Cosimo Borelli (as liquidator of AKAI Holdings Limited) and others v James Henry Ting and others (Bermuda)

An agreement procured by illegitimate pressure is voidable. Economic duress includes illegitimate economic or similar pressure which leaves the pressured party with no reasonable or practical alternative but to contract. The right to withdraw is not lost merely because the agreement has been performed, time has passed, or the parties cannot be restored to the position created by the duress. Affirmation or acquiescence requires conduct or delay which leads the other party reasonably to believe that the agreement is accepted as binding. A party cannot rely on an agreement obtained through forgery, false evidence and bad-faith opposition to defeat claims arising from its own conduct.

The liquidators of Akai Holdings Ltd entered into a settlement agreement with James Henry Ting and two companies he controlled. They agreed to withdraw opposition to a scheme of arrangement, while the liquidators covenanted not to pursue claims connected with Akai and ceased their investigations.

The liquidators later alleged large-scale misappropriation by Mr Ting and brought proceedings in Hong Kong. The Chief Justice of Bermuda held that the agreement did not bar those claims and made declarations in the liquidators’ favour. The Court of Appeal of Bermuda, by a majority, reversed that decision, holding that the agreement covered the claims and that the agreement was not avoided by non-disclosure, sharp practice or the doctrine of unclean hands. The central issue before the Board was whether the liquidators could avoid the settlement for economic duress and rely on that avoidance to pursue the claims.

Appeal allowed. The Board advised that the respondents were not entitled to rely on the Settlement Agreement to defeat claims by the liquidators, Akai Holdings Ltd or Kong Wah Holdings Ltd.

1. Economic duress. Per Lord Saville, an agreement obtained by duress is invalid in the sense that the pressured party has a right to withdraw, subject to later affirmation or waiver. Duress is agreement or consent obtained by illegitimate means, including illegitimate economic or similar pressure. The relevant question is whether the pressure left the victim with no reasonable or practical alternative.

2. Application. Mr Ting had failed to assist the liquidators, opposed the scheme for purely personal reasons, and used forgery and false evidence to maintain that opposition. The Board held that this was unconscionable conduct and illegitimate pressure. The liquidators had no reasonable or practical alternative to entering the settlement because abandoning the scheme would probably have ended the liquidation and any realistic prospect of recovery.

3. Affirmation and rescission. The liquidators’ conduct in the 2003 examination proceedings did not accept the validity of the agreement. Delay until evidence of substantial misappropriation was obtained did not establish affirmation or acquiescence. Avoidance restored the parties to the position they would have occupied had the illegitimate means not been used; it did not make a new bargain. Nor could broad drafting exclude the right to withdraw from an agreement procured by illegitimate means.

4. The Board considered that there might also have been no consideration for the liquidators’ undertakings, because Mr Ting offered only to cease acting in bad faith and to do what he should have done. It expressed no concluded view on that alternative ground. The other arguments concerning fiduciary duties, compromises and releases were left undecided.

The respondents were ordered to pay the appellants’ costs before the Board and below.

• Privy Council: The appeal was allowed. The Board declared that the respondents could not rely on the Settlement Agreement to defeat claims by the liquidators, Akai Holdings Ltd or Kong Wah Holdings Ltd.
• Court of Appeal for Bermuda: By a majority on 28 November 2008, the Court of Appeal reversed the Chief Justice’s decision and held that the Settlement Agreement covered the Hong Kong claims. It rejected the non-disclosure and sharp-practice arguments and held that the doctrine of clean hands did not apply. Ward JA dissented only on the clean-hands issue.
• Chief Justice of Bermuda: On 5 December 2007, after a six-day trial, the Chief Justice refused relief to Mr Ting and the two companies and made declarations in favour of the liquidators.