PROGETTO JEWELLERY CO LTD v. LAU CHIU YING AND ANOTHER

HCA 2548/2014

[2020] HKCFI 209

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2548 OF 2014

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(by original action)
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(by counterclaim)
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J U D G M E N T

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A.  INTRODUCTION

1.  The disputes herein are the disputes between two businesswomen, namely Ms Fung Pui Wa Ruby (“Ruby”) and Ms Lau Chiu Ying Joy (“Joy”).  Voluminous documents are involved in these proceedings.  For the purpose of clarity and avoiding quoting the contents of some documents mentioned in this judgment extensively, the references to these documents in the trial bundles are given in the footnotes herein.  I would first set out the factual background.

B.  BACKGROUND

2.  On 17 July 2009, Progetto Jewellery Company Limited (“PJ”) was incorporated in Hong Kong by Joy and Mr Chan Kwong Yiu Jimmy (“Jimmy”).  In August 2009, Ruby joined PJ as a shareholder and a director.  From that time onwards, Joy, Jimmy and Ruby each held 1/3 of the shares in PJ, and each of them was a director of PJ.  At or about the same time, Mr Chu Man Kit Gary (“Gary”) was employed by PJ as a sales representative.

3.  In September and October 2012, there was discussion among Joy, Ruby and Jimmy.  As a result of the discussion, Jimmy agreed to leave PJ.  On 11 October 2012, Jimmy resigned from the directorship in PJ.  There was discussion concerning purchasing Jimmy’s shareholding by PJ, but no payment has been made to Jimmy.

4.  According to Ruby, the following events occurred after the departure of Jimmy from the directorship in PJ:

(1)  On 13 October 2012, Ruby was informed by Joy that the value of each shareholder’s shares was about HK$3.7 million.

(2)  In late October 2012, Ruby found that most jewellery items in the safe (“the Safe”) inside PJ’s office (“the Office”) had been taken away.  The remaining items were insufficient for the purpose of giving Jimmy the value of his shares in PJ.

(3)  After Jimmy ceased to be a director of PJ, Joy became in charge of the financial matters, including bookkeeping, of PJ.

(4)  From 6 December 2012 to 23 November 2013, Joy made unauthorized withdrawals from PJ’s bank account, the total of which being HK$568,655.53 and €12,673.75.

(5)  From 11 December 2012 to 10 May 2013, Joy on behalf of PJ purchased 7 pieces of GIA certified diamonds (“the GIA Diamonds”) at HK$180,521.65.

5.  In January 2013, there was a jewellery exhibition in Italy (“the 2013 Italy Exhibition”).  Joy, Gary and Ms Liu Yip Lam Momoko (“Momoko”, PJ’s accounting staff) took the majority of PJ’s jewellery items from Hong Kong to the exhibition.  While they were on the way to Italy, Joy took 234 jewellery items from a customer of PJ in London, and brought the 234 jewellery items to Italy.  The 234 jewellery items were PJ’s goods previously on consignment with that customer.  Joy did not declare the 234 items when she entered Italy, and as a result the 234 items (“the Undeclared Items”) were seized by the Italian customs (“the Seizure Incident”).  According to Ruby, after the Seizure Incident, customers, particularly Italian customers, became less willing to place orders with PJ as they were worried that similar incidents might occur to their items purchased with PJ.

6.  Ruby claims that from February to May 2013, Joy sent 5 of the 7 GIA Diamonds for reworking into finished jewellery items.  Joy collected the finished items but did not account for their values to PJ.  Joy sold the remaining 2 GIA Diamonds without accounting part of their value to PJ.

7.  On 18 March 2013, Joy Design Company Limited (“JD”) was incorporated in Hong Kong.  JD’s sole shareholder is Ms Lau Chiu Ling (“CL”), Joy’s younger sister.  Joy was the sole director of JD from 18 March 2013 to 16 June 2014.  On 16 June 2014, CL replaced Joy as the sole director of JD.  According to Ruby, JD was established pursuant to the suggestion made by Joy.  The idea was using JD as the agent or nominee of PJ for the sole purpose of facilitating PJ’s business by shipping out the goods in JD’s name for the benefit of PJ. The purpose of this arrangement is to minimize the impact of the Seizure Incident on the business of PJ.  According to Joy, although JD would sell items on behalf of PJ, JD has its own goods and its own business.

8.  On 11 December 2013, Ruby sent a message to Joy complaining Gary’s attitude and performance at work.  Joy replied expressing her annoyance by Ruby’s message and requested for dissolution of PJ.  On 28 December 2013, Ruby requested Joy to provide her an update on the calculation of the market value of PJ’s shares.  On 6 January 2014, Ruby was informed that her shares in PJ were worth about HK$1.7 million.  A valuation report (“the 6 Jan 2014 Valuation Report”) prepared by Momoko[1] and a Warehouse Balance Report of PJ (“the 6 Jan 2014 Warehouse Balance Report”) prepared by Momoko under Joy’s instruction were shown to Ruby.

9.  In January 2014, Joy and Gary attended the jewellery exhibition in Italy (“the 2014 Italy Exhibition”).  They took the finished products in the Safe and brought them to Italy.  According to Joy, after coming back to Hong Kong, she has returned all the unsold items to the Safe.

10.  According to Ruby, JD has misappropriated PJ’s finished products displayed in the 2014 Italy Exhibition by treating the same as JD’s own goods and selling the same to customers in the name of JD, thereby diverting business from PJ to JD.

11.  In March 2014, there was an exhibition held by Hong Kong Trade Development Council (“HKTDC”).  PJ had applied for a booth in that exhibition and paid a deposit of HK$93,098.60 to HKTDC.  However, eventually no one from PJ attended the exhibition.  As a result, the deposit was forfeited by HKTDC. Ruby claims that Joy was responsible for attending the exhibition on behalf of PJ, and Joy has failed to discharge her duty, causing loss to PJ.

12.  In March 2014, Ruby made a report to the police.  Ruby claims that Joy has misappropriated the jewellery items and the loose diamonds in the Safe.  According to Ruby, Joy has also taken away a lot of company records of PJ and a laptop computer belonging to PJ (“the Laptop Computer”).

13.  In mid-June 2014, Joy returned the Laptop Computer and some documents to PJ.

14.  The parties have managed to reach an agreement on some facts.  The Amended Agreed Facts and the Agreed CCTV Events are annexed hereto. 

15.  In compliance with the direction previously given by the court, the parties have prepared a Scott schedule (“the Scott Schedule”), in which the parties have set out the questions requiring adjudication by the court.

C.  THE PARTIES’ RESPECTIVE CASES

16.  In these proceedings, PJ has made the following claims against Joy:

(1)  Sale proceeds, receivables and assets

Joy has failed to account for PJ’s sale proceeds and receivables (“Unaccounted Sales”), and has misappropriated PJ’s assets (“Misappropriation Claim”)

(2)  HKTDC Exhibition

Joy failed to attend the 2014 HKTDC Exhibition on behalf of PJ, causing loss to PJ.

(3)  GIA Diamonds

Joy failed to account for the 5 GIA Diamonds, and the sale proceeds of the other 2.

(4)  Confidential information

Joy failed to return the documents containing confidential information to PJ.

(5)  Seizure Incident

The loss suffered by PJ in the Seizure Incident was caused by Joy’s negligence.

(6)  Unauthorized withdrawals

       From 6 December 2012 to 23 November 2013, Joy has made unauthorized withdrawals from PJ’s bank account.

17.  In response to these claims, Joy’s defence is as follows:

(1)  Unaccounted Sales and the Misappropriation Claim:

Joy denies these allegations.

(2)  HKTDC Exhibition

Joy claims that she should not be responsible for PJ’s failure in attending the HKTDC Exhibition.

(3)  GIA Diamonds

Joy denies this allegation.

(4)  Confidential information

Joy claims that all the documents and the Laptop Computer inadvertently taken away by her have already been returned to PJ.

(5)  Seizure Incident

Joy claims that there is no negligence on her part in the Seizure Incident.

(6)  Unauthorized withdrawals

Joy claims that the withdrawals are for legitimate purposes and are proper withdrawals.

18.  PJ has also made the following claims against JD:

(1)  JD was PJ’s agent or nominee, but it has breached the duties owed to PJ by failing to account for customers’ payments due to PJ.  Accordingly, JD is also liable to PJ for the Unaccounted Sales.

(2)  JD has also diverted PJ’s jewellery items (“the Diverted Jewellery Items”).

19.  JD’s defence is that JD was set up as a separate business “for the mutual benefit of Ruby and Joy”[2], and JD was not PJ’s agent or nominee.  JD has its own jewellery items and business.

20.  JD raises the following counterclaims:

(1)  Against PJ

JD counterclaims against PJ for the reimbursement of some purchases made by JD for PJ.

(2)  Against Ruby and PJ:

JD counterclaims against Ruby and PJ for the return of some jewellery items stored in the Safe (“the JD Jewellery Items”).  According to JD, these are JD’s properties.

21.  JD’s counterclaims are denied by Ruby and PJ.

22.  PJ has called Ruby and Jimmy to give evidence in support of PJ’s case.  Joy and JD (“Ds”) have arranged Joy, Gary and Momoko to give evidence in support of their case.  Ruby has given evidence in support of her own case in JD’s counterclaim.

23.  Mr Tom Ng for PJ submits that the following claims can be dealt with in one go:

(1)  PJ’s claim for the Unaccounted Sales

(2)  PJ’s claim for the Missing Jewelleries;

(3)  PJ’s claim for the Diverted Jewellery Items; and

(4)  JD’s counterclaim for the JD Jewellery Items.

24.  Mr Ng submits that the theory in PJ’s case (“the PJ’s Theory”) is as follows:

(1)  The starting point is the stock PJ had from October 2012 to December 2013. The figure can be obtained by adding (a) the value of the stock as at October 2012, and (b) the stock PJ received from October 2012 to December 2013. According to PJ’s case, the total sale price of these stock items is around HK$24.5 million.

(2)  The “closing stock” – namely the total selling price of the stock PJ had in March 2014 – is then deducted. According to the stock-taking conducted by Jimmy in March 2014, PJ had “closing stock” with a total sale price of around HK$6 million.

(3)  The above shows that stock items with a total sale price of around HK$18 million were transferred away. The question is what happened to these HK$18 million stock items.

(4)  Mr Ng’s submits that even on Ds’ own case, there was no more than HK$6.4 million stock (HK$6.4 million being the total sale price of all the stock owned by PJ and JD according to Ds’ case) on 6 January 2014, as per the 6 Jan 2014 Warehouse Balance Report and the 6 Jan 2014 Valuation Report.  Mr Ng submits that accordingly, even on Ds’ own case, there are still at least HK$18 million stock items to be accounted for.

(5)  The following matters are accepted by PJ:

(a)        The stock items to be accounted for include the Undeclared Items seized by the Italy customs in the Seizure Incident.  The value (ie the sale price) of the Undeclared Items is about HK$2 million.

(b)       Some of the stock items were sold and PJ has received HK$5,253,044.06.[3]

(6)  The value of the remaining stock to be accounted (“Remaining Stock to be Accounted”) is about HK$11 million.  Mr Ng’s submits that the Remaining Stock to be Accounted is the Missing Jewelleries misappropriated by Joy and the Unaccounted sales.  Details of Mr Ng’s submissions are as follows:

 

Description	Sale Price (HK$) (assuming a 30% profit margin)	Evidence
Jewellery items from October 2012 to 31 December 2013	$24,565,047.72 - $364,277.33[4] = $24,200,770.39	Jimmy’s October 2012 valuation[5], supported by the October 2012 warehouse reports[6] + “work orders” showing the stock from October 2012 to December 2013[7]
Less: Closing stock as at March 2014	($6,026,824.27)	Stock-taking in the presence of the police in March 2014. Joy’s own case is that, on 6 January 2014, there were only stock items of PJ and JD with a total “marked selling price” of not more than $6,410,153.86[8].
Stock to be Accounted	$18,173,946.12
Less: Undeclared Items	($2,095,839.75)	The seizure of the Undeclared Items is agreed. Costs of the items: see 6 Jan 2014 Warehouse Balance Report[9]
Less: Accounted sales	($5,253,044.06)	Actual income receipts in the bank statements from October 2012 to March 2014[10], minus the receivables as at October 2012[11]. There is no change to this figure after taking all PJ’s bank statements up to May 2017 into account[12].
Remaining Stock to be Accounted	$10,825,062.31
Less: Missing Jewelleries (excluding loose diamonds)	($2,778,698.33)	Items: in the 6 Jan 2014 Warehouse Balance Report[13], but not in the Office
Unaccounted Sales	$8,046,363.98	Based on the above According to Joy, there is a “a draft account receivables of the Plaintiff prepared by Momoko Liu”[14], showing more than HK$11 million account receivables in 2013 and 2014[15]. Historically, PJ’s yearly revenue for the 2011 and 2012 financial years exceeded HK$20 million[16].

25.  I will examine whether the PJ’s Theory suggested by Mr Ng can be proved by the evidence accepted by this court.

D.       THE PRINCIPLES

26.  Issues in a litigation is defined by pleadings. One cannot slip in an unpleaded issue by saying that there is evidence on the issue. That has been firmly stated by the Court of Final Appeal in Kwok Chin Wing v 21 Holdings Ltd ^[17], in which Ma CJ said:

“21. It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues: Wing Hang Bank Ltd v Crystal Jet International Ltd [2005] 2 HKLRD 795, 799 [6(1)]. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Ltd v Crystal Jet International Ltd at 799 [6(2)]:

(2) In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.

22.   … one does not sift through the evidence adduced in a trial in the hope that something was said that can conceivably found a cause of action. Issues, I would reiterate, must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings.”       

27.  The aforesaid principle has also been mentioned by the Court of Appeal in Chan Kong v Chan Li Chai Medical Factory (Hong Kong) Ltd ^[18], [15] and [16].

28.  In respect of evaluating the evidence given by witnesses, a valuable guidance has been given by DHCJ Eugene Fung SC in Hui Cheung Fai and another v Daiwa Development Limited^[19], in which the learned judge said:-

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) ……

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: e.g. Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80.    I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).”

29.  Similar guidelines can also be found in Lee Fu Wing v Yau Po Ting Paul [2009] 5 HKLRD 513, in which DHCJ Au (as he then was) said:-

“53. In assessing the credibility of a party’s case on a particular issue, I accept the submissions of [counsel] that the Court should take into considerations the following:-

(1) Whether the party’s case is inherently plausible or implausible.

(2) Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4) The demeanour of the witnesses.”

30.  If a witness has told lies on a central issue, that may have a significant adverse impact on the credibility of his or her evidence as a whole.  As said by Sir John Dyson in MA (Somalia) v Secretary of State for the Home Department[20]:

“31. ....... where a claimant tells lies on a central issue, his or her case will not be saved by general evidence unless that evidence is extremely strong. It is only evidence of that kind which will be sufficient to counteract the negative pull of the lie. But much depends on the bearing that the lie has on the case……

32. Where the appellant has given a totally incredible account of the relevant facts, the tribunal must decide what weight to give to the lie, as well as to all the other evidence in the case, including the general evidence……

33.   ...... where the appellant tells lies on a central issue in the case, the [tribunal] may conclude that they are of great significance……It will be a matter for the [tribunal] to decide whether the general evidence is sufficiently strong to counteract what we have called the negative pull of the appellant’s lies.”

31.  In a civil litigation in which a serious allegation such as fraud is made, evidence proving the allegation must show a preponderance of probability.  The degree of probability must be commensurate with the occasion. However, that does not mean that the court is looking for a degree of probability higher than the civil standard. Rather, it means that the more inherently improbable the act in question, the more compelling would be the evidence needed to satisfy the court on a preponderance of probability[21].

E.  EVIDENCE FROM THE WITNESSES

32.  In PJ, Joy was responsible for, inter alia, finances and bookkeeping, dealing with customers, promotion and marketing, arranging and making payment of expenses, dealing with tax issues, and purchasing insurance coverage for PJ.  Joy was also responsible for attending and arranging goods to be displayed in overseas exhibitions on behalf of PJ, including the 2013 Italy Exhibition and the 2014 Italy Exhibition, and attending and arranging goods to be displayed in local exhibitions on behalf of PJ, including the exhibition organized by the HKTDC in March 2014 (“the HKTDC Exhibition”).  After Jimmy ceased to be a director of PJ, Joy was in sole charge of PJ’s finances and bookkeeping and payment of PJ’s expenses including suppliers’ invoices.

33.  Ruby was responsible for dealing with PJ’s suppliers in Mainland China and Hong Kong, purchasing materials, quality control (for both loose diamonds and finished items), controlling material inventory and matching material colours.

34.  Jimmy has a bachelor degree in accounting and statistics. When he was a director of PJ, he was responsible for sales and dealing with financial matters of PJ.  

35.  After Jimmy ceased to be a director of PJ, Gary worked under the supervision and direction of Joy, and was responsible for, inter alia, calculating the cost of finished items, stock control and compilation of PJ’s inventory in PJ’s computer system, and assumed the responsibility of administering PJ’s computer security measures, including updating the password in PJ’s computer system from time to time, and preparing carnet documentation.

36.  Momoko dealt with the bookkeeping and accounting aspect, and reported to Joy.

37.  Having seen and heard the evidence given by the witnesses, I am of the view that Ruby and Jimmy are honest and reliable witnesses.  Their evidence is broadly consistent with the documents.  On the other hand, I am of the view that Joy is an untruthful and unreliable witness. Her evidence is contradicted by documents and the CCTV evidence on various material aspects and cannot be true.  Likewise, Gary’s evidence and Momoko’s evidence are contradicted by documents and the CCTV evidence on material aspects.  I do not regard their evidence as truthful and reliable.  In respect of any conflict between the evidence given by Ruby and Jimmy on the one hand and the evidence given by Ds’ witnesses on the other hand, I prefer the former.

F.  NO SPECIFIC DISCOVERY APPLICATION BY Ds

38.  I would first deal with an allegation made by Joy throughout the trial.  In this case, from time to time Joy claimed that she was unable to tell the details of some matters, for she had no access to the documents now in PJ’s or Ruby’s possession.  This is an allegation against PJ and Ruby, accusing them of failing to disclose documents relevant to the issues in these proceedings.

39.  In my judgment, this allegation must be rejected.  As a matter of fact, Ds have never made an application for specific discovery against PJ and/or Ruby in these proceedings.  Bearing in mind that Ds are legally represented at all times in these proceedings, if there is any truth in this allegation, no doubt Ds would have made an application for specific discovery against PJ and Ruby.  During the final submission stage, I have put this question to Mr Michael Lee for Ds, and Mr Lee was unable to offer an answer on the question.  Obviously, there is no truth in the allegation at all.

40.  A related point is the assertion made by Momoko in her evidence, ie Joy was excluded from the Office in February 2014. The purpose of this assertion is trying to lend support to Joy’s allegation that Joy had no access to the documents in PJ’s possession.  Momoko’s assertion is obviously untrue.  As shown in the Agreed CCTV Events, Joy and Momoko entered the office on 17, 19 and 27 February 2014. 

G.       PJ’s THEORY

41.  As set out in the above, the PJ’s Theory covers PJ’s claim for the Unaccounted Sales, the Missing Jewelleries, and the Diverted Jewellery Items, and JD’s counterclaim for the JD Jewellery Items.  I would now examine whether PJ has proved this theory.

42.  The starting point of the PJ’s theory is the finished goods PJ had by December 2013. PJ obtained the figure by adding (a) the value of the stock as at October 2012 as shown in the Warehouse Balance Report at that time; and (b) the stock PJ received from October 2012 to December 2013, as shown in the work orders from one of the workshops used by PJ[22]. Based upon these documents, PJ claims that the total sale price of the stock items in PJ’s possession as at December 2013 should be about HK$24 million, with the assumption that PJ would make a profit of 30% in selling these items.  For the reasons given in [85] to [88] below, I accept the 30% profit margin proposed by PJ.  I accept the calculation as suggested by PJ, as the calculation is based upon figures in the documents which are not disputed. 

43.  In March 2014, Ruby made a report to the police.  It is an agreed fact that on 13 March 2014, police were called to the Office and there was a stock-taking in the presence of the police. According to PJ, 874 finished items were found in the Safe.  This figure was far less than the figure of 1,100 as shown on the 6 Jan 2014 Warehouse Balance Report.  According to Jimmy, the total of the sale price of the items remaining in the Safe on 13 March 2014 would be about HK$6 million.

44.  According to Ds’ case, as shown in the 6 Jan 2014 Warehouse Balance Report and in the 6 Jan 2014 Valuation Report, the total of the selling price of the stock items in PJ’s possession at that time was about HK$6.4 million.

45.  As said before, I prefer the evidence given by Ruby and Jimmy.  In any event, Mr Ng is correct in saying that there are Remaining Stock to be Accounted.  Taking into the account the aforesaid and the undisputed matters as set out in [24(5)] above, I agree that the total value of the Remaining Stock to be Accounted should be about HK$11 million.

46.  It is PJ’s case that the Remaining Stock to be Accounted is divided into 2 categories:

(1)  Misappropriated Claim – the items under this head are the finished products allegedly misappropriated by Joy, the 117 items sold in the 2014 Italy Exhibition, and some loose diamonds allegedly misappropriated by Joy;

(2)  Unaccounted Sales - stock items sold by Joy or JD on behalf of PJ, but they have failed to account for the sale proceeds.

G1. The Misappropriation Claim

47.  There is no direct evidence proving the Misappropriation Claim made by PJ.  Mr Ng does not dispute this.  However, Mr Ng submits that there are some facts proved by solid evidence, and in the light of those facts, the preponderance of probability is that the matters in the Misappropriation Claim suggested by PJ did occur. 

48.  Mr Ng submits that some of PJ’s finished products indeed have been misappropriated.  Mr Ng’s submission is that by comparing the number of finished products on the 6 Jan 2014 Warehouse Balance Report prepared by Joy with the number of finished products in the Safe as found in the stock-taking done in the presence of the police on 13 March 2014, it is clear that some of the finished products have been misappropriated between 6 January 2014 and 13 March 2014.

(1)  PJ’s case is that the number of finished products as shown on the 6 Jan 2014 Warehouse Balance Report is 1161, and 316 items shown in the report were not found in the stock-taking exercise conducted on 13 March 2014.  The number of finished products as found in the stock-taking exercise done on 13 March 2014 is 874, among which 29 items are not on the 6 Jan 2014 Warehouse Balance Report but are found in the Office.

(2)  Joy in her evidence said that there should be 1022 items of finished products after the 2014 Italy Exhibition, and she said during cross-examination that she believed that the figure provided by the police in March or April 2014 (around 800 items) should be reliable.

(3)  Mr Ng submits that, either way, some of PJ’s finished products have been misappropriated.

49.  I accept Mr Ng’s submissions.  To use a more neutral term, I would say that some of the PJ’s finished products must have been taken away between 6 January 2014 and 13 March 2014.  On the basis of the evidence accepted by this court (including the evidence given by Ruby and Jimmy), I find that the number of finished products which have been taken away is 316.  Based on the costs as set out in the 6 Jan 2014 Warehouse Balance Report, the sale price of these 316 items would be HK$2,137,460.25 x 130%=HK$2,778,698.33.

50.  The 316 items include the 117 items sold in the 2014 Italy Exhibition.  As to the remaining 199 items, the question is who has taken away these items, at what time and by what means.

51.  In her evidence, Joy said that she took away almost all the finished products in the Safe on 15 January 2014 for the purpose of brining the same to the 2014 Italy Exhibition.  Joy claimed that in the 2014 Italy exhibition, 117 items were sold.  In her first witness statement dated 7 July 2016, she said at [50]:

“After I returned from Italy, the 117 items were shipped to the customers as it was prohibited to sell items directly at the exhibition. The remaining items were returned to the Office on about 27 January 2014 in the presence of Ruby. Accordingly, there should be about 807 pieces in the Safe. This is consistent with what I was told by the police after the alleged theft that there were about 800 pieces remaining in the Safe.” (Emphasis added)

52.  Ruby in her evidence said that she went back to the Office to have a check on 1 February 2014.  At that time, she found that the Laptop Computer, a table and 4 chairs were missing.  Ruby went to see the Safe and found a handwritten note left by Joy, in which Joy said that the Safe should be opened by using the new key attached to that note.  Ruby opened the Safe and found that many finished products and loose diamonds were not in the Safe.  The Safe had not been damaged at all.  Looking at the environment, Ruby believed that no one had broken into the Office and stole the valuables in the Safe.  At the time, Ruby thought that probably Joy had taken the good to the exhibition and had not yet returned the same to the Safe.  Ruby was also under the impression that Joy had lost the key to the Safe, and so Joy had changed the lock to the Safe.  Thereafter, Ruby tried to contact Joy by phone several times, but Joy did not pick up the phone each and every time.

53.  PJ’s case is that (a) Joy did not return all the unsold finished products (“the unsold items”) to the Safe after the 2014 Italy Exhibition; and/or (b) Joy took away some unsold items and some loose diamonds on or after 27 January 2014.

54.  In respect of returning the unsold items to the Safe after the 2014 Italy Exhibition, Joy and Gary have given the following evidence:

(1)  Joy’s evidence as per her first witness statement dated 7 July 2016:

“51. After we returned from the 2^nd Italian Exhibition, Gary and I were performing a stock take on or about 27 Jan 2014 with all the items we took for the exhibitions. However, we were unable to finish the report as Ruby had shouted at Gary.

52. On or about 15 January 2014, I lost my keys which included the key to the Safe. After I returned from the 2nd Italian Exhibition, I asked Safelock Limited (the “Locksmith”) to replace the lock on the Safe. A master key and a key blade must be used together in order to access the Safe. A new master key and two new key blades were provided by the Locksmith. I kept one of the key blades and in order to make sure that Ruby also had access to the Safe, I left the master key in the room where the Safe is located and placed the other key blade on the Safe with a note to Ruby telling her that I had replaced the lock. There is now shown to me marked “LCY-19” copies of photographs of the note and the key blade and an invoice issued by the Locksmith for replacing the lock.

…………

54.   On or about 28^th January 2014, Gary was dismissed by Progetto and he decided to work for Joy Design (which shared the same office as Progetto as mentioned hereinabove). Because of the deteriorated relationship between himself and Ruby, he no longer could work together with Ruby at the Office. Therefore, I was urgently and desperately looking for a place in order to allow me to move in immediately to continue to conduct my business with minimal disruption and so that Gary could carry on his work effectively for Joy Design. Fortunately, the landlord of the Office knew about my situation and kindly offered to let a vacant unit close to the Office which was also owned by the same landlord. Therefore I accepted the landlord’s offer. I subsequently moved to another unit which was owned by the same landlord in the same building.”

(2)  Gary’s evidence as per his witness statement dated 8 July 2016:

“25. After I returned from the Business Trip in January 2014, I recall going back to the Office on or about 27^th January 2014 to return the Finished Items to the Safe and to tidy up the paperwork and prepared the shipping invoices i.e. SI000708-SI000713. Joy was working with me in Office.

26. However, Ruby shouted at me when she came to the Office when she saw me working there. She used her mobile phone to take photos of me without any reason and told me not to show up in the Office anymore. I told Joy that I did not want to stay in the office with Ruby anymore. After that, Joy had asked the landlord's help and rented a unit next to the Office for a month till end of February 2014.

27.   After the termination of my employment with Progetto, I worked for Joy Design until 31^st July 2015, also as a salesman.”

55.  In the light of the CCTV evidence, it is indisputable that Joy and Gary did not return the unsold items to the Safe on 27 January 2014.  As shown in the CCTV recording, on 27 January 2014, Gary and Joy entered the Office at 12:34:50 and 14:28:15 respectively. They did not open the Safe and no stock-taking was done. Ruby did not come back to the Office on 27 January 2014 at all.  Accordingly, it would not be possible to return the goods to the Safe in the presence of Ruby on that date.  At the final submission stage, Mr Lee for Ds has accepted that there was no return of the goods to the Safe on 27 January 2014.

56.  Further, as shown in the CCTV evidence, on 28 January 2014, Joy did not return the unsold items to the Safe in the presence of Ruby. On that date, Ruby entered the Office at 11:57:15 and opened the Safe at 11:59:04.  Joy came back at 12:06:18. Ruby left at 12:12:56, and returned at 12:14:25, and then left at 12:15:03.  During the period from 11:57:15 to 12:15:03, Joy or Gary did not enter the room in which the Safe was located.  Joy claimed that the true meaning of the words “in the presence of Ruby” in [50] of her witness statement dated 7 July 2016 was that when she returned the finished products to the Safe, Ruby was at a place inside the Office, but Ruby did not witness the return of the goods to the Safe.  In my judgment, this is a recent invention made up by Joy and is untrue.  Realizing that her evidence in the witness statement is contradicted by the CCTV evidence, Joy made up this excuse to try to save her case.  Joy was unable to tell when she was returning the unsold items to the Safe, Ruby was at which place inside the Office, and why Joy knew that Ruby was at that place at that time.  The plain meaning of the words “in the presence of Ruby” must be being witnessed by Ruby. The excuse told by Joy in the witness box is contrived and cannot be true.

57.  It is most unfortunate that the CCTV did not function in the afternoon on 24 January 2014.  There is no CCTV recording on 28 January 2014 from 13:21:35 to 19:30:20. Joy was the last person who appeared on the screen before the CCTV went off at 13:19:58, and was the first person who appeared on the screen after the CCTV came back at 19:33:45.  As to why the CCTV did not operate in that afternoon, I refrain from making any speculation.  On that date, eventually, Joy and a woman left the Office at 19:45:59.  According to Ds, that woman is Momoko.

58.  I refuse to accept Joy’s and Gary’s evidence in respect of the events on 27 and 28 January 2014 for the following reasons.

59.  First, Joy said that that she should have prepared a list of the unsold items, and Gary also said that that he was trying to complete the “return goods” procedure. They alleged that they were however unable or unwilling to do so because of the conduct of the “emotionally unstable” Ruby. In my view, this allegation is not true.

(1)  As said before, as shown in the CCTV evidence, Ruby did not come back to the Office at all on 27 January 2014.  Hence, there could not be any confrontation between Joy and Gary on the one hand and Ruby on the other hand on that date.

(2)  As shown in the CCTV evidence, the confrontation alleged by Gary in his evidence occurred on 28 January 2014 at about 12:00:08, which lasted for only 34 seconds. During that short period, Gary was working at his desk, and Ruby took out her mobile phone to take photos of Gary.  No sound has been recorded in the CCTV recording, and hence the exchanges between Ruby and Gary during this short period are not known. However, as shown in the CCTV recording, there was no big quarrel between Ruby and Gary. Gary stayed in the Office for at least another hour after the alleged confrontation. Gary remained calm despite being allegedly fired by Ruby. According to Gary, he did not even ask about the details of the dismissal, for example, whether notice period or payment in lieu of notice was to be given. Gary could not be affected by the so-called confrontation.

(3)  Joy mentioned that there was a confrontation between her and Ruby, and as a result, Joy had to leave the Office urgently. The alleged confrontation must have taken place on 28 January 2014, at a time between 12:06:18 and 12:12;56, or at a time between 12:14:25 and 12:15:03.  Ruby and Joy were both in the Office during the aforesaid timeslots. Gary however had no recollection of the alleged confrontation.

(4)  While she was giving evidence in the witness box, Joy claimed that there might be another confrontation concerning firing Gary between her and Ruby in the afternoon on 28 January 2014.  In my judgment, this was a recent invention made up by Joy while she was giving evidence in the witness box.  Joy has never mentioned that there was another confrontation between her and Ruby in the afternoon on 28 January 2014 in all her witness statements. It is inherently improbable that Joy would have failed to mention this “afternoon confrontation” in all her witness statements if there is any truth therein.  According to her, as a result of the confrontation, she had to leave the Office immediately.  So she must have a clear memory of the confrontation, including the time and the persons involved in the confrontation (ie whether the confrontation took place in the presence of Gary and/or some other persons).  There is not a word on this alleged “afternoon confrontation” in all the witness statements made by Joy.

(5)  During the final submission stage, Mr Lee has agreed that that the return of the goods to the Safe did not take place on 27 January 2014, or at any time on 28 January 2014 while the CCTV was functioning.  However, Mr Lee submits that the return of the goods to the Safe occurred in the afternoon on 28 January 2014.  With respect, there is not a word in any of the witness statement of Joy saying that Joy returned the good to the Safe in the afternoon on 28 January 2014, and at that time Ruby was in the Office.

(6)  Joy and Gary in fact had sufficient time to complete “return goods” process on 27 and 28 January 2014.  According to Gary, the entire process could have been completed within 1 to 1.5 days by 2 persons.

60.  Second, there is no reason why Joy did not return all the goods to PJ on 27 January 2014.  Obviously, the goods taken to Italy are valuable assets.  Joy claimed that it was perfectly alright for the stock to be possessed by her personally. She said that, because the stock was possessed by her personally during an exhibition, it was perfectly alright for her to possess the stock after she came back to Hong Kong.  I must say that this is an answer defying common sense.  Given that the goods are valuable assets, the same must be kept in a safe place at all times. Joy in fact went back to the Office on 27 January 2014.  There is no reason why she did not bring back all the goods to the Office at the same time, given that the Office was secured by various security measures. Further, while Joy allegedly lost her key to the Safe, Joy could have called Ruby to open the Safe at any time.

61.  Third, in respect of the allegation made by Joy in her witness statement dated 7 July 2016 that the unsold items were returned to the Safe “in the presence of Ruby”, I have concluded that this is not true, and the explanation given by Joy while she was giving evidence is contrived and untrue.

62.  Ms Catherine Wong and Mr Michael Lee for Ds in their written submissions say that:

(1)  The CCTV evidence shows that after 28 January 2014, Joy had not opened the Safe.  On the contrary, Ruby had opened the Safe and took out the items on numerous occasions after 1 February 2014. On some occasions, Ruby opened the Safe with Jimmy and other non-PJ staff members being present and took items out from the Safe.

(2)  In the circumstances, it would not be fair to hold Joy accountable for the missing finished products, if any.

(3)  Ruby said that on 1 February 2014, she felt that some of the finished products were gone but she made no complaint.  Ruby’s explanation was that she thought Joy took away the finished products for the HKTDC Exhibition. This explanation is not believable, for the HKTDC Exhibition was scheduled to take place in Hong Kong between 5 to 9 March 2014. It would be absurd for Ruby to think that Joy had taken the finished products out of the Safe for the whole of February.  Further, it would be absurd for Ruby to believe that Joy would only take away 316 items to attend the HKTDC Exhibition, leaving 800 odd finished items in the Safe.

(4)  Further, since 1 February 2014, Ruby placed the master key to the Safe at a place other than the usual place so that Joy could not have access to the Safe, so Joy could not have misappropriated the finished items.

(5)  It is also illogical to suggest that Joy misappropriated the finished products, for had Joy intended to misappropriate the finished products after the 2014 Italy Exhibition, Joy would not have come back to place the finished products in the Safe, changed the lock to the Safe and left the new key to Ruby. These acts would be to enable Ruby to access these products rather than to be of any evil purpose.

63.  With respect to Ms Wong and Mr Lee, I am of the view that Joy is not able to derive any assistance from these points.

(1)  As a result of my rejection of Joy’s evidence and Gary’s evidence in respect of the events on 27 and 28 January 2014, there is no evidence before this court showing that Joy indeed has returned all the unsold items to PJ.  Bearing in mind that (a) there were more than 1,100 finished products in the Safe as at 6 January 2014[23]; (b) Joy has taken almost all of the finished products in the Safe to the 2014 Italy Exhibition[24]; (c) 117 items were sold in the 2014 Italy Exhibition[25]; (d) in March 2014, only about 800 finished items were found in the Safe; and (e) no evidence showing that Joy has returned all the unsold items to the Safe, the inevitable conclusion is that Joy must have taken away some of the unsold items.

(2)  Although the CCTV evidence shows that Ruby opened the Safe on several occasions after 1 February 2014, there is no CCTV evidence showing Ruby or anyone together with her has taken away anything from the Office.

(3)  In my view, Ruby did not say that she thought that Joy had taken away the finished products for the HKTDC Exhibition.  Ruby’s evidence is that on 1 February 2014, when she found that many finished products and loose diamonds were missing, she thought that Joy had taken away these items for the exhibition.  In context, the exhibition should be the 2014 Italy Exhibition[26].

(4)  Ruby’s evidence is that she did not hide the master key to the Safe from Joy at any time.  In any event, by the reason stated in subparagraph (1) above, whether Joy could have any access to the Safe would not change the conclusion that she had not returned some of the unsold items to PJ after the 2014 Italy Exhibition.

(5)  Realistically, Joy could not refuse to give the new key to the Safe to Ruby, as Ruby was still a director and a shareholder of PJ.  One may also ask, if Joy has nothing to hide, she could in fact ask Ruby to witness the return of all the unsold items to the Safe, ie to return the goods really in the presence of Ruby.  But Joy did not do so.

64.  In my judgment, based upon the evidence accepted by this court, Joy has misappropriated the 199 unsold items mentioned in the above.

65.  Mr Ng also submits that in respect of loose diamonds, some of these items have also been misappropriated between 6 January 2014 and 13 March 2014.  Mr Ng has prepared the table below showing the quantity of the loose diamonds in PJ’s possession as at 6 January 2014 (the documents mentioned in the table are the relevant invoices, which are the basis of the 6 Jan 2014 Valuation Report) and the quantity found in March 2014 and reported to the police by Ruby:

Stone	Cts
Bundle C2 /442		442-6/7	442-8	442-9/10	442-11	Total Cts	Reported (474)	Difference
Ruby	Round	344.54		0.60		345.14	341.42	-3.72
	Princess	17.99		2.08		20.07	17.99	-2.08
Sapphire	Round	406.62		0.09 1.39		408.1	401.67	-6.43
	Princess	3.93		1.94		5.87	3.93	-1.94
	Pink	2.67				2.67	2.67	0.00
Emerald	Round	183.56		0.30		183.86	183.15	-0.71
	Princess	2.71		0.49		3.20	2.70	-0.50
						968.91	953.53	-15.38
								Reported loss to police: 15.37 (475)
White Dia	Princess	4.95	0.85 0.52	0.63		6.95	4.40	-2.55
	Round -2	10.85	0.63	3.54	7.54	22.56	35.6	-48.91
	Round 2-6		3.76	8.84	18.86	31.46
	Round 6-11		8.69	2.48	5.01	16.18
	Round 11-14		2.24		1.81	4.05
	Round +14			2.19	3.25	5.44
	Round +20				1.58	1.58
	Round +25			1.20	2.04	3.24
						91.46	40.00	-51.46
								Reported loss to police: 48.43 (475)

66.  In respect of the missing loose diamonds, originally PJ included a claim for some missing black diamonds under this head, but the claim was abandoned in the middle of the trial.  The claim was abandoned because according to the 6 Jan 2014 Valuation Report, the quantity of black diamonds in PJ’s possession should be 109.54 ct.  In the stock-taking exercise conducted on 13 March 2014, the quantity found was 130.97 ct.  In other words, there was an increase in quantity of +21.43 ct.

67.  The quantities of the loose diamonds in PJ’s possession as stated in the 6 Jan 2014 Valuation Report in fact were copied from the information in the documents kept by Ruby.  The example concerning the black diamonds as set out in the paragraph above casts doubt on the accuracy of those documents.  In the premises, I am not satisfied that there is solid evidence proving the claim of misappropriation of the loose diamonds. 

G2. Diverted Jewellery Items and the JD Jewellery Items

68.  The “Diverted Jewellery Items” are the 117 items sold in the 2014 Italy Exhibition.  The difference between the parties is that these items belonging to PJ or JD.  Another issue is whether there are some other jewellery items belonging to JD, ie the alleged JD Jewellery Items.

69.  In my judgment, the Diverted Jewellery Items are PJ’s properties, and JD does not have its own jewellery items.

(1)  According to the Re-Amended Defence of Ds:

“7. [JD] was set up after and because of the Seizure Incident to share the same lines of business as [PJ]. This was in case the Seizure Incident might have any impact on [PJ] and activities in its name. It was agreed between and for the mutual benefit of Ruby and Joy.” (Emphasis added)

During the final submission stage, I have asked Mr Lee the true meaning of this paragraph in the Re-Amended Defence, in particular the meaning of the phrase “for the mutual benefit of Ruby and Joy”. Having taken instructions and having considered the question for some time, Mr Lee told me that he could not answer the question.  In my view, this plea in the Re-Amended Defence clearly supports PJ’s case, ie JD was set up for the purpose of minimizing the impact of the Seizure Incident on PJ, and JD is the agent or nominee of PJ, doing the job of facilitating PJ’s business by shipping out goods in JD’s name for the benefit of PJ.  Bearing in mind that Ruby has no interest in JD at all[27], the plea in the Re-Amended Defence as set out in the above, ie JD is for the mutual benefit of Ruby and Joy, must mean that JD is doing everything for the benefit of PJ.

(2)  In a letter written by Joy’s former solicitors and dated 8 April 2014 (“the 8 Apr 2014 Letter”), the solicitors said:

“2. [JD]

(a) Our client denies that any of [PJ]’s business, employees and business opportunities has been directed to [JD]. As mutually agreed between [Ruby] and [Joy], [JD] has been set up merely to deal with customers and maintain [PJ]’s business solely for the benefit of [PJ].

(b) ……

(c) For the purpose of continuing business with [PJ]’s Italian customers, [Ruby] and [Joy] agreed to set up [JD] to deal with [PJ]’s Italian customers and that all revenue made by [JD] would be diverted back to [PJ].

(d) In addition, the main assets of [PJ] are the jewellery items in [the Safe] (which is now only accessible by [Ruby]) and [JD] does not hold any jewellery items in stock. It is denied that [PJ] has suffered any loss and damage in any event.” (Emphasis added)

What has been stated in this letter clearly supports PJ’s case, ie JD is a mere agent or nominee of PJ, and is doing business solely for the benefit of PJ.

(3)  In response to the question from the court, Joy agreed that the statement in [2(c)] of the 8 Apr 2014 Letter was true as at the date of that letter.

(4)  Gary in his evidence confirmed that the items set out in the 6 Jan 2014 Warehouse Balance Report were PJ’s properties.

(5)  Ds’ case that the Diverted Jewellery Items and JD Jewellery Items are owned by JD cannot be true. This is contradicted by:

(a)  the 6 Jan 2014 Warehouse Balance Report of PJ prepared by Momoko under Joy’s instruction, which includes the Diverted Jewellery Items and the alleged JD Jewellery Items; and

(b)    on 11 April 2014, PJ’s solicitors wrote to Joy’s solicitors and requested for, inter alia, an account for the sale proceeds of the goods sold in the 2014 Italy Exhibition.  On 2 May 2014, Joy’s solicitors replied and said (“the 2 May 2014 Letter”):-

“8. The enclosed invoices have not been settled yet. As your client and [Ruby] are aware, [PJ]’s customers are usually given 3 to 6 months’ time to settle the invoice. Our client will be perfectly ready to account for the sale proceeds once the payment comes in.” (Emphasis added)

The reply is a clear admission that the goods sold in the 2014 Italy Exhibition are PJ’s goods.

(6)  The suggestion that JD owned the items sold in the 2014 Italy Exhibition is contradicted by Gary’s evidence - that the exhibition was “a Business Trip for Progetto”[28].

(7)  Joy’s assertion that the various business trips were undertaken “on behalf of Progetto/Joy Design” was contradicted by Ds’ own evidence:-

(a)  Gary’s own evidence is that those trips were “undertaken on behalf of Progetto”[29].

(b)  The summary produced as “LCY-10” in Joy’s witness statement dated 7 July 2016 is entitled “Progetto: Business Trip and Exhibitions 1/12/2011-30/1/2014”[30].

(c)  Further, as shown in the declaration forms produced by Joy in “LCY-10”, in respect of each and every business trip, the assured covered by the insurance police is PJ and not any other company[31].

70.  I am also of the view that JD is merely PJ’s agent or nominee.  Apart from the evidence as set out in the above, there is further evidence in support of this point:

(1)  From the WhatsApp exchanges between Momoko and Ruby, it is clear that the only asset in the 6 Jan 2014 Valuation Report (said by Joy and Momoko to be the valuation report of both PJ and JD) which is claimed (by Ds) to be JD’s asset is the money in the SCB bank account.  Momoko expressly stated in the Whatsapp exchanges that “不過因為joy話計埋joy d的錢，所以我拎左個結餘”[32].  The purpose of the 6 Jan 2014 Valuation Report is to show the value of Ruby’s 1/3 shareholding in PJ.  There is no reason to include the money in JD’s bank account in the valuation report, unless JD has an accounting obligation to PJ and all the money in JD’s bank account in fact should be given to PJ.

(2)  Some of JD’s invoices were “issued” before its incorporation[33]. All the invoices (not only the pre-incorporation invoices but also the post-incorporation invoices) contain the email address of PJ (and not JD’s email’s address).

(3)  On Ds’ own case, JD would use the Safe in the Office. It is inherently improbable for PJ to allow a competitor such as JD to use PJ’s resources, and it is inherently improbable for Ruby and/or Jimmy to allow this to happen under their noses.  Further, it is inherently improbable that PJ would allow the other competitors to sell their own products in all the business trips paid by PJ, including the 2014 Italy Exhibition.

71.  Ds put forward the following points in their written final submissions:

(1)  the finished goods with numbers starting with the prefix “3-” belonged to JD, and the goods with the prefix “2-” belonged to PJ;

(2)  in the draft list of account receivables prepared by Momoko[34], the entries with “J” belonged to JD.

72.  These points must fail.

(1)  All these points are unpleaded.  Ds are not entitled to take these points in their final submissions.

(2)  Among the Undeclared Items, there are items with prefix “3-”.  The Undeclared Items occurred prior to the incorporation of JD. It would not be possible for any of the Undeclared Item being JD’s property.

(3)  The claim that a product with prefix “2-” belonging to PJ is contradicted by Ds’ own case.  In item 3.24 of the Scott Schedule, in respect of a product with prefix “2-”, Ds assert that the product is JD’s property.

(4)  There are goods with prefix “3-” on the invoices which pre-dated the incorporation of Joy Design[35].

(5)  When the 2 May 2014 Letter was shown to Joy during cross-examination (in which Joy’s solicitors said that JD was “perfectly ready” to account for the sale of the Diverted Jewellery Items), Joy disowned the letter by saying that, at that time, she did not have sufficient documentary evidence to ascertain whether the Diverted Jewellery Items belonged to JD. However, the corresponding invoices were attached to the letter, in which some products with the prefix “3-” were set out.  Joy in fact could notice that some of the “3-” items (allegedly owned by JD) were among the Diverted Jewellery Items.

(6)  Momoko in her evidence claimed that the “3-” items with 6 digits belonged to JD, and the “3-” items with 8 digits might or might not belong to JD. There is however no “3-” items with 6 digits in the 6 Jan 2014 Warehouse Balance Report.

(7)  As regards the draft list of account receivables[36], Joy in fact in her 3^rd affirmation admitted that that was a draft list of receivables of PJ[37]. The “J” point must be false, as (a) some of the pre-invoices issued before the incorporation of JD also have the “J” remark[38]; and (b) some of the invoices relating to the Diverted Jewellery Items sold during the 2014 Italy Exhibition (owned by JD according to Ds’ case) do not have the “J” remark[39].

73.  In their written opening submissions and written final submissions, counsel for Ds argue that even if JD is PJ’s agent or nominee, JD and Joy should not be liable to PJ in respect of the 117 Diverted Jewellery Items by reason of the principle set out in Re Duomatic Ltd[40] (“the Duomatic principle”).  The law in relation to the Duomatic principle has been summarized by Harris J in Tam Po Kei v Tam Bo Kin (No 1)[41], in which the learned judge said:

“67. ………… An act that would have been authorised if directors and shareholders had been alive to the need for formal approval by the board or the company, but was not, can be treated as approved and therefore lawful by virtue of the Duomatic principle. It was explained by Neuberger J (as he then was) in EIC Services Ltd v Phipps [2003] BCC 931 at paragraph 121 and 122 in the following way:

“121. This principle, on which the first and second defendants rely, is named after Re Duomatic Ltd [1969] 2 Ch 365, and it has been expressed in slightly different ways in different cases. In Duomatic itself, Buckley J said at p.373:

‘[W]here it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.’

In Parker & Cooper Ltd v Reading [1926] Ch 975, the principle was expressed in these terms by Astbury J at p.984:

‘[W]here the transaction is intra vires and honest … it cannot be upset if the assent of all the corporators is given to it. I do not think it matters in the least whether that assent is given at different times or simultaneously.’

More recently Meagher JA in Herman v Simon (1990) 8 ACLC 1094 at p.1096 described the principle as:

‘a doctrine that formalities may be disregarded if they have been waived by all shareholders acting in concert who want the same substantial result.’

122. Although the principle has been characterised in somewhat different ways in different cases, I do not consider that that is because its nature or extent is in doubt or the subject of debate. The difference in language is attributable of the fact that the principle will have been expressed by reference to the particular facts of the case. The essence of the Duomatic principle, as I see it, is that, where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter.” (Emphasis added)

74.  With respect to Ms Wong and Mr Lee, I am of the view that Ds cannot derive any assistance from the Duomatic principle.  The basis of the Duomatic principle is the informed consent of all the shareholders of the company.  The Duomatic principle has never been raised in the pleadings. There has been no filing of evidence and no discovery in relation to the factual matters relevant to the operation of the Duomatic principle.  In these circumstances, JD is not allowed to rely upon the Duomatic principle in these proceedings.

75.  Further, as a matter of fact, there was no unanimous consent from PJ’s shareholders.  No one has ever paid anything to Jimmy to buy out Jimmy’s shareholding in PJ.  At all times, Jimmy is a shareholder of PJ, and he has never consented to the diversion.  Clearly, there is no room for the operation of the Duomatic principle.

G3. JD’s counterclaim

76.  As to JD’s counterclaim for reimbursements of some purchases made by it for PJ[42], JD’s claims that the invoices produced by Joy in “LCY-3” in her witness statement dated 7 July 2016 are evidence in support of this claim.  However, for the reasons set out in the above, I am of the view that JD is merely PJ’s agent and nominee, and JD in fact does not have its own business or asset.  In the premises, any money paid by JD to the suppliers must be funds belonging to PJ.  In my judgment, this counterclaim must fail.

77.  JD has also made a counterclaim for some jewellery items, loose diamonds, gold and white alloy allegedly owned by JD[43].  I have found that the JD Jewellery Items are not JD’s properties but are PJ’s properties.  In respect of the loose diamonds, gold and white alloy claimed by JD, even if these items are purchased by JD, since JD is merely PJ’s agent and nominee and does not have its own business or asset, the purchase money in fact is from the funds belonging to PJ.  Accordingly, PJ is the beneficial owner of these items.  This counterclaim must also fail.

G4. Unaccounted Sales

78.  Ms Wong and Mr Lee in their written final submissions argue that there are several problems in the PJ’s theory.

79.  First, they submit that there is double counting in Jimmy’s valuation done in October 2012.  They submit that Jimmy used the Warehouse Balance Report as at 11 October 2012 as a starting point. However, Jimmy also added all production orders of October 2012 without distinguishing between those that were already included in the said Warehouse Balance Report and those that were not. Thus, there is double-counting. Further, some production orders have been double counted[44].  They also submit that some jewellery items were for repair works and not for production.  These should not be included in the valuation exercise[45].

80.  With respect to counsel, I am of the view that they are not entitled to take the double counting point in their final submissions.  It is trite that if a party wishes to suggest the evidence of a witness is wrong for some reason, procedural fairness requires that the witness’s attention should have been directed to it by questions put in cross-examination and the witness be given a chance to explain[46].  In any event, prior notice must be given to that witness, so that he would have an opportunity to respond to the criticism made against him.  The double counting point has not been raised in the pleadings, and that point has not been put to Jimmy during cross-examination.  No prior notice of that point has been given to Jimmy, and Jimmy does not have an opportunity to reply to that point.  It would not be fair for Ds to take the point in the final submission stage.

81.  Further, I agree with Mr Ng and accept his submissions that the calculation as shown in the PJ’s theory is correct.  In fact, generous assumptions have been made in favour of Joy and JD in the calculation.

(1)  In relation to the work orders, these came from one of the workshops only. However, Joy had requested PJ not to work with this workshop since September 2013, and had arranged PJ to work with other workshops. The fact that PJ only relied on the work orders arising out of this one workshop means that the claimed sum total is probably less than the actual amount of finished items.

(2)  PJ added up the income figures in the monthly bank statements from October 2012 to March 2014.  In doing so, to give Joy and JD the benefit of the doubt, PJ treated any unidentified or unidentifiable payments into the bank account as income arising from sales.

(3)  Historically, PJ’s yearly revenue in 2010-2011 and in 2011-2012 exceeded HK$20 million in each financial year.  Following the calculation as set out in subparagraph (2) above, the received proceeds from October 2012 to March 2014 were in the sum of around HK$5.25 million only.

(4)  According to the draft list of PJ’s account receivables prepared by Momoko[47] and mentioned in Joy’s evidence, PJ’s account receivables in 2013 exceeded HK$11 million.

(5)  All these lend support to the Unaccounted Sales in PJ’s claim.

82.  Second, counsel for Ds submit that Jimmy has wrongly assumed that all of PJ’s income would be revealed in the bank statements.  In their submissions, PJ’s customers would often pay cash to PJ, and the amount of cash income is substantial.  Ms Wong and Mr Lee rely upon the reduction in the accounts payable between 31 August 2012 and 11 October 2012, ie from HK$7,238,106 to HK$3,899,396.61 in Jimmy’s calculation to support their point.  Ms Wong and Mr Lee submit that this large reduction must be due to the fact that PJ has used the cash received from the customers to pay off the receivables.

83.  I am unable to accept these submissions.

(1)  The cash receipt point has not been raised in the pleadings and in the witness statements filed by Ds.  As a result, there has not been any discovery on this issue, and PJ did not have any opportunity to prepare evidence to meet this point before the commencement of the trial. As a matter of procedural fairness, Ds are not entitled to take this point at the final submission stage.

(2)  As said before, while there is any conflict between the evidence given by Ruby and Jimmy on the one hand and the evidence given by Ds’ witnesses, I prefer the former.  According to Jimmy’s evidence, 50% of the proceeds were received directly via PJ’s bank account, 45% of the proceeds were received via overseas wire transfer (cash receipt overseas but wired to PJ’s bank in Hong Kong due to foreign exchange control; this way of receipt was confirmed by Gary); only 5% was received directly by way of cash.

(3)  In accordance with common and commercial sense, any substantial amount in cash received by PJ would be deposited into PJ’s bank account as soon as practicable. It would be inherently improbable for PJ not to do so, given that there is always a risk of theft.

(4)  Joy claimed that even US$300,000, ie more than HK$2 million, would be stored in the Safe. In my view, this is inherently improbable. Joy’s reasons for not depositing huge sum into the bank and keeping the same in the Safe are unsound:

(a)  Joy claimed that there was a limit (presumably daily limit) in relation to cash deposit. This is a bare assertion not supported by any other evidence.  Further, there is evidence showing that it was possible to deposit HK$370,000 into the bank in a day in December 2013[48].  As a matter of arithmetic, PJ could deposit at least HK$1.85 million into the bank account in a week (5 working days).

(b)  Joy claimed that it took a lot of time to queue up in banks in Hung Hom. Given the amount of cash involved, this excuse is incapable of being believed.

(5)  Gary did not say he had ever witnessed piles of cash notes in the Safe.  He merely said that at one time, he saw a brown envelope inside the Safe.  He could not tell what was inside the envelope.

(6)  Momoko’s petty cash record[49] undermines Joy’s case. There was only 1 cash receipt apparently from a customer, namely HK$5,287 on 30 September 2012. The 2 other “cash” injections on 31 October and 20 November 2012 (in respect of these 2 entries, in each entry, the description is “Cash”, and the amount is HK$10,000) cannot be cash receipt from a customer given the way the items were described.

(7)  As to the reduction of PJ’s account payables from HK$7.23 million on 31 August 2012 to HK$3.89 million on 11 October 2012, Ds are not entitled to rely upon this to support the cash receipt point. As said before, the cash receipt point is unpleaded.  There is no plea in Ds’ pleadings suggesting that the reduction of account payables is due to settlement by cash.  Ds are not entitled to raise this allegation at the trial. Further, there is no evidence showing that the reduction in account payables is due to settlement by cash.  There are other possibilities, for example, the suppliers might have waived or discounted some of the outstanding bills due to PJ’s subsequent bulk purchases.  In the absence of any relevant evidence, one cannot definitely tell the reason of the reduction in the account payables.

84.  Third, counsel for Ds submit that Jimmy’s calculation did not take into account any account receivables as at March 2014, which would reduce the alleged unaccounted receivables.  In my view, Ds cannot derive much assistance from this point.  In the 2 May 2014 Letter, Ds’ solicitors stated that PJ would have a credit period of 3 to 6 months to settle the invoices.  Gary in his evidence mentioned that PJ would stop doing business with non-paying customers.  Further, as shown in PJ’s audited accounts, PJ only had a bad debt of HK$636 in the financial year ending on 31 August 2011, and had no bad debt in the financial year ending on 31 August 2012. Taking into account all these, nearly all account receivables as at March 2014 should become actual income received by PJ by about September 2014.  However, the evidence shows that after checking all PJ’s bank statements up to May 2017, the figure of the accounts sales is still HK$5,253,044.06 as suggested in the PJ theory.  Thus, the unaccounted receivables suggested in the PJ’s theory cannot be explained or reduced by the point taken by Ms Wong and Mr Lee.

85.  Fourth, Ms Wong and Mr Lee submit that the profit margin of 30% adopted by Jimmy is inflated.  Jimmy explained the 30% profit margin in his supplemental witness statement and said:

“14. Returning now to explain how I arrived at an average profit margin of 30%, I should start by highlighting that there is no simple or standard profit margin, whether within this industry or within Progetto itself. This is because in this industry, we purchase precious stones and divide them into different grades. The best quality stones will be sold to important clients and the remaining ones will be sold to general clients. The profit margin of each item sold however does not solely depend on the quality of the stones, but also depends more on who the client is. Therefore, wholesale clients who purchase in bulk would get a greater discount, whereas retail or first-time clients will get a smaller or even no discount for the purchase. Hence, there is no standard profit margin for the sale of a particular type of jewellery item and it is difficult to calculate the profit for each individual item. Therefore, it is more fair and reasonable to use an overall average profit to calculate Progetto’s loss of profit suffered. Moreover, in calculating such an overall average profit, there can be no general expert to calculate such figure, and one can only on a mix of business commercial sense as well as past historic figures.

15. Joy and I were responsible for the finance of Progetto since the company’s incorporation in August 2009 until I ceased to be a director in October 2012. After I ceased to be a director of Progetto, I verily believe that Joy was solely in charge of the finance of Progetto (see paragraph 7(3) of the Re-ASOC and paragraphs 29 and 30 of my Witness Statement).

16. Based on the figures in the Income Statements in Progetto’s Audited Financial Reports for the year 2009-2010 and 2010-2011 prepared by Sharon Cheung & Co. and the Income Statement in Progetto’s Audited Financial Report for the year 2011-2012 prepared by Adams Miller CPA Limited (see Item 84 of Progetto’s List of Documents filed on 12 February 2016), I have worked out Progetto’s gross profit margin percentage for sale of jewellery items and the details are set out in the table below:

Financial Year	Total Revenue	Gross Profit	Gross Profit Margin % (Gross Profit/Total Revenue x 100%)
29.07.2009 to 31.08.2010	$13,188,959	$2,322,719	17.61% ($2,322,719/$13,188,959 x 100%)
01.09.2010 to 31.08.2011	$25,891,713.40	$3,033,679.68	11.72% ($25,891,713.40/$3,033,679.68 x 100%)
01.09.2011 to 31.08.2012	$23,551,516	$5,998,393	25.47% ($23,551,516/$5,998,393 x 100%)

17.  There are now produced and shown to me marked “CKYJ-3” copies of Income Statements extracted from the Audited Financial Reports of Progetto for the years 2009-2010, 2010-2011 and 2011-2012, which are dated 30 September 2011, 2 May 2012 and 31 December 2012 respectively.

18.  In the first year of business of Progetto, the directors took a more conservative approach with the company’s expenses as we were uncertain how the business would perform. As shown in the table above, Progetto achieved a gross profit margin of 17.61% in its first year of business. 

19.  In the second year of operation, the directors were more confident with the company’s revenue and how to manage the business, and so we increased the expenditure in marketing and promotion (including expenses for attending local and overseas jewellery exhibitions). In anticipation of an increase in jewellery orders, Progetto had also made more purchases of loose stones for production. Due to the increase in the overall business expenses, the profit margin in the second year had dropped slightly to 11.72%, but the turnover had substantially been increased by almost 100%.

20.  In the third year of business, Progetto’s marketing expenses and costs for purchasing loose stones had become stable. Moreover, Progetto has already developed its client base and was getting regular orders from its clients. For these reasons, the profit margin has gone up to 25.47% in the third year where the turnover figure has remained stable. I consider that Progetto was still in the development stage in the first 2 years of its business and its business has started running smoothly and is strengthening in the third year.

21.  Accordingly, I anticipate that Progetto would be able to achieve a profit margin of least 25% in the following years and continue to increase but for the Seizure Incident, Joy’s Misappropriation of Assets and Diversion of Business. Based on the profit margin of sales in the financial years 2010, 2011 and 2012, I verily believe that the profit margin for sales in 2013 and 2014 would not be less than 30%.”

86.  Counsel for Ds submits that Jimmy has no actual understanding of the term “B Costs” on the Warehouse Balance Reports, and has no qualification to give an opinion of the profit margin. Jimmy also accepted that different products should have different profit margins.  Counsel for Ds submit that Jimmy’s evidence on the profit margin is unreliable.  Further, Jimmy ignored the fact that after his leaving from the directorship in PJ, he took away the Australian customers of PJ and that had a negative impact on PJ’s business development.

87.  I note that the evidence shows that after Jimmy leaving his directorship in PJ, PJ in fact maintained to have Australian customers.  There is no reliable evidence before me showing whether Jimmy’s departure from PJ actually has an adverse impact on PJ’s business, and if yes, to what extent.  Further, I note that in JD’s counterclaim for the value of the JD Jewellery Items, JD has adopted 50% as the profit margin of those items[50].  Joy in her evidence confirmed that a profit margin of 50% could be used in calculation.  Obviously, Ds must be bound by Joy’s evidence.  In these circumstances, I am of the view that Ds cannot criticize the 30% profit margin adopted by Jimmy in his evidence.  In my view, Jimmy’s evidence on the profit margin is based unable a reasonable and sound analysis.  I accept Jimmy’s evidence on the issue of profit margin.

88.  After hearing Joy’s evidence, PJ has applied for leave to amend its statement of claim to adopt 50% as the profit margin as an alternative case, and leave was granted.  Joy has not explained why she would adopt a profit margin of 50% in calculating the selling prices of the jewellery items.  In my view, it would be prudent and safe to adopt the 30% profit margin mentioned by Jimmy in his evidence, which is based upon a reasoned analysis.

89.  I accept the Unaccounted Sales as set out in the PJ’s Theory.

G5. Conclusion on the PJ’s theory

90.  Having examined the evidence, I find that the PJ’s theory is proved.  However, for the reasons set out in Part I in this judgment, the figures in the PJ’s theory should be those set out in the table in [101] below.

H.   HKTDC EXHIBITION

91.  The HKTDC Exhibition was held on 5 to 9 March 2020.

92.  PJ’s claim against Joy is this:

(1)  Before 2014, PJ had been attending the HKTDC Exhibition for 3 or 4 consecutive years. As a result of its continuous participation, PJ earned from the HKTDC priority placing in booth allocation for the 2014 HKTDC Exhibition.

(2)  Joy was responsible for representing PJ in attending and preparing the 2014 HKTDC Exhibition.

(3)  PJ paid a sum of HK$93,098.60 as deposit to the HKTDC for the 2014 HKTDC Exhibition.

(4)  PJ failed to attend the HKTDC Exhibition from 5 March 2014 to 9 March 2014.  As a result, the deposit paid was forfeited by HKTDC.

(5)  PJ’s failure in attending the 2014 HKTDC Exhibition is solely due to the fault of Joy.  Accordingly, Joy is liable to PJ in respect of the loss and damage suffered by PJ in failing to attend the 2014 HKTDC Exhibition.

93.  Joy’s defence is that she did not attend the 2014 HKTDC exhibition because she did not have the jewellery items at the material time.  As a result of the “Access Procedure”[51] adopted by Ruby and the taking away of the master key to the Safe by Ruby, Joy was preventing from entering the Office and could not get the jewellery items in the Safe, and hence, she could not on behalf of PJ attended the 2014 HKTDC Exhibition.  Joy said that Ruby should attend the 2014 HKTDC Exhibition on behalf of PJ.

94.  I refuse to accept Joy’s case on this issue.

(1)  First, Ruby is not the person handling exhibitions in PJ.  In fact, Joy knew that Ruby would not be able to attend the exhibition on behalf of PJ before the opening of the exhibition, as evidenced by the 2 May 2014 Letter written by Joy’s solicitors.  In that letter, Joy’s solicitors said

“13.  …… As a matter of fact, our client did inform the Hong Kong Trade Development Council (“HKTDC”) that the Company was unable to attend prior to the show ……” (Emphasis added)

(2)  Second, as to the alleged exclusion, Ruby’s evidence shows that the “Access Procedure” was implemented on 19 March 2014 or at a time shortly thereafter[52]. There is no evidence from Joy disputing this.  As a matter of fact, the “Access Procedure” was only in place after the conclusion of the HKTDC Exhibition.  Joy was able to enter the Office at any time before the conclusion of the exhibition.

(3)  Even under the “Access Procedure”, Joy may enter the Office if she is accompanied by either Ruby or Jimmy.  The averment of exclusion of Joy from the Office is inconsistent with Joy’s admission in her solicitors’ letter dated 2 May 2014 that Joy did not “want to” go back to the Office[53].

(4)  As regards the assertion that Ruby took away the “master key” in February 2014, Ruby’s evidence is that the master key was placed on her desk[54].  In any event, Joy accepted that she could have (but did not) called Ruby to ask for the master key.

95.  Counsel for Ds submit that according to Ruby’s evidence, Ruby learned about Joy’s absence on the first date of the 2014 HKTDC Exhibition.  Ruby could have contacted Joy or made any other arrangements, but Ruby did not do so.  However, no plea of contributory negligence has been made, and it has not been explored during the trial whether realistically Ruby could do anything to salvage the situation after knowing PJ’s absence in the exhibition.

96.  I hold that Joy is liable to PJ under this head.  Mr Ng submits that PJ’s loss can be quantified by adopting the “reliance measure”[55]. I agree.  As a result of Joy’s fault, HKTDC has forfeited the deposit. In my judgment, Joy shall repay the deposit plus interest thereon to PJ.

97.  PJ also claims that as a result of Joy’s fault, PJ has suffered loss of goodwill and reputation generally, and loss of the right to claim for priority placing in booth allocation for future HKTDC jewellery exhibitions.  However, in respect of these losses, there is no evidence showing the relevant quantum of damages.  I am unable to award a sum to PJ as damages in respect of these losses.

I.  THE GIA DIAMONDS

98.  PJ claims that during the period from 11 December 2012 to 10 May 2013, Joy on behalf of PJ purchased 7 pieces of GIA certified diamonds, which were all paid for by PJ at the sum of HK$180,521.65. Among these 7 GIA diamonds, 5 of them became finished items and went missing.  The remaining 2 were sold to Gary’s father for around HK$113,191.61, and Joy has failed to account for the proceeds.

99.  Joy’s case is that in respect of the finished items with 3 of the GIA Certified Diamonds (Nos: 2146732269. 1149739999 and 5146418026), the sale proceeds in the sum of HK$109,370 have been paid into PJ’s bank account, as evidenced by the note written down by Joy on PJ’s bank statement for May 2013[56]. As to the remaining 5 GIA diamonds, Joy denies that she has misappropriated these items or the corresponding sale proceeds.  Joy claims that she is unable to produce documents in support as she has been excluded from PJ.

100.  In the light of the note on PJ’s bank statement for May 2013, I am prepared to accept that part of the sale proceeds of the 7 GIA Diamonds, ie HK$109,370, has been paid into PJ’s bank account.  However, there is no evidence showing that apart from this sum, the other sale proceeds concerning the 7 GIA Diamonds have been given to PJ.  In the light of the note made by Joy on PJ’s bank statement for May 2013, if the remaining sale proceeds have been returned to PJ, there must be some other documents containing Joy’s handwritten notes recording the said return of funds.  Joy must know that she has written down the relevant records on what documents.  If PJ has not disclosed those documents in these proceedings, Joy should have made an application for specific discovery.  However, as a matter of fact, no application for specific discovery has ever been made by Joy.  I refuse to accept Joy’s evidence in relation to the return of the remaining sale proceeds to PJ.  In my judgment, Joy is liable to PJ in relation to these sale proceeds.

101.  In relation to the HK$109,370, I agree with Mr Ng that the fact that this sum has been returned to PJ does not affect PJ’s overall claim.  This only means that out of the HK$5,253,044.06 accounted sales, HK$109,370 has to be deducted, and PJ’s claim for the Unaccounted Sales would increase accordingly.

Description	Sale Price (HK$)
Jewellery items from October 2012 to 31 December 2013	$24,200,770.39
Less: Closing stock as at March 2014	($6,026,824.27)
Stock to be Accounted	$18,173,946.12
Less: Seized items	($2,095,839.75)
Less: Accounted sales	($5,253,044.06 -$109,370)
Remaining Stock to be Accounted	$10,825,062.31 + $109,370
Less: Missing Jewelleries (excluding loose diamonds)	($2,778,698.33)
Unaccounted sales	$8,046,363.98 + $109,370

J.  CONFIDENTIAL INFORMATION

102.  PJ’s case under this head is that Joy has wrongfully taken away the Laptop Computer and PJ’s documents.  PJ says that this is an indisputable fact.: see Re-Amended Defence and Counterclaim, [45A]; the 2 May 2014 Letter[57] and the 8 Apr 2014 Letter[58].

103.  PJ is the owner of these documents and information, which include customer contact information stored in hard drives, sales invoices, supplier invoices, consignment invoices, jewellery designs and photographs, quotations to customers, price list, PIN device for PJ’s bank account, cheque book, bank statements and vouchers, production order record, PJ’s notebook computer with confidential financial and sales data and passwords to the same, and the key blade to PJ’s safe.  All these are confidential information[59].

104.  Following repeated demands, Joy only returned the notebook computer (locked with a password unknown to PJ), a blank invoice book, a blank cheque book and a few pages of production order sheets to PJ’s accountant, Adams Miller CPA Ltd (“Adams Miller”). Joy failed to account for or return the other missing items.

105.  Joy’s case is that on 11 June 2014, she returned to PJ (through Adams Miller) the Laptop Computer and various documents, including originals of ledgers, sales and purchase invoices, account receivables/payables records and bank statements.

106.  Both Joy and Gary alleged that everyone in PJ knew that the password was “1234”, and Ruby should have no problem in accessing the information in the Laptop Computer.  This must be untrue.  As a matter of fact, for the purpose of complying an order for specific discovery made against Ds by the court on 7 February 2017, Ds and P attended a meeting in the office of FTI Consulting on 10 February 2017.  Only with the assistance of FTI Consulting, some documents in the Laptop Computer were retrieved[60].  If the documents in the Laptop Computer could easily be accessed by inputting the password “1234”, the parties would have no need to engage a professional company to get the documents stored in the computer.  Further, only some documents in the Laptop Computer could be retrieved even with the assistance of a professional company.  The remaining documents in the computer are inaccessible.

107.  Further, it is clear that Joy did not return the originals of ledgers, sales and purchase invoices, records of account receivable/payables and bank statements to PJ through Adam Miller, who only received “documents of ‘Progetto’ and a notebook computer”, but there was not any ledger, books and records, and sales and purchases invoices among the PJ’s documents.  This is shown in the email from Adams Miller to PJ dated 17 June 2014.

108.  As a result of the non-return of the originals of ledgers, sales and purchase invoices, records of account receivables/payables and bank statements to PJ, PJ has been unable to complete and file its tax return to the Inland Revenue Department (“IRD”).  As a result, the IRD has imposed a penalty on PJ for being unable to file its tax return and for late payment of the assessed tax since 2013.  The penalty for the year 2013-2014 was HK$16,602 and the penalty for 2014-2015 was HK$237.  The total amount of penalty that PJ has paid is HK$16,839.  PJ has made payment of tax and penalty for year 2014-15 in the amount of HK$4,987 on 28 October 2016.

109.  On 1 March 2017 and 14 August 2017, the IRD has issued notices to Hang Seng Bank to request payment of the outstanding tax and penalties from PJ’s bank account. A total amount of HK$38,967.1 was deducted.

110.  In my judgment, Joy is liable to reimburse PJ all these with interest.

K.  THE SEIZURE INCIDENT

111.  The occurrence of the Seizure Incident itself is not in dispute.  The difference between the parties is whether Joy should be liable to PJ in this incident.  Details of the Seizure Incident are as follows:

(1)  In around January 2013, Joy attended the 2013 Italy Exhibition on behalf of PJ. Joy brought along 1080 jewellery items of PJ (“Cleared Items”) from Hong Kong to display in the 2013 Italy Exhibition.

(2)  On or about 15 January 2013, Joy and Gary arrived at London Heathrow airport and declared the Cleared Items at the UK Custom.

(3)  On the same day, ie 15 January 2013, Joy and Gary arranged to meet up a South American customer outside the London Heathrow airport, namely Edmar Jewelry, to collect 243 units of jewelleries (ie the Undeclared Items). The Undeclared Items were previously on consignment with Edmar Jewelry.

(4)  After collecting the Undeclared Items, Joy and Gary travelled to Italy by connecting flights from London. On arrival at Vicenza on 15 January 2013, Joy and Gary failed to declare the Undeclared Items at the Vicenza Customs in Italy.

(5)  Further, on or before 22 January 2013, Joy and Gary mixed up the Undeclared Items with the Cleared Items and displayed both sets of items in the 2013 Italy Exhibition.

(6)  On 22 January 2013, the Vicenza Customs visited PJ’s in the exhibition and seized the Undeclared Items, on the basis that these items were imported to Italy contrary to the Italian law.

112.  PJ claims that Joy is liable to PJ in respect of the loss and damage suffered by PJ in the Seizure Incident.  According to PJ’s case, Joy has breached the duties owed by her as a PJ’s director to PJ by:

(1)  failing to check and comply with the local customs requirements when bringing the Undeclared Items to Italy;

(2)  mixing up the Undeclared Items and the Cleared Items and displaying both at the exhibition;

(3)  failing to effect adequate insurance cover in respect of the loss or seizure of the Undeclared Items; and

(4)  failing to take prompt and reasonable steps to recover the Undeclared Items from the Italian authorities;

(5)  failing to diligently follow up with the Italian lawyers for the recovery of the Undeclared Items; and

(6)  failing to diligently report to PJ’s board of directors on the progress of the work of the Italian lawyers.

113.  Mr Ng submits:-

(1)  Joy should have declared the Undeclared Items upon arrival in Italy. It does not make sense that the “consigned” items collected in London does not need to be declared when Joy is travelling from London to Italy, as Joy would need to bring them back to Hong Kong, the items she was bringing back must match the exact number of items on the Carnet (which only includes the 1080 items she brought to London then Italy).

(2)  Joy should not have displayed the Undeclared Items in the exhibition.  As explained in a letter from PJ to the customs dated 23 January 2013 (which is prepared by Joy):

“We sincerely apologize that the sale team were in a hurry to get their connecting flights to Italy on the same day morning, they were completely forgot to declare these 243 items to the custom and even worst, they had mixed up these 243 items in the proper items of the carnet during the show.”

(3)  What has been done by Joy is contrary to the Italian law, and this is confirmed by the decision of the judicial authority in Italy.  In fact, Joy admitted in her evidence that she had not taken any Italian legal prior to the seizure of those items.

(4)  Joy was responsible for taking out insurance. The 1080 Cleared Items were insured, but the Undeclared Items were not. Looking at the relevant insurance document from Canny Insurance Brokers Limited (“Canny”)[61], the insurance only covered the 1080 Declared Items and not the Undeclared Items.

(5)  The seizure cannot be “unpredictable” as pleaded by Joy. As confirmed by the decision made by the judicial authority in Italy, bringing those items into Italy without any declaration to the customs is contrary to the Italian law.

(6)  The email correspondence between Joy and the Italian lawyers retained by her shows that Joy was not acting expediently and carefully in assisting the lawyers to recover the Seized Items.  On 11 February 2013, the lawyers asked Joy to provide “additional documents concerning the relationship between your company and the Mexican client”[62].  However, in the email dated 2 March 2013, the lawyers told Joy that the Court of Vicenza “decided not to give the goods back”, because (among other grounds) “the “Mexican client” issue was not detailed enough in order to be considered as “decisive” for the judgment”[63].

114.  Having read the email exchanges between Joy and the Italian lawyers and the documents from the Office of Customs of Vicenza to PJ, it is clear that bringing the Undeclared Items into Italy without declaring them to the customs is regarded by the judicial authority in Italy, ie the Court of Vicenza, as a matter contrary to the Italian law.  I have to give considerable weight to this finding made by the Italian judicial authority[64].  Joy is negligent in bringing those items into Italy without declaring them to the customs in Italy.  Further, Joy is negligent in failing to obtain any Italian legal advice before bringing those items to Italy without declaration.

115.  Joy claimed that the insurance issued by Canny[65] covered the Undeclared Items.  I do not accept this claim.  Looking at the insurance document, the insurance covers the voyage from Hong Kong to Italy via Spain from 14 January 2013 to 18 January 2013, and the voyage from Italy to Hong Kong from 25 January 2013 to 26 January 2013.  No voyage via London is mentioned in the insurance document.  In my judgment, Joy is also negligent in failing to purchase an insurance policy concerning the Undeclared Items.

116.  As to the assistance given by Joy to the Italian lawyers, I accept Mr Ng’s submission that Joy has failed to act expediently. However, there is no evidence before me showing that had Joy acted expediently in assisting the Italian lawyers, there would have had been a material change in the Seizure Incident.

117.  Notwithstanding what I have said in [116] above, by reason of the matters set out in [114] and [115], I am satisfied that the loss and damage suffered by PJ in the Seizure Incident is caused by the negligence of Joy, and Joy is liable to pay damages to PJ as a result.

118.  I note that the Office of Customs of Vicenza, by their letter dated 9 November 2018, informed PJ that PJ might redeem the Undeclared Items by paying the value of those goods assessed at €78,149.97 and customs duties of €18,775.52.  Ds have not pleaded in their pleadings that PJ should redeem these items to minimize the loss.  In any event, Ruby in her evidence said that PJ decided not to redeem the Undeclared Items, because the market value of the Undeclared Items had depreciated since the seizure, for those items were no longer fashionable in November 2018. In November 2018, those goods were worth less than the penalty imposed by the Italian customs.  I have no reason to doubt Ruby’s explanation.

119.  Had the Undeclared Items been properly declared when they were brought to Italy, those items would have had been sold in the 2014 Italy Exhibition or shortly thereafter.  There is no reason for PJ keeping them and not put them to sale.  Accordingly, the loss and damage suffered by PJ in the Seizure Incident would be the sale price of the Undeclared Items, which should be costs plus a profit margin of 30%.

120.  PJ also claims that they have lost goodwill in the Seizure Incident, and some customers have ceased to purchase goods from PJ after the Seizure Incident.  As to these losses, there is no evidence proving the quantum of the corresponding damages.  I would not make an award for these losses.

L.   UNAUTHORIZED WITHDRAWALS

121.  The parties’ respective cases under this head are set out in the first section of the Scott Schedule.  During the trial, PJ decided not to pursue some of the items under this head.  The remaining items in dispute and the parties’ respective positions on these items are as follows:

	Issue	PJ’s position	Joy’s position
Unauthorised Withdrawals
1	Whether or not Joy made unauthorised withdrawals from the bank account of PJ as follows:
1.1	Cheque 891857	Not pursued
1.2	Cheque 891860	Not pursued
1.3	Cheque 891859	Liability: Joy is liable to compensate PJ for the sum of HK$5,363.80 withdrawn on or about 5.12.2012 from PJ’s bank account without PJ’s authority by way of cheque 891859 for Joy’s own benefit. Quantum: HK$5,363.80	Liability: Joy is not liable to compensate PJ for the sum of Cheque 891859. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Joy for the reimbursement of the PJ’s sundry expenses. Quantum: n/a
1.4	Cheque 891856	Liability: Joy is liable to compensate PJ for the sum of HK$1,296 withdrawn on or about 6.12.2012 from PJ’s bank account without PJ’s authority by way of cheque 891856 for Joy’s own benefit. Quantum: HK$1,296	Liability: Joy is not liable to compensate PJ for the sum of Cheque 891856. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Prudential Hong  Kong Limited for the PJ’s traveling insurance reference no. 900009552231). Quantum: n/a
1.5	Cheque 121066	Liability: Joy is liable to compensate PJ for the sum of HK$5,809 withdrawn on or about 18.12.2012 from PJ’s bank account without PJ’s authority by way of cheque 121066 for Joy’s own benefit. Quantum: HK$5,809	Liability: Joy is not liable to compensate PJ for the sum of Cheque 121066. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Ruby. Quantum: n/a
1.6	Cheque 121073	Liability: Joy is liable to compensate PJ for the sum of HK$32,094.66 withdrawn on or about 19.12.2012 from PJ’s bank account without PJ’s authority by way of cheque 121073 for Joy’s own benefit. Quantum: HK$32,094.66	Liability: Joy is not liable to compensate PJ for the sum of Cheque 121073. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (car rental expenses for business trips). Quantum: n/a
1.7	Cheque 121088	Liability: Joy is liable to compensate PJ for the sum of HK$4,418.04 withdrawn on or about 21.1.2013 from PJ’s bank account without PJ’s authority by way of cheque 121088 for Joy’s own benefit. Quantum: HK$4,418.04	Liability: Joy is not liable to compensate PJ for the sum of Cheque 121088. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (air tickets, train tickets and postages for business trips). Quantum: n/a
1.8	Cheque 193959	Liability: Joy is liable to compensate PJ for the sum of HK$22,521.66 withdrawn on or about 18.2.2013 from PJ’s bank account without PJ’s authority by way of cheque 193959 for Joy’s own benefit. Quantum: HK$22,521.66	Liability: Joy is not liable to compensate PJ for the sum of Cheque 193959. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (hotel fees and other expenses for business trips). Quantum: n/a
1.9	PJ’s company visa	Not pursued
1.10	Cheque 193972	Not pursued
1.11	PJ’s company visa	Liability: Joy is liable to compensate PJ for the sum of HK$1,034.11 withdrawn on or about 28.3.2013 from PJ’s bank account without PJ’s authority by way of PJ’s company visa for Joy’s own benefit. Quantum: HK$1,034.11	Liability: Joy is not liable to compensate PJ for the sum of HK$1,034.11. According to the recollection of Joy, the withdrawal was made for dinners/lunches with the customers of the PJ. Quantum: n/a
1.12	Cheque 193992	Liability: Joy is liable to compensate PJ for the sum of HK$100 withdrawn on or about 19.4.2013 from PJ’s bank account without PJ’s authority by way of cheque 193992 for Joy’s own benefit. Quantum: HK$100	Liability: Joy is not liable to compensate PJ for the sum of Cheque 193992. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (bill of Joy’s office mobile phone with the PJ). Quantum: n/a
1.13	PJ’s company visa	Liability: Joy is liable to compensate PJ for the sum of HK$1,842.90 withdrawn on or about 30.4.2013 from PJ’s bank account without PJ’s authority by way of PJ’s company visa for Joy’s own benefit. Quantum: HK$1,842.90	Liability: Joy is not liable to compensate PJ for the sum of HK$1,842.90. According to the recollection of Joy, the withdrawal was made for dinners/lunches with the customers of the PJ. Quantum: n/a
1.14	Cheque 472397	Liability: Joy is liable to compensate PJ for the sum of HK$2,372.10 withdrawn on or about 8.5.2013 from PJ’s bank account without PJ’s authority by way of cheque 472397 for Joy’s own benefit. Quantum: HK$2,372.10	Liability: Joy is not liable to compensate PJ for the sum of Cheque 472397. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express regarding the telephone bill of Joy’s office mobile phone and other reasonable office expenses. Quantum: n/a
1.15	Cheque 472703	Not pursued
1.16	Cheque 472407	Liability: Joy is liable to compensate PJ for the sum of HK$15,283.53 withdrawn on or about 20.6.2013 from PJ’s bank account without PJ’s authority by way of cheque 472407 for JOY’s own benefit. Quantum: HK$15,283.53	Liability: Joy is not liable to compensate PJ for the sum of Cheque 472407. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (mobile phone, air tickets and hotel fees/expenses for business trips). Quantum: n/a
1.17	Cheque 472426	Liability: Joy is liable to compensate PJ for the sum of HK$201 withdrawn on or about 19.7.2013 from PJ’s bank account without PJ’s authority by way of cheque 472726 for Joy’s own benefit. Quantum: HK$201	Liability: Joy is not liable to compensate PJ for the sum of Cheque 472407. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (Joy’s office mobile phone with the PJ). Quantum: n/a
1.18	Cheque 712623	Liability: Joy is liable to compensate PJ for the sum of HK$17,578.63 withdrawn on or about 2.9.2013 from PJ’s bank account without PJ’s authority by way of cheque 712623 for Joy’s own benefit. Quantum: HK$17,578.63	Liability: Joy is not liable to compensate PJ for the sum of Cheque 712623. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (Joy’s office mobile phone with the PJ). Quantum: n/a
1.19	Cheque 712612	Liability: Joy is liable to compensate PJ for the sum of HK$5,489.50 withdrawn on or about 27.9.2013 from PJ’s bank account without PJ’s authority by way of cheque 712612 for Joy’s own benefit. Quantum: HK$5,489.50	Liability: Joy is not liable to compensate PJ for the sum of Cheque 712612. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by Joy and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7  July 2016, [23][66] Quantum: n/a
1.20	Cheque 712639	Liability: Joy is liable to compensate PJ for the sum of HK$3,945.55 withdrawn on or about 23.10.2013 from PJ’s bank account without PJ’s authority by way of cheque 712639 for Joy’s own benefit. Quantum: HK$3,945.55	Liability: Joy is not liable to compensate PJ for the sum of Cheque 712639. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (hotel fees/expenses and toll fees for business trips). Quantum: n/a
1.21	Cheque 948062	Liability: Joy is liable to compensate PJ for the sum of HK$180 withdrawn on or about 19.11.2013 from PJ’s bank account without PJ’s authority by way of cheque 948062 for JOY’s own benefit. Quantum: HK$180	Liability: Joy is not liable to compensate PJ for the sum of Cheque 948062. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (bill of Joy’s office mobile phone with the PJ). Quantum: n/a
1.22	Cheque 948075	Liability: Joy is liable to compensate PJ for the sum of HK$13,559.74 withdrawn on or about 23.12.2013 from PJ’s bank account without PJ’s authority by way of cheque 948075 for Joy’s own benefit. Quantum: HK$13,559.74	Liability: Joy is not liable to compensate PJ for the sum of Cheque 948075. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (bill of Joy’s office mobile phone with the PJ, air tickets, hotel fees/expenses for business trips). Quantum: n/a
1.23	Cheque 948089	Liability: Joy is liable to compensate PJ for the sum of HK$8,419.41 withdrawn on or about 6.1.2014 from PJ’s bank account without PJ’s authority by way of cheque 948089 for Joy’s own benefit. Quantum: HK$8,419.41	Liability: Joy is not liable to compensate PJ for the sum of Cheque 948089. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (bill of Joy’s office mobile phone with the PJ, air tickets, hotel fees/expenses for business trips). Quantum: n/a
1.24	Cheque 891858	Liability: Joy is liable to compensate PJ for the sum of HK$15,495.70 withdrawn on or about 30.11.2012 from PJ’s bank account without PJ’s authority by way of cheque 891858 for Gary’s own benefit. Quantum: HK$15,495.70	Liability: Joy is not liable to compensate PJ for the sum of Cheque 891858. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Gary for the reimbursement of reasonable expenses incurred by him during business trips. Quantum: n/a
1.25	Cheque 121079	Liability: Joy is liable to compensate PJ for the sum of HK$5,970.53 withdrawn on or about 3.1.2013 from PJ’s bank account without PJ’s authority by way of cheque 121079 for Gary’s own benefit. Quantum: HK$5,970.53	Liability: Joy is not liable to compensate PJ for the sum of Cheque 121079. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Gary for the reimbursement of reasonable expenses incurred by him during business trips. Quantum: n/a
1.26	Cheque 193969	Liability: Joy is liable to compensate PJ for the sum of HK$41,141.02 withdrawn on or about 2.3.2013 from PJ’s bank account without PJ’s authority by way of cheque 193969 for Gary’s own benefit. Quantum: HK$41,141.02	Liability: Joy is not liable to compensate PJ for the sum of Cheque 193969. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Gary for the reimbursement of reasonable expenses incurred by him during business trips. Quantum: n/a
1.27	Cheque 712627	Liability: Joy is liable to compensate PJ for the sum of HK$37,148 withdrawn on or about 26.9.2013 from PJ’s bank account without PJ’s authority by way of cheque 712627 for Gary’s own benefit. Quantum: HK$37,148	Liability: Joy is not liable to compensate PJ for the sum of Cheque 712627. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Gary for the reimbursement of reasonable expenses incurred by him during business trips. Quantum: n/a
1.28	Cheque 948096	Liability: Joy is liable to compensate PJ for the sum of HK$42,800 withdrawn on or about 19.2.2014 from PJ’s bank account without PJ’s authority by way of cheque 948096 for Gary’s own benefit. Quantum: HK$42,800	Liability: Joy is not liable to compensate PJ for the sum of Cheque 948096. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Gary as his salary and severance payment. Quantum: n/a
1.29	Cheque 193983	Liability: Joy is liable to compensate PJ for the sum of HK$9,331 withdrawn on or about 8.4.2013 from PJ’s bank account without PJ’s authority by way of cheque 193983 for Momoko’s own benefit. Quantum: HK$31,999	Liability: Joy is not liable to compensate PJ for the sum of Cheque 193983. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to Longchamp Travel Ltd for air tickets for business trip to the Vicenza exhibition from 18th to 25th January 2013. Quantum: n/a
1.30	Cheque 891843	Liability: Joy is liable to compensate PJ for the sum of HK$10,000 withdrawn on or about 31.10.2012 from PJ’s bank account without PJ’s authority by way of cheque  891843 without reasonable supporting documents for approval. Quantum: HK$10,000	Liability: Joy is not liable to compensate PJ for the sum of Cheque 891843. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was withdrawn for the PJ’s petty cash. Quantum: n/a
1.31	Debit at advice	Liability: Joy is liable to compensate PJ for the sum of HK$13,965 withdrawn on or about 20.11.2012 from PJ’s bank account without PJ’s authority by way of debit at advice without reasonable supporting documents for approval. Quantum: HK$13,965	Liability: Joy is not liable to compensate PJ for the sum of HK$13,965. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by Joy and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7  July 2016, [23] Quantum: n/a
1.32	Cash withdrawal	Liability: Joy is liable to compensate PJ for the sum of HK$10,000 withdrawn on or about 20.11.2012 from PJ’s bank account without PJ’s authority by way of cash withdrawal without reasonable supporting documents for approval. Quantum: HK$10,000	Liability: Joy is not liable to compensate PJ for the sum of HK$10,000. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was withdrawn for the PJ’s petty cash. Quantum: n/a
1.33	Cheque 193953	Liability: Joy is liable to compensate PJ for the sum of HK$15,000 withdrawn on or about 5.2.2013 from PJ’s bank account without PJ’s authority by way of cheque  193953 without reasonable supporting documents for approval. Quantum: HK$15,000	Liability: Joy is not liable to compensate PJ for the sum of Cheque  193953. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by Joy and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7  July 2016, [23] Quantum: n/a
1.34	Cheque 193955	Not pursued
1.35	Bank withdrawal	Liability: Joy is liable to compensate PJ for the sum of €5,800.98 withdrawn on or about 24.10.2012 from PJ’s bank account without PJ’s authority by way of bank withdrawal without reasonable supporting documents for approval. Quantum: €5,800.98	Liability: Joy is not liable to compensate PJ for the sum of €5,800.98.  Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for the payment of Vicenza Exhibition. Quantum: n/a
1.36	Cheque 193975	Liability: Joy is liable to compensate PJ for the sum of HK$3,801.40 withdrawn on or about 2.4.2013 from PJ’s bank account without PJ’s authority by way of cheque  193975 without reasonable supporting documents for approval. Quantum: HK$3,801.40	Liability: Joy is not liable to compensate PJ for the sum of Cheque  193959. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to American Express for the reimbursement of reasonable expenses of the PJ (hotel fees and other expenses for business trips). Quantum: n/a
1.37	Bank withdrawal	Liability: Joy is liable to compensate PJ for the sum of €3,727.10 withdrawn on or about 29.5.2013 from PJ’s bank account without PJ’s authority by way of bank withdrawal without reasonable supporting documents for approval. Quantum: €3,727.10	Liability: Joy is not liable to compensate PJ for the sum of €3,727.10  According to copy of the stub of the said   Joy and/or the relevant documents possessed by Joy, the sum incurred therein  was paid to R&P Legal for the legal fees to Italian lawyers regarding the Seizure Incident. Quantum: n/a
1.38	Cheque 193999	Not pursued
1.39	Cheque 472432	Liability: Joy is liable to compensate PJ for the sum of HK$12,844 withdrawn on or about 2.8.2013 from PJ’s bank account without PJ’s authority by way of cheque  472432 without reasonable supporting documents for approval. Quantum: HK$12,844	Liability: Joy is not liable to compensate PJ for the sum of Cheque  472432. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by Joy and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7  July 2016, [23] Quantum: n/a
1.40	Cheque 712611	Liability: Joy is liable to compensate PJ for the sum of HK$10,000 withdrawn on or about 27.9.2013 from PJ’s bank account without PJ’s authority by way of cheque  712611 without reasonable supporting documents for approval. Quantum: HK$10,000	Liability: Joy is not liable to compensate PJ for the sum of Cheque 712611. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by Joy and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7 July 2016, [23] Quantum: n/a
1.41	Cheque 712617	Liability: Joy is liable to compensate PJ for the sum of HK$10,000 withdrawn on or about 27.9.2013 from PJ’s bank account without PJ’s authority by way of cheque 712617 without reasonable supporting documents for approval. Quantum: HK$10,000	Liability: Joy is not liable to compensate PJ for the sum of Cheque 712617. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by Joy and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7  July 2016, [23] Quantum: n/a
1.42	Bank withdrawal	Not pursued
1.43	Bank withdrawal	Liability: Joy is liable to compensate PJ for the sum of €832.80 withdrawn on or about 23.11.2013 from PJ’s bank account without PJ’s authority by way of bank withdrawal without reasonable supporting documents for approval. Quantum: €832.80	Liability: Joy is not liable to compensate PJ for the sum of€832.80. According to copy of the stub of the said cheque and/or the recollection of Joy and/or the relevant documents possessed by Joy, the sum incurred therein was paid to R&P Legal for the legal fees to Italian lawyers regarding the Seizure Incident. Quantum: n/a
1.44	Cheque 948111	Not pursued
1.45	Cheque 948113	Not pursued
1.46	Cheque 891811	Liability: Joy is liable to compensate PJ for the sum of HK$10,293.62 withdrawn on or about 18.09.2012 from PJ’s bank account without PJ’s authority by way of cheque  891811 without reasonable supporting documents for approval. Quantum: HK$10,293.62	Liability: Joy is not liable to compensate PJ for the sum of Cheque 891811. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by JOY and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7 July 2016, [23] Quantum: n/a
1.47	Cheque 891822	Liability: Joy is liable to compensate PJ for the sum of HK$4,700.04 withdrawn on or about 10.10.2012 from PJ’s bank account without PJ’s authority by way of cheque   891822 without reasonable supporting documents for approval. Quantum: HK$4,700.04	Liability: Joy is not liable to compensate PJ for the sum of Cheque 891822. Joy has no record and therefore no recollection of whether such sum was withdrawn by her but in any event, if such sum was withdrawn by Joy, the same should have been withdrawn solely for payment of or reimbursement for legitimate business expenses incurred by Joy and or other staff on behalf of PJ as set out under Joy’s witness statement dated 7  July 2016, [23] Quantum: n/a

122.  From the Scott Schedule, it is clear that the withdrawals are not disputed. The question is whether the withdrawals were made for legitimate purposes.

123.  Mr Ng has made the following points under this head:

(1)  Some of the items are not substantiated by any documentary evidence.

(2)  Item 1.3: It would be absurd that a staff of a company is entitled to claim sundry expenses exceeding HK$8,000 without the need to provide any supporting receipts or invoices.

(3)  Item 1.4: Joy had provided an invoice issued by Prudential Assurance Company Limited. However, travel insurance for PJ’s staff were purchased from Canny and such insurance policy would always cover the entire year and all destinations. There is no basis for Joy to purchase additional travel insurance for her business trips, unless the Prudential travel insurance was for her personal trips not related to PJ.

(4)  Item 1.8 (exceeding HK$22,000): No supporting document has been produced.

(5)  Items 1.24 to 1.27 – purported reimbursements to Gary (exceeding HK$100,000): According to PJ’s records, no supporting sales receipt or invoices were provided for the alleged expenses of Gary under these items. It is contrary to commercial sense for a staff of a company to claim hotel and travel expenses without any supporting receipts.

(6)  Items 1.37, 1.43: These were payments to the Italian law firm R&P Legal for the legal costs to recover the jewellery items detained by the Italian authority in the Seizure Incident. As the Seizure Incident was caused by Joy’s negligence or breaches, Joy should be liable to reimburse PJ for these expenses.

(7)  As regards item 1.29 (Momoko’s expense in relation to the 2013 Italy Exhibition), Ruby agreed in her evidence that she allowed paying reimbursement to Momoko.  However, this fact does not necessarily mean that PJ also exonerated Joy from liabilities for breach of duties. As a matter of law, a principal may ratify a transaction (between the principal and a third party) without also pardoning the agent[67].  In fact, in the present case, the suggestion that the payment was authorized or ratified by PJ has not been pleaded in the first place.

(8)  Joy committed a breach of duty by bringing Momoko to Italy (and paying for her expenses): Momoko was not a sale staff, and there was no need to send 3 staff members to the exhibition (Joy and Gary (2 persons) went to two other exhibitions in Vicenza in May and September 2013). Momoko cannot be delivering any finished good to any customer in Italy, as the evidence shows that every item brought to Italy had to be brought back to Hong Kong and then the sold items would be sent to overseas customers from Hong Kong. There is no truth in Momoko’s evidence that it required 3 staff members to attend the 2013 Italy Exhibition.

124.  I agree with Mr Ng and accept his submissions. Further, in assessing Joy’s evidence in relation to these withdrawals, I bear in mind that:

(1)  Joy is not a truthful witness and her evidence is unreliable.

(2)  As to her excuse that she has difficulties in explaining the details of some matters because she does not have the necessary documents kept by PJ, for the reasons set out in Part F above, there is no merit in this excuse at all.

(3)  Items 1.30 to 1.47 are not supported by any documents.

(4)  As to items 1.3, 1.6 to 1.8, 1.19, 1.23 to 1.25, the supporting documents of these items are the corresponding cheque stubs.  However, the cheque stubs are merely evidence showing that these withdrawals were made by cheques.  There is no document showing that Joy’s explanations in relation to these items are true.

125.  Having considered all the evidence, I would not require Joy to reimburse PJ the following items:

(1)  Joy’s responsibilities in PJ include dealing with customers and promoting PJ’s business overseas.  In these circumstances, it would be reasonable for PJ to provide a mobile phone to Joy and pay the mobile phone fees.  Further, it would also be reasonable for PJ to pay the expenses for business lunch or dinner attended by Joy, and the expenses of Joy’s business trips.  Having seen the evidence, I am of the view that the items 1.6 to 1.8, 1.11 to 1.18, 1.20 to 1.22 fall within this category and are supported by satisfactory documents.

(2)  In respect of item 1.5, according to Ruby, the sum was paid to her for the purchase of Joy’s mobile phone.  As said in the above, I am of the view that it would be reasonable for PJ providing a mobile phone to Joy.

(3)  As to item 1.28, as a matter of fact, Gary has left PJ.  To err on the safe side, I am prepared to accept that item 1.28 is a legitimate withdrawal.

126.  Save and except the aforesaid, I am of the view that there is no satisfactory evidence showing that other withdrawals are legitimate withdrawals.  In my judgment, Joy shall reimburse PJ these sums.

M.  DISCREPANCY ISSUE

127.  After the evidence stage and before hearing final submissions from the parties, on 27 November 2019, PJ’s solicitors wrote to the court and informed me that in respect of some of the documents in Exhibit “LCY-18” in Joy’s witness statement dated 7 July 2016, the copies in the trial bundles[68] are different from the copies filed in court.  I was surprised by this finding.  In the hearing on 16 December 2019, I directed that there should be a witness statement from Joy explaining the said discrepancies and there should be discovery on this matter.  Oral evidence from Joy was heard in the hearing on 7 January 2020.  In essence, Joy’s explanation is that she has provided incorrect documents to her solicitors, and without realizing the mistake, her solicitors have put the incorrect documents into the trial bundles.  Joy claims that the mistake is her innocent mistake.  The parties have provided me submissions on this discrepancy issue.

128.  Having considered the matter, I am of the view that it would not be appropriate for me to make a finding in this judgment as to whether Joy has deliberately tried to mislead this court by providing incorrect documents in the trial bundles.  The issues in this trial should be those defined in the pleadings.  At the end, I have all the documents before me, and this judgment is based upon all the evidence before the court.  As to whether Joy has tried to mislead the court, if PJ and/or Ruby wish to pursue this matter, they have to do so by commencing separate proceedings.

N.  DISPOSITION

129.  PJ’s claim is allowed to the extent as set out in the above.  JD’s counterclaim is dismissed.  I direct PJ’s legal representatives to prepare a draft order and the draft answers to the questions in the Scott Schedule in accordance with this judgment and, after seeking other parties’ comments on the same, submit the draft order and the draft answers to the court for my approval.

130.  In respect of the sums to be paid by Ds to PJ pursuant to this judgment, counsel have agreed that there be pre-judgment interest on those sums at 1% above the best lending rate of HSBC.  The only difference between counsel is from when there should be pre-judgment interest.  Mr Lee submits that as a matter of convenience, pre-judgment interest on all the sums awarded to PJ should start to accrue on the date of the writ of summons. Mr Ng submits that in respect of 3 sums, pre-judgment interest should start to accrue on the date of commission of the wrong or at a time close to that date, for these 3 sums are substantial sums.  The 3 sums mentioned in Mr Ng’s submissions are (a) damages in relation to the Undeclared Items; (b) damages in relation to the misappropriated finished products (including the Diverted Jewellery Items); and (c) the proceeds of the Unaccounted Sales.  In respect of other sums, Mr Ng has no object that pre-judgment interest on these sums be calculated from the date of the writ of summons.  I accept Mr Ng’s submissions and order that:

(1)  There be pre-judgment interest on the damages in relation to the Undeclared Items from 22 January 2013 to the date of this judgment. On 22 January 2013, the Undeclared Items were seized by the Vicenza Custom and PJ lost possession of the same.

(2)  There be pre-judgment interest in relation to the misappropriated finished products (including the Diverted Jewellery Items) and the proceeds of the Unaccounted Sales from 1 April 2014 to the date of this judgment.  The misappropriation was discovered in March 2014, and the basis of the Unaccounted Sales is the closing stock of PJ in March 2014. With all these in mind, I am of the view that it would be appropriate for the pre-judgment interest on the awards in relation to these items to start to run on 1 April 2014.

(3)  There be pre-judgment interest on other sums awarded to PJ from the date of the writ of summons to the date of this judgment.

131.  There is no dispute that there shall be post-judgment interest on the sums payable by Ds to PJ at the judgment rate until full payment.

132.  There be liberty to apply.

133.  Costs should follow the event.  PJ have succeeded on all the issues[69] save and except the misappropriation claim in relation to the loose diamonds and some items in the unauthorized withdrawals claim.  In my view, the time spent on the issues on which PJ is not successful is minimal.  Taking a broad brush approach, I am of the view that PJ should be entitled to have 98% of the costs of these proceedings.  There be a costs order nisi that 98% of the costs of these proceedings (including all costs reserved) be paid by Ds to PJ, to be taxed if not agreed.

134.  Lastly, it remains for me to thank counsel for the helpful assistance rendered to the court.

HCA 2548/2014

Progetto Jewellery Company Ltd v
Lau Chiu Ying & Joy Design Company Limited
Amended Agreed facts

A.   The accounting and valuation evidence

1.  Progetto’s financial year ends on 31 August.

2.  Progetto’s yearly revenue, cost of sales, account receivables and accounts payables for the 2009-2010, 2010-2011 and 2011-2012 financial years as set out in Progetto’s audited financial statements [C3/666-725] are tabulated as follows:-

3.  According to the Warehouse Balance Report printed on 6 January 2014, there were more than 1,100 finished good items (leaving aside the seized items) [C2/443-463].

4.  From 15 to 24 January 2014, Joy and Gary attended the 2^nd Italian Exhibition. 117 jewellery items were sold.

B.   CCTV and police evidence

5.  On 27 January 2014, Gary Chu came back to Progetto’s office at 12:34:50, and Joy came back at 14:28:15. They left at 18:26:25.

6.  There is no CCTV record on 28 January 2014 from 13:21:35 to 19:30:20.

7.  On 13 March 2014, the police were called to Progetto’s office, and there was a stock-taking in the presence of the police: 18:23, 18:33, 19:37, 20:46-21:28.

8.  On 2 April 2014, Joy made a police statement saying that Progetto had a shareholders’ dispute [C13/3034].

9.  A schedule of CCTV records concerning Ms. Fung Pui Wa is enclosed as “Schedule 1” and the parties will treat its contents as agreed facts.

C.   HKTDC exhibition

10.  Between 2010 and 2013 (the Defence’s case: 2011 to 2013), Progetto attended the HKTDC Exhibition for 4 (the Defence’s case: 3) consecutive years. As a result of its continuous participation, Progetto has earned from the HKTDC priority placing in booth allocation for the HKTDC Exhibition.

11.  The deposit of HK$93,098.60 for the HKTDC Exhibition 2014 was paid in the following manner:

(a)  HK$48,320 was paid by Progetto by way of cheque on 27 June 2013. [C2/397]

(b)  HK$32,212 was paid by Progetto by way of cheque on 27 September 2013. [C2/397]

(c)  HK$4,026.60 was paid by Progetto by way of cheque on 10 December 2013. [C2/397]

(d)  HK$8,540 was paid by way of cash on 10 February 2014. [C12/2828] (The Defence’s case is that this was paid by Joy Design.)

12.  Progetto did not attend the HKTDC Exhibition from 5 March 2014 to 9 March 2014.

13.  As a result, HKTDC forfeited the deposit.

D.   Tax Return

14.  Progetto did not complete and file its tax return to the Inland Revenue Department since 2012-2013 year of assessment.

15.  As a result, the IRD has imposed a penalty on Progetto for failing to file its tax return and for late payment of the assessed tax since 2013.

16.  On 1 March 2017 and 14 August 2017, the IRD has issued notices to Hang Seng Bank to request payment of the outstanding tax and penalties from Progetto’s Hang Seng Bank saving account and current account.

E.   Seizure in Italy

17.  In around January 2013, Joy attended the 1^st Italian Exhibition on behalf of Progetto. Joy brought along Progetto’s 1,080 jewellery items (“Carnet Items”) from Hong Kong to display at the 1^st Italian Exhibition.

18.  On or about 15 January 2013, Joy and Gary arrived at London Heathrow airport and declared the Carnet Items at the UK Custom.

19.  On the same day, i.e. 15 January 2013, Joy and Gary arranged to meet up a South American customer outside the London Heathrow airport, namely Edmar Jewelry, to collect around 234 units of jewelleries (i.e. the items in Schedule B to the Re-Amended Statement of Claim) (“Seized Items”). The Seized Items were previously on consignment with Edmar Jewelry.

20.  After collecting the Seized Items, Joy and Gary travelled to Italy by connecting flights from London.

21.  Further, on or before 22 January 2013, the Seized Items and the Carnet Items were displayed at the 1^st Italian Exhibition.

22.  On 22 January 2013, the Vicenza Custom visited Progetto’s booth at the 1^st Italian Exhibition. The Seized Items were then seized by the Vicenza Custom.

23.  Subsequently, Joy on behalf of Progetto instructed lawyers in Italy for the recovery of the Seized Items.

24.  Progetto’s solicitors Deacons received a letter from S.K. Lam, Alfred Chan & Co. dated 31 December 2018 informing them that the Italian Customs Authority has issued a Confiscation No.135100-7-2018 and Order of Imposition No.135100-UNO-2018 both dated 9 November 2018 regarding the Seized Items.

Dated the 10^th day of January 2020

We, the undersigned, agree to the items stated this document.

 

 

(signed)	(signed)
_____________________	_____________________
Messrs. Deacons	Messrs. S.K. Lam, Alfred Chan & Co.
Solicitors for the Plaintiff (by original action)	Solicitors for the Defendants (by original action)

 

(signed)
_____________________
Madam Fung Pui Wa
1st Defendant (by counterclaim)

 

Schedule 1

Schedule of CCTV Records

Agreed CCTV Events

27 January 2014

1.  On 27 January 2014, Gary Chu and Joy Lau entered the office at 12:34:50 and 14:28:15 respectively.  They did not open the safe.  They left together at 18:26:25.  No stock-taking was done.  Ruby did not come back to the office on 27 January 2014.

28 January 2014

2.  On 28 January 2014, Ruby Fung entered the office at 11:57:15 and opened the safe at 11:59:04; and Joy came back at 12:06:18.  Ruby left at 12:12:56, and returned at 12:14:25. She left at 12:15:03.  During the period from 11:57:15 to 12:15:03, Joy or Gary did not enter the room in which the safe was located.

3.  Joy and Gary had physical contact with the stock items on 28 January 2014: see CCTV from 13:10:40 to 13:17:50.  

4.  On 28 January 2014, Joy and an unknown woman (Defence’s case: Momoko) left at 19:45:59.

February and March 2014

5.  On 4 (11:40:18 to 21:11:26), 5 (19:04:11 to 19:23:28) and 6 (11:44:35 to 12:43:58) February 2014, and 7 (11:12:39 to 11:14:36) and 19 (11:00:21 to 11:01:25; 14:22:14 to 16:34:22) March 2014, Joy entered the office of Progetto. 

6.  On 17 (17:59:49 to 20:48:09), 19 (17:57:18 to 20:50:17) and 27 (18:04:30 to 21:39:59) February 2014, Joy came in Progetto’s office and left together with Momoko.  

7.  On 5 (12:14:26 to 17:07:53), 6 (12:21:23 to 16:56:15) 19 (12:24:20 to 12:55:00 and 17:38:53 to 17:45:30) February 2014, and 7 (15:25:53 to 16:41:37) and 19 (01:02:32 to 01:40:59 and 17:52:45 to 23:59:59) and 20 (00:00:00 to 07:52:50) March 2014, Ruby entered the office of Progetto.

Unavailable CCTV

8.  The following CCTV footage is unavailable:-

	Date (Time)
	28 January 2014 (13:21:37 - 19:30:21)

Dated the 18^th day of November 2019

We, the undersigned, agree to the items stated this document.

 

 

(signed)	(signed)
_____________________	_____________________
Messrs. Deacons	Messrs. S.K. Lam, Alfred Chan & Co.
Solicitors for the Plaintiff (by original action)	Solicitors for the Defendants (by original action)

 

(signed)
_____________________
Madam Fung Pui Wa
1st Defendant (by counterclaim)