr. Iain Tucker for the Appellant

Mr. Charles Samek, QC and with him Mr. Peter Ferrer, Ms. Marcia McFarlane and Mr. Romane Duncan for the Respondent

Commercial appeal — Insolvency proceedings — The Insolvency Act, 2003 — Appointment of liquidators of a company — Actionable conspiracy — Genuinely disputed debt on substantial grounds — Whether the judge erred in fact and/or in law in failing to conclude that there was no genuinely disputed debt on the basis of an actionable conspiracy to form the appellant's cross-claim — Improper purpose — Whether the judge erred in law and/or in fact in failing to conclude that the application for appointment of liquidators was not being made for an improper purpose, namely in furtherance of the alleged conspiracy — Section 125 of the Evidence Act, 2006 — Admissibility of evidence — Whether the judge erred in law in not admitting the telegram messages into evidence — Whether the judge's exercise of his discretion to abridge the hearing date of the second application resulted in the appointment of liquidators being irregular, void and of no effect — Whether foreign law was applicable to the conspiracy claim

In April 2019, Capital WW Investment Limited (In Liquidation) (“Capital WW”) entered into a share purchase agreement with Primefuture Limited (“Primefuture”) and Bitcapital Limited (“Bitcapital”) (the “SPA”) to acquire 60% of the shares in Befree Limited (“Befree”). Befree is a Cypriot company which was originally beneficially owned by certain shareholders through Primefuture and Bitcapital. The purchase price was in part funded with a loan advanced to Capital WW by Tall Trade Limited (“Tall Trade”) under a loan agreement (the “Loan Agreement”). Clause 5 of the Loan Agreement required Capital WW to make quarterly repayments including interest of not less than €2 million. After Capital WW's payment of the consideration under the SPA, on 30 ^th July 2019 it became the registered holder of 60% of the shares in Befree.

Under the terms of the Shareholders Agreement (“the SHA”) which set out the rights and obligations of Capital WW, Primefuture and Bitcapital as shareholders, it was agreed that the shareholders (Capital WW, Primefuture and Bitcapital) would procure at least 50% of the net profits of Befree for the relevant period which would be distributed to shareholders at least every six months. No payment of any dividend has been paid to date. Under the Loan Agreement, Capital WW was required to repay the first quarterly tranche of the loan by the 8 ^th September 2019 but has not done so. Further the repayment of the loan was to be effected irrespective of whether Capital WW had not received dividends, according to clause 5 of the Loan Agreement. As a result of Capital WW's non-repayment of the first tranche of the loan, on 13 ^th December 2019 Tall Trade issued a statutory demand to Capital WW. Capital WW applied to the Commercial Court to set aside the statutory demand, however this application was dismissed by the learned judge. Consequently, on 17 ^th February 2020 Tall Trade issued an originating application (the first application) for the appointment of liquidators to Capital WW. That application was automatically dismissed on 17 ^th August 2020 as it was not determined within six months, as mandated by section 168 of the Insolvency Act.

On 1 ^st October 2020, Tall Trade issued a second originating application (the second application) to wind up Capital WW based on the same non-payment of the first tranche of the loan. Capital WW filed an application to adduce evidence of telegram/text messages in which it sought to undergird its position that it had a cross-claim against Tall Trade and therefore its debt to Tall Trade was disputed on substantial grounds. Capital WW complained that the liquidation proceedings were brought for an improper purpose since there was a conspiracy against it involving Tall Trade and the beneficial owners of Primefuture and Bitcapital in relation to the non-payments of dividends from Befree, to which it was entitled, the effect of which starved Capital WW of monies that was to have been utilised in servicing its loan to Tall Trade.

The hearing of the second application to appoint liquidators was fixed for hearing on 9 ^th November 2020. It was brought forward to 13 ^th October 2020 from 9 ^th November 2020. Due to the late issuance of the second application the need to advertise was dispensed with by the judge who reasoned that in the specific circumstances that was the correct approach to take. There were five main issues before the judge in the court below, namely: (i) whether the hacked telegram/text messages were admissible in evidence; (ii) whether there was an actionable conspiracy to Sparkasse Bregenz Bank AG v In the Matter of Associated Capital Corporation standard; (iii) whether the applications for the appointment of a liquidator were brought for an improper purpose; (iv) whether advertisement of the second application should be dispensed with; and (v) whether issuing the statutory demands was an abuse of process. The learned judge concluded in summary, that the telegram messages were not admissible in the circumstances, that no adequate case of actionable conspiracy had been made out to form a cross-claim, that there was no reason to reject the application to wind up Capital WW on the ground of improper purpose, and that in circumstances where the first application had been advertised, this was a quintessential case for dispensing with the requirement to advertise the second application. Ultimately, in determining the application, the learned judge exercised his discretion to wind up Capital WW and appointed liquidators.

Being dissatisfied with the decision of the learned judge, Capital WW appealed on several grounds, with sub-grounds, challenging the learned judge's conclusions of both fact and law. Tall Trade has also counter appealed and urges this Court to affirm the judge's decision. The issues on the appeal and counter appeal may be summarised as: (i) whether the learned judge erred in fact and/or in law in failing to conclude that there was no genuine dispute to Tall Trade's debt, on the basis of an actionable conspiracy to form Capital WW's cross-claim; (ii) whether the judge erred in law and/or in fact in failing to conclude that the application for appointment of liquidators was not being made for an improper purpose, namely in furtherance of the alleged conspiracy (“the Improper Purpose Issue”); (iii) whether the judge erred in law in not admitting the telegram messages into evidence (‘the Admissibility Issue”); (iv) whether the judge's exercise of his discretion to abridge the hearing date of the second application resulted in the appointment of liquidators being irregular, void and of no effect; and (v) whether foreign law was applicable to the conspiracy claim (“the Applicable Law Issue”).

Held: dismissing the appeal, affirming the decision of the learned judge in its entirety and awarding costs on the appeal to the respondent, which costs shall be paid out of Capital WW's assets in the liquidation, shall be no more than two-thirds of the assessed cost in the court below, and which are to be assessed by a judge of the Commercial Division unless otherwise agreed within 21 days of the date of this judgment, that:

• 1. An appellate court should apply restraint not only to the judge's findings of fact but also to the evaluation of those facts and the inferences drawn from them. The critical question is whether there was evidence before the learned judge from which he could properly have reached the conclusions that he did or whether, on the evidence, the reliability of which it was for him to assess, he was plainly wrong. In this case it was clearly open to the learned judge to make the findings which he did on the evidence.

  Yates Associates Construction Company Ltd v Blue Sand Investments Limited [2016] ECSCJ No. 71 (delivered 20 ^th April 2016) followed; Fage UK Ltd and another v Chobani UK Ltd and another [2014] EWCA Civ 5 at paragraph 114 followed; Shankar Khushalani and another v Lindsay Mason (Trading as Tropical Home Designs Architectural & Construction Services) [2021] ECSCJ No. 593 (delivered 11 ^th June 2021) followed.

• 2. The court will not make a winding up order under section 157(1) of the Insolvency Act if the debt demanded in the statutory demand is disputed on substantial grounds. Furthermore, the court will not wind up a company in circumstances where there is a serious and genuine cross-claim save in special circumstances provided always that the cross-claim equals or exceeds the amount of the application's debt. The onus was on Capital WW to provide evidence which pointed to a case of conspiracy to found a cross-claim. The judge properly examined the evidence to determine whether it disclosed substantial and reasonable grounds for the allegation of conspiracy, however the evidence was found to be seriously wanting. That situation did not improve before this Court, and once the conspiracy allegations failed, the improper purpose complaints must of necessity suffer a similar fate. Consequently, there is no basis on which to impugn the judge's decision.

  Section 157(1) of the Insolvency Act, No. 5 of 2003, Revised Laws of the Virgin Islands applied; Re Bayoil S.A. [1999] 1 WLR 147 considered; Sparkasse Bregenz Bank AG v In the Matter of Associated Capital Corporation British Virgin Islands Civil Appeal No. 10...