SHAUN WINSTON JUSTIN BOWERS v. MARBURY RIDGE LTD

CACV 21/2023, [2024] HKCA 640

On appeal from [2023] HKCFI 8

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 21 OF 2023

(ON APPEAL FROM HCSD NO 56 OF 2021)

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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.  This appeal is brought by Shaun Winston Justin Bowers (“Bowers”) against the judgment of Deputy High Court Judge Burns SC on 3 January 2023 (“Judgment”)[1], dismissing his application to set aside a statutory demand of Marbury Ridge Limited (“MRL”) dated 30 September 2021. He filed a notice of appeal on 30 January 2023 whilst acting in person. This was followed by a supplementary notice of appeal prepared by his present solicitors Hart Giles and lodged on 24 November 2023.

2.  Pursuant to leave granted in the Judgment, MRL presented a bankruptcy petition against Bowers on 17 January 2023. The petition was adjourned by Linda Chan J on 11 March 2024 to the first Monday call-over hearing after the determination of the present appeal[2].

The statutory demand

3.  The debt demanded was US$871,811.51, made up of outstanding principal sum of US$783,000 and accrued interest as at 30 September 2021 of US$88,811.51. The debt was said to be incurred on 13 August 2020 and the description given in the demand was as follows:

“Money advanced by the Creditor [MRL] to Epic Media Group Limited (“the Borrower”) [‘Epic’][3] under a Loan Agreement dated 13 August 2020 [‘2020 Loan Agreement’] made between the Borrower and the Creditor …

The Debtor [Bowers] executed a debenture dated 13 August 2020 in favour of the Creditor under which the Debtor irrevocably and unconditionally guaranteed all the liabilities of the Borrower under the [2020 Loan Agreement] (the ‘Guarantee’).

Event of default has occurred under the [2020 Loan Agreement] and the loan and accrued interest have become due and payable. By virtue of the Guarantee, the Debtor has been legally demanded for payment of the money owing under the [2020 Loan Agreement] but he has failed to pay the debt or any part thereof.

Security held:

The Creditor holds a debenture of floating charge executed by Borrower over its all [sic] assets dated 13 August 2020 (the ‘Debenture’) and a share charge executed by the Debtor over his 50% shareholding in the Borrower (the ‘Share Charge’) as security as security of the debt under the [2020 Loan Agreement] but the Creditor estimates the value of such security under the Debenture and the Share Charge as at the date of this demand to be negligible.”

The application to set aside the statutory demand

4.  Bowers issued an application to set aside the statutory demand on 8 November 2021, with a supporting affidavit prepared by his former solicitors Haldanes. MRL filed an affirmation in opposition by its director Andrew Charles Spence (“Spence”). Bowers filed his 2^nd affidavit in further support of his application.

5.  The application was made on the basis that the debt in the statutory demand was disputed on substantial grounds. These grounds, as taken from the affidavits of Bowers, were correctly summarised in §23 of the Judgment as follows:

“(1) There was no drawing down of the loan of USD 783,000 – in other words, the loan had not been advanced;

(2) Contrary to MRL’s Notice of Default, there had been no breach of the conditions precedent set out in the 2020 Loan Agreement;

(3) MRL’s Notice of Default was defective;

(4) There are cross claims by [Tork Limited] (‘Tork’)[4] and Epic against MRL;

(5) Bowers executed the 2020 Loan Agreement and the Debenture for himself and on behalf of Epic and Tork under duress;

(6) Bowers was merely a ‘bystander’; it would be unjust and unreasonable to make him liable or solely liable for dealings between MRL and Spence on the one hand and Epic and Tork on the other and he, Bowers should not in any event be made liable for dealings prior to the 2020 Loan Agreement.”

The relevant background

6.  We do not propose to go into the history of the dealings between Bowers and MRL covered in the affidavits and affirmation filed on both sides. For a proper understanding of the Judgment and the contentions raised in this appeal, a summary of the relevant background matters which are not in dispute or are indisputable will suffice.

7.  In 2015, Tork entered into a licence agreement (“Licence Agreement”) with Billboard, a division of Prometheus Global Media LLC (“Prometheus”), to use and exploit the licensed trademark and content owned by the latter on payment of a licence fee (“Billboard Licence”).

8.  By a loan agreement of 22 December 2017 (“2017 Loan Agreement”), MRL agreed to advance a short term loan of HK$1.2 million to Tork and Tork agreed to repay HK$1,242,000 by 27 January 2018. The loan was drawn down and paid by MRL to Tork.

9.  By another loan agreement of 12 December 2018 (“2018 Loan Agreement”), Spence agreed to lend HK$1 million to Tork and Tork agreed to repay the loan with interest in the total sum of HK$1,080,000 to Spence by 31 March 2019. The loan was drawn down and paid out of Spence’s personal account to Tork.

10.  No repayment was made under the 2017 Loan Agreement or the 2018 Loan Agreement.

11.  By a further loan agreement of 20 May 2019 (“2019 Loan Agreement”) made between Epic as the borrower, Tork, Spence and MRL as the lender, MRL agreed to enter into a new loan agreement with Epic as the borrower for a loan facility of US$530,000. By this agreement, Epic replaced Tork as the borrower. The 2019 loan was a consolidated loan which comprised: (1) the loan, accrued interest and default interest under the 2017 Loan Agreement in the sum of HK$2,223,981; (2) the loan, accrued interest and default interest under the 2018 Loan Agreement in the sum of HK$1,133,303; and (3) a new advance of HK$1.5 million. The total of the three amounts mentioned came up to US$622,000. Hence, the consolidated loan of the 2019 Loan Agreement of US$530,000 was a written down figure. The new advance of HK$1.5 million was drawn down by Epic and paid by MRL to Tork.

12.  Epic failed to repay any monies due under the 2019 Loan Agreement.

13.  By an email dated 27 May 2020 from a director and shareholder of MRL, Duncan George Smith (“Duncan”) to Bowers, Duncan referred to the restructuring of the debt due to MRL and the intention that all amounts owing to MRL would be consolidated into the proposed loan which was to become the subject of the 2020 Loan Agreement. In a second email dated 27 May 2020 sent to Bowers by Duncan, Duncan referred to a “capitalized loan amount (int plus all other outstandings) and the new advance for the licence fee”[5].

14.  The 2020 Loan Agreement, made between Epic as the borrower, Tork, Bowers and MRL as the Lender, was executed by Bowers on 14 August 2020. The “Loan Amount”, as defined in clause 1.1, comprised two elements: (1) US$783,000 (being the outstanding sum under the 2019 Loan Agreement rounded down to the thousand[6]); and (2) US$160,000 (“Licence Loan Amount”) (being the cash advancement to be paid directly to Prometheus for Epic as licence fees for the Billboard Licence, conditional upon the transfer of the Billboard Licence to BBRC L Limited[7] (“BBRC”)). Clause 7.3 provides for repayment of the “Loan Amount” by equal instalments with all interest accrued thereon on the last Business Day of June 2021, September 2021, October 2021 and December 2021.

15.  On appeal, it is not disputed that of the sum of US$783,000, US$530,000 had already been advanced to Epic under the 2017, 2018 and 2019 Loan Agreements and the balance of US$253,000 was in respect of interest charged by MRL. It was acknowledged by Mr Hart, who appeared for Bowers on appeal, that the US$783,000 stated in the 2020 Loan Agreement was “intended to be confirmatory of what had been lent to Epic under the previous Loan Agreements (together with interest)”, and there was “no obligation for [MRL] to lend any funds to Epic under the 2020 Loan Agreement as the funds had already been advanced under the previous Loan Agreements”[8].

16.  By a notice dated 9 December 2020 addressed to Epic (“MRL’s Notice of Default”), notice was given that Epic was in default of its obligations under the 2020 Loan Agreement and the Debenture in that Epic was alleged to have breached clauses 2.2[9] and 2.3[10] of the 2020 Loan Agreement. Notice was also given pursuant to clause 10.2 of the 2020 Loan Agreement and clause 8.2 of the Debenture that, unless the alleged breaches were remedied within 14 Business Days from “today (4 December 2020)”, an Event of Default would have been committed.

17.  By a letter dated 24 May 2021 from MRL’s solicitors to Epic, it was alleged that an Event of Default under the 2020 Loan Agreement had occurred by reason of Epic’s alleged failure to remedy the alleged breaches to which MRL’s Notice of Default referred by the prescribed time. Further, notice was given that MRL had exercised its rights under the 2020 Loan Agreement to call for immediate payment of the US$783,000 loan and interest thereon amounting in total to US$843,924 and demand was made therefor.

18.  By another letter dated 24 May 2021 from MRL’s solicitors to Bowers, it was similarly alleged that an Event of Default under the 2020 Loan Agreement had occurred by reason of Epic’s alleged failure to remedy the alleged breaches to which MRL’s Notice of Default referred. Reference was made to the notice given to Epic on the same day, exercising MRL’s right to call for immediate payment of the US$783,000 loan and accrued interest and demand was made of Bowers pursuant to the Guarantee to pay the amount allegedly due of US$843,924.

The Judgment

19.  By the Judgment, it was held:

(1)  It is plain and obvious that the US$783,000 loan was intended in effect to be the amount due under the 2019 Loan Agreement capitalised and restructured. The 2020 Loan Agreement imposed a primary unconditional liability on Epic to pay US$783,000 plus interest at 10% per annum by the instalment payments prescribed. The argument of Bowers that no such liability arose does not bear scrutiny[11].

(2)  It is not necessary to decide whether the liability to pay default interest is binding and effective or whether it is void and ineffective as a penalty. The statutory demand does not claim default interest. The element of default interest which made up US$783,000 was capitalised by the 2020 Loan Agreement and became the subject of a primary obligation of repayment. The 2020 Loan Agreement created a contractual estoppel precluding Bowers from claiming that the amount of the consolidated loan was less or anything other than US$783,000[12].

(3)  As MRL’s Notice of Default did not specify which of the conditions precedent in clause 2.2 was allegedly unfulfilled and did not specify the remedy required by the notice, it was of no effect[13].

(4)  Bowers’ contention that the consent of Billboard to an assignment of the Billboard Licence was not required is plainly misconceived. The requirement of consent to an assignment of the Billboard Licence in clause 2.2(b)(ii) of the 2020 Loan Agreement was clearly a requirement that Billboard should consent to the proposed assignment. There is no suggestion that such consent was ever granted[14].

(5)  Epic and Bowers were aware of the non-compliance with and default as regards the condition precedent in respect of the Billboard Licence. In terms of clause 10.2(b) of the 2020 Loan Agreement, an Event of Default occurred 14 Business Days thereafter, the condition precedent concerning the Billboard Licence not having been remedied within that time. In terms of clause 10.11, the US$783,000 Loan and accrued interest became due and payable on notice to that effect, given on 24 May 2021[15].

(6)  None of the cross claims advanced by Bowers or suggested on behalf of Tork or Epic on the 2020 Loan Agreement have merit. In particular, as the conditions precedent in respect of the Billboard Licence were not fulfilled within the time prescribed, there can be no merit in Bowers’ case that MRL was in breach of the 2020 Loan Agreement by not advancing the Licence Loan Amount of US$160,000[16].

(7)  Bowers’ allegation of duress was rejected. There is no basis for contending that the threat of proceedings amounted to duress. On any basis it must be doubtful that the threat of proceedings was the dominant cause of Bowers executing the 2020 Loan Agreement. The first drafts of the 2020 Loan Agreement and Guarantee were provided to him in May 2020 and the finalised drafts were produced after a long period of negotiation from May to August 2020. There is no suggestion that he did not appreciate what he was signing and the potential liabilities which arose as a consequence. Bowers and Epic were bound by the provisions of the documents[17].

(8)  Bowers executed the Guarantee in full knowledge of the possible consequences and has no defence to the claim made under it[18].

(9)  Even if the element of interest which made up part of the US$783,000 indebtedness under the 2019 Loan Agreement and the US$783,000 Loan under the 2020 Agreement is irrecoverable as constituting a penalty, there would remain a guaranteed debt of US$530,000. On this footing, the overstatement of the amount of the debt in the statutory demand would not invalidate the demand. Even had the amount of indebtedness been stated as US$530,000, Bowers would not have satisfied the demand. He would not have been prejudiced by any such overstatement and this would not have provided him with a ground for setting aside the demand[19].

This appeal

20.  The grounds of appeal in the notice of appeal prepared by Bowers acting in person and the supplementary notice prepared by his present solicitors may be broadly summarised as follows.

21.  The main contention advanced by Mr Hart is that no advance of any money was made by MRL to Epic pursuant to the 2020 Loan Agreement. The debt demanded in the statutory demand could not fall within the definition of “Loan” or “Loan Amount” in clause 1.1 of the 2020 Loan Agreement. Bowers’ obligations as guarantor were in respect of monies advanced to Epic pursuant to the 2020 Loan Agreement. As Epic has no liability under the 2020 Loan Agreement, Bowers cannot be liable under the guarantee (“No Advancement Argument”).

22.  Other arguments advanced for Bowers are as follows:

(1)  There was no sufficient consideration provided for the “primary unconditional liability” held in §26 of the Judgment as no new monies were advanced, and no fresh consideration was provided for the 2020 Loan Agreement to replace and supersede the 2019 Loan Agreement, contrary to the holding in §28 of the Judgment (“No Consideration Argument”).

(2)  There were no legitimate grounds to found a contractual estoppel in §28 of the Judgment (“Contractual Estoppel Argument”).

(3)  The 2020 Loan Agreement and the Debenture were executed by Bowers under duress (“Duress Argument”).

23.  We will consider the broad grounds of appeal in the order mentioned above.

No Advancement Argument

24.  Mr Hart drew our attention to certain exchanges Bowers had with the judge at the hearing below. Bowers, who was then acting in person, erroneously asserted that under the 2020 Loan Agreement, MRL was obliged to lend a further sum of US$783,000 to Epic and as MRL did not do so, neither Epic nor Bowers was liable to MRL for the debt in the statutory demand[20]. Having taken instructions, Mr Hart clarified to us what Bowers meant to submit was that no monies were advanced to Epic under the 2020 Loan Agreement, and Bowers was not contending that this agreement contained a new obligation for MRL to advance US$783,000 to Epic.

25.  For the purpose of this appeal, it does not matter that Bowers had made an erroneous assertion before the judge. He is free to argue a legal point on appeal that does not involve additional evidence not adduced in the proceedings below.

26.  Mr Hart argued along these lines:

(1)  According to the statutory demand, the debt demanded was “Money advanced by [MRL] to [Epic] under [the 2020 Loan Agreement]”. However, there was no advance of any money by MRL to Epic pursuant to the 2020 Loan Agreement.

(2)  In fact, money had previously been advanced to Epic pursuant to the 2019 Loan Agreement. Importantly, the 2020 Loan Agreement defined “Loan” in clause 1.1 to mean “all sums advanced under the terms of this Agreement”, “this Agreement” being the 2020 Loan Agreement. “Loan Amount” was defined in clause 1.1 as “the principal amount of the consolidated loans (being USD 783,000) made by the Lender to the Borrower under this Agreement or (as the context requires) the principal amount outstanding for the time being of the Loan, less any discount given in Clause 2.4(b), and if aggregated under the terms of this Agreement the any [sic] cash advance of the Licence Loan Amount.” (Emphasis supplied.)

(3)  “Licence Loan Amount” was defined in clause 1.1 to mean US$160,000, to be paid for Epic directly to Prometheus under the Billboard Licence. Such amount, if paid, could fall within the definition of “Loan” in clause 1.1. Clause 2.2(b)(ii) provides that it is a condition precedent to “the granting of the Loan and release of any funds” that Epic and Bowers procure “the consent to the assignment of the Billboard Licence to BBRC L Limited”. As no consent was granted by Billboard to the assignment of the Billboard Licence to BBRC[21], the Licence Loan Amount was not advanced under the terms of the 2020 Loan Agreement. In any event, the Licence Loan Amount cannot be relevant to any liability of Bowers under the statutory demand as it is not part of the debt claimed in the demand.

(4)  The judge had identified some of the serious drafting problems with the 2020 Loan Agreement[22], which was prepared by MRL. He held that despite inconsistencies in this agreement and poor drafting in places, construed as a whole and against the factual matrix, the US$783,000 loan comprised and was intended to comprise amounts due by way of principal and interest under the 2019 Loan Agreement, and that the 2020 Loan Agreement imposed a primary unconditional liability on Epic to pay the sum of US$783,000 plus interest[23]. The judge’s holding cannot be correct as no new monies were advanced under the 2020 Loan Agreement and he failed to construe any ambiguities or inconsistencies against MRL based on usual principles of contractual interpretation including the contra proferentem rule.

(5)  The true liability of Epic should be under the 2019 Loan Agreement. In view of the fact that Bowers did not sign any personal guarantee in respect of that agreement, it was more commercially expedient for MRL to proceed against him under his personal guarantee in respect of the 2020 Loan Agreement, rather than against Epic. However, as MRL never advanced monies under the terms of the 2020 Loan Agreement, Epic has no liability thereunder and Bowers cannot be liable under his guarantee.

27.  This argument was advanced before the judge[24] when Mr Hart sought to demonstrate for the purpose of applying for stay of the bankruptcy proceedings pending this appeal that there are arguable grounds of appeal. The judge took the view “it is clear beyond any reasonable argument” on the proper construction of the 2020 Loan Agreement, read as a whole and against its factual matrix, that (a) the US$783,000 loan which is the subject of the 2020 Loan Agreement comprised and was intended to comprise the consolidated amount due and owing by way of principal and interest under the 2019 Loan Agreement; and (b) the 2020 Loan Agreement imposed a primary liability on Epic to pay the sum of US$783,000 plus interest in accordance with the terms of that agreement, as held in §§25 to 26 of the Judgment[25].

28.  We agree with the judge that in focusing almost entirely on the definitions of “Loan” and “Loan Amount” in clause 1.1, Mr Hart has ignored the factual matrixes and other relevant provisions of the agreement[26]. The factual matrixes comprised the previous loan agreements in 2017, 2018 and 2019 and two emails dated 27 May 2020 sent by Duncan to Bowers mentioned earlier. They showed the circumstances the 2020 Loan Agreement came into being, and that for the restructuring of the debt due to MRL all amounts owing would be consolidated into the loan which was to be the subject matter of the new loan agreement. Further, the loan in the new agreement was to be the capitalised amount of the outstanding sums and interests under the previous loan agreements plus a new advance for the licence fee. As for other relevant provisions in the 2020 Loan Agreement, they made clear that the sum of US$783,000 represented “the consolidation indebtedness as previously documented” (clause 2.1) and that the amount “has been fully drawn down with effect from the date of this Agreement” (clause 4).

29.  There are no inconsistencies or ambiguities as regards these basic terms and obligations. The contra proferentem rule does not come into play at all.

30.  The judge is clearly right in holding that the 2020 Loan Agreement imposed a “primary unconditional liability” on Epic to pay the sum of US$783,000 with interest by the instalment payments prescribed by clause 7.3. Bowers is liable as the surety under the Guarantee in respect of the obligations of Epic under the 2020 Loan Agreement, which is the basis of the statutory demand.

31.  We agree with the judge that the contention raised is not arguable.

No Consideration Argument

32.  The arguments advanced by Mr Hart under this head may be summarised as follows:

(1)  As no new monies were advanced under the 2020 Loan Agreement, there was no sufficient consideration provided for the “primary unconditional liability” of Epic found in §26 of the Judgment.

(2)  The promise given by MRL to advance the Licence Loan Amount of US$160,000 to Epic could not properly be treated as fresh consideration for the 2020 Loan Agreement to replace and supersede the 2019 Loan Agreement as held in §28 of the Judgment. There must be actual advance of the Licence Loan Amount to amount to consideration.

(3)  To receive consideration in the form of the Licence Loan Amount, Epic and/or Bowers must procure Billboard’s consent to the assignment of the Billboard Licence to BBRC. On 13 August 2020, the day before Bowers executed the 2020 Loan Agreement, he had signed a consent to the assignment of the Billboard Licence from Tork to BBRC and requested Billboard to consent likewise. He had no control over the actions of Billboard. It is not fair or just that he should bear the consequence of Billboard not giving consent. He received no consideration for agreeing to procure Billboard to give consent.

33.  Similar arguments were made to the judge in the stay application and were rejected. We agree with the judge the contentions do not raise arguable grounds of appeal.

34.  For the reasons given earlier, the broad effect of 2020 Loan Agreement was to replace and supersede the 2019 Agreement. By the 2019 Loan Agreement, Epic was to repay the Loan and all interest accrued on or before the last Business Day of June 2021 (clause 7.1) and repayment was to be made in equal instalments of the Loan Amount with all interest accrued thereon on the last Business Day of June 2020, September 2020, December 2020, March 2021 and June 2021 (clause 7.3). In agreeing to revise the terms of repayment of pre-existing indebtedness in clauses 7.1 and 7.3 of the 2020 Loan Agreement, MRL agreed to forego its rights to earlier repayment under the 2019 Loan Agreement and to accept later dates of repayment by equal instalments on the last Business Day of June 2021, September 2021, October 2021 and December 2021. This forbearance of MRL is clearly good consideration for the 2020 Loan Agreement.

35.  As for the promise to advance the Licence Loan Amount of US$160,000, this is subject to the condition precedent of Epic and Bowers procuring Billboard’s consent to the assignment of the Billboard Licence to BBRC. The release of funds was not triggered as the condition precedent was not met. In this situation, each party made a promise to the other but neither party has rendered performance. It is well settled that the parties’ mutual promises can amount to consideration for each other[27]. It is not necessary for there to be an actual advance of the Licence Loan Amount to amount to consideration. It is right for the judge to hold in §28 that “fresh consideration [for the 2020 Loan Agreement] was given by MRL in the form of its promise to advance the Licence Loan Amount”.

36.  The judge held it is “clear beyond reasonable argument that the 2020 Loan Agreement was supported by sufficient consideration moving from MRL, not only by reason of MRL’s agreement to pay the licence fee but also by reason of the fact that in agreeing to revised terms for the repayment of pre-existing indebtedness, as MRL did under the 2020 Loan Agreement, MRL was in effect foregoing rights to earlier repayment under the earlier loan agreements.”[28] We respectfully agree.

37.  The last point taken by Mr Hart may be dealt with shortly. As explained, in the 2020 Loan Agreement, mutual promises were made and they can amount to consideration for each other. We do not agree with the contention there is no consideration for Bowers’ promise to procure Billboard to give consent.

Contractual Estoppel Argument

38.  It is not necessary to go into the circumstances in which contractual estoppel was raised in argument before the judge. Nor is it necessary to go into the legal principles on contractual estoppel, of which there is no apparent dispute.

39.  Mr Hart contended there were no legitimate grounds to find contractual estoppel. The judge dealt with this adequately in the Stay Decision at §17(c). In short, whether or not the 2020 Loan Agreement created a contractual estoppel was not determinative of his decision to dismiss the application to set aside the statutory demand. We agree with the judge the challenge to the conclusion he reached as to contractual estoppel does not give rise to any arguable ground of appeal.

Duress Argument

40.  Arguments were made in the grounds of appeal put forward by Bowers acting in person (which Mr Hart has not abandoned) regarding the judge’s holding that the allegations of duress are not established.

41.  Insofar as challenge is made to the findings of fact made by the judge on the evidence, the well-established principle is that the appeal court should be reluctant to interfere with the judge’s evaluation of the evidence, unless it is demonstrated that the judge had fallen into palpable errors in the finding of fact. This is so even though the judge’s evaluation of evidence and findings of fact were based on affidavit evidence and contemporaneous documents rather than oral evidence[29]. “The appellate process is not designed to give a litigant a platform to repeat submissions made in the court below on the evidence and factual aspects in the hope of persuading the appeal court to come to a different view from the primary judge”[30].

42.  We reject the contentions on duress.

Conclusion and costs

43.  As none of the grounds of appeal are of merit, we dismiss the appeal against the Judgment refusing to set aside the statutory demand.

44.  Costs of the appeal should follow the event. We order Bowers to pay the costs of MRL of this appeal, to be taxed if not agreed.