Nam Tai Property Inc. v IsZo Capital LP
| Jurisdiction | British Virgin Islands |
| Judge | Farara JA |
| Judgment Date | 06 October 2021 |
| Judgment citation (vLex) | [2021] ECSC J1006-3 |
| Docket Number | BVIHCMAP2021/0010 |
| Court | Court of Appeal (British Virgin Islands) |
THE EASTERN CARIBBEAN SUPREME COURT
IN THE COURT OF APPEAL
The Hon. Dame Janice M. Pereira, DBE Chief Justice
The Hon. Mr. Paul Webster Justice of Appeal [Ag.]
The Hon. Mr. Gerard St. C. Farara Justice of Appeal [Ag.]
BVIHCMAP2021/0010
and
Mr. Matthew Hardwick, QC, with him, Ms. Rosalind Nicholson and Mr. Renell Benjamin for the Appellant
Mr. Martin Moore, QC, and Mr. Edward Davies, QC, with them Mr. Ben Griffiths and Mr. Nicholas Burkill for the Respondent
Mr. Vernon Flynn, QC, and with him, Mr. Gerard Clarke, Mr. Andrew Emery and Ms. Gurprit Mattu for the 2 nd Defendant
Commercial appeal — Proper purpose — Section 121 of Business Companies Act — Duty of directors to exercise powers for a proper purpose — Section 120(1) of Business Companies Act — Duty of directors to act honestly and in good faith and in the best interests of the company — Whether allotment of shares by directors was for improper purpose in breach of section 121 of the Business Companies Act — Whether Private Investment in Public Equity (PIPE) was for purpose of capital raising to deal with an urgent liquidity crisis — Whether purpose of the PIPE was board entrenchment rather than raising capital — Approach of trial court in determining purpose — Approach by trial court in determining the subjective intention of the directors when voting to approve the PIPE — Whether NTP was facing an urgent liquidity crisis — Whether the directors were genuinely concerned that lender banks were entitled to and would call in their loans leading to an urgent liquidity crisis in NTP — Appellate interference with trial judge's findings of fact and inferences from the evidence — Rule 62.4 of the Civil Procedure Rules 2000 — Whether NTP appealed against the trial judge's finding on breach of the section 120(1) duty — Fresh evidence — Principles in Ladd v Marshall — Principles in R (Iran) v Secretary of State for the Home Department — Whether banks' post judgment demands provides compelling evidence that undermine judge's finding of no urgent liquidity crisis — Whether judge failed to assess evidence of urgent liquidity crisis against NTP's pleaded case — Whether judge erred in his evaluation and analysis of chronology of events in relation to the liquidity crisis — Whether judge failed to take into account the relevant timeline in his evaluation of the liquidity crisis — Whether judge erred in finding the evidence of NTP's witnesses including the four directors who voted for the PIPE unreliable — Whether judge erred in finding of improper purpose by four directors who voted to approve the PIPE — Whether judge failed to take into account the written note of Dr. Tam in evaluating evidence of urgent liquidity crisis and purpose — Whether judge's finding of no urgent liquidity crisis was plainly wrong and ought to be set aside and appellate court decide on purpose afresh in all the circumstances
The appellant, Nam Tai Property Inc (“NTP”), is a property development and management company incorporated in the Territory of the Virgin Islands (“BVI”). The respondent, IsZo Capital LP (“IsZo”), is an investment fund and a limited partnership formed under the laws of the State of Delaware, United States of America (“US”). Kaisa Group Holdings Limited (“Kaisa”) is an investment holding company, principally engaged in property development, property investment and property management, through its subsidiaries, in the People's Republic of China (“the PRC”). Initially, Kaisa owned 1,000 ordinary shares in NTP and held beneficially through Greater Sail Limited (“GSL”), a further 3,891,385 shares. In 2019 and 2020 various subsidiaries of NTP took out various loans and credit facilities with six banks in the People's Republic of China, namely, Bank of Beijing (“BOB”), China Everbright Bank (“CEB”), Industrial Bank (“IB”), Bank of China (“BOC”), Shenzhen Rural Commercial Bank (“SRCB”) and Xiamen International Bank (“XIB”) (collectively referred to as the “lender banks”). NTP owed no legal obligation, either as borrower or as guarantor or otherwise, to any of the lender banks for the repayment of these loans and credit facilities.
On 11 th September 2020, IsZo and other investor/shareholders representing at least 40 percent of the issued shares in NTP served a requisition on NTP (“the requisition”). By the requisition, they requested the Board of Directors of NTP (“the Board”) to convene a meeting of the shareholders to remove and replace five directors on the Board. Shortly thereafter, Dr. Lai Ling Tam (“Dr. Tam”) was appointed as Executive Chairman of the Board of NTP. The Board, however, did not convene a meeting of the shareholders to consider passing the resolutions foreshadowed by the requisition.
Subsequently, on 5 th October 2020, the Board approved a private investment in public equity (“the PIPE”) and allotted 16,051,219 newly issued shares in NTP to GSL and 2,603,366 newly issued shares to West Ridge Investment Company Limited (“West Ridge”), a Hong Kong company. Through the PIPE, NTP raised a total of US$175 million consisting of US$150 million from Kaisa for the shares allotted to its subsidiary GSL, and US$25 million for the shares allotted to West Ridge. As a result of the PIPE, the shares held by Kaisa beneficially in NTP increased from about 23.9% to about 43.9% and West Ridge held about 4.5%.
On 13 th October 2020, IsZo issued proceedings in the Commercial Court challenging the validity of the PIPE and the allotment of shares to GSL and West Ridge. The central issue for determination by the court below was whether the four directors who voted to approve the PIPE did so for the purpose of raising capital in order to save NTP from an urgent liquidity crisis in late September 2020 triggered by the requisition or, alternatively, whether the said directors voted for the PIPE for the purpose of giving de facto control of NTP to Kaisa and defeating the requisition.
The judge found that NTP was not facing an urgent liquidity crisis at the time of approval of the PIPE, and that the four directors who had voted to approve the PIPE did so for the improper purpose of giving Kaisa de facto control of NTP and defeating the requisition, in breach of section 121 of the Business Companies Act 2004 (“the Act”). He also found that the four directors who voted to approve the PIPE did not act bona fide to save NTP for the benefit of all the shareholders in breach of their duty under section 120(1) of the Act. The judge held that the approval of the PIPE and the allotment of the new shares to GSL and West Ridge were ineffective and void. He accordingly set aside the allotment of shares and ordered rectification of the register of members of NTP so as to delete all entries in respect of the said allotments. The judge also directed, among other things: (i) that NTP convene a meeting, pursuant section 86(1) of the Act, of the members of the company at 9:00 am on 26 th April 2021, for the purpose of considering the passage of the resolutions set out in the requisition; and (ii) enjoined NTP and its directors from counting, at any meeting of NTP, any votes in respect of the shares invalidly allotted by virtue of the PIPE; or (iii) from passing resolutions either changing the registered office of the company or amending its memorandum and articles of association. Additionally, the learned judge ordered NTP and GSL, jointly and severally, to pay to IsZo its costs of the claim, and to make a partial payment of US$1,900,000, which costs were to be assessed if not agreed within 21 days. The judge also refused NTP's application for a stay of certain of his orders.
Shortly after delivery of the judgment in the court below, four of the lender banks issued letters to the subsidiaries of NTP demanding repayment of their loans. NTP made an application to have these four post-judgment demand letters admitted as fresh or new evidence on the basis that they undermine the judge's primary conclusions of no urgent liquidity crisis and improper purpose. In opposing NTP's fresh evidence application, IsZo exhibited a copy of NTP's annual report for its fiscal year ending 31 st December 2020 – US Sec Form 20-F.
NTP appealed the judgment and orders made by the learned judge, except the order for convening the requisitioned meeting. By way of counter notice of appeal, IsZo invites this Court, if necessary, to uphold the judge's decision on additional grounds. The issues which arise for determination are: (i) whether NTP has appealed against, and the Court of Appeal can consider any challenge to, the judge's finding of a breach of the section 120(1) of the Act; (ii) whether the fresh evidence would probably have an important influence on the result of the appeal if admitted; (iii) whether the judge erred in finding that the ostensible justification for the PIPE, the urgent liquidity crisis, was not made out; (iv) whether the judge erred in his evaluation and analysis of whether the liquidity crisis had been made out by omitting relevant events from the factual chronology; (v) whether the judge erred in failing to take into account the contemporaneous evidence of Dr. Tam's late September 2020 note relating to the various alternatives or options to the PIPE which were considered; (vi) whether the judge's assessment of the evidence of Dr. Tam's and each of the four directors was flawed; and (vii) whether the four directors who voted for the PIPE acted for an improper purpose and/or in breach of their statutory duty to act honestly and in good faith and in the best interest of NTP.
Held: dismissing the appeal, affirming the judgment and orders of the court below; and ordering that NTP and GSL pay IsZo's costs of NTP's appeal in proportions of 80...
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