Nam Tai Property Inc. v West Ridge Investment Company Ltd

• Jurisdiction: British Virgin Islands
• Judge: Webster JA
• Judgment Date: 27 July 2023
• Judgment citation (vLex): [2023] ECSC J0727-2
• Docket Number: BVIHCMAP2022/0046
• Court: Court of Appeal (British Virgin Islands)

Between:

Nam Tai Property Inc (a company incorporated in the British Virgin Islands)

Appellant

and

West Ridge Investment Company Limited (a company incorporated in Hong Kong)

Respondent

Before:

The Hon. Dame Janice M. Pereira, DBE Chief Justice

The Hon. Mde. Gertel Thom Justice of Appeal

The Hon. Mr. Paul Webster Justice of Appeal [Ag.]

BVIHCMAP2022/0046

THE EASTERN CARIBBEAN SUPREME COURT

IN THE COURT OF APPEAL

Commercial appeal — Section 121 of BVI Business Companies Act 2004 — Duty of directors to exercise powers for a proper purpose — Section 120(1) of BVI Business Companies Act 2004 — Tomlin Orders — The Court's approach to applications to enforce Tomlin Orders and to findings made by the lower court in such applications — Deed of Indemnity — Whether the judge erred in concluding that Nam Tai's claim to set aside the Deed of Indemnity on account of West Ridge's involvement in the unlawful means conspiracy did not have a realistic prospect of success — Whether the judge erred in concluding that Nam Tai's claim that West Ridge dishonestly assisted the Kaisa directors in the conspiracy to maintain control of the Company did not have a realistic prospect of success — Whether the Deed is void or otherwise unenforceable, if it was issued for the improper purpose of suppressing West Ridge's evidence and disclosure in the Main Claim — Whether, as a matter of construction, West Ridge's alleged unlawful conduct in participating in the conspiracy and/or dishonest assistance avoided Nam Tai's obligation under the Deed — Whether Nam Tai is entitled to recover its costs and expenses associated with the defence of the Main Claim and the Appeal, and the losses suffered from the Greensill investment — Whether Nam Tai is entitled to set off any amount found due to West Ridge by the damages and loss caused by West Ridge's unlawful conduct — Whether Nam Tai is entitled to a defence of change of position relating to its fees and expenses incurred in the defence of the Main Claim and the losses suffered from the Greensill investment

The appellant, Nam Tai Property Inc. (“Nam Tai” or “the Company”), is a property development and management company incorporated in the Territory of the Virgin Islands (“BVI”). The respondent, West Ridge Investment Company Limited (“West Ridge”), is a registered Hong Kong company. It became a shareholder of Nam Tai in the circumstances set out in this judgment. IsZo Capital LP (“IsZo”) is an investment fund and limited partnership formed under the laws of the state of Delaware in the United States of America. At the material time it owned approximately 8.8% of the shares in Nam Tai. Kaisa Group Holdings Limited (“Kaisa”) is an investment holding company registered on the New York Stock Exchange (“NYSE”). Greater Sail Ltd. (“Greater Sail”) is a shareholder of Nam Tai. Before October 2020, it owned approximately 23.9% of shares in Nam Tai. It is a subsidiary of Kaisa and the second defendant in the Main Claim.

The Kaisa directors were five of the seven directors of Nam Tai until the requisitioned shareholders meeting held on 30 ^th November 2021. The current directors are the directors appointed at the requisitioned shareholders meeting held on 30 ^th November 2021 and two independent directors.

On 11 ^th September 2020, IsZo and other shareholders representing more than 30% of the issued shares of Nam Tai, served a requisition on the Company to convene a meeting of the shareholders (“the Requisition”). The Company did not convene the meeting. Instead, on 5 ^th October 2020, the majority of the directors approved a private investment in public equity (“PIPE”) and allotted 16,051,219 shares to Greater Sail and 2,603,366 shares to West Ridge. The allotment moved Kaisa's beneficial ownership of the shares in Nam Tai from 23.9% to 43.9%, and West Ridge now owned 4.5% of the shares. The additional shares gave Kaisa sufficient voting power to block the resolutions proposed in the Requisition.

On 13 ^th October 2020, IsZo launched the Main Claim challenging the validity of the PIPE and the allotment of shares to Greater Sail and West Ridge. IsZo claimed that the PIPE was made for an improper purpose in breach of sections 120(1) and 121 of the BVI Business Companies Act 2004 (“the BC Act”). Nam Tai's response was that the PIPE was made for a proper purpose because it was facing a liquidity crisis and needed the capital input from the PIPE. On 26 ^th November 2020, West Ridge filed an ancillary claim against Nam Tai denying that IsZo was entitled to set aside the allotment of shares and seeking the repayment of the USD$23,820,798.90 paid to Nam Tai for the 2,603,366 shares allotted to it (“the WR Subscription”) in the event that IsZo's claim succeeded.

This was followed by negotiations between IsZo, Nam Tai and West Ridge that resulted in a three-way settlement on 14 ^th December 2020 (“Tomlin Order”). In the settlement Nam Tai agreed to indemnify West Ridge for any losses that it suffered as a result of the Main Claim succeeding and the allotment of shares being set aside

The Main Claim was heard by the learned judge (“the Judge”) between 29 ^th January and 24 ^th February 2021. By his judgment delivered on 3 ^rd March 2021, the Judge rejected the Kaisa directors' contention that Nam Tai was experiencing a liquidity crisis and needed capital urgently. He found that the Kaisa directors who approved the PIPE did so for the improper purpose of defeating the Requisition and keeping themselves in control of the Company. He also found that in approving the PIPE, the Kaisa directors did not act in the best interest of the Company and its shareholders in breach of their duty under sections 120(1) and 121 of the BC Act. The Judge declared that the purported allotments of shares to Greater Sail and West Ridge were ineffective and void, set aside the allotments and ordered the register of members of Nam Tai be rectified to delete the entries for the shares allotted under the PIPE. The Judge further ordered Nam Tai to convene a shareholders' meeting at 9:00am on 26 ^th April 2021.

Nam Tai appealed against the Judge's decision. On 4 ^th October 2021, the Court of Appeal dismissed the appeal and affirmed the Judge's finding that the PIPE was issued for the improper purpose of defeating the Requisition and keeping the Kaisa directors in de facto control of the Company. The appeal was allowed to the extent of setting aside the finding that the Kaisa directors had breached section 120(1) of the BC Act. The Court of Appeal ordered Nam Tai to convene a shareholders' meeting on Tuesday, 30 ^th November 2021 at 9:00 am to consider passing the resolutions proposed in the Requisition.

On 17 ^th May 2021, West Ridge applied under paragraph 1 of the Tomlin Order and/or under the Civil Procedure Rules 2000 (“CPR”) and/or under the inherent jurisdiction of the court for judgment against Nam Tai (“the Application”) for: (a) the subscription money of USD $23,820,798.90; (b) USD$465,607.06 for legal fees and expenses to their BVI legal practitioners up to 14 ^th May 2021 and USD$12,875.32 to their English solicitors; (c) costs of the Application; and (d) further costs, expenses, damages and losses associated with the indemnity to be quantified by the court.

Nam Tai opposed the Application on several grounds. The learned judge heard the Application on 16 ^th March 2022 and on 7 ^th April 2022 he found that Nam Tai did not have realistic prospects on its claim to set aside the Tomlin Order and ordered the enforcement of the order.

Being dissatisfied with the Judge's findings, Nam Tai appealed the Judge's order and judgment. West Ridge also filed a counter notice of appeal. The issues that arise from the grounds of the appeal and the counter notice of appeal are: i) The Appellate Court's approach to applications to enforce Tomlin Orders and to findings made by the lower court in such applications; ii) Nam Tai's claim to set aside the Deed of Indemnity on account of West Ridge's involvement in the unlawful means conspiracy to maintain control of the Company and/or its dishonest assistance of the Kaisa directors in the conspiracy; iii) Nam Tai's and West Ridge's purpose for entering into the Deed of indemnity and iv) assuming that the indemnity is not set aside: a) whether, as a matter of construction, West Ridge's alleged unlawful conduct in participating in the conspiracy and/or dishonest assistance avoided Nam Tai's obligation under the Deed; b) whether Nam Tai is entitled to recover its costs and expenses associated with the defence of the Main Claim and the Appeal, and the losses suffered from the Greensill investment; c) whether Nam Tai is entitled to set off any amount found due to West Ridge by the damages and loss caused by West Ridge's unlawful conduct; d) whether Nam Tai is entitled to a defence of change of position relating to its fees and expenses incurred in the defence of the Main Claim and the losses suffered from the Greensill investment.

Held: dismissing the appeal with costs to West Ridge to be assessed by the court below unless agreed within 21 days and making no order on the counter notice of appeal that:

• 1. A Tomlin order is a form of consent order that embodies the terms on which the parties to an action have agreed to stay the action. The court will approach an application to set aside a Tomlin Order as if it were an application for summary judgment and will grant the relief sought if it has a realistic, as opposed to fanciful, prospect of success. An application to enforce a Tomlin Order is treated as an application for summary judgment under CPR Part 15.6. The object is to winnow out cases that are not fit for trial. The court must avoid conducting a mini-trial without disclosure and oral evidence. The court should avoid being drawn into an attempt to resolve conflicts of fact. This does not mean that the court must take at face value and without analysis everything that an...