CHAN SAP AND ANOTHER v. WU SHAIO WU AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. The 1st Plaintiff is and was in September, 1985, the registered and beneficial owner of the factory premises known as the 5th floor, Victory Industrial Building, 151-157 Wo Yi Hop Road, Kwai Chung, New Territories. The 2nd Plaintiff is and was at that time the tenant and occupier of the said factory premises and carried on business there as a manufacturer of handbags. In fact, the 1st Plaintiff is the major shareholder and one of the 2 directors of the 2nd Plaintiff. The 1st Defendants were at that time the registered owners of the factory premises immediately above the 1st Plaintiff's premises, i.e. the 6th floor. The 3rd and 4th Defendants were, at the relevant time, the tenants and occupiers of the 1st Defendants' premises. They carried on business as manufacturers of rubber gloves and foam rubbers at different portions of the 1st Defendants' premises.

2. In about September, 1985 or shortly prior to that, in the course of their manufacturing process, the 3rd and 4th Defendants had caused or allowed certain corrosive liquids in their use from leaking through the floor of the 1st Defendants' premises into the 1st Plaintiff's premises. Such liquids had stained, corroded and damaged the ceiling, walls, windows and floor of the 1st Plaintiff's premises and the raw materials and goods of the 2nd Plaintiff placed therein. The 2 Plaintiffs sue the 3 Defendants for damages for negligence, nuisance and under the principles of Rylands v. Fletcher and further, against the 1st Defendants for breach of the Deed of Mutual Covenants. On 2 September, 1986, in default of defence, the 2 Plaintiffs obtained from Mr. Justice Hooper against these 3 Defendants certain orders and permanent injunctions including interlocutory judgment for damages to be assessed.

3. The 1st Plaintiff's claim is confined to the costs of repairing the damage done to his premises. An Investigation Report prepared by Fortune Surveyors & Adjusters Company (Exhibit P-1) shows the extent of the damage: the corrosive liquids not only affected the ceiling, the walls and the floor, but also the iron window frames. I accept that the damaged parts had been caused by the leakage of the corrosive liquids and agree that remedial work had to be carried out in respect thereof. The 1st Plaintiff obtained 2 quotations for such work. They are produced as Exhibit P-2 (a) and (b). The quotation of one Tai Wai Decoration Co. in the sum of $102,000.00, being the lower of the 2 quotations, was accepted by the 1st Plaintiff. I accept that the work as set out in the quotation is necessary and reasonable in restoring the 1st Plaintiff's premises to their previous conditions.

4. Part of the remedial work was carried out and completed. It was later found out that the proposed repairing work to the ceiling had to be stopped. This was because it was necessary to allow the part damaged by the liquids to dry up and for the 1st Defendants to carry out remedial work to their premises first. The total costs up to date were $67,000.00. Receipts for these were produced as Exhibit P-4. I am satisfied that the said work had been carried out and payment therefor had been made. The remaining part of the remedial work has to be resumed at a later stage. This will cost another $35,000.00 as stated in the quotation.

5. The 1st Plaintiff is therefore entitled to $67,000.00 and $35,000.00, i.e. $102.000.00.

6. The 2nd Plaintiff's claim consists of 2 heads: first, damages for the loss of the raw materials and finished products and second, damages for loss of business.

7. According to the same Investigation Report, certain quantities of raw materials and finished products were damaged by the leakage of corrosive liquids. There was evidence from the 1st Plaintiff that these materials and products could not be used or sold any more. I accept that, having regarding to their conditions as described in the Report. These are therefore clearly recoverable. The 1st Plaintiff gave evidence to the effect that he and his partner took an inventory of the damaged materials and goods. His partner took notes and he was present. He later checked the inventory against the company's previous invoice and receipts to ascertain the unit prices of the damaged items. He then set out in a table the damaged items, the quantity of each and the price thereof. This was attached to the Investigation Report. The total amount is as follows:

8. Regarding the 2nd Plaintiff's claim for damages for loss of business, the case put on its behalf was as follows. Because of the damage done to the premises, some of the machines and workers had to be vacated therefrom. The 1st Plaintiff in his evidence said that if there were no leakage, the 2nd Plaintiff could produce at least $4 million worth of goods, although at one stage, he mentioned about $6 to $7 million. He said he had sufficient orders at the time "if he was minded to produce goods". When asked whether he had orders for $4 million, he replied that he had to check but he thought he had. No documents were produced to support this. He further said that his incoming orders had been affected, firstly because he had difficulty in getting labour due to the odour of the corrosive liquids; secondly, because of the effect of corrosive liquids, he could not use the place to store his goods, to manufacture goods or to keep the workers and machines there. He produced the Profit & Loss Account of the 2nd Plaintiff for the year ended 31 March 1986 (Exhibit P-5). He said that in the year 1985/86, the Company manufactured goods to the amount of $3.57 million. He claimed that the gross profit would be 30-40% say 35%. He had apparently arrived at this percentage from the Profit & Loss Accounts which showed that for 1985/86, the "Cost of Goods Manufactured" was $3,573,678.40 and the "Gross Profit" was $1,006,042.86. He further said that the labour costs would be about 14% and this he based on the figure of $520,707.55 for "Salaries & Allowances". He therefore claimed that the 2nd Plaintiff's loss of profit was $(4 - 3.57) million x (35% - 14%) or $430,000.00 x 21% i.e. $90,300.00.

9. With respect, I am totally unimpressed by this evidence and method of calculation. It has completely ignored the principle that the purpose of an award of damages resulting from a tort is to compensate the injured party and try to restore him to the same position as if no tort had been committed. The 2nd Plaintiff has to prove what its position would have been if there were no leakage and nuisance. There is no evidence before me showing how his business had had been affected apart from the rather vague allegations that some of his machines and workers had to be moved and that his orders had been affected. There is, for example, no evidence as to how many machines had been damaged so that production by these machines had ceased. Nor is there any evidence to the effect that some purchase orders had to be cancelled because of the stoppage of work and if so, how many such orders there were and the amount involved. There is no evidence that the company had produced less goods in 1985/86 than in previous years. On the contrary, from the Profit S Loss Account, the total amount of goods produced in 1985/86 was more than that in 1984/85, and the net profit for the year (i.e. $81,710.51) was greater than that in the previous year, I appreciate that this is not conclusive because, as Counsel for the Plaintiffs submitted, the profits could be even more without the leakage or nuisance. However, there is simply no reliable evidence before me to show that the 2nd Plaintiff had suffered any loss of production as a result of the Defendants' tort and if so, how much. There may be many reasons for a greater or smaller production. Without any further details I cannot simply rely on the mere allegation that $4 million worth of goods would have been produced instead of the $3.57 million stated in the Accounts. Besides, the $3.57 million was described as "Cost of Goods Manufactured" and not the amount of goods sold. Furthermore, it is most unsatisfactory to rely on the figure for salaries and allowances as the labour costs and ignore other items of expenses. Finally, I note that the amount claimed by the 2nd Plaintiff as loss of profit due to the leakage and nuisance (i.e. $90,300.00) is even greater than the actual net profit for the whole of 1985/86. In these circumstances, I do not think this item is recoverable.

10. The amount of damages to which the Plaintiffs are entitled is therefore:

11. Counsel asked for interests on these sums at the rate of 10% per annum from the date of the Writ to the date of judgment and thereafter at judgment rate, and I so order. The Plaintiffs will have their costs with a Certificate for Counsel.