The recent decision in Pacific China Holdings Limited v Grand Pacific Holdings Limited, BVIHCV 2009/389 sets out the view of the BVI Commercial Court as to who, if anyone, should be responsible for the remuneration of liquidators where a liquidation order is set aside on appeal.
- The respondent company, Pacific China Holdings Limited (the “Company”) was placed into liquidation on the application of Grand Pacific Holdings Limited (“Grand Pacific”) on 11 January 2010 by the BVI High Court Commercial Division.
- On 20 September 2010 the Court of Appeal reversed the High Court’s decision and discharged the liquidators. In particular the Court of Appeal ordered Grand Pacific to pay the Company’s costs of the appeal and referred the costs of the proceedings back to the High Court for assessment, including “all questions regarding the fixing of the remuneration, costs and expenses of the liquidators”. It further ordered that the liquidators’ remuneration should, until fixed by the court below and paid, operate as a lien on the assets of the Company.
- The key question was who should be responsible for the liquidators’ fees incurred during the period of their appointment. On the one hand, the Company had opposed the application and it would arguably be unjust to make them liable for the fees of liquidators whom they had never wanted in place. On the other, the liquidators were officers of the court, validly appointed pursuant to an order (albeit one which was subsequently overturned) and there would similarly be potential injustice if they went unpaid.
- Back before the High Court, the Company argued that Grand Pacific should either be ordered to pay the remuneration directly to the liquidators or to provide the Company with an indemnity against the fees. Bannister J. held that by ordering that the liquidators’ remuneration should operate as a lien on the assets of the Company, the Court of Appeal was ordering that remuneration was prima facie to be paid out of the assets of the Company. The imposition of a lien necessarily implied an underlying debt and therefore the primary liability fell directly on the Company.
- With regard to the second question, of whether Grand Pacific had to indemnify the Company, Bannister J. considered that he had no jurisdiction to make an order fixing Grand Pacific with ultimate liability for the liquidators’ remuneration. With the exception of the matters remitted to him by the Court of Appeal, he considered that he was functus officio.
- However, even if he did have such jurisdiction, he stated that he would not have made an order that Grand Pacific should be the party ultimately responsible for the remuneration. He found that there was no inherent jurisdiction in the Court to award compensation or damages against one party in favour of another for losses (other than litigation costs) suffered as a result of what turns out to be the erroneous grant of final relief by the Court. A final order has to be treated as final until is it successfully appealed, otherwise the successful party could never safely rely upon it until all avenues of appeal were exhausted (or time limits for appeal expired).
- The same issue is currently pending before the Court of Appeal in the decision of Westford Special Situations Fund Ltd. v Barfield Nominees Limited and another, Civil Appeal 14/2010 where the Court of Appeal, after overturning the first instance order appointing a liquidator, was specifically asked to consider submissions relating to the liquidators’ remuneration instead of remitting them to the High Court.
- One avenue of hope for companies who have wrongly been the subject of liquidation orders is that Bannister J. in Grand Pacific specifically noted that no authority had been cited to him which could found jurisdiction to impose the liability on the wrongful applicant. However, it may be that the Court of Appeal considers that CPR 64.3 (which does not appear to have been cited to Bannister J.) which states that “the court’s powers to make orders about costs include power to make orders requiring a party to pay the costs of another person arising out of or related to all or any part of any proceedings” can found such a jurisdiction.