CHAN TAK YIM v. WONG TIT KIN AND ANOTHER

CACV 495/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 495 OF 2001

(ON APPEAL FROM HCPI 278 OF 1999)

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J U D G M E N T

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Hon Yeung J:

1. This is an appeal on an assessment of damages.

2. The plaintiff was injured in a traffic accident on 23 July 1989. He was then 39 years old.

3. On 5 August 1993, the defendants consented to judgment in favour of the plaintiff with damages to be assessed.

4. In 1996, the award for pain, suffering and loss of amenities was agreed at $400,000 and paid. The remaining heads of damages to be assessed are loss of earnings, loss of profits and special damages. The plaintiff only actively pursued those damages in 1999 by applying for an assessment.

5. It is the plaintiff's case that he set up Win Harvest Development Co. Ltd. (Win Harvest) with his wife. In October 1986, on behalf of Win Harvest, he signed an agreement with a PRC company, Shenzhen Nantau District Sze Lee Industries and Trading Company (Sze Lee) to jointly develop a water gliding (Fu Powder) processing factory in Shenzhen in the name of Shenzhen Nantau Wah Shing Water Gliding Stone-Powder Plant (Wah Shing). The agreement was to last for 15 years from 16 October 1986 to 15 October 2001.

6. The total capital investment of Win Harvest in Wah Shing was stated by a Shenzhen accountant to be $1,104,800 consisting of (a) equipment and machinery ($367,000), (b) material costs ($7,800), and (c) factory and other structures ($730,000).

7. As a result of his injuries, the plaintiff was unable to run Wah Shing which closed down in February 1990. On 14 May 1990, Win Harvest and Sze Lee agreed to terminate the 1986 agreement.

8. According to the inventory list attached to the termination agreement, the properties returned to Win Harvest were valued at $367,000 and the items considered as spent, damaged and depreciated were valued at $37,800. However, the plaintiff produced receipts to show that the returned properties were disposed of at scrap value of only $750.

9. The plaintiff said he used to withdraw $30,000 per month from the account of Sze Lee and he therefore claimed a monthly loss of earnings of $30,000 with an annual inflation rate of 10%, which produced a median figure of $57,796.75 per month from September 1989 to July 2000.

10. From July 2000 until his retirement age at 60, the claimed loss of earnings was $81,164.93 per month.

11. The plaintiff also said Sze Lee could make a net profit of $280 per ton of 'Fu Powder' and each plant could produce 40 tons a month. He said by the time of the accident, the factory capacity had increased from the initial 5 plants to 7 plants and if the factory could continue to operate, the number of plants would have been increased to 10 and 30 respectively by 1992 and 1994.

12. In addition, Sze Lee also produced and sold 6,000 pieces of marble kerbstones per month at the profit of $7 to $8 per piece.

13. The plaintiff contended that between September 1989 and July 2000, he suffered an average loss of profits of $186,203.25 per month after deducting the loss of earnings of $57,796.75.

14. From July 2000 until October 2001 when the 1986 agreement were to expire, the monthly loss of profits would be $298,406.50 after deducting the loss of earnings of $81,164.93.

15. From October 2001 until his retirement age at 60, the plaintiff claimed half of $298,406.50, namely $149,203.25 per month as loss of profits on the basis that he would be allowed to continue with the business after October 2001 if he offered half of his interest to the joint venture.

16. On the aforesaid basis, the plaintiff in his further revised Schedule of damages filed on 12 July 2000, made a total claim of over $60 million.

17. In addition to the loss of capital of about $1.1 million and the special damages of about $100,000, there were loss of earnings of about $16 million and loss of profits of about $43 million.

18. The plaintiff suffered a 26% permanent disability and from 1994 until July 2000, he was able only to earn a total of about $200,000. He claimed with his disability, he could only earn about $4,000 a month working in China.

19. It is perhaps worth mentioning that in his amended Statement Of Claim dated 5 March 1993, the plaintiff was only claiming a loss of earnings of $12,000 per month and a loss of profits of $550,000 per year. With the subsequent adjustments, the plaintiff's claim increased to over $60 million in July 2000.

20. The plaintiff was divorced from his wife and he had to pay maintenance of $6,000 a month to his wife and 3 children under a court order although he claimed to be paying a much higher sum of $25,000 a month.

21. The plaintiff said his delay in pursuing the assessment of damages was due to lack of funds and his reliance on the advice of his former solicitors. He also blamed the doctors who examined him for wrongly suggesting that he was still a factory owner in China in 1999.

22. Apart from putting the plaintiff to proof of his claims, the defendants suggested that the claims had been greatly inflated. The defendants also suggested that 'Fu Powder' factories were operating against State regulations on environmental protection and that the business of Sze Lee had to be closed down anyway after 1990.

23. Despite his massive claim for damages, the plaintiff had not produced any document to substantiate his claim for loss of earnings or loss of profits. There were no company accounts, ledgers, banks statements nor tax returns of either Win Harvest or Sze Lee. There were no personal bank account records or tax returns of the plaintiff either. There was no record of the plaintiff taking the monthly drawings from the accounts of Win Harvest or Sze Lee nor of his paying a monthly maintenance of $25,000 to his wife and children.

24. As the Master dealing with the assessment of damages put it, "the court is asked to estimate the plaintiff's loss base only on the evidence of the plaintiff." By the evidence of the plaintiff, the Master meant the oral evidence of the plaintiff.

25. The Master was clearly concerned with the lack of documentary support and the credibility of the plaintiff, particularly his failure to keep any business accounts and his inability to give an account of the cost breakdown.

26. While accepting that the plaintiff had been selling 'Fu Powder' to his customers at around $600 per ton and that each plant could produce 40 tons a month, the Master rejected his evidence that the manufacturing cost was only $305 per ton or that he was able to make a net profit of $280 per ton. The Master refused to accept the plaintiff's evidence that he was able to make a net profit of 46% of the sale price.

27. The Master also rejected the plaintiff's suggestion that the number of plants would be increased to 30 by 1994. She rejected the plaintiff's evidence that 6,000 pieces of marble kerbstones would be sold a month or that a net profit of $7 or $8 per piece could be made.

28. Somehow, the Master found that a net profit of $140 per ton of 'Fu Powder' could be made and that the number of plants would be increased to 10 as from July 1992.

29. Somehow, the Master also found that only 2,000 pieces of marble kerbstones could be produced and sold a month and the profit for each piece was $3.5.

30. For the 3 year period from the date of the accident to 22 July 1992, the Master awarded loss of profits in respect of 'Fu Powder' business of $1,411,200 ($140 x 40 tons x 7 plants x 12 months x 3 years). For reasons not readily known, no award was made for the loss of the marble kerbstone business during such period.

31. As from 23 July 1992 to the date of judgment, namely 22 January 2001, a monthly loss of profits for the 'Fu Powder' of $56,000 was adopted ($140 x 40 tons x 10 plants) and for the marble kerb stones of $7,000 was adopted ($3.5 x 2,000 pieces) making a total monthly loss of $63,000. The loss of profits up to 22 January 2001 for the 'Fu Powder' and the marble kerb stones was $6,426,000 ($63,000 x 102 months).

32. The total loss of profit up to 22 January 2001 was therefore the sum of $7,837,200 ($1,411,200 + $6,426,000).

33. A deduction of about $800,000 was made for the earnings of the plaintiff and Sze Lee making a balance of $7,050,771.

34. The Master rejected the suggestion that Sze Lee could continue its operation after the expiration of the 1986 agreement. For the post-assessment loss of profit, the Master only calculated up to 15 October 2001 when the 1986 agreement was to expire, namely a further 9 months and 3 weeks. The plaintiff was awarded post-assessment loss of profit at $609,840 ($63,000 x 9.68 months).

35. The Master refused to make any award for the loss of earnings or the loss of capital.

36. Together with the special damages of $20,180 and the cost of future operation of $50,000, the plaintiff was awarded the total damages of $7,730,791.60 ($7,050,711.60 + $609,840 + $20,180 + $50,000).

37. The defendants now appeal against the award on the basis that there was no evidence to support the claim for the loss of profits. There is also the suggestion that adjustment to the post-assessment loss of profits should be made to account for the earnings that the plaintiff would be able to make.

38. The plaintiff cross-appeals. He suggests that loss of profits should be awarded until his retirement and should not end on the expiration of the 1986 agreement on 15 October 2001.

39. The Master had rejected the plaintiff's evidence on the loss of profits of 'Fu Powder' at $280 a ton and of the marble kerb stones at $7 or $8 a piece on the basis that there was no acceptable evidence on the costs of production. There was therefore no evidence to show any loss of profits at all.

40. There was no apparent indication to explain the Master's findings that the loss of profits of 'Fu Powder' should be $140 a ton and of marble kerb stones should be $3.5 a piece except that those figures were half of what the plaintiff claimed.

41. In every assessment of damages, the plaintiff must adduce acceptable evidence to support the claims before any award can be made. If there is no acceptable evidence, no damages except nominal damages can be awarded.

42. The court cannot and must not award any damages purely on a percentage of the plaintiff's claim otherwise a plaintiff will be encouraged to inflate his claim without any supporting evidence.

43. Despite the effort by Mr Leong on behalf of the plaintiff in an attempt to persuade us that the award in favour of the plaintiff was low and the suggested reasons for the lack of documentary evidence, the fact was that there was no logical or evidential basis to justify any award for loss of profits in favour of the plaintiff. There was no acceptable evidence to justify any parameters in which the figures of $140 or $3.5 could fall.

44. The claim was for loss of profits and the court must be satisfied with reasonable certainty that the alleged loss had occurred or would occur. The court also expects precise evidence to support the claims.

45. But such evidence was totally absent.

46. The Court of Appeal would of course only interfere with the assessment of damages if the trial judge was found to be in serious error or acting upon a wrong principle of law or that the amount awarded was so high or so small as to make it, in the judgment of the appellate court, an entirely erroneous estimate. (see King Light Industrial Ltd. v Lo Wai Keung [1994] 3 HKC 54 and Chan King Wan and others v Honest Scaffold General Contractor Co. Ltd. and another CACV 290 of 2000)

47. In my view, the learned Master was in serious error in simply plucking a figure from the air and basing her assessment on such a figure instead of acting on acceptable evidence.

48. In the circumstances, the awards for the loss of profits, both pre-assessment loss of profits and post-assessment loss of profits cannot be allowed to stand and are set aside. As the loss of profits could not be established, there was also no room for any award of loss of earnings. On the plaintiff's own case, the loss of earnings must necessarily come from the loss of profits.

49. There was originally a claim for loss of capital of about $1.1 million. The claim was rejected on the basis that if it were allowed on top of the loss of profits, it would be double counting. The learned Master expressly stated in her reasons that "this item is only recoverable should the plaintiff fail in his claim for loss of profits."

50. The plaintiff was quite seriously injured. His residual complaints include discomfort in the right leg when the weather changes, pain when lying on the right side of the body, difficulty in running and squatting. He now walks with a mild limp. He was certified to be suffering from a 26% permanent disability.

51. As the plaintiff had made substantial claim for loss of earnings and loss of profits, the question of loss of earning capacity represented by the physical handicap produced by his injuries was not dealt with.

52. I am of the view that the loss of capital and loss of earning capacity should be dealt with now that the awards for loss of earnings and loss of profits are set aside.

53. The case is remitted back to the High Court for the assessment of damages in respect of the claims for loss of capital and loss of earning capacity by another master.

54. The appeal by the defendants is allowed to the extent indicated. The cross appeal by the plaintiff is dismissed.

Hon Le Pichon JA:

55. I agree and I would only add this in relation to the loss of profits claim. Mr Leong, SC, who appeared for the respondent in this appeal, referred to the case of Wong Yuk Kin v Yip Hing Keung & Ho Kwok Choi, unreported, 1985 No. A1053. That was a decision by Hunter J. Mr Leong referred to the fact that in that case there was also virtually no documentary evidence but that did not prevent the judge from making an award.

56. All I wish to say is that the facts of that case are distinguishable because evidence was adduced from two witnesses who ran similar businesses and the judge accepted their evidence as a basis upon which he could draw for ascertaining the loss sustained by the plaintiff in that case. So I think the decision of Hunter J does not assist in the present case, and for the reasons already given by Yeung J, I agree that this appeal should be allowed to the extent indicated, and the cross appeal dismissed.

Hon Mayo VP:

I agree. There is nothing I can usefully add.