BLUETECH HOLDINGS LTD v. HISAMORI NAOKI

HCA 186/2022

[2022] HKCFI 3404

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 186 OF 2022

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BETWEEN

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JUDGMENT

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Introduction

1.  The plaintiff herein (“P”) issued a summons on 2 June 2022 under Order 14 rule 1 and Order 27 rule 3 of the Rules of the High Court, Cap 4A, (“Summons”), for final judgment against the defendant (“D”) for the reliefs in paragraphs 1(a), (2) and (3) of the prayer (“Prayer”) of the statement of claim (“SOC”).

2.  In the SOC, P essentially seeks a declaration that D holds all shares in Bluetech Japan K K (“Bluetech JP”) registered in D’s name (and all fruits and proceeds thereof) on behalf of P, and that P beneficially owns such shares at all material times.

3.  D has acted in person, and has filed a defence on 14 April 2022 (“Defence”). Counsel Mr Brian Fan appeared for P.

Brief Background

4.  P is a company incorporated in Hong Kong and carries out the business of the manufacture, and sale of “AdBlue”, a patented product liquid used to reduce air pollutants to exhaust gas from diesel engines and licensing of rights to do so globally (“AdBlue Business”). At the time of P’s incorporation, its sole director was Mr Andy Guo Meng (“Guo”). On 3 March 2017, Guo was replaced by Mr Benjamin Lau (“Lau”).

5.  On 11 August 2014, Lau in his capacity as General Manager of P entered into an employment agreement with D[1] (“Employment Agreement”). Pursuant to the Employment Agreement, D was employed by P as the “Assistant Sales Manager” with a notional salary of HKD 23,000 per month and one month bonus. D was entrusted with the supervision, management of the conduct of the AdBlue Business and specifically over the AdBlue Business in the Japanese market.

6.  It is P’s pleaded case that from 2014 to 2017, in various verbal discussions amongst Guo, Lau and D, D suggested P to set up a company in Japan and a factory in Osaka, Japan, for the purposes of the AdBlue Business in Japan in view of the growing demand for the business in respect of AdBlue in the Japanese market. It is further P’s case that during such discussions, D had represented to P and Lau that , amongst other things, as a matter of formal requirement under Japanese law, to incorporate a corporation in Japan, the majority shareholder must be a Japanese national (“Initial Representations”).

7.  According to P, pursuant to D’s Initial Representations, Bluetech JP was incorporated/acquired on 7 April 2017 under the laws of Japan with an office in Osaka. The amount of paid up capital was JPY 5,000,000, namely 500 shares of JPY 10,000 per share.

8.  Further, pursuant to D’s Initial Representations,

(1) On or around 3 March 2017, P transferred the sum of JPY 3,110,000 to D, JPY 2,550,000 of which represented the subscription monies for 255 shares in Bluetech JP , to be taken up in D’s name on behalf of P and JPY 560,000 for the rental for the Osaka Plant (as defined below) (“51% Subscription Monies”);

(2) On or around 6 March 2017, P transferred the sum of JPY 2,500,000 to D, JPY 2,450,000 of which represented the subscription monies for 245 Shares in Bluetech JP, to be taken up directly in P’s name, and JPY 50,000 being bank charges for the incorporation and/or operation of Bluetech JP (“49% Subscription Monies”).

9.  Thereafter, P became the registered shareholder of 245 shares out of a total of 500 Shares of Bluetech JP, namely 49% shareholder, while D became the registered shareholder of the remaining 255 shares (“51% Shares”), ie 51% shareholder. D was also appointed the representative director and Chief Executive Officer (“CEO”) of Bluetech JP.

10.  It is P’s pleaded case that D held the 51% Shares as bare trustee for D, or alternatively held the 51% Subscription Monies and hence the 51% Shares (as their traceable proceeds) on resulting trust for P, or further alternatively, on constructive trust for P which arose as D’s Initial Representations were false.

11.  P alleges that there was misconduct on the part of D which led to D being summarily dismissed by P on 6 January 2022. P has further alleged there were breaches of duties on part of D and losses occasioned by D’s wrongful acts. This led to P issuing the present action.

12.  According to D, on about 13 January 2022, he lodged a claim in the Labour Tribunal against P for outstanding payments for his “salary, rewards expenses etc” (LBTC 151/2022). It was only thereafter that on 11 February 2022, P issued the writ herein endorsed with the SOC.

13.  According to D, on 14 February 2022, part of D’s claims in the Labour Tribunal were settled by P and the remaining unsettled amount overlapped with the present case and that the Labour Tribunal directed that the remainder of D’s claims to be transferred to the High Court. According to P, D’s claims have been transferred up but presently adjourned pending directions from court. However, the file was not placed before this Court, nor were any documents in connection with D’s claims in LBTC 151/2022.

14.  Anyway, D filed the Defence on 14 April 2022. Although in the Defence D denies that there were the Initial Representations or that D held/holds the 51% Shares in trust for P, D has admitted, amongst other things, that :

(1) D was at all material times P’s employee, until 6 January 2022 when he was summarily dismissed (SOC para 2, Defence para 1);

(2) It was D who suggested P to set up a company in Japan and a factory in Osaka, Japan for the purposes of the AdBlue Business in Japan, in view of the growing demand for the business in respect of AdBlue in the Japanese market (SOC para 5.1 and Defence para 5);

(3) D recommended P to collaborate with IE Trade Co Ltd (“IE Trade”), a company incorporated in Japan who has access to a plant in Osaka (“Osaka Plant”) (SOC para 5.2 and Defence para 5);

(4) The 51% Subscription Monies were transferred to D by P on or around 3 March 2017 (SOC para 8.1and Defence para 13);

(5) The 49% Subscription Monies were transferred to D by P on or around 6 Mach 2017 (SOC para 8.2 and Defence para 13);

(6) By letters signed by D on 3 March 2017 and 13 March 2017, D acknowledged receipt of the 51% Subscription Monies and the 49% Subscription Monies respectively for the purposes of Bluetech JP (SOC para 9 and Defence para 13);

(7) On or around 7 April 2017, Bluetech JP was incorporated with the 51% Subscription Monies and the 49% Subscription Monies and the 51% Shares became registered in the name of D (SOC para 10 and Defence para 13).

(above collectively referred to as “Admissions”)

15.  After the Defence was filed, P served Requests for Further and Better Particulars of the Defence and D’s answers were filed on 23 May 2022 (“Answers”) .

16.  Thereafter, on 2 June 2022, P issued the Summons herein, which was supported by Lau’s affirmation filed on the same day.

17.  The Summons was first fixed for a call-over hearing on 11 July 2022 before Recorder Charles Manzoni SC. On 14 June 2022, D sent two letters to the Court to request: (1) for the call-over hearing adjourned to 30 August 2022 as he was out of jurisdiction and (2) to have a Japanese translator. On 29 June 2022, the Recorder adjourned the call-over hearing and gave directions for the filing of evidence and for a Japanese interpreter.

18.  The Summons was then re-fixed before this Court on 8 September 2022 initially for only 15 minutes but later the Court agreed to allow 30 minutes for the hearing (“Hearing”). A Japanese interpreter was arranged for D.

19.  Prior to the Hearing, on 5 September 2022, D filed a document in English which purported to be an affirmation dated 29 August 2022 with a heading “Opposed Letter”. D also lodged short submissions in English on 7 September 2022.

20.  In D’s affirmation, he did not deny his “admitted points” in the Defence, including the Admissions.

21.  D has also said in his affirmation that when Bluetech JP was established in 2017, P said that D was a partner and asked him not to consider himself as merely an employee, and therefore as a representative of Bluetech JP, he had put his heart and soul into the growth of the company although [D’s] status was employee of P.[2] D has alleged that as Bluetech JP was registered in Japan, Japan Corporation Law should follow, namely that either a board of directors or an AGM has to call a board meeting (general meeting) with all the directors (all shareholders) and to suggest replacement of the director and/or change authority, and that this has to be certified by a Japanese Notary. He said he opposed the Summons as it was totally unnecessary and a waste of parties’ time and costs.

22.  In D’s submissions, he submitted that that the case started from his claim at the Labour Tribunal, and there was no evidence of Initial Representations as pleaded in the SOC, and maintained that there had to be a board meeting held in Japan in relation to the transfer of the shareholding.

23.  During the Hearing, D informed this Court that he joined P in August 2014 and in March 2017 he did not have any capital, but P had said to him as he had been in the company for 2 ½ years, P trusted D and that P gave him the majority shares to manage the company. This was how D acquired the 51% Shares in Bluetech JP. D1 said there was no trust agreement and that P gave him the 51% Shares. When queried by this Court as to where in the Defence he pleaded that the 51% Shares were given to him as a gift by P, D alleged that the documents stated P gave him the 51% Share and there was no trust agreement. However, when this Court asked him which documents, D then first said it was a verbal communication and later he claimed that it was stated during the AGM of the shareholders in Japan.

24.  What is clear is that the allegation of the 51% Shares being a gift to D has not been pleaded in the Defence, nor in D’s Answers, nor has D produced any supporting evidence in his affirmation.

25.  Subsequent to the Hearing, D sent a letter dated 30 September 2022 informing this Court that an extraordinary shareholders meeting of Bluetech JP was held on 29 September 2022 in Osaka and that the matters decided at the meeting were:

(1) D resigned at the Representative Director of Bluetech JP;

(2) D has returned the 51% Shares to P without compensation

26.  On 31 October 2022, D sent another letter to the Court stating that a share transfer agreement was executed on 18 October 2022 (“Share Transfer Agreement”). A copy of the Share Transfer Agreement has been attached to D’s said letter of 31 October 2022.

Discussion and Conclusion

27.  First, on an application for summary judgment, as submitted by Counsel for P, Mr Fan, the burden is on D to show that there is an arguable defence, and the Court will not take mere assertions and allegations by the defendant on face value. As said earlier, it is not D’s pleaded case that the 51% Shares were a gift to him from P, and there has been no supporting evidence produced by D in relation to this assertion which D made only orally during the Hearing.

28.  Second, D did not deny having made the Admissions in the Defence.

29.  Third, on 9 May 2017, P submitted a report to the Japanese Ministry of Finance notifying the Ministry of the acquisition of shares in a Japanese corporation by a foreign entity. It was not disputed that the report was prepared by D and in which it was recorded that P (as a foreign entity) was in control of the entire shareholding of Bluetech JP[3].

30.  Fourth, as for the Japanese Corporation Law, there is no such plea in the Defence, and there is no expert evidence produced by D.

31.  Fifth, in any event, post Hearing, D himself informed the Court that he had resigned as Representative Director of Bluetech JP and had returned the 51% Shares to P without compensation and that the parties have signed a Share Transfer Agreement.

32.  Having considered all the above and the evidence and submissions, I am satisfied that D has no bona fide defence to P’s claim based on express trust and/or resulting trust of the 51% Shares.

Order

33.  I am prepared to grant a declaration as sought by P in paragraph 1(a) of the Prayer, that D holds/held the 51% Shares in Bluetech JP (and all fruits and proceeds thereof) on behalf of P, who beneficially owns the same at all material times. As for the mandatory injunction sought by P for D to transfer the 51% Shares to P and/or their traceable fruits and/or proceeds, and to sign and execute any necessary documents to effect the said transfer, and also the prohibitory injunction sought by P, insofar if such injunctions are still necessary, I will grant orders as sought by P in paragraphs (2) and (3) of the Prayer.

34.  As for costs, as P is the successful party, D is to pay P’s costs of the Summons to be summarily assessed and paid within 14 days. P has submitted a statement of costs for HKD 160,460. The Hearing was only about 30 minutes. I find the solicitors’ costs on the high side. The amount summarily assessed on party and party basis inclusive of all disbursements and counsel fees is a total of HKD 120,000.