SHUM KAM FAI v. LAM CHI WAI AND ANOTHER

CACV 3376/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3376 OF 2001

(ON APPEAL FROM HCPI NO. 136/2000)

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J U D G M E N T

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Seagroatt, J. (giving the judgment of the Court)

1. This is an appeal against the Assessment of Damages made by Master C B Chan in her judgment dated 18 October 2001. The judgment was in respect of five heads of damage but only the awards under two of those heads are the subject of this appeal viz: loss of earnings pre-assessment, and future loss of earnings, and the increased costs of operating one of the Plaintiff's lorries, HB 891. Although the loss of earnings to the date of the assessment, and the future loss were treated as one head of damage and identified as such in this appeal, it is more convenient to treat them as two separate heads.

The Background to the Claim

2. The Plaintiff has a haulage business. He owns three lorries. He drove one of them himself (HF 2488) in the course of his business. He employed two other drivers for the other lorries (HJ 8741 and HB 891). He also acted as the manager of the business negotiating and securing contracts. The nature of the business was transport and disposal of waste, rubbish, débris etc.

3. On 2 February 1999 two of his vehicles, HF 2488 and HB 891, were involved in an accident and he sustained personal injuries. Those vehicles were stationary when the Defendant's motor bus struck HB 891 and caused a chain collision which involved HF 2488. Liability for the accident was conceded and judgment entered in the Plaintiff's favour in August 2000. In all the circumstances this action proceeded expeditiously and realistically for both parties. Although, as we indicated earlier, the appeal has been limited to those specific areas, it is relevant to note that the Plaintiff's injuries were serious ones involving a fracture of the fibula of the left lower leg with loss of tissue and muscle of the left thigh and loss of tissue around the left calf. In his right leg he suffered severe soft tissue injury of the calf and is left with persistent swelling over the right ankle and foot. In short he will never be able to return to work as a lorry driver and his wife drives him to the places he needs to visit in the course of his business.

The nature of the business and remuneration

4. The Master had the considerable difficulty of making her calculations on extremely limited evidence. The Plaintiff was unable, on the face of it, to produce any books of account, trading or profit and loss accounts, or any Inland Revenue returns or assessments. It seems that his successful business had managed to evade accountability to the Revenue in every respect. The only information was in the form of banking records of transactions, showing the amounts of money deposited to the credit of this one-man business from which figures representing the business turnover were calculated and drawings in cash and cheques were shown apparently for the purpose of paying business overheads, in particular wages for the drivers. The Plaintiff contended that he paid himself a wage of about $22,500 each month and a similar figure, perhaps a little less, to his two other drivers.

5. Hard figures from the business' bank account showed turnover for the business as follows:-

1 March 1997 - 27 February 1998	$2,771,911
1 March 1998 - 28 February 1999
(Date of Accident 2 February 1999)	$2,347,803
1 March 1999 - 29 February 2000	$2,729,717
1 March 2000 - 28 February 2001	$5,810,517

6. The Plaintiff's oral evidence was that at the time of the accident each lorry was in use for about 30 days every month earning $2,500 gross daily or $75,000 gross monthly. Each driver was paid about 30 percent of the turnover as his salary. Such payment was made up partly by cheque and partly by cash, most of the cash coming from the residue of a daily float whose primary purpose was to meet the cost of fuel and tunnel charges.

7. At a late stage of the proceedings the Plaintiff disclosed the monthly turnover record of one of the vehicles (HF 2488, the vehicle he drove) for the year 1998. The Master stated that these figures showed an average monthly business turnover for that lorry of $23,300. This is clearly an error of wording. What she meant was that it was the 30% average of the lorry's turnover to represent what the Plaintiff was saying was his wages. In the following paragraph she states that she accepted the evidence of the Plaintiff as to his monthly salary for 1998. That was an average of $22,500 per month for a 30-day month, although she later based her calculations on a 26.5-day working month. All this gives some indication of the difficulties in working to calculate reasonable and fair figures, in the absence of material documentation which any business, complying with legal requirements, ought to be able to produce. We now turn to the Master's finding and conclusions.

Loss of Earnings - 2 February 1999 to 30 April 2000

8. The Master concluded that the Plaintiff was fit enough to return to work in some remunerative capacity from 1 May 2000. There was before her no clear evidence of when the Plaintiff could be properly regarded as having been restored to some earning capacity. He was unable to return as a lorry driver in his business so one had to look for some indicator. The Master found it, quite logically, in the remarkable increase in the monthly deposits in the bank from May 2000. They nearly tripled from that date. She deduced that he must have made a significant contribution to the administration and/or management of his business for that to be achieved.

9. It was arguable, as Miss Julia Lau for the Defendants has argued before us, that the Plaintiff must have gradually worked up to the position achieved by May 2000 and that his period of total incapacity must have been less than the 15-month period allowed by the Master. We can see the attraction of this but short of a totally arbitrary cut off date, we can see no justification for saying that the Master was wrong in selecting 1 May 2000 for the reason she set out. Miss Lau also sought to argue that the period of total incapacity should be fixed by reference to the date on which sick leave expired. This is an argument frequently raised but is rarely relevant to a court's considerations. We have no hesitation in saying that we do not think that the sick leave period which is itself determined by a somewhat arbitrary consideration, should be regarded as a yardstick or criterion by which a period of incapacity, partial or total, should be determined in claims for common law damages.

10. The Master's approach, on the evidence before her and on her consequential findings cannot be faulted. We do however think that the basic figure for loss, put by her at $23,300 monthly, results from a minor error. She accepted the Plaintiff's evidence that $22,500 was the average figure and this is the only alteration we make. The full loss for this period will therefore be $22,500 x 15 months = $337,500.

Loss of earnings - 1 May 2000 to 24 September 2001 (to date of assessment)

11. This is based upon the Plaintiff's contention that although he returned to work, his actual earnings were substantially less than those of a lorry driver and should be measured by reference to the notional earnings of a part-time clerical assistant. There was no hard and fast evidence in support of this contention although Miss Lau lent some support to this approach as her alternative to her argument that there was no loss to the Plaintiff at all. Understandably Miss Lau wishes to resile from her alternative approach and pitch her argument fairly and squarely on the basic contention that the Plaintiff has produced no evidence of loss after 1 May 2000. We have concluded that the Master's award under this sub-heading of loss of earning must have been influenced by the Defendant's concession that the approach she adopted was the correct one.

12. It is important to take the basic premise of the Master's approach for the period of loss immediately following the accident. There must have been in all logic a period of total loss as a consequence of the accident. The Plaintiff was completely incapacitated for a period and two of his vehicles were out of commission for differing periods. When they were repaired he had to employ a third driver as a replacement for himself. From 1 May 2000 the receipts for the company's trading almost tripled in amount. The actual turnover for the year 1 March 2000 to 28 February 2001 was more than double that for the previous trading year. The Master accepted defence counsel's contention that "The Plaintiff must have been doing additional administrative work for the promotion of his business for the increase in turnover of the business for the last 1.5 years in phenomenal ." The Plaintiff's contention was that this "phenomenal" increase in turnover had been brought about simply by the additional orders to be carried out by the hiring of street vehicle" - i.e. by work which he had to subcontract as his own vehicles being fully employed, had no capacity to carry out that work. It is difficult to accept in the absence of reliable evidence, or primary evidence from which reasonable inferences may be drawn, that approximately $3 million of this turnover is to be attributed solely to the subcontract work and that it represented no profit to the Plaintiff's business. It is of course trite to say that the Plaintiff must prove his losses. He could have produced trading or profit and loss accounts. He could have produced returns to the Inland Revenue. He has not done either. In the absence of these it is simply not reasonable for him to seek to proceed on the basis that all of that "phenomenal" increase produced no profit. Indeed Mr Yau was forced to concede that there must have been an element of profit in it. But how much? Mr Yau suggested only a small amount. But what is the basis for saying "only a small amount"? The Plaintiff must have had some form of record to show what he was paying out to sub-contractors. Why should the Defendants accept or be bound by a calculation that is plucked from the air that serves the Plaintiff's purposes. Why should not the "phenomenal" increase in turnover have a pro-rata profit element? Why should it not be reasonable to say, on the basis of that turnover figure alone, that the Plaintiff has at least compensated for his loss as a journeyman lorry-driver by managing a business so productively as to increase the income and profit of the business? In his new position he is certainly in a better position to manage his vehicles and their availability to carry out contracts than he was as one of the drivers, however advantageous mobile phones and pagers may be for communications.

13. In our view there was no evidence to justify a finding that the increase in turnover was to be explained by unprofitable sub-contracts or even contracts producing an element of profit which itself was not definable by reference to any record of payments and therefore no justification for assessing a partial loss.

14. The Master found on the evidence - i.e. the "phenomenal" increase in turnover - that the Plaintiff's work in the business had produced this, and that, in our view, was an unassailable finding of fact. In the absence of evidence of the business trading picture - which ought to have been available and could have been produced - it is speculative to conclude that there was only a small element of profit to be derived from the subcontracted work the extent of which, itself, could not safety be assessed. It was challenged that such unprofitable or barely profitable subcontract work accounted for the increase in turnover - over 100% increase - in the year following his return to work. The Plaintiff in our judgment produced no evidence to rebut the reasonable inference to be drawn from that increase. Accordingly, we have concluded that the Master was in error having been misled by counsel's submissions as to the basis upon which such calculation could be made.

Future loss - Post assessment

15. It follows therefore that there is no basis for a future loss calculation and there is no need for us to re-iterate our earlier paragraphs.

Increased Cost of Operation

16. This aspect of the claim and award is somewhat of a misnomer. It relates to the fact that lorry HB 891 was out of use for 21/2 months whilst damage to it was repaired. It is clear that there must have been some consequential loss.

17. The Master calculated a turnover or earning potential for the vehicle at $2,500 per day or $66,250 monthly, at 26.5 working days on average per month. The basis for this was the Plaintiff's oral evidence and the turnover for the year 1 March 1998 to 28 February 1999 which averages out for three lorries at $65,216 monthly per lorry. The monthly running costs for the vehicle were put at $15,000. The driver's salary is 30% of the monthly turnover, therefore $19,875. The total of the monthly overheads is $34,875. The net loss of turnover (or profit) is $31,375 per month. For the 21/2 month period it is $78,437.50. We have reached the same total as the Master but by a different arithmetical route.

18. Miss Lau has argued that the Plaintiff's Answers in the Interrogatories in respect of the subcontracting of work whilst HK 891 was undergoing repair, leave open the question whether subcontractors were used to carry out work which HK891 and driver could not. It seems to us that the Master was entitled, on the evidence of the business turnover figures for certain years and the indisputable fact of HB 891 being out of commission, to use the figures available and reach the conclusion which she did.

19. It is correct that in his Answers to the Interrogatories the Plaintiff stated that the approximate average turnover of HK 891 was $58,750 and that that was also the sum received for the work or contracts carried out, essentially by subcontractors whilst HK891 was out of use. That was disputed by the Defendants. In fact the Master accepted evidence suggesting a higher turnover. The Defendants argued that the figure should be calculated on the basis of the Defendants' estimate. The Master's figure is just over $13,000 above the Defendants' figure. Given the absence of agreement at the outset and the fact that the figure on the Answer to the Interrogatory was an estimate, the Master was enabled to make the calculation she did on the records adduced late in relation to this lorry. In the event her figure was marginally above Miss Lau's figure in her submissions to us and less by a greater margin than the sum originally claimed. There is no basis for disturbing the Master's assessment.

The Incidence of Tax

20. It was not argued before the Master that tax should be deducted from any loss of profit/wage claim nor does it feature in the grounds of Appeal argued before us. Miss Lau sought leave to add such a point to her Notice of Appeal but we declined to allow her to do so.

21. We make no finding as to the merits of the point she clearly wished to argue. The fact that the Plaintiff has made no Tax Returns in respect of what appears to have been for some years now a successful and remunerative business may well now attract the attention of the authorities.

22. However for us even to consider how tax liability would affect any part of the damages to be recovered would require careful preparation of proper accounts and a consideration of any tax assessments generated as a consequence of a proper return. It is not the function of this court to do what in due course will have to be done in order that the Plaintiff may meet his legal obligations and join the ranks of taxpayers. Liability to tax can properly be assessed on the damages to be received by the Plaintiff in respect of loss of earnings/loss of profit consequent upon the Defendants' tort just as it can be assessed on his earnings/profits prior to and subsequent to the events under review.

23. The appeal will be allowed to the extent that the award under loss of earnings will be varied to $337,000, for period (1). There will be no award for period (2). Similarly there will be no award for future loss of earnings.

24. The Defendant has succeeded in this Appeal in respect of the larger part of the sum at issue. We have however borne in mind that the basis of an alternative argument by the Defendants at the hearing before the Master led to a calculation for which there was in fact no substance, and was a hypothetical approach which quite sensibly the Defendants have abandoned before us. Justice will be done therefore if we allow the Defendants half of their costs. This is an order nisi.