BGA HOLDINGS LTD (IN LIQUIDATION) (formerly known as BEIBU GULF OCEAN SHIPPING (GROUP) LTD AND OTHERS v. CHU KONG AND OTHERS

HCA 631/2022

[2025] HKCFI 1671

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 631 OF 2022

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D E C I S I O N

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1.  Introduction

1.1  By their summons dated 5 December 2023, the Plaintiffs seek (1) a worldwide Mareva injunction against the 1^st Defendant (“D1”)[1] and his son the Intended 12^th Defendant (“Chu Jr”) and (2) a proprietary injunction against D5 and D6. The monetary limit sought to be imposed against D1 is in a very substantial sum of US$94.2 million, premised on 2 allegedly wrongful transactions termed the “Ausca Transaction” and the “Lohas Transaction”.

1.2  The application against Chu Jr was adjourned sine die with liberty to restore and the application against D5 and D6 was disposed of by way of undertakings.

1.3  This is my decision on the Plaintiffs’ application against D1 (“Application”). At the hearings, the Plaintiffs were represented by Mr Victor Joffe SC (leading Messrs Justin Ho, Jonathan Ng and Sik Chee Ching) and D1 by Mr Wong Yan Lung SC (leading Messrs Julian Lam and Byron Chiu).

1.4  The Application is somewhat usual. The Plaintiffs’ complaints against D1 took place in 2016 and 2017 and they represent one facet of a longstanding and expansive legal battle between D1 and Mr Lau Wing Yan (“Mr Lau”) which has spawned at least 33 sets of legal proceedings and has been described by various judges as an acrimonious corporate divorce. Although these proceedings are pursued by the liquidators of P1 (“BGAH JLs”), it is acknowledged by Mr Joffe that the dynamics of the present proceedings is that D1 and Mr Lau are the 2 protagonists. The Application was taken out on an inter-partes basis in December 2023 when these proceedings were commenced by way of a protective writ issued on 27 May 2022. Whilst it is common ground that the court should not embark upon a mini-trial on affidavit evidence, very extensive submissions were lodged by counsel teams to debate whether a good arguable case has been made out.

1.5  As is trite, the existence of a good arguable defence does not necessarily negate a good arguable case. In my view, it is unnecessary to deal with various aspects of counsel’s submissions in the level of details which counsel might think they deserve. For the reasons set out below, despite the fact that I am of the view that the Plaintiffs have demonstrated a good arguable case on liability, the Application should be dismissed principally on the bases that the Plaintiffs have failed to demonstrate (1) a good arguable case on quantum in relation to the Ausca Transaction to justify the monetary limit of US$94.2 million and (2) generally and perhaps more weightily there is a risk of dissipation of assets.

2.  Background[2]

2.1  Mr Lau and D1 used to be partners in a substantial shipping business. Ocean Sino Ltd (“OSL”) was a company they incorporated in the BVI as equal shareholders and they were its directors. Pacific Bulk Asset Management Ltd (“PBM”), incorporated in Hong Kong, was a wholly-owned subsidiary and they were also the directors of PBM.

2.2  P1 was set up in December 2009 as a joint venture between PBM (49%) and Beibu Gulf Holding (Hong Kong) Co Ltd (“BBGH”). BBGH was the Hong Kong subsidiary of Guangxi Beibu Gulf International Port Group Ltd, a PRC state-owned enterprise (“Guangxi BBG”). To reflect their respective ownerships, at the outset, PBM nominated 2 directors to the board of P1, namely Mr Lau and P1, and 3 directors were nominated by BBGH.

2.3  P1 was formed to carry on 3 lines of businesses, namely (1) investment in dry bulk vessels, (2) dry bulk chartering business which was carried on by a wholly-owned subsidiary Beibu Gulf Shipping Ltd (“BBG Shipping”) and (3) dry bulk trading business which was carried on by another wholly-owned subsidiary Beibu Gulf Resources Ltd (“BBG Resources”).

2.4  In the course of its operations, P1 obtained funds by way of capital injections and loans, the bulk of which was used for daily operation reserve and the acquisition of dry bulk vessels. PBM and BBGH made capital injections into P1 (in the respective sums of US$9,800,000 and US$10,200,000) and advanced additional shareholders’ loans in the respective sums of US$36,298,272 (“PBM Loan”) and US$37,779,833.24 (“BBGH Loan”). Of the foregoing sums, US$5,000,000 was paid to BBG Shipping as its share capital.

2.5  In relation to the acquisition of dry bulk vessels by P1, relevant to the Application are 2 vessels, namely MV BBG Hope and MV BBG Glory (collectively “Relevant Vessels”):

(1)  MV BBG Hope was held by Hope BBG Shipping Ltd (“Hope BBG Shipping”) which was a wholly-owned subsidiary of P2 which was in turn wholly-owned by P1;

(2)  MV BBG Glory was held by Glory BBG Shipping Limited (“Glory BBG Shipping”) which was a wholly-owned subsidiary of P3 which was in turn wholly-owned by P1.

2.6  The acquisition and construction of the Relevant Vessels were financed by, inter alia, banking facilities (“CS Facility”) secured by mortgages over the Relevant Vessels.

2.7  Between 2012 and 2013, in addition to the Relevant Vessels, two other vessels, namely MV BBG Endeavor and MV BBG Bright were completed and delivered to P1. The acquisition and construction of these vessels were financed by loans granted by another bank (“BNP Facility”).

2.8  In late 2013, the relationship between Mr Lau and P1 deteriorated and eventually broke down.

2.9  On 27 May 2015, Mr Lau commenced proceedings in the Commercial Division of the Eastern Caribbean Supreme Court (“BVI Commercial Court”) to wind up OSL on the basis that there was deadlock at the shareholder and director levels and on just and equitable grounds. OSL was ordered to be wound up on 29 June 2017, which order was subsequently set aside on appeal on 17 January 2020 but restored by the Privy Council on 12 October 2020.

2.10  In the meantime, as stated on the website of BG Shipping Co Ltd (“BG Shipping”), it was set up by Guangxi BBG in September 2015, foreshadowing the eventual (and undisputed) “withdrawal” of BBGH/Guangxi BBG from their involvement in P1.

2.11  At a board meeting of P1 held on 15 and 16 December 2015 (“December 2015 Board Meeting”), it was resolved that:

(1)  P1 agreed to sell to BBGH two of the vessel-holding companies holding MV BBG Bright and MV BBG Endeavor, by setting off the BBGH Loan against the purchase price, and any remaining balance of the BBGH Loan would be paid to BBGH;

(2)  P1 agreed to apply the PBM Loan to discharge the CS Facility, with the remaining balance to be paid into an escrow account for the benefit of PBM. After the difference between the PBM Loan and the value of MV BBG Hope and MV BBG Glory was paid by PBM, the shares in Hope BBG Shipping and Glory BBG Shipping would be transferred to PBM.

2.12  The December 2015 Board Meeting was attended by Mr Lau, D1, Mr Zhou Xiaoxi ("Mr Zhou") and Mr Ma Zhengguo ("Mr Ma"). Mr Zhou and Mr Ma were the directors nominated by BBGH[3].

2.13  On 7 January 2016: (1) BBGH acquired the vessel holding companies holding MV BBG Bright and MV BBG Endeavor and (2) Bright Good (Asia) Limited (“Bright Good”) purchased BBGH’s 51% interest in P1 at the consideration of US$21,338,965.08.

2.14  On 5 February 2016, Bright Good transferred 6% of its shareholding in BGAH to Polyrise Team Limited (“Polyrise”). After Bright Good and Polyrise became shareholders of P1:

(1)  D8 and D9 were appointed as directors of P1 and the directors nominated by BBGH resigned on 5 February 2016;

(2)  Mr Lau was removed as a director on 10 March 2016;

(3)  D7 was appointed to replace D9 on 21 June 2016;

(4)  D1 ceased to be a director on 12 June 2017.

3.  Procedural history

3.1  The Application is supported by the 2^nd and 6^th Affidavits of Mr John Nicholas Greenwood (“Mr Greenwood”).

3.2  Mr Greenwood is and was at all material times one of the joint liquidators of OSL (“OSL JLs”). Following their appointment, the OSL JLs took control of PBM and carried out investigations into P1’s affairs.

3.3  On 23 August 2019, upon taking legal advice, PBM issued a petition to wind up P1 (“BGAH Petition”) on insolvency grounds as well as just and equitable grounds, which included pleas relating to the Ausca Transaction and the Lohas Transaction.

3.4  On 22 October 2019, P1 applied to strike out the BGAH Petition, which application was dismissed by Anthony Chan J on 26 November 2021 (“Strike-Out Decision”). BGAH was subsequently wound up on 6 December 2021 on insolvency grounds[4].

3.5  After P1 was wound up, there were disagreements on the identity of the liquidators to be appointed. Eventually, on 13 January 2023, Master Rita So appointed Mr Greenwood (and 2 others) as the BGAH JLs.

3.6  Whilst the appointment of P1’s liquidators was pending, PBM made an urgent application in May 2022 for leave to issue the writ in the present action, which application was allowed on 19 May 2022.

3.7  Following the appointment of the BGAH JLs in January 2023, they have taken control of P2 and P3. The protective writ was served on the Defendants in around May 2023, and the Statement of Claim was filed on 3 November 2023. The Summons was subsequently issued on 5 December 2023.

4.  The Plaintiff’s claims against D1

4.1  As summarized by Mr Joffe, the Plaintiffs’ claims against D1 are premised on an allegation that D1 had misappropriated assets and businesses from P1 and its subsidiaries (“Group”) by reference to Ausca Transaction and the Lohas Transaction. Central to the Plaintiffs’ claim is the allegation that D1 secretly acquired control of BBGH’s 51% interest in P1 behind Mr Lau’s back, and with his newfound control, D1 then populated the board of P1 with his nominees and removed Mr Lau as director.

4.2  Only by way of background (and not for the purpose or raising any estoppel arguments), Mr Joffe refers to a number of observations made by the Privy Council in its judgment restoring the winding-up of OSL:

“ [28] … it was resolved at board level in [P1] in December 2015 [ie the December 2015 Board Meeting] that its four ships would be divided equally between PBM and [BBGH]. Mr Chu [D1] then engineered what he called a re-financing of the two ships due to be transferred to PBM (called the Lohas Transaction) which, although taking place primarily at the [P1] level, involved what the judge held to be a commitment of valuable assets of PBM without authority and behind Mr Lau’s back.

[29] In January 2016 [BBGH] sold its interest in [P1] to [Bright Good] which in February 2016 sub-sold a 6% stake in [P1] to [Polyrise]. Mr Lau claimed, and the judge found, that Mr Chu and associates beneficially owned [Bright Good] and Polyrise, which then combined at shareholder level in [P1] to remove Mr Lau as a director, and then to sell its ship chartering and commodity trading businesses to [D2] [ie the Ausca Transaction], a company beneficially owned by [Chu Jr]. The judge held that the acquisition of control of [P1] by [Bright Good] and Polyrise, without disclosure of his interest, may arguably have amounted to a breach by [D1] of his fiduciary duty to PBM and OSL.

[79] [Reciting the findings of the first instance judge] The judge went on to summarise his relevant findings on just and equitable winding up as follows:

‘ C. [D1] had managed to engineer, in my judgment, a situation whereby he, or associates of his, seized effective overall control of [P1] by [Bright Good] and Polyrise in order to exclude Mr Lau from any participation in management (via OSL and PBM) of PBM’s 49% interest in [P1] and, thereby in its subsidiaries. All this was done or engineered by D1 (in breach, it might well be said, of his fiduciary obligations to his partner in OSL, Mr Lau) without properly or fully informing Mr Lau despite his personal interest via PBM’s 49% share and his own 50% share in OSL. He removed, or secured the removal of Mr Lau as director of [P1] and its subsidiaries, and diverted the two operating subsidiaries (BBG Shipping and BBG Resources) to a company, [D2], which he now accepts is owned by [Chu Jr] and of which he is a director and moreover without any cogent due diligence or any approach or explanation to Mr Lau [ie the Ausca Transaction] …

D. Moreover, he caused PBM, without PBM’s and Mr Lau’s true knowledge or consent, to participate in a re-financing transaction (the Lohas Transaction), to its detriment; …’”

(i)  The Ausca Transaction

4.3  On 23 May 2016, the board of P1 passed resolutions resolving to sell BBG Shipping and BBG Resources to D2 at the consideration of US$5,000,000 and US$100,000 respectively. At that time, Mr Lau had already been removed from the board of P1 and the directors were D1, D8 and D9. D1 abstained and only D8 and D9 voted on the resolutions. It is not in dispute that Chu Jr had an interest in and was a director of D2. According to the relevant minutes, that was the stated reason for D1’s abstention at the meeting.

4.4  The US$5.1 million figure was achieved by a purported accounting treatment (“Purported Accounting Treatment”), involving BBG Shipping and BBG Resources declaring dividends in the amount of US$24,936,070 and US$208,794 respectively (totalling US$25,144,864), which would bring down the “equity” of the 2 companies respectively to US$5,000,000 and US$100,000 (ie to the par value of the registered share capital of the 2 companies).

4.5  The Plaintiffs say that the Ausca Transaction was wrongful for at least 3 reasons. First, there was a clear case of conflict. Secondly, the transaction was structured in an uncommercial way. Thirdly, the transaction was entered into at a serious undervalue.

4.6  In terms of conflict of interest, Mr Joffe elaborates as follows:

(1)  As a director of P1, Mr Chu owed a fiduciary duty to act in the best interests of P1, and in particular, the duties not to place himself in a position where there was real possibility of conflict and not to profit by virtue of his position as a director;

(2)  D2 did not pay the US$5.1 million consideration with its own funds. Instead, the funds came from Pacific Logistics CN‑Net Limited, a company owned and controlled by D1;

(3)  Despite D1’s attempt to suggest that Chu Jr was operating his own business, there is good reason to believe that Chu Jr was merely acting as nominee of D1 and that D2 was in reality a company controlled by D1;

(4)  The evidence shows that D8 and D9 were in fact nominees of D1;

(5)  Despite D1 alleging that the Ausca Transaction was entered into after Chu Jr negotiated with P1, the BGAH JLs have not been able to find any documentary evidence (and none has been provided by D1) showing that P1 had engaged in arm‑length negotiations, or that D2 had conducted any due diligence, or that P1 had obtained any independent legal advice. Given the size and the complexity of the transaction, this is highly irregular. The irresistible inference is that the Ausca Transaction was not a genuine commercial deal, but part of D1’s scheme to divest P1’s businesses to himself / Chu Jr.

4.7  On the allegation that the Ausca Transaction was structured in an uncommercial way, Mr Joffe submits as follows:

(1)  The Purported Accounting Treatment involving a declaration of dividends was highly artificial. BBG Shipping only had US$14,036,749 in the form of available cash as at 31 December 2015. Likewise, BBG Resources only had net equity in the amount of US$138,856 as at 31 December 2015. Declaring the dividends would have had a severe impact on BBG Shipping and BBG Resources’ financial position;

(2)  D1 has no answer as to why the Ausca Transaction was structured this way, ie by declaring substantial dividends. His position is that he did not participate in the decision‑making process;

(3)  It is the Plaintiffs’ case that P1 never received the promised dividend of US$25,144,864. The only evidence on the dividends were two letters dated 31 August 2016, purporting to show that BBG Shipping and BBG Resources had declared dividends in the amount of US$835,199.34 and US$38,856 respectively (totalling US$874,055.34). These letters purported to suggest that the entirety of the US$25,144,864 outstanding dividends had been settled;

(4)  The remaining sum, approximately US$24 million (US$25,144,864 – US$874,055.34) is missing. Despite extensive investigations by the BGAH JLs, it is not clear where the cash went. The BGAH JLs are only in a position to say that this remaining sum was purportedly settled by (i) assigning receivables due to BBG Shipping to P1, (ii) creating a receivable due from BBG Shipping to P1, and (iii) offsetting receivables purportedly due from P1 to BBG Shipping. In other words, a significant sum of cash due to P1 was purportedly settled by a series of accounting treatments moving money on paper, which the BGAH JLs were (and remain) unable to verify.

4.8  As regards the allegation that BBG Shipping and BBG Resources were disposed of at a serious and gross undervalue, Mr Joffe explains as follows:

(1)  In anticipation of the Ausca Transaction, P1 procured a purported valuation report issued by Jones Lang LaSalle Corporate Appraisal and Advisory Limited (“JLL Report”) dated 14 March 2016, which valued BBG Shipping and BBG Resources at US$1,902,570 and US$33,857 respectively;

(2)  The JLL Report did not set out how it arrived at the valuations. It appears to be heavily based on the financial forecast of the two companies provided in Appendix C of the report, that is, projections which were provided by the management. Those forecasts assumed that BBG Shipping would be substantially loss making in the years between 2016 and 2019;

(3)  However, a valuation report dated 20 November 2023 which the BGAH JLs obtained from FTI Consulting (Hong Kong) Ltd (“FTI Report”) valued BBG Shipping at around US$83.1 million as of 31 December 2015, a few months before the Ausca Transaction. This independent valuation report is the clearest evidence that the Ausca Transaction was effected at an undervalue. The net result was that for disposing of two subsidiaries that were worth at an independent valuation over US$83 million to a related party, P1 only received US$5.1 million together with dividends of US$874,055.34;

(4)  In order to justify the result in the JLL Report, D1 tries to say that BBG Shipping had no future; that the company would go downhill because (i) BBGH began its own dry bulk shipping and logistics business in 2015; and that (ii) BBG Shipping and BBG Resources could not have carried on their business model after BBGH’s exit;

(5)  In opposition to the Application, D1 procured a valuation report from Grant Thornton Advisory Services Limited dated 2 May 2024 (“GT Report”), which values: (a) BBG Shipping at US$1,095,557 and US$29,916,071, excluding and including cash and balances due to and from related parties and (b) BBG Resources at nil and US$138,856, excluding and including cash and balances due to and from related parties;

(6)  The GT Report is not helpful in dismissing concerns that the Ausca Transaction was at an undervalue, principally because it takes for granted D1’s assumption of a “Fundamental Change”, namely D1’s own outlook as to why BBG Shipping and BBG Resources were not viable businesses;

(7)  Indeed a key criticism of the FTI report by the GT Report was that it did not take into account the “Fundamental Change”, ie D1’s own view of the outlook of BBG Shipping and BBG Resources;

(8)  He emphasizes that the precise business prospects of BBG Shipping and BBG Resources are not something that can be resolved at the interlocutory stage.

(ii)  The Lohas Transaction

4.9  It is the Plaintiffs’ case that the Lohas Transaction constituted a complex scheme to strip away from P1’s subsidiaries their principal assets, namely MV BBG Hope and MV BBG Glory.

(1)  As stated earlier, the purchase of the Relevant Vessels was financed by the CS Facility;

(2)  On 28 December 2015, a loan agreement was executed between (a) P2, P3, Hope BBG Shipping, and Glory BBG Shipping as borrowers and (b) D3 as lender, whereby D3 agreed to make available a term loan to the borrowers (“Premier Bright Loan”). The purpose of the Premier Bright Loan was to enable repayment of the CS Facility;

(3)  The Premier Bright Loan was initially secured by P2 and P3 mortgaging their respective shares in Hope BBG Shipping and Glory BBG Shipping (“Hope and Glory Share Mortgages”);

(4)  The evidence suggests that there was a drawdown of US$9.1 million (“1^st Drawdown”), and the CS Facility was apparently fully repaid on 29 December 2015;

(5)  Nevertheless, on around 23 May 2016, D3 and the borrowers agreed to another drawdown of US$8.7 million (“2^nd Drawdown”). The parties executed an addendum to the Premier Bright Loan (“Addendum”), whereby the borrowers agreed to grant further security for this 2^nd Drawdown. In this regard, further security was executed, including (i) mortgages over MV BBG Hope and MV BBG Glory (“Ship Mortgages”) in favour of D4, as nominee of D3; and (ii) mortgages over P1’s shares in P2 and P3 in favour of D3 (“Shining and Palace Mortgages”);

(6)  A month later, in around June 2016, the borrowers allegedly defaulted on their minimum repayment obligations under Clause 6.1(a) of the agreement for the Premier Bright Loan, notwithstanding that these only required a payment of US$250,000 (“Clause 6.1(a) Repayment”);

(7)  In June 2017, D4 purported to enforce the Hope and Glory Share Mortgages, thereby obtaining control over Hope BBG Shipping and Glory BBG Shipping;

(8)  In around July 2017, Hope BBG Shipping and Glory BBG Shipping attempted to sell the Relevant Vessels to Raffles Shipping International Pte Ltd (“Raffles”) at US$14.5 million each. The sale fell through in light of Mr Lau’s challenge to the Premier Bright Loan, which was widely reported in the industry;

(9)  Nevertheless, in around August 2017, Hope BBG Shipping and Glory BBG Shipping managed to sell the Relevant Vessels to D5 and D6, at a consideration of US$11 million each.

4.10  In so far as relevant to the Application, the Plaintiffs say that the Lohas Transaction was wrongful for at least the following reasons:

(1)  There was no commercial justifications for entering into the Lohas Transaction;

(2)  The Relevant Vessels were sold to D5 and D6 at a significant undervalue.

4.11  On the allegation of no commercial justification, Mr Joffe’s submissions may be summarized as follows.

4.12  First, there was no sensible commercial rationale to enter into the Premier Bright Loan and the Hope and Glory Share Mortgages in December 2015 since P1 had sufficient funds to discharge the CS Facility. For the year ended 31 December 2015, the Group’s bank balances and cash stood at US$20,048,128 after the CS Facility had been discharged on 29 December 2015. As such, it was unnecessary for P1 to enter into the Premier Bright Loan or apply for the 1^st Drawdown in the sum of US$9.1 million to discharge the CS Facility.

4.13  Secondly, the Addendum, the Shining and Palace Mortgages and the Ship Mortgages and the 2^nd Drawdown in the sum of US$8.7 million in May 2016 were commercially inexplicable. Given that the CS Facility had already been repaid, there was no apparent reason why the borrowers needed the 2^nd Drawdown.

4.14  Thirdly, the purported default in the Clause 6.1(a) Repayment in the sum of US$250,000 by the borrowers on the Premier Bright Loan shortly after the Addendum was executed was artificial and engineered. Given that the borrowers had just applied for the 2^nd Drawdown in the sum of US$8.1 million in May 2016, it is incomprehensible that there would be a default immediately in June 2016.

4.15  Fourthly, there are reasonable grounds to believe that the transactions relating to the Premier Bright Loan were not at arms-length and that D3 only acted as D1’s front.

4.16  Fifthly, it is highly doubtful that the enforcement actions purportedly taken by D3 and/or D4 were in fact genuine. Instead, they evince a dissipation of P1’s assets.

(1)  On around 9 June 2017, a meeting allegedly took place between representatives of P1, D1, D3 and D4, whereby the parties reached an in-principle agreement that, inter alia, Shining and Palace would purportedly be sold by P1 to a company designated by D1. The net effect of the arrangement would be that MV BBG Glory and MV BBG Hope would be transferred to entities under D1’s control, which was highly unusual;

(2)  The foregoing arrangement did not materialize. Instead, shortly after the BVI Commercial Court had circulated a draft judgment in the BVI Winding-Up Proceedings on 21 June 2017, D4 purported to enforce the Hope and Glory Share Mortgages, which ultimately resulted in the divestment of Hope BBG Shipping and Glory BBG Shipping to D3 on or around 30 June 2017. It cannot be a coincidence that the enforcement actions took place immediately after the draft judgment was circulated, when the default on the Premier Bright Loan had purportedly occurred a year previously, in June 2016;

(3)  Almost immediately thereafter, on around 5 July 2017, D3 procured Hope BBG Shipping and Glory BBG Shipping to enter into contracts of sale with Raffles for the sale of the Relevant Vessels at the purchase price of US$14,550,000 per vessel. The extremely short timeframe between the enforcement of the Hope and Glory Share Mortgages and the sale to Raffles is alarming. This is suggestive of an attempt to quickly liquidate the assets, which could then be dissipated with ease;

(4)  However, as a result of Mr Lau’s challenge to the Premier Bright Loan, the sale to Raffles eventually fell through. This was widely reported by Tradewinds, a leading shipping industry publication in July and August 2017;

(5)  The collapse of the deal with Raffles did not deter the plan to immediately dissipate the Relevant Vessels. Shortly thereafter, on or around 15 August 2017, MV BBG Hope and MV BBG Glory were purportedly acquired by D5 and D6 at the consideration of US$11 million each. The bona fides of the sale of the Vessels is highly questionable.

4.17  Sixthly, in order to justify the Lohas Transaction, D1 places heavy emphasis on an alleged tripartite agreement between P1, BBGH and PBM to the effect that, inter alia, PBM would acquire MV BBG Glory and MV BBG Hope (“Alleged Vessel Purchase Agreement” or “Tripartite Agreement”). Mr Joffe says that this argument is devoid of any merit for the following reasons:

(1)  Regardless of whether the Alleged Vessel Purchase Agreement actually existed, or whether there was any breach of the agreement by PBM, the short point is that the Lohas Transaction could not be justified. Even if PBM had not acquired the Relevant Vessels, it was perfectly possible for P1 to dispose of the Relevant Vessels at their fair market value, as opposed to on a mortgagee sale basis;

(2)  Further, D1’s attempt to relitigate the issue of the existence of the Alleged Vessel Purchase Agreement amounts to a collateral attack on the Strike-Out Decision and is impermissible.

4.18  On the allegation that the sale of the Relevant Vessels was at significant undervalue, the BGAH JLs rely on a vessel valuation provided by Mr Paul Willcox dated 31 July 2024 (“Willcox Report”) which opined that the fair market value of the Relevant Vessels as at August 2017 was not less than US$17.9 million each, which is consistent with valuations prepared by Arrow Valuations and Navitaship ApS (which were contemporaneous valuation reports obtained by Mr Lau), which valued the Relevant Vessels at around US$17-18 million each as at June to September 2017. The Willcox Report further opined that the purported sale price of the Relevant Vessels (US$ 11 million each) was considerably lower than (i) the liquidation sale values at around US$16.1-17.5 million each or even (ii) the forced liquidation value at around US$13.5 million each.

4.19  D1 has engaged Mr Jagmeet Singh Makkar as vessel valuation expert. Mr Makkar opined, inter alia, that “normal market value” of the Relevant Vessels would be around US$15-16 million each in around mid‑August 2017; and that it was difficult to say that the mortgagee sale price of US$11 million per vessel was below the reasonable range of prices that could be achieved given the circumstances and market reports.

4.20  Mr Joffe points out that, as noted by Mr Willcox, Mr Makkar had failed to take into account relevant comparables in calculating the “normal market value” as well as “the mortgagee sale price”. As a result, Mr Makkar has given a lower valuation of the Vessels. He submits that, in view of Mr Willcox’s reasoned opinion, there must at least be a good arguable case that the Relevant Vessels were sold at an undervalue.

5.  Overview of D1’s case

5.1  In his very comprehensive submissions, Mr Wong says that the Application should be dismissed for the following reasons.

5.2  First, the Application should be dismissed on the ground of inordinate delay alone and/or the inordinate delay being a powerful reason negating any alleged real risk of dissipation of assets.

5.3  Secondly, the BGAH JLs are unable to demonstrate a real risk of dissipation of assets. There is simply no evidence of D1 putting his assets beyond reach. There is no evidence of any suspected acts of dissipation of assets, not to mention any dissipation with an intention or for the purpose of defeating the plaintiff's claim. The BGAH JLs are relying primarily on alleged low commercial morality based on D1’s conduct as alleged in their substantive pleaded claim to infer a risk of dissipation of assets. In this regard, Mr Wong refers to the observation of the Court of Appeal in Canton Plus Enterprise Ltd v Tong Zhenjun [2021] HKCA 1251, in which it was emphasized that the context of the extensive legal disputes between Mr Lau and D1 should be borne in mind, and cannot be shortcut by the accusation of “extremely low commercial morality”.

5.4  Thirdly, the BGAH JLs have failed to show a good arguable case of their claims on either liability or quantum. Mr Wong in his original written materials made extensive submissions on liability issues. However, as I understand his oral submissions, his focal points are as follows.

5.5  In relation to the Ausca Transaction, Mr Wong’s principal point is that the BGAH JLs have failed to demonstrate a good arguable case that it was transacted at an undervalue. The Plaintiffs’ claim, quantified at approximately US$77 million (§4.8(3) above) rests solely on the valuation in the FTI Report, which was conducted on the basis of the income approach (assuming past performance was to continue) and ignored the “Fundamental Change”, namely the effect of the withdrawal of Guangxi BBG and its new business of BG Shipping on the Group’s dry bulk shipping business including that chartering business of BBG Shipping.

5.6  In relation to the Lohas Transaction, in addition to arguing that the BGAH JLs have failed to demonstrate a good arguable case that it was transacted at an undervalue, Mr Wong further (1) takes a legal point that the claims by P2 and P3 are barred by the rule against reflective loss and (2) contends, factually, the Lohas Transaction was commercially justified and in the interest of P1.

5.7  Fourthly, Mr Wong says that the balance of convenience lies against the granting of the Application, as the monetary limit sought demonstrably has a crippling effect, in particular on D1’s ability to take part in the numerous ongoing legal proceedings with Mr Lau.

6.  The applicable principles

6.1  The principles governing Mareva injunctions are well established. The plaintiff has to establish that he has a good arguable case, that there is a risk of dissipation, and that the balance of convenience lies in favour of granting the injunction.

6.2  In Wu Jun v Captain Holdings Limited [2024] HKCFI 2184, Ng J summarized the relevant principles at §§42-45:

(1)  The threshold of “a good arguable case” is higher than “a serious issue to be tried”. But the applicant need not go so far as to persuade the Court that it is likely to win but it needs to show a case which is more than barely capable of serious argument, albeit not necessarily one that the judge believes to have a better than 50% chance of success;

(2)  Where a party opposes the continuation of the injunction at the interlocutory stage, the burden is on him to put up a defence and evidence of sufficient cogency so as to water down the merits of the applicant’s claim to an extent that it no longer amounts to a good arguable case;

(3)  The Court is not to resolve disputes of facts and difficult points of law on an interlocutory basis;

(4)  The existence of a “good arguable defence” does not necessarily negate a “good arguable case”. It is entirely possible to have, at the interlocutory stage, both the claim and the defence being more than barely capable of serious argument and not necessarily having a better than 50% chance of success. There is no requirement that the applicant for a Mareva injunction must show that he has a “much better” case or argument than the opposing party.

6.3  It is trite that a Mareva applicant bears the burden to demonstrate a good arguable case on both liability and quantum. In respect of quantum:

(1)  As stated at Ming Hsieh v Xu Zhe, CACV 189/2015, 28 September 2016, at §11, even if it can be shown to the necessary standard that the plaintiff is likely to make out its case on liability, it remains necessary to consider what the plaintiff is able to establish as to the likely level of damages to be awarded, as the injunction to be granted will be limited in its monetary extent by the latter issue;

(2)  Whether the applicant has a good arguable case as to quantum is to be determined qualitatively and not quantitatively (see Agritrade Resources Limited v Ashok Kumar Sahoo [2021] HKCFI 1605 at §§11-12 and [2022] HKCA 280 at §§36-37). As part of the qualitative assessment, the court may take into account factors such as the time that the applicant has had to formulate its claim: Universal Entertainment Corporation v Kazuo Okada [2020] HKCFI 1406 at §§68-79 and [2020] HKCA 995 at §§23-25.

6.4  On the issue of risk of dissipation, the burden is on the plaintiff to show objectively that there is a solid basis for concluding that there is a real risk of dissipation of assets by the defendant. That question is to be answered by examining the evidence holistically. Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant can point towards an inference of such risk: Convoy Collateral Ltd v Cho Kwai Chee [2020] 6 HKC 81 at §53. However, it must be emphasized that conduct which may be regarded as being of low commercial morality is not necessarily relevant to risk of dissipation, and where the underlying claim against a defendant involves dishonest or fraudulent conduct or other serious wrongdoings, it is still necessary to examine whether the conduct or wrongdoings in question is indicative of or relevant to the risk of dissipation: China Medical Technologies Inc (In Liquidation) v Samson Tsang Tak Yung & Ors [2022] HKCA 41 at §38. Some examples of low commercial morality which may be regarded as not necessarily relevant to risk of dissipation are: (1) putting up poor excuses to get out of a bargain, (2) breach of contract without solid evidence pointing to dishonesty or any attempts to conceal inventory or proceeds, and (3) coercion and duress.

6.5  As regards the issue of delay, at Convoy §§76-81, it is stated:

“[76] In this appeal, Mr S Wong very properly acknowledged the difficulty in overturning this part of the judgment in terms of the reasonableness on the CCL’s part to pursue such relief in BVI instead of Hong Kong. However, counsel submitted that the objective state of affairs was that Roy Cho was at liberty to dispose of his Hong Kong assets and the stable-door argument should militate against the grant of Mareva relief in Hong Kong. He drew our attention to the fact that other than his holding in Broad Idea, Roy Cho was not subject to any injunction in the BVI proceedings over his assets in Hong Kong.

[77] As identified by P Ng J in Re Chan Cham Wong Patrick [2016] 2 HKLRD 278, [2014] HKCU 1500 at [24], the underlying premise of the stable-door argument is that equity does not act in vain.

[78] It is also clear from the authorities that delay per se would not necessarily bar relief. The ultimate question is still whether the plaintiff could show a real risk of dissipation despite delay. A recent exposition of the relevant law is contained in the judgment of Jacobs J in PJSC National Bank Trust v Boris Mints [2019] EWHC 2061 (Comm) at [48] to [51] where recent English Court of Appeal judgments were discussed. In JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 906 at [34] Bean LJ endorsed the proposition that if the court is satisfied on the evidence that there remains a real risk of dissipation it should grant an order, notwithstanding delay, even if only limited assets are ultimately frozen by it.

[79] Thus, the significance of delay in each case must be considered on its own circumstances. There are no doubt cases where a defendant has little connection with and limited assets within Hong Kong, particularly when the assets could be easily removed. There are also cases where the fact that the assets remain here notwithstanding a defendant has knowledge of the claim for a long period of time can be evidence negating an inference of risk of dissipation. In those cases, an unexplained delay can be fatal. The authority cited by Mr S Wong, China Art Bank Co Ltd v Xu Zhiqiang [2018] HKCA 63, [2018] HKCU 447 is one of such cases.

[80] On the contrary, the delay in this instance is not unexplained and the stable door was not completely opened (secured as it were, at least with regard to Roy Cho’s holding in Broad Idea, by the BVI injunctions). Further, given the fact that the base of the defendant’s business empire is in Hong Kong and the scale and complexity of his financial affairs, we are satisfied that there is still a real risk of unjustified dissipation notwithstanding the lapse of time before the summons was issued on 25 June 2019.

[81] In short, we do not think equity will act in vain by the grant of Mareva relief. For these reasons, we rejected Mr S Wong’s arguments based on delay.” (emphasis added)

7.  The Ausca Transaction: Whether a good arguable case

7.1  As pointed out above, the focal point of Mr Wong’s submissions is BGAH JL’s failure to demonstrate a good arguable case on quantum. For avoidance of doubt, I am of the view that, on the evidence, the Plaintiffs have demonstrated a good arguable case on liability, namely that Bright Good, Polyrise, D8 and D9 were associates of D1 and the Ausca Transaction was not an arm’s length deal. However, as submitted by Mr Wong, the alleged mischief is principally still the disposal of BBG Shipping and BBG Resources at an undervalue.

7.2  Understandably, not much emphasis was placed on the disposal of BBG Resources by Mr Joffe. The FTI Report valued BBG Resources at US$138,856 and it was disposed of at US$100,000.

7.3  As I understand Mr Wong, his attack on the Plaintiffs’ case on quantum is not based on a contest between the relative reliability of the FTI Report (relied on by the Plaintiffs) and the GT Report (adduced by D1), but on the contention that the FTI Report was compiled on an indisputably incorrect (or blinkered) premise and, as such, there can be no good arguable case on the correctness of its valuation. Mr Wong emphasizes that the burden is on the Plaintiffs to demonstrate a good arguable claim to a particular figure which might be made the ceiling figure of any Mareva injunction granted, and it is not for the court arbitrability to pluck some figure from the air, in the particular circumstances where the Plaintiffs have had a long time to prepare for and prosecute the Application.

(i)  The FTI Report

7.4  The FTI Report is dated 20 November 2023 and compiled by Ms Edwina Tam (“Ms Tam”). §§1.5-1.10 thereof are in the following terms:

“[1.5] I am instructed that the essential background to this matter is as follows.

[1.6] BGAH was incorporated in December 2009 as a 49:51 joint venture between PBM and Beibu Gulf Holdings HK respectively.

[1.7] Of the funds injected by PBM and Beibu Gulf Holdings HK, some were used as share capital of BBG Shipping (as defined below) and the remainder to acquire vessels. In addition, BGAH utilised mortgage loans from external banks to acquire vessels. By 2013, BGAH, via its subsidiaries, had acquired and received four vessels (“Vessels”), namely the MV BBG Bright, MV BBG Endeavor, MV BBG Hope and MV BBG Glory.

[1.8] Apart from the four subsidiaries holding ownership of the Vessels, Beibu Gulf Shipping Limited (“BBG Shipping”) and Beibu Gulf Resources Limited (“BBG Resources”) were the main operating entities of BGAH prior to June 2016. BBG Shipping carried out the dry bulk chartering business while BBG Resources carried out dry bulk commodity trading activities. BGAH and its subsidiaries are hereinafter referred to as “BGAH Group”.

[1.9] On 23 May 2016, Cosmic Glory Limited (also known as Ausca Group Limited), purportedly entered into sale and purchase agreements with BGAH to acquire the entire issued share capital of BBG Shipping and BBG Resources for cash considerations of USD 5,000,000 and USD 100,000, respectively. The transaction closed on or around 31 May 2016. The total consideration paid of USD 5,100,000 was purportedly supported by a valuation report dated 14 March 2016 (“JLL Report”) issued by Jones Lang LaSalle Corporate Appraisal and Advisory Limited (“JLL”). The JLL Report assessed BGAH’s entire equity interest in BBG Shipping and BBG Resources as at 31 December 2015 as having market values of USD 33,857 and USD 1,902,570 respectively.

[1.10] On 27 May 2022, BGAH (and others) issued a writ action in HCA 631 /2022 seeking relief on the sale of BBG Shipping and BBG Resources.”

7.5  Despite the fact that the Ausca Transaction took place in May 2016, it is recorded at FTI Report §1.11 that:

“[1.11] For the purpose of HCA 631/2022, I am instructed to perform an independent valuation of BBG Shipping and BBG Resources as at 31 December 2015 (“Valuation Date”).” (emphasis added)

7.6  It is plain that Ms Tam was provided with only limited information:

“[1.12] In respect of the operating and financial performance, position and prospects of the BBG Shipping and BBG Resources, the information currently available is limited. In particular, the information provided was largely limited to historical financial information for a three-year period prior to the Valuation Date. I was not provided with any forward-looking information nor had access to management of BBG Shipping, BBG Resources or BGAH involved in their respective operations to gain further information as at the Valuation Date.

[1.13] I list the documents on which I have relied in the preparation of this report in Appendix 2.” (emphasis added)

7.7  Appendix 2 only includes (1) publicly available materials, (2) the audited reports and financial statements of BGAH, BBG Shipping and BBG Resources for the periods ended 31 December 2014 and 31 December 2015 and (3) audit work papers for BBG Shipping and BBG Resources.

7.8  Ms Tam adopted the income captitalization method as her primary approach in valuing BBG Shipping (FTI Report §2.2) and made a fundamental assessment that BBG’s Shipping’s historical level of income to be representative of future income (FTI Report §5.22).

7.9  It is notable that Ms Tam was made aware of the sale of MV BBG Bright and MV BBG Endeavor (although she did not specify the source of that information):

“[5.21] I also note that the sale of two of the four Vessels owned by BGAH two weeks prior to the Valuation Date. However, I assume that BBG Shipping’s prospects will not be materially impacted by the sale as:

(i) the sale does not preclude BBG Shipping from negotiating lease terms from the new owner of the relevant Vessels; and

(ii) BBG Shipping has leased alternative vessels since its inception and can continue to do so to service its voyage and time charter contracts.”

(ii)  Reliability of the FTI Report

7.10  Very extensive submissions have been made by counsel on the effect of the Fundamental Change, including submissions on whether adverse inference should be drawn. In my view, it is only necessary for me to take onboard the following matters.

7.11  First, the Fundamental Change involved the withdrawal of the majority joint venture partner from BGAH which took place after the Valuation Date. Mr Wong made extensive submissions on what was the business model at the time of the inception of the joint venture which was one which placed substantive reliance on the contribution of cargo flow from Guangxi BBH. Whilst Mr Joffee cautioned that the historical business model might not be representative of the state of affairs as at the May 2016 (ie the date of the disposal of BBG Shipping and BBG Resources), as a matter of common sense, it seems to me that that must have some impact on the Group’s business. Indeed, in his oral address, Mr Joffe accepted that the Fundamental Change would have an effect on the profitability of the Group.

7.12  As highlighted by Mr Wong, BBG Resources was dependent upon Guangxi BBG. As explained in D1’s affirmation:

“[24.2] BBG Resources, which up to the withdrawal of Guangxi Beibu Gulf from the joint-venture, carried on the business of trading of commodities under the BBG Brand in accordance with the JV Business. To the best of my recollection, one side of the vast majority (if not all) of the trading transactions was a Guangxi Beibu Gulf-related entity, including Fangchenggang Maple Grain and Oil Industrial Co., Ltd ("Fangchenggang"), a joint-venture between Guangxi Beibu Gulf and Viterra (later acquired by Glencore), as well as Guangxi Beibu Gulf’s joint ventures with Mitsubishi Corporation (三菱商社) and Kansai Electric Power (關西電力) respectively.”

7.13  The foregoing is acknowledged in the FTI Report:

“[3.26] According to notes contained in the auditor’s work papers for 2015, revenue in 2015 was solely derived from the sale of canola to a related party, Fangchenggang Maple Grain and Oil Industrial Co., Ltd (“Fangchenggang”).

[6.4] Given the lack of future cash flow projections and the high degree of uncertainty in BBG Resources’ future prospects as discussed above, I have adopted the cost approach in determining the market value of BBG Resources. As stated in paragraph 4.8, this approach is commonly adopted for early‑stage start-up companies or where there are uncertainties about the company’s ability to operate as a going concern.”

7.14  Relatedly, on the Plaintiffs’ own evidence, the Fundamental Change did have an impact on BBG Shipping. According to the Infospectrum Rating Report compiled on 6 March 2017 (“Infospectrum Report”):

“Up until mid-2015, a significant portion of the total shipments handled by BGS [BBG Shipping] related to cargo flows contributed by the Chinese state-owned Guangxi Beibu Gulf International Port Group Co., Ltd [Guangxi BBG]. However, this cargo flow was diverted away from BGS following the establishment of its shipping platform, BG Shipping Co., Ltd. This saw the end of the partnership between BGS and Guangxi Beibu Gulf International Port Group Co., Ltd, with control of BGS allegedly resting with Chu Kong and another private investor. Day-to-day ship chartering and operating matters are handled by Wei Lai and Captain Wu.” (emphasis added)

7.15  Mr Wong says that there is no reason for the FTI Report to be compiled on the basis that there would be no impact from the Fundamental Change nor is there any or any proper justification for the instruction to Ms Tam to value BBG Shipping and BBG Resources as at 31 December 2015. I agree.

7.16  Secondly, it is not entirely clear whether Ms Tam was provided with the relevant sale and purchase agreement entered into between P1 and D2 in respect of sale of the shares of BBG Shipping (“BBG Shipping S&P”). Whilst FTI Report §1.9 (reproduced above) mentions the BBG Shipping S&P, Appendix 2 does not enumerate it as part of Ms Tam’s sources of information. Appendix B of the BBG Shipping S&P is BBG Shipping’s Management Accounts for the 3-month period ended 31 March 2016 (“Management Accounts”) which show that the turnover for the period was US$14,320,760 which represented a drastic reduction from the 2015 figures. On the pro-rata basis, the turnover for 2015 for a 3‑month period was [US$374,790,450 /4 =] US$93,697,612.50. The FTI Report does not address the Management Accounts at all. As noted above, Ms Tam was not given any access to the management of P1. However, Mr Lau was only removed as a director of P1 on 10 March 2016 and it seems to me that there is no real justification for brushing aside or refraining from seeking Mr Lau’s view on the Management Accounts. I am unable to accept Mr Joffe’s “short point” that the Management Accounts can be explained away on the basis that D1 already had plans to divert business away from the Group in the first quarter of 2016.

7.17  Thirdly, at Greenwood 6^th §40, the Plaintiffs seek to minimize the effect of the Fundamental Change after it has been squarely raised in D1’s evidence and the GT Report by referring to the work papers of Moore Stephens CPA Limited (“Moore Stephens”), the former auditors of the Group to show that the key customers which significantly contributed to BBG Shipping’s earnings were unrelated to Guangxi BBG. However, as I understand the evidence, Moore Stephens’ work papers were provided to Ms Tam. It is not entirely clear why Ms Tam was not instructed to provide a supplemental valuation report.

7.18  Fourthly, the Plaintiffs further seek to minimize the impact of the Fundamental Change by suggesting D1 and Mr Lau has historically contributed related-party business to the Group. However, Mr Joffe has not been able to show that Mr Lau had done so after 31 December 2013, which is consistent with his professed stance as recorded in many decisions that there was a corporate divorce effective 1 January 2014.

7.19  Fifthly, Mr Joffe relies on the Infospectrum Report to suggest that Ausca Shipping Ltd (“ASL”) (not D2) was a very successful venture even in 2017 and was established to represent the continuation of the shipping business previously undertaken by BBG Shipping. I am unable to place significant weight on that submission. The relevant parts of the Infospectrum Report read as follows:

“ Ausca Shipping Ltd (hereafter referred to as ASL) is a private limited company, which was incorporated in Hong Kong in July 2016. ASL was established to represent the continuation of the shipping business previously undertaken by Beibu Gulf Shipping Ltd (BGS), a well-regarded Hong Kong Panamax grain operator, with a sizeable chartered fleet and cargo book. Upon incorporation, ASL was wholly owned by Cosmic Glory Ltd of the Cayman Islands [(D2)] (with a paid-up capital of just USD 10,000), but following various capital injections by a number of corporate shareholders between late 2016 and early 2017. The subject company's paid-up capital has risen sharply to USD 1.33m at the time of writing. Due to the low-disclosure domiciles of these corporate shareholders, details relating to ASL's ultimate ownership cannot be formally verified. A management representative informed us that ASL is ultimately controlled by Chu Kong and Wei Lai, who, along with Wu Shiping (hereafter Captain Wu), are listed as the subject's directors.

Chu Kong [(D1)] is a well-regarded shipping veteran in Hong Kong shipping circles, being one of two ex-Transfield ER Group employees (the other being Lau Wing Yan) who, alonq with private investors from China, founded the Hong Kong-headquartered Pacific Bulk group in 2000. We understand Chu Kong formally removed himself from the Pacific Bulk group in January 2014, and went on to incorporate a number of ship operating companies from this period onwards, mainly by linking up with Chinese cargo interests. These include the Quadrolink group, Beibu Gulf Shipping Ltd (BGS) (and its cargo partner Guangxi Beibu Gulf International Port Group Co., Ltd), and more recently, BDH Quadro Marine Ltd (and its cargo partner Jiusan group), and now ASL (and its cargo partner Ausca Oils & Grains Industries Co., Ltd, hereafter Ausca)…

Ausca was established in China in June 2013 (company registration number: 91450600070610779J), and is involved in the processing and production of edible oils. The company is owned by Shenzhen Yuexinhai Investment Co., Ltd (80%) and Guangxi Ganglian Trading Co., Ltd (20%). The former is, in turn, owned by Nanning Ningtai Asset Management Co., Ltd (63.75%; this company is controlled by Ning Xuzhan - 90% and Li Min - 10%), Guangxi Ganglian Trading Co., Ltd (26.25%), and Lee Hailiang (10%). We note that Guangxi Ganglian Trading Co., Ltd is owned by two individuals, Zhang Hui (60%) and Zhang Ming (40%). The background and employment experience of these principals are not known.

ASL is active as a charter operator mainly covering cargo commitments arising from Ausca and other significant cargo interests. Specific details relating to ASL's cargo book have not been disclosed, but cargo flows generated by Ausca are estimated to represent a third of shipping volumes. The remainder is mainly contributed by contracts of affreightment (COAs) and forward cargoes of varying terms entered into with third-party cargo owners (reported to include international agricultural commodity trading groups and domestic trading companies), and to a lesser extent, cargoes sourced from the spot market. Management indicated that ASL's annual cargo volumes for 2017 will approximate 15m tonnes, dominated by Panamax shipments of grain, such as canola and soybeans. These cargoes are loaded at ports in the Americas and discharged at Chinese ports. Aside from grain cargoes, BGS is said to also be transporting coal cargoes…

Without specific operational information, and given the company's activation and overlapping activities/clients with BGS in 2016, it is not possible to make meaningful estimates on revenue and profit levels. However, as a rough indication and based on the annual cargo volumes reported, Ausca/BGS would likely have generated total revenues in excess of USD 1bn. We note that ASL/BGS have significant short-term forward tonnage exposures, although this appears to be somewhat hedged by the forward cargo commitments and FFAs; ASL's net profits would be affected by the effectiveness of the physical and paper hedges employed.” (emphasis added)

7.20  It is plain from the reproduced parts of the Infospectrum Report that the success of ASL (even if in fact controlled by D1) was based in part on new business ventures not previously undertaken by BBG Shipping. As pointed out at the hearing, BBG Shipping only had negligible any fixed assets comprising computer equipment, furniture and fixtures, motor vehicle, and leasehold improvements. The “value” of BBG Shipping, it seems to me, was plainly in the business relationships and contacts, which as a result of the corporate divorce (on Mr Lau’s case as submitted by Mr Wong), Mr Lau and D1 were pursuing separately from 2014 onwards. In my view, the success of ASL cannot be extrapolated as an indication that BBG Shipping was able to continue the business model before the Fundamental Change to justify the assumptions made in the FTI Report.

7.21  I would not go so far to agree with Mr Wong that there can be no reasonable disagreement on the different methodologies adopted in the FTI Report (income approach) and the GT Report (cost approach), in that the income approach is demonstrably erroneous. However, I am of the view that valuation in the FTI Report has plainly failed to take into account the Fundamental Change. The fact of the matter is that Guangxi BBG, the majority joint venture partner, had since become a competitor by setting up BG Shipping, and on the Plaintiffs’ own evidence, Guangxi BBG’s business had been “diverted” away from the Group.

7.22  Mr Joffe suggests that, by reference to cases such as Chow Steel Industries Public Company Ltd v Ko Sung [2020] HKCFI 483 and Lam Sik Ying v Lam Sik Shi, HCA 4713/2001, 14 January 2011 that the court should adopt a broad brush approach in determining the appropriate figure which a plaintiff merits protection by a Mareva injunction in the light of all the evidence before the court. He also submits that it is open to the court to adopt a broad bush approach and discount the value of BBG Shipping by a percentage when assessing the monetary limit.

7.23  I agree with Mr Wong that the present arguments on quantum is not one which entails the court conducting a mini-trial. The Plaintiffs have instructed their expert to adopt the Valuation Date which was not the date of the disposal of BBG Shipping and BBG Resources and did not provide FTI with even the basic fact that the majority joint venture partner had since the Valuation Date departed and became a competitor. The expert was not even asked to provide a supplementary report to provide her analysis of the impact of that change. Although Mr Joffe suggests that a discount may be applied, he has not proffered a figure which may be justified on the evidence.

7.24  For the above reasons, I am of the view that the Plaintiffs have failed to demonstrate that there is a good arguable case on the monetary limit in respect of the Ausca Transaction.

8.  The Lohas Transaction

8.1  Mr Wong has made very detailed submissions on why the Plaintiffs have failed to demonstrate that there is a good arguable case on liability. His submissions may be summarized as follows:

(1)  The alleged divestment of assets ultimately is the sale of the Relevant Vessels at significant undervalue (US$11 million each). Whilst the BGAH JLs place heavy emphasis on D1 controlling different corporate vehicles, one indisputable fact is that the first round of mortgage sales of the Relevant Vessels was to Raffles at US$14.5 million each. Raffles was undeniably independent of D1. The Raffles sale was aborted because of Mr Lau’s legal action claiming proprietary interest in the Relevant Vessels. It is absurd to suggest D1 would cause the Relevant Vessels to be sold to Raffles at significant undervalue against his own alleged 75.5% interest in P1 (ie including the 51% acquired from Guangxi BBG), and indeed the US$14.5 million price exceeds the BGAH JLs’ own expert valuation for the forced liquidation value;

(2)  Further, the allegation of undervalue sale ignores the fact that the second round of mortgagee sale to D5 and D6 was not merely a distressed sale, but one with the “risk” of an existing and widely publicized adverse ownership claim by Mr. Lau. Such a risk would otherwise be eliminated in a judicial sale. According to the Plaintiffs’ valuation expert, a judicial sale (which would take at least 2-3 months and would eliminate the risk) could fetch about US$13.5 million each. US$11 million each on a quick sale with the risk could hardly be said to be at significant undervalue (as D1’s expert opined). Furthermore, the claims by P2 and P3 must fail in any event because the alleged loss is reflective loss;

(3)  The genesis of the financing arrangements which ended with the mortgagee sales of the Relevant Vessels lies in the events in 2015, which were not of D1’s making, and cannot be attributed to a premeditated ploy of D1;

(4)  It started off with Mr Lau’s BVI proceedings to wind up OSL triggering the risk of the banks calling the CS Facility and the BNP Facility (“Ship Finance Default Risk”), in particular in the circumstances where, at the material time, there was a drastic decline in shipping market and a drastic drop of the value of the P1 Group’s vessels;

(5)  It was followed by P1’s agreement reached at the December 2015 Board Meeting to divide and sell the 4 vessels to its 2 shareholders (Guangxi BBG and PBM) in order to discharge the bank loans and to terminate the joint venture by returning to the 2 shareholders their respective investments (“Tripartite Agreement”);

(6)  However, PBM’s temporary inability to complete the purchase of the Relevant Vessels and to discharge the relevant bank loan necessitated short-term bridging loans, which were later extended by reason of PBM’s continuing default (beyond 31 January 2016). The correspondence shows that it was Mr Lau who was resistant, and the ball was entirely in his court. Had he agreed for PBM to complete the purchase, that would have been the end of the matter;

(7)  With PBM’s continual default, it was objectively not in P1’s commercial interest to keep the Relevant Vessels as costly “white elephants” indefinitely (when the shipping/vessel‑holding business had already been abandoned). P1 kept the 2 vessels as a matter of accommodating the interest of PBM/Mr Lau pursuant to the Tripartite Agreement. The indulgence lasted for 1.5 years until June 2017 when PBM (Mr Lau) ignored P1’s ultimatum to purchase. P1 thus decided not to service the loan any further and the Relevant Vessels were enforced upon, with a first attempted sale to Raffles at US$14.5 million;

(8)  The above events were not masterminded by D1 as the BGAH JLs allege. If D1 had such a ploy as alleged, there is no reason why D1 and P1 would be pressing Mr Lau for 1.5 years to purchase the Relevant Vessels by PBM (instead of enforcing and selling them to D1’s entity). If D1 had such a ploy there is no reason why he did not orchestrate the enforcement immediately upon the borrowers’ default. The BGAH JLs’ theory that D1 used bogus loan arrangement to acquire the Relevant Vessels cheap for his own gain breaks down completely against the fact that the first mortgagee sale was to an independent third-party (Raffles);

(9)  Even if the BGAH JLs were right that D1 were behind D3/D4, the provision of the bridging loan out of (on the BGAH JLs’ case) his own money to P1 to resolve the Ship Finance Default Risk was plainly in P1’s interest. The net result of all of D1’s alleged conduct on the BGAH JLs’ own case is that the enforcement action against the Relevant Vessels was deferred which is undeniably to P1’s benefit. But for D1’s alleged conduct, the Ship Finance Default Risk (which was recognised as a legitimate risk by all of P1’s directors, including Mr Lau) could well have been realised and the Relevant Vessels would have been sold much earlier by the bank through a liquidation sale for (on own the BGAH JLs’ case) around US$13.5 million each, which was less than the Raffles price. The claim that P1 should have used its own money to pay off the CS Facility is not reasonable and contrary to what the directors themselves had agreed.

8.2  Despite Mr Wong’s valiant attempt, I am not persuaded that the Plaintiffs have not demonstrated a good arguable case on liability and quantum. Whilst I am of the view that the picture painted by Mr Wong is credible, there remains the following features which can only be resolved in cross-examination:

(1)  According to the evidence (Chu 1^st §§97-98), the CS Facility was paid off by (a) the 1^st Drawdown, (b) a bridging loan advanced by P1 in the sum of US$8.7 million and (c) part of the PBM Loan in the sum of US$7.7 million;

(2)  There is a dispute between the parties as to whether the Tripartite Agreement (a) amounts to a collateral attack of the Strike-Out Decision, in which it was found that the Tripartite was not binding upon PBM (and subsequently affirmed on appeal) and (b) envisaged the use of BGAH’s available cash to pay off the CS Facility. But even proceeding on D1’s case, the fact was that BGAH had already advanced a bridging loan of US$8.7 million;

(3)  The bridging loan was settled by way of the 2^nd Drawdown, which took place at the same time in May 2016 as the Ausca Transaction, after Mr Lau had been removed as a director of P1;

(4)  At that time, Guangxi BBG’s 51% share had already been transferred to Bright Good;

(5)  The legitimacy of the 2^nd Drawdown and the subsequent default on the Clause 6.1(a) Repayment a month later, on D1’s explanations that there were other investment opportunities and that there was no benefit to maintain the Relevant Vessels as they had become “white elephants”, cannot be resolved at the interlocutory stage;

(6)  The allegation whether D3 and D4 were D1’s fronts (and therefore whether the Relevant Vessels should be disposed of on any distressed basis), and indeed whether the aborted sale to Raffles and actual sale to D5 and D6 were a result of the circulation of the draft judgment by the BVI Commercial Court cannot be resolved at the interlocutory stage;

(7)  The disagreements between the valuations of Mr Willcox and Mr Makkar are unlike the observations made on the FTI Report set out above;

(8)  I also do not agree with Mr Wong’s argument that the reflective loss argument is so compelling to be a knockout point. As pointed out by Mr Joffe: (a) it is the Plaintiffs’ case that the Premier Bright Loan and the Glory and Hope Share Mortgages should not be entered into in the first place, (b) the resultant loss suffered by P2 and P3 is that the shares in Glory BBG Shipping and Hope BBG Shipping have been wrongfully transferred away and (c) P2 and P3 no longer retain control over the shares in Glory BBG Shipping and Hope BBG Shipping.

8.3  For the above reasons, I am of the view that the Plaintiffs have demonstrated a good arguable case on both liability and quantum on the complaints premised on the Lohas Transaction.

9.  Risk of dissipation

9.1  The only asset identified by the Plaintiffs in the Application is a property development known as “Swatow Plaza” or “S+ Plaza” in Montreal, Canada held by Swatow Development Inc (“Swatow”). It has not been suggested that D1 has done anything untoward to put his interest in Swatow beyond the reach of the Plaintiffs.

9.2  Indeed, the Plaintiffs’ case on risk of dissipation is premised only on an inference to be drawn from the nature of the complaints made against D1, relying on Convoy.

9.3  As stated at Convoy §35(4), it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets may be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

9.4  In the present case, as acknowledged at Greenwood 2^nd §111:

“The BGAH JLs also understand that Mr. Chu has been embroiled in numerous ongoing court actions with Mr. Lau in respect of the ownership of certain shareholdings in various companies (mostly offshore companies). The BGAH JLs understand that all of companies in question are private companies for which valuation is not readily available. The BGAH JLs also understand that allegations of misappropriations against the companies in question have been made by both Mr. Lau and Mr. Chu against the other in some of these court actions.” (emphasis added)

9.5  Indeed, as remarked by Anthony Chan J in his very recent judgment in Pacific Bulk Shipping Ltd v Topmove Limited [2025] HKCFI 532 at §154:

“[Mr Lau] and [D1] set up their separate shipping businesses after January 2014. My understanding of the evidence is that the parties soon ran into an impasse after having agreed in principle to split their business and assets. Serious allegations of misappropriation were made, relationship turned from bad to worse and the intended audit exercise was in a stalemate. Under such circumstances, the parties took unilateral actions to protect their interest….” (emphasis added)

9.6  Whilst I can understand the position adopted by the BGAH JLs, namely one focussed on the interest of P1 (and the Group), it seems to me that in the overall circumstances of present case including especially the context of the acrimonious corporate divorce (as remarked by the Court of Appeal in Canton Plus), I should be less ready to infer a risk of dissipation solely from the nature of the pleaded allegations. Instead, it seems to me that given the extended history of the legal disputes between the parties, I should focus more on whether there is solid evidence to show risk of dissipation.

9.7  The Plaintiffs have not adduced any. Although D2 has been put in liquidation, there is no suggestion that ASL or the Quadrolink Group, have been operated surreptitiously or are anything but successful ventures. As stated earlier, there is no allegation of dissipation of D1’s interest in Swatow.

9.8  It is also in the above context that I take onboard Mr Wong’s argument that the delay in the present case is a weighty factor militating against any professed concern of risk of dissipation of assets. The Ausca Transaction and the Lohas Transaction already featured in the winding-up proceedings of OSL and were already pleaded in the BGAH Petition. Despite various challenges mounted by D1, the BGAH JLs were appointed in January 2023 and Mr Greenwood was also one of the OSL JLs. The Application, however, was only issued on 5 December 2023. In my view, the delay cannot be adequately explained away by the assertion that D1 was litigious, the BGAH JLs had to expend time and effort to deal with the applications pursued by D1 and the need for the BGAH JLs to investigate.

10.  Balance of convenience

10.1  I am also of the view that the balance of convenience lies against the grant of the Application.

10.2  First, D1 and Mr Lau have been embroiled in a longstanding legal battle. The Application only makes provision for very modest legal fees.

10.3  Secondly, where the Plaintiffs have not adduced any solid evidence of risk of dissipation of assets (apart from relying on an inference to the drawn from the nature of the pleaded complaints), it seems to me that weight should be attached to (1) the acrimonious corporate divorce, (2) both Mr Lau and D1 had accused each other of taking matters into their own hands to protect their interests, (3) they have become competitors against each other in the market and (4) the staleness of the Ausca Transaction and the Lohas Transaction. The commercial dynamics are that Mr Lau and D1 are each operating competing lines of business (successfully) after the corporate divorce.

10.4  Thirdly, the Relevant Vessels have been preserved pending trial upon the undertakings offered by D5 and D6.

11.  Conclusion

11.1  For the above reasons, the Application is dismissed.

11.2  D1 is to lodge his submissions on costs (limited to 5 pages) and its statement of costs within 7 days hereof and the Plaintiffs are to lodge their submissions on costs (limited to 5 pages) and their objections to D1’s statement of costs within 7 days thereafter. Subject to further directions, the issue of costs will thereafter be dealt with on the papers.