Borrelli & Ors v Ting & Ors (Bermuda)

Factual and Procedural Background

Company A, a multinational electronics group, collapsed in late 1999 with a deficiency exceeding US$1 billion and was ordered to be wound up in both The City and The State in 2000. The Liquidators (now the Appellants) sought to monetize Company A’s stock-exchange listing through a statutory scheme of arrangement that required shareholder approval. Respondent 1 controlled 5.2% of the shares through Company C and Company D and opposed the scheme. The chair of the shareholders’ meeting rejected proxies lodged on behalf of Company C and Company D on the basis of suspected irregularities, including forged signatures attributed to Respondent 1.

Facing a 31 December 2002 deadline imposed by The Stock Exchange and Company B (the intended buyer of the listing), the Liquidators risked losing all funding for the liquidation. After successive judges recused themselves, an urgent Settlement Agreement was executed on 30 December 2002 under which Respondent 1 and his companies withdrew opposition in exchange for far-reaching covenants by the Liquidators not to sue or investigate.

Subsequent investigations revealed alleged large-scale misappropriations by Respondent 1. The Liquidators notified Respondent 1 in 2006 that they regarded the Settlement Agreement as voidable and commenced proceedings in The City for recovery of approximately HK$407.8 million. Respondent 1 and his companies then sued in The State for a declaration that the Settlement Agreement barred the claims and for an injunction restraining the Hong Kong action.

The Chief Justice (first instance) rejected Respondent 1’s case, declaring that the Settlement Agreement did not prevent the Liquidators from suing. The Court of Appeal (majority) reversed that decision. Leave to appeal was granted, and the matter came before the Judicial Committee of the Privy Council (the Board).

Legal Issues Presented

1. Whether the broad release contained in the 30 December 2002 Settlement Agreement bars the Liquidators from bringing claims against Respondent 1 for alleged breaches of fiduciary duty and misappropriation of Company A’s assets.
2. Whether the Settlement Agreement is void or voidable because it was procured by economic duress, sharp practice, non-disclosure and/or want of consideration.
3. Whether the Liquidators affirmed or are estopped from avoiding the Settlement Agreement owing to their conduct after receiving scheme proceeds.

Arguments of the Parties

Appellants’ Arguments (Liquidators)

• The Settlement Agreement was procured by economic duress: Respondent 1 used illegitimate pressure—opposition backed by forgery and false evidence—to force the covenants.
• Respondent 1’s failure to disclose massive misappropriations rendered the agreement voidable for non-disclosure and unconscionable conduct.
• The release, properly construed, does not cover unknown fraud claims arising from Respondent 1’s role as director and officer of Company A.
• Even if facially wide enough, equity should refuse enforcement because Respondent 1 comes to court with “unclean hands.”
• No affirmation occurred; the Liquidators reserved their rights and acted promptly once evidence of wrongdoing emerged.

Respondents’ Arguments (Respondent 1, Company C, Company D)

• Clauses 3 and 9 of the Settlement Agreement expressly release “known or unknown” claims worldwide; therefore the Hong Kong proceedings breach the covenant.
• No duty of disclosure was owed during arm’s-length settlement negotiations; the Liquidators already suspected wrongdoing.
• The Liquidators affirmed the agreement by relying on it in 2003 litigation concerning an examination order and by retaining benefits from the scheme.
• Rescission is impossible because the parties cannot now be restored to their pre-agreement positions.
• The breadth of the contractual language contractually waives any right to set the agreement aside.

Table of Precedents Cited

Court's Reasoning and Analysis

The Board, constituted by Judge Saville delivering judgment with Judges Phillips, Clarke, Arden and Eassie concurring, placed primary weight on two factual findings of the trial judge:

• Respondent 1 systematically withheld cooperation, destroyed or concealed records and avoided meeting the Liquidators, thereby frustrating the liquidation.
• Respondent 1 orchestrated opposition to the scheme solely to deprive the Liquidators of funds, employing forged documents and false affidavits.

These actions were deemed “unconscionable” and amounted to illegitimate economic pressure. The Board held that the Liquidators had “no reasonable or practical alternative” but to agree, satisfying the test for economic duress. Consequently:

1. The Settlement Agreement was voidable at the instance of the Liquidators, who had not affirmed it; delay was explained by the need to secure evidence of large-scale fraud.
2. Equitable doctrines, including “clean hands,” barred Respondent 1 from enforcing the release, as he sought to profit from his own wrongdoing.
3. Arguments that wide drafting excluded the right to rescind were rejected: the law will not allow a party to rely on an agreement procured by illegitimate means.
4. Although lack of consideration might also defeat the agreement (Respondent 1 promised only to cease improper conduct), the Board found it unnecessary to decide that point.

Holding and Implications

APPEAL ALLOWED. The Board advised that Respondent 1, Company C and Company D are not entitled to rely on the Settlement Agreement to defeat any present or future claims by the Liquidators, Company A or Company E. Respondents were ordered to pay the Appellants’ costs in all courts.

Implications: The decision re-affirms that settlement agreements obtained through economic duress are voidable and that courts will refuse enforcement where a party seeks to take advantage of its own fraud or unconscionable conduct. No new legal test was created, but the ruling underscores the potency of economic-duress doctrine in insolvency contexts.