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.