The legal battle of Akai Holdings Ltd Liquidators v Ting [2010] UKPC 21 is a significant case that law students must examine to comprehend the intricacies of economic duress and its effect on the legitimacy of agreements. This case illustrates how duress can nullify agreements that may seem legally enforceable, offering a crucial lesson in both corporate and contract law.

  • In the case of Akai Holdings Ltd Liquidators v Ting [2010] U.K.P.C. 21, it was held that the provisions of a settlement agreement dropping investigations and claims cannot defeat claims brought against a company by its liquidators where the liquidators entered into the agreement because of economic duress.

Facts of the Case Akai Holdings Ltd Liquidators v Ting

  • D was the former CEO of a Bermudan company incorporated in Hong Kong.
  • In 1999, the company collapsed with an estimated over $1 billion deficiency. On 29th September 2000 the company was ordered to be wound up.
  • C were hampered in their investigation and affairs of the company by an absence of records and D’s refusal to provide them with assistance.
  • To raise funds for the liquidation, C proposed to transfer the company shares to a third party. This scheme required a majority approval of the shareholders.
  • Suspecting that D would oppose the scheme for no good reason, C obtained a Court order to object to the votes of D’s shareholdings.
    The scheme meeting occurred on 25th November 2002. D’s companies were represented by attorneys. The Chairman at the meeting rejected their authority.
  • D arranged for someone to forge board resolutions dated before the meeting appointing the attorneys as corporate representatives, and to forge his signature.
  • C began proceedings to challenge the attorneys’ votes in Court. However, this could not be completed before the deadline for implementing the scheme.
  • On 30th December 2002, C entered into a settlement agreement not to pursue claims or investigations against D to get D’s agreement to the scheme.
  • In 2003, C sought to have the settlement agreement set aside after the police informed them that D had misappropriated significant funds from the company.

Issues in Akai Holdings Ltd Liquidators v Ting

  • Did D’s actions in refusing to aid C, opposing the scheme for no good reason and acts of forgery and faking evidence amount to economic duress?

Held by the Privy Council (Bermuda)

  • Finding for C, that D’s unconscionable behaviour meant that C had no reasonable or practical choice but to enter into the settlement agreement to recoup the company’s losses. This constituted economic duress. The agreement was not valid, and it would offend justice to uphold it.

Lord Saville

  • By December 2002, C needed to obtain funds through the proposed scheme, or they would be unable to continue the investigation. C believed D had resorted to false accounting and misappropriation but had no evidence at this time.
  • Thus, C faced a choice between two evils, either to abandon the scheme and thus any real prospect of funds, or to agree not to make any claims against D regarding his conduct of the company’s affair. Colloquially, D had C over a barrel.
  • D’s repeated failures to assist C, his opposition to the scheme and his resort to forgery and false evidence amounted to unconscionable conduct. His opposition was motivated by purely personal and selfish reasons. By agreeing to withdraw opposition, D did no more than he should have done from the outset by acting in good faith.
  • “An agreement entered into as the result of duress is not valid as a matter of law. Duress is the obtaining of agreement or consent by illegitimate means…such means include what is known as ‘economic duress,’ where one party exerts illegitimate economic or similar pressure on another. An agreement obtained through duress is invalid in the sense that the party subject to the duress has the right to withdraw from the agreement, though that right may be lost if that party later affirms the agreement or waives the right to withdraw from it” [34].
  • D’s contribution to the agreement was providing assurance that he would not continue acting in bad faith. There were no bona fide grounds for opposing the scheme, so this is what D should have done in the first place. Even without economic duress, D provided no consideration for the agreement.

Significance of the Case in Legal Development

Akai Holdings v Ting significantly advanced the legal understanding of economic duress:

  1. Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel) [1983]: This case helped define the boundaries of economic duress, influencing how such pressures are evaluated in legal contexts.
  2. Atlas Express Ltd v Kafco (Importers & Distributors) Ltd [1989]: Explored the application of economic duress in commercial contracts, providing precedent on the issue of illegitimate pressure.
  3. CTN Cash and Carry Ltd v Gallaher Ltd [1994]: Further refined the criteria for establishing economic duress in commercial relationships.

Exam Questions and Answers

Below you will find answers to questions that are most commonly asked based on this case.

How does the court determine the threshold for “illegitimate pressure” in cases of economic duress?

In the UK, the threshold for determining “illegitimate pressure” involves assessing whether the pressure deprived the claimant of their free will or choice, which is central to proving economic duress. For instance, in DSND Subsea Ltd v Petroleum Geo-Services ASA [2000], the court noted that threats to break a contract could constitute illegitimate pressure if they compel the victim to act against their will under circumstances that leave them no realistic alternative.

What are the long-term implications for corporate governance from the findings in this case?

The findings in Akai Holdings v Ting emphasize the need for transparency and fairness in negotiations, reinforcing the need for corporate governance to prevent and address situations involving economic duress. This case serves as a reminder that directors and officers must act in the best interests of the company, avoiding manipulative practices that could lead to duress claims.

How have subsequent cases interpreted the principle of economic duress established by Akai Holdings v Ting?

Post-Akai Holdings, UK courts have continued to scrutinize claims of economic duress more rigorously, requiring clear evidence of coercion or undue pressure affecting the victim’s consent. For example, in Progress Bulk Carriers Ltd v Tube City IMS LLC [2012], the court was meticulous in examining whether there was actual coercion affecting the contractual agreement, thereby applying the principles established by Akai Holdings v Ting.