SECURITIES AND FUTURES COMMISSION v. TSE ON KIN

HCMP 210/2017

[2023] HKCFI 2907

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 210 OF 2017

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R E A S O N S   F O R   D E C I S I O N

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Introduction

1.  By a Petition dated 26 January 2017 (which was amended on 18 April 2018) (“Amended Petition”), the Securities and Futures Commission (“SFC”) as Petitioner commenced these proceedings seeking the following orders against the 1^st Respondent, namely Mr Tse On Kin (“Mr Tse”):

(1)  An order under Section 214(2)(d) of the Securities and Futures Ordinance (Cap. 571) (the “SFO” or “Ordinance”) that he shall not, for such period as this Court might determine, without leave of the Court: (a) be, or continue to be, a director, liquidator, receiver or manager of the property or business, of any listed or unlisted company in Hong Kong including Kong Sun Holdings Limited (“Kong Sun”), China Sandi Holdings Limited (formerly known as China Grand Forestry Green Resources Group Limited) (“China Grand”), or any of their subsidiaries and affiliates; and (b) in any way directly or indirectly be concerned, or take part, in the management of any listed or unlisted company in Hong Kong including Kong Sun, China Grand, or any of their subsidiaries and affiliates; and

(2)  An order under Section 214(2)(e) of the SFO that he account for, and pay to Kong Sun, HK$2,185,784.10 being the profit made by him in breach of his fiduciary duty owed to Kong Sun, or any such amount as the Court considers appropriate.

2.  The Amended Petition is supported by the Affirmation of Ho Kam Ping dated 26 January 2017, the Affirmation of Tse Po Shan dated 24 January 2019, and the Affirmation of Chiu Wai On dated 18 May 2022. The SFC also filed Amended Points of Claim on 18 April 2018.

3.  Only Mr Tse remains a respondent to these proceedings. The proceedings against Kong Sun and China Grand have been discontinued by consent by orders dated 29 June 2017 and 11 October 2017. Mr Tse originally opposed the Petition. He filed Points of Defence dated 4 August 2017, the Affirmation of Tse On Kin dated 16 May 2017 and the Affirmation of Chan Yeuk Mui dated 8 April 2019. Mr Tse now consents to dispose of the proceedings through the summary procedure which has its origins in the decision in Re Carecraft Construction Co Ltd[1], which has been adopted by the Court in proceedings issued under section 214 of the SFO.

4.  The undisputed facts as between the SFC and Mr Tse are set out in the Statement of Facts Not in Dispute for the Purpose of a Carecraft Settlement (“Agreed Facts”). They are appended to this Reasons for Decision.

5.  The agreement reacted by the SFC and Mr Tse is subject to approval of the Court. As recently explained in SFC v Chen Li Jun[2], the following principles are well established:

(1)  The Court in deciding whether to make a disqualification order is not bound by the agreement reached by the parties;

(2)  The Court must be independently satisfied, based on the agreed facts, that the business or affairs of the Company have been conducted in a manner described in section 214(1)(a), (b), (c) or (d) and, if so satisfied, determine the scope and duration of the disqualification order;

(3)  In practice, however, the Court is likely to be guided by the agreement that the SFC has reached.

The Companies and the Positions held by Mr Tse

6.  Kong Sun is and was at all material times a company incorporated in Hong Kong and publicly listed on the Hong Kong Stock Exchange (“Stock Exchange”) with stock code 295. The principal activities of Kong Sun included investment in and operation of photovoltaic power plants, properties investment, manufacturing and sale of life-like plants. Mr Tse was the chairman and an executive director of Kong Sun in the period from 20 April 2007 to 30 December 2011.

7.  China Grand is and was at all material times a company incorporated in Bermuda and publicly listed on the Stock Exchange with stock code 910. The principal activities of China Grand included the holding of property for investment and rental purpose, property development and money lending business. China Grand changed to its present name on 11 October 2012. Mr Tse was the executive director (in the period from 18 September 2009 to 30 December 2010) and the chairman (in the period from 30 September 2009 to 30 December 2010) of China Grand.

8.  Section 214(1) of the SFO provides that:

“Where, in relation to a corporation which is or was listed, it appears to the Commission that at any relevant time the business or affairs of the corporation have been conducted in a manner—

(a) …;

(b) involving defalcation, fraud, misfeasance or other misconduct towards it or its members or any part of its members;

(c) resulting in its members or any part of its members not having been given all the information with respect to its business or affairs that they might reasonably expect; or

(d) …

the Commission may, subject to subsection (3), by petition apply to the Court of First Instance for an order under this section.”

9.  It is well established that three conditions have to be satisfied under section 214(1):

(1)  The corporation in question is or was a listed corporation (“Condition 1”);

(2)  The business or affairs complained of is that of the corporation (“Condition 2”);

(3)  The conduct complained of falls within one or more heads of “misconduct” specified in subsections (a) to (d) (“Condition 3”).

See: SFC v Chen Li Jun[3].

10.  Condition 1 is satisfied as both Kong Sun and China Grand are and were at all material times listed corporations.

11.  Condition 2 is also satisfied as the business or affairs complained of by the SFC were all in relation to Kong Sun and China Grand.

12.  As for Condition 3, the meaning of “defalcation, fraud, misfeasance or other misconduct” under Section 214(1)(b) is as follows:

(1)  “Defalcation” is defined as “misapplication, including misappropriation, of any property” (Section 1, Part 1, Schedule 1 to the SFO; SFC v Tong Shek Lun[4]);

(2)  “Fraud” is not defined in the SFO, but the meaning of the term is well established as a matter of law, and involves dishonesty (see Armitage v Nurse[5]);

(3)  “Misfeasance” is broadly defined as “the performance of an otherwise lawful act in a wrongful manner” (Section 1, Part 1, Schedule 1 to the SFO). This has been held to overlap with that of breach of fiduciary duty and include a breach of duty by an officer resulting in an improper application of the company’s assets or property including property or money which should have come to the company but has been diverted (SFC v Tong Shek Lun[6]);

(4)  “Other misconduct” connote “improper or wrong behaviour or mismanagement, culpable neglect of duties”. These words are included in section 214(1)(b) to cover the widest range of possible misconduct and is likely to be a “belt and braces” catch-all (SFC v Chen Li Jun[7]; SFC v Lau Chi Yuen Joseph[8]).

13.  Further, previous authorities have established that:

(1)  Obtaining unauthorised personal benefits and commissions by a fiduciary amounted to defalcation, misfeasance and misconduct (Re Styland (No. 2)[9]);

(2)  Using a nominee company to obtain personal benefits from an acquisition, failing to disclose interests to the company’s board, and issuing false public announcements, constituted “misfeasance” and “other misconduct” towards the company or its members within the meaning of section 214(1)(b) of the SFO (SFC v Wang Jian Hua[10]);

(3)  Using a nominee to acquire a company, only to resell it to the principal company at a substantially inflated price without disclosing a personal interest in the transaction, amounted to a breach of fiduciary duty and constituted defalcation, fraud, misfeasance or other misconduct (SFC v Lau Chi Yuen Joseph[11]).

14.  As regards section 214(1)(c) of the SFO, it has been held that:

(1)  “The failure to comply with disclosure requirements applicable to listed companies also meant that the company’s members were not provided with all the information concerning the company’s business or affairs that they could expect” (SFC v Tong Shek Lun[12]);

(2)  Further, “this may include failure to disclose a personal interest in a material transaction involving the company or causing the company to issue an announcement which is false or misleading in one or more material particulars” (SFC v Lau Chi Yuen Joseph[13]).

Mr Tse’s duties as director of Kong Sun and China Grand

15.  Mr Tse, being the chairman and executive director of each of Kong Sun and China Grand, and both being publicly listed companies, owed fiduciary duties to each of them to act bona fide in their best interests at all times, including in particular:

(1)  Not to act and/or place himself in a situation where there is a conflict or potential conflict between his fiduciary duty and his own interests;

(2)  Not to profit (or attempt to profit) from his position as a director of Kong Sun and China Grand;

(3)  To act honestly and in good faith in all his dealings with each of Kong Sun and China Grand and to faithfully protect its interests, including:

(a)  Not making any statements and/or representations to Kong Sun and China Grand concerning their affairs which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(b)  Informing or disclosing to Kong Sun and China Grand any statements and/or representations which he is aware to have been made to Kong Sun and China Grand (whether or not by himself) and which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(c)  Not approving, allowing, or acquiescing in, Kong Sun and China Grand to act in reliance upon statements and/or representations which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(d)  Not approving, allowing or acquiescing each of Kong Sun and China Grand to make

(i)  Statements or announcements to its public shareholders or the public generally which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(ii)  Statements or declarations to the regulatory authorities including the Stock Exchange that he knows to be (or turns a blind eye to the fact that they are) misleading or false.

See: SFC v Lau Chi Yuen Joseph[14].

16.  The aforesaid duties are also reflected in inter alia Rules 3.08 and 3.16 of the Listing Rules, with which Mr Tse undertook to comply upon becoming a director of Kong Sun and China Grand respectively.

17.  The present proceedings concern:

(1)  A share placement scheme of Kong Sun in or around June 2009 (“KS Placement”); and

(2)  A share placement scheme of China Grand in or around November/December 2009 (“CG Placement”).

18.  In short, as expressly provided in the placement agreements, both the KS and CG Placements were restricted under the Listing Rules to independent placees only (“Independent Placees Requirements”). As Mr Tse was the chairman and an executive director of Kong Sun and the executive director and the chairman of China Grand at the time of both the KS Placement and the CG Placement (see [6] and [7] above), Mr Tse was plainly a connected person of Kong Sun and China Grand within the meaning of Rule 14A.11 of the then applicable Chapter 14A of the Listing Rules.

19.  It is the SFC’s case that Mr Tse orchestrated a fraudulent scheme to use one Mega Goal Holdings Limited (“Mega Goal”) to apply, purportedly as an independent placee, for 100,000,000 shares under the KS Placement (the “said KS Shares”) and 19,000,000 shares under the CG Placement (the “said CG Shares”) so as to make, or attempt to make, a secret personal profit out of the KS Placement and the CG Placement.

20.  As Mr Tse now accepts, whilst Mega Goal was purportedly acquired, owned and controlled by one Ms Mandy Chan Yeuk Mui (“Ms Chan”):

(1)  Mega Goal is and was the nominee and the alter ego of Mr Tse, and Mega Goal’s transactions, including in particular its acquisition of the said KS Shares and the said CG Shares, were entered into pursuant to the instructions and directions of and were directly funded and backed by Mr Tse;

(2)  Mr Tse is and was the beneficial owner of Mega Goal and its assets, particularly in relation to the said KS Shares and the said CG Shares acquired by Mega Goal and the subsequent disposal proceeds of the same; and

(3)  Ms Chan is and was the agent and nominee of Mr Tse who acted in accordance with Mr Tse’s instructions and directions in relation to the affairs of Mega Goal, particularly in relation to the acquisition of the said KS Shares and the said CG Shares and the subsequent disposal of the same.

21.  Further, in order to induce the placing agent to place the KS and CG shares to Mega Goal, Mr Tse procured Mega Goal to make various false and misleading representations to the placing agent, Kong Sun and China Grand. In this regard, Mr Tse has accepted that the corporate veil of Mega Goal should be lifted such that the acts of Mega Goal are deemed to be the acts of Mr Tse. Mr Tse further caused and permitted Kong Sun and China Grand to make false and misleading declarations to the Stock Exchange and false announcements to the public with respect to the compliance of the Independent Placees Requirements.

22.  In such circumstances, Mr Tse has made fraudulent misrepresentations concerning Kong Sun and China Grand, and he was in serious and dishonest breach of his fiduciary duties to Kong Sun and China Grand.

23.  By reason of Mr Tse’s conduct, it is accepted and agreed between the SFC and Mr Tse, and the SFC invites the Court to find, that Mr Tse has conducted the business or affairs of each of Kong Sun and China Grand in a manner, involving defalcation, fraud, misfeasance or other misconduct towards each of them or their members or a part of their members within the meaning of section 214(1)(b) of the SFO.

24.  It is further accepted and agreed between the SFC and Mr Tse, and the SFC also invites the Court to find, that Mr Tse has conducted the business or affairs of each of Kong Sun and China Grand in a manner resulting in the members or a part of the members of each of Kong Sun and China Grand not having been given all the information with respect to the business and/or affairs of Kong Sun and China Grand that they might reasonably expect within the meaning of section 214(1)(c) of the SFO[15].

Orders

25.  Section 214(2) of the SFO provides that:

“If, on an application under this section, the Court of First Instance is of the opinion that the business or affairs of a corporation have been conducted in a manner described in subsection (1)(a), (b), (c) or (d), whether through conduct consisting of an isolated act or a series of acts or any failure to act, the Court may—

(a) …

(b) …

(c) …

(d) order that a person wholly or partly responsible for the business or affairs of the corporation having been so conducted shall not, without the leave of the Court—

(i) be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of the corporation or any other corporation; or

(ii) in any way, whether directly or indirectly, be concerned, or take part, in the management of the corporation or any other corporation, for such period (not exceeding 15 years) as may be specified in the order;

(e) make any other order it considers appropriate, whether for regulating the conduct of the business or affairs of the corporation in future, or for the purchase of the shares of any members of the corporation by other members of the corporation or by the corporation (and, in the case of a purchase by the corporation, for the reduction accordingly of the corporation’s capital), or otherwise.”

26.  The SFC seeks a disqualification order against Mr Tse under section 214(2)(d) of the SFO. The following principles on disqualification orders under section 214(2)(d) of the SFO are well-established. As summarised in SFC v Chen Li Jun[16]:

(1)  The power to determine the appropriate period of disqualification is a discretionary power. It will be necessary for the Court to be satisfied that the director’s involvement in the relevant matter involves a sufficiently serious failure to satisfy his duties that some period of disqualification is justified and fair;

(2)  The purpose of imposing a disqualification order is twofold: (i) protection of the public; and (ii) general deterrence. The former is recognised to be the primary purpose. It is of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realise that these are personal responsibilities;

(3)  In determining the period of disqualification the Court will adopt a broad-brush approach. Earlier decided cases are of limited assistance to the exercise of the Court’s discretion;

(4)  The period of disqualification must reflect the gravity of the offence. The period of disqualification may be fixed by starting with an assessment of the correct period to fit the gravity of the conduct, and a discount is then given for mitigating factors;

(5)  As a starting point the Court will have reference to the following brackets, although these are signposts and not straightjackets:

(a)  disqualification of over 10 years for particularly serious cases;

(b)  disqualification of below 5 years for relatively less serious cases; and

(c)  disqualification of between 6 and 10 years for cases in between;

(6)  The Court will have regard to a wide range of considerations including the age, state of health and character of the offender, the nature of the breaches, the honesty and competence of the offender, the length of time he has been in jeopardy, whether he appreciates and/or admits the breaches, his general conduct before and after the offence, the periods of disqualification of his co-directors that may have been ordered by other courts, and the interests of shareholders, creditors and employees.

27.  The SFC submits that Mr Tse’s conduct falls on the borderline between the top bracket and the middle bracket for the following reasons:

(1)  First, Mr Tse’s conduct was fraudulent and dishonest. This brings the case near the top bracket (see SFC v Shandong Molong Petroleum Machinery Co Ltd[17]);

(2)  Second, Mr Tse carried out the fraudulent scheme not only once but twice with two different companies in which he held important positions;

(3)  Third, the fraudulent misrepresentations were not only made to Kingston, Kong Sun and China Grand, but also to the Stock Exchange;

(4)  Fourth, Mr Tse obtained a secret profit out of the KS Placement. Whilst he eventually failed to obtain a profit out of the CG Placement, he nevertheless obtained the said CG Shares at a discounted price through the CG Placement (and hence a personal benefit to himself);

(5)  Fifth, on the other hand, Kong Sun and China Grand did not suffer any financial loss.

28.  In light of the circumstances set out above, the SFC submits that a duration of 10 years (which has been agreed between the SFC and Mr Tse) is commensurate with the gravity of Mr Tse’s conduct and the principles set out above.

29.  The SFC has also agreed to carve out four non-listed Hong Kong companies from the disqualification order sought against Mr Tse.

30.  In the light of the approach of the Court in dealing with carve out applications (SFC v Yu Longrui[18]), the SFC accepts that:

(1)  Those carved-out companies are small private companies owned and controlled by Mr Tse and/or his wife;

(2)  The main businesses of those carved-out companies are primarily property investment, property holding and leasing. They do not engage in any active business operations apart from the leasing of one residential property by Pharaoh Fortune Limited and the leasing of one motor vehicles by Gold Mind (H.K.) Limited to third parties;

(3)  The liabilities of those carved-out companies mainly consisted of loans due to Mr Tse, his wife and a company beneficially wholly owned by his wife, and they have no long-term liabilities such as loans from banks;

(4)  Those carved-out companies currently have no employees;

(5)  Those carved-out companies do not have any connection with Kong Sun and/or China Grand.

31.  In the light of the above, the SFC takes the view that notwithstanding the serious nature of Mr Tse’s misconduct, the carving out of those companies would not be against public interest and the important purpose of protecting the public would still be achieved by the disqualification order despite the carve-outs. I will therefore, make an order that Mr Tse is disqualified from being a director of a corporation as defined in the Ordinance save with the leave of Court for a period of 10 years other than the four non-listed Hong Kong companies identified in in Mr Tse’s summons dated 25 May 2023.

32.  The SFC further seeks an order that Mr Tse shall account for, and pay to Kong Sun, HK$2,185,784.10 being the profit made by him in breach of his fiduciary duty owed to Kong Sun under section 214(2)(e) of the SFO.

33.  It has been held that section 214(2)(e) confers a “very broad jurisdiction” and it was clearly intended to provide the court with “the widest powers to do justice” (SFC v Yeung Chung Lung[19]). Previous authorities have established that under section 214(2)(e) the Court has the power to make an order for the payment of compensation (Re Styland Holdings Ltd (No. 2)[20]), and an order for the restitution of the amount embezzled by a director from his company (SFC v Yeung Chung Lung[21]).

34.  Further, in SFC v Tong Shek Lun[22], the Court made an order under section 214(2)(e) of the SFO for the payment of profits which a fiduciary obtained by his wrongful diversion of a business opportunity from his company in breach of his fiduciary duty.

35.  In the present case, I accept and find that Mr Tse: (1) placed himself in a position of conflict or potential conflict between his own interests and his fiduciary duties to Kong Sun; and (2) intended to make, and did make, a secret profit of HK$2,185,784.10, out of his fiduciary position as a director of Kong Sun without Kong Sun’s informed consent.

36.  In such circumstances, Mr Tse should not be permitted to retain the profit which he has obtained by reason of his breach of fiduciary duty (in the amount of HK$2,185,784.10, which is readily ascertainable and accepted by Mr Tse[23]), and he is liable to account to Kong Sun for such profit as constructive trustee (Kao Lee & Yip v Koo Hoi Yan & Others[24]; Hospital Products Ltd v United States Surgical Corp[25]).

37.  I will, therefore, to order that Mr Tse shall account for, and pay to Kong Sun, HK$2,185,784.10 being the profit made by him in breach of his fiduciary duty owed to Kong Sun.

38.  Lastly, Mr Tse agrees to pay the SFC’s costs in these proceedings, to be taxed if not agreed, with certificate for two Counsel[26].

STATEMENT OF AGREED FACTS NOT IN DISPUTE FOR

THE PURPOSES OF A CARECRAFT SETTLEMENT BETWEEN

THE PETITIONER AND THE 1^ST RESPONDENT

A.  INTRODUCTION

1.  On 26 January 2017, the Securities and Futures Commission (“Petitioner”) issued these proceedings under section 214 of the Securities and Futures Ordinance (Cap. 571) (“Ordinance”) seeking, inter alia, disqualification and compensation orders against TSE ON KIN, the 1^st Respondent, (“Mr Tse”) in respect of his conduct of the business and affairs of Kong Sun Holdings Limited (“Kong Sun”) and China Sandi Holdings Limited (formerly known as China Grand Forestry Green Resources Group Limited) (“China Grand”).

2.  Subject to the approval of this Court, the Petitioner and Mr Tse consent to the disposal of these proceedings against Mr Tse by way of the summary procedure (“Carecraft Procedure”) sanctioned in Re Carecraft Construction Co Limited [1994] 1 WLR 172, as clarified by the English Court of Appeal in Secretary of State for Trade and Industry v Rogers [1996] 1 WLR 1569 and as adopted by this Court in a number of cases including but not limited to Securities and Futures Commission v Yick Chong San [2007] 4 HKLRD 46, Securities and Futures Commission v Fung Chiu and Others [2009] 2 HKC 19, Securities and Futures Commission v Shum Ka Sang Charlie and Shen Yi (HCMP 1014/2008, unrep, 22.05.2015), Securities and Futures Commission v Cheung Chi Shing and Others [2011] 1 HKLRD 96, Securities and Futures Commission v Cheung Keng Ching and Others (HCMP 1869/2008, unrep, 18.03.2010) and Securities and Futures Commission v Kwok Wing & Others (HCMP 3392/2013, unrep, 27.03.2015) in respect of proceedings under Section 214 of the Ordinance.

3.  This Statement is produced in order to identify the material facts relied upon by the Petitioner in these proceedings that are not disputed by Mr Tse, for the disposal of these proceedings on the basis that the case against Mr Tse will be dealt with by this Court by way of the Carecraft Procedure.

4.  Solely for the purpose of resolving these proceedings by way of the Carecraft Procedure, and by reference to the facts set out in Section B below (which Mr Tse admits and accepts), Mr Tse accepts that during the relevant period, the business and affairs of Kong Sun and China Grand, for which Mr Tse as the chairman and an executive director of Kong Sun and China Grand was responsible, have been conducted in a manner described in Section 214(1)(b) and (c) of the Ordinance, namely:-

(a)  involving defalcation, fraud, misfeasance or other misconduct towards each of Kong Sun and China Grand or their members or a part of their members within the meaning of Section 214(1)(b) of the Ordinance; and

(b)  resulting in the members or a part of the members of each of Kong Sun and China Grand not having been given all the information with respect to the business or affairs of Kong Sun and China Grand as they might reasonably expect within the meaning of Section 214(1)(c) of the Ordinance.

5.  On the basis of the facts set out in Section B below, the Petitioner and Mr Tse agree, and Mr Tse is prepared to accept, that it would be appropriate:

(i)  for a disqualification order to be made against Mr Tse under Section 214(2)(d) of the Ordinance under which he shall not for a period of 10 years, without the leave of the Court:-

(a)  be, or continue to be, a director, liquidator, or receiver or manager of the property or business of, any corporation in Hong Kong, including Kong Sun and China Grand, or any of their subsidiaries and affiliates; and

(b)  in any way, whether directly or indirectly, be concerned, or take part, in the management of any corporation in Hong Kong including Kong Sun and China Grand, or any of their subsidiaries and affiliates; and

(ii)  for an order under Section 214(2)(e) of the Ordinance to be made against Mr Tse that he shall account for, and pay to Kong Sun, HK$2,185,784.10 being the profit made by him in breach of his fiduciary duty owed to Kong Sun, or any such amount as the Court shall consider appropriate.

6.  Mr Tse agrees to pay the Petitioner’s costs in these proceedings, to be taxed if not agreed, with certificate for two Counsel.

7.  In the event of a disqualification order and/or a payment order being made against Mr Tse by reference to this Statement: (1) the Petitioner and Mr Tse agree that they will jointly apply to this Court for a direction that this Statement be annexed to a judgment of this Court; and (2) the Petitioner reserves the right to refer to this Statement for all purposes connected with or ancillary to these proceedings.

8.  The Petitioner and Mr Tse agree that in the event this Court for whatever reason is of the view that these proceedings shall not be dealt with by the Court by way of the Carecraft Procedure or that a full hearing is appropriate, no admission or concession made by either the Petitioner or Mr Tse as part of this Statement nor any proposal for disqualification or the period of disqualification herein referred to, any proposal for payment to Kong Sun, or liability to pay costs shall be referred to or relied upon by either party at any subsequent hearing in these proceedings or any other proceedings without the prior written consent of both parties.

B.  FACTS NOT IN DISPUTE

9.  The structure of Section B of this Statement is as follows:-

(i)  Section B1 sets out the background information relating to Kong Sun, China Grand and Mega Goal Holdings Limited.

(ii)  Sections B2 sets out the facts relied upon by the Petitioner in support of its case that the business and affairs of Kong Sun and China Grand have been conducted in such manner described in Sections 214(1)(b) and (c) of the Ordinance.

(iii)  Section B3 sets out the facts relied upon by the Petitioner in support of its case that Mr Tse was responsible for the aforesaid conduct of the business and affairs of Kong Sun and China Grand.

B1.  Background

The Companies

Kong Sun

10.  Kong Sun is and was at all material times a company incorporated in Hong Kong and publicly listed on the Hong Kong Stock Exchange (“Stock Exchange”) with stock code 295. The principal activities of Kong Sun are presently held out to be investment in and operation of photovoltaic power plants, properties investment, manufacturing and sale of life-like plants.

China Grand

11.  China Grand is and was at all material times a company incorporated in Bermuda and publicly listed on the Stock Exchange with stock code 910. The principal activities of China Grand are presently held out to be the holding of property for investment and rental purpose, property development and money lending business. China Grand changed to its present name on 11 October 2012.

Mega Goal Holdings Limited

12.  Mega Goal Holdings Limited (“Mega Goal”) is and was at all material times a company incorporated in the British Virgin Islands.

13.  In or around February 2007, one Mandy Chan Yeuk Mui (“Ms Chan”) acquired Mega Goal as a shelf company from Offshore Incorporations Limited, and since that time, Ms. Chan has purportedly been the sole director and the sole shareholder of Mega Goal.

14.  At all material times, particularly during the time of the acquisition of the said KS Shares and the said CG Shares (defined below) by Mega Goal and the subsequent disposal of the same:

(1)  Mega Goal is and was the nominee and the alter ego of Mr Tse, and Mega Goal’s transactions, including in particular its acquisition of the said KS Shares and the said CG Shares (defined below), were entered into pursuant to the instructions and directions of and were directly funded and backed by Mr Tse;

(2)  Mr Tse is and was the beneficial owner of Mega Goal and its assets, particularly in relation to the said KS Shares and the said CG Shares (defined below) acquired by Mega Goal and the subsequent disposal proceeds of the same;

(3)  Ms Chan is and was the agent and nominee of Mr Tse who acted in accordance with Mr Tse’s instructions and directions in relation to the affairs of Mega Goal, particularly in relation to the acquisition of the said KS Shares and the said CG Shares (defined below) and the subsequent disposal of the same.

15.  In these circumstances, the corporate veil of Mega Goal should be lifted such that the acts of Mega Goal are deemed to be the acts of Mr Tse, particularly in relation to the acquisition of the said KS Shares and the said CG Shares (defined below) and the subsequent disposal of the same, by reason that Mega Goal was a device used by Mr Tse and Ms Chan to conceal Mr Tse’s interest in the said acquisitions and disposals.

B2.  The Share Placement Schemes

The KS Placement

16.  In the period from 20 April 2007 to 30 December 2011, Mr Tse was the chairman and an executive director of Kong Sun and was therefore a “connected person” of Kong Sun within the meaning of Rule 14A.11 of the then applicable Chapter 14A of the Rules Governing the Listing of Securities (“Listing Rules”).

17.  On 18 June 2009, Mr Tse, on behalf of Kong Sun, signed and entered into a written Top Up Placing and Subscription Agreement (“KS Agreement”) with Kingston Securities Limited (“Kingston”) as the placing agent and Mr. So Chi Ming (“Mr. So”) as the vendor.

18.  In the KS Agreement, it was expressly provided that, inter alia:

(1)  Mr. So (as vendor) would place or sell his 817,000,000 existing Kong Sun shares (“KS Placement Shares”) through Kingston, as Mr So’s agent, on a fully underwritten basis, to no fewer than 6 placees;

(2)  The choice of placees for the KS Placement Shares shall be determined solely by Kingston, subject to the requirement of the Listing Rules, including in particular that the placees and their ultimate beneficial owners shall be third parties independent of Mr. So and Kong Sun and the connected persons (as defined in the Listing Rules) of Mr. So and Kong Sun and shall not be parties to be acting in concert with Mr. So and/or Kong Sun and their respective concert parties or any of the directors, chief executive or substantial shareholder(s) of Kong Sun or any of its subsidiaries or their respective associates for the purposes of the Hong Kong Code on Takeovers and Mergers (“Independent KS Placees Requirement”);

(3)  Kingston shall deliver to Kong Sun and Mr. So, inter alia, a schedule showing details of the placees and their ultimate beneficial owners including their names and the number of the KS Placement Shares subscribed for by each placee;

(4)  The price of the shares payable in the placement was to be HK$0.10 per share (which represented a discount of around 15% against the benchmark closing price of the shares at the time);

(5)  Subject to, inter alia, the completion of the placing of the KS Placement Shares having occurred pursuant to the terms of the KS Agreement, Kong Sun agreed to issue and Mr. So agreed to subscribe an aggregate of 817,000,000 new Kong Sun shares at HK0.10 per share (“KS Subscription Shares”), being the same price as the KS Placement Shares.

(This placement scheme is referred hereinbelow as the “KS Placement”).

19.  The KS Agreement and the terms and conditions contained therein were approved by the board of directors of Kong Sun (including, inter alios, Mr Tse) on 18 June 2009 by way of written resolution.

20.  On 18 June 2009, Kong Sun issued a public announcement regarding the KS Agreement, which expressly stated that, inter alia, the KS Placement would be subject to the Independent KS Placees Requirement (“KS June 18 Announcement”).

21.  On or about 18 June 2009, Mr Tse instructed and procured Mega Goal to make, and Mega Goal did make, an application through Kingston for 100,000,000 of the KS Placement Shares (“said KS Shares”).

22.  On 18 June 2009, by a placing letter to Mega Goal, Kingston confirmed the placement of the said KS Shares to Mega Goal subject to the fulfilment of conditions of the placing, and requested Mega Goal to confirm the placement by signing and returning an acknowledgment letter.

23.  On 19 June 2009, Mr Tse deposited HK$10,000,000.00 into Mega Goal’s account, and Mega Goal paid Kingston HK$10,036,200.00 for the said KS Shares (at the placing price of HK$0.10).

24.  Further, on 19 June 2009, in order to induce Kingston to place the said KS Shares to Mega Goal, Ms. Chan (as a nominee of and upon the instructions of Mr Tse) on behalf of Mega Goal signed and returned an acknowledgment letter confirming the acquisition of the said KS Shares.

25.  In the said acknowledgment letter, it was expressly represented and undertaken by Mega Goal that, inter alia:

“(i) [Mega Goal] and the ultimate beneficial owner(s) of the Placing Shares am/are (an) independent third party(ies) not connected with the Company and their connected persons, as such terms are defined in the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”), and am / are not (a) connected person(s) (as defined under the Listing Rules) of the Company.

(ii) [Mega Goal] and the ultimate beneficial owner(s) are not directly or indirectly funded or backed by the Company, their connected persons and their respective associates (as defined in the Listing Rules).

(iii) …

(iv) [Mega Goal] and the ultimate beneficial owner(s) declare that the purchase of the Placing Shares is entirely of my/our own volition and I/we and the ultimate beneficial owner(s) am/are not acting under the instructions from (a) connected person(s) of the Company in relation to the acquisition, disposal, voting or any other disposition of securities in the Company…”

(“KS Representations”)

26.  The KS Representations were in fact, individually and collectively, false, untrue and misleading. In particular:

(1)  By reason of the matters set out in paragraph 0 above, contrary to the representations set out in paragraph 0(i):

(a)  Mega Goal was not in fact an independent third party not connected with Kong Sun and/or its connected persons, namely, Mr Tse; and

(b)  The ultimate beneficial owner of the KS Placement Shares was not an independent third party not connected with Kong Sun and/or its connected persons, namely, Mr Tse.

(2)  Further, contrary to the representations in paragraph 0(ii), by reason of the matters set out in paragraphs 0 and 0 above, the business and operations of Mega Goal, including in particular the acquisition of the said KS Shares, were in fact funded and backed by Mr Tse;

(3)  Further, contrary to the representations in paragraph 0(iv), by reason of the matters set out in paragraphs 0, 0 and 0 above, Mega Goal was acting under the instructions and directions of Mr Tse in acquiring the said KS Shares, and hence, the purchase of the same was not or not entirely of Mega Goal’s own volition.

27.  In reliance upon the KS Representations and acting upon the faith thereof and in the belief that the same were true:

(1)  Sometime between 19 and 23 June 2009, Kingston accepted Mega Goal to be one of the placees under the KS Placement, and on behalf of Mr So, placed the said KS Shares to Mega Goal;

(2)  Shortly thereafter, pursuant to the terms of the KS Agreement, Kingston delivered a list of placees to Kong Sun, which included Mega Goal, and showed that the said KS Shares had been placed to Mega Goal and that the ultimate beneficial owner of the said KS Shares was Ms Chan;

(3)  On or shortly before 22 June 2009, Kong Sun authorised and permitted Mr Tse to sign and submit to the Stock Exchange on behalf of Kong Sun, which Mr Tse did on 22 June 2009, a Form C1 to apply for the listing of and permission to deal in the KS Subscription Shares:

(a)  The application was made on the basis of the KS Agreement which, as mentioned above, expressly provided for the Independent KS Placees Requirement in relation to the KS Placement Shares;

(b)  Form C1 contained a declaration that all the applicable qualifications in the Listing Rules had been met or fulfilled (“KS Form C1 Declaration”);

(4)  On 23 June 2009, Kingston submitted to the Stock Exchange a list of placees, which included Mega Goal and stated that the ultimate beneficial owner of the said KS Shares was Ms Chan, and declared that the Independent KS Placees Requirement had been satisfied for each of the placees;

(5)  On 25 June 2009, the Stock Exchange granted conditional approval to Kong Sun’s application for the listing of and permission to deal in the KS Subscription Shares;

(6)  Kong Sun unanimously resolved at a board meeting on 29 June 2009, which was chaired by Mr Tse that, inter alia:

(a)  The KS Subscription Shares be issued and allotted on 29 June 2009 in the name of Kingston as the nominee of Mr So;

(b)  Any one director and the company secretary of Kong Sun be authorised to complete, sign and file with the Stock Exchange a declaration in Form F of the Listing Rules, declaring that all requirements under the Listing Rules in connection with the issue of the KS Placement Shares had been complied with (“KS Form F Declaration”).

28.  Pursuant to the aforesaid resolution, Mr Tse and one Mak Wai Ho (Kong Sun’s company secretary) completed, signed and filed on behalf of Kong Sun the KS Form F Declaration with the Stock Exchange.

29.  Both the KS Form C1 Declaration and KS Form F Declaration were in fact false and misleading:

(1)  As expressly acknowledged in the KS Agreement, the choice of placees for the KS Placement Shares shall be subject to the requirements of the Listing Rules, and in particular, the Independent KS Placees Requirement;

(2)  For the reasons set out in paragraph 0 above, the Independent KS Placees Requirement was not in fact satisfied, particularly in relation to Mega Goal and the said KS Shares.

30.  On 29 June 2009, Kong Sun issued and allotted the KS Subscription Shares in the name of Kingston as the nominee of Mr So.

31.  In the period from 22 June 2009 to 13 July 2009, Mega Goal disposed of all the said KS shares obtained from the KS Placement on the open market, and made a profit of around HK$2,185,784.10.

The CG Placement

32.  Mr Tse was the executive director (in the period from 18 September 2009 to 30 December 2010) and the chairman (in the period from 30 September 2009 to 30 December 2010) of China Grand, and was therefore a connected person of China Grand within the meaning of Rule 14A.11 of the then applicable Chapter 14A of the Listing Rules in the period from 18 September 2009 to 30 December 2010.

33.  On 30 November 2009, China Grand entered into a written Placement Agreement (“CG Agreement”) with Kingston as the placing agent.

34.  In the CG Agreement, it was expressly provided that, inter alia:

(1)  China Grand conditionally agreed to place a maximum of 1,316,000,000 new China Grand shares (“CG Placement Shares”) through Kingston on a best efforts basis, to no fewer than 6 independent professional, institutional or other investors not connected or acting in concert (as defined in the Hong Kong Code on Takeovers and Mergers) with any directors, chief executive or substantial shareholder(s) of China Grand or its subsidiaries and their respective associates (as defined in the Listing Rules) (“Independent CG Placees Requirement”);

(2)  The price of the shares payable in the placement was HK$0.26 per share (representing a discount of around 20% against the benchmark closing price of the shares at the time).

(This placement scheme is referred hereinbelow as the “CG Placement”).

35.  The CG Agreement and the terms and conditions contained therein were approved on 30 November 2009 at a board meeting conducted over the telephone and chaired by Mr Tse.

36.  On 30 November 2009, China Grand issued a public announcement regarding the CG Agreement, which expressly stated that, inter alia, the CG Placement would be subject to the Independent CG Placees Requirement (“CG November 30 Announcement”).

37.  On 3 December 2009, China Grand submitted a Form C1 to the Stock Exchange to apply for the listing of and for permission to deal in the CG Placement Shares:

(1)  The application was made on the basis of the CG Agreement which, as set out above, expressly provided for the Independent CG Placees Requirement in relation to the CG Placement Shares;

(2)  Form C1 contained a declaration that all the applicable qualifications in the Listing Rules had been met or fulfilled.

38.  Subsequently, on or around 10 December 2009, Mr Tse instructed and procured Mega Goal to make, and Mega Goal did make, an application through Kingston for 19,000,000 CG Placement Shares under the CG Placement (“said CG Shares”).

39.  On 10 December 2009, by a placing letter to Mega Goal, Kingston confirmed the placement of the said CG Shares to Mega Goal, subject to the fulfilment of conditions of the placing, and requested Mega Goal to confirm the placement by signing and returning an acknowledgment letter.

40.  On 10 or 11 December 2009, in order to induce Kingston to place the said CG Shares to Mega Goal, Ms. Chan (as a nominee and upon the instructions of Mr Tse) on behalf of Mega Goal signed and returned the acknowledgment letter confirming the subscription of the said CG Shares.

41.  In the said acknowledgment letter, it was expressly represented and undertaken by Mega Goal that, inter alia:

“(i) [Mega Goal] and the ultimate beneficial owner(s) of the Placing Shares am/are (an) independent third party(ies) not connected with the Company and its connected persons, as such terms are defined in the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the “Listing Rules”), and am / are not (a) connected person(s) (as defined under the Listing Rules) of the Company.

(ii) [Mega Goal] and [Mega Goal’s] ultimate beneficial owner(s) am/are independent of, and am/are not acting in concert with, the directors, the chief executives and/or substantial shareholders of the Company or its subsidiaries and their respective associates (as defined under the Listing Rules).

(iii) [Mega Goal] and the ultimate beneficial owner(s) of the Placing Shares are not directly or indirectly funded or backed by the Company, its connected persons and their respective associates (as defined in the Listing Rules).

(iv) …

(v) [Mega Goal] and the ultimate beneficial owner(s) of the Placing Shares declare that the purchase of the Placing Shares is entirely of my/our own volition and I/we and the ultimate beneficial owner(s) am/are not acting under the instructions from (a) connected person(s) of the Company in relation to the acquisition, disposal, voting or any other disposition of securities in the Company…”

(“CG Representations”).

42.  The CG Representations were in fact, individually and collectively, false, untrue and misleading. In particular:

(1)  By reason of the matters set out in paragraph 0 above, contrary to the representations in paragraph 0(i):

(a)  Mega Goal was not in fact an independent third party not connected with China Grand and/or its connected persons, namely, Mr Tse; and

(b)  The ultimate beneficial owner of the CG Placement Shares was not an independent third party not connected with China Grand and/or its connected persons, namely, Mr Tse;

(2)  Further, contrary to the representations in paragraph 0(ii), by reason of the matters set out in paragraphs 0, 0 and 0 above, Mega Goal was in fact not independent of, and was in fact acting in concert with, a director of China Grand, namely, Mr Tse;

(3)  Further, contrary to the representations in paragraph 0(iii), by reason of the matters set out in paragraph 0 above, the business and operations of Mega Goal, including in particular the acquisition of the said CG Shares, were in fact funded and backed by Mr Tse;

(4)  Further, contrary to the representations in paragraph 0(v), by reason of the matters mentioned in paragraphs 0, 0 and 0 above, Mega Goal was acting under the instructions and directions of Mr Tse in acquiring the said CG Shares, and hence, the purchase of the same was not or not entirely of Mega Goal’s own volition.

43.  In reliance upon the CG Representations and acting on the faith thereof and in the belief that the same were true:

(1)  On 10 or 11 December 2009, Kingston accepted Mega Goal to be one of the placees under the CG Placement;

(2)  On 11 December 2009, Kingston submitted to the Stock Exchange a list of placees, which included Mega Goal, and declared that the Independent CG Placees Requirement had been satisfied for each of the placees;

(3)  On 14 December 2009, the Stock Exchange granted conditional approval to China Grand’s application for the listing of and permission to deal in the CG Placement Shares;

(4)  On 19 January 2010, China Grand filed with the Stock Exchange a declaration in Form F of the Listing Rules, declaring that all requirements under the Listing Rules in connection with the issue of the CG Placement Shares had been complied with (“CG Form F Declaration”);

(5)  On 19 January 2010, China Grand issued a public announcement that, inter alia, the CG Placement was completed in accordance with the terms and conditions of the CG Agreement, that the CG Placement Shares had been successfully placed at HK$0.26 per share, and that the Independent CG Placees Requirement had been satisfied (“CG January 19 Announcement”).

44.  Both the CG Form F Declaration and the CG January 19 Announcement were in fact false, in that:

(1)  As expressly acknowledged in the CG Agreement, the choice of placees for the CG Placement Shares shall be subject to the requirements of the Listing Rules including in particular, the Independent CG Placees Requirement;

(2)  For the reasons set out in paragraph 0 above, the Independent CG Placees Requirement was not in fact satisfied, particularly in relation to Mega Goal and the said CG Shares.

45.  Also on 19 January 2010, Mega Goal paid HK$4,989,844.60 for the said CG Shares and was issued with the same on the same day.

46.  On 18 May 2010, Mega Goal disposed of all the said CG Shares at a loss of around HK$201,185.29.

B3.  Misconduct of Mr Tse

Mr Tse’s duties as director of Kong Sun and China Grand

47.  Mr Tse, being the chairman and executive director of each of Kong Sun and China Grand, and both being publicly listed companies, owed fiduciary duties to each of them to act bona fide in their best interests at all times, including in particular:

(1)  Not to act and/or place himself in a situation where there is a conflict or potential conflict between his fiduciary duty and his own interests;

(2)  Not to profit (or attempt to profit) from his position as a director of Kong Sun and China Grand;

(3)  To act honestly and in good faith in all his dealings with each of Kong Sun and China Grand and to faithfully protect its interests, including:

(a)  Not making any statements and/or representations to Kong Sun and China Grand concerning their affairs which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(b)  Informing or disclosing to Kong Sun and China Grand any statements and/or representations which he is aware to have been made to Kong Sun and China Grand (whether or not by himself) and which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(c)  Not approving, allowing or acquiescing in Kong Sun and China Grand to act in reliance upon statements and/or representations which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(d)  Not approving, allowing or acquiescing each of Kong Sun and China Grand to make:

(i)  Statements or announcements to its public shareholders or the public generally which he knows to be (or turns a blind eye to the fact that they are) misleading or false;

(ii)  Statements or declarations to the regulatory authorities including the Stock Exchange that he knows to be (or turns a blind eye to the fact that they are) misleading or false.

48.  The aforesaid duties were also reflected in inter alia Rules 3.08 and 3.16 of the Listing Rules, with which Mr Tse undertook to comply upon becoming a director of Kong Sun and China Grand respectively.

Fraudulent Breach of Fiduciary Duty and Fraudulent Misrepresentation

(i)  As regards Kong Sun

49.  As the chairman and an executive director of Kong Sun, Mr Tse was responsible for the day-to-day management of all aspects of Kong Sun’s business and affairs.

50.  In relation to the KS Placement, Mr Tse was the key officer of Kong Sun who, inter alia:

(1)  Proposed, devised and coordinated the KS Placement, and negotiated the discounted price with Kingston;

(2)  Signed and entered into the KS Agreement on behalf of Kong Sun, as set out in paragraph 0 above;

(3)  Signed the written resolutions dated 18 June 2009 approving on behalf of Kong Sun the KS Agreement and the terms and conditions contained therein, which included, inter alia, the Independent KS Placees Requirement and the placing price of HK$0.10 per share, as set out in paragraphs 0 and 0 above;

(4)  Was delegated with the task to ensure that the KS Placees Requirement would be satisfied;

(5)  Chaired the board meeting on 29 June 2009 approving the issuance and allotment of the KS Subscription Shares, as mentioned in paragraph 0(6) above;

(6)  Signed and filed on behalf of KS Form C1 Declaration and the KS Form F Declaration, as mentioned in paragraphs 0(3) and 0 above;

(7)  As the chairman of Kong Sun, issued the KS June 18 Announcement, as set out in paragraph 0 above.

51.  In the circumstances as set out below, Mr Tse devised and carried out a fraudulent scheme, whereby he:

(1)  Instructed, directed, procured and permitted Mega Goal to apply for the said KS Shares as his nominee and to make the false and misleading KS Representations;

(2)  Submitted on behalf of Kong Sun the KS Form C1 Declaration and KS Form F Declaration to the Stock Exchange,

so as to (a) conceal his interest in the KS Placement, (b) induce Kingston to place the said KS Shares to his nominee, Mega Goal, (c) cause Kong Sun to mislead the Stock Exchange, and (d) as a result, make a secret personal profit out of the KS Placement.

52.  In relation to the KS Representations, paragraphs 0 to 0 above are repeated. Further:

(1)  At the time when Ms Chan (as a nominee of and upon the instructions of Mr Tse) on behalf of Mega Goal signed and returned the acknowledgment letter containing the KS Representations, Mr Tse well knew that the KS Representations were false and misleading:

(a)  Mr Tse well knew that he was a connected person of Kong Sun as defined in Rule 14A.11 of the then applicable Chapter 14A of the Listing Rules;

(b)  By reason of the matters set out in paragraph 0 above, Mr Tse well knew that Mega Goal and the ultimate beneficial owner of the said KS shares (namely, Mr Tse himself) were not independent third parties not connected with Kong Sun and their connected persons;

(c)  Mr Tse well knew that, as expressly provided in the KS Agreement, the KS Placement was restricted under the Listing Rules to independent placees only and therefore excluded him or companies which he ultimately had a beneficial interest in from subscribing shares under the KS Placement;

(d)  By reason of the matters set out in paragraphs 0 and 0 above, he knew that the business and operations of Mega Goal, particularly in respect of the acquisition of the said KS Shares, were funded and backed by him;

(e)  By reason of the matters set out in paragraphs 0, 0 and 0 above, he knew that Mega Goal was acting under his instructions and directions in acquiring the said KS Shares, and hence, the purchase of the same was not or not entirely of Mega Goal’s own volition.

(2)  Well knowing that:

(a)  The KS Representations were false and misleading; and

(b)  The KS Representations, whilst made to Kingston, would be repeated and/or communicated to Kong Sun, and that Kingston and Kong Sun would rely upon the same;

Mr Tse nonetheless instructed, directed, procured and permitted Mega Goal to make the KS Representations.

(3)  Further, well knowing that the KS Representations were false and misleading, Mr Tse:

(a)  Omitted to inform or disclose to Kong Sun, and concealed from Kong Sun, that the KS Representations were in fact false and misleading; and

(b)  Approved, allowed and acquiesced in Kong Sun acting in reliance upon the same in the belief that the same were true;

as set out in paragraphs 0(3) and (6) above.

53.  In relation to the KS Form C1 Declaration and KS Form F Declaration, paragraphs 0(3), 0 and 0 above are repeated. Further, at the time when:

(1)  Mr Tse on behalf of Kong Sun signed and submitted the KS Form C1 Declaration to the Stock Exchange; and

(2)  Mr Tse completed, signed and filed on behalf of Kong Sun the KS Form F Declaration with the Stock Exchange;

Mr Tse well knew that the KS Form C1 Declaration and the KS Form F Declaration were in fact false and misleading.

54.  Mr Tse therefore knowingly caused Kong Sun to mislead the Stock Exchange to induce it to grant approval to Kong Sun’s application for the listing of and permission to deal in the KS Subscription Shares, which was part and parcel of the KS Placement.

55.  Further, by reason of the matters set out in paragraphs 0, 0 and 0:

(1)  Mr Tse placed himself in a position of conflict or potential conflict between his own interests and his fiduciary duties to Kong Sun as mentioned in paragraph 0 above;

(2)  Mr Tse intended to make, and did make a secret profit of around HK$2,185,784.10, out of his fiduciary position as a director of Kong Sun by instructing and procuring Mega Goal to obtain the said KS Shares at a discounted price and then to sell them at a higher price in the market without Kong Sun’s informed consent;

(3)  In using Mega Goal to obtain the said KS Shares, Mr Tse intended to conceal, and did conceal, his interest in the said KS Shares and the profit from the disposal of the same;

(4)  At no time before, during and after the KS Placement did Mr Tse disclose to Kong Sun his interest in the said KS Shares, his connection with Mega Goal as set out in paragraph 0 above and the secret profit made from the disposal of the said KS Shares;

(5)  By reason of the aforesaid, Mr Tse is liable to account to Kong Sun for such profit as constructive trustee.

56.  By reason of the matters set out in paragraphs 0 to 0 above, Mr Tse acted in serious and dishonest breach of his fiduciary duties to Kong Sun as aforesaid. Mr Tse well knew that his actions and omissions constituted serious breaches of his duties to Kong Sun, but nonetheless proceeded with the same.

57.  Further, by reason of the matters set out in paragraphs 0 and 0 above, Mr Tse is liable to Kong Sun in the tort of deceit.

(ii)  As regards China Grand

58.  As the chairman and an executive director of China Grand, Mr Tse was responsible for the day-to-day management of all aspects of China Grand’s business and affairs.

59.  In relation to the CG Placement, Mr Tse was the key officer of China Grand who, inter alia:

(1)  As the chairman of China Grand, was responsible for all the final decisions in relation to the CG Placement;

(2)  Chaired the board meeting on 30 November 2009 approving the CG Agreement and the terms and conditions contained therein, which included, inter alia, the Independent CG Placees Requirement and the placing price of HK$0.26 per share, as set out in paragraphs 0 and 0 above;

(3)  As the chairman of China Grand, issued the CG November 30 Announcement and the CG January 19 Announcement, as set out in paragraphs 0 and 0(5) above.

60.  In the circumstances as set out below, Mr Tse devised and carried out a fraudulent scheme, whereby he:

(1)  Instructed, directed, procured and permitted Mega Goal to apply for the said CG Shares as his nominee and to make the false and misleading CG Representations;

(2)  Caused and permitted China Grand to issue the CG Form F Declaration;

(3)  Issued the CG January 19 Announcement,

so as to (a) conceal his interest in the CG Placement, (b) defraud China Grand into issuing and allotting the said CG Shares (through Kingston as its placing agent) to his nominee, Mega Goal, (c) cause and permit China Grand to mislead the Stock Exchange, and (d) as a result, attempt to make a secret personal profit out of the CG Placement.

61.  In relation to the CG Representations, paragraphs 0 to 0 above are repeated. Further:

(1)  At the time when Ms Chan (as a nominee of and upon the instructions of Mr Tse) on behalf of Mega Goal signed and returned the acknowledgment letter containing the CG Representations, Mr Tse well knew that the CG Representations were false and misleading:

(a)  Mr Tse well knew that he was a connected person of China Grand as defined in Rule 14A.11 of the then applicable Chapter 14A of the Listing Rules;

(b)  By reason of the matters set out in paragraph 0 above, Mr Tse well knew that Mega Goal and the ultimate beneficial owner of the said CG shares (namely, Mr Tse himself) were not independent third parties not connected with China Grand and their connected persons;

(c)  Mr Tse well knew that, as expressly provided in the CG Agreement, the CG Placement was restricted under the Listing Rules to independent placees only and therefore excluded him or companies in which he ultimately had a beneficial interest from subscribing shares under the CG Placement;

(d)  By reason of the matters set out in paragraph 0 above, he knew that the business and operations of Mega Goal, particularly in respect of the acquisition of the said CG Shares, were funded and backed by him;

(e)  By reason of the matters set out in paragraphs 0, 0 and 0 above, he knew that Mega Goal was acting under his instructions and directions in acquiring the said CG Shares, and hence, the purchase of the same was not or not entirely of Mega Goal’s own volition;

(f)  By reason of the matters set out in paragraphs 0, 0 and 0 above, he knew that Mega Goal was in fact not independent of, and was in fact acting in concert with, a director of China Grand, namely, Mr Tse himself.

(2)  Well knowing that:

(a)  The CG Representations were false and misleading; and

(b)  The CG Representations, whilst made to Kingston, would be repeated and/or communicated to China Grand, and that Kingston and China Grand would rely upon the same;

Mr Tse nonetheless instructed, directed, procured and permitted Mega Goal to make the CG Representations.

(3)  Further, well knowing that the CG Representations were false and misleading, Mr Tse:

(a)  Omitted to inform or disclose to China Grand, and concealed from China Grand, that the CG Representations were in fact false and misleading; and

(b)  Approved, allowed and acquiesced in China Grand (and Kingston acting on behalf of China Grand) acting in reliance upon the same in the belief that the same were true;

as set out in paragraphs 0(1), (2), (4) and (5) above.

62.  In relation to the CG Form F Declaration and the CG January 19 Announcement, paragraphs 0(4) and (5), and 0 above are repeated. Further, at the time when:

(1)  China Grand submitted the CG Form F Declaration to the Stock Exchange (which was done with Mr Tse’s knowledge and approval); and

(2)  China Grand issued the CG January 19 Announcement;

Mr Tse well knew that the CG Form F Declaration and the CG January 19 Announcement were in fact false and misleading.

63.  Mr Tse therefore knowingly caused and permitted China Grand to mislead, respectively:

(1)  The Stock Exchange to induce it to grant approval to China Grand’s application for the listing of and permission to deal in the CG Placement Shares; and

(2)  The public (including China Grand’s shareholders).

64.  Further, by reason of the matters set out in paragraphs 0, 0 and 0:

(1)  Mr Tse placed himself in a position of conflict or potential conflict between his own interests and his fiduciary duties to China Grand as set out in paragraph 0 above;

(2)  Mr Tse intended to make a secret profit out of his fiduciary position as a director of China Grand by instructing and procuring Mega Goal to obtain the said CG Shares at a discounted price and then to sell them at a higher price in the market without China Grand’s informed consent;

(3)  In using Mega Goal to obtain the said CG Shares, Mr Tse intended to conceal, and did conceal, his interest in the said CG Shares and the disposal of the same;

(4)  At no time before, during and after the CG Placement did Mr Tse disclose to China Grand his interest in the said CG Shares, his connection with Mega Goal as set out in paragraph 0 above and the disposal of the said CG Shares;

(5)  Whilst Mr Tse ultimately failed in his attempt to make a secret profit from the said CG Shares, that did not relieve him from his breach of fiduciary duty, as he nevertheless obtained the CG Shares at a discounted price through the CG Placement, for which should not be eligible.

65.  By reason of the matters set out in paragraphs 0 to 0 above, Mr Tse acted in serious and dishonest breach of his fiduciary duties to China Grand as aforesaid. Mr Tse well knew that his actions and omissions constituted serious breaches of his duties to China Grand, but nonetheless proceeded with the same.

66.  Further, by reason of the matters set out in paragraphs 0 and 0 above, Mr Tse is liable to China Grand in the tort of deceit.

B4.  Liability of the 1^st Respondent

67.  In the premises, by reason of the matters above, Mr Tse acknowledges and accepts that he has conducted the business or affairs of each of Kong Sun and China Grand in a manner involving defalcation, fraud, misfeasance or other misconduct towards each of them or their members or a part of their members within the meaning of Section 214(1)(b) of the Ordinance.

68.  Further, Mr Tse acknowledges and accepts that he has inter alia conducted the business or affairs of each of Kong Sun and China Grand in a manner resulting in the members or a part of the members of each of Kong Sun and China Grand not having been given all the information with respect to the business and/or affairs of Kong Sun and China Grand that they might reasonably expect within the meaning of Section 214(1)(c) of the Ordinance:

  As regards the members of Kong Sun

(1)  As mentioned in paragraph 0 above, Kong Sun issued the KS June 18 Announcement;

(2)  Kong Sun’s public shareholders were therefore informed and believed that the placees of the KS Placement Shares would all satisfy the Independent KS Placees Requirement;

(3)  For the reasons set out above, the Independent KS Placees Requirement was not satisfied, particularly in relation to Mega Goal and the said KS Shares;

(4)  No further public announcement was issued by Kong Sun after the said KS Shares were placed to Mega Goal informing its shareholders that the Independent KS Placees Requirement had not in fact been satisfied and/or was a “connected transaction” within the meaning of the Listing Rules.

As regards the members of China Grand

(5)  As set out in paragraph 0 above, China Grand issued the CG November 30 Announcement;

(6)  China Grand’s public shareholders were therefore informed and believed that the placees of the CG Placement Shares would all satisfy the Independent CG Placees Requirement;

(7)  For the reasons set out above, the Independent CG Placees Requirement was not satisfied, particularly in relation to Mega Goal and the said CG Shares;

(8)  No further public announcement was issued by China Grand after the said CG Shares were placed to Mega Goal informing its shareholders that the Independent CG Placees Requirement had not in fact been satisfied and/or was a “connected transaction” within the meaning of the Listing Rules;

(9)  To the contrary, as mentioned in paragraph 0(5) above, China Grand issued the CG January 19 Announcement, which was plainly false and misleading.

PROPOSAL FOR DISQUALIFICATION AND PAYMENT TO KONG SUN

69.  On the basis of the facts not in dispute as set out in Section B above, the Petitioner and Mr Tse agree that it would be appropriate for a disqualification order to be made against Mr Tse under Section 214(2)(d) of the Ordinance that, for a period of 10 years, he shall not, without leave of the Court:

(a)  Be, or continue to be, a director, liquidator, or receiver or manager of the property or business, of any corporation in Hong Kong including Kong Sun, China Grand, or any of their subsidiaries and affiliates; and

(b)  In any way directly or indirectly be concerned, or take part, in the management of any corporation in Hong Kong including Kong Sun, China Grand, or any of their subsidiaries and affiliates;

70.  The Petitioner and Mr Tse further agree that it would be appropriate for an order under Section 214(2)(e) of the Ordinance to be made against Mr Tse that he shall account for, and pay to Kong Sun, HK$2,185,784.10 being the profit made by him in breach of his fiduciary duty owed to Kong Sun, or any such amount as the Court shall consider appropriate.

71.  Mr Tse agrees to pay the Petitioner’s costs in these proceedings, to be taxed if not agreed, with certificate for two Counsel.

Dated the 8^th day of March 2023.