Re Bga Holdings Ltd (Formerly Known As Beibu Gulf Ocean Shipping (Group) Ltd)
Read the full judgment text of CACV 557/2021 on BabelCite. This Court of Appeal judgment before Kwan VP, Cheung JA and Au JA.
Winding-up – bona fide dispute on substantial grounds – statutory demand – shareholders' loans – PBM Loan of US$36,298,272 – whether repayable on demand – whether subject to express or implied agreement requiring unanimous consent for repayment – whether discharged by alleged oral Vessel Purchase Agreement – whether novated under Novation Agreement – whether the Company established sufficiently precise factual evidence to raise a bona fide dispute – AFSs recording loans as 'repayable on demand' and 'current liabilities' – whether commercial sense requires non-repayable treatment – legal test for implying terms – strict necessity and business efficacy – appellate review of primary judge's evaluation of evidence – affidavit evidence with no oral testimony – reluctance to interfere absent palpable error – Judge's finding that Company's case 'so full of holes to be credible or bona fide' upheld – Alleged Agreement commercially unsound as it would place creditor at the mercy of debtor and allow new shareholders to block repayment indefinitely – Alleged Implied Term failed the necessity test – December 2015 Board Resolutions showed PBM had not agreed to binding Vessel Purchase Agreement; PBM never obtained any interest in vessels which were sold to third parties in August 2017 – Novation Agreement recitals contradicted discharge by set-off; manifestly disadvantageous to PBM – appeals dismissed – indemnity costs ordered – directions for non-party costs order application to be dealt with on paper – Company and solicitors to disclose identity of appeals' funder within seven days.
Legal issues: Whether the PBM Loan is repayable on demand or subject to the alleged Agreement/Treatment · Whether an implied term rendered the PBM Loan not repayable on demand · Whether the PBM Loan was discharged by the alleged Vessel Purchase Agreement · Whether the PBM Loan was discharged by the alleged Novation Agreement
Outcome: Both appeals (CACV 557/2021 and CACV 591/2021) dismissed. The Company's appeal against the winding-up order and against the dismissal of the strike-out application both failed.
Cited by 4 cases · Cites 12 cases
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CACV 557 & 591/2021, [2025] HKCA 322 On appeal from [2021] HKCFI 3433 & [2021] HKCFI 3915 (Heard together) IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NOS 557 AND 591 OF 2021 (ON APPEAL FROM HCCW NO 251 OF 2019) ________________________
________________________ (Heard together)
____________________ J U D G M E N T ____________________ Hon Kwan VP (giving the Judgment of the Court): 1.On 26 November 2021, Anthony Chan J handed down a decision (“Decision”)[1] dismissing the summons issued by BGA Holdings Limited (formerly known as Beibu Gulf Ocean Shipping (Group) Limited; “Company”) to strike out an amended petition to wind up the Company presented by PBM Asset Management Limited (formerly known as Pacific Bulk Asset Management Limited; “petitioner” or “PBM”). PBM is the holder of 49% of the shares of the Company. 2.At the resumed hearing of the amended petition on 6 December 2021 following the determination of the strike out application, the judge made a winding-up order against the Company (“Judgment”)[2] on the ground of insolvency, based on non-compliance with a statutory demand dated 12 December 2017 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”). 3.On 8 December 2021, the Company filed a notice of appeal against the Judgment (CACV 557/2021). On 28 December 2021, it filed a notice of appeal against the Decision (CACV 591/2021). These appeals were heard together. As the contents of the notices of appeal and respondent’s notices to affirm the Judgment and Decision are largely identical, it is sufficient for reference to be made in counsel’s submissions to the notice of appeal and respondent’s notice in CACV 591/2021. We will do likewise in this judgment. 4.These appeals challenge the judge’s holding there existed no bona fide dispute on substantial grounds in respect of the PBM Loan. This finding, which turned quintessentially on factual disputes, was based on affidavit evidence and contemporaneous documents. Having evaluated the evidence and rival contentions, the judge came to the conclusion that the Company’s case is “so full of holes to be credible or bona fide”. 5.Mr Rimsky Yuen, SC, who appeared for the Company on appeal and below[3], sought to persuade this court to reverse the judge’s findings on factual disputes by repeating contentions made largely in the affirmations of Kwok Kai (“Kwok”), one of the Company’s directors. 6.Mr Bernard Man, SC appeared for PBM on appeal[4]. Background 7.The relevant background matters as mentioned in the Decision are as follows. 8.Lau Wing Yan (“Lau”) and Chu Kong (“Chu”) used to be partners in a substantial shipping business. Ocean Sino Ltd (“OSL”) was a company they incorporated in the British Virgin Islands (“BVI”) as equal shareholders and they were its directors. PBM, incorporated in Hong Kong, was a wholly-owned subsidiary of OSL. They were also the directors of PBM. 9.The Company was incorporated in Hong Kong. It was set up in December 2009 as a joint venture company between PBM (49%) and Beibu Gulf Holding (Hong Kong) Co Ltd (“BBGH”) (51%). BBGH is the wholly-owned subsidiary of Guangxi Beibu Gulf International Port Group Co., Ltd, a state owned enterprise in the Mainland. The Company was set up to invest in, inter alia, dry bulk supply chain business and international trading of commodities. Chu and Lau were directors nominated by PBM on the Company’s board (“Board”). 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 six 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 two 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 (ie the PBM Loan) and to BBGH in the sum of US$37,779,833.24 (“BBGH Loan”) (collectively “Loans”). The Company does not dispute the existence of the PBM Loan. 13.From late 2012 to mid-2013, the construction of four dry bulk vessels (“Vessels”) was completed. The building of the other two vessels was aborted and the deposits returned. Each of the four Vessels was held via a corporate vehicle wholly owned by a subsidiary of the Company. The constructions costs were partly financed by the Loans, and partly by bank facilities secured by, inter alia, mortgages over the Vessels. 14.The relationship between Chu and Lau began to break down in late 2013. Their failure to amicably divide the business and its assets led to extensive litigations between them and their proxies or associates. 15.On 27 May 2015, Lau commenced proceedings in the BVI to wind up OSL. On 29 June 2017, OSL was wound up by the BVI Commercial Court upon Mr Lau’s petition on the just and equitable ground, and liquidators were appointed. On 12 September 2017, the liquidators appointed directors of PBM. Chu and Lau were removed as directors of PBM on 17 January 2018. On 17 January 2020, the Eastern Caribbean Court of Appeal set aside the winding-up order of OSL on Chu’s appeal, but this was restored by the Privy Council on 12 October 2020. John Greenwood, one of OSL’s liquidators appointed by the BVI Court, is PBM’s sole director and authorised to act on its behalf in relation to the conduct of these proceedings. 16.In a meeting of the Board on 26 November 2015, a resolution was passed that the management team of the Company was to immediately formulate a specific plan on repayment of the Loans and notify both shareholders. The Board met on 15 and 16 December 2015 (“December 2015 Meetings”) to implement the resolution on 26 November 2015. The Company emphasised that not all the details of the meetings, which lasted for ten hours over two days, were recorded in the minutes of the December 2015 Meetings (“December 2015 Minutes”). 17.These Board resolutions (“December 2015 Resolutions”) were passed in the December 2015 Meetings “regarding the protection of company vessel assets and repayment of shareholders’ loans”:
18.On 5 January 2016, the Board passed a resolution authorising relevant directors to sign documents on the share transfer of the vessel holding companies in these terms:
19.In January 2016, BBGH exited the joint venture and transferred its 51% shares in the Company to Bright Good (Asia) Limited (“Bright Good”), a Hong Kong company. In February 2016, Bright Good transferred 6% of its shareholding in the Company to Polyrise Team Limited (“Polyrise”), a BVI company. 20.Following the transfer of shares to Bright Good and Polyrise, three new directors were appointed to the Board by Bright Good in February 2016, among them Zhu Xiwu (“Zhu”). Lau was removed as a director of the Company on 10 March 2016. 21.The Company did not transfer any interest in Glory BBG Shipping Limited and Hope BBG Shipping Limited to PBM after the December 2015 Meetings. 22.On 23 May 2016, Chu on behalf of PBM, The Palace Limited (“Palace”) and Shining Centre Limited (“Shining”) executed a Novation Agreement (“Novation Agreement”) with the Company, by which the PBM Loan was novated to Palace and Shining as the new obligors in lieu of the Company. Also on 23 May 2016, Chu on behalf of Palace, Shining, Hope BBG Shipping Limited and Glory BBG Shipping Limited granted mortgages over the vessels MV BBG Hope (“Hope”) and MV BBG Glory (“Glory”). 23.On 21 June 2016, Kwok was appointed a director of the Company. Chu resigned from the Board in June 2017. 24.In August 2017, the vessels Hope and Glory were sold to third parties following the enforcement of the mortgages over the vessels. 25.On 12 December 2017, PBM served on the Company the statutory demand for repayment of the PBM Loan. As the Company failed to comply with the statutory demand, PBM presented this petition on 23 August 2019. 26.On 22 October 2019, the Company issued the present summons to strike out the petition insofar as it relied on the alleged insolvency. The application was heard by the judge on 20 October 2021. The Company’s contentions 27.The Company raised four contentions to support its case that it has a bona fide dispute on substantial grounds in respect of the PBM Loan:
28.The Company’s main evidence in support came from Kwok 3rd. Despite Chu’s heavy involvement, he only made a short affirmation in reply in which he deposed that he had read and considered Kwok 3rd and confirmed that the affairs of the Company during the period he was a director as set out in Kwok 3rd are true and accurate. 29.As Kwok was only appointed a director of the Company in June 2016, he clearly had no personal knowledge of the matters relied on by the Company in support of its contentions. The judge was rightly critical of his affirmations, which did not make clear he was not speaking with personal knowledge in respect of specific matters, nor did he identify the source of the information on which he relied for specific topics. Worse still, he advanced extensive submissions based on the documents adduced when he clearly had no personal knowledge over the facts[6]. 30.Before us, Mr Yuen sought to address the deficiencies of Kwok’s affirmations by submitting that Kwok was duly authorised by the Company to set out its case as he was a director at the time, and that he is familiar with matters relating to the PBM Loan through review of the documents and discussions and communications with Chu and Zhu[7]. We do not think the judge’s criticisms are met. 31.The judge concluded there was no bona fide dispute that the PBM Loan was subject to the Alleged Agreement, whether expressly or by an implied term; or that the PBM Loan was discharged by the alleged Vessel Purchase Agreement or the alleged Novation Agreement. These appeals and the applicable principles 32.The four broad grounds of appeal sought to challenge the judge’s rejection of the four contentions on his evaluation of the evidence. As mentioned, they repeat largely the arguments made before the judge. 33.Mr Yuen repeated his emphasis made below that it is not the function of the Companies Court to try disputed debt claims, that the court is not required to make any findings at this stage, and that the exercise is to determine whether there is a credible case which should go to trial[8]. The evidence should be considered in the context of the protracted disputes involving a long history of dealings among the Company, PBM, Chu and Lau. He added that in this appeal, the Court of Appeal is in as good a position as the judge to review and assess the evidence, as no oral evidence was heard below. 34.It is not in dispute that the burden is on the Company to put forward “sufficiently precise factual evidence” to establish there is a bona fide dispute of the PBM Loan on substantial grounds. To arrive at that determination, the judge is required to evaluate the evidence against so much of the background and evidence that is not disputed or not capable of being disputed in good faith, and that the evidence is not to be approached with a wholly uncritical eye. It has been repeatedly held that bare oral allegations, uncorroborated by documentary evidence or contrary to common and commercial sense, are insufficient to raise a bona fide dispute on substantial grounds[9]. 35.In an appeal seeking to overturn the evaluation of evidence and findings of fact made by the judge in this kind of situation, even though the court is not tasked with resolving the disputed debt claim and to that end making specific findings on disputed issues, the proper approach is well established[10]. The court is mindful that the evaluation of evidence and findings of fact for limited purpose were based on affidavit evidence and contemporaneous documents rather than oral evidence. Even so, the appeal court should be reluctant to interfere with the lower court’s evaluation and findings, unless it is demonstrated that the primary judge had fallen into palpable errors. The function of the appeal court is simply one of review. The appellate process is not designed to give a litigant a platform to repeat submissions made below in the hope of persuading the appeal court to come to a different view from the primary judge on the assessment of the evidence. As stated by Lord Kerr of Tonaghmore JSC in In re DB’s Application for Judicial Review [2017] NI 301 at §80:
36.It is also well established that matters of weight given to particular aspects of the evidence are quintessentially matters for the trial judge, and that an appellate court will only intervene where it can be demonstrated that something has gone palpably wrong, whether by some important evidence being overlooked, or by the decision being one which no reasonable judge could have reached, or otherwise[11]. 37.We turn to consider the four broad grounds of appeal. Ground 1: the Alleged Agreement or Treatment 38.The judge’s reasons for his view that the Alleged Agreement is not credible may be summarised as follows[12]:
39.Mr Yuen submitted it was wrong for the judge to hold that the Alleged Agreement was “highly unusual”. There was nothing unusual about the Alleged Agreement and it made perfect business sense. The indisputable purpose of the Loans was to finance the Company’s long-term business development and work capital[13]. The lenders were the two shareholders, they advanced the Loans as investment capital for the Company to build dry bulk vessels and as operation reserve. The August 2010 Resolution stated that the total sum of US$73,800,000 should be injected by both shareholders as “capital” and made provisions as to how the “joint capital injection” should be used: US$20 million as the issued share capital, and US$53.8 million as the shareholders’ loans; and in respect of the shareholders’ loans, US$5 million was to be used as the issued share capital of the wholly-owned Hong Kong subsidiary of the Company, US$46 million to pay part of the deposit of the shipbuilding orders of six dry bulk vessels and US$2.8 million as the newly-built vessel financing, legal fees, agent commission and other miscellaneous expenses, and as the Company’s daily operation reserve. 40.He submitted that it would defy business sense if, after substantial amounts of the Loans were applied to build vessels, either BBGH or PBM could at any time demand the Company to repay. This would cause financial problems with fatal consequences to the Company. 41.Mr Yuen further submitted that the judge failed to consider properly the following matters:
42.Mr Yuen also complained that the judge had placed “undue weight” on the description of the Loans in the AFSs, which should be considered with other evidence in a holistic manner, and he failed to take into account that Chu might have signed the AFSs without going through all the details. 43.We do not accept Mr Yuen’s submissions. 44.The judge gave cogent reasons for arriving at the view that the Alleged Agreement or Treatment is not credible. For this court to overturn his assessment of the evidence, palpable errors in his reasoning must be shown. We are not persuaded there are any. The judge did not merely focus on the AFSs. He had considered the evidence in the round including the August 2010 Resolutions (significantly, the PBM Loan was treated as shareholder’s loan and not share capital injection in that document), the effect of the Alleged Agreement (highly unusual and commercially unsound), and the unsatisfactory nature of the alleged oral agreement. The contentions made on appeal by the Company do not provide any real or convincing answers to the reasons of the judge. The appropriate amount of weight that should be given to the AFSs is plainly a matter for the primary judge. Nor can he be faulted for harbouring incredulity over Chu’s explanation of not addressing his mind to the expression “repayable on demand” in signing off the AFSs. There is just no basis to cast doubt on his evaluation. 45.As for the contention there should be no difference in the treatment of the Loans to the Company and the shareholder’s loans made by the Company to the first-layered subsidiaries and advanced in turn to the second-layered subsidiaries, there is nothing in this point. As pointed out by Mr Man, the shareholder’s loans made by the Company to its subsidiaries were subjected to a different arrangement, as reflected in the AFSs. In the 2014 AFS, the loans were described as “Investments in subsidiaries” and put under “Non-current asset”. In the accompanying note 10, “Amounts due from subsidiaries” were stated as having “no fixed terms of repayment” and “The directors regard amounts due from subsidiaries as non-current assets and as ‘Investments in subsidiaries’ as they do not intend to request repayment of these amounts from the subsidiaries within 12 months of the end of the reporting period.” The difference in treatment in the AFSs between the two kinds of loans could not have been clearer. 46.Mr Man drew attention to the point made below that on the Company’s case, the Alleged Agreement effectively means that the PBM Loan, which was substantial, would only be repayable if the debtor (ie the Company) agreed to repay it and would place the creditor at the mercy of the debtor enabling the latter to avoid payment. It would mean that one shareholder of the Company could prevent the repayment of the PBM Loan indefinitely or even permanently and would even mean that the new shareholders, Bright Good and Polyrise, could prevent the Company from repaying the PBM Loan. The judge agreed with the petitioner’s submissions that the term contended by the Company would not be commercially sound[20]. 47.Mr Yuen argued there was no commercial unsoundness or absurdity in the Alleged Agreement and that the judge had failed to appreciate that Bright Good and Polyrise could not be in a position to prevent the Company from repaying the PBM Loan as they were not parties to the Alleged Agreement in August 2010. He also drew attention to how the terms of the Alleged Agreement were put in Kwok 3rd at §19: “the said sums to be injected should not be repayable on demand by either of BBGH or PBM, and any change in its treatment or its repayment terms should require the unanimous consent of the Company and its shareholders, BBGH and PBM (‘Agreed Treatment’).” 48.The point taken about Bright Good and Polyrise not being able to prevent repayment as they were not parties to the capital injection agreement in 2010 is a bad one. The Company’s contention is that repayment should require the unanimous consent, not merely of the shareholders (leaving aside whether this means the current shareholders Bright Good and Polyrise or the past shareholder BBGH) but also of the Company. As Bright Good and Polyrise together hold 51% of the shares of the Company and control the Board, they could exercise their power to withhold consent and block repayment of the PBM Loan, notwithstanding they were not parties to the Alleged Agreement in 2010. There is no reason to disagree with the judge that the Alleged Agreement would not be commercially sound. 49.We are not persuaded that the judge had overlooked any matter of importance in assessing the evidence. As mentioned, the weight to be attached to any particular item of evidence is quintessentially a matter for the primary judge. 50.The Company has been in liquidation since 6 December 2021. Its valuable assets – the vessels Hope and Glory – had been sold to third parties in August 2017 on the enforcement of the mortgage. Testing this by looking at the matter in the round, and leaving aside for the time the contention that the PBM Loan was discharged, we agree with the judge there can be no serious argument that the PBM Loan is still not repayable[21]. Ground 2: the Alleged Implied Term 51.In support of the Alleged Implied Term which is to the same effect as the Alleged Agreement or Treatment, Mr Yuen repeated his submissions that the shareholders’ loans of US$53.8 million were injected for the long-term business development of the Company and work capital and it would defy business sense if such loans should be repayable on unilateral demand of either BBGH or PBM. 52.Whilst acknowledging “some merits” in an implied term that the Loans were not repayable on demand in light of the purposes of the Loans, the judge expressed difficulty in understanding why there was a need for an implied term that the Loans were only repayable with unanimous consent[22]. This led to his conclusion that the implied term contended for would not be commercially sound[23]. We have dealt with this when we rejected Mr Yuen’s submissions in Ground 1. 53.The judge went on to reason that as the main purpose of the Loans was to finance the building of the Vessels, and once that purpose was achieved, it is difficult to see why PBM should have its money tied to the unanimous view of BBGH and the Company, as once the Vessels were built, the Company would be in a position to sell or mortgage them to repay the Loans[24]. We agree. 54.Mr Yuen’s reliance on the statement in Re Ever Rise Engineering Ltd at §17 (“even in the absence of express agreement, it can be readily inferred that loans advanced as working capital are not repayable on demand”) is misplaced. The statement must be understood in the context of that case and cannot be read as establishing some kind of general principle that shareholders’ loans are not repayable on demand, even if the funds are used as working capital of the company. 55.In light of the fact that the PBM Loan was consistently stated in the AFSs as “repayable on demand”, it would be difficult, to say the least, to contend that the Alleged Implied Term is so obvious that it goes without saying. Whilst the requirements of business efficacy and obviousness could be alternatives in the sense that only one need be satisfied, it would be a rare case where only one of those two requirements would be satisfied[25]. 56.As for Mr Yuen’s argument that it is necessary to imply a term requiring unanimous consent for repayment, we are wholly unpersuaded that the business efficacy test is met in this situation. The legal test for the implication of a term is a stringent one of strict necessity and the concept of necessity must not be watered down. A term is to be implied only if, without the term, the contract would lack “commercial or practical coherence”.[26] Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient condition for inclusion[27]. The term to be implied must be a reasonable one in itself[28]. As mentioned, we agree with the judge that the Alleged Agreement, which is to the same effect as the Alleged Implied Term, would not be commercially sound. Mr Yuen sought to salvage this with a new argument that the Alleged Implied Term can additionally provide that the unanimous consent must not be withheld unreasonably or in bad faith, to prevent the repayment of the PBM Loan indefinitely or permanently. We reject this contention. It is doubtful if this additional term is workable, nor do we think it is obvious or necessary. 57.The application of the business efficacy test involves a value judgment[29]. There is no basis to interfere with the value judgment of the judge in rejecting the Company’s case on the Alleged Implied Term. 58.Lastly, the alternative implied term advanced by Mr Yuen that the PBM Loan is not repayable on demand[30] fares no better. As rightly pointed out by Mr Man, it is even more problematic than the Alleged Implied Term in that it fails to articulate when and in what circumstances the PBM Loan would become repayable. It is simply not viable as no creditor would be willing to lend without knowing when the loan would be repayable. The alternative implied term, which is not capable of clear expression, cannot be obvious or necessary to give business efficacy. Ground 3: discharge by the alleged Vessel Purchase Agreement 59.The Company relied on the evidence of Kwok[31] (who had no first hand knowledge of the events) and the December 2015 Minutes and Resolutions to establish the alleged Vessel Purchase Agreement made orally, by which PBM was to purchase the interest in Hope and Glory at the Purchase Price of US$54,088,272 and part of the Purchase Price was to be set off against the PBM Loan. 60.In arriving at the conclusion that he was not satisfied there was a Vessel Purchase Agreement as alleged, the judge took the view that neither the Minutes nor the Board Resolutions of the December 2015 Meetings supported the Company’s case at all and that the contemporaneous documents plainly showed there was no binding agreement between PBM and the Company on the sale and purchase of Hope and Glory reached in the December 2015 Meetings. He also took into account the indisputable objective conduct of the Company, its subsidiaries and PBM after the December 2015 Meetings (which he attached weight to) and previous statements made by Chu and Lau relied on by Mr Yuen (which he declined to attach weight to). He had borne in mind that for the striking out application, his focus was whether the Company had adduced sufficiently precise factual evidence to establish a genuine dispute to the PBM Loan on substantial grounds. 61.His reasons may be summarised as follows[32]:
62.Mr Yuen sought to attack the judge’s assessment[34] arguing that the judge failed to properly consider the previous statements of Chu and Lau, that he placed undue or excessive reliance on what was recorded in the Minutes and Resolutions, that the statements in the Minutes and Resolutions mentioned by the judge did not undermine the Company’s case. These are not proper grounds of appeal and plainly insufficient for the appeal court to interfere with the judge’s assessment and findings. 63.He has no real answer to the incontrovertible fact that PBM never obtained any interest in the vessel holding companies or Hope and Glory and the vessels had been sold to other parties in August 2017. The judge rightly held as the Company was not entitled to apply the PBM Loan in discharge of the Purchase Price when PBM had obtained nothing in return, there could be no proper discharge in law. Whatever assertions Lau had made in other proceedings that PBM had acquired an interest in the vessels (which is not the Company’s case) is of no relevance and cannot alter the position. 64.Mr Man made a valid point that there are no contemporaneous documents evidencing a binding agreement for sale and purchase was made by the Company and PBM. Had such a binding agreement existed, it is inconceivable there would have been no record of it. Further, there is no record in the December 2015 Resolutions that the Purchase Price was to be determined based on the book value of Hope and Glory. We agree with Mr Man this is a glaring omission and clearly indicates that the parties had not reached a binding agreement for the sale and purchase of Hope and Glory in the December 2015 Meetings. Even on the assertion in Kwok 3rd, the Purchase Price was “later ascertained on around 28 December 2015”. It is not credible that PBM had entered into a binding agreement without knowing the price of the vessels. 65.The Company’s case is also contradicted by its own evidence being the alleged Novation Agreement. Recital (B) of that agreement stated that as at 23 May 2016, “a total sum of US$36,298,272 [the PBM Loan] is payable by [the Company] to [PBM]” and this sum “remains due and owing by [the Company] to [PBM]” as at 23 May 2016. This directly contradicts the contention that the PBM Loan had been discharged by the alleged Vessel Purchase Agreement[35]. 66.No palpable error is shown in the evaluation of evidence and findings. There is no basis for intervention. Ground 4: discharge by the alleged Novation Agreement 67.The contention of the Novation Agreement was advanced as an alternative argument to the alleged Vessel Purchase Agreement. The Company’s case is that the alleged Novation Agreement was made for these reasons: (1) from an accounting perspective the PBM Loan had to remain on the books of the Company pending the completion of PBM’s purchase of Hope and Glory; and (2) 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 the vessels as an accounting treatment at completion[36]. 68.The judge rejected the Company’s case as inexplicable and contradictory for these reasons[37]:
69.Mr Yuen argued that entering into the Novation Agreement and granting mortgages over the vessels on the same day were not acts of commercial suicide, as it was anticipated that the bridging loan due to the lender Premier Bright would be fully settled and the securities discharged had PBM paid the balance of the Purchase Price. We agree with Mr Man that the alleged Novation Agreement was manifestly disadvantageous to PBM. The wholly owned subsidiaries of Shining and Palace were not able to pay the interest free loan of US$8.7 million owed to the Company when the Company demanded repayment in May 2016 and had to make a second drawdown from Premier Bright to meet their liability. The purported novation of the PBM Loan to Shining and Palace would have adversely affected PBM’s ability to recover the debt. 70.There was also no apparent commercial reason for the Company to enter into the alleged Novation Agreement, given that under clause 2.3 the Company undertook to pay to Shining and Palace as and when demanded a sum equal to the PBM Loan. The Company has failed to provide any logical explanation for the underlying rationale of the alleged Novation Agreement. 71.We agree with the judge that the contention under the alleged Novation Agreement is plainly not credible. It is not necessary to consider the additional ground in the respondent’s notice that Chu had no actual or apparent authority to execute the Novation Agreement on behalf of PBM. Conclusion and orders 72.None of the grounds of appeal are of merit. We dismiss the Company’s appeal in CACV 557/2021 and CACV 591/2021. 73.We have heard arguments on costs. 74.The petitioner seeks costs on an indemnity basis on the ground that the challenge to the judge’s evaluation of evidence and findings is wholly without merit. These appeals are an exercise to persuade the appeal court to come to a different view by regurgitating unsuccessful arguments made below. We agree with Mr Man that these appeals are so lacking in merits it is appropriate to award costs to the petitioner on an indemnity basis. 75.Mr Man asked us to consider a non-party costs order under section 52A(2) of the High Court Ordinance, Cap 4, given that the appeals must have been funded by a non-party. For this purpose, he requested directions along the lines in §10.6 in Penta Investment Advisers Limited v Allied Weli Development Ltd[40], CACV 58/2016. 76.We think it is appropriate to give such directions. We order the Company and its solicitors to provide the name and address of the party or parties who instigated or funded these appeals on behalf of the Company within seven days from the handing down of this judgment. We further order that upon the provision of such information, the funder be joined as a party to the proceedings for the purposes of costs only. The application for non-party costs order will be dealt with on paper.
Mr Bernard Man SC, Mr Justin Ho and Mr Jonathan Ng, instructed by Dentons Hong Kong LLP, for the Petitioner (Respondent) Mr Rimsky Yuen SC and Ms Sharon Yuen, instructed by Au & Vrijmoed, for the Company (Appellant) The Official Receiver, attendance excused [3] With Ms Sharon Yuen [4] With Mr Justin Ho and Mr Jonathan Ng [5] 3rd affirmation of Kwok (“Kwok 3rd), §19 [6] Decision, §§26 to 30 [7] Kwok 3rd, §3(c) [8] Citing Madison Lab Ltd v Pu Yan & Ors [2020] HKCFI 382 at §18(2); Decision, §16 [9] Decision, §15; citing Re Hong Kong Investments Group Ltd [2018] HKCFI 984 at §13(2) and Re China Cultural City Ltd [2020] 4 HKLRD 1 at §10. [10] Re Cheung Kwan [2021] HKCA 282 at §§31 to 33; Re China Zenith Chemical Group Ltd [2025] HKCA 253 at §32 [11] Tien Sau Tong Medicine Co (HK) Ltd v Cheung Po Ling [2021] HKCA 1997 at §19 [12] Decision, §§31 to 40 [13] Citing as an example Re Ever Rise Engineering Ltd, HCCW 714/2001, 6 May 2002, §17 [14] Kwok 3rd, §37 [15] Affirmed on 27 May 2015, §30 [16] 1st affirmation of Lau affirmed on 16 February 2021, §19 [17] Under a loan agreement dated 20 August 2012 with Credit Suisse as lender, Glory BBG Shipping Limited and Hope BBG Shipping Limited as borrowers and the Company as guarantor. [18] Kwok 3rd, §79(a) [19] Lau had previously stated that the PBM Loan was repayable on demand, see his email to Chu dated 12 March 2014. In the minutes of the Board meeting on 26 November 2015 at §4.1, Lau expressed the opinion that the directors’ resolution on 27 March 2014 to return the shareholders’ investment loans “should be executed immediately”. Chu disagreed stating that the directors’ resolution was “outdated” in view of the operational difficulties and potential financial problems of the Company. Following discussion, the directors resolved unanimously that the Company management team was to “immediately” formulate a specific plan for repayment of the shareholders’ loans and notify the shareholders. [20] Decision, §49 [21] Decision, §50 [22] Decision, §45 [23] Decision, §49 [24] Decision, §46. The judge did not hold that the PBM Loan would be repayable once the Vessels were built or disposed of, as contended by Mr Yuen. In §§46 to 48, the judge was explaining why it was not necessary to imply a term that the PBM Loan was only repayable with unanimous consent. [25] Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] 742 at §21 [26] Nazir Ali v Petroleum Co of Trinidad and Tobago [2017] UKPC 2 at §7; Marks & Spencer Plc at §21 [27] Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2019] HKCA 261 at §32 [28] Beazer Homes Ltd v County Council of Durham [2010] EWCA Civ 1175 at §24 [29] Yoo Design Services Ltd v Iliv Realty Pte Ltd [2012] EWCA Civ 560 at §51(iii) [30] Notice of Appeal, §5 [31] The material terms of the Vessel Purchase Agreement were asserted in Kwok 3rd at §73. [32] Decision, §§54 to 62 [33] The minutes of the Board meeting on 5 February 2016 at §4.1 also recorded the chairman stating that the vessels Hope and Glory “were the Company’s assets” and PBM had acquired no interest. [34] Notice of Appeal, §6 [35] Decision, §68 [36] Decision, §§65, 67 [37] Decision, §§68 to 71 [38] Decision, §§66, 67 [39] 4th affirm of Kwok, §10(d) [40] CACV 58/2016, 18 July 2017 |
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