Hung Fat Cleaning Transportation Co Ltd and Another v. Telford Environmental Development Ltd and Others
Read the full judgment text of HCA 2387/2019 on BabelCite. This High Court CFI judgment was delivered on 25 July 2025.
1. There are three actions before me (HCA2387/2019, HCA973/2020 and HCA820/2021). Involved in all three actions (with various causes of action) are on one side Hung Fat Cleaning Transportation Co Ltd (“ HF ”) and its indirect parent ISS Facility Services Ltd (“ ISS ”), and on the other side, Lau Wai Hung (“ LWH ”). I shall refer to the other parties to the actions later.
Cited by 1 case · Cites 1 case
|
HCA 2387/2019 and HCA 820/2021 (Consolidated) HCA 973/2020 (Heard together) [2025] HKCFI 3161 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2387 OF 2019 ___________
(By Original Action) AND IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 820 OF 2021
(By Counterclaim) (Consolidated pursuant to the Order of Master Phoebe Man dated 28 July 2021) AND HCA 973/2020 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 973 OF 2020
________________________ (Heard Together)
____________________ JUDGMENT ____________________ Introduction 1.There are three actions before me (HCA2387/2019, HCA973/2020 and HCA820/2021). Involved in all three actions (with various causes of action) are on one side Hung Fat Cleaning Transportation Co Ltd (“HF”) and its indirect parent ISS Facility Services Ltd (“ISS”), and on the other side, Lau Wai Hung (“LWH”). I shall refer to the other parties to the actions later. 2.HF was in the business of providing waste management services. In 2008 it was acquired by ISS, a Hong Kong company providing integrated facilities management services through various companies in its group (“the ISS Group”). ISS was itself part of a global group with regional offices. 3.LWH was appointed a director of HF in February 2010. At the material times, the other directors of HF were the CEO/director of ISS, the CFO/director of ISS, the Finance Director/director of ISS, and Elvis Chan Hang Yuen. 4.LWH and Elvis Chan were directors of HF but not of ISS. Elvis Chan was director of a division within the ISS Group called Specialty Property Service (later renamed Environmental Services). LWH was associate director of this division. 5.It is common ground that the board of HF did not actively participate in running its business. LWH ran its day to day operations. He reported to Elvis Chan who in turn reported to the CEO/director of ISS. 6.1. Upon ISS’ acquisition of HF, LWH became an employee of ISS under an Employment Agreement. 6.2. He signed an Addendum to the Employment Agreement which stated (among other things) that ISS may at any time issue and amend policies which shall be deemed an integral part of the agreement, and the employee agreed to comply with those policies and to take all possible actions to ensure that ISS and its affiliates comply with them. One such policy was “Hong Kong Procurement Procedures” issued in 2017. Procurement Procedures 7.“Hong Kong Procurement Procedures” was a detailed 29-page document with a number of appendices and attachments, but the following summary suffices. 8.1. A company within the ISS Group wishing to acquire goods or services was called the “requisitioning department” in the Procurement Procedures, with the Procurement Department (“Proc Dept”) being independent from the requisitioning department. 8.2. The responsibilities of the requisitioning department included [§4 of the Procurement Procedures]:
8.3. The responsibilities of the Proc Dept included [§4]:
9.The Basic Procurement Procedures stated (among other things):
10.1. For procurement of goods
10.2. For procurement of services,
11.Pausing here, it is clear that the rationale behind the Procurement Procedures was to provide the Proc Dept with independent competitive quotations with the assistance of the requisitioning department for the procurement of goods and services in the best interests of the requisitioning department. 12.1. An email containing the Procurement Procedures was sent to a number of persons including Elvis Chan, but not LWH. However, LWH accepted at trial that he was aware that the Procurement Procedures were part of ISS’ policies: see also his counsel’s closing submissions §§17-18. 12.2. Importantly, LWH accepted at trial that for the procurement of goods and services over $3 million,
However, he said it was the Proc Dept’s duty, not his (or HF’s) duty, to check if the suppliers or subcontractors were independent. Indeed he said that even if he knew the suppliers or subcontractors were not independent, he would still forward their quotations to the Proc Dept, and it was for the Proc Dept to vet them. 13.As a result of concerns over procurement of goods and services for two HF business ventures handled by LWH in 2017 and 2018, ISS terminated his employment on 4 December 2019, on which date he resigned as a director of HF. The ventures in a nutshell 14.Both business ventures concerned the recycling of plastic waste. The 2017 venture involved the recycling of plastic wrap by Kwong Hing Renewable Resources Ltd (“Kwong Hing”), and the 2018 venture, the recycling of plastic bottles by Telford Environmental Development Ltd (“TED”). I shall refer to these companies as “recyclers”. 15.In both ventures, HF was to provide (a) machinery and (b) subcontractors for the recycling operations, in exchange for payment of fees from the recyclers. HF therefore had to purchase the machinery from suppliers and appoint subcontractors for the ventures. 16.It may be helpful to introduce the relevant suppliers and subcontractors now as some are parties to the legal proceedings. The Kwong Hing venture 17.In the 2017 venture (“the Kwong Hing venture”),
I shall refer to them collectively as “the Kwong Hing subcontractors”. No quotations from, or written agreements with, or PO’s for, any of these sub-contractors were produced at trial. 18.1. In HCA973/2020, HF and ISS sued Kwong Hing as the 1st defendant, Golden Hope as the 2nd defendant and LWH as the 3rd defendant. 18.2. Pursuant to earlier orders of the court, Kwong Hing has been debarred from adducing evidence and participating at this trial. Its counterclaim should therefore be dismissed. Golden Hope did not file any acknowledgment of service. Accordingly, LWH is the only active defendant in HCA973/2020. The TED venture 19.In the 2018 venture (“the TED venture”),
I shall refer to them collectively as “the TED subcontractors”. No quotations from, or written agreements with, or PO’s for, any of these sub-contractors were produced at trial. 20.In HCA2387/2019,
21.It should be noted that none of the subcontractors have been sued. However, HF and ISS have referred to their connections with some of the parties to the proceedings (see Schedules to the Re-Amended Statement of Claim in HCA2387/2019 and Schedules to the Amended Statement of Claim in HCA973/2020). Evidence 22.HF and ISS called as witnesses:
23.LWH gave evidence himself and called Elvis Chan as witness. 24.TED and World Class called as witnesses:
25.However, I note the absence of the following oral and/or documentary evidence.
Facts 26.The following facts are undisputed, or where they have been disputed, have been found for the reasons set out below. In assessing the evidence, I have borne in mind not only the absence of the evidence referred to in §25 above, but also:
Facts re the Kwong Hing venture 27.1. As mentioned above, HF was in the business of providing waste management services. For many years, HF had sold plastic waste collected from the buildings it serviced to Kwong Hing which then on-sold it to its contacts on the mainland. HF received a stable income from this mode of co-operation. 27.2. In 2017 however, there was a change in PRC government policy, as a result of which only recycled plastic waste could be imported into the mainland. 27.3. This led to discussions between Tsang Kwong Sum (“TKS”) of Kwong Hing and LWH for a new mode of co-operation as follows:
Machinery 28.1. I accept LWH’s evidence that it was reasonable for him to consult TKS about the machinery that would be needed for recycling. This was a new line of business for HF. TKS was a long-standing business associate, and would be in the best position to know what machinery was required to produce recycled waste satisfactory to Kwong Hing’s mainland contacts. 28.2. TKS told LWH that 2 sets of recycling machinery would be needed, which would cost a total of about $8 million, which information LWH passed to Elvis Chan, who also had a meeting with TKS. 29.On a date before 15 November 2017, Elvis Chan discussed the proposed Kwong Hing venture at a meeting with the CEO, the CFO and the Chief Commercial Director of ISS, who were receptive to the idea. 30.1. On 15 November 2017, Elvis Chan emailed the above three persons and Barry Chan. The email was cc’ed to LWH. 30.2. The email sought approval for “a 60-month new sales in provision of recycling management services of Plastic Wrap Paper to one of the existing key customer in Hung Fat”. 30.3. Elvis Chan wrote in the email that “the related CAPEX [capital expenditures] is 8M in relation to the setup & installation of the equipment for recycling. The buyback condition of the new equipment is added after the expiry of the contract and the total contract sum 52.74M at 879K per month at 9%+CC margin without significant DCM cost incurred”. 30.4. A Costing Sheet (which has also been referred to as a “business proposal” or “costs budget”) was attached. The following are notable:
30.5. For the 60-month contract period of 1 January 2018 to 31 December 2022, the estimated total cost to HF was $47,932,391.93, and the proposed service price (i.e. fee payable to HF, with a guaranteed income for 300 tons per month,) was $52,740,000, which would produce a profit to HF of $4,807,608.07. 31.1. I accept Elvis Chan’s evidence that:
31.2. The Customer Contract Approval Form said under:
I understand that to mean that HF and Kwong Hing may agree to change the arrangement regarding the workforce for the recycling work and/or the subcontracting services. 32.1. It is not disputed that the CEO/director of ISS replied to Elvis Chan in an email dated 16 November 2017 that “the proposed bid looked fine”. The “bid” meant Elvis Chan’s business proposal as contained in his email of 15 November 2017. 32.2. At that level, the board’s focus was on profitability. Its approval cannot be interpreted as acceptance by ISS and/or HF’s board(s) that HF could proceed with the venture without compliance with the Procurement Procedures as long as the figures in the Costing Sheet were met. ISS had established Procurement Procedures and it would have been understood, in the absence of any statement to the contrary, that the procedures would apply. I accept the evidence of Barry Chan that he would not have executed the agreement subsequently if he had known that there had been irregularities in procurement. It would follow that even if he had executed the agreement, he would not have allowed the agreement to be exchanged if he had known then of irregularities in procurement. 33.I accept Elvis Chan’s evidence that thereafter, he left it to LWH to handle the Kwong Hing venture. LWH was in charge of day to day operations at HF, and both Elvis Chan and LWH were aware that the Proc Dept would take part in the procurement of the machinery and subcontractor services for this new venture. 34.1. LWH said (and I accept) that TKS then introduced him to CCM as a person who was an agent or broker for factories supplying recycling machinery (it was not suggested by any party at trial that CCM was HF’s agent). 34.2. Although in LWH’s witness statement (§22), he referred to CCM as “an existing working partner with the Plaintiffs”, he explained in cross-examination (and I accept) that was meant in the context of the TED venture, not the Kwong Hing venture. There was no evidence to indicate that before the Kwong Hing venture, HF had any business with CCM or any companies controlled by him. 34.3. LWH said CCM gave him the specifications for the required machinery (which included various accessories manufactured in different countries) on behalf of Kwong Hing. I accept that LWH was entitled to trust that the machinery so specified would be suitable for the venture, because Kwong Hing was the user, and under the Kwong Hing agreement, it was required to buy back the machinery upon the expiry or termination of the agreement at not less than $1.34 million. It was likely therefore that Kwong Hing would endeavour to find suitable machinery. 35.I note that there was no evidence that there was a sole supplier in Hong Kong for the required machinery. In other words, different companies might offer to supply the machinery at different prices. 36.LWH said, and I accept, that the Proc Dept asked him to help obtain quotations for the machinery required. It was a new line of business for which ISS had no existing suppliers, and under the Procurement Procedures, it was part of the requisitioning department’s duties to assist in sourcing suppliers. For example, under §8.4.4, “Proc Dept and relevant department shall provide reasons if only one or two suppliers could be sourced” (emphasis added). IHC’s quotation for machinery for Kwong Hing venture 37.1. LWH said that on 1 December 2017, he received from CCM a hard copy of a quotation dated 1 December 2017 from a company called IHC International Ltd for 4 items of machinery (with no model numbers and no reference to accessories) for a lump sum of $8.4 million for 2 sets. 37.2. There was no evidence that LWH was aware at the time that CCM was acting otherwise than as an agent or broker for IHC. 37.3. LWH said in oral evidence that he gave the IHC quotation to the Proc Dept, which asked him for more quotations. I accept this evidence, which was consistent with the Procurement Procedures. I note that it was not LWH’s case (confirmed by his counsel at closing submissions in answer to a question from the court) that the Proc Dept had ever given him the impression that more quotations were sought just to “make up the numbers”, nor was it his case that the Proc Dept had given him the impression that it would not matter if the companies providing quotations were connected and not independent. Golden Hope’s oral quotation for machinery for Kwong Hing venture 38.1. LWH’s evidence in court was that a few days later, in the morning of 6 December 2017, CCM orally told him that Golden Hope would provide a quotation (which LWH said was “in general terms”) of $8 million. 38.2. Pausing here, it is significant that LWH said in cross-examination that it was then on 6 December 2017 that CCM orally told him that Golden Hope was his company (“first version”). In fact, CCM was the sole shareholder of Golden Hope. 38.3. LWH later changed his evidence, saying that CCM had not told him that Golden Hope was his company on 6 December 2017 “yet” (“the second version”). However, LWH did not say when CCM told him that, or what led to CCM doing so. Nor was there any documentary or other evidence supporting the second version. 38.4. I find the first version to be true. It was reasonable for CCM to introduce Golden Hope as his company on the first occasion when he offered its quotation, and LWH did not say why CCM would leave it until later (and if so, when) to do so. 39.In other words, on 6 December 2017, Golden Hope had emerged as a potential supplier of machinery, and LWH was aware that it was CCM’s company. 40.1. LWH first said at trial that when he received the oral quotation from CCM on 6 December 2017, he asked him for a written quotation as soon as possible. I would call this the “oral quotation version”. 40.2. Later LWH said that on 6 December 2017 he first received from CCM a hard copy of an initial draft quotation from Golden Hope (with detailed descriptions missing). He asked CCM to provide a finalised quotation and threw away the initial draft without sending it to the Proc Dept. I would call this the “initial draft version”. 40.3. Be that as it may, whether on the oral quotation version or the initial draft version, no final written quotation was received from Golden Hope on 6 December 2017. PO for machinery for Kwong Hing venture 41.1. However, the PO for the machinery bore the date “06 December 2017". There is no suggestion by any party (and there is no evidence) that the PO was created on any date other than 6 December 2017. 41.2. The PO was addressed to Golden Hope (“Golden Hope PO”). The spaces for the following were not filled in:
41.3. The description was simply “Purchase 2 sets plastic pellet making machine” at the amount of $8 million. 42.The version of the Golden Hope PO produced by HF was signed by Henry Chu, LWH and Elvis Chan. LWH and Elvis Chan were unable to recall when they signed it, save to say that it would have been after its date i.e. after 6 December 2017. 43.1. Importantly, there was no evidence that it was sent (through any means of communication) to Golden Hope on 6 December 2017. Indeed there was no evidence of the date when it was actually sent to Golden Hope. Significantly, it was Elvis Chan’s evidence (which I accept) that a PO would only be sent to a supplier after the execution of the agreement for which the goods were required, as the agreement might be aborted altogether, or specifications for goods required for that agreement might be altered. He said it was not a concern that the goods might not be available, as the agreement could be amended. 43.2. Significantly, although there is no actual evidence of the date when the undated Kwong Hing agreement was executed, an email from Elvis Chan to the ISS board on 21 December 2017 said “I am pleased to inform that the said agreement shall be signed very soon”. 43.3. In other words, although the PO was created on 6 December 2017, it would only have been sent to Golden Hope on or after 21 December 2017. It is not known why the PO was created as early as 6 December 2017. No one from the Proc Dept provided an explanation, and the court must refrain from speculation. But the fact that the PO was created on 6 December 2017 did not show that the Proc Dept was already satisfied with the selection of Golden Hope as supplier, because LWH would then not have needed to obtain any more quotations for the Proc Dept. As mentioned earlier, it was not LWH’s case that the Proc Dept gave him the impression that more quotations were sought just to “make up the numbers”, nor was it his case that the Proc Dept had given him the impression that it would not matter if the companies providing quotations were connected. 43.4. Obviously, on 6 December 2017, the requirement of 3 quotations as per the Procurement Procedures had not been satisfied. Under those Procedures, where fewer than 3 suppliers are sourced, goods may be procured only if reasons are given (§8.4.4). There is no evidence that this procedure had been adopted by the Proc Dept. Golden Hope’s written quotation for machinery for Kwong Hing venture 44.LWH said that on 7 December 2017, he received from CCM a hard copy of a quotation from Golden Hope. It was dated “2017-12-07", the day after the date appearing on the PO. It contained the model number for the machine as well as detailed specifications of accessories (with various places of manufacture) and was in the total sum of $8 million. LWH said he gave this hard copy to the Proc Dept. Lindy’s quotation for machinery for Kwong Hing venture 45.LWH’s evidence was that he also received from CCM a hard copy of a quotation from a company called Lindy China (HK) Ltd (“Lindy”) dated 12 December 2017. The hard copy was placed on his desk, but he had no impression of the date when he saw it. This quotation contained virtually the same specifications (including accessories with various places of manufacture) as the Golden Hope quotation, but was in the sum of $8.3 million. LWH said he also gave this hard copy to the Proc Dept. This act shows that the date appearing on the PO did not indicate that the Proc Dept had already decided by then (6 December 2017) to purchase the machinery from Golden Hope. 46.Pausing here, it would appear on the face of the quotations from:
that Golden Hope offered HF the lowest price. Accordingly, it would have been in HF’s best interests to purchase the machinery from Golden Hope, as indeed it did. Operations under the Kwong Hing venture 47.HF paid Golden Hope $8 million on 22 January 2018 and the machinery was delivered on 20 February 2018. LWH signed on behalf of HF to accept delivery. Wilson Lau admitted at trial that HF had no experts or professionals to check the quality of machinery upon delivery. In any event, there was no evidence of complaints from Kwong Hing which used the machinery to carry out operations from March 2018 to December 2018. E-mail from CCM (21 December 2017) 48.However, in the course of an internal audit or review of HF, an email of 21 December 2017 from CCM to LWH (“the 21/12/2017 email”) was found. The subject of the email was “Quotation” and the email read:
The quotations attached to the email were identical to those from IHC, Golden Hope and Lindy referred to above (save that the version of the Golden Hope quotation attached to CCM’s email was unsigned on behalf of the buyer). 49.HF and ISS submitted that the 21/12/2017 email proves that the quotations for the Kwong Hing machinery “were not genuine quotations provided by independent suppliers, but were manufactured with the participation of various parties so as to ensure that [Golden Hope’s] ... quotation would be selected as apparently the lowest of the 3 quotations submitted”. 50.Regarding the 21/12/2017 email, CCM did not give evidence. LWH’s explanation was that the Proc Dept had asked him for the 3 quotations once again, and as he had sent the only hard copies to it, he asked CCM to send the quotations again. CCM said he would send them by email. LWH said he did not know what CCM meant by asking him for “correction”. He did not forward the email to the Proc Dept, but printed out the quotations and sent them by courier. He did not explain why he did not simply forward the email. 51.1. In assessing the submissions on the 21/12/2017 email, the following matters are relevant. First, the fact that the Golden Hope PO was created (albeit not sent) on 6 December 2017 shows that the Proc Dept must have by that date received a quotation from that company at $8 million. In this connection, I have referred earlier to LWH’s “oral quotation version” and the “initial draft version”. I do not think it is critical to determine which version was true. The point remains that a quotation from Golden Hope at $8 million must have been received by the Proc Dept by 6 December 2017. 51.2. It was argued by counsel for HF and ISS that if the Proc Dept already had the hard copies as LWH alleged, there was no reason why it would ask for the quotations again. In my view, that is not an argument of much weight. Instead of having to retrieve individual hard copies sent on various dates, it was credible that the Proc Dept asked LWH for all of them in one go. 51.3. Counsel for HF and ISS also questioned why, on receiving the Proc Dept’s request as alleged, LWH did not ask it to contact CCM or each individual supplier directly. LWH said in answer that the Proc Dept and CCM were not known to each other, and it would have been more convenient for all the quotations to be provided by him to the Proc Dept in one lot, rather than from each individual supplier. I find the answer reasonable. 52.I find the important point is that as at 21 December 2017, the Kwong Hing agreement had not yet been signed (as shown by Elvis Chan’s email of the same date), and so the PO (albeit dated 6 December 2017) would not have been sent to Golden Hope yet. In other words, as at 21 December 2017, HF’s choice of supplier for the machinery was still open. 53.It was argued by counsel for HF and ISS that “even if LWH did not know that CCM was otherwise connected with Kwong Hing, Golden Hope, Lindy and IHC ... LWH at least already knew that CCM was a person connected with and acting on behalf of Golden Hope by the time he asked CCM for the other quotations. It goes without saying that when CCM had submitted a quotation on behalf of Golden Hope, all of the other quotations provided by CCM could not have been independent quotations”. 54.1. In this regard, I note that there was no evidence to contradict LWH’s evidence that TKS introduced CCM to him as an agent or broker of recycling machinery. An agent or broker can act for various principals which may offer different deals. The quotations from each principal could still be independent. 54.2. However, I have found above on LWH’s own evidence in cross-examination that on 6 December 2017, CCM had told him that Golden Hope was his company. Yet CCM proceeded to provide LWH with the Lindy quotation of 12 December 2017. 54.3. I have put the IHC quotation to one side, as it was unspecific and was provided to LWH before Golden Hope decided to put in its own quotation. However, the Lindy quotation was dated after the Golden Hope quotation, contained the same specifications and was sent to LWH by CCM (who by then had an interest in securing the business for his own company Golden Hope). 54.4. As such, even if LWH had no knowledge of CCM’s connections with IHC and Lindy, he (LWH) should have been alive to CCM’s conflict of interests once the Golden Hope quotation was submitted. That should have raised concern whether the Lindy quotation was a genuinely competitive one. LWH should have proceeded to look for a 3rd quotation through other channels. 54.5. However, LWH proceeded to send the Lindy quotation to the Proc Dept without passing on the information that CCM had a personal interest in Golden Hope and that it was CCM who subsequently sent the Lindy quotation. 55.As mentioned earlier, if there were fewer than 3 quotations, the procedure in §8.4.4 and §8.5.3 of the Procurement Procedures (ensuring further examination where there were insufficient competitive quotations) would then be applicable. That procedure was, however, not applied by the Proc Dept because LWH failed to inform it of CCM’s personal interest in Golden Hope’s quotation. As such, as far as the Proc Dept was concerned, Lindy’s quotation became the required 3rd quotation. 56.It is not sufficient for LWH to say that he expected the Proc Dept would do its own due diligence. Whilst the Proc Dept was indeed required to perform due diligence, its duties and those of the requisitioning department were not separated in watertight compartments. Under the Procurement Procedures, one of the responsibilities of the requisitioning department was to analyze quotations and prepare price comparison. Hence I do not accept the submission on behalf of LWH that “even if WH Lau was found carefree or loose in rendering assistance in obtaining quotations for the Procurement Department and did not pay full attentions to the potential associations from the quotations received, this is not a basis to attribute him any liability” (§48). 57.Accordingly, I find that LWH was in breach of his duties as director of HF and as an employee of ISS. Subcontractors for the Kwong Hing venture 58.Turning now to the subcontractors for the Kwong Hing venture, there were the following unsuccessful quotations:
59.No quotations from the Kwong Hing subcontractors were produced at trial. Nor any agreements or PO’s. However, from March 2018 onwards, they started to issue monthly invoices (which HF paid, having been signed off by LWH and Elvis Chan) for the above services at respectively $72,000, $420,000 and $196,000. 60.On the face of it, the invoices are all for sums which are lower than the unsuccessful quotations from Wing Tak and Pro-Champ, so it would have been in the best interests of HF to appoint the Kwong Hing subcontractors. 61.Although at trial, Miss Lee’s evidence as to the type of business done by Wing Tak and Pro-Champ (her family’s companies) was ambiguous, that is not sufficiently satisfactory evidence that the quotations from Wing Tak and Pro-Champ were not genuine competitive quotations. HF and ISS failed to produce documents (quotations from the Kwong Hing subcontractors, or agreements with, or PO’s addressed to them) which should have been processed and retained in the Proc Dept’s records. No one from the Proc Dept has said the processing or retention of records was not done, and if not, why not. I note the Kwong Hing subcontractors’ invoices were signed off by Elvis Chan (as well as LWH) for payment. No imputations have been made against Elvis Chan. With the evidence in such a deficient state, I am not prepared to find that HF and ISS have proved their case in respect of the appointment of the Kwong Hing subcontractors. 62.As a matter of completeness, it was also the case of HF and ISS that even if there was no fault in respect of the appointment of the Kwong Hing subcontractors, there was no evidence that services were actually provided by them. I do not find that case has been proved either. HF and ISS said there were insufficient documents showing the services were performed. However, the burden is on them to prove their allegation that the services were not performed. Contrary to that allegation, the operations for the Kwong Hing venture ran from March to December 2018. If those subcontractors had not provided services, operations would have been affected, and one would have expected Kwong Hing to refuse to pay HF the monthly fees. 63.The operations under the Kwong Hing venture carried on until January 2019 when they were halted after the 21/12/2017 email was found in an internal review. Pausing here, I note that whilst the 21/12/2017 email obviously raised concerns regarding the PO awarded to Golden Hope, there is no satisfactory evidence to show that Kwong Hing was complicit in CCM’s sending of the Lindy quotation after the Golden Hope quotation. The TED venture 64.Telford Envirotech Group Ltd was a group of companies founded by Mr Lee. Miss Lee was in charge of administration. Mrs Lee was the sole shareholder and the sole director of TED the recycler in the TED venture and World Class the supplier of the machinery in that venture. It would appear from Mrs Lee’s evidence at trial however that she left business negotiations to Mr Lee and administrative matters to Miss Lee. 65.The group had space in Kam Tin, New Territories which could be used for recycling operations. 66.It is not clear from the evidence whether the Telford group approached HF first for co-operation, or the other way round, but it does not matter. Suffice it to say there was mutual interest in co-operation. 67.On 3 April 2018, World Class, a company in the Telford group, entered into an agreement with a company in Foshan for the purchase and installation of machinery for a production line in Kam Tin at a total price of RMB8.5 million. Clause A(3) of the agreement set out the standard required, and stated that parts of the machinery may be substituted by improved parts of the same style, as long as it satisfied the requirement of turning over 1,000 tons per month. 68.LWH said (and I accept) that unlike Kwong Hing, HF had not co-operated with TED before, but Mr Lee had a good reputation in the environment industry. 69.Irrespective of who initiated the idea of TED recycling plastic waste collected by HF (primarily plastic bottles), LWH informed Elvis Chan who was receptive to the idea by adopting the same modus operandi as that for Kwong Hing. In other words, the machinery and subcontractors would be provided by HF, and TED as recycler would pay a monthly fee to HF. 70.At this stage it is important to note that:
71.Pausing here, it would be noted that the “en bloc bundled” mode of co-operation (in which HF would be obliged to purchase the machinery from one source only) would not be compliant with ISS’ Procurement Procedures in which 3 quotations were required, from which usually the lowest would be chosen. When LWH was asked at trial if he told Mr Lee of the requirement for 3 quotations, his answers were confused. He first said he did not, which answer he changed to he did. He then said that he did not tell Mr Lee before 15 May 2018, but did not say when he did (if ever). 72.Be that as it may, LWH said when he consulted Mr Lee about the machinery for the recycling venture, he was told it would cost about $12 million. However, he did not tell Elvis Chan that Mr Lee had in mind the “en bloc bundled” mode of co-operation. 73.1. On 15 May 2018, Elvis Chan sent an email to the ISS board with a Costing Sheet and Contract Approval Form attached. 73.2. The email explained the proposed operations and stated that it was a “lease-and-buy agreement”. The Costing Sheet showed “CAPEX (Purchase Necessary Equipment)” at a total of $12 million. For the proposed 5 year contract, the estimated total cost was $70,199,079.89 and the proposed service price (fees payable by TED, at $1,300 per tonne, with a minium of $1.3 million a month) was $78 million, resulting in a profit for HF of $7,800,920.11. 74.1. The next day (16 May 2018), the CEO sent an email approving the proposal. LWH said the Proc Dept told him to get quotations and he then told Henry Chu to do so. 74.2. Pausing there, it would have been clear to LWH that following the modus operandi of the Kwong Hing venture meant that the machinery would have to be procured following the Procurement Procedures, rather than from the recycler in the “en bloc bundled” mode of cooperation. 75.It is the evidence of both LWH and Mr Lee that they then left it to Henry Chu and Miss Lee respectively to follow-up. This included World Class being added onto the list of approved suppliers and following-up the terms of the TED agreement. In this respect, I note that the TED agreement did not incorporate an “en bloc bundled” condition. Such a condition would of course have raised a red flag within ISS particularly the Proc Dept as it would not be compliant with standard Procurement Procedures. 76.On 17 May 2018, Henry Chu whatsapped Miss Lee asking for “details of equipment specifications and costs breakdown for process”, as HF needed them to apply for CAPEX from the regional office. On the same day, Miss Lee replied with a list of 6 items of machinery (without brand or model numbers), with a round figure as the cost of each item, referring to the above as a “quotation”. It is noted that when Henry Chu followed up asking her if there was an English version, she replied “No English version”. This is inconsistent with her evidence at trial discussed later in §93 of this Judgment. World Class quotation for machinery for TED venture 77.LWH said that subsequently, on the morning of 12 June 2018, he found on his desk a hard copy of a quotation in English from World Class signed by Ms Zarina Ho (i.e. Mrs Lee) and addressed to TED “Contact person: Joanne Lee”. The quotation contained a reference number and was dated 12 June 2018. It set out the 6 items referred to above (but including brands and model numbers and further details) with the cost of each item being identical to that in Miss Lee’s whatsapp message. LWH said he gave the hard copy of this quotation to the Proc Dept. 78.Afterwards, the Proc Dept asked LWH to obtain more quotations and he told Henry Chu to do so, without telling Henry Chu who to get them from. Henry Chu did not send him any further quotations until 28 June 2018 as discussed below. 79.Pausing here, Miss Lee’s evidence was that she did not send the World Class quotation to HF on 12 June 2018 and did not do so until 27 or 28 June 2018. I shall discuss this later. PO for machinery of TED venture 80.1. The PO for the machinery for the TED venture bore the date “12 June 2018". There is no suggestion by any party (and there is no evidence) that the PO was created on any date other than 12 June 2018. 80.2. The PO was addressed to World Class (“the World Class PO”). The quotation reference and quotation date were as set out in the World Class quotation above. 80.3. The PO was for 6 items (with brands and model numbers but without the further details in the World Class quotation), listed in the same sequence and with the cost of each item as per the World Class quotation above (totaling $12 million). 80.4. The World Class PO was signed by Henry Chu, LWH, Elvis Chan and Gloria Chiu, Head of Supply Chain and Procurement. The evidence of LWH and Elvis Chan was that they signed it after its date (12 June 2018), although they did not recall when. As discussed above, if the date of creation of the PO showed that the Proc Dept was already satisfied with the selection of World Class as supplier, LWH would not have asked Henry Chu to obtain more quotations as requested by the Proc Dept. As mentioned earlier, it was not LWH’s case that the Proc Dept gave him the impression that more quotations were sought just to “make up the numbers”, nor was it his case that the Proc Dept had given him the impression that it would not matter if the companies providing quotations were connected. The submission on behalf of TED and World Class that “it is very unlikely that the selection of WC as supplier really took place through the proper process of choosing amongst the 3 TED Machines quotations” (§41) is not supported by evidence. As mentioned earlier, the Procurement Procedures did provide in §8.4.4 and §8.5.3 for a procedure if there were fewer than 3 quotations, but there is no evidence that it was considered. 81.Coming back to the PO, there was no evidence of the date when it was sent to World Class (indeed, Miss Lee’s evidence was that she did not recall receiving it). As discussed earlier in relation to the Kwong Hing venture, Elvis Chan’s evidence (which I accept) was that a PO would only be sent to a supplier after the execution of the agreement for which the goods were required. The TED agreement did not bear a date, but the evidence of Miss Lee was that it was signed on 28 June 2018 when she accompanied her father to HF’s office around 3 pm. Mr Lee also said he signed it on 28 June 2018. LWH said in his witness statement that the TED agreement was signed “by William Fung and Barry Chan and Mr Lee in around late April 2018 or early May 2018". At trial however, he accepted that he did not know in fact when it was signed. 82.As Elvis Chan’s evidence was that a PO would not be sent to the supplier until after the agreement was signed, it follows that the World Class PO would not have been sent until after 28 June 2018. In other words, as at 28 June 2018, HF’s choice of supplier for the machinery was still open, and the supplier should have been chosen after compliance with the Procurement Procedures. Lindy quotation for machinery for TED venture 83.There is in evidence a quotation from Lindy for machinery for the TED venture bearing the date 27 June 2018. The items (brands and model numbers) were the same as in the World Class quotation, but they were listed in a different sequence and contained a brief description of the functions of each item. The total cost was $12,082,000. IHC quotation for machinery for TED venture 84.1. There is also in evidence a quotation in Chinese from IHC for machinery for the TED venture bearing the date 28 June 2018. This quotation bore a buyer’s Request For Quotation reference number, but there was no evidence before me as to whether this was HF’s reference number. 84.2. The items (brands and model numbers) were the same as in the World Class quotation, but they were listed in a different sequence. The total cost was $12,260,000. 84.3. It would appear on the face of the quotations from:
that World Class offered HF the lowest price. Accordingly, it would have been in HF’s best interests to purchase the machinery from World Class, as indeed it did. Operations under the TED venture 85.HF paid World Class a total of $12 million on 13 and 23 July 2018 and the machinery was delivered on 25 July 2018. LWH signed on behalf of HF to accept delivery. As mentioned earlier, Wilson Lau admitted at trial that HF had no experts or professionals to check the quality of machinery upon delivery. In any event, TED used the machinery for operations from July 2018 to January 2019. E-mails (28 June 2018) 86.However, in the course of the internal review of HF referred to above, certain emails of 28 June 2018 (“the 28/6/2018 emails”) were found. Email (I) At 9:46 am, Miss Lee sent an email to Henry Chu, with the subject “Machine Quotation” with the message “Pls check the attach file for the machine quotation”. Attached were:
Email (II) At 9:59 am, Henry Chu forwarded email (I) (with all the attachments) to LWH, with the message “FYI”. Email (III) At 11:26 am, LWH sent an email to CCM with the subject 環保設備報價 [environmental facilities quotation], and the message “Dear Mr Cheng, Attached please find the quotation for your reference. Regards, Lau”.
The World Class quotation (whether the signed pdf version or the xlxs unsigned version) was not included in email (III). Email (IV) At 3:36 pm, CCM sent an email to LWH with the same subject, and the message “Dear Mr Lau, Please check and confirm. If OK, will send the originals. Rgds, CM Cheng”. Attached were 2 documents:
87.In relation to these emails, it is necessary to analyze the evidence of Miss Lee and LWH in some detail. Miss Lee’s evidence on email (I) 88.As mentioned above, Miss Lee said at trial that her father had told her that the business concept with HF was for HF to give TED funds to buy the machinery with which TED would undertake the recycling operations. Hence, the World Class quotation she prepared was not addressed to HF, but to TED. 89.Miss Lee said at trial that the World Class quotation (albeit dated 12 June 2018) was not sent to HF on 12 June 2018, but only by email and whatsapp on 27 June 2018. Pausing there, I do not accept this evidence. The World Class PO was created on 12 June 2018 and contained the same details including quotation reference number and item costs as the World Class quotation. The World Class quotation must therefore have been sent to HF on or before 12 June 2018, and not as late as 27 June 2018. 90.1. Miss Lee said that on 27 June 2018 she sent the quotation on behalf of World Class (bearing the date 12 June 2018) to Henry Chu. There is however no evidence that a quotation of World Class (whether a hard copy or by email) was sent to him or anyone at HF on 27 June 2018. 90.2. Miss Lee said Henry Chu then told her something had to be changed, without saying what had to be changed. Therefore she sent him a soft copy on 28 June 2018 by way of email (I), but without changing anything in the quotation. She did not explain why she did not ask Henry Chu what needed to be changed so that she could effect the change in what was, after all, a quotation from her company. 91.Miss Lee’s evidence at trial was that it was only on 28 June 2018 that she became aware that the purchaser of the machinery from World Class was not TED, but HF. However she denied that she had been asked to send more quotations to HF, and she denied that her attachments of Tab 1 and Tab 2 (the quotations for $12,260,000 and $12,082,000) were to help HF satisfy the requirement of more quotations. 92.In her witness statement she sought to explain the attachments of Tab 1 and Tab 2 this way (§6) (emphasis added):
93.She said at trial she had prepared the drafts before 15 May 2018. However, it would be noted that at that time she thought World Class was selling the machinery to TED (in other words, from one Lee family company to another), and it is illogical that:
94.For the above reasons, I do not accept Miss Lee’s evidence that Tab 1 and Tab 2 in email (I) were created in May 2018 or any other time as “draft quotations” for World Class to sell the machinery to TED. The preparation of Tab 1 and Tab 2 in different languages and with a different sequence of items was to create the impression that they came from entities other than World Class. They were not included in email (I) inadvertently or by mistake, but intentionally so that on comparison of prices, the World Class quotation would appear to be the lowest in the process of selection of suppliers. 95.As a matter of completeness, Miss Lee’s evidence was that on 29 June 2018, she sent to HF a World Class quotation with the name of the addressee changed from TED to HF. This was not in the trial documents. LWH’s evidence on emails (II), (III) and (IV) 96.LWH said that he received the World Class quotation on or about 12 June 2018 but as the Proc Dept was chasing for more quotations, he told Henry Chu to find some more. He did not tell Henry Chu specifically to get quotations from companies other than World Class as he believed Henry Chu would 會意 (sense) that. As explained earlier, it is not sufficient for LWH to say that he expected the Proc Dept would do its own due diligence. Whilst the Proc Dept was indeed required to perform due diligence, its duties and those of the requisitioning department were not separated in watertight compartments. Under the Procurement Procedures, one of the responsibilities of the requisitioning department was to analyze quotations and prepare price comparison. 97.1. LWH said that on 28 June 2018, he received email (II) from Henry Chu. He accepted at trial that he could see that it originated from TED. He said that when he saw the quotations which were “not complete”, he asked Henry Chu why there were no company names on them. Henry Chu said that was what was received, so he had forwarded them to LWH. 97.2. LWH said he then remembered that CCM (whom he dealt with a few months ago for the Kwong Hing venture) could get quotations for machinery. He therefore telephoned CCM and told him that he needed some machinery quotations and what machinery were required, and CCM told him that he (CCM) would try to find some quotations. 97.3. LWH said he asked his staff to make the alterations to Tab 1 and Tab 2 in email (III) so that CCM could approach the factories. 97.4. Subsequently, CCM told him he had found companies providing quotations and told LWH the prices in email (IV). LWH then printed out the Lindy and IHC quotations and sent the hard copies to the Proc Dept. 98.First, I note that when LWH saw the “not complete” quotations in Henry Chu’s email (II), he did not even ask his subordinate Henry Chu for the names of the companies which he (Henry Chu) had approached. He apparently accepted Henry Chu’s explanation that those quotations (without names of the companies issuing them) were what he had received. Any reasonable person would have queried the genuineness of a quotation from a company (let alone two) which did not contain even the name of the companies issuing them (let alone any contact details). 99.Secondly, in order to get genuine quotations from CCM, it would only have been necessary for LWH to give the specifications of the machinery. There was no reason whatsoever for him to send Tab 1 and Tab 2 which contained the prices of the items (especially since they were higher than the World Class quotation of $12 million). Indeed that defeats the whole purpose of obtaining quotations, which was for HF to compare prices from 2 other independent companies. 100.Thirdly, if the purpose of sending Tab 1 ($12,260,000) and Tab 2 ($12,082,000) to CCM was to invite a company to send a lower quotation than those prices, then LWH should also have sent the World Class quotation ($12 million) which was the lowest of the three. He did not do so. 101.Fourthly, it is not credible that CCM managed to find (within 4 hours) two companies which were prepared to provide quotations with exactly the same price for each individual item (including various accessories from different manufacturers) as those found in Tab 1 and Tab 2. 102.Fifthly, LWH could not explain why CCM asked him to “check and confirm” the quotations in email (IV). 103.For the above reasons, I do not accept LWH’s evidence for emails (III) and (IV). I find that he sent Tab 1 and Tab 2 to CCM for the latter to create the impression that the Lindy quotation and the IHC quotation came from independent companies, so that on comparison of prices, the World Class quotation would be the best offer. Subcontractors for the TED venture 104.As for the subcontractors for the TED venture, there were the following unsuccessful quotations:
105.No quotations from the TED subcontractors were produced at trial. Nor any agreements or PO’s. However, from August 2018 onwards, they started to issue monthly invoices (which HF paid, having been signed off by LWH and Elvis Chan) for the above services at respectively $157,500, $450,000 and $450,000. 106.On the face of it, the invoices are all for sums which are lower than the unsuccessful quotations from Golden Mark and Kwong Hing, so it would have been in the best interests of HF to appoint the TED subcontractors. It is correct that the subcontractors may have been connected to TED. But I do not think that is enough. HF and ISS failed to produce documents (quotations from the TED subcontractors, or agreements with, or PO’s addressed to them) which should have been processed and retained in the Proc Dept’s records. No one from the Proc Dept has said the processing or retention of records was not done, and if not, why not. I note the TED subcontractors’ invoices were signed off by Elvis Chan (as well as LWH) for payment. No imputations have been made against Elvis Chan. With the evidence in such a deficient state, I am not prepared to find that HF and ISS have proved their case in respect of the appointment of the TED subcontractors. 107.In these circumstances, I am not prepared to find that HF and ISS have proved their case in respect of the TED subcontractors. 108.As a matter of completeness, it was also the case of HF and ISS that even if there was no fault in respect of the appointment of the TED subcontractors, there was no evidence that services were actually provided. I do not find that case has been proved either. HF and ISS said there were insufficient documents showing the services were performed. However, the burden is on them to prove their allegation that the services were not performed. Contrary to that allegation, the operations for the TED venture ran from August to December 2018. If those subcontractors had not provided services, operations would have been affected and one would have expected TED to refuse to pay HF the monthly fees. Price of the machinery 109.It was the case of HF and ISS that LWH and World Class had misrepresented that the machinery was fairly and reasonably priced. I do not find that proved. HF and ISS referred to the price charged to World Class by the Foshan company. Although there was obviously a difference in the cost price (RMB8.5 million) and selling price (HKD12 million), World Class had to pay tax to the mainland authorities and was obliged to pay the Foshan company RMB200,000 annually for maintenance (exclusive of costs for parts). And it was World Class which sourced the machinery, negotiated with the Foshan company for adaptations, and had to supervise transportation from the mainland and installation at the site in the New Territories. There was no satisfactory evidence that there were other companies which could have done all that at that time for substantially less. 110.HF and ISS also called Simon Leung who said he made various enquiries with upstream manufacturers of the TED machinery regarding the price of the TED machinery. However, his evidence was of little weight:
State of the machinery 111.It was also the case of HF and ISS that the machinery supplied by Golden Hope and World Class were worn out and did not comply with that specified on the PO’s. 112.LWH signed acknowledgment of delivery of the machinery, but it is not disputed that HF had no prior experience of recycling operations using machinery, and as mentioned above, Wilson Lau accepted that HF had no experts or professionals to check the quality of machinery upon delivery. 113.1. At trial, HF and ISS relied on the evidence of Roy Li an investigator for ISS who visited the sites in 2019 to inspect the machinery. He said in relation to the machinery in both ventures that some parts of the machinery looked “worn out and rusted” and some had different model numbers than specified. However, Mr Li fairly accepted that some parts of the machinery had been left out in the open for some time before his visits. He also admitted that he had no background in engineering or machinery, and he did not know how to use the machinery. As a lay person, he could not comment on whether the parts of the machinery with different model numbers were better or worse than the original specifications. (In this connection, it is noted that the Foshan agreement stated at Clause A(3) that parts of the machinery may be substituted by improved parts of the same style, as long as it satisfied the requirement of turning over 1,000 tons per month). Finally, Mr Li also accepted that there was no ground for his statement that “the machines were also apparently manufactured some 3 years prior to their delivery”. 113.2. HF and ISS also relied on the evidence of Simon Leung in relation to the condition of the machinery. However, Mr Leung inspected the machinery more than a year after operations ceased. 114.It would also be noted that Kwong Hing and TED had used the machinery until the operations were halted, had paid monthly fees to HF and were under an obligation in the agreements to purchase the machinery. 115.Having assessed the above evidence, I am not satisfied that HF and ISS have proved that the machinery supplied by Golden Hope and World Class were worn out or did not comply with the specifications. 116.1. As mentioned earlier, the operations in both the Kwong Hing venture and the TED venture were halted in January 2019 after the internal review revealed the 21/12/2017 and 28/6/2018 emails. However, it sent staff to affix labels with the name “ISS” on to the machinery in March 2019. This was pleaded in §28 of the Re-Amended Defence of the 2nd Defendant, and in the witness statements of Miss Lee who accompanied HF representatives on the second visit in March 2019, she said the labels were put on by HF to indicate its ownership of the machinery (§9 and §18). In §24 of HF’s Reply, it was denied that the sale of the machinery was affirmed by affixing labels, and it pleaded “the 1st Plaintiff only affixed labels on those machines identified by Lee Yuen Ting on 18th March 2019 to be the Recycling Machinery delivered to the 1st Defendant’s site by the 2nd Defendant”. However neither Roy Li nor Simon Leung said that the labels were affixed simply to “identify” machinery, nor did they say to identify for what purpose. Simon Leung said he did not know who affixed those labels or when. In any event, the test whether conduct affirms an agreement is objective, and I find that by affixing its name onto the machinery without proof that it had informed anyone that it only meant that that piece of machinery had been seen by its staff, HF had affirmed the World Class agreement. 116.2. HF’s case is that it rescinded the TED agreement and the World Class PO by letters from its solicitors of 5 November 2019 and 11 December 2019. Those letters were demands for payment against TED, not World Class, sent nearly a year after the internal review revealed the emails. However, half a year earlier, HF had, by affixing the ISS labels on the machinery, asserted ownership of the machinery in an act of affirmation of the World Class PO. Discussion 117.HF and ISS issued proceedings for (1) misrepresentation, (2) breach of duties and dishonest assistance and (3) conspiracy. 118.There is no dispute on the law governing these causes of action and I shall not further lengthen this Judgment by reproducing the standard texts. I have found that HF has affirmed the agreement so that rescission is not available, and as will be seen later, it has difficulty with proof that damages have been suffered. (1) Misrepresentation 119.As for the cause of action of misrepresentation, HF and ISS pleaded that LWH had made misrepresentations to the other members of the board of HF or HF itself. On the facts found however, it is clear that the board of HF had not deliberated on the proposed ventures or implementation details. It is noted that no board minutes of HF were produced. As for the board of ISS, it had only considered and approved Elvis Chan’s proposals on the basis of estimates provided and left it thereafter to HF. 120.Rather, on the facts found, the misrepresentee to whom LWH had provided the quotations from Lindy in the Kwong Hing venture and the Lindy and IHC quotations in the TED venture was the Proc Dept, but that was not how the case was pleaded. 121.It was also pleaded by HF and ISS that LWH made misrepresentations in his signing of the PO’s, delivery notes and subcontractors’ invoices.
122.As for misrepresentation by TED and World Class,
123.Having said that, I have found HF is not entitled to the remedy of rescission. After the discovery of the 21/12/2017 email from CCM and the 28/6/2018 emails, it sent its staff to the sites in March 2019 to affix ISS labels on the machinery, conduct which I have found in §116 above was affirmation of its ownership of the machinery purchased from World Class and inconsistent with an intention to return to the pre-contractual state. This was done more than half a year before the solicitors’ letters in late 2019. The letters were sent nearly a year after the internal review revealed the emails. 124.As for damages, HF has failed to prove what the market price for the machinery was, as the Foshan price (as discussed above) was not like for like. As such, I find that HF has failed to prove what damages it has suffered as a result of the misrepresentation. (2) Breach of duties 125.As for the cause of action of breach of duties,
126.1. While I accept the submission that it was not LWH who actually “selected” the successful supplier in either venture, as it was not within the sole power of HF as the requisitioning department to do so, he must have been aware that the Proc Dept would be likely to select Golden Hope and World Class:
126.2. I also find LWH’s breach of duties were sufficiently pleaded. In the Re-Amended Statement of Claim, it was pleaded in:
127.1. No pleading points were taken by counsel for TED and World Class so I shall not undergo the same exercise as that for LWH above. 127.2. I accept that World Class might not have known that Tab 1 and Tab 2 would be sent specifically to CCM, or that the names of Lindy and IHC would be added to one or the other, but it is clear that World Class lent dishonest assistance to the commission of LWH’s primary breach of trust. 127.3. It was World Class which sent those documents intentionally to assist the staff of HF to create the impression that there were more independent competitive quotations. The sending of Tab 1 and Tab 2 clearly had a causative impact in facilitating LWH’s breach of trust. 127.4. Further, whatever motives Miss Lee may subjectively have had (to make sure HF would order the machinery from World Class and/or for 過場 i.e. “done for show”), her conduct in sending the “draft” higher quotations in different languages and listing the items in a different sequence as if they came from other entities transgresses the ordinary standard of honest behaviour assessed by reference to right thinking members of commercial society. The law is that “although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective” (Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476, §10). 128.Accordingly, I find LWH and World Class are liable to HF for breach of fiduciary duty and dishonest assistance respectively. (3) Conspiracy 129.As for the cause of action of conspiracy, for the reasons discussed above, I have found that World Class and LWH had combined to manufacture higher quotations so that in the selection procedure, the World Class quotation, as the lowest, would be accepted. Their actions were done deliberately and with knowledge of the consequences, i.e. that no more quotations would be sought, and the Proc Dept would cause HF to purchase the TED machinery from World Class. 130.However, as HF has failed to prove that similar machinery would have been available at a lower price, I am not satisfied that the breach of duties and conspiracy have caused loss by way of damages to HF. 131.It follows from the above that HF was entitled to terminate the TED agreement and I would dismiss TED’s counterclaim against HF, in which in any event there was no evidence proving loss. It also follows that LWH’s counterclaim for unlawful dismissal by ISS should be dismissed by reason of his misconduct. He did not pursue his counterclaim against TED and World Class. 132.As for relief, LWH was in breach of fiduciary and contractual duties in respect of the Kwong Hing venture, but I have not found satisfactory evidence that Kwong Hing was complicit in LWH’s breach. Therefore, I do not consider that HF would be entitled to recover loss from the termination of the Kwong Hing agreement. 133.As for the TED venture, LWH was in breach of fiduciary and contractual duties, and World Class is liable for its assistance to him. TED and World Class had the same sole shareholder and director. I have found above that HF and ISS have failed to prove loss by way of damages. 134.1. I have considered equitable compensation as a flexible form of relief based on fairness and conscience. HF has suggested that it is entitled to the purchase price of the TED machinery ($12 million) plus the TED subcontractor payments ($5,287,500) less the TED monthly service fees ($6,500,000). I do not see how it would be entitled to the purchase price of the machinery when it had asserted its ownership thereof at a time when it must have been clear to it from the 28/6/2018 emails that LWH was in breach of his duties and World Class had assisted him. 134.2. I have considered if HF could be compensated by way of loss of profits as, on any case, the TED agreement has been terminated. As shown in Elvis Chan’s Costing Sheet, HF would have derived a profit of $7,800,920 over 5 years ($1,560,184 a year or approximately $130,015 a month) from the TED agreement. However, the Costing Sheet was prepared on the basis that it would be employing its own workers at $4,693,015 a year (or $391,085 a month) and other costs (materials, transportation, custom and I/E Documentation etc) at $3,600,000 a year ($300,000 a month). The wages of its own workers and those other costs would have totaled $691,085 a month. 134.3. However, HF retained subcontractors at a substantially higher cost of $1,057,500 a month ($157,500 + $450,000 + $450,000). The difference between the cost of the subcontractors and the initial estimate in the Costing Sheet meant that it was no longer a profit-making operation. Indeed Barry Chan said at trial that after termination of the Kwong Hing agreement and the TED agreement, HF did not engage in the plastics recycling business again due to its lack of profitability and it decided in 2019-2020 to refocus on ISS’ core business. In the circumstances, I do not see that I can award equitable compensation by way of loss of profits. Directions 135.I would direct that counsel agree on the terms of an order based on this Judgment within 42 days, such order to be approved by myself before sealing. As for costs, I will give further directions on submissions after the order is sealed.
Mr Henry CHENG instructed by Messrs. Clyde & Co. for the 1st and 2nd Plaintiffs (by Original Action) in HCA 2387/2019 and the 1st Defendant (by Counterclaim) in HCA 820/2021, the 1st and 2nd Plaintiffs in HCA 973/2020 Mr Roland LAU and Mr Victor YUEN instructed by Messrs. LO & FUNG for the 1st and 2nd Defendants (by Original Action) in HCA 2387/2019 and the 2nd and 3rd Defendants (by Counterclaim) in HCA 820/2021 Mr Paul WONG instructed by Messrs. C.K. Chan & Co. (up to 9 April 2025) and Messrs. Lo & Lawyers (from 10 April 2025) for the 3rd Defendant (by Original Action) in HCA 2387/2019 and the Plaintiff (by Counterclaim) in HCA 820/2021, the 3rd Defendant in HCA 973/2020 Mr Paul WONG instructed byMessrs. C.K. Chan & Co. (up to 9 April 2025) and Messrs. Lo & Lawyers (from 10 April 2025) for the 3rd Defendant (by Original Action) in HCA 2387/2019 and the Plaintiff (by Counterclaim) in HCA 820/2021, the 3rd Defendant in HCA 973/2020 1st Defendant in HCA 973/2020: Kwong Hing Renewable Resources Limited, in person, Absent 2nd Defendant in HCA 973/2020: Golden Hope Industrial Company Limited, in person, Absent |
Cases cited in this judgment
Other judgments that cite this case
Further hearings and rulings under HCA 2387/2019