P GOPALDAS LTD v. A S WATSON GROUP (HK) LTD t/a FORTRESS AND ANOTHER

HCA 2052/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2052 OF 2012

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J U D G M E N T

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Introduction

1. The plaintiff (“P”) in this action claims damages as a result of a fire accident allegedly caused by a dehumidifier that was purchased from the 1^st defendant (“D1”) as retailer and supplied by the 2^nd defendant (“D2”) as supplier.

Background

2. P is a limited company incorporated in Hong Kong and is/was at all material times the registered owner of Flat 1, 17 floor, Tower 1, Ruby Court, 55 South Bay Road, Hong Kong (“Premises”).  P’s director, Mr Manesh Chandroo Daryanani (“Manesh”), is/was at all material times living in the Premises with his family.  

3. In November 2008, Manesh attended the shop of D1 in Hopewell Centre in Wanchai and purchased from D1 4 Rowenta Vitality Dehumidifiers 20L (collectively “4 Dehumidifiers”).

4. It was P’s case that chattels and fixtures purchased by Manesh for the Premises were reimbursed by P, including the 4 Dehumidifiers, and were thus owned by P, and also some other chattels and fixtures were directly purchased by P[1].

5. According to P, on 10 February 2010, one of the 4 Dehumidifiers which was placed in the master bedroom of the Premises (“Dehumidifier”) was switched on and after about 1½ hours, the Dehumidifier overheated and ignited, causing serious fire and smoke and damage to the Premises and the chattels therein (“Fire Accident”).

6. As a result of the Fire Accident, P claimed it suffered loss and damage.  P had made a claim to the insurers of the Premises Falcon Insurance Company (Hong Kong) Limited (“Falcon”) under a home multicover insurance policy (“Policy”) and P subsequently accepted the adjusted amount of HK$1,517,153.43 as payment from Falcon under the Policy.  

7. P, subrogated by Falcon, issued the writ herein with the endorsed statement of claim on 3 November 2012.  P relied on the following causes of action:

(a)  Tort –– common law negligence;

(b)  Contract –– breach of implied term of merchantable quality under section 16 of Sale of Goods Ordinance, Cap 26.

8. The original amount claimed in the statement of claim was HK$1,767,031.69.  This amount was later adjusted to HK$1,729,433.57, of which HK$1,517,153.43 was the amount adjusted by Mr Dalton Wong (“Dalton”) of Crawford (HK) Ltd (“Crawford”), the loss adjusters appointed by Falcon on the day of the Fire Accident and the balance of HK$212,280.14 was additional claims by P not included in the loss adjustment.

9. Both D1 and D2 (collectively “Ds”) denied liability.  It was also their case that there was contributory negligence on the part of P.

10. P had called 2 witnesses at the trial, namely Manesh and Dalton.  P also relied on an expert report dated 16 March 2010 from a Dr Eric Lim of Safety, Accident, and Failure Experts Ltd (“Expert Report”)[2] who prepared the report on P’s behalf on liability. 

11. Notwithstanding that in the case management questionnaire, Ds had indicated that they would call one Mr Peter Lee and one Mr Jason Kwok (“Jason”) of Cunnigham Lindsey (Hong Kong) Limited (“Cunningham”), the loss adjusters appointed by the insures of D2, there were no witness statements from either, and Ds did not call any witness at the trial, nor did Ds produce any expert report to support their case.

12. The undisputed facts by Ds were:

(i)  The Fire Accident did take place at the Premises on 10 February 2010;

(ii)  P is/was at all material times the registered owner of the Premises.

On Liability

13. The disputed liability issues set out by P’s Counsel Mr Gidwani were as follows:

(i)  Whether the Dehumidifier was the defective dehumidifier in question;

(ii)  If so, whether P had locus standi to claim for the damage caused by the Dehumidifier;

(iii)  If so, whether the Dehumidifier was defective;

(iv)  If so, whether P was contributory negligent in causing the Fire.

14. D2 had made no admission that it was the supplier of the Dehumidifier.

Whether the Dehumidifier was the defective humidifier

15. D1 in its defence had put P to strict proof that the Dehumidifier was purchased from D1 on 8 November 2008.  However, at the trial, Ds no longer disputed that the Dehumidifier was one of the 4 Dehumidifiers purchased from D1 on 8 November 2008, and the main issue was whether the Dehumidifier was defective, and P was put to strict proof of the same.

P’s Locus Standi to claim

16. Ds had challenged P’s locus to make the claim in this action.  D2 had averred in its defence that Manesh had purchased the Dehumidifier in his personal capacity and that there was no contractual relationship between P and D2.  There was no similar averment in D1’s defence save that D1 had made no admission to P’s claims and put P to strict proof.

17. Manesh had said in his witness statement that he bought the 4 Dehumidifiers at a total price of HK$11,484 from D1 and paid for the purchase with his personal American Express credit card (“AE Card”) as P did not issue him with any corporate credit card. P had settled his AE Card payment subsequently.

18. Manesh had produced various documents as evidence that  the 4 Dehumidifiers were purchased for and on account of P, including a sale receipt from D1 showing the sale of the 4 Dehumidifiers on 8 November 2008 together with other items[3] (“Sale Receipt”), copy of the  credit card receipt issued by D1 of 8 November 2008[4], copy of the Manesh’s AE Card statement which stated the date of payment on 8 November 2008 of an amount to D1 for electrical appliance[5], and a copy of P’s relevant bank account statement at UCO Bank (“UCP Bank Statement”)[6]. On the AE Card statement, there was a “paid” chop and a hand written notation “U896388 28/11/08”, which referred to the number of the cheque issued by P to settle Manesh’s AE Card balance, and the amount of the cheque, corresponding with the credit card balance was shown on P’s UCP Bank Statement dated 23 November 2008.

19. Manesh had in his witness statement stated that he was at all material times a director of P and that he and “his family” were allowed by P to live at the Premises.  At the trial, Manesh had further explained that he was/is one of 3 directors of P, and the other two were/are his parents.  He said he was divorced and when he referred to “his family”, he meant his two children who would stay with him in the Premises sometimes during the week and also during weekends.

20. Manesh had said that he was allowed to purchase on the account of P whatever equipment and fittings he wished to buy and put in the Premises, and this had included the Dehumidifier.  He had further explained at the trial that what he meant by “on the account of P” was basically that anything to do with his home was purchased through his company, namely P.

21. P’s UCP Bank Statement showed that P had discharged Manesh’s AE Card balance at the end of the month of the purchase of the 4 Dehumidifiers. 

22. Ds’ Counsel Mr Simon Ho had pointed out many possibilities on why P could have paid Manesh’s AE Card, but Manesh was not cross-examined by Mr Ho on his above evidence, nor was all those possibilities put to Manesh. There was no evidence produced by Ds to contradict what was said by Manesh.

23. I have observed Manesh when he gave evidence, and I find him a truthful witness.  There was no reason to doubt what Manesh had said, that the Dehumidifier or the 4 Dehumidifiers were bought on the account of P and that P had paid for the 4 Dehumidifiers.  I accept Manesh’s evidence.  I find more probable than not the Dehumidifier or the 4 Dehumidifiers were owned by P and I am satisfied that P had/has the locus standi to claim against Ds in the present action both in tort and/or in contract.  

Whether the Dehumidifier was defective

I   Expert Report

24. In the Expert Report, Dr Lim concluded that the Fire Accident had originated from the Dehumidifier as follows:

(i)  The fire was due to the ignition of the pressurized refrigerant that escaped as the process tube in the refrigeration circuit burst;

(ii)  The bursting of the process tube was caused by excessive pressure in the refrigeration line;

(iii)  The excessive pressure was due to continuous running of the compressor as the thermal protector did not function properly to cut off the compressor.

25. Dr Lim was further of the view that the Fire Accident was not caused by electrical fault or the curtains because[7]:

(i)  The curtain as installed could not have blocked the airflow of the dehumidifier and hence could not have contributed to the cause of fire;

(ii)  No signs of electrical arcing could be seen in any of the electrical wirings that remained;

(iii)  There were also no signs of electrical faults on the windings.

26. Finally, Dr Lim also concluded that there was no evidence to suggest that the Dehumidifier had been misused[8].

27. Ds did not adduce any expert evidence to dispute Dr Lim’s findings and conclusions.

II   Whether the use of the Dehumidifier on the day of the Fire Accident was reasonable

28. The weather of the day of the Fire Accident was stated to be “foggy” in the Incident Report prepared by the Hong Kong Fire Services Department[9].

29. The Premises were located in South Bay, near the salty beachside.

30. Manesh’s evidence was that he turned on the Dehumidifier before he left the Premises at 8:00 am on the day of the Fire Accident.  As at that day, the Dehumidifier had only been purchased for about 17 months. 

31. Manesh had said in his witness statement that the management office contacted him stating that there was a fire in the Premises at 9:30 am.  There was no challenge to Manesh’s evidence.  The Fire Services Department received a call at about 9:46 am and the fire was stopped at 10:06 am. I accept Manesh’s evidence that the Dehumidifier had been turned on for about 1½ hours, or less than 2 hours, when the Fire Accident occurred. 

32. As concluded by Dr Lim, there was no evidence of misuse of the Dehumidifier. 

33. There was no challenge by Ds to the Expert Report, and Dr Lim was not required to attend the trial for cross examination.  I accept what was said in the Expert Report.

34. In light of the above, I find that there was no sufficient evidence that use for less than 2 hours would be unreasonable use or overuse nor was there any other evidence that there had been any unreasonable use or overuse of the Dehumidifier on the day of the Fire Accident.  I also find there was no sufficient evidence that it was reasonably foreseeable to P/Manesh that the Dehumidifier would catch fire on 10 February 2010.

III   Whether the risk of fire was foreseeable to Ds

35. It can be seen from an Electrical and Mechanical Services Department recall announcement[10] that Rowenta had given a voluntary recall on 25 May 2009 in relation to its dehumidifiers of Model No DH3020 and week codes 0108, 1108, 1908, 3108 stating that “It was found that the internal motor starting capacitor may have overheating problem during prolonged operation of the dehumidifier, posing a potential risk of electric short circuit” (“Recall Announcement”).

36. Further, D2 had issued safety recall notices to retailers on 22 May 2009 of Rowenta dehumidifiers, Reference No DH3022 (Model type DH3020)[11] (“Recall Notice”).

37. In the Recall Notice, it was stated: “Our quality control checks have identified a potential component failure with the dehumidifiers [DH 3022 (Model type DH3020)] … All other ROWENTA dehumidifiers are unaffected … Only dehumidifiers received by retailers after February2008 will be affected.  If you still have stock of this product, please block them.  Our sales personnel will contact you shortly …”[12]

38. There was some confusion as to whether the model of the dehumidifiers in the Recall Announcement and the Recall Notice was of the same model as the 4 Dehumidifiers bought by Manesh.

39. On the Sale Receipt, the description of the 4 Dehumidifiers was described as: “rowenta dh3022, 20 l/day, tank ARWTDH3022”.  So far as I can see, there was nothing actually on the Sale Receipt to indicate that “DH3022” was a model number instead of a reference number, which P seemed to think.

40. In the Recall Notice, the subject matter was “ROWENTA dehumidifier, reference no DH3022 (model type DH3020)”, and the Chinese was “好運達抽濕機，型號DH3022 型號類別DH3020”.  Further on the attachment, on the “rating plate” the “Reference” started with the numbers “Ref 003022 …”[13]

41. The Recall Announcement and the Recall Notices, together with the specifications sheet for Rowenta dehumidifiers DH3022 (“Specifications Sheet”) and the instructions for use for Rowenta Vitality models (“Instructions for Use”)[14] were produced by D2 in connection with and in defence to P’s claims in the present action and when D2 filed its list of documents in February 2013.

42. On the Specifications Sheet, there was a picture showing the front of the dehumidifier with the words above “ROWENTA Vitality” and underneath, it stated “Dehumidifier DH3022”, and 4 signs, indicating 20 litres/day, 5.4 litre water tank, compact design and electronic regulation.  Although “DH3022” appeared after “Dehumidifier”, there was again nothing to indicate whether that was a model number, or a reference number.

43. In D2’s defence, it had relied on the Instructions for Use and pleaded that the Fire Accident was caused wholly or contributed to by the negligence on the part of P.  The Instructions for Use relied on and produced by D2 was in fact for DH3010/DH3020.  This would, in my view, indicate that D2 had accepted that the applicable Instructions for Use for the Dehumidifier were those for DH3020, since it was not disputed that the Dehumidifier was not of model number DH3010, which was the 14 litres/day model.  As seen on the Sales Receipt, the 4 Dehumidifiers were of 20 l/day capacity.  In photograph number 13[15] showing one of the other 4 Dehumidifiers, the specifications label thereon indicated specifications for the two models, namely DH3010 for 14 l/day and DH3020 for 20 l/day, and as I have said, the 4 Dehumidifiers were of 20 l/day capacity, the label would thus indicate that they were of DH3020 model.

44. In fact, in Mr Ho’s opening submissions, he had referred to D2 having issued the Recall Notices in respect of the subject dehumidifiers to the outside world by advertisement in newspapers, in submitting that P had been contributorily negligent.

45. There was no evidence from Ds that the Dehumidifier was not of the type/model in the Recall Announcement or the Recall Notices, nor was this Ds’ case.  

46. Having considered all the above, in my view, DH3022 was more probable than not, a reference number and that the actual model number of the 4 Dehumidifiers was DH3020, and that the 4 Dehumidifiers including the Dehumidifier were more probable than not, of the same type/model as the dehumidifier of reference number DH3022 and model number DH3020 in the Recall Announcement and the Recall Notices.  

47. In the Recall Notices, D2 had referred to itself as the brand owner and supplier of the Rowenta dehumidifier of reference no DH3022 (model type DH3020).  Even though D2 did not admit in its defence that it was the supplier of the Dehumidifier, and had put P to strict proof thereof, there had been no particulars provided by D2, or any evidence from D2 that it was not the supplier.  I am satisfied that D2 was the supplier of the Dehumidifier and/or the other 3 of the 4 Dehumidifiers.

48. As pointed out by Mr Gidwani, what was stated in the Recall Announcement seemed be consistent with the cause of the Fire Accident as set out in the Expert Report, although a copy of the Recall Announcement was not provided to Dr Lim at the time he prepared the Export Report, since the Recall Announcement was only disclosed by D2 after the commencement of the present action in 2012.

49. The Recall Notice further stated: “We would like to ask for your [the retailer] help to provide consumer information that you may have so that we can contact the consumers directly to arrange a free product maintenance service”.

50. There was no evidence from D1 that it had received the Recall Notice from D2, or that having received the Recall Notice from D2, D1 had provided any consumer information to D2.  There was also no evidence from D2 that it had been provided with consumer information by D1.  Further, there was no evidence of any steps actually taken by either Ds to contact consumers of the dehumidifiers in question.  In particular, there was no evidence that either D1 or D2 had contacted Manesh pursuant to the Recall Notice in relation to the 4 Dehumidifiers.

51. The Sales Receipt from D1 clearly showed P’s/Manesh’s contact information thereon, namely Manesh’s mobile phone number and the delivery address being the address of the Premises. 

52. Manesh had stated in his witness statement that he had never received the Recall Notice, or any safety recall notice from the D1 or D2. Mr Ho had not cross-examined Manesh or put Ds’ case to Manesh regarding the Recall Notice, or any safety recall notice or whether Manesh had been contacted by D1 and/or D2.  I accept what Manesh had said, that he had never been contacted by D1 and/or D2 regarding the Recall Notice.

53. Having considered the above, I find that both D1 as retailer and D2 as supplier of the Dehumidifier had knowledge in 2009 of the risk of the fire which could be caused by the Dehumidifier, and that the Fire Accident was foreseeable by both Ds because there was a known and existing problem.

54. The Dehumidifier was only purchased about 17 months prior to the Fire Accident.  It should not have been difficult for D1 to check its records as to the purchasers of dehumidifiers referred to in the Recall Announcement and/or Recall Notices, and to provide the contact information of P/Manesh to D2, after the Recall Announcement and/or the Recall Notices.  There was no explanation/evidence from D1 and/or D2 as to why D1 had failed to do so, or if it had, why D2 had not contacted P/Manesh.

55. In any event, having considered all the evidence, I find the Dehumidifier was defective, and was not suitable or fit for its intended purpose of reducing the level of humidity in the air and/or was not of merchantable quality within s16 of the Sale of Goods Ordinance Cap 26. 

56. I am also satisfied that there had been negligence on the part and/or breach of the implied terms of contract on the part of D1 and/or D2, by (i) failing to take reasonable steps to check and ensure that the Dehumidifier was safe for its purpose, and by allowing pressurized refrigerant from the Dehumidifier to escape from the process tube which burst due to excessive pressure in the refrigeration line and failing to ensure that the thermal protector of the Dehumidifier would operate normally and cut out the electrical circuit of the compressor when the compressor rose to a high temperature, and by (ii) exposing the Premises and contents therein to a risk of damage of which D1 and/or D2 knew or ought to have known.

Contributory Negligence

57. Ds had pleaded contributory negligence on the part of P, namely P failed to:

(i)   Take any sufficient care in ensuring the Premises had effective and operational fuse at the socket panel or circuit- breaker;

(ii)   Turn off the Dehumidifier and unplug it when Manesh was away;

(iii)   Heed warnings not to use the Dehumidifier near inflammable objects and materials like curtains.

58. There was no sufficient evidence to support (i) above.  Mr Ho’s submissions at the trial concentrated mainly on (ii) and (iii) above.

59. Mr Ho had submitted that P was contributorily negligent in, firstly, leaving the Dehumidifier turned on and unattended by anybody while Manesh was away from the Premises.

60. Manesh had said that there was no one inside the Premises when he left the Premises in the morning of the date of accident. Mr Ho submitted that it would be prudent for one to have electrical appliances of such kind like a dehumidifier at home switched off when no one was at home, as it was common knowledge when the accumulated dehumidified water inside the dehumidifier was full, it would become dangerous or otherwise unsafe to let such machine run on, and that it could overheat.

61. Mr Ho further submitted that even if the Fire Accident was caused by defects of the Dehumidifier, had Manesh switched off the Dehumidifier, the Fire Accident would not have happened.

62. Mr Ho had referred the court to the case of Siu Chi Moon v Rainfield Design & Associates Ltd [1999] 2 HKC 306, in which Mortimer VP had quoted the principle as set out by Lord Denning in Davies v Swan Moteo Co (Swansea) Ltd [1949] 2 KB 291:

“While causation is the decisive factor in determining whether there should be a reduced amount payable to the plaintiff, nevertheless the amount of the reduction does not depend solely on the degree of causation. The amount of reduction is such an amount as may be found by the court to be ‘just and equitable’, having regard to the claimant’s share in the responsibility for the damage. This involves a consideration, not only of the causative potency of a particular factor, but also of its blameworthiness[16].”

63. It was Mr Ho’s submission that it would be fair and reasonable for P to take a reasonable portion of blame for the happening of the accident.

64. As stated earlier, there was no or no sufficient evidence of misuse, unreasonable use or overuse of the Dehumidifier by Manesh on the day of the Fire Accident and the Dehumidifier was purchased only about 17 months ago.  As Mr Gidwani had pointed out, and which I accept, a dehumidifier is a “seasonal” electronic equipment and would not be required for all 4 seasons.  There was no sufficient evidence of any misuse, unreasonable use or overuse of the Dehumidifier by Manesh during the 17 months since its purchase.

65. Further, as mentioned earlier, the weather was foggy on the day of the Fire Accident.  Manesh had said at the trial it was very humid on the day of the Fire Accident and he lived near the sea, and that a lot of people would leave their dehumidifiers on, and that he required the Dehumidifier to be turned on prior to his going to work.

66. On the Instructions For Use, under the heading “VERY IMPORTANT”, it was stated, among others, “If you are away for a long time turn off the appliance with the button … and unplug it”[17].

67. Mr Gidwani submitted that the above instruction was referring to cases of going away for extended period of time, such as on vacation, and that the Fire Accident happened only about one and half hours after Manesh had turned on the Dehumidifier and left home.

68. Mr Gidwani had also submitted that it would be unreasonable to suggest that the Dehumidifier should only be operated when there was a human being monitoring it at all times, since the machine would not be a reasonably practical one for the purpose of dehumidifying the entire Premises, which was a spacious unit.

69. Mr Gidwani had pointed out that it was fortunate that no one, such as the children, was at home for otherwise, there could be more undesirable results.

70. There was no evidence from Ds that had there been someone inside the Premises, the Fire Accident could have been avoided or that the fire could have been stopped before causing any damage.  There was no evidence as to when the fire in the Dehumidifier started or how long the fire had been burning before it was stopped.

71. There was also no evidence from D2 as to what would be “a long time”. I have found that there had been no misuse or unreasonable use or overuse of the Dehumidifier, and in my view, turning on the Dehumidifier for less than 2 hours would not be “a long time”.

72. Another instruction under the “VERY IMPORTANT” heading in the Instructions for Use, was “Do not use your appliance near inflammable objects and materials (curtains, aerosole, solvents etc)”.

73. Mr Ho had submitted that it was common sense and would accord with one’s prudence that a dehumidifier should not be kept too close to the combustible material, as fire would need combustible materials to spread, and that had the Dehumidifier been kept at a safe distance away from these combustible material, there was a substantial chance that the extent of fire damage would be reduced.

74. Manesh agreed that the Dehumidifier was placed close to the wall of the master bedroom, and there was curtain set at the wall area there. Mr Ho had put to Manesh that it was unwise and unreasonable to place the Dehumidifier close to the curtain.  Manesh, however, said that the Dehumidifier was at least one metre away from the curtains. Manesh said he could not see any issue in relation to this and he could not put the Dehumidifier in the middle of the master bedroom. 

75. Mr Ho submitted that looking at its remnants of the Dehumidifier in photographs no 1 and 2[18], the Dehumidifier appeared to be closer to the wall than what Manesh had estimated.

76. As stated in the Expert Report, Dr Lim was of the opinion that, judging from the fact that the burnt residue of the curtain was found on the window bay, and the absence of any significant flaming attack on the wall below the window bay, the curtain as installed could not have blocked the airflow of the Dehumidifier and hence could not have contributed to the cause of fire[19]. 

77. What Manesh had said was the Dehumidifier was one metre away from the curtains, not from the wall.  No one had asked Manesh what kind of curtains he had in the master bedroom, whether they were above the window bay or floor length, or whether they were drawn apart. The curtains indicated in the photographs for other rooms in the Premises were not of floor length.

78. In any event, from what Dr Lim had said, as there was no significant flaming attack on the wall below the window, the curtains, even if floor length, would seem to have been drawn apart, in which case,  judging from the photographs, the Dehumidifier could have been a metre away from the curtains.

79. There was no evidence from Ds at all as to what a safe distance should be, bearing in mind the Premises was spacious, compared to the majority of flats in Hong Kong.

80. I do not find that there was sufficient evidence that the Dehumidifier was “near” the curtains, at the time of the Fire Accident.  

81. Mr Ho had also referred to the Recall Notices in his opening submissions in relation to liability/contributory negligence.  It was not quite clear as to how the issue of the Recall Notices would have assisted Ds in establishing contributory negligence on P’s part. 

82. Mr Gidwani submitted if it was Ds’ case that P should have notice of the Recall Notices and should have returned the Dehumidifier before the Fire, this was not put to Manesh at the trial, nor was Manesh cross examined on the Recall Notices.  It was in any event not Ds’ pleaded case.

83. Mr Gidwani further submitted that the existence of the Recall Notices in fact amounted to admission that the 4 Dehumidifiers were defective.  It was also Mr Gidwani’s submission that the mode of publication of the Recall Notices, which was only published once in the Standard on 26 May 2009, and the rest all in Chinese newspapers, was insufficient for English speaking customers.  As I have said earlier, there was no evidence that any one from D1/D2 had contacted Manesh about the Recall Announcement or Recall Notices.

84. I accept Mr Gidwani’s submission that the retailer and/or the supplier should take the extra step to reach the consumers and inform them of the safety issue, especially one of such severity as to possible overheat causing fire, and as I have said earlier, it should not have been difficult for them to do so as the purchase of the Dehumidifier was relatively recent at the time of the Recall Announcement/Recall Notices.

85. It was also Mr Gidwani’s submission that P was/is a limited company and could not have committed the contributory negligence as pleaded by Ds, and if Ds wished to pursue contributory negligence, they should have joined Manesh as a their party, but they did not do so.

86. The burden of proving contributory negligence rested on Ds.  Having considered the evidence, I am not satisfied that P had been contributorily negligent, whether wholly or in part.

Conclusion on Liability

87. Having considered the above, I find D1 and D2 jointly and severally liable to P for negligence and/or breach of implied term of contract of merchantable quality in selling the defective Dehumidifier to P which caused the Fire Accident and had exposed the Premises and contents therein to a risk of damage of which D1 and/or D2 ought to have known.  I find that the Fire Accident had caused P loss and damage.

Quantum

88. Mr Ho had submitted a “Table of Disputed Amounts” (“Table”) which was divided into:

Part A –– Personal Chattels

Part B –– Personal Loss of Manesh and his family members

Part C –– Claimed losses which were excessive or otherwise unreasonable

Part D –– Additional items claimed by P of HK$212,280

Part A –– Personal Chattels

89. The issue over the ownership of the chattels inside the Premises at the time of the Fire Accident was a hotly disputed issue.

90. The items claimed under Part A totaled HK$343,393.50, which were made up of 7 items as follows:

(i)  Speakers;

(ii)  Re-installation of audio-video equipment and digital music system (“AV Equipment”);

(iii)  Purchase of fabric, re-upholstery and making of sofa, chairs etc;

(iv)  Purchase of mattresses, bases;

(v)  Purchase of fabric, making of sheer blinds and curtains etc;

(vi)  Making of TV cabinets;

(vii)  Purchase of the AV Equipment;

91. Mr Ho pointed out that although Manesh had said whatever equipment and fittings that he wished to buy and put in the Premises, he was allowed to purchase on the account of P, Manesh did not state what specific items inside the Premises at the time of the Fire Accident, apart from the 4 Dehumidifiers, had actually been purchased by him by credit card and/or that such was settled by P.

92. Mr Ho had submitted out that there could be many reasons behind P’s settlement of Manesh’s credit card balances, for example, this could be part of Manesh’s remuneration package as a director, or Manesh could be allowed to purchase on account of P as short-term loan from P, or other many reasonable possibilities, and that the payment made on P’s account for purchase of fitting and equipment inside the Premises did not necessarily suggest ownership on P’s part.  Mr Ho further pointed out that there was no evidence of any legal obligation on P’s part to provide the Premises furnished with all the chattels in question.

93. Mr Ho had referred to a pre-action letter dated 31 August 2011 from P’s solicitors which referred to the Policy[20] and that the name of the “Insured” on the Policy was “P Gopaldas Ltd and/or Daryanani CG”.  It was Mr Ho’s submission that there was no evidence as to who Daryanani CG. was, and Manesh’s initials would be Daryanani CM.

94. Mr Ho submitted that there had been no relevant audited reports or invoices of purchase which P had the duty to keep record for accounting and taxation purpose showing P’s ownership of the chattels.  Further, P failed to produce any other bank statements to show P had reimbursed Manesh or paid for the purchases of all or any of the chattels inside the Premises at the time of the Fire Accident.

95. There was no evidence showing when P became the owner of the Premises, and for how long Manesh and his two children had been allowed to reside at the Premises, and that there could be a reasonable possibility that before Manesh moved in, the chattels had already been there inside the Premises.

96. Mr Ho had referred this court to Rhesa Shipping SA v Edmunds (‘Popi M’) [1985] 1 WLR 948 (HL).  That was a case where the plaintiffs claimed against the hull underwriters in respect of the loss of a vessel.  The plaintiffs at the trial advanced as an explanation for the loss of a collision with an unidentified, moving, submerged submarine, which was never detected or surfaced.  The trial judge made no finding concerning the seaworthiness of the vessel and although he regarded the plaintiffs’ case as being inherently improbable he held nevertheless that the plaintiffs’ submarine hypothesis had to be accepted, on the balance of probabilities, as the explanation for the vessel’s loss. 

97. The House of Lords allowed the appeal by the defendants and had said per curiam, among other things, that the burden of proving on a balance of probabilities that a ship was lost by perils of the sea was and remained throughout on the ship owners, and although it was open to the underwriters to suggest and seek to prove some other cause of loss, there was no obligation on them to do so, and moreover, if they chose to do so, there was no obligation on them to prove, even on a balance of probabilities, the truth of their alternative case.

98. As I have mentioned earlier, D2 in its defence had averred that Manesh purchased the 4 Dehumidifiersin his personal capacity.  D2 was only referring to the 4 Dehumidifiers in such averment.  So far as the loss and damage pleaded by P, neither of the Ds made any admission and had simply put P to strict proof, without positively pleading their own case.

99. There were no applications for specific discovery by Ds, nor were there any requests from them for further or better particulars, nor were there any interrogatories filed by them.

100. I accept that Manesh’s evidence was general in relation to the equipment and fittings that he wished to buy and put in the Premises, and he did not elaborate on the ownership of individual items, such as the AV Equipment, the TV sets, speakers etc and other furniture.  

101. Manesh was, however, not cross examined on his evidence about the chattels by Mr Ho.  In particular, Manesh was not cross-examined on what he had said about the chattels inside the Premises at the time of the Fire Accident, nor on the many possibilities raised by Mr Ho only in his closing submissions.

102. Looking at the month of the purchase of the 4 Dehumidifiers, which was prior to the Fire Incident, the UCP Bank statement showed that at the end of the month, all Manesh’s expenses incurred by his AE Card, including the purchase of the 4 Dehumidifiers, were promptly discharged by P.  This would be consistent with what Manesh had said, that P would pay for whatever purchases made by Manesh and that the purchases of chattels were on the account of P.  I have earlier found that the 4 Dehumidifiers were owned by P.  

103. P’s bank statements also showed that after the Fire Accident, all renovations/replacement items/repairs etc had been paid by P.

104. P was named as one of two names of the Insured on the Policy.  The Policy was a home multicover insurance policy, and Dalton had referred to visiting the Premises on the date of the Fire Accident to inspect the damage to the Premises and the contents, and met with Manesh.  It was further Dalton’s evidence that eventually Paccepted his adjusted amount as reimbursement under the Policy[21].  Dalton was clearly dealing with P as the Insured, and not the other named Insured, and it was P to which the payments from Falcon of HK$1,517.153.43 were made under the Policy.  Such payments had included the adjusted amounts for those items/chattels in Part A. 

105. Further, P being the Insured would indicate that P had insurable interest in the contents inside the Premises.

106. Having considered all the above, on a balance of probabilities, I accept P’s case that the chattels and furniture at the time of the Fire Accident had been paid by P and belonged to and owned by P. 

Part B –– Personal losses of Manesh

107. This was in relation to the alternative accommodation costs for Manesh and his family living in Parkview for 6 months for HK$408,000.  Mr Ho submitted that there was no evidence that P being a separate legal entity had any need to incur such expenses or it had any legal obligation to discharge such expenses, and that the loss was not P’s own loss.

108. Manesh was not cross examined on his evidence that he was/is a director of P, and that he and his family were allowed to live in the Premises by P.  The Sale Receipt showed that Manesh was living in the Premises at the time of the purchase of the 4 Dehumidifiers, and Manesh had thus been provided with accommodation by P for at least some 17 months prior to the Fire Accident. 

109. I am satisfied on a balance of probability that the Premises, which were owned by P, were for the residential purposes of P’s director who had been living there for some time. 

110. I have found that the Dehumidifier was defective and had caused the Fire Accident.  After the Fire Accident, there had to be major renovations and replacement of damaged/destroyed items was required before the Premises became inhabitable.  P’s case was that the Premises could not return to its pre-accident state for 6 months. Mr Gidwani pointed out that this was shortly before Chinese New Year 2010, and Manesh and his family suddenly became homeless.

111. Mr Gidwani had submitted that the present situation would not be different from damage of a company car for use of a director, during the repair of which, the company would have to rent another car for use for the company director.  

112. I accept Mr Gidwani’s submission and find that as a result of the Fire Accident, P had been deprived of the availability of the Premises  for P to provide for the residence of its director, and that P had to arrange for temporary alternative accommodation for its director and had to pay the rent for such accommodation. P had suffered loss and was entitled to make a claim for the costs of such alternative accommodation.

113. The Premises were about 2,200 sq ft.  By comparison, the family suite which P rented at Hong Kong Parkview was only 1,300 sq ft. HK Parkview is in about the same area, ie the south side of HK Island. There was no evidence from Ds that the sum claimed by P was unreasonable, nor was this put to Manesh.

114. The period claimed was 6 months.  Manesh had stayed with his parents temporarily until early March 2010.  Chinese New Year was in February 2010, and Manesh’s evidence was that he could not obtain a quotation from the interior designer Gail Arlidge Design Ltd (“GA”) until end of March 2010, and that the Premises also had to be preserved for Ds’ loss adjusters.

115. The quotation from GA was sent to Dalton on 31 March 2010 and Dalton had carried out a joint inspection of the Premises with D2’s loss adjuster Jason on 13 April 2010.  Thus, Mr Gidwani submitted that the start of renovation in late May/early June was reasonable.  Dalton then attended the Premises again on 3 May 2010 for further inspection. Dalton had estimated 4 months for renovation and claim handling should be adequate[22].  

116. The renovations were completed in September 2010 and Manesh moved out of Parkview on 12 September 2010.

117. There had been no evidence from Ds to show what would be the reasonable time required for renovation.

118. Notwithstanding this, I am of the view that P/GA could have come up with a quotation earlier than end of March 2010, say by about mid March 2010.  I am also of the view that the renovation could have started earlier say by mid April 2010.  Having considered the evidence, I agree with Dalton’s adjustment, and I find that a reasonable period was 4 months.

Part C –– Claimed losses excessive or otherwise unreasonable

Generally

119. Mr Ho submitted that as P had produced no evidence on the diminished value of the Premises, it was pursuing for the costs of its reinstatement only.  Ds agreed that P could claim costs of its reinstatement (ie its renovation costs) but said such should be subject to the deduction of any unnecessarily incurred items and the reasonableness of quantum. 

120. Mr Ho had referred to McGregor on Damages, 19^th ed. As stated by the learned author therein, the normal measure of damages is the amount by which the value of the goods damaged has been diminished, and this, in ship collision cases, has been invariably been taken as the reasonable cost of repair, and in case of goods other than ships, the cost of repair has now become established, as prima facie, the correct measure of the claimant’s loss[23].  Further, the method of assessing the cost of repair has been elaborated in a number of cases: (1) The cost of repair must be reasonable, both in that the work must be necessary and the charges must not be extravagant, and (2) the costs of a complete repair of all the damage is recoverable by the claimant notwithstanding that the result of a complete repair may be to render the ship more valuable that she was before the collision[24].

121. Further in the case of destruction, the normal measure of damages is the market value of the goods destroyed at the time and place of destruction.  In shipping cases, the basis of putting the claimant into the position he would have been in had the collision not occurred, which is what is required to effect restitution in integrum is the award of the market value of the lost ship, and with this sum the claimant can generally obtain a replacement.  Should the replacement cost be more than the market value, that cost is still recoverable if it is reasonable to replace[25]. 

122. Mr Ho had also referred to the following paragraphs in the Law of Damages(2^nd ed)dealing with ‘Damage to Chattels’ –

“14.04 Where there is a ready market in chattels of the relevant sort, the general measure of damages for destruction is that market value … Assuming (as is normally the case) that the chattel is a used chattel, the court must do its best to assess its value in that state, using evidence of valuation experts, comparable sales and similar guides. Other means of setting value, such as taking the price of new chattel and then deducting depreciation, may be guides to the market value; …

…

‘14.08 This is not, of course, to say that the costs of replacing goods can never be claimed: on the contrary, it often can. But certain conditions have to be established in order to bring such a claim,and it is submitted that it is best regarded as a form of non-standard or consequential loss.’

…

‘14.12 The normal measure of damages for destruction of a chattel, it was suggested above, was its value to the claimant: ie the amount the claimant could have sold it for had he been minded to do so. If, however, the claimant (a) intends to replace the chattel and (b) would not be acting unreasonably in doing, then it is suggested he can recover the costs of doing this. …’

‘14.13  … But replacement cost may be available even though the only practical means of replacing the lost asset so is by buying an entirely new one or having an equivalent custom-made.  This may happen, for example, with rare of specialised goods such an individually-configured machine tools …’ (see: Dominion Mosaics, see also : Bacon v Cooper (Metal) Ltd [1982] 1 All ER 397)”

123. Mr Ho had submitted that in the light of above legal principles, the ultimate question for the court to decide in assessing the damages for chattels damaged beyond repair would be the value of such chattels at the time of the fire accident.  Further, in arriving at such value, it was Mr Ho’s submissions that the court could allow the replacement costs ––

(i)  if P could discharge its burden to satisfactorily demonstrate to the court that it was reasonable to replace those items of chattels under the circumstances of this case;

(ii)  Even so, the court is entitled to and should make such necessary deductions as it sees appropriate by taking into account the relevant factors on this issue, including but not limited to the fact that the chattels damaged by the fire were used items, which were replaced with brand new ones.  The court would be entitled to make such appropriate deduction to reflect the element of betterment when assessing the replacement costs for damage to chattel beyond repair.  Further, if the claimant has a choice to opt for methods of reinstatement with and without betterment, and opted for the former, the court should be entitled to make a fair discount on the costs of reinstatement actually incurred by the claimant.

124. On betterment, Mr Ho also referred the court to the following paragraphs in The Law of Damages(2^nded), in the Chapter on Physical Damage to Land’ under the discussion of ‘betterment’, the learned editors had said ––

“12.31 A claimant who is awarded costs of relocation may end up with premises that are more valuable than his original ones; similarly reconstruction to modern standards may well yield a better structure than that which went before. Such betterment, however, is normally out of account …

12.32 On the other hand, these cases do concern what was effectively forced betterment. If a claimant had a choice of replacing destroyed premises with roughly equivalent ones or different but better ones, and chooses the latter, there is much to be said about making a deduction for the claimant’s betterment in that situation.” (emphasis added)

125. Mr Ho submitted that, according to the authorities, the aforesaid general rule on betterment applies to cases where the court is required to assess the damage to real property or to assess the costs for damaged chattel that requires repair (such as situations faced by the Court in Harbour Front Investments Ltd and Wong Ping Mui)[26].  Mr Ho further submitted that when it comes to the assessment of costs of a total replacement for damaged chattel beyond repair, there should be no hard and fast rule of no discount for betterment.

126. There was no real dispute between the parties over the above general principles. 

127. It was Mr Ho’s submission that P had not clearly or properly shown how the newly done renovation work matched with the original state of renovation before the Fire Accident.  Further, he pointed out that the photographs showed that the pre-accident renovation appeared to be quite old fashioned and some parts of the Premises already ran into dilapidation and some areas were only minimally affected by the Fire Accident.  As for the damage to chattels beyond repair, Mr Ho submitted that the court should not be asked to allow “replacement costs” neglecting the basic measure of damages in such case should be the chattel’s value at the time of its loss.

GA’s design fee and handling fee

128. P’s interior designer GA had charged a design fee of 20% (“Design Fee”) and/or a handling fee of 5% (“Handling Fee”) for various items in its invoices.  As a start, Mr Ho’s submission was that all Designer Fees or Handling Fees charged by GA should be deducted from every item of claim involving such element.  He submitted that the charging of Designer Fee was not sound or reasonable because prima facie, GA had already included their profit elements when charging for each individual items of work described in the master quotation (“Master Quotation”)[27].

129. As pointed out by Mr Gidwani, P is a limited company and would need someone to perform the renovation work on its behalf.  It was Manesh’s evidence that he needed to work and could not oversee renovation himself, and did not know how to oversee the renovation of such scale by himself, and that it was necessary to instruct GA to oversee the whole renovation of the Premises.  GA was able to obtain good discount rates on materials to be purchased and GA was also engaged to perform repair/making of furniture.  As stated in the Master Quotation, GA charged 20% for Design Fee on each progressive payment for work done and charged 5% for Handling Fee for items purchased.

130. In Dalton’s witness statement, he had stated that he considered the reasonable charge for the Design Fee for renovation work was in the range of 5% to 15%, and for complicated work, 20% was justified.  As for the Handling Fee, Dalton considered the reasonable charge was in the range of 5% to 15%.  At the trial, Dalton had further explained that the source of his reference for what he said was from information he had obtained on the internet, from shops along Lockhart Road selling renovation materials and from other cases in which his colleagues who handled similar items in other adjustment cases and who had dealt with design companies.

131. Mr Ho had submitted that what Dalton said was opinion evidence and was inadmissible, as he was not an expert witness.  Further, Dalton’s mandate in adjusting the losses claimed by P was pursuant to the Policy, and the terms of which were unknown to the court, and by nature was different from the present exercise of assessment.

132. Dalton was working for Crawford as a claims manager at the time of the Fire Accident, and he was an associate director of Crawford at the time of the trial.

133. From the start, Dalton had been actively involved in this case.  It was Mr Ho’s submission that Dalton had an interest to see the amount he adjusted would be fully allowed by the Court, and thus his evidence given at the trial would be given with a biased favour for P.  Mr Ho further submitted that the adjustments made by Dalton were arbitrary, without properly identifying what objective and concrete market data he had referred to before making his adjustments.  

134. Dalton had said at the trial that when making adjustments, he had to consider the insurance company Falcon’s interest as well.  At the time of P’s claim under the Policy against Falcon, and payment by Falcon, there was no certainty that P/Falcon could succeed with its present claim against Ds which had not even been lodged.  I accept what was submitted by Mr Gidwani, it would be in the interest of Falcon to be stringent with the adjustment so that the claim would be adjusted to a minimal figure to be reimbursed by Falcon, and that was the purpose of Falcon appointing Crawford/Dalton.

135. Dalton gave evidence as P’s witness, and no doubt the purpose of his giving evidence was to support P’s and/or Falcon’s subrogated claim.  I accept Dalton was not giving expert evidence.  Dalton was, however, only explaining why he had allowed the Design Fee/Handling Fee in his adjustment and I do not see why what he said was inadmissible.  Notwithstanding Ds’ challenge to what Dalton had said about the Design Fee/Handling Fee, Dalton was not cross-examined on this issue, nor was it put to Dalton that the Design Fee/Handling Fee was unreasonable.

136. Further, notwithstanding that D2’s own insurers had appointed loss adjusters Cunningham and Jason of Cunningham had in fact inspected the Premises with Dalton, D2 chose not to call Jason or any representative from Cunningham. There was no evidence from Ds at all to contradict Dalton’s evidence of the range of Design Fee/Handling Fee charged by a designer, nor was there any challenge to Manesh’s evidence that P had paid the Design Fee/Handling Fee to GA.

137. I find Dalton a truthful witness, and have no reason to doubt what he said.  He had made researches before considering whether to make adjustments.  I accept his evidence and find the Design Fee of 20% and the Handling Fee of 5% charged by GA, as claimed by P, were reasonable.  I also accept Manesh’s evidence that it was necessary and reasonable for P to appoint GA. 

Disputed Items

138. I will first of all consider whether the disputed items under Part C were necessarily and reasonably incurred, before considering whether there should be a discount for betterment or otherwise.  There were 4 main headings under Part C:

(i)  Renovation

(ii)  Purchased Items

(iii)  Air-conditioning Works

(iv)  Furniture & Others

I  Renovation

139. Under “Renovation”, there were 3 items, the largest item was for purchase of floor planks.  The amount claimed was a total of HK$110,321.56, being HK$88,064.51 @HK$120/sq ft and another HK$22,064.31 for Design Fee.  Although initially, there was challenge to the part claimed for the floor planks, at the closing submissions, Ds’ only challenge was towards the Design Fee.  I have earlier found the Design Fee reasonable, and I find this item necessarily and reasonably incurred. 

140. One of the 3 items was the purchase of lighting switches and sockets, and the proposed deduction was only in relation to the Handling Fee of 5%.  The amount stated in Part C of HK$5,984.20 was in fact a part payment only, as can be seen later in the judgment, the total was HK$7,541.01.  There was no evidence from Ds to challenge this item except for the Handling Fee, nor was Manesh/Dalton cross examined on the item.  As I have earlier allowed the Handling Fee, I find this item necessary and the amount incurred for this item reasonable.

141. The remaining of the 3 items was no longer challenged in Mr Ho’s revised proposed deductions for Part C.

II  Purchased Items

142. The items included purchase of toilets, basins etc, kitchen appliances, installation of formica countertop, and purchase of tiles.  For the toilets, basins etc, kitchen appliances, only cleaning costs were allowed by Dalton.  The total deductions proposed by Mr Ho were HK$13,459.50.

143. Dalton in his witness statement had pointed out that the toilets, basins etc, and kitchen appliances, were covered with soot and were partially damaged, and only lump sum allowance was made as cleaning costs.  The original claimed amount for the toilets, basins etc was HK$50,000, and the adjusted amount allowed for cleaning was HK$8,000. Dalton had explained that the reasonable daily wage for the cleaners would be HK$600 – $800 per day.  Dalton said he had a dispute with Manesh for a long time over this item, and had to strike a balance how to get consensus from Falcon and from Manesh.  

144. It was suggested to Dalton that HK$4,000 would be sufficient and reasonable.  Dalton said theoretically according to wages that could be said to be so, but one had to look at the actual situation, the number of items and the extent of damage, and would also need to consider that the soot had “eaten” into the items.  Dalton had also said, the cleaning was of toilet bowls, washing basins, water taps, shower taps, shower heads and other items in the toilets.  Having considered Dalton’s evidence, I find the cleaning was necessary and the amount of HK$8,000 claimed reasonable.  Dalton was not really challenged in relation to the cleaning charges for the kitchen appliances of HK$12,000.  I find the item necessary and amount reasonable. 

145. As for the other items under this heading, the only proposed deduction was in respect of the Handling Fee.  In light of what I have said earlier, I find the item necessary and the total amount claimed reasonable.

III  Air-Conditioning Works

146. The challenge under this item was only in relation to the Design Fee and Handling Fee.  As I have accepted such items earlier, I find the item necessary and the total amount claimed under this item reasonable.

IV  Furniture & Others 

147. Under this heading were the same 7 items under Part A for “Personal Chattels”.  Under Part A, the dispute was over the ownership of the chattels, which I have found earlier in favour of P.

148. Under the heading of “Furniture & Others” under Part C, the amounts claimed were said to be excessive/unreasonable as follows:

(a)  Speakers and re-installation of the AV Equipment and purchase of the AV equipment ––

(i)  Ds disputed the entire amount, alleging there was no or no sufficient evidence of damage.

(ii)  The amounts claimed were (1) HK$11,530 for 2 tower speakers from Bang & Olufson (“B&O”), (2) HK$71,448 for purchase of the AV Equipment, and (3) HK$19,700 for re-installation of the AV Equipment.

(iii)  Dalton had agreed with Mr Ho that the AV Equipment in the living room were affected by soot, but he had said he was not certain whether the AV Equipment was also affected by high temperature.  Dalton admitted that he did not conduct any tests on the AV Equipment and did not know whether Infomax had conducted or issued any test results.  Dalton had, however, said that although the AV Equipment might still be workable, the sound quality could be affected as they were covered by the soot, as when from experience of Crawfod in dealing with similar cases of such system, listeners would have a high demand on sound quality.  Mr Ho, on the other hand, had suggested that the soot could be simply cleaned away.

(iv)  Manesh had produced the relevant invoices, service orders, spare parts claim form, formal receipt etc from B&O for the amount of HK$11,530 for the 2 tower speakers in the living room[28].  The 2 tower speakers were arranged to be collected by B&O for full check and repair, and certain parts then had to be replaced as seen from the spare parts claim form from B&O.  It was B&O which sent a claim form for the replacement of the spare parts in repairing the speakers.  There was no evidence from Ds to contradict what was stated on those invoices, service orders, spare parts claim form etc from B&O.  Having considered these, I find the item necessary and the amount incurred by P in respect of the B&O tower speakers and spare parts reasonable.

(v)  As for the purchase of the AV Equipment on the quotation from Infomax dated 7 September 2010, there were 6 items in the living room and 1 in the master bedroom.  There were 2 Panasonic 50” 3D TV, one for the living room and the one for the master bedroom, which was HK$31,750 each.  Manesh’s evidence at the trial when going through the photographs was that the screen of the plasma TV in the master bedroom as seen in photograph no 3[29] was “melted down”.  Dalton had allowed the amount in full and he had remarked that that the TV in the master bedroom was damaged beyond repair. There was no evidence from Ds to contradict what was said by Manesh/Dalton.  Ds could have called their own loss adjuster Jason to give evidence but failed to do to.  I accept Manesh’s and Dalton’s evidence that the plasma TV in the master bedroom was damaged beyond repair and it was necessary to replace the TV.  There was no evidence from either P or D as to what the market value of a 50” plasma TV would be.  There was no challenge to HK$31,750 being a reasonable amount for a 50” 3D TV and I accept this amount.

(vi)  As for the 50” plasma TV which was in the living room, Manesh had said in his witness statement that it was damaged.  At the trial, Manesh’s evidence was that the speakers, DVD, amplifiers and the TV and its screen in the living room as seen in photograph 24[30] were all covered in soot.  As seen in the photograph, the ceiling of the living room was also covered in soot and blackened.  Dalton’s remarks on his adjustments was that, similar to the one in the master bedroom, the one in the living room was damaged beyond repair.  As Dalton had pointed out about the tower speakers/AV Equipment, it was not simply whether the system was workable, the sound quality would be important. However, I accept that Dalton did not actually conduct test and did not know whether Infomax had conducted tests.  Although the TV in the living room was not “melted down”, there was no evidence from Ds that it could still be functional and could be repaired.  The TV area was near to the master bedroom.  Manesh was not cross examined by Mr Ho as to whether it was still functional, or whether it was damaged beyond repair and as I have said earlier, Ds did not call Jason who had visited the Premises with Dalton.  There being no other evidence save the evidence from Manesh and Dalton, and having considered the same, I accept the TV in the living room, being covered in soot, was also damaged beyond repair and it was necessary to replace it.

(vii)  The rest of the items for the AV Equipment in the living room of HK$7,948 were miscellaneous items including amplifier repair charges, an extender 2 ports controller, cable etc which Ds said were unnecessary, but neither Manesh nor Dalton were cross examined on these items nor was there any evidence from Ds as to why those items were unnecessary.  Ds did not put their case to Manesh/Dalton either.  I accept the evidence of Manesh and Dalton and find these items necessary and reasonably incurred.

(viii)  The re-installation charges of Infomax of HK$19,700 were for 17 items in the living room and 6 items in the master room, and also 1 lot of accessories for the AV Equipment.  Dalton had said the AV Equipment was damaged.  Again there was no evidence produced by Ds to support their case that the charges were unnecessary or otherwise excessive.  I accept Manesh’s evidence and Dalton’s evidence and find the  re-installation necessary and the charges reasonable.

(ix)  In connection with the televisions, two new TV cabinets were custom made, one for the master bedroom and one for the living room.  GA’s charges for these were a total of HK$25,920, being HK$14,560 for the TV cabinet for the living room, and this was the amount challenged by Ds. Mr Ho submitted that Dalton had agreed that the TV cabinet in the TV area of the living room was not burnt but only affected by soot and that it was reasonable that the original TV cabinet should be kept for it could be cleaned to remove the soot.  In his witness statement, Dalton had allowed the total amount for the two cabinets, and his remarks were that they were damaged.  The extent of damage would also depend on whether the soot had “eaten into the cabinets”.  Neither Manesh nor Dalton was cross examined on whether the TV cabinet in the living room could have been cleaned or repaired and kept, nor was there any evidence from Ds to support their case that the TV cabinet in the living room was not damaged.  I accept Dalton’s evidence that the TV cabinet in the living room was damaged, and that it was necessary to replace the same.

(b)  Purchase of fabric, re-upholstery of and making of sofa, chairs etc

(i)  Dalton had been cross examined over whether the 2 original blue armchairs should have been replaced with a L-shape sofa, and whether the original 2-seater sofa should have been replaced by a 3-seater sofa.

(ii)  Mr Ho had submitted that it was not reasonable for P to replace the original 2-seater sofa with a 3-seater sofa ($18,426.60).  This was put to Dalton, who explained that from photograph 43[31], although one could see the 2-seater could accommodate 3 persons, and that from a loss adjuster’s point of view, when considering the replacement, he would not be restricted to the material and shape of the original, and the most important matter was to consider whether the price of the replacement was within a reasonable range. In any event, I note that the HK$18,426 claimed was for fabric and re-upholstery only and there was no new sofa frame made, and in my view it was necessary to re-upholster the sofa which was covered with soot and the amount of HK$18,426 was reasonable.

(iii)  As for the L-shape Sofa ($38,635.20), again Mr Ho had submitted that it was unreasonable to replace the 2 original blue armchairs with a L-shape sofa.  Dalton’s response was similar to the above. The 2 original blue armchairs were opposite to the TV, and thus nearer to the master bedroom, than the other sofa.  Manesh’s evidence was that they were of a nicer blue than that showed in photograph 45[32], and that the photograph only showed the back, and the front was all covered with soot. 

(iv)  From my observation of photograph 34[33], the original armchairs were quite wide armchairs.  There was no evidence from Ds as to the costs of similar armchairs, whether they would be less, or more, than HK$19,000 each, nor was Manesh cross examined on this issue.  Dalton had in fact said that the L-shape sofa was considered within a range of reasonable amount as replacement for the blue armchairs and that from his personal experience, the blue arm chairs would likely to be more expensive than the L-shape sofa.  I accept Dalton’s evidence and find it was necessary to replace the 2 arm chairs and the amount of HK$38,635.20 reasonable for a L-shaped sofa.

(v)  Ds also challenged the making of 4 throw cushions for the L-shaped sofa ($5,941).  Mr Ho submitted that there was no corresponding original items which could be identified from the photographs.  Photograph 43, however, showed 5 throw cushions placed on the 2-seater.  There was no evidence as to whether they were originally placed there or moved there.  The difficulty was that neither Manesh, nor Dalton was cross examined about these throw cushions.  There was also no evidence that they were excessive.  I find the amount claimed reasonable.

(vi)  As for the leather hides to cover 8 dining chairs ($11,880), Mr Ho again submitted that there was no clear evidence of such kind of material by looking at the photographs nos 27 and 41[34].  Dalton said at the trial he could not recall whether originally the dining chairs were covered with leather, but he said when he received the quotations for the 8 chairs, he considered price was reasonable.  Manesh had not been cross examined as to whether the 8 dining chairs were originally covered with leather, and there was no evidence produced by Ds as to what the price would be, if re-upholstered in other fabric. The price of HK$20,280 would mean HK$2,535 for each chair, and less the re-upholstering of HK$1,050, the leather was about HK$1,485 each. There was no evidence as to cost of other material had leather not been used.  I find it was necessary to re-upholster the dining chairs and the claim reasonable.

(c)  Purchase of mattresses, bases

(i)  As for the two items of bed skirt ($2,402.50) and ($4,624.20), again Mr Ho pointed out that there were no bed skirts originally.  Dalton had explained, in the case of replacement, the customer had the freedom to choose the design and material, and he would only consider whether the total price was reasonable.  For the beds in the master bedroom and the children’s bedroom, the claim was for the headboard and bed skirt of each bed, and the head board and bed skirt were made of fabric.  Again, Manesh was not cross examined as to whether there had been bed skirts there originally.  Mr Gidwani submitted that the bed skirts were detachable, and there was no evidence that they did not exist prior to the Fire Accident, and even if there were not, the total sum claimed was reasonable.  As there was no evidence otherwise, I accept what was submitted by Mr Gidwani and that these items were necessary and reasonably incurred.

(d)  Purchase of fabric, making of sheer blinds and curtains

(i)  Again, there was no evidence as to why these items were said to be excessive or unreasonable.  I find the amounts were necessary and reasonably incurred.

Discount and/or Betterment

149. Mr Ho had submitted that even if the court were to allow the replacement costs, the court should make such necessary deductions as appropriate by taking into account all the relevant factors, including but not limited to the fact that the chattels damaged by the fire were used items, which were replaced with brand new ones.  Thus, Mr Ho submitted that the court would be entitled to make such appropriate deduction to reflect the element of betterment when assessing the replacement costs for damage to chattels beyond repair, as well as repaired items.  I accept Mr Ho’s submission in this respect and am prepared to apply a discount. 

150. Mr Gidwani had referred this court to what was said by Kennedy LJ in the case of Oswald v Countrywide Surveyors Ltd (1996) 50 Con LR 1:

“For my part I doubt if, in the end, it assists at all to stress the burden of proof as the appellants have done, both in their Notice of Appeal and in their skeleton argument. If there was to be a burden placed on anyone, it was, as it seems to me, an evidential burden placed on the appellants to show that there should be some discounting of the 1988 repair figures, rather than for the plaintiffs to actually volunteer a specific discount.”

151. Mr Gidwani also referred to the following passage in Pegler Limited v Wang (UK) Limited (No 1), unreported, 25 February 2000:

“245. Dr Worden's approach is a wholly unsatisfactory foundation for an allegation of betterment. The evidential burden of establishing betterment is on the defendant: Oswald v. Countrywide Surveyors Ltd (1996) 50 Con LR 1 at 6, Skandia Property (UK) Ltd. v. Thames Water Utilities (1997) 57 Con LR 65 at p 80. Wang have not satisfied that burden and accordingly I make no allowance for betterment[35].”

152. The evidential burden of proof on discount/betterment rested on Ds.  There was, however, no evidence adduced by Ds as to how much discount whether for betterment, or otherwise, should be applied, even though their own loss adjuster had attended the Premises with Dalton.  

153. Having said this, however, I find that the following old used items had either been improved or replaced with brand new ones and there had been betterment:––

(i)  The two old plasma TVs replaced by two new 3D TVs;

(ii)  The 2 old TV Cabinets replaced by two new ones;

(iii)  The old 2-seater sofa re-upholstered into a 3-seater sofa;

(iv)  The 2 blue armchairs replaced with a new L-shaped sofa;

(v)  4 new throw cushions;

(vi)  The 8 dining chairs re-upholstered with leather;

(vii)  3 new mattresses[36] and new bed skirts.

154. There was no evidence as to the market value of the used or replaced items.  Those damaged beyond repair would unlikely to be of any significant value.  Having considered the evidence before the court, I will do the best and adopt a broad brush approach.  I will apply a discount of 15% over the costs claimed for the above items.

Part D –– Additional Items

155. This part consisted of items that P claimed it had suffered loss caused by the Fire Accident and should be recoverable from D1 and/or D2, and which had not been submitted to Crawford or which Crawford had not allowed.

156. According to Manesh’s Witness Statement[37], the additional items incurred by P were:

(a)  Purchase of lighting switches and sockets: $1,458.80 (not submitted to Falcon/Crawford)

(b)  Furniture storage: $3,600 (not allowed by Crawford/Dalton)

(c)  Packing, Transportation costs and storage rental: $7,876.12 (not allowed by Crawford/Dalton)

(d)  20% depreciation for linen products: $4,822.80 (disallowed under the Policy)

(e)  Design Fee: $52,178.42 under invoice 1919 (not submitted to Falcon/Crawford)

(f)  Making of wooden louvre: $13,884 (Dalton/Crawford allowed HK$7,550)

(g)  2 months of alternative accommodation: $136,000 (disallowed by Dalton/Crawford)

157. For item (a) the amount was the balance payable for the lighting switches and sockets, the total being HK$7,453.01[38], HK$5,984.21 having been paid by P earlier and allowed by Dalton in full. Ds had proposed a deduction of HK$354.91 only from the amount of HK$5,984.21, being the 5% Handling Fee and there was no challenge by Ds on the substantive part. I have earlier allowed the amount of HK$5,984.21, and further indicated that the total amount was reasonable. As I have said earlier, neither Manesh nor Dalton was cross examined on this charge.

158. For items (b) and (c), they were not allowed by Dalton as they were not covered under the Policy.  Mr Gidwani submitted that expenses made necessary outside the cost of repair would also claimable as a consequential loss, and had referred to the following passage form McGregor on Damages, 19^thedition[39]:

“The cost of repair will include a variety of expenses beyond the contractual price paid to the repairer and in particular, with ships, docking expenses. Many such expenses will be considered as part of the cost of repair…”

159. Mr Gidwani thus submitted that the expenses of “furniture storage” and “packing, transportation costs and storage rental” which were disallowed by Dalton but were made necessary as a result of the renovation since furniture and other items would have to be moved out of the Premises, should also be allowed. 

160. Ds’ objection to the above was that P had already claimed full replacement costs for some of the items stored, such as sofa, chairs, ottomans etc, and therefore should not be allowed at the same time to claim storage costs for those items.  There seemed to be some misunderstanding on Ds’ part, as the items on the invoice 1822[40] which were packed and stored were the original 2-seater sofa, 2 armless chairs, 2 ottoman cubes, 8 dining chairs, which had not been replaced.  They were only re-upholstered and they needed to be moved out of the Premises during renovation.  I find the charges in items (b) and (c) reasonable.

161. For item (d), this was in relation for the mattress in the master bedroom and two mattresses for the children’s beds.  Dalton considered the mattresses damaged, but deducted 20% depreciation due to insurance policy for “linen products” from the costs of the 3 mattresses under invoice number 1879[41].  Mr Gidwani submitted that there was no reason why P should not entitled to full costs for the mattresses.  It could be seen that part of the mattress in the master bedroom was burnt, and the two mattresses in the children’s bedroom were covered in soot.  Ds did not adduce any evidence as to the amount of discount for depreciation which should be given, nor was Manesh cross examined on this.  I find the item necessary and the full amount for the new mattresses reasonable, subject to the discount allowed earlier of 15%.  

162. As for item (e), I have already dealt with the Designer Fee earlier.  

163. For item (f), as could be seen on the quotation no GA-Q-0010F_R1, there were two options, Option A was for aluminium louvre covers, and Option B was for wooden louvre covers.  Dalton considered that the original ones damaged with soot and allowed HK$7,550 for Option A.  There was no explanation as to why Manesh later chose Option B.  In any event, the amount should not be an additional HK$13,884, as HK$7,550 already allowed and reimbursed by Falcon.  I find the amount for Option A reasonable and do not consider any additional amount claimed under this item is reasonable. 

164. For item (g), ie alternative accommodation for 2 extra months, I have found earlier that 4 months would be appropriate and reasonable.

Conclusion

165. As mentioned earlier, it is my finding that the Fire Accident had caused P loss and damage.  Based on my above findings and conclusions, I grant judgment for P for the undisputed items and those disputed items which I have found necessary and reasonable, subject to the 15% discount allowed.  I will ask P to calculate the total amount based on my findings and conclusions and submit the draft order for my approval.

166. The renovation was completed in September 2010.  P had sought interest at commercial rate from November 2010.  During the trial, it was agreed by Mr Ho that the commercial rate would be the HSBC best lending rate plus 1%.  The HSBC’s Hong Kong Dollar Best Lending Rate was agreed to be 5%, and interest at commercial rate would be 6%.

167. Mr Ho submitted that the commercial rate sought by P as from November 2010 was unreasonable, and pointed out that in P’s pre-action letter of 31 August 2011, P had claimed HK$2,728,768.40, with only a rough breakdown, and P’s claim was later much revised down to about HK$1.7m.  Given the high amount originally sought, it was unreasonable to expect Ds to settle this amount, and that interest should only run from the date of Dalton’s witness statement, namely 10 February 2014.  However, I note that in the pre-action letter, Falcon’s reimbursement was stated to be about HK$1.5m only. 

168. Mr Gidwani submitted that P/Falcon had been out of pocket since November 2010, and in the letter dated 12 April 2010, Dalton had written on behalf of Crawford to D2 showing that investigations and enquiries had been carried out by Crawford which indicated that the amount would be approximately HK$2m.

169. I accept Mr Gidwani’s submissions and award P interest at commercial rate as from November 2010 until date of judgment and thereafter at judgment rate.

170. As for costs, P has overall succeeded with its claim.  I order costs to be paid by D1 and/or D2 jointly and/or severally, to be taxed if not agreed, on party and party.  This is an order nisi, which will be final after 21 days.