Universal Entertainment Corporation and Another v. Kazuo Okada

HCA 2236/2019

[2020] HKCFI 1406

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.On 22 January 2020, the plaintiffs issued a summons (“Summons”) returnable on 31 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 Okada Holdings Ltd (“OHL”) and Okada Fine Art Ltd (“OFA”), both being Hong Kong private companies.

2.The Summons was issued in these proceedings, which were commenced by Writ of summons dated 3 December 2019, subsequently amended on 11 March 2020.

3.The Summons was issued on an inter partes basis because – as it was explained – (a) there was no longer any confidentiality, the Writ having been issued; and (b) the then value of the defendant’s shares in OHL alone exceeded the ‘ceiling figure’ amount of US$620 million sought to be restrained.

4.The substantive hearing of the Summons to take place in late January 2020 was postponed as a result of the General Adjournment Period (“GAP”).  As the GAP was continued, the plaintiffs on 14 April 2020 expressed the intention to make an ex parte application on notice, to seek an interim Mareva injunction – that is, to obtain interim-interim relief – in similar terms to, and pending the determination of, the Summons.  That application had been triggered by what was said to be a change in circumstances said to justify the fact that the Mareva injunction had “become urgent”.  The particular change of circumstances identified was that there had been a massive (about 50%) decrease in the value of the OHL shares since 22 January 2020.

5.I heard that application on 17 April 2020. By my Judgment dated 22 April 2020, [2020] HKCFI 630, I granted some limited interim-interim relief, but not in the terms of the Summons.  I did so in the particular circumstances then pertaining, and notwithstanding that I had found that the plaintiffs were guilty of material non-disclosure.  For the purposes of that decision, it was not necessary to deal in any detail with the underlying merits, which I pointed out would be properly considered on the substantive hearing of the Summons.

6.I also gave directions to bring the matter to an effective substantive hearing, and fixed the hearing date for 26 June 2020.  In advance of that date, the parties filed lengthy written skeleton submissions, and the hearing was able to be conducted orally with some efficiency.

7.Mr Robert Whitehead SC, Ms Athena Wong and Ms Charlotte Chan appeared as Counsel for the plaintiffs. Mr William Wong SC and Mr Brian Fan appeared as Counsel for the defendant.  At the end of the hearing, I reserved my decision.  But I continued the interim-interim relief pending my decision.

8.This is my Judgment.

B.      Brief Background

9.In my previous Judgment, I gave a brief summary of the background which, with some additions, might usefully be repeated to set the scene.

10.The 1^st plaintiff (“UE”) is a public company incorporated under the laws of Japan, and carries on the business of manufacturing Pachinko machines and operating casino resorts.  The 2^nd plaintiff (“Tiger HK”) is a Hong Kong incorporated wholly-owned subsidiary of UE.

11.The defendant is the founder of UE.  He was a director of both plaintiffs for the period when the matters giving rise to the claims occurred.

12.Essentially the claims arise out of the plaintiffs’ developing, since 2008, an integrated casino and resort complex in the Philippines (“Casino Project”), over which it is said the defendant had absolute control and supervision.  The development was pursued using a corporate group formed by UE in around 2014, centred on Tiger HK.  Tiger HK holds 100% of the beneficial interest in Tiger Resort, Leisure & Entertainment Inc (“Tiger PH”), a company incorporated in the Philippines for the Casino Project.  The Casino Project had an approved budget (“Approved Budget”) in the sum of US$2.43 billion.  However, the plaintiffs say that due to the defendant’s mismanagement of the Casino Project during his directorships, the plaintiffs continuously overspent on the Casino Project.

13.The plaintiffs say that, despite all reasonable steps taken by the plaintiffs’ current directors after January 2018 to reduce the forecasted costs overrun, the costs incurred and paid for the Casino Project had accumulated to a sum of about US$3.05 billion by September 2019.  That gives rise to the underlying claim in the sum of US$620 million in excess of the Budget, which is also the ‘ceiling figure’ sought to be frozen by the Summons.

14.The claim against the defendant is as to alleged breaches of duties of care under both Japanese law and Hong Kong law, in causing the significant overspending on the Casino Project.

15.The core allegation is that, whilst the plaintiffs recognise the defendant’s contributions in bringing the Casino Project to fruition, the defendant undermined all control measures put in place to minimise risk, prevent the diversion of funds and prevent cost overruns. There was a Project Steering Committee (“PSC”) in place for a time, but the defendant thwarted its independence by appointing people to the PSC who agreed to follow only his instructions and to act in his interests, not those of Tiger PH and its shareholders.  It is also alleged that the defendant by-passed the PSC decision-making process by labelling items as new additions or Phase 2 works, so that they would not be subject to PSC scrutiny.  Further, the defendant eliminated the PSC altogether when he terminated Savills and delegated decision-making authority to the head construction contractor.

16.As is evident from this factual summary, the plaintiffs are now controlled by different directors.  The defendant was ousted as a director in June 2017, he says as a result of a “coup” orchestrated by his wife and a Mr Jun Fujimoto, siding with the defendant’s son and deceiving his daughter.  The defendant says Mr Fujimoto is the paramour of the wife, though she denies this.  Mr Fujimoto has been a director of UE since 2001.

17.It is fair to say that these and other surrounding events have given rise to various litigation proceedings in Hong Kong, Japan and the US.

18.As to the shares in OHL, the defendant owns 46.7% of the issued shares.  However, under its Memorandum and Articles of Association, the directors of OHL may in their absolute discretion decline to register any transfer of shares.  Given the ongoing proceedings among the former and current directors of OHL, it seems unlikely that the current directors of OHL would register a transfer of shares in OHL by the defendant. This practical bar to dissipation was one of the reasons why the plaintiffs originally considered that the Summons was the appropriate means to apply for Mareva relief, as there was no imminent or immediate requirement for such relief.

19.OHL’s only asset is its shareholding in UE, being 69.66% as at 30 March 2020.  The value of OHL therefore depends on the share price and market capitalisation of UE.  As at 10 December 2019, the value of the defendant’s shares in OHL was said to be about US$915 million.  However, the revised estimate as at 6 April 2020, following a significant drop in the share price of UE, was approximately US$330 million.

20.That sum would not be sufficient to cover the claim of, or to freeze assets up to the sought ‘ceiling figure’ of, US$620 million.  That is what triggered the application for the interim-interim relief.  But share prices fluctuate, and by 24 June 2020 the price had recovered somewhat so that the value of the defendant’s shares in OHL was said to be about US$532 million.

21.The plaintiffs say that the only other known assets held by the defendant in Hong Kong are the OFA shares and OFA’s assets are at risk.  The assets of OFA are a collection of artwork of a very significant value.  In the audited accounts of OFA for the year to 31 December 2014, the long-term investment in art products was carried at a valuable of almost HK$2.7 billion (though the accounts were the subject of a qualified opinion because the auditors were unable to obtain sufficient appropriate audit evidence about that carrying amount because the management had not provided them with a valuation report about the fair market value of art products from a professional valuer).

22.That artwork – or, at least most of it – is held in and forms the collection of the Okada Museum of Art, at which OFA’s artworks are on display.  They are held and displayed there, under the physical possession and control of UE, by virtue of a bailment agreement.  That agreement was explained in inter alia a public announcement made by UE to the Japanese investing public in 2018, apparently in response to public enquiries about the continuation of the operation of the Museum.  The announcement informed the public, including its shareholders, that UE had executed a bailment contract for all artworks, which does not expire until 2 October 2023, meaning that UE has no obligation to surrender any of the artworks exhibited and kept at the Museum until at least that date, even if OFA (of which the defendant is sole director) requests otherwise.

23.It was the failure of UE to have disclosed the existence of that bailment agreement which, on the last occasion, I found amounted to material non-disclosure.

24.There are also other proceedings in Hong Kong, being FCMC 12767/2018, in which the defendant’s wife has petitioned for a divorce and various ancillary orders.  As I recorded in my previous Judgment, the defendant (as respondent to the matrimonial proceedings) undertook to the petitioner (his wife) and to the Family Court “not to sell, transfer or pledge any assets including any art pieces and any company shares, including those held under [OFA], to any third parties without the Petitioner’s consent or without an order of the Court” (“the FC Undertaking”).

25.Since the last hearing, it has been made clear that the defendant (as respondent to the matrimonial proceedings) has challenged the Family Court’s jurisdiction over him and the subject matter of the proceedings.  That application has been dealt with on paper submissions, though a decision is awaited.  If the defendant is successful in his challenge to jurisdiction, the FC Undertaking will obviously fall away.  However, even if the defendant is unsuccessful in his challenge to jurisdiction, he has indicated that he will independently seek to be released from the FC Undertaking.

26.The interim-interim relief which I granted on the last occasion was to take account of these various circumstances.  I ordered that in the event of withdrawal, discharge or modification of or release from the FC Undertaking, the defendant should within 24 hours of the occurrence inform the plaintiffs in writing of it and the defendant would be restrained from dealing with, disposing of or diminishing the value of his shares in OFA until 7 working days thereafter, or further order of the court.

C.      Whether Material Non-Disclosure is Determinative

27.In his submissions, Mr Whitehead accepted that the bailment contract was material to the issues previously before the Court and should have been disclosed.  In consequence, he candidly accepted that the plaintiffs have a high threshold to persuade the Court now to grant them the relief sought.

28.But he submitted that the omission of the bailment contract was in all the circumstances an ‘innocent’ omission, as explained by the plaintiffs’ deponent Mr Takeuchi.  First, it was stated that the case involves thousands of documents involving different companies in three jurisdictions with many documents in Japanese (including the bailment contract).  Secondly, the original intention by the Summons was to bring on the application on an inter partes basis, precisely to give the defendant adequate notice to be able to prepare.  Thirdly, it was pointed out that the bailment contract was not a document known only to the plaintiffs, but was a document which would without doubt have been drawn to the attention of the court by someone in the lead up to the intended inter partes hearing.  In other words, there could not have been any realistic attempt to have failed to disclose a document in the hope that it would not be brought to the attention of the court.  Fourthly, matters began to disentangle (as it was put by Mr Whitehead) only when it was erroneously thought necessary to make the urgent application for interim-interim relief.  In the rush to make that application, the bailment contract was overlooked.  Though unfortunate, once the importance of the bailment contract was identified, UE took immediate steps to place it before the Court during the hearing leading to my previous Judgment.

29.Mr Whitehead also relied on the principle that if there is an ‘innocent’ non-disclosure in circumstances where the defendant is represented and would likely have corrected the position, that does not remove the duty a full and frank disclosure, but may be material for the court in considering the consequences of the non-disclosure.  So, submitted Mr Whitehead, this is a case in which the consequences of the particular mistake should not of itself disentitle the plaintiffs to the relief sought.

30.On the other side, Mr Wong did not accept that the non-disclosure was ‘innocent’, but asserted that it must have been deliberate or at least the result of the plaintiffs’ highly cavalier attitude towards its duty.  Mr Wong invited close analysis of the non-disclosure in its proper context.  First, he pointed to the ‘real players’, as he put it, in these proceedings which are really between the defendant on the one hand and Mr Fujimoto and the defendant’s wife on the other hand.  Even if the latter two are not having an affair, they are close associates in every other sense.  What was undisclosed is a bailment agreement, essentially conferring complete physical control over the artwork held by OFA to the Okada Museum of Art owned and operated by UE.  The existence of the bailment agreement had been specifically announced by Mr Fujimoto on behalf of UE on 14 May 2018, apparently to assuage concerns of UE’s shareholders.  When the Summons was first issued, it specifically targeted the artwork held by OFA as the assets included in those intended to be covered by the Mareva injunction.  The interim-interim injunction was pursued on the basis that the artworks “can be easily disposed of by OFA”, ignoring and without reference to the bailment agreement or the announcement to shareholders.  At all times, the plaintiffs had legal advisers and, as Mr Wong put it, no shortage of professional, correct and timely legal advice.  In the circumstances, the offered explanation from Mr Takeuchi (who is not even a director of UE) that the bailment agreement did not “cross his mind” is inherently implausible and unacceptable.

31.Mr Wong submitted that the reference to thousands of documents was a red herring, when the bailment agreement went directly to one of only two assets specifically targeted by the Summons and the interim-interim application.  Mr Wong says that the obvious inference is that there was a deliberate failure to disclose, or a wilful blindness to making proper enquiries.  Mr Wong also referred to the speed with which the document was produced after the lunch break, once its existence had been mentioned before lunch at the April hearing.

32.Obviously, any material non-disclosure is unsatisfactory.  However, I am prepared to accept that the non-disclosure arose on this occasion because of the rushed – and as it happens ultimately largely unnecessary – interim-interim application made in April.  Whilst that application was made on an ex parte on notice basis, which is what triggered the obligation of full and frank disclosure, it had originally been fully intended for the Summons to be dealt with on an inter partes basis.  Had there not been the sudden and unnecessary rush, I am satisfied that the existence of the bailment agreement would have come out and would have been addressed at the intended inter partes hearing.  To say that is not the same as condoning the non-disclosure, but it is to put that non-disclosure in what I seek to be its proper context.

33.In the circumstances, it seems to me in the exercise of my discretion, the proper approach to the non-disclosed bailment agreement is to look closely at its terms against the totality of the evidence and to see what bearing it has on the overall merits and any balance of convenience.  In other words, the non-disclosure is not of itself determinative of the Summons.

D.      Applicable Principles

34.The principles applicable to the grant of Mareva injunctive relief – seeking a ‘freezing’ order over Hong Kong assets – are well-established.  The applicant has to show that: (1) it has a good arguable case on its claim; (2) there are assets within the jurisdiction; (3) there is a risk of dissipation of those assets so as to render any judgment which the plaintiff may obtain nugatory; and (4) the balance of convenience is in favour of granting an injunction.

35.The requirement that the applicant should demonstrate a good arguable case extends not just to the question of liability but also to 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 the 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.

36.In many applications for Mareva relief, there is focus on and discussion about risk of dissipation.  Much has been written on the topic.  Since the hearing in this case, the Court of Appeal has on 3 July 2020 handed down a judgment allowing an appeal from a decision of Harris J (which first instance decision was referred to by Mr Wong in argument before me): see Convoy Collateral Ltd v Cho Kwai Chee [2020] HKCA 537.  There, the Court of Appeal referred to the principles on the approach to assessment of risk of dissipation in the context of an application for a freezing order as set out by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 at §§34 and 51, and held them to be applicable in Hong Kong, subject to some elaboration.

37.Attempting my own summary of the principles, they are as follows:

(1)     The applicant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets.

(2)     In this context, dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.  Whilst it may not always be necessary to demonstrate a nefarious intent, there must be something more than the mere ordinary or usual dealing with assets.

(3)     What must be threatened is unjustified dissipation.  It is not the purpose of a freezing order to provide security for the claim.  Rather, the purpose is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business, in a way which will have the effect of making the defendant judgment-proof.

(4)     The purpose of a freezing order is not to prevent a corporate defendant from dealing with its assets in the normal course of business, or to restrict an individual defendant from conducting his personal affairs in the way he has always conducted them, provided that such dealing and conduct are legitimate.

(5)     Where there is more than one respondent to the application, the risk of dissipation must be established separately against each respondent.

(6)     The burden is on the applicant to show a real risk of dissipation, which must be established by solid evidence.  Mere inference or generalised assertion is not sufficient.  Neither are unsupported or bare statements of fear, which will carry little weight.  Resort to mantras such as “low commercial reality” are of little value unless supported by solid evidence.

(7)     It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty.  It is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets may be dissipated.

(8)     It is also necessary to take into account whether there appears at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(9)     An assessment of the risk of dissipation necessarily involves an evaluative and predictive judgment.  The evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk.

(10)     Where the court accepts that there is a good arguable case that a respondent has engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will, or may, point powerfully in favour of a risk of dissipation.

(11)     Hence, where the dishonesty alleged is at the heart of the claim against the defendant (being either the substantive claim or the claim for an injunction), the court may find it able to draw the inference that the making out of that case to the necessary standard also establishes sufficiently the risk of dissipation of assets.  But the evidence of dishonesty must be relevant to the risk of dissipation and not simply the underlying claim.

(12)     Evidence of delay in making the application may be relevant in the assessment of risk of dissipation.  Delay after a defendant gained knowledge of a plaintiff’s claim can militate against the risk of dissipation because that defendant has already had the opportunity to dispose of assets, should he be inclined to do so.  But delay of itself does not necessarily bar relief.  The ultimate question remains whether the plaintiff can show a real risk of dissipation despite delay.

(13)     Each case is fact specific, and the relevant factors must be looked at cumulatively.

E.      Good Arguable Case

38.In the context of whether the plaintiffs have established a good arguable case, a preliminary point has been taken by Mr Wong on behalf of the defendant.  Mr Wong says that the plaintiffs have illegitimately sought to salvage their otherwise deficient case by muddling voluminous new allegations, which introduce far more serious and grave charges against the defendant, and by adducing foreign law evidence at the last minute.

39.Essentially, other than a few paragraphs which Mr Wong accepts are truly evidence in reply to the defendant’s evidence, Mr Wong asks that most of the evidence filed in response to the defendant’s evidence should be expunged and disallowed.  He points to the fact that the reply affirmation is 86 pages long, with around 1,400 pages of additional material, filed just 10 working days before the hearing and in contrast to the original 13-page supporting affirmation.  He points to various “new complaints” (as he terms them) about self-dealing or enrichment, dishonest diversion of funds, deliberately defying the imposed fixed budget by re-categorising matters as Phase 2, and misappropriating intellectual property rights.  These are now deployed by the plaintiffs, he says, to seek to make out a good arguable case.

40.Mr Wong says his criticisms are a point of substance, not a mere procedural or technical point.  The defendant has not had an opportunity realistically to respond to this new material (though I note he has not sought any adjournment to do so).  The very propriety of the plaintiffs’ Summons is called into question, when the plaintiffs have little idea how to formulate their case even two years after the defendant was ousted as a director.  The reliance on matters of foreign law is also inappropriate at such a late stage, where otherwise the presumption would have been that Hong Kong law is the same as (in this case) Japanese law.  No leave has been obtained for service out of the re-amended Writ.  Hence, Mr Wong submits that the plaintiffs’ application should be dismissed, with the bulk of the new evidence being excluded, leaving it to the plaintiffs to obtain fresh leave to serve out and to make any other application then thought appropriate.

41.There is some force in the submissions.  I also accept that it should not be for the court to comb through the reply affirmation so as to segregate what is properly reply evidence and what is not.

42.In response to these points, Mr Whitehead submits that the plaintiffs were entirely justified in replying to matters identified and relied upon by the defendant in his own evidence.  He points out that it was the defendant who has made various assertions, to which the reply evidence is offered in answer.  The defendant has asserted that the board fully knew of and expressly or implicitly approved decisions made by him; that all major decisions for the Casino Project were fully discussed and decided by the board of the relevant companies; that decisions might be considered as bad commercial decisions within the day-to-day management of a company, but the plaintiffs cannot blame the defendant for any breach of fiduciary duty or duty of reasonable scare, skill and diligence as a result of having participated in making such decisions.  Mr Whitehead says that the lengthy reply evidence is simply the result of the many different assertions made by the defendant, which can be and have been addressed.

43.Ultimately, it seems to me that I can deal with this application on the totality of the materials, so long as I take into account (as I do) that some of the matters dealt with in the reply affirmation are matters to which the defendant might have an answer, but to which he has had no proper opportunity to provide any such answer.

44.Though it might be said that the plaintiffs have sought to raise some new matters, they are really part of the amplification or further particularisation of the existing plea of the defendant’s failure properly to supervise and manage the Casino Project in breach of duties owed under the Companies Ordinance, at common law, or under the implied contract entered into between Tiger HK and the defendant.  Whether or not those new matters amount to raising new causes of action – the usual definition of a cause of action being a set of facts which might entitle one person to a form of relief against another person – seems to me to be a distraction.  The essence of the plaintiffs’ case remains that the defendant took effective practical control over the Casino Project and for various reasons failed to perform his management duties in accordance with the appropriate standard of care and in breach of law, including Japanese law, as pleaded in the statement of claim.

45.Further, I am not sure the matters of foreign law really are determinative at this point.  I accept the ordinary presumption that, without evidence to identify the difference, foreign and Hong Kong law are the same, but the factual effect of Japanese law has been pleaded.  Some evidence of Japanese law was adduced with the Summons (so not just in reply).  I think it properly open to me to take account of all of the evidence, and carefully to scrutinise it and to give it such weight in all the circumstances as seems to me to be appropriate.  I also take into account that the majority of the claim relates to the over-spending, even if the further matters are brought in to the picture.  That is where the main focus is.

46.Turning to the merits of the claim, it is common ground that the court does not embark on a trial on affidavits at this interlocutory stage.  Nevertheless, it is incumbent on the plaintiffs to show that it has merits to a good arguable case, based on proper and cogent evidence.

47.Mr Whitehead began his oral submissions by asking me to keep in mind the overview.  The Casino Project was a major multi-billion US dollar project, being developed by a listed company, and financed by bank lending from banks which insisted on strict controls.  The defendant was fully aware of those controls.  The defendant was appointed to oversee the Casino Project and to appoint other officers, and was in control of the monies allocated for Phase 1.

48.On the detail of the relevant controls, a Governance Manual was produced.  Section 10.1 of the Governance Manual stated that the Approved Budget was fixed; all financing reporting must be made against the Approved Budget; and any changed to the Approved Budget could only be authorised by the PSC.  There were also Subsidiary Management Regulations put into place by UE for the management of its subsidiaries.

49.Under a Note Purchase Agreement and two supplemental agreements, entered into between UE and Deutsche Bank, US$1.2 billion of Corporate Notes were issued.  A Project Reserve Account was established to receive transfer of the corporate note proceeds, and unequivocal restrictions were placed on the use of the funds to be withdrawn from the account.  At a time when the defendant was in absolute control of Tiger HK and Tiger PH, almost US$1 billion of disbursements were made to Tiger PH from the Project Reserve Account between August 2015 and December 2016.

50.There was also a Margin Loan Agreement, under which UE borrowed from Deutsche Bank a further US$170 million for the Casino Project, of which over US$168 million was transferred to Tiger HK’s bank account, of which the defendant was sole signatory.  There was a further loan facility by which BDO Unibank Inc lent around US$854 million to Tiger PH, and of which Tiger HK was the share mortgagor, assignor, sponsor and guarantor.  Restrictions were also placed on that loan, which could only be used for paying Phase 1 expenses.

51.Against this background, Mr Whitehead poses and answers the following question: what did the defendant then do?

52.He says, first, the defendant breached the Governance Manual and Surgery Management Regulations and usurped and handicapped the board of Tiger PH.  He says this cannot be doubted, because the defendant has himself given sworn evidence to the Department of Justice in the Philippines in an affidavit made on 10 April 2019, stating:

2.4     In view of my ownership and control of OHL and Universal [UE], all major corporate actions of OHL and Universal require my authorisation, approval or ratification, including the election or appointment of directors and senior officers of the said companies. Further, all directors and/or senior officers of Universal and its major subsidiaries are or were under my supervision and control, and serve or served at my pleasure. The said directors and senior officers do not have any significant ownership interest in OHL or Universal, and were only elected or appointed to their positions because I caused or consented to such election or appointment. In other words, the said directors and officers are merely my nominees.

…

2.8     As earlier mentioned, I am beneficial owner of 67.7% of Universal through OHL. Universal owns 100% of Tiger HK, which in turn owns 99% of Tiger PH. Accordingly, I am also beneficial owner of 67.7% of Tiger HK and Tiger PH. Consistent with this fact, and my role in the development of Okada Manila, I was Sold Director of Tiger HK prior to the Ouster Events. As Sole Director, I had sole power and authority to exercise all corporate powers of Tiger HK.

…

2.10     Accordingly, I caused nominees to be elected to the Tiger PH Board to exercise its corporate powers on my behalf. To comply with Philippine law, I caused the issuance or transfer of one (1) Tiger PH share to each nominee to qualify them for election as Director of the company. It must be emphasised that none of the said Directors of Tiger PH have any ownership interest in Tiger PH. They were only elected as Directors because I caused and consented to the election. Their selection and election as Directors of Tiger PH were made under certain conditions made known to them, including: (a) they will vote and exercise their powers and rights as Directors in accordance with my instructions, and I would retain full control of the shares, including voting rights attached thereto; (b) they will not take, and will prevent any steps that are contrary to my instructions or my interest, including those that will lead me to lose control of Tiger PH.

53.There is also a corroborating affidavit dated 29 April 2019 filed by Mr Usui, the director and chief executive of Tiger PH, in which Mr Usui stated:

[The defendant] caused my election as director and Chief Operation Officer (COO) of Tiger PH in March 2016. … I was made to understand, and I understood, that my selection and election as Director, COO and President of Tiger PH were under certain conditions, including that (a) I will vote and exercise the powers and rights of my position in accordance with [the defendant’s] instructions, and that [the defendant] will retain full control of the shares, including voting rights attached thereto; and (b) I will not take, and I will prevent any steps that are contrary to [the defendant’s] instructions or interest, including those that will lead to [the defendant] to lose control of Tiger PH.

54.I accept this evidence is telling, coming as it does from the defendant himself, and from his nominee.  It also seems to me to be entirely consistent with the flavour of the defendant’s evidence in these proceedings, where he clearly continues to think of UE and its subsidiaries very much as “his baby” (my phrase, not his), and shows upset that ownership has been taken from him.  This is so, notwithstanding that UE is a listed company, with significant public ownership.  I do not think this is a ‘red herring’, as Mr Wong suggested.

55.It is in that context that Mr Whitehead says the defendant, instead of following the strict financial and budgetary controls, drove a ‘coach and horses’ through them.  He did so by various means including using monies allocated to Phase 1 of the Casino Project to depart from the Approved Budget and authorised items outside that Phase in various ways which were not approved by UE or the PSC.  The defendant then got rid of the project manager, Savills.  As Savills’ main role was to keep the Casino Project within the Approved Budget, it was essential that the defendant accurately report all incurred and projected costs, but the defendant deliberately failed to do so.  The termination of Savills had not been discussed with the PSC or the Board of Directors of Tiger PH before it happened (though, even if the board had discussed it, the evidence suggests the members of the board would simply have done as they were instructed by the defendant). Following the termination of Savills, the defendant dispensed with the procedures for cost controls as were required under the Governance Manual, and no PSC meetings were held after 1 January 2017.  Instead, the defendant took control of the project management and authorised and/or permitted a very significant increase in the Project Management Instructions.

56.This, says Mr Whitehead, is what led to the massive increase over the Approved Budget.  This is, he says, a serious case of unauthorised conduct and unauthorised spending.

57.Mr Whitehead also relies on certain related-party transactions which are dealt with in the reply affirmation, and where he says no board resolutions authorising them can be located.  I do not give those matters particular weight, when the defendant has not had the opportunity to answer them, and it is not necessarily clear that related-party transactions (if that is what they were) were otherwise inappropriate or caused greater expense for the Casino Project than would transactions with non-related parties.

58.A stronger point may arise out of the payment of salary to the defendant.  I accept the proposition that a director is under a duty to report his own misconduct to the company in fulfilment of his duty to act in good faith, and damages will be awarded for breach of this duty.  Such damages might include reimbursement of salary and benefits which would not have been paid other than as a result of the breach.  A review of the Tiger HK Main Account identifies that monthly salary payments were made to the defendant totalling almost HK$336.6 million for the period from September 2011 to May 2017.  For the period from March 2016 to May 2017, the sum of approximately HK$76.665 million (or US$9.829 million) was paid to the defendant, which Mr Whitehead submits was tainted by the defendant’s misconduct.

59.In the context of considering whether there is a good arguable case, Mr Wong for his part emphasises the identity of the ‘real players’ behind the dispute, namely Mr Fujimoto and the defendant’s wife (who now control the plaintiffs) and the defendant (who was ousted in what he describes as a coup in 2017).  What was previously a harmonious relationship has irretrievably broken down.  I recognise that in such circumstances – as I have noted in Vitaly Orlov v Magnus Roth [2019] HKCFI 2120 at §§2 and 403 – there are frequently allegations and counter allegations, where each of the protagonists sees the history and continuing circumstances through his own particular and very different lens, and where there is a tendency for each side to review history and re-interpret events very differently from their own contemporaneous interpretation.

60.So, says Mr Wong, the contemporaneous documents must be regarded dispassionately, to see whether they support a good arguable case that the defendant breached his duty to either plaintiff in the manner claimed by the plaintiffs; to see whether he took absolute command and expended extravagant costs on the Casino Project without informing UE’s board or consulting them, so that (as a matter of causation) the defendant has to be liable for the plaintiffs’ loss.

61.Essentially, Mr Wong submits that to say that the company had no knowledge of the overspending, and that it only came to light after the defendant was expelled from the company, beggars belief.  He relies on particular documents in 2015, including the renewal letter for the engagement of Savills on 22 April 2015, which stated that the forecast final costs of the Casino Project were almost double the original cost of construction, and the minutes of two board meetings on 24 and 28 July 2015, which in part related to the financing of construction through the Deutsche Bank bond scheme.

62.But, as Mr Wong himself accepts, the relevant budget figure discussed in those meetings was the Approved Budget of US$2.43 billion, and it was the bond scheme financing arrangements which gave rise to the management manuals and rules.  Those rules must in part been put in place for the benefit of the lender, as well as for the borrower.  It also seems to me that April and July 2015 might be somewhat early in the chronology, when the significant over-spending alleged appears to have occurred in 2016 and 2017.  As Mr Whitehead submits, there does not seem to have been any detailed discussion as to the details of any costs overrun during the extended period from 2015 to mid-2017, when the defendant was dismissed from his position.  There is no evidence of any report by the defendant to the UE board, explaining any of the details of such overruns as are now the matter of complaint.

63.Further, that an original budget might be foreseen to be one which would necessarily be increased – not in itself an unusual event – does not mean that any increased figure has automatically been reviewed and approved.  The allegations in this case are that the increased figures were not approved, not least because they were not put through the relevant approval mechanisms, or perhaps because they were disguised as another Phase of the Casino Project.  Against that, I accept that there is some force in the defendant’s point that each year UE was to publish the costs of this project to the general public in its audited accounts.

64.In any event, that the defendant might in due course be able to offer a reasonably arguable defence to the claim does not of itself remove the existence of a good arguable case on the claim.  I accept, as Mr Wong submits, that it is not for the defendant to show that the plaintiffs’ case is hopeless, as that would reverse the appropriate owners.  I do not lose sight of the fact that it is for the plaintiffs to establish that they have a good arguable case on their claim.  That may be so, but resolving the allegations and counter allegations is not something which the court can realistically do at this stage.  As is common ground, there can be no trial on affidavits.

65.Unusual though it might be, I also accept that the case of over-spending in breach of the various directors’ duties owed is capable of constituting a proper cause of action for which the plaintiffs can make a claim.  Of course, the mere fact that a company could have achieved more advantageous terms of contract does not necessarily mean that there is a breach of the duty to take reasonable care.  But, contrary to what Mr Wong submits, it does not seem to me to be an affront to commercial common sense for it to be alleged that overspending can itself give rise to a breach of duty owed by the defendant, simply because construction projects are by their nature prone to lead to unforeseen levels of expenses.

66.I also accept Mr Whitehead’s submission that Tiger HK can satisfy me at this stage to the appropriate standard that it is not claiming reflective loss.  The claim does not arise simply from alleged breach of the defendant’s duties owed as a director of a non-party subsidiary. In any event, Tiger HK can rely on two of the exceptions to the reflective loss rule identified in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1, at 35G-H.

67.Looking at matters overall, I accept that there might be a good arguable case on the claim, at least on the question of liability.

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 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 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.

80.Though that is the end of the analysis, and itself leads to the dismissal of the application, I will nevertheless for the sake of completeness go onto consider the other points.

F.      Assets within the Jurisdiction

81.There is no dispute that there are assets within the jurisdiction, comprising the shares held by the defendant in OHL and OFA.

82.This requirement for an order of the nature sought by the plaintiffs is, therefore, met.

G.      Risk of Dissipation

83.On behalf of the plaintiffs, Mr Whitehead submits that the plaintiffs can demonstrate by solid evidence that there is a risk of unjustified dealing with assets.

84.First, reference is made to the evidence suggesting the defendant has bullied his way into usurping any sort of commercial control that UE, Tiger HK or Tiger PH tried to exercise over the Casino Project.  That demonstrates the defendant has little care for authority or fair play, and shows the defendant to be a person likely to take every manoeuvre available to avoid his assets falling into the hands of the plaintiffs.  Mr Whitehead also relies on the evidence of extreme animosity held by the defendant against the major shareholders of UE.

85.Mr Whitehead also submits that because the defendant is resident in Japan, having previously for a while been resident in Hong Kong, the inference that there is a real risk that a judgment may go unsatisfied can be more readily drawn.  There is no established arrangement for reciprocal enforcement of Hong Kong judgements in Japan, and the Court can take account of the length of time it would require to enforce a Hong Kong judgment in Japan.

86.Whilst maintaining the primary submission that the defendant can easily diminish the value of OFA, which value depends on its artworks which could be easily diminished, Mr Whitehead makes the secondary submission that the defendant has provided no answer to the risk that the defendant may either charge or dispose of the artworks.  Clearly, the bailment agreement does not transfer ownership, even if the bailment agreement requires delivery up to whoever is designated (potentially a new owner) at the end of the bailment period.

87.Mr Whitehead also relies on the provisions in Article 34 of OHL’s Memorandum and Articles of Association, which provides that whilst the directors may in their absolute discretion decline to register any transfer of shares, there is a proviso that they shall register any transfer of shares for the purpose of enforcing a security interest over such shares.  Whilst it is accepted that nothing can be done about existing security interests, only the order as now sought would prevent the defendant from charging or creating a security interest over the OHL shares which the directors of UE with then be bound to register.

88.Mr Whitehead then invites the court to infer a real risk of dissipation from the defendant’s questionable commercial morality in his past dealings with the plaintiffs.  Reference is made to a warrant of arrest issued against the defendant for the crime of Estafa (ie. fraud) in the Philippines, relating to improper payments from Tiger PH in April and May 2017.  The defendant has failed in an application to quash the warrant of arrest, but has failed to surrender.

89.The defendant has also been a breach of two disclosure orders of this Court.  One is the Order of L Chan J made on 26 January 2018 in HCA 3017/2017.  K Yeung J has since described the failure of the defendant to comply with that order, which required disclosure but where the “purported disclosure has been wholly inadequate”.  The same judge also identified a serious issue to be tried on whether the defendant has misappropriated funds in the sum of HK$135 million from Tiger HK in breach of his fiduciary duties.  K Yeung J has also observed that the defendant has failed to provide the disclosure ordered to be made in respect of a different sum.

90.Reference is also made to a decision of the Tokyo District Court holding the defendant to have acted in breach of his duties owed to UE, when he made unauthorised payments to third parties; the failure to pay the costs of the Special Investigation Committee under the Tokyo judgment; an arbitration award entered against the defendant in Chicago in the damages sum of US$54.6 million, with interest of US$12.2 million, which is now sought to be enforced in Hong Kong.  This is said to give rise to a real risk that the defendant will seek to dissipate his assets in Hong Kong to avoid payment of that arbitral award.

91.For the defendant, Mr Wong focuses on the two known assets of the defendant in Hong Kong, namely the OHL and the OFA shares.  Mr Wong says that the “mudslinging exercise” engaged in by the plaintiffs to suggest a real risk of dissipation is unhelpful to the current exercise.  First, the various allegations made are unproven charges or claims, or involve inadmissible opinion evidence arising after the 2017 ouster and concerning different subject matters than the present action.  Secondly, mere propensity evidence is of limited value in assessing a risk of dissipation. Thirdly, it is unhelpful to adopt an approach which is not tied to the nature of the assets which are targeted by the proposed Mareva injunction.  Mr Wong says that the proper application of the principles to the relevant facts points to the conclusion that there is no real risk of dissipation.

92.In respect of the OHL shares, Mr Wong says it is clear that the defendant could not realistically sell them, and to suggest that the defendant “could” enter into all sorts of sham or trust arrangements is simply fanciful.  Moreover, given that the majority shareholding is controlled by the defendant’s wife’s camp, there is no question that the exercise of voting rights by the defendant would undermine the value of the OHL shares.  An opportunity to dissipate does not constitute a real risk of dissipation, so reference to the possibility of charging the shares does not assist the plaintiffs.

93.In respect of the OFA shares and their underlying assets, Mr Wong says it is unlikely in the extreme to suggest that the defendant would dispose of those shares at no value or an undervalue simply to evade judgment.  It is fanciful to suggest that any purchasers would buy all the artworks on a wholesale basis via acquiring the OFA shares, without inspecting the artworks to examine their authenticity and provenance.  Further, he says there is no substance in the plaintiffs’ attack on the defendant’s statement that (in accordance with the best of his knowledge) all of the artwork is kept in the Okada Museum, under the control of UE governed by the bailment agreement.  In any event, whether there are other pieces of artwork not kept by the Museum is beside the point, when the real question is whether the artwork practically locked in the Museum would be insufficient to satisfy the plaintiffs’ claim.

94.So, says Mr Wong, in light of the requirement of solid evidence of dissipation in relation to the assets in question, the bare or generalised assertions of risk by the plaintiffs are not enough.

95.Mr Wong also relies on the delays on the part of the plaintiffs, as well as their perception of the purpose of the application as originally demonstrated.  The fact that the Summons was issued on an inter partes basis is highly relevant, speaking volumes that (a) the intention of the plaintiffs was simply to obtain security for their claim, and (b) they did not really think there was any likely dissipation, at least not of the OHL shares.

96.Though focus has been on the OHL and OFA shares, I think that may not necessarily be the proper starting point.  Though those shares are the defendant’s known assets in Hong Kong, namely the assets known to the plaintiffs as being in Hong Kong, they may not be the only assets of the defendant held in Hong Kong.  If an order is granted, it is likely to have an order for ancillary asset disclosure.  I note that the defendant has not provided any detail of his living expenses or of assets other than the OHL or OFA shares, but that his counsel informed K Yeung J that the quantum of Tiger HK’s claim in that action, HK$135 million, is “pocket change” for the defendant, who has also described himself in his evidence in these proceedings as the wealthiest man in Japan in 1999.

97.Further, the form of any Mareva injunction granted would – subject to the ceiling figure – be over all of the defendant’s assets in Hong Kong.  That is why the standard form of Hong Kong Mareva injunction first identifies at paragraph 1(1)(a) that the defendant in the case “must not remove from Hong Kong any of his assets which are within Hong Kong … up to the value of” the ceiling figure, and at paragraph 1(1)(b) that he must not “in any way dispose of or deal with or diminish the value of any of its assets which are within Hong Kong… up to the value of” the ceiling figure.  It is only the next sentence which identifies that the prohibition relating to all assets up to that value “includes the following assets in particular”, as may then be set out.  The particular assets then set out tend to be those of which the plaintiff has knowledge.

98.In other words, if an order is granted in this case, it will be preventing the removal of or dealing with etc any of the defendant’s assets in Hong Kong up to the value of the chosen ceiling figure, the prohibition including in particular the known assets, here the OHL and OFA shares.

99.Though now academic against my earlier findings, I would on the evidence viewed holistically be satisfied that the plaintiffs have demonstrated a real risk of dissipation.  I think scrutiny of the evidence points to the conclusion that assets may be dissipated.  Though the assessment of the risk of dissipation necessarily involves an evaluative and predictive judgment, I think a proper inference can be drawn from a holistic consideration of all the circumstantial materials that are indicative of risk, even including matters which point against such risk.

100.Where I have accepted that there is a good arguable case that the defendant has engaged in wrongdoing against the plaintiffs relevant to the issue of dissipation, that holding seems to me to point in favour of a finding of risk of dissipation.  I have taken into account that there has apparently not been dissipation of the OHL shares or the OFA shares to date.  But the practical impediments to have dissipated those particular assets do not seem to me to remove the appropriate inference of risk of dissipation.  I also accept that it is possible to deal with both those assets in such a way as would be an unjustified dissipation permitting the evasion of justice by disposing of, or concealing, assets otherwise than in the normal course of business, in a way which will have the effect of making the defendant judgment-proof.

101.I have also taken into account the existence of the FC Undertaking, as well as the fact that the defendant has indicated he will make application to be released from it even if his challenge to jurisdiction fails in the Family Court.

H.      Balance of Convenience

102.Had I thought that there is a good arguable claim to a particular sum of damages which might be adopted as the ceiling figure in a Mareva injunction, I would also have thought that the balance of convenience is in favour of the grant of such an injunction.

I.      Result

103.In the circumstances, I dismiss the Summons.

104.I make a costs order nisi that the plaintiffs are to pay the defendant’s costs of the Summons, to be taxed if not agreed.  The order will become absolute after 14 days, unless either party applies for a variation, which can be done by letter and which application will be dealt with on paper submissions.

Mr Robert Whitehead SC, Ms Athena Wong and Ms Charlotte Chan, instructed by Payne Clermont Velasco, for the plaintiffs

Mr William Wong SC and Mr Brian Fan, instructed by Wong, Wan & Partners, for the defendant