Shoichiro Satake v. Fu Chu, Yun Chung Joan

HCAP 2/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 2 OF 2015

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DECISION

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Introduction

1.This is an application of Shoichiro Satake (“Satake”) to continue the ex parte injunctions against Madam Fu granted by DHCJ B Chu (as she then was) on 8 January 2015, amended on 14 January 2015 and subsequently ordered to be continued by consent by Chow J on 15 January 2015 pending this substantive hearing.  

2.Satake brought this probate action to claim his alleged beneficial interest in the estate of the Deceased (“the Estate”), who passed away intestate on 25 August 2011. Satake claims to have just discovered that he is the biological and natural son of the Deceased. Madam Fu is the lawful widow of the Deceased and has been appointed the Administratrix of the Estate with the Letters of Administration of the Estate dated 20 July 2012 in Hong Kong. She also obtained a similar grant from the BVI court.

3.The ex parte injunctions relate to the Estate. Madam Fu is now being enjoined, in the capacity as the Administratrix of the Estate or her personal capacity, from dealing with, disposing of or distributing the Estate and in particular the following two properties. The first one is the single share (“the Share”) in Fu’s Foundation Offshore Ltd (“the Company”), which holds 65% shareholding of The Sansiao Trading Company Ltd (“STC”), a joint-stock company in Japan. The Deceased was the sole registered owner of the Company before his demise.  

4.The second specified property consists of a flat known as Apartment B, 17^th Floor, Hollywood Heights together with three car parking spaces on its lower carport floor (collectively “the HH Properties”). Madam Fu is further injuncted from causing the Company to exercise its shareholder’s right to remove Satake and Ms Makiko Suzuki (“Suzuki”) as directors of STC and/or appointing additional directors.

5.Madam Fu applies to discharge the ex-parte injunctions on the ground that there were material disclosures and delay. She further contends that there is never any serious question to be tried in the present action. She in any event opposes the continuation of the ex-parte injunctions as amended.

Background Facts

6.I shall go further into the background facts first to provide the context for the rival contentions of the parties.

7.Satake was born into the family of one Mr Fu Zai Sui Stanley (“Stanley Fu”) and Madam Satake Ume (“the Mother”). Stanley Fu was the younger brother of the Deceased and he passed away on 14 January 2013. Stanley Fu and the Mother were not married to each other and they merely cohabited. Satake treated Stanley Fu as his natural father in his lifetime.

8.The Company was incorporated in British Virgin Islands on 24 January 2006. The Deceased and Satake were the first directors of the Company. The Deceased used the Company as a business vehicle to hold his shareholding of STC. STC mainly carries its trade in derivatives.

9.Apart from the Company, the shareholders of STC include Asian View Ltd (of 16% shareholding) and Suzuki (of 10% shareholding). Asian View Ltd is a BVI company incorporated by Stanley Fu. Satake and Suzuki were the directors of STC. The Deceased, Stanley Fu and Satake operated and managed STC.

10.On 4 December 2008, the Deceased executed a few memoranda. By one of such memoranda, the Deceased fully entrusted the management of STC to the discretion of Satake (“the 2008 Memo”).

11.On 13 June 2012, the British Virgin Islands court granted to Madam Fu the Letters of Administration of the Estate.  

12.Accordingly, Satake on 13 March 2013 passed resolutions pursuant to Article 99 of the Articles of Association of the Company, to approve the transmission of the Share from the Deceased to Madam Fu, to cancel the Deceased’s share certificate and to issue a new share certificate to Madam Fu. Madam Fu executed an Instrument of Transfer to transfer the Share to herself.

13.On the other hand, after the grant of the Letters of Administration of the Estate to Madam Fu by the Hong Kong court, on 2 May 2013, Madam Fu caused the HH Properties to be transferred to herself.

14.Subsequent to the Deceased’s death, Satake became the sole director of the Company until 13 March 2013 when Madam Fu appointed herself to be its director.

15.By a letter dated 13 March 2013, Madam Fu informed the beneficiaries of the Goldman Sachs account nos. 011-22998 and 011-70587-8 of the Company of the accounts and value thereof. The letter revealed a decrease in value of approximately US$6.5 million between 5 November 2011 and 31 August 2011.

16.In September 2013, Satake and Madam Fu corresponded through e-mail and representations were made as to the operations of and Satake’s status in the Company. Satake and Madam Fu also signed a Certificate of Incumbency.

17.On 16 October 2014, Madam Fu removed Satake as director of the Company and in his stead she appointed Yu Qi Ding.  

18.On 17 October 2014, Madam Fu caused the Company, as shareholder of STC, to give notice to STC, requesting for an Extraordinary General Meeting to be convened to remove Satake and Suzuki as directors and to appoint two new directors in replacement.

19.On 16 December 2014, Madam Fu through the Company, as shareholder of STC, applied to The Tokyo District Court for an order to convene an EGM for the said purpose  (“the Tokyo Application”). The Tokyo Application was first heard on 15 January 2015 and has not yet been determined.

20.On 18 December 2014, Yu Qi Ding, as director of the Company, attended the Annual General Meeting of STC and requested Satake and Suzuki to voluntarily resign as directors of STC. Both of them refused to do so.

21.Satake commenced this action on 8 January 2015 and on the same day, he obtained the ex-parte injunctions.

22.On 25 March 2015, Madam Fu issued a letter to all beneficiaries of the Estate informing them of her intention to resign as the Administratrix of the Estate.

Discharge of Ex-Parte Injunctions

23.I first deal with the application of Madam Fu to discharge the ex-parte injunctions. Mr Lam SC, together with Mr Wong, for Madam Fu, makes two complaints in addition to his general submission that the evidence of Satake disclosed no serious question to be tried at the ex-parte stage. First, he relies on certain instances of material non-disclosure. Second, he submits that Satake had no reason to apply for the injunctions on an ex-parte basis by reason of his own delay in bringing this action.

Material non-disclosures

24.Mr Lam SC confines his contention of material non-disclosure to three matters. Two of them relate to the plea of promissory estoppel of Satake. He first refers to an email dated 20 September 2013 sent by Madam Fu to Satake (“the Email”). The relevant part of the Email reads:

“First of all I appreciate your respect and good faith to Uncle ZY (the Deceased) during his lifetime in both the Company and Family. He named you as the director of (the Company), the controlling company (STC) in his lifetime. I strongly believe that he would like you to carry on the business in the same manner as before and nothing is going to be changed after his lifetime in the Company including your status in (the Company). With all that said, I do not believe it is necessary for the additional remarks to be made on the Certificate as no such changes will be executed at this time. I have signed the original Certificate and have attached it, please kindly include your signature on the same document.”

25.The Email was referred to in the Statement of Claim and the supporting affirmation of Satake. Satake says that he relied on Madam Fu’s representations in the Email and continued to spend tremendous time and efforts on the management of STC.

26.Mr Lam complains that Satake failed to disclose three other emails exchanged between the parties which could provide a proper context for the Email (collectively “the three missing emails”). The three missing emails were all dated 30 September 2013. It is not disputed that they were not disclosed at the ex-parte stage and were subsequently disclosed by Madam Fu only.

27.Mr Lam took me through the three missing emails and the related documents chronologically. Apparently, as indicated by the Email, Madam Fu was first asked by the secretary of the Company to sign a Certificate of Incumbency. The document had already been signed by Satake and contained certain remarks. The overall effect of such remarks is that Madam Fu should undertake that she would not cause the Company to remove Satake as director of the Company.

28.The first missing email was sent by Satake to Madam Fu explaining to her why he wanted those remarks after Madam Fu indicated that she did not accept them. He said that whilst he believed her words about his position, he still wanted such remarks to maintain his enthusiasm. He suggested that the remarks be amended to the simple term that he must remain to be the director of the Company.

29.Madam Fu replied by the second missing email. She first noted that Satake never asked for any assurance of his position during the lifetime of the Deceased and then she went on to say that she hoped that there would be no change whatsoever. She insisted the suggested remarks should be removed from the Certificate of Incumbency.

30.Satake promptly replied by way of the third missing email. He first corrected Madam Fu that he had indeed asked for assurance of his position in the Company and the group companies in the lifetime of the Deceased and he referred to the 2008 Memo. He apparently still insisted such remarks to be included to secure his position.

31.Eventually, there came the Certificate of Incumbency without any of such remarks duly signed by both Satake and Madam Fu. Later in his fourth affirmation filed in reply, Satake explained that he signed at last in view of the agreement consisting of various previous representations made by Madam Fu to the effect that he should continue to carry on the business of STC in the same manner as before.

32.Mr Lam submits that the three missing emails should have been brought to the attention of the ex-parte judge. He further highlights that the fact that the Certificate of Incumbency was signed without his suggested remarks was not disclosed to the ex-parte judge. He also submits that if the Email were to be read in conjunction with the three missing emails as a whole, it can be seen that there was no such agreement as alleged by Satake.

33.Mr Chan first refers to the general principles relating to the duty of full and frank disclosures expounded in Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346. Mr Lam has no disagreement with those principles and I do not find it necessary to set them out here. Suffice it to say, an applicant for an ex-parte order must disclose all facts that are relevant to the weighing operation which the court has to make in deciding the point before it.

34.Mr Chan submits that the three missing emails are not relevant. In the first place, they did not contradict the case of Satake. If anything, they merely reinforced his contention that there was an agreement between the Deceased and him by virtue of the 2008 Memo and another agreement between Madam Fu and Satake that there would be no change in the management of the Company and STC.  

35.I agree with Mr Chan. The Email already contained the matters on which Satake now relies to evidence the alleged agreement between he and Madam Fu. Of course whether it will be ultimately accepted that the alleged agreement was actually made is quite another matter. The three missing emails only served to explain why Satake found it necessary to have such remarks expressly stated in the Certificate of Incumbency. Such remarks were intended to be an additional safeguard to his position on top of the 2008 Memo and the alleged agreement. It is remarkable that Madam Fu refused to accept the suggested remarks not on the basis that Satake was not supposed to retain his position as a director and that there had been no previous assurance concerning his position. Indeed, Madam Fu only found the suggested remarks to be redundant and she would also prefer to maintain the status quo.

36.The fact that such remarks were finally removed from the Certificate of Incumbency is not material in my view. Satake does not rely on the Certificate of Incumbency to prove his entitlement to manage the Company and STC. Nor does Madam Fu rely on this document to disprove his alleged management right in her affirmation and her pleading. She does not go so far as to suggest that Satake finally agreed to omit the suggested remarks from the Certificate of Incumbency as an indication of his acceptance that his position in the Company could be changed by her. This is not the overall effect of the three missing emails at all.

37.The second alleged material non-disclosure is the failure of Satake to draw the attention of the ex-parte judge specifically to a proposal made by Satake to the Company and Madam Fu (“the Proposal”). The Proposal was undated and it was referred to in Satake’s first affirmation as evidence of his negotiation with Madam Fu prior to December 2014.

38.Mr Lam complains that it was not enough that the Proposal was mentioned in the affirmation and exhibited thereto. To fulfil the onerous duty of full and frank disclosure, Satake should have made sure that the ex-parte judge was alive to its contents. This is so because there Satake proposed his voluntary resignation from his position as a director without any mention of prior agreements or assurances. He submits that the Proposal could negative the existence of any prior agreements or assurance. If Satake had been so promised, Mr Lam submits, he would not have made such a proposal.   

39.I do not accept Mr Lam’s submission. The Proposal, if read as a whole, cannot possibly give rise to the implication suggested by Mr Lam. In the Proposal, Satake made some demands as a quid pro quo for his voluntary resignation. The fact that he mentioned no prior agreement or assurances including the 2008 Memo and the alleged agreement could not be taken to indicate their non-existence. I find no material non-disclosure in respect of the Proposal.

40.The last alleged non-disclosure relates to an affirmation of Dr Takeshita dated 25 December 2014 (“the Doctor Affirmation”). By the Doctor Affirmation, Satake seeks to adduce medical evidence of the mental capacity of the Mother to make an affidavit for certain fact in the past. The alleged confession of the Mother to Satake that the Deceased was actually the biological and natural father of Satake in early December 2014 is key to his case.

41.Mr Lam first argues that the Doctor Affirmation falls foul of the rules governing the admission of expert evidence set out in Order 38, rule 37C and hence is inadmissible. Mr Lam further complains that the Doctor Affirmation is deficient in many respects. He relies on Re Chan Yu Nam [2006] 11 HKC 392 where Reyes J held that expert evidence in civil cases must comply with well-known guidelines set out by Cresswell J in “Ikarian Refer” [1993] 2 Llyods Rep 68. He then submits that the inadmissibility and such deficiencies of the Doctor Affirmation should have been disclosed to the ex-parte judge.

42.I cannot accept Mr Lam’s submission. First, as rightly pointed out by Mr Chan, the rules said to be offended cannot be applicable to medical evidence to be adduced for the purpose of an ex-parte hearing. I do not agree that the Doctor Affirmation is inadmissible.

43.There is no allegation that the Doctor Affirmation presents any biased evidence and that the doctor failed in his duties in providing his expert evidence. Whilst it can be subject to all kinds of criticisms, I do not think it is incumbent on Satake to stand in the shoes of the opposing party and criticise the Doctor Affirmation himself at the ex-parte hearing.

44.Therefore, I come to the conclusion that there is no substance in any of the three alleged non-disclosures.

Delay

45.Mr Lam points to the fact that Satake was removed as director of the Company on 17 October 2014 and submits that there was no reason why he waited until January 2015 to make the ex-parte application.

46.I cannot accept this submission. The Mother’s confession was only allegedly made in early December 2014. I cannot at this stage reject the allegation that the Mother’s confession was made and/or its truth. The urgency was also justified by the Tokyo Application, which was initiated in December 2014 and was due to be heard on 15 January 2015. On this basis, I cannot accept that there was undue delay in making the ex-parte application in early January 2015.

47.However, I do agree with Mr Lam that despite the urgency, sufficient notice should and could have been given to Madam Fu.

48.I note that the notice to Madam Fu was only made to her solicitors by way of a fax without enclosures at 1:46 p.m., shortly before the ex-parte hearing commenced at 4:15 p.m.. Madam Fu was then in New York and her solicitors were unable to take any instructions from her in the small hours. The notice given served no meaningful purpose at all in the circumstances.

49.I do not accept Mr Chan’s explanation that Madam Fu could do anything to foil Satake’s attempt to apply for interlocutory relief if she had been given adequate notice of his application. I cannot accept that there was any secrecy in his application. There is no reason why adequate notice should not be given to Madam Fu. That being my criticism, it alone does not suffice to justify a discharge of the ex-parte injunctions.

Serious questions to be tried

50.The parties agree that both in the ex-parte application and the present application, the American Cyanamid principles are applicable. I now proceed to examine whether Satake can show serious questions to be tried on his evidence at both the ex-parte and inter-parte stages.

51.Mr Chan has identified four serious questions. Mr Lam accepts none of them. I shall consider their validity in turn.

Issue (1)  Satake’s relationship with the Deceased

52.The main issue in these proceedings is obviously the relationship between the Deceased and Satake. Mr Lam helpfully sets out the scope of the supporting evidence adduced on behalf of Satake for his contention that the Deceased was his biological and natural father. It consists of the following:

(a)  an affirmation of the Mother dated 25 December 2014;

(b)   the Doctor Affirmation confirming the Mother’s mental capacity to make her said affirmation;

(c)  the transcript of the tape-recording of some conversations between Satake and the Mother wherein the Mother made the confession;

(d)  hearsay evidence adduced by Satake about the Mother’s cousin’s observations of some suspicious conduct of the Deceased and the Mother when the latter was pregnant with Satake; and

(e)  An incomplete DNA test.  

53.Whilst Mr Chan reminds this court that the threshold is not high and the test is not a very steep hurdle: Re Billion Shipping Ltd [2003] 2 HKLRD 674 at §28 per Chu J (as she then was), I accept the submission of Mr Lam that this court is not bound to accept bare assertions.

54.Mr Lam makes a detailed analysis of the relevant evidence on this issue and raises a number of challenges. He submits that the Mother’s confession was made in very suspicious circumstances. He also highlights the doubtfulness of the Mother’s mental capacity when she made the confession in her affirmation given her diagnosis of Alzheimer’s disease. He argues that the Doctor Affirmation is not admissible at all. He submits that the transcript showed that her confession was actually extracted with the undue coaching of Satake. He argues that an adverse inference can be drawn against Satake by reason of his failure to respond to the recent request of Madam Fu to produce the DNA test report. The DNA test report is still not available. There is no evidence of any findings of the DNA test on the two strings of hair of the Deceased surreptitiously collected by Satake when the Deceased was hospitalised some years ago.

55.There is much force in Mr Lam’s submission. The way the evidence on this issue emanating from Satake does cause me some concern. However, in the final analysis, the Mother’s evidence is central to this issue and at this stage I cannot flatly reject her evidence as incredible. Her confession cannot simply be dismissed as a bare assertion. I refuse to draw the adverse inference suggested by Mr Lam when the primary facts including the actual availability of the DNA report are unclear and when this court is not really embarking on a fact-finding exercise on this occasion.

56.In my view, so long as there is a chance that the Mother’s evidence would be accepted at trial after being tested by cross-examination, there remains a serious question to be tried as to whether Satake is the biological and natural son of the Deceased.

Issue (2)  Madam Fu’s alleged breach of her fiduciary duty as Administratrix

57.The second serious issue to be tried identified by Mr Chan is whether Madam Fu was/would be in breach of her fiduciary duty as the Administratrix of the Estate in her removing Satake as director of the Company, her causing the Company to exercise its shareholder’s right to remove Satake as director of STC and her causing to be passed the board resolution of the Company to remove Satake and Suzuki as directors of STC and to authorise the Company to make the Tokyo Application.

58.Mr Lam is right in pointing out that this issue is not included in the pleaded case of Satake. Nor was any of such allegations of breach of fiduciary duties made on the evidence before the ex-parte judge. There is no such allegations howsoever made in the subsequent evidence of Satake, either.

59.Thus, I accept Mr Lam’s submission that on the evidence before this court, there exists no serious issue to be tried about the alleged breaches of fiduciary duties on the part of Madam Fu. 

Issue (3)  The effect of the 2008 Memo and the agreement

60.Both the 2008 Memo and the alleged agreement relate to the plea of promissory estoppel. I have dealt with the 2008 Memo above. The effect of the alleged agreement is that Satake shall continue to carry on the business of STC held through the Company in the same manner as before the death of the Deceased in the same manner including his position as director of the Company and STC.

61.According to the evidence of Satake, the alleged agreement was made orally between Satake and Madam Fu in September 2012 and was reiterated in March 2013. Finally, Satake says that the Email confirms the existence of the alleged agreement. 

62.Madam Fu does not challenge the authenticity of the 2008 Memo. She denies the existence of the alleged agreement. Mr Lam’s argument on this issue is that the plea of promissory estoppel is bound to fail by reason of the fact that the representations made therein were unclear and ambiguous and there is no evidence that Satake altered his position to his detriment. He rightly points out that as a matter of law, performance of one’s contractual duties per se cannot amount to detrimental reliance, citing the dictum of Lord Scott in Bolkiah v The State of Brunei Darussalem [2007] UKPC 63 at §21.

63.I agree with Mr Chan that in construing the 2008 Memo, all the background facts have to be considered. It is at least arguable that in light of all the background facts, the Deceased did make such a promise to Satake as evidenced by the 2008 Memo.

64.Moreover, I cannot reject the allegation of the oral agreement made between Madam Fu and Satake at this stage. It is not inherently improbable and it is not cogently contradicted by any contemporaneous documents. If such an oral agreement was indeed made, arguably part of the plea of promissory estoppel may be established.

65.I further accept Mr Chan’s submission that the fact that Satake voluntarily continued his employment with the Company may arguably constitute detrimental reliance.

66.Bearing in mind the low threshold, I am satisfied that Satake raises a serious question to be tried in regard to his plea of promissory estoppel. I cannot reject the plea on paper at this stage.

67.Mr Chan initially identified another issue relating to a written share transfer contract. It was not disclosed at the ex-parte stage but was produced in the reply affirmation of Satake.

68.As a matter of principle, I cannot accept any new allegation to be made out of the share transfer contract. The defence has no proper chance to deal with this new matter at all and it would be unfair to the defence if I rule otherwise.

Inadequacy of damage

69.Mr Chan essentially relies on the submission made by Ms Wu before the ex-parte judge on this issue.

70.First, it is submitted that there is a long list of persons who have an interest in the Estate. If Madam Fu is not enjoined and is allowed to continue the distribution of the Estate, Satake can expect huge difficulties in retrieving his shares from these persons. I accept this submission.

71.Secondly, it is submitted that with the change of management of the Company and STC, the two companies would very likely suffer financial loss and the financial interest of Satake would be prejudiced. The extent of such financial harm can however be very difficult to be quantified.

72.The business of STC had all along been operated by Satake from its inception. Madam Fu acknowledged his contribution. There is no apparent commercial reasons to replace Satake with any other persons. The general business of STC would be out of the control of Satake. I accept that the business of STC and hence the Company is very likely prone to deterioration if Satake is excluded from the Board and hence the management of STC. Any financial loss is not easily amenable to computation.

73.On the other hand, the defence does not suggest any irreparable loss that Madam Fu or the Estate may suffer if the ex-parte injunctions are to be continued.

Balance of Convenience

74.Madam Fu has indicated unequivocally that she would soon resign as the Administratrix of the Estate. Mr Lam confirms that this is her position.

75.With the imminence of her resignation, it is all the more necessary to maintain the status quo. Her successor may have a different idea as to how the Estate should be administered and whether to accept the allegations of Satake. If Madam Fu continues to administer the Estate despite her forthcoming departure, the steps taken may not be easily reversible.

76.On the other hand, there is no suggestion that it is genuinely necessary for Madam Fu to discharge the ex-parte injunctions and proceed with her administration of the Estate.

77.In the circumstances, I am of the view that the balance of convenience tilts in favour of Satake to have the injunctions continued until final determination of his claim.

Conclusion and Order   

78.For the foregoing reasons given, I conclude that there is nothing to justify a discharge of the ex-parte injunctions and so I refuse to accede to Madam Fu’s application.

79.As regards the inter-parte summons, applying the American Cyanamid principles, I am satisfied that Satake is entitled to the continuation of the ex-parte injunctions to hold the ring. I therefore make an order in terms of paragraphs 1 and 2 of the said summons.

80.The evidence of Satake has just met the threshold. Madam Fu’s objections forcefully presented by Mr Lam cannot be said to be unrealistic and unreasonable. In the premises, I make an order nisi that the costs of this application (including such costs reserved by Chow J) be in the cause with a certificate for two counsel.

81.It remains for me to thank counsel on both sides for their commendable efforts and able submissions.    

Mr Edward Chan SC and Ms Teresa Wu, instructed by M.C.A Lai & Co, for the plaintiff

Mr Paul Lam SC and Mr Jonathan Wong, instructed by Troutman Sanders, for the defendant