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Privy Council reaffirms the stringent basis for review of factual findings on appeal and endorses a respondent’s entitlement to rely on fresh evidence on appeal

The recently delivered judgment of the Privy Council in Kwok Kin Kwok v. Yao Juan [2022] UKPC 52 is worthy of note in three respects.

The case concerned allegations by Madam Yao that Madam Kwok, her 50% co-shareholder in a BVI holding company (Crown Treasure), had been guilty of unfairly prejudicial conduct towards her with respect to the conduct of the affairs of Crown Treasure and the latter’s ultimate subsidiary (which owned and operated a 5-star hotel in China). The allegations of unfair prejudice related to various financing transactions which had resulted in a dilution of Madam Yao’s indirect shareholding in the operating subsidiary and were concluded by Madam Kwok without consultation with and without the consent of Madam Yao.

At trial, the BVI Commercial Court Judge found that there was an oral agreement or understanding between Madam Yao and Madam Kwok at the outset of the project that Madam Kwok (the sole director of Crown Treasure) would not enter into any major transaction relating to the hotel without consulting with and obtaining the consent of Madam Yao; he further held that the financing transactions in question had been entered into by Madam Kwok in breach of that agreement or understanding and that Madam Yao’s allegations of unfair prejudice were therefore made out; consequently, he ordered that Crown Treasure should be placed in liquidation because (in his view) this was the fairest outcome in circumstances where Madam Kwok vigorously objected to any order that she should buy out Madam Yao’s shareholding in Crown Treasure.

On appeal by Madam Kwok, the Eastern Caribbean Court of Appeal for the Virgin Islands allowed the appeal in part, finding that the Judge had been wrong to find that the agreement or understanding at the outset of the project was as alleged by Madam Yao, and further finding that only some of Madam Yao’s allegations of unfair prejudice were made out. In so holding, the Court of Appeal refused Madam Yao’s application for permission to adduce fresh evidence of a further financing transaction that Madam Kwok had entered into after trial but shortly before the first instance judgment was delivered; pursuant to that transaction, Madam Yao’s interest in the hotel was further diluted in Madam Kwok’s favour. The Court of Appeal considered that, as a matter of principle, it was not open to a respondent to an appeal to seek to adduce fresh evidence in reliance upon the Ladd v. Marshall test; only an appellant was entitled to do so. As to the remedy to which Madam Yao was entitled on account of the partial finding of unfair prejudice that survived the appeal, the Court of Appeal held that the winding-up order made by the Judge was disproportionate and ordered instead that Madam Kwok should not enter into certain types of financing transaction without prior notice to Madam Yao and without seeking her consent, such consent not to be unreasonably withheld by Madam Yao.

On Madam Yao’s appeal to the Privy Council, the Board held, first, that the Court of Appeal had been wrong to overturn the Judge’s factual finding as to what had been agreed between Madam Kwok and Madam Yao. That finding was fundamentally based on the Judge’s evaluation of the credibility of the witnesses because the alleged agreement was purely oral. The Board reiterated the importance of, and applied, the well-established principle that an appellate court should not interfere with a judge’s finding of primary fact unless it is “plainly wrong”, which in this context connotes that either there was no evidence to support the finding, or the finding was based on a misunderstanding of the evidence, or the finding was one that no reasonable judge could have reached (i.e. one which was “outside the bounds within which reasonable disagreement is possible”).

Secondly, the Board rejected the Court of Appeal’s view that it was not open to a respondent to an appeal to rely on Ladd v. Marshall in support of an application to adduce fresh evidence in opposition to the appeal. Whilst there did not appear to be a specific authority on the point, the Board considered, in agreement with Madam Yao’s submissions, that there was nothing in principle to justify the Court of Appeal’s asymmetric approach to the ability of parties to an appeal to rely on fresh evidence; that approach was illogical and unfairly put a party who had been successful at first instance in a worse position than the party who had lost.

Thirdly, whilst recognizing that the making of a winding-up order on the just and equitable ground in response to a finding of unfair prejudice was a remedy of last resort, the Board held that the Judge had not been shown to have committed any error in exercising his discretion in favour of ordering liquidation. An interesting aspect in this regard is that the Board considered that the Judge had been entitled to take account of the particular circumstance that the liquidation of Crown Treasure would not impact the operations of the hotel owned and operated by Crown Treasure’s ultimate subsidiary and would enable the liquidator to sell Crown Treasure’s interest in the hotel to the highest bidder (whether Madam Yao, Madam Kwok or some other party). In the final result therefore, the Board allowed Madam Yao’s appeal, set aside the Court of Appeal’s order, and restored the Judge’s liquidation order.

The judgment is available here.

Alain Choo-Choy KC acted for Madam Yao on her successful appeal.