HKSAR v. CHAN KA-LUNG, RAYMOND AND ANOTHER

DCCC 333/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO.333 OF 2013

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Reasons for Verdict

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1.  The 3 defendants face one joint charge of Conspiracy for an Agent to Accept Advantage, contrary to sections 9(1)(b) and 12(1) of the Prevention of Bribery Ordinance, Cap.201 and sections 159A and 159C of the Crimes Ordinance, Cap.221.

Background

2.  At the material time, each defendant worked for a different company. PW1 was a direct subordinate of D1. It is alleged that D1 in two conversations with PW1 instructed PW1 to reserve $3 million for D2, and to inflate the quotation for certain items to be done by the D3 sub-contractor so as to get the money to be passed to D2. PW1 refused to do so and reported the matter to the ICAC. Surveillance was then conducted on D2 and D3 by the ICAC and the two were arrested on 30^th August 2011 after their meeting inside D2’s car. $590,000 cash was found inside the car.

3.  The defendants were subsequently charged and D3 made certain confessions under caution. The confessions was however ruled to have been made by D3 involuntarily and were not admitted into evidence. Without the confessions, there was no case against D3 and he was acquitted at the end of the prosecution case.

Issues

4.  The first issue is the credibility of PW1, who is the sole witness to what D1 allegedly said about an arrangement to pay money to D2 via D3 and the company he was working for.

5.  The second issue is whether the costs of 2 items set out in the Contract Booking Form, namely Control Products (Chiller Plant Control) and Local Delivery On Site Lifting were in fact inflated.

6.  If the 2 items had been so inflated, the prosecution will then have to prove who ordered the inflation.

7.  If it was D1 who ordered the inflation, the prosecution must prove if it was done in furtherance of a conspiracy to bribe D2.

Undisputed facts

8.  D1 worked for Trane. Trane is a Hong Kong company that sells air-conditioning systems. Trane is owned by TYS Limited, which is a joint venture between Jardines and Trane S.A., a U.S. company. PW1 was D1’s direct subordinate.

9.  Chiefast is the company used by the owner of a building, which in this case is referred to as the 414 project, to enter into contractual relations with Trane for the supply of an air-conditioning system. D2 was employed by a sister company of Chiefast, and was for all intents and purposes an employee of the owner of the building in the 414 project. There was a consultancy firm assisting the owner of the building in the 414 project to advise and make recommendations on various matters, including the choice of suppliers for air-conditioning system. We have not heard from anyone from this consultancy company in this trial.

10.  D3 works for the owner of Wardson. Wardson is a company that would sub-contract for works including the transportation and installation of air-conditioning systems. Wardson would from time to time bid in projects for the supply and installation of air-conditioning systems as well. In their tender on some of those occasions, they used Trane as their supplier. In the present case, Wardson was the company engaged by Trane to transport and install 4 chillers that were sold by Trane to Chiefast for the 414 project.

11.  The air-conditioning system being the subject matter in the present case comprised of 4 Centrifugal Chillers. It is not disputed that on the day of the actual transport and installation of the chillers, because of the sheer weight of the chillers, quad-shores support had to be installed on 4 floors in order to support the chillers being lifted up to the 10^th floor of the building. It is also not disputed that when the chillers were in place, it was found that there was insufficient height to allow for the proper installation of the chillers and so special I-beams had to be cut to make room for the chillers to be installed.

12.  It is not disputed that, in the beginning, Trane submitted a quotation to the consultants for the 414 project for the supply of air-conditioning system, as shown in a quotation dated 11^th January 2010 (“the first Trane quotation”). There is however a key difference between this and the later quotation involved in this case. The first Trane quotation was for the supply of 4 sets of water cooled ‘screw chiller (China origin)’, whereas it is not disputed that the eventual system that was agreed upon was for the supply of water cooled ‘centrifugal chiller (USA origin)’. The two are very different systems.

13.  It was not until 10 months later on 15^th November 2010 that Trane had provided Chiefast with the quotation for the centrifugal chillers at the contracted total selling price of $10.5 million.

14.  Once the contract had been signed, it was for PW1’s department to issue an internal document called the “Contract Booking” which sets out the costs and selling price of each individualized item in the sale. For the 414 project, the first Contract Booking was dated 30^th November 2010, 15 days after the contract date. It must be stressed that this is an internal document of Trane and there is no evidence that D2 ever had knowledge or sight of this or any other relevant Contract Bookings.

PW1’s evidence

15.  PW1 joined Trane in 1990 as an engineer trainee. He rose through the ranks and was made Senior Manager in 2002. In September 2010, he was the Senior Manager of the New Building Marketing (“NBM”) and Trane Control Department (“TCD”).

16.  D1 did not become PW1’s direct superior until 2002 when D1 was made General Manager of the company. In 2003, D1 was promoted to Operations Director.

17.  PW1 was introduced to D2 by D1 in 2009 at D2’s office when they were on a business visit to introduce Trane’s air-conditioning system for the 414 project. PW1 is not sure about D2’s role but he guessed that D2 had influence over what brand of air-conditioning was to be used. This would have to be considered together with PW6 Chu Sun Wah’s evidence where Mr. Chu said that he and D2 worked like partners in relation to the 414 project with neither being superior to the other. According to PW2, Mr. Chu was also present at this meeting. This will be dealt with later on.

18.  PW1 also met D3 for the first time on the same day. He did not know what role D3 was suppose to play.

19.  PW1 remembered that his role in the 414 project included him introducing Trane’s system to the building’s owner. PW1 confirmed that there were a few such introduction sessions and the consultancy company GHD E&M Consultancy was always present, representing Chiefast and designing the whole central air-conditioning system of the building.

20.  PW1 would be together with D1 and possibly 3 colleagues in those meetings. The 3 colleagues were subordinates to PW1 and they were Tom Cheung, Ronald Kong and David Ng (PW2). It was mainly PW1 and Tom Cheung who did the presentations.

21.  A quotation was eventually prepared by Trane and sent to Chiefast. It is PW1’s evidence that the pricing in the quotation was as instructed by D1. PW1 gave more details and described how he was told by D1 to use the same method of calculation used in Trane’s another project known as 238 Centre. The method used was called ‘dollar per ton’.

22.  When PW1 realized that they were to use dollar per ton for coming up with the price in the 414 project, he felt that ‘the price would be relatively high’. PW1 explained in court that because in project 238 Centre, the machines used were smaller, so if the dollar per ton of 1200 BUT was used, the price would be higher than the market price ‘by quite a lot’.

23.  As a result of D1’s instruction, PW1 contacted the then manager of the Existing Building Department, the department that dealt with 238 Centre, and found out about their method of calculation. PW1 then instructed his subordinate David Ng to prepare the quotation documents. The initially quoted price was $12 million.

24.  Nothing however came of this quotation. A second and different quotation was later prepared. This is the quotation that form the basis of the eventual contract. The new quoted price was $10.5 million. This was for the supply of water cooled centrifugal chillers instead of screw chillers in the first quotation.

25.  An agreement was eventually reached and the internal document entitled ‘Contract Booking (NBM)’ was then prepared by PW1’s department. This document is dated as 30^th November 2010.

26.  It is the prosecution’s case that 2 of the items on the 30^th November Contract Booking had been deliberately exaggerated. It is not immediately clear who it is that the prosecution alleged to have done the exaggeration. It is however the prosecution’s case that about 3 months after this Contract Booking, PW1 and D1 had a conversation in D1’s office on 24^th February 2011.

27.  According to the evidence of PW1, in this 24^th February conversation, while they were discussing something about the 414 project, D1 suddenly said to PW1 words to the effect that $3 million dollars from the 414 project had to be reserved for D2. D1 instructed PW1 to create a separate account ledger book and to split the amount into a few different sums.  D1 suggested to PW1 that the ICC 78 project (another project of Trane) could be used to account for some of the money. D1 also instructed PW1 to tell D3 to issue a quotation, and then to give the money to D2 through D3.

28.  PW1 refused to do so for D1. PW1 felt very upset about the matter and decided to report to the ICAC 7 days later on 3^rd March.

29.  Subsequent to the said first meeting with D1, there was a second meeting between PW1 and D1 on 22^nd March. In this second meeting, after D1 found out that Trane’s Contract Admin Department had not yet informed Wardson (D3’s company) of the 414 project delivery and lifting quotes, D1 instructed PW1 to raise that part of the quoted price from $500,000 to $800,000.

30.  It was PW1’s understanding at that time that the difference was to be provided to D2 through Wardson.

31.  As a result of PW1’s perception of being forced into a conspiracy for someone to accept bribes, PW1 felt pressurized and suffered from depression. PW1 offered to resign on 23^rd March but was persuaded to stay on, although he was later transferred to the sister company, Trane Service Hong Kong from 19^th April onwards.

32.  It is admitted facts that about 2 months later, on 12^th May 2011, a check in the amount of $550,000 was drawn on the account of Wardson, the payee being a certain Chuang For Wai. This check was cashed out a day later on 13^th May 2011 by someone. This Chuang For Wai was not a witness in the present trial. The only thing known about this Chuang is that he was the owner of a company which was a sub-contractor to both the owner of the 414 project building and Trane. As a result of the way paragraph 4 of the first set of admitted facts is drafted, it is not clear to what time frame paragraph 4 refers.

33.  It is admitted facts that on 13^th May 2011, D2 and D3 had dinner together. Although there is evidence that this meeting was monitored by ICAC officers, there is no evidence from any ICAC officers about the reason for that meeting, what was said in the meeting nor what D2 and D3 did at the meeting.

34.  It is admitted facts that D1 was arrested 3 months and 15 days later on 30^th August 2011 inside Trane’s office.

35.  ICAC officers on the same day followed the company vehicle of Chiefast which was supposed to be exclusively used by D2 and was in fact driven by D2 on the day and saw D3 getting into the vehicle in San Po Kong. The vehicle circled the block once and then D3 was seen getting out of the vehicle, whereupon ICAC officers moved in and declared arrest on both D2 and D3. A search of the vehicle was conducted and cash of $590,000 was found from a brown envelope which was inside the glove compartment. There is no admissible evidence about the provenance of the money against D1 and D2.

The Specifications

36.  Specifications are a list of items requested by the owner of the building of the air-conditioning system supplier. PW1 was cross-examined about 2 particular items on the Specifications in relation to the 414 project. They are the weather tight enclosure requirement and the IP55 water proofing requirements.

37.  It is PW1’s evidence that despite the items being listed as one of the required specifications, they were in fact not required to be done in the project. This is in direct contradiction to the evidence of his superior, Mr. Leung Kee Keung (PW5) and his subordinate, Mr. David Ng (PW2). Both Leung and Ng confirmed in evidence that once the items are listed out and that Trane had replied by way of a comply list, the specifications will have to be met and if they are not met, Trane will be held liable for losses suffered as a result of their failure to comply.

38.  The defendants were subsequently charged with conspiracy for D2, as an agent of the owner of the building in the 414 project, to accept an advantage as an inducement to or reward for D2 having shown favour to TYS Limited (Trane’s mother company), namely causing the 414 project air-conditioning system to be awarded to TYS Limited.

39.  It is the prosecution’s case that two particular items in the 414 project contract (exhibit P-1) had been exaggerated and therefore is evidence that such a conspiracy existed between the 3 defendants. The prosecution relies mainly on the evidence of PW1 to so prove.

PW2 David Ng

40.  Mr. Ng was the person who actually filled out the Contract Booking for the 414 project.

41.  The $2,199,600 figure against the item of “Control Products (Chiller Plant Control)” was filled in by him. This figure was given to him by the Trane Control Department (“TCD”). He cannot remember who of the TCD gave him this figure.

42.  The $795,500 figure against the item of “Local Delivery, on site lifting” was also filled in by Mr. Ng. He remembered they had asked a few companies for a quotation on that item, including Wardson. He however cannot remember who of Wardson he had contacted. Wardson won the job with the final price at $480,000.

43.  During cross-examination, it was pointed out to Mr. Ng that although a figure of $202,800 was stated as the cost for the ‘19mm insulation’ item, the final costs as indicated in the appropriate Material Requisition form was only $122,000, which was just 60% of the costs set out in the Contract Booking form. Mr. Ng confirmed this difference and agreed with counsel for D1 that it was not done on purpose, just that the original figure was a guessed price, which was based on his colleague’s past experience on the matter. Mr. Ng cannot remember if he thought there was any problem with the $202,800 figure when he filled out the Contract Booking form.

44.  Counsel for D1 then continued to point out to Mr. Ng that, in relation to the item of Kinetics Spring Isolators in the Contract Booking, the estimated price of $162,240 was more than double the actual costs at $77,103 as indicated in the Purchase Order of Trane. Mr. Ng again agreed with counsel that the costs price of $162,240 was an estimate and that there was no deliberate exaggeration. Mr. Ng agreed that, when the Contract Booking was done, the NBM department would not have started to contact contractors and so what they had to do was to rely on past experience and individual abilities to come up with an estimate. Mr. Ng agreed that deviation of over double the estimated amount is not something to be regarded as strange, just that the estimation was wrong.

45.  Mr. Ng later also agreed that he had left some slack in both the 19mm insulation and Kinetics Spring Isolators estimation just in case there might be supply shortage or other reason that would increase the price and so he had to make allowance for them. He agreed that there were too many unknown factors.

46.  Mr. Ng also agreed with counsel that, in relation to items in the Contract Booking form that are service in nature, there are more factors to consider, such as shortage of skilled labour, landscape limitations and so they would leave even more slack concerning those items. It is D1’s case that delivery and on site lifting is an item of such nature.

47.  Counsel then moved on to the item of Local Delivery-On Site Lifting where the estimated cost was stated as $799,500 in the Contract Booking Form. Mr. Ng was asked if he would have altered the figure if he had felt strange about that figure. His reply was that he found the figure as written down ‘normal’.

48.  Mr. Ng was referred to a document known as the Specifications in cross-examination. This is a document issued by or on behalf of the building owner to Trane. It would then be for Trane to issue a corresponding Comply List to indicate which items listed out in the Specification document will be able to be complied with by Trane. Mr. Ng confirmed that the requirements for a ‘weather tight enclosure’ and ‘water proofing up to IP55 standard’ are set out in the specifications and that Trane had responded by way of a Comply List to confirm that the supplied system will comply with those requirements.

49.  Mr. Ng however do not remember if he had budgeted in the water proofing costs when he prepared the Contract Booking form.

50.  It was pointed out to Mr. Ng and he agreed that, when the chillers were eventually transported to the 414 project site, they had to be lifted up to the 10^th floor chiller plant room but quad shores had to be installed in order to support the lifting. After the chillers were lifted up to the 10^th floor, it was then found that the ceiling was not high enough for the proper installation of the chillers. It was Wardson who found the solution by using specially cut I-beams to reduce the space required so as to allow the installation to go ahead.

51.  It was then pointed out to Mr. Ng that their team knew about the problem of the low ceiling even when the Contract Booking was prepared and that was why $799,500 was used as an estimate to allow for the possible expenses. Mr. Ng’s evidence is that he doesn’t remember whether it was before or after the Contract Booking was prepared that they found out about the low ceiling problem, nor can he remember whether that was the reason the $799,500 amount was used as the estimated cost.

52.  After Mr. Ng finished with the Contract Booking, he passed it on to PW1 for him to approve. He doesn’t remember PW1 returning the document to ask him to make alterations. If PW1 had wanted changes to be made to the Contract Booking, PW1 would have asked Mr. Ng to do it.

53.  It is Mr. Ng’s evidence that no one had as much as hinted to him that Wardson should be awarded the installation and lifting contract. The decision was based on the fact that of the 3 contractors that came back with a quotation, Wardson had the lowest price. Upon inquiry by the court, Mr. Ng confirmed that it was as if it was automatically done, that is to say, once there is a bid that meet their requirements and with the lowest price, NBM department would then tell the Contract Admin department to issue the Contract Booking.  

54.  Mr. Ng remembers PW1 having the nickname of ‘lion’ because PW1 used to be quite fierce and loud in his talking.

PW3 Ms. Claudia Liu

55.  Ms. Liu is the manager of the Contract Administration Department (“CAD” or frequently referred to as just ‘Contract Admin’ by the witnesses). It is her evidence that after Trane and a client had signed a contract of sale, it is then for the CAD to provide the administration and logistic support.

56.  After the Sales Department signed the relevant purchase orders, they will have to input material into a document entitled Contract Booking, which when finished will be passed on to the CAD to be dealt with. The Contract Booking would be prepared by the engineer who would sign on the form, together with the head of the Sales Department, who was D1 at the relevant time.

57.  CAD would not take part in the setting of price and costs nor would she be clear as to how the prices and costs were set in the Contract Booking form.

58.  Ms. Liu gave evidence as to when and how profits and loss from a particular project would be calculated. However, when Ms. Liu was asked in examination-in-chief how much profit was made on the 414 project which had the contract sale price of $10.5 million, Ms. Liu was only able to tell the court that the figure can be seen in the computer system but that she was not able to tell how much profit had in fact been made in the project.

PW4 Mr. Glorisun Wong

59.  Mr. Wong is the current Senior Manager of the Energy Solution Department and Trane Control Department (“TCD”) of Trane.

60.  Mr. Wong remembers that in around March or April 2011, he and his colleague from the TCD went together to the consultancy company to discuss some technical matters with the consultancy people in relation to the 414 project.

61.  Mr. Wong was referred to a document dated 24^th May 2011 from Trane to Chiefast. It is a quotation for the supply of some Trane Control Equipment for the price of $1.3 million. This quotation included some controllers, software and hardware and their installation. It is Mr. Wong’s evidence that the items listed out in the second page of this quotation did not include the item known as BACnet High Level Interface which is mentioned in paragraph 1 of the contract between Trane and Chiefast at p.1 of the bundle. They are related but different things. 

62.  Mr. Wong is unable to say what price would such a BACnet High Level Interface be. He would have to look at how much work is required in the project before setting the price. Although there were some figures in his head, he just cannot remember them anymore. Nevertheless, Mr. Wong confirmed that, as seen in the p.116 and 117 quotation, the price of Trane Control Equipment sold to Chiefast in relation to the 414 project was $1.3 million.

63.  Mr. Wong was cross-examined about the Specifications for the 414 project, in particular paragraph 8.7 and in relation to the weather tight enclosure and class IP55 protection. It is first of all his evidence that Trane would confirm by way of a Comply List that items listed in the Specifications will be done. If they are not done and caused loss then Trane will be responsible for loss suffered.

64.  Mr. Wong agreed with counsel for D1 that if the chillers and its control system in the 414 project were to be made weather tight and water proof up to IP55 standard, one of the methods that is frequently used is to cover the whole machine with a casing the size of a small container, given the size of the chillers.  Mr. Wong said not only will the casing be water proof but it may also be sound proof. Installation of such casings would require specialists and the market price in 2010 or 2011 for one such protective housing would be some $300,000 or $400,000 each. The pricing would depend on the landscape where they are to be installed as well as the way the machines are set up.

Profit sharing

65.  Mr. Wong explained how the team members handling a particular project would be entitled to a share of the eventual profits as commission. Mr. Wong is not clear about the exact percentage but it was pointed out to him by counsel that the maximum amount to be shared was 12% of the profits. 55% of that 12% would be given to the team responsible for that particular site, with the balance shared with the whole company.

Transfer of money from one project to another and the re-opening of works

66.  To try to counter what PW1 said about how D1 had instructed him to falsely claim that there were works to be done on the ICC78 project in order that money could be given to Wardson and then to D2, counsel for D1 asked Mr. Wong about the transferring of money from one project to another and about how it would be impossible for Trane to start up works again on a site where title of the air-conditioning system had already been passed to the customer.

67.  It is Mr. Wong’s evidence that the company does not allow the transfer of money from one site to another, and if that was in fact done, the accounts department would be aware of that. Once title had been passed, unless complaints were received and remedy works had to be done, Trane would not be allowed to re-open works on the site, Trane workers would possibly even have difficulty entering the site thereafter.

PW5 Leung Kee Keung

68.  Mr. Leung is the General Manager of TYS Limited and was at all material times the superior of the Operation Director of Trane, D1.

69.  Mr. Leung confirmed the employment contract of D1 is as exhibited in P-17 at p.68-73 of the prosecution bundle. It is Mr. Leung’s evidence that TYS does not allow any staff to provide illegal benefit to anyone in order to obtain a contract.

70.  In cross-examination, Mr. Leung agreed that the word ‘Control’ in air-conditioning works is a word capable of a very wide meaning. In relation to a chiller, the control would include its on/off switch, the remote controllers on other floors controlling the switching on and off of the chiller, the controllers to adjust the air flow, humidity, temperature are all parts of the control system, as well as the linkage of all this to the chiller.

71.  Mr. Leung not only agreed with counsel for D1 that water proof works would usually be in the form of a housing over the entire machine, he also remembered that it was in fact done that way in the Hong Kong Jockey Club headquarters project. Mr. Leung agreed that to cover the entire machine would require a big housing and high grade water proofing material would be used and specialists will be required to do the installation. In relation to the pricing of the housing, Mr. Leung again referred to the Hong Kong Jockey Club headquarters project where they spent some $1 million on 3 machines for the water proofing, thus agreeing with counsel’s suggestion that each such water proof housing could cost $300,000 or more.

72.  Mr. Leung confirmed that in relation to the 414 project, it would have been PW1 who had to deal with the Specifications document. It is his evidence that at the request of the owner of the building, a Comply List will be prepared and the list is for the supplier to confirm with the owner of the building as to what in the Specifications will be done, a re-confirmation, Trane’s promise of what they will do pursuant to their agreement.

73.  Mr. Leung then confirmed that Trane at first entered a quotation based on the use of Screw Chiller and subsequently the Specifications were also prepared on that basis. It is however Mr. Leung’s evidence that even with the change of chiller later on to that of the VSD centrifugal type, the requirements for weather tight enclosure and IP55 level protection would still have to be met. This is in direct contradiction to what PW1 had said in his evidence, which was that there was no need to so comply.

74.  Mr. Leung remembered vividly how they sold their first VSD centrifugal chiller in 2009 in the above mentioned HKJC headquarters project. The system was so new and they were so unfamiliar with it that they had to fly someone in from their sister company in Japan just to start up the system after its installation.

75.  Mr. Leung confirmed that Trane will be held responsible if as a result of the lack of water proofing the machine broke down. Mr. Leung gave the example of the Hong Kong University Centennial Building. There similar machines were used. There was leakage of water causing the starter panel to be damaged. The panel was a proprietary product and it was $1 million for the replacement. There was then an argument as to whether IP55 level water protection was specified in the Specifications, if there was, then the starter panel ought not to have suffered water damage even if it was directly hosed down. There was no such specification and Trane escaped liability.

76.  Alongside the VSD centrifugal chillers, Trane would usually also sell to customers an application called the VPF ventilation system. The VPF system give the customer the advantage of savings in energy and installation bills because with the old system, a 2 step pump system was needed whereas with the VPF system, there is no need for a second pump. TYS and hence Trane, was the first company to sell this system in the Hong Kong market.

77.  When asked to describe PW1 as a person, Mr. Leung said that he observed that PW1 is an unhappy person who becomes unhappy very easily and is relatively emotional. Mr. Leung described D1 as a very tough leader. Mr. Leung agreed that the relationship between PW1 and D1 had all along been not that good.

78.  Mr. Leung was referred to the yearly appraisals for the senior employees of Trane. Mr. Leung confirmed that D1 had mentioned to him about how PW1 was egoistic and hard to manage. D1 also told Mr. Leung that D1 had scolded PW1 about how PW1 had failed in the 414 project Specifications to show the strength of the company, that PW1 had been sloppy in his work on that, that since the company was promoting VSD centrifugal chillers, PW1 should not have put in the first quotation of Screw Chiller in relation to the 414 project.

79.  D1 told Mr. Leung that PW1 had failed to make provision for water proofing costs in the preparation of the Contract Booking. D1 also mentioned to Mr. Leung that the lifting costs in the 414 project will be increased because the machines are heavier by a few tons and bigger by one third in size and had to make sure there is some slack in the figures.

80.  D1 told Mr. Leung that there was argument between himself and PW1 as to whether water proofing works were needed and whether money should be put aside for them in the 414 project.

81.  Mr. Leung confirmed the commission system of the company where a maximum of 12% of the profits in a project would be taken out to be rewarded to the staff below the Senior Manager. 55% of the 12% would be given to the team directly responsible for the project and 45% would be given to the back office staff.  

82.  It is Mr. Leung’s evidence that the Contract Booking figures would keep changing but the company would keep an eye on it. The costs items would frequently just be anticipated and in the end maybe too much, or not enough, as the case may be.

83.  Mr. Leung was very specific about how Trane would always invite at least 3 tenders in every job or order, whether a job had been closed or not. A lot of people within Trane will be involved in the process because it was not just the issuing of an order but the paying of money to others. The invoices will have to go to the site engineers for them to certify and then the documents would move up the different levels of the company.

84.  Counsel for D1, in response to the allegation by PW1 that D1 had instructed him to try to use the ICC78 project to get Wardson to do something and then to inflate the costs there as well so as to be able to get some money to D2, asked if it was possible that, after the works in the ICC 78 project had closed, for D1 to order suddenly that a few things needed to be done and to hide that from Mr. Leung. Mr. Leung replied that the costs provisions are very transparent in the company, it is not just the responsibility of the project manager or the senior manager, it would also involve the CAD with the Accounts Department watching over the process and he himself would be reviewing the schedules monthly. If a project had been closed but work was required to be done, a quotation will have to be obtained and explanation will have to be given as to what the works was about and the reason requiring the work. It is Mr. Leung’s evidence that it would be impossible for someone to spend the company’s money like that without him knowing.

85.  Mr. Leung was then asked more directly about whether it would be an easy thing for someone in the company to issue Purchase Orders for works that do not exist in order to divert funds away. Again, Mr. Leung’s evidence is that it would be impossible that no one would know if such a thing was done. To do so would involve a lot of people including the engineers, there is the requirement to get quotes from at least 3 different companies and then for the choice to be approved. One person just cannot do it. Mr. Leung went further to say that, if one wanted to do that, he or she would need the whole group of people scheming together.

86.  Mr. Leung further demonstrated the impossibility by pointing out that the accounts of TYS, hence also Trane, is subjected to yearly internal auditing. Because TYS is a joint venture between Jardines and Trane S.A., each of the 2 shareholding company would send their own auditors. There would be at least 5 or 6, at most 8, auditors each time to check TYS’s accounts.  There is also something called Compliance Audit when staff would be dispatched from the U.S. to look at TYS’s accounts and to ensure compliance, plus audits done by the Human Resources department of Jardines. That is why it is Mr. Leung’s evidence that it would be impossible for anyone to do what D1 was allegedly trying to do.

87.  In re-examination, Mr. Leung described how PW1 at the time of his resignation said he wanted to go work for a competitor. Mr. Leung did not want that because PW1 had been with the company for so long, and since PW1 was suffering from depression and had been given time off, he suggested to PW1 to stay and PW1 agreed. That was in April or May 2011.

PW6 Mr. Chu Sun Wah

88.  Mr. Chu is an employee of Hong Kong Pacific Investments Limited, which is the holding company of Chiefast. He has been working there for 20 odd years. He is the supervisor of the engineering department and the property management department. Mr. Chu reports to Mr. Lau Hon Chung, who is the director and shareholder of the company.

89.  It is Mr. Chu’s evidence that Hong Kong Pacific Investments had been ordering air-conditioning systems from Trane for many years. Chiefast is the holding company for the property at 414 Kwun Tong Road. In relation to the air-conditioning system for the 414 project, it was mainly the surveyor consultants who chose the supplier.

90.  There were 2 contracts that Chiefast had signed with Trane. One was the $10.5 million contract for the supply of the 4 chiller plants and the other was the $1.3 million contract for the electronics control parts.

91.  Mr. Chu said that in relation to the 414 project, at no time did D2 mention to him that D2 will be demanding any personal commission or rebate as a reward for choosing Trane as the air-conditioning system supplier, nor would he have allowed that if D2 had so mentioned.

92.  In cross-examination by counsel for D1, Mr. Chu gave more details about the choice of Trane as the supplier. They had made comparison between using screw chillers and VSD centrifugal chillers and in the end decided on VSD centrifugal chillers. They sought the consultant’s opinion and chose Trane’s chillers. When asked specifically who made the decision to use the VSD centrifugal chillers supplied by Trane, Mr. Chu said it was himself and D2 together who made that decision.

93.  In cross-examination by counsel for D2, Mr. Chu was asked more about the structure and running of Hong Kong Pacific Investments. Mr. Chu agreed that although he and D2 are the employees of HKPI, in fact, they are both working for Mr. Lau, and it was entirely up to Mr. Lau as to who works for him and to use which company to employ that person. Just like D2, Mr. Chu’s wages comes actually from another subsidiary company of HKPI, Verolux.

94.  When asked about whether D2 was the subordinate of Mr. Chu, he clarified that it was the case only in title, in reality, both D2 and Mr. Chu reported directly to Mr. Lau Hon Chung. When they were working on a project together, there is no subordinate relationship between them, they would be partners, Mr. Chu would not instruct D2 what to do, nor would D2 instruct Mr. Chu what to do. Mr. Chu is a relative of Mr. Lau, both D2 and himself are very important to Mr. Lau.

95.  Despite D2 being investigated by the ICAC, D2 still works for HKPI and is still being heavily relied on by Mr. Lau Hon Chung.

96.  Lastly, Mr. Chu agreed that if D2 needed approval to receive something in relation to Mr. Lau and his companies, the approval could only come from Mr. Lau and not Mr. Chu himself.

PW7 Chan Chun Wing Philip

97.  Mr. Chan is an employee of HKPI. He gave evidence as to a company car with registration MA3680 being used by D2 for site visits and transportation. The car was under the custody of D2 who held the car key and the car was for D2’s exclusive use. Mr. Chan is not sure by which company the car was held.

98.  In cross-examination, Mr. Chan confirmed that even after the ICAC had been involved, D2 continued to work for the company and had received a large raise in his salary, even larger than the raises given to other employees.

99.  Mr. Chan mentioned about a company handbook (exhibit P-23) which was supposed to give some guidelines on employee conduct. Mr. Chan is however not sure whether D2 did get a copy of the handbook.

D1’s video recorded interviews

100.  Although D1 did not give evidence, the contents of his 2 video recorded interviews are produced into evidence by consent. I find that D1 took part in the interviews voluntarily. The following is disclosed by D1 in the interviews.

101.  D1 holds a doctorate degree in engineering in Building and Construction from City University obtained in October 2010.

102.  D1 joined Trane Hong Kong on 1^st December 1987 and had been working as the Operations Director for about 8 years, earning about $90,000 per month.

103.  D1 considers his company’s goods are better quality and higher priced than their competitors: items 117-122.

104.  D1 had known D3 for a long time. D3 was the person who introduced Hong Kong Pacific Investments to D1’s company.

105.  It was pointed out to D1 that in the ICAC’s investigation, in relation to project 414, the $10.5M quotation had been exaggerated. It was specifically pointed out that in relation to the Control Products (Chiller Plant Control) the figure was exaggerated by $2.1996 million, and the On Site Lifting cost was exaggerated by $600,000. Information indicated that the money was to be given to D2 of Hong Kong Pacific Investment as reward to cause Trane to win this contract.

106.  D1 replied that in relation to those costs items, there was simply no high or low figures.

107.  When D1 was asked about the end profit of the project, D1 explained that it was 10 odd percent because there was a problem with the lifting of the chillers causing them to spend an extra $100,000. Half of that amount was shouldered by Trane.

108.  When it was pointed out to D1 by the ICAC that investigation showed that the money of about $2.8 million to $3 million was given to D2, D1 replied that there was no exaggeration and that it was the same quotation that they had given to the consultants.

109.  D1 denied that he had given money to D2.

D3’s confession

110.  It is the ICAC officer’s evidence that right after D3 was arrested and cautioned on 30^th August, he made certain confessions. D3’s words were recorded in the officer’s notebook and later on confirmed by D3 in a later video recorded interview.

111.  D3 challenged the admissibility of the confession and the subsequent record of the confession in the notebook and the video recorded interview. This Special Issue was dealt with by way of alternative procedure and the following ruling was given after hearing evidence and submissions:

“Ruling on admissibility of D3’s verbal admissions and subsequent records

D3 is of clear record and had elected to give evidence on the special issue. It is for the prosecution to prove beyond reasonable doubt the voluntariness of the verbal admission. I did not take into consideration the previous complaints against any of the ICAC officer, whether substantiated or not, when coming to my decision.

Having heard from D3 in the witness box, I find that D3 is telling the truth about how Yung had told him to make admissions or else his younger sister and colleagues will be in trouble. The reasons are as follows.

There is evidence to suggest that Yung would have known that D3’s younger sister was also a target in the operation. On the day Yung arrested D3, it was not the first time he had taken part in the operation involving an investigation into D3’s company, he had taken part in a surveillance operation involving some of the defendants. Yung was not able to say if there was information concerning D3’s younger sister in the case folder that was seen to be in his possession in the video recorded interview. It is however more than likely that such an important piece of information, that is to say, that D3’s younger sister was an accounts clerk in the company that D3 was a director of and which company had been involved in the bribery and money laundering operation allegedly taking place, was known to Yung before he made the arrest.

Furthermore, when D3 gave evidence on the special issue, when he mentioned how he had in fact asked his younger sister to make withdrawals of money, he was visibly affected by the thought of dragging her sister into the whole matter. This goes to show how serious an effect that would have on D3 at scene, when he was stopped out of the blue by ICAC officers, taken into a car, cornered by 2 ICAC officers and being told he was arrested and that if he did not make admissions her sister will also be in trouble.

The conversation which led to the admissions by D3 took just a few minutes. Yet Yung took almost an hour to complete the recording of the contents of the conversation in his notebook. I do not understand why Yung could not have waited until they were back at the ICAC headquarters before formally questioning D3. Although D3 admitted in his evidence that the notebook was read back to him and that he was given the chance to read the contents, I find that the handwriting of Yung is so difficult to read that D3 must be telling the truth when he said he simply did not bother to read the contents carefully while sitting in the back of a car.

Regardless of whether D3 heard and understood the contents of Yung’s caution or the contents of Yung’s notebook or not, I find that the only reason that Yung was so intent on asking D3 questions right there at the scene of arrest was to deprive or limit D3 of his right of silence. Yung knew that having told D3 about his sister D3 would be affected emotionally and become susceptible. Yung also anticipated that if he had waited until D3 was taken back to the ICAC headquarters and dealt with by the detention centre and D3 having given the notice to person in custody, D3 was likely to request legal advice and possibly resulting in exercising his right of silence. That was why Yung had grabbed the earliest opportunity to question D3 without letting him know about his right to a lawyer. This was the same whether Yung had asked the questions right after getting into the ICAC vehicle or as D3 said after the vehicle had moved into a parking spot inside an open air carpark near Yuet Sau Plaza.

There are other small anomalies that cause me concern. The colour of the signatures at p.20 of the notebook is one. If the declaration about how D3 had read the contents and that they were correct was done right after Yung had finished writing out his notebook and still in the ICAC vehicle, why would the declaration be written in black ink whereas the previous signatures against the questions and answers were all in blue ink? There is no evidence that D3 had his own pen or that there were different pens in the ICAC vehicle. In fact, it is one of the ICAC officers’ evidence that the handwriting was 潦草because it was done in the car and on Yung’s lap, so one would not expect there be different coloured pens lying around there. This small but tell tale sign tends therefore to support the version of fact of D3, that is to say, the 12:45 declaration was not done right after Yung had finished writing the previous pages.

The other anomaly is the evidence of Yung that he had not asked D3 any follow up questions while he was making his post-record. I find it incredible that Yung was able to remember everything that he and D3 had talked about in the few minutes before the car had moved, and then able to write them down without once consulting D3, given the fact that he had taken about one odd hour to make the record, and the likelihood that he had stepped out of the vehicle to maintain communication with his superior or colleagues, even on his own evidence. I find that Yung cannot be telling the whole truth in this regard.

I have also carefully considered the contents of the video recorded interview when coming to my decision. I however find that the key issue is whether the original verbal admissions were made voluntarily. If they were not, then the subsequent adoption of the contents of the illegally obtained admissions in the video recorded interview cannot be allowed to stand.

To conclude, I find D3 honest and reliable when he described how he was affected and felt threatened when he was told that if he did not make admissions his sister and colleagues will be in trouble. I find that as a result of this threat, D3 gave the one answer he said he gave in response to Yung’s questions.

In any event, I find that, even if D3 did give all the answers he gave in the post recorded notebook statement, they were given while D3 was in a state of confusion, and in his own words, 六神無主.

I find that the protection of a suspect’s right of silence cannot be a competition, which Yung had obviously made it out to be. He tried his best to get to D3 when D3 was in a state of shock and before D3 was able even to think about getting legal advice. It is highly likely that if D3 had been left alone after the arrest and then allowed a consultation with his lawyer first before he was questioned, he would have been more aware of his right of silence and how to exercise it, as demonstrated in the subsequent video recorded interview. It is also noted that even after D3 had indicated that he was exercising his right of silence in the video recorded interview, Yung had insisted on finishing asking him some questions, which D3 somehow felt awkward not to answer and so he did. It was only when Yung then moved on to ask further about D1 that D3 realized that he was able to not answer, and even then, he appeared unsure and hesitant, indicating how he might behave when without a lawyer around.

I have carefully considered the evidence and the submissions that have been made and I am NOT satisfied beyond reasonable doubt that the verbal admissions allegedly made by D3 was made voluntarily. It will be excluded as evidence in this trial. As a result of the verbal admissions being held to be made involuntarily, I find that the contents of the notebook and the contents of the video recorded interview also inadmissible, being fruits from the poisoned tree. ”

112.  Upon this ruling and upon D3’s submission, the prosecution conceded that without the confession evidence there is no case against D3. D3 was therefore acquitted. D3 applied for costs but was refused on the ground that his conduct in the incident brought suspicion upon himself.

D1’s case

113.  D1 fully understood his rights and elected not to give evidence. He called 2 defence witnesses.

DW1 Mr. Chan Lai Kin

114.  Mr. Chan gave evidence about how the chillers supplied by Trane had malfunctioned in the Hong Kong University Centennial Building and how he as representative of the contractor Gammon dealt with Trane’s staff.

115.  At that time, they believed water had entered the control panel causing the malfunction. They thought the chillers were still under warranty but the staff of Trane considered water seepage as improper use of the machine and refused to make good the warranty. There were discussions and they referred back to the Specifications when it was found that only ‘factory standard’ water proofing was required. The contractors accepted this and engaged Trane to make the replacement at a quoted price of $1.1 million. Mr. Chan was not cross-examined.

DW2 Kelvin Tang Sher Kin

116.  Mr. Tang is a manager of Trane and used to be a direct subordinate of PW1 from 2007 to around 2011. He would from time to time go golfing with PW1 and so he noticed that PW1 would lose his temper and scold the caddy fiercely for no good reason.

117.  He believed that D1 and PW1 did not have that good a relationship, because sometimes after PW1 had talked with D1, PW1 would tell Mr. Tang to go into PW1’s room to vent his dissatisfactions. One such dissatisfaction was how PW1 felt threatened about him being possibly passed up as a replacement to take over D1’s job.

118.  It is Mr. Tang’s evidence that PW1 also did not have a good relationship with the other senior managers in the company, and that they do not have a good opinion of PW1. Mr. Tang then talked about how PW1 had tried to manipulate D1 into talking Mr. Tang out of competing with PW1 for a certain committee membership in the Control Automation and Instrumentation Division of the Hong Kong Institute of Engineers.

119.  Mr. Tang had heard more than once when PW1 remarked that his being transferred to the training department was like cutting his power. PW1 was not happy with D1.

120.  Finally, Mr. Tang had also heard PW1 complaining how he thought D1 was not being a good former president of Hong Kong Air Conditioning and Refrigeration Association and that D1 was being interfering while PW1 himself was the vice-president. PW1 just seemed unable to get out of D1’s shadow.

D2’s case

121.  D2 fully understood his rights and elected not to give evidence nor call any defence witnesses.

Findings

122.  The burden is on the prosecution to prove beyond reasonable doubt all the elements of the offence. All 3 defendants are of clear record.

123.  In the case of D1, although D1 has not given evidence, he has made a mixed statement in the form of the video recorded interview. In deciding on what weight to give to his various answers, I bear in mind that they were given by a person of good character and to take that into account when deciding whether to believe the answers or not.

124.  In relation to both D1 and D2, the fact that they are aged 50 and of good character may mean that they are less likely than otherwise might be the case to commit the crime they are being accused of now, and I have directed myself accordingly when considering my verdict.

The witnesses

125.  Save for the evidence given by the ICAC officers in relation to D3’s confession which are now irrelevant, and save for the evidence of PW1 that will be dealt with independently later, I find that all prosecution witnesses and defence witnesses are honest and reliable witnesses.

PW1 as a witness

126.  I find PW1 a particularly difficult witness. He was always trying to anticipate the questions put forward by counsel during cross-examination, resulting in long winded answer which are frequently off topic and not to the point.

127.  Having had the opportunity to observe PW1 in the witness box and listen to his evidence, I find that I cannot convict the defendants on his sole evidence.

128.  There are a number of inherent weaknesses in the prosecution case.

129.  First, it is the prosecution’s case that, according to PW1, the costs figures in relation to items ‘Control Products (Chiller Plant Control)’ and ‘Local Delivery-On Site Lifting’ have been deliberately inflated and exaggerated. It is the prosecution’s case that this exaggeration was arranged by D1 so as to allow a sum of money to be paid to D2 through D3 as a reward for D2 influencing Chiefast’s decision to award the air-conditioning contract to Trane. This would then in turn point to the inference that there had been an agreement at some point between the 3 defendants for D2 to be so rewarded.

130.  Despite the evidence of PW1, according to Mr. David Ng, a prosecution witness as well and the person who actually filled in the items in the Contract Booking, the figures of the costs for those 2 items may not have been exaggerated. It is his evidence that the estimate of the individual cost item can at times be just a guess based on previous experience. The figures can easily end up being a lot higher or lower. It is Mr. David Ng’s evidence that deviation of over double the estimate amount is not something to be regarded as strange, it’s just that the estimation had been wrong. Mr. Ng, either with hindsight when giving evidence in the witness box or at the time of filling in the Contract Booking form, had never felt that there was anything wrong with the figures used in the form and did not find anything out of the ordinary to the extent that he had to raise the matter with PW1.

131.  Secondly, the prosecution is also bound by the evidence of Mr. Leung Kee Keung, which is that for D1 to even try to do what the prosecution is alleging him to have done without him knowing is impossible. To re-open the works in ICC78 so as to enable Wardson to do some additional work without going through the proper channel was impossible, even if such additional work did exist. D1 must have known about that and it would be highly unlikely that he would just order PW1 to do so without giving him more specific instructions.

132.  Thirdly, given what we have heard from Mr. Leung Kee Keung and defence witness Mr. Kelvin Tang about how D1 and PW1 do not enjoy a good relationship and how D1 had been complaining to Mr. Leung Kee Keung about the performance of PW1, I find it strange to the extent of inherently incredible that D1 would engage PW1 to carry out the most important part of D1’s plan to defraud the company of money and bribe D2 through D3. Either this bribing is a standard procedure in the operation of Trane, which is not the prosecution’s case, or D1 chose to overlook the fact of PW1’s volatile personality and less than cordial relationship with himself and just decided to bring PW1 right into the middle of his conspiracy with D2 and D3. I find that it is highly unlikely that D1 would be so stupid to place his own future into PW1’s hands. I find that there must be a doubt as to whether D1 did say those incriminating words to PW1 as alleged by PW1.

133.  Fourthly, D1 and D2 are both of clear record. They are both over 50 years old and hence the fact that they are of clear record carries more weight as to their propensity to commit the offence than if they are just youngsters. Both D1 and D2 have been with their respective employers for a long time and are both trusted employees.

134.  Fifthly, in relation to D2, there is no independent evidence other than what was allegedly said between PW1 and D1 inside D1’s office as to D2’s possible involvement in a conspiracy for him to be paid the money that would have come from the contract price for the chiller system for the 414 project by way of D1 marking up the quotation on two fronts and then for D3 to pass on that exaggerated contract price to D2.

135.  Even if I had found that PW1 was credible and reliable about the conversations he had with D1, I would have found that there is no independent evidence to support the existence of such a conspiracy so as to allow the conversation between PW1 and D1 to be used against D2 under the co-conspirators rule.

136.  I find that the only independent evidence that the prosecution has put forward against D2 is the $590,000 found inside D2’s car on 30^th August 2011.  Without the evidence of D3’s confession, which has been ruled out, there is no evidence as to the provenance of this money. D1 had not been seen anywhere near the car, there is no evidence to suggest for what purpose the money was given to D2, or even if it was given to D2 and not intended to be given to someone else by D2. There are just too many possibilities and no court can draw any inference from the mere presence of the money in D2’s car that it must be the money involved in the alleged conspiracy.

137.  If that is the case, there is no independent evidence against D2 of him being a part of a conspiracy, the evidence of the conversations between PW1 and D1 cannot be evidence against D2 as under the co-conspirator rule.

138.  For the weaknesses identified above in the prosecution’s case, and given that it is for the prosecution to prove beyond reasonable doubt the elements of the offence, I find that the prosecution had failed to prove that the 2 items in the Contract Booking had been exaggerated or that D1 had ordered PW1 to reserve money in another project to be paid to D2, and that there was a conspiracy between D1 and D2 to so inflate the price so as to allow money to be paid to D2, and I acquit D1 and D2 of the charge accordingly.