TAK CHANCE FOOD PRODUCTS INDUSTRIAL CO. LTD v. WIDA DYEING FACTORY LTD & ANOTHER

HCA 10723/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10723 OF 1999

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J U D G M E N T

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Introduction

1. The plaintiff is the occupier and owner of premises in a multi-storey industrial building in Tsuen Wan. The 1st defendant is the occupier and the 2nd defendant the owner of the premises immediately above.

2. The plaintiff's ceiling has fallen into a state of disrepair and it blames the 1st and or 2nd defendant for allowing water or other liquid to seep into the ceiling from the floor above and thus cause the damage. It claims against both breach of the building's deed of mutual covenant (the DMC) and as against the 1st defendant negligence and nuisance. It seeks damages to made good the ceiling and related expenditure.

3. The claims are denied by both defendants, save as to a 20% contribution, a concession made during the course of the trial as I shall come to.

History

4. The building in question is the Kong Nam Industrial Building, 603 to 609, Castle Peak Road, Tsuen Wan. The plaintiff was incorporated in 1982 and that year began operating as a mushroom canning factory from the premises it acquired for the purpose on the 5th floor. Chen Khay Boen (Mr Chen) came to be employed by the plaintiff from the beginning and is still with the company as warehouse supervisor. He was called by the plaintiff to described the process. I shall come to his evidence in due course.

5. In those days the 5th floor was divided into two areas approximately equal in size. The seaward side comprised the office and the plant and machinery where the canning was carried out. The other side was the warehouse where stock was packaged and stored.

6. In 1992 the plaintiff transferred its operation to a factory on the Mainland. From then on and to date the 5th floor has been solely utilised as a warehouse. Mr Chen has remained on site and is in charge.

7. At all material times the 2nd defendant has been the owner of the 6th floor in the Kong Nam Building, and the 1st defendant is its tenant and occupier, carrying on business as a dyeing factory.

8. Problems in the ceiling of the 5th floor first became apparent when, some time in or before 1991, damp spots, some of them coloured, appeared on the underside of the ceiling. There were also indications of the concrete becoming chipped and cracked. Then one night in May 1991 a large amount of water and other liquid came right through the ceiling into the plaintiff's premises causing minor flooding and damage to its stock beneath. The plaintiff complained to the 1st defendant demanding that it make good. Whether there was response to this demand by the 1st defendant is disputed as I shall come to.

9. For a while there was no seepage but then it began again. Over the years it has got gradually worse. By 1999 much of the slab was clearly in a seriously damaged condition. By then chunks of concrete had broken away leaving exposed rusted reinforcing. With the situation becoming dangerous, in 1999 the plaintiff reported the damage to the Management Office of the Kong Nam Building, its insurers and the Buildings Department. The Buildings Department issued a Building Order declaring that the 5th floor premises would be liable to become dangerous if repairs to the ceiling were not carried out. In a report undertaken by the insurers the loss adjuster who had carried out an inspection opined that the damage was caused by the water and other liquid that had over the years seeped into the floor and ceiling from the premises above. The plaintiff engaged experts from Hong Kong Polytechnic and they came to the same conclusions.

10. Then in June 2000 there was a major incident when large chunks of concrete stained with coloured liquid became detached from the ceiling and fell to the floor, damaging sprinklers on the way down. Red coloured liquid dripped through onto goods stored there, damaging them.

11. The plaintiff has been quoted the cost of repair at $1.6m. It having sought an undertaking from the defendants that the leakage would desist and the damage made good without result, it issued its writ in July 1999.

The Proceedings

12. By the writ the plaintiff seeks an injunction restraining the defendants from allowing the ongoing seepage to continue and damages to compensate for the cost of repair of the concrete slab and related expenditure.

13. The defendants deny liability, save as I shall come to, stating that any seepage that might have occurred over the years caused by the dyeing operation was minor and inconsequential. Together they pleaded that the damage to the ceiling was caused by the plaintiff itself, during the course of its operation as a mushroom processing factory.

14. However at the hearing Mr Wong, representing both defendants, gave notice that there was a formal acknowledgement of liability to the extent of 20% of the total by both defendants in contract and by the 1st defendant in tort.

15. The defendants jointly engaged their own expert whose findings support the sharing of responsibility I have referred to.

The Issues

16. Before the hearing concluded I discussed with counsel the nature of the order or orders I should make. It was agreed by consensus that I should deal with the issue of liability and then adjourn to enable the parties to try to resolve the remedies which should follow after with liberty to restore. The reason for that has regard to the nature of the work to be carried out, namely, to repair a concrete slab which is the floor of a factory in full production on the one hand and the ceiling of a warehouse under use on the other. Furthermore, the deteriorated ceiling being the subject of a Building Order, the Buildings Department will require to be satisfied that the work, as and when it is carried out, satisfies the Department's requirements.

17. It was agreed that the proper way forward once liability had been established is for the parties in concert with the Buildings Department and prospective contractor to try to agree the cost and work out a programme which minimizes costs and inconvenience for all concerned, but with liberty to restore if that could not be agreed.

18. On that basis the issue before me is straightforward; namely, the defendants conceding liability as to 20% of the cost of making good the damage to the concrete slab between the premises of the plaintiff and 1st defendant in contract and in tort, to what extent, if at all, are they liable for the remaining 80%?

The Evidence

19. On issues of fact for the plaintiff I heard only from Mr Chen. He described the process of canning the mushrooms during the ten years or so the 5th floor premises operated as a factory.

20. Cooked mushrooms arrived in bulk from the supplier soaking in brine inside plastic barrels. These were poured into a large stainless steel container filled with cold fresh water to remove the brine. The mushrooms were next cut into pieces before being canned. During this process the mushrooms were carried by conveyor belt into a closed system. Within the system the cans were heated first to sterilize them and then to drive out the air before they were sealed. The hot air and steam released from this process was carried by sealed exhaust pipes to the exterior of the building. He described the premises as having been properly ventilated, and the temperature was normal depending on the season. It might have been marginally higher in the immediate vicinity of the boilers whilst they were operating but that was compensated by electric fans drawing off the heat. The workers engaged in the process wore white with no protective clothing necessary.

21. He said the work is seasonal because the mushrooms which come from the Guangdong Province do not grow and are not harvested in summer. So the factory produced between early December and early June. During the off season repairs and maintenance were carried out, and the warehouse was utilized to store other goods.

22. Following the flood of water and liquid that arrived via the ceiling in 1991 the plaintiff having complained to the 1st defendant there was no response. To save time and trouble the plaintiff undertook remedial work at its own expense.

23. In cross examination it was put to him that during the ten years or so that the plaintiff was processing mushrooms on site, there were numerous complaints from the Management Office and other occupiers of the building; that these were largely because of damage caused by brine spilling from the barrels as they were delivered through the building to the plaintiff's premises; that in particular the cargo lifts were sometimes flooded and frequently had to be stopped for repair; that the 4th floor occupiers had come to complain about seepage of brine through its ceiling; that there was salt water seepage into the lower ground floor as well. He conceded that there were complaints although in his position he was not directly involved in receiving them or dealing with them. He understood that all relevant issues were handled by management and fixed at the plaintiff's cost.

24. It was put to him that business was not in fact seasonal but carried out all year round. He denied that. He said there simply was no delivery of mushrooms during the summer which is the off-season.

25. Then he was taken to the mushroom processing. He was asked to confirm that in the sterilization process the cans had to be heated to a temperature of 128°c for up to 28 minutes. He confirmed that. It was put to him that steam escaping filled the factory, carrying with it vapourized liquids. His answer to that was an emphatic 'No!'. It was put to him that the boilers generated heat, making the temperature inside the factory much higher overall. He denied that. He said the boiler and the pipes leading from it were lagged to prevent heat loss. The excess steam was trapped and exhausted to the exterior. The temperature in the vicinity may have been a bit higher, but the boiler room was ventilated with electric fans to the exterior to compensate.

26. It was put to him that in the procedure where the brine was rinsed off the mushrooms the water had to be heated. He denied that. He said only cold water was used in the rinsing. He was asked whether the mushrooms had to be cooked. He said they did not. The mushrooms arrived already cooked. He was asked about the process where steam was used to create a vacuum in the canning procedure. He said that was extracted by an exhaust system. It was put to him that the exhaust systems he spoke of were not effective, leaving the factory full of steam, heat and humidity. He denied that.

27. I come now to review the evidence of the defence witnesses two, in all, on issues of fact.

28. The first was Wu Pik Ling (Miss Wu). She has been employed in the administrative section of the 1st defendant since 1982 when she was an accountant. Her office was originally on the 11th floor of Kong Nam Building. In 1993 she was promoted to manager and moved to the 6th floor.

29. By virtue of her being an occupant of the building she came to know of the mushroom processing factory operated by the plaintiff on the 5th floor, for the ten years or so from 1982. She also knew that complaints against the factory were frequent because of seepage from the barrels of the solution in which the mushrooms were soaked when they were being delivered to the plaintiff's premises. She knew that the 4th floor occupants complained of seepage and resultant damage, and that the cargo lifts were sometimes flooded by a brackish, smelly fluid which put them out of action from time to time.

30. She said there were two occasions, to her knowledge, when the plaintiff complained about damage to its premises emanating from her employer's on the 6th floor. The first was in 1989. She said there was a blockage and this did cause flooding and minor damage. Her employer had the drains cleaned and repaired the minor damage. The plaintiff did not seek compensation. Then in 1991 there were two more accidents. There was another flood when a drain blocked again, and an oil pipe burst discharging oil which seeped to the floor below. Again the 1st defendant quickly responded by unblocking the drain and repairing the oil pipe and other damage. Again no compensation was asked for.

31. Over the years of the plaintiff's use of the premises as a processing factory she did not at any stage go inside. But from time to time the lift she was occupying would stop at the 5th floor and she would have to emerge to reactivate it. On such occasions she could see inside the factory. The atmosphere appeared hazy more often than not as if the factory were full of steam. As far as she knew the factory operated all year round.

32. She said that in 1986 and again in 1997 her employer engaged contractors to waterproof that part of the floor of the 6th floor premises which might be susceptible to flooding caused by waste liquids being discharged from machines used in the dyeing process.

33. When she came to learn of this suit she asked for quotations to make good the damaged slab. One of these was from a company called Tung Fat (Chow Kee) Engineering Co. Ltd (Tung Fat) which company had apparently been engaged by the plaintiff to quote the cost of repair. This came to $1,150,000. The other was from a company called Grandtone Engineering Limited which came to $957,000. (A closer reading of these would indicate that they are estimates rather than quotations).

34. She said that during the year 2000 a part of the floor of the 6th floor premises collapsed leaving a gaping hole. When this happened the 1st defendant reported it to the Buildings Department. But they were unable to make more than superficial repairs because access to the premises below was denied then.

35. Then came her cross-examination.

36. She agreed that once the plaintiff had closed down its processing plant in 1992 the flooding of the brine and consequential complaints came to an end.

37. She was asked about the dyeing process but responded she did not know, beyond that there was a lot of water and various chemicals, of a type unknown to her, utilized.

38. She came to be aware over the years of complaints from the plaintiff of seepage and ultimately that there was a Building Order served going to the state of the floor/ceiling slab. She said she ordered the quotations for the cost of repair because she was told to do so in case it was found that her employer was to be held responsible. She did not know because she was not told whether the 1st defendant was assuming liability.

39. The second witness of fact for the defendant was Cheung Muk Shing (Mr Cheung). He has at all material times been in transportation, initially as an employee until in 1993 he established his own company. In both capacities he has served the 1st defendant since 1982 and this has persisted to the present day. The 1st defendant is his principal customer and he goes to Kong Nam Building nearly every day.

40. During the ten years that the plaintiff was operating a mushroom processing factory it made heavy demands on the cargo lifts which meant he often had to travel to the 5th floor and negotiate for the use of the lift. During those visits he came to note that the floor was invariably flooded, the factory was filled with steam and it was hot and humid. The workers wore rubber boots and were stripped to the waist. He knew that the mushrooms were delivered in buckets soaked in brine and that during the delivery sometimes this leaked causing damage especially to the cargo lifts. As a result they were often closed for repairs. When the factory was moved away these difficulties virtually disappeared.

41. There was one further witness called by the defence, a Miss Siu who is employed by the company that manages the Kong Nam Building. But as her evidence was hearsay about a matter not material to the issues I shall not review it.

42. Finally, the plaintiff produced the Kong Nam Building's DMC for the purpose of founding its claim in contract. But as the defendants have conceded contractual liability I find no need for me to reproduce those provisions which are relevant to the issue before me.

The Experts

43. The plaintiff engaged the Hong Kong Polytechnic University to inspect the concrete ceiling of its 5th floor premises, estimate the extent of the deterioration and, if possible, identify the cause.

44. Senior academics of the Department of Civil and Structural Engineering participated. These included Dr Tommy Chan (Dr Chan) whose expertise is in Civil Engineering, Dr S. P. Chi whose skills are in chemistry and Dr Eddie Lam who is a specialist in building structures.

45. They inspected the premises in May 1999. Samples were taken and tested. In the fullness of time they co-authored a report dated June 1999. Dr Chan came to court to produce it.

46. When they inspected the premises they were solely being used for storage. Generally the condition was dry, save for localised wet patches on the floor, caused by liquid dripping from the ceiling. It was visually apparent that in many areas concrete in the ceiling slab had broken away, exposing rusted reinforced steel. Some of these concrete chunks were found on the floor. Coloured stains were observed on some ceiling beams. The impression gained visually was that the reinforcing had become exposed to moisture coming from above, had rusted and expanded and this led to the break up of the surrounding concrete. They took photographs of those parts of the ceiling that were damaged and samples from the concrete that had broken away. The photographs form part of the report and explicitly illustrate the extent of deterioration. They took for analysis some of the liquid pooled on the floor. They also undertook what are described as "rebound hammer tests', but these proved inconclusive.

47. Once the testing of the samples had been carried out, they concluded that the general condition of the ceiling was poor; to a greater extent than one would expect in industrial buildings of similar age and thus not the result of natural ageing. Only the worst of the examples were specifically recorded and photographed. The damaged areas showed signs of infiltration by water, solution, and dyestuff or pigmentation. The test results of the concrete samples indicated that the rusting of the reinforcing and deterioration of the concrete was caused by the ingress of chemicals with a high chloride content.

48. Because the condition of the premises was generally dry, it was surmised that attack came from above, from liquids containing chloride utilized in the upstairs premises. This was substantiated by the sight of liquid dripping from the ceiling, the pools of liquid on the floor, the coloured water stains and the test results of the liquid found on the floor. Their final conclusion was that the concrete slab comprising the ceiling had become contaminated by liquid seeping through it from the floor above which led to corrosion of the reinforcing, resultant expansion and spalling of the concrete. No access was sought to the premises above and so the cause of the seepage could not be established.

49. The defendant engaged Lee Mark Building Surveyors. The inspection and report were undertaken by Lee Chun Fat (Mr Lee) who is a director. His many qualifications include that he is a Chartered Surveyor and Builder, Professional Surveyor and an Authorized Person registered under the Buildings Ordinance Cap. 123. His brief was similar to that of the team from Hong Kong Polytechnic, whose report of June 1999 he had access to. He inspected the premises in July 2001. His report was dated 10 November 2001, just a few days before the hearing. Mr Lee came to court to present his report and be questioned on it.

50. In describing the premises he inspected, namely, the 5th and 6th floors, it is pertinent to note how he came to describe the 5th floor:-

"6.2 The Subject Property

6.2.1 According to the information by the Client, the Subject Property has been used as a mushroom manufacturing factory for about 10 years. At present, the Subject Property is used as a warehouse.

6.2.2 The environment of the Subject Property was extremely humid during the manufacture of mushroom as informed by the Client. Patches of dense fog made the visibility very low. Workers need wearing special dress to protect them in this adverse environment. Furthermore, many plastic barrels stacked up at the floor as well as in the common areas." (emphasis added)

51. Included in a basic description of the 6th floor premises was the following:-

"6.3 The Above Property

6.3.1 As per the Client's information, their dyeing factory has been operating since 1982. Waterproofing system has been applied on the floor to prevent the seepage of water from the Above Property to the Subject Property.

6.3.2 There were eleven machines in operating during our inspection. The Client informed us that a vertical drying machine adjacent to the drying and sizing machine was not in operation since 2000 and had been removed a year ago.

6.3.3 Generally, wastewater is expelled from machines of M4, M5, M10, M11 and M12. This wastewater will be diverted to the surface channel and then to the sewage pipes at external walls.

6.3.4 As informed by the Client, two accidental water and oil leakage had been occurred in the past. Water leakage happened at late 80's and early 90's and oil leakage from the oil tank happened in 1989. The Client carried out immediate repair works to stop the liquid leakage in these two accidents.

6.3.5 the Client has provided additional application of waterproofing material to floors in 1986 and 1997."

52. The references to the machines depict where they are situated. M4 and M5 are more or less situated in the middle of the premises, above the worst of the damage to the 5th floor ceiling. M10 and M11 are located at the right hand side and left hand side above areas apparently not affected. The reference M12 would appear to be a typographical error as there are only 11 machines.

53. Mr Lee noted visually a dilapidated ceiling: "spalled concrete, loose plaster, cracks, peeling off paint and the like were found at the ceiling soffits and beams."

54. He proceeded to map the defects which appeared to be of any consequence. These tended to be concentrated in the middle of the premises, above that part of the plaintiff's premises which in the days of the factory were used solely as a warehouse.

55. He took samples for testing of the ceiling concrete from various areas where the deterioration was apparent as well as from where there was no visible sign of damage. The purpose was to establish the level, if any, of a chloride content. He found the results failed to establish a co-relationship between high chloride content and damage. He also extracted 9 cores from various parts of the slab running right through the slab. At or close to the top level of the core sample, that is at or close to the floor, the chloride content was high, indicating consistent spillage of waste water containing dyes and contaminates containing chloride. In only one area did he find damage to the floor as distinct from the ceiling below - this was in the core taken from that part of the floor where the whole thickness of the slab had fallen through to the premises below - forming the hole as described by Miss Wu - situated almost precisely in the middle of the premises, in fact where the worst of the defects were concentrated. Finding that in all other samples the chloride level gradually decreased through the thickness of the slab he found that the worst of the deterioration of the concrete and the rusting of the reinforcing at the lowest level (the ceiling) was not due to a chloride attack.

56. However leakage from above was not fully excluded from causing the dilapidation; he cited several examples where in his opinion the defects were as a direct result of seepage of liquid high in chloride content from the 6th floor.

57. During the course of his inspection, Mr Lee came across a data sheet which quoted the temperature and time period for the sterilization and gas eviction procedure that Mr Chen had explained. Mr Lee noted the temperature was required to be up to 128°c. He went on to say that apart from those defects caused by infiltration and seepage from above the remainder were caused by the frequent change in temperature and high moisture content causing expansion and contraction of the concrete and the steel reinforcing within.

58. By way of explanation he presented a chart to demonstrate that concrete subjected to a frequent temperature variation from 20°c to 120°c would expand and contract by up to 13.2mm per 12 metres (the distance between support beams), more than enough to expose the reinforcing to moisture and cause corrosion and spalling.

59. Mr Lee concluded that some only of the ceiling deterioration in the 5th floor premises was caused by leakage of water and chemicals from the 6th floor, arbitrarily fixing on 20%. But the major cause was the expansion and contraction process resulting from the dramatic variation in temperature of the 5th floor premises during what he described as the manufacturing process when the plaintiff operated a factory from there, coupled with high humidity. He also considered that the ceiling had deteriorated further as a result of not having been repaired when the defects first would have become apparent.

Findings of Fact

60. An important dispute of fact is the extent to which the plaintiff's premises came to be subjected to excessive heat and humidity during the mushroom canning process. The witnesses called for the defence painted a picture of high temperatures, flooded floors, rubber-booted, half-naked workers carrying on their activity in a fog of steam carrying moisture and damaging chemicals to the ceiling above.

61. I reject out of hand this scenario. The process itself was the straightforward one of canning mushrooms. The rinsing of the brine was done with cold water. Heat was needed not to cook the mushrooms, for they arrived pre-cooked, but to sterilize the cans and expel air. Steam was conveyed through lagged pipes, as one would expect, expelled through a closed system to the exterior of the building. Such increase in temperature caused by the boiler would have been confined to the immediate vicinity, dissipated by electric fans. Were it to have been as portrayed by Miss Wu and Mr Cheung, the working conditions would have been intolerable. Plant, materials and warehoused stock would have become permanently damaged. No worker would have tolerated such harsh conditions. No factory inspector would have permitted such operation.

62. It is apparent, as I accept, that during the time it operated as a factory the plaintiff was frequently guilty of delinquent behaviour and consequent disruption to fellow occupiers because it permitted brine to spill and to leak in significant amounts causing seepage into premises below and damage to the cargo lifts. But that does not render the plaintiff responsible for damage to its own ceiling.

63. Neither Miss Wu nor Mr Cheung were invitees to the 5th floor. Such evidence they gave was from glimpses into the premises from the lift they were occupying from time to time. I am satisfied their so-called eye witness accounts are inaccurate, exaggerated, self-serving and misleading.

The Reports

64. Mr Lee concluded that whilst 20% of the defects were caused by leakage from above the remainder were caused by the huge temperature variations and high humidity of the premises during the manufacturing process. He accepted as fact that the premises were subjected to heat and humidity - see para. 6.2.2 - because he was told of that by staff of the 1st defendant whom he described as his client. But he took no steps to seek corroboration, or the extent of the heat and humidity. And he seized on the data sheet as self-evident that there was a temperature variation of up to 100°c depending upon whether the plant was operating or not. This was a quite extraordinary conclusion, akin to the finding that because a chicken needs to be cooked at 250°c the temperature outside the oven would match that. Having so concluded he seemed not to put his mind to the fact that such extremes would cause damage and injury and could not be tolerated by the plaintiff or its workers or indeed the Inspector of Factories.

65. Having found that the processing operation was carried out in conditions neither oppressively hot nor humid, I reject out of hand Mr Lee's conclusions that these extremes played any part.

66. When Dr Chan and his team inspected the premises in 1999 they witnessed liquid dripping from the ceiling into pools below. There were water marks and coloured stains revealing the likely cause. The photographs exhibited are a telling illustration. The tests undertaken established the source. It is from the machines of the 1st defendant whose function is to discharge waste fluids, situated above where the worst of the damage has occurred. Attempts by the 1st defendant to waterproof that part of its floor and otherwise remedy the developing problem proved to be either ineffective or undertaken too late to avoid damage. The collapse of part of the entire slab in June 2000 was a graphic indication of how serious that damage has become. In my view, Mr Lee's approach which was to apportion the blame as to 20% was arbitrary and inappropriate, based on wrong assumptions and conclusions.

The Consequences

67. The damage to the plaintiff's ceiling is caused wholly by the 1st defendant wrongfully failing to prevent seepage of water, liquids and chemicals through the floor of its premises to the plaintiff's ceiling below. The defendants are together contractually liable to make good the damage.

68. On the issue of liability I find against both defendants in contract and against the 1st defendant in tort. The proceedings are adjourned to a date to be restored for the measure of damages and other remedies to be dealt with.

69. Costs (nisi at first instance) are to the plaintiff to be borne by both defendants taxed if not agreed.