YOICHI KUGA v. SARONIC HOLDINGS LTD

HCMP 1180/2018

[2024] HKCFI 3253

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1180 OF 2018

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JUDGMENT

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INTRODUCTION

1.  This is an inquiry (“Inquiry”) as to damages payable by the Plaintiff (“P”) as a result of the undertakings given by the Defendant (“D”) herein from time to time as recorded in the Order of Anthony Chan J dated 10 August 2018 and the Order of B Chu J dated 14 November 2019.

2.  P issued the originating summons (“OS”) in these proceedings on 1 August 2018 for injunctive relief under section 21M of the High Court Ordinance, Cap 4, in aid of proceedings brought by P against the Defendant (“D”) (amongst others) in Luxembourg alleging 100% beneficial ownership over shares in a Luxembourg company, Pacific Opportunities Holdings Sarl (“POH”), held in the name of D (“Luxembourg Proceedings”). 

3.  On 10 August 2018, at the first hearing of the OS before Anthony Chan J, in lieu of an injunction being granted, D gave certain undertakings concerning the shares in POH (“POH Shares”) and also concerning POH (“D’s 1^st Undertakings”). P gave a set of cross-undertakings to the Court (“P’s Cross Undertakings”), including:-

“1. If the Court later finds that this Order has caused loss to the Defendant or any other party and decides that the Defendant or that other party should be compensated for that loss, the Plaintiff will comply with any order the Court may make”.

4.  On 14 November 2019, at the substantive hearing of the OS before B Chu J, D’s 1^st Undertakings were replaced by another set of undertakings (“D’s 2^nd Undertakings”, and collectively with D’s 1^st Undertakings will be referred to herein as “D’s Undertakings”) whilst P’s Cross Undertakings remained essentially undisturbed.

5.  On 3 December 2021, the Luxembourg Proceedings were concluded and P’s claims were dismissed on jurisdictional grounds with costs.  There was no appeal by P against the dismissal.

6.  On 19 May 2022, B Chu J ordered, amongst other things, that D be released from all of D’s Undertakings (“Release Decision”).  On 18 April 2023, B Chu J granted leave for D to enforce P’s Cross Undertakings and ordered this Inquiry (“Leave Decision”).

7.  On 4 June 2024, by consent, Master Dick Ho granted the application of JTrust Asia Pte Ltd (“JTrust”) to intervene in these proceedings and be joined as an intervener for the purpose of the Inquiry as to damages suffered as a result of D’s Undertakings.

8.  In this Inquiry, JTrust seeks to recover the sum of US$680,357.61 under 4 main heads, namely:-

(1)  Operating expenses of Kuga Reflorestamento Ltda (“Kuga Brazil”) between 14 November 2019 and 19 May 2022 in the sum of US$215,371.79 (“Kuga Brazil Operating Expenses”).

(2)  Legal fees incurred in Singapore between 10 August 2018 and 14 November 2019 in the sum of US$27,314.06 (“Singapore Legal Fees”).

(3)  Legal fees incurred in Hong Kong between 10 August 2018 and 19 May 2022 in the sum of US$195,806.85 (“Hong Kong Legal Fees”).

(4)  Legal fees incurred in Brazil in the sum of US$241,864.91 between 14 November 2019 and 19 May 2022 (“Brazil Legal Fees”).

FACTUAL BACKGROUND

9.  The factual background leading to this Inquiry were summarised by B Chu J at §6-15 of the Release Decision and §§11-25 of the Leave Decision, which I gratefully adopt.  In gist:-

(1)  P and MK were friends and business associates.  MK controlled the Group Lease group of companies (“GL Group”), consisting of, amongst others, Group Lease Public Co Ltd (“GL Thai”) and Group Lease Holdings Pte Ltd (“GL SG”).

(2)  JTrust is the Singapore subsidiary and investment company of J Trust Co Ltd, a Japanese public company.

(3)  In around 2013 to 2014, JTrust made 4 sets of investments into GL Thai. During this period, (i) the GL Group “round-tripped” its funds at 2 levels by creating sham loans with ostensibly independent borrowers which were in fact beneficially owned by MK, so as to generate false turnover and create the false impression of profitability of GL Thai; and (ii) such borrowers included subsidiaries of POH (“POH Companies”).[1]

(4)  On 26 December 2017, JTrust commenced Suit 1272/2017 in Singapore against, amongst others, GL SG and MK for deceit and conspiracy in respect of the sham loans.  This issue arose as to whether (i) the POH Companies were vehicles beneficially owned by MK/GL Group to perpetuate the fraudulent scheme or (ii) they were independently owned by P as Kuga Corporation’s investment.  P subsequently intervened claiming to be the beneficial owner of POH.

(5)  According to D’s sole shareholder and director, Gwynn David Nevill Hopkins (“Hopkins”), in about mid-2018, Tep Rithivit (“Tep”), a Cambodian businessman who was the registered shareholder of POH, wished to extricate himself from the dispute between JTrust and MK.  Tep entered into an arrangement whereby the POH Shares were transferred to D, a corporate vehicle formed by Hopkins, who is an independent insolvency practitioner of Perun Consultants (“Perun”), to hold the POH Shares and to provide independent and objective professional services for POH pending determination of Suit 1212/2017.  The arrangement was governed by a Letter of Engagement executed by JTrust on 5 June 2018 (“Letter of Engagement”) and a Deed of Indemnity between JTrust and Perun dated 11 June 2018 (“Indemnity Deed”).

(6)  On 6 October 2020, the Singapore Court of Appeal handed down the SGCA Final Judgment, allowing the appeal of JTrust and reversing the judgment of the Singapore High Court in Suit 1272/2017.  The SGCA found, amongst other things, that POH was beneficially owned by MK on the balance of probabilities.[2]  

10.  For the purposes of the Inquiry, Mr David Fong on behalf of P and Ms Frances Lok SC[3] on behalf of D and JTrust confirmed that the parties consider themselves bound by the factual findings made by the Singapore Court of Appeal in the SGCA Final Judgment.

APPLICABLE PRINCIPLES

11.  The applicable principles are not in any serious dispute.

12.  In an application to enforce an undertaking as to damages, the enforcing party bears the burden of satisfying the court both as to the fact of damage and its amount.  The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction: F Hoffmann-La Roches & Co AG v Secretary of State for Trade and Industry [1975] AC 295 (per Lord Diplock); Ming Hsieh v Xu Zhe[2019] HKCA 101 at §12 (per Lam VP, as he then was).

13.  The enforcing party needs to prove the loss was caused by the injunction, not the existence of litigation.  Whilst the party enforcing a cross-undertaking bears the burden of proving its loss, the court should not be over eager in its scrutiny of the enforcing party’s evidence.  Damages should be liberally assessed but the object is to compensate to defendant and not to punish the plaintiff.  The application of the liberal approach does not mean that, in relation to causation, the court is free to decide what it likes without reference to the evidence or to the burden of proof.  Instead, the court should approach the issue in a broad commonsense way. Thus, the enforcing party does not need to show that the injunction was the exclusive cause of the loss; it is sufficient for to show that it was an effective cause of the loss: MGA Entertainment Inc v Toys & Trends (Hong Kong) Ltd (2014) 17 HKCFAR 27 at §§17-19 (per Lord Clarke).      

14.  There may be a break in the chain of causation where the enforcing party has suffered loss through his own voluntary act or omission even though the loss was not of a kind that was unforeseeable, so that it was not too remote. However, it is difficult to conceive that anything less than unreasonable conduct on the part of the enforcing party would be capable of breaking the chain of causation.  Whilst merely unreasonable conduct will not necessarily break the chain of causation, reckless conduct often will.  However, ultimately, the question of whether there has been a break in the chain of causation is fact sensitive: Chitty on Contracts (35^th ed, 2023) at §30-080; Contractual Duties: Performance, Breach, Termination and Remedies (4^th ed, 2023) at §24-028.

15.  The principles of remoteness of damage normally apply: Gee on Commercial Injunctions (7^th ed, 2022) at §11-045.  The enforcing party must show that both the type of loss and any links in the chain of causation can reasonably be regarded as having been in the contemplation of the parties when granted.  A plaintiff giving the undertaking must have reasonably foreseen at the time of the order loss of the type which was suffered but not the particular loss (unless it has special knowledge).  The correct approach is that the remote consequences of obtaining an injunction are not to be taken into account: Injunctions (14^th ed, 2021) at §6-09.

16.  Having reminded myself of the principles above, I turn to the present case.

PRELIMINARY MATTERS

Scope of the Inquiry

17.  P submitted that the scope of the present Inquiry is limited to damages suffered by D, and not the damages suffered by any other third parties.  Thus, insofar as JTrust suffered loss (which is, in any event, denied by P) as a result of having to indemnify Perun/D for its fees and expenses incurred in managing the POH Companies pursuant to the Indemnity Deed, such loss is beyond the scope of the Inquiry and irrecoverable.  For this reason alone, JTrust’s claims ought to be dismissed in their entirety.

18.  In support of this argument, Mr Fong referred the Court to the Order of B Chu J dated 18 April 2023 (“18 April 2023 Order”) granting leave to D to enforce P’s Cross Undertakings:-

“As for the Inquiry Summons, the Defendant be allowed to enforce the Plaintiff’s cross undertaking as to damages. A hearing for directions (estimated length: 30 minutes) be fixed before a Master for the inquiry as to damages suffered by the Defendant as a result of the undertakings given herein...”

19.  However, subsequently on 4 June 2024, by consent of the parties, JTrust was granted leave by Master Dick Ho to be “joined as Intervener in this action for the purpose of the inquiry as to damages suffered as a result of the undertakings given by the Defendant herein...” (“4 June 2024 Order”). In my judgment, the formal joinder of JTrust confirms that the scope of the present Inquiry extends to any loss which JTrust has suffered in its own right as a result of D’s Undertakings. 

20.  Further, the 18 April 2023 Order ought to be viewed in its proper context:-

(1)  As accepted by Mr Fong at the hearing before me, the express terms of P’s Cross Undertakings cover loss which may be suffered by third parties, including JTrust.  Such third parties may claim under P’s Cross Undertakings in the event that D’s Undertakings were later found by the court to have been “wrongly” obtained by P: see also Release Decision §66.    

(2)  The question which was determined in the Leave Decision leading to the 18 April 2023 Order was not confined to whether D (to the exclusion of other parties) ought to be granted leave to enforce P’s Cross Undertakings, but “whether the Court should exercise the discretion to enforce P’s Cross Undertaking”: Leave Decision §7.  In the Leave Decision, there is no indication that different considerations may apply to an application made by a third party for leave to enforce P’s Cross Undertakings.

(3)  The wording of the 18 April 2023 Order reflects the fact that JTrust had yet to be joined as an intervener in these proceedings.  Any issues which may have arisen from such lack of joinder is now academic in view of the 4 June 2024 Order.

Scope of the Indemnity Deed

21.  JTrust’s case is that expenses claimed in this Inquiry were settled by JTrust pursuant to the Indemnity Deed and should be regarded as “loss” suffered by JTrust.

22.  On the other hand, P submitted that, as a matter of construction, the Indemnity Deed does not cover (i) the Kuga Brazil Operating Expenses, (ii) the Singapore Legal Fees and (iii) the Brazil Legal Fees.  For this reason alone, these claims should be dismissed “outright”.

23.  Clause 1 of the Indemnity Deed provides, amongst other things:-

“1. The Indemnifier HEREBY UNDERTAKES at all times hereafter:

(a) to indemnify the Assignee well and sufficiently and keep them and their legal personal representatives, employees, servants, agents, delegates and assigns well and sufficiently indemnified (to the fullest extent permitted by law) against all claims and payments to which the Assignee or any such person as aforesaid may in the course of such administration and/or as a result of their appointment as Assignees (the Appointment) render themselves legally liable' and against all actions, suits, proceedings, undertakings, claims, demands, costs, damages, expenses, liabilities (either actual or contingent), warranties or indemnities given by the Assignee in dealing with the assets of the Company whatsoever (the Liabilities) which may be taken or made against them or incurred or become payable by them in the course of the Appointment without prejudice to and irrespective of any invalidity or irregularity in the Appointment including (but without limiting the scope of this indemnity) the usual charges of their firms in respect of work arising out of or in connection with the Appointment and all or any legal costs associated with the Appointment.

(b) To pay or reimburse to the Assignee on demand so much of the expenses incurred by them in carrying out their duties as Assignee, including without limitation legal costs incurred by them, and so much of their remuneration for so acting, provided that such expenses and remuneration are reasonable (emphasis added).

24.  As seen from the passages above, the Indemnity Deed was phrased in wide terms and covers, amongst other things, (i) the usual charges of Perun/D in respect of their appointment as assignees of the POH shares, (ii) all or any legal costs associated with the appointment, and (iii) so much of the expenses incurred by them in carrying out their duties as assignee, including without limitation legal costs incurred by them, provided that such expenses and remuneration are reasonable.

25.  Mr Fong referred me to the Recitals of the Indemnity Deed, which provides, amongst other things:-

“A Pacific Opportunities Holdings Sarl (Pacific Opportunities) is the sole shareholder of Cougar Reforestamento Ltda and Cougar Pacific Pte Ltd (the Subsidiaries), being interested parties in litigation between the Indemnifier and various defendants in the British Virgin Islands, Singapore and Cyprus (the Litigation).

 B     The Indemnifier has requested that representatives of the Assignee form a Hong Kong Limited company under the Assignee's control with the purpose of the company becoming the sole shareholder of Pacific Opportunities, preserving it and its Subsidiaries until such time as the Litigation is concluded.”

26.  P submitted that since the Recitals only mentioned litigation in the British Virgin Islands, Singapore and Cyprus, the Indemnity Deed does not cover matters arising from the Luxembourg Proceedings and the present Hong Kong proceedings.

27.  I am unable to agree.  In my judgment, the Recitals, which merely set out the background leading to the execution of the Indemnity Deed, do not have the effect of restricting the scope of the Indemnity Deed.  As mentioned above, Clause 1 of the Indemnity Deed was drafted in wide terms and I see no justification for restricting its scope of application only to legal proceedings which were in existence when the Indemnity Deed was entered into and/or those expressly mentioned in the Recitals section. 

28.  P further submitted that, since the Indemnity Deed only covers the assignee of the POH Shares, ie Perun/D, it cannot cover expenses incurred by other parties, ie the Kuga Brazil Operating Expenses and Brazil Legal Fees (incurred by Kuga Brazil) as well as the Singapore Legal Fees (incurred by Cougar Pacific Pte Ltd (“Cougar SG”)).

29.  As I understand it, P’s argument is that the Indemnity Deed does not cover expenses which were not payable by Perun/D (eg where the relevant invoice was issued to a third party) because they could not be regarded as expenses “incurred” by Perun/D.  However, it seems to me that the Indemnity Deed does not draw such distinction.  On a plain reading of Clause 1, the Indemnity Deed covers any expenses which were in fact paid by Perun/D, so long as they were incurred by Perun/D in carrying out their duties as assignee of the POH Shares and reasonably incurred.

30.  At this juncture, it is convenient to deal with another argument raised by P.  P submitted that, in any event, any loss suffered by JTrust because of its obligations under the Indemnity Deed were unforeseeable and too remote before the Indemnity Deed came to P’s attention on 12 July 2019, ie after D’s 1^st Undertakings were given.  In order to satisfy the requirement of remoteness, “double foreseeability” (a term that was coined by P) has to be satisfied.  Besides foreseeing the damage suffered, P should also be able to foresee the existence of the Indemnity Deed.  Thus, even if the Indemnity Deed covers the losses in question, P should only be liable for such losses after 12 July 2019.

31.  As submitted by D/JTrust, the relevant question is whether the kind of losses, and not their precise form, was foreseeable: Contractual Duties: Performance, Breach, Termination and Remedies (supra) at §23-047.  The fact that such losses fell on JTrust by reason of the Indemnity Deed only goes to the precise manner in which the losses materialised and does not, without more, make them too remote.  In my judgment, in order to satisfy the requirement of remoteness, JTrust is only required to show that the type of damage suffered was foreseeable.  It is unnecessary for JTrust to also show that the existence of the Indemnity Deed was foreseeable. 

HEADS OF CLAIMS

Kuga Brazil Operating Expenses

32.  JTrust claims the amount of loans advanced to Kuga Brazil (through a series of back-to-back loans advanced from JTrust to Perun, and from Perun to Kuga Brazil) for the purpose of defraying Kuga Brazil’s operating expenses incurred to (i) prevent it from being deregistered, or debarred from operating as a going concern, under Brazilian law and (ii) preserve and maintain the value of its assets, including various lots of farmlands owned by Kuga Brazil in Brazil (“Brazil Land”).  The loans are said to be necessary to meet Kuga Brazil’s operating costs because it was persistently loss-making and relied on external funding to do so.

33.  Hopkins’s evidence in his 7^th affidavit is that but for D’s Undertakings, Kuga Brazil would not have taken steps to (i) avoid being deregistered (or debarred from operating as a going concern) under Brazilian law or (ii) preserve and maintain the value of its assets.  Instead, D would have:-

(1)  actively investigate and pursue any available options identified to sell or otherwise dispose of Kuga Brazil’s assets, in particular its interests in the Brazil Land, or at least stop incurring expenses to maintain and preserve the same;

(2)  terminate most, if not all, of Kuga Brazil’s employees; and/or

(3)  apply for the liquidation of Kuga Brazil in order to stop incurring further operating costs altogether.

34.  P submitted that the operating expenses of Kuga Brazil would in any event have been incurred.  According to the Letter of Engagement, D were to hold the POH Shares as a bare nominee or trustee and did not have the “shareholder’s right” of liquidating Kuga Brazil.  In any event, after the SGCA conclusively found that MK was the beneficial owner of POH, D/JTrust ought to have mitigated their losses by seeking to vary D’s Undertakings and return the POH Shares to MK to avoid incurring any further operating expenses.  Their failure to do so amounted to a novus actus which broke the chain of causation.

35.  The starting point is the Letter of Engagement.  The scope of Perun’s engagement was, amongst other things:-

(1)  To form, and hold under Perun’s control, a Hong Kong limited company with the purpose of becoming the sole shareholder of POH and to “hold the Shares as bare nominee”.

(2)  To “take appropriate steps to preserve the assets of [POH] and its subsidiaries insofar as [Perun’s] rights as sole shareholder of the Shares permit”.

(3)  In relation to Kuga Brazil, in addition to taking steps to control the company, to “obtain further details about [Kuga Brazil’s] real estate property and take such steps as are necessary and available to preserve that property (and its value) pending the conclusion of the Litigation”.

(4)  At the conclusion of the litigation between JTrust and various defendants in the British Virgin Islands, Singapore and Cyprus, the shares in POH “will be dealt with in accordance with the outcome of the Litigation.  If the Litigation does not result in any Court orders for the transfer of [POH] or its Subsidiaries to other entities, [D] will arrange for the liquidation of the same”.

36.  As seen from the Letter of Engagement, the primary duty of Perun/D pending the resolution of the litigation was to take appropriate steps to preserve the assets of POH and its subsidiaries insofar as D’s rights as sole shareholder of the POH Shares permit.  D would then either transfer the POH Shares pursuant to a relevant court order, or, in the absence of such court order, apply for the liquidation of the POH Companies.   

37.  Hopkins’s unchallenged evidence, which is corroborated by the financial statements of Kuga Brazil for the years ended 31 December 2019, 2020, and 2021, is that Kuga Brazil was persistently loss-making.  In such circumstances, I accept Hopkins’s evidence that, but for D’s Undertakings, D would have investigated and pursued any available options identified to sell or otherwise dispose of Kuga Brazil’s assets, in particular the Brazil Land, or at least stopped incurring expenses to maintain the same, in discharge of D’s duty under the Letter of Engagement to take appropriate steps to preserve the assets of the POH Companies pending the resolution of the litigation. 

38.  “Litigation” as defined in the Letter of Engagement was concluded when the SGCA Final Judgment was handed down on 6 October 2020.  Although the SGCA found, on the balance of probabilities, that MK was the beneficial owner of the POH Shares, the SGCA did not order the transfer of the POH Shares to MK.  Under the Letter of Engagement, this meant that D came under a duty to “arrange for the liquidation” of the POH Companies.       

39.  P submitted that, regardless of the terms of the Letter of Engagement, it was simply not possible for D to exercise the “shareholder’s right” of applying for the liquidation of Kuga Brazil, especially in view of the SGCA’s finding that MK was the beneficial owner of the POH Companies. 

40.  However, it is undisputed that D was (through POH) indeed the “shareholder” of Kuga Brazil in the sense of being the legal holder of shares in Kuga Brazil.  As the entity whose name appeared on the company’s register of members, it seems to me that D would have had the power to apply for the liquidation of Kuga Brazil.  In this regard, I have not been referred to any evidence as to Brazilian law suggesting otherwise, for example, that only a beneficial holder of shares has the right to apply for liquidation, or that in deciding whether to grant a winding-up order, a Brazilian court would ascertain the identity and wishes of the company’s beneficial shareholders.

41.  P referred me to the Court of Appeal’s decision in Hotung & Anor v Ho Yuen Ki [2002] 4 HKC 233 on the duties of a bare trustee and submitted that since a bare trustee is a mere repository of trust property with no active management duties to perform, it was not open for D to dispose of the Brazil Land, let alone to apply for the liquidation of Kuga Brazil.  However, even if it is arguable (on which I make no finding) that D’s proposed course of action, if put into effect, may have amounted to a breach of its duties as trustee vis-à-vis the beneficial owner of the POH Shares, this does not detract from Hopkins’s evidence that such course of action would indeed have been taken by D but for D’s Undertakings.

42.  I do not agree with P’s submission that D’s failure to apply to vary D’s Undertakings and “return” the POH Shares to MK after the SGCA Final Judgment was handed down amounted to a novus actus breaking the chain of causation.  I agree with D that in view of the litigation history between the parties and the sworn evidence of both P and MK that P was the ultimate beneficial owner of POH, D acted reasonably in not seeking P’s consent to vary D’s Undertakings to facilitate a transfer of the POH Shares to MK.     

43.  P further submitted that, in any event, JTrust did not suffer any loss by advancing loans to Kuga Brazil (through Perun) for the purpose of defraying the Kuga Brazil Operating Expenses because Kuga Brazil was capable of repaying the loans.  P pointed out that, according to Kuga Brazil’s balance sheet as at 31 May 2022, Kuga Brazil had R$4,930,091.84 of “Cash and Banks” balances, equivalent to around US$1,041,824.95.  By contrast, the relevant loans advanced by JTrust (through Perun) to Kuga Brazil were only US$237,750.  As such, Kuga Brazil should be able to repay without difficulty.

44.  I accept Hopkins’s evidence that the “Cash and Banks” balance shown on the balance sheet appears to be caused by an error of a former accountant of Kuga Brazil, and that no such balance in fact existed.  As noted in Kuga Brazil’s balance sheet for the year ended 31 December 2019, “no bank statements or vouchers have been received to show movement on the account or, indeed, whether the balance exists”.  In my view, there is no plausible reason why JTrust would have advanced loans to Kuga Brazil (through Perun) as it did if Kuga Brazil was actually in possession of such substantial cash balance.

45.  For the reasons I have given, I find that D’s Undertakings were an effective cause of the Kuga Brazil Operating Expenses.  JTrust has suffered loss as a result because there is no or no realistic prospect of recovering the loans that it had advanced to Kuga Brazil (through Perun) for the purpose of defraying such operating expenses in view of the financial circumstances of Kuga Brazil.  

46.  I would allow JTrust’s claim for US$215,371.79 in full, being the loans advanced to Kuga Brazil (through Perun) in settlement of the operating expenses incurred by Kuga Brazil between 14 November 2019 and 19 May 2022.  

Singapore Legal Fees

47.  JTrust claims the amount of legal costs incurred by the Singapore’s legal advisors of Cougar SG, one of POH’s subsidiaries.  The Singapore Legal Fees are said to ensure that any disclosure made by Cougar SG in the Singapore proceedings would comply with paragraph 3 of D’s 1^st Undertakings. 

48.  JTrust’s claim is supported by an affidavit of Mr Daniel Tan Shi Min (“Tan”) dated 28 February 2024.  At all material times, Tan had the care and conduct of the Singapore proceedings on behalf of Cougar SG.  Tan’s evidence is that the Singapore Legal Fees were incurred to (i) ensure compliance with D’s 1^st Undertakings and (ii) were in addition to the general litigation costs of defending the Singapore proceedings.

49.  P’s case is that the Singapore Legal Fees were not caused by D’s 1^st Undertakings, which may be summarised as follows:-

(1)  Since D was not a party to the Singapore legal proceedings, there was prima facie no disclosure obligation on its part.  Even if it did, such disclosure would fall within the exceptions to paragraph 3 of D’s 1^st Undertaking.  Thus, any costs incurred were not as a result of D’s 1^st Undertaking but rather D’s failure to exercise its right under the exceptions.

(2)  The disclosure made by Cougar SG to JTrust were “artificial” at best. Any costs incurred for analysing the legal basis of JTrust’s specific discovery requests was not caused by D’s 1^st Undertaking, but to portray that JTrust and Cougar SG were still adverse parties despite JTrust’s control of Cougar SG (through D) in the Singapore proceedings.

(3)  In any event, Cougar SG could have claimed any legal costs arising from the Singapore proceedings before the Singapore courts.  Having failed to do so, D is now barred by res judicata from claiming the same in the present Hong Kong proceedings.

50.  Further, as an “overarching” argument in relation to JTrust’s claims for legal expenses, Mr Fong submitted that the legal invoices tendered by D were unintelligible because of extensive redaction.  As such, any claim for legal expenses ought to be dismissed in full.

51.  Having considered the parties’ submissions, I am satisfied that D’s 1^st Undertakings were an effective cause of the Singapore Legal Fees.

52.  Under paragraph 3 of D’s 1^st Undertaking, D undertook not to:-

“Disclose or divulge any books, records, financial information, confidential information and/or privileged information belonging to POH, KR or [Cougar SG] to [JTrust] save as required by court order, court directions or rules of procedure, any legal or regulatory requirement or as advised by the legal advisers of POH, KR or [Cougar SG] (as the case may be) or with the approval of this Court”.

53.  I agree with D/JTrust that in view of the terms of paragraph 3 of D’s 1^st Undertaking, it was prudent for Cougar SG to seek legal advice on their applicability whenever disclosure was required to be made to JTrust in the Singapore legal proceedings.  It would be unrealistic to expect Cougar SG to have simply relied on its layman’s understanding of the exceptions to paragraph 3 without seeking appropriate legal advice.

54.  There is no proper basis for P to suggest that any part of the Singapore Legal Fees was incurred by Cougar SG for ulterior motives, such as to create the impression that JTrust and Cougar SG were adverse parties.  I accept Tan’s evidence that the legal expenses claimed were to ensure compliance with D’s 1^st Undertakings.  P has not suggested any reason why Tan’s evidence ought not be given full weight. 

55.  As for res judicata, given the Singapore Legal Fees were incurred specifically for the purpose of ensuring compliance with D’s 1^st Undertakings (and not to discharge Cougar SG’s discovery obligations generally), it seems to me that it would not have been open for Cougar SG to claim for such expenses in the Singapore proceedings.  As such, there is no question of res judicata.

56.  Having reviewed the available evidence, I am satisfied that JTrust has discharged its burden of showing that the Singapore Legal Fees were reasonable and in fact incurred by JTrust.  I bear in mind that this Inquiry is not a taxation exercise and calls for the assessment of the evidence in a broad commonsense way.

57.  Despite the redaction of the invoices, for each work item, I am able to ascertain, amongst other things, the time and fees incurred, and the brief nature of the work involved.  Importantly, JTrust’s claim is supported by the sworn evidence of Tan (which I accept) explaining the workstreams incurred and confirming their necessity.  

58.  As explained by Hopkins, whenever Cougar SG received an invoice from its Singapore legal advisors, Perun called upon the Deed of Indemnity by invoicing JTrust for the same amount and settled such invoices upon receiving payments from JTrust.  Hopkins’s account on the manner in which the Singapore Legal Fees were settled by JTrust and Perun was supported by a summary of fund-flow records and payment advices showing the settlement of fees by Perun.  Hopkins confirmed that as of the date of Hopkins 7^th, Perun has not reimbursed JTrust for any of the Singapore Legal Fees. 

59.  Given the existence of the summary of fund-flow records and payment advices evidencing payments made by JTrust (through Perun) in settlement of the Singapore Legal Fees, I do not see the need for JTrust to further produce its “books and records”, such as audited financial statements and management accounts, for the purpose of demonstrating loss.

60.  I am also satisfied that the Singapore Legal Fees were a foreseeable type of loss arising from D’s Undertakings.  This does not appear to be disputed by P.

61.  For those reasons, I would allow JTrust’s claim for the Singapore Legal Fees in full in the amount of US$27,314.06

Hong Kong Legal Fees

62.  JTrust claims the amount of legal costs incurred by D’s Hong Kong legal advisors, Messrs Hogan Lovells (“HL”).  JTrust’s claim is supported by an affidavit of Mr Christopher John Dobby (“Dobby”), a partner of HL who had the care and conduct of this matter on behalf of D.  Dobby’s evidence is that the Hong Kong Legal Fees consisted of:-

(1)  Costs incurred in November 2018 to consider and respond to the request of P’s solicitors, Messrs Lau Kwong & Hung (“LKH”), for a confirmation that there had been no change of managers, directors and/or legal representatives of Kuga Brazil.  Such costs were incurred to ensure compliance with paragraph 2 of D’s 1^st Undertakings.

(2)  Costs incurred between 10 August 2018 and 14 November 2019 to advise on documents obtained by or in the power of D and/or third parties affected by D’s Undertakings (“Affected Parties”) and whether (and if so, to what extent) the same can be disclosed to JTrust, and to review (i) any communication with JTrust and remove/redact financial, confidential and privileged information belonging to POH, Cougar SG and Kuga Brazil where appropriate, (ii) drafts of documents to be filed by D and/or the Affected Parties in ongoing foreign proceedings, consider whether disclosures to be made therein were covered by D’s 1^st Undertakings, and if so, to seek advice from foreign counsel to form a view on whether any of the exceptions applied.  Such costs were incurred to ensure compliance with paragraph 3 of D’s 1^st Undertakings.

(3)  Costs incurred to advise D, liaise with Brazilian counsel, and correspond with LKH in respect of replacing Mr Prado with Mr Ramos as Kuga Brazil’s director/manager/legal representative to ensure compliance with paragraph 2 of D’s 2^nd Undertakings.

(4)  Costs incurred to (i) liaise with Brazilian counsel and Kuga Brazil’s manager regarding its unviable farming activities and funding required to meet its day-to-day loss-making operations and (ii) consider proposals from Brazilian counsel on ways to reduce Kuga Brazil’s operating costs in light of their impact on the value of its assets to ensure compliance with paragraph 3 of D’s 2^nd Undertakings.

(5)  Costs incurred to (i) consider the statutory demand served by JTrust on Cougar SG on 20 October 2020 demanding payment of the judgment sum award by the SGCA in Suit 1212/2017; (ii) advise D regarding the statutory demand in light of the restriction imposed by paragraph 4 of the Second Undertakings and the advice received from Cougar SG’s  legal advisors; and (iii) correspond with LKH in respect of Cougar SG’s non-opposition to any liquidation proceedings brought by JTrust and seeking P’s consent to any necessary variation of D’s 2^nd Undertakings.

63.  P has raised a number of objections to the Hong Kong Legal Fees claimed by JTrust, which may be summarised as follows:-

(1)  The extensive redaction of the invoices has made it impossible for P to properly respond to the quantum of JTrust’s claim.

(2)  The costs incurred to advise the Affected Parties (i.e. any party other than D) in complying with D’s Undertakings are irrecoverable because such Affected Parties were not bound by D’s Undertakings.

(3)  It was unnecessary for legal advice to be rendered on whether documents of D, Cougar SG and Kuga Brazil could be disclosed to JTrust because (i) Cougar SG was already advised by Singapore lawyers on the same subject matter and (ii) neither D nor Kuga Brazil were involved in legal proceedings against JTrust.

(4)  It was unnecessary for legal advice to be rendered on the change of director of Kuga Brazil because paragraph 2 of D’s 2^nd Undertakings allowed D to replace Kuga Brazil’s officers by giving 14 days’ notice.

(5)  HL, as a Hong Kong law firm, could not advise on matters concerning the preservation of land in Brazil because Brazilian law was the lex situs.

64.  Having considered the parties’ submissions, I am satisfied that D’s Undertakings were an effective cause of the Hong Kong Legal Fees. 

65.  Although D was the only party who was bound by D’s Undertakings, in order to comply with the Undertakings which imposed restrictions on the affairs of third parties, including POH, Kuga Brazil and Cougar SG, D had to procure third parties to seek legal advice which resulted in expenses payable by such third parties, and ultimately settled by JTrust pursuant to the Indemnity Deed.

66.  The involvement of HL in matters which took place in foreign jurisdictions, such as Singapore and Brazil, was needed because the construction of D’s Undertakings was a matter of Hong Kong law and HL’s advice was needed to ensure compliance.  The existence of exceptions to D’s Undertakings, even if prima facie applicable, still required HL’s confirmation on whether the exceptions were in fact so applicable.  It was only prudent for D to seek such confirmation since any breach of D’s Undertakings, even if inadvertent, may result in a contempt of court.

67.  Having reviewed all available evidence, I am satisfied that JTrust has discharged its burden of showing that the Hong Kong Legal Fees were reasonable and in fact incurred by JTrust.  As when assessing the Singapore Legal Fees, I bear in mind that this Inquiry is not a taxation exercise and calls for the assessment of the evidence in a broad commonsense way.

68.  Despite the redaction of the invoices, for each work item, I am able to ascertain, amongst other things, the time and fees incurred, and the brief nature of the work involved.  Significantly, JTrust’s claim is supported by the sworn evidence of Dobby (which I accept) explaining the workstreams incurred and confirming their necessity. 

69.  I accept that JTrust settled the Hong Kong Legal Fees pursuant to the Indemnity Deed in the manner explained in Hopkins 7^th §25.7. Hopkins’s account is supported by a summary of fund-flow records and payment advices showing the settlement of fees by Perun to HL.  Hopkins confirmed that as of the date of Hopkins 7^th, Perun has not reimbursed JTrust for any of the legal costs incurred in Hong Kong.

70.  Given the availability of the above evidence, I do not see the need for JTrust to also produce its “books and records” for the purpose of demonstrating loss. 

71.  I am satisfied that the Hong Kong Legal Fees were a foreseeable type of loss arising from D’s Undertakings, which was not disputed by P.

72.  For the reasons I have given, I would allow JTrust’s claim for the Hong Kong Legal Fees in full in the sum of US$195,806.85.

Brazil Legal Fees

73.  JTrust claims the amount of legal costs incurred by POH’s Brazilian legal advisors, Messrs De Luca, Derenusson, Schuttoff Advogado (“DDSA”), which are said to ensure compliance with paragraphs 2 to 4 of D’s 2^nd Undertakings.

74.  JTrust’s claim is supported by an affirmation of Mr Joao Claudio De Luca Junior (“De Luca”) dated 29 February 2024 (“De Luca 1^st”). De Luca is a partner of DDSA who had the care and conduct of DDSA’s engagement by POH and Kuga Brazil.  De Luca’s evidence is that the Brazil Legal Fees were incurred:-

(1)  To enable Kuga Brazil to satisfy various requirements to continue operate in Brazil under Brazilian law.

(2)  To ensure that POH and Kuga Brazil complied with D’s 2^nd Undertakings, especially in the context of their activities in Brazil.

75.  P objects to the recoverability of the Brazil Legal Fees by JTrust on a number of grounds, which may be summarised as follows:-

(1)  The extensive redaction of the invoices has made it impossible for P to properly respond to the quantum of JTrust’s claim.

(2)  Legal expenses incurred by POH and Kuga Brazil are not recoverable because they were not bound by D’s Undertakings.

(3)  Costs incurred on advising the costs and implications of making Kuga Brazil’s employees redundant were too remote because P would not have been able to foresee that D would terminate most if not all of Kuga Brazil’s employees.

(4)  The so-called legal expenses were, in fact, ongoing operating expenses of Kuga Brazil which would have been incurred in any event.

76.  By paragraphs 2 to 4 of D’s 2^nd Undertakings, D undertook not to:-

“(2) Cause POH to take further steps to replace any of the current managers, directors, officers and/or legal representatives of POH, Kuga Reflorestamento Ltda (KR), Cougar Pacific Pte Ltd (CP) without giving at least 14 days' notice to the Plaintiff through its solicitors of its intention to do so;

(3) Take any steps to diminish the assets and/or increase the liabilities of POH, KR and CP save for that which is...

(4) Take any steps to procure the liquidation of POH, KR and CP.”

77.  Although, as mentioned above, I accept that legal advice may be required from D’s Hong Kong legal advisors to confirm whether a particular step proposed to be taken by D/Kuga Brazil in Brazil may be regarded as a breach of paragraphs 2 to 4 of D’ 2^nd Undertakings (being a matter of Hong Kong law), I find it difficult to see the relevance of any legal advice as to Brazilian law in this regard.  As such, I agree with P that the Brazil Legal Expenses may be more accurately characterized as part of the ongoing operating expenses of Kuga Brazil.

78.  Thus, whether D’s Undertakings were an effective cause of the Brazil Legal Fees turns on whether D’s Undertakings were the reason why Kuga Brazil had continued to incur operating expenses.  For reasons I have given above, in my judgment, such operating expenses would not have been incurred but for D’s Undertakings.

79.  I do not accept P’s submission that expenses incurred in relation to legal advice on the costs and implications of terminating Kuga Brazil’s employees were too remote because P could not have foreseen such termination.  As pointed out by D/JTrust, JTrust is not suing for losses arising from such termination, which never occurred.  The relevant question rather is whether the incurring of legal costs for advice on termination was reasonably foreseeable by P, not whether any termination itself was foreseeable.  In any event, it seems to me that both types of loss were reasonably foreseeable.

80.  On the available materials before me, I am satisfied that the Brazil Legal Fees were reasonable vis-à-vis the work carried out by DDSA and that such expenses were settled by JTrust pursuant to the Indemnity Deed.

81.  Despite the redaction of the invoices, for each work item, I am able to ascertain, amongst other things, the time and fees incurred, and the brief nature of the work involved.  JTrust’s claim is supported by the sworn evidence of De Luca (which I accept) explaining the workstreams incurred and confirming their necessity.    

82.  I accept that JTrust settled the Brazil Legal Fees pursuant to the Indemnity Deed in the manner explained in Hopkins 7^th §25.8. Hopkins’s account is supported by a summary of fund-flow records and payment advices showing the settlement of fees by Perun to HL.  Hopkins confirmed that as of the date of Hopkins 7^th, Perun has not reimbursed JTrust for any of the legal costs incurred in Brazil.

83.  Given the availability of such evidence, I do not see the need for JTrust to produce its “books and records” for the purpose of demonstrating loss.

84.  I am satisfied that the Brazil Legal Fees were a foreseeable type of loss arising from D’s Undertakings.  For reasons given above, I do not think that legal fees incurred for advice on the proposed termination of Kuga Brazil’s employees were too remote.

85.  I would allow JTrust’s claim for the Brazil Legal Fees in full in the sum of US$241,864.91.

DAMAGES

86.  I would assess JTrust’s damage to be US$680,357.61:-

(1)  Kuga Brazil Operating Expenses: US$215,371.79

(2)  Singapore Legal Fees: US$27,314.06.

(3)  Hong Kong Legal Fees: US$195,806.85.

(4)  Brazil Legal Fees: US$241,864.91.

87.  Despite P’s submissions, I see no reason for departing from the usual practice of ordering damages to be paid forthwith, and I would so order.

INTEREST

88.  JTrust seeks simple interest at prime rate[4] plus 1% per annum (said to be 6.625%) as from 16 May 2022 (i.e. the date of the summons for leave to enforce P’s Cross Undertakings) up to the date of Judgment, and thereafter at judgment rate until full payment.

89.  The award of simple interest as from the date of the summons for leave to enforce P’s Cross Undertakings is supported by the authorities: Gee on Commercial Injunctions (supra) at §11-051; MGA Entertainment Inc (supra) at §85; Able Success Asia Ltd v China Packaging Group Co Ltd (HCA 1120/2014, 25 November 2015) (per Master Lai).  P has not raised any arguments to the contrary. 

90.  I would grant pre-judgment interest at 1% above the HSBC prime rate from 16 May 2022 until the date of judgment.

COSTS

91.  Costs should follow the event.  In view of the nature and extent of objections raised by P in this Inquiry, I consider that the engagement of two counsel by D/JTrust is warranted. 

DISPOSITION

92.  For the reasons above, I make the following orders:-

(1)  Judgment in favour of JTrust for US$680,357.61.

(2)  Interest on the sum of US$680,357.61 at 1% above the prevailing HSBC prime rate from 16 May 2022 until the date of judgment, and thereafter at judgment rate until full payment.

(3)  A costs order nisi that P pay the costs of and occasioned by the Inquiry, including all costs reserved, with certificate for two counsel, to be taxed if not agreed. 

93.  The above costs order nisi shall become absolute unless an application to vary the same is made within 14 days of the date of this Judgment.

HCMP 1180/2018

[2023] HKCFI 1966

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1180 OF 2018

_______________________

_______________________

______________________

_____________________________________________

D E C I S I O N
(On Variation of Costs Order Nisi)

_____________________________________________

Introduction

1.  This Court handed down a decision on 18 April 2023 in relation to three summonses, two regarding interrogatories served by P without order, and an earlier summons issued by D for an inquiry as to damages suffered by D as a result of its undertakings obtained by P in these proceedings (“Decision”). I shall adopt herein the same abbreviations and nomenclature in the Decision, unless otherwise indicated.

2.  All 3 summonses arose out of section 21M injunction proceedings commenced by P in August 2018 against D, in aid of the Luxembourg Proceedings brought by P against D (amongst others) concerning the beneficial ownership of shares in POH held in the name of D.

3.  D succeeded in all three summonses.

4.  In the Decision, I ordered:

(1)  costs of the Interrogatories Summonses, including of all reserved costs, be paid by P to D, to be taxed if not agreed, on party and party basis, with certificate for two counsel;

(2)  As for D’s Inquiry Summons to enforce P’s Cross Undertaking, P to pay D’s costs of the determination of the Question, including any reserved costs, to be taxed if not agreed, on party and party basis, with certificate for two counsel (“Order Nisi”)

5.  On 26 April 2023, D issued a summons to vary the Order Nisi and to seek the two sets of costs be summarily assessed on an indemnity basis (or such other enhanced basis as the Court deems fit) with certificate for two counsel and be paid within 14 days of summary assessment; and in the alternative, such costs be taxed if not agreed, on an indemnity basis (or such other enhanced basis as the Court deems fit) with certificate for two counsel (“Variation Summons”).

6.  This was opposed by P who sought a final order in terms of the Order Nisi.

D’s grounds for variation

7.  In relation to the two Interrogatories Summonses:

(1)  the Interrogatories were wholly without merit and should never have been served on D, in that they related to the parties’ substantive disputes and outside the scope of Section 21M proceedings, and in any event completely unnecessary;

(2)  the Interrogatories were abusive in that they related to D’s alleged constructive trusteeship which had already been decided by this Court in the Release Decision but which P sought to re-open without any material change of circumstances.

8.  In relation to the determination of the Question:

(1)  these s21M proceedings were brought on a wholly false basis and should never have been commenced;

(2)  P’s opposition to the Inquiry was abusive, oppressive and wasteful given that

(i)  P’s principal ground of opposition was merely a regurgitation of arguments which had already been considered and rejected by the Court;

(ii)  There was no material change of circumstances to justify P’s re-litigation of this issue;

(iii)  such wasteful conduct was compounded by the abusive and oppressive way in which P ran his case

P’s opposition

9.  Briefly, P’s opposition was based on:

(1)  the constructive trustee argument did have a factual foundation;

(2)  P never made admission or concession as alleged by D in relation to D’s Undertakings being obtained on a false basis and that he was not the UBO;

(3)  D’s allegation that the Interrogatories were taken out to derail the hearing on the Question;

(4)  P could not be said to have engaged in “unreasonable and abusive conduct”;

(5)  D was in fact asking the Court to derogate from its finding that there was no sufficient evidence that D’s Undertakings were obtained by P by fraudulent and improper means;

(6)  This Court did refer to the documents in the hearing bundles for the 8 February 2023 hearing notwithstanding D’s opposition for inclusion on irrelevance.

Discussion

The Interrogatories Summonses

10.  So far as the two Interrogatories Summonses were concerned, as seen in the Decision, I have found that the Interrogatories did not relate to a matter in question between the parties in the present section 21M Proceedings, nor were they necessary either for disposing fairly of the cause or matter or for saving costs.

11.  As set out in the Decision, and to repeat, the primary forum of the litigation was in Singapore, and Suit 1212/2017 was commenced by JTrust against MK and companies controlled by MK including Cougar SG of which the sole shareholder was POH. Cougar SG in turn owned shares in KR Brazil. P claimed that KR Brazil was a member of Kuga Corporation of which P was the President and CEO. P applied to join in Suit 1212/2017 claiming to be the beneficial owner of Cougar SG and POH on 8 May 2019. In light of this, the beneficial ownership of Cougar SG and POH clearly became part of the issues in Suit 1212/2017. As also set out in the Decision, it was found by SGCA that the POH companies (or SG Borrowers) were in fact beneficially owned by MK.

12.  The Transcript showed that D had already answered similar questions asked of him during the trial of Suit 1212/2017 as in the Interrogatories. There was no basis for P to serve the Interrogatories on D, and that it was clear that the identity of the UBO of POH was not known to D prior to the determination in Suit 1212/2017, and as said P already had those answers.

13.  So far as the constructive trustee issue was concerned, the issue had already been decided by this Court as seen in the Release Decision. As for the significant change of circumstances alleged by P, it was argued by P that despite the determination of SGCA, D had not returned the POH Shares to MK. As found by this Court in the Decision, the argument was misconceived, as it should be MK who should be making such argument against D who was found by SGCA to be the UBO. In any event, this Court found there was no material change of circumstances.

14.  In light of all said above, and that it was found by this Court in the Decision that all the documentary evidence supported the finding of the SGCA that MK was/is the UBO of POH, I am of the view that the Interrogatories were wholly without merit and should never have been served on D and that they were also abusive in that they all related to D’s alleged constructive trusteeship which had already been decided by this Court and that this Court had found there was no material change of circumstances. They were also served, in my view, to cause a delay to the hearing of D’s Inquiry Summons.

15.  Having considered all the circumstances of this case, I order P to pay D’s costs of the two Interrogatories Summonses on indemnity basis, with certificate for two counsel.

The determination of the Question

16.  As set out in the Hong Kong Civil Procedure 2023, Vol 1, 29/1/25 and 29/1/26, on an application to enforce an undertaking as to damages, there are two separate points to consider: first, as a matter of discretion, should the court order that the undertaking be enforced? Secondly, if so, what loss has the defendant suffered in terms of money, was it caused by the injunction and was it too remote. It is further set out that in a case where it is determined that the injunction should not have been granted, the court is likely to enforce the undertaking if asked to do so, though the court still retains a discretion not to do so.

17.  Thus, the burden was on D to satisfy this Court that P’s Cross Undertaking should be enforced.

18.  The Court has in the Decision stated that it is not satisfied that P knowingly procured D’s Undertakings by fraudulent or improper means. However, it was argued by Ms Sit that, first, P clearly could and should have discovered that he was not the UBO before launching the present action and even if P had not discovered that as the evidence emerged it became clear that the UBO was not P, P ought to have discontinued this action then and there, rather than pursuing it all the way to end. Second, P’s opposition to the Inquiry was abusive, oppressive and wasteful given that is principal ground of opposition being that D was allegedly a constructive trustee.

19.  However, in my view, with or without P’s opposition, D would still need to satisfy this Court that the Court should exercise its discretion to enforce P’s Cross Undertaking, and that in any event, this Court would have to determine the Question.

20.  In the above circumstances, I do not find that indemnity costs should be ordered against P. I maintain the Order Nisi, save as stated below.

Whether summary assessment

21.  In relation to the three summonses, they were all interlocutory and stand alone applications, I accept Ms Sit’s submission that the costs should be summarily assessed.

Conclusion

22.  In light of all above said, I am prepared to vary the Order Nisi and grant an order in terms of paragraph 1(a) of the Variation Summons, save that I allow P 28 days to pay upon summary assessment. As for paragraph 1(b) of the Variation Summons, the Order Nisi be varied only to the extent that the costs are to be summarily assessed and be paid by P within 28 days upon summary assessment.

23.  I would roughly apportion the time spent on the Interrogatories Summonses and the determination of the Question 50/50.

24.  As for the costs of the Variation Summons, P only succeeded partially on opposing the variation of the Order Nisi relating to the determination of the Question. I order P to pay 75 % of the costs of the Variation Summons, to be summarily assessed on party and party basis with certificate of two counsel and be paid within 28 days upon summary assessment.

25.  D to lodge statements of costs within 14 days and P to lodge lists of objections within 14 days thereafter.

Mr David Fong, instructed by Lau, Kwong & Hung, for the Plaintiff

Ms Eva Sit SC and Mr Cedric Yeung, instructed by Hogan Lovells, for the Defendant

HCMP 1180/2018

[2021] HKCFI 1335

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1180 OF 2018

_______________________

_______________________

BETWEEN

____________________

__________________________

DECISION
(On Release of Fortification
re Undertaking as to Damages)

__________________________

INTRODUCTION

1.  There are presently two summonses before this Court, a summons issued by P for release of the fortification of his cross-undertaking as to damages of USD 1m paid into court (together with interest accrued thereon) (“Release Summons”), and a summons issued by D for leave to file Hopkins’ 4^th affidavit (“Leave Summons”).

2.  P issued the originating summons in these proceedings on 1 August 2018 for injunctive relief under section 21M of the High Court Ordinance, Cap 4 in aid of proceedings in Luxembourg, in which P alleges he is the beneficial owner of the entire issued share capital of a company incorporated in Luxembourg, Pacific Opportunities Holdings SARL (“POH”) which is now being held by D, and P seeks a declaration that the transfer to D of the shares in POH (“POH Shares”) to be declared void.

3.  After the issue of the originating summons, on 10 August 2018, at the 1^st hearing before Anthony Chan J (“1^st Hearing”), pending substantive argument, D gave certain undertakings, amongst other things, to preserve the status quo of the POH Shares, and assets and personnel of POH or its subsidiaries and not to divulge financial and confidential and/or privileged information belonging to POH or its subsidiaries to JTrust Asia Pte Ltd (“JTrust”), upon P’s cross-undertaking to provide within 14 days of the order a guarantee in the sum of USD 1m as fortification of his undertaking as to damages (“Chan Order”)[1].  P’s cross-undertaking was subsequently varied on 28 August 2018 by consent that P was to pay by 31 August 2018 the sum of USD 1m into Court as fortification[2].  The said sum of USD 1m has since been paid into Court and placed in an interest bearing account.

4.  The originating summons (as later amended) was fixed for a substantive argument on 14 November 2019 (“Substantive Hearing”). As a result of an application for adjournment by D, the amended originating summons was adjourned sine die pursuant to revised undertakings from D. Essentially, D’s undertaking in the Chan Order regarding the divulging of financial information was replaced by an undertaking not to take any step to diminish the assets and/or increase the liabilities of POH and its subsidiaries and an undertaking not to take any steps to procure the liquidation of POH and its subsidiaries (“2019 Order”)[3].  D’s other undertakings in the Chan Order have remained unchanged, and P’s cross undertaking as to damages including the fortification of USD 1m has also remained unchanged.

5.  Costs were reserved pursuant to the 2019 Order.  Subsequent thereto, this Court handed down a decision on costs on 11 December 2019 (“Costs Decision”).  I will continue to adopt the abbreviations in the Costs Decision, unless otherwise indicated herein.

6.  There have been multi jurisdictional disputes and litigations between JTrust, which is the Singapore investment company of J Trust Co Ltd (a Japan public company) and P’s friend MK and companies controlled by MK including the Group Lease group of companies of which Group Lease Thailand (a Thai public company) and Group Lease Singapore are part of.  The primary forum of the litigation has been in Singapore.  The proceedings in Singapore (“Singapore Proceedings”) consisted of Suit 1212/2017 issued by by JTrust, and Suit 899/2018 issued by P. The Luxembourg Proceedings are related to the Singapore Proceedings.

7.  Prior to the Singapore Proceedings, JTrust had also commenced proceedings in BVI on 17 December 2017 against MK and another company (“BVI Proceedings”).  Suit 1212/2017 was issued by JTrust on 26 December 2017 against Group Lease Singapore, MK, Cougar Pacific Ptd Ltd (“Cougar SG”) and 4 Cyprus companies said to be controlled by MK (“Cyprus Borrowers”).

8.  Suit 1212/2017 was based on the allegation of JTrust of a conspiracy between those 7 defendants involving sham loans and perpetrated by MK to defraud JTrust of its investments.  After the commencement of Suit 1212/2017, JTrust had obtained a domestic Mareva injunction against the defendants which was later set aside by a judge of the High Court of Singapore and JTrust then appealed to the Singapore Court of Appeal.  The appeal was allowed as seen in a judgment handed down on 1 June 2018, namely [2018] SGCA 27, and the domestic Mareva injunction was reinstated and further the injunctions were expanded by the Singapore Court of Appeal to worldwide Mareva injunctions against Group Lease Singapore and Cougar SG (“SGCA Injunction Judgment”)[4].

9.  At the time of the 1^st Hearing, D’s then Senior Counsel Mr Jin Pao had attached a copy of the SGCA Injunction Judgment to his Skeleton Submissions[5] for the attention of the Court.

10.  After the Chan Order, P joined Suit 1212/2017 as the 8^th defendant on 8 May 2019, claiming to be the beneficial owner of Cougar SG[6].

11.  As said earlier, there was no change to the fortification at the time of the Substantive Hearing and/or in the 2019 Order.

12.  Two months after the 2019 Order, on 12 February 2020, the Singapore High Court delivered its judgment in Suit 1212/2017 after a trial of some 10 days and dismissed all “conspiracy to defraud” claims brought by JTrust against the defendants therein (“SGHC Judgment”)[7].  It was found therein that  after joining as the 8^th defendant, P had affiliated himself with MK and the other defendants, although Cougar SG later took a neutral stance in that action[8].  As further seen in the judgment, after D obtained control of Cougar SG through POH, Cougar SG was said to be under the control, indirect or otherwise, of JTrust which had funded D’s role in the litigation[9].

13.  A day after the delivery of the above judgment, on 13 February 2020, JTrust filed a Notice of Appeal and the appeal was heard by the Singapore Court of Appeal on 7 July 2020 with judgment reserved.

14.  The Release Summons was issued on 17 August 2020 by P after the hearing of the appeal but prior to judgment being handed down by the Singapore Court of Appeal.  P has relied on various findings in the SGHC Judgment and Hopkins’ evidence during the trial in support of the Release Summons.

15.  On 6 October 2020, the SG Court of Appeal handed down its judgment under [2020] SGCA 95 (“SGCA Final Judgment”)[10] allowing the appeal of JTrust and reversing the High Court decision in the SGHC Judgment.  The SGCA Final Judgment has brought Suit 1212/2017 to conclusion.

16.  Notwithstanding that Suit 1212/2017 has been finally concluded, the Luxemburg Proceedings are still ongoing.

17.  Counsel Mr David Fong represented P at the hearing before this Court and Ms Eva Sit SC represented D.

THE LEAVE SUMMONS

18.  D sought leave to filed a 4^th affidavit by Hopkins in which Hopkins had summarised the heads of loss or damage which D and/or the affected third parties (including but not limited to POH, Cougar SG and KR (a company in Brazil)) had suffered and/or would continue to suffer as a consequence of P’s actions and D’s undertakings in the Chan Order and/or the 2019 Order, and Hopkins provided an estimate of the quantum of in excess of USD 500,000.

19.  The evidence summarised by Hopkins was from various affidavits filed in both the present proceedings and the Singapore proceedings.  As to the quantum, it was only an estimate on the part of Hopkins/D.

20.  In paragraph 49 of his 4^th affirmation, P had stated that D as a trustee could not have suffered any damage from D’s undertakings and for damages that might potentially suffered by the UBO, D as a constructive trustee would be personally liable for such damages, it was only paragraph 54 of his 5^th affirmation that P then raised the issue that no particulars were given by D as to the kind of damages the third parties could suffer.  It was in response to this that D sought leave to file his 4^th affidavit.

21.  Although the Leave Summons was issued late and there was no explanation for delay, the summary provided by Hopkins was of evidence in affidavits which had already been filed whether in these proceedings or in the Singapore Proceedings.  Thus, P should not be taken by surprise.  Insofar as the quantum was concerned, it was no more than an estimate and there was no documentary evidence in support thereof, as submitted by Mr Fong.

22.  Having considered the above, in my view, the summary provided by Hopkins was relevant and there was no evidence of any real prejudice suffered by P by the late filing of the affidavit.  I am prepared to grant the order sought.

THE LEGAL PRINCIPLES ON RELEASE OF FORTIFICATION

23.  Mr Fong had referred this Court to the judgment of DHCJ Douglas Lam SC in Emagist Entertainment Ltd v Nether Games (Hong Kong) Ltd and Others[2020] HKCFI 638 , in which the Deputy High Court Judge had summarised the legal principles in relation to the reduction of the amount of fortification, namely that as in the case of a defendant seeking further fortification when he will usually be required to show a change in circumstances which justify further fortification, similar principles apply to an application to reduce the amount of fortification.  It was held by DHCJ Douglas Lam SC that for the application before him, the issue was whether there had been a significant change of circumstances and if so, whether such change warranted the reduction in the fortification sought[11].

24.  There was no dispute to the above legal principles.

GROUNDS FOR THE RELEASE SUMMONS

25.  P’s ground for the Release Summons was that due to D’s deliberate concealment of the Material Facts ( as defined below) , there has been a significant change of circumstances.  P relied on (i) the discovery that D is a constructive trustee for dishonest assistance and/or knowing receipt (“Constructive Trustee Ground”) and (ii) the fact that D cannot and will not suffer any damage from the voluntary undertaking given (“No Damage Ground”).

CONSTRUCTIVE TRUSTEE GROUND

P’s case

26.  POH was a shelf company in Luxembourg which was acquired on 30 January 2015 by Tep, a well-connected businessman in Cambodia[12] and at that time a close friend of MK, on instructions of MK and Group Lease Singapore.  Upon POH being acquired, Tep became its sole director and sole shareholder holding the POH Shares.  On 30 June 2015, POH acquired 100% of the Brazilian company KR (said to own the Brazil Land) from Cougar SG and later on 5 August 2015, POH further acquired 100% of Cougar SG and on the same day, Tep was appointed as a director of Cougar SG.

27.  P’s case is that although the acquisition of POH by Tep was on instructions of MK and Group Lease Singapore, the acquisition was with P’s knowledge and approval and Tep held the POH Shares in trust for P and that P is the ultimate beneficial owner (“UBO”) thereof.

28.  Pursuant to a share transfer agreement dated 12 June 2018 (“Share Transfer Agreement”)[13], Tep transferred the POH Shares to D in consideration of USD 1 (“Transfer”).

29.  It was submitted by Mr Fong on behalf of P that there was a clear case of breach of trust by Tep as the Transfer was without any form of authorization from the UBO, namely P.  Further, Hopkins knew before D was incorporated that D would be used for holding trust property, namely the POH Shares, and the Transfer was in breach of trust, and in consideration for this service, JTrust would pay service fees to Perun Consultants Limited (“Perun”) of which Hopkins was the founder, and that these were material facts (“Material Facts”) which D failed to disclose at the 1^st Hearing to the Court; instead, D’s then Senior Counsel in both his Skeleton Submissions and at the 1^st Hearing, sought fortification of P’s undertaking as to damages of USD 30m, and Mr Fong submitted that by D’s conduct, D had misrepresented itself to the Court to be the UBO[14].

Whether any misrepresentation or non-disclosure of Material Facts

30.  As set out, P’s complaint was that the Transfer was without his knowledge and/or authorisation.  P said after the Transfer he found out that D was only incorporated on 29 May 2018, about two weeks prior to the Transfer and Hopkins was and is the sole shareholder and director of D, and that within days after the Transfer, D had, amongst other things, appointed itself as a corporate director of POH and removed the then existing directors of Cougar SG and appointed 3 new directors including Hopkins himself.

31.  However, as pointed out by Ms Sit on behalf of D, there was no secret in the Transfer.  The company secretary of POH was immediately informed on 13 June 2018 the next day of the Transfer.  Further, on 14 June 2018 Group Lease Singapore was informed of the Transfer and according to P’s own evidence, he discovered the Transfer on 14 June 2018.  Also on 10 July 2018, Cougar SG notified the parties in Suit 1212/2017 of its change of solicitors[15].

32.  At the 1^st Hearing, Hopkins/D had not yet had an opportunity to file any affidavit in response to P’s originating summons.  However, D’s then Senior Counsel had in his Skeleton Submissions[16] attached a copy of the SGCA Injunction Judgment for the information of the Court.

33.  As seen in the SGCA Injunction Judgment, between March 2015 and December 2016, JTrust made a number of investments in Group Lease Thailand of some USD 210m upon reviewing and relying on the accuracy of the accounts of Group Lease Thailand.  In March 2017, the Stock Exchange of Thailand started investigating into loans extended by Group Lease Thailand to various borrowers.  Subsequent thereto, there was a press release on 16 October 2017 by the Thailand Securities and Exchange Commission (“ThaiSEC”) that it found that Group Lease Singapore in 2016 had, under MK’s directions issued loans to 4 registered companies in Cyprus, namely the Cyprus Borrowers and to Cougar SG, and that MK was the “controller and ultimate benefactor” of all those companies and that the principal of those loans had been used by the borrower companies to repay the interest on those loans to Group Lease Singapore.  The interests were then in turn recorded as income in Group Lease Singapore’s financial statements thus artificially inflating operating results of Group Lease Thailand. As a result of the “round-tripping” of funds, the Thai SEC had decided to lodge a criminal complaint against Group Lease Thailand and had banned MK from occupying directorships in Thai companies.

34.  After the news release of the Thai SEC, JTrust had tried to explore its options for potential recovery of its investments but negotiations with MK were unsuccessful.  Suit 1212/2017 was then issued by JTrust against Group Lease Singapore, MK, Cougar SG and the 4 Cyprus Borrowers based on its allegations of the defendants’ conspiracy to defraud JTrust.

35.  D’s then Senior Counsel Mr Jin Pao had informed the Court at the 1^st Hearing that D is a Hong Kong incorporated entity and Hopkins, is a forensic accountant and insolvency practitioner with over 20 years of experience, is the sole director of D and one of the new directors of Couger SG.  Upon the Transfer of the POH Shares by Tep, D became the sole shareholder of POH.  The Court was also informed at the 1^st Hearing that the purpose of the Transfer (and the appointment of D as a director) was to provide independent and objective management of POH and its subsidiaries as a consequence of the very serious allegations of fraud alleged by JTrust to have committed against it by MK and his associated entities[17]. It was also made known to the Court at the 1^st Hearing that D disputes P’s entitlement to the relief sought by him in the originating summons given the conflicting evidence regarding the actual beneficial ownership of POH prior to the Transfer to D.

36.  Having considered the submissions at the 1^st Hearing by Mr Jin Pao SC and also the SGCA Injunction Judgment, there was no sufficient evidence that there was misrepresentation in the part of D or that Anthony Chan J was misled by D at the 1^st Hearing into thinking that D was/is the UBO of the POH Shares, nor was there any non-disclosure of D’s role or services.

37.  Hopkins’s 1^st affidavit was subsequently filed on 10 October 2018.  Hopkins made it clear therein that Perun is a Hong Kong based professional services firm specialising in the areas of forensic accounting, corporate advisory, restructuring, turnaround and liquidation appointments and Hopkins’s services had included undertaking engagements as independent trustee or director and he had included a copy of his professional CV.  Hopkins’s evidence in his 1^st affidavit was that D purchased the POH Shares from Tep who wished to divest himself of the POH Shares held in his name, and the purpose of this sale by Tep and the appointment of D as a director of POH was to provide independent and objective management of POH and its subsidiaries as a consequence of Tep’s discovery of the very serious allegations concerning a very substantial fraud as reported by the Thai SEC in its news release on 16 October 2017, and as alleged by JTrust in his litigation against MK and his associated entities.  Hopkins had made clear in paragraph 28 of his 1^st affidavit that any associated costs if not met by the companies in question would be met by JTrust[18].

38.  Mr Fong had set out in a table the events which led to the acquisition of D of the Shares in POH, which referred to those documents disclosed by D/Hopkins pursuant to a specific disclosure order in Suit 1212/2017, including in particular (i) the Letter of Engagement dated 23 May 2018 issued by Perun to JTrust (“Letter of Engagement”)[19] and (ii) the Deed of Indemnity executed on 11 June 2018 by JTrust and Perun (“Deed of Indemnity”)[20].

39.  Although Hopkins did not reveal in his 1^st affidavit the above documents and/or details as to how he came to be instructed by Harneys, the legal representatives of JTrust in the BVI proceedings[21], Hopkins had produced a copy of the Share Transfer Agreement.  Further, Hopkins’s evidence in his 1^st affidavit clearly showed that Tep was only holding the legal title of the POH Shares, and thus, the Transfer by Tep to D or the “purchase” or “acquisition” of the POH Shares by D could only be of Tep’s legal title to the POH Shares.

40.  Hopkins had in his 2^nd affidavit filed on 23 October 2019 herein exhibited a copy of his affidavit filed in Suit 1212/2017 on 11 December 2018 in which he had repeated his evidence that Perun was brought in to provide independent director services in respect of POH and any associated costs if not met by the companies in question would be met by JTrust[22].

41.  In fact, the Letter of Engagement and Deed of Indemnity given by JTrust were exhibited by P in his own 3^rd affirmation filed in these proceedings[23].

42.  All the above had been disclosed by Hopkins on behalf of D prior to the Substantive Hearing.  As pointed out by Ms Sit, it is clear from MK’s 1^st affirmation herein that it is P’s own position that at the time of the originating summons that D was a nominee and JTrust was behind the Transfer[24].  There was no sufficient evidence of any misrepresentation by Hopkins/D to the Court or non-disclosure of the Material Facts at the Substantive Hearing, when there was no objection to the 2019 Order being made, with continued fortification of P’s cross undertaking.

Whether D had knowledge of any breach of trust

43.  As said, P’s case is that there was a clear case of breach of trust on the part of Tep as he had transferred the POH Shares to D without any form of authorization from the UBO and that D had knowledge of this.  It was submitted by Mr Fong on behalf of P that Hopkins had admitted during his cross examination in Suit 1212/2017 that he did not know who the UBO of the POH Shares were and therefore logically it would follow that there was no authorization from the UBO for transferring the POH Shares to D and that this was known to Hopkins/D.  It was further pointed out by Mr Fong that from June 2018 to August 2019, JTrust had paid approximately USD 695,000 professional fees to Perun.

44.  It was also pointed out on behalf of P that there was no affirmation from Tep (i) to rebut the evidence of P and MK that Tep had met with them MK in December 2015 for dinner at the New York Steak House in Phnom Penh and that during the dinner, P told Tep to hold the POH Shares on trust for P to which Tep agreed and (ii) to explain the circumstances leading to the sale and purchase of the POH Shares to D knowing that he only held the POH Shares on trust for P.

45.  MK had in his 1^st affirmation filed herein[25] produced a copy of a statutory declaration made by Tep on 12 June 2018 in the BVI Proceedings (“ TepStatutory Declaration”).  In the Tep Statutory Declaration, Tep had set out how he came to meet MK and his dealings with MK and the events of October 2017 when he learnt of MK being accused of fraud by the Thai SEC.  Tep stated that thereafter, he was trying to extricate himself from the companies which he then knew were the vehicles of MK’s fraud, and he confirmed that he was used as an innocent agent by MK and that he had cut all personal ties with ML in an effort to protect his reputation and integrity.

46.  It was Hopkins’ evidence in his 1^st affidavit that at the time of the Transfer, Tep did not inform him or D that P was, or that P claimed to be, the UBO of POH, and that Hopkins further pointed out that while the question of ownership is a matter for the Luxembourg Court to decide, the material submitted by P did not appear to support his contention that he was the true UBO of the Shares. Hopkins had referred to the Tep Statutory Declaration in which Tep had stated that he dealt with MK and that there was no mention of P at all.  Hopkins pointed out that this contradicted P’s contention that Tep knew he was P’s willing and knowing nominee.  There was no sufficient evidence that Tep knew that the UBO of the POH Shares was P.

47.  Hopkins had made it clear in his 1^st affidavit that he/D does not accept P’s assertion that he is the UOB of the POH Shares.  Hopkins had further pointed out that the first mention of Kuga Corporation (of which P is the President and CEO) being the alleged beneficial owner of POH was only made on 24 January 2018 the day after MK, Group Lease Singapore and Cougar SG applied to the Singapore Court to set aside the Mareva Injunction obtained by JTrust.

48.  What can be seen in the SGCA Final Judgment is that it was found by the Singapore Court of Appeal on a balance of probabilities that the “Borrowers” which included Cougar SG and the 4 Cyprus Borrowers were beneficially owned by MK[26] and the reasons were set out in paragraphs 101 to 110 of the SGCA Final Judgment[27].

49.  Ms Sit submitted that there was nothing untoward or inappropriate in D’s involvement and had referred to proceedings in Cambodia.  Group Lease Singapore and/or MK had brought a complaint against Tep in Cambodia accusing Tep had used a “bad faith trick/trickery, fake position, in breaching on the real title which has affected the interest of [Group Lease Singapore]”.[28]

50.  As seen in the Dismissal Ruling of the Criminal Case by the Cambodian Court on 18 April 2019 (“Cambodian Ruling”), Tep had requested Group Lease Singapore to replace him as Chairman of the Board of Directors/director of POH or from all title/positions and Tep had requested and applied for resignation from being the company director of POH and he had asked Group Lease Singapore to seek a new person for his replacement.[29]  It was only thereafter that Tep had cooperated with the Chairman of JTrust and Hopkins to establish/set up D and to transfer the Shares from POH to D and to have Hopkins to be the Chairman of POH.  As seen in the Cambodian Ruling, Tep was interrogated by the Prosecutor of the Cambodian Court[30].

51.  It would appear in the Cambodian Ruling that after the finding of Thai SEC was published on 16 October 2017, Tep was “strongly surprised and horrified by [MK] and his associated friends having committed a fraudulent and bad faith act in using the public money”[31], and on 17 October 2017, Tep sought to meet with MK at his office in Phnom Penh, and on that day, MK’s explanation was that there was a Thai billionaire who was wanting to expel MK from Thailand and using the power and influence of the Thai SEC to remove MK as CEO of Group Lease Thailand under the unfair accusation against him.  Thereafter, Tep resigned as director of Cougar SG on 28 November 2017 and on 1 February 2018, Tep resigned from the position/title as “share manager” of POH and that MK ended his relation/contact with Tep at that time immediately.  Between December 2017 and April 2018, Tep had communicated with Group Lease Singapore through his lawyer and MK’s lawyer to prepare transfer of the POH Shares to one Mr Khith Sipin appointed by Group Lease Singapore and that Mr Sipin had agreed to receive the POH Shares but Group Lease Singapore did not allow Tep to transfer the POH Shares to Mr Sipin.  It was after having consultation with his own lawyer and consultation with the lawyer of JTrust (which was registered in the commercial register in Singapore as financing provider to Group Lease Thailand) and “to substitute his fear that he is involved with the act of MK and his associated friends”[32], on 12 June 2018, Tep entered into the Share Transfer Agreement with D.

52.  The Cambodian Court appeared to have also referred to a “Statute of Company” as it was stated in the Cambodian Ruling that “Pursuant to the Statute of Company in Article 6.2 stated that ‘the single shareholder has a full right to transfer all shares to the third party without having an objection from any person”’[33].  Anyway, it was ultimately held by the Cambodian Court that Tep and accomplices [ie the Chairman, and the head of legislation unit of JTrust, and Hopkins] did not commit any act of fraud, collusion, breach of trust, or unauthorized selling the Shares of POH and MK’s complaint was dismissed on 18 April 2019[34].

53.  Mr Fong had referred to the defendants’ arguments in Suit 1212/2017 that JTrust’s act of taking control of Cougar SG was an abuse of process.  Although the High Court Judge in the SGHC Judgment found that Cougar SG was under the control, indirect or otherwise, of JTrust, which had funded D’s role in Suit 1212/2017 and that after D obtained control of Cougar SG, D capitulated to JTrust’s demands and maintained a neutral stance during that trial, insofar as this Court can see, there was no finding in the SGHC Judgment that there was an abuse of process on the part of JTrust in taking control of Cougar SG[35].

54.  Having considered all the above, in my view, there was no sufficient evidence that there was a breach of trust or fiduciary duty by Tep in wanting to resign as trustee/nominee holder of the POH Shares and cooperating with JTrust, after the findings of fraud by the Thai SEC and fearing he may be implicated and having requested and applied to MK/Group Lease Singapore unsuccessfully for his resignation.

55.  Hopkins had in his affidavit of 11 December 2018 filed in Suit 1212/2017 set out the circumstances leading up to the Transfer[36], and stated, amongst other things, it was Tep who sought to extricate himself from POH and its subsidiaries (including Cougar SG) which had been implicated in allegations of fraud associated with MK, and that Hopkins was not party to any discussion between Tep, Tep’s solicitors or any other parties that led to Tep selling the POH Shares, nor was Hopkins a party to any agreements reached between Tep and JTrust.  Hopkins had said he was simply informed by JTrust that (i) Tep wanted to extricate himself from POH and its subsidiaries and (ii) costs associated with the provision of independent director services in respect of POH and its subsidiaries if not met by the assets of the companies would be met by JTrust[37].

56.  There was no sufficient evidence to contradict Hopkins’ above evidence.

57.  Mr Fong had referred to Hopkins’s evidence that he did not know who was the UBO and/or he did not enquire into the beneficial ownership of the POH Shares.  Mr Fong submitted that Hopkins was in breach of the Guidelines on Anti-Money Laundering and Counter-Terrorist Financing for Professional Accountant issued by HKIPCA effective on 1 March 2018, namely paragraphs 610.2.5, 620.1(b), 620.2.4 etc, and that pursuant to thereto, Hopkins should have carried out customer due diligence and  verified who the UBO of the POH Shares was.

58.  However, in the present case, the beneficial ownership of the POH Shares is a matter pending the determination of the Luxembourg Court.  As submitted by Ms Sit, the Letter of Engagement and the Deed of Indemnity indicated that the situation was no different from a receiver of a company involving shareholders’ dispute and that D was only holding the ring pending the final determination of the ultimate beneficial ownership of the POH Shares in the Luxembourg Proceedings.  I accept Ms Sit’s submission in this respect.

Whether D was/is a constructive trustee

59.  To summarise, having regard to all above said, in my view, there was no sufficient evidence that there was a breach of trust on the part of Tep and there was no sufficient evidence that there was any deliberate concealment of the Material Facts on the part of D.  In any event, there was no sufficient evidence of any dishonest assistance and/or knowing receipt on the part of D, or that D was/is a constructive trustee of the POH Shares, as alleged by P.

NO DAMAGE GROUND

60.  Mr Fong submitted that the utility of providing fortification of undertaking as to damages is to protect the defendant, and not any other third party and that the burden is on the defendant to show “the likelihood of a significant loss arising as a result of the injunction”: at paragraph 11, per To J in Sung Yan v Superb Jade Ltd and Others HCA 813/2014, unrep 23.10.15.

61.  Thus, it was submitted that, as D did/does not beneficially own the POH Shares, it could not suffer any damage/loss from the voluntary undertakings given by D to this Court.

62.  Further, as neither D nor JTrust, the paymaster of Perun claims to be the UBO of the POH Shares in the Luxembourg Proceedings, there are only two potential UBOs, namely in P’s case, it is P, and in D’s case, it is MK.  As MK had stated in his 2^nd affirmation that he would not seek any damages from P and/or take any action against P to recover any damages arising out of the present proceedings[38], it was therefore submitted that, even if the Luxembourg Court were to find MK to be the UBO of the POH Shares, there would not be a claim from MK against P for any damages arising out of the present proceedings.

63.  As pointed out by Ms Sit, in Schedule 1 of the Chan Order, it is clear that P’s cross undertaking as to damages and the fortification thereof extends to D or any other party and that undertaking as to damages was a voluntary undertaking by P at the time.  This was again repeated in Schedule 1 of the 2019 Order of this Court.

64.  As seen in the submissions of Mr Jin Pao SC at the 1^st Hearing, it was submitted to the Court at that time that P was resident overseas in Japan, and whilst he alleged that he was of substantial means, there was no actual evidence of this and there was no evidence that P had assets of any value within this jurisdiction.  It was further submitted at that time that the fortification should be in the region of USD 30m on the basis that P himself had estimated that the damages he could suffer in the Luxembourg Proceedings were in the region of USD 30m[39].

65.  Upon the Court’s indication that fortification of his undertaking as to damages was required, P offered USD 1m as fortification and that was accepted by the Court at the 1^st Hearing.  As said, there was no change in the 2019 Order.

66.  Even though there was no supporting documentary evidence as to the quantum of damages in Hopkins’ 4^th affidavit, having considered the summary of the evidence in various affidavits, I am of the view that there could be substantial damages suffered by D and any other affected party arising out of D being restrained under its undertakings under the Chan order and/or the 2019 Order.

67.  In any event, I do not find that P’s No Damage Ground has been made out, namely that D (and/or its subsidiaries) or any party affected by D’s undertakings will not suffer any damage arising out of those undertakings.

WHETHER SIGNIFICANT CHANGE IN CIRCUMSTANCES

68.  As pointed out by Ms Sit, the fortification is to safeguard D’s position if P were to turn out to be wrong and D has been restrained.  At the 1^st Hearing, D offered undertakings and P offered the cross undertaking as to damages voluntarily with fortification, which was continued at the Substantive Hearing, and that the burden is now on P to show good reason why the fortification should be released.

69.  As mentioned earlier, there was no sufficient evidence to support P’s allegations.  In my view, P has not been able to discharge the burden on him to show that there has been any significant or material change of circumstances which justifies the release of the fortification being sought by P.  There are also no other grounds in the interests of justice as alleged by P which justifies such release.

ORDER

70.  Having regard to all above said, I dismiss P’s Release Summons with costs to D, to be summarily assessed and to be paid within 14 days of summary assessment.  D is to submit a statement of costs within 7 days and P his list of objections within 7 days thereafter.

71.  As for the Leave Summons, D should pay costs of the issue of the summons in seeking indulgence of the Court, but P had unsuccessfully opposed the application.  The time taken on the argument of the Leave Summons was insubstantial.  Having considered all the circumstances, I make no order as to costs.

Mr David Fong, instructed by Lau Kwong & Hung, for the Plaintiff

Ms Eva Sit SC, instructed by Hogan Lovells, for the Defendant

HCMP 1180/2018

[2019] HKCFI 2994

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1180 OF 2018

______________________

______________________

______________________

_________________

D E C I S I O N
(On Costs)

 _________________

Introduction

1.  At the hearing, the parties, respectively the plaintiff (P) and the defendant (D), were able to agree to various undertakings upon which the originating summons (as amended) was adjourned sine die with liberty to restore.  The only matter outstanding was the question of costs.

2.  There were originally 4 matters before this Court :

(1) D’s summons issued on 17 October 2019 for adjournment and leave to adduce further affidavits;

(2) P’s summons issued on 4 November 2019 for leave to adduce further affidavits;

(3) P’s summons for amendment of the originating summons issued on 11 November 2019;

(4) The substantive hearing on 14 November 2019 for the arguments over the originating summons.

3.  There was no dispute over the costs of P’s summons to amend the originating summons, ie item (3) above, which P agreed to pay.

4.  Insofar as item (1) above, there were two applications in D’s summons, namely (i) to seek an adjournment and (ii) to seek leave to adduce further affidavits and documents in relation to Suit 1212/2017 in Singapore (“Suit 1212/2017”) and also the proceedings in Action TAL-2018-07176 in Luxembourg (“Luxembourg Proceedings”).  D’s application to adduce further affidavits and/or documents was in fact agreed to by P prior to P’s Skeleton Submissions were lodged on 1 November 2019, subject to P being granted leave to adduce the further evidence in P’s summons in item (2) above. There was really no dispute to those applications.  In my view, there should be no order as to costs in relation to both parties’ applications to seek leave to adduce further evidence.

5.  The amended originating summons was adjourned sine die with liberty to restore.  As the amended originating summons has not been finally disposed of, I am of the view that the costs thereof, save for the costs of the substantive hearing on 14 November 2019 (“Hearing”) should be reserved.

6.  The remaining disputes are in relation to :

(1) Costs of D’s application for adjournment of the Hearing, and

(2) Costs of the Hearing.

7.  P sought costs of the adjournment application to be paid by D on an indemnity basis.  P also sought costs of the Hearing.

8.  On the other hand, it was submitted on behalf of D that, for both costs of the adjournment application and the originating summons, save for the costs of the Hearing, costs should be reserved pending resolutions of the Luxembourg Proceedings and that the parties to make submissions thereafter based on the result of those proceedings.  As for the costs of the Hearing, D’s case was that it should be entitled to costs.

Brief background

9.  P is the President and Chief Executive Officer of Kuga Corporation Company Limited (“Kuga Corporation”), a family business which is said to have over 110 years of history in Japan and which is principally engaged in the business of wholesale supply of construction materials and pre-cut wood.

10.  In around 2013 to 2014, Kuga Corporation wanted to expand its business into ASEAN countries and appointed a company of which P’s friend Mitsuji Konoshita (“MK”) was a director as its corporate structuring consultant.  It was P’s case that through MK’s recommendation, a Cambodian businessman Tep Rithivat (“Tep”) was appointed as the business representative of Kuga Corporation and P for ASEAN countries. 

11.  At about the same time, P also consulted MK with respect to the restructuring of the ownership of a plot of land in Brazil (“Brazil Land”) which was owned by Kuga Reflorentamenta Ltda (“KR”), a member of the Kuga Corporation Group.

12.  As a result of the restructuring :

(1) A Singaporean company Cougar Pacific Ptd Ltd (“CP”) was incorporated as a wholly owned subsidiary of Kuga Corporation to purchase from Kuga Corporation the entire share capital of KR;

(2) Subsequently, for tax reasons, a shelf company in Luxembourg was acquired and renamed Pacific Opportunities Holdings S.A.R.L (“POH”) and CP’s shares in KR were then sold to POH;

(3) According to P, it was agreed between P and Tep that the shares in POH (“Shares”) would be registered in Tep’s name but Tep would hold the Shares on trust for P who would be the beneficial owner of the Shares.

13.  POH later also acquired CP from Kuga Corporation.

14.  In short, through the above transactions, Tep became the registered shareholder of the Shares in POH which held 100% of CP and KR and through KR the Brazil Land, and P’s case is that Tep held the Shares in trust for P.

15.  According to P, on 14 June 2018, P discovered that Tep had transferred the Shares to D, namely Saronic Holdings Limited, a company unknown to P, without the knowledge and/or authorisation of P (“Transfer”). D was only incorporated on 29 May 2018, about two weeks prior to the Transfer.  One Gwynn David Neville Hopkins (“Hopkins”) was the sole shareholder and director of D.  Within days after the Transfer, and amongst other things, D had appointed itself as a corporate director of POH, removed the existing directors of CP and appointed 3 new directors including Hopkins. 

16.  Suffice to say at the moment, the Transfer occurred at a time Suit No 1212/2017 was proceeding in Singapore.  Suit 1212/2017 was commenced by a Singapore company called JTrust Asia Pte Ltd (“JTrust”) against, amongst others, a company called Group Lease Holdings Pte Ltd (“Group Lease Singapore”), MK, CP and others over a sum of not less than US$180m said to be invested by JTrust in Group Lease Public Company Limited (“Group Lease Thailand”), a listed company in Thailand of which MK was the former CEO.

17.  In Suit 1212/2017, JTrust initially obtained an ex-parte domestic Mareva injunctions against the defendants which were later discharged inter-partes but subsequently reinstated and expanded by the Court of Appeal to a worldwide injunction on 1 June 2018[1] (“Singapore Mareva Junction”).

18.  JTrust has also commenced proceedings in British Virgin Island against MK and another (Claim No: BVIHC (COM) 226 of 2017) and obtained a worldwide freezing order in 24 December 2017[2]. 

19.  Essentially, the litigations issued by JTrust concern alleged loans from Group Lease Singapore (of which MK is a director) to CP and others (including Tep), which JTrust alleges were sham loans and part of a conspiracy perpetrated by MK to defraud JTrust of its investment.

20.  It is P’s case that Tep and D and CP are now under the control of JTrust and that the Transfer was part of a scheme against the interests of P and Kuga Corporation.

21.  P had commenced Suit 899/2018 in Singapore against JTrust and CP for conspiracy by unlawful means but this suit was stayed by the Singapore High Court on the ground of forum non conveniens in favour of the Luxembourg Proceedings.

22.  Anyway, after discovery of the Transfer, P said it started investigations in the matter which took time.  It was only on 19 July 2018 that P was able to instruct its present solicitors and further on 27 July 2018, P commenced the Luxembourg Proceedings against, amongst others, Tep and D, primarily seeking a return of the Shares as against D.

23.  The originating summons herein was issued on 1 August 2018 by P seeking an injunction until the final determination of the Luxembourg Proceedings. 

24.  On 10 August 2018, upon D1’s undertaking, directions were given by Anthony Chan J for a substantive hearing.

25.  D’s undertaking (“Undertaking”) is essentially NOT TO:

a. sell, dispose of or otherwise encumber, cause any dilution or alteration of the Shares or shares of POH’s subsidiaries;

b. cause POH to take further steps to replace any of the current managers, directors and/or legal representatives of KR without giving at least 5 working days’ notice to P;

c. disclose or divulge any books, records, financial information, confidential and/or privileged information belong to POH, KR, or CP to JTrust save as required by court order, directions or rules of procedure, any legal or regulatory requirement of as advised by the legal advisers of POK, KR or CP or with the approval of the Court.

26.  In the originating summons, P had sought a number of orders, which were narrowed down in its amended originating summons just before the Hearing.

The adjournment application

27.  D sought an adjournment of the originating summons until after determination of both Suit 1212/2017 and also the Luxembourg Proceedings.  D’s summons came before this Court on 5 November 2019 for a 30 minute hearing.

28.  As P opposed the adjournment, and 30 minutes were clearly not sufficient to deal with such arguments, the adjournment application was then adjourned for argument at the Hearing. 

29.  D’s grounds for seeking the adjournment were :

(1) The Undertaking was in place for some 14 months since 10 August 2018;

(2) There was no allegation of any breach of the Undertaking or that the Undertaking was ineffective;

(3) The Singapore Court had already rejected P’s application for broader injunctions (as sought) in Suit 899/2018;

(4) The Singapore Court has (on two occasions) also rejected P’s allegations of abuse/consipiracy between Tep, D and Hopkins (together with CP and JTrust);

(5) The trial of Suit 1212/2017 was taking place and the Singapore Court was clearly the correct forum to determine issue relating to CP;

(6) The Luxembourg Proceedings are substantially advanced.

30.  Suit 1212/2017 was in fact commenced by JTrust against 7 defendants (namely Group Lease Singapore, MK and CP and 4 other companies in Cyprus) and later P had intervened.  Those proceedings concern other issues and other parties.  As for Suit 899/2018, as said earlier, this was stayed on the ground of forum non conveniens in favour of the Luxembourg Proceedings, as mentioned earlier.

31.  Those other proceedings have been going on since about 2017.  The present proceedings were issued in August 2018 and the Hearing has also been fixed for some time.  There was really no sufficient reason why D, almost at the eleventh hour, took out an adjournment application.

32.  As held by the Court of Final Appeal in Compania Sud Americana de Vapores SA and Hin-Pro International Logistics Ltd [2016] 19 HKCFAR 586, there are two stages in s 21M proceedings: (1) the court has first to consider whether, if the plaintiff succeeds in the primary jurisdiction, the resultant judgment is one that the Hong Kong court would enforce.  If the answer to that is yes, the court has to form a view, on all the available material, including any findings of the foreign court itself, whether the plaintiff has a good arguable case before the foreign court and whether there is a real risk that the defendant would dissipate his assets if the Mareva were not granted; and (2) The second stage of consideration requires the court to consider whether the fact that the court has no jurisdiction apart from s 21M in relation to the subject matter of the proceedings concerned makes it unjust or inconvenient for the court to grant the application.

33.  For P’s present application, the “foreign court” is the Luxembourg Court and not the Singapore Court.  In any event, I accept Mr Wong’s submissions that the eventual final determinations of the Luxembourg Proceedings, and/or the proceedings in Singapore or BVI are irrelevant for the purpose of the present application by P.

34.  It is clear that one of the main issues in the Luxembourg Proceedings is whether P was/is the beneficial owner of the Shares and whether the Shares should be returned to P, and the main purpose of P in seeking those s 21M reliefs set out in its amended originating summons herein is to maintain the status quo of the Shares, and any ancillary matters thereto, pending the final determination of the Luxembourg Proceedings. As further pointed out on behalf of P, P was seeking a proprietary injunction.

35.  It is clear from the affirmations filed that P did not regard the Undertaking to be sufficient.  In any event, this was a matter for substantive arguments.  I do not find there were sufficient grounds for D to take out an adjournment application at such a late stage. 

36.  Mr Pao argued that P only narrowed the scope of the orders sought in its proposed amended originating summons and P only took out a last minute summons for amendment on 11 November 2019, and that had P done so earlier, D might not have to take out its adjournment application.

37.  There was however no clear indication in Mr Pao’s Skeleton Submissions that D was not pursuing its adjournment application even though by then P’s proposed amendments were known.  It was only made known at the commencement of the Hearing that D was no longer seeking an adjournment.

38.  Anyway, having considered all the circumstances, I am of the view that D should pay P’s costs of the adjournment application.

39.  P has sought costs on an indemnity basis. Although I do not find that there were sufficient grounds for the adjournment application, I am not satisfied that the application was scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in any oppressive matter, or there were sufficient reasons for this court to order indemnity basis.

40.  I shall order P’s costs of the adjournment application to be paid by D, to be taxed on party and party basis if not agreed, with certificate for one Counsel. 

Costs of the Hearing

41.  At the Hearing, D has agreed to provide further undertakings.  In effect, in so far as the item (2) of the Undertaking, the notice period is now “at least 14 days” instead of “at least 5 working days”, and further, more importantly, P has achieved in obtaining an additional undertaking not to diminish the assets and/or increase the liabilities of POH, KR and CP subject to certain terms, and an additional undertaking not to cause the liquidation of POH, KR and/or CP.

42.  I accept Mr Wong’s submissions that the Undertaking was not sufficient.  Further, the Singapore Mareva Injunction or the BVI freezing order were in favour of JTrust.  I am of the view the additional undertakings are necessary to preserve the value of the Shares pending the final determination of the Luxembourg Proceedings.

43.  Having considered the amended originating summons, P has in effect achieved in obtaining most of the orders it was seeking.  Mr Wong argues that if not for coming to the Hearing, P would not have been able to obtain those further undertakings.

44.  Having considered the circumstances, I am of the view that P should be entitled to the costs of the Hearing, with certificate for two Counsel, to be taxed, if not agreed on party and party basis.