Hague v Nam Tai Electronics
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| David Hague v Nam Tai Electronics Inc | |
|---|---|
.svg) | |
| Court | Judicial Committee of the Privy Council |
| Full case name | David Hague & Anor v Nam Tai Electronics Inc |
| Decided | 28 February 2008 |
| Citation | [2008] UKPC 13 |
| Case history | |
| Prior actions | David Hague v Nam Tai Electronics Inc & Others |
| Appealed from | David Hague & Anor v Nam Tai Electronics Inc, HCVAP 2004/020, 2005/010 (Eastern Caribbean Supreme Court 16 January 2006). |
| Court membership | |
| Judges sitting | Lord Neuberger Lord Bingham of Cornhill Lord Scott of Foscote Lord Rodger of Earlsferry Baroness Hale of Richmond |
| Case opinions | |
| Decision by | Lord Scott of Foscote |
Hague v Nam Tai Electronics refers to a pair of legal decisions of the Privy Council on appeal from the British Virgin Islands. The first was a unanimous decision given by Lord Hoffman, reported at [2006] UKPC 52,[1] which focussed upon the anti-deprivation rule and secured creditor's rights. The second was a unanimous decision given by Lord Scott, reported at [2008] UKPC 13,[2] and concerned the liability of a company liquidator. The second decision was much more widely reported.
Lord Bingham of Cornhill and Lord Rodger of Earlsferry sat on both appeals, but neither gave a judgment in either of them.
Separately in the saga, there was also a third application for leave to appeal to the Privy Council on another point, but leave was refused.[3]
Nam Tai Electronics Inc. was a company incorporated in the British Virgin Islands under the International Business Companies Act and whose shares were listed on the New York Stock Exchange. It was carrying on business principally in China. Mr Robert Yuen and one of his associated companies, Tele-Art Inc. (also incorporated in the British Virgin Islands), collectively owned 823,635 of the issued shares of Nam Tai. On 10 November 1993 Mr Yuen and Tele-Art Inc. each executed deeds which created a security interest over their shares in Nam Tai in favour of the Bank of China as security for the obligations of Tele-Art Limited (a Hong Kong subsidiary of Tele-Art Inc.) to the bank.
On the very same day, 10 November 1993, an Irish government agency obtained a judgment against Tele-Art Inc. for US$799,079. However, it appears that no steps were taken to enforce that judgment debt.
Just under three years later, Tele-Art Limited defaulted on its obligations and on 5 August 1996 the Bank of China called on the security provided by Mr Yuen and Tele-Art Inc. This in turn led to an unusual chain of events as Mr Yuen and Tele-Art Inc. furiously fought to resist the bank's attempts to enforce its collateral.
Hague v Nam Tai Electronics (No 1)
Subsequent facts
Then events took what Lord Hoffman described in his judgment as "an unusual turn".[4] The Irish government agency in whom the judgment debt was vested (Forfás) assigned the judgment debt to Nam Tai. Accordingly, Nam Tai became a creditor of its main shareholder, Tele-Art Inc. Nam Tai then issued winding-up proceedings in the British Virgin Islands courts against Tele-Art Inc. and on 17 July 1998 the court made a winding-up order, and Mr David Hague, a partner in the Hong Kong office of PricewaterhouseCoopers, was appointed as the liquidator. After that, in the words of Lord Hoffman "Nam Tai then devised a scheme to destroy the Bank's security."[5]
The board of directors of Nam Tai purported to amend the articles of association such that where any shareholder owes an unpaid judgment debt to the company, the company was entitled to redeem the shares of that shareholder and set-off the redemption proceeds against the judgment amount. Having done this, on 18 December 1998 Nam Tai purported to redeem the shares which had been charged to the Bank of China and set-off the proceeds against the judgment debt originally awarded to the Irish government.
Mr Hague as liquidator of Tele-Art Inc. sought declarations from the court as to the priority of the claims of Nam Tai, and if necessary orders setting aside the redemptions and rectifying the share register of the company.
The judgment
The Privy Council[6] held that the scheme failed for two particular reasons (and noted that it might also have failed for other reasons as well). Firstly, the right to any redemption proceeds only arose after Tele-Art Inc. had gone into liquidation, and under British Virgin Islands insolvency law no set-off could arise where a person became a creditor after the commencement of winding-up.[7] Secondly, Nam Tai had notice of the bank's security interest and accordingly any rights it acquired in relation to the shares were subject to the rights of the bank.[8]
Lord Hoffman also made the order for rectification of the share register. He noted that under the terms of the article, even if one accepted the validity of the amendment, then it was not possible for the set-off right to be exercised against an insolvent shareholder and hence the entire redemption was irregular and would be set aside.
The bank applied for the shares to be re-registered in its name pursuant to its rights as chargee. Nam Tai objected on the basis that the bank had not previously applied for the shares to be registered in its name. Lord Hoffman waved off the objections noting that in the context of the litigation such an omission was not surprising, and countering that "such a course would be to deprive the Bank of one of its most important rights as mortgagee, namely the right to take possession of the security and exercise the power of sale at its own discretion. To take the power of sale out of the hands of the bank would in their Lordships' opinion damage the confidence which bankers should have in the willingness of the courts to uphold their security rights."[9]
Commentary
The decision in Hague v Nam Tai Electronics (No 1) did not attract a great deal of academic or professional commentary, although it is referred in British Virgin Islands legal textbooks.[10]