Vol 5 (2008) - Issue 5

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Creditor Claims against Liquidators: Hague v Nam Tai Electronics [2008] UKPC 13; [2008] BCC 295

This recent Privy Council decision is the latest chapter in a long-running dispute arising out of the insolvency of Tele-Art Inc (‘TAI’), which went into liquidation as long ago as 17 July 1998. In it the Privy Council struck down an attempt by Nam Tai Electronics, a creditor of TAI, to bring proceedings for its own benefit against a former liquidator (Mr Hague) for alleged failure to collect or take control of the assets of TAI. The Privy Council described the form of the proceedings as ‘a matter of some surprise’.

The procedural background is complex, but is important to an understanding of the decision, which in form is the overturning of a grant of permission to serve proceedings out of the jurisdiction, but in substance is a decision as to the limited rights in law a disgruntled individual creditor has against a liquidator.

TAI was incorporated in the BVI, but carried on business in Hong Kong. It was wound up by the BVI court on the petition of Nam Tai, and Mr Hague (a partner in PricewaterhouseCoopers in Hong Kong (‘PWC’)) was appointed liquidator. Nam Tai soon fell out with Mr Hague, and by summons dated 25 February 1999 applied for Mr Hague’s removal. That application failed, but before it had reached the point where no further appeal was possible, Nam Tai had in March 2001 issued a further summons to remove Mr Hague. Pursuit of that summons became unnecessary when on 24 July 2002 Mr Hague was given leave to resign as liquidator. His resignation was accepted by the BVI court on 17 December 2002.

However, prior to the acceptance of his resignation, Nam Tai had on 27 September 2002 commenced these proceedings in the BVI against Mr Hague and PWC. Nam Tai’s statement of claim accused Mr Hague of various improprieties in the conduct of the liquidation: these were alleged to constitute breaches of statutory duty, breach of trust, and breach of duty of care in tort. The Privy Council noted that it was not clear from the pleading whether Nam Tai claimed damages for its own benefit or for the benefit of TAI.

Because Mr Hague and PWC were in Hong Kong, Nam Tai had to make an application under BVI procedural rules to serve them out of the jurisdiction. That application was granted (ex parte) by the BVI judge on 4 October 2002, whereupon Mr Hague and PWC were served with the proceedings. On 24 December 2002 Mr Hague and PWC applied for service to be set aside. They relied on various grounds, the one of relevance for current purposes being that the claim was misconceived in law. The application failed in the BVI’s High Court and Court of Appeal. The Privy Council had no difficulty in allowing the appeal.

The Privy Council accepted that if there was a proper claim, it should be litigated in the BVI. However, permission should only be granted in respect of a claim which showed a serious issue to be tried. The Privy Council held there was no such serious issue. The key sentence in the decision (found in para. [13]) reads: ‘A culpable failure by a liquidator to collect in or preserve or take control of the assets of a company in liquidation may diminish the value of the fund available for distribution pro rata among the creditors but is not, in their Lordships’ opinion, a breach of a duty owed to each creditor as an individual’. The Privy Council made it clear (para. [16]) that if the application had been brought as a strike-out on the basis that the claim disclosed no reasonable cause of action, the application would clearly have succeeded.

Questions of insolvency law only rarely get to be addressed by judges of this seniority in the common law judicial hierarchy. The Privy Council’s view will inevitably have substantial influence on in this area of the law. However, practitioners will note the decision is a very short one, and arises in an unusual procedural context. The question is, to what extent did the decision leave relevant points unaddressed?

It is suggested that the decision is a robust one of wide import, entirely in line with case law cited in it, as well as case law not referred to. At para. [14], the court made reference to three recent cases as establishing the proposition quoted above.