UNIVERSAL ENTERTAINMENT CORPORATION TIGER RESORT ASIA LTD v. KAZUO OKADA

HCA 2236/2019

[2020] HKCFI 2448

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2236 OF 2019

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D E C I S I O N

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A. Introduction

1.  In this Decision, I adopt the definitions and abbreviations used by me in my previous Decision dated 17 July 2020, [2020] HKCFI 1406 (“my Decision”).

2.  By my Decision, I dismissed the plaintiffs’ application made by summons dated 22 January 2020 seeking a Mareva injunction against the defendant to restrain him from disposing of or diminishing the value of his assets in Hong Kong, including his shares in OHL and OFA.

3.  Though I found a good arguable case on the claim on the question of liability (§67), that there is a real risk of dissipation of assets within the jurisdiction (§§81 and 99), and that the balance of convenience would otherwise be in favour of the grant of an injunction (§102), I did not think the plaintiffs had demonstrated a good arguable case to any particular sum in damages as might justify an appropriate ‘ceiling figure’ for the grant of Mareva relief (§79).

4.  By summons dated 31 July 2020, the plaintiffs seek leave to appeal from that Decision on the basis of the three grounds of appeal set out in the draft Notice of Appeal appended to the summons.

5.  I gave directions that the application should be dealt with on the papers with the benefit of written submissions in accordance with a timetable I set.  I have received and considered the parties’ submissions dated 4, 8 and 11 September 2020.  As before, the plaintiffs are represented by Mr Robert Whitehead SC, Ms Athena Wong, and Ms Charlotte Chan, and the defendant is represented by Mr William Wong SC and Mr Brian Fan.

B. Grounds of Proposed Appeal

6.  There are three grounds of appeal proposed by the draft Notice of Appeal.

7.  Ground 1 is headed “Ceiling Figures on Unauthorized Payments Not Contradicted”, and the essence of that ground is that I should have held on the evidence that the plaintiffs had established a good arguable case as to the amount of the unauthorized payments in the sum of US$620 million, or alternatively at least US$112 million.

8.  Ground 2 is headed “Evidential Burden on the Defendant & Forced Betterment”, and it is broken down into two parts.  Part 2(a) says that the defendant failed to satisfy the evidential burden which he faced of showing what benefit, if any, might be set off against the unauthorized expenditure. Part 2(b) says that in any event “forced” betterment should be disregarded, or that it does not remove the existence of a good arguable case.

9.  Ground 3 is headed “Exceptional Circumstances”, and the essence of that ground is that it is not necessary for a plaintiff seeking a Mareva injunction to show a good arguable case to a certain or approximate sum, and that the exceptional circumstances in this case justified a Mareva injunction with no ‘ceiling figure’.

10.  In submissions, the parties have dealt with Ground 3 first.  I shall do likewise.  My task is to assess whether there are reasonable prospects of success on any ground, or some other reason for there to be an appeal.

C. My Decision on the Point

11.  It may be helpful first to set out the paragraphs of my Decision relating to the question of good arguable case on quantum.  That will assist in identifying the context for the proposed challenges.

12.  They are §§68-79, and they read as follows:

68. As to whether the plaintiffs have established a good arguable case on quantum, or to any particular quantum, Mr Wong says that the case on quantum and causation is essentially bare assertion.  There is no expert evidence to demonstrate that the successful project could have been achieved at a lower cost, and if so by how much.  The plaintiffs have adopted the successful and profitable project, and they are deriving substantial benefit from it.  There is no evidence that the plaintiffs could have enjoyed such benefit without actually incurring the costs.  There is no accounting for any ‘loss’ in the amounts said to be over budget, and the various accounts issued publicly had clean audit opinions.

69. Indeed, there is some obvious difficulty with the assertion that the loss simply corresponds to the amounts said to have been paid out over and above the Approved Budget.  Ordinarily, monies paid out receive some value in return. Even if, for example, unauthorised payment was made for a water fountain, in return for the monies paid the plaintiffs received the construction of a water fountain.  What that did or did not add to the Casino Project may be another matter.

70. Mr Whitehead recognizes this point.  Whilst the Summons and argument as originally framed seeks a freezing order up to the claimed sum of US$620 million, Mr Whitehead accepts (without making any formal concession) that is unlikely to be the correct figure.  As he put it, the calculation of the expected damages at the moment is no exact matter.  There will have to be some, perhaps complicated, accounting process – arguably involving a costs/benefit analysis – properly to reach the appropriate damages figure.

71. But, Mr Whitehead submits that this should not deter the court from granting appropriate relief to the plaintiffs.  I agree in principle, but that begs the question as to whether there is appropriate evidence from which an appropriate ceiling figure for relief can be taken, as satisfying the relevant burden which the plaintiffs bear.

72. In the section dealing with applicable principles above, I have implicitly rejected the submission that there is no essential requirement for the insertion of a maximum in a Mareva injunction.  I have also implicitly rejected the submission that it is not necessary for the applicant to show a good arguable case for damages to a certain or approximate sum.  Of course, it may not be necessary to show a good arguable case to a ‘certain’ sum, but there has to be a good arguable case to an appropriate ceiling figure, and talking of ‘certainty’ is probably unhelpful.  Depending on the case, talking of ‘approximation’ may be less unhelpful, so long as it is understood in the correct way.

73. I accept Mr Whitehead’s submission that the effect of the defendant’s breaches of duty (if ultimately proved) may not have ceased immediately upon his ouster in mid-2017.  It is on that basis that Mr Whitehead has put forward the figure of US$620 million as the total spending amount which exceeded the Approved Budget as at September 2019.  I do not think there is a good arguable claim to that amount.  Mr Whitehead’s fall-back position is to look at the amount exceeding the Approved Budget as at July 2017, which (in a table handed up as a forensic tool based on the evidence) Mr Whitehead says is a figure of approximately US$112.6 million.  To that sum might be added some of the smaller elements of the claim which do not relate strictly to over-spending.

74. But it seems to me that the fall-back offered is likely to fall foul of the same problems as the primary sum, only by reference to a different date.  If the damages claim is unlikely to amount simply to the overspending by September 2019, it seems unlikely to amount simply to the overspending by any different date such as July 2017.

75. Obviously, where the burden is on the plaintiffs to demonstrate a good arguable claim to a particular figure which might be made the ceiling figure in any Mareva injunction granted, it is not for the court arbitrarily to pluck some figure from the air.

76. The plaintiffs have chosen to adopt a rather simplistic approach to the calculation of the alleged loss, by just comparing the Approved Budget sum with the sum actually spent.  Indeed, there is some force in the point made by Mr Wong that the application for Mareva relief appears to have been motivated more by a desire to achieve some security for the intended claim, without addressing the necessary principles really underpinning such injunctions (see also below).  Acknowledging that it may take some time to identify a proper basis of calculated claim, I do not lose sight of the fact that the defendant was ousted in mid-2017 and those now in control of the plaintiffs have been in control since that date.  Almost 3 years later, no real attempt has been made and put forward in evidence to support a realistic damages figure, or the amount that might be found payable on the taking of an account and enquiry.

77. As it was put in Mr Takeuchi’s 1^st affirmation, leading the Summons, “Simply put, had the defendant made UE aware of the overbudget, UE would not have authorised any payments in excess of US$2.43 billion for construction costs of the Casino Project”.  There is also reference to other existing contractual obligations, accrued expenditures and costs representing a total overbudget sum higher than US$620 million, but there is simply no analysis of any benefit which might be set off against that costs expenditure. In Mr Takeuchi’s 5^th (reply) affirmation, he simply said the plaintiffs would leave it to counsel to make submissions at the hearing as to what damages they are entitled to recover as a result of the defendant’s breach of the various duties he owed the plaintiffs.  There was reference to overspending, unauthorised spending on Phase 2 works, and account for profit for related party transactions and cost of credit for additional funding, but no other analysis or evidence.  The claim needs to be based on evidence, not submission.

78. Until the submissions at the hearing, the plaintiffs do not seem to have countenanced that the damages claim is realistically not simply the dollar figure of overspend.  Once it is acknowledged that US$620 million is unlikely to be the right answer, and the alternative figure offered by reference to a different date suffers the same intrinsic difficulties, I am afraid that I do not think there is really any evidence demonstrating a good arguable claim to any particular figure.  Even doing the best on the available evidence, I think that if I were to alight on any damages figure, I would be doing no more than choosing that figure in effect arbitrarily.

79. For those reasons, I do not think that the plaintiffs can satisfy the necessary good arguable claim test to obtain a Mareva order.  I accept that, assuming the other requirements for an injunction are satisfied, it might be thought unfortunate to accept the good arguability of a claim as to liability, yet impose no freezing order.  But every claim made requires proving breach and causation and damage.  Here, there really is no material from which I can reach the conclusion that any breach will sufficiently arguably have caused any particular damage sounding in any particular amount of damages.  There is therefore, in my view, no proper basis on which to impose the Draconian order restraining the defendant from dealing with his, or any particular part of his, assets in Hong Kong.

D. Ground 3

13.  The plaintiffs submit that I misdirected myself in law when (at §72) I rejected the submission that there is no essential requirement for the insertion of a maximum figure in a Mareva injunction, and further when I rejected the submission that it is not necessary for an applicant to show a good arguable case for damages to a certain or approximate sum.

14.  Reference is made to the case of McDonald v Graham [1994] RPC 407 at 437-438.  That case was also cited to me in the earlier argument leading to my Decision, and was the case on the point which I said I had impliedly rejected.  But Mr Whitehead submits that there is clear Hong Kong authority, including in the Court of Appeal in Stephen Ng Chun-fai v Tamco Electrical & Electronics (Hong Kong) Ltd [1994] 1 HKLR 289 at 293, that the Court does have power to make an order for a Mareva injunction unlimited in amount, albeit only in wholly exceptional circumstances.  Reference was also made to Komal Patel v Chris Au (unreported, HCA 183/2014, 6 August 2015), where Zervos J considered that there are circumstances where it may be appropriate for the courts to place no financial limits on the injunction, either because the full quantum of the plaintiff’s claim is on ascertainable (or ascertainable to a reasonably accurate or reliable degree), or because it is just and equitable that all assets should be preserved until investigations have been carried out the matter has been finally determined.

15.  On the other hand, Mr Wong refers to the case of Ming Hsieh v Xu Zhe (unreported, CACV 189/2015, 28 September 2016) at 12 and 14, where Barma JA stated that when considering whether or not a good arguable case for the granting of an injunction applied for has been made out, it is necessary to consider both liability and quantum.  Hence, even if it can be shown to the necessary standard that the plaintiff is likely to make out its case on liability, it remains necessary to consider whether the plaintiff is able to establish the likely level of damages to be awarded, as the injunction to be granted will be limited in its monetary extent by the latter issue.

16.  It seems to me that this must be, as found by the Court of Appeal, correct.  First, the standard form Mareva injunction provided for in the relevant Practice Direction 11 identifies the need for a ceiling figure, which logically fits the usual requirement that any injunction should interfere only to the minimum necessary.  Further, in §72 (the paragraph criticised) of my Decision, I had gone on to say that it may not be necessary to show a good arguable case to a ‘certain’ sum, but there has to be a good arguable case to an appropriate ‘ceiling figure’.  I stated that talking of ‘certainty’ is probably unhelpful, and depending on the case talking of ‘approximation’ may be less unhelpful, so long as it is understood in the correct way.  In §75, I rejected the idea that I might just pluck a figure from the air.  Further still, in §79, I specifically pointed out that every claim made requires proof of breach and causation and damage, but I was not satisfied on the materials that I could reach the conclusion that any breach would sufficiently arguably have caused any particular damage sounding in any particular amount of damages.

17.  In so far as Mr Whitehead’s submission suggests now that I should have imposed an injunction without monetary limit, that was simply not the basis of the submission made before.  There was no real argument that there existed exceptional circumstances which should lead to the imposition of an injunction without limit.  Rather, it was apparently accepted there should be a limit, and the submission was that the appropriate limit, or ceiling figure, was US$620 million, alternatively US$112 million. The question of an unlimited Mareva injunction is, therefore, also an academic question in this case.

18.  Further, if necessary, the point in the present case might be tested as follows.  The two known Hong Kong assets on which the injunction might bite are said to comprise shares and artworks with a combined valuation of in the region of, or exceeding, US$3 billion.  To me, it seems inconceivable, in a case where the maximum claimed is (only) US$620 million, that an injunction might be granted which might have the effect of freezing all of those assets without limit, or without a sufficiently precise and justified figure as might interfere with the individual defendant’s ordinary ability to conduct his personal affairs as he sees fit.

19.  As I recorded at §70, Mr Whitehead himself accepted that the claimed sum of US$620 million was unlikely to be the correct figure and that there would have to be some, perhaps complicated, accounting process.  I also recorded, at §71, that the question was whether there is appropriate evidence from which an appropriate ceiling figure for relief can be taken, satisfying the relevant burden.  However, on the materials which I weighed, I simply did not think there was that appropriate evidence.

20.  For the avoidance of doubt, I do not think there is any other reason why this point should go on appeal.  I do not accept the Court of Appeal needs another opportunity to visit what are now such settled principles, and where there is also a Practice Direction providing authoritative guidance.

21.  There is no merit in Ground 3.

E. Ground 1

22.  Mr Whitehead submits that I was in error in expressing the view, at §78 of my Decision, that there is really no evidence demonstrating a good arguable claim to any particular figure, so that if I were to alight on any damages figure, I would be doing no more than choosing that figure in effect arbitrarily.  He says that, actually, there was nothing equivocal about the precise figures put forward in evidence which were based upon substantial forensic accounting analysis, and which were unchallenged by the defendant.

23.  But the criticism seems to me to be misplaced.  Of course, there was evidence identifying the calculation of the alleged unauthorised overspending, in the two proffered alternative figures of US$620 million and US$112 million.  But my point was that the overspend did not seem to me to be realistically – or, in context, sufficiently arguably – the figure which might justify the ceiling figure for a Draconian order as was being sought. I was not suggesting that the calculation of the claimed figures of US$620 million and US$112 million was in itself “simplistic”.  What I said was “simplistic” was the approach to the calculation of the relevant damages claim.  I held that simply comparing the Approved Budget with the alleged overspending was not a proper legal assessment of damages.  Nor, on my assessment of the materials, did I think there was any other evidence which demonstrated a good arguable case on a claim to any other particular figure.

24.  There is no merit in Ground 1.

F. Ground 2

25.  Mr Whitehead’s first submission is that the evidential burden of establishing betterment, discount or benefit conferred, if any, by the unauthorized payments and the overspending on the Casino Project, was on the defendant.  So, he says, it was not for the plaintiffs to volunteer a specific discount for set-off.

26.  But I think that confuses the relevant points.  In this case, the plaintiffs bore the burden of establishing a good arguable case to a damages figure as might justify the amount of the defendant’s assets which might be frozen.  Once it was accepted that the alleged unauthorized overspending was not likely the correct figure of damages, and that there would have to be some accounting process properly to identify an appropriate damages figure, it fell to the plaintiffs to offer at least some evidence on that process. That is not to suggest that the plaintiffs were required to offer some discount or set-off, but rather some evidence which might properly underpin a claim to an injunction freezing a justifiable portion of the defendant’s Hong Kong assets.  They did not do so, notwithstanding that it was nearly 3 years since the defendant was ousted from management of the plaintiffs.

27.  As regards the argument on “forced” betterment, I accept Mr Wong’s submission that the authority relied upon by Mr Whitehead arises in a different context.  That context is not applicable where the question is how the Court ascertains the existence of any particular loss caused to the plaintiffs by the defendant’s alleged breach of duty.  In this case, I was satisfied on the materials, and on the plaintiffs’ own case, that they must have received some value in return for the overspending, which is why the damages claim was not realistically to be calculated simply at the dollar figure of overspend.  Further, if something akin to betterment is taken into consideration, Mr Whitehead’s own acceptance that there might have to be a complicated accounting process, arguably involving a cost/benefit analysis, properly to reach an appropriate damages figure, rightly acknowledged that the overspending might have increased the capital value of the Casino Project and/or its income stream.  But there was simply no evidence offered on this point, and it is not for the Court to guess at some figure.

28.  There is no merit in Ground 2.

G. Result

29.  In conclusion, I do not think there is sufficient merit in any of the three proposed grounds of appeal, nor is there any other reason on which I would grant leave to appeal from my Decision.  I refuse leave to appeal.

30.  I also do not think there is any real prospect of success in the renewed leave application which the plaintiffs have indicated, respectfully, that they would make to the Court of Appeal.  In those circumstances, I do not think there is a proper basis for the grant of any injunctive relief for the period until the renewed application is made.

31.  I see no reason why the defendant’s costs of the application should not be paid by the plaintiffs and I so order.