RE BGA HOLDINGS LTD (Formerly Known as BEIBU GULF OCEAN SHIPPING (GROUP) LTD)

HCCW 251/2019

[2024] HKCFI 592

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMI NISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 251 OF 2019

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DECISION

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1.  This is the Contributories’ application for leave to appeal (insofar as necessary)  against the Decision of this Court dated 3 January 2024 ([2024] HKCFI 51)[1].  There are 5 Grounds of Appeal set out in the draft Notice of Appeal. 

2.  The first issue for determination is whether the Contributories are entitled to appeal as of right.  In terms of jurisdiction, the appeal of the Contributories is governed by ss.13(2)(a), 14(1)  and 14AA(1)  of the High Court Ordinance, Cap 4.  Collectively, they provide, inter alia, that leave to appeal is generally required for an appeal against an interlocutory judgment or order. 

3.  Next, O 59, r 4(1)  provides for the time for filing notice of appeal as follows :

“4. Time for appealing (O. 59, r. 4)

(1)  Except as otherwise provided by these rules, a notice of appeal must be served under rule 3(5)  within—

(a)  in the case where leave to appeal to the Court of Appeal is required under section 14AA (not being a case to which sub-paragraph (b)  applies)  or section 14(3)(e)  or (f)  of the Ordinance, 7 days after the date on which leave to appeal is granted;

(b)  in the case of an appeal from a judgment, order or decision given or made in the matter of the winding up of a company, or in the matter of any bankruptcy, 28 days from the date of the judgment, order or decision; and

(c)  in any other case, 28 days from the date of the judgment, order or decision concerned.  (L.N. 152 of 2008)”

[emphasis added]

4.  It is at least arguable that the way in which r 4(1)(b)  was carved out suggests that leave is not required for an appeal against a judgment, order or decision made in matter of winding up or bankruptcy.  However, it must be remembered that those rules do not provide for the juridical basis of an appeal in such matters.

5.  In Re Lee Siu Fung Siegfried (No 2) [2018] 3 HKLRD 765, G Lam J (as he then was)  considered, inter alia, the provisions of O 59, r 4(1)  in the context of an appeal against a decision made in bankruptcy proceedings.  It was held that the jurisdiction for such appeal was grounded on s.98(2)  of the Bankruptcy Ordinance, Cap 6, and no leave was required for the appeal.  However, the learned Judge observed that there was no equivalent legislative provision in relation to companies winding up, “as a result of which O 59, r 4(1)(a)  and (b)  seems to be infelicitously worded as far as appeals in winding up matters are concerned” [21]. 

6.  It must be accepted that there are cases which demonstrate that leave to appeal against interlocutory decision on winding up matters was required: see Re Joy Rich Development Ltd[2022] HKCFI 3489; Re Grande Holdings Ltd [2016] 1 HKLRD 435; Hong Kong Civil Procedure 2024, vol 1, [59/21/5] and [59/21/6]. 

7.  In the premises, I hold that leave is required for the Contributories’ appeal if it is one against an interlocutory decision. Whether the Decision is an interlocutory decision is the second issue.

8.  The applicable test is trite and can be found in Shell Hong Kung Ltd v Yeung Wai Man Kiu Yip Co Ltd (2003)  6 HKCFAR 222, [26] and [31].

9.  I am of the view that the Decision is an interlocutory decision.  First, it was obvious that the appointment of Liquidators did not finally dispose of the winding up proceedings. 

10.  Second, I agree with Mr Ho, who appeared for PBM with Mr Sik, that the exercise of discretion by the Court in appointing liquidators concerned what was in the best interest of the liquidation.  The Court did not determine the “rights” of the Contributories or PBM.  They had no “right’ to have their preference adopted by the Court.

11.  Third, despite the appointment of the Liquidators they may be removed in the future (on ground(s)).  Further, their decisions may be subject to challenge.  There is thus no real finality. 

12.  Fourth, I fail to see how the appointment of the Liquidators was a matter “going to the root” or a “dominate feature” of the liquidation (Shell, [31]).  Rather, the Liquidators were appointed to serve an important role in the conduct of the liquidation subject to the supervision of the Court.

13.  Finally, I do not believe that the case of Re Legend International Resorts Ltd, unrep, HCCW 1139/2004, 8 February 2011, is of assistance to the Contributories.  In that case, DHCJ L Chan (as he then was)  held in the context of a security for costs application that an application to remove liquidators was a final decision.  However, there is a clear distinction between a removal application which will determine the serious misconduct alleged against the liquidators (see Re Legend, [13])  and an appointment application.

14.  For these reasons, I hold that the Decision is an interlocutory decision.

15.  I turn to the final issue whether leave to appeal should be granted in this case.  It is trite that reasonable prospects of success must be shown before leave is granted (the “some other reason” limb is not relied upon).  Further, in this case where the exercise of discretion of the Court is challenged, the Contributories must demonstrate that the Court had erred in principle or that the discretion was exercised in a manner that is plainly wrong.  

16.  Ground 1 seeks to challenge the Court’s view (Decision, [34])  that there was little substance to the Contributories’ case of conflict of interest on the part of Greenwood and Bailey based on HCA 1891/20, which sought to resurrect Chu’s case that the PBM Loan had been discharged (Decision, [20(1)]). 

17.  This Ground is difficult to understand when the status of the PBM Loan was decided in the SO Decision against the Company (under Chu’s control at the time)  and consequently the Company was wound-up. The appeal against both the SO Decision and the winding-up order had been idling for 2 years (Decision, [14]-[16]).  The Liquidators (including Greenwood and Bailey)  must in the circumstances abide by the SO Decision.  There is no merit in the Ground.

18.  Ground 2 contends that the Court erred in taking into account the fact that the Company’s remaining assets were represented by the recovery action against Chu and his associates (Decision, [36]).  I agree with Mr Ho that this is a non-point.  The existing knowledge of Greenwood and Bailey over the recovery action was highly relevant to cost-efficiency and was considered by the Court (Decision, [12], [21] and [47]).

19.  Ground 3 challenges the Court’s treatment of the Contributories’ allegations over the suitability or integrity of Greenwood and Bailey.  It has not been suggested that the observation made in [26] of the Decision on how the Court should approach disputes over the appointment of liquidators is wrong.  Nor has it been demonstrated that the Court had erred in holding that (to resolve a dispute of such nature): “[t]he burden is on the accusers to make out their case of lack of integrity supported by credible evidence.  There is no burden on PBM to chase down every hare.” (Decision, [39]).  I fail to see why for the purpose of resolving the dispute over the appointment of Liquidators, the Court could not have regard to recent decisions of the BVI Courts and this Court which were relevant to the allegations made by the Contributories (Decision, [37]-[38]).

20.  As emphasised by Mr Ho, the complaint of conflict of interest was not a black or white question.  It was considered by the Court, which took the view that the risk of conflict could be effectively managed (Decision, [22(6)] and [45]).  There is little merit in this Ground.

21.  Ground 4 is a regurgitation of the Contributories’ cost arguments.  That issue was dealt with in [47] to [49] of the Decision.  I fail to see any basis to suggest that the Court had wrongly exercised its discretion in this regard.  There is no substance in this Ground.

22.  Ground 5 challenges the Court’s refusal to appoint a COI.  It is very difficult to see any merit in it.  It was an insolvent liquidation and it was unnecessary for a COI to consist of any contributories (Decision, [56]).  Further, the only asset of the Company was represented by the claims against Chu and his associates.  The Court was unable to see how a COI (with Contributories under Chu’s control)  would achieve any useful purpose (Decision, [57]).  It has not been demonstrated how the Court had wrongly exercised its discretion in these circumstances.

23.  For these reasons, the Contributories’ Summons filed on 17 January 2024 is dismissed with costs to PBM to be summarily assessed.  PBM is to lodge and serve a Statement of Costs within 5 days from today.  The Contributories are to respond to the Statement of Costs of within 5 days thereafter, limited to 3 pages printed in A4 paper with font size 13, 1.5 line spacing and margins not less than 1 inch.  PBM is to reply within 3 days thereafter limited to 2 pages with the same format.

24.  Lastly, I am grateful to counsel for their assistance.

Mr Justin Ho and Mr Sik Chee Ching, instructed by Dentons Hong Kong LLP, for the Petitioner

Mr Sim Jing En, instructed by Au & Associates, for the Contributories

Attendance of the Official Receiver was excused

HCCW 251/2019

[2024] HKCFI 51

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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D E C I S I O N

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1.  This is an appeal by two Contributories against the Decision of Master Rita So (“Master”) dated 13 January 2023 (“Decision”) pursuant to which it was ordered that: (1) Mr John Nicholas Greenwood (“Greenwood”) and Mr Roy Bailey (“Bailey”) be appointed joint and several liquidators of the Company, along with Mr Tsui Chi Chiu (“Tsui”) (together “Liquidators”); and (2) there should not be a committee of inspection (“COI”) in this winding-up.

2.  The central complaint of the said Contributories is that there is real doubt as to the ability of Greenwood and Bailey to act impartially, independently and fairly.  Further, there are legitimate concerns as to their competency because they are BVI-based and without Hong Kong winding-up experience.

The winding-up of the Company

3.  By an Order dated 6 December 2021, this Court ordered that the Company be wound up based on the Amended Petition of PBM Asset Management Ltd (“PBM”), whereupon the Official Receiver (“OR”) became the provisional liquidator of the Company.

4.  A meeting of creditors was held on 13 January 2022.  PBM was the only creditor whose debt was admitted for voting purposes. It was unanimously resolved that: (1) Greenwood and Bailey be appointed as joint and several liquidators of the Company; and (2) and there should not be a COI.

5.  The Company has 3 shareholders, namely, PBM (holding 49%), Bright Good Asia Ltd (“Bright Good”) (45%) and Polyrise Team Ltd (“Polyrise”) (6%).  Bright Good and Polyrise are the appellants in this appeal. 

6.  The meeting of contributories was also held on 13 January 2022.  It was resolved that: (1) Mr Osman Mohammed Arab and Mr Wong Kwok Keung be appointed as liquidators of the Company; and (2) there should not be a COI.  Subsequently, Bright Good and Polyrise (hereinafter they are referred to as the “Contributories”) wrote to the OR informing her that they had changed their mind and considered that a COI should be appointed.

7.  On 24 January 2022, the OR took out an ex parte Summons seeking the Court’s directions on the resolutions and determinations of the creditors’ meeting and contributories’ meeting in relation to the appointment of liquidators and COI.

8.  Pursuant to the directions of the Court, the OR filed 4 reports respectively dated 24 January 2022, 12 April 2022, 1 June 2022 and 8 July 2022 to set out her views on the issues.  The appointment of the Liquidators was supported by the OR. 

9.  With the parties’ agreement to paper disposal, the learned Master handed down the Decision.  As for costs, it was ordered that: (1) the costs of and occasioned by the OR in the application be an expense of liquidation and be paid out of the assets of the Company, to be taxed if not agreed; and (2) the Contributories do reimburse the estate of the Company to the extent of the said costs paid to the OR.

Background

10.  The present dispute may be seen as an offshoot of an extensive dispute, involving a large number of litigations, between two ex-business partners, Mr Chu Kong (“Chu”) and Mr Lau Wing Yan (“Lau”).  They had a very successful business, followed by a breakdown of relationship, an acrimonious business divorce and multiple litigations in various jurisdictions. 

11.  The relevant episode started with the winding-up of Ocean Sino Ltd (“OSL”) in the BVI.  Chu and Lau are each holding 50% of the shares of OSL, which in turn wholly owns PBM.  OSL was wound-up by the BVI Court on 29 June 2017.  The winding-up order was upheld by the Privy Council on 12 October 2020 (“PC Judgment”). 

12.  It is relevant to bear in mind, as submitted by Mr Joffe SC, who appeared for PBM with Mr Ho and Mr Sik, that the Privy Council remarked upon the need to investigate into Chu’s misconducts, including: (1) obtaining of control of the Company through the Contributories which are beneficially owned by him or his associates; and (2) procuring the Company to enter into the “Ausca Transaction” and “Lohas Transaction” (“Questionable Transactions”), arguably in breach of his fiduciary duties which warranted investigation by a liquidator.  The efforts by the Liquidators to investigate and pursue the Questionable Transactions featured prominently in the submissions made before this Court.

13.  Greenwood and Bailey, together with another two individuals, were appointed as the liquidators of OSL (“L/OSL”) following its winding-up.  Greenwood was actually one of the appointees proposed by Chu.  The L/OSL then appointed Greenwood as director of PBM on 23 January 2018.  On 23 August 2019, the PBM applied to this Court to wind-up the Company on, inter alia, insolvency ground, based on an outstanding loan owed by the Company to it (“PBM Loan”).

14.  At the time of Petition, the Company was controlled by Chu and Mr Kwok Kai (“Kwok”).  It applied to strike out the Petition, and to challenge the PBM Loan based on the contentions that it: (1) was not repayable on demand; (2) was discharged pursuant to an alleged “Vessel Purchase Agreement”; and (3) had been discharged by an alleged “Novation Agreement”.

15.  The strike out was dismissed by a Decision of this Court dated 26 November 2021[1] (“SO Decision”) in which it was held that the PBM Loan was repayable and the Company’s contentions were rejected.

16.  On 6 December 2021, this Court further ordered the winding-up of the Company on insolvency ground.  Both the SO Decision and the winding-up Order are being challenged on appeal.  However, despite the passage of 2 years, neither appeal had been listed for hearing.

17.  Meanwhile, Chu had commenced a number of other proceedings the purpose of which, according to Mr Joffe, was to obstruct the investigation into the Questionable Transactions.  I note that at §33 of the Decision, the Master stated that she was inclined to accept that Chu’s various manoeuvres were “attempts by Chu’s camp to disrupt the OSL liquidators’ investigations at all costs”.

18.  In the BVI, Chu applied to remove the L/OSL on grounds of bias and misconduct (“Removal Proceedings”).  The application was dismissed at first instance by Wallbank J in his Decision dated 24 November 2021 (“Removal Judgment (1)”).  It is fair to say that much of the arguments raised in the Removal Proceedings were similar to those relied upon here to resist the appointment of Greenwood and Bailey as Liquidators.  The learned Judge rejected Chu’s arguments.

19.  Chu’s appeal against Removal Judgment (1) was rejected by the BVI Court of Appeal on 3 July 2023 (“Removal Judgment (2)”).  The Court of Appeal also rejected Chu’s allegations against the L/OSL.  Mr Joffe submitted that in this appeal Chu seeks to re-run many of the arguments already rejected in the Removal Proceedings.

20.  Chu had also commenced the following proceedings :

(1)  HCA 1891/2020 against PBM issued on 6 November 2020, seeking a declaration that the PBM Loan had been discharged.  Plainly, as submitted by Mr Joffe, this action overlaps and is inconsistent with the SO Decision;

(2)  HCA 1885/2021, a double derivative action issued on 15 December 2021 alleging, inter alia,that Greenwood was in breach of his duties to PBM.  This action was issued shortly after the Order was made that the Company be wound-up.  However, it was struck out by Madam Justice Au-Yeung on 20 October 2023;

(3)  HCA 411/2020, in which the Company (then controlled by Chu) alleged that Lau was guilty of a conspiracy against the Company.

21.  Since their appointment, the Liquidators had commenced an action, HCA 631/2022, against Chu and Kwok (and their associates) in respect of the Questionable Transactions.

Applicable principles

22.  The following principles on appointment of liquidator are not controversial :

(1)  When a company is insolvent, the majority votes of the creditors will in the normal course prevail because they have the primary interest in the outcome of the liquidation;

(2)  However, creditors holding the majority vote do not have an absolute right as to choice of liquidator because the appointment has to be conducive to both (i) the proper operation of the process of liquidation; and (ii) justice as between all those interested in the liquidation;

(3)  The office-holder needs to both act and be seen to act in the best interests of creditors and to properly investigate all claims.  A liquidator should not be a person nor be the choice of a person who has a duty or purpose which conflicts with the duties of the liquidator;

(4)  By contrast, it is not an objection to a liquidator that he is allied to or the choice of a person who is concerned to pursue the claims of the company through the liquidator: see Re Value Food Supply Ltd[2021] HKCFI 2975, [11];

(5)  In deciding the appropriate candidates to be appointed as liquidators, the Court will take into account the benefits that the candidates have acquired knowledge and familiarity with the company’s affairs by reason of their overseas appointment, and that time and costs would be saved as a result thereof: Re Akai Holdings Ltd [2001] 2 HKLRD 411, at 418B-419B;

(6)  It is prima facie in the interests of the general body of creditors to appoint a common liquidator for the companies in the group; and possible conflicts between companies in the group may be effectively managed by appropriate measures such as obtaining independent legal advice, appointing another liquidator from the same or another firm: Re Orient Power Holdings Ltd [2008] 2 HKLRD 494, at [34]:

“In large group insolvencies, the potential for conflicts of interest may arise in a variety of matters, such as inter-company balances, competing claims to assets, allocation of liabilities, guarantee and indemnity claims, issues of set-off or double proof, the validity of security, tax and avoidance or recovery actions. It is recognised that by and large, it is prima facie in the interests of the general body of creditors to appoint a common liquidator for the companies in the group than to have a separate liquidator for each. Instead of a rigid requirement to avoid conflict and not allowing the same individual to act, the courts have taken a common sense approach and made appointments where it is possible to manage the conflict effectively by appropriate measures depending on the circumstances of each case. Examples of such measures include obtaining independent legal advice, the appointment of an additional partner from the same firm, the appointment of an independent partner from a different firm. It matters not if the conflict is potential or actual; the question is whether such conflict is capable of being effectively managed. If it cannot be managed, then the appointment would not be made. …”

23.  Mr Chan SC, who appeared with Mr Sim for the Contributories, laid emphasis on the dicta in Re A-One Investments Ltd, HCCW 448/2008, unrep, 11 September 2009, at [30] :

“As an officer of the court, a liquidator should maintain an even and impartial hand between all individuals whose interests are involved in the winding up. A guiding principle in appointing a liquidator is that he must be independent and seen to be independent, as it is of great importance there should be no possibility of criticism attaching to the liquidator as an officer of the court on the ground of a conflict of interest as liquidator in circumstances where there is some real prospect, even if small, of a conflict of interest and duty when the liquidator is conducting his duties …”

24.  Mr Joffe had referred the Court to, inter alia, Chinachem Charitable Foundation Ltd v Chan Wai Tong[2021] HKCFI 1347, [22]-[24], for the proposition that allegations of fraud or dishonest misconduct must be supported by credible material.  It was submitted that the principle is relevant on the sweeping allegations made by Chu against the Liquidators on their integrity, including bias and improper purpose.   

25.  In Hui Tze Ha v Ho Yuet Lin[2021] HKCFI 1901, [15]-[16], the Court noted that allegations of fraud should not be made against third parties without giving them a chance to respond.  This was cited by Mr Joffe in respect of many allegations made by Chu against Lau, who is not a party to this appeal.

The proper approach by the Court

26.  There is an immense amount of material placed before the Court, the hearing bundles run to over 3,000 pages.  It is an essential requirement that the appointment of liquidators should be resolved quickly so that the liquidation of the company in question may progress speedily in the interest of the creditors.  Arguments over who should be appointed as liquidators are not tried.  The Court can only resolve such arguments on affidavits.  Thus, the nature of the application and the need for speedy resolution do not permit a drawn out battle with endless affidavits and voluminous exhibits.  The Court must fulfil its duty to manage a case of this type by (a) limiting the evidence to what is truly relevant and essential and (b) restricting the length of written submissions.

27.  The fact that this appeal was only set down for a 3-hour hearing bears out the above observations.  It seems that the Contributories might have lost sight of the need for proportionality in this appeal.  In the future, lawyers may be called upon by the Court to explain conduct of this kind, and where appropriate wasted costs order has to be made.

Summary of Parties’ contentions

28.  Mr Chan took no issue with the question (formulated by Mr Joffe) which the Court has to answer in this appeal, namely, who is best placed to carry on the liquidation of the Company, which at its heart involves pursuing Chu for his potential misconduct in respect of the Questionable Transactions.

29.  Perhaps recognising the difficulty in asking the Court to adjudicate on the multiplicity of allegations made by Chu[2], Mr Chan submitted that to answer the forgoing question, there is a simple choice between 2 options, the Liquidators and the Panel A candidates, Mr Lai and Mr Ho, who were identified in the OR’s 2^nd Report (“Candidates”).  There is no issue over the competence or suitability of the Candidates. 

30.  Mr Chan submitted that for the wider interest of all parties the more prudent and lower risk option is the Candidates.  Whereas, the suitability of Greenwood and Bailey is fiercely contested.  The potential conflict of interest on the part of those gentlemen was recognized by the OR in her 3^rd and 4^th Reports.

31.  Mr Joffe took the position that to make good the Contributories’ better option submission, it is necessary for them to demonstrate substance in the doubts over the suitability of the Liquidators. Greenwood and Bailey had been the L/OSL since 2017.  The Removal Proceedings had failed.  They had a detailed knowledge over, inter alia, the Questionable Transactions, and been working on the liquidation of the Company for 10 months now.

32.  Mr Wong SC, who appeared for the OR, had rendered his assistance to the Court whilst maintaining a neutral stance.  His submissions on the issues raised by the Contributories over the integrity of Greenwood and Bailey are very helpful.

Integrity

33.  The allegations of the Contributories over the suitability or integrity of Greenwood and Bailey, including the evidence of the Contributories before the Master, were considered and analysed by the OR in her Reports.  In particular, the OR believed that the conflict which may arise out of HCA 1891/2020[3] could be mitigated by the assurance of Greenwood and Bailey that the Court’s directions would be sought before deciding whether to continue with that action on behalf of the Company. 

34.  In my view, there is little substance to the allegation of conflict of interest arising out of HCA 1891/2020 when the status of the PBM Loan had been adjudicated in the SO Decision.

35.  I have considered all the Reports of the OR (as did the Master).  I take the view that they were informative, well-reasoned and should be given weight by the Court.

36.  There is a highly pertinent consideration to be borne in mind for the liquidation of the Company.  As pointed out in the OR’s 2^nd Report, para 4: [t]he remaining assets of the Company appear to be potential legal claims and recovery actions against those who had allegedly misappropriated the assets of the Company…”.  In other words, the remaining assets are represented by the recovery action against Chu and his associates (HCA 631/2022[4]). 

37.  I agree with both Mr Joffe and Mr Wong that much of the Contributories’ complaints of bias against Greenwood and Bailey had been dealt with and rejected by the BVI Courts in the Removal Proceedings[5].

38.  HCA 1855/2021[6] was disposed of firmly by the Court by striking it out.

39.  Mr Chan complained that it was not sufficient for Mr Joffe to maintain that many of the Contributories’ complaints raised in these proceedings had already been dealt with by the Hong Kong and BVI Courts. With respect, I disagree.  The burden is on the accusers to make out their case of lack of integrity supported by credible evidence.  There is no burden on PBM to chase down every hare.

40.  In respect of the two specific points made in Mr Chan’s viva voce submissions.  Firstly, in relation to the setting aside of a BVI examination order obtained by Greenwood and Bailey as L/OSL against Chu by way of ex parte application, the OR had dealt with it at §§15-24 of her 4^th Report.

41.  It is apparent from the transcript of the reasons of Wallbank J that the examination order was set aside due to lack of jurisdiction under BVI laws to examine person residing outside the BVI. 

42.  It is correct that the learned Judge found that there was non-disclosure in relation to the absence of reference to an authority and that the Court was not informed of the winding-up proceedings in Hong Kong.  However, there was no suggestion of impropriety on the part of either Greenwood or Bailey, who were legally represented in those proceedings. I am unable to see anything sinister in these matters or how they can fairly reflect upon the integrity of Greenwood or Bailey. 

43.  Secondly, as regards the “false” statement made by Greenwood to the effect that he was not present at the setting aside hearing, it is inherently probable that it was a genuine mistake for which Greenwood had apologised.  I agree with Mr Joffe that there was nothing to be gain by such a false statement.  In any case, as pointed out by Mr Wong, the BVI Court of Appeal had considered the point and concluded that it would not carry sufficient weight to support the removal of Greenwood as L/OSL (Removal Judgment (2), [163]).

44.  For these reasons I see no real substance in the Contributories’ complaints over the integrity of Greenwood or Bailey.

45.  Further, I am in agreement with the risk management measure put in place by the Master with the appointment of Tsui. His appointment also addressed the lack of Hong Kong insolvency experience of Greenwood and Bailey.  In any case, I believe that the point of lack of experience is overplayed because both Greenwood and Bailey were experienced international insolvency practitioners from two of the biggest international accounting practices.  As pointed out in the 2^nd Report of the OR (§8), they would have access to advice from their colleagues who are familiar with Hong Kong insolvency.

46.  Further, I agree with Mr Wong that since there is no COI, the exercise any of the powers by the Liquidators which fall within Part 1 or 2 of Schedule 25 to Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Ordinance”), would have to be sanctioned by the Court according to s.199(2) of that Ordinance.  This also serves to manage any concern of alleged conflicts of interests.

Costs

47.  I agree with the OR’s analysis that the appointment of Greenwood and Bailey would be conducive to minimizing the costs the liquidation.  Para 6 of the OR’s 2^nd Report stated :

“6. Greenwood and Bailey, the joint liquidators of OSL have been involved in the liquidation of OSL in BVI and the wider and more extensive underlying dispute between Lau and Chu since 2017. The dispute concerns not just OSL but also the Company as well as the other companies within the BBG Group. The ORPL takes the view that although they are BVI insolvency practitioners, because of their prior involvement in the liquidation of OSL and the wider and more extensive underlying dispute between Lau and Chu in the BBG Group, it is likely to be more costs and time effective for Greenwood and Bailey to also deal with the liquidation of the Company, to ensure that prompt actions can be taken and legal claims and recovery actions, which are subject to pending limitation issues, can be brought on behalf of the Company against those responsible without any unnecessary delay. In the circumstances, the ORPL submits that the appointment of Hong Kong based liquidators may not necessarily be more efficient in terms of time and costs as compared to the appointment of Greenwood and Bailey who are already familiar with the picture.”

48.  Mr Chan made the point that Tsui is about to resign as one of the Liquidators due to his intention to emigrate and that a replacement will have to be appoint in his place.  Thus, there will be little costs savings compared with instructing the Candidates.  I believe that with the detailed knowledge possessed by Greenwood and Bailey, there is still much costs to be saved by retaining them, albeit with a new colleague. 

49.  I should also mention that Bailey is in the course of making an arrangement with his firm so that he can continue to discharge his duties as Liquidators despite the mandatory retirement policy of his firm.

50.  For completeness, Mr Joffe had asked this Court to appoint a replacement for Tsui.  Mr Wong submitted that Tsui should make an application to the Court for his resignation as Liquidator in accordance with the Rules made under the Ordinance.  I do not believe that the issue was sufficiently considered and researched by Counsel, and I decline Mr Joffe’s request. 

Accountability

51.  Mr Chan submitted that the Court is not in a position to impose sanction on Greenwood and Bailey who are not based in Hong Kong in the event of any breach of duty on their part as Liquidators.  First, I am unable to see any real basis to believe that well-established international practitioners, as Greenwood and Bailey are, would likely breach their duties. Even more unlikely is the prospect of intentional breach. 

52.  Second, I agree with Mr Wong that Tsui is based in Hong Kong and there should not be any concern about enforcement of sanction against the Liquidators, who are jointly and severally liable.

53.  Third, for cause the Contributories may apply to have Greenwood and Bailey removed as Liquidators and to deprive them of the right to have their costs paid out of the Company’s assets.  In addition, they may apply to the Court under s.200(5) of the Ordinance for relief if they are aggrieved by any act or decision of the Liquidators. 

Decision on liquidators

54.  In addition to the above analysis, the Court should bear in mind that the Greenwood and Bailey were (and are) the choice of PBM, whose view should normally prevail with an insolvent company.  Such view was supported by the OR.

55.  For these reasons, I agree with the Master on the choice of liquidators.

COI

56.  Since the Company is insolvent, it is unnecessary for the COI to consist of any contributories: see Re Sunni International Ltd, [2018] HKCFI 2371, [57]-[58].  PBM had of course expressed no wish to have a COI. 

57.  Further, given that the only asset of the Company is represented by the claims against Chu and his associates, it is very difficult to see how a COI, with the participation of the Contributories (acting under the control of Chu) would achieve any useful purpose.  Rather, there is a risk that the legal proceedings may be obstructed.

Disposition

58.  For the above reasons, this appeal is dismissed.  There is agreement that costs should follow the event.  I order that the costs of and occasioned by this appeal be paid by the Contributories to PBM with a certificate for 2 counsel.  The costs of the OR be paid out of the assets of the Company.  The estate of the Company be reimbursed by the Contributories in respect of the costs of the OR. 

59.  The costs are to be summarily assessed.  The Contributories are to respond to the Statement of Costs of PBM within 5 days from today, limited to 3 pages printed in A4 paper with font size 13, 1.5 line spacing and margins not less than 1 inch.  PBM is to reply within 3 days thereafter limited to 2 pages with the same format. 

60.  The OR is to lodge and serve her statement of costs on the Contributories within 5 days from today.  Response and reply are to follow the above directions. 

61.  Lastly, I am grateful to counsel for their assistance. 

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

Mr Abraham Chan SC and Mr Sim Jing En, instructed by Au & Associates, for the Contributories

Mr Anson Wong SC, instructed by Official Receiver’s Office, for the Official Receiver

HCCW 251/2019

[2021] HKCFI 3915

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 251 OF 2019

____________________

______________________

________________

JUDGMENT

________________

1.  By a Decision of the court dated 26 November 2021, the Company’s application to strike out the Amended Petition was dismissed. It was held, inter alia, that there was no bona fide dispute to the PBM Loan (adopting the nomenclature used in the Decision).

2.  It should be noted that the statutory demand by which repayment of the PBM Loan was sought was dated 12 December 2017, nearly four years ago.  The Petition was issued on 23 August 2019, more than two years ago.

3.  Pursuant to the Order of Mr Justice Harris dated 2 December 2019, it was ordered that the Amended Petition be adjourned to the second Monday following the handing down of the Decision on the strike out application.  This is the resumed hearing of the Amended Petition.

4.  Expectedly, the Petitioner seeks to have the Company wound up this morning because of its insolvency.  On the other hand, the Company seeks a “short adjournment” so as to allow its application for leave to appeal against the Decision and the stay of execution pending appeal heard before the determination of Amended Petition.

5.  The applicable principles concerning a stay of execution are trite: see Re China Silver Asset Management (HK) Ltd[2020] HKCFI 1028, §§10 & 11).

6.  Although this is an adjournment application, the effect is nevertheless a temporary stay of the consequence of the Decision.  I should add that, given the proposal for filing of evidence, it is unlikely that the leave and stay applications will be determined within a short period of time.  I therefore see no reason not to apply the aforesaid principles.

7.  There is no evidence at all before the court that the Company is able to honour its debts.  The court must bear in mind that the PBM Loan is in excess of US$36 million.

8.  The court has been informed that there is no challenge to the Decision on the Authority Ground.  Thus, the proposed appeal will be one over the findings of fact by the court.  On the factual issues, it was held in the Decision, inter alia, that the Company’s case was full of holes (§72).

9.  I struggle to find a valid reason why these matters should be further delayed.  I am unable to accept the Company’s submission that the Petitioner has suffered no prejudice by reason of the delay.  It is self-evident that the delay of nearly four years since the issue of the statutory demand is prejudicial to a creditor.

10.  For these reasons, I make the usual winding up order with costs against the Company.

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

________________________

________________________

________________________

DECISION

________________________

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