Hengxin Technology Ltd v Jiang Wei and Another Suit

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 19 November 2009
• Neutral Citation: [2009] SGHC 259
• Court: High Court (Singapore)
• Year: 2009
• Citation: [2009] SGHC 259
• Plaintiff Counsel: Anparasan s/o Kamachi and Haresh Kamdar (KhattarWong)
• Defendant Counsel: Andrew Yeo Khirn Hin, Tham Hsu Hsien, Koh Bi'Na and Paul Ong (Allen & Gledhill LLP)
• Subject Matter: Contract
• Published date: 30 November 2009

19 November 2009 Judgment Reserved

Lai Siu Chiu J:

1 This consolidated action was a claim by Hengxin Technology Ltd (“the Company”) against its two former directors Jiang Wei (“Jiang”) and Qian Lirong (“Qian”) for breaches of their respective service agreements with the Company. Jiang and Qian will be referred to collectively as “the defendants” henceforth.

2 The Company was incorporated on 18 November 2004 and is a leading manufacturer of radio frequency (“RF”) co-axial cables series for mobile communications and other communication equipment. It was listed on the Stock Exchange of Singapore Ltd (“SGX”) on 11 May 2006. The Company has a subsidiary called Jiangsu Hengxin Technology Co Ltd (“the Jiangsu Company”) located at Yixing, Jiangsu Province, China, which manufactures mobile telecommunication cables and other mobile telecommunications equipment.

3 Prior to the listing of the Company on SGX, the defendants had entered into service agreements with the Company dated 9 February 2006 (“the Service Agreement[s]”). Jiang and Qian were directors of the Company from 23 June 2005 and 29 November 2004 respectively, until their resignations on 17 January 2007. Qian was a shareholder of the Company, its executive chairman and chief executive officer (“CEO”) as well as the general manager and legal representative of the Jiangsu Company. Jiang on his part was an executive director of the Company as well as head of sales at the Jiangsu Company of which division he was the deputy general manager.

4 It was Qian who founded the Jiangsu Company in June 2003 together with Jiang, one Cui Genxiang (“Cui”) and a Madam Zhang Zhong (“Zhang”); all three persons were also shareholders of the Jiangsu Company while Zhang was also a director. Cui and Qian are related by marriage as Cui’s elder brother Cui Genliang is married to Qian’s sister. Prior to joining the Jiangsu Company, Qian was the general manager (for the period 1996 to 2003) of a company called Jiangsu Hengtong Cable Company Ltd (“Hengtong”) that manufactured cables for fixed telephone lines. In court, Qian revealed that he purchased land, plant, cables and machinery from Hengtong in order to start the Jiangsu Company.

5 The resignations of the defendants as directors of the Company were prompted by the calling of an extraordinary general meeting (“EOGM”) by Cui and a shareholder Roger Ng Yang Kwang (“Roger Ng”) on 18 December 2006, who proposed inter alia to remove Qian as a director together with two independent directors viz Lai Seng Kwoon (“Lai”) and Raymond Ong (“Ong”). A day before the EOGM on 18 January 2007, the defendants, Messrs Lai and Ong as well as the Company’s Secretary Loo Wen Lieh (‘Loo”) tendered their resignations with immediate effect.

6 At the EOGM, Cui and Zhang were appointed as directors together with Xu Guochen (“Xu”), Bernard Tay and Patrick Chee. (Messrs Tay and Chee were the independent directors). Other resolutions passed that day included removing Qian from his positions as director, general manager and legal representative of the Jiangsu Company. Cui and Xu were appointed directors of the Jiangsu Company. Cui was also appointed the non-executive chairman of the Company while Xu was appointed the general manager of the Jiangsu Company.

7 The EOGM further resolved that Qian and other former board members of the Jiangsu Company should complete all the handover procedures to the new board members by 23 January 2007.

8 According to the affidavit of evidence-in-chief (“the AEIC”) of Cui, the Company had on 19 January 2007 notified Qian in a fax (“the fax notification”) of the resolutions passed at the EOGM and instructed him to comply with the handover procedures on 23 January 2007 at 9.00am in the presence of Cui, Xu and other board members at the premises of the Jiangsu Company. Pending the handover, Qian was instructed to continue managing the production at Jiangsu Company but not to make any management decisions.

9 Qian had left for Jiangsu Province, China, on the morning of 19 January 2007. It was Qian’s testimony that he received the fax notification on Sunday 20 January 2007 at the premises of the Jiangsu Company and he was shocked by the contents as, before seeing the fax notification, no one had told him that he would be replaced as director, chairman of the board, legal representative and general manager of the Jiangsu Company.

10 According to Cui, on 23 January 2007, he, Zhang and Xu (collectively referred to as the “trio”) arrived at the premises/factory of the Jiangsu Company to effect the management handover in [8]. However, the trio was refused entry into the premises by the security guards, purportedly on the instructions of Qian. Despite enlisting the assistance of a senior employee of the Jiangsu Company, the trio was unable to persuade the security guards to allow them entry into the premises. The trio attempted to contact the defendants on their hand phones without avail. They finally managed to enter the premises after government authorities intervened.

11 Upon entering the premises, the trio discovered that the place was deserted and the factory closed; the only person on the premises was the vice/deputy general manager who had apparently volunteered to stay back to look after the factory.

12 The trio ascertained subsequently that Qian had issued a notice on 21 January 2007 (“the leave notice”) ordering all staff/workers to go on leave as the factory would be closed between 22 January and 4 February 2007. The leave notice was issued without the prior approval of the board of directors of the Company or of the Jiangsu Company. The trio alleged that Qian in any case had no authority to issue the leave notice as he was no longer the general manager of the Jiangsu Company. Further, Chinese New Year in 2007 fell on 18 February and the traditional practice in China (including that of the Jiangsu Company) was to close the factory for about 9 days for the production staff and 11 days for the other staff, during the festive period. Consequently, there was no valid reason to close the factory for two weeks until 5 February 2007, reopen and then close it again for 9 to 11 days for the Chinese New Year break. In addition, the period prior to Chinese New Year was traditionally the busiest period for the Jiangsu Company with production at full capacity.

13 As the trio was unable to contact either defendant, they took steps to recall the employees to return to work over the next few days. The factory was able to resume production on 26 January 2007. A meeting was held at the factory in the afternoon of 23 January 2007 at which Xu’s appointment as the new general manager was announced. Wang Xin Bin (“Wang”) was also appointed as Assistant to Xu that day. Cui said he discovered that between December 2006 and January 2007, 133 employees had resigned from the Jiangsu Company. However, Qian did not inform the Company of these resignations.

14 Eventually, the trio managed to contact Qian through government officials. Despite being requested to do so, Cui claimed that Qian refused and did not return, to the factory to effect the handover. In fact, Qian never returned to the Jiangsu Company’s office. Neither did Jiang, in spite of a written request by Wang dated 7 February 2007. The Company terminated Qian’s employment by a notice put up at the Jiangsu Company and by a letter to him dated 15 February 2007 (“the termination letter”) which full text is as follows:

Dear Mr Qian, As the Company had entered into a service agreement with you on 9 February 2006, the Company hereby terminates such service agreement according to the Clause 2.2 therein with payment of service remuneration for half an years (sic) as a substitution of 6 months’ notice. Please claim the amount in the Company from 24 March 2007 to 30 March 2007, and the service agreement between you and the Company is terminated today (15 February 2007). We wish you a better development in the future. Yours sincerely, Cui Gen Xiang On behalf of the Board of Directors

15 Cui alleged that the defendants had destroyed records of the Jiangsu Company by removing all information from the hard disks in their computers as well as those of other computers in the office. Even Qian’s correspondence address had been deleted from the data in the hard disk.

16 Cui deposed that as Qian and Jiang were the only executive directors and therefore the highest ranking officials of the Company, they were privy to highly confidential information regarding the operations of the Company and the Jiangsu Company and in particular the latter’s pricing strategy. Using such confidential information, Cui alleged that Qian and Jiang set up a direct competitor to the Company’s business (of producing RF cables) by a company called Trigiant Group Pte Ltd (“Trigiant”) which was incorporated on 15 February 2007. Trigiant had a subsidiary called Jiangsu Trigiant Technology Co Ltd (‘Trigiant Technology”) which was incorporated on 15 March 2007.

17 The Company subsequently discovered that many of the employees who had resigned from the Jiangsu Company (including Xia Jie and Sun Huxing and two supervisors) had joined Trigiant Technology. It further came to the Company’s knowledge that Qian was appointed the chairman/general manager of Trigiant on or about 10 November 2007. Jiang became one of Trigiant’s directors in November 2007 followed a month later by Qian. Cui alleged that Xia Jie and Sun Huxing (who were appointed directors of Trigiant Technology) were mere nominees of Qian and Jiang. He further alleged that Qian and Jiang had diverted business from four of the Company’s long standing and important customers (viz China Mobile, China Unicom, China Telecom and China Netcom) to Trigiant Technology.

18 Wang’s written testimony corroborated Cui’s account of events that transpired at the factory on 23 January 2007 at [11] and [12] above. Wang confirmed Jiang was nowhere to be found when the trio entered the...