Mark Byers v Chen Ningning

• Jurisdiction: British Virgin Islands
• Judgment Date: 10 February 2024
• Neutral Citation: VG 2024 HC 4
• Court: High Court (British Virgin Islands)
• Docket Number: CLAIM NO. BVIHCM2009/0430

BETWEEN:

BY WAY OF CLAIM:

(1) Mark Byers

(2) Matthew Richardson (as joint liquidators of the third named Applicant)

(3) Pioneer Freight Futures Company Limited (in liquidation)

Applicants

and

Chen Ningning

Respondent

CLAIM NO. BVIHCM2009/0430

EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

COMMERCIAL DIVISION

Appearances:

Mr. Tom Smith, KC with Mr. Ben Griffiths for the Applicants

Mr. Victor Joffe, KC for the Respondent

1. Introduction

1 This is the judgment of the Court in relation to an application filed by the Applicants dated 17 ^th March 2022 whereby the Applicants seek determination of all outstanding issues concerning quantum pursuant to a direction of the Judicial Committee of the Privy Council (the ‘Privy Council’) dated 28 ^th February 2022 (‘the Application’). The Application was heard over two days in July 2023 and judgment was reserved.

2 In essence, the Privy Council had determined, on an appeal, that the Respondent, Miss Chen Ningning (‘Miss Chen’), had breached fiduciary duties she owed to the Third Applicant (‘PFF’) as its sole de jure Director and had remitted issues of quantum back to this Court for determination.

3 The Board of the Privy Council consisted of Lord Kerr, Lord Briggs, Lady Arden, Lord Kitchin and Lord Leggatt. The Board's unanimous decision was delivered by Lord Kitchin. It was dated 22 ^nd February 2021.

4 As the determination of such quantum issues are in essence a continuation of the decision-making process undertaken by the Privy Council, it is appropriate to cite the background as stated by the Privy Council, so far as it is presently relevant: 1

“The background

3. PFF was incorporated in the British Virgin Islands (“BVI”) in 2006 for the purpose of trading in forward freight agreements (“FFAs”). FFAs are contracts for differences that allow shipowners and traders to manage their exposure to the volatility of freight rates. That volatility also provides an opportunity for companies such as PFF to enter into FFAs for speculative purposes. The FFAs entered into by PFF were written on standard terms and referenced to the Baltic Dry Index, an index of freight rates maintained and published by the Baltic Exchange. Until about September 2008, PFF was one of the largest FFA traders in Asia.

4. The respondent, Miss Chen, is the ultimate beneficial owner of a group of companies known as the Pioneer Group. The principal holding company of the group is another company incorporated in the BVI called Pioneer Iron and Steel Group Company Ltd (“PISG”). PFF is owned by PISG. Upon its incorporation, PFF had three directors, one of whom was Miss Chen. The other two directors resigned in the course of 2007, leaving Miss Chen as PFF's sole director. Miss Chen is based in the People's Republic of China and PFF's main business activities were conducted from offices occupied by PISG in Beijing.

5. In September 2008 there was a catastrophic collapse in the freight market and in consequence PFF began to experience severe financial difficulties. It ceased trading in FFAs

and concentrated on managing its FFA portfolio with a view to negotiating settlements with its creditors and minimising its losses.

6. On 15 May 2009 PFF entered into a loan agreement with Zenato Investments Ltd (“Zenato”), a company owned and controlled by Mr Song Dingding (“Mr Song”), a business acquaintance of Miss Chen. Under the terms of this agreement Zenato agreed to lend to PFF up to US$ 13m for a term of two years at an interest rate of 9% per annum. Sums totalling US$ 13m were duly advanced by Zenato to PFF in three tranches in the course of that month.

7. On 29 October 2009 PFF lost an action that had been brought against it in the High Court in London by an FFA counterparty, Marine Trade SA (“Marine Trade”) ( [2009] EWHC 2656 (Comm); [2010] 1 Lloyd's Rep 631). It had been conceded by PFF on 23 October 2009, the last day of the trial, that it was commercially insolvent and in the light of that concession the judge, Flaux J (as he then was), held that an event of default had occurred under the terms of their contract and that any liability of Marine Trade to PFF was suspended whilst PFF remained indebted to Marine Trade.

8. Shortly after the delivery of the Marine Trade judgment and as a result of an improvement in the market, PFF found itself with what the trial judge in these proceedings, Bannister J, described as an “excess margin on deposit” which meant that it could withdraw funds from its deposit account. PFF took that opportunity to repay its indebtedness to Zenato in three tranches on 3, 4 and 27 November 2009. Nevertheless, at the time these payments were made (and indeed at all times from, at the latest, 29 October 2009) PFF was insolvent and an insolvent liquidation or some other protective insolvency process was inevitable.

9. On 17 December 2009 PFF applied in the BVI for the immediate appointment of joint provisional liquidators on the ground of its insolvency and the need to protect its assets. The application was supported by an affidavit of Mr Eddie Chen (who is not a relative of Miss Chen and is also known as Mr Chen Yang) (“Mr Chen”) dated 16 December 2009. He described himself in that affidavit as the “Chief Operating Officer and Director of Risk Management” of PFF but made clear that although his title included the word “Director”, he had not in fact been appointed as a board director of PFF.

10. The court acceded to the application and appointed Mr Mark Byers, Mr Mark McDonald and Mr Andrew Hosking, each of Grant Thornton UK LLP, as joint provisional liquidators (“JPLs”). On 15 February 2010 the JPLs were appointed as PFF's liquidators. Mr Hosking resigned on 24 October 2012. Mr Byers and Mr McDonald remain PFF's liquidators (“the Liquidators”).

11. In the meantime, on 28 January 2010, using the statutory powers conferred on the JPLs, Mr Byers had examined Mr Chen. The meeting at which the examination took place was also attended by Mr Andrew Charters, a director of Grant Thornton, and by Ms Alex Welch, a colleague of Mr Charters. Ms Welch prepared a note (“the note”) of the meeting after its conclusion. The note records that Mr Chen told them that the Zenato loan was organised by PISG and that Miss Chen tried to pay back as much of it as possible because “she is reliant on her reputation”. The Liquidators have attached particular importance to the contents of this note because the examination took place only shortly after their appointment as provisional liquidators and at a time when they were trying to gather as much information as possible about PFF's affairs. It was only about 12 weeks after instructions had been given for the payments to Zenato to be made.

12. On 17 May 2010 PISG submitted a claim in PFF's liquidation. That claim was later admitted by the Liquidators in the sum of about US$ 90m. On 17 December 2010 the Liquidators announced their intention to pay to PFF's creditors an interim dividend of US$ 0.06 in the dollar (that is to say, 6%) on admitted debts. This meant that the interim dividend payment in respect of PISG's debt would amount to about US$ 5.4m.

13. On 2 January 2014 the liquidators of PISG, which was by this stage in liquidation itself, assigned to Miss Chen the right to that interim dividend and, indeed, all other dividends which might become due and payable to PISG in respect of its claim against PFF. Notice of this assignment was given to the Liquidators.

14. On 7 March 2014 the Liquidators wrote to Miss Chen informing her that they would be withholding payment of the interim dividend to her on the grounds that they might have a cause of action against her. A letter before action followed on 31 March 2014.

15. On 30 April 2014 Miss Chen made an application in the High Court of Justice of the BVI for an order that the Liquidators pay her, as assignee of PISG, the interim dividend to which she claimed to be entitled.

16. On 23 May 2014 the Liquidators began these proceedings against Miss Chen in the High Court of Justice of the BVI claiming the sum of US$ 13m together with interest for breach by Miss Chen of her fiduciary duties as a de jure, de facto or shadow director of PFF, or as someone whose role in the affairs of PFF (including as sole authorised signatory on its bank accounts) justified the imposition of fiduciary duties, for causing and procuring the payments to Zenato in November 2009. They also sought an order against Miss Chen under section 249 of the 2003 Act for restoration of the funds paid to Zenato on the basis that the repayment of the loan constituted an unfair preference and so was a voidable transaction within the meaning of, respectively, sections 245 and 244 of that Act.

The decision of the trial judge

17. The action came on for trial before Bannister J on 3 March 2015 and lasted for four days. He clearly had a poor opinion of the merits of the Liquidators' claims, describing them in his concise judgment, which he delivered on 19 March 2015, as “remarkable” and as giving the impression of having been “cobbled together for the sole purpose of providing the [Liquidators] with grounds for refusing to pay Miss Chen's dividend” (para 14). He recorded as common ground that a director who realises that a company cannot avoid insolvent liquidation and yet uses company money to pay a particular creditor without any proper reason for doing so, misapplies company funds in breach of fiduciary duty. He also found that at all times after the Marine Trade judgment, PFF was unable to pay its debts as they fell due and insolvent liquidation or some other protective insolvency regime was inevitable. However, he then held that: (i) Miss Chen ceased to be a director of PFF at about the beginning of August 2009 and she owed no fiduciary duties to PFF at the time of the Zenato payments in November 2009; (ii) Miss Chen probably knew of and did not object to the Zenato payments but she did not...