Mark Byers et Al v Chen Ningning (also known as Diana Chen)

• Jurisdiction: British Virgin Islands
• Judge: Ventose JA
• Judgment Date: 20 June 2025
• Judgment citation (vLex): [2025] ECSC J0620-3
• Year: 2025
• Court: Court of Appeal (British Virgin Islands)
• Docket Number: BVIHCMAP2024/0009

Between:

[1] Mark Byers

[2] Matthew Richardson (as Joint Liquidators of the below-named company)

[3] Pioneer Freight Futures Company Limited (in Liquidation)

Appellants

and

Chen Ningning (also known as Diana Chen)

Respondent

[2025] ECSC J0620-3

Before:

The Hon. Mr. Mario Michel Chief Justice [Ag.]

The Hon. Mr. Eddy D. Ventose Justice of Appeal

The Hon. Mde. Gertel Thom Justice of Appeal [Ag.]

BVIHCMAP2024/0009

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Commercial appeal — Fiduciary duty of directors — The rule in West Mercia Safetywear Ltd (in liq) v Dodd and another — Whether the learned judge erred in concluding that Pioneer Freight Futures Ltd was not entitled to an order for payment by the respondent for breach of the rule in West Mercia — Whether the learned judge was correct in concluding that the question of whether the respondent had obtained a reputational benefit from the Zenato Payments was foreclosed by the decision of the Privy Council

The respondent, Ms. Chen Ningning (“Ms. Chen”) was at the material time the sole director of a company called Pioneer Freight Futures Ltd (“PFF”). PFF entered into a loan agreement with Zenato Investments Ltd (“Zenato”) by which Zenato paid US$13m to PFF. PFF conceded that by 23 ^rd October 2009, it was commercially insolvent. PFF repaid its indebtedness to Zenato in three tranches on 3 ^rd, 4 ^th and 27 ^th November 2009 (“the Zenato Payments”). When the Zenato Payments were made, PFF was insolvent and an insolvent liquidation or some other protective process was inevitable. The respondent was the sole authorised signatory on the account from which the Zenato Payments were made.

The appellants, as joint liquidators of PFF, subsequently brought proceedings in the Commercial Court of the Territory of the Virgin Islands against the respondent claiming the sum of US$13m together with interest alleging that the respondent breached her fiduciary duties as a de jure or de facto shadow director of PFF for causing or authorizing the Zenato Payments with the matter ultimately being appealed to the Privy Council. In a judgment dated 22 ^nd February 2021, the Privy Council held that, first, the learned trial judge was wrong to conclude that the respondent ceased to be a de jure director of PFF in August 2009. Second, the respondent continued to owe fiduciary duties to PFF from August 2009 because she remained a de jure director.

The Privy Council further held that the respondent owed fiduciary duties to PFF at the time of the Zenato Payments and her failure to intervene to prevent the repayment of US$13m amounted to a breach of those duties. In an order dated 28 ^th February 2022, the Board remitted to the High Court for decision all issues concerning what sums, if any, the respondent must pay to the appellants in respect of or arising from her breaches of fiduciary duty to PFF in relation to the Zenato Payments. The order also provided that the appellants were at liberty to apply to a judge of the High Court for that purpose. Pursuant to the said order the appellants applied to the High Court for orders that: 1.) the respondent do pay the appellants the sum of US$13m; and 2.) the respondent do pay the appellants interest on US$13m at the rate of 5% per annum (the “Quantum Application”).

In a judgment dated 10 ^th February 2024, the learned judge after examining inter alia the decisions of Stanford International Bank Ltd (in liquidation) v HSBC Bank plc and West Mercia Safetywear Ltd (in liq) v Dodd and another (“ West Mercia”) held that since the Zenato Payments were balance sheet neutral this meant that PFF did not suffer a net loss and that there was nothing for which PFF needs to be compensated by a payment from the respondent.

The learned trial judge also rejected the equitable remedy noting that the respondent did not benefit from the Zenato Payments in any tangible or ascertainable sense. In dismissing the Quantum Application, the learned judge concluded that the only eventual basis for making a payment order was that PFF needed to be compensated for a net loss incurred because of the Zenato Payments and since there was no such net loss to PFF, no compensation fell due.

On 22 ^nd March 2024, the appellants filed a notice of appeal against the decision of the learned trial judge with five grounds of appeal from which the following two main issues arise for consideration, namely: 1.) whether the learned judge erred in concluding that PFF was not entitled to an order for payment by the respondent for breach of the rule in West Mercia; and 2.) whether the learned judge was correct in concluding that the question of whether the respondent had obtained a reputational benefit from the Zenato Payments was foreclosed by the decision of the Privy Council.

Held: allowing the appeal against the decision of the learned trial judge, setting aside the orders made at paragraphs 78–81 of the written judgment, ordering the respondent to pay the sum of US$13m with interest at a rate of 5% per annum (from 29 ^th November 2009 until payment) to the appellants and directing that in the distribution of the assets of PFF to the general body of creditors the debt due to PFF is to be taken as notionally increased by US$13m to what it would have been if the Zenato Payments had not been made by the respondent in breach of the rule in West Mercia, and then any dividend attributable to the extra US$13m is to be added back to the debt of PFF and is to be recouped to the respondent rather than being paid to PFF, and awarding costs in the appeal and in the court below to the appellants to be paid by the respondent to be assessed if not agreed within 21 days of today's date, that:

• 1. Once a company is insolvent or bordering on insolvency, the interests of the company for the purposes of the director's fiduciary duty are extended to include the interests of the company's creditors as a whole. This further extension is a recognition that for some purposes, the interests of the company are to be regarded as including the interests of a third party that is distinct from the company as a corporate entity. Thus, where the rule of West Mercia applies, the interests of the general body of creditors are to be regarded as the same as the interests in the company. In essence, where the rule in West Mercia applies, the principle of separate legal personality serves a new function, that is, to protect the interests of creditors entitled to the protection that the rule provides.

  West Mercia Safetywear Ltd (in liq) v Dodd and another[1988] BCLC 250 applied; Saloman v A Saloman & Co Ltd[1897] AC 22 applied.

• 2. The remedy granted in West Mercia was based on the breach of the rule. Although the action of the director in making the payment for his own benefit which amounted to what was called a “blatant misfeasance” loomed large in the decision of the Court of Appeal in West Mercia, it cannot be said that when properly read in context that that feature was the sole basis or an important factor that informed the reasoning of the Court of Appeal in respect of the remedy granted. The decision therefore accepts that a repayment of any sums paid in breach of the rule in West Mercia is an appropriate form of relief. For the purposes of determining the loss caused by a breach of the rule in West Mercia, any loss to the general body of creditors must be equated with that of the company. If this were not the case, directors would act with impunity in breach of the rule comforted in the knowledge that once the transaction is balance sheet neutral, the company would suffer no financial loss and consequently the directors will not be liable at all for any such breach.

  West Mercia Safetywear Ltd (in liq) v Dodd and another[1988] BCLC 250 applied; Bilta (UK) Ltd (in liquidation) and others v Nazir and others (No 2)[2016] AC 1 considered.

• 3. The learned trial judge held that since the Zenato Payments were balance sheet neutral, this meant that PFF did not suffer a net loss and that consequently, there was nothing for which PFF needs to be compensated by a payment from the respondent. Had the learned trial judge accepted that the loss to the body of creditors is to be regarded as a loss to the company in the context of a breach of the rule in West Mercia, he would not have arrived at this conclusion. In doing so, the learned trial judge erred in principle. Indeed, any financial benefit to the respondent is not a relevant consideration in determining whether the company suffered any loss because of her established breach of the rule in West Mercia.

  AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503 considered; BTI 2014 LLC v Sequana SA and others [2024] AC 211 applied; Stanford International Bank Ltd (in liquidation) v HSBC Bank plc[2023] AC 761 distinguished.

• 4. Having considered whether an equitable remedy along the lines crafted in West Mercia should be applied, the learned trial judge answered in the negative. In doing so, the learned judge was also wrong in principle as the rule in West Mercia was directly engaged in the earlier proceedings in which the Privy Council had found the respondent had breached the rule. Further, the decision in West Mercia was approved in Sequana. It was therefore not open to the learned trial judge to reject the remedial approach adopted by the Court of Appeal in West Mercia. In rejecting that equitable remedy, the learned trial judge noted that the director in West Mercia had indirectly obtained a benefit from the improper preference paid. The issue of a benefit is not a feature of the rule of West Mercia and the learned judge was accordingly wrong to treat it as a precondition for the application of the rule.

  West Mercia Safetywear Ltd (in liq) v Dodd and another[1988] BCLC 250 applied; BTI 2014 LLC v Sequana SA and others [2024] AC 211 applied.

• 5. The learned judge was wrong to dismiss the Quantum...