Nam Tai Electronics Inc. Appellant v 1. David Haque 2. Tele-art Inc. ((in Liquidation)) Respondents
| Jurisdiction | British Virgin Islands |
| Judge | MATTHEW J.A. |
| Judgment Date | 26 March 2001 |
| Neutral Citation | VG 2001 CA 2,[2001] ECSC J0326-2 |
| Court | Court of Appeal (British Virgin Islands) |
| Docket Number | SUIT No. 21 of 2000 |
| Date | 26 March 2001 |
IN THE COURT OF APPEAL
The Honourable Sir Dennis Byron Chief Justice
The Honourable Mr. Justice Albert Redhead Justice of Appeal
The Honourable Mr. Justice Albert N.J. Matthew Justice of Appeal
SUIT No. 21 of 2000
Mr. Michael Todd Q.C. and Mr. Terrance Neale for the Appellant
Mr. Francis Belle for the Respondents
On June 27, 1997 on the basis of its inability to pay a judgment debt entered against it on November 10, 1993, in the British Virgin Island's High Court, Suit No.196 of 1993 in the sum of $799,099.12 the Appellant presented a petition to wind up the second Respondent. The First Respondent was appointed Liquidator.
The present suit originated by way of a summons filed on February 25, 1999 in which the Appellant applied for an order that the Liquidator be removed from his office on grounds of conflict of interest and bias in the performance of his duties.
The summons was supported by affidavits of Stephen Seung, a director of the Appellant and Lorne Waldman, Legal Counsel in Canada, for the Appellant, filed on March 15, 1999 and April 25, 1999 respectively. The Official Liquidator filed his affidavit in opposition on April 23, 1999.
Benjamin J. heard the summons on April 26 and 27,1999 and delivered his judgment on September 4, 2000. The Order in respect of the judgment was filed on September 8, 2000 whereby it was ordered that the application for the removal of the Liquidator be dismissed with costs to the Liquidator to be taxed and paid by the Petitioner on an indemnity basis.
Paragraphs 50 and 51 of the judgment are crucial to the appeal and I set out below the relevant portions:
"(50) The present application for the removal of the Liquidator came several months after, at a time when, contrary to the wishes of the Petitioner, the Liquidator had embarked upon litigation to establish the priorities of the claims of the Petitioner and the Bank of China. Any dispassionate bystander would immediately be put on the qui vive as to the bona fides of the Petitioner's application.
(51) I am therefore not inclined to exercise my discretion in favour of granting the application for the removal of the Liquidator. I can find no fault with his performance. I can discern no conflict of interest, perceived bias or lack of impartiality. Any evidence of a risk of breach of confidentiality is overshadowed by the questionable motives of the Petitioner in the timing of this application and the surrounding circumstances."
On October 30, 2000 the Appellant obtained leave to appeal against the order of the Court of September 4, 2000 refusing to remove the Liquidator from office. On November 10, 2000 the Appellant filed his notice of appeal containing three substantial grounds of appeal. The grounds of appeal were dealt with together and centered on the last sentence of paragraph 51 of the judgment which related to the bad motives of the Appellant. Additionally, the Appellant complained of the failure of the Judge to apply the principles enunciated in the House of Lords case, Prince Jefri Bolkiah v KPMG (a firm) 1999 1 AER 517.
In his written submissions before us learned Queen's Counsel submitted that before the learned Judge the grounds upon which Mr. Hague's removal was sought were: (a) breach of confidence and (b) bias/lack of independence but no appeal was being made in relation to the learned Judge's findings in relation to the second ground. Accordingly, ground 3(6) of the notice of appeal was no longer relied on. I also did not hear any argument by either side in respect of ground 3(5) pertaining to Stephen Seung's second affidavit; and I heard only a fleeting mention of authorities as regards the issue of costs on an indemnity basis mentioned in ground 3(7).
Learned Counsel for the Appellant in his submissions attacked paragraphs 50 and 51 of the judgment because it referred to the bad motives of the Appellant in as much as the learned Judge came to his conclusion based on the timing of the summons to remove the Liquidator; the summons dated February 25, 1999 coming two weeks after the Liquidator's summons to the Court to determine the priority of debts owed by the Second Respondent.
Counsel submitted that the issue of priority of debts was before the Hong Kong Court for several months before the Liquidator embarked upon his duties. Counsel was of the view that the finding of bad motives by the Appellant was not open to the learned Judge on the evidence. Reliance was placed on Re Smith and Fawcett 1942 Ch.304 at page 308.
Counsel further submitted that the learned Judge was wrong to take cognizance of the view of a bystander and he should rather look at the facts before him.
Counsel submitted that what the Liquidator is doing is taking the part of the Bank of China in that he is going to the Court and asking the Court to find in favour of the Bank of China on the issue of priority of debts.
Counsel submitted that the adverse possession of the Liquidator and the Appellant only arose when the Liquidator filed the summons as regards priority of debts on February 10, 1999.
And as already stated the other main complaint of the Appellant is that the learned Judge did not correctly apply the principles enunciated in the Bolkiah case. The Respondents of course take a contrary view.
Learned Counsel for the Respondents submitted that there was no evidence that PWC was doing litigation support services for the Appellant as was the case in the Bolkiah case and in this context referred to Lord Halsbury's two observations in Quinn v Leathem 1901 AC 495 at page 506.
Counsel referred to the fact that it was the Appellant who appointed the Liquidator in the voluntary winding up and the Appellant passed information to the Liquidator after the appointment. Counsel submitted that the Appellant must have consented to the information being used in the winding-up.
Counsel submitted that the Liquidator asked the Appellant and the Bank of China to join with him in the issue of the summons to the Court to determine priorities. Reference to this is made in paragraph 29 of Hague's affidavit and Exhibit "D2" where the Respondents' Counsel wrote to the Appellant's Counsel.
According to Counsel, the Appellant refused and shortly thereafter amending its Articles of association to include a power to redeem the shares of members against whom it had judgment, gave notice on December 22, 1998 of its intention to redeem some of the Second Respondent's shares to satisfy the judgment debt on January 22, 1999.
Counsel submitted that strenuous efforts were made by the First Respondent to negotiate with the Appellant and when these failed the First Respondent was obliged to resort to an injunctive order obtained on January 21, 1999 restraining the Appellant from redeeming the shares.
Counsel submitted that part of the injunctive order was that the First Respondent should issue the summons to deal with the priority of debts owed by the Second Respondent.
The summons was issued on February 10, 1999. According to David Hague it was served on the Appellant soon after as an affidavit in support of service was filed on February 12, 1999. Counsel submits that the action for removal of the Official Liquidator was in substance an answer to the action taken by the Official Liquidator to preserve the assets of the company.
Both sides rely on the authority of Bolkiah. Where they disagree is in its application to the facts. The learned Judge also relied on that authority and dealt with the case at paragraphs 32–38 of his 52 paragraph judgment.
The facts of Bolkiah are as follows: KPMG was employed as auditors of the Brunei Investment Agency of which Prince Bolkiah was chairman until his removal in 1998. For a period of 18 months between 1996 and 1998, KPMG had acted for Prince Jefri in providing litigation support services of the sort usually undertaken by solicitors in certain private litigation in which the Prince was then engaged. In the course of so acting for the Prince KPMG acquired extensive confidential information about the assets and financial affairs of the Prince. The litigation was settled. The Prince was subsequently dismissed from his position as chairman of the BIA.
In June 1998 the Brunei Government commenced an investigation into the conduct of the affairs of the BIA, including the destination and present location of money which had been transferred from the BIA's funds while the Prince was chairman. The Government wished to retain KPMG to assist the investigation. KPMG took the view that they could accept the instructions because they had ceased to act for the Prince more than two months previously and he was no longer a client.
But the firm was aware of the possibility of a conflict of interest because the investigation was likely to be adverse to the Prince's interests and they possessed confidential information relating to his financial affairs. The firm therefore erected an information barrier (a so-called Chinese Wall) around the department carrying out the BIA investigation on behalf of the Brunei Government. The Prince was not informed by KPMG of their instructions nor had his consent been sought. He applied for an injunction against KPMG.
Pumfrey J. granted the Prince an injunction restraining KPMG from continuing to carry out the work on the investigation. KPMG appealed. The Court of Appeal discharged the injunction on the grounds that KPMG was only obliged to make reasonable efforts to protect the Prince's confidential information and that balancing the competing interests, the precautions taken by KPMG meant that there was no real or...
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