Jinpeng Group Ltd Appellant v Peak Hotels and Resorts Ltd Respondents

JurisdictionBritish Virgin Islands
JudgeWebster JA,Paul Webster, QC,Justice of Appeal [Ag.],Davidson Kelvin Baptiste,Joyce Kentish-Egan, QC,Justice of Appeal
Judgment Date08 December 2015
Judgment citation (vLex)[2015] ECSC J1208-4
CourtCourt of Appeal (British Virgin Islands)
Docket NumberConsolidated High Court Interlocutory Appeals BVIHCMAP2015/0003
Date08 December 2015
[2015] ECSC J1208-4




The Hon. Mr. Davidson Kelvin Baptiste Justice of Appeal

The Hon. Mr. Paul Webster, QC Justice of Appeal [Ag.]

The Hon. Mde. Joyce Kentish-Egan, QC Justice of Appeal [Ag.]

Consolidated High Court Interlocutory Appeals



Jinpeng Group Limited
Peak Hotels and Resorts Limited

Mr. Antony Zacaroli, QC, with him Mr. Matthew Abraham for the Appellant

Mr. John Brisby, QC, with him, Mr. Alexander Cook for the Respondent

Interlocutory appeal — Commercial appeal — Loan agreement between appellant and respondent — Interpretation of clauses of Memorandum of Understanding — Conversion of loan into equity — Appointment of liquidators — Winding up — Whether appellant became shareholder of respondent by implied agreement to convert loan to equity in respondent or whether appellant continued to be creditor of respondent and was entitled to appoint liquidators of respondent — Whether learned judge erred in striking out appellant's application to wind up respondent on just and equitable ground — Whether learned judge applied wrong test in determining nature of dispute between the parties — Whether learned judge erred in finding that dispute between the parties was sufficient to remove appellant's standing as creditor given that further agreement was necessary to convert shares to equity and respondent failed to discharge evidentiary burden of proving such agreement — Whether learned judge erred in exercise of his discretion — Arbitration — Effect of arbitration clauses in agreements and s. 18 of Arbitration Act, 2013 on dispute between the parties and proceedings before the court

Aman Resorts is a chain of luxury resorts with locations in Asia, Europe and the Americas. The respondent, a company incorporated in the British Virgin Islands ("the BVI"), received a loan of US$35 million from the appellant, for the purpose of assisting with the acquisition of Aman Resorts. The US$35 million had been lent to the appellant by a tourism service enterprise group out of China known as Beijing Tourism Group Company ("BTG") for on-lending to the respondent. BTG was interested in participating in the acquisition of Aman Resorts. The terms of the loan were set out in a Memorandum of Understanding ("the MOU") and a loan agreement ("the Loan Agreement"), both dated 24 th January 2014.

The loan carried an interest rate of 6% per annum and was repayable in 1 year unless the parties agreed otherwise. The MOU stipulated that the appellant had the option of converting the loan into equity in the respondent which would give it an 8.75% indirect interest in Aman Resorts. If the appellant opted to convert the loan, the obligation to repay it would naturally fall away and an associated company which would have been established by the appellant and BTG ("the Associated Company") would take title to the shares and become an 8.75% shareholder of the respondent. The MOU provided that the respondent would conduct 'substantial consultation' with the Associated Company or the appellant and BTG regarding the issue of the conversion of the loan into shares, and if the terms of the conversion were agreed, they would be set out in a subscription agreement. If the respondent failed to sign this agreement by 1 st May 2014, it would have to repay the loan plus interest to the appellant by 5 th May 2014. Following the signing of the MOU and the Loan Agreement, the representatives of the appellant and the respondent entered into negotiations for settling the terms of the conversion of the loan into shares. However, no agreement was formally concluded by 1 st May 2014. Notwithstanding this, an issue arose between the parties as to whether the appellant had agreed to convert the loan to shares and thereby become a shareholder of the respondent. The appellant argued that it did not agree to convert the loan to shares and therefore remained a creditor of the respondent for the amount of the loan. Accordingly, it was entitled to apply to the court as a creditor for the appointment of liquidators of the respondent. The respondent on the other hand, contended that there was an implied agreement between the parties for the conversion of the loan into equity and therefore, the appellant became a shareholder of the respondent and did not have standing to apply to the court for the appointment of liquidators.

On 18 th September 2014 the appellant filed the following in the BVI Commercial Court: (i) an originating application for the appointment of joint official liquidators of the respondent ("the Originating Application"), as creditor of the respondent on the just and equitable ground (pursuant to section 162(1)(b) of the Insolvency Act, 2003); and (ii) an ordinary application in the same proceedings for the appointment of three joint provisional liquidators of the respondent ("the JPLs"). On 25 th September the respondent filed an ordinary application for an order striking out the Originating Application. The learned judge heard the appellant's ordinary application for the appointment of the JPLs ex parte but on notice to the respondent on 25 th and 26 th September 2014. He appointed the JPLs on the ground that he was satisfied that the assets of the respondent were possibly 'in some jeopardy'. The return date for the ex parte order, 15 th October 2014, was used for the hearing of the respondent's strike out application on the understanding that if it failed, the JPLs would remain in office and the court would proceed to hear the Originating Application. At the completion of the hearing of the strike out application on 17 th October 2014, the judge granted the respondent's application, struck out the application to wind up the respondent and discharged the JPLs. In coming to a decision on the matter, the learned judge expressed his reluctance to use the winding up court to resolve disputes about debts or to decide issues of fact on a summary basis, and carried out a very limited analysis on the nature of the dispute between the parties. He ultimately made the statement that any challenge by the respondent, other than a 'hopeless' one, would be sufficient to establish a sufficient dispute for the purpose of removing the appellant's status as a creditor.

The Loan Agreement and MOU have provisions requiring the parties to submit disputes relating to the agreements to arbitration. The learned judge did not have to deal with these provisions because he struck out the Originating Application.

The appellant appealed the learned judge's decision, 1 on grounds that the learned judge applied the wrong test in determining the nature of the dispute between the parties, and erred in finding that the dispute was sufficient to remove the appellant's standing as a creditor, given that a further agreement was necessary to convert the shares, and the respondent was unable to prove such an agreement.

The learned judge's order on the Originating Application had made provision for treasury bonds representing the US$35 million loaned to the respondent to be kept in an account in the respondent's name or to its order. In December 2014, the respondent's English solicitors advised the court and the other parties that the bonds were not in the account and in fact could not be located. To date the respondent has not been able to locate the missing bonds and they remain unaccounted for. In January 2015 the appellant applied ex parte in separate proceedings for a freezing order over the assets of the respondent and for the appointment of a receiver. A limited freezing order was granted on 26 th January 2015. On the hearing of the application to continue the freezing order on 2 nd February 2015, the learned judge refused the application to appoint a receiver or to re-appoint the JPLs. He continued the freezing order over the respondent's assets, but refused to grant the substantial disclosure provisions claimed by the appellant. The second appeal 2 is against the judge's orders made on the 2 nd February 2015.

The First Appeal – BVIHCMAP2014/0025

Held: allowing the First Appeal and setting aside the order of the learned judge dated 17 th October 2014 striking out the appellant's Originating Application and setting aside the appointment of the joint provisional liquidators; reappointing the three joint provisional liquidators of the respondent; restoring the Originating Application for further hearing by the Commercial Court; and awarding costs of the appeal and the proceedings in the court below to the appellant, that:

1. While the learned judge was correct to observe that the winding up court should not be used to resolve disputes about debts or to decide issues of fact on a summary basis, the court has a duty to carry out a preliminary investigation of the facts to determine whether a dispute that a debtor company raises in relation to a debt in winding up proceedings is one which has been raised on genuine and substantial grounds. The learned judge erred in failing to apply the correct legal test in the circumstances, which was whether the dispute raised by the respondent was one that was raised on genuine and substantial grounds.

Sparkasse Bregenz Bank AG v In the Matter of Associated Capital Corporation BVIHCVAP2002/0010 ( delivered 18th June 2003, unreported) followed.

2. The learned judge erred when he decided that the dispute between the parties as to the appellant's status as creditor of the respondent was, in effect, a genuine and substantial dispute that should not be tried in winding up proceedings. There was no evidence to support a finding that any agreement had been reached by the parties for the conversion of the loan into shares and accordingly, the appellant never became a shareholder of the respondent. Furthermore, the learned judge failed to identify any...

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