Re Bga Holdings Ltd (Formerly Known As Beibu Gulf Ocean Shipping (Group) Ltd)

HCCW 251/2019

[2021] HKCFI 3433

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 251 OF 2019

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Before:  Hon Anthony Chan J in Chambers

Date of Hearing:  20 October 2021

Date of Decision:  26 November 2021

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DECISION

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1.There is an Amended Petition re-filed on 30 October 2019 (the original Petition was issued on 23 August 2019)  whereby PBM Asset Management Ltd (“PBM”)  seeks to wind up the Company on, primarily, 2 grounds, namely, (a)  the Company’s insolvency and (b)  just and equitable ground. PBM is the holder of 49% of the shares of the Company

2.This is the hearing of the Company’s Summons filed on 22 October 2019 to strike-out (a)  the entire Amended Petition for want of authority (“Authority Ground”); and (b)  alternatively, such parts of the Amended Petition which rely on the Company’s alleged insolvency (“Insolvency Ground”)  based on non-compliance with a Statutory Demand dated 12 December 2017 (“SD”)  by which the Company was asked to repay shareholder’s loans in the aggregate amount of US$36,298,272 allegedly due to PBM (“PBM Loan”).

Issues

3.There are 4 issues in this application, namely, (i)  the Authority Ground, which is an issue of law; (ii)  whether the PBM Loan was repayable on demand; (iii)  whether the PBM Loan had been discharged by reason of a Vessel Purchase Agreement allegedly reached at board meetings held on 15 and 16 December 2015 (“Vessel Purchase Agreement” and “December 2015 Meetings” respectively); and (iv)  whether the Company’s liability to repay the PBM Loan was absorbed by reason of an alleged Novation Agreement dated 23 May 2016 (“Novation Agreement”).

4.Issues (ii)  to (iv)  largely turn upon the factual disputes between the parties.  Fortunately, there exist contemporaneous documents which can assist the court in evaluating the rival contentions. Surprisingly, the parties are wide apart on the effect of many of such documents.

Background

5.There is an extensive underlying dispute between two resourceful gentlemen, Mr Lau Wing Yan and Mr Chu Kong.  They used to be business partners in a substantial shipping business.  Their relationship began to break down in late 2013.  The failure by them to amicably divide the business and its assets had let to extensive litigations between them and their proxies or associates.  The disputes between Mr Lau and Mr Chu underpin PBM’s case on the just and equitable winding up of the Company. 

6.The disputes between Mr Lau and Mr Chu are not the focus of this application.  However, issues (ii)  to (iv)  are distinct issues which arose out of the complicated background involving the two gentlemen and their business.

7.Ocean Sino Ltd (“OSL”)  was a BVI company set up by Mr Chu and Mr Lau as part of their business.  They were each 50% shareholder and a director of OSL.  PBM, a Hong Kong company, was a wholly-owned subsidiary of OSL.  Mr Chu and Mr Lau were also the directors of PBM until their removal on 17 January 2018. 

8.The Company, also a Hong Kong company, was formerly known as Beibu Gulf Ocean Shipping (Group)  Ltd.  It was set up in December 2009 as a JV company between PBM (49% shares)  and Beibu Gulf Holding (Hong Kong)  Co Ltd (“BBGH”)  (51% shares)  to invest in, inter alia, dry bulk supply chain business and international trading of commodities.  Mr Chu and Mr Lau were directors nominated by PBM on the Company’s board (“Board”), but Mr Lau was removed from the Board on 10 March 2016.

9.On 29 June 2017, OSL was wound up by the BVI Commercial Court upon Mr Lau’s petition on just and equitable ground, and Liquidators were appointed (“Winding up Order”).  On 17 January 2020, the Eastern Caribbean Court of Appeal set aside the Winding up Order upon Mr Chu’s appeal, but it was restored on 12 October 2020 by the Privy Council.  Mr John Greenwood, one of OSL’s Liquidators appointed by the BVI Court, is now PBM’s sole director and authorised to act on its behalf in relation to the conduct of these proceedings.

10.In the course of its operations, the Company obtained funds by way of capital injections and loans.  Pursuant to its Shareholders’ Resolutions passed on 23 August 2010 (“August 2010 Resolutions”), a total sum of US$73.8 million was injected into the Company: (i)  US$20 million to be used as the Company’s share capital (US$10.2 million from BBGH and US$9.8 million from PBM); and (ii)  US$53.8 million were as shareholders’ loans (US$27,438,000 from BBGH and US$26,362,000 from PBM).  With the exception of US$5 million, the shareholders’ loans were to be used for acquisition of up to 6 dry bulk vessels and the Company’s daily operation reserve.

11.Subsequently, in 2010 and 2011, at the Company’s request, PBM and BBGH advanced additional shareholders’ loans in the amount of US$9,936,272 and US$10,341,833.24 respectively to the Company for the purpose of acquisition of 2 additional dry bulk vessels. 

12.In the premises, the Company became indebted to PBM for its shareholder’s loans in the aggregate sum of US$36,298,272 (the PBM Loan)  and to BBGH in the sum of US$37,779,833.24 (“BBGH Loan”).  The Company does not dispute the existence of the PBM Loan.

13.From late 2012 to mid-2013, the construction of 4 dry bulk vessels (“Vessels”)  was completed.  The building of the other 2 Vessels was aborted and the deposits returned.  Each of the 4 Vessel was held via a corporate vehicle wholly owned by a subsidiary of the Company.  The constructions costs were partly financed by the BBGH Loan and PBM Loan, and partly by bank facilities secured by, inter alia, mortgages over the Vessels.

14.On 12 December 2017, PBM served on the Company the SD for repayment of the PBM Loan.  The Company has failed to pay or satisfy the PBM Loan or any part thereof.  Pursuant to s. 178(1)(a)  of the Companies Ordinance, Cap 32 (“Ordinance”), the Company is deemed insolvent and unable to pay its debts.

Applicable principles

15.It is common ground that the legal test here is whether the Company has a bona fide dispute on substantial grounds in respect of the PBM Loan.  It is trite that the burden is squarely on the Company to put forward “sufficiently precise factual evidence” to establish that there is such a dispute.  The evidence is not to be approached with a wholly uncritical eye: Re Hong Kong Investments Group Ltd [2018] HKCFI 984 at §13(2).  Bare oral allegations, uncorroborated by documentary evidence or contrary to common and commercial common sense, are insufficient to raise a bona fide dispute on substantial grounds: Re China Cultural City Ltd [2020] 4 HKLRD 1 at §10.

16.I have been reminded by Mr Yuen SC, who appeared for the Company with Ms Yuen, that the present application does not involve trying the rival contentions on affidavit, and that the court is not required to making any findings at this stage.  The exercise is to determine whether there is a credible case which should go to trial: Madison Lab Ltd v Pu Yan & Ors [2020] HKCFI 382 at §18(2). 

Authority Ground

17.There is no dispute that these proceedings against the Company were instituted by Mr Greenwood qua director of PBM.  However, the Company says that the Liquidators were appointed by the BVI Court, and in the absence of recognition by the Hong Kong Court the Liquidators could not commence any action in the name of PBM.

18.Mr Yuen accepted that (a)  it was not uncommon for liquidators to appoint themselves as directors of the subsidiaries of the company under liquidation in order to take control of the same; and (b)  there is no direct authority in support of his argument. 

19.I find the Company’s authority challenge surprising.  The authority given to the Liquidators by the BVI Court was very similar to those usually granted to liquidators in this jurisdiction.  In particular, bringing proceedings would require the sanction of the BVI Court only when they were brought in the name of OSL.  Similar provisions can be found in s.199(2)  and Schedule 25, Part 2 of the Ordinance.

20.If bringing these proceedings did not require the sanction of the BVI Court, and the purpose of the Proceedings was nothing out of the ordinary – to bring in assets which would benefit the creditors of OSL, I am unable to see any justification for intervention or control by the Hong Kong Court. 

21.As director of PBM, Mr Greenwood was entitled to bring the Proceedings.  I agree with Mr Joffre, who appeared with Mr Ho for PBM, that, if correct, the Company’s contention would lead to a very substantial curtailment of liquidators’ powers to bring proceedings in other jurisdictions for the benefit of creditors.

22.In the premises, the Authority Ground is rejected.

Whether the PBM Loan was repayable on demand

23.There are 2 limbs to the Company’s contention. Firstly, it says that there was an express agreement, partly written and partly oral, that that the sums to be injected by BBGH and PBM were not repayable on demand by either of them.  Instead, any repayment would require the unanimous consent of the Company and its shareholders, BBGH and PBM (“Alleged Agreement”).

24.The written part of the Alleged Agreement was constituted by the August 2010 Resolutions.  The oral part was agreed at the same shareholders’ meeting by the shareholders and the Company. 

25.Secondly, the Company says that, as an alternative, there was an implied agreement to the same effect. 

Affidavits before the Court

26.Before dealing with the arguments, the unsatisfactory nature of the Company’s evidence must be highlighted.  The Company’s main supporting evidence came from Mr Kwok Kai, one of its directors.  However, Mr Kwok clearly had no personal knowledge of the matters pertaining to the Alleged Agreement because he was only appointed as a director of the Company in June 2016.  Each one of Mr Kwok’s Affirmations contained the following paragraph :

“Unless otherwise stated, all the matters deposed to in this Affirmation are within my personal knowledge and are true and correct. Regarding those matters which are not within my personal knowledge, I acquire knowledge of such matters from sources identified below and such matters are true and correct to the best of my information and belief.”

27.Contrary to the above statement, Kwok’s did not in his evidence make clear that he was not speaking with personal knowledge in respect of the Alleged Agreement, nor did he identify the source of the information on which he relied on that topic. 

28.Worse still, Kwok’s evidence on the topic was little more than reciting part of the August 2010 Resolutions and making extensive submissions based on the “nature and purpose” of the injection of funds by BBGH and PBM into the Company.  Submissions are not factual evidence and should have no part in any affidavit of a factual witness. 

29.The evidence of the Petitioner also suffered from the same defect (albeit to a lesser extent)  – much submissions were advanced in the affidavits by deponents who clearly had no personal knowledge over the facts.  Such conduct adds to the costs of litigation, as well as the burden on the Court.  Enough advice of discouragement over such practice had been given by the Court over the years.  They had fallen upon deaf ears.  It is the duty of the Court to deter such practice with appropriate costs order.

30.Although the Company had also filed an Affirmation from Mr Chu.  Surprisingly, his Affirmation was quite short despite the fact that he was heavily involved in making the Alleged Agreement (he attended the 23 August 2010 Shareholders’ Meeting on behalf of PBM).  Chu’s evidence on that topic was confined to confirming the evidence in Kwok’s 3^rd Affirmation (his main Affirmation).

Alleged Agreement

31.The analysis on the Alleged Agreement should start from the August 2010 Resolutions.  It was a detailed document.  As an example, the shareholders had agreed, no doubt after discussions, on specific time and amount of their injection of funds, and the details were recorded in the Resolutions.  What was conspicuously missing was any reference to either discussions or agreement over any repayment terms for the shareholders’ loans.

32.I agree with Mr Joffre that the Alleged Agreement was highly unusually in that very substantial funds would be committed by PBM to the Company without any repayment in the horizon, and any repayment would be subject to the unanimous consent of both BBGH and the Company.  It is highly unlikely that such terms, if agreed, would have been overlooked by the author of the Resolutions, the attendees of the Meeting to whom the Resolutions would normally be circulated before signing as well as the representatives of PBM (Mr Chu)  and BBGH who signed the Resolutions. 

33.There was no explanation from the Company to explain the absence of any record of the Alleged Agreement. 

34.Further, the evidence on the oral part of the Alleged Agreement was nebulous.  There was little more than a general assertion, with no reference to what was said and by whom.

35.Contrary to the Company’s case, contemporaneous documents of the Company clearly showed that the PBM Loan was repayable on demand.  In particular, in the Company’s 2010 Audited Financial Statements (“AFS”), both the BBGH Loan and the PBM Loan were recorded as “current liabilities” (liabilities which might need to be repaid within 12 months)  and described in the accompanying note as being “repayable on demand”. 

36.The 2010 AFS was prepared by an international firm of accountants.  It contained all the usual assurances on accuracy.  It was the first set of AFS of the Company covering the period from 16 December 2009 (its date of incorporation)  to 31 December 2010, and much of the BBGH Loan and PBM Loan were injected into the Company during this period of time.  Those Loans were of significant amounts and their treatment would have important impact on the Company’s financial position.  There is no reason to believe that the accountants had not made the necessary enquiries with the management of the Company (possibly also with the lenders)  to confirm the repayment terms of the Loans. 

37.Similarly, in both the 2013 AFS and 2014 AFS (both signed off by Mr Chu on behalf of the Company), the BBGH Loan and the PBM Loan were also recorded as “current liabilities” and in the accompanying note 13, the PBM Loan was again stated to be “repayable on demand”. 

38.Mr Chu claimed that he “did not address [his] mind to the expression ‘repayable on demand’”.  I find the claim ambiguous by design.  Quite apart from Mr Chu’s duties as director to ensure that the AFSs were accurate, an experienced businessman would not have overlooked the obvious meaning of “repayable on demand”, bearing in mind especially the size and importance of the PBM Loan. 

39.It should also be noted that the 2013 AFS was signed by Mr Chu on 4 June 2014.  As evidenced by an exchange of emails between him and Mr Lau on 10 and 12 March 2014, it was a time when they were trying to divide the business, and Lau had expressed disagreement with Chu’s stated understanding of the nature of shareholders’ loan.  Lau replied that: “… shareholders as the lender have the right to request the Company to repay the shareholders’ loan, without the need for a shareholders’ resolution to be passed …”.  Lau went on to ask for immediate payment by the Company of the shareholder’s loan granted by PBM.  In light of the disagreement, it is all the more unlikely for Mr Chu to have failed to address his mind to the repayment terms of the PBM Loan as stated in the AFS.  

40.The Company has no real answer to the unequivocal record in the AFS.  It had been accepted by the Court that weight should be given to such documentary evidence, unless there is evidence to show that the accounts are, or may be, inaccurate, or to cast doubt on the way in which the auditors carried out their duties: Re Ocean Time Development Ltd, unrep., HCCW 334/2004, 1 June 2006, §18.

41.For these reasons, I am unable to accept that the Alleged Agreement is credible. 

Implied term

42.In respect of the Company’s case on implied term.  Mr Yuen submitted that given the undisputed fact that the shareholders’ loans of US$53.8 million were injected for the Company’s long-term business development and work capital, it would defy commercial sense that such substantial loans would be intended to be repayable on the unilateral demand of either BBGH or PBM, as that would seriously jeopardise the Company’s cash flow, financial viability, and ability to carry on its business operations.

43.Therefore, even if there was no agreement on the terms of repayment, it would be an implied term that the shareholder’s loans were not repayable on demand given their nature, otherwise the very purposes of the loans would be frustrated.  Mr Yuen relied on, inter alia, Kensland Realty Ltd v Whale View Investment Ltd (2001)  4 HKCFAR 381, §23 and Re Ever Rise Engineering Ltd, unrep., HCCW 714/2001, 6 May 2002, §17. 

44.Before analysing the arguments on implied term. It should be noted that the Company’s case is that there was an implied term that the PBM Loan was not repayable on demand, and its repayment would be subject to the unanimous consent of the Company and its shareholders (see Kwok’s 3^rd Affirmation, §22).  In other words, the implied term had the same effect as the Alleged Agreement.

45.In light of the purposes of the Loans by BBGH and PBM, I can see some merits in an implied term that they were not repayable on demand.  However, it is difficult to understand why there was a need for an implied term that the Loan was only repayable with unanimous consent. 

46.Putting aside commercial common sense, the main purpose of the Loans was to fund the building of the Vessels.  Once the purpose was achieved, it is difficult to see why PBM should have its money tied to the unanimous view of BBGH and the Company.  Once the Vessels were built, the Company would be in a position to sell or mortgage them to repay the Loans.

47.The evidence was that, of the 4 Vessels built, 2 were sold to BBGH by early January 2016.  By 14 January 2016, BBGH had sold its 51% shareholding in the Company to Bright Gold (Asia)  Ltd (“BGA”).  Later, BGA sold 6% of the Company’s shares to Polyrise Team Ltd (“Polyrise”). 

48.As regards the other 2 Vessels (MV BBG Glory and MV BBG Hope (“Glory” and “Hope”)), they were sold to third parties in around August 2017. 

49.I agree with Mr Joffre that the implied term contended by the Company would not be commercially sound :

(1)  It meant that the PBM Loan was only repayable if the debtor agreed to repay it.  It is very difficult to see why a creditor would ever agree to such treatment of a debt, placing itself at the mercy of its debtor and enabling the debtor to avoid repaying its debt;

(2)  It would also mean that one shareholder of the Company could prevent the repayment of the PBM Loan indefinitely or even permanently.  The absurdity was highlighted in the present case, as BGA and Polyrise, who had not extended any shareholder’s loan to the Company, would be in a position to prevent the Company from repaying the PBM Loan.

50.In the premises, I am unable to accept the Company’s case on implied term.  Further, given the disposal of the Vessels, there can be no serious argument that the PBM Loan must have become repayable on demand. 

Vessel Purchase Agreement

51.The Company says that during the meetings of its Board on 15 and 16 December 2015 (the December 2015 Meetings), the representatives of the Company, PBM, BBGH, Shining Centre Ltd (“Shining”), The Palace Ltd (“Palace”), Ever Precious Ltd (“Ever Precious”)  and Starry Rich Ltd (“Starry Rich”)  reached an oral agreement on the sale and purchase of the 4 Vessels.  The last 4 companies were the Company’s subsidiaries which indirectly owned the Vessels via corporate vehicles.

52.Pursuant to the Vessel Purchase Agreement, PBM agreed to purchase the interest in Glory and Hope at US$54,088,272 (“Purchase Price”), and that part of the Purchase Price was to be set off against the PBM Loan.  Therefore, the Company contends that the PBM Loan had been discharged. The existence of the Vessel Purchase Agreement is disputed by PBM.

53.This part of the Company’s case is also largely premised upon the evidence of Kwok.  It has already been pointed out above that Kwok had no first hand knowledge of the events.  He purported to give extensive “evidence” of the same without identifying his source of information, and much of what he deposed to was in fact submissions.

54.The Company relies heavily upon the Minutes of the December 2015 Meetings.  It was said that the oral Vessel Purchase Agreement was partly evidenced by the Minutes.  However, neither the Minutes nor Board Resolutions for those Meetings supported the Company’s case at all :

(1)  Contrary to the Company’s case, the Meetings were not attended by representatives of PBM, BBGH, Shining, Palace, Ever Precious and Starry Rich.  Those were meetings of the Company’s Board attended only by the directors;

(2)  The Resolutions only recorded the decision of the Company.  It is not clear how they would bind other parties such as PBM (see further below);

(3)  The Company sought to rely on the preamble to the Resolutions – “after communications with representatives of both shareholders, resolve as follows” – and argued that PBM and BBGH had agreed to the Resolutions.  The argument is unjustified.  The sentence only showed that the Company had made its decision after consulting its shareholders.  It constituted no evidence that PBM had agreed to a multi-million USD transaction;

(4)  The Company’s case was in fact contradicted by the Minutes which recorded Mr Chu’s statement that PBM would “later on call [its] own meeting of the board of directors or shareholders’ meeting” to discuss the purchase of the vessels and the repayment of the PBM Loan.  Such statement strongly militated against the suggestion that there was any binding agreement reached at the Meetings;

(5)  Para 3(2)  of the Resolutions stated that: “… PBM indicated that it could not at the moment carry out the arrangement to purchase the 2 single-vessel holding companies”.  It went on to state that: “it is agreed that the Company would first use the shareholder’s loans from PBM to fully repay the outstanding sums and related fees due to early redemption in respect of the loans from Credit Suisse to Glory BBG Shipping Ltd and Hope BBG Shipping Ltd[1]; PBM would utilize its shareholder’s loans to help both shareholders release their guarantor obligations under the financing documents of Glory BBG Shipping Ltd and Hope BBG Shipping Ltd, the remainder sum of the shareholder’s loans from PBM in the Company would be held on trust.”.  Such statements undermined the Companys’ case on the Vessel Purchase Agreement.

55.It is very difficult to understand the Company’s case in light of what the Minutes and Resolutions actually recorded.

56.Mr Joffre had made a number of powerful points in challenge to the Company’s case, the most compelling of which is that the Company did not in fact transfer any shares in the Vessel Holding Companies to PBM.  Instead, shortly after the alleged conclusion of the Vessel Purchase Agreement, Shining and Palace executed a Share Mortgage dated 24 December 2015 over their shareholdings in Glory BBG Shipping Ltd and Hope BBG Shipping Ltd in favour of a third party. 

57.Subsequently, Glory and Hope were sold to other parties in around August 2017 following enforcement of the Share Mortgage.

58.It is indisputable that PBM had not obtained any interest in the Vessel Holding Companies or the Vessels.  I am unable to see how the Company was entitled to have applied the PBM Loan in discharge of the Purchase Price when PBM had obtained nothing in return.  There was no proper discharge in law.

59.It sufficient to refer to one further argument advanced by Mr Joffre[2], namely, the contemporaneous documents plainly showed that there was no binding agreement between PBM and the Company on the sale and purchase of Glory or Hope reached on 15 or 16 December 2015[3] :

(1)  The Company’s board resolutions dated 5 January 2016 stated that:

“1.2 In order to implement [the December Board Resolutions], it is proposed that the Company and related parties sign the following sale and purchase agreement … :

…

(2)  The Company (as guarantor), [Palace] and [Shining] (as vendor), and [PBM] or its separately designated company (as the purchaser)  to sign a Sale and Purchase Agreement for the purchase of the entire issued share capital of Hope BBG Shipping Ltd … and Glory BBG Shipping Ltd …”

[emphasis added]

(2)  The minutes of a board meeting of the Company dated 14 January 2016, para 5, recorded: “[d]iscussion on how to fairly protect the actual interests of [PBM] in the two single-vessel holding companies prior to the actual purchase of all shares in the two single-vessel holding companies by the companies respectively owned by [Mr Lau] and [Mr Chu] (through [PBM])  …”.

60.Finally, Mr Yuen sought to rely on some previous statements made by Mr Chu and Mr Lau (Company’s skeleton submissions, §22[4]).  Firstly, I do not believe that such statements can outweigh the contemporaneous documents and incontrovertible facts before the court. 

61.Secondly, it is undesirable to rely upon these statements without a full appreciation of the context in which they were made and a good understanding of the conflict between Mr Chu and Mr Lau.  For instance, it can be seen from the minutes of a board meeting of the Company on 26 November 2015, para 4.1, that Mr Lau was eagerly pressing for the repayment by the Company of part of the shareholders’ loans of over USD22 million which had previously been agreed, but Mr Chu was against it.  Such tension between the two men must be understood in the context of their dispute over the division of their business, which no doubt included PBM. 

62.Thirdly, it is a two-edge sword to invite the Court to consider what was done by Mr Lau in other proceedings[5]. In the BVI Winding Up Proceedings, the Privy Council was not complimentary about Mr Chu’s motive and conduct in respect of the December 2015 Meetings[6].

63.Finally, for the resolution of this application, the Court should focus on whether the Company had adduced sufficiently precise factual evidence to establish a genuine dispute to the PBM Loan on substantial grounds.

64.For these reasons, I am not satisfied that there was a Vessel Purchase Agreement or that the PBM Loan was set off against part of the Purchase Price.

Novation Agreement

65.The Company relies on a Novation Agreement dated 23 May 2016 pursuant to which the PBM Loan was novated to Shining and Palace as the new obligors in lieu of the Company.  The Company’s evidence was that (a)  from an accounting perspective the PBM Loan had to remain on the books pending the completion of PBM’s purchase of Glory and Hope; and (b)  novating the PBM Loan to Shining and Palace would not only formally recognise the Company’s discharge from all obligations relating to the PBM Loan, but would also enable the direct set-off of the PBM Loan against part of the Purchase Price to be paid by PBM to Shining and Palace (as vendors of Glory and Hope)  as a matter of accounting treatment at completion.

66.There is considerably force in Mr Joffre’s submission that the Company had made clear that its case on the Novation Agreement is premised (and parasitic)  upon its prior contention that the PBM Loan was discharged by the Vessel Purchase Agreement.  Therefore, once this Court rejects the case on Vessel Purchase Agreement, that is the end of the matter.  The Novation Agreement cannot independently operate to discharge the PBM Loan.

67.However, in his viva voce submission, Mr Yuen sought to advance the Novation Agreement as an alternative argument to the Vessel Purchase Agreement.  I therefore need deal with PBM submission that the Novation Agreement is manifestly invalid and would not operate to discharge the PBM Loan.

68.The first thing to note from the Novation Agreement is that it flatly contradicted the Company’s case on the Vessel Purchase Agreement.  Recitals [B] and [D] of the Novation Agreement stated as follows :

“(B)  As at the date hereof, a total sum of US$36,298,272,00 (the “Fund”)  is payable by [the Company] to [PBM], being the Shareholder’s Investment capital previously made to [the Company] for the sole purpose of purchasing vessel assets to be held indirectly by [the Company].  The Fund remains due and owing by [the Company] to [PBM] as at the date hereof.

…

(D)  [PBM] is asserting special interest in the said vessels of “BBG Hope” and “BBG Glory”.  [The Company] is prepared to procure the entire interest in the said Hope BBG Shipping Limited and Glory BBG Shipping Limited to be transferred to [PBM] upon full discharge and settlement of the other loans from financier(s), with a view to giving effect to the following :-

(a)  [the Company]’s board resolutions made on 15^th and 16^th December 2015; and

(b)  [the Company]’s board resolutions made on 5^th January 2016.”

69.Secondly, I fail to understand (and it had not been explained)  why, if the PBM Loan was set-off against the Purchase Price, it should remain in the books of the Company.  In a normal commercial transaction, one would expect an agreement to have been signed for the sale of the vessel holding companies by the Company to PBM (there was no such agreement)  and for the acknowledgement of the set-off.  The books would be adjusted accordingly.

70.Thirdly, I agree with Mr Joffre that if the PBM Loan had been discharged, it could not be novated to Palace and Shining because the debt no longer existed.  The inexplicable and contradictory nature of the Company’s case seriously undermines its credibility.

71.Fourthly, if the Novation Agreement was a genuine document, there was something seriously wrong about Mr Chu’s conduct in signing it on behalf of, inter alia, PBM when on the very same day he acted on behalf of Palace and Shining as well as their wholly owned vessel holding corporate vehicles in granting mortgages over Glory and Hope.  Surely, transferring the PBM Loan to Shining and Palace with the view to using it to buy the shares in the vessel holding corporate vehicles and granting mortgages over the vessels to third parties at the same time were acts of commercial suicide.

72.I regret to say that the Company’s case is so full of holes to be credible or bona fide.  I also reject its case on the Novation Agreement.

73.For these reasons, the Summons is dismissed with costs to PBM, limited to 90% of its costs, to be taxed if not agreed, with a certificate for 2 counsel.  The reduction of 10% of PBM’s costs is to reflect the unsatisfactory state of its evidence as indicated in para 29 above.  The assessment of 10% is based on a conservative estimate.  It should not be taken for granted that the court will act with leniency in such deduction in the future. 

74.I am grateful to counsel for their assistance.   

Mr Victor Joffe and Mr Justin Ho, instructed by Dentons Hong Kong LLP, for the Petitioner

Mr Rimsky Yuen SC and Ms Sharon Yuen, instructed by Au & Vrijmoed, for the Company