YOICHI KUGA v. SARONIC HOLDINGS LTD

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

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

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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.