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Chinacast Education Corporation And Others v Chan Tze Ngon And Others

Judgment Cited authorities 1 Cited in Precedent Map Related
Vincent
Judgment Date31 July 2017
Year2017
Judgement NumberHCA1062/2012
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA1062H/2012 CHINACAST EDUCATION CORPORATION AND OTHERS v. CHAN TZE NGON AND OTHERS

HCA 1062/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1062 OF 2012

____________

BETWEEN
CHINACAST EDUCATION CORPORATION 1st Plaintiff
CHINACAST TECHNOLOGY (BVI) LIMITED 2nd Plaintiff
CHINACAST TECHNOLOGY (SHANGHAI) LIMITED 3rd Plaintiff
雙巍資訊技術(上海)有限公司
YUPEI TRAINING INFORMATION TECHNOLOGY LIMITED 4th Plaintiff
語培信息科技(上海)有限公司
CHINACAST (BEIJING) EDUCATION TECHNOLOGY LIMITED 5th Plaintiff
盛世漢洋(北京)教育科技有限公司

AND
CHAN TZE NGON (陳子昂) 1st Defendant
ANTONIA SENA 2nd Defendant
MA JIM LOK JIM(馬詹諾) 3rd Defendant
JIANG XIANGYUAN (江祥源) 4th Defendant
FU WAI FAN (傅慧芬) 5th Defendant
WONG DORA WING MAY(黃詠薇) 6th Defendant
KWOK SHUK YIN(郭淑賢) 7th Defendant
CHIN SWE DEE 8th Defendant
THRIVING BLUE LIMITED 9th Defendant
BEST DESTINY LIMITED 10th Defendant
ISTHOCH ASSETS LIMITED 11th Defendant
CAST GREAT LIMITED 12th Defendant
NEW SHANGHAI INVESTMENTS LIMITED 13th Defendant

____________

Before: Deputy High Court Judge Kent Yee in Court
Dates of Hearing: 15-19, 22-26, 29 August & 12 September 2016
Dates of Written Submissions: 20 October 2016 (the 3rd defendant)
1 November 2016 (the plaintiffs)
Date of Judgment: 31 July 2017

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JUDGMENT

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1. The plaintiffs are a group of overseas companies in the business of the provision of post-secondary and online educational services in the PRC (“the Group”). They brought this action against the 1st to 5th defendants for damages for the massive financial loss resulting from the alleged breaches of their respective duties and/or other tortuous acts. The 6th to 13th defendants were joined in these proceedings only for the purposes of the injunctive relief obtained by the plaintiffs by reason of their holding of the assets of the 1st to 5th defendants.

2. In a nutshell, the case of the Group is that in the wake of a reshuffle of the management in the Group, all of the 1st to 4th defendants were removed from their respective key managerial positions in late 2011 and early 2012. Thereafter, the new management allegedly discovered that there had been a number of abnormalities and irregularities in the operation of the Group, incurring heavy financial losses allegedly attributable to the misconducts of the 1st to 5th defendants. More precisely, the Group, having conducted a hugely profitable business with sizable cash balances over the years, had been reduced to impecuniosity due to a massive fraud perpetuated by, among other persons, the defendants.

3. Given the default of the respective unless orders made against the 1st and 4th defendants, the plaintiffs have entered final judgement against them. Furthermore, immediately before the commencement of the trial, the Group withdrew their claim against the 2nd defendant and agreed to pay him costs in the sum of HK$230,000. Therefore, for the purposes of this trial, there are only two defendants left, namely the 3rd and 5th defendants.

4. The involvement of Ms Fu, the 5th defendant, in these proceedings is very much limited, and has hardly gone beyond the pleading stage. She has long been absent from the relevant hearings including this trial. The great majority of the Group’s allegations are targeted at the 1st to 4th defendants. Among them, only the 3rd defendant, namely, Mr Jim Ma (“Mr Ma”) persists in his defence. This trial essentially is a fight between the plaintiffs and Mr Ma only. In spite of this, I do not overlook that the Group is still required to prove their pleaded allegations against D5, despite her lack of evidence in support of her defence as well as her non-attendance.

5. Mr Ma denies liability. The main thrust of Mr Ma’s defence is that he was also ignorant of such abnormalities and irregularities, and despite his position in the Group, he should not be held responsible for them and he also could not be expected to be able to curb them. He contends that he was in the same plight with the Group, and if the Group was defrauded, he was as well.

6. Mr Ma, on the other hand, has a counterclaim for his outstanding monthly salary from November 2011 to March 2012 with credit given to a sum of RMB 25,000 already received. His monthly salary was HK$99,000 and the amount that he now claims is about HK$470,000. The Group does not contest this claim.

7. Moreover, in his counterclaim, Mr Ma claims damages for his loss and damage arising from a Mareva injunction granted by A. Chan J against him upon the application of the Group (“the Mareva Injunction”). This is an unusual claim, and Mr Ma has not adduced any evidence to support his alleged loss and damage. In any event, if the Mareva Injunction is found to have been wrongly granted, the Group pursuant to their undertaking should compensate Mr Ma for his loss and damage and this should not be canvassed in the trial.

8. The issues in the main trial between the Group and Mr Ma are, firstly, what exactly Mr Ma’s positions in the Group was or were and thus what his duties and obligations were. Secondly, whether there were such abnormalities and irregularities in the operation of the Group. Thirdly, whether Mr Ma was accountable for such abnormalities and irregularities in view of the findings of the first issue.

9. I should first give an introduction of the relevant parties and an account of the background facts. For the former, I may simply adopt the neutral part of the statement of claim to which the defence of Mr Ma has no gainsay. For the latter, in addition to the uncontroversial averments in the statement of claim, I also with respect adopt the summary made in the decision of A. Chan J dated 11 November 2013 whereby the Mareva injunction, among other things, was granted against Mr Ma (“the Decision”).

Parties

10. The 1st plaintiff (“P1”) is a company incorporated in Delaware, the United States of America with its principal place of business in Hong Kong. It had been listed on the NASDAQ stock market from October 2007 until it was delisted on 2 May 2012.

11. The 2nd plaintiff (“P2”) is a BVI company and a wholly owned subsidiary of P1. P2 entered into certain service agreements with each of the 1st to 4th defendants as their employer.

12. The 3rd plaintiff (“P3”) and the 4th plaintiff (“P4”) are wholly owned subsidiaries of P1 incorporated under the laws of the People’s Republic of China as wholly foreign owned entities (“WFOEs”) with their principal place of business located in Shanghai (“the Shanghai Office”).

13. The 5th plaintiff is another WFOE within the Group with its principal place of business situated in Beijing (“the Beijing Office”)

14. Until 26 March 2012, Mr Chan, the 1st defendant, (“D1”) had been, among many other positions in the Group, a director and the Chairman and Chief Executive Officer (“CEO”) of P1 and P2; a director, the Chairman and their Legal Representative of P3 and the General Manager, Executive Director and Legal Representative of P4.

15. Until his resignation on 26 March 2012, Mr Antonio Sena, the 2nd defendant, (“D2”) was the Chief Financial Officer (“CFO”) and Secretary of P1 and P2 and a director, the General Manager, and Legal Representative of P5 until his removal from such positions on 20 April 2012.

16. Mr Ma was the Chief Accounting Officer (“CAO”) and Vice President of P1 and P2 until his removal from such positions on 11 April 2012. Whether he was also the supervisor of P5 is a live issue.

17. Mr Jiang, the 4th defendant, (“D4”) was the Chief Investment Officer and President of P1 and P2 and a director of P3 until his removal from such positions on 29 March 2012.

18. Ms Fu was locally born and had accounting experience. She assisted the financial side of the Group and her exact role is in dispute.

Background facts

19. The background facts common to all the allegations of the Group are mostly uncontroversial. Firstly, I will give a summary of such facts pleaded in the statement of claim of which I am satisfied are supported by undisputed evidence.

20. I shall start by providing more information about the business of the Group. The Group is a profit-making, post-secondary education and e-learning surfaces provider and they have an international clientele. The major business was carried on by P1.

21. P1’s business had been divided among two main lines of business, viz, an e-learning and training services group (“ELG”), and a traditional university group (“TUG”).

22. The TUG business offered bachelor and diploma programs to students in the PRC, and it involved three universities in the Mainland. They are the Foreign Trade and Business College of Chongqing Normal University (“FTBC”) in Chongqing, Lijian College of Guangxi Normal University (“LC”) in Guilin, and Hubei Industrial University Business College (“HIUBC”) in Wuhan.

23. All these educational institutions were owned by P1 through such other companies under its ultimate control. For present purposes, it is not necessary to spell out the rather complicated corporate structures. Suffice it to say that P5 is one of the WFOEs which held the holding companies of LC and HIUBC until they were wrongfully transferred out of the Group.

24. The TUG business generated approximately US$46.4 million in revenue for 2010, as reported in the annual report of P1 by way of Form 10-K filed with NASDAQ on 24 February 2012.

25. It is convenient at this juncture for me to now give an introduction of the document known as Form 10-K. When P1 was listed, it...

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