MARUKEN KOUGYOU CO LTD v. HSIN CHONG CONSTRUCTION CO LTD AND ANOTHER

HCCT 19/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

ACTION NO 19 OF 2013

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J U D G M E N T

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1.  The dispute between these parties relates to the alleged unauthorised possession and use by the 1^st defendant of certain property of the plaintiff. The property in question is a set of double walled steel casings (“casings”) which were being used for pile extraction. The 1^st defendant was a contractor engaged by the MTRC to carry out certain works in connection with one part of the high speed railway “XRL” project, the relevant part of which required the removal of existing piles within the ground at a site in Sham Shui Po, near to the Nam Cheong station (“the site”, or “the 802 site”). There were two types of pile to be removed, namely bored piles and steel “H” piles. The major part of the work was the “H” pile removal. It is common ground that pile removal is unusual work in Hong Kong, but relatively common in Japan where the plaintiff is based.

2.  There was no direct contractual relationship between the plaintiff and the 1^st defendant.  The 1^st defendant engaged the services of a sub‑contractor, SNE Engineering Co Ltd (“SNE”) to carry out the pile removal, and SNE obtained pile casings from (among other sources), the plaintiff.  SNE was a Hong Kong company, but had the expertise to carry out the pile removal work because it was a special purpose company established by a group of mainly Japanese investors, one of whom was and is a director of the plaintiff, who themselves had experience of this type of work in Japan.

3.  The parties involved in the formation and operation of SNE changed over time as was described in the evidence of Mr Wilkin Lam Wai Kuen, but included a Japanese company called Sugisaki Kiso, represented by a Mr Sugisaki, a Mr Kobiyama, the plaintiff and a Hong Kong company, named Elitt Engineering Consultants Ltd (“Elitt”). Sugisaki Kiso was the largest shareholder.  SNE employed a General Manager, Mr Takuya Matsumoto, who was one of the key persons involved in these projects, and who gave evidence at the trial. Elitt was a substantial (30%) shareholder in the early stages, but in January 2012 further shares were issued to the Japanese shareholders, considerably reducing Elitt’s shareholding.  Mr Wilkin Lam, a director of Elitt, gave evidence on behalf of the defendants at the trial.

4.  The investors in SNE supplied both expertise and equipment to SNE, and the way in which this was done has given rise to various issues in this litigation.  For its part, the plaintiff supplied, so far as relevant, a number of casings which it had had manufactured in Japan.  These were designed for pile removal purposes and were different to the type of casings commonly found in use in Hong Kong in pile installation work.  These were substantial items, being supplied in varying lengths, but all being two metres in diameter.

5.  SNE was not only employed by the 1^st defendant for work at the 802 site, it was also employed at about the same time by another main contractor to carry out similar work at another XRL project site, known as the 820 site.  The resources available to SNE were to be used on these two sites, these being the only work on which SNE were engaged.

6.  Matters did not proceed as smoothly as had presumably been anticipated on the 802 site, and the plaintiff complains that it was progressively ousted from the site and the work, this culminating in the plaintiff’s employment being terminated by the 1^st defendant in September 2012.  There was considerable bad feeling generated between SNE and the 1^st defendant, and the circumstances surrounding the termination of SNE’s employment has given rise to ongoing arbitration proceedings between those parties.  I was told that there has been previous litigation between the plaintiff and the 1^st defendant regarding the intellectual property rights that were said to exist in the pile removal methodology.

7.  Factually, there is no dispute that the termination took place, although SNE and the 1^st defendant are at odds as to whether that was a justified course of action on the 1^st defendant’s part.  There is also no dispute that there were casings, and other plant and equipment that, up to the termination, had been in use by SNE that remained on the site at termination, and which was put into use by the 1^st defendant in the completion of the work.  Issues arise as to the entitlement to do so, and as to the number of casings that were involved. 

8.  The 2^nd defendant was an employee of the 1^st defendant, being the project manager in charge of the 802 site throughout the period of employment of SNE. 

The Issues

9.  The claim, as presented by the plaintiff in the amended statement of claim, was ostensibly straightforward, being premised on the casings having been supplied to SNE pursuant to an oral agreement made in or around August 2010 by which the plaintiff rented the casings to SNE (“the first rental agreement”).  The right given to SNE by the plaintiff was said to be a non transferable right to use and possess the casings, and SNE had put the casings to use in the execution of the subcontract works with the 1^st defendant.

10.  After about July 2012 the plaintiff became aware that the 1^st defendant was in the process of “ousting” (as it puts it) SNE from the site of the subcontract work, this culminating in the termination of the SNE’s employment.  It was pleaded that in consequence, on 21 September 2012 or thereabouts, it was agreed between representatives of the plaintiff and SNE that the rental agreement was terminated.  The plaintiff was therefore entitled to retake possession of the 8 casings said to remain on the 802 site at that date, but was not allowed to do so.

11.  Since the termination of the rental agreement the defendants are alleged to have dealt with the casings in a manner inconsistent with the plaintiff’s rights, by retaining them and using them for the completion of the subcontract work. 

12.  The defence of the 1^st defendant was amended on three occasions but in its final form contained an allegation that the casings in question were not the plaintiff’s property, having been sold to SNE.  The relevant circumstance for this was a meeting of the shareholders of SNE that took place on 26 May 2011.  It was alleged that the attendees discussed and agreed that the casings (and numerous other items of plant and equipment) were to be sold by the shareholders in SNE to that company, with payment to be made over 24 instalments starting from end of May 2011.

13.  The 1^st defendant relied on contractual rights as between itself and SNE, and therefore pleaded certain provisions of the subcontracts between itself and SNE, and other provisions of the main contract between itself and the employer.  These related to the vesting of certain plant in the employer when the plant was on site, and provided restrictions on removal of plant from site without permission of the Engineer.  These provisions were relevant to the 1^st defendant’s assertion that SNE had a special property in the casings such that, in the absence of any provision in the rental agreement to the contrary, SNE was authorised by the plaintiff not only to use the casings, but also to subject them to the vesting and other terms of SNE’s subcontract.  In the circumstances, it was pleaded, the plaintiff became bound by the terms of the subcontracts.

14.  The 1^st defendant pleaded that it was because SNE’s performance of the subcontract became increasingly inadequate that initially, parts of the site were taken back by the 1^st defendant to carry out work itself, and subsequently SNE’s employment was terminated.  Following termination, and by reason of the contract arrangements between itself and SNE, the 1^st defendant was, it contends, entitled to make use of the casings (and other plant and equipment) remaining on‑site at termination in the completion of the subcontract work.

15.  It was further pleaded that joint inspections were carried out by representatives of the 1^st defendant and SNE, with representatives of MTRC, at or about the termination, in order to list the plant and equipment. The 1^st defendant also prepared an inventory as at 30 September 2012.  This identified only four casings belonging (or formerly belonging) to the plaintiff as being on the 802 site.

16.  The 1^st defendant accepted that it had made use of those specific casings remaining on‑site after termination of SNE and also accepted that it had refused to allow the plaintiff to reclaim the casings. A counterclaim totalling approximately $58,000 was made for the costs of storing the casings.

17.  The 2^nd defendant, in effect, adopted the defence of the 1^st defendant, and was represented at the hearing by the same counsel.  The liability position of each of the defendants falls to be considered separately, but for clarity, except where necessary to do so, I have not distinguished between the defendants in this judgment.

18.  The plaintiff pleaded a reply and defence to counterclaim which set out at length the background to the May meeting which resulted in the sale agreement.  The plaintiff contended that the sale agreement was replaced by a renewed rental arrangement prior to termination (“the second rental agreement”) and contended that any special property which might have existed in the casings on the part of SNE came to an end when the rental agreement was terminated in September 2012.  The plaintiff denied that SNE had any authority, apparently or in fact, to dispose of the casings, or subject them to the contractual restrictions relied on by the defendants.

The List of Issues

19.  By way of a supplement to the written opening submissions, counsel for the defendant supplied a proposed list of issues which were, in due course, adopted by the parties in the formulation of their closing submissions.  The first and second of these issues encapsulated the bulk of the key factual disputes between the parties so far as liability was concerned, while the third and fourth issues focused on the facts relevant to the quantum aspects.  Issues 5‑8 addressed the legal issues that arise.  I have followed those issues below.  Those issues were as follows:‑

(1)  Whether the sale by the plaintiff to SNE was subject to a retention of title clause?

(2)  Whether there was a “cancellation” of the sale?

(3)  Whether the plaintiff can prove that 8 casings were left at the site after the two sub contracts were terminated?

(4)  Whether the defendants were liable for the plaintiff’s loss of (one or more) casings if that/those were jammed underground by SNE and not able to be retrieved?

(5)  Whether the defendants committed any act of conversion in relation to for the casings?

(6)  The applicability and effect of various clauses in the Main and Sub Contracts on the plaintiff’s right/immediate right to possession over the 8 casings?

(7)  Whether section 27(2) of the Sale of Goods Ordinance applies?

(8)  Whether D2 liable?

(9)  Quantum including exemplary/aggravated damages?

(10)  Whether on the existing pleadings, the plaintiff is entitled to claim damages for reversionary injury?

Issue 1 : The retention of title clause

20.  It is undisputed that there was a sale agreement by which it was agreed that the plaintiff would sell the casings to SNE, with payment to be made by 24 instalments.  This was an oral agreement (as the rental agreement was) which, the plaintiff contends, included a “retention of title” provision to the effect that property in the casings would not pass from the plaintiff to SNE until there had been full payment.  It is also not disputed that full payment was never made, indeed it is the plaintiff’s case that there was no payment of any of the purchase price by SNE. The defendants contended that the plaintiff has not established the existence of the retention of title term, and contended that the sale agreement that was reached in the shareholders meeting in May 2011, was binding, without including any such term.

21.  The background to the shareholder’s meeting is that SNE were progressing more slowly with the pile removal work than originally anticipated, and were encountering persistent cash flow difficulties.  SNE blamed adverse conditions, but in any event, had completed only approximately 20 to 30% of the pile removal work by that time.  The work was continuing however and the agenda for the meeting prepared by Mr Matsumoto referred to both the cash flow status, and also the “site technical problems and solutions”; including the requirement for resources for the next six months.  The meeting itself was minuted in English (by a Mr Nakamura) but took place in a combination of English and Japanese languages.

22.  One of the attendees at the meeting was Mr Wilkin Lam, of Elitt, and he gave evidence about the meeting, including that the sale of the casings to SNE was agreed at the meeting.  Mr Lam does not speak Japanese and communications with him were in English, whereas the other participants communicated in large measure in Japanese.  An important part of the background to this meeting is that SNE were then in a “deficit situation”, recouping less via the interim payments than they had spent to that point in time, and the meeting discussed measures to reduce this deficit, including “considering” what was described as “the rental fee” for machinery and equipment and endeavouring to reduce its cost.

23.  The minutes recorded the following:

“We have treated Casings and Hammers were rental by SNE. But we going to sell out to SNE. And start to pay by 24 times from end of May 2011.”

24.  Mr Matsumoto, who gave his evidence in English, accepted in the course of his cross examination this was a correct record of the meeting, but he described this as a “framework agreement” meaning, I understand, that it was incomplete as an agreement not least because the price was not agreed.  He accepted that the sale figure was discussed in general terms, but was adamant that this was not agreed in the meeting itself.  An agreement on price came only subsequently.

25.  Unfortunately, at least from the perspective of the disputing parties, that agreement, as with other relevant agreements, was not recorded in writing.  It follows that the defendants had no direct evidence as such on what is alleged to have been the eventual formulation of the sale agreement.  The defendants’ relied on evidence from Mr Wilkin Lam, further referred to below, that a complete agreement was reached in the shareholder’s meeting excluding any retention of title provision, and on criticism of the completeness and cogency of the plaintiff’s evidence.

26.  Mr Matsumoto was the primary source of the plaintiff’s evidence on this area.  He explained that one reason for the inclusion of the retention of title provision was that this was common practice amongst construction companies in Japan, and he pointed to the contract of sale for the casings to the plaintiff as an example.

27.  Mr Wilkin Lam’s evidence was otherwise.  His recollection was that the sale agreement was concluded at that meeting and that prices were determined.  Not surprisingly he was not able to recall what those prices were, and he accepted in cross examination that the detail of the sales price for each item was not discussed.

28.  In submissions, counsel for the plaintiff points out that since the sale was to include not only the plant and equipment supplied by the plaintiff, but also that supplied by a larger shareholder, Sugisaki Kiso, there would have been a rather substantial list of items to be discussed, rendering it impractical to have the extensive discussion necessary before an agreement could be achieved.  Given that the minutes of meeting were comparatively detailed, and given Mr Lam’s acceptance that detailed sales prices, item by item, were not specifically discussed, I conclude that there was no more than an agreement in principle in the shareholder meeting, for sale to SNE.

29.  That does not answer the question as to whether or not a retention of title provision was agreed.  There is no suggestion that it was agreed at the shareholder meeting from any participant, but the plaintiff says it was agreed subsequently in a private meeting between Mr Matsumoto and Mr Sugahara.  Mr Sugahara did not deal with retention of title clause in his evidence in chief but in cross examination he also referred to the agreement for sale as being subsequent to the shareholder meeting, which was consistent with the evidence of Mr Matsumoto.

30.  As regards the existence of the retention of title provision he put it graphically in his oral evidence as being that if SNE did not pay the full amount of the purchase price, “ownership would not move, even for one second”.

31.  The defendants submit that the plaintiff’s position, and the evidence in support, has to be viewed with some caution given the way in which matters subsequently transpired, and given that the Japanese parties behind SNE appear to have dealt with one another very much on the basis of “trust” rather than formality.  It is submitted that the retention of title clause is something of an afterthought.  Cancellation of the sale agreement, as the plaintiff says subsequently happened, would have been unnecessary had there been a retention of title clause in the sale contract as is alleged by the plaintiff.  In those circumstances there could have been no concern about loss of the casings in the event, for example, of insolvency of SNE, since property would not have passed to SNE in any event.  The defendants further submit that, if this type of security was required, then the sale could easily have been arranged on a hire purchase basis, although the evidence of Mr Sugahara was that this was not an established practice amongst Japanese companies.

32.  The defendants also submit that there is a clear distinction to be drawn between the sale to the plaintiff, which was a sale on credit, and the sale by the plaintiff to SNE.  In my judgment, this line of argument does not assist the defendants however since both arrangements were, in effect, sales on credit, with SNE paying in instalments rather than in one lump sum, over a considerably longer period of time than the period of credit granted by the manufacturer to the plaintiff.  In those circumstances, it appears to me, that would be more incentive on the part of the plaintiff to retain title, not less.

33.  As appears above, the evidence in support of the retention of title clause is not strong, being not very much more than the word of Mr Matsumoto, and the surrounding circumstances are indeed such as to call for it to be given careful consideration.  There is no direct evidence of what was said by Mr Sugihara or Mr Matsumoto or the terms used.  The evidence against is even more negligible however, being little more than a suspicion based on hindsight that such a provision could not have been agreed, because the sale was subsequently cancelled, and it would have been unnecessary.  I accept that there is, objectively, some inherent illogicality in cancelling the sale contract, in part at least to preserve the position as to ownership, when title has been reserved in any event.  There were other reasons advanced in evidence for cancelling the sale however, as is discussed below, and “mere” illogicality of a course of action does not mean that it did not happen.  Having considered the evidence overall, and the submissions, I am disinclined to reject evidence that there was such an agreement to reserve title in the casings until after payment in full.  The conclusion which I reach on a balance of probabilities therefore is that the sale agreement did include the retention of title provision.

Issue 2 : Was the sale cancelled?

34.  As with the sale agreement itself, the cancellation of the sale is said to have been a purely oral event, albeit that there is documentary evidence supporting the cancellation.  This topic was, once again, an area on which the defendants had no direct evidence, but this was the focus of much of the cross examination of the plaintiff’s witnesses.  Various aspects were investigated on behalf of the defendants, including the timing of the cancellation, its circumstances and by whom it was initiated, and whether it could be said to have been contrary to SNE’s interests.

35.  The plaintiff’s pleaded case was that there had been discussions between Mr Sugahara, Mr Sugisaki and Mr Matsumoto in around October 2011 in which it was agreed, inter alia, that sale agreement between SNE and the plaintiff would be cancelled.  Mr Matsumoto and Mr Sugahara both confirmed this to be the case through their evidence.

36.  There is no dispute that the contemporaneous documents evidence a reversion from sale to hire of the casings.  The plaintiff ceased to issue invoices premised on sale of the casings, and issued instead invoices for rental charges.  On 11 October 2011 Mr Sugahara sent an email to Mr Sugisaki and Mr Matsumoto in Japanese confirming a discussion on the preceding day that the “sale” invoices would be changed to “lease (rental)”.  In a separate part of the email directed to Mr Matsumoto it was reiterated that (in translation) “... all invoices for selling material to be changed to lease.”. Mr Matsumoto was asked to “... talk to Mr Wilkin Lam in appropriate time.”.

37.  The invoice basis was changed and, according to Mr Matsumoto, Mr Lam was informed of the change.  However, Mr Lam did not accept that he had been informed of this change, nor did he accept that the invoices were changed contemporaneously.  His evidence was unequivocal, that he had not been informed by Mr Matsumoto, and he was firm that he would certainly have noticed the difference if the invoices had changed in amount.

38.  In part the significance of this arises out of evidence given by Mr Sugahara that Mr Lam’s agreement to the change, as a shareholder in SNE, was sought, and there was therefore no agreement in place as at the date of 11 October 2011 email.  That evidence is however inconsistent with the terms of the email itself and I believe Mr Sugahara is mistaken in his recollection.  Accepting however that Mr Lam was not consulted or informed does not mean that there was no agreement between the plaintiff and SNE.

39.  Perhaps in a tacit acknowledgement of that position the defendant’s primary challenge was not to the fact of agreement as such.  Rather the focus was as to the validity of the cancellation, the defendants submitting firstly that the cancellation was not in SNE’s interests (because the rental payments were higher than purchase instalments, and would not result in ownership of the casings), and secondly only purportedly took place because Mr Matsumoto was simply instructed to agree to it by his de facto superior, Mr Sugasaki who was in effect the major shareholder in SNE.  It was contended therefore that Mr Matsumoto took no active role as such, and there could be no actual authority for Mr Matsumoto as general manager of SNE to agree to cancel this sale against the interests of SNE.  Nor given the close business relationships of all the relevant parties could be any apparent authority to do so.  Reference was made to the decision of the Court of Appeal in Akai Holdings Ltd v Kasikorn Bank PCL [2010] 3 HKC 153.

40.  For my own part I am not persuaded that the first premise, namely that this cancellation was against the interests of SNE, has been established.  The monthly payment obligations for rental of the casings were indeed more onerous than for purchase of the casings looked at month by month, but would extend for no longer a period than was necessary to carry out the work.

41.  Be that as it may, perhaps for the reasons referred to below the plaintiff took strong objection to the “want of authority” submission primarily on the basis that the allegation (and allegations of “fraud on the minority” touched on during the course of part of the evidence) was not a matter pleaded by the defendants; was not identified in the list of issues prepared on behalf of the defendants; and had not been addressed by the defendants in their written opening submissions.  The defendants sought to deflect this criticism by submitting that it was for the plaintiff to substantiate its own pleaded position, which was that cancellation was the result of an agreement between Mr Matsumoto and Mr Sugahara, not some other species of agreement.

42.  In my view the plaintiff was correct to complain that this was somewhat of an “ambush” on the part of the defendants.  It is well known that any allegation of a want of authority must be specifically pleaded and the plaintiff referred to both the provisions of the White Book and the decision of the Court of Final Appeal in Aspial Investment Ltd v Mayer Corp Development International Ltd (2014) 17 HKCFAR.  As Mr Cheuk submitted, the Court of Final Appeal re‑emphasised in that decision the fundamental importance of pleading matters which make a claim or defence not maintainable, and matters which might take the opposite party by surprise.  There is no doubt that the defendants here did not raise this issue in the pleaded defence, notwithstanding the several rounds of amendment to that document.

43.  It is perhaps apposite for me to add at this juncture an observation regarding the opening submissions served on behalf the parties.  An exchange of such documents in advance of the commencement of the trial is standard practice for matters within the Construction and Arbitration List (Practice Direction 6.1(14)) and the self‑evident purpose of this is to ensure not only that the judge hearing the matter is fully apprised of the issues in the case, but also that no party to the litigation is unfairly taken by surprise during the course of the trial.  The written opening submission served on behalf of the defendants in this case was unusually pithy, and this caused the plaintiff, through the court, to invite the defendants to amplify that submission orally prior to the commencement of the evidence.  Having been reminded of the necessity to have all the cards on the table, the defendants chose not to avail themselves of that opportunity, and are therefore to be taken to have affirmed that all relevant matters are contained in the written pleadings and opening. The “want of authority” point which the defendants seek to run in closing was not advertised through the pleading, or even the written opening, and in my view, is not open to the defendants.

44.  Shortly before concluding his oral closing, perhaps in the light of the objections raised on behalf of the plaintiff, counsel for the defendant proffered a draft proposed Rejoinder setting out the relevant point, this being tendered on the premise that leave was sought if necessary.  Objection was raised by Mr Cheuk on behalf of the plaintiffs, and self‑evidently allowing the amendment would entail allowing the plaintiff to reopen its case and recall witnesses, including potentially witnesses from overseas.  Mr Chain did not press his application to serve the additional pleading at the hearing, leaving it for determination as part of the judgment.  Leave is refused.

45.  Returning then to the question posed by the Issue; as referred to above the fact of the cancellation of the sale agreement and the reversion to a rental arrangement is evidenced by the statements of Mr Matsumoto and Mr Sugahara, and by the contemporaneous documents.  I have no doubt that the plaintiff has established this aspect of its case, and that the sale agreement was cancelled.

Issue 3 : Were 8 casings left at the site, or some other quantity?

46.  As has been referred to above, the casings in question were large; being 2 m in diameter and up to 6 m in length.  All of the relevant casings were indelibly stamped with the plaintiff’s mark, and they were the subject of disputes between the plaintiff and the defendant as to the rights to use and possession from the time that SNE was removed from the site.  Nevertheless, 4 out of 8 have become lost.  The defendants say that this is because they were never on the site, or at least not at any material stage.

47.  Once again, the defendants remind me that it is the plaintiff’s burden to establish that there were 8 casings on the site at the time of SNE’s departure from it.  It is acknowledged by the defendants that 4 casings remain in the 1^st defendant’s possession, and it is suggested that one casing might be lost underground at the location of pile PA 814.  However, the defendant’s primary position is that there were never more than 4 casings on the site at any material time.

48.  There is no lack of documentary evidence, but its quality is poor. The plaintiff relies on a spreadsheet prepared by Mr Ariyama who was a member of the plaintiff’s staff who was seconded to SNE to act as construction manager for the project.  Mr Ariyama arrived in Hong Kong, and commenced work on the project at about the same time as the casings were delivered from Japan. Amongst his duties, he was charged with “keeping an eye” on these particular casings which the plaintiff considered to be of particular importance.  He did so, so far as the record‑keeping is concerned, via the electronic spreadsheet mentioned. 

49.  The plaintiff had ordered 12 such casings, and these were all delivered to the 802 site, but some were subsequently transferred to the 820 site.  Mr Ariyama stated that there were transfers between the 2 sites but that 8 casings remained on the 802 site at the time that the plaintiff left it.  Only 4 casings were on the 820 site when SNE’s work was concluded, corroborating that the other 8 casings were at the 802 site.  Unfortunately however Mr Ariyama left the 802 site quite early on, in July 2011, when he was transferred (it appears at the instigation of the 1^st defendant), to the 820 site.  Mr Ariyama left Hong Kong altogether in April 2012, approximately five months before SNE’s engagement on the 802 project was terminated.  Mr Ariyama was not able to directly oversee the casisngs on the 802 site after July 2011, and his supervision was rather remote after that date.  After he left the 802 site Mr Ariyama delegated oversight of these casings to his replacement, a Mr Seino, who reported, informally, to Mr Ariyama on this matter.

50.  For a considerable period of time therefore, the basis for Mr Ariyama’s spreadsheet is indirect information supplied to him by Mr Seino.  It is not disputed that SNE was working on only two projects and while Mr Ariyama was unable to himself observe whether any of the relevant casings were removed from the 802 site, he would presumably have observed if they were delivered to the 820 site, at least until April 2012, at which point in time work on that project was concluded.  The likelihood of removal of casings to that site at that stage appears therefore to be low.  In summary, there is evidence of the casings having entered the 802 site, and no evidence of them having left that site.

51.  It would be common practice in the event of the employment of a subcontractor being terminated for the parties concerned to undertake some form of joint inspection of the work completed to that point in time, for the purposes of payment and also seeking to agree records of any plant equipment and materials remaining on the site.  In line with such a practice, SNE and the 1^st defendant also attempted to prepare records of the plant and equipment on site.  Those records show the presence of 4 of the casings which are the subject of the claim, but did not include any reference to the “missing” casings.  It is the plaintiff’s contention that those records must be incomplete and therefore inaccurate.  Mr Wai Kwan, who was the project manager for SNE gave evidence on behalf of the plaintiff and he was asked in the course of his cross examination about the various records kept by SNE.  He described the pile inspection records kept by the site engineers and told the court that the site engineers also kept casing inventory summaries, but these were informal documents with no company form provided.  He stated that it was usually the supplier (that is the plaintiff in this case) that kept casing records. His evidence therefore was that the records of SNE, his employer, were most likely not accurate.  He said that he had himself spotted various errors in those documents.

52.  He was cross‑examined quite extensively in regard to the records included in the trial bundles, during the course of which he reiterated a point made in his oral evidence in chief, to the effect that one reason he believed the SNE records to be inaccurate was that they contained fewer casings in terms of length than he believed to be necessary to perform the work.  This was based on a rough estimate of the scale of the work, and the casing requirement.  It became apparent during the cross examination that a document had been prepared contemporaneously, which document Mr Wai referred to as “the SNE spreadsheet”, and which set out SNE’s summary of the casings on site.  That document appeared to be summarised or reproduced in other documents in the bundles, but was not itself included. Mr Wai was asked to try and obtain a copy by counsel for the defendants, and overnight he did so.  This became exhibit “P1”.

53.  It is that document (which was virtually identical to the document at page D/256) which the defendants urge the court to take as the “prima facie case” as to the casings on site.  It was a document which, as updated from time to time, was handed over by SNE to the 1^st defendant in regular daily meetings on numerous occasions.  The version provided by Mr Wai was purportedly up to date at 30 May 2012.  Mr Wai had not been involved in the preparation of the documents, nor its updating since he only joined SNE in June 2012.

54.  One of the concerns expressed by Mr Wai as to the completeness of this and other records, including the joint inspection records, was that casings which were being used and, which therefore were underground, were not included.  Thus, potentially, casings of the plaintiff which did not appear on these records were on site, but in use and therefore effectively invisible.

55.  Mr Ho Tik Sang was also asked about the joint inspection, and he also stated that the joint inspection had excluded the casings in the ground.  He was asked about the possibility of casings having been removed off‑site for repair, and confirmed that he did not think that SNE had kept records of this.  However, he did not think that the Maruken casings had been so removed.

56.  In summary therefore, the evidence available to the court is, on the one hand, a very simple spreadsheet prepared originally by Mr Ariyama, and updated by him, so far as relevant, on the basis of information supplied by Mr Seino, and on the other hand various spreadsheets and other records, including summaries of joint inspections.  One document evidences the presence of the “missing” casings on the site whereas none of the other documents record those particular casings.  It seems clear from the evidence that the more detailed records relied on by the defendants are incomplete inasmuch as they exclude casings which were underground at the time of the relevant inspection.  It is nevertheless, to say the least, an oddity that the “missing” casings do not appear in any of the various records referred to by the defendants, implying, seemingly improbably, that these were consistently underground.

57.  It is for the plaintiff to prove, to the necessary standard, that not only were 8 casings brought onto site, but that they remained there at the date of the termination of SNE’s contract.  The plaintiff submits that the defendants’, in a sense, share the burden because they were aware at the time of termination, or shortly thereafter, that there was a dispute as to the entitlement to hold onto these casings.  Being custodians of property claimed by others it was incumbent upon the defendants, at the lowest, to keep appropriate records.  No doubt comprehensive record keeping would have made life simpler for the defendants, but this is true also for the plaintiff.  It is somewhat artificial for the plaintiff to maintain that the defendants should have kept better records in circumstances in which its own records are somewhat second hand, and SNE staff have consistently cast doubt on the accuracy of the records SNE kept.

58.  For my own part I cannot conclude that the records of either party could be said to be reliable.  However, I am sufficiently persuaded by the repeated absence of any of the missing casings from the SNE spreadsheet, and the joint inspection, to conclude that the missing casings were not on site after the termination of SNE’s employment.  The casings which are, subject to liability, the proper subject of the conversion and/or detinue claim are the four specifically accepted by the defendants as having been left on site.

Issue 4 : Are the defendants liable for any casing lost underground?

59.  Submissions were made in regard to one particular pile removal operation, at location PA 814.  In this location the pile removal operations had to be abruptly terminated in May 2012 so as to allow the passage of a tunnel boring machine.  This required the 1^st defendant to instruct SNE to abandon work at that location and to backfill the excavated pile with concrete.  Although the records are (once again) inconclusive, there was at least a common suspicion between the parties that one of the plaintiff’s casings could have been buried in that operation.  The plaintiff accepts that, if that is held to be the position, then it has no claim in conversion or detinue.

60.  There is therefore common ground between the parties that the defendants are not liable in these proceedings for any casings lost underground.  As appears from my conclusions in regard to the number of casings left on site, it is not necessary for me to draw any conclusion as to whether or not one of the plaintiff’s casings was buried in this particular pile location.

Issue 5 : Did the defendants convert any of the casings?

61.  I consider this together with issue 6.

Issue 6 : What is the effect of the subcontract and main contract on the plaintiff’s right to immediate possession of the casings?

62.  The defendant’s position is that this is relevant only if there was a valid cancellation of the sale contract, or there was a retention of title clause in the contract.  Since I have found in favour of the plaintiff on both of those matters, I turn now to address this issue.  The first point taken on behalf of the defendants is that, even in those circumstances SNE had a special property in the casings as a hirer having the consequence that the casings became subject to the contractual restrictions.

63.  There is no dispute that the hire came to an end at or about the date SNE’s contract was terminated, and that therefore the plaintiff would normally have been entitled to possession of the casings.  However, the defendants submit that, because SNE had such a special property in the casings, SNE were authorised to subject the casings to the contractual restrictions on plant contained in the subcontracts and main contract.  Those restrictions included the requirement to obtain the approval of MTRC before any plant could be removed from site.  The defendants rely on Tappenden v Artus [1964] 2 QB 185 the headnote of which includes the holding:

“That a common law lien can be exercised by an artificer only if his possession was lawful when the lien first attached; and that, therefore, where possession of the goods was originally given to the artificer not by the owner himself, but by a bailee of the owner, the test whether the artificer can rely on his common‑law lien as against the owner is whether the owner authorised... the bailee to give possession of the goods to the artificer.”

64.  The defendants’ submission is that the hiring of the casings to SNE conferred a proprietary interest which was capable of becoming subject to the contractual restrictions contained in the subcontracts between SNE and the 1^st defendant and, by incorporation, those in the main contract.  Those contract provisions included clause 24.6 of the subcontracts providing that plant which was “...owned by the Sub Contractor shall when brought onto the Site be and become the Property of the Contractor but may be removed from the Site by the Sub Contractor at any time after giving, by hand, the Contractortwo(2) working days notice in writing unless removal is expressly prohibited by the Contract in writing.”.

65.  Clause 91.2 of the main contract provided that equipment owned by, among others, subcontractors, was to become the property of the Employer when on the Site.  Clause 91.3 made provision for the continued availability of hired plant and equipment for the purpose of executing the work in the event of certain defaults by providing that the Contractor should not bring hired plant onto site unless the hire agreement contained a provision by which the Employer would be able to take over the hired plant by making a written request and agreeing to pay hire charges.

66.  Clause 91.6 featured centrally in the submissions and provided that “...no Contractor’s Equipment or Plant and Materials ... shall be removed from the Site without the written consent of the Engineer which consent shall not be unreasonably withheld where the same are no longer immediately required for the purposes of the completion of the Works.”

67.  The plaintiff submits that the reliance upon these clauses is misplaced.  Clauses 24.6 of the subcontracts and 91.2 of the Main Contract address plant and equipment owned by (in this case) SNE.  Moreover, clause 24.6 is said to be limited to ownership as at the time that the plant and equipment was brought onto the Site.  The plaintiff submits that the casings in question were not “the property” of SNE at the time they were brought onto site and contends further, that the terminology is inapt to encompass equipment which subsequently became (perhaps temporarily only) SNE’s property.  The distinction is clearly drawn, it is submitted, in these clauses between equipment owned by SNE, and hired equipment.  The subcontract and main contract arrangement is for the vesting in the Contractor and/or Employer of owned equipment whereas hired equipment is subject to no such provision.  As far as hired plant and equipment is concerned, the contract does not purport to confer any entitlement on the main contractor or employer except to the extent of a contractual obligation, imposed on the Contractor (the 1^st defendant here) who was to ensure that any hired equipment was to be hired subject to provisions that would enable the Employer to “take over” the hire of the equipment following a termination.

68.  The hire contracts here contained no such provision.  Moreover, there seems to have been no discussion regarding the taking over the hire contracts.  Mr Chain, on behalf of the defendants, submits that this is no more than a matter of accounting, with the amount of hire charges to be credited in the overall accounts.  I do not accept that to be the contractual position; plainly in the event of a termination of employment of a subcontractor, the continued hire the equipment would be a new matter directly between the employer and the equipment owner.  This is explicit in clause 91.3 of the Main Contract.  But all of that is beside the point.  The defendants here acted as though the casings were owned by SNE.

69.  A correct understanding of clause 91.6 of the Main Contract must have regard to subclause 91.3.  The Engineer under the main contract cannot reasonably withhold consent to the removal from the Site of plant and equipment which is not owned by the Subcontractor or vested in the Main Contractor, and which has not been made the subject of any separate hire agreement as envisaged by subclause 91.3.

70.  Much of the debate in submissions was concerned with the question as to whether SNE had the authority of the plaintiff to subject the casings to the contractual restrictions contained in the Subcontract and Main Contract.  It was the defendants’ contention that the plaintiff had actual notice of the contents of the Subcontracts.  It was submitted that, at the termination of the hire contract, upon the termination of SNE’s employment, that the plaintiff regained its right to possession of the casings subject to the rights of the 1^st defendant and the Employer.  The defendants relied in this regard on De Mattos v Gibson 4 De G & J 276.  This is however relevant only if there was a valid contractual basis for the retention of the casings by the 1^st defendant, and in my judgment, there was not.  These casings were, at that time, not owned by SNE, and there was no post termination hire agreement reached with, or undertaking made to, the plaintiff. Whether or not the plaintiff had notice of the terms of the subcontract and Main Contract, it was not precluded from resuming possession by the terms of the contracts.

71.  In conclusion therefore, it is clear that the plaintiff was wrongfully deprived of possession of the casings following termination of SNE’s employment.

Issue 7 : clause 27(2) of the Sale of Goods Ordinance.

72.  This was a feature of the outline opening submissions served on behalf of defendants, it being submitted that, in the circumstances SNE was a “buyer in possession” of goods pursuant to the agreement for sale such that SNE were to be taken to have subjected, or to have been entitled to subject, the casings to the contractual restrictions.  Mr Chain very fairly drew to my attention at an early stage however to the decision in “The Saetta” [1993] 3 Lloyds 268, a decision of Clarke, J in which the equivalent provision of the English Sale of Goods Act 1979 was considered.  The learned judge held that the acquisition of possession of bunker fuel by owners of the vessel by the exercise of the owner’s right to terminate the charter was not “delivery” of the bunkers by the charterer to the owner.  There was accordingly no entitlement on the part of the owners to rely on the Sale of Goods Act because there had been no such delivery as was contemplated by the relevant section of that Act.

73.  I respectfully agree with the approach and construction of Clarke, J and it follows therefore that section 27(2) of the Sale of Goods Ordinance is of no application to the facts of this case.

Issue 8 : Liability of the 2^nd defendant?

74.  The tort of conversion constitutes unauthorised dealing with the chattel of another in a manner inconsistent with another whereby that other is deprived of the use and possession of the chattel.  As was stated by Lord Nicholls in Kuwait Airways Corporation v Iraqi Airways Company (Nos 4 and 5) [2002] 2 AC 883 (at 1084):

“[38] ...Denial of title is not of itself conversion... to constitute conversion there must be a concomitant deprivation of use and possession.” ...

[39]... Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well‑nigh impossible. In general, the basic features of the tort are threefold. First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.”

75.  As will be apparent, there was no specific issue to identify the liability of the 1^st defendant, but rather issues were framed to identify the lines of defence upon which reliance was placed.  As I have concluded above, those lines of defence are not well founded.  The 1^st defendant retained possession of casings belonging to the plaintiff for a considerable period of time as is further discussed below.  It appears, although the evidence is somewhat unsatisfactory, that the casings were put into use by the 1^st defendant in the completion of the contract work.  This happened notwithstanding the attempts made by the plaintiff to recover possession of the casings and the assertions which it made as to ownership, and there is no doubt as to the “deliberateness” of the 1^st defendant conduct.  The exclusion of the plaintiff from the exercise of its rights of possession and use is self‑evident as, in the circumstances is the fact of conversion of the casings and their unlawful detention by the 1^st defendant.

76.  As regards the position of the 2^nd defendant counsel cautioned me to keep in mind that it is not ordinarily the case that an employee is to be held liable for torts committed by his or her employer.  The gist of the plaintiff’s submission in regard to the liability of the 2^nd defendant is however that he was the key member of staff involved in decisions taken at the site, had authored virtually all of the relevant correspondence emanating from the 1^st defendant, and was part of the collective decision‑making process within the 1^st defendant’s management when it was decided to resist the plaintiff’s attempts to recover its casings.  The plaintiff contends that the 2^nd defendant has become “sufficiently bound up” in the relevant events as to incur a personal responsibility.

77.  The submissions as to the involvement of the 2^nd defendant span across the submissions which are made as to the plaintiff’s claim for aggravated or exemplary damages.  That conduct included an incident on 24 August 2012 during which the 1^st defendant, through the 2^nd defendant, required the removal of certain plant and equipment from part of the site controlled by SNE to part of the site controlled by the 1^st defendant on purported safety grounds.  Once that plant and equipment had been relocated at the insistence of the 2^nd defendant, it was then taken over by the 1^st defendant and put into use on the work.  This does appear to have been rather high handed conduct, but is not the conversion complained of.

78.  In the course of oral evidence in chief the 2^nd defendant made a small, but significant, change to his written witness statement.  Paragraph 136 of that statement read originally “In other words, it was never my sole decision to retain the steel casings now claimed by Maruken.” In chief Mr Lam deleted the word “sole” implying he had not been involved in the decision.  When asked about this paragraph in his cross examination Mr Lam said that he had originally meant that it was not his personal decision; that the decision was made by “management” following consultation with lawyers.  He acknowledged however that he had been involved in the process and that the ultimate decision by “management” had been taken in a meeting which he attended at about the date of termination of SNE’s employment, following a series of preparatory meetings and discussions.

79.  Counsel for the defendants submits that the 2^nd defendant should not be made liable merely for acting as an employee, and where there is no act of conversion or detinue on the part of the 2^nd defendant which is distinct from the acts of his employer. That “test” for liability on the part of an employee is however not the correct one. 

80.  Paragraph 4‑04 of Clerk and Lindsell on Torts (21^st edition) summarises the position as follows:

“Thus, the agent who commits a tort on behalf of his principal and the principal himself are joint tortfeasors; so are the employee who commits a tort in the course of his employment and his employer (even if the employer became insolvent before the time of the trial);... “

81.  The paragraph referred to also contains the following:

“Apart from these instances, concerted action is required. Where one person instigates another to commit a tort they are joint tortfeasors; so are persons whose respective shares in the commission of a tort are done in furtherance of the common design. However, it is important to appreciate that although mere facilitation of the commission of a tort will not suffice, a sufficient common design may nonetheless be held to exist where D1 makes a more than de minimis contribution to the commission of a tort by D2. As Beatson LJ put it: ‘providing that the act furthering an undoubted common design is more than de minimis, I do not consider that there is a further hurdle requiring it to have been ‘an essential part’ of, or of ‘real significance’ to, the commission of the tort’’.”

82.  The quotation above from Beatson LJ is taken from Fish & Fish Ltd v Sea Shepherd UK [2013] 1 WLR 3700, a decision of the Court of Appeal in England which was reversed by the majority in the Supreme Court ([2015] UKSC 10).  Beatson LJ’s approach to “concerted action” cases was followed however.

83.  The plaintiff does not allege a concerted action as between the two defendants, and must therefore establish, in effect, a separate liability in conversion or detinue on the part of the 2^nd defendant albeit arising out of the same actions.  The actions complained of in the statement of claim are joint, save and except the 2^nd defendant’s actions in personally stopping the plaintiff from recovering the casings. 

84.  Plainly a dividing line must be drawn between tortious acts and defaults of a company, and those of an employee of a company committing such acts.  A company can only act through its employees and not every employee will be liable in tort for carrying out the instructions or decisions of an employer.  In my judgment however the 2^nd defendant was doing far more than simply following the instructions of his superiors.  As the 1^st defendant’s chief staff member involved with the project he had a significant management role in the decision making process.  The evidence establishes the involvement of the 2^nd defendant in the decision to retain the casings, and his full involvement in the continued refusal to allow the plaintiff to take back possession of the casings while the work was continuing.  If Mr Lam had been merely implementing the decisions of his employer then I doubt he would have incurred a liability.  There is however no evidence to suggest that the 2^nd defendant was simply acting on instructions; rather it shows that he was an active participant in the relevant decisions. 

85.  It does not matter that the 2^nd defendant may have had some incorrect belief in the justification of his actions — see Kuwait Airways at page 1093, para 78.  In my judgment the 2^nd defendant is, therefore, also liable to the plaintiff in conversion.

Issue 9 : Quantum

86.  The plaintiff’s claim is for both loss of rental income (quantified as $1,504,534.32 to the date of the Statement of Claim) and for the residual value of the casings.  In addition claims are made for the costs said to have been incurred in retaining SNE to assist with the recovery of the casings; and certain specific management costs (in fact travel and accommodation expenses of Mr Sugahara).  In addition “aggravated/exemplary” damages are also claimed.

87.  The defendants submit that this “rental” claim is inappropriate because: “damages in tort are awarded by way of monetary compensation for loss or losses which a plaintiff has actually sustained... where the goods are irreversibly converted... the general rule is that the measure of damages is the value of the goods at the time of conversion”.  As appears from the judgment in IBL Ltd v Coussens [1991] 2 AllER 133 from which the quote is taken, damages in tort are indeed compensatory of actual loss and “... it is necessary to bear in mind that where the goods are irreversibly converted and are not recovered the general rule is that the measure of damages is the value of the goods at the time of conversion.”.

88.  In Kuwait Airways Corporation v Iraqi Airways Company (Nos 4 and 5) Lord Nicholls of Birkenhead stated, as page 1090, para 67:

“... The aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Despite its proprietary base, this tort does not stand apart, and command awards of damages measured by some special and artificial standard of its own. The fundamental object of an award of damages in respect of this tort, as with all wrongs, is to award just compensation for loss suffered. Normally (‘prima facie’) the measure of damages is the market value of the goods at the time the defendant expropriated them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the plaintiff owner. He has been dispossessed of the goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. The plaintiff may have suffered additional damage consequential on the loss of his goods. Or the goods may have been returned.”

89.  Both parties adduced expert evidence as to quantum.  The valuations offered by the experts contained alternatives however which were predicated upon possible alternative findings as to the “life expectancy” of the casings, a question that had been considered by the engineering experts.  Before referring to the quantum expert evidence therefore it is appropriate to consider the evidence of the engineers.

90.  The plaintiff called evidence from Dr James CW Lau, and the defendants called evidence from Dr Albert T Yeung.  Both gentlemen gave evidence explaining the way in which these pile removal operations were conducted, and explaining the function of the casings in that operation.  There was no difference between them in the use and functioning of the casings, nor did they differ on the fact that pile removal operations are comparatively unusual in Hong Kong, and other than observing that these matters could helpfully have been condensed into a joint statement, nothing further need be set out on those aspects.

91.  What was outlined in the Joint Statement of the engineers was a summary of their respective positions regarding the condition of the casings, divided into five issues, which were identified and summarised as follows:

(1)  What is the natural expected life of the Properties [i.e. the casings] with reference to the actual usage for the Subcontract Works on the Site (on the basis that they are used with reasonable care)?

(2)  What is the state of repair of the 3 existing casings in comparison to their natural expected life?

(3)  If the state of repair is below their natural expected life, whether this was caused by the defendants’ use since 21 September 2012?

(4)  Whether the 3 existing casings in the present state are repairable?

(5)  If the answer to (4) is “yes”, what steps of repair are necessary?

92.  The engineering experts reached no agreement on any of these questions.  In summary Dr Lau was of the opinion, that the casings had a natural life of 10 years, but that the 3 casings which were available for inspection were suitable only as scrap material.  Responsibility for their condition “must” lie with the defendants, since “the casings were in good condition” when the defendants took possession of them.  Repair was not an economic option because the casings would require transport to Japan to be repaired, and it would be less expensive to purchase replacements.  Repair would involve factory inspection and the replacement of the damaged steel casing walls.

93.  Dr Yeung expected the casings to last no more than five years in use for pile extraction work.  The 3 casings available for inspection remained usable in his view, both for pile extraction and for bored pile construction work; the state of repair being such as might be expected in his view. He noted that the casings had been in use by SNE for approximately two years before being taken over by the defendants, and “most wear and tear may be caused by SNE during pile extraction”.  He saw no need to repair the casings, but minor restoration such as welding could easily be performed on site in Hong Kong if necessary.  More substantial repair, up to the replacement of the inner wall of the casing could be carried out in Hong Kong or China.

94.  At the centre of this dispute was a disagreement between the experts as to the “grade” of steel which had been used in the construction of the casings.  I note that this is primarily a question of fact, however it is not one which was addressed by any of the factual witnesses.  The casings were double walled, comprising two concentric steel tubes separated, but bound together, by a structural steel frame.  The rotary motion of the casings, in particular during the pile extraction process, required significant torque to be transferred to the pile to be extracted, and required therefore the interstitial steel frame to be firmly welded to both the inner and the outer tube.  Both experts were agreed on this, although neither was able to explain in any detail the way in which the fabrication process would have been carried out.  Dr Lau had examined the design drawings for the casings (which were in Japanese) and had gleaned from those drawings that the steel used was a high strength steel; considerably stronger in his experience than that generally used for casing construction in Hong Kong.  The use of that higher strength steel implied more difficult or specialist welding techniques being required and was a large part of the reason why, in his view, the casings would need to be returned to the factory for any renovation or repair.

95.  Whether the engineering experts had discussed the grade of steel used in the construction of the casings in preparing their joint memorandum is not clear, although it is hard to understand how they prepared the joint memorandum, and formed different views as to the suitability of on site repair, without having done so.  Nevertheless it only emerged clearly during the course of the cross examination of Dr Lau that Dr Yeung did not agree that a high grade steel had been used for the fabrication of these casings.  It followed that he did not agree that repair work should only be done off‑site. In his view these casings could be site welded when necessary, just as would be the case for “regular” casings used for pile construction.

96.  To investigate this it was necessary for parts of the casing design drawings to be shown to both experts during the cross examination process. The conclusion which I draw from that evidence is that both accepted that there were various grades of steel shown as being required for the construction of these casings, some elements of the casings at the least being constructed from the higher grade of steel.  This much at least should have been reflected in the joint memorandum. Dr Yeung remained adamant that this nevertheless did not prevent site welding.  That stance is hard to square with other common ground between the experts, that the construction of the casings in the way shown on the drawings would be difficult; that the welding of the tubes to the frame was critical to the strength of the overall casing and that; as stated by Dr Yeung in his report, removal of the inner tube of the casing, if replacement was required, would be a very difficult and tedious process.

97.  On balance therefore I prefer the evidence of Dr Lau that, if substantial repair is needed to these casings, it would require factory conditions to be properly carried out. 

98.  This leads to the question debated by the experts as to whether substantial repair is indeed required.  In his report Dr Lau stated that the casings (which he had inspected together with Dr Yeung) were “... cracked and severely damaged.  They should not be used again.  Driving them into the ground by powerful rotator may cause the casing to break...”.  Mr Ariyama also said the casings were of no further practical use.  By contrast, Dr Yeung reported that the casings remained “true” and not out of roundness.  His observation was that all the casing joints remained in working condition, and his opinion was that the outward bulging visible on the inner tube of one of these casings would not preclude it being used either for pile installation or pile extraction.

99.  There was common ground between the experts that, in the event a casing became jammed underground during work, its removal to allow the work to continue was an extremely troublesome process.  Dr Lau spoke to this from his long experience running a foundation contracting company.  I accept his experience, and given that the casings have been out of the hands of the specialist contractor, SNE; have been put to use by the 1^st defendant; and acknowledging the potentially serious implications of a breakage to a casing “in use”, I also accept Dr Lau’s view that these casings would reasonably require maintenance and repair work before being put into use again. None of this however demonstrates that the condition of the casings is below the condition to be expected after several years of use or, more importantly, if below the condition to be expected that this is the “fault” of the defendants.  The damage that was debated by the experts could have been incurred at any time, or could have been part of a continuing process.  There is simply no appropriate evidence.

Lifespan

100.  According to Mr TT Cheung, the age of the casings would also affect their market rental value.  In other words, older casings would rent more cheaply than new casings.  It is not clear from his report why this should be the case, but he was not challenged on the proposition, and the plaintiff asks me to follow his approach to valuation.

101.  Dr Lau’s estimate of the working life of casings of this type, used with reasonable care by a reasonably careful operator was 10 years, whereas Dr Yeung envisaged only a five‑year lifespan.  He did not derive much assistance from a statement provided to Sugisaki Kiso Co Ltd, and exhibited by Mr Ariyama, to the effect that certain double walled casings had been used in Japan for over 10 years and remained in usable condition.  Given the lack of detail to explain that document and the circumstances of use of the casings, neither do I.

102.  I accept Dr Lau’s evidence that “ordinary” casings will have a life expectancy measured in decades, albeit with reasonably careful use, and I accept also his estimate of a lifespan of 10 years for these more specialist items.  Neither expert has specific experience of these double walled casings, although both have experience of other types of double walled casing.  There is some evidence of damage to the casings that were in use on this site after about four years of use, partly in the hands of SNE, and partly in the hands of the 1^st defendant.  Dr Yeung is of the view that these are in adequate condition for further use, and while I do not agree, as explained above, this militates against a five year lifespan being expected.  On balance, it seems to me, Dr Lau’s estimate is the more probable.

Rental value

103.  The plaintiff’s claim for the loss of the rental value of the casings was based on the rental rate agreed with SNE being such market rates.  Substantiation of that as a market rent was tendered by way of a document sourced in Japan showing daily rates for rental of casings in Japan.  This is rather weak substantiation. The rates were those applicable in Japan, not Hong Kong, although it must be borne in mind that casings of this particular type are not commonly used in Hong Kong.  The rates agreed between the plaintiff and SNE were, it appears, agreed on the basis of rates in Japan, perhaps for that reason.

104.  The defendants’ expert, Dr Yeung, simply disregarded this evidence, and made no mention of it in his report.  As indicated above, there are reasons for discounting this evidence, but it would certainly be more helpful to the court for the reasons to be set out, if an expert is of the view that evidence is of no assistance in (in this case) formulating a valuation.

105.  Dr Yeung set out alternative calculations as to what, in his view, might be a reasonable return on investment and, therefore, the rental rate for casings, based upon what he understood to be the purchase price for the casings, and assumptions as to their depreciation.  He corrected that calculation after the conclusion of his evidence. However, in my view, with or without correction, this calculation is of no assistance.  There is no evidence before the court as to the market rate for these casings, other than that tendered by the plaintiff as to the market rates available in Japan.  Dr Yeung has largely ignored that factual evidence in favour of his own assessment of the price at which casings could be rented out profitably.  The premise is that the plaintiff is entitled to compensation based on something akin to cost and an allowance for profit, not market rate.  That is not the correct approach and in any event, the assumptions made by Dr Yeung in the calculation are largely speculative.  I do not accept the approach he advocated.

106.  Mr Cheung attempted to find further corroboration of market rates through sources in Japan, and while the information he obtained was also subject to some criticism by the defendants, it is relevant, and helpful in indicating the market price for rented casings.  The only evidence available as to the market rate for casings of this type is that tendered by the plaintiff, which evidence I accept, subject to the observation that daily rental rates are, inevitably, only a very general indicator of the rates likely to be charged for longer term rentals.

107.  Accordingly, the valuation for these casings which I make is based on that set out in the quantum report of Mr Cheung at para 4.17, subject firstly to the adjustment for the number of casings demonstrated to have been taken over by the 1^st defendant.  Mr Cheung has valued 8 casings, whereas only four are established by the evidence. Mr Cheung’s valuation is therefore reduced pro-rata to HK$901,589.

108.  Mr Cheung’s calculation is made to May 2015 and the plaintiff seeks to extend that claim up to the date of recovery of the casings. There are in fact two periods of time encompassed in this therefore, the period during which the casings were in use by the 1^st defendant, (up to about July 2013) and the period following completion of the work during which the parties simply disputed the right to possession.

109.  It is reasonable, it seems to me, to conclude that the plaintiff has been deprived of the rental value of the casings (used by the 1^st defendant) in the period up to the completion of the work, which I take to be end July 2013.  Thereafter however the position is considerably less certain.  The evidence is that casings of this type are commonly used in Japan for pile removal, but only rarely so in Hong Kong.  The plaintiff has not shown that any other pile removal operations were required in Hong Kong during the later period, and has adduced no evidence as to other rates that might have been achievable for other work.  There is no evidence as to what use the plaintiff would have put these casings, or where.

110.  Mr Cheung’s valuation must be further adjusted therefore to a cut‑off date of end July 2013.  Doing so reduces the valuation of the lost rental for the four relevant casings to HK$692,412.55.

Residual value

111.  Based on the premises that substantial repair was necessary to the casing, and that this would not be an economic proposition, Mr Cheung made a valuation of the residual value of the casings based on a depreciation of the original purchase price.  The plaintiff’s entitlement to this sum would however, at the least, require it to show that the current state of repair was due to the plaintiff’s conversion or detention of the casings.  As above, it has failed to establish this.  Accordingly no valuation is to be made under this head.

Service Agreement Cost

112.  The plaintiff says that it withdrew its staff from Hong Kong following the termination of SNE’s employment, and entered into another oral agreement with SNE by which SNE were to act on behalf of the plaintiff in seeking the recovery of the casings.  This was termed a Service Agreement, and SNE were to be paid 15% of the monthly rental rate for providing this service.

113.  The claim amounts to HK$225,680.15 representing 15% of the rental fee for nine months, that is, the period between termination and the commencement of this litigation.

114.  The defendants describe this as a bogus claim, it being suggested that SNE performed (and could perform) very little to “monitor” the casings and to assist with their recovery.  Be that as it may, the Service Agreement is referred to in contemporaneous documents, and I accept that the agreement was reasonably made.  Accordingly I accept the plaintiff’s entitlement to this head of claim, in the amount referred to above.

Aggravated damages

115.  The plaintiff seeks, in addition to the compensatory damages, a sum in respect of aggravated or exemplary damages, premised on the way in which the defendants are said to have proceeded; “in a high handed manner”.  Aggravated damages are available by way of compensation for any distress or humiliation the plaintiff may be taken to have suffered over and above the simple financial damages claimed and awarded.  Exemplary damages on the other hand are not compensatory nature, but are intended to penalise the defendant for his actions.  Based upon the submissions made by the plaintiff I understand that it is punitive damages which are sought in fact.  In my judgment however no award is to be made under either categorisation.

116.  I am satisfied on the evidence that the defendants took an uncooperative attitude to the plaintiff’s requests for return of the casings.  By that stage it is clear that there was some degree of bad feeling between the Japanese parties behind SNE, SNE itself, and both defendants.  The casings claimed by SNE represented only a small proportion of the casings on site, and there was no explanation forthcoming as to why these particular casings could not have been released, perhaps subject to appropriate undertakings.  It is clear that the work could have proceeded without these casings and, as was pointed out on behalf of the plaintiff, there was no rival claim to ownership by SNE.  The defendants stood on what were mistakenly believed to be contractual entitlements, rather than properly and expeditiously investigating the plaintiff’s claims, and rather than seeking a solution which would resolve, rather than propagate, a dispute.  The motivation of the defendants was not, it seems to me, to profit at the expense of the plaintiff.  Rather it was a straightforward matter of convenience for the 1^st defendant, and quite possibly, inconveniencing the plaintiff.

117.  The defendants were not the only participant at blame however.  At an earlier stage of the work, when an advance payment was sought, SNE somewhat misrepresented the ownership position by giving the 1^st defendant to understand that these casings (and other equipment) was SNE’s property which, if true, would have made it subject to the contractual provisions upon which the defendants rely.  A careful reading of the documents which were supplied by SNE (some in Japanese) does not show ownership of the casings, but so far as the advance payment was concerned it seems that the 1^st defendant proceeded, as it was effectively invited to do, on the opposite basis.  It is therefore not wholly surprising that the defendants initially felt entitled to treat the casings as being owned by SNE.

118.  Given the intimate relationship between the plaintiff and SNE I take the view that this is a relevant circumstance to take into account, in considering a claim for aggravated damages and, in my judgment, this matter taken together with the mutual lack of cooperation that existed subsequent to SNE’s termination militates against any such award being made.  There is no evidence before me of any additional injury over and above the straightforward pecuniary loss having been suffered.  I am far from persuaded that the conduct of the defendants is such as to suggest that an order for compensation on the usual principles would not be an adequate response.

Management Costs

119.  This head of claim represents a management overhead said to have been incurred by the plaintiff by Mr Sugahara having to visit Hong Kong from time to time.  The claim is evaluated by Mr Cheung at HK$378,856.86 and this is the sum which the plaintiff seeks.

120.  The defendants submit that this is a matter of costs, not a separate head of claim.  I do not agree, but nor am I persuaded that the plaintiff has established how it is that 19 days of time, and seven round trips to and from Japan between October 2012 and July 2013 were “caused” by the wrongful detention of these casings.  It must be remembered that SNE had been retained to monitor the casings and follow up on their recovery.  I make no monetary award in respect of this head of claim.

Order for return of the casings

121.  It follows from the above that the order for the return of the casings to the plaintiff which it seeks is to be made.

Interest

122.  The plaintiff is entitled to interest from the period of conversion to the date of this judgment.  The relevant period is between September 2012 and July 2013 as referred to above, and for ease of calculation a start date at the approximate mid‑point, 1 March 2013, is to be taken.

123.  These being commercial parties, the rate is to be at 1% above the best lending rate.

Counterclaim

124.  The 1^st defendant’s counterclaim for storage costs was barely pursued at trial and, for the reasons given above cannot succeed and is dismissed.

Costs

125.  The parties were agreed that an “order nisi” should be made.  The plaintiff has succeeded against both defendants albeit in a smaller sum than claimed amounting to HK$918,092.70.  The parties have left few stones unturned in this litigation, and I will be surprised if the costs incurred are proportionate to the true value of the dispute.  A considerable effort was made by the defendants to put the plaintiff to proof.  Not inconsiderable time was taken up by matters relevant to the unsuccessful claim for aggravated damages which is also a matter to be reflected in the award of costs.

126.  Having regard to the above, and the overall success of the plaintiff in its claims, the order I make, on a nisi basis, is that the plaintiff is to recover 80% of its taxed costs.  The defendants are to be jointly and severally liable for such costs.