It’s a done deed: directors, dishonesty and deeds
On 7 April 2022, the BVI Commercial Court handed down judgment in the ancillary claim of West Ridge Investment Company Limited (West Ridge), the Ancillary Claimant in the high-profile IsZo Capital LP v Nam Tai Property Inc. et al litigation in which, West Ridge sought to be indemnified pursuant to a Deed of Indemnity (Deed) agreed between Nam Tai Property Inc. (Nam Tai) (a company listed on the New York Stock Exchange) and West Ridge. The Court held that the Deed was a proper commercial resolution of the issues between the parties which stood to be enforced and that Nam Tai should be bound to its bargain with West Ridge.
Pursuant to the Deed, Nam Tai agreed to indemnify West Ridge against claims brought by IsZo Capital LP (IsZo) in relation to the issuance of shares made pursuant to a private investment in public equity (PIPE). Further to the Deed, the proceedings in the ancillary claim were by way of Tomlin Order stayed.
IsZo was successful in its claim against Nam Tai and as an immediate consequence, West Ridge sought to be indemnified pursuant to the Deed.
The consequence of IsZo prevailing led to a new board of Nam Tai being appointed. The new board of Nam Tai challenged the Deed and sought to set aside the Tomlin Order on the following grounds: (1) There was an unlawful means conspiracy between the directors of West Ridge and the then directors of Nam Tai to issue shares under the PIPE; and (2) West Ridge dishonestly assisted Nam Tai with the issuance of the shares.
Nam Tai argued that the Deed was a furtherance of the improper conduct which led to the Court’s findings of the PIPE being issued for an "improper purpose’" in the main proceedings; and that the Deed and the Tomlin Order were the means by which West Ridge conspired with and/ or dishonestly assisted the previous board of Nam Tai. The Deed and Tomlin Order were therefore alleged to be tainted with illegality and liable to be set aside.
The Court considered the test for setting aside a Tomlin Order, which was whether Nam Tai’s Defence and Counterclaim had a "realistic" as opposed to a "fanciful" prospect of success.
In coming to its decision, the Court reasoned that the claim of dishonest assistance had no reasonable prospect of success as there could be no dishonest assistance by the directors of West Ridge in light of the findings by the Court of Appeal that the claim against the then directors of Nam Tai for a breach of fiduciary duty was not made out.
The Court also considered that there must be "an intention to injure another individual or separate legal entity" for a claim of unlawful conspiracy to be successful which was not made out.
This decision shows that the Court will consider a settlement agreement between corporate entities in the round, taking into account the commercial factors.
Harneys acted successfully for the Ancillary Claimant.
The full judgement is available here.