HKSAR v. LEUNG WING KEUNG ALBERT AND ANOTHER

DCCC1065/2021

[2024] HKDC 768

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 1065 OF 2021

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REASONS FOR VERDICT

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1.  The defendants were at all material time directors of Jacobs China Limited (JCL). They are jointly charged with “Conspiracy to Defraud ” , contrary to Common Law and punishable under section 159C(6) of the Crimes Ordinance Cap.200 (Charge One), and an alternative charge of “Fraud”, contrary to section 16A of the Theft Ordinance, Cap.210 (Charge Two).

2.  JCL was contracted to provide construction material compliance testing services to Civil Engineering and Development Department (CEDD) at Siu Ho Wan Laboratory (SHW Lab).  It is alleged that both defendants upon discovery of their staff having used tested or high strength concrete cubes or a metal calibration cylinder to substitute the original concrete sample to falsify the test result in SHW Lab “the Simulated Tests Irregularity”, deliberately concealed the matter from CEDD.  Their act of omission caused the officers of CEDD failed to discharge their duty of providing reliable, efficient and effective construction materials compliance testing services for public work projects in Hong Kong, and induced staff members of CEDD to release payment in the sum of $1,971,514.96 to JCL as stipulated in the contract.

3.  It is D1’s case that he and JCL had knowledge of “the Simulated Tests Irregularity”.  Acting honestly and in accordance with Jacobs Code of Conduct, Senior Management of Jacobs Group decided not to disclose after seeking legal advice from both in-house counsel and external counsel from Pinsent Masons.   Believing honestly that he was not under a duty to disclose, he did not disclose the matter to CEDD.  He had no intention to deceive CEDD.

4.  It is D2’s case that he had no knowledge of “the Simulated Tests Irregularity”.

Background

5.  Jacobs China Limited (JCL) entered into an agreement with the Civil Engineering and Development Department (CEDD) to provide construction material testing services for the Hong Kong-Zhuhai-Macao Bridge Project.   JCL discovered their technicians substituted the sample concrete cubes with high strength concrete cubes or steel bar to falsify test results (the Steel Bar Issue) but did not disclose to CEDD.  This case is about an act of omission, a non-disclosure of a non-conformity in the concrete compression testing procedure carried out in the Siu Ho Wan Laboratory (SHW Lab), i.e. the Steel Bar Issue/Simulated Test Irregularity.

6.  D1 and D2 were arrested by ICAC Officers on 16 May 2017. The work computers of D1 and D2, together with electronic copies and hardcopies of various documents were seized from JCL office with search warrant executed.

Civil Engineering and Development Department (CEDD)

7.  The Geotechnical Engineering Office (GEO) of CEDD has four branches, one of which is the Planning and Standards Branch.  Each branch is under the direction of a Deputy Head.  The Deputy Head of the Planning and Standards Branch in the year 2017 was Philip Chung, and his superior, was Pun Wai-keung.

8.  The Planning and Standards Branch consists two divisions (1) Planning Division and (2) Standards and Testing Division.  Each division is headed by a Chief Geotechnical Engineer (CGE).  The Standards and Testing Division is responsible for the production of geotechnical standards and the operation of the Public Works Laboratories (PWL), including SHW Lab.  Dr. Sun Hepn-wing was the CGE/S&T between 2 September 2015 and 1 January 2017; this position was subsequently taken over by Dr Julian Kwan Shun-hang on 2 January 2017.    

9.  The Standard and Testing Division comprises six sections, three of which are responsible for the production of geotechnical standards and the other three operate the PWL (Laboratory 1, Laboratory 2 and Laboratory 3).  Each section is composed of one Senior Geotechnical Engineer (SGE) and two or more Geotechnical Engineers. 

10.  PWL consists of the Public Works Central Laboratory and five Public works Regional Laboratories (PWRL).  Between 9 October 2012 and 29 December 2017, Lau Man Fai Tony was the SGE of Laboratory 3 and was responsible for supervision the operations of all PWRL, including overseeing the management of SHW Lab.

11.  It is the government policy that construction materials used in public work must undergo construction materials compliance testing at PWL.  PWL are to provide reliable, efficient and effective construction materials compliance testing services to public works projects.  The tests are to be conducted in accordance with the compliance requirements recommended in the General Specification of Civil Engineering Words (GS) following the test procedures recommended by the Construction Standard CS1:2010 (CS1).  The quality management system of PWL have been accredited by the Hong Kong Accreditation Services (HKAS) under the Hong Kong Laboratory Accreditation Scheme (HOKLAS), the test reports issued with HKAS endorsement bearing HOKLAS logo are generally referred as HOKLAS reports.   

Jacobs China Limited (JCL)

12.  JCL is a Hong Kong subsidiary of Jacobs Engineering Group (Jacobs Group) in the United States of America.  JCL’s business includes consultancy services in the building and infrastructure (B&I) sector, which included, the compliance testing of construction materials. 

13.  JCL’s management structure is separated into two categories (Exhibit P23): (i) Operations Management and (ii) Corporate Management.  Within the Operations Management, the highest rank being the Director of Operations and the lowest being the Project Team. 

14.  The Project Team comprised of:  D2, Norman Woods, Malcolm Lorimer, Paul Lau, Tom Ngan, Johnny Mok, Ivan Ho and various on-site technicians and their assistants.

•  Operations Management

15.  At all material times between 1 May 2014 and 9 August 2017, D1 was the Director of Operations of JCL in charge of JCL’s daily operations in Hong Kong, and a Divisional Director with expertise in structural engineering. 

16.  At all material times, D2 was the Divisional Director and Head of geotechnical engineering team of JCL and the Project Director of the consultancy agreement in question.   Norman Woods and Malcolm Lorimer were both Technical Directors of JCL and, at separate points in time, were both Project Managers of the SHW Project.

17.  At all material times, Mark Grey was the Executive Director of Operations of B&I Asia of Jacobs Group and a director of JCL, and he mostly stayed in Kuala Lumpur office.  He was involved in overseeing the operations of all local offices in Asia, including JCL and its projects.  In turn, Mark Grey reported to Patrick Hill, the head of the Asia Pacific region for Jacobs Group.  When Mark Grey was on leave, Peter Adams stationed in Malaysia would be acting in his position.  Bob Pragada was responsible for the building and infrastructure world wide of Jacobs.

18.  Patrick Hill, Mark Grey, Peter Adams and subsequently Bob Pragada were collectively known as the Senior Management involved in this case.

•  Corporate Management

19.  At all material times, Steve Kan, the Quality Manager of JCL, was tasked with quality management via quality audits and quality management.  Regarding the SHW Project, he was normally tasked with conducting quality audits with reference to the requirements as stated in the Hong Kong Laboratory Accreditation Scheme HOKLAS.  He was not member of the Project Team of the SHW Lab.

20.  At all material times, Allen Lin, the Human Resources Manager of JCL, was tasked with handling recruitment, employment and termination of staff, employee relations and enforcing the Code of Conduct in JCL.  He was not member of the Project Team of the SHW Lab.

The Hong Kong-Zhuhai-Macao Bridge Project (the Bridge)

21.  Highway Department was responsible for the construction of the Bridge.  Between 2012 and 2017, CEDD established a PWRL at Siu Ho Wan (SHW Lab) for construction materials compliance tests, including concrete compression strength testing for the Bridge.  To safeguard the quality of concrete used in the Bridge, sample concrete delivered to SHW Lab were to be tested in accordance with CS1.

22.  In March 2012, via open tendering, CEDD entered into a Consultancy Agreement (the Agreement) with JCL for outsourcing the management and operation SHW Lab to JCL covering the period between 1 June 2012 and 30 June 2016.  On 7 March 2016, the Agreement was extended to the effect that SHW Lab would be closed on 31 March 2017.  SHW Lab was also accredited by HKAS under HOKLAS.  The HKLS/HOKALS accreditation document in compliance with ISO/IEC17025:2005 was prepared by JCL.

The Agreement

23.  The Agreement includes the Memorandum of Agreement, General Conditions of Employment of Engineering & Associated Consultants for a Feasibility Assignment (General Condition), any Special Conditions of Employment, the Brief, Schedule of Fees and such other documents as may be referred to in the Memorandum of Agreement.

24.  The HKSAR government was the employer and JCL was the consultant under the Agreement; Director meant the Director of CEDD.  Director’s Representative under the Agreement referred to the Deputy Head of Geotechnical Engineering Office (Planning & Standards) and other officers of CEDD as may be authorized the Director in writing and notified to the JCL. 

25.  At all material times, Yuen Po-keung (Principal Technical Officer) was transferred to SHW Lab as the highest person in charge; his predecessor was Lau Kai-sum, Jeffrey (Acting Chief Technical Officer from January 2016).  Under Yuen was Cheung Pui-hoi, Samson (Senior Site Technician).

26.  At all material times, JCL has assigned Norman Woods to be the project manager of SHW Lab, Tom Ngan to be the authorized representative of SHW Lab, Johnny Mok to be the deputy authorized representative, and Paul Lau to be the project Co-ordinator.  From September 2016 onwards, Tom Ngan’s position was taken over by Ivan Ho.

27.  The objective of the assignment is to man, operate and manage the SHW Lab so that reliable, efficient and effective fill compaction control and other construction materials compliance testing services are accessible to the Bridge project and other public works projects (Clause 3 of the Brief). 

JCL obligations under the Agreement

28.  JCL was obliged under the Agreement to man, operate and manage the SHW Lab.  By Clause 4(iv) of the Brief, among various tasks of the assignment, JCL was to provide testing services that satisfy the quality requirements of PWL, which include but are not limited to, complying with the Quality Management System of PWL that have been accredited by HKAS under HOKLAS, the relevant parts of the Integrated Management System of the CEDD, the Performance Pledge of the PWRL, and other PWL’s commitments, etc.

29.  By Clause 11 of the Brief, JCL shall adopt standards/guideline documents including Construction Standard: Testing Concrete (CS1: 1990), Construction Standard: Testing Concrete (CS1: 2010), relevant HKAS and HOKLAS documents issued by the HKAS related to the HOKLAS accreditation and the relevant PWLQMS and PWRLPP documents (Exhibit P14-5).

30.  Clause 13 of the General Conditions, Clause 6.4.2(ix) and Clause 9.1 of the Brief stipulate the requirements concerning Monthly Progress Meeting, Monthly Progress Reports and Half-yearly Quality Review Reports respectively.

31.  By Clause 11 of the General Conditions, JCL should keep the government informed on all matters related to the work undertaken by SHW Lab within his knowledge including details of all staff employed in the performance of the services and should answer all reasonable enquiries received from the Director’s Representative and should render reports at reasonable intervals when asked to do so and should assist the Director’s Representative to form an opinion as to the manner in which JCL was proceeding with the services.

32.  Clause 22 of the General Conditions provides that:

“(A) The Consultants shall exercise all reasonable professional skill, care and diligence in the performance of all and singular the Services and, in so far as their duties are discretionary, shall act fairly between the Employer and any third party.

(B) The Consultants shall, in respect of any work done or information supplied by or on behalf of the Employer, report to the Director’s Representative any errors, omissions and shortcomings of whatsoever nature of which the Consultants become aware in the performance of the Services.

:

: ”

•  Concrete compression test

33.  Under the Agreement, JCL was to provide, amongst others, concrete compression testing services at SHW Lab.

34.  According to the Agreement, each sample consisted two concrete cubes should be tested on the 28^th days (+/- 8 hours) from the making of the sample in accordance with CS1.  From the perspectives of physics and chemistry, a concrete cube gained strength with time after casting and was close to its highest strength in 28 days thereafter the strength-gaining rate will slow down.  The Time Manipulation  Irregularity was about altering the time of the tests done outside the prescribed period, as if they were done within time.

35.  The concrete compression test was designed to get the reading of the strength of the sample (in the present case consisting a pair of cubes) and the variation of strength between the pair of cubes.  It is suffice to say for SHW Lab technicians, the desired variance is one within 15%.  The Simulated Tests Irregularity was to substitute a concrete cube sample with high strength concrete cubes or steel bar to falsify a variation within 15%.

HOKLAS Accreditation of PWL

36.  HOKALS is an accreditation scheme currently operated by Hong Kong Accreditation Service (HKAS) under the Innovation and Technology Commission (ITC).  HOKLAS accreditation criteria are in accordance with ISO/IEC 17025:2005 “General Requirements for the competence of testing and calibration laboratories”.

37.  In order to ensure that the construction material testing services provided by PWL conform to the minimum standards set internationally, CEDD participated in the HOKLAS as early as in 1988, and since then operated the PWRLs in conformity with both the technical competence requirements and management system requirements as per the HOKLAS accreditation criteria.  CEDD believes conformity with the said requirements is important to uphold the mission of PWL, namely to ensure that reliable, efficient and effective construction material testing services are accessible to public works projects, because the use of the standards is conducive to rendering the construction material testing services reliable and of good quality and minimizes errors.

38.  SHW Lab could issue HOKLAS endorsed test reports on condition that HOKLAS endorsed testing procedures were followed.  Otherwise, SHW Lab could only issue non-HOKLAS endorsed test reports and state on such test reports the fact that how the Test was not conducted in compliance with the HOKLAS endorsed testing procedures.

39.  For any non-conformity in the testing procedures, CEDD was under a duty to disclose the same to the service user of the Test and the regulator HOKLAS.  CEDD had informed Highways Department and HKAS of the findings of the Time Manipulation Irregularity and Simulated Tests Irregularity respectively after they were aware/notified of the matters.

Discovery of the irregularity

40.  Yuen Po-keung, the Principal Technical Officer of SHW Lab, spotted some irregularities on two test reports during daily random checking on 26 July 2016.   Yuen referred the matter to Jeffery Lau and Samson Cheung, both said they had no idea of the matter.  Believing the accuracy of the compression test results would be affected, Yuen then requested Tom Ngan to look into the matter and provided an explanation.  Later in the same afternoon, Tom Ngan found out two site technicians of SHW Lab Yip Tak-kit Curtis (Curtis Yip) and Lam Chun-ho Harry (Harry Lam) had altered the time of the concrete compression-testing machine to falsify the time of the tests (the Timing Issue/Time Manipulation Irregularity). 

41.  Yuen reported the matter to Jeffery Lau who further reported to Anthony Chuang. Anthony Chuang held a meeting to discuss the matter on the next day, 27 July 2016.  Tom Ngan and Paul Lau on behalf of JCL attended that meeting.  Tony Lau on behalf of CEDD in the meeting noted and regarded the incident as an issue of reliability/trusty, which would affect the reputation of the PWL and the trust between JCL, CEDD and the Public.  CEDD requested JCL to investigate into the matter, to take immediate actions and improvement at management level, and indicated that the incident would be revealed in the performance report (Meeting note Exhibit P 172).  

42.  CEDD considered this a serious matter and yet to know the scope of the manipulation, by a letter dated 28 July 2016 addressed to D2 and Norman Woods, Anthony Chuang on behalf of CEDD shown their concern about the Time Manipulation Irregularity, which might put the laboratory into disrepute, the act being a serious default was unacceptable and would be reflected in JCL performance report (Exhibit P 173):

“We consider that the act is a serious default and is totally unacceptable to us. This has reflected badly on the poor supervision and quality management of the laboratory. We are extremely concerned about the integrity of your staff, and you are warned to take stringent actions to enhance the supervision of work and the quality management of the laboratory. You are required to submit an investigation report including proposed measures of preventing its recurrence in future. On the other hand, you are also strongly advised to educate your staff on the importance of ethical requirements and to strengthen the ethical training accordingly.”

43.  Tom Ngan formally reported the matter to Norman Woods and Allen Lin via email on 28 July 2016 (Exhibit P 176), D1 and D2 were notified of the matter on the same day (Exhibit P 177).  D1, D2, Allen Lin and Steve Kan had an ad hoc meeting about the time manipulation at JCL headquarter on the morning of 29 July; Mark Grey was not in Hong Kong and joined the meeting via telephone. 

JCL Internal independent investigation

44.  It was agreed during the ad hoc meeting that only D1, Steve Kan and Allen Lin would head to the SHW Lab.  Later on the same morning, the three of them met up with Tom Ngan and Johnny Mok to conduct interview with the two site technicians, Curtis Yip and Harry Lam (Exhibit P77).  After the interview sessions, D1 was of the view that this was not an isolated situation, but a serious systemic failure, and he reported the matter to Mark Grey. 

45.  The matter was later taken up by the Senior Management of the Jacobs Group and lawyers were involved.  The Senior Management decided to hold an independent investigation to investigate the matter.

46.  After 29 July 2016, the investigation progressed, and Jonathan Emery from Australia took over and led the investigation.  Other members of the investigation team were D1, Steve Kan, Allen Lin, Calvin Wong, Gavin Wong and Johnson Lo.  The Project Team of SHW Lab was excluded from the investigation.

D1 represented JCL to deal with CEDD since 4 August 2016

47.  Should JCL received two adverse performance reports in a row, the company would be suspended from bidding for at least 6 months.  By a letter faxed to CEDD on 29 July, D2 on behalf JCL stated that JCL was investigating the matter and would be in touch next week (Exhibit P174).  Initially Norman woods planned to have a meeting with CEDD on 3 August 2016 to update on the progress of the investigation and to persuade CEDD not to issue an adverse performance report (Exhibits P175, P177).  

48.  A meeting to update CEDD about the progress of the investigation was eventually held on 4 August 2016.   D1, D2 and Norman Woods on behalf of JCL attended the meeting (Meeting notes Exhibit P244).  D1 was introduced to CEDD as the director responsible for the operations of the Hong Kong Office.  It was stated in the meeting that JCL have decided to hold an thorough independent investigation headed by their corporate internal auditor based in Australia, and the results would be provided in full to CEDD.  CEDD reiterated in the meeting that the incident would be reflected in the next performance report.  By a letter dated 8 August 2016 signed by D2, JCL reiterated what has been related to CEDD during the meeting on 4 August (Exhibit P178). 

49.  By 11 August 2016, JCL had got knowledge of the Steel Bar Issue/Simulated Tests Irregularity (Exhibits P81 – P84). 

50.  D1 and D2 on behalf of JCL had a meeting with CEDD on 29 August 2016 about the findings of the internal investigation, and there was no mention of the Simulated Tests Irregularity (Exhibit 185). By a letter dated 2 September 2016, CEDD urged JCL to submit a full investigation report as soon as possible (Exhibit P186). 

51.  An interim report dated 5 September 2016 signed by D2, without reference to the Simulated Tests Irregularity, was received by CEDD on the same day.  By the covering letter of even date, JCL said they would continue to update CEDD on the progress of their rectification actions and proposals (Exhibit P187).

52.  D1 and D2 on behalf of JCL had another meeting with CEDD on 27 September 2016 at 10am (Exhibits P284, D2-8). Mr Pun and Dr. Sun of CEDD were present.   The meeting was initiated by CEDD as to the progress of the investigation, and when the final report would be available.  According to D2, while D1 said he had no recollection, towards the end of the meeting, Mr Pun asked, “if there is anything else to report please include it”.    

53.  The final report dated 25 October 2016 signed by D2 was emailed to CEDD on the same day. There was no reference to the Simulated Tests Irregularity.  Indeed JCL did not disclose the Steel Bar Issue/Simulated Tests Irregularity to CEDD in any of their reporting channels.  JCL did not disclose the matter in any of the progress meeting, progress reports and quality review reports submitted to CEDD.

Payment to JCL by CEDD

54.  Clause 27 of the General Conditions of the Agreement provides that the payments under the Agreement shall be made in accordance with the Schedule of Fees (Exhibit P14-1).

55.  The Payment Schedule (Extension Contract) for the extension to the Agreement between July 2016 and March 2017 listed out the milestone number, milestone item, number of months from date of commencement of Agreement and the cumulative payment percentage.  A particular milestone payment would only be made upon the completion of the corresponding milestone item (Exhibit P16).

56.  On 27 January 2017, D2 for and on behalf of JCL, issued a letter with an invoice to CEDD, requesting the payment of a sum of $985,757.47 for the accomplishment of the milestone of acceptance of the 8^th Half-yearly Quality Review Report (“Milestone M2”) (Exhibit P234). 

57.  On 16 February 20-17, the Treasury transferred a sum of $3,895,751.07, including the $985,757.47 for the Milestone M2, to JCL bank account (Exhibits P330, P331 & P332).

58.  On 19 April 2017, Norman Woods in his capacity as Acting Project Director, for and on behalf of JCL, issued two letters with an invoice to CEDD respectively requesting:

(i)    the payment of a sum of $492,878.74 for the accomplishment of the milestone of completion of the extension of operation of SHW Lab and the submission of the Final Quality Review Report (Milestone M3) (Exhibit P235);

(ii)   the payment of a sum of $492,878.75 for the accomplishment of the milestone of acceptance of the Final Quality Review Report (Milestone M4) (Exhibit P236).

59.  On 10 May 2017, the Treasury transferred a sum of &1,148,657.49, including the payments for Milestones M3 and M4, to JCL bank account (Exhibits P333, P334 & P335)

Time Manipulation Irregularity vs Simulated Tests Irregularity

60.  During the first round interview of the internal investigation between 10 August and 19 August 2016, JCL was alerted that in addition to time manipulation, other materials or steel bar being used to replace the sample concrete cube in the concrete compression tests to falsify a desired strength reading. JCL, however, never disclosed the Simulated Tests Irregularity/the Steel Bar Issue to CEDD. 

61.  Because of the characteristic of concrete, for the time manipulation, as the difference was only in term of day(s), for any individual sample, there should not be a great difference between the false test result and that would have been obtained on the 28^th day.  Whereas for the simulated tests, different material was used, and there was no way to know the actual strength of the cube being simulated.  The duty of CEDD is to provide efficient, effective and reliable testing services; the concealing of the Simulated Tests Irregularity would adversely affected CEDD in performing such duties.

62.  CEDD considered the non-disclosure of Simulated Tests Irregularity was a major default of JCL and a serious incident regarding JCL’s performance.  Pursuant to Development Bureau Technical Circular (Works) No.3/2016 on Management of Consultants’ Performance (DEVB TC (W) No.3/2016), CEDD upon consideration issued a Special Report to JCL.  The issue of Special Report would bring about serious consequence, for example, a suspension for bidding government projects. 

Prejudice suffered by CEDD

63.  In normal cause of business where JCL comply with all the requirements stipulated in the milestone payment schedule, CEDD would recommend payment accordingly.   Should the officers of CEDD were told of the Simulated Tests Irregularity earlier, they would have been aware that JCL has failed to address to CEDD all the fraudulent acts, i.e. the Steel Bar Issue discovered in August 2016 and would have stopped milestone M2 payment and the subsequent payments. 

64.  CEDD without knowledge of the Simulated Tests Irregularity released the milestone M2 payment and the subsequent payment to JCL, a total sum of $1,971,514.96. Shortly after that, ICAC informed CEDD of the Simulated Tests Irregularity at SHW Lab, but the scope of the malpractice was unknown. 

65.  Thereafter CEDD carried out a series of follow-up actions, to ascertain the scope of the matter, and to verify whether JCL has mentioned the Steel Bar Issue in the final investigation report submitted in October 2016.  Highway Department being the client, and HKAS being the accreditation organization were also informed. 

66.  Following the discovery of Simulated Tests Irregularity, CEDD took the following remedial actions:

(1)  Undertaking reviews of data and reports of 399,948 concrete cube compression tests conducted by SHW Lab between January 2013 and March 2017 to identify and assess abnormalities of the test results;

(2)  Conducting non-destructive testing (rebound hammer tests) at 221 locations in the Bridge project; and

(3)  Carrying out 810 number of concrete cubes compression tests and 545 number of concrete core compression tests to assist the Highways Department to investigate the quality of concrete used in the Bridge project.

The direct manpower spent on the above remedial actions are estimated to be 225 man-days, which correspond to a staff cost of about $700,000 incurred by CEDD. Costs of remedial actions undertaken by other Government Departments are not included in the said estimated sum.

Issues in dispute

67.  As stated in D2’s closing submission, this case is not about concrete or its scientific complexities but honesty, integrity and the fulfillment of contractual obligations by adherence to established codes of conduct.  The considerable volume of evidence about concrete, the operation of SHW Lab, the structure of JCL and that of the Jacobs Group, however, help to understand the evidence and the reasoning of decisions made by those involved.

68.  D2 agrees with the Prosecution that the Steel Bar Issue (like the Timing Issue), as a matter of integrity, honesty and in accordance with JCL’s contractual obligations as set out in various codes of conduct, should have been disclosed to the CEDD.  D2’s case is centered on knowledge.

69.  D1 agrees he had knowledge of the Steel Bar Issue and without the legal advice he had access to, reasonable persons in the community would think that not disclosing the malpractice in the SHW Lab to CEDD was dishonest.  It was the Senior Management’s decision not to disclose.  With the legal advice sought by JCL, he had no reason to doubt the integrity of the senior management, and he believed there was no need to disclose the Steel Bar Issue to CEDD.  He had no intention to deceive CEDD. 

70.  D2 was excluded from the internal independent investigation.  The non-disclosure decision was made by the Senior Management after seeking legal advice.  The investigation report prepared by Jonathan Emery was extensively edited by the lawyers.  The interim and final investigation reports signed by D2 and provided to CEDD did not have reference to the Steel Bar Issue.  There could only be two possible scenarios:

(1)   D2 did not have knowledge of the Steel Bar Issue and he signed the report believing it contained full findings of the internal investigation (D2’s case), or

(2)   D2 had knowledge but agreed with the senior management’s decision and signed on the report (Prosecution’s case).

71.  Moreover, it is D1’s case that he did not conspire with D2, he only carried out the decision of the Senior Management.  As such, the questions in dispute being:

1)  Whether D1 knew he had a duty to disclose / honestly believed there was no need to disclose the Steel Bar Issue to CEDD?

2)  Did D2 has knowledge of the Steel Bar Issue between 28 July 2016 and 10 May 2017?

3)  Did D1 and D2 come to any agreement not to disclose the Steel Bar Issue to CEDD?

4)  Did D1/D2 intend to deceive CEDD?

Findings

72.  I have reminded myself of the burden and standard of proof. It is for the prosecution to prove D1 and D2’s guilt on each and every element of the charge beyond all reasonable doubt.  The defendants have no burden of proof whatsoever.  Both defendants have a clear record and the court has received positive evidence of their good character, it is less likely that they would commit a crime and more likely that they were telling the truth in their evidence. 

73.  The parties have prepared detail summary of the evidence and made thorough analysis of the issues in their written submissions.   In each of the defendants’ case, I have considered all the evidence in light of the defence case and the defence submission.   I have reminded myself the relevant principles in relation to the drawing of irresistible inference.   Where there is any reasonable doubt, the benefit should go to the defendant. 

D2’s knowledge

74.  Upon preliminary verification of the irregularity discovered by CEDD.  Norman Woods by email dated 28 July 2016 at 4:50pm, provided D2 a summary of the preliminary findings of the time manipulation (the Timing Issue), the position of CEDD and follow actions taken.  D2 forwarded the email to Mark Grey later at 5:12pm, proposed to have an independent audit by Steve Kan to ascertain the scope of the problem (Exhibit P177).  D2 went to Yacht Club later that evening.  D2 said he was not able to answer calls while he was in Yacht Club (Exhibit D2-12), and he did not have any telephone conversation with Tom Ngan that evening/night.

•  Tom Ngan’s evidence

75.  Prosecution relies heavily on Tom Ngan’s evidence that D2 had knowledge of the Steel Bar Issue later on the evening of 28 July 2016.  Tom Ngan gave evidence that upon the instruction from the management, on 28 July 2016 he called Harry Lam and Curtis Yip and directed them to attend SHW office on the next day.  Later Harry Lam called him back threatened to “blow the whistle” about the use “metal material to replace the cubes for testing by someone in the lab” if his request for favorable terms for leaving JCL’s employment was not acceded to.  He then called Norman Woods and reported the incident to him.  Thereafter he received a call from D2, in which he informed D2 “about people using steel material in lieu of cubes” and D2 said “legal advice was required to be sought”.  The call records of Ngan’s mobile number shown no record of any call from D2 in that evening (Exhibits P337 and D2-6).

76.  Tom Ngan reiterated again in cross-examination that he told Norman Woods about Harry Lam’s threat “someone used metal-like materials to substitute the cubes to conduct the test”.     It is noted that after receiving the call from Tom Ngan, Norman Woods send an email to D2 on 28 July 2016 at 10:24pm (Exhibit P177), copied to D1, Tom Ngan, Paul Lau and Allen Lin, to express his opinion on staff dismissal and the content of the email only referred to “blow  the whistle on irregularities elsewhere in other government labs”.  There was simply no reason for Norman Woods to miss out the Steel Bar Issue in this internal email if he was told as Tom Ngan alleged.  It is noted that the scope of the investigation also cover other laboratories under JCL management (Exhibit P244). 

77.  On 29 July 2016, D1, Steve Kan and Allen Lin went to SHW met up with Tom Ngan and Johnny Mok to conducted interview with Harry Lam and Curtis Yip.  Tom Ngan said during the initial meeting session (11:30am – 1:30pm), he informed those present of Harry Lam’s threat and thus revealed the steel bar issue to them. And the matter was related again to Mark Grey and D2 during a conference call in the same meeting.  However, D1 and Steve Kan gave clear evidence that no one mentioned the steel bar issue on that day.  The note of the meeting and interview (Exhibit P77) prepared by Allen Lin which had been circulated to all for comment on the draft, also had no reference to the steel bar issue.  Tom Ngan was invited to make comment to the draft, he did make some comment but made no query why there was no reference to the steel bar issue (Exhibits P78, P80).  There was no reason for Allen Lin to miss out the steel bar issue if this was mentioned by Tom Ngan.  Further, there is evidence that there was a conference call between Jonathan Emery, Mark Grey and D2 on 29 July 2016 at 12:15 to 12:45pm, the subject was “Scope for work to be performed on time manipulation” (Exhibit P294).

78.  Evidence shown that Harry Lam had also used steel bar to falsify test results (Exhibit P84), why would he want to reveal the Steel Bar Issue as his bargaining chip when his knowledge of irregularities in other laboratories could have served the purpose.  Tom Ngan said “Not sure” when it was suggested to him that the threat from Lam was only in relation to irregularities in other labs.  It is also noted that Harry Lam only talked about the nature and extent of the Timing Issue on 29 July 2016 and Tom Ngan also did not pose any question about the Steel Bar Issue during that interview with Harry Lam.

79.  I consider and agree with D2’s submission that Tom Ngan’s allegations that:

(i)    he received call from Henry Lam on 28 July 2016 who mentioned technicians at SHW Lab replacing the sample concrete cube by metal material to falsify test result,

(ii)   he related the matter to Norman Woods and D2 on the evening of 28 July 2016, and 

(iii)  he reported the matter again during the initial meeting session at SHW Lab on 29 July2016,

are not only implausible but also contradictory to the contemporaneous evidence and testimony from all other witnesses.  I consider and place no weight on this part of his evidence.

•  The Chinese Wall

80.  There is clear evidence that D2 was excluded from the independent internal investigation to avoid conflict of interest.  The decision to exclude D2 from the investigation is in line with both JCL’s contractual and regulatory obligations to CEDD and JCL’s own internal codes of conduct.  There is evidence from Allen Lin suggested that Tom Ngan did report to Human Resources Office sometime before 10 August 2016, about Harry Lam’s threat related to “blow the whistle” about the use “metal material to replace the cubes for testing by someone in the lab”, but there is no evidence that this call was related to D2.

81.  The relevant evidence is summarized in D2’s closing submission at para. 101, 118 & 119:

“101. The Independent Investigation Team was not only outwardly portrayed to be independent to CEDD, substantively, its independence was internally promulgated by its members through the construction and maintenance of an information barrier, a Chinese Wall, dividing those in the Project Team from the Independent Investigation Team’s on-going activities and findings. Accordingly, by reason of the Chinese Wall, D2 and his immediate subordinates were not informed of the Independent Investigation Team’s findings concerning the Steel Bar Issue during either the First Round or the Second Round Interviews.

118. Further, other than Ngan (who has been transferred out SHW Lab in September 2016), no member of the Project Team knew about (the finding of) the Steel Bar Issue until after the SHW Project was finished. As seen in the testimony of Paul Lau, Ivan Ho and Woods (all part of the Project Team) regarding their handling of Emery’s, none of them was aware of what the term “simulation” meant at the time. This is consistent with the fact that no-one had formally or informally unveiled the actual findings of the investigation to the Project Team despite the submission of the Final Investigation Report.

119. Indeed, having heard evidence from D1, Lin, Kan and Johnson Lo from the Independent Investigation Team, no mention was made about any of them ever personally speaking to D2, the Project Team or even Ngan about the Steel Bar Issue. …”

82.  D2, being the Project Director, was ultimately responsible for the project, was required to monitor the follow up actions.  Thus upon completion of the investigation, there was no reason to conceal the findings of the steel bar issue from him.  Jonathan Emery sent two emails in January and February 2017 respectively to D1 and D2 requested them to update the progress of the outstanding follow up actions, including those related to Steel Bar Issue (Exhibits P273, P274).  The two emails from Jonathan Emery suggested that within the Jacobs Group after completion of any independent investigation, in the normal course of business, the project director excluded would be provided with the full findings of the investigation report to enable him to discharge his duty probably.

83.  Jonathan Emery did not come over to testify.  There is no evidence whether he knew D2 had knowledge of the full findings of the investigation, or just believed the Senior Management should have told D2 the full findings of the investigation.  D2 said he had no knowledge of the Steel Bar Issue. 

•  D1’s knowledge and involvement

84.  The investigation effectively completed after the second round interview by end of August 2016, no indication D2 was personally involved in the Timing Issue or the Steel Bar Issue.   On 29 August 2016, a meeting was held between CEDD and JCL, in which D1 and D2 were both present.  Updates of the investigation were given by D1 but there was no mention of the Steel Bar Issue. (Exhibit P185). Later on the same day at 12:44am, Allen Lin emailed D1 the interview notes of the second round interviews.  On the next day, D1 sent an email to Mark Grey containing 2 attachments, (i) his meeting notes of the meeting with CEDD and (ii) his technical assessment and his opinion of the effect of the Steel Bar Issue (Exhibit P265).  In the email, D1 also requested a private chat with Mark Grey prior to their phone call with Emery.   According to D1’s evidence, D2 did not take part in his technical assessment.  This email also was not circulated to D2 nor anyone of the Project Team. 

85.  Follow-up actions have been proposed for both issues, but the weekly status reports prepared by D1 from 8 September 2016 to 24 February 2017 for internal use, only had reference to the Timing Issue, and other internal administrative actions, the follow-up actions related to the Steel Bar issue were not included.  It is noted that before sending out the first weekly status report in late afternoon on 8 September, D1 had a telephone discussion with Peter Adams in the morning.   The email enclosing the first weekly status report to Peter Adams, was sent to Peter Adams, Mark Grey, and was further copied to Jonathan Shattock (an in house lawyer) and D2.   However, D1 only included an explanation to Peter Adams in the covering email as to why D2 was included on the circulation list (Exhibit D1-9).

86.  D2 being the Project Director was required to follow up the various improvement actions of any failure of the system or breach of the Code of Conduct.  D1 included D2 on the circulation list was to enable him to follow up with the various actions and coordinate with the AR, SST and HR.  It is D1’s evidence that the Senior Management, the in house lawyers and the external lawyers all knew about the steel bar issues, and the Senior Management decided not to disclose the Steel Bar Issue upon seeking legal advice.  That being the case, I fail to see any reason for D1 to exclude the follow-up actions related to the steel bar issue in the weekly status reports unless the Senior Management did not want to alert D2 the finding of the Steel Bar Issue.

87.  After considering the relevant evidence, I agree with D2’s closing submission that “by reason of D2’s central role as the Project Director of the SHW Lab in conjunction with his considerable experience in geotechnical engineering (Exhibit D2-9), D2 would have been a prime candidate for conducting or at least, being consulted about, the technical assessment of the Steel Bar Issue. However, all evidence points towards D2 not being a party to that exercise.”  I consider and agree “the exclusion of D2 from the technical assessment of the Steel Bar Issue, despite his pedigree and suitability for the task, points to the conclusion that D2 was intentionally kept out of the loop in respect of the discovery of the Steel Bar Issue”.

•  D2’s evidence

88.  It is D2’s evidence that he was involved in some of the subsequence discussion upon completion of the internal investigation but nothing related to the Steel Bar Issue.  The way D1 drafted the email and prepared the weekly status reports suggested he knew D2 was not involved in the discussion related to the Steel Bar Issue and he knew the Senior Management only prepared to let D2 have limited access to the findings of the investigation.  This is consistent to D2’s case that despite being the Project Director, he was not told about the Steel Bar Issue.

89.  The Interim and the Final Investigation Reports (Exhibits P187 & P213) provided to D2 for his signature did not have reference to the Steel Bar Issue.  It is D2’s evidence that nothing caused him to query the accuracy of the investigation reports.  He said during a meeting with CEDD on 27 September 2016 with D1 present, WK Pun asked “if there’s anything else to report please include it”, this raised his suspicions on the matter of disclosure.  He related WK Pun’s statement in a teleconference with the Senior Management later that same day and was given reassurance that there was nothing else to report.

90.  D2 was not involved in the independent investigation; he signed the Interim and Final Investigation Reports only because he was the Project Director.  D2 said he believed the final investigation report was “a true reflection of the investigation that Jacobs had carried out”.  He had no idea that other things had been found.  He relied on his judgment and the people who prepared the report.  He assumed that “they had given (him) a full and honest disclosure on what had been found because on 4^th of August, when (he) went to see GEO at the meeting with Albert Leung, that was what (they) promised GEO; a thorough report and a full disclosure of everything (they) found”.   

91.  D2 stated “the Code of Conduct I believed required Jacobs to report the issue of steel bar to government, and had they reported (the Steel Bar Issue to me) and advised me, I would have insisted.  But they didn’t” and “it would be a resigning issue”.  D2 said he did not know about the Steel Bar Issue, if he had known about it, he would have insisted to the Jacobs Group management that this to be disclosed to CEDD.  I consider and agree there is no reason to reject D2’s evidence.  

•  Emery Emails

92.  The evidence before the court is such that, apart from the two emails from Jonathan Emery received by D2 in January and February 2017 respectively, all the information provided to and materials came into existence after 26 July 2016 that D2 might have access did not contain any reference to the Steel Bar Issue.  D2 said he did not go through the emails from Jonathan Emery because he was heavily engaged in other projects.

93.  It is noted that in the period between July 2016 and May 2017, in addition to the SHW Lab operation, D2 was responsible for 18 other active government projects in which he was either its Project Director or a Registered Geotechnical Engineer (Exhibit D2-10).    The relevant evidence of D2 is summarized in the closing submission at para. 127:

a.  In order to pay sufficient attention to each of his projects, D2 had to prioritize his time to projects that had complications requiring his immediate attention.  As we have seen in evidence, when the Timing Issue arose, D2’s attention was drawn to the SHW Project and his discussions with Ngan and Woods were immediately reported upwards. …

b.  Subsequently, after the submission of the Final Investigation Report, in late 206 and early 2017, D2 testified that complications had also arisen in his Ocen Park Project in late 2016, which involved “a slope failing while a contractor was drilling … [and] there were delays, cost overruns and the architect was in dispute with the client because of non-payment of fees and so I was very heavily involved in that” and later in his Y-Park Sludge Treatment Facility Project in early 2017, which involved D2’s representation on behalf the government in an arbitration.  This led him to dedicate a disproportionate amount of time to those project in early 2017, which involved D2’s representation on behalf the government in an arbitration.  This led him to dedicate a disproportionate amount of time to those projects in 2017, which amounted to at least 25 percent of his time for the Ocean Park Project and 30 to 40 percent of his time for the T-Park Project.

c.  As a result of those complications, D2 normally worked from 8:30am to 8:30pm five days a week and would often be going in on Saturdays to work.  This also meant that D2’s normal work day involved being out of the office for various meetings with clients on projects.

d.  Due to D2’s divided attention across his 19 government projects, within each project, he had to be reliant on the team that he had and had “to work with a certain amount of trust to accept that the people who are working for you are being honest and have integrity”.  For the SHW Lab, he relied upon Woods, Paul Lau, Ngan and later Ivan Ho, as they were his immediate subordinates who spent more of their time there and were closer to the SHW Lab, whereas D2 could only visit once every 3 to 6 months.  Ngan himself also confirmed that D2 relied on those below him in the hierarchy to provide accurate reports which he would then sign.

e.  Specifically, regarding his 2.5 contracted hours of work for the SHW Lab, D2 explained that those hours involved speaking to “Norman Woods and Paul Lau who were the project manager and project coordinator every month when they produced a report for me.  I would go through the report and I would ask them questions.  Then every – probably every third month, I would go to the progress meeting and because we were running three laboratories by the time the issue arose, that would involve most of the day travelling down to one of the laboratories and we’d meet in either Tai Po or in Lanzhou and we would basically spend the day”.

94.  It is evidence from D1 and D2 that the role of a Project Director was “a position of huge responsibility”.  After the formation of an Independent Investigation Team, D2 was excluded from the investigation but he continued to liaise with CEDD.  D2 could only relied on the integrity and honesty of the Independent Investigation Team and the Senior Management for the findings of the investigation.  I consider and accept D2’s evidence that he had no knowledge of the Steel Bar Issue when he signed the Interim and Final Investigation Reports.

95.  It is D2’s explanation that he did not read the Emery Emails “beyond the first page”, because he thought the SHW Lab required no further input from him after the submission of the Final Investigation Report.  The weekly status reports received only refer to the Timing Issue and he thought the Emery Emails were a continuation of the Weekly Status Reports consisting of minor follow-up works that did not require his attention as the actions he was responsible for had all been completed.  Due to his attention being required in other government projects at the time, he relied on D1 and his immediate subordinates to handle the remaining remedial works.  Whilst he concedes in hindsight this was an unfortunate oversight on his part. 

96.  The evidence shows that during the months of January and February 2017, D2’s attention was directed towards the Ocean Park Project and T-Park Project as complications and disputes requiring his attention had arisen.  As a result, during that period, D2 had received around 100 to 150 emails a day and around 800 emails per month on the Ocean Park Project alone.  D2 said since “there is a limited amount of time that you have in the day.  I regret now not looking at these emails and “all I can say is that at the time I did not look at it.  I wish I had.  I wish I’d taken positive action”.  I consider and agree there is no reason to reject his evidence and explanation.

97.  For the reasons mentioned above, having regard to the evidence as a whole, I consider the Prosecution has failed to prove D2 had knowledge at the material time and he was acquitted accordingly on both charges.

98.  That being the case, we only need to consider the alternative charge of fraud against D1.  Whether D1 by deceit, namely by deliberately concealing “the Simulated Tests Irregularity”, and with intent to defraud, induced staff members of CEDD to release payment in the sum of $1,971,514.96 to JCL, which resulted in benefit to the said JCL and prejudice to the CEDD.

D1’s mens rea

•  D1’s Background and Expertise

99.  D1 was the Director of Operations of JCL.  In 2016, JCL had around 300 – 400 staff and around 50 – 100 projects, D1 was Project Direct of 15 – 20 projects, he also had to travel regularly on business trips, e.g. flying to Kuala Lumpur to meet Mark Grey, and attend regional meetings with Jacobs Group people.  He had experience in dealing with civil servants and government contracts.  The relevant background of D1 has been summarized by the Prosecution in his closing submission at Para. 99 – 103:

“99. D1 had been an engineer since 1979 when he worked as a graduate engineer. Since then, D1 obtained a number of professional qualifications and memberships of professional bodies, including:-

(1) Chartered Engineer in the United Kingdom since 1983;

(2) Member of the Hong Kong Institute of Engineers (“HKIE”) since 1984;

(3) Member of the Institution of Civil Engineers in the United Kingdom since 1984;

(4) Secretary of the HKIE Ad Hoc Committee on Alternative Dispute Resolution since 2003;

(5) Council Member of the Hong Kong Association of Consulting Engineers between 2010 and 2013;

(6) Committee Member of the HKIE Joint Structural Division.

100. D1’s expertise is in structural engineering and the technique of concrete. In short, they concern the safety and completeness of building structures and consideration of the type of concrete to be used at a particular stage.

101. Over the years, D1 was involved in many important projects (e.g. the development of Thrill Mountains and the related facilities in Ocean Park) and had won different awards (e.g. Commendation Award of Structural Engineering by the HKIE in 2014 for a public housing project, Grand Award for Structural Engineering by the HKIE for the footbridge of Shui Chuen O of the Hong Kong Housing Authority in 2018, and Grand Award of Structural Engineering by the HKIE for the first implementation of MIC for building five quarters for the Fire Services Department in Tseung Kwan O.

102. D1 was involved as the Project Director in the creation of Hong Kong’s Code of Practice on Structural Use of Concrete in 2004 and its subsequent update in 2018, which provide guidelines for the professionals and practitioners on design, analysis and construction of concrete structures. D1 also provided background information to the author of “Concrete Code Handbook – An explanatory handbook to the Code of Practice for Structural Use of Concrete 2004.

103. D1 claimed that he had never worked in a materials testing laboratory before and had never been involved in managing such a laboratory.”

100.  As an ex-director of JCL, D1 was required to read and understand the latest version of the Code of Conduct of Jacobs Group.  He duly completed the annual reaffirmation of the Code of Conduct for 2015, 2016 and 2017 respectively around 5 August 2015, 6 September 2016 and 3 January 2018.

101.  As a professional engineer, D1 has been required to observe the Code of Conduct of various institutions of which he is a member.  Ethic and integrity are always an important part in the Code of Conduct of any professional organization.

•  JCL’s Conduct & Ethics Policy

102.  Jacobs Group presented itself to be a relationship-based company.  JCL stated in the Employee Handbook (Exhibit P5) that:

“The Company is committed to providing a quality service to clients and all employees must perform duties at the highest level of integrity, commitment and professionalism (Conduct Policy para. 1 at page 27).

The Company is committed to upholding the highest standards of honesty and integrity to enhance the quality and efficiency of service. As we owe a duty to the community, clients, contractors and their employees, we will act professionally and use our best endeavor to practice this Code of Ethics in order to promote integrity within the construction industry. (Code of Ethics Policy para. 1 at page 35).

Professionalism – The Company shall discharge its professional responsibilities with all reasonable professional skill, care and diligence.  We shall at all times perform our work objectively and impartially and free from influence by and consideration, which may, either potentially or actually, conflict with its requirement.  The Company shall ensure that the work is carried out with proper regard to technical and professional standard expected of the profession.  (Code of Ethics Policy para. 2.4 at page 35).”

103.  The core values of Jacobs Group are stated in its Code of Conduct (Exhibit P3) at page 4 of 29, the first one being:

“1. We are a relationship-based company.

We focus on forging strong, long-term relationships with our clients, as we consider sound client relationships to be the most important contributor to our success.  Ethical conduct ensures these relationships are sustained over time – integrity, fairness, respect, and reliability cement our clients’ trust in us.”

Then at page 5 of 29, under “What is the purpose of the Code of Conduct?”, it is stated that:

“This Code is one of many tools we use to advance our Core Values, and promote our business model as we seek to grow our business and bring value both financially and ethically to our stakeholders.”

And at the same page, under “What is my responsibility as an employee?”, it is stated that:

“…you must follow the Code in your daily work. Finally, you must agree to seek advice from your manager or company experts if you are confronted with a legal or ethical challenge.”

Then at page 6 of 29, under “Where do I go to report violations?” , it is stated that:

“It’s a good idea to start with your manager or Jacobs senior managers. Our Company’s legal counsel is always a great source for advice and resolving complaints. We also have a Corporate Compliance Officer, as well as an Integrity Hotline. Finally, the Board of Directors/Presiding Director are also available as a resource.”

104.  As stated above and summarized in D2’s closing submission at para.89 to 94, for the SHW project, JCL was bound by 5 sources of governance.  JCL was responsible for ensuring that the SHW Lab would obtain their HOLKAS accreditation and the operation continues to comply with the requirements. Once discovered the laboratory results might have been affected, should notify CEDD in writing :

“89. (T)he operation of the SHW Lab was governed by the following 5 main sources: (i) Agreement No. CE41-2011 (GE) regarding the SHW Lab, (ii) Quality Management Plan, (iii) Laboratory Quality Manual, (iv) HOKLAS 003 – Technical Criteria for Laboratory Accreditation issued by HKAS and (v) HOKLAS 007 – Assessment-Reassessment Questionnaire for Non-medical Laboratories. JCL, as the consultant for CEDD with control of the operations of the SHW Lab, was bound by all 5 sources of governance and was responsible for ensuring that the SHW Lab would obtain their HOLKAS accreditation.

90. The quality of the SHW Lab, and by extension, the standard for JCL’s compliance testing was unequivocally stated as follows: “the results of each test, calibration, or series of tests or calibrations carried out by the laboratory shall be reported accurately, clearly, unambiguously and objectively.

91. To ensure that the above quality was maintained, semiannual internal audits were stated as a requirement for JCL “to verify that the laboratory operation continues to comply with the requirements of the [Quality Management Plan]”.

93.  …the required scope of an audit was contingent on the activities to be audited, specifically, for audits of HOKLAS accredited tests, it was demanded that: “Audits of HOKLAS accredited tests shall cover all aspects of the management system.  For audits of non-HOKLAS accredited tests, the focus shall be on checking for compliance with the particular requirements stated in the relevant standards and other aspects of the management system need not be covered, with the exception of tests for which accreditation is to be sought.”

:

:

94. Importantly, when the findings of an audit cast doubt on the effectiveness of the correctness or validity of the laboratory’s test results, it was a requirement for JCL to “take timely corrective action, and shall notify customers in writing if investigations show that the laboratory results may have been affected”.”

105.  Integrity of the laboratory is thus of paramount importance.  Tests done must be in Conformity with the procedure set down in CS1.   JCL discovered the Simulated Tests Irregularity, the Steel Bar Issue in August 2016 during their investigation of the Time Manipulation Irregularity.  There is no dispute that the use of substitutes for replacing the concrete-cube samples for performing concrete cube compressive tests at SHW Lab is a non-conformity, an act of fraudulence.  It is beyond argument that the results obtained via these simulated tests were false.  As in the case of the time manipulation, JCL knew the Simulated Tests Irregularity was against their commitment to CEDD as stated in the Code of Conduct of Jacobs Group (Exhibit P3).

106.  Also, by Clause 22 of the General Conditions of the Agreement, JCL should report to CEDD “any error, omissions and shortcomings of whatsoever nature of which JCL become aware in the performance of the Services”, the discovery of Simulated Tests Irregularity was caught by this Clause.    

107.  Everything started off in accordance with the Code of Conduct, an internal independent investigation was carried out to investigate not only the Timing Issue but also the Steel Bar Issue.  However, contrary to what JCL stated in its letter to CEDD dated 5 August 2016 “Jacobs is committed to conducting business honestly, ethically and with integrity.  Our commitment to ethical business practices goes beyond mere compliance with legal requirements”, JCL did not disclose the Simulated Tests Irregularity, the Steel Bar Issue to CEDD.  JCL was patently acting in contrary to its contractual duty to CEDD when it decided and directed not to disclose the fraudulent acts carried out by its own technicians at SHW Lab.

•  Code of Conduct on ethics & integrity waived

108.  Despite its emphasis on the importance of ethics and integrity, the Jacobs Group Code of Conduct can be waived.  At page 6 of 29 of the Code of Conduct, under “Can the Code of Conduct be waive?”, it is stated that:

“Some situations may call for a waiver. All waivers require executive level and legal department approval. For officers and board members, waivers require the approval of our Board of Director, and may require public disclosure.”

109.  Allen Lin agreed that if there were serious issues about compliance with the Code of Conduct, he would expect the management of JCL to consult group legal counsel, and that action would be consistent with the Code of Conduct. 

110.  According to the evidence of D1, all these happened when they “were in the course of bidding for the tender of the Third Runway consultancy.  Because this project is rather substantial, apart from Mark, the overseas office also involved in that”.   CEDD has forewarned an adverse performance report for Time Manipulation Irregularity would be issued against JCL.  Mark Grey requested D1 to provide a technical assessment of the Simulated Tests Irregularity, D1 believed and advised Mark Grey the simulated tests were untraceable, the scope of the Simulated Tests Irregularity was minimal and practically no impact on the Bridge project. (Exhibit P265).  Upon seeking “Legal Advice”, the Senior Management decided not to disclose the Simulated Tests Irregularity to CEDD.  The decision on non-disclosure was obviously a calculated one.  However, unknown to them, SHW Lab was under ICAC investigation, ICAC discovered the Simulated Tests Irregularity and CEDD managed to trace the falsified tests subsequently.

•  D1’s involvement and duty to disclose as director representing JCL

111.  D1 testified that he learnt of the Time Manipulation Irregularity via a copied email written by Norman Woods (Exhibit P177) after he went off duty on 28 July 2016.  There was an ad hoc meeting about the Timing Issue at JCL headquarter on the morning of 29 July at around 10am,  D2, Allen Lin and Steve Kan were present, he joined them midway and Mark Grey joined via telephone. In the meeting, Mark Grey asked him to go to SHW Lab to remind the staff of the company code of conduct. 

112.  After the abovementioned meeting, D1, Allen Lin and Steve Kan went to SHW Lab on the same day, and interviewed Curtis Yip and Harry Lam. D1 considered “it was not an isolated situation.  It was a systematic and overall problem and the matter was really serious (and) proposed to reflect and report the matter to the senior management”.  The matter eventually taken up by the Senior Management, an internal independent investigation was carried out to investigate the matter.    JCL was obliged to report any error, omission and shortcoming and should keep CEDD informed on all matters related to the work undertaken by SHW Lab. 

113.  D1 attended a meeting with CEDD on 4 August 2016, he was introduced to CEDD as the director responsible for the operations of the Hong Kong Office of JCL, and he was appointed to run an independent investigation into the operation of the concrete testing in the laboratory.  It was also stated in the meeting that the investigation would be headed by their corporate internal auditor based in Australia (Exhibit P244).   JCL is a legal entity performs via its Directors.  D2 being member of the Project Team was excluded from the investigation.  D1 by conduct presented to CEDD that he represented JCL to follow up the matter had created a special relationship with CEDD.  D1 was therefore under a legal duty to CEDD to disclose under Clause 22.

114.  The earliest record from JCL about the steel bar issue was found in the interview notes of Tom Ngan on 10 August 2016, the First Round Interview of the independent investigation (Exhibit P81).  According to the interview note, Tom Ngan mentioned during that interview he received a phone call from Harry Lam who claimed over phone that he observed people using other materials in machines to falsify the strength without any supporting evidence.  This Simulated Test Irregularity was confirmed by other staff of the laboratory in the First Round interview, which completed on 19 August 2016 (Exhibits P83 – P91). 

115.  D1 was aware of the Steel Bar Issue by 11 August 2016, he was present in the interview of Curtis Yip and Harry Lam (Exhibits P83 & P84).  JCL held a Second Round Interview between 26 August and 28 August 2016 to ascertain more information about the Simulated Test Irregularity (Exhibits P92 – P102), D1 was present in the interview of Ng Kai Yiu held on 26 August 2016 (Exhibit P92). 

116.  D1 together with D2 had another meeting with CEDD on 29 August at 11:00am (Exhibit 185).  JCL tried to impress CEDD during the meeting that the Time Manipulation Irregularity would not have a notable technical impact on the test result.  CEDD on the other hand expressed concern with the quality management of SHW Lab. Though CEDD raised concern about the serious implication to the credibility to testing services provided by PWL, D1 did not disclose the Simulated Test Irregularity to CEDD. D1 received the Second Round Interview notes from Allen Lin after the meeting on the same day (Exhibits P103 & P104).

117.  Upon Mark Grey’s instruction, D1 analysed the information collected and prepared a report, this together with the CEDD meeting notes on 29 August 2016 was sent to Mark Grey on 30 August at 09:56am (Exhibit P265).  In the email, D1 requested “to have a chat with (Mark Grey) before the phone call with Jonathan”, i.e Jonathan Shattock, the in-house lawyer of Jacobs Group.  It is D1’s evidence that “it was Mark who instructed me to conduct technical assessment.  After preparing the report, I felt that I need to inform him the result of my technical assessment.  I would like to inform him of my result prior to the communication with the lawyer.”

118.  In the report (Exhibit P265, at page 2894 – 2896), D1 was of the view that : 

“5. It is difficult to ascertain which test results are simulated. All staff interviewed reported that they could not trace back which would be the manipulated results. For the 3 months test results reviewed from May to July 2016, it is expected that there would be some 30 to 60 simulated results out of around 30,000 test results.

6. :

:

iii) The test was already conducted but the printout from the machine was skipped and could not be retrieved.

7. It is considered likely that there will be at least one concrete cube for every pair that the concrete strength is genuine and not simulated.  On the test results reviewed from May to July, essentially all the concrete cube results show compressive strength more than the required value.  As a result, it is likely that all the concrete cubes show that the strengths are satisfactory. For the variability of concrete strength criterion (the 15% criterion), given the very small simulations carried out, such variation will be minimal.  The manipulated percentage at 0.1 to 0.2 will be much less than the normal 5% variance expected and allowed for in the design of the works.  The overall integrity of the design is not affected.”

119.  In the covering email at page 2890, D1 mentioned “the green team review of the Third Runway and he has confirmed with other that Mark Grey would be available for the green team review”.  At that time, JCL was in the course of bidding for the tender of the Third Runway consultancy, whether or not this was a government project, any breach of integrity would affect their bidding.  CEDD already indicated that JCL was to receive an adverse performance report for the time manipulation, should the Simulated Tests Irregularity made known to CEDD they might receive another adverse performance report.  With two adverse performance reports in a row, JCL would be suspended from bidding government contract for 6 months.  Even if CEDD was to put the two matters in the same report, the accumulated effect of the two matters, the issue of an adverse performance report due to integrity and quality management control of a laboratory under JCL control would undoubtedly affected their intended bidding on the Third Runway Project and other government contracts.

•  Decision on non-disclosure

120.  It is D1 evidence that the interim report was drafted by Jonathan Emery but the internal and external lawyers also took part in the editorial work.  The Senior Management based on the legal advice decided not to include the Simulated Tests Irregularity in the interim report.   The Senior Management included Mark Grey, Patrick Hill and Bob Pragada.  He (D1) “just provided opinion, but it was (Senior Management) who made the decisions”.

121.  D1 said “Initially, the draft report included the two issues, namely time manipulation issues and the steel bar simulations.  After the draft report was made, there were extensive discussion.  The Senior Management, in the presence of both internal and external lawyers, they discussed about the report.  And finally came the final version which was submitted to the CEDD on 5 September.”

122.  It is D1 evidence that the Senior Management’s decision not to include the simulated tests issue in the interim report when reporting to the CEDD was “consistently in line with” the legal advice.  The internal lawyers involved were senior lawyers in Jacobs Group and the external lawyers were experts in the construction area of law from Pinsent Masons.  He “trusted them because of their experience and their expertise in the law and the contracts”.  The people who made the decision were people trusted by him.  He had “no doubt about their honesty and integrity.  Because in Jacobs, (they) are really serious about the ethics and the code of conduct.  From (his) past interaction with the senior management, they did give me the confidence that they were honest and have integrity”.  He “did not think that they were dishonest, though they may be foolish”.

123.  On 5 September 2016, D2 on behalf of JCL issued a letter and an email to CEDD together with the Interim Investigation Report signed by him without knowledge of the Steel Bar Issue (Exhibits P187).   Copy of this report was found in D1’s computer and last modified by him on 5 October 2016 (Exhibit P214).

124.  D1 agreed that on 27 September 2016, he and D2 on behalf of JCL had a meeting with CEDD at 10:00am (Exhibits P284, D2-8).  Mr WK Pun and Dr. Sun of CEDD were present. Mr Reading for D2 tried to ascertain from D1what happened towards the end of that meeting:

“Cross-examination by D2 on Day 17

Q. … the meeting was about the progress of the investigation; they hadn’t yet received the final report?

A. Yes. As I remember, this meeting was initiated by CEDD as to the progress and also the date when the final report was available.

Q. … I suggest to you that towards the end of the meeting, either Mr Pun or Dr. Sun said to the two of you, “Is there anything else that you would like to report”, or words to that effect?

A. I can’t be sure. I don’t remember.

Q. I suggest that you replied there was nothing else to report.

A. I don’t recall. Sorry about that.

Q. Yes. And is it correct that later that day, back in your office, there was a teleconference, if you like, with you and Leslie present, with head office people, including the lawyers?

A. I can’t recall.  I can’t be sure.”

According to D2’s evidence of which I accept, CEDD did ask if there was anything else to report, but D2 did not mention if D1 replied or if D1 was present in the subsequent teleconference.   In any event, D1 having attended the meeting should have been aware that there was no mention of the Simulated Test Irregularity.  

125.  Further, D1 has undertaken to prepare weekly status reports from 8 September 2016 and 24 February 2017.  As mentioned above I fail to see any good reason for D1 to exclude the follow-up actions related to the Steel Bar Issue in the weekly status reports that he circulated to D2.  I consider and accept D2’s evidence that no one in JCL related the Steel Bar Issue to him, and he had no knowledge of the matter prior his arrest.  I consider and find the only irresistible inference is that D1 knew the Senior Management wanted to keep D2 excluded from the finding of the Steel Bar Issue/Simulated Tests Irregularity. 

126.  Emery Emails suggested in the normal course of business within Jacobs Group, D2 being the Project Director would be notified of the full findings of the investigation. It is also D1’s evidence that there was no reason to conceal the full findings of the investigation from D2.  I fail to see any good reason for the Senior Management to conceal the Simulated Tests Irregularity from their Project Direct upon the completion of the investigation.  In a way, D2 was deceived to sign on a misleading report with the belief that it contained the full findings of the investigation.  I consider and reject D1’s evidence that he had no reason to doubt the Senior Management honesty or integrity and reject his evidence that he believed the Senior Management was acting honestly. 

127.  On 25 October 2016 Jolene Reimerson of Pinsent Masons, external legal advisor engaged by JCL, created the draft Final Report of the Investigation which was last modified by Ida Ng, former personal secretary of D1, at 1143 hours on the same day upon instruction of D1 (Exhibit P215).  At 1543 hours on the same day, D2 on behalf of JCL submitted the Final Report of the Investigation to CEDD by email (Exhibit P193).  The Final Investigation Report was also signed by D2 without knowledge of the Steel Bar Issue (Exhibit P216).

•  Events after CEDD got knowledge

128.  ICAC officers arrested D1 on 16 May 2017, and meanwhile notified CEDD the Simulated Tests Irregularity at SHW Lab.  Upon learning the simulation manipulation from ICAC, and confirmed that such was not disclosed in JCL final investigation report dated 25 October 2016, CEDD by a warning letter dated 26 May 2017, notified JCL that “the nature and consequence of this non-compliance are serious and warrant the issue of a Special Report.” and invited their representations, if any (Exhibit P222). 

129.  In response, D1 of JCL approached Mr Pun of CEDD for a meeting on 29 May 2017.  D1 together with lawyers, representing JCL and himself respectively, attended the meeting.  In the meeting, D1 made a statement by reading from a piece of paper, amongst other things stated, “there is no real evidence of falsification of test results.  JCL should be assumed innocent.  A ruling on regulatory action at this stage will send a wrong message to the public.  CEDD should first clarify the facts.”(Exhibit P223)

130.  Further, D1 handed over a letter dated 29 May 2017 to CEDD in the meeting.  JCL stated in the letter that “we assume that your letter is limited to the unsubstantiated suggestion that we “have not presented the entire alleged fraudulent acts by” our laboratory staff.  Whilst we have of course seen the ICAC Press Release of 23 May 2017 and Press reports, we have not to date been presented with any evidence substantiating the alleged breach. … Given that there has been no particularisation of the allegations and no evidence substantiating such allegations presented to us, we believe that any allegation of breach is not substantiated.”(Exhibit P224)

131.  On 29 May 2017, JCL and D1 did not deny their duty to disclose, did not mention they have knowledge of the Steel Bar Issue, they only challenged CEDD did not have evidence to substantiate the Simulated Tests Irregularity and offered voluntary suspension from tendering laboratory testing services contract to settle the matter. 

132.  By a subsequent letter dated 5 June 2017 (Exhibit P227), JCL stated that in light of the issues that have arisen, they were in the process of putting in place a new independent leadership team to oversee their response to the issues CEDD raised as well as any enhancements that needed to be implemented.  JCL still did not mention they had knowledge of the Steel Bar Issue and have already implemented preventive measures.  

133.  JCL only admitted it had knowledge of the Simulated Tests Irregularity back in August 2016 in their letter to CEDD dated 15 June 2017. 

134.  When being confronted by CEDD that they “have not presented the entire alleged fraudulent acts by” their laboratory staff in May 2017 (Exhibit P222), the stance of JCL and D1 was that “there is no real evidence of falsification of test results” and any allegation of breach is not substantiated” (Exhibits P223 & P224).    Then by a letter dated 15 June 2017, JCL admitted it had knowledge of the Simulated Tests Irregularity and stated that the decision on non-disclosure was made by relying on legal advice regarding its disclosure obligation and its technical assessment from a structural engineering perspective (Exhibit P229).

•  D1’s knowledge on Community Standard

135.  It is beyond argument that using other materials or  steel bar to replace the concrete cube in the concrete compression tests is a fraudulent act, therefore any attempt to cover this up is clearly also a fraudulent act.   D1 knew that a reasonable person in the community would think that not disclosing the Simulated Tests Irregularity was dishonest, and the prosecution witnesses were not challenged when they considered this was a fraudulent act and should be disclosed to CEDD. 

136.  Carrying out simulated test to falsify test result was clearly an act of fraudulence; D1 did not attempt to argue otherwise.   However, D1 has been evasive in answering questions related to the community standard:

“During his cross-examination on Day 18

Q. …being a mature man in yours mid-60s, knows of community standards when it comes to dishonesty or honesty. Do you not agree with me as far as that is concerned?

A. Community standard, I don’t know about the community standard, but all along I have been provided with the opinions that –

Q. My question to you is this, I put it to you that you knew people in the community would think that it is dishonest to use a steel bar to simulate concrete cubes and then make a false – and produce a false result. Community standard would think that is dishonest. You knew that; do you agree?

A. I knew about the acts, and exactly for these acts, a lot of new advice has been given. As the legal advice had been given and they were given by the people who were professional in the field, and there was no reason for me not to trust them. I don’t think they are wrong.

Q. You clearly knew that the CEDD relied on the results of the Siu Ho Wan lab; would you not agree?

A. Yes.

Q. And I put it to you that you personally would have known that reasonable persons in the community would think that not disclosing the malpractice in the Siu Ho Wan to CEDD was dishonest; would you not agree?

A. …

Q. You don’t have to repeat. You just say “I agree” or “I don’t agree”, that’s good enough.

A. If you are asking about reasonable person without legal advice, yes.

137.  Under cross-examination, D1 agreed that reasonable person without the benefit of the “Legal Advice” received by JCL would consider the non-disclosure of the Simulated Tests Irregularity was dishonest.  It is clear from D1’s answers that he knew where one was under a duty to disclose the Simulated Tests Irregularity but did not, would be regarded as dishonest by anyone with right mind in the community.

138.  D1 agreed that the Simulated Test Irregularity was errors, omissions or shortcomings under Clause 22, but disagreed he did not need to take legal advice on this matter:

“During his cross-examination on Day 18

After referring to Clause 22(B)

Q. And the steel bar simulation quite obviously would have been error, omissions or shortcomings; would you not agree?

A. Yes.

Q. You answer “yes” because you have your own judgment. You do not have to ask for legal advice for this sort of thing; would you not agree?

A. Disagree.

Q. And first part, you agree such were errors, omissions, shortcomings, and then what is required is, the second line in the middle, “report”, it requires you to report to the CEDD; do you see that?

A. I see what is written here.

Q. So it created a duty to report, and you say you did not report because your company’s senior management decided not to. Is that your evidence?

A. This decision was the legal advice, with the advice from the lawyers.

:

:

Q. …I further put it to you that concealing such dishonest act, meaning the steel bar simulation act, concealing such dishonest act from the CEDD was itself another dishonest act. Would you not agree?

A. Legal advice tell us that – sorry, I can’t tell.

Q. Don’t tell. So I put it to you that this concealment is a second level of dishonest act. Would you not agree?

A. Disagree.

Q. Would you not agree that such concealment at least in terms of the community standard would have been regarded as a second level of dishonest act?

A. We have been informed by the legal advice about this.

Q. I am asking you about your concept in relation to community standard, quite apart from the legal advice.

A. As I said already, there were inconsistent between my own opinion and , I suppose, the explanation given to me by the legal advice. Although I can’t tell the details, they were professional. I thought that their opinion was not wrong and so I just took their advice.

Q. So, in your mind, everyone would have a concept of community standard as to what is right or what is wrong. You must have; would you not agree?

A. Yes. I had my own concept, but on the legal advice my concept changed. I changed my concept. I have never considered myself to be dishonest or concealing anything.

139.  D1 has got involved since 29 July 2016.  On behalf of JCL he attended meetings with CEDD and knew that CEDD was concerned about the integrity in SHW Lab and was eager to know the scope of the fraudulent practice.  On behalf of JCL he promised to provide the full findings of the internal investigation to CEDD.  He knew according to the community standard, the steel bar simulation act was dishonest.  He was aware of the content of Clause 22 and JCL contractual duty under Clause 22.  When he first learnt of the Steel Bar Issue, he was of the opinion that this should be disclosed to CEDD.  

140.  D1 said he changed his mind after the lawyers said no need to disclose and the Senior Management decided not to disclose.  He said he had no doubt about the honesty and integrity of the Senior Management though he thought it was a foolish decision:

“During his evidence in chief on Day 17

Q. The decision they made, did you consider that decision to be dishonest in any way?

A. I did not think that they were dishonest, though they may be foolish.

Q. Why do you think they were not dishonest in deciding as they did?

“In deciding as they did”.

A. Because during the whole course, what we did – after the report, they did have open and frank discussion and they did seek legal advice about that. They did not conceal anything about what we did. They also consistently kept seeking legal advice. From the result that was obtained, I do not think that involves any elements of dishonesty.

141.  D1 went on further to elaborate at length what he meant by foolish, i.e. “A foolish decision from a practical perspective”:

“The meaning of that, according to my understanding, they made such decision within the legal limit, and I thought that, as to the disclosure of the steel bar simulation, when compared to the time manipulation issues, it's just a small part. What I mean is that for steel bar issue, only 0.1 to 0.2per cent, and for the time manipulation issue, my understanding is that there was about 9 per cent of those involve the time manipulation issue. So, in terms of coverage, the time manipulation issue is much extensive.

And also, at the very beginning, we were very much concerned about there was any corruption involved. And from the investigation result of Emery, there was no elements of corruption, bribery. And actually it was mainly that the lab staff, for the sake of convenience, do something to facilitate their work. Even if we reported the steel bar manipulation, because of the time manipulation issue, we would expect that we would receive from the CEDD the quarterly adverse performance report. Even the steel bar simulation was included. That would be also included in the same quality adverse report. And that would not affect the company’s performance report, that would be one report.

Let me do it again. That would also be included in the performance report that we receive as expected. And also, because the steel bar simulation took place occasionally and randomly, there was no specific locations or areas, and they were randomly distributed and the structure would not be affected.

So, for myself, I felt that that would not be big effect, even though the issue was disclosed, because it was the legal advice, there was the legal advice of non-disclosure, and I trust the legal advice, and also I think that was the decision to be made by the senior management, and so they made the decision that that would not be disclosed.”

And went on to explain further in cross-examination by the Prosecution:

Q. Would you not agree that if you say some act is foolish, it’s something that you would not do yourself, or else you would not do yourself, or else you would not say that’s foolish?

A. Even the act was foolish, but it was not definitely could not be done.  But I want to emphasise that –

Q. Please.

A. – foolish does not mean that there was no integrity.

Q. Would you agree that something that needs to be disclosed, of course that is consistent with what you are saying, but if something does not even need to be disclosed, then the idea of disclosing or not disclosing has nothing to do with foolishness; would you not agree?

A. I have already explained why I thought it was foolish and I also mentioned that there were many reasons that there was no harm to make disclosure.  Because of the non-disclosure, I end up in a court here.”

142.  JCL’s disclosure obligation stated clearly in Clause 22, its obligation arises “upon discovery”.  JCL discovered the Steel Bar Issue during its internal investigation.  It is noted that D1’s technical assessment not only limited to the impact of the simulated tests (the safety of the structure) but also the non-availability of evidence (the simulated tests were untraceable).  D1 believed and advised the scope of the Simulated Tests Irregularity was much smaller than that of the Time manipulation discovered by CEDD.  From JCL first reaction on 29 May 2017 (Exhibits P223 & P224), I am of the view that “the chance CEDD might discover the simulated test(s) and/or discover JCL had knowledge of the matter” was one of their major considerations.

143.  JCL’s obligation is to disclose “any error, omissions and shortcomings of whatsoever nature”, technical assessment from a structural engineering perspective has no part to play.  Carrying out simulated test to falsify test result is clearly an error and shortcoming, whether this has impact on the structure is an irrelevant consideration.   From JCL’s change of stance from May 2017 to June 2017, I am of the view that “the chance of developing noticeable structural defect that might in turn cast doubt on the testing services” was also another major factor under consideration. 

144.  Falsification is an act of fraudulence, JCL have presented test reports containing false result to CEDD as valid HOKLAS reports.  Senior Management was aware of the matter but decided to cover it up.  Those involved in the internal independent investigation were bound by the company’s confidentiality requirement not to disclose.  The Senior Management’s decision on non-disclosure was not only confined to CEDD but also its own Project Director.  The decision to conceal the Simulated Tests Irregularity from D2 upon the completion of the investigation was against JCL normal course of operation and Code of Conduct on Ethic & Integrity. I consider and reject D1’s evidence that he believed the Senior Management was acting honestly in arriving at their decision.

•  D1’s knowledge as to his duty to disclose

145.  According to D1’s evidence, after Jonathan Emery arrived to take over the internal independent investigation, he did look at the Brief of the Agreement and Clause 22.  The investigation report drafted by Emery contained both issues discovered in the investigation, and reference to the Steel Bar Issue was removed by the lawyers.   D1 referred the lawyers involved as experts in contract and construction law.  The Agreement and in particular, Clause 22 must have been referred to during the discussion on disclosure. Apart from the contract, the lawyers must have also considered the content of Emery’s report.

146.  Clause 22 was drafted in simple English, one with D1’s background would not have failed to understand the meaning of Clause 22.  D1 has been evasive in answering questions related to his understanding as to whether JCL was under a duty, contractual or legal, to disclose the Simulated Tests Irregularity:

“During his evidence in chief on Day 17

Q. What was your understanding as to whether JCL was under a duty, contractual or legal, to disclose the simulated tests issue when reporting to the CEDD?

A. I was no expert in both the legal and contractual aspects. I mainly relied on the legal advice.

Q. So, in your own mind, at that time, did JCL have a duty, legal or contractual, to disclose the simulated test issue?

A. My own understanding does not necessarily mean the understanding of the legal experts, because, right at the very beginning of the matter, both the internal and external lawyers were involved. So, about the matter of disclosure, it was entirely up to their decision, because from some of my past experience, what I thought in my mind was not necessarily the same as the legal advice. And the legal advice came from both internally and externally and the advice all along were consistent So there was reason for me not to trust the legal advice.

Court: You are not answering the question. The question from your counsel is in your mind, your understanding.

A. My understanding, as I said just now, there was no big problem about the disclosure.

Then in the cross-examination by the prosecution on Day 17:

Q. And, as I recall, you never answered the question whether you at the time thought there was a duty to disclose; am I correct:?

A. Not so. I said, initially, my thinking was that there were such issues about steel bar simulations, and this should be disclosed. But there were comments or legal advice there. They were the experts in the field of legal – in the legal field and also the contract field. The advice, I cannot tell the details, the advice was that there was no need to disclose. I did not query that the advice was wrong. That’s why I adopted the advice and did not disclose.

As I explained earlier, sometimes there inevitably would be difference between our own thinking and the view of the legal experts in relation to a certain clause.  As there were the internal and external legal advices, I did not see any reasons that I have to disagree with their views.   That’s why, subsequently, I did not see that there was a need to disclose.  That’s all.”

147.  There was no direct answer from D1 of his understanding as to whether JCL was under a duty to disclose.   Eventually, he said “the advice was that there was no need to disclose”.  The choice of word may not be precise for a layman, but the advice was from lawyers.  I consider and find the only irresistible inference is that D1 knew JCL was under a contractual duty to disclose the Simulated Tests Irregularity to CEDD. 

148.  Being the Director of Operations representing JCL in the matter, D1 knew he was also under a duty to disclose the Simulated Tests Irregularity.  On 4 August 2016, on behalf of JCL he promised to provide full findings of the internal investigation to CEDD (Exhibit P244).  When being questioned under cross-examination, he could not deny he had a duty and said“initially, my thinking was that there were such issues about steel bar simulations, and this should be disclosed.  But there were comments or legal advice there.  They were the experts in the field of legal – in the legal field and also the contract field.  The advice, I cannot tell the details, the advice was that there was no need to disclose.” 

149.  It is D1’s case that he has been deprived of an opportunity to present his case properly. He is unable to adduce privileged communications covered by legal professional privilege (LPP) in support of his defence as to his state of mind or his involvement or otherwise in the Senior Management decision-making process not to report the Simulated Tests Irregularity to CEDD. 

•  Legal Advice / LPP

150.  It is D1’s case that during the discussion, the lawyers involved dealt with the contract of the SHW Lab and the legal issues.   Because of the “Legal Advice”, he did not consider CEDD was being deceived when the issue of simulated tests were excluded from the interim report.  However, because of the LPP he cannot tell what has been discussed, and not able to rely on the LPP material in his defence.

151.  Both of the Time Manipulation Irregularity and Simulation Tests Irregularity were serious breaches of the company code of conduct and non-conformity of the concrete compression testing procedure. Both matters were products of a failure in the quality management of the operation in SHW Lab.  Jonathan Emery has proposed preventive measures for both findings.  The only difference being, the Timing Issue was discovered by CEDD, while the Steel Bar Issue was discovered by JCL.   I fail to see, in the evidence before the Court, any good reason just to disclose the findings related to the Timing Issue but conceal the findings related to the Steel Bar Issue in the reports to CEDD. 

152.  The “Senior Management” by their respective positions within the Jacobs Group would not have failed to consider the matters referred to by D1 in his elaboration on “a foolish decision from a practical perspective”.  They would not have failed to notice that to conceal a fraudulent act from their client is against the Code of Conduct on Ethic & Integrity.  What would be the potential damages JCL liable for its breach of Clause 22?  What would Jacobs Group gain/loss out of their decision on non-disclosure?    Why would they want to get approval to waive the Code of Conduct?

153.  Jacobs was in the course of bidding the tender of the Third Runway Consultancy Agreement.  I suppose most importantly, they would not have failed to consider how likely CEDD would discover the Steel Bar Issue as in the case of the Timing Issue.  In order to evaluate the situation, Mark Grey directed D1 to prepare the technical assessment at the conclusion of the Second Round Interview of the investigation.

154.  D1 stated that he did not particularly talk to D2 about the investigation because the investigation was led by Jonathan Emery.  However, he thought he had a few email exchanges with D2 between 18 October 2016 and 24 January 2017.  He did not request D2 to report the simulated tests to him as he came to know about the matter on 11 August 2016 and Jonathan Emery had already taken over the investigation.  He could not recall whether he had talked with D2 when he came to know about the simulated tests.  He was arrested for concealing simulated tests from CEDD in May 2017, how could he possibly forget whether he and D2 have talked about this matter.  As mentioned above, the way D1 prepared the weekly status report shown that he knew D2 had no knowledge of the Steel Bar Issue.  I consider and accept D2 evidence that no one told him about the finding of the Steel Bar Issue.

155.  The evidence as a whole suggests that the “open and frank discussion” mentioned by D1 in his testimony, was only among the few members of the Senior Management.  Jonathan Emery’s investigation report was extensively edited and D2 was not told about the findings of the Steel Bar Issue when he was asked to sign to confirm the report to CEDD was a full disclosure.  Apparently, Jonathan Emery was unaware of this “unusual operation” when he sent out his request for update in January and February 2017 (the Emery Emails).  D1 knew the Senior Management, in contrary to the usual course of operation, concealed the finding of Steel Bar Issue from D2.  I consider and reject any evidence from D1 that he had no doubt about the honesty and integrity of the Senior Management.

156.  Following CEDD warning letter on failure to make full disclosure issued on 26 May 2017, a meeting was held on 29 May 2017.  D1 together with lawyers, representing JCL and himself respectively attended the meeting.  During the meeting, the stand of JCL and D1 was that “there is no real evidence of falsification of test results.  And no evidence substantiating such allegations and believe that any allegation of breach is not substantiated”.  At no time, D1claimed he / JCL did not have a duty to disclose nor he / JCL did not have knowledge of any other falsified tests.  I consider and find the only irresistible inference is that at all material times, D1 knew JCL had a duty to disclose the Simulated Tests Irregularity under Clause 22 and he being the Director of Operations representing JCL on this matter also had a duty to disclose.

157.  Later JCL by letter dated 15 June 2017 stated that the decision not to disclose was made by relying on legal advice and its technical assessment from a structural engineering perspective. 

158.  The substance of the Legal advice was unknown.  However, the initial response of JCL and D1 to the confrontation from CEDD, was to challenge the strength of the evidence and not that they had no duty to disclose or the merit of the matter. I am of the view that D1 knew/believed the Senior Management knew JCL had a duty to disclose but with the belief that the Steel Bar Issue would unlikely be detected, decided not to disclose the Simulated Tests Irregularity to CEDD.

159.  Legal advice is only lawyer’s opinion on a particular matter; whatever the advice given, it could not change the nature of the subject matter.  The subject matter concerned was “the Steel Bar Issue, the Simulated Tests Irregularity”. Once D1 knew and agreed it was “an error, omission and shortcoming” stipulated in Clause 22.  According to Clause 22, he on behalf JCL upon discovery of the Simulated Tests Irregularity, being “an error and shortcoming”, should report to CEDD.  Further, from D1’s answer, he knew the legal advice was not binding:

“Cross-examination on Day 17

Q. So, back to your “no harm” theory, so if the harm was going to be big, then you’d better not disclose; is that the idea, the logic?

A. Not so.  I meant to say that there were legal advice saying that it’s not to be disclosed.  Although with the legal advice that there was no need to disclose, but disclosure could be made anyway.”

160.  According to D1’s evidence, he decided to go along with the decision of the Senior Management.  I am of the view that D1 considered the Senior Management decision was foolish because he failed to see any honest reason to conceal the Simulated Tests Irregularity from CEDD.  The LPP materials would not put D1’s case any further.  The LPP materials could not assist D1 to establish his innocence or materially assisted his defence.  What is relevant is D1’s decision- making process, i.e. his belief, state of mind and opinion on disclosure.

161.  I consider and reject D1’s evidence that the Senior Management did not take into account any irrelevant consideration, e.g. damage to JCL reputation/goodwill etc.  As mentioned above the Senior Management and D1 believed the falsified tests were untraceable, considered the scope of the simulation malpractice was minimal and practically no impact on the Bridge project.  The only irresistible inference is that at the material time the Senior Management and D1 believed the chance that the Simulated Tests Irregularity being detected would be slim and that was an influential consideration in their decision making process on non-disclosure.

162.  I consider and refuse to accept D1’s evidence that he believed the Senior Management was acting honestly, when they arrived at the decision not to disclose.  Applying the Gosh Test, I consider and find D1 knew he was dishonest when he follow the Senior Management decision on non-disclosure and did not disclose the Simulated Tests Irregularity to CEDD.   D1 was the Director of Operations, he could not be excused by saying he was only following the decision of the Senior Management; he knew he should exercise his own judgment in discharging his duty.

•  The offence of Fraud

163.  Section 16A(1) of the Theft Ordinance, Cap. 210, provides:

“(1) If any person by any deceit (whether or not the deceit is the sole or main inducement) and with intent to defraud induces another person to commit an act or make an omission, which results either –

(a) in benefit to any person other than the second-mentioned person; or

(b) in prejudice or a substantial risk of prejudice to any person other than the first-mentioned person,

the first-mentioned person commits the offence of fraud. …

(2) For the purposes of subsection (1), a person shall be treated as having an intent to defraud if, at the time when he practises the deceit, he intends that he will by the deceit (whether or not the deceit is the sole or main inducement) induce another person to commit an act or make an omission, which will result in either or both of the consequences referred to in paragraphs (a) and (b) of that subsection.”

164.  Although the offence of fraud does not incorporate an element of dishonest as part of the offence.  Element of dishonesty is relevant to ascertain whether D1 knew/believed he had a duty to disclose, which have been discussed above.  In the context of “deceit”, to deceive is to induce a man to believe that a thing is true which is false, and which the person practising the deceit knows or believes to be false.

165.  D1 knew the technicians in SHW Lab substituted sample cube with other materials or steel bar to falsify desired test result, and this has been happening for a long time in the past, thus test reports containing false result have been presented to CEDD as valid HOKLAS reports over the years, but he did not disclose the Simulated Tests Irregularity to CEDD.  For the reasons mentioned above, D1 knew he had a duty to disclose and he knew that according to the ordinary standards of reasonable and honest people his act of omission was dishonest.

166.  D1 was familiar with Government Contract.  The Brief, the General Conditions and the Schedule of Fees of the Agreement were standard Government Contract documents. Payment in stages according to payment schedule was a common practice in Government Contracts.  The Agreement was extended to March 2017; the payment date of the final payment stated in the payment schedule would not be before March 2017.

167.  D1 has read the Brief of the Agreement and involved in the investigation, he should know:

(i)    JCL was contracted to operate SHW Lab to provide reliable, efficient and effective fill compaction control and other construction materials compliance testing services,  

(ii)   the Quality Management System of SHW Lab has been accredited by HKAS under HOKLAS, thus any non-conformity would need to be report to HKAS being the accreditation organization, and

(iii)  payment would only be released after JCL completed its obligations as stipulated in the payment schedule of the contract.   

168.  According to the unchallenged evidence of Phillip Chung, if JCL breached its contractual duty, omitted to report irregularities upon discovery, and failed to address the issues, CEDD would stop making the corresponding milestone payment and the subsequent payment.  Had the officers of CEDD known about the Simulated Tests Irregularity, CEDD would require JCL to properly investigate, implement appropriate preventive measures and submit report on the matter before making the relevant milestone payment. 

169.  I consider and find D1 by not disclosing the Simulated Tests Irregularity to CEDD upon discovery, intended by his act of omission to conceal this fraudulent practice in SHW Lab from CEDD, thereby induced the officers of CEDD to let the Agreement continue as if everything was in order: 

(i)    to believe the Final Report of JCL Internal Investigation contained full findings of the investigation,

(ii)   to accept the 8^th Half-yearly Quality Review Report,

(iii)  to accept the Final Quality Review Report,

(iv)  to make payment according to the Schedule of Fee of the Agreement, and

(v)   continue to accept the “false test reports” as valid HOKLAS reports,   

when D1 knew that was not the case.

170.  D1 has read the Brief of the Agreement; he should have known that because of his act of omission, without knowledge of the Simulated Tests Irregularity, CEDD had failed to discharge its function to provide reliable, efficient and effective construction materials compliance testing services to public works projects, in particular, the Hong Kong-Zhuhai-Macao Bridge Project responsible by the Highway Department. 

171.  D1 agreed the simulated tests did not comply with the HOKLAS requirements.  Without knowledge, CEDD did not notify HKAS of the non-conformity, HKAS was thus kept in dark that some of the HOKLAS reports contained false result.

172.  I consider and find D1 intended by his act of omission, induced staff members of CEDD to release payment in the sum of $1,971,514.96 to JCL, which resulted in benefit to the said JCL and prejudice to the CEDD.  CEDD would not have released the payment should they have knowledge of the matter.

Conclusion

173.  D1 agreed the Simulated Tests Irregularity was “an error, omission and shortcoming” and an act of fraudulence.   Whatever the legal advice sought by JCL, the legal advice would not change the nature of the Simulated Tests Irregularity.   I consider and find the only irresistible inference is that D1 knew any right mind person would consider anyone under a duty to disclose the Simulated Tests Irregularity to CEDD but did not, was dishonest.  I accept D2 had no knowledge of the Simulated Tests Irregularity.

174.  I consider and find the Prosecution has proved beyond all reasonable doubt that D1 knew the Senior Management, according to the ordinary standards of reasonable and honest people, was dishonest when decided to conceal the Simulated Tests Irregularity from CEDD.  D1 knew he was under a duty to disclose the Simulated Tests Irregularity to CEDD.  D1 by deceit with intent to defraud CEDD, deliberately concealed the Simulated Tests Irregularity.  D1’s deliberate omission caused the officers of CEDD to believe the only problem was the Time Manipulation Irregularity when he knew that was not so, thereby induced staff members of CEDD to release payment in the sum of $1,971,514.96 to JCL, which resulted in benefit to the said JCL and prejudice to the CEDD.  D1 is acquitted on Charge One but convicted on Charge Two accordingly.

175.  Whereas I consider and find the Prosecution has failed to prove his case against D2 and he is acquitted on both charges.