HONG KONG CONSTRUCTION CO LTD v. NG FUK CHOI AND ANOTHER

HCA 3427/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3427 OF 2002

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ASSESSMENT OF DAMAGES

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Background

1. The Plaintiff was the registered owner of the private car bearing registration number HC6066 ("Plaintiff's Car"), which was a Mercedes Benz S500L purchased in late June 2002 at the price of HK$1,280,000. On the other hand, the 2nd Defendant was the registered owner of the light goods vehicle bearing registration number FE6517 ("Defendants' Goods Vehicle").

2. At around 5:55 p.m. on 13 October 2000, a Mr. Thapa Yadap Bahadur of the Plaintiff was driving the Plaintiff's Car on the West Kowloon Highway heading towards Western Harbour Crossing. Upon reaching the area of Park Avenue, the Plaintiff's Car was hit by the Defendant's Vehicle which was then driven by the 1st Defendant. As a result of this accident, the Plaintiff's Car was serious by damaged and the 1st Defendant was subsequently convicted of the offence of careless driving on 17 April 2001.

3. After selling the Plaintiff's Car as scrap in October 2001, the Plaintiff commenced this Action on 6 September 2002 claiming for loss and damage suffered as a result of the damage to the Plaintiff's Car. By consent, Interlocutory Judgment was entered against the Defendants on 11 October 2002 for damages to be assessed.

The Parties' Cases

4. Three matters are not really in dispute between the parties. First, the Plaintiff's expert, Rogers Houghton Motor Surveys Limited ("Rogers Houghton"), estimated the pre-accident market value of the Plaintiff's Car at HK$1,100,000 to HK$1,130,000. The Defendant's expert, Toplis & Harding (Hong Kong) Ltd. ("Toplis"), put forward the estimate of HK$1,100,000 to HK$1,150,000. In paragraph 6 of the Statement of Claim, it is pleaded that the pre-accident value of the Plaintiff's Car is HK$1,115,000. Hence, for the purpose of this assessment, I will adopt HK$1,115,000 as the pre-accident value of the Plaintiff's Car.

5. Second, both the Plaintiff's expert and the Defendant's expert agreed that the repair cost would be around HK$750,000. Indeed, it is the evidence of Mr. Raymond Lee Kai Hung ("Mr. Raymond Lee") of Roger Houghton that the sum of HK$750,000 had been agreed with Zung Fu Garages Limited ("Zung Fu") although the initial estimate given by Zung Fu was in the region of HK$1 million.

6. Third, the scrap value of the Plaintiff's Car was agreed by both parties' experts at HK$300,000 to HK$330,000. As a matter of fact, the Plaintiff's Car was sold, through Roger Houghton, as scrap in October 2001 at the price of HK$300,000. Insofar as may be necessary, I am satisfied on the evidence adduced before this Court (which includes the documents at pages 76 to 80 of the Hearing Bundle) that this price was the best possible price that could be obtained for the Plaintiff's Car as scrap.

7. The parties' key difference is whether the Plaintiff's Car should be treated as a total loss, or whether the Plaintiff should have it repaired at the costs of HK$750,000. The Plaintiff contends that this is a case of total loss since the scrap value of the Plaintiff's Car plus the repair costs exceed the repaired value (i.e. the value of the Plaintiff's Car if it were repaired). On this basis, the Plaintiff claims loss and damage as follows (see paragraph 6 of the Statement of Claim):

(1) Pre-accident value	HK$1,115,000.00
(2) Survey Fee	HK$750.00
(3) Fee for retention of registration mark	HK$560.00
(4) Services handling charge	HK$500.00
(5) Option fee	HK$300.00
(6) Towing charges	HK$4,800.00
(7) Service handling charge	HK$4,500.00
(8) Autotoll tag	HK$250.00
(9) Licence fee	HK$1,888.00
(10) Vehicle registration document	HK$100.00
(11) Licence plate	HK$100.00
Less:
(12) Salvage / Scrap Value	HK$300,000.00
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Grand Total:	HK$828,748.00

(Note: The original figure pleaded in paragraph 6 of the Statement of Claim for licence fee is HK$11,329.00. At the hearing, the Plaintiff revised this to HK$1,888, being one-sixth of the annual licence fee of HK$11,329. See also paragraph 16 of the Plaintiff's Opening Submissions dated 1st September 2003.)

8. On the other hand, the Defendant contends that the Plaintiff should have the Plaintiff's Car repaired. On this basis, it is the Defendant's case that the total damages should only be HK$758,500 (i.e. the repair cost of HK$750,000 plus survey fee in the sum of HK$750, towing charges in the sum of HK$3,000, survey charge paid to Zung Fu in the sum of HK$4,500 and autotoll tag in the sum of HK$250). The other items claimed by the Plaintiff, according to the Defendant, would not have been incurred or would not have been rendered futile had the Plaintiff elected to have the Plaintiff's Car repaired. (See paragraphs 2 to 8 of the Defendant's Closing Submissions dated 9 September 2003.)

Assessment of Damages

9. The starting point is the basis on which damages should be assessed. In cases concerning damage to chattel as a result of negligence, the governing principle is that of restitutio in integrum, that is to say, to put the plaintiff in the same position as if the damage had not been done. In Darbishire v Warran [1963] 1 WLR 1067, Harman L.J. expounded as follows (at p. 1071):

"The law of damages arising out of collision on land has been developed out of the Admiralty rule on collisions at sea and the rule of liability is the same in Admiralty and common law cases ....... The principle is that of restitutio in integrum, that is to say, to put the plaintiff in the same position as though the damage had not happened. It has come to be settled that in general the measure of damage is the cost of repairing the damaged article; but there is an exception if it can be proved that the costs of repairs greatly exceeds the value in the market of the damaged article. This arises out of the plaintiff's duty to minimise his damages. Were it otherwise it would be more profitable to destroy the plaintiff's article than to damage it. In the latter cases the measure is the value of the article in the market and this, of course, supposes that there is a market in which the article can be bought. ......."

10. In the same case, Pennycuick J. observed as follows (at p. 1078):

"The basic measure of damage, so far as now material is restitution. In the case of injury to a chattel, it may happen that restitution can be effected either by repair of the existing article or by the purchase of a comparable article, namely an article possessing broadly similar attributes though not necessarily identical. In such a case the measure of damage is restitution by whichever method it would be reasonable for the owner of the chattel to adopt in the particular circumstances. In considering what is reasonable one must, I think, having regard to the owner's obligation to mitigate damage, treat him as looking only to his pecuniary interest, and leave out of account matters of mere taste or convenience. ...... Where the cost of repairs would exceed the market value of the article, and in the absence of special circumstances, the reasonable method must be to purchase a comparable article. By "market value" in this connection is meant the price at which the article before damage, or a comparable article, could be purchased. As a rule the scrap value of the damaged chattel must be brought into account ......"

11. In deciding whether the Plaintiff's Car should be treated as a total loss, the Plaintiff contends that the test is whether a prudent uninsured owner would repair it having regard to all the circumstances. This is derived from the decision in Macbeth & Co. Ltd. v Maritime Insurance Co. Ltd. [1908] A.C. 144. In that case, the appellants' vessel was insured in a time policy issued by the respondents and valued at 12,000l. Under the policy, the insured value was to be taken as the repaired value in ascertaining whether the vessel was a constructive total loss. The vessel was driven ashore and seriously damaged. If no repair was to be carried out, the vessel had a scrap value of 3,000l and the repair costs was found by the trial judge to be around 11,000l. In ruling that this was a case of constructive total loss, the House of Lords held that: (1) in determining whether a damaged ship could be treated as a constructive total loss, the test is whether a prudent uninsured owner would repair her having regard to all the circumstances; and (2) in this calculation, the assured is entitled to add the break-up value of the ship to the estimated costs of repairs.

12. In delivering the leading judgment, Lord Collins explained as follows:

"The mode of putting the question, which has been generally adopted, has been to ask whether a prudent uninsured owner would have done it. In Rosetto v Gurney [(1851) 11 C.B. 186] the Court, approving of what has been said by Mr. Justice Maule in Moss v Smith [9 C.B. 94, at p. 103], state the rule thus: 'If the damage is reparable the loss is total or partial according to circumstances. If the damage cannot be repaired without laying out more money than the thing is worth, the reparation is impracticable, and therefore as between the underwriters and the assured impossible.' ..... No means which would costs more than the object is worth can be considered reasonable, and a prudent uninsured owner would not adopt them, but if the means within his reach would cost less than the object is worth, a prudent uninsured owner would adopt them rather than suffer the thing to perish, though a prudent insured owner, especially if insured in a valued policy, would probably act otherwise if the law permitted him by so doing to recover from the underwriters for a total loss. ....." (at p. 151)

"...... It seems to be that no prudent uninsured owner could be expected to leave out of his calculation the realizable value of the wreck. ...." (at p. 152)

13. I note that Macbeth's case is a decision concerning constructive total loss in the context of marine insurance. I appreciate there have been observations that the concept of constructive total loss in marine insurance cases may not be relevant to other cases involving destruction of or damage to goods. (See, e.g., Malcolm Clarke, The Law of Insurance Contracts, 3rd edn., para. 16-2A2.) I also appreciate that there is debate as to whether the decision in Macbeth survives the Marine Insurance Act 1906 (or the local Marine Insurance Ordinance). (See: Halsbury's Laws of Hong Kong, Vol. 15(1), para. 220.726 and the discussion in footnote no. 2.) Having taken all these into account, I am of the view that the reasoning in Macbeth are consistent with the approach discussed in paragraphs 9 and 10 above and thus applicable in the present case. In any event, counsel for the Defendant did not appear to contend otherwise.

14. In the present case, the total of the repair costs is HK$750,000 and the scrap value of the Plaintiff's Car is HK$300,000. The total of these two is thus HK$1,050,000, which is HK$100,000 less than the pre-accident market value of the Plaintiff's Car, which is HK$1,115,000.00. The matter, however, does not stop here.

15. The Plaintiff contends that there would be a 5% to 7% diminution in value even if the Plaintiff's Car is properly repaired. If that is the case, the repair costs plus the scrap value would be very close to or even exceed the repaired value of the Plaintiff's Car. The various scenarios are these. If there is a 5% diminution, the repaired value would be HK$1,059,000 (i.e. HK$9,000 over the total of the repair costs plus the scrap value). If there is a 7% diminution, the repaired value would be HK$1,036,950.00 (i.e. less than the total of the repair costs plus the scrap value). If one is to adopt a median (i.e. a diminution of 6%), the repaired value will be HK$1,048,100 (i.e. less than the scrap value).

16. The Defendant disputes this and contends that there is no evidence of diminution in value. The Defendant relies on the Court of Appeal decision in Payton v Brooks [1974] 1 Lloyd's Rep. 241. Whilst ruling that diminution in market value is recoverable in law in addition to repair costs, Edmund Davies L.J. added the following observation (at p. 245, left column):

"I would only add one word of caution. This conclusion is not a charter under which infuriated plaintiffs, who have the misfortune to have their cars damaged by careless drivers, acquire an unfettered right to recover diminution of value in every case in addition to the costs of repairs. It is essential in such a case, in my judgment, for appropriate evidence to be called to prove diminution in value. I do not think in the ordinary case the burden of proof which rests on the plaintiff would be discharged merely by calling an individual to prove his idiosyncratic view of the particular loss in a particular case. The diminution in market value must be proved by appropriate evidence of the kind usually called when diminution in market value is sought to be proved as a head of damage. Subject to that qualification, it seems to be that this head of damage is recoverable."

17. Thus, the question is whether the Plaintiff has discharged its burden in showing that there would be a 5% to 7% diminution in value even if the Plaintiff's Car were properly repaired by Zung Fu.

18. In this regard, the Plaintiff relies on the evidence of Mr. Raymond Lee of Roger Houghton. In the letter dated 13th March 2003 issued in the name of Rogers Houghton, Mr. Raymond Lee stated that the market value of the Plaintiff's Car "would be less about 5% to 7% even after repaired as it has been damaged seriously". In his oral testimony, Mr. Raymond Lee further explained the matter. First, he stated that the 5% to 7% diminution was based on the extent of damage to the Plaintiff's Car. Second, he explained that in the second-hand car market, a buyer would even make enquiry with Zung Fu to see if the second-hand Mercedes he interested in has been damaged before. Third, he stated that the Plaintiff's Car was a luxurious car and potential buyers of this type of cars are relatively more demanding. Hence, the fact that the Plaintiff's Car had been seriously damaged would have an adverse impact on its value. Fourth, Mr. Raymond Lee stated that his estimate of 5% to 7% diminution was made on the basis that the Plaintiff's Car was properly repaired by Zung Fu, which is the official garage for repairing Mercedes cars. He explained that if the repair works were not properly done or were done by other garages, the diminution in value might be even greater.

19. Mr. Sammy Lee Wing Ho ("Sammy Lee") of Toplis, the expert called by the Defendant, expressed a different view. In his letter dated 28th March 2003, Mr. Sammy Lee stated as follows:

"Regarding the diminution in market value after repairs, there is no fixed rule or formula whether there will be any devaluation, and if yes, how much. These depend on many factors:- e.g. including the nature of the damage, the method of repairing, the quality of the replacement parts, the standard of the workmanship and the condition of the vehicle after the repairs. In fact, if new parts are used, we would give a discount for the betterment representing the appreciation in value from old parts to new parts."

20. In his oral testimony, Mr. Sammy Lee stated if the Plaintiff's Car was repaired by Zung Fu at the repair cost of HK$750,000, there would not be any diminution in value. It is Mr. Sammy Lee's opinion that after repair, the Plaintiff's Car would be in the same condition as it was before the accident, whether cosmetically or in terms of performance.

21. I accept that there is no hard and fast rule and whether there is a diminution in value depends on the facts of each case. However, having considered the matter, I accept the evidence of Mr. Raymond Lee and find on the balance of probabilities that there would be a 5% to 7% diminution in value even if the Plaintiff's Car was repaired by Zung Fu at the costs of HK$750,000. My key reasons are as follows.

22. In the present case, the relevant market is the second-hand car market. One of the relevant questions is whether the damage and repair would have any impact on the second-hand value of the Plaintiff's Car. Looking at the evidence including the Report by Roger Houghton and the photographs attached thereto, there can be no question that the Plaintiff's Car was seriously damaged. Further, judging from the repair costs of HK$750,000 and comparing it with its pre-accident value of HK$1,115,000, there is equally no question that the repair works contemplated by Zung Fu would be extensive.

23. If all factors, including price, are equal, it is more likely than not that a second-hand car buyer would opt for a car which has not been previously damaged, let alone seriously damaged. Not only is this a matter of common sense, it is supported by the evidence of Mr. Raymond Lee. Given his experience and having heard and seen him giving evidence, I accept his evidence and explanation. Besides, during cross-examination of the Defendant's expert, Mr. Sammy Lee agreed that second-hand car buyers would ask if the car had been damaged and might even demand Zung Fu to produce the repair records. All these show that serious damage to a car is a factor that second-hand car buyers will take into account and is likely to have an adverse effect on its value, even if the damage has been properly repaired.

24. Further, the fact that the Plaintiff's Car was a luxurious car is also relevant. Mr. Sammy Lee agreed during cross-examination that buyers of second-hand luxurious car are relatively more demanding. The evidence of the Plaintiff's expert, Mr. Raymond Lee, is to the same effect. Again, as a matter of common sense, it is not difficult to see why people who is willing to pay about HK$1 million to buy a car will prefer to buy a car which has not been seriously damaged.

25. Taking all these factors into account, I accept that Mr. Raymond Lee's 5% to 7% diminution is a reasonable estimate in the circumstances of this case. Taking the median of 6%, the repaired value of the Plaintiff's Car is HK$1,048,100. This is less than the total of the repair costs of HK$750,000 and the scrap value of HK$300,000. Hence, I find that it was reasonable for the Plaintiff not to repair the Plaintiff's Car but to treat it as a total loss.

26. Another way of looking at this matter is this. In deciding whether or not to repair the Plaintiff's Car or to treat it as a total loss, the Plaintiff was only required to act reasonably. The standard of reasonableness is not a high one. See: Moore v DER Ltd. [1971] 1 W.L.R. 1476, per Davies L.J. at p. 1479E-H and McGregor on Damages, 17th edn., para. 7-064 (at pp. 249-250). As stated above, the total of the repair costs plus the scrap value is already close to the pre-accident value of the Plaintiff's Car. In these circumstances and given the seriousness of the damage, I do not think it is unreasonable for the Plaintiff to take into account that there would be a risk of diminution in value even if it could be properly repaired. Besides, as pointed out by Pearson L.J. in Darbishire v Warran (above) (at p. 1077), there should be an element of flexibility in the assessment of damages.

27. In addition to diminution in value, the Plaintiff also relies on the fact that it makes no claim for loss of use of the Plaintiff's Car. It is the Plaintiff's case that if one takes into account loss of use, it would clearly be an appropriate case of total loss. The Defendant disputes this and submits that this factor is neutral. In light of my above conclusion on diminution in value, it is not necessary for me to deal with this aspect of the Plaintiff's case. However, if it is necessary to do so, I will accept the Defendant's argument. In my view, loss of use of the Plaintiff's Car is a separate and distinct head of damages. Irrespective of whether the Plaintiff's Car should be repaired or treated as a total loss, the Plaintiff can make a claim for loss of use. The fact that the Plaintiff elects not to claim for loss of use cannot and should not have any bearing on the different question of whether the Plaintiff's Car should be treated as a total loss.

28. For these reasons, I will allow the Plaintiff's claim as stated in paragraph 7 above. All the figures stated in paragraph 7(2) to (12) above are properly supported by documents. The only minor dispute concerns the licence plate. During cross-examination, it was suggested that the old licence plate could be used in the Plaintiff's new car. Looking at the photographs attached to Roger Houghton's report, I do not think it is unreasonable for the Plaintiff to opt for a new licence plate. Hence, I find that the total amount of damages payable by the Defendant to the Plaintiff is HK$828,748.

29. Since the Plaintiff is the successful party in this assessment, costs should follow the event and therefore I make an Order nisi that the costs of and occasioned by this assessment of damages be paid by the Defendant to the Plaintiff.

30. As regards interest, it is the Plaintiff's case that interest at judgment rate should be awarded from 13 October 2000 (i.e. the date of the accident). The Defendant does not dispute the rate but contends that interest should be awarded from the date of the Writ or alternatively the date on which the repair costs would have been paid.

31. The rationale behind awarding interest in this kind of cases is compensatory, viz. as compensation to the plaintiff for being kept out of the money which ought to have been paid to him. See: Harbutt's Plasticine Ltd. v Wayne Tank & Pump Co. Ltd. [1970] 1 QB 447; Union Base Ltd. v Tsang Shek Tong [1998] 2 HKC 349, per Godfrey JA at p. 352D-F. Where the claim is for damages and where the nature and size of the claim is apparent at the moment the cause of action accrues, interest may be awarded for the full period back to the date of the cause of action. See: Peter K.J. Thompson, Recovery of Interest: Practice & Precedents (Butterworths), para. 4.27 (at p. 55) and The Aldora [1975] QB 748.

32. Since I have concluded that it is reasonable for the Plaintiff not to repair the Plaintiff's Car but to treat it as a total loss, the Plaintiff's loss was suffered from the date of the accident. Besides, most of the items pleaded in paragraph 6 of the Statement of Claim were either incurred immediately after the accident or rendered futile as a result of the accident. In the circumstances, I find that interest should be awarded from 13 October 2000.

33. In the circumstances, I make the following Order:

(1) the Defendant do pay to the Plaintiff the sum of HK$828,748 as damages, together with interest thereon at the current judgment rate from 13 October 2000 until payment;

(2) there be an Order nisi that the cost of and occasioned by this assessment of damages be paid by the Defendant to the Plaintiff with certificate for counsel (insofar as it may be necessary).

34. Last but not least, it remains for me to thank both side's counsel for their assistance.