Chu v Lau (British Virgin Islands)

Factual and Procedural Background

The Appellant and the Respondent, both experienced businesspeople based in “The City,” jointly incorporated a British Virgin Islands vehicle, Company A, in 2009. Each held one share and served as the only directors. Company A wholly owned a Hong Kong subsidiary, Company B, which in turn owned 49 % of a Hong Kong joint-venture, Company C. The remaining 51 % of Company C was held by a state-owned Chinese company (Company D).

By 2014 relations between the shareholders deteriorated. Allegations arose concerning (i) disputed classification of substantial funds advanced by Company B, (ii) alleged non-disclosure of financial information, (iii) unauthorised refinancing of two vessels (“the Company G transaction”), and (iv) the Respondent’s acquisition—through associated entities (Companies E and F)—of the majority stake in Company C, followed by the removal of the Appellant from directorships and the transfer of assets to a related entity (Company H).

In May 2015 the Appellant petitioned the Eastern Caribbean Supreme Court (BVI) to wind up Company A on the “just and equitable” ground, alleging irretrievable breakdown of trust and functional deadlock. After a six-day trial, Judge Kaye QC ordered liquidation on 28 July 2017.

The Court of Appeal (January 2020) reversed that order, identifying four alleged errors: (a) reliance on disputes at the Company C level; (b) failure to assess deadlock as at the filing date; (c) ignoring the parties’ freedom to sell shares; and (d) overlooking alternative remedies.

The Appellant appealed to the Judicial Committee of the Privy Council (“the Board”). The Respondent supported the Court of Appeal and advanced additional arguments; Company A was a nominal respondent.

Legal Issues Presented

1. Whether the Court of Appeal was entitled to overturn the trial judge’s findings of (i) functional deadlock and (ii) irretrievable breakdown of trust and confidence.
2. Whether evidence post-dating the petition could be considered when assessing a “just and equitable” winding-up application.
3. Whether the shareholders’ ability to sell their shares negated deadlock or rendered winding-up inappropriate.
4. Whether alternative remedies (buy-out, derivative claims, share split, third-party sale) were reasonably available and unreasonably ignored.
5. Whether Company A was a “corporate quasi-partnership” attracting equitable considerations.

Arguments of the Parties

Appellant's Arguments

• The trial judge correctly treated disputes at Company C level as relevant because they evidenced loss of trust and impaired the management of Company A and Company B.
• No legal rule confines the court to conditions prevailing on the petition date; section 162 Insolvency Act 2003 requires assessment at the hearing.
• The theoretical right to sell shares was illusory; no realistic purchaser would pay fair value given control issues, information deficits, and the Respondent’s refusal to buy.
• The Respondent bore the burden under section 167(3) to prove an alternative remedy; none was shown to be realistic or equitable.

Respondent's Arguments

• Supported the Court of Appeal’s four findings and contended that: (a) Company A was not a quasi-partnership; (b) the Appellant lacked “clean hands”; (c) documentary evidence disproved deadlock; and (d) the Appellant unreasonably failed to pursue derivative proceedings or a share split.

Table of Precedents Cited

Court's Reasoning and Analysis

The Board held that the trial judge’s findings of both functional deadlock and irretrievable breakdown were factual and amply supported. It rejected each criticism advanced by the Court of Appeal:

• Relevance of Affiliate Disputes: Because Company A was a quasi-partnership, any conduct affecting mutual confidence—even at the Company C level—was relevant. The judge had properly considered those facts.
• Timing of Assessment: Section 162(1)(b) requires the court to decide, at the hearing date, whether it is “just and equitable” to appoint a liquidator. There is no rule confining evidence to the petition date; therefore the judge correctly considered post-petition events.
• Freedom to Sell Shares: The theoretical ability to transfer shares did not cure deadlock, because a fair sale was unrealistic: the Respondent controlled management, withheld financial information, and refused to purchase the Appellant’s stake.
• Alternative Remedies: Under section 167(3) the burden lay on the Respondent to prove an adequate alternative. No viable buy-out, derivative claim, or share-split was established. A court-ordered buy-out was unavailable on a winding-up petition and would in any event require unfair-prejudice proceedings.
• Additional Grounds Raised by Respondent: The Board dismissed challenges to the quasi-partnership finding, the “clean hands” objection, factual re-argument of deadlock, and the suggestion of other remedies. None undermined the judge’s order.

Holding and Implications

APPEAL ALLOWED. The winding-up order made by the trial judge on 28 July 2017 is restored; the Court of Appeal’s order of 17 January 2020 is set aside.

Implications: the decision re-affirms (1) the broad scope of the “just and equitable” jurisdiction in quasi-partnership companies, (2) the admissibility of post-petition evidence, and (3) the allocation of the burden under section 167(3) of the BVI Insolvency Act 2003. It signals that appellate courts should not re-weigh factual findings absent legal error and that liquidation remains the orthodox remedy where mutual trust in a two-member quasi-partnership has collapsed, even if share transfers are contractually unrestricted.