Borrelli v Ting
Privy Council (Bermuda)
Citations:  UKPC 21;  Bus LR 1718.
In 2000, the courts in Bermuda and Hong Kong made winding up orders with respect to Akai Holdings Ltd, a Bermudan company incorporated in Hong Kong. For a variety of reasons, the liquidators were struggling to investigate the company’s affairs. They proposed to raise money to continue their investigations by selling Akai’s shares and listing status on the Hong Kong Stock Exchange to a third-party.
However, to implement the scheme, the liquidators had to convince the majority of shareholders to vote for it. They were concerned that two companies owned by Ting, which held 5.2% of the share capital, would oppose the scheme. The liquidators suspected that any investigation would reveal that Ting had engaged in illegal activity.
At the voting meeting, attorneys represented Ting’s companies. The chairman rejected their presence since their appointments were not in the proper form. In response, Ting forged a set of board resolutions validating their appointments. Those attorneys then voted against the scheme.
The liquidators began proceedings to challenge the votes in court. However, this could not be completed before the deadline for approving the scheme. To convince Ting to go along with the scheme, the liquidators covenanted with Ting and his companies not to pursue any rights or suits against them.
The liquidators sought to have the covenant agreement set aside. The police had informed them that Ting had misappropriated significant funds from Akai. While the liquidators suspected that this might be the case, they were unaware of the scale of the illegality when they agreed to the covenant. Ting argued that he had not been under any duty to disclose his activities when negotiating the settlement.
- Could the covenant agreement be set aside?
The Pricy Council held in favour of the liquidators. The covenant could be set aside for economic duress. Ting’s unconscionable behaviour meant that the liquidators had the choice of either abandoning the scheme and losing the chance to recoup Akai’s losses, or agreeing to the covenant. As such, they had no practical choice but to agree. This constituted illegitimate pressure.
Though the liquidators had waited a considerable period before bringing proceedings, this did not indicate that they affirmed the covenant and waived their right to void it. In the circumstances it was natural not to bring proceedings until they had evidence of Ting’s misappropriations.
This Case is Authority For…
The defence of economic duress renders an agreement voidable where one party exerts illegitimate pressure on the other which gives the other no practical alternative but to agree.