The underlying dispute concerned an oral agreement entered into by the parties to build and operate a five-star luxury hotel in Xiamen, China (the Project). As part of the agreement, Mdme Yao and Mdme Kwok incorporated a BVI company, Crown Treasure, as the holding company with each party owning 50 per cent of the shares in the company. The development and Project were held ultimately by a subsidiary in China. Neither party had the ability to transfer their shares in Crown Treasure without the consent of the other. Mdme Kwok was the sole director of Crown Treasure and had the day-to-day control over the operations of the Project but Mdme Yao, who provided much of the funding, took the position that the parties’ agreed that she would be given information about and would need to consent to all major decisions. Mdme Kwok disagreed and in her evidence stated that she did not need to obtain Mdme Yao’s consent in relation to anything.

Sometime after she had made her investment in the project Madam Yao discovered that Madam Kwok had carried out certain transactions at the level of the subsidiaries which led to a significant dilution of Crown Treasure’s stake in the Project. This was done either without Mdme Yao’s knowledge with respect to one of the transactions or by procuring consent by giving Mdme Yao misleading information in relation to the other. Madam Yao, therefore, brought a claim before the BVI Commercial Court for unfair prejudice.

The trial judge held that Madam Kwok’s conduct, in relation to the transactions complained of by Madam Yao, was clearly unfairly prejudicial and ordered that Crown Treasure be placed into liquidation. Madam Kwok, however, appealed both the decision and the remedy to the Court of Appeal. With regard to the remedy, she argued that the liquidation of Crown Treasure was too draconian.

Before the appeal took place Madam Yao also discovered that around the time that the judgment was handed down in the Commercial Court, Mdme Kwok caused the share of Crown Treasure in the Project to be diluted still further and at the same time awarded herself a 22 per cent direct interest in the Project company (the Third Dilution). Mdme Yao, therefore, made an application to the Court of Appeal to adduce evidence of the Third Dilution to further support the trial judge’s finding of unfair prejudice.

While the Court of Appeal upheld the trial Judge’s finding that there had been unfair prejudice it allowed Madam Kwok’s appeal in part. The Court of Appeal held that there were insufficient facts before the trial judge to support his finding that there was an oral agreement that required Madam Kwok to notify consult and/or obtain Madam Yao’s consent to major decisions or transactions that adversely affect Madam Yao’s ownership. The Court of Appeal also held that the imposition of a liquidation order was disproportionate to the more limited unfair prejudice that had found to exist. The Court of Appeal, therefore, substituted the liquidation order with a much more limited order which simply required Madam Kwok in the future to notify and consult with Madam Yao in advance of matters relating to the introduction of new investors.

Significantly, in reaching its judgment, the Court of Appeal had also refused to admit Madam Yao’s fresh evidence of the Third Dilution on the basis that there was no authority that allowed a respondent (as opposed to an appellant) to adduce fresh in support of the trial Judge’s findings.

Mdme Yao appealed the Court of Appeal’s decision to the JCPC on the basis that: (1) it was not open to the Court of Appeal to reverse the factual findings of the trial Judge in this case and the Court of Appeal should have exercised appellate court restraint; (2) there is no reason in principle why an appellant should be able to apply to adduce fresh evidence on appeal but a respondent should not; and (3) the liquidation remedy was not draconian and the relief given by the Court of Appeal in practical terms provided no relief at all to Mdme Yao.

1. An appellate court should not interfere with a judge’s findings of primary fact unless there was no evidence to support the judge’s findings. In this case, the Court of Appeal was not entitled to overturn the judge’s findings on the terms of the oral agreement. The trial judge’s findings were based on sufficient evidence of unfair prejudice and he had been entitled to make the findings that he had made. This was not a case in which the high hurdle for overturning the trial judge’s fact-finding was surmounted.
2. Once unfair prejudice is established, the court has a wide discretion as to the relief which should be granted. In determining what is appropriate, the court is entitled to look at the reality and practicalities of the overall situation, past, present and future. The judge decided that there was a repeated pattern of Madam Kwok ignoring her contractual duty to notify and consult Madam Yao, and then denying that this duty existed. Policing the Court of Appeal order would be a formidable task and risked further litigation in circumstances where the damage had already been done. It was also important that Crown Treasure was not the operating company and so the appointment of liquidators would not interfere with the day-to-day operation of the Project. In this case, in commercial terms, there was little difference between the liquidation order and the more common remedy of a buyout order (which significantly Mdme Kwok had never suggested as alternative relief).
3. The Court of Appeal did not approach the question of whether a respondent could adduce fresh evidence correctly. There is no reason why a respondent should not be able to adduce fresh evidence in support of the trial judge’s findings if the test in Ladd v Marshall  is met.

This decision of the JCPC is a useful summary of the tenets of a claim for unfair prejudice in the BVI and a reminder of the high bar set for the appellate courts to overturn a trial judge’s findings of fact. In certain circumstances, a liquidation order will also be appropriate and claimants should not therefore automatically assume that such an order will only be granted in exceptional circumstances.

Claire Goldstein from Harneys acted for the successful Appellant led by Alain Choo Choy KC of One Essex Court.