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

CACV 557/2021 and
CACV 591/2021
(Heard together)

[2022] HKCA 1723

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 557 OF 2021 & NO. 591 OF 2021

(ON APPEAL FROM HCCW 251 OF 2019)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

I.  Introduction

1.  These are two identical applications issued on 13 June 2022 by BGA Holdings Limited (formerly known as Beibu Gulf Ocean Shipping (Group) Limited) (‘the Company’) for leave to adduce new evidence in its appeal in CACV 557/2021 and CACV 591/2021. The applications are opposed by the Petitioner, PBM Asset Management Ltd (‘PBM’).

II.  Background

2.  The proceedings below were concerned with two matters. First, a winding‑up petition (‘the petition’) presented by PBM on 23 August 2019 against the Company. The petition was amended on 30 October 2019. Second, the Company sought to strike out the petition as amended. The striking‑out has two aspects. First, against the entire petition for want of authority and second, the part of the petition concerning the Company’s insolvency by reason of its non‑compliance with a statutory demand issued by PBM (‘the insolvency ground’). The striking‑out application was heard by Anthony Chan J (‘the Judge’) on 20 October 2021. He dismissed the striking‑out application on 26 November 2021 (‘the Judgment’) and made an order to wind up the Company on the hearing of the petition on 6 December 2021.

3.  The relevant background facts can be briefly stated as follows.

4.  Ocean Sino Ltd. (‘OSL’) was incorporated in the British Virgin Islands (‘BVI’) and was owned by two equal shareholders, namely Mr. Chu Kong (‘Mr. Chu’) and Mr. Lau Wing Yan (‘Mr. Lau’). PBM is a Hong Kong company and was a wholly-owned subsidiary of OSL, in which Mr. Chu and Mr. Lau were the directors until their removal on 17 January 2018.

5.  The Company was a joint venture company between PBM (as a 49% shareholder) and Beibu Gulf Holding (Hong Kong) Co Ltd (‘BBGH’) (as a 51% shareholder). Mr. Chu and Mr. Lau were directors of the Company. Mr. Lau was removed as director on 10 March 2016.

6.  Guangxi Beibu Gulf International Port Group Limited (‘Guangxi BBG’) is the sole shareholder of BBGH.

7.  A shareholders’ resolution of the Company was passed on 23 August 2010 whereby a total sum of US$73.8 million was injected into the Company of which US$53.8 million were shareholders’ loans (US$27,438,000 from BBGH and US$26,362,000 from PBM) (‘the Shareholders’ Loans’). With the exception of US$5 million, these shareholders’ loans were to be used for purchase of up to six dry bulk vessels and the Company’s daily operation reserve.

8.  In 2010 and 2011, PBM and BBGH further advanced additional shareholders’ loans in the amount of US$9,936,272 and US$10,341,833.24 to the Company respectively.

9.  In total, the Company became indebted to PBM for its shareholders’ loan in the aggregate sum of US$36,298,272 (‘the PBM Loan’).

10.  From late 2012 to mid-2013, four dry bulk vessels (‘Vessels’) were constructed partly funded by the Shareholders’ Loans (including the PBM Loan) and partly by bank facilities secured by, inter alia, mortgages over the Vessels.

11.  On 12 December 2017, PBM served a Statutory Demand on the Company requesting the repayment of the PBM Loan. The Company failed to settle the PBM Loan or any part thereof and PBM presented the petition.

III.  The Judgment

12.  The Judge dismissed the striking-out application on the ground that the Company failed to raise a bona fide dispute.

13.  Four issues were advanced by the Company before the Judge. The three issues relevant to these applications are 1) whether the PBM Loan was repayable on demand, 2) whether the PBM Loan had been discharged by the Vessel Purchase Agreement reached at the meetings in December 2015 and 3) whether the Company’s liability to repay the PMB Loan was absorbed by a Novation Agreement.

14.  In respect of the first issue, the Company relied on an express agreement by reason of the August 2010 resolutions and the oral agreement of the shareholders at the meeting. It also relied on an implied agreement.

15.  The Judge rejected the express agreement argument. He held that :

‘ 31. ... 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.

...

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.’

16.  The Judge held that the contemporaneous documents clearly showed that the PBM Loan was repayable on demand and the Company had given no real answer to these unequivocal records.

17.  The Judge also rejected the implied term argument :

‘ 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.’

18.  The Judge pointed out the four vessels built were all sold.

19.  The Judge further held :

‘ 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.’

20.  The Judge also rejected the Vessel Purchase Agreement argument. He held :

‘ 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.

...

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.’

21.  The Judge also held that the contemporaneous documents plainly showed that there was no binding agreement between PBM and the Company on the sale and purchase of the vessels reached on 15 or 16 December 2015.

22.  The Judge further rejected the Novation Agreement argument. He held that the terms of the Novation Agreement flatly contradicted the Company’s case on the Vessel Purchase Agreement. He held :

‘ 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.’

IV.  The appeal grounds

23.  The Company then lodged its appeal to this Court against the Judgment : CACV 557/2021 is in respect of the winding‑up order and CACV 591/2021 is in respect of the insolvency ground. In short, the Company contends that the Judge was wrong in rejecting the Company’s case of bona fide dispute by the following grounds :

1)  It was agreed (or there was an implied term) that the PBM Loan was not repayable on demand and any repayment would require the unanimous consent of the Company and its shareholders, PBM and BBGH (‘the Alleged Agreed Treatment’); (‘Grounds 1 & 2’).

2)  The PBM Loan had been discharged by an oral agreement between the Company, BBGH, PBM and four of the Company’s subsidiaries (‘Vessel Purchase Agreement’) on sale and purchase of the Vessels reached at the board meetings of the Company on 15 and 16 December 2015 (‘the December 2015 Meetings’); (‘Ground 3’).

3)  Alternatively, the Company is not liable by reason of the Novation Agreement.

24.  These grounds are repetitions of the Company’s case below.

V.   New evidence

25.  The Company now seeks leave to adduce the following new evidence :

1)  The Affirmation of Zhou Zhuoli (‘Ms. Zhou’) dated 21 January 2022 together with the exhibits thereto (‘Zhou’s affirmation); and

2)  The witness statement of Mr. Lau dated 4 January 2022 filed in HCA 228/2017 in January 2022 (‘Lau’s witness statement’).

VI.  Our view

1)  Zhou’s Affirmation

26.  We shall first deal with whether Zhou’s Affirmation shall be adduced as new evidence. There is no dispute that the Company must satisfy all the three conditions in Ladd v Marshall before the Court will exercise its discretion to allow the Company to adduce this new evidence.

(1)  First condition: Evidence could have been obtained with reasonable diligence

27.  Mr. Yuen SC (together with Ms. Yuen) for the Company, submitted that :

i)  the winding‑up proceedings were in limbo from January to October/November 2020 due to another set of proceedings in the BVI concerning the parties and the Company’s striking‑out application was adjourned to October 2021 due to the liquidators’ failure to draw the Court’s attention to issues of conflict. In the limited time in late 2020 after PBM confirmed that it would continue to prosecute the petition and before the deadline for the Company to file its evidence in support of its striking-out application, Mr. Chu repeatedly approached his former fellow directors from the BBGH/Guangxi BBG side to see if they would be willing to provide evidence through an affirmation or other means, but none of them was willing to do so.

ii)  Mr. Chu then approached Ms. Zhou from Guangxi BBG (albeit not a former director) and Ms. Zhou indicated that she might be amenable to provide an affirmation for the Company. However, Ms. Zhou was unable to get internal approval to do the same.

iii)  It was only after the Judgment was given that Ms. Zhou considered there was a pressing need to make an affirmation and this time she was able to obtain internal clearance from Guangxi BBG to do so.

iv)  The Chinese New Year (‘CNY’) holidays in 2022, the serious wave of COVID-19 and the General Adjournment Period (‘GAP’) from early March to mid-April 2022 further created difficulty for the Company to file the present applications.

28.  Mr. Joffe SC (together with Mr. Ho and Mr. Ng) for PBM submitted that the Company had two years between the issuance of the petition on 23 August 2019 and the hearing below on 20 October 2021 to prepare its evidence. Furthermore, the Company did not provide supporting documents to its assertion that no director from BBGH/Guangxi BBG was willing to make an affirmation and that Ms. Zhou failed to obtain clearance at the first time. The exhibits referred to in Zhou’s Affirmation could have been obtained with reasonable diligence for the purposes of the hearing below. They are predominantly internal documents of the Company and its wholly owned subsidiaries. The Company did not provide an explanation why such documents could not have been adduced at the hearing below.

29.  We are of the view that the Company had sufficient time to adduce this evidence to be used at the hearing below after it took out the striking out summons on 22 October 2019. The Company could have approached the directors of BBGH/Guangxi BBG to make an affirmation in late 2019. Even if the winding‑up proceedings was in limbo from January to October/November 2020, this should not preclude the Company from preparing their evidence in these proceedings.

30.  We do not accept that the CNY holiday and the GAP further delayed the filing of the New Evidence Summonses. Zhou’s Affirmation was signed on 21 January 2022 and notarised on 24 January 2022. Even if the serious wave of COVID‑19 began in February 2022, the Company could have issued the present applications immediately after the GAP ended in mid‑April, but they were only issued on 13 June 2022.

(2)  Second condition: The new evidence has an important influence on the outcome of the case

31.  Mr. Yuen submits that the Zhou’s Affirmation can support Grounds 1 and 2 for the following reasons :

i)  According to Zhou’s Affirmation, the Shareholders’ Loans (including the PBM Loan) totalling over US$74 million advanced for shipping purposes were in the nature of significant, fixed asset investment tied down in assets in the form of the Vessels. Hence, the repayment of the Shareholders’ Loans (including the PBM Loan) was subject to the approval of the Company’s general and board meetings, and neither BBGH nor PBM could unilaterally demand repayment; and

ii)  Ms. Zhou referred to the back-to-back securities provided by the Company together with its shareholders and vessel-holding subsidiaries to secure the bank facilities for shipbuilding. Therefore, it does not make commercial sense that BBGH or PBM could unilaterally demand repayment of the very substantial loan as aforesaid at any time, for that could place the Company or its subsidiaries in financial crisis and trigger enforcement actions by creditors against the security provider.

32.  Mr. Yuen submits that Zhou’s Affirmation also supports Ground 3. Ms. Zhou was a participant of the December 2015 Meetings and the draftsman of the resolution which stated that the resolution was reached ‘after having communicated with the representatives of both shareholders [PBM and BBGH]’. Hence, she can confirm that the decisions/agreements reached at the December 2015 Meetings were binding on the Company’s two shareholders i.e. PBM and BBGH.

33.  We do not accept that the Zhou’s Affirmation has an important influence on the outcome of these appeals. The second condition of Ladd v Marshall is not satisfied. Ms. Zhou admitted that she did not fully participate in the Company’s affairs prior to 2014. She did not attend the Company’s general meeting on 23 August 2010 when the Alleged Agreed Treatment was allegedly reached and was not involved in the affairs of the Company when the PBM Loan was advanced in 2010 and 2011. She was not a director of the Company or BBGH, and she was only an employee of Guangxi BBG (an indirect shareholder of the Company) making Zhou’s Affirmation in her personal capacity. She did not have the personal knowledge of how the Alleged Agreed Treatment was allegedly reached in August 2010. She only formed her views on the Alleged Agreed Treatment based on the Company’s records. We do not accept the personal view of Ms. Zhou on the size of the Shareholders’ Loans and the potential triggering of enforcement actions would support the existence of the Alleged Agreed Treatment.

34.  Moreover, the minutes and resolutions of the December 2015 Meetings were part of the evidence at the hearing below and their contents were already considered by the Judge. Except the preamble in the resolutions of December 2015 that ‘after communications with representatives of both shareholders, and resolved as follows…..’, there is nothing to suggest that the shareholders of the Company agreed to the said resolutions. Hence, Ms. Zhou’s personal opinion will not add anything more to the Company’s argument that an error had been made by the Judge nor will it take the Company’s case any further.

(3)  Third condition: The new evidence must be credible

35.  Since the Company does not satisfy the first and second conditions, there is no need to consider the third condition consequently.

36.  For the above reasons, we refuse to allow Zhou’s Affirmation to be adduced as new evidence.

2)  Lau’s witness statement

37.  Lau’s witness statement was filed by Mr. Lau on 4 January 2022 in another set of proceedings HCA 228/2017 between Mr. Chu and Mr. Lau to which the Company is not a party. The Company wishes to adduce Lau’s witness statement to support its proposition that the PBM Loan was not repayable on demand simpliciter because it says that, even according to Mr. Lau, the repayment terms of the PMB Loan were conditional in nature. The Company relies specifically on [61] of Lau’s witness statement.

‘ My understanding was that the shareholder loans were advanced to [the Company] specifically for the purchase of 6 dry bulk vessels by the BBG Group, and that the shareholder loans were to be interest free and repayable by [the Company] upon the demand of the relevant shareholder, subject to the requirements of [the Company]/the BBG Group to use such amount of the shareholder loans for the purchase of the 6 dry bulk vessels.’ (emphasis added)

38.  Mr. Yuen argued that the Ladd v Marshall requirements does not apply to Lau’s witness statement as it was only available after the hearing below : Order 59, rule 10(2) of the Rules of the High Court, Cap. 4A and Man Wa Tong v Shih Chao Jung and ors [2021] HKCA 1597 at [22]‑[23].

39.  We will refuse the application to adduce Lau’s witness statement because [61] of Lau’s witness statement is the same as [30] of the First Affirmation of Lau Wing Yan in BVIHC (Com) 2015/0065 dated 27 May 2015, which was placed before the Judge at the hearing below. [61] of Lau’s witness statement will add nothing more to the existing evidence. There is no reason why the Company cannot rely on [30] of Lau’s 1^st BVI Affirmation. Strictly speaking what Mr. Lau said at [61] of his witness statement is not a matter which has occurred after trial. Even if it is, its admission is still subject to the Court’s discretion (as accepted by the Company). As it adds nothing to the existing evidence, we will not allow it to be adduced as new evidence.

VII. Conclusion

40.  The applications are dismissed.

41.  We will make an order nisi that the costs of applications be to PBM with certificate for two counsel. We will assess the costs summarily upon the Company filing within ten days its objection to PBM’s statement of costs dated 4 August 2022.