CHU WO HEUNG AND ANOTHER v. HUI LAI WA AND OTHERS

cacv 364/2003

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 364 of 2003

(on appeal from HCPI NO. 952 of 1996)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal by the plaintiffs from the judgment of Waung J given on 18 July 2003.  The judge had heard a trial on quantum.  He held that the 4^th and 5^th defendants should jointly and severally pay the plaintiffs the sum of $4,253,529.  That was the aggregate sum under the various heads of damages and included interest to the date of judgment.  At the conclusion of the hearing of this appeal this court dismissed the appeal and ordered that the 4^th and 5^th defendants should have their costs of the appeal and that the plaintiffs should have the costs of the respondent’s notice filed by the 5^th defendant.

Background

2.  The deceased, Yuen Fook Wah, died on 3 August 1994.  He was killed when an awning collapsed.  In May 2001 Seagroatt J held that the 4^th and 5^th defendants were both liable for the accident and held that the 4^th defendant was one-third to blame and the 5^th defendant was two-thirds to blame.  At the time of the accident the deceased had just turned 40.  He was born in the Mainland and had come to Hong Kong in 1971.  Apparently, he had had a series of jobs and, as the judge recorded, he had had no known success, presumably meaning thereby financial success.  He met the first-named plaintiff in 1989 and he started courting her then.  They married in July 1991.  They had two children, one born in January 1992 and the other in the mid-1993.  Until the time of her husband’s death, the first-named plaintiff lived in Dongguan.

3.  It would seem that the deceased’s major occupation was to drive a goods vehicle between Dongguan and Hong Kong.  Although the judge accepted that the deceased had worked for other persons it would appear that his major customer in respect of the transport business was Cheuk Hung.  The proprietor of Cheuk Hung was Chan Wai Shan.  In addition, the deceased also, at one stage, had a money changing business in Dongguan.  It would seem that that business was operated by the deceased’s sister.  By the time of his death, the deceased’s money changing business had closed. 

4.  The deceased had also, apparently, invested in a toy factory which had started operation in April 1994.  The other investors in that factory were Mr Chan and a cousin of the deceased, Yuen Lai Tin.  Although the first-named plaintiff gave evidence that the deceased had told her that he had invested $1.3 million in the toy factory, the only evidence of the investment was a cheque in the sum of $350,000 dated 29^th April 1994 which had been made payable to Cheuk Hung.

5.  A very unusual feature of this case is that the deceased’s wife, the first-named plaintiff, did not discover that the deceased had died until some 2 years after the accident.  The reason for that was that when the first-named plaintiff came down from the Mainland in September 1994, she was told by her mother-in-law and other members of the family, including Mr Yuen, that her husband was in hiding.  She then left Hong Kong and returned a year later but it was not until the second half of 1996 that she was told of her husband’s death.  It would appear that she was told of it because by then there had been a dispute amongst the other members of the family and they needed her assistance.  The first-named plaintiff finally obtained grant of letters of administration in July 1997 after an application by the mother-in-law had been withdrawn.

6.  At his death, the deceased left behind total assets of some $3.7 million.  These comprised funds in various bank accounts which totalled over $2 million and a flat in Sheung Shui.  This attracted the attention of the Inland Revenue.  In April 1998 the Department issued a notice under section 82A(4) of the Inland Revenue Ordinance, Cap. 112 on the basis that the deceased had failed to comply with the provisions requiring him to report his income chargeable to tax for the years of assessment 1989/90 to 1994/95.  This has been referred to as the asset betterment statement.  The amount of tax demanded by the Revenue was calculated on the basis that the deceased had started in 1989 with an account balance of $10,455.

The judgment below

7.  The major dispute in the court below, and that which was the subject of this appeal, was the amount of the net income of the deceased at the time of his death in August 1994.  The judge held that the deceased’s income came from his transport business and was $26,400 per month.  He calculated that on the basis of estimating that the deceased could have done about 20 round trips per month (or 40 single trips per month) between Dongguan and Hong Kong.  He took the average income per trip as $1,100.  The judge’s calculations were based on a record kept by the deceased of the work he had done for Cheuk Hung and also the judge’s estimate of what would have been feasible.  Then the judge allowed a profit margin of 60%.  I would mention at this stage that that profit margin was substantially greater than the estimates that had argued on behalf of the 5^th defendant.  Those estimates had been based upon the Report of Annual Survey of Transport and Related Services, which had put the profit margin as ranging between 32% and 49%.

8.  The judge did not consider that it was correct to give any allowance in respect of the money changing business or the toy factory.  In any event, it had apparently been the common stance of the parties that the money changing business should not be taken into account.  The plaintiffs took that view because the business had ceased.  The defendants, apparently, took the view that the income from the money changing business was irrelevant because it had been an illegal business.  The evidence in respect of the toy factory was described by the judge as being most unsatisfactory.  He referred to it as a murky business.  There seems to have been no evidence that any income had been derived from that source prior to the deceased’s death.  Neither was there any evidence as to what profitability had been achieved by that toy factory since the deceased’s death.

This appeal

9.  On this appeal, Mr Yau, who appeared on behalf of the plaintiffs, sought to argue that the judge had considerably underestimated the deceased’s income.  He pointed to a number of factors.  During the existence of the marriage the first-named plaintiff had, seemingly, been provided with ample funds.  That had been enough to keep her in a comfortable position in Dongguan.  The assessment by the Inland Revenue in the asset betterment statement was heavily relied upon.  It was argued that the deceased’s accumulation of assets prior to his death was undeniable.  It was said that even if the money changing business had to be discounted, the first-named plaintiff’s evidence demonstrated that the deceased undertook work for people other than Cheuk Hung and it was argued that he could have been undertaking work for two different entities in a single journey.

10.  There is no doubt that the key feature of the argument on this appeal was reliance on the asset betterment statement.  The judge had discounted reliance upon that for three reasons.  In the first place he considered that as far as concerned a claim for damages the evidence of income had to be properly established.  In the second place the existence of the money changing business during the period which the Inland Revenue took into account might well have constituted an important component of the deceased’s income.  In the third place judge said that he considered that Inland Revenue Department’s asset betterment method was fundamentally flawed.

11.  In my view the judge was quite correct in his approach.  He had clearly analysed the evidence with great care.  In my view his assessment of net profit which the deceased could have derived from the transport business was, if anything, generous.  The calculations were made on the basis of the documentary evidence which was available.

12.  The asset betterment statement was based, in the first place upon a starting capital of $10,455 in 1989.  In the absence of any proof that that was the deceased’s capital as of that date, whatever the Inland Revenue might do, the court was not in a position to make an assumption that that was the only asset of the deceased in 1989.  Moreover, quite apart from the fact that the Inland Revenue Department’s approach throws the burden on the taxpayer, or more correctly the taxpayer’s personal representatives, of showing that the assessment is wrong, there seems to me to be one very important factor.  This court was taken through some of the bank statements of the deceased’s bank accounts.  These showed large sums of money going into and out of the accounts, often within a very short time span.  Whatever else may be assumed, it is not possible to attribute those sums of money to the regular proceeds of the transport business.  They may well be sums derived from the money changing business, but that is, perhaps, speculative. 

13.  Complaint was made that judge had referred, in paragraph 26 of the judgment, to the fact that long-distance travel such as that being undertaken by the deceased could give rise to illegal and profitable activities such as smuggling.  The judge did not purport there to find that that was the source of the income.  What he was saying was no more than it was entirely speculative as to the source of the sums of money deposited into the bank account and as to where the accretion of the deceased’s total assets came from.

14.  It was also argued that the judge should have allowed some amount in respect of the toy factory business.  In the course of argument it was said that the judge should have allowed $350,000, at least, in this respect.  However, it was difficult to discern why an income of $350,000 should be assumed to have come from the toy factory business.  It is not clear whether that was put on the basis of being an annual income or an income over a number of years or a repayment of capital.  The figure was, of course, in line with the capital investment which seems to have been made through Cheuk Hung, but that does not translate readily into an income.  In my view, the judge was correct in discounting entirely the toy factory business.  There was simply no evidence that the deceased had, or would have, derived any income from it.  If the capital can be retrieved, the first-named plaintiff would be entitled to it.  If the deceased’s family have somehow themselves obtained repayment without accounting to the first-named plaintiff as personal representative then that is not a loss caused by the defendants.

15.  Finally, the point was sought to be made that even if the judge had been correct in arriving at a figure for the deceased’s income of $26,400 per month, he should have held that that would have been the dependency of the first-named plaintiff.  However, that argument depended upon the assumption being made that the deceased had other regular income and even if it had been from an illegal business he would have used that income from an illegal business for his own purposes and have used his legitimate income to support his wife and family.  That would involve an allocation of the deceased’s income in a very hypothetical way.  Even if the circumstances were such that the deceased had a substantial income from other sources, the court could only award damages on the basis of the legitimate income.

16.  In those circumstances, there were no grounds for disturbing the judge’s award.  As already stated, it would seem that the judge had adopted a generous approach on the basis of the evidence that was before him.  In view of the fact that it was clear that the court was not disposed to disturb the findings of fact by the judge, the cross appeal by respondent’s notice was not pursued.

Hon Le Pichon JA:

17.  I agree.

Hon Cheung JA:

18.  I agree.