WING YIP DEVELOPMENT (HONG KONG) COMPANY LTD v. TSE KWONG CHUNG

HCA 1507/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1507 OF 2006

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JUDGMENT

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ISSUES AND BACKGROUND FROM WHICH THEY AROSE

1.  Both Mr Ho Hung Kit (“Ho”), the Defendant in HCA 2233/2006 (“2^nd Action”), and Mr Tse Kwong Chung (“Tse”), the Defendant in HCA 1507/2006 (“1^st Action”) and the Plaintiff in the 2^nd Action, have been working in the electrical engineering field for some years.

2.  More particularly, Ho started in the 1970’s.  Beginning from March 1989, he carried on business as an electrical contractor in sole proprietorship under the name of Wing Yip Engineering Co (“Unincorporated Wing Yip”).

3.  With a view to gradually transferring the business of the Unincorporated Wing Yip into a corporate form,[1] Ho incorporated/acquired Wing Yip Development (Hong Kong) Limited (“Wing Yip”), the Plaintiff in the 1^st Action, in October 2003.  Wing Yip’s only shareholders and directors were at all material times Ho and his wife, each holding 1 share of $1 making up a total paid-up issued share capital of $2.  However, Ho’s wife merely held her shareholding and directorship in Wing Yip as Ho’s nominee and had never participated or been involved in the management of the company’s business and affairs.

4.  Tse began in the 1980’s.  He carried on an electrical engineering business under the name of Adept Electrical Engineering Co (“Adept”) since about February 2000, initially in partnership with a Mr Suen Woo Leung and later as a sole proprietor after Mr Suen retired from the partnership.[2]

5.  Ho and Tse first became acquainted with each other in the late 1990’s through the introduction of a Mr Wong Kin Leung (“Wong”). Wong had worked for Ho as a subcontractor whereas Tse had served his apprenticeship under Wong.  Prior to the events giving rise to the 1^st and 2^nd Actions, there were occasions on which Tse had undertaken work from the Unincorporated Wing Yip, for which he was remunerated either at a daily rate (in the region of $700 to $800 in the early 2000’s) for the number of days he worked or an agreed fixed contract sum for the entire job.

6.  Then, in about September 2003, Tse came to know some personnel of Newland Engineering Limited (“Newland”), a subsidiary of Key On Holdings Limited (“Key On”).  He was asked by a Mr Ho Chi Wah Eddie (“E Ho”), a project manager of Newland, if he would be interested in working on Newland’s projects.  Tse was interested but realised that he might not have the financial resources necessary to take up such projects on his own.  He mentioned and introduced E Ho to Ho and Wong.  Wong was initially tempted but eventually declined the opportunity.  Ho and Tse entered into discussions which culminated in an agreement pursuant to which, between the period from about November/December 2003 to about July 2006, Wing Yip received, through Tse’s introduction and solicitation, building service/purchase orders for electrical installation works in respect of at least the following construction/renovation projects (“Undisputed Projects” collectively):

Contractor	Project	Project Commencement Date
Newland	Fire Stations at Pokfulam & Sheung Wan (“Fire Station Project”)	November/December 2003
Southa Contracting Company Limited (“Southa”)	Various hospitals & clinics (“Hospital Project”)	January 2004
Southa	Hong Kong Shenzhen Western Corridor  (“Western Corridor Project”)	September 2004
	TWGHs Tang Shiu Kin Primary School (“School Project”)	September 2005

7.  Apart from introducing to and soliciting for Wing Yip the building service/purchase orders for the Undisputed Projects, Tse further managed and supervised their execution.

8.  Beginning from June 2004 until March 2006, Tse received from Wing Yip a monthly sum of $13,000, which was increased with effect from April 2006 to $15,000  (“Monthly Payments”).

9.  In addition to the Monthly Payments, 4 lump sums totalling $1.7 million (“Lump Sum Payments”) were paid out of Wing Yip’s account by cheque to Tse as follows:

Date of cheque	Cheque Number	Amount
9 January 2006	384778	$500,000
6 February 2006	384795	$500,000
8 March 2006	147362	$300,000
22 March 2006	147364	$400,000

10.  In addition to the Undisputed Projects, Wing Yip had also:

(1) obtained and completed building service/purchase orders from Key On in respect of certain clinics and a dispensary (“Clinic Project”) in late 2004 or early 2005; and

(2) supplied Southa with labourers to work at the meter room of the Tuen Mun San Hui Market (“Market”) in early 2006.

11.  At all material times, each of Ho (through Wing Yip) and Tse (through Adept) also openly pursued other electrical installation projects of their own.

12.  In July 2006, Ho and Tse fell out with each other, resulting in Tse being expelled from the site of the Western Corridor Project on 17 July 2006.  According to Ho, he had found a purchase order dated 26 June 2006 and to the value of $113,900 issued by Southa to Adept for the installations of a number of jet fans and ceiling fans at the Market (“Market Project”), where he said Wing Yip had already started work in early 2006.  Subsequent to Tse’s removal, Ho found on the notebook computer purchased at Wing Yip’s expenses for Tse’s use copies of other documents concerning the Market, including Adept’s quotations to Southa for electrical installation works in respect of the air-conditioning system at the Market (which was eventually not awarded to Adept), invoices and records evidencing Adept’s purchase of materials and payment of workers’ wages for works done at the Market.

13.  After Tse’s departure, Wing Yip continued to submit quotations, and receive purchase orders, for additional works under the Western Corridor Project.

14.  On 18 July 2006, Wing Yip issued the Writ of Summons in the 1^st Action against Tse to claim for the repayment of the Lump Sum Payments, which were characterised as loans advanced by Wing Yip to Tse.

15.  Tse responded by commencing the 2^nd Action against Ho on 6 October 2006, claiming for an account and payment of 50% of the profits of all the electrical engineering projects referred by him to Wing Yip, which profit share was said to have promised to Tse by Ho under an agreement between them for a joint business venture through the corporate shelf of Wing Yip in respect of such projects.

16.  Apart from the Undisputed Projects, it is Tse’s case in the 2^nd Action that Wing Yip had also received a building service order from one Top Tech Engineering Limited, another subsidiary of Key On, through his introduction.  It was subsequently clarified by Tse in his Supplemental Witness Statement dated 17 September 2009 that he was referring to the order given to Wing Yip by Key On for the Clinic Project.

17.  On 20 December 2006, Wing Yip obtained leave to file and serve an Amended Statement of Claim in the 1^st Action, mainly to add a claim against Tse for damages for the loss of the Market Project, for which Wing Yip claimed it had already entered into a subcontract with Southa Technical Limited (“Southa TL”) in late 2005 or early 2006, or alternatively for an account of the profits made by Tse from poaching such project from Wing Yip through the use of Adept.  In support of such claim, Wing Yip asserted a contract of employment with Tse under which either there were implied terms that Tse would not, or Tse had assumed fiduciary duties towards Wing Yip not to, allow his interests to conflict with those of Wing Yip or appropriate or divert to himself projects which he had already introduced to or solicited for Wing Yip.

18.  On 20 June 2011, Wing Yip obtained leave to further amend its Statement of Claim in the 1^st Action to give Tse credit for 10% of the profits that Wing Yip had made from the Undisputed Projects up to 13 April 2011, to which Tse was said to be entitled under an express term of the employment contract asserted by Wing Yip.  Wing Yip initially estimated the profits and Tse’s 10% share at respectively $1,812,579.70 and $181,257.97, but subsequently revised them to $1,823,079.73 and $182,307.97 to take account of 2 sums of $100,000 and $244,101.30 received by Wing Yip from Southa on 1 September 2009 and 31 May 2010.  These were estimates because Wing Yip arrived at them, not by deducting expenses from receipts, but by applying certain estimated profit rates. Further, neither set of figures included the income from either the post 17 July 2006 purchase orders under the Western Corridor Project or the Clinic Project. 

19.  As I see it, the questions raised by these claims and cross-claims are:

(1) whether Tse introduced to and solicited for Wing Yip the building service/purchase orders for the Undisputed Projects and managed the execution of the same:

 (A) (as contended by Wing Yip) pursuant to an agreement made between Tse and Wing Yip under which Tse was employed as Wing Yip’s foreman in return for a monthly salary payable from June 2004 (i.e. $13,000 which was increased to $15,000) and a commission equivalent to 10% of the net profits generated by such orders to Wing Yip; or

 (B) (as contended by Tse) pursuant to an agreement made between Tse and Ho personally under which they were to co-operate, with the use of Wing Yip as the corporate vehicle, in obtaining and completing electrical installation building service/purchase orders from contractors referred by Tse in return for 50% of the net profits of such orders;

(2) the material terms of the agreement that is found to have been made under sub-paragraph (1) hereof;

(3) the profits to which Tse was entitled (be it 10% or 50%), under which the following sub-issues would also have to be resolved:

 (A) whether Tse was entitled to share in the profits from the orders under the Western Corridor Project placed with Wing Yip after 17 July 2006;

 (B) whether Tse was entitled to share in the profits from the Clinic Project;

(4) whether the Lump Sum Payments were loans by Wing Yip to Tse (as contended by Wing Yip) or distribution of Tse’s share of profit from the projects undertaken pursuant to his joint venture business with Ho (as contended by Tse);

(5) whether Tse should compensate Wing Yip for the loss of, or account to Wing Yip for the profits he made from, the Market Project.

NATURE AND MATERIAL EXPRESS TERMS OF AGREEMENT

The witnesses

20.  The only witnesses who gave evidence were Ho and Tse.  Much depends on my assessment of their credibility.

21.  These gentlemen contradicted each other, and were cross-examined, on numerous points.  Each of these witnesses had been subject to extensive questioning for having either failed to mention various matters, or put the same differently, in his witness statements. There were also debates as to the meaning of their written witness statements or oral answers in Court.  Some of the points contended are relevant while some are of peripheral importance (save that a conclusion one way or another may perhaps function in generating an impression of the general credibility of the witnesses), or even immaterial, to the real questions that I have to decide.  I have reviewed and considered all inconsistencies of this nature put to the witnesses in cross-examination and addressed in closing submissions by Counsel. However, to maintain the focus of this judgment, and with no disrespect to Counsel, I hope I can be forgiven for not resolving each and every point of difference between the witnesses and for addressing only those having a material effect on the findings that I have to make.

22.  Further, in choosing whose evidence to accept on a particular question of fact, unless otherwise indicated, it is unnecessary for me to resort to, and I have not relied on, the impression that one may form as to the overall credibility of the witnesses.  I prefer to consider the issues that I have identified in paragraph 19 above, and assess the veracity of the witnesses on each such issue, individually, insofar as it is possible.  In so doing, I have been amply guided by, and have derived much assistance from, the inherently plausibility of the witnesses’ accounts and the congruity of such accounts with the undisputed/indisputable facts and circumstances of the case, of which there is no shortage.

Ho’s evidence

23.  Ho gave evidence that it was orally expressly agreed between him (acting for and on behalf of Wing Yip) and Tse that:

(1) Wing Yip would accept and perform orders placed by contractors recommended by Tse;

(2) Tse would commence employment with Wing Yip as a foreman in December 2003 and, as such, manage the execution of such orders;

(3) Tse would not receive any remuneration for the first 6 months;

(4) Tse would be paid a salary of $13,000 per month beginning from June 2004;

(5) Tse would also be entitled to a commission calculated at 10% of the profits made by Wing Yip on each of the jobs/projects that he introduced to or solicited for Wing Yip;

(6) Once Tse introduced a contractor to Wing Yip, he could not thereafter refer the same contractor to any other persons or companies or himself undertake work from it.

24.  According to Ho, Tse’s monthly salary was increased in about the end of March 2006 to $15,000 with effect from 1 April 2006.

Tse’s evidence

25.  In contrast, Tse recalled an agreement with Ho in his personal capacity on the following terms:

(1) They would use Wing Yip (which, Tse had been given to understand by Ho, had just been incorporated with Ho and his wife as the only shareholders and directors and was then dormant without any outstanding debts or liabilities) as the corporate vehicle to accept and carry out building service/purchase orders introduced or solicited by Tse.

(2) Tse would be responsible for the steps required to secure such orders.

(3) Ho would be responsible for financing the costs of carrying out such orders and the setting up Wing Yip’s office save that Tse could afford and would contribute about $100,000 to $200,000 towards the working capital.

(4) Tse should be responsible for monitoring and/or carrying out the orders.

(5) Both Ho and Tse should be responsible for the management and/or operation of Wing Yip.

(6) Ho and Tse should each be entitled, in equal shares, to the profits of the orders received.

(7) Ho should procure the transfer of his wife’s half share in Wing Yip to Tse in due course.

26.  With regard to the term set out in paragraph 25(3) above, according to Tse, he had by about mid 2004 incurred for his joint business venture with Ho expenses amounting to about $150,000, which was close to what he had previously indicated to be the limit of his cash resources.  It was therefore further agreed between Ho and Tse that Wing Yip should pay Tse $13,000 per month, which Tse could use to disburse or reimburse himself for his business expenses.  In other words, the Monthly Payments from June 2004 to March 2006, though recorded as his salary in the internal accounting records of Wing Yip, were in fact for disbursement of expenses of Tse and Ho’s joint business venture through Wing Yip. 

Discussion and findings

27.  Each of Ho and Tse had been challenged as to his account of when, where and how the agreement he set up was made.  There was very little objective material upon which the Court could make independent findings of the time, place and manner of conclusion of such agreement.  Nor is it, in my view, necessary for the Court to do so given the common ground that the discussions between Ho and Tse in late 2003 did lead to the conclusion of an agreement pursuant to which Wing Yip/Ho and Tse “co-operated” (which word is used here in a neutral sense) in respect of the Undisputed Projects and given that what divided the parties were the contents of the agreement.

28.  Focusing on the contents of the agreement, I prefer the evidence of Tse to that of Ho. 

29.  My reasons are:

(1) First, the acceptance by Tse of the package of agreed terms deposed to by Ho struck me as inherently improbable.

(2) Second, the objective evidence, particularly of the parties’ subsequent conduct,

(A) is inconsistent with Tse being a mere employee of Wing Yip; and

(B) shows or tends to show that Tse was Ho’s equal partner in the Undisputed Projects.

30.  Efforts were made by and on behalf of Ho to portray Tse as a subordinate to Ho from their previous working relationship and to downplay Tse’s qualification and experience.  Emphasis was also put on the fact that the projects undertaken were almost funded entirely by Ho.  It was argued that it was therefore unlikely for Ho to agree to accept Tse as an equal partner.  This suggestion ignored the important fact that Tse was bringing to the table his contact with and access to Newland and Southa, which Ho did not have. 

31.  It is to my mind extremely unlikely for Tse to agree to effectively give up all further opportunities to himself exploit the relationships that he had established with these substantial contractors (if Ho be right)

(1) in return for:

(A) no pay for 6 months. According to Ho, he counter-proposed the deferment of payment of Tse’s alleged salary to June 2004 because he was concerned about the large capital outlay expected of him and he was uncertain whether Newland and Southa would pay Wing Yip on time.  The unreasonableness of this term was readily demonstrated by Ho’s agreement with Mr Tony Ng, Counsel for Tse, that if Ho be right, Tse would not get paid even if Wing Yip received payment from Newland and Southa before the end of the 6 months;

(B) $13,000 per month thereafter which was, on any view, not at all generous.  In this regard:

(a) As mentioned above, Tse commanded a daily rate of $700 to $800 in the early 2000’s.  According to Ho, this remained the market rate in 2003.  With an average of 26 working days in a month (which Ho considered to be normal) and taking the median figure of $750, Tse would have made at least $19,500 per month by staying put;

(b) On Ho’s own evidence, the salary of a foreman in 2003 was between $11,000 and $15,000 so that $13,000 was certainly not top of the range;

(c) The internal accounting records kept by Wing Yip showed that many employees who were admittedly junior to Tse and worked under his instructions and supervision earned more $13,000 per month especially with overtime pay to which, according to Ho, Tse as a salaried foreman was not entitled;

(C) a mere 10% commission.  The fact that Ho himself quantified such commission at $182,307.97 over a period of more than 30 months from December 2003 to July 2006 speaks for itself; and

(2) without any assurance that the alleged employment would last.

32.  The only document produced at this trial in which Tse was described as an employee of Wing Yip was an employer’s certificate dated 3 May 2005 signed by Ho for Wing Yip in support of Tse’s application to enrol with the Hong Kong Institute of Vocational Training on a part-time diploma course.  It stated that Tse was an electrician who had been in Wing Yip’s employ for 1 year and 4 months and confirmed Wing Yip’s agreement to allow Tse to take time off work to attend classes.  I note that this was a standard form catering for only persons in employment.  Tse gave evidence that he was given this form to fill in and he did not enquire if there was a different form for self-employed persons.  While such a document may throw light on the question whether one is the employee of another, given the picture to the contrary painted by the facts and circumstances to be mentioned in paragraphs 33 and 34 below, I do not feel able to attach any weight to this document.

33.  In fact, Ho agreed in cross-examination that there was no record in Wing Yip showing Tse to be an employee.  Indeed, the following facts to my mind distinguished Tse from other employees of Wing Yip, thereby showing or tending to show that he was not one of them:

(1) Unlike other Wing Yip employees, Wing Yip had not signed any written contract of service with Tse.  Ho claimed that this was omitted at Tse’s request.  In none of his 3 witness statements filed in the 1^st Action had Ho stated any explanation by Tse for such a request.  However, over the question whether Tse had given a reason for not wanting a written employment contract, Ho gave various inconsistent answers: that Tse had not given any explanation; that Tse had told him that he did not want any written employment contract so that he did not have to report his income from Wing Yip to the Inland Revenue Department; and that Tse said it would facilitate him in filing his tax return (which Ho speculated to mean that Tse might want to report his income from Wing Yip as part of Adept’s income).  I have grave reservation about Ho’s explanation for the absence of a written employment contract between Wing Yip and Tse.

(2) Wing Yip admittedly did not file any employer’s tax return in respect of Tse.

(3) Wing Yip did not contribute to Tse’s mandatory provident fund.

(4) The Monthly Payments from June 2004 to March 2005, though entered in Wing Yip’s internal accounting records and acknowledged by Tse to have been received as salary were in fact not included in the item of “salaries” shown in Wing Yip’s audited financial accounts for the period from 15 October 2003 to 31 March 2005[3] but were split up and reflected in various other items of expenses.  Such accounting treatment was consistent with the Monthly Payments being provided to Tse for disbursement of business expenses and I so find.

(5) Tse did not receive any, while other Wing Yip employees were given a, year-end bonus.  The only explanation that Ho managed to give for this was that Tse did not ask for such bonus.

34.  Not only was Tse not just an employee, I would say that the following matters (taken cumulatively) put Tse on equal footing with Ho in Wing Yip or show that Tse was treated by Ho as his equal and by others in the same way as they treated Ho:

(1) Included in the Trial Bundles was a “job reference” which was submitted by Wing Yip to Southa as part of its efforts to obtain orders from Southa.  Of the 62 jobs/projects listed, 52 were Tse’s.  Ho tried to downplay these jobs/projects or Tse’s role therein (by saying that they were minor jobs/projects and that Tse worked in them as a casual worker or foreman). However, as stated by Ho, this document was compiled with a view to demonstrating to Southa that Wing Yip, though a new company, had the capability and experience to take up Southa’s projects.  Tse’s said past jobs/projects would not have been included unless it was thought that they would reinforce the impression which Ho and Tse intended to creat with this document.

(2) Tse’s name was pre-printed alongside Ho’s name in Wing Yip’s contracts with its employees underneath the space for Wing Yip’s signature and company chop.

(3) Ho and Tse were the only persons in Wing Yip not required to sign attendance.  I am not persuaded by Ho’s explanation with reference to the fact that Tse was a salaried staff whereas others were paid daily wages.  I note that record was kept of the attendance of a Ms Yam Sau Ngau Chella (“Yam”) who was Wing Yip’s only office staff with responsibilities for, inter alia, keeping books and accounts.

(4) Yam was authorised to countersign purchase orders placed with Wing Yip but only after consulting both Ho and Tse.

(5) Ho and Tse were addressed by Yam and Wing Yip’s other employees and workers respectively as “Boss Ho何老闆” and “Boss Kwong 光老闆” or just “Boss老細”.  Ho claimed that such forms of address were adopted pursuant to his instruction following an incident during which a worker at the Western Corridor Project site was disrespectful to Tse because Tse was a foreman.  However, this was admittedly not relayed by Ho to his solicitors and therefore not mentioned in any of his witness statements.  This was so despite the fact that Ho specifically dealt with how Tse was addressed in paragraph 6 of Ho’s Supplemental Witness Statement. Indeed, according to this paragraph, “[a]s a matter of practice and respect”, Yam and Wing Yip’s workers called Tse “Boss Kwong 光老闆” or “Boss老細”.  The words in quotation marks conveyed the impression that Wing Yip’s employees so addressed Tse of their own motion out of deference to his status as their employer.

(6) Like Ho, Tse was free to pursue his own jobs/projects in which neither Ho nor Wing Yip had any interest.  Indeed, Yam from time to time handled Adept’s matters, e.g. by placing purchase orders for materials, arranging for deliveries of materials (sometimes even to Wing Yip’s office) without any interference from Ho.

(7) Yam would also from time to time prepare monthly ledgers, in spreadsheet form, showing the daily receipts into and payments out of Wing Yip’s account within the month (“Ledgers”).  These ledgers clearly distinguished between 3 types of job/project:

(A) those undertaken by Ho and Tse jointly;

(B) those undertaken by Ho on his own; and

(C) those undertaken by Tse/Adept alone.

The Ledgers would also be submitted by Yam to both Ho and Tse.  Ho knew that Tse was also provided with such accounts because they were often sent by Yam to both of them in one email on which both recipients were shown.

(8) In April and May 2006, Yam compiled and repeatedly revised statements of Wing Yip’s income and expenditure for the periods from February 2004 to March 2005 and from April 2005 to April 2006.  Each version of these income and expenditure statements was copied by Yam to Ho and Tse for their comments and instructions simultaneously by emails.

(9) Tse was consulted on the compilation of the audited financial statements of Wing Yip for the period from 15 October 2003 to 31 March 2005 as was evidenced by Tse being provided with a draft of such accounts.

(10) The amounts of year-end bonuses to be paid by Wing Yip to its employees, including Yam, were fixed by consultation between Ho and Tse.

Ho had sought to neutralise the facts set out in sub-paragraphs (7) to (9) hereof with reference to Tse’s entitlement to a 10% commission in that Tse would need to know the receipts and payments of the projects with which he was concerned to tell if profits had been made. This might well have been a valid answer in the absence of the other circumstances, which however do exist.

35.  For the sake of completeness:

(1) I do not think much of Ho’s reliance on the title of “Manager” shown on his name card, which was to be contrasted with that of Tse on which no title appeared. I do not see how being described as the manager of Wing Yip proved that Ho was the only boss of the company.

(2) As for the fact that Ho provided all (or almost all) the funds required by Wing Yip’s operation, this was also consistent with the agreement deposed to by Tse.

(3) The fact that Ho might have corrected Tse when he described himself as a director of Wing Yip when giving evidence in proceedings arising from an accident at work involving one of Wing Yip’s worker in June 2005 is in my opinion neither here nor there.  Tse was in fact not Wing Yip’s director.

36.  For the above reasons, I find that Tse did not agree to serve, and was not in the employ of, Wing Yip.  Rather, Tse and Ho (personally) had agreed, as equal partners and using Wing Yip as the corporate shelf, to undertake electrical installation jobs/projects introduced and solicited by Tse.

37.  I also reiterate that the Monthly Payments prior to April 2006 were made to Tse, not by way of salary, but to enable him to disburse expenses arising in the course of conducting his joint venture business with Ho.  In support, I repeat paragraph 33(4) above.

38.  It must follow that Tse was not bound by any implied terms, nor had he assumed any fiduciary duties, as an employee of Wing Yip.

39.  For the sake of completeness, insofar as the prohibition against Tse from referring to others or himself dealing with the contractors that he had introduced to Wing Yip was also asserted as an express term, I do not accept that any such term had been agreed between Ho and Tse.  Quite apart from my above finding against the existence of any employment agreement between Wing Yip and Tse which allegedly included this express term, I note that:

(1) There was no pleading of any express term to such effect by Wing Yip in its Amended Statement of Claim dated 20 December 2006 in the 1^st Action, which was filed principally to assert the employment agreement between Wing Yip and Tse and the terms thereof. 

(2) Instead, any such prohibition, if contended at all, appeared to be put as an incidence of the implied terms of Tse’s contract of employment with Wing Yip or his fiduciary duties as Wing Yip’s employee.

(3) Nor was such express term set up as part of Ho’s averment of the contract of employment between Wing Yip and Tse in the Defence filed by him in the 2^nd Action on 6 November 2006.

(4) It was not until 6 April 2009 when Ho made his first Witness Statement in the 1^st Action that he asserted: “in order to secure the interests of [Wing Yip], [Ho] requested [Tse] that he should not make any recommendation of building service orders to other companies or persons including himself for bidding once he had referred or solicited the same for [Wing Yip].  [Tse] agreed” (emphasis added).

(5) On 24 April 2009 and 13 May 2009, Ho amended respectively his Defence in the 2^nd Action and Reply in the 1^st Action to bring such pleadings in line with his said written evidence by asserting a provision in the agreement between Wing Yip and Tse that Tse had “agreed not to make recommendations of building service orders to other companies or people including himself once the same has been referred to [Wing Yip]/he has introduced or solicited the same for [Wing Yip]” (emphasis added).

(6) Then, when he gave evidence in Court, Ho “clarified” that what he meant to say was that once Southa and Newland had been introduced to Wing Yip by Tse, Tse could not make recommendations of these contractors to others or himself take up works from these two companies. 

(7) Ho was however unable to explain the late attempt to expand the scope of the restriction said to have been expressly agreed by Tse.  In short, he blamed his solicitors for misunderstanding his meaning when they drafted his pleadings and witness statements despite the fact that he had been interpreted their contents before he signed them. 

(8) The unreasonableness of the restriction of the scope pushed for by Ho at trial is readily demonstrated when he agreed with Mr Ng that even if Wing Yip dismissed Tse within 6 months (i.e. before he got any pay), Wing Yip could continue to accept orders from Newland and Southa whereas Tse would be barred for the rest of his life from doing so.  I find it most improbable that Tse would agree to such disadvantageous term.

TSE’S SHARE OF PROFIT

40.  It follows from my above findings that Tse’s share of profits should be 50%.

41.  There is no evidence as to the actual amount of profits generated by the projects although both Ho and Tse had given estimates.

42.  In this regard, Ho estimated the profits from the Undisputed Projects (but leaving out the post 17 July 2006 purchase orders under the Western Corridor Project) to be:

Project	Contract sum received	Estimated rate of profit	Estimated Profit
Fire Station Projects	$722,839.07	3%	$21,685.17
Hospital Projects	$6,600,551.64	10%	$660,055.16
Western Corridor Project	$11,368,394.00	10%	$1,136,839.40
School Project	$22,500.00	20%	$4,500.00
			$1,823,079.73

43.  Tse was much more optimistic.  He initially put the profits to which he was entitled to share in the region of about $4 million and later revised it to $8 million.

44.  Both Ho and Tse claimed to have arrived at their said respective estimates based on their experience in handling projects of this nature.  However, I am not able to find any material in the evidence that showed me whose experience was more reliable.

45.  In any event, even leaving aside the questions whether the profits from the post 17 July 2006 purchase orders under the Western Corridor Project and the Clinic Project should be included as part of Ho and Tse’s joint venture business, the Court acts on evidence, as opposed to estimates given by the parties.

46.  Before I review the available evidence on the income, expenses and profits of the projects undertaken by Ho and Tse, I should first of all determine whether the post 17 July 2006 purchase orders under the Western Corridor Project and the Clinic Project fell within the joint venture.

Post 17 July 2006 Purchase Orders under the Western Corridor Project 

47.  The Western Corridor Project was, without doubt, introduced to and solicited for Wing Yip by Tse and hence part of the joint venture business between Ho and Tse.

48.  The only ground put forward by Ho for excluding Tse from the profits from the post 17 July 2006 purchase orders was that Tse had left Wing Yip and, because of that, Ho was solely responsible for obtaining and completing all the orders in question without any involvement from Tse.

49.  Tse departed as a result of Wing Yip’s purported summary dismissal, which was effected on the premises that Tse was an employee of Wing Yip and had acted in breach of the implied terms of, and/or the fiduciary duties that he had assumed under, his contract of employment by obtaining a purchase order for the Market Project. 

50.  I have already held in paragraphs 36 to 39 above that there was no contract of employment between Wing Yip and Tse; that Tse was thus not bound, vis-à-vis Wing Yip, by any incidents of a contract of employment (whether by way of implied terms or fiduciary duties) as alleged by Wing Yip in the 1^st Action and that Ho and Tse had not otherwise expressly agreed that Tse should be restricted from dealing with any of the contractors that he had introduced to Ho.

51.  That being the case, Ho had no ground to exclude Tse on 17 July 2006, thereby preventing Tse from completing the Western Corridor Project.  I therefore rule that Ho should account to Tse for the profits from the post 17 July 2006 purchase orders under the Western Corridor Project.

The Clinic Project

52.  The differences between Ho and Tse regarding the Clinic Project were as to:

(1) whether it was referred to Ho by Tse: Ho claimed that a Mr Shum of Key On telephoned him directly whereas Tse insisted that the said Mr Shum called him first to inquire if he would be interested in taking up the job and he then relayed the message to Ho; and

(2) whether Tse found a contractor for the job for Ho (which was admittedly the only thing that Tse had done in respect of the Clinic Project, not because he did not want it but because he was tied up in the other joint projects with Ho): Ho said that Tse had not done so while Tse maintained that he had.

53.  Neither account was inherently more plausible than the other.  There was frankly no objective evidence upon which the Court could make any independent finding on this matter, if viewed in isolation.

54.  Confronted with the choice between Ho and Tse’s evidence in these circumstances, I have to take into account my rejection of Ho’s evidence on the other factual questions that I have determined.  On the balance of probabilities, I favour Tse’s account.

55.  Hence, the Clinic Project was, or should be regarded as having been, introduced by Tse to Ho and therefore fell with Ho and Tse’s joint venture business.  Ho should share the profits from the Clinic Project with Tse.

Accounting evidence before the Court

56.  Having decided that Ho should bring the post 17 July 2006 purchase orders under the Western Corridor Project and the Clinic Project into the account, I have for the sake of completeness reviewed all the accounting materials placed by the parties before the Court to see if it was possible to ascertain on the evidence presently available the relevant net profit and therefore Tse’s share in the same.

57.  In particular, I have considered the audited financial statements of Wing Yip from 15 October 2003 to 31 March 2007 as well as the said income and expenses statements of Wing Yip for the period from February 2004 to April 2006 (pages 825 and 826 of Trial Bundle E). 

58.  I rule out the former because the figures shown therein would necessarily include the income and expenses of jobs/projects undertaken by Ho on his own account.

59.  As for the latter accounts, they were obviously incomplete in that they did not deal with the income and expenses after April 2006.

60.  In the circumstances, I make no finding on this matter but direct an account to be taken of all the income, expenses and profits of the joint venture business between Ho and Tse which, for the avoidance of doubt, encompassed the Undisputed Projects (including the post 17 July 2006 purchase orders insofar as the Western Corridor Project is concerned) and the Clinic Project.

61.  Before I leave this topic, Ms Jolie Chao, Counsel for Wing Yip in the 1^st Action and Ho in the 2^nd Action, took issue with such an order on the ground that Wing Yip had not been joined as a party to the 2^nd Action.  She considered Wing Yip to be a necessary party because the income and expenses of the projects in question went through Wing Yip, which is a legal entity separate from Ho.  I am afraid I see nothing in the point.  Ho entered into the joint venture in his personal capacity, though using Wing Yip as the corporate vehicle.  The order for account is directed at Ho personally.  He cannot in my view hide behind the separate legal identity of Wing Yip.  On his own case, he solely owned (beneficially) and controlled Wing Yip and apparently still does so.

LUMP SUM PAYMENTS: LOANS OR TSE’S SHARE OF PROFITS

Ho’s evidence

62.  Ho gave evidence that:

(1) Tse first asked him for a loan of $500,000 in January 2006 to purchase a residential flat.  He acceded to such request because Wing Yip was still withholding Tse’s 10% commission and also because Ho relied heavily on Tse for the Western Corridor Project which was then approaching completion.  He expressly told Tse that the loan should be deducted from his commission (10%).

(2) Tse approached him in early February 2006 for a second loan of $500,000 again for the purchase of a residential flat.  He agreed to make the advance only with reluctance after Tse threatened to stop working on the Western Corridor Project and hinted that he might cause Wing Yip’s sub-sub-contractors and workers to do the same.  As the deadline for completing the Western Corridor Project was approaching and he relied on Tse at the time to assist him to meet such deadline, Ho was afraid that his loss would be substantial if he failed to complete the project on time.

(3) Ho gave in for the same reasons when Tse demanded for loans for the third and fourth times in the sums of $300,000 and $400,000 in March 2006.  By the “same reasons”, Ho meant that Tse repeated the threats he had made, and he caved in due to the same concerns he had had, in February 2006.

Tse’s evidence

63.  On the other hand, Tse recalled that:

(1) By about early 2006, Ho and Tse anticipated that there would be a surplus of income over expenses from their joint projects to the tune of about $4 million.

(2) They agreed to withhold $600,000 as provision for profits tax and to divide the remaining $3.4 million between them, giving each $1.7 million.

(3) The Lump Sum Payments were made out of Wing Yip’s account to give Tse his share of such profit.

Discussion and findings

64.  I believe Tse and reject Ho’s account and find that the Lump Sum Payments were not loans but were interim distributions of Tse’s share in the profits generated by the joint venture projects between Ho and Tse for which credit should be given in the account that I have ordered to be taken, having regard to the following objective facts, circumstances and evidence:

(1) First, the extension of loans of $1.7 million by Wing Yip to Tse who, on Wing Yip’s own case, was an employee making $13,000 a month with an expectation for commissions of not more than $200,000, is to my mind somewhat improbable.

(2) Indeed, if Ho was to be believed, the total amount of the loans would more or less wipe out all the profits that he said had been made on the Undisputed Projects.

(3) Second, Ho’s account of how he was effectively blackmailed into parting with the second to fourth Lump Sum Payments on 6 February, 8 and 22 March 2006 did not sit well with his testimony in paragraph 31 of his Witness Statement that, in “appreciation” of Tse’s effective supervision of the Western Corridor Project and the increased workload between January and March 2006, he acceded to Tse’s request made at the end of March 2006 for an increase of his “salary” from $13,000 to $15,000 per month, with effect from April 2006. 

(4) Thirdly and more importantly, the Lump Sum Payments were all recorded in the Ledgers.  There was, however, nothing in such or other books and records of Wing Yip prior to the commencement of the 1^st Action that suggested that any of the Lump Sum Payments were loans to Tse.

(5) To the contrary:

(A) Ho himself wrote on the reserve side of the cheque by which the first Lump Sum Payment was effected the words “係付謝光中工資” before having it paid into Tse’s bank account. 

(B) He admitted in Court that he had further instructed Yam to treat the payment as Tse’s salary (which contradicted paragraph 27 of his Witness Statement dated 6 April 2009 that he briefly told Yam that it was a loan to Tse).

(C) It was therefore not at all surprising that Yam then booked this payment as Tse’s salary in the (monthly) Ledgers.

In other words, insofar as the first Lump Sum Payment was concerned, not only had Ho not obtained from Tse any acknowledgment that it was a loan (in the form of say a IOU), Ho was actually directly responsible for the creation of accounting records to the effect that it was not a loan.  In Court, Ho advanced different reasons for such accounting treatment of the first Lump Sum Payment (that it would facilitate Yam in entering the payment in Wing Yip’s books; that it was not good for Tse if people knew that he had borrowed money from the company).  I consider none of them convincing.

(6) The same accounting treatment was initially given by Yam to the second to fourth Lump Sum Payments, that is, they were all entered in the Ledgers under the column “支付工資”.  Ho claimed not to have told Yam to enter the 2^nd to 4^th Lump Sum Payments as Tse’s salaries but he could not explain why she did so.  Given the size of the payments, it is in my view reasonable to infer that she recorded them as she did on instructions, which were more likely to have come from Ho given what happened regarding the first Lump Sum Payment.

(7) In any event, the Ledgers were submitted by Yam to both Ho and Tse for their review as and when Yam finished compiling them.  Ho never corrected Yam.  When asked why he had not done so, Ho simply claimed that he had not read the Ledgers or done so carefully.  Such excuse sounds lame to me.

(8) The income and expenses statements put together by Yam in respect of the period from February 2004 to April 2006 (at pages 825 and 826 of Trial Bundle E) did show accumulated profits of $4 million odd, which is consistent with Tse’s evidence.  Ms Choa pointed that such statements were first available to Ho and Tse only in April 2006, i.e. after the Lump Sum Payments.  However, these statements were in fact consolidations of the Ledgers that Yam had been providing to Ho and Tse throughout their co-operation.

(9) It is also noteworthy that the Ledgers for January, February and March 2006 were subsequently revised to separate the Lump Sum Payments from the total salaries/wages paid for the month, indicating that they did not afterall fall into that category.  See pages 604-605, 610 and 612-613 of Trial Bundle D.

(10) The Lump Sum Payments finally appeared in a separate column entitled simply “KC Tse” (without any further label suggesting that they were loans) in the statement of income and expenses for April 2005 to April 2006 (page 825 of Trial Bundle E).  In a similar manner, sums withdrawn by Ho appeared under a column with the heading “KC Ho 現金/支票提走”.  Several revisions of this statement (which did not affect the treatment of the Lump Sum Payments) were circulated by Yam to Ho and Tse throughout April and May 2006 for their review.  Ho did not voice any objection in respect of how Yam booked the Lump Sum Payments.  Again, I do not accept his statement that he had not paid attention to these documents.

(11) Lastly, given that the Writ of Summons in the 1^st Action was issued in July 2006, I am somewhat puzzled by the decision to write off the alleged loans before the conclusion of the proceedings in the audited financial statements for the year ended 31 March 2006, which were accepted by the board of directors of Wing Yip on 20 November 2006.  Such decision could only have been made by Ho and before 20 November 2006.  Ho was unable to give any or any credible explanation, save to say that it was based on the auditors’ (unspecified) advice.

THE MARKET PROJECT

65.  Despite the averment of the making of a subcontract between Wing Yip and Southa TL in respect of the Market Project in about late 2005 or early 2006 and the repetition of such allegation in Ho’s witness statements, it transpired at the trial before me that no such subcontract had in fact been entered into.

66.  It appears that all that Wing Yip had done at the Market was the supply of some labourers (代工) and materials over a few days in January 2006 pursuant to the oral request of a Mr K C Wong of Southa to Ho and Tse.  The labour and material costs said to have been incurred by Wing Yip on this account totalled $29,972.50.

67.  Much of the debate in the evidence and submissions regarding the Market Project was focused upon whether what Wing Yip did at the Market in January 2006 was the same as or part of the Market Project so that Wing Yip had obtained or should be treated as having obtained such project and, if not, whether Wing Yip was entitled to expect to be given the job.   

68.  In view of the findings that I have made earlier, it is not necessary for me to resolve such dispute.

69.  Wing Yip’s claim against Tse for damages for loss of the Market Project or for an account of Tse’s profit therefrom was premised upon Tse having breached the implied terms of, and the fiduciary duties he had assumed under, his contract of employment with Wing Yip by poaching the Market Project from Wing Yip.

70.  Such premise was not made out as I have already found that no contract of employment existed between Wing Yip and Tse.  I have also rejected Ho’s evidence that the obligations sought to be imposed by implied terms or fiduciary duties had otherwise been expressly agreed.

71.  And no alternative case has been pleaded, and no counterclaim made, in the 2^nd Action for the imposition of the same express or implied terms or fiduciary duties under the agreement for a joint business venture between Ho and Tse, in the event that I uphold the existence of such an agreement.

72.  In any event, insofar as Wing Yip claimed damages for its said labour and material costs, it appears to me that the cause of the loss of such costs was Wing Yip’s own failure to seek reimbursement of the same from Southa.

ORDERS

73.  I dismiss the 1^st Action and make an order nisi that Wing Yip should pay Tse the costs of the action, to be taxed if not agreed.

74.  As for the 2^nd Action, I direct that an account be taken of all the income, expenses and profits of the joint venture business between Ho and Tse [which included the Undisputed Projects (including the post 17 July 2006 purchase orders under the Western Corridor Project) and the Clinic Project].  I also order payment of all sums found to be due from Ho to Tse (if any) upon the taking of such account after giving credit for the Lump Sum Payments.

75.  Lastly, I also make an order nisi that Ho should pay Tse the costs of the 2^nd Action, to be taxed if not agreed.