UNIVERSAL ENTERTAINMENT CORPORATION AND ANOTHER v. GLAS TRUST COMPANY LLC

HCMP 1079/2022

[2022] HKCFI 3454

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1079 OF 2022

_______________________

_______________________

____________________

________________

DECISION

________________

1.  This hearing was originally scheduled for the substantive hearing of the Plaintiffs’ Concurrent Originating Summons filed on 8 August 2022 (“OS”). That hearing was vacated by way of a Consent Summons filed on 20 October 2022. I shall in due course have to go into the details in relation to the same.

2.  The day after the filing of the Consent Summons (21 October 2022), the Defendant took out a Summons (“Summons”) for the OS to be adjourned sine die, or stayed, with liberty to restore upon the determination of proceedings which it instituted in New York on 20 October 2022. The hearing of the Summons was fixed by the Defendant unilaterally to take place today with 1 day reserved. It will be seen from the events described below that, in effect, this hearing had been poached by the Defendant in surprising circumstances.

Background

3.  The dispute between the parties concerns a commercial transaction governed by a complex set of contractual documents. By the OS, the Plaintiffs seek a number of declaratory relief against the Defendant, namely :

(1)  No Ownership Structure Put Option Triggering Event as defined under the NPA Documents or the Security Documents (as defined and set out in Annex 1 (of the OS)) has occurred by reason of the matters or events set out in Annex 2 (“Annex 2 Events”);

(2)  The 1^st Plaintiff is not obliged to make or issue the Ownership Structure Put Option Offer (as defined under the NPA Documents or the Security Documents) and/or repurchase the Notes (as defined and set out in Annex 2) from the Ad Hoc Holders (or any other Secured Parties) per the NPA Documents;

(3)  No Event of Default under any of the NPA Documents or the Security Documents has occurred as a result of the 1^st Plaintiff not making an Ownership Structure Put Option Offer following the Annex 2 Events.

4.  In addition, the Plaintiffs seek an injunction that the Defendant be restrained from taking any step or exercising any power under the NPA or the Security Documents to enforce the security under 2 Share Charges, on the basis that the Annex 2 Events amounted to an Ownership Structure Put Option Triggering Event and/or an Event of Default.

5.  On 8 August 2022, the Plaintiffs obtained an ex parte interlocutory injunction restraining the Defendant from taking steps to enforce the Share Charges (“Injunction”). By an Order of K Yeung J made on 19 August 2022, the Injunction was continued by consent until the final disposal of the OS. On the same occasion, directions were given at the Defendant’s request for fixing an early date for the substantive hearing of the OS. Hence, the original purpose of this hearing.

6.  The 1^st Plaintiff (“P1”) is a Japanese listed company. It holds 100% of the shares in the 2^nd Plaintiff (“P2”).

7.  P2 is a Hong Kong company which holds: (1) 99.99% shareholding in Tiger Resorts Leisure and Entertainment, Inc. (“Resorts”), a Philippines company which operates a gaming resort called Okada Manila; and (2) 100% shareholding in Brontia Ltd (“Brontia”) a Hong Kong company which holds a partial indirect interest in the land on which Okada Manila is operated.

8.  P1 had issued Senior Notes (“Notes”) to note holders (“Noteholders”), which are governed by a Note Purchase Agreement dated 6 December 2018 (the NPA referred to in the OS) as amended by, inter alia, a Second Amendment dated 23 October 2020 (“2^nd Amendment”).

9.  The parties to the NPA were P1, the Noteholders, Resorts and the Defendant.

10.  A number of contractual documents were executed as security for the Notes, including :

(1)  A Guarantee and Collateral Agreement dated 11 December 2018 (“Guarantee”). This provided for guarantees in respect of P1’s obligations under the Notes given by P1 and a number of its subsidiaries (including P2) in favour of the Defendant and the Noteholders;

(2)  Two Share Charges both dated 20 December 2018 (referred to in para 4 above) by which P1 charged all its shares in P2, and P2 charged all its shares in Brontia, to secure the obligations under the Notes. The terms of the 2 Share Charges were basically identical.

11.  The Defendant is a US company and the Collateral Agent and Fiscal Agent under the above contractual documents. As the Collateral Agent, Defendant alone is the chargee under the Share Charges, to which the Noteholders are not parties. In these matters, the Defendant is acting at the direction of an ad hoc group of Noteholders (references to Noteholders hereafter are references to them) who hold about 74% of the total amount of the Notes.

12.  The NPA and the Guarantee both contained New York governing law and non-exclusive jurisdiction clauses (in favour of New York court). On the other hand, the Share Charges contained Hong Kong governing law and non-exclusive jurisdiction clauses (in favour of Hong Kong court).

13.  P1 and its group of companies had been in long running dispute with Mr Kazuo Okada, one of P1’s founders. In 2017, Mr Okada was removed from all his positions in P1 and its subsidiaries, including as Chairman, CEO, director and nominal stockholder of Resorts.

14.  This led to various legal proceedings in different jurisdictions. Of relevance here are the proceedings commenced by Mr Okada in the Philippines in 2018 seeking to challenge his removal from various positions in Resorts (a Philippines company). Mr Okada was unsuccessful at both first instance and the Court of Appeal.

15.  In April 2021, Mr Okada filed a Petition for Review with the Supreme Court of the Philippines, and in April 2022 he filed, inter alia, an ex parte motion to seek a “Status Quo Ante Order” (“SQO”) to immediately restore himself to various positions of P2 and Resorts.

16.  On 27 April 2022, the Supreme Court issued a SQO ordering the respondents “to observe the status quo prevailing prior to [Mr Okada’s] removal as stockholder, director, chairman, and CEO of [Resorts] in 2017”. This was an interim order pending final resolution of the Petition for Review by the Supreme Court.

17.  After the issue of the SQO, Mr Okada took various steps to attempt to seize control of Resorts and Okada Manila :

(1)  Mr Okada claimed that the SQO had reinstated his position as the sole representative of P2 in Resorts, and the shareholder, director, chairman and CEO of Resorts;

(2)  On 2 May 2022, Mr Okada, acting as sole representative of P2 in Resorts, purportedly convened a shareholders’ meeting of Resorts to replace the then existing Board of Resorts and “reinstall” the Board with his associates;

(3)  On 31 May 2022, Mr Okada’s associates together with approximately 50 people physically took over the premises of Okada Manila.

18.  The position maintained by the Plaintiffs is that: (i) the SQO is only an interim order to preserve the status quo ante pending the substantive resolution of the case before the Supreme Court, and did not have the effect of reinstating Mr Okada to any previous position; (ii) consequently, Mr Okada had no authority whatsoever to call a shareholder meeting of Resorts, or to elect or reinstall any person to the Board of Resorts.

19.  However, in light of the above events, the Noteholders, via their US lawyers Weil, Gotshal & Manges LLP (“WGM”), issued a letter dated 23 June 2022 entitled “Notice of Default: Reservation of Rights” (“Letter”) which alleged that an “Ownership Structure Put Option Triggering Event” and an “Event of Default” had occurred under the NPA documents.

20.  The Letter referred to the following provisions in the NPA documents :

(1)  Section 2.13(a) of Schedule 5.1(b) to the 2^nd Amendment:

“If an Ownership Structure Put Option Triggering Event occurs, each holder of the [Notes] will have the right to require [P1] to repurchase all or any part of such holder’s [Notes] pursuant to an Ownership Structure Put Option Offer (as defined below) on the terms set forth herein. …”

(2)  Schedule A to the NPA (p.A-19):

“Ownership Structure Put Option Triggering Event” means “(1) the first day after the Original Issue Date on which an individual or individuals is or are nominated for the Board of Directors of [P1] or a Subsidiary of [P1] by Mr Kazuo Okada or any “person” or “group” … of which Mr Kazuo Okada is a member is or are elected to the Board of Directors of [P1] or any of its Subsidiaries; …”

[emphasis added]

(3)  Section 2.13(b) of Schedule 5.1(b) to the 2^nd Amendment:

“Within ten days following the occurrence of an Ownership Structure Put Option Triggering Event, [P1] shall mail a notice (an “Ownership Structure Put Option Offer”) to each holder of the [Notes] with a copy to [the Defendant] stating … (i) that an Ownership Structure Put Option Triggering Event has occurred and that the holder has the right to require the [P1] to repurchase such holder’s [Notes] …”

21.  The Letter further alleged that by reason of the SQO and the steps taken by Mr Okada as set out above, there had been an Ownership Structure Put Option Triggering Event, and that P1 had failed to issue an Ownership Structure Put Option Offer there was thus an Event of Default under ss. 7(b) & 7(c) of Schedule 5.1(b) of the 2^nd Amendment.

22.  The Plaintiffs disagreed with the Letter. They took the view Mr Okada had no authority to take the steps in question, and there could not have been a “nomination” or “election” to the Board of Resorts (see para 20(2) above).

23.  However, fearing that the Noteholders and the Defendant would take enforcement actions under the Share Charges, the Plaintiffs took out the OS and applied for the Injunction.

Issues

24.  This stay application is made on 2 bases: (a) forum non conveniens; and (b) a case management stay as an alternative.

25.  Apart from contesting these grounds, the Plaintiffs say that the manner in which the Defendant had engineered the vacation of the substantive hearing of the OS and the hearing of the Summons in place thereof is a blatant and egregious abuse of process of the court.

Progress of the OS

26.  At the hearing on 19 August 2022 (see para 5 above), the court also gave directions for the filing of evidence under a tight time frame to meet with the Defendant’s requirement of an early substantive hearing.

27.  On 23 September 2022, the Plaintiffs filed their further evidence in support of the OS. Under the directions, the Defendant had to file its evidence in opposition on 7 October 2022. On 3 October 2022, the Defendant requested 7 more days to finalise its evidence. This extension was agreed.

28.  The extended deadline was 14 October 2022. On this day, the Defendant filed an affirmation containing its New York law evidence, but a further 7-day extension (up to 21 October 2022) was sought because the Defendant said that it had not been able to finalise all of its evidence.

29.  The effect of the proposed extension would leave insufficient time for the Plaintiffs’ reply evidence to be completed before skeleton arguments had to be lodged and served for the substantive hearing on 10 November 2022.

30.  This was pointed out in communications between WGM and Baker & McKenzie (“B&M”), acting for the Plaintiffs. B&M proposed that either the Defendant should file its remaining evidence by 17 October 2022 or the substantive hearing be vacated. WGM indicated that the Defendant’s evidence could not be completed by 17 October 2022, and asked for the substantive hearing to be vacated. WGM also asked for all the previous directions to file evidence and skeleton arguments to be “vacated”.

31.  Eventually, it was agreed that the substantive hearing should be vacated. A consent summons to that effect was issued on 20 October 2022.

32.  Without any prior indication in any of the previous correspondence, on 21 October 2022, the Defendant issued the Summons and fixed it for hearing today.

33.  In support of the Summons, an affidavit by the Defendant’s New York lawyer was sworn in New York on 20 October 2022. Amongst the exhibits was a “Complaint for Declaratory Judgment” issued by the Defendant in the District Court for the Southern District of New York on 20 October 2022. The Complaint asked for, inter alia, a declaration that an Ownership Structure Put Option Event and an Event of Default had occurred.

34.  It is plain that the Defendant was preparing its case for the Summons whilst trying to get an extension of time for the completion of its evidence for the OS and later agreeing to vacate the substantive hearing for the same on the ground that its evidence was incomplete.

35.  This court approved the consent summons on 26 October 2022 and the substantive hearing of the OS was accordingly vacated.

Forum non conveniens

36.  With respect, I agree with Mr Dawes SC, who appeared with Mr Lam for the Plaintiffs, that the Defendant’s arguments have little merit because (a) it had submitted to the jurisdiction of this court; and (b) in any case, there is a non-exclusive jurisdiction clause (“NEJC”) in favour of Hong Kong court.

Submission to jurisdiction

37.  There can be no serious dispute over the principles which were set out in Global Multimedia International Ltd v Ara Media Services & Anr [2007] 1 All ER (Comm) 1160 at [27]-[28] :

(1)  A party makes a voluntary submission to the jurisdiction if he takes a step in the proceedings which in all the circumstances amounts to a recognition of the court’s jurisdiction in respect of the claim which is the subject matter of those proceedings;

(2)  The effect of a party’s submission to the jurisdiction is that he is precluded thereafter from objecting to the court exercising its jurisdiction in respect of such claim;

(3)  There will be an effective waiver of any challenge to jurisdiction, or a submission to the jurisdiction, only where the step relied upon as a waiver or a submission cannot be explained, except on the assumption that the party in question accepts that the court should be given jurisdiction;

(4)  If the step relied upon, although consistent with the acceptance of jurisdiction, is a step which can be explained also because it was necessary or useful for some purpose other than acceptance of the jurisdiction, there will be no submission;

(5)  The representation derived from the conduct of the party said to have submitted to jurisdiction must be capable of only one meaning.

38.  In this case, at the outset the Defendant had insisted on having an early date for the substantive hearing of the OS, and proceeded to fix the same for 10 November 2022. This could only mean that the Defendant intended to have the OS resolved by the Hong Kong court, and it was inconsistent with any intention to dispute the jurisdiction of the Hong Kong court or to stay these proceedings.

39.  Further, substantive evidence in opposition to the OS had been filed by the Defendant on 14 October 2022 and it was represented by the Defendant that additional material to complete its evidence would be filed. This was also a clear and unequivocal indication that the Defendant intended to have the OS substantively resolved in Hong Kong.

40.  The above actions on the Defendant’s part should be viewed against the backdrop that it was clearly aware of the possibility of challenging this court’s jurisdiction. Apart from the fact that it was legally represented at all material times, the point was specially addressed in the Plaintiffs’ skeleton arguments for the application of the Injunction.

41.  Once the Defendant had submitted to the jurisdiction of the Hong Kong court, it cannot blow hot and cold and the forum arguments are irrelevant.

NEJC

42.  At the risk of distraction, I shall first deal succinctly with a clutch of points made by Mr Wood, who appeared for the Defendant. They were the focus of the submissions made on behalf of the Defendant. With respect, I believe that the points were misplaced.

43.  The Defendant submitted that the construction of the contractual provision on “Event of Default”[1], which was contained in the NPA and governed by New York law[2], lied at the heart of these proceedings. That may be so, but it does not follow that these proceedings would not be appropriately adjudicated in Hong Kong.

44.  There is a fundamental conflation about the basis of these proceedings, namely, the threatened breach of the Share Charges by way of unjustified enforcement action (hence the Injunction). The fact that the Charges did not themselves provide a definition for Event of Default (see also footnote 2) but instead referred to that contained in the NPA was nothing unusual in the context of a complex set of commercial documents, and would not change the nature of these proceedings. Indeed, there was a good reason for the differentiation between the Share Charges and the NPA. In respect of the former, P2 was a party but it was not so in connection with the NPA. P2, which owns the security for the Notes, is a Hong Kong company (so is Brontia) and it made perfect sense that Hong Kong law should apply for proceedings under the Share Charges.

45.  As regards the construction of the Event of Default provision (see also footnote 2) by this court based on New York law, such an exercise is again nothing extraordinary. Both Hong Kong and New York apply the common law system. The New York law evidence adduced by the Defendant suggested that the principles of construction will not be unfamiliar to Hong Kong Judges.

46.  In the premises, the Defendant’s arguments based on the New York NEJC in the NPA, “competing” jurisdiction clauses contained in the NAP and the Share Charges and applicability of New York law do not assist its cause. It is unnecessary to deal with the relevant legal principles given the lack of merit in these arguments. I need only say that they had been set out in Mr Dawes’ skeleton arguments with which I agree.

47.  Moving to the NEJC contained in the Shares Charges. They present a hurdle for this application, which the Defendant has not begun to overcome.

48.  Under Cl. 24.6(a) and (b) of the Share Charges, the parties agreed that: (i) Hong Kong courts have non-exclusive jurisdiction to settle disputes arising out of and in connection with the Share Charges; and (ii) the Hong Kong courts are the most appropriate and convenient courts to settle such disputes and that no party hereto will argue to the contrary.

49.  The applicable principles can be found in Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd, CA, [2008] 5 HKLRD 631 :

(1)  The court will generally uphold a NEJC because this is the parties’ contractual bargain and it is only in exceptional circumstances that the court would not enforce such a clause ([27]);

(2)  Such a clause involves a party agreeing to submit to a named jurisdiction if the other party chooses to bring proceedings there (even though neither party binds itself to bring action there). This would also mean that the named jurisdiction would be an appropriate forum for the trial of the action ([28]);

(3)  Where proceedings are instituted in the named forum, the party who seeks a stay or otherwise to contest the jurisdiction or appropriateness of that forum has a very heavy burden to discharge, since that party has by definition agreed contractually to submit to the jurisdiction ([31]);

(4)  Strong or overwhelming reasons or exceptional circumstances must be shown before the court would allow that party to be freed from their contractual bargain ([36]);

(5)  Where there is a NEJC, the court does not engage in a forum non conveniens balancing exercise – the connecting factors will be quite irrelevant unless exceptional circumstances for ignoring the clause are shown ([39]-[40]).

50.  No exceptional circumstances has been shown by the Defendant to be freed from the NEJC in the Share Charges.

New York proceedings

51.  The New York proceedings recently instituted by the Defendant are not relevant in light of the above analysis because, firstly, lis alibi pendens is a factor to be considered in a forum non conveniens inquiry: see China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd, CACV 14/2016, unrep, 3 February 2017, [5.2] per Cheung JA.

52.  Secondly, and in any event, if the proceedings had just been started and not moved beyond the stage of the initiating process, it would not be regarded as relevant: de Dampierre v de Dampierre [1988] AC 92, 108C-D, per Lord Goff.

Case management stay

53.  If there is a trend to ask for a case management stay as an additional argument to forum non conveniens, in my view, indiscriminate deployment of such argument is costs inflationary, added to the burden of the court and is unfair to the other court users. I hope that this advice will be taken on board by practitioners, who are duty bound to exercise proper judgment in the use of the court’s scarce resources and to assist the court in achieving the Underlying Objectives (O. 1A, r. 3). The above advice is fully supported by the following principles.

54.  The existence of parallel foreign proceedings may be considered in the context of a case management stay. This is premises upon the court’s inherent power to stay the proceedings before it based on case management considerations. It was held in China Shanshui Cement Group Ltd v Tianrui (International) Holding Co Ltd [2020] HKCFI 3043, [75]-[77], per K Yeung J :

(1)  Such a stay is granted based on similar considerations in a lis alibi pendens case, and would only be granted in “rare and compelling circumstances”;

(2)  The court has to consider what would serve the ends of justice between the parties and the administration of justice generally, and whether a stay would cause injustice to the plaintiff;

(3)  The applicant must demonstrate that it would be unjust to him to continue proceedings here.

55.  The existence of a NEJC and waiver of non conveniens challenge will generally be regarded as defeating any case management stay: see National Westminster Bank v Utrecht-America Finance Co [2001] 3 All ER 733, [22]-[25], per Clarke LJ.

56.  It is perfectly plain that there is no mileage for the Defendant in running both the forum argument as well as seeking a management stay. Save for rare and compelling circumstances, which I struggle to envisage, the court would not grant a case management stay when it has rejected a forum argument the consideration of which would encompass consideration of parallel proceedings.

57.  This argument of the Defendant is also rejected.

Abuse of process

58.  It may be said that in light of the above analysis it is unnecessary to deal with this topic. On the other hand, I have indicated that the way in which the Summons came to be heard in place of the OS is surprising. Further, I accept the Plaintiffs’ submission that this can be an additional and independent ground whereby the court may dismiss the Summons.

59.  I have summarized above the procedural steps taken in respect of the OS. It is quite clear that after obtaining the court’s directions for an early hearing and, at the expense of other court users, getting a 1 day hearing within 3 months from the return date, the Defendant had second thought about proceeding with the hearing of the OS and decided to have the relevant contractual provisions construed by the New York court instead. At the hearing, Mr Wood confirmed that there was indeed a change of mind.

60.  What is objectionable is the fact that the Defendant had kept its true intention up its sleeves whilst presenting a false picture to the Plaintiffs that it was minded to proceeded with the OS, but was unfortunately unable to complete its evidence in time for the early hearing. Such tactical gamesmanship was quite contrary to the Underlying Objectives and the principle that litigation should be conducted with the cards faced up.

61.  There are merits in the Plaintiffs’ complaint that they were misled into agreeing to the vacation of the hearing of the OS. They could have insisted on the completion of evidence by the Defendant to enable the hearing as originally scheduled to proceed. The Plaintiffs would likely have done so if not for the false impression that the Defendant intended to have the OS heard, but after the completion of its evidence.

62.  Further, given that the Defendant had the resources to start the New York proceedings, it calls into question whether its representation that it was unable to complete its evidence (for a case centred upon construction of some contractual provisions) was genuine. Mr Wood informed the court that the Defendant was in the process of finalizing its evidence from Philippines, but that was not something referred to in the Defendant’s evidence.

63.  The vacation of the hearing had allowed the Defendant to spring the Summons on the Plaintiffs and get a 1 day hearing for it in less than 3 weeks. Self-evidently, there are legitimate grievances on the Plaintiffs’ part to such a state of affairs. They have been prejudiced by the delay in having the OS resolved.

64.  Finally, I do not believe that Bright Shipping Ltd v Changhong Group (HK) Ltd [2022] HKCFI 920, [37]-[38], per P Ng J is of assistance to the Defendant. Quite apart from the rather different facts, the court did not find any reprehensible conduct or abuse in that case.

65.  In my respectful view, unfair gamesmanship should be discouraged in clear terms. Such behaviour is likely to be costs inflationary and cause delay to the disposal of the true dispute, not to mention the unfair use of the court’s scarce resources.

66.  I hold that there was abusive conduct on the Defendant’s part in getting a consensual vacation of the hearing of the OS and poaching it for the Summons in the circumstances discussed above. I agree with the Plaintiffs that such abuse, by itself, justifies the dismissal of the Summons.

Disposition

67.  For these reasons, the Summons is dismissed. I accede to the Plaintiffs’ application that the costs of and occasioned by the Summons be paid by the Defendant on indemnity basis, to be taxed if not agreed, with a certificate for 2 counsel.

68.  I also make the directions sought in para 80 of the Plaintiffs’ skeleton arguments, which are aimed to put the OS back on track and to enable it to be determined without further delay, save and except that I allow the Defendant 14 days to complete its evidence and for para 80(1) the date should be changed to 24 November 2022.

69.  In addition, I make the following directions :

(1)  Affirmations are to be confined to facts and not to contain submissions, arguments or opinion, and should not be over-worked, massaged or crafted by lawyers. Failure to comply may result in wasted costs order;

(2)  No new issue is to be raised in any reply affirmation without the leave of the court;

(3)  Skeleton arguments for the hearing of the OS are to be lodged and served by the Plaintiffs and Defendant respectively not less than 7 and 5 clear days before the hearing;

(4)  E-bundles are to be used for the hearing and PDSL 1.3 is to apply.

70.  Last but not least, I am grateful to counsel for their assistance.