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

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)

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J U D G M E N T

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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”:

“In order to execute the resolution … passed by the company’s board of directors on 26 November 2015, to help the company to resolve the crisis to the company’s assets caused by potential call loan by the bank, after communications with the representatives of both shareholders, resolve as follows:

1. [BBGH] and [PBM], as shareholders of the company, each shall have the obligation to purchase two single vessel holding companies, to help resolve the crisis of the company;

2. It is agreed that the company shall repay both shareholders the shareholders’ loans, to be used for executing the abovementioned plan to purchase two single vessel holding companies;

3. Whilst the company’s shareholders are helping the company in protecting its assets, the company also has the obligation to help the company’s shareholders in removing the guarantee liability under the bank financing arrangements:

(1) As [BBGH] can obtain bank credit, it is agreed that two single vessel holding companies (Bright BBG Shipping Limited and Endeavour BBG Shipping Limited) will be sold to [BBGH]. The transaction consideration to be offset against the shareholders’ loan to the company by [BBGH], the balance of the shareholders’ loan to the company by [BBGH] shall be repaid in cash; [BBGH] to use its own bank credit to help both shareholders in removing the guarantee liability of both shareholders under the financing documents of Bright BBG Shipping Limited and Endeavour BBG Shipping Limited.

(2) As PBM’s indication that it cannot execute the arrangement to purchase two single vessel holding companies at the moment, it is agreed that company first use the shareholders’ loans of PBM to repay the loan balance and related fees arising from early repayment in Credit Suisse in full for Glory BBG Shipping Limited and Hope BBG Shipping Limited immediately; PBM to use its shareholders’ loan to help both shareholders in removing the guarantee liability of both shareholders under the financing documents of Glory BBG Shipping Limited and Hope BBG Shipping Limited, the balance of PBM’s shareholders’ loan in the company shall be held under a trust. The ownership of Glory BBG Shipping Limited and Hope BBG Shipping Limited shall belong to PBM, upon PBM paying the difference in values of the two single vessel holding companies.

4. It is agreed that the items in this resolution shall be completely executed before 31 January 2016.”

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:

“UPON:

1.1 The directors of the Company holding board meetings on November 26, 2015 and December 15 and 16 2015, and passed resolutions (… collectively referred to as ‘Resolutions’);

1.2 In order to implement the Resolutions, it is proposed that the company and related parties sign the following sale and purchase agreement (‘Sale and Purchase Agreement’):

(1) The Company (as the guarantor), Starry Rich Limited and Ever Precious Limited (as the seller), and the companies designated by [BBGH], i.e. BBG Bright Limited and BBG Endeavour Limited (as the purchaser) shall sign the Sale and Purchase Agreement to deal with the entire issued share capital of Bright BBG Shipping Limited (‘Bright BBG’) and Endeavour BBG Shipping Limited (‘Endeavour BBG’);

(2) The Company (as guarantor), The Palace Limited and Shining Centre Limited (as the vendor), and [PBM] or its separately designated company (as the purchaser) shall sign the Sale and Purchase Agreement to deal with the entire issued share capital of Hope BBG Shipping Limited (‘Hope BBG’) and Glory BBG Shipping Limited (‘Glory BBG’);

Starry Rich Limited, Ever Precious Limited, The Palace Limited and Shining Centre Limited (collectively referred to as ‘Overseas Vessel Holding Companies’); Bright BBG, Endeavour BBG, Hope BBG and Glory BBG (collectively referred to as ‘Hong Kong Vessel Holding Companies’)

It is therefore resolved that:

Any one of the directors of each of the Company, the Overseas Vessel Holding Companies and the Hong Kong Vessel Holding Companies shall be authorised to sign the transfer of share of the vessel holding company and any other documents (including affixing company seals, if necessary) on behalf of the respective companies to effectively complete the transaction.”

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:

(1) The PBM Loan is not repayable on demand as it is subject to an express agreement, partly written and partly oral, that the sums to be injected by BBGH and PBM were not repayable on demand by either of them, since they were for the long-term development of the Company.  Any repayment would require the unanimous consent of the Company and its shareholders, BBGH and PBM (“Alleged Agreement” or “Alleged Treatment”)^[5]. 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.

(2) The PBM Loan is not repayable on demand as there is an implied term to the same effect as the Alleged Agreement (“Alleged Implied Term”).

(3) The PBM Loan was discharged by a vessel purchase agreement reached orally at the December 2015 Meetings (“Vessel Purchase Agreement”), pursuant to which PBM agreed to purchase the interest in the vessels Hope and Glory at US$54,088,272 (“Purchase Price”), and that part of the Purchase Price was to be set off against the PBM Loan.

(4) As an alternative to the Vessel Purchase Agreement, and, in any event, the PBM Loan had been novated to Palace and Shining as the new obligors in lieu of the Company by the Novation Agreement.

28.  The Company’s main evidence in support came from Kwok 3^rd.  Despite Chu’s heavy involvement, he only made a short affirmation in reply in which he deposed that he had read and considered Kwok 3^rd and confirmed that the affairs of the Company during the period he was a director as set out in Kwok 3^rd 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:

“… the vivid expression in [Anderson v City of Bessemer (1985) 470 US 564] that the first instance trial should be seen as the ‘main event’ rather than a ‘tryout on the road’ has resonance even for a case which does not involve oral testimony. A first instance judgment provides a template on which criticisms are focused and the assessment of factual issues by an appellate court can be a very different exercise in the appeal setting than during the trial. Impressions formed by a judge approaching the matter for the first time may be more reliable than a concentration on the inevitable attack on the validity of conclusions that he or she has reached which is a feature of an appeal founded on a challenge to the factual findings. The case for reticence on the part of the appellate court, while perhaps not as strong in a case where no oral evidence has been given, remains cogent. …”

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]:

(1) The written part of the Alleged Agreement was said to be constituted by the August 2010 Resolutions.  The August 2010 Resolutions was a detailed document. Reference to either discussions or agreement over any repayment terms for the shareholders’ loans was “conspicuously missing” from this document.  There was no explanation from the Company to explain the absence of any record of the Alleged Agreement.

(2) The Alleged Agreement was “highly unusual” 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 (ie Chu) and BBGH who signed the Resolutions.

(3) 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.

(4) 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 10 as being “repayable on demand”.  The Company has no real answer to the unequivocal record in the AFS.

(5) The 2010 AFS 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.  The 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 an international firm of accountants responsible for the preparation of the AFS 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.

(6) Similarly, in the 2013 AFS and 2014 AFS (both signed off by 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”.

(7) Chu claimed that he “did not address [his] mind to the expression ‘repayable on demand’ ”.  The judge found his claim “ambiguous by design”.  Quite apart from 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.  Besides, three months before Chu signed the 2013 AFS, there was an exchange of emails between him and Lau in which Lau expressed disagreement with Chu’s stated understanding of the nature of the shareholders’ loans and asked for immediate repayment of the PBM Loan.  In light of the disagreement, it was all the more unlikely for Chu to have failed to address his mind to the repayment terms of the PBM Loan as stated in the AFS.

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:

(1) It was not in dispute that shortly after the August 2010 Resolution, the Company had in turn advanced shareholder’s loans to its first-layered subsidiaries, which in turn advanced the money to the second-layered subsidiaries, for the purpose of financing in part the building of the vessels to be held by the second-layered subsidiaries.  According to the resolutions of the shareholders of the Company and the Board dated 9 and 23 October 2010 regarding the advancement of these loans by the Company to its first-layered subsidiaries, and the corresponding board resolutions of the first-layered subsidiaries of the same dates, it was stated that “there is no specific repayment period” for these loans.  It would not make sense for the BBGH Loan and the PBM Loan to be treated differently from the shareholder’s loans of the Company to its first-layered subsidiaries which were in turn advanced to the second-layered subsidiaries^[14].

(2) Lau made an affirmation in the BVI winding-up proceedings of OSL stating that the Loans were advanced by BBGH and PBM to the Company “upon the demand of the relevant shareholder, subject to the requirements of [the Company]/the Beibu Gulf Group to use such amount of the Loans for the purchase of the 6 dry bulk vessels as set out in the Minutes [of 23 August 2010].”^[15]  He failed to explain why in his affirmation filed in the present proceedings, he asserted that “the PBM Loan has always been repayable on demand”^[16] without any qualification.

(3) The first instance judgment of the BVI winding-up proceedings handed down on 29 June 2017 held that the implications of the Loans by BBGH and PBM to the Company were clear.  As the Loans were to be used for the purpose of the purchase and construction of the vessels, “[the] implication is, and the implied terms sufficient to give the agreement business efficacy, were however clear; if not so used, or to the extent the moneys were not so used, they would be repayable on demand.”  Since a large part of the PBM Loan had been used for building the vessels, and the remainder of the PBM Loan had been applied to settle part of the outstanding indebtedness under the facility granted by Credit Suisse (“Glory/Hope Facility”)^[17], the PBM Loan is not repayable on demand given its usage.  The allegation in §30.3 of the amended petition that the Company did not utilise the PBM Loan for repayment of the indebtedness under the Glory/Hope Facility is untrue^[18].

(4) BBGH never claimed that the BBGH Loan was repayable on demand.  Prior to the issuance of the statutory demand by the liquidators on behalf of PBM in December 2017, PBM had never claimed that the PBM Loan was repayable on demand^[19].

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 3^rd 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]:

(1) Contrary to the Company’s case, the December 2015 Meetings were not attended by representatives of PBM, BBGH, Shining, Palace, Starry Rich Limited, Ever Precious Limited.  The Meetings were meetings of the Board of the Company and attended only by the directors.  The Resolutions only recorded the decision of the Company, and it is not clear how they would bind other parties such as PBM.

(2) The preamble to the Resolutions of the Board (“after communications with the representatives of both shareholders”) 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 dollar transaction.

(3) The Company’s case was contradicted by the Minutes which recorded 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.  This statement militates strongly against the suggestion that there was any binding sale and purchase agreement reached at the December 2015 Meetings.

(4) §3(2) of the Resolutions stated “PBM’s indication that it cannot execute the arrangement to purchase two single vessel holding companies at the moment” and went on to state: “it is agreed that company first use the shareholders’ loans of PBM to repay the loan balance and related fees arising from early repayment in Credit Suisse in full for Glory BBG Shipping Limited and Hope BBG Shipping Limited immediately; PBM to use its shareholders’ loan to help both shareholders in removing the guarantee liability of both shareholders under the financing documents of Glory BBG Shipping Limited and Hope BBG Shipping Limited, the balance of PBM’s shareholders’ loan in the company shall be held under a trust”. Such statements undermined the Company’s case on the alleged Vessel Purchase Agreement.

(5) The Company did not in fact transfer any shares in the vessel holding companies to PBM.  Instead, shortly after the December 2015 Meetings, 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.  Had there been a concluded agreement to sell to PBM, it is inconceivable that Shining and Palace would have executed the share mortgage.  Subsequently, Glory and Hope were sold to other parties in August 2017 following enforcement of the share mortgage.

(6) It is indisputable that PBM had not obtained any interest in the vessel holding companies or Hope and Glory.  The Company was not entitled to apply the PBM Loan in discharge of the Purchase Price when PBM had obtained nothing in return.  There was no proper discharge in law.

(7) 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.  The Company’s Board resolutions on 5 January 2016 stated at §1.2: “In order to implement the Resolutions, it is proposed that the company and related parties sign the following sale and purchase agreement …” The minutes of the Board meeting dated 14 January 2016 stated at §5: “Discussion 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 [Lau] and [Chu] (through [PBM]) …”^[33]

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 3^rd, 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]:

(1) The recitals in the Novation Agreement flatly contradicted the Company’s case on the alleged Vessel Purchase Agreement, as mentioned earlier.  There was shifting of the Company’s case in contending that the alleged Novation Agreement is an alternative argument^[38].

(2) The Company has not explained why, if the PBM Loan was set off against part of 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 (no such agreement was signed) and for the acknowledgment of the set-off.  The books would be adjusted accordingly.

(3) If the PBM Loan had been discharged by the alleged Vessel Purchase Agreement as it was set off against part of the Purchase Price as alleged by the Company^[39], the PBM Loan could not be novated to Palace and Shining because the debt no longer existed.

(4) If the Novation Agreement was a genuine document, there was something seriously wrong about Chu’s conduct in signing it on behalf of PBM when, on the same day, he acted on behalf of Palace and Shining and their wholly owned subsidiaries in granting mortgages over Hope and Glory.  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”.

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.