IsZo Capital LP v Nam Tai Property Inc.
| Jurisdiction | Caribbean States |
| Judge | Jack, J |
| Judgment Date | 07 April 2022 |
| Judgment citation (vLex) | [2022] ECSC J0407-3 |
| Docket Number | CLAIM NO. BVIHC (COM) 2020/0165 |
| Court | Eastern Caribbean Supreme Court |
EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
(COMMERCIAL DIVISION)
CLAIM NO. BVIHC (COM) 2020/0165
Mr. David Chivers QC and Mr. Jack Rivett, with them Ms. Arabella di Iorio and Mr. Shane Quinn of Agon Litigation for the First Defendant/Ancillary Defendant
Mr. John Machell QC, with him Mr. Peter Ferrer, Ms. Sarah Thompson and Ms. Jhneil Stewart of Harneys for the Third Defendant/Ancillary Claimant
The Claimant and the Second Defendant did not appear and were not represented
Jack, J [Ag.]: The ancillary claimant (“West Ridge”) by an application dated 17 th May 2021 seeks judgment pursuant to a Tomlin order dated 14 th December 2020 against the ancillary defendant (“Nam Tai”), a BVI company listed on the New York Stock Exchange:
(a) in the amount of US$23,820,798.90 being the amount paid by West Ridge in respect of West Ridge's purchase of 2,603,366 shares in Nam Tai pursuant to a Securities Purchase Agreement dated 5 th October 2020;
(b) in respect of West Ridge's further costs, losses and expenses up to 14 th May 2021 comprising:
(i) the fees and disbursements of Harneys in respect of this matter up to 14 th May 2021 in the amount of US$465,607.06; and
(ii) the fees and disbursements of Sidley Austin LLP as counsel to West Ridge in respect of its purchase of the shares in the amount of US$12,875.32;
(c) in respect of West Ridge's further costs losses and expenses from 14 th May 2021 to 8 th March 2022 comprising:
(i) the further fees and disbursements of Harneys and
(ii) costs totalling US$7,981.00 paid by West Ridge to IsZo pursuant to my Order of 28 th June 2021 in the total amount of US$335,865.38;
(d) in respect of West Ridge's further estimated costs and disbursements in full from 8 th March 2022 to 16 th March 2022 in the amount of US$75,636.90; and
(e) interest from the dates of the relevant demands made by West Ridge to Nam Tai.
The background to this application is that on 5 th October 2020, Nam Tai had placed 16,051,219 newly issued shares with the second defendant (“Greater Sail”) for around $150 million and the 2,603,366 newly issued shares, the subject of the current application, with West Ridge. The issuance of these shares in Nam Tai was made pursuant to a “PIPE”, a private investment in public equity. Nam Tai was at that time under the de facto control of Kaisa Group Holdings Ltd (“Kaisa”).
The current action was commenced by the claimant (“IsZo”) on 13 th October 2020. Nam Tai was the main defendant. Greater Sail was a subsidiary of Kaisa and, as can be seen, was the main purchaser of shares under the PIPE. West Ridge was a subsidiary of Haitong International Securities Co Ltd (“Haitong”). Haitong is independent of Kaisa, but appears to have been friendly with it. Both Greater Sail and West Ridge were named as additional defendants. Each were separately represented: Greater Sail by Emery Cooke, West Ridge by Harneys.
On 3 rd March 2021, I handed down a judgment in favour of IsZo. 1 I set aside the issuance of the shares. An appeal against that judgment by Nam Tai was unsuccessful. 2 The Court of Appeal refused a stay of execution pending an appeal to the Privy Council. 3 Subsequently, on 30 th November 2021, there was a meeting of shareholders in Nam Tai, where the directors of board who had been affiliated to Kaisa were replaced with a slate proposed by IsZo.
On 26 th November 2020, West Ridge made an ancillary claim against Nam Tai which sought repayment of the share price in the event that IsZo's action succeeded. There were then three-way negotiations between West Ridge (Haitong), Nam Tai (Kaisa) and IsZo. West Ridge had a smaller financial involvement in the PIPE. It may also have had less commercial commitment to Kaisa retaining control of Nam Tai than Greater Sail. The negotiations, so far as appears, were conducted at arm's length. Whatever the commercial background, these negotiations resulted in a three-way settlement, which was manifested as follows.
Firstly, by a deed made 14 th December 2020 between Nam Tai and West Ridge, Nam Tai gave West Ridge substantial indemnities against claims brought by IsZo. In the event of IsZo winning the action, Nam Tai agreed to give West Ridge (subject to quantum) the relief which I have set out in para [1] of this judgment. In the event of IsZo losing the action, Nam Tai agreed to indemnify West Ridge against any of Harneys' costs which were irrecoverable from IsZo. Further Nam Tai agreed not to serve a defence to West Ridge's ancillary claim.
Secondly, by the Tomlin order made the same day with the consent of Nam Tai and West Ridge, it was ordered: “All further proceedings in this ancillary claim be stayed except for the purpose of carrying the terms of the Deed into effect AND for that purpose the parties have permission to apply to the Court without the need to issue fresh proceedings.”
Thirdly, an order was made the same day by consent between IsZo and West Ridge. It recited that Nam Tai and West Ridge had “agreed to the terms set out in a Deed of Indemnity dated 14 December 2020.” It then ordered a stay of IsZo's claim against West Ridge on terms that West Ridge would be bound by any order made against Nam Tai in respect of the shares issued to West Ridge.
It is right to say that IsZo were not shown the deed of indemnity. It is also right to say that the terms of the indemnity were very favourable to West Ridge. However, the terms were not in my judgment outwith the bounds of a reasonable commercial settlement and were not in a form which could not have been foreseen by IsZo. In particular, the terms were agreed at a very early stage in the litigation, when the cost of giving the full indemnity would have been much lower than at a later stage, so that the “generosity” of the settlement was comparatively cheap. Nor were the terms particularly anti-IsZo orientated. If IsZo lost, Nam Tai would still have to indemnify West Ridge. Win or lose the cost of the indemnity would fall in part on Kaisa, since, even without the shares allotted to Greater Sail under the PIPE, Kaisa had a substantial investment in Nam Tai.
Paras 49 and 49.4 of the Defence and Counterclaim assert that one of the considerations which lead Nam Tai to make that agreement with West Ridge was the consideration that West Ridge would then not need to provide disclosure. This is not something pursued in Nam Tai's skeleton or orally and seems to be speculative. If West Ridge remained as an active participant in the case, its evidence may or may not have helped the case then being put forward by Nam Tai. (There is no evidence either way, except my findings at trial which were necessarily made without knowing what West Ridge would have said.) It would not be an unusual litigation strategy to limit both the number of parties and the issues in order to save costs and reduce the risk of unpleasant surprises.
Looking at these three documents standing on their own, these show in my judgment a reasonable arm's length commercial settlement of a shareholder dispute. I shall, however, as Mr. Chivers QC for Nam Tai urges, look at the wider picture in due course.
West Ridge's position on the settlement agreement is this:
...“27. The effect of the Deed, the Tomlin Order and the Consent Order was that West Ridge gave up its right to defend the claim in exchange for a promise by [Nam Tai] to repay the West Ridge Subscription in the event that the claim was successful, together with other costs/expenses that had been incurred by West Ridge. As part of giving up its right to defend the claim, West Ridge gave up its right to contend that:
a) the West Ridge Placement was to be treated as valid as regards West Ridge on the basis of the application of section 31 of the [ BVI Business Companies Act 2004, 4 often called the “indoor management” rule]; or
b) IsZo was not entitled to relief in respect of the Placements save on condition that the Company repay the West Ridge Subscription.
IsZo's contention in the proceedings was that the Placements were void. On that footing, the subscriptions monies were not monies of the Company. The Company, and any shareholder challenging the Placements, cannot have it both ways: it cannot approbate and reprobate: it cannot say that the Placements are void and say that the money was the Company's. An assertion that the money belongs to [Nam Tai] is an act of ratification of the Placements and would have prevented a declaration that the Placements were invalid:
‘If you are fraudulently induced to buy a cake you may return it and get back your price; but you cannot both eat your cake and return your cake:’ Clarke v Dickson. 5
28. The right to make those arguments at trial was lost irreversibly: if the Court lifts the stay, it cannot now put West Ridge back into the position it was in before the Deed, the Tomlin Order and Consent Order were entered into because the trial (and appeal) have taken place and the Placements have been set aside. It would be monstrously unjust for the Company now to have the opportunity to resist repayment of the West Ridge Subscription in circumstances where the status quo ante cannot be restored, particularly in circumstances in which it now wants to have a trial as to the extent of
West Ridge's knowledge and involvement in the Placements so as to try to establish a liability in conspiracy or dishonest assistance, but where the outcome of that enquiry, if West Ridge is right, will not be a determination that, as against West Ridge, the Placement itself is valid. West Ridge has not held shares in the Company since the setting aside of the Placements over one
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