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

CACV 557 & 591/2021, [2025] HKCA 815

On appeal from [2021] HKCFI 3433 & [2021] HKCFI 3915

(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 557 AND 591 OF 2021

(ON APPEAL FROM HCCW NO 251 OF 2019)

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(Heard together)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is the Company’s application for leave to appeal to the Court of Final Appeal (“CFA”)  against the judgment of the Court of Appeal handed down on 9 April 2025 ([2025] HKCA 322; “CA Judgment”). For ease of reference, the terms and expressions in the CA Judgment are adopted.

2.  On 9 April 2025, we dismissed the Company’s appeal against the decisions of Anthony Chan J, dated 26 November 2021 ([2021] HKCFI 3433)  and 6 December 2021 ([2021] HKCFI 3915), where he dismissed the Company’s application to strike out the amended petition against the Company and later ordered the Company to be wound up on the ground of insolvency.

3.  Mr Rimsky Yuen SC, together with Mr Byron Chiu, act for the Company.

4.  Mr Bernard Man SC, together with Mr Justin Ho and Mr Sik Chee Ching, act for the petitioner.

5.  Both parties lodged written submissions in accordance with Practice Direction 2.1.  Having considered the submissions and papers, we believe it is appropriate to proceed with determining the application based on the papers.

Notices of Motion

6.  The questions posed by the Company in the two Notices of Motion both dated 7 May 2025 are identical.  The Company contends that they are of great general or public importance and they are as follows:

(1)  Question 1:In respect of a winding-up petition presented on the basis of a statutory demand, what is the correct approach to be adopted by an appellate court on appeal from a first instance judge’s decision on whether the company in question had established a bona fide dispute on substantial grounds in relation to its defences (where the rulings made by the first instance judge were not findings of fact, and were made solely on the basis of affidavit evidence without cross- examination)?

(2)  Question 2: Without prejudice to the answer to Question 1, what is the proper approach that a court should adopt in determining disputes over the repayment term of a shareholder’s loan to his/her company (especially in the winding-up context)?  In particular, when determining whether a shareholder’s loan is repayable on demand or upon satisfaction of other conditions (whether as a matter of fact and/or in the context of implied term), should the Court readily draw an inference that monies advanced as working capital and/or for the purpose of long-term investment(s)  are generally not intended to be repayable on demand, in circumstances where the number of shareholders is very few and the nature and/or size of the company is one which would utilise such advancement in a manner such that funds may not be readily available to meet repayment on demand?

7.  In addition to the two questions, the Company relies on the “or otherwise” limb.  The grounds set out in support of the “or otherwise” limb are essentially the same as the two questions posed above.

Question 1

8.  Whilst stating in the Notice of Motion at §2.1 it is “generally accepted that an appellate court should be reluctant to interfere with the lower court’s evaluation and rulings unless it is demonstrated that the first instance judge had fallen into palpable errors”, the crux of the Company’s argument is that the “Palpable Error Approach” is not applicable in an appeal in winding-up proceedings, where the first instance judge has only considered the affidavit evidence without cross-examination and the Court of Appeal is in as good a position as the judge to evaluate the evidence.  The Court of Appeal should not adopt the “Palpable Error Approach” but should consider the evidence on its own.  Had it done so, it ought to have formed the view that in this instance there is at least bona fide dispute on substantial grounds as to whether the PBM Loan is not due and payable[1].

9.  This seems to be tacit admittance that palpable error in the first instance judgment might not be found, for it is argued that if there is a second, different appellate opinion in the context of winding-up proceedings, even if it is no more likely to be right than the first, it clearly shows that there is (by reason of difference in opinion)  a bona fide dispute on substantial grounds[2].

10.  To a large extent, the Company’s arguments have been addressed in the CA Judgment at §§32 to 36.

11.  The problems with the Company’s suggested approach are twofold.

12.  First, the Company has conflated the issue of the appeal court’s evaluation of the evidence (and the deference (if any)  that should be given)  with the standard of review that the appeal court should adopt.

13.  Whilst not in dispute, we set out the general principles regarding the deference that the Court of Appeal gives to the first instance judge who hears the primary evidence:

(1)  As a matter of general principle, an appeal court will not interfere with the lower court’s factual findings unless it concludes that no reasonable court could have reached the lower court’s conclusion or if the lower court failed to take crucial factors into consideration.  Such a conclusion will generally require there to be no evidence to support the finding or for the judge to have plainly misunderstood the evidence[3].

(2)  But there is a spectrum of justifiable appellate interference.  “At one end of the spectrum will be decisions of primary fact reached after an evaluation of oral evidence where credibility is in issue and purely discretionary decisions.  Further along the spectrum will be multi-factorial decisions often dependent on inferences and an analysis of documentary material.”[4]  An appeal court has therefore to distinguish between conclusions concerning primary facts which followed entirely from the assessment of the reliability of witnesses, with which the appeal court will not usually interfere, and conclusions based on a combination of testimonial assessment and analysis of documents and surrounding circumstances, with which the appeal court would more readily interfere.

(3)  It is incontrovertible that where no live evidence has been called at trial, an appeal court is equally as well placed as a first instance judge to consider the facts[5]. But this does not mean that the Court of Appeal should usurp the role of a first instance judge[6] – because the role of an appeal court is one of review.

14.  This was the approach adopted in the CA Judgment. We stated in §35 we were mindful that “the evaluation of evidence and findings of fact for limited purpose were based on affidavit evidence and contemporaneous documents rather than oral evidence”.  We noted that the function of the Court of Appeal, contrary to the approach advocated for by the Company, is “one of review”.

15.  A cardinal concept runs through the exercise of appellate jurisdiction by way of review: the appeal process is not a re-run of the trial process.  As Laws LJ observed in Subesh & Ors v The Secretary of State for the Home Department [2004] EWCA Civ 56 at §44:

“The answer is, we think, ultimately to be found in the reason why (as we have put it)  the appeal process is not merely a re-run second time around of the first instance trial. It is because of the law’s acknowledgement of an important public interest, namely that of finality in litigation. The would-be appellant does not approach the appeal court as if there had been no first decision, as if, so to speak, he and his opponent were to meet on virgin territory. The first instance decision is taken to be correct until the contrary is shown. As Lord Davey put it in Montgomerie[7] (in the passage we have cited), ‘[i]n every case the appellant assumes the burden of shewing that the judgment appealed from is wrong’ (our emphasis). The burden so assumed is not the burden of proof normally carried by a claimant in first instance proceedings where there are factual disputes. An appellant, if he is to succeed, must persuade the appeal court or tribunal not merely that a different view of the facts from that taken below is reasonable and possible, but that there are objective grounds upon which the court ought to conclude that a different view is the right one. The divide between these positions is not caught by the supposed difference between a perceived error and a disagreement. In either case the appeal court disagrees with the court below, and, indeed, may express itself in such terms. The true distinction is between the case where the appeal court might prefer a different view (perhaps on marginal grounds)  and one where it concludes that the process of reasoning, and the application of the relevant law, require it to adopt a different view. The burden which an appellant assumes is to show that the case falls within this latter category.”

16.  The fundamental feature of an appeal by way of review is that the appeal court’s task is to scrutinise the lower court’s decision, not to consider the issues as if it were trying the matter afresh.  In an appeal by way of review, the appeal court has no jurisdiction to disturb the lower court’s decision, unless the appellant establishes that the decision appealed was wrong or involved a serious procedural irregularity.  This does not mean that the court cannot re-evaluate or reconsider the evidence, but that the court will not overturn the first instance decision unless it can be readily demonstrated that the first instance judge’s evaluation of the evidence was wrong[8].

17.  This approach accords with the division of judicial function between appeal courts and first instance courts.  As stated by Lord Hodge in Royal Bank of Scotland Plc v Carlyle [2015] UKSC 13 at §22:

“The rationale of the legal requirement of appellate restraint on issues of fact is not just the advantages which the first instance judge has in assessing the credibility of witnesses. It is the first instance judge who is assigned the task of determining the facts, not the appeal court. The reopening of all questions of fact for redetermination on appeal would expose parties to great cost and divert judicial resources for what would often be negligible benefit in terms of factual accuracy. It is likely that the judge who has heard the evidence over an extended period will have a greater familiarity with the evidence and a deeper insight in reaching conclusions of fact than an appeal court whose perception may be narrowed or even distorted by the focused challenge to particular parts of the evidence. On these matters see B (A Child)  (Care Proceedings: Appeal) (Lord Wilson, para 53), the US Supreme Court in Anderson v City of Bessemer (pp 574, 575), and the Canadian Supreme Court in Housen v Nikolaisen (para 14), to all of which Lord Reed referred in McGraddie v McGraddie (paras 3, 4).”

18.  An appeal court may be more ready to reverse conclusions of fact reached by the first instance judge depending on the nature and circumstances of the case.  Nevertheless, as observed by Lord Kerr of Tonaghmore JSC in In re DB’s Application for Judicial Review at §80: “The case for reticence on the part of the appellate court, while perhaps not as strong in a case where no oral evidence has been given, remains cogent.”

19.  This court scrutinised the Company’s appeal (mindful that the evaluation of the evidence was based only on affidavit evidence)  and held that the Company was unable to demonstrate that the judge was wrong and failed to demonstrate that his findings of fact were not ones that no reasonable judge could have reached.

20.  On this basis alone, the contention of the Company in Question 1 fails.

21.  Second, the Company suggests a different approach to review should be adopted specifically for winding-up appeals.  That must be wrong.

(1)  First, any attempt to formulate distinct categories of appeal will encounter difficulties in definition.  There is no clear distinction between, for example, drawing inferences from witness testimony and drawing inferences from circumstantial evidence, because circumstances may be as relevant to the assessment of credibility as they may be to the assessment of other probabilities.

(2)  Second, a fragmentation of the review procedure will undoubtedly give rise to unnecessary disputes about categorisation of different types of cases and of appeal procedures, and to produce different layers of case law applicable to different types of cases.  Such a development will unnecessarily complicate the appeal court’s task, not to mention the increase in costs and the use of judicial resources.

(3)  Finally, although it has been said on occasion that the standard to be applied to a review is flexible and may differ for different types of cases[9], the standard is also the same across the board: the appeal court will allow an appeal where the decision of the lower court was wrong or unjust because of a serious procedural or other irregularity in the proceedings in the lower court.

22.  While it has been said that a review of the lower court’s decision on a question of fact is different from a review of the lower court’s exercise of discretion[10], it does not call for a material difference in appellate restraint from interference with the lower court’s decision.  Whatever the nature of the issues and however broad or narrow they may be, the test remains the same: was the lower court’s decision wrong[11]?

23.  In this case, we have not found that Anthony Chan J was wrong in his evaluation of the evidence.

24.  For the reasons above, we see no merit in Question 1 and we refuse leave.

Question 2

25.  The Company argues that Question 2 concerns the proper approach to be adopted in determining disputes over the repayment term of a shareholder’s loan to his/her company (especially in the winding-up context).

26.  We agree with the petitioner that Question 2 is not a question of law.  Every loan agreement turns on its individual facts.  There can be no hard and fast rule as to whether a shareholder’s loan is repayable on demand.

27.  Of course, the purpose for which a loan is advanced is a relevant factor that a court will consider in assessing whether a loan is repayable on demand, but it is not determinative of the nature of the payment term.

28.  The Company’s assertion that shareholder loans “stand on a rather unique footing”[12], and, that being the case, the court should have further due regard to other similar cases, is unhelpful.  Each case must be determined on its own facts, and the PBM Loan must be looked at in its own factual matrix.

29.  In the present case, a key factor was the Company’s audited financial statements, which made clear that the PBM Loan was “repayable on demand”[13].

30.  Additionally, we noted in the CA Judgment at §44:

“The judge gave cogent reasons for arriving at the view that the Alleged Agreement or Treatment is not credible. For this court to overturn his assessment of the evidence, palpable errors in his reasoning must be shown. We are not persuaded there are any. The judge did not merely focus on the AFSs. He had considered the evidence in the round including the August 2010 Resolutions (significantly, the PBM Loan was treated as shareholder’s loan and not share capital injection in that document), the effect of the Alleged Agreement (highly unusual and commercially unsound), and the unsatisfactory nature of the alleged oral agreement. The contentions made on appeal by the Company do not provide any real or convincing answers to the reasons of the judge. The appropriate amount of weight that should be given to the AFSs is plainly a matter for the primary judge. Nor can he be faulted for harbouring incredulity over Chu’s explanation of not addressing his mind to the expression ‘repayable on demand’ in signing off the AFSs. There is just no basis to cast doubt on his evaluation.”

31.  The question of whether the PBM Loan was repayable on demand was a question of fact.  We did not find any error in the judge’s assessment or evaluation of the evidence.

32.  Question 2 is not a question of law, nor one of great general or public importance.

33.  For the reasons above, we see no merit in Question 2 and refuse to grant leave.

“Or otherwise” limb

34.  It is the practice of the Court of Appeal to leave the “or otherwise” limb to be decided by the Appeal Committee of the CFA. It is well established that the discretion to grant leave to appeal on the “or otherwise” limb is exercised only in exceptional circumstances.

35.  In any event, given our determination concerning Questions 1 and 2, we do not think the circumstances of the present case would justify the exercise of the exceptional discretion to grant leave.

Disposition

36.  For the reasons above, we dismiss the Notice of Motion in each of CACV 557 and 591/2021.

37.  There is no reason to depart from the general rule that costs of the application should follow the event.  The petitioner filed a statement of costs for this application, totalling $516,030, of which $421,000 represents the fees for three counsel.  We are of the view that three counsel for this leave application is unnecessary and will only allow the fees on the basis that only two counsel should be engaged.  Additionally, we are of the view that the petitioner’s costs are on the high side, in particular with regard to Item D in the statement of costs.  Taking a broad-brush approach, we summarily assess the petitioner’s costs of this application at $380,000.  The costs order and summary assessment are in the nature of orders nisi. They will be made absolute if no application for variation is made by any party within 14 days of the handing down of this judgment.