PUN CHUN SAUCE & PRESERVED FRUIT FACTORY LTD v. DIX CONSTRUCTION & TRANSPORTATION LTD

HCA 915/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 915 OF 2009

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ASSESSMENT OF DAMAGES

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1.  This is an assessment of damages, liability for the tortuous claim of the plaintiff having been admitted by the defendant.

2.  The plaintiff carries on the business of manufacturing condiments including soy sauce. It has a factory situate at 362 Tan Kwai Tsuen, Hung Shui Kiu, Yuen Long, New Territories (“the plaintiff’s factory”).

3.  The defendant carries on the business of construction and transportation.

4.  In March 2007, the defendant was engaged by the Civil Engineering & Development Department of the Hong Kong SAR Government to carry out landslip prevention measures on a slope adjoining the plaintiff’s factory.

5.  On 16 May 2008 in the course of carrying out such landslip prevention works, an accident occurred when a pipe clogged up while the defendant was delivering liquid cement whereby liquid cement burst out from the clogged pipe and was splashed onto adjacent areas including the open yard of the plaintiff’s factory falling on and thereby contaminating a number of uncovered vats of soy sauce in the process of being brewed and fermented by sun-drying at the plaintiff’s factory.

6.  Liability having been admitted by the defendant, this judgment is given in respect of the trial on the assessment of damages suffered by the plaintiff caused by the negligence of the defendant.

7.  It should be noted that the liability admitted by the defendant goes only to 92 vats being contaminated by the splashed liquid cement and not to the 108 vats as claimed by the plaintiff. There is therefore still a factual dispute between the parties as to the actual number of vats of fermenting soy sauce so damaged and contaminated by the splashed liquid cement.

Process of manufacture of soy sauce

8.  In order to fully appreciate and understand the plaintiff’s claim as regards the quantum of damages, it is necessary to know some background knowledge as to the process as well as the time it takes for the manufacture of soy sauce.

9.  Evidence of such manufacturing process came from the plaintiff’s witness, Lai Chiu Pang, who explained that process with the aid of a diagram / chart contained in paragraph 3 of his witness statement.

10.  In gist, that manufacturing process is alleged by Lai Chiu Pang to be as follows.

11.  Initially, soya bean is boiled in water then flour and fermentation ingredient are added to it which is then stored in fermentation room to complete the fermentation. The fermentation period takes about 10 days.

12.  The fermented soya beans are then transferred into vats to be sun dried in the drying yard.

13.  After being sun dried for about 6 months, the First Brew soy sauce is extracted and 70% of it is stored.

14.  Brine is then added to the remaining 30% of the First Brew soy sauce and fermented soya beans and sun dried for a further 3 months  to produce the Second Brew soy sauce.

15.  Once again 70% of the Second Brew soy sauce is extracted and more brine is again added to the remaining 30% to be further sun dried for another 2 months to produce the Third Brew soy sauce.

16.  Likewise 70% of the Third Brew is extracted and again brine is added to the remaining 30% which is further sun dried for another 2 months to produce the Fourth Brew.

17.  Once again 70% of the Fourth Brew and the remaining fermented soya bean can then be used to produce other sauces such as Hoi Sin Sauce, Bean Sauce and Ground Bean Sauce.

18.  In the meantime, the extracts from the Second Brew, Third Brew and Fourth Brew (ie the 70% extracted earlier) would be mixed and stored. 10% to 20% of that mixture of the Second Brew, Third Brew and Fourth Brew would be taken and brine added to it to produce the Last Brew soy sauce.

19.  That Last Brew soy sauce can be used to produce Dark Soy Sauce and Light Soy Sauce.

20.  The entire process would take about 18 months from start to finish.

21.  Amongst those very products so produced, according to Lai Chiu Pang, the First Brew soy sauce commands the highest value, followed by the Second Brew, Third Brew, Fourth Brew and then the fermented soya bean sauces.

Plaintiff’s claim for damages

22.  The plaintiff’s claim is brought on the basis that 108 vats of soy sauce being fermented was completely ruined by the accident caused by the defendant and that these 108 vats of fermenting soy sauce which was being sun dried had been fermenting for just under 6 months, the process of fermentation being started for these 108 only at the end of

23.  On that basis, the plaintiff claims damages for the following:

(1)  Market value of the soy sauce totalling $1,965,109.17 made up as follows:

(a) $59,702.03 for the First Brew soy sauce;

(b) $1,818,425.00 for the Second to Fifth Brew soy sauce;

(c) $86,982.14 for the fermented soya beans.

[It should be noted that these figures above have been reduced from the figures given in the plaintiff’s Amended Statement of Claim. These reduced figures were supplied by counsel for the plaintiff in his written opening and being a reduction in the claim, the figures given in the Amended Statement of Claim were accordingly amended without objection by the defendant.]

(2)  Claim for loss of interest on the above figures;

(3)  $1,260,000 being the cost incurred for storing the contaminated sauce and the vats for 28 months from the accident to 15 September 2010 when they were disposed;

(4)      Cost of removal of the vats ($12,800), replacing the 108 vats ($31,765) and cost of labour for cleaning ($1,408).

Issues in dispute

24.  The major issue in dispute between the parties relates to the claim for the market value of the soy sauce (item 1 above) and a secondary issue in dispute relates to the cost incurred for storing (item 3 above). There are also some disputes relating to item 4 but these are rather minor comparatively speaking.

25.  Quite apart from the dispute as to the proper application of the law relating to the major issue in dispute, there are also factual issues in dispute, namely,

(a) whether there was a total of 108 vats damaged or whether, as initially claimed by the plaintiff, only 92 vats had been damaged;

(b) when did the fermenting process for the damaged vats begin;

(c) whether the fermenting process involved only the First Brew, Second Brew and Third Brew only or whether there was also a Fourth Brew and a Last Brew.

26.  As for the dispute relating to the application of the law in the major issue between the parties, the plaintiff’s case in a nutshell is that the damaged / contaminated vats and the fermenting soya bean in them were profit earning chattels and the plaintiff relies on a number of shipping cases to argue that loss should be calculated on the basis as to what would be the value to the plaintiff of the finished product if the accident had not happened and those 108 vats of fermented soy bean would have been processed into the various brews of soya sauce and to be sold.

27.  On the other hand, the defence case is that general principles of the law relating to measure of damage are such that the plaintiff is only entitled to claim the value of the goods damaged at the time of the accident. Since the accident occurred when the vats had only been fermenting for less than 6 months (ie even before the First Brew soy sauce was extracted) the plaintiff’s claim for the market value of the soya sauce as and when it would have been made into finished product is misconceived, and that the plaintiff is only entitled to claim for the value of the damaged vats and its contents as at the date of the accident. It is also the defence case that the soya bean and the other ingredients fermenting inside the damaged vats are not profit earning chattels but are the products being processed and will become the actual goods or stock in trade to be sold when the manufacturing process is completed.

DETERMINATION AS TO FACTUAL DISPUTE

28.  I shall deal first with the factual issues in dispute item by item.

(a) 108 or 92 damaged / contaminated vats

29.  There is no dispute that immediately after the accident on

30.  By a second letter also dated 16 May 2008, from the plaintiff to the defendant it was stated that 92 vats of fermenting soya bean had been contaminated by the accident caused by the defendant and claimed compensation of $920,000 (being $10,000 per vat) plus cost of cleaning. The defendant was asked to reply within 7 days if they accepted such proposal for settlement.

31.  The defendant not having indicated their agreement to settle as per the plaintiff’s second letter of 16 May 2008, by letter dated

32.  On 20 June 2008, samples were taken from the contaminated vats by the Hong Kong Productivity Council for testing. The test report from the Hong Kong Productivity Council came out dated 13 July 2008.

33.  It was not until 26 February 2009, over 9 months after the accident, that Messrs K B Chau, the plaintiff’s solicitors, wrote to the defendant and indicated for the first time in their letter that 108 vats had been contaminated and damaged by the defendant during the accident on 16 May 2008. By that time, the damage estimated by the plaintiff’s solicitor was stated in the letter to be $5,259,600.

34.  The Writ was issued in the present case on 31 March 2009 on the basis that 108 vats had been contaminated.

35.  In his witness statement which he had adopted as his evidence in chief, Au-Yeung Shun Wo said that on the day of the accident, he had checked the extent of damage with Mr Lam at the yard of the plaintiff’s factory and found that contamination to the soy sauce in 92 of the vats were apparent, but that the other 16 had no obvious pollutants at that time.

36.  Mr Au-Yeung also said (in his witness statement) that later in the day (ie the day of the accident) one Mr Cheung from the defendant came to the plaintiff’s factory and suggested to compensate the plaintiff at $10,000 per vat. Having discussed this offer with his boss Mr Lai, Mr Lai told him that if the defendant could pay within 7 days, the 16 vats which were not obviously tainted could be excluded from the compensation which would only be claimed for the 92 vats as the plaintiff could still remove the pollutants from those 16 vats, even if it had to produce cheaper soy sauce from the residue.

37.  Therefore Mr Au-Yeung had signed a document with Mr Cheung of the defendant agreeing compensation at $920,000 (being the second letter dated 16 May 2008). However, the defendant did not pay and had never paid the amount agreed to the plaintiff.

38.  When Mr Au-Yeung took the witness stand, and after adopting his witness statement as his evidence in chief, he was asked by the plaintiff’s counsel as to the discovery of the contamination of the further 16 vats and said that it was the employee of the loss adjusters who had discovered the 16 extra vats being contaminated. He was then told by that employee of the loss adjusters about the further 16 vats. That discovery of the further 16 vats being contaminated was made by the employee of the loss adjuster about one month after the accident.

39.  On the evidence before me, I find that what was stated by Mr Au-Yeung in chief when questioned by the plaintiff’s counsel to be wholly inconsistent with what had been stated by him in his witness statement. It was not as though the contamination in the extra 16 vats was as a result of the test report by the Hong Kong Productivity Council confirming that the contents of the extra 16 vats had been confirmed to be contaminated, but rather what Mr Au-Yeung said in the witness box was that an employee of the loss adjuster had discovered the 16 extra vats being contaminated.

40.  Moreover, the plaintiff did not call this employee of the loss adjuster to give evidence as to the discovery of the extra 16 vats being contaminated and there is no sufficient or proper explanation given as to why it was only more than 9 months after the accident that the defendant was informed for the first time that 108 vats had been contaminated when it had already been agreed and a document / letter signed between the parties confirming that only 92 vats had been contaminated and damaged in the accident.

41.  I do not accept the evidence of Mr Au-Yeung on this disputed issue and find as a fact that the plaintiff has only succeeded in proving that 92 vats of fermenting soya bean had been contaminated and damaged as a result of the accident and not 108 vats.

(b) When did the fermenting process in respect of the contaminated / damaged vats begin

42.  It is an undisputed fact that when the accident happened, the damaged vats were in the yard at the plaintiff’s factory.

43.  In his opening, counsel for the plaintiff said the brewing process had started for more than 5 months at the time of the accident.

44.  When Lai Chiu Pang gave evidence, he conceded in cross examination that the contaminated vats were filled no earlier than

45.  Mr Au-Yeung’s evidence was that at the time of the accident, the contaminated vats had been there for 6 months and would have been extracted (ie the First Brew) within 2 to 3 days time.

46.  Both Mr Lai and Mr Au-Yeung gave evidence that the plaintiff had kept documentary records as to the date when those vats were first filled. However, Mr Au-Yeung said in evidence that he had tried to locate those records but failed to.

47.  The main complaint of the defendant on this factual issue was that documentary records which the plaintiff admit to be in existence were not discovered and produced to show the exact time when the contaminated vats were first filled for the fermentation process.

48.  I do not think that the witnesses of the plaintiff were lying or trying to hide anything from the court on this factual issue as there was no good reason for them to do so. At the most, it can only be said that they cannot be absolutely precise as to the time when those vats were first filled with soya beans for fermenting.

49.  Doing the best that I can on the evidence given, I make the finding that the contaminated vats had been in the yard of the plaintiff’s factory for the fermentation process no earlier than 31 December 2008 which makes it such that those vats have been undergoing the fermenting process for some five and a half months when the accident occurred.

(c) Were there only First, Second and Third Brew or were there also a Fourth and Fifth (or Last) Brew of the fermented soy sauce in the manufacturing process?

50.   The evidence from the plaintiff that there was a First, Second, Third, Fourth and Last Brew came from the evidence of Lai Chiu Pang (as demonstrated by the chart in his witness statement) and in this he was supported by the evidence of Au-yeung Shun Wo, a witness called also by the plaintiff.

51.  On the other hand, this evidence was challenged by the defendant relying on the following matters :

(a) A letter from the plaintiff to the defendant dated
21 May 2008 in which the plaintiff quantified its claim for damages based only on the First Brew, Second Brew, Third Brew and the remaining fermented soya bean which can then be made into other side products such as Hoi Sin Sauce;

(b) A letter before Writ from the plaintiff’s solicitors to the defendant dated 26 February 2009 in which the plaintiff’s claim for damages was again quantified on the basis of a first extract, second extract and third extract (corresponding to the First Brew, Second Brew and Third Brew) with no mention of any fourth or fifth extract;

(c) The promotional material of the plaintiff advertising its wares (Trial Bundle B Tab (2)) in which it was stated that during the fermentation process, the fermented soya bean would “for three times be put under the sun”;

(d) The amendment to the Statement of Claim was made on 17 November 2010 and until those amendments were made, only then was there any suggestion by the plaintiff in its pleadings as to a Fourth Brew and Fifth Brew of the fermentation.

52.  At the start of his cross examination, Lai Chiu Pang was referred to the plaintiff’s promotional material  at Tab (2) of Bundle B where it was stated in Step 4 of the fermentation process that for three times the fermentation material would be put under the sun. By way of explanation, Lai Chiu Pang said that there were differences with the manufacturing process, a method for production of large lot, but for production of Lup Chi Ching, which is the most expensive of all the products, its production will not be in a large lot, but only limited to about 30 vats. When further asked as to why there was no mention in his witness statement and also in the literature as to different manufacturing process, Lai Chiu Pang could only say that all the manufacturing process started in the same way.

53.  Further on in his cross examination, Lai Chiu Pang was referred to the plaintiff’s letter of 21 May 2008 to the defendant and the plaintiff’s solicitor’s letter before Writ of 26 February 2009 in which there was no mention made of the Fourth Brew and the Fifth Brew.

54.  Whilst Lai Chiu Pang agreed that to be the case, he went on to say that whether or not there would be a Fifth Brew depended on the plaintiff’s needs at the time.

55.  In re-examination on this matter, Lai Chiu Pang said that if orders were large, the plaintiff would carry out 2 more brews and thus 5 brews would be made from the fermenting soya beans. He further said explained that when the plaintiff’s letter of 21 May 2008 was written, they only claimed for 3 brews, but by February 2009, 5 brews ought to have been produced from the damaged vats therefore they are now claiming for 5 brews.

56.  Au-yeung Shun Wo was also cross examined on this issue and said under cross examination that the letter from the plaintiff to the defendant dated 21 May 2008 was not issued by him and he did not know why the claim in that letter was based only on the First Brew, Second Brew and Third Brew.

57.  Au-yeung Shun Wo further said in cross examination that 5 brews would always be made from the fermenting soya beans by the plaintiff every time they manufactured soy sauce. That was because the consumption of the Fifth Brew was extremely large since the Fifth Brew soy sauce was the cheapest.

58.  In resolving the factual dispute on this issue whether there is a Fourth Brew and a Fifth Brew, although both witnesses called by the plaintiff gave evidence that there was or can be a Fourth Brew and a Fifth Brew, I am unable to attach weight to their evidence of a Fourth Brew and a Fifth Brew for the following reasons.

59.  Firstly, there is a glaring inconsistency in their evidence in that Lai Chiu Pang says that whether there was a Fourth Brew and a Fifth Brew depended on the plaintiff’s needs at the time when the evidence of Au-yeung Shun Wo was that there would always be a Fourth Brew and a Fifth Brew because consumption of that was extremely large. This inconsistency causes me to have grave doubts as to the credibility of both these witnesses on this issue.

60.  However, more importantly is the fact the evidence of a Fourth Brew and a Fifth Brew coming from these two witnesses are not supported in the least by the contents of the plaintiff’s letter to the defendant dated 21 May 2008, and even by the contents of the letter before Writ from the plaintiff’s solicitors dated 26 February 2009, some 9 months later.

61.  There is not even the slightest mention of a possibility of a Fourth and Fifth Brew in both those letters.

62.  Furthermore, that position of the plaintiff is also not supported by its own publicity material which says quite unequivocally that the fermented soya bean is put under the sun “for three times”. Once again no mention of any possibility of being put under the sun for a fourth or fifth time, when according to Au-yeung Shun Wo, if he is to be believed, that the Fifth Brew soy sauce has the largest consumption.

63.  Even on the evidence of Lai Chiu Pang that by

64.  I take the view that the documentary evidence (namely the two letters and the publicity material of the plaintiff) likely represent the true position and that the Fourth Brew and the Fifth Brew, or the allegations of them, only came into the picture when the Statement of Claim was amended by the plaintiff in November 2010 with a view to vastly exaggerate their claim for compensation.

65.  I therefore find that on this issue there would only have been a First Brew, Second Brew and Third Brew without any Fourth Brew or Fifth Brew. Thereafter the residue of the soya bean from the fermentation process would be used to produce other types of sauces such as Plum sauce or Hoi Sin sauce.

PLAINTIFF’S CLAIM FOR MARKET VALUE

Plaintiff’s calculation as to its claim for the market value of soy sauce

(a) First Brew Soy Sauce

66.  The Plaintiff’s quantification of its loss of market value relating to the First Brew Soy Sauce is contained in charts all headed “LCP-10” which is a revised version of what was headed “LCP-6 Loss on 108 vats of soy sauce products”. The first of these charts relates only to First Brew Soy Sauce and is contained in page 1 of Tab (1) of the Core Bundle.

67.  The chart is divided into columns A through to K. Column K gives the total amount of First Brew soy sauce claimed by the plaintiff in the sum of $59,702.03.

68.  That final sum in column K appears to have been arrived at by taking the Sales Volume of the plaintiff from February to July 2009 (in column F) multiplied by the average selling price (in column J) less the value of packaging (in column E) and then multiplied by the soy content (in column D).

69.  By way of elaboration the following words appear below the chart :

“Elaboration: about 14,249.43 catties of First Brew soy sauce (including touchou and Lup Chi Ching light soy sauce) could be produced from 108 vats. 349.49 catties were sold from February to July 2009, and the remaining stock is 13,900 catties.

All could be sold if not contaminated, and the sales value is about HK$59,702.03.

Elaboration: Appendix to LCP-6 “Packaging Material” could be referred to for (E) Value of packaging.

Amendments:

(1) The total weight of touchou soy sauce is about 14,288.40 catties (3969 catties / 30vats x 108 vats).

The original calculation was 20,349.43 catties (5670 catties / 30 vats x 180 vats).

They have to be brewed for another 3 months, and after having about 30% of them being evaporated, they will become First Brew soy sauce.

(2) Cost is amended to HK$2.87 per catty.

The cost at that time (including yellow beans, flour and salt) was calculated by using the unit price in or about September 2010, which had included 50% of production cost (fuel charges, water bills, rent, wages, etc) and 30% of other costs (commission, discount, promotion fees, etc). Actually, it should be calculated using the unit price in or about November 2007 when the materials were put into the vats.”

(b) Second to Fifth Brew Soy Sauce

70.  Pages 2 and 3 of Tab (1) of the Core Bundle gives the chart relating to the Second to Fifth Brew Soy Sauce. Once again the chart is divided into columns A to K. The sum of $1,818,425.20 being the amount claimed by the plaintiff is found at the bottom of column K in the chart. Seemingly, that amount claimed by the plaintiff for the Second to Fifth Brew Soy Sauce is worked out by taking the Sales Volume of the plaintiff from February to July 2009 (in column F) multiplied by the average selling price (in column J) less the value of packaging (in column E) and then multiplied by the Soy content (in column D).

71.  By way of elaboration, the following words appear after the chart at page 3 of Tab (1) :

“Elaboration: After extracting first brew soy sauce from the 108 vats, salt water could be added to produce the second to fifth brew of soy sauce, mainly dark soy sauce and premium dark soy sauce.

Total weight is about 942,002.26 catties, and the sales value is about HK$1,818,425.20.

Elaboration: Appendix to LCP-6 “Packaging Materials” could be referred to for (E) Value of packaging.

Amendments:

(1) Cost is amended to HK$0.98 per catty.

The cost is that time (including yellow beans, flour and salt) was calculated by using the unit price in or about September 2010, which had included 50% of production cost (fuel charges, water bills, rent, wages, etc) and 30% of other costs (commission, discount, promotion fees, etc). Due to communication problems, the Accounts Department added the 50% production cost (fuel charges, water bills, rent, wages, etc) and 30% other costs (commission, discount, promotion fees, etc) to the cost, and worked out the cost at HK$2.70, which is incorrect. The change of cost from HK$2.7 to HK$1.28 does not affect the compensation amount of $1,818,425.20 as the unit cost is for reference only.”

(c) Fermented Soya Bean

72.  A third chart in relation to the plaintiff’s claim for Fermented Soya Bean appears in page 4 of Tab (1) of the Core Bundle. Yet again the chart is divided into columns A to K and the amount of the plaintiff’s claim for Fermented Soya Bean is $86,982.14 found at the bottom of column K. Again, that amount claimed is worked out by taking the Sales Volume from February to July of 2009 (in column F) multiplied by the average price (in column J) less the value of packaging (in column E) and then multiplied by the Soy content (in column D).

73.  Once again by way of elaboration, the following words appear after the chart at page 5 of Tab (1) of the Core Bundle:

“Elaboration: After extracting First Brew soy sauce, the second to fifth brew of soy sauce, the remaining fermented soy beans are about 12,602.59 catties (about 117-125 catties were left in each vat). By adding other ingredients to produce bean sauce, ground bean sauce, hoi sin sauce, etc, the total weight was 15,902.36 catties, and the sales value was about HK$86,982.14.

Elaboration: Appendix to LCP-6 “Packaging Material” could be referred to (E) Value of packaging.

Amendments:

(1) Cost is amended to HK$0.17 per catty.

The cost at that time (including yellow beans, flour and salt) was calculated by using the unit price in or about September 2010, which had already included 50% of production cost (fuel charges, water bills, rent, wages, etc) and 30% of other costs (commission, discount, promotion fees, etc). Due to communication problems, the Accounts Department added the 50% production cost (fuel charges, water bills, rent, wages, etc) and 30% other costs (commission, discount, promotion fees, etc) to the cost, and worked out the cost at HK$0.532, which is incorrect. The change of cost from $0.532 to $0.21 does not affect the compensation amount of $86,982.14 as the unit cost for reference only.

(2) The total weight of fermented soy beans is 12,602.59 catties.

When calculating the compensation, the weight provided by the Factory Manager for each vat was about 300-340 catties (including beans, flour, salt water), but the Accounts Department misunderstood them as the weight of the fermented soy beans. Actually, the weight of fermented soy beans in each vat is about 117-125 catties.”

Basis of the Plaintiff’s claim for market value of the soy sauce

74.  Although it is common ground that the fermenting soy sauce had only been placed in the vats and was being sun dried for less than six months when the accident happened (ie even before the First Brew had been extracted from the fermenting product), nevertheless the plaintiff’s claim is for the market value of the First Brew, Second to Fifth Brew as well as for the fermented soya bean product (ie Plum sauce, Hoi Sin sauce etc)

75.  The basis for making such a claim was submitted by Mr Mak, counsel for the plaintiff, as follows.

76.  Relying on a number of shipping cases, Mr Mak argues that the damaged vats with its contaminated fermenting soy sauce contents ought to be regarded as profit earning chattels.

77.  As such it was further submitted by Mr Mak that had the accident not happened, the First Brew, Second to Fifth Brew as well as the fermented soy sauce products would have been produced from the contents of the damaged vats in time and could have been sold off by the plaintiff whereby profit would have been generated therefrom.

78.  Therefore the plaintiff ought to be fully compensated for the total loss of profit to the damaged vats and its contaminated contents.

Stance taken by defendant as to loss of market value

79.  The defendant dispute the argument by the plaintiff that the damaged vats and their contaminated contents were profit earning chattels.

80.  The defendant also disputes the claim by the plaintiff of the market value as quantified by the plaintiff.

81.  The defendant submits that the normal measure of damage for tort is the value of the goods damaged or destroyed at the time of the accident to the extent that the plaintiff can be put back in if the tort had not been committed.

82.  In the present case, it is submitted by the defendant that the loss to the plaintiff should be calculated by the value of the damaged vats and the value to the plaintiff of the contaminated contents contained in the damaged vats. This would be the value of the damaged vats and also the value of the soya beans, the flour and the brine contained in them.

Decision

83.  The basis of the plaintiff’s argument for quantifying its claim for loss of market value was that the vats and its contaminated contents were profit earning chattels.

84.  Whilst there are no decisions or judgments defining the term “profit earning chattels” in the way that term is used in the context of the law relating to measure of damages, all the cited cases show that such profit earning chattels are either a ship or a vehicle such as a bus which is chartered out or hired out by the plaintiff to third parties, and more importantly on a regular and not a once off basis, for the purpose of earning profit from such charter or hire which was on a regular and continuous basis. Therefore when such ship or vehicle was damaged or destroyed and before a suitable replacement can be reasonably acquired, the plaintiff was entitled to be compensated for the loss it would thereby have sustained due to the fact that the ship or vehicle cannot thereby be hired out and thus cannot earn the profit it would otherwise have earned had there been no accident.

85.  In the context of the present case, I am unable to accept the argument put forward by counsel for the plaintiff that the damaged vats and its contaminated contents are ‘profit earning chattels’ in the sense that that phrase has been used in the cases cited.

86.  The damaged vats were no doubt tools of the trade of the plaintiff, but there was no evidence that they were hired out to third parties for profit or income.

87.  The contaminated contents inside the damaged vats were raw material being manufactured into soy sauce of various types by the plaintiff and in time would be made or processed to be the manufactured products of the plaintiff and to be sold off on a once off basis as stock in trade.

88.  When the accident happened on 16 May 2008, the damaged vats and their contaminated contents was being sun dried for some five and a half months, with at least another half a month to go before the contents for the First Brew would be taken out from those vats. Needless to say that it would be much longer before the contents for Second Brew and the Third Brew would be taken out from those vats. Even if I had found as a fact that there would be a Fourth Brew and a Fifth Brew as claimed by the plaintiff, again the removal of the contents from those vats for the Fourth Brew and the Fifth Brew would not take place for still even longer.

89.  Given that scenario, and given the evidence from the plaintiff that as soon as the accident happened, and the contents of the vats had been found to be contaminated by the liquid cement, the plaintiff had decided there and then that those contents in the damaged vats could no longer be used for the manufacture of soy sauce, the plaintiff was under a legal duty to mitigate its loss.

90.  Instead of taking steps to mitigate its loss, the plaintiff did and / or failed to do the following:

(a) No steps were taken by the plaintiff to re-start the manufacturing process in respect of the damaged vats and their contaminated contents as early as it could reasonably have done so;

(b) Instead the plaintiff allowed the damaged vats and its contaminated contents to remain in the plaintiff’s yard on the flimsy pretext that the plaintiff had to preserve them as evidence until some time in mid September 2010 before the damaged vats and their contaminated contents were disposed of by the plaintiff;

What the plaintiff could and should have done to mitigate its loss were some very simple steps and which would have greatly reduced the plaintiff’s damages in the matter.

91.  After the experts or loss adjusters had examined the contaminated contents of the damaged vats, and after photographs had been taken of them for evidentiary purposes, the damaged vats and their contaminated contents should have been disposed of by the plaintiff.

92.  There is evidence from the plaintiff that it would have taken about a month to order replacement vats from Mainland China. Accepting that evidence from the plaintiff and that the plaintiff will still need to dispose of the 92 damaged vats and their contaminated contents as well as to clean up the drying yard where the liquid cement had spilled, it would be reasonable to have expected the plaintiff, within that time of one and a half months after the accident, to have been in a position to restart the manufacturing process in respect of the 92 vats of damaged and contaminated soya bean fermentation.  If that had been done by the plaintiff, it would mean that the plaintiff would only have suffered a delay of some seven months in the manufacturing process in respect of the 92 damaged and contaminated vats of soya bean fermenting material by reason of the accident caused by the defendant.

93.  In this respect, I also take into account the evidence which came from Lai Chiu Pang of the plaintiff that the plaintiff did not suffer any loss of profit due to the damage and contamination to those vats in the accident since the plaintiff had sufficient stock in trade to meet the orders that were placed with the plaintiff after the accident.

94.  Given that evidence and given all the circumstances in the case, effectively, that means that the loss to the plaintiff ought to be quantified on the basis that the plaintiff would have suffered a seven months delay in the manufacturing process in respect of the 92 damaged and contaminated vats of soya bean fermentation material.

95.  Such quantification would include the costs of the soya bean, flour and brine which had been put into the 92 vats as well as the costs of replacing the 92 damaged vats.

96.  That, however, is not the full extent of the loss since it is the value of the damaged goods to the plaintiff as at the date of the accident which matters.

97.  Quite apart from the costs of the raw material stated above, the seven months delay is also a loss to the plaintiff since there is no ready market for fermenting soya bean which is seven months into the process of fermentation or sun drying. Therefore if the plaintiff had to re-start the fermentation process with a seven months delay, that delay ought to be one item of loss to be taken into the equation for calculating the plaintiff’s loss.

98.  The difficulty is in quantifying the amount to be awarded for the 7 months delay.

99.  If there is a ready market for fermenting soya bean of the type being manufactured by the plaintiff and which has been sun-dried for some 7 months, there would not be any difficulty in quantifying the loss since it would be the amount that the plaintiff will have to pay for 92 vats of such fermenting soya bean which has been sun-dried for 7 months. But there is no evidence that there is such a ready market.

100.  On the other hand, the loss for the 7 months delay ought not to be calculated based on loss of profits since there is evidence from Mr Lai of the plaintiff during cross examination to the effect that the plaintiff had not suffered any loss of profit caused by the damaged to and the contamination of the vats by this accident, the reason given by Mr Lai being that the plaintiff had sufficient stock to meet all the orders that were placed with the plaintiff after the accident.

101.  The best that I can do is therefore to take the view that the delay of 7 months to the plaintiff ought to be compensated for by an award of general damages.

102.  Before quantifying the amount of general damages for the 7 months delay, I should quantify the costs of the raw material as well as the cost of labour and fuel etc which had been incurred by the plaintiff in respect of the 92 vats and which being the loss in respect to the contents of the 92 vats to the plaintiff by reason of the accident.

103.  Based on what is stated by Lai Chiu Pang in paragraph 2 of his Supplementary Witness Statement dated 2 July 2011 (which Lai adopted as his evidence), he says that the total raw material in producing 30 vats of First Brew Soy Sauce consists of 1,503 catties of soya beans, 827 catties of flour, and 8,100 catties of 22 degree brine. The total cost of the raw material for those 30 vats comes to $5,841.15.

104.  Added to that the production cost of $2,920.58 and the non-production cost of $2,628.52 would give $11,390.24 as being the total cost (raw material, production and non-production costs) for 30 vats of fermenting soy sauce.

105.  Therefore the loss in respect of the contents of the 92 vats comes to $34,930.

106.  To this amount will have to be added an amount to take into account the 7 months delay.

107.  A total figure of $50,000 would, in my view, be reasonable compensation to the plaintiff for the loss of the contents in the 92 vats as well as for the 7 months delay.

CLAIM FOR OVERDRAFT INTEREST

108.  The claim for overdraft interest is put on the following basis by the plaintiff.

109.  The plaintiff was performing export sales.

110.  Shanghai Commercial Bank offered the plaintiff overdraft bank loan at an interest rate of 4.5%.

111.  There is evidence from Lai Chui Pang that the plaintiff had to apply to banks for credit lines to purchase raw material when it received export sales orders.

112.  Had the accident not happened, the plaintiff says that it would have realized the profits from selling the products manufactured from the contaminated contents of the damaged vats and would not have had to incur overdraft interest payment.

113.  Therefore the plaintiff claims for interest at 4.5% to be awarded on the value of the loss of the soy sauce which the plaintiff could have produced from the damaged vats and their contaminated contents.

114.  The period of loss for such interest claimed by the plaintiff is for 23 months from 16 October 2008 to 15 September 2010. (see paras 152 to 155 of Plaintiff’s Closing Submission)

115.  Given that there is evidence from Lai Chui Pang that the plaintiff has not suffered any loss of profit (by reason of this accident caused by the defendant) due to the fact that the plaintiff had sufficient stock in trade to meet orders which came in after the accident, this claim for loss of profits is more hypothetical than real.

116.  Given also that there is no evidence from the plaintiff as to any specific amount or specific period that bank interest had to be paid directly resulting from the accident, I am not inclined to entertain the claim under this head of damage.

117.  Interest on the amount of damages assessed in this judgment will be awarded in the usual way at the end of this Judgment.

CLAIM FOR STORAGE FOR 28 MONTHS

118.  The plaintiff claims a sum of $1,260,000 for the occupation and storage of the 108 vats of contaminated soya bean fermentation at the plaintiff’s own yard for a period of 28 months (at $45,000 per month) from the date of the accident until 15 September 2010.

119.  As originally pleaded, this claim was put on the footing that the plaintiff’s factory where the damaged vats and their contaminated contents were stored or kept were premises owned by the plaintiff, and that but for having to use the storage space to accommodate these damaged vats and their contaminated contents, the plaintiff would have been able to rent out such area of its factory to others such as SmartTone.

120.  The reason given by the plaintiff for having to store the damaged vats and their contaminated contents for 28 months was to “preserve the evidence”.

121.  This head of claim of the plaintiff is wholly misconceived and will not be allowed for the following reasons.

122.  Firstly, there is evidence given by Lai Chui Pang of the plaintiff that he had decided soon if not immediately after the accident that the damaged vats and their contaminated contents could no longer be used by the plaintiff for the production of soya bean sauce.

123.  There is also evidence before me that within a month or so of the accident, the contaminated contents of the damaged vats had been examined by experts from both sides and photographs taken.

124.  It was not until 25 August 2010 that the plaintiff’s solicitors wrote to the defendant’s former solicitors seeking their views as to the disposal of the contaminated contents of the damaged vats. No earlier letter of similar effect had been sent to the defendant or the defendant’s solicitors, nor had the defendant or its solicitors ever requested the preservation of the contaminated contents of the damaged vats by the plaintiff.

125.  The defendant’s solicitors had promptly replied to the plaintiff’s solicitors by letter of 6 September 2010 confirming that they had no objection to the disposal of the contaminated contents of the damaged vats.

126.  Given all the factual circumstances above, the plaintiff was clearly under a duty to mitigate its damages and is not entitled to recover avoidable loss.

127.  In other words, the plaintiff was under a duty to dispose of the contaminated contents of the damaged vats as well as the damaged vats as soon as it was reasonable to do so. In this case, that would be after the examination by the experts on both sides of the contaminated contents and the taking of photographs of the damaged vats, which should not have been more than one month after the accident.

128.  The failure by the plaintiff to mitigate its loss resulted in breach by the plaintiff of its duty to mitigate.  The storage of the contaminated contents as well as the damaged vats for some 28 months was wholly uncalled for.

129.  Accordingly, the plaintiff is not entitled to claim for the costs of such storage, whether the claim is put on the footing of loss of use of the land, loss of rental, incurring of warehouse charges or even loss of market rental.

130.  That difference in basis for the claim came about due to the fact that when Lai Chui Pang was in the witness box, despite the plaintiff’s pleaded case being on the footing that the plaintiff’s factory was its own premises, Lai wavered somewhat in his evidence in an attempt to change the basis saying at times that the land where the damaged vats were stored were rented premises rather than owned by the plaintiff and at other times the plaintiff had to pay warehouse charges or rental for storing the damaged vats.

131.  Since I am of the view that the plaintiff had failed in its duty to mitigate its loss by unreasonably storing the damaged vats for some 28 months, and on that basis disallowing this head of claim, it is unnecessary for me to decide whether the land upon which the damaged vats were stored were land owned by the plaintiff or whether the plaintiff had to pay and incur rent or warehouse charges for it.

COSTS OF REMOVAL AND CLEANING UP

132.  The plaintiff claims $8,800 for sucking up the contaminated contents of the damaged vats and also a further sum of $4,000 for the clearing up of the damaged vats.

133.  The plaintiff also claims $1,408 being the labour costs paid to several workers for the cleaning up the factory yard and disposal process.

134.  There were some disputes as to whether the translation in the invoice / receipt referred to “cleaning” or “cleaning up” of the damaged vats. Whatever the actual meaning was, I have little doubt that the amount was for the disposal of the damaged vats.

135.  Moreover, although as a fact it was found that the plaintiff’s claim should properly be for 92 vats of contaminated fermentation and not 108 as claimed by the plaintiff, the evidence showed that these amounts incurred were lump sum payments for the disposal and removal of the damaged vats so that the same amount would have been incurred whether it was for 92 vats or 108 vats.

136.  The amounts claimed would appear reasonable and were supported by documentary evidence in the form of invoices / receipts.

137.  I would therefore allow the entirety of the amount claimed under this head in the sum of $14,208.

COST OF REPLACING 108 VATS

138.  The plaintiff claims HKS31,764.71 as being the costs of replacing the 108 damaged vats from new orders placed for replacement vats from Mainland China.

139.  Each new vat costs RMB250 and is supported by documentary evidence in the form of invoices / receipts.

140.  The plaintiff, on the findings made above, would only be entitled to claim for the replacement amount for 92 vats.

141.  This comes to RMB250 x 92 giving RMB23,000.

142.  At the exchange rate of  RMB0.85 to HK$1 this would give HK$27,059.

Conclusion

143.  Total amount of damages assessed above comes to $50,000.00 + $14,208.00 + $27,059.00 which gives $91,267.00.

144.  There will accordingly be judgment to the plaintiff for the amount of $91,267.00 together with interest at 4% per annum from the date of the Writ until judgment and thereafter at judgment rate untilpayment.

Costs

145.  There will be a costs order nisi that the defendant pays the plaintiff its costs of this action to be taxed on District Court scale if not agreed with certificate for counsel.