LAPPING INVESTMENT LIMITED TRADING AS HAIR AND HAIR SALON v. YAU NAM KEE CONSTRUCTION CO. LTD. AND OTHERS

1985 No. A6228

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is the Judgment of the Court in High Court Action No. A6229 of 1985.

2. The action arises out of a water mains burst which occurred on the 4th of May, 1985. Substantial damage was caused to the Plaintiff company. Although liability was at first denied, on the fourth day of the hearing liability was admitted on, behalf of the 1st, 2nd and 3rd Defendants; hence the only issue which remains is the quantum of damages.

3. The Plaintiff is a limited company. Prior to the 4th of May, 1985 the Plaintiff operated a business located on the ground floor of a building standing at the junction of Grampian Road and Nga Tsin Wai Road, Kowloon. The business was called Hair and Hair Salon. As the name implies it offered hair dressing services to people living in the neighbourhood - hair cutting, hair dressing, shampooing, manicuring and such like. Massage services were also provided in the premises, though not directly by the company.

4. The lease of the premises was taken out on the 14th of March, 1983 by two Directors of the company in their personal names. There is nothing surprising in this. The Plaintiff company was not incorporated until the 11th of March, 1983. In all probabilities, the lease was prepared by the solicitors for the parties before the company's incorporation; hence the lease was made out in the Directors' personal names.

5. The evidence which I accept was to the effect that the two Directors held the tenancy in trust for the Plaintiff company.

6. The tenancy was for seven years commencing on 16th April, 1983. It covered two sets of premises:

7. The rent for both sets of premises for the first three years was $50,000 with increases in subsequent years.

8. In March 1984 the company sold the Magic Bottle Lounge business to third parties under an arrangement whereby the company continued to be responsible to the landlord for rent of both sets of premises, but the new proprietors of the Magic Bottle Lounge business paid rent to the company.

9. The premises of the hair salon occupied about 2,500 sq. ft. The premises were decorated in late 1982 or early 1983 to a very high standard. On the outside the facade had expensive trimmings made of moulders plywood covered with water-proof paint. There were large plate-glass windows framed in golden aluminium frames. The front doors were made of glass which opened on sliding rails controlled by an electronic sensor. The inside flooring of the shop was covered with marble tiles. The partitioning inside the premises was as follows:

10. The decoration of the hair salon was done by a firm called Hung Wan Decoration Company, the proprietor of which was a Mr. Lee Kin Kau. This was done in about early 1983 for a total of about $450,000. This sum of about $450,000 included all the plumbing, electrical work and specialized equipment like hydraulic hair-dresser's chairs, manicure chairs, an oil-treatment steamer, a "computer hair-styling machine" etc.

11. The business had been in operation for about two years when the accident occurred.

12. In the early hours of the 4th of May, 1985, the mains at the junction of Grampian Road and Nga Tsin Wai Road burst. A large quantity of water erupted into the ground and continued flowing. By the time the hair salon was open for business that morning (it was a Saturday; the shop was full of customers) the ground floor slab of the shop, under the pressure of water underneath, had started to heave. The glass front of the shop with the sliding doors buckled. The panelling outside the shop along Nga Tsin Wai Road buckled. The marble floor tiles inside the shop heaved and cracked. Plywood panelling inside the shop became distorted and glass mirrors broke and cracked. The pressure was such that even stainless steel skirtings were in places distorted. Within a few hours the hair salon was in total shambles. The whole area was cordoned off by the police. The business abruptly ceased and has never resumed since. In these circumstances the Plaintiff company claims damages.

13. The general purpose for an award of damages in situations like the present is not in doubt. The Plaintiff must, insofar as money can do it, be put back in the same position as if the tort had not been committed.

14. The award of damages falls under two broad heads:

15. Before dealing with the particulars of damage under these two heads of claim, I make the following general observations:

16. It would be convenient to deal with the damage done to the Plaintiff company's business first.

Now, as pleaded, the averment is simply this. I read paragraph 12 of the Statement of Claim:

17. Particulars were delivered a few days before the trial, that is to say, on 6th June 1987, which particularized the loss under this head as follows:

"Loss of business during the estimated period of repair works (May - July 1985) $391,400."

This averment was amended about two weeks later (18th June) on the very eve of trial, to read as follows:

"Loss of business since 4th May 1985 to date at the rate of $130,466 per month"

It is upon this averment that the case proceeded to trial.

18. The facts giving rise to this claim can be very simply stated:-

19. I should add in parenthesis that I draw this inference from the evidence: this might, on one view, he said to be somewhat charitable to the Plaintiff, having regard to the way the loss of business claim was pleaded at the beginning, when the estimated period of repair was pleaded as "May to July 1985".

20. In fact, the hair salon never reopened for business.

21. Mr. Marshall, Counsel for the 3rd Defendant, says that when one examines the company's financial position in early May 1985, it will be seen that the business was a failing one. He says that the hair salon was on its last legs; the mains burst simply delivered the coup-de-grace.

22. I should say at the outset that I do not accept this submission. The facts do not justify so dramatic a conclusion. It would be very convenient for the tortfeasors to be able to say that the company suffered no loss to its business because it was not making a profit, and had no prospect of doing so.

23. I shall examine the company's financial position more closely as shown in the evidence. Before doing so, it would be convenient to state my main conclusion. It is this: At the time of the mains burst, the company was making a modest profit, but the future prospects of the hair salon business were uncertain. The company appears to have been owing substantial sums in arrears of rent to the landlord. The precise arrangement for dealing with those arrears of rent was uncertain.

24. In a letter dated 10th June 1985 (Exh. D3), the company asserted there was "an understanding" that the landlord would collect only $40,000 in rent each month during a certain period and that the total arrears in the sum of $100,000 should be discharged by ten monthly instalments commencing from 1st October 1985.

25. In a letter dated the 26th of June 1985 (Exh. D5), the landlord's solicitors denied the existence of such an understanding and asked whether the solicitors for the company had instructions to accept service of a writ in relation to the matter.

26. Whether there was the understanding as asserted by the Plaintiff company is an issue which I clearly cannot resolve.

27. In the circumstances of the case, it would be reasonably foreseeable that as a result of the tort, there would be massive interruption to the company's business with consequential loss. This would extend over the period up to the time the company is able to resume business. I have already held this to have been the end of September 1985, with perhaps a slight allowance of two months for everything to be back to normal. Beyond this, the position is far too speculative to sound in damages. In other words, it is too remote.

28. In its pleading, in the amended form, the Plaintiff's claim is for loss of business "since 4th May 1985 to-date", which as elaborated upon by Counsel for the Plaintiff, meant "to the date of Judgment" at the rate of $130,466 per month. It follows from what I have just said that I wholly reject this approach.

29. Now let me deal in a little more detail with Mr. Marshall's submission that no damages should be awarded for causes extraneous to the tort: the submission being, that if there was a failure to resume business, that has nothing to do with the wrong done; any loss flowing therefrom came from the company's impecuniosity. Mr. Marshall relies upon the case of Liesbosh Dredger [1933] AC 449.

30. The Plaintiff company's balance sheet for the 13 months ending 4th May 1985 shows an excess of current liabilities over current assets amounting to $277,689. This was a slight improvement on the corresponding figure for the previous year.

31. In the Accounts Payable and Accruals column, the figure stands at $355,807. I infer that the greater part of the sum is in fact the amount owing to the landlord. It is true that in about August 1985 the landlord forfeited the tenancy for non-payment of rent, after an apparently unsuccessful attempt at distraining for rent; but there is nothing to indicate that, if the shop had not been wrecked, there might not have been some accommodation with the landlord in relation to the arrears of rent.

32. The company's financial position might have been precarious, but, in my judgment, not on the verge of bankruptcy as Mr. Marshall contends.

33. I should perhaps add in parenthesis that the pleading in paragraph 12 of the Statement of Claim invites the kind of submissions Mr. Marshall made, the averment being that it was "due to the dangerous state of the Plaintiff's premises that the Plaintiff was rendered unable to operate its business" up to the date of pleadings: an assertion which is palpably incorrect.

34. At the end of the day, I am not sure that it makes very much difference as to what precisely was the financial state of the company, since it is my judgment that any period much beyond September 1985 could not be taken into account in the computation of damages; the prospect being too uncertain in the circumstances of this case, the damages would have been too remote.

35. In the computation of damages for the injury to the company's business, I take the following factors into account:

36. Firstly, in the company's accounts for the 13 months to the 4th of May 1985, the gross profit figure before taking into account overheads was $1.696 million. This works out to a figure of $130,466 a month. This is derived from the ledgers of the company and, although the auditor's report for that period is heavily qualified, I see no reason to reject this figure. Mr. Lai for the Plaintiff argues that this is the figure I should take for the computation of loss because he says all the expenses incurred to earn the sum for the period after the 4th of May 1985 would have been, as he called it, committed in any event. I am not sure what he means by that. I note that the rent was suspended during the period when the premises were unusable, and much of the wages to the employees likewise: these were by far the heaviest items.

37. Secondly, if one looks at the net profit position as shown in the accounts, then the company was earning in profits no more than about $2,000 a month; that is to say, assuming that all the overheads would have been incurred in earning the gross profit of $130,466 a month; if they were necessarily incurred for this purpose, then prima facie the measure of damages would be the figure of $2,000 a month.

38. Thirdly, I note that in the testimony of Mr. Tang Wing Kan, the Director in charge of financial affairs, he says this: "All the existing shareholders of the company were able to make money for the hair salon business even in the first year," and he referred to a figure of over $300,000 by way of Directors' remuneration. The figure for Directors' remuneration for the second year was $385,524.22. No evidence was led as to the make-up of this figure, beyond the evidence of Mr. Tang; but Mr. Tang's evidence was not challenged in cross-examination in this regard.

39. I infer from the evidence of Mr. Tang that this figure by way of Directors' remuneration represented an element of profit. However, Mr. Jacky Chan, the Manager of the hair salon, also himself a Director, said in evidence that the figure represented actual services rendered by Directors, but he gave no particulars as to such remuneration except for himself. He did not say that any other Director, except perhaps for Mr. Tang, was involved in any way with running the business of the hair salon. In my judgment, Mr. Jacky Chan was not in a position to speak with much authority on this aspect of the company's accounts.

40. I therefore infer that there is an element of slack in the figures representing Directors' remuneration, and that part of that sum could be added to the $2,000 a month in computating the loss of profit for the period I have indicated.

41. Fourthly, as to the other expenses, apart from the figure for depreciation, I infer that if there had been no disruption to the business, the expenditure as shown in the accounts would probably have been incurred. I cannot see how they could be disregarded in computing the sum to compensate the Plaintiff for damage to their business. Assuming that half of the figure of $385,524.27 represented a profit element, or more accurately, Directors' fees which would normally have been voted by shareholders at an Annual General Meeting as reward for Directors, then the company's loss of profit arising from the damage to its business for the period 4th of May 1985 to the end of September 1985 (taking the period to be five months) would be as follows:

42. I turn now to the damages for the physical injury, that is to say, to the shop, its furnishings and fixtures. Now the task of assessment is a daunting one, not made any easier by the way the Plaintiff's case is presented. As pleaded, the particulars of damage fall under three heads;

43. As to (C), the pleader says this in paragraph 13 of the Statement of Claim:

"Full particulars of the costs of repair, costs of replacement of damaged trade equipments, installations and furniture and loss of business will be supplied in due course."

44. Nothing in fact was supplied until the 6th of June 1987, when the only particulars given were as follows:

"Estimated costs of repairing the said damage to the shop or alternatively the value of the damaged items on 4th May 1985 at such sum as the Court may find just ...... $686,600."

45. What happened was this: On the 23rd of May 1985, a surveyor from the firm of Jones Lang & Wootton, a Mr. Lee Shue Shing went to the premises and surveyed the damage. A Director and the Manager of the shop, Mr. Jacky Chan, was in attendance. Mr. Lee took careful note of the damage, and he personally took photgraphs. They were annexed to his written report marked A1 to A18. He also made a plan showing the place from which each photograph was taken. It was a thoroughly professional job. Mr. Lee conducted a visual survey. He did not conduct what he called a destructive survey, that is to say, he did not open up the facing, the plywood nor did he lift up the marble tiles. He made a detailed list of all the damage that he saw in the form of a written report. This is Exhibit P1 in these proceedings. It is the contents of this report which, in effect, have been pleaded as the particulars of damage under heads (A) and (B).

46. As to (C), that is to say, trade equipment, installations and furniture, Mr. Lee noted no damage to any equipment or installations such as e.g. the hydraulic hair-dressing chairs, manicure chairs, ultraviolet lamp or the computer hair-styling piece of equipment.

47. In paragraph 11 of the Statement of Claim,the pleader averred that as a result of the discharge of water from the burst water-main, "the internal ground" was "saturated with water". The evidence indicates otherwise. There was no flooding of any kind. Basically what happened was that the floor heaved up, causing consequential damage by the exertion of upwards pressure on things like strips of glass surrounding a false pillar, the sliding glass doors, plywood finishing etc. As a matter of commonsense, one would not expect the sort of equipment I have just enumerated to be much damaged by the action of the floors if there had been no flooding; and there was none.

48. I will deal with the particulars under (C) first of all. As I have remarked, no particulars have been given in the pleadings beyond the statement that the claim is comprised in the global figure of $686,600. When one looks at the way the evidence was presented, it hardly inspires confidence on the part of the Court. The figures for part (C) of the claim comes in the form of two exhibits - Exhibit P11 and Exhibit P12. Exhibit P11 is in two parts:

49. Exhibit P12 is a quotation for electrical and plumbing works which includes e.g. 60 golden bull-eyed lamps for the ceiling at a figure of $18,000. (And yet, it can be seen from the photographs A14, A15, A16 and A17 that these lamps were apparently functioning undamaged on the 23rd of May 1985). The total for the Exhibit P12 claim came to $94,400. The items in the two exhibits I have mentioned - Exhibits P11 and P12 - total $215,900. How they came to be put forward in Court as particulars of the claim for damages is also extraordinary. I mention the following:

50. It is upon such evidence that the Plaintiff's claim essentially lies. In my judgment, such evidence is of no value whatsoever. It was not even clear to me as to the capacity in which Mr. Lee of Hung Wan was being put forward as a witness: as to whether, for example, it was suggested that he was some sort of an expert witness. It would have been better if, for example, a Director of the company, albeit a layman, had said in testimony what might have been wrong with the equipment, rather than a pseudo-expert like Mr. Lee.

51. It may be that I am being too harsh in judging the Plaintiff's claim in relation to the part (C) equipment by the way the case was presented. For there must have been some damage to the electrical installation and plumbing inside the shop as a result of the accident, since some of the installations such as pipes and conduits were under the floor slab. There was evidence that some rewiring would have been necessary, and some new plumbing.

52. As to the equipment such as the hair-dresser's chairs, manicure chairs and such like, there might have been some expenses involved in touching up slight cosmetic damage. There would undoubtedly have been expenses involved in removal, storage, perhaps insurance, transportation for return to the shop, reinstallation. These items would undoubtedly sound in damages. It would therefore be a gross injustice to the Plaintiff after a lengthy trial for the Court to totally reject the claim under part (C) of the pleading simply because of the paucity of relevant material before the Court, particularly when Counsel for the Defendants accept that the items I have just mentioned would be a fair and reasonable basis for some modest award.

53. Now, the Plaintiff's global claim under part (C) as I have mentioned is $215,900. I reject that claim. Mr. Edward Chan, Counsel for the 1st and 2nd Defendants, says that a sum of $6,800 would have been reasonable for the Exhibit 12 claims, and he also concedes that a sum of $20,000 would have been reasonable for the removal of equipment, storage and refitting. Erring perhaps on the side of generosity to the Plaintiffs, in my judgment, an award in a global sum for the matters I have mentioned in relation to the part (C) claim should be $40,000.

54. I will now look at the parts (A) and (B) claims. Although it is not pleaded, if one analyses the parts (A) and (B) claims with reference to Exhibits P10, P11 and P12 one sees that they total $470,700.

55. Now as I have already mentioned, the Particulars of Claim under parts (A) and (B) are clearly based upon the report of Mr. Lee Shue Shing of Messrs. Jones Lang and Wootton.

56. The problem here is that Mr. Lee was never asked to give an estimate of the sums needed to repair the shop. Perhaps he would not have been able to do so in May 1985 when the work on the subsoil beneath the ground floor slab had not yet been done. If he were to give an estimate of the cost of repairs, he probably would have had to conduct a destructive survey, that is to say to examine whether there was any damage to material underneath the floor slab and behind the fascias, and this he was not instructed to do.

57. Now, the Hung Wan quotation for work to be done, Exhibit P10, was not an attempt at assessing the cost of repair at all. It was simply the original quotation for an entire refitting of the shop from scratch, with the figures marked up for the purpose of the present quotation.

58. Now I accept that in some instances, it might be cheaper to replace an item rather than to have it repaired. Wooden panelling is a good example. Nevertheless, it is difficult in many instances to match the items in Exhibit P10 to the claims particularized in parts (A) and (B) of the pleading. For example, photograph A5 shows a panelling along Nga Tsin Wai Road which was undoubtedly buckled. It would not have been unreasonable to have had that replaced. This might have required the entire front panelling, including the cladding for the columns and beams, to have been removed and replaced.

59. To a lesser extent, the same goes for the front along Grampian Road as shown in photograph A6. And yet, it is impossible to find a figure that corresponds exactly to such work in Exhibit P10, unless it is to be found in item 6 Exhibit P10 which on the face of it is little ambiguous.

60. Mr. Lee Kin Kau of Hung Wan in his testimony said that that item 6 did refer to the panelling shown in A5. As there is no other item in Exhibit P10 that could cover such panelling work, I infer that that was so.

61. I propose first of all to deal with the items upon which there is virtually no dispute. They are as follows;

62. Item 2 for plywood panelling and for mirrors, the sum of $15,600.

63. Item 12 for re-laying a new marble floor, a sum of $108,000.

64. Item 21, this is for the electronic sliding door.

65. Much of this was conceded by Counsel for the 1st and 2nd Defendants, but Counsel argued that there was not sufficient evidence that the electronic device for the sliding doors was damaged. However, in my judgment, once the door and the mechanism for the door has to be replaced, as in my judgment it must, then I think it is reasonably necessary to replace the entire mechanism; therefore I would award for this item $48,000.

66. I come now to the partially disputed items. Item 6, this is the slightly ambiguous item which I mentioned earlier. The amount claimed is $21,500 of which the Defendants concede $3,500. In my judgment, the evidence of Mr. Lee of Jones Lang and Wootton and the photographs A5 and A6 do show that the panelling was damaged: that along Nga Tsin Wai Road front substantially damaged, and it would have been reasonable to have that replaced in its entirety. I would, therefore, allow the sum of $21,500 in full.

67. Item 9, this refers to the manager's room. This is also partly conceded by the Defendant. There is no doubt that the floor of the manager's room was substantially affected and this would in turn affect the panelling. However, there is no reason why the entire door had to be replaced; and of the claim of $5,200, I would allow for this item $4,800.

68. Item 10, this relates to the guest room. Now the quotation in Exhibit P10 included the provision of a carpet. In fact as the evidence revealed, the original carpet had been replaced by vinyl tiles which, of course, were destroyed either in the heaving up of the floor or in the subsequent foundation work done by the landlord.

69. I see no basis for differentiating between the cost of carpeting and the cost of vinyl floor-tiling and therefore I would allow the entirety of the sum of $7,800 for item 10.

70. Now this still leaves 16 items in Exhibit P10 in dispute. They add up (if my mathematics be correct) to a total of $264,600. Most of the items do not appear in the particulars of claim as pleaded, and some are manifestly absurd. For example, item 7 which claims $20,000 for making five new pieces of golden aluminium frames for the shop front and other incidental work. There is no evidence whatsoever that any of these window frames were affected by the accident. Item 8 which says "make five sets man-made leather sofa". There is no evidence that any of the man-made leather sofas were damaged in the accident. Item 11 which says "make two new cloth cabinets, three medicine cupboards,two sets of cabinets for workers clothes, three sundry items cabinets, two cupboards for electricity switch boxes, five large size display cabinets for the shop front" with a total claim of $45,000. Apart from some evidence that some cabinets had been distorted as mentioned in Mr. Lee's report, there is no evidence to substantiate such a large claim of $45,000.

71. Now in relation to the disputed items in Exhibit P10 as well as the items in Exhibit P11 and 12. The 3rd Defendant called as an expert witness, a Mr. Leung Kam Pui who is a professional associate of the Royal Institute of Chartered Surveyors working in the Architectural Services Department in Hong Kong Government. He attended the site on the 27th of May 1987 and he took a number of photographs. Some of these photographs are fairly revealing; for example, photograph marked PH23 which shows the massage room with a red carpet on the floor and the furniture inside apparently in an immaculate condition. Photograph PH20 shows the archway delineating the guest room and also shows the ceiling of the shop with the golden bull-eyed lamps removed; the photograph shows the apertures in the ceiling.

72. However, Mr. Leung, making his inspection two years after the event, can hardly be in a position to judge the extent of the damage done by the tort committed in May 1985. He was asked to look at the photographs taken by Mr. Lee Shue Shing in May 1985 attached to the Jones Lang and Wootton report; he expressed the opinion, for example, that because the Jones, Lang and Wootton report made no reference to the ceiling of the shop having been damaged, therefore,. he expressed his "expert opinion" that there was no damage.

73. In my judgment such so-called expert opinion is of no value whatever in a court of law. Mr. Leung can profess no expertise as regards the quality of Mr. Lee's work as a surveyor. Mr. Leung never saw Mr. Lee giving evidence, in Court. Mr. Leung can express no views as to the care with which Mr. Lee conducted his survey: that, as it seems to me, is truly a matter for the judgment of the Court: a judgment not assisted in the making by the expression of opinion of an expert.

74. In my judgment, most of the remaining 16 items of disputed claims in Exhibit P10 do not relate to the damage caused by the mains burst. I have already referred to Items 7, 8 and 11. I will provide two more examples. Item 13 which claims $11,000 for air ducts for the whole shop to be covered by plywood etc. and Item 14; this relates to the massage room; in fact, although Mr. Lee of Hung Wan was a bit ambiguous as to what it relates to, and makes a claim for $20,000 which includes, for example, 3 massage beds, 1 make-up chair; but as I have already indicated, the evidence from the photograph shows the massage room to be virtually untouched. I would, therefore, be inclined to reject these items out of hand as well.

75. But the items which have troubled me are as follows:

76. Items 3, 4 and 5, the dressing tables with mirrors and footrests which were apparently attached to the floor and the cashier desk with a fish tank. There could well have been some damage to these items, though in my judgment not such as to call for total replacement.

77. Items 16 and 17 relate to the toilets and the kitchen.

78. In my judgment, it is very likely that the floor here would have heaved and cracked as well. Now Mr. Lee Shue Shing of Jones Lang and Wootton did not include this in his survey nor in his plan. It is possible that he may have mistaken this area as being outside his survey. Whilst the evidence was slender on these two items, I am inclined to make some allowance for this item as well.

79. Now Mr. Edward Chan, Counsel for the 1st and 2nd Defendants would concede a total of $8,000 for what he calls general touch-up, repair and distortion to furniture and plywood. Now taking those factors into account and making some allowance for the items I have mentioned, I would allow a total of $30,000 for the 16 disputed items.

80. Now this then covers all the heads of claim.For the sake of completeness, it might be helpful if I were to summarize my findings as follows:

81. This makes a total of $235,700 and adding then these awards to what I have summarized above, I make the total sum which I award by way of damages in this case, a sum of $375,700.

82. I shall now hear counsel on the question of interest and on costs.

83. Having heard Counsel, I deal then with the two remaining matters, the question of interest and the question of costs.