UNIVERSAL ENTERTAINMENT CORPORATION AND ANOTHER v. KAZUO OKADA

CAMP 182/2020

[2020] HKCA 995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 182 OF 2020

(ON AN INTENDED APPEAL FROM HCA 2236/2019)

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J U D G M E N T

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Hon Lam VP (giving the Judgment of the Court):

1.  This is the renewed application by the Plaintiffs for leave to appeal against the dismissal of their application for Mareva injunction by Coleman J (“the Judge”) on 17 July 2020.

2.  The 1^st Plaintiff (“UE”) is a public company incorporated under the laws of Japan, and the 2^nd Plaintiff (“Tiger HK”) is its wholly-owned subsidiary incorporated in Hong Kong.  The Defendant is the founder of UE.  He was a director of both UE and Tiger HK before he was removed in June 2017.

3.  Since 2008, UE has been pursuing through Tiger HK the development of an integrated casino and resort complex in the Philippines (“the Project”).  Although the Project had an approved budget of US$2.43 billion, the costs incurred and paid for the Project by September 2019 had exceeded the approved budget by around US$620 million.  

4.  The Plaintiffs now claim against the Defendant for alleged breaches of duties of care under both Japanese law and Hong Kong law in respect of the significant overspending on the Project.

5.  On 22 January 2020, the Plaintiffs made an inter partes application for a Mareva injunction.  Matter was proceeded on inter partes basis due to the Defendant’s major asset, viz his shareholding in a company called Okada Holdings Ltd, was not readily disposable.  Due to the General Adjournment Period arising from the COVID 19 pandemic situation, the full hearing of the application was postponed.  The Judge granted some limited form of interim-interim relief on 22 April 2020 ([2020] HKCFI 630) after a short hearing on 17 April 2020. 

6.  The full hearing eventually took place on 26 June 2020. 

The Judgment

7.  By a Judgment dated 17 July 2020 ([2020] HKCFI 1406), the Judge dismissed the Plaintiffs’ application for an Mareva injunction on the ground that the Plaintiffs could not satisfy the good arguable claim test on quantum. 

8.  The judge summarized the principles applicable to the grant of Mareva injunctive relief at [34]-[37] of the Judgment. He explained the requirement to demonstrate a good arguable case on quantum at [35] as follows:

“ The requirement that the applicant should demonstrate a good arguable case extends not just to the question of liability but also quantum. Mareva injunctions are set by reference to a ‘ceiling figure’, and it seems to me to be important that the applicant demonstrates a sufficiently meritorious claim to a particular ceiling figure. Recognising the rarity of circumstances in which it would be appropriate for the Court to interfere with a person’s ability to deal with his own assets as he sees fit, the interference is only to the minimum appropriate amount. That is why the standard form of Mareva injunction also expressly permits the defendant to dispose of or deal with assets held above that ceiling figure, so long as the total unencumbered value of his assets still in Hong Kong remains above the ceiling figure.”

9.  At [68] of the Judgment, the judge noted the Defendant’s submission that the Plaintiffs’ case on quantum and causation is essentially a bare assertion, without any expert evidence to demonstrate whether the Project could have been achieved at a lower cost, nor any evidence that the Plaintiffs could have enjoyed the benefits of a successful and profitable project without incurring the costs.  The judge set out his own views on the Plaintiffs’ case on quantum at [69]-[71] as follows:

“ 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 foundation, 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.  [Counsel for the Plaintiffs] Mr Whitehead recognises 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 puts 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.”

10.  With regards to the Plaintiffs’ fall-back position by reference to the amount exceeding the approved budget as at July 2017 of approximately US$112.6 million, the judge said at [74] that the fall-back is likely to fall foul of the same problems as the Plaintiffs’ primary case on quantum, only by reference to a different date.

11.  The judge reiterated at [75] that 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.  He observed that it is “not for the Court arbitrarily to pluck some figure from the air”.

12.  At [78]-[79] of the Judgment, the judge concluded as follows:

“ 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.”

The grounds of appeal

13.  On 18 September 2020, the judge refused to grant the Plaintiffs leave to appeal against the Judgment ([2020] HKCFI 2448).  He also dismissed the Plaintiffs’ application for interim relief.

14.  On 30 September 2020, the Plaintiffs took out a summons to renew its application for leave to appeal before this Court. 

15.  Three grounds of appeal were identified in the draft Notice of Appeal:

(1)  The judge erred in finding that there was no evidence demonstrating a good arguable claim to any particular figure (“Ground 1”);

(2)  The judge erred in placing the evidential burden of establishing betterment, discount or benefit conferred by the overspending on the Plaintiffs instead of the Defendant, as well as in failing to take into account that any such benefit was forced on the Plaintiffs (“Ground 2”);

(3)  The judge erred in rejecting the Plaintiffs’ submission that it is not necessary for an applicant to show a good arguable case for damages to a certain or approximate sum (“Ground 3”).

Discussion

16.  Under section 14AA of the High Court Ordinance, Cap 4 (“HCO”), in granting leave to appeal, this Court must be satisfied that the intended appeal has a reasonable prospect of success or there is some other reason in the interests of justice that the matter should be heard by the appeal court. 

17.  As this Court has previously emphasized, a decision to refuse to grant an injunction involves the exercise of discretion on the part of the judge and this Court will not interfere with such exercise unless it is shown that the judge erred in law, that the judge misapplied the law by failing to take account of relevant considerations or by taking account of irrelevant considerations, or that the judge’s decision is plainly wrong in that the exercise is outside the generous ambit within which reasonable disagreement is possible: see Convoy Collateral Limited v Cho Kwai Chee [2020] HKCA 537 at [33].

18.  The Plaintiffs dedicated most of their submissions on Ground 3, under which they challenged the judge’s holding that a plaintiff applying for a Mareva injunction is required to show a good arguable case on quantum. 

19.  Counsel for the Plaintiffs, Mr Robert Whitehead SC (with Ms Athena Wong and Ms Charlotte Chan), accepted that it is necessary to establish a good arguable case on quantum to a certain or approximate sum “as a general rule”.  Mr Whitehead contended that this is however not a mandatory requirement because the Court retains a discretion in exceptional circumstances to grant a Mareva order with an unlimited sum or no ceiling figure, citing (among others) McDonald v Graham [1994] RPC 407 and Stephen Ng Chun-fai v Tamco Electrical & Electronics (Hong Kong) Ltd [1994] 1 HKLR 289. 

20.  We accept that as a matter of jurisdiction the Court does have power to grant a Mareva order without financial limit. This is consistent with the wording of section 21L of the HCO, which provides the Court of First Instance with a wide discretion to make an interlocutory injunction restraining a party from removing assets from its jurisdiction “in which it appears to the Court of First Instance to be just or convenient to do so”. 

21.  As Mortimer JA observed in Stephen Ng Chun-fai (at 293), the original Mareva injunction was unlimited in amount, though such an order will nowadays only be made in “wholly exceptional circumstances”.

22.  Thus, as a matter of exercise of the court’s discretion, other than very rare and exceptional circumstances, it is wrong in principle to grant such injunction with unlimited amount.  As the Judge pointed out, a Mareva injunction constitutes serious interference with the right of a person to use or dispose of his property.  It behoves a plaintiff seeking such draconian relief to put forward its case with care and demonstrate to the court that interference of the defendant’s property right by a Mareva injunction is proportionate.  In most cases where the claims were of limited value, such exercise must involve the justification of the monetary ceiling for the injunction.

23.  In other words, the duty of an applicant seeking Mareva injunction includes the proper formulation of his claim for such injunction and the justification of the monetary limit set out in the draft order.  The failure of an applicant in the fulfilment of such duty cannot be the justification for Mareva injunction to be granted without any monetary limit.

24.  In Ming Hsieh v Xu Zhe CACV 189/2015, 28 September 2016 at [11], this Court held in clear terms that in considering whether or not a good arguable case for the granting of the injunction applied for has been made out, it is necessary to consider both liability and quantum.

25.  We are also in agreement with the judge’s reasoning at [79] of the Judgment that a good arguable claim requires good evidence to prove breach, causation and damages.  The lack of proper formulation and evidence on damages means that there is no material before the court to lead to the conclusion that the alleged breach will sufficiently arguably have caused any particular damage sounding in any particular amount of damages.  For such reason, the failure in this regard carries with it the lack of proper basis to impose an order as draconian as a Mareva injunction restraining a defendant from dealing with all or a part of his assets in Hong Kong. 

26.  In the present case, the Plaintiffs had attempted to formulate their case by reference to the wholly unrealistic monetary value of US$620 million instead of putting forward some exceptional circumstances to warrant a Mareva injunction for an unlimited amount. 

27.  In these circumstances, we agree with the submission of Mr Wong SC that there is plainly no “wholly exceptional circumstances” justifying the grant of such an order in the present case. 

28.  The core of Mr Whitehead’s submissions on the exceptional circumstances (which was only advanced in the applications for leave to appeal[1]) centres around the allegation that the Defendant has covered his tracks to make it “as difficult as possible” for the Plaintiffs to discover what damage he had inflicted upon them.  However, as submitted by Mr Wong, this must be seen through the prism of the judge’s finding at [76] of the Judgment that the Plaintiffs have had almost 3 years to formulate their claim but have made no real attempt to identify a realistic quantum. 

29.  It is plain to us this is a case where those advising the Plaintiffs simply failed to make a careful formulation of their claims in terms of quantum and provide the court with the necessary materials to satisfy the burden of good arguable case.  As mentioned above, this cannot be the justification for the grant of a Mareva injunction without monetary limit.

30.  We also agree with the Judge’s observation at [18] of his judgment refusing leave to appeal that it seems to him “inconceivable” that an unlimited Mareva injunction would be granted where the maximum claimed is only US$620 million and there is evidence of Hong Kong assets with a combined valuation of around US$3 billion.  This stands in sharp contrast to the facts of McDonald v Graham (the only case cited by the Plaintiffs in which an unlimited Mareva injunction was granted), where it was considered improbable that the defendant had assets in excess of his liability in the action (see p.438).

31.  As for the remaining grounds, Mr Whitehead submitted under Ground 1 that the Judge was wrong to reject the unchallenged actual costs minus the unchallenged approved budget as a proper approximate measure of loss suffered by the Plaintiffs at this stage given the Defendant’s deliberate concealment of his activities. 

32.  However, it is clear from [76] of the Judgment that the Judge did take into account the alleged concealment in reaching his decision.  Nor is there any basis to suggest that his decision is plainly wrong. 

33.  Under Ground 2, the Plaintiffs’ complaint concerns the Judge’s reliance at [77] of the Judgment on the lack of analysis of any benefit which might be set off against the over-expenditure.  Mr Whitehead’s submission was that the Judge failed to recognize that the evidential burden of establishing set-off was on the Defendant, who filed no such evidence.  Citing the commentary in The Law of Damages (2^nd ed., 2010) at [5.37]-[5.38], Mr Whitehead further submitted that the Judge failed to take into account that any such benefit should in any event be disregarded because it was forced on the Plaintiffs. 

34.  With respect, Mr Whitehead has missed the point of the Judge’s criticism.  The criticism was not directed at any failure on the part of the Plaintiffs to offer any legal or equitable set-off against their claim, but rather at the Plaintiffs’ adoption of the difference between the actual costs and the approved budget as the measure of damages.  As the Judge made clear at [68] of the Judgment, what was required (and missing) was expert evidence to demonstrate that the Project could have been completed at a lower cost and if so by how much.  This would have required analysis as to whether the Plaintiffs could have enjoyed the benefit of a successful project without incurring the same costs.  The burden of producing the evidence of such analysis indeed lies with the Plaintiffs.

35.  In our judgment, this inadequacy on the part of the Plaintiffs cast doubt on whether it has established good arguable case on liability.  If the benefit derived from the Project out of the overspending is greater than the costs, by implication the Plaintiffs fail to show that they had suffered any loss.   

36.  For the sake of completeness, we also agree with Mr Wong that the commentary relied on by Mr Whitehead plainly concerns the entirely different context of incidental benefits having been derived by a plaintiff when the replaced or repaired article (which had been damaged by a defendant) was better.  The concept of “forced betterment” has no application in the present scenario where there is no complaint about the development of the Project per se and the burden is on the Plaintiffs to ascertain the proper amount of damages suffered as a result of the Defendant’s alleged breach of his duty to take reasonable care not to cause any overspending.

Disposition

37.  For all the reasons stated above, we are of the view that the intended appeal does not have a reasonable prospect of success, nor is there any other reason in the interests of justice that the matter should be heard by the appeal court.  We therefore dismiss the Plaintiffs’ summons of 30 September 2020 (including the prayer for interim injunction).  

38.  Further, we are of the view that the application is totally without merit and, despite the request of Mr Whitehead for oral hearing, we make an order pursuant to Order 59 Rule 2A(8) of the Rules of the High Court (Cap 4A) that no party may request the determination to be reconsidered at an oral hearing inter partes.

39.  There is no reason why costs should not follow the event.  Having considered the Defendant’s statement of costs, we make an order nisi that the Plaintiffs should pay the Defendant the costs of this application, summarily assessed to be in the sum of $300,000.