IsZo Capital LP v Nam Tai Property Inc.

CourtEastern Caribbean Supreme Court
Docket NumberCLAIM NO. BVIHC (COM) 2020/0165
JudgeJack, J
Judgment Date03 Mar 2021
JurisdictionCaribbean States
Neutral Citation[2021] ECSC J0303-1
[2021] ECSC J0303-1




CLAIM NO. BVIHC (COM) 2020/0165

IsZo Capital LP
(1) Nam Tai Property Inc
(2) Greater Sail Ltd
(3) West Ridge Investment Company Ltd

Mr. Martin Moore QC, Mr. Edward Davies QC and Mr. Ben Griffiths, with them Mr. Nicholas Burkhill of Ogier for the Claimant

Anthony, Lord Grabiner QC, with him, Miss Rosalind Nicholson of Walkers BVI, and Mr. Henry Hoskins for the First Defendant

Mr. Gerard Clarke, with him Mr. Andrew Emery of Emery Cooke, and Ms. Gurprit Mattu and Ms. Victoria Thomas for the Second Defendant

The Third Defendant did not appear and was not represented


Jack, J [Ag.]: This is a shareholder dispute concerned with the control of the first defendant (“Nam Tai”), a BVI company listed on the New York Stock Exchange. The claimant (“IsZo”) is an investment fund run by Dr. Brian Sheehy (“Dr. Sheehy”). Nam Tai was originally an electronics company based in Shenzhen in the People's Republic of China. More recently it has become a property development company. IsZo alleges that Nam Tai is and has since 2017 been in the de facto control of Kaisa Group Holdings Ltd (“Kaisa”), the holding company in the People's Republic of a number of businesses including a large property development arm.


On 11 th September 2020 a group of shareholders in Nam Tai, said to hold over 30 per cent of the votes attaching to the registered shares, served a requisition on Nam Tai to hold a special meeting of the company. The purpose of the meeting was to remove five directors said to be associated with Kaisa (and any directors appointed since the date of the requisition) and to appoint six new directors as named by the requisitionists in the requisition. The board of Nam Tai has not yet called the special meeting.


On 5 th October 2020, Nam Tai placed 16,051,219 newly issued shares with the second defendant (“Greater Sail”) for $150 million and 2,603,366 newly issued shares with the third defendant (“West Ridge”) for $25 million. The name for this type of placement is a “PIPE”, a private investment in public equity. Greater Sail is a wholly owned indirect subsidiary of Kaisa. West Ridge is independent of Kaisa, but is said to be supportive of Kaisa. The effect of the PIPE was to increase the shares held by Greater Sail in Nam Tai from about 23.9 per cent to about 43.9 per cent. West Ridge held about 4.5 per cent after the PIPE, having not previously held any shares in Nam Tai.


By a claim form (now amended) and statement of claim (also now amended) issued on 13 th October 2020, IsZo seeks:

  • (a) Declarations that the purported allotments of shares to Greater Sail and West Ridge pursuant to the PIPE were ineffective and void;

  • (b) Orders setting aside the allotments;

  • (c) Rectification of Nam Tai's share register to reflect the above;

  • (d) An order pursuant to section 86(1)(b) of the BVI Business Companies Act 2004 1 that a meeting of Nam Tai be held to consider the resolutions sought by the requisition; and

  • (e) Directions for the holding of such a meeting.


On 14 th October 2020 I granted an ex parte injunction to hold the ring between the parties. On the return date of 19 th October 2020 Nam Tai gave undertakings. There have since been a number of further hearings which resulted in an order for a speedy trial. The parties have reached an agreement among themselves as regards the position of West Ridge, which was incorporated in a Tomlin order of 14 th December 2020. The effect is that West Ridge has not had to participate in the proceedings since the agreement was reached.


I heard the trial entirely virtually. All of the defence witnesses gave evidence from Macau or Hong Kong. Due to time differences this meant that the hearings from 2 nd February to 12 th February were conducted from 8.30am until between 11am and 11.30am BVI time (8.30pm to 11 or 11.30pm Macau and Hong Kong time). The opening speeches on 29 th January and closing speeches on 23 rd and 24 th February 2021 were conducted in normal court sitting hours. The evidence of Dr Sheehy on 1 st February commenced at 8.30am and continued until about 3pm. He gave evidence from New York. Although there were occasional internet glitches, these did not substantially interfere with the fair hearing of the trial.

The undisputed facts: the lead-up to the dispute

Nam Tai's business commenced in 1975. It was a supplier of electronic parts especially to computer and later mobile phone manufacturers. The current company was incorporated in this Territory in 1987 under the name Nam Tai Electronics Inc. The electronic parts were manufactured in factories in Shenzhen. Shenzhen was then an underdeveloped part of China. Nam Tai was able to buy the land on which it built the factories very cheaply. In 1988 Nam Tai floated on the NASDAQ stock exchange in the United States. In 2003 the listing was moved to the New York Stock Exchange. Many shareholders have been US investors.


In the course of the current century, the electronics business went into a decline. In 2014 Nam Tai decided to reinvent itself as a property development company. It changed its name to Nam Tai Property Inc, with the Stock Exchange moniker of NTP. Nam Tai's unique selling point as a property development company was that it held land in Shenzhen which was ripe for redevelopment. By this time, Shenzhen had ceased to be an underpopulated rural area and had become one of the most vibrant commercial and residential hubs in the booming economy of China. The land, which had been acquired for a pittance, was now extremely valuable.


Nam Tai, however, had a problem. As an electronics company it had no experience in property development. Property development in the People's Republic (like everywhere) is a specialist business. It is common ground that Kaisa, which had a property development arm, became involved with Nam Tai from July 2017. Kaisa became Nam Tai's largest shareholder. By the end of 2017 it held 25 per cent of the shares, although latterly this reduced to about 23.9 per cent of the shares. In addition, the make-up of the board of directors was changed. The extent to which Kaisa had control of the board is in dispute and I shall return to this issue. Senior management of Nam Tai was changed, so as to be staffed by executives formerly at Kaisa.


From 2017 Dr. Sheehy started to acquire shares in Nam Tai through IsZo, the investment fund he ran. The particular attraction of Nam Tai to him was the prospective realisation of profits from the sale of the Shenzhen properties, once these had been developed. He considered Nam Tai was greatly undervalued. By March 2018 IsZo held about 8.8 per cent of the shares in Nam Tai. In the course of 2019 and the early part of 2020, various US investors, including Dr. Sheehy, expressed concern about the direction of Nam Tai's business and its engagement with investors.


On 19 th March 2020 Nam Tai purchased a substantial parcel of land in Dongguan City (“the Dongguan land”) in Guangdon province for RMB 705.48 million (somewhat in excess of US$100 million). The land was sold at public auction and it is common ground that the price was a proper market price. Somewhat astonishingly this transaction was made by Nam Tai's management without any discussion or approval of the purchase by the board of directors.


The root of the dispute between the parties is the future direction of Nam Tai's business. Dr. Sheehy's view is that Nam Tai should realise the extra-ordinarily large profits from the existing Shenzhen land and buy back shares. He strongly opposed the purchase of the Dongguan land, because, having been bought at market price, it will not be as profitable as the Shenzhen land. The current management of Nam Tai take the view that Nam Tai should develop a long-term business of property development. Pursuing that strategy inevitably involved buying more land, otherwise the business would simply peter out. It is not for the Court to determine which policy is better: that is a matter for the shareholders.


On 30 th April 2020 the board of Nam Tai announced that it would hold its annual general meeting of shareholders on 5 th June 2020. At that meeting seven of the existing directors were reëlected, in each case by about 80 per cent of the votes. A proposal to elect Aaron Kwok to the board was defeated. Aaron Kwok is the twenty-five year old son of Ying Chi Kwok (“YC Kwok”), who was the chairman of the board and chief executive officer of Nam Tai. Aaron Kwok's career had been as a jeweller. He had no property development experience. YC Kwok is also the brother of Ying Shing Kwok (“YS Kwok”), who was and is the chairman of Kaisa.


In the meantime, on 27 th May 2020, IsZo had published a long open letter to shareholders. In it Dr. Sheehy did not mince his words:

“• Actions of Management and the Board Have Destroyed the Share Price: The Company's stock price is trading at just $4.05 per share… — a 70% decline in share value since Kaisa replaced NTP's former CEO with Mr. Ying Chi Kwok, the younger brother of Kaisa's CEO, on January 29, 2018. This harrowing shareholder loss is the result of ruinous leadership, abrogation of corporate governance, and haphazard capital allocation strategy under the direction of a Kaisa-controlled management team and Board.

Failure to Optimize the Company's Assets: The intrinsic value of the Company is significantly higher than the stock price reflects. [He sets out valuation evidence.] The Company has made no effort… to realise the true value of the Company's real estate assets for the benefit of shareholders…

Dangerous Capital Allocation Decisions: The most recent example of the Company's poor capital allocation strategy is the purchase of a $101 million residential development on Dongguan City using over 80% of the...

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