Crazy Rich Asians
The case of Kazuo Okada Vs. Tiger Resort, Leisure & Entertainment, Inc., et al. (TRLEI), G.R. No. 256470 touches on Corporation Law, Property Rights, and the Rules on Evidence. In the main, Kazuo avers that the Okada Holdings Limited shares held by his children were registered in their names only for convenience and were neither intended as a gift nor to afford his children the means to personally acquire the same. However, this discussion is limited only to the recent Resolution of the Supreme Court resolving the Extremely Urgent Motion filed by TRLEI, which sought to attack the Status Quo Ante Order (SQUO) it issued.
The Antecedents
On 29 August 2018, Kazuo filed the original Complaint for Declaration of Nullity of Removal as a Stockholder, Director, and Officer and Reinstatement as a Stockholder, Director, and Officer (Complaint) before the Regional Trial Court of Parañaque City (RTC) against TRLEI and its directors. Kazuo prayed that judgment be rendered: (1) declaring as null and void ab initio his removal as a stockholder, director, chairperson, and CEO of TRLEI; and (2) reinstating him as a stockholder, director, chairperson, and CEO of TRLEI. Kazuo alleges that the ownership structure of Okada Holdings Limited's (OHL) shareholdings is as follows: Kazuo owns 46.40%; his children, Tomohiro Okada (Tomohiro) and Hiromi Okada (Hiromi), respectively hold 43.46%, and 9.78%; and his wife, Takako Okada, holds 0.36% of OHL shares.
Kazuo incorporated OHL to hold all the shares of Universal Entertainment Corporation (UEC) held by Kazuo's family. Kazuo originally owned 100% of UEC. Since UEC is now publicly-listed, OHL only owns 67.9% of UEC. UEC owns 100% of Tiger Resort Asia Limited, which in turn owns 99.99% of TRLEI.
In May 2017, Kazuo's son, Tomohiro, took control of the 9.78% OHL shares under the name of Kazuo's daughter, Hiromi. Combined, Tomohiro had control over 53.24% of OHL. However, Hiromi alleges that the Share Management and Disposal Trust Agreement (Trust Agreement) was executed in favor of Tomohiro through fraud.
Kazuo was then ousted as chairperson and director of UEC, as director of TRAL, and ultimately as a stockholder, director, chairperson, and CEO of TRLEI.
On 15 June 2017, TRAL informed Kazuo that he was no longer a registered stockholder of TRLEI pursuant to the revocation of the Deed of Assignment with Declaration of Trust between him and TRAL and enjoined him from attending any meetings of TRLEI's stockholders and directors. Kazuo was removed as CEO and chairperson of TRLEI and was even barred from entering Okada Manila.
However, with the help of Hiromi, Kazuo’s removal as director of OHL was declared invalid during the Extraordinary General Meeting of OHL on 08 September 2017, called by Hiromi and the former.
TRLEI, on the other hand, argued, among others, that the Complaint was an election contest that had already prescribed. The RTC favored TRLEI and dismissed the Complaint on the ground of prescription. The ousting occurred on 16 June 2017. Kazuo had until 01 July 2017 to file a protest. However, the Complaint was filed on 29 August 2018.
The CA affirmed the said Decision, and his Motion for Reconsideration was denied.
Aggrieved, Kazuo filed the said Petition for Review before the Supreme Court and prayed for the issuance of an ex parte Temporary Mandatory Injunction and/or Temporary Restraining Order (TRO) or, in the alternative, an SQAO, to restore him as a stockholder, director, chairperson, and/or CEO of TRLEI and to restrain the transfer of TRLEI's gaming license, leasehold rights, and other corporate assets and properties and/or from conducting any major corporate transaction requiring the vote of stockholders.
On 27 April 2022, the Court issued the assailed SQAO and ordered respondents to file comments to the Petition. The unfortunate “forceful takeover” then occurred.
TRLEI alleges that on 31 May 2022, Mr. Kazuo Okada, Mr. Cojuangco, and Dindo A. Espeleta, among others, conducted a “forceful takeover” of Okada Manila in enforcing the SQUO. TRLEI cited offenses such as grave coercion, unjust vexation, slight physical injuries, kidnapping, and serious illegal detention during the said takeover. The incident caused TRLEI to file an Extremely Urgent Ex-Parte Manifestation with Motion to Resolve on 08 August 2022.
The main issues resolved by the 10 August 2022 Resolution were (i) the extent and scope of the assailed SQAO; (ii) the propriety of the issuance of the SQAO; and (iii) the propriety of delegation to the CA for the reception of evidence for determination of factual matters relating to the case.
The extent and scope of the assailed SQAO
'"Status quo ante” is a Latin term for 'the way things were before." Hence, " [a]n order of this nature is imposed to maintain the existing state of things before the controversy."
It must be stressed that an SQAO, an extraordinary relief issued on equitable considerations, must be implemented strictly based on the language of the order and in the context of the nature of an SQAO, i.e., to restore the parties to the last, actual, peaceable and uncontested state of things that preceded the controversy.
The grant of the SQAO was based on equity in recognition of the right of Kazuo to protect his interest as an indirect beneficial owner of TRLEI, pending the disposition of the main case. It is in this context that the clear language of the SQAO should be read and implemented.
Indeed, disruption is never the intent of the SQAO. The language of the SQAO is clear. If there are acts that supposedly implement the SQAO but exceed its scope, the parties have at their disposal numerous remedies before the proper forum. The parties may avail of various remedies to pray for the precise relief necessary, as calibrated to specific circumstances.
The Court took note of the criminal cases filed but clarified that it does not concern them.
The propriety of the issuance of the SQAO
While the statutory right of a stockholder over corporate assets and properties pertains to the corporation in which he or she is a stockholder, as a matter of equity, the interest of a stockholder of a parent company in the corporate assets and properties of a wholly-owned subsidiary may be recognized. The indirect or beneficial ownership of a stockholder of a parent company clothes such a beneficial owner with interest and right to be informed of the management and dealings of the subsidiary corporation. In the same vein, the right of a beneficial owner to preserve the corporate assets and properties, and ensure that the corporation continues as a going concern, should also be acknowledged.
The SEC defines a beneficial owner of a corporation as a natural person who ( 1) ultimately owns or controls the corporation; or (2) exercises ultimate effective control over the corporation. The term ultimate effective control, on the other hand, refers to any situation wherein ownership/control is exercised through actual or a chain of ownership or by means other than direct control, which may be achieved through, among others, direct or indirect ownership of at least 25% of the voting shares or capital of a corporation.
Kazuo undisputedly owns 46.40% shares in OHL. Considering that OHL is the ultimate parent company of TRLEI, it is also undisputed that Kazuo indirectly owns 31.47% of its shares, which translates to indirect ownership of at least 25% of its voting shares. This indirect ownership is important as it clothes Kazuo with limited interest and right over TRLEI, which right he seeks to protect. Since the SQAO was issued based on Kazuo's undisputed interest, TRLEI's argument that this Court was influenced by Kazuo's falsehoods and representations does not hold water.
The propriety of delegation to the CA for the reception of evidence for determination of factual matters relating to the case
There are factual issues which would have to be settled before this Court can properly resolve the pending motions of TRLEI and Sugiyama, as well as any factual matters related to the main issue of Kazuo's petition, i.e., whether or not the complaint filed before the trial court is an election contest and the right to file one had already prescribed.
There are no findings of fact which can be adopted by this Court due to the absence of a trial on the merits before the RTC. Likewise, We cannot settle the mentioned issues as the appreciation of facts and evidence is beyond the province of this Court.
The CA has the authority to receive evidence and perform any and all acts necessary to resolve factual issues. When supported by substantial evidence, the CA's findings are binding on this Court. In fact, the practice of remanding a case to the CA for the determination of factual matters is not novel. In accordance with Section 6, Rule 46, and Section 2, Rule 32 of the Rules of Court, the Court can commission the CA to hear and receive evidence on pending factual issues arising in any stage of the case.
To aid the Court in resolving the matters raised by the parties in relation to the issuance of the SQAO, it is deemed proper to refer the pending factual issues to the CA for its determination.
The family feud is far from over, but for now, things will stay as they were before.
Source: https://sc.judiciary.gov.ph/29244/