RICHFINE DEVELOPMENT LTD v. HUGH RUPERT RIVINGTON

HCCL 18/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 18 OF 2006

(transferred from HCA 3157 of 2001)

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Dates of Hearing : 17, 18, 19, 20, 21 December 2007, 31 January,  11 February 2008

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J U D G M E N T

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The case

1. This is an insurance claim.

2. The plaintiff company, ‘Richfine’, is in the wholesale jewellery business operating from small office premises in Sheung Wan, and trades under the name of ‘Keng Fai Jewellery’.

3. On 28 March 2000 it is said that the plaintiff suffered a robbery.

4. The plaintiff’s case is that one of its directors, Mr Chiang Keng Fai, was set upon by three men wearing stocking head masks when he returned to the empty office, and both he and certain contents of the office were robbed by the intruders.

5. At the relevant time the plaintiff maintained an insurance policy with the defendant underwriters, Lloyd’s syndicate 1069, which coverage had been arranged through an Hong Kong agent, Anglo East Surety Limited.

6. The plaintiff’s loss consequent upon this robbery is said to have amounted to a little over HK$6 million.

7. The defendant syndicate has declined to pay this claim, and has gone so far as to question whether there was any robbery at all.

8. In addition, it is maintained on behalf of the defendant that the plaintiff is in breach of contractual warranty, and that as a consequence the relevant policy never incepted.

9. An impasse thus resulted.  The plaintiff’s claim remained unsatisfied, hence this litigation.

Background facts

10. The background facts, which are largely undisputed, do little more than serve to flesh out the foregoing summary.

11. Richfine/Keng Fai, the jewellery company in question, has been in existence since 1991.  Initially it had traded solely under the name of Keng Fai Jewellery, a business that had commenced in 1986.

12. Prior to June 1998, Richfine’s business had been that of gold ornament wholesalers, but since June 1998 it had extended its range to include the sale of items of jewellery and loose diamonds.

13. Also in 1998 Richfine had moved to its present office address, on the 5^th floor of Chao’s Building at 143-145 Bonham Strand East, Sheung Wan.

14. In about October 1998 Mr Chiang Keng Fai, one of the Richfine directors, was looking for more reasonable insurance coverage, and came into contact with a Mr Denis Chan, a marketing executive with Anglo East Surety Limited, an insurance broker.

15. Mr Chiang had at least two meetings with Mr Chan, during which he explained the plaintiff’s business and the manner in which it maintained its records, and as a result on behalf of Richfine Mr Chiang took out policy cover, via Anglo East, with the defendant underwriters for a period of one year, commencing on 18 October 1998.

16. The actual policy was issued by Lloyd’s of London, the Certificate thereof being in the form of a ‘Jewellers’ Block Certificate’ stating on its face that it was effected through Anglo East Surety Limited.

17. Prior to the expiry date of this first policy, on 17 October 1999, Mr Chiang Keng Fai received a telephone call from the aforesaid agent, Mr Denis Chan, asking if he wished to renew the insurance coverage.

18. Upon being told that this was the case, Mr Chan again visited the office of Richfine, bringing with him a Proposal Form which already he had pre-completed.

19. At this meeting, wherein this pre-completed Proposal was reviewed, it is said that Mr Chiang informed Mr Chan that his company was stocking less gold than the former figure of 50%, and it is also said by the plaintiff that Mr Chan assured Mr Chiang that there was no need to amend the proposal form as gold trading posed less risk.

20. In any event, Mr Chiang signed a Jewellers’ Block Policy Proposal Form dated 6 October 1999 for insurance coverage for the coming year, which was to be the period 18 October 1999 to 17 October 2000.

21. Under this proposal, the limits of liability are specified as HK$1.5 million for ‘Transits’, and HK$7 million for ‘Premises: on Stock’.

22. On 28 March 2000 Mr Chiang Keng Fai returned from his afternoon client visits to the Richfine office in the early evening, at about 7.40 pm.  As was his usual practice, he was carrying a stock of loose diamonds in a waist bag.

23. He went up in the elevator the 5^th floor, and after opening the outer glass door to his office premises he says that 3 men whose faces were masked with black hose pulled over their heads, came up behind him, one holding something that looked like a gun, and another a knife.

24. He further says that although his office and safe within were protected by alarms and security combination pads, nevertheless in the circumstances he had no alternative but to co-operate with the robbers’ demands, and he was forced to open the safe (one of two in the office) to which he personally had access.

25. Mr Chiang says that the robbers took the contents of the safe, his waistbag containing the diamonds, and his Rolex watch.  In the course of the robbery he further says that he was tied up with white plastic tape, and adhesive tape was placed over his mouth.

26. After the robbers had left, Mr Chiang struggled to free himself from his bonds sufficiently in order to allow him to activate the floor alarm button, and after reporting the robbery to the security company employed by Richfine, the police arrived shortly afterwards.

27. The insurers were notified, and the insurance loss adjusters, Crawford-THG came to the premises and took a statement from Mr Chiang on 30 March 2000 at 1300 hours.

28. Mr Chiang initially calculated the loss from the robbery at HK$6,066,456, and made a claim under the insurance policy for this sum in a letter dated 9 May 2000 addressed to Anglo East Surety Limited; this letter of claim is “for the loss of diamond, jade and diamond ornaments at total amount of HK$6,065,456”, a figure which is broken down thus:

“18K jade and diamond

ornaments    HK$1,795,617

Diamond         HK$4,269,839”

Documents remitted in support of this claim were attached, and are specified within this letter thus:

“1    Copy of stock book records (App A – 88 sheets); and

 2   List of stock lost at 28 March 2000 (App B – 29 sheets)”

29. This figure subsequently was revised upwards to HK$6,199,343, and on 14 July 2000 this revised claim was submitted to Crawford-THG, the loss adjusters.

30. After extended inter-solicitor correspondence, Mr Chiang Keng Fai was notified that this claim had been rejected by letter dated 22 March 2001 from the solicitors then acting for the defendant, Messrs Cameron McKenna, to the solicitors for Richfine, Messrs Anthony Chiang & Partners.

31. This letter contains a formal response on behalf of insurers, and relies solely upon alleged defects within the Richfine/Keng Fai record keeping: “…your client’s records are inadequate and Insurers, based on Crawford’s analysis, are of the opinion that based on the documentation your client has it cannot satisfactorily justify any element of this claim by producing sufficient contemporary records supported by invoices and purchase notes…”

32. This letter of rejection further rehearses that ‘independent accounting evidence also supports the conclusion that your client did not keep proper records’, and in addition there is an assertion as to the plaintiff being in breach of contractual warranty in terms of the keeping of proper records of all sales, purchases and transactions: “…Insurers are of the opinion that your client has been in breach of warranty from the date of the Proposal Form.  Therefore, the policy never incepted and as a consequence Insurers were never on risk…”

33. Accompanying this letter of rejection of claim the insurers purported to return the insurance premium, and enclosed a cheque in the sum of HK$46,700, which in turn was refused by the insured, Richfine/Keng Fai.

These proceedings: the procedural background

34. Consequent upon this formal rejection of the plaintiff’s claim, proceedings herein were commenced by writ dated 27 August 2001, the Writ and Statement of Claim endorsed thereon being amended on 6 September 2001.

35. The claim remains at the sum of HK$6,199,343.00, being the amount of the unpaid claim.

36. For reasons presently unclear, the pleadings have taken a good deal of time to become fully constituted: a Re-Amended Defence and Counterclaim was filed on 9 November 2007, and an Amended Reply and Defence to Counterclaim was filed on 23 November 2007.

37. The counterclaim sought by the defendant solely is for declaratory relief: either that a declaration be granted that the policy never incepted and that the defendant never was on risk in respect thereof, or in the alternative that the defendant was discharged from any liability under the policy as issued. 

38. Profuse particulars also have been filed in this case: namely, the Answer to the Request for Further and Better Particulars of the Statement of Claim, filed on 24 January 2002, the Revised Answer to Further and Better Particulars of the Statement of Claim, filed on 25 April 2002, and the Supplemental Revised Answer to Further and Better Particulars of the Statement of Claim, filed on 5 July 2002.

39. In addition, Interrogatories were filed by the defendant on 21 November 2005, and answered by Affirmation of Chiang Keng Fai sworn and filed on 25 April 2006.

40. By Consent Summons dated 16 June 2006, this case, originally numbered HCA 3157 of 2001, was transferred into the Commercial List.

41. Thereafter security for costs was sought by the defendant, by summons dated 28 June 2006, in a sum of HK$1.5 million, which application was opposed by a further affirmation of Chiang Keng Fai sworn and filed on 7 August 2006, wherein Mr Chiang deposed to the merit of the plaintiff’s claim, and maintained, inter alia, that the records kept by the plaintiff were of an “acceptable standard common to small businesses”.

42. By Order of this court dated 16 November 2006, the application for security for costs was granted in the sum of HK$1.5 million, which sum was paid into court within the 28 day period stipulated pending trial of this action.

The issues for decision

43. Notwithstanding the considerable amount of detail (and paper) generated by this litigation, at bottom there are three primary issues for decision in this case:

(1)     Has a robbery been proved to have taken place?;

(2)     Was the plaintiff in breach of warranty and/or has there been a waiver of any such breach?; and

(3)     What is the quantum of the plaintiff’s loss?

The viva voce evidence

         (i)      On behalf of the plaintiff

44. For the plaintiff, the principal witness of fact was the director of Richfine who allegedly was robbed, Mr Chiang Keng Fai.  He gave evidence, including being extensively cross-examined by Mr McLeish, counsel for the insurers, for approximately two and a half days.

45. The second witness for the plaintiff was Mr Wong Yiu Chung, a certified public accountant who was the auditor of Richfine.

46. The third witness of fact for the plaintiff was Madam Li Wai Man, the wife of Mr Chiang Keng Fai, and who was but lately called to assist the court on the issue of quantum by reason of the fact that an expert witness who had been designated to give evidence on the plaintiff’s behalf, a Mr Simon Chu – in respect of whom the court was requested to issue a subpoena ad testificandum – ultimately was not called.

47. The expert witness called on behalf of the plaintiff was Mr Bernard Ng, a certified public accountant, who had been instructed to prepare a Report, and to proffer his expert opinion upon the issue of whether the stock records maintained by the plaintiff constituted “proper records of all sales, purchases and transactions.”

         (ii)     On behalf of the defendant

48. For the defendant underwriters, two witnesses were called to give evidence, one of fact and the other an expert.

49. The sole witness of fact was one Mr Denis Chan, an employee of Anglo East Surety at the material time, and who had assisted Mr Chiang Keng Fai in taking out the policies of jewellery insurance with the defendant underwriters.

50. The second, and final witness in this case, was Mr Simon Blade, a chartered accountant and partner of Baker Tilly Hong Kong, who was called by the defendant as an expert witness upon two primary issues:  first, whether the stock records disclosed by the plaintiff supported the valuation and stock composition represented in the Proposal Form dated 6 October 1999; and second, whether the stock records disclosed by the plaintiff constituted “proper records of all sales, purchases and transactions”.

51. I turn now to the issues raised by this case.

Issue 1: Was there a robbery as alleged by the plaintiff?

52. Clearly this is the ‘watershed’ issue in this case; equally clearly, this court is required to make a specific finding of fact in this regard.

53. In his helpful written opening, Mr McLeish, for the defendant, emphasized that his underwriter clients did not accept the statement of the assured, Mr Chiang, that there had been a robbery at his premises as was alleged by Mr Chiang, and that accordingly Mr Chiang was being put to proof of this allegation.

54. It is fair to say that by the end of this case the concept of being ‘put to proof’ had changed, and by the end of a vigorous and searching cross-examination of Mr Chiang, Mr McLeish positively ‘put’ to Mr Chiang that there had been no such robbery, which proposition raised the necessary implication necessary that this claim was wholly fraudulent.

55. From a purely practical viewpoint perhaps not a great deal turns upon this clear change of emphasis, given that the ultimate legal burden remains on the plaintiff to satisfy the court, upon the balance of probabilities, that a robbery took place in the manner, place and time as has been alleged, and that loss accrued therefrom, save perhaps that it provides an indication of the manner in which Mr McLeish warmed to his task of questioning Mr Chiang as to the veracity of his account of events now culminating in the plaintiff’s claim under the relevant insurance policy.

56. It is unclear at which point in these proceedings the defendant arrived at the clear conviction that this whole claim was, in hard commercial terms, a ‘put up job’, not least since this allegation does not appear on the face of the pleadings, the Defence and Counterclaim focusing substantively upon more ‘technical’ insurance issues such as breach of warranty and material non-disclosure.

57. Be that as it may.  In terms of time in the witness box, the evidence of Mr Chiang Keng Fai, the alleged victim of the alleged robbery, took up by far the greater part of the witness testimony.

58. Since the robbery took place, Mr Chiang has given, I believe, 5 police statements, two statements to loss adjusters, a video-taped interview with loss-adjusters, and two witness statements for use in these proceedings, the principal witness statement dated 26 November 2003, and a supplemental statement dated 16 April 2004.

59. His case in terms of the robbery is relatively straightforward, notwithstanding scepticism on the part of the insurers.

60. In his principal witness statement, which formed part of his evidence in chief in this case, he describes his modus operandi in terms of taking his jewellery stock, mainly diamonds, around his retailer clients, the system of safe deposit boxes in his office – to one of which he has his key, and to the other his brother his own key, with each brother knowing only the code to their respective boxes – and what happens when diamonds and other jewellery was delivered to the Keng Fai office: “Normally, my safe deposit box would keep the goods the value of which was totalling $6-7 millions…”

61. He goes on to describe the safety set-up and the entrance to the office, with two doors, one of glass and one of steel, with a “standing platform” of about 1 square meter between the two doors, and the fact that both doors could not be opened at the same time; upon entry, it was only when the outer door was locked that the inner door could be opened to permit access to the office, and vice versa upon exit.

62. He describes the type of jewellery he mainly was selling at the time: “the plaintiff had been doing mainly rings and pendants the materials of which are normally gold or platinum rings/pendants inlaid with diamonds and/or jade…”, and the method of recording the details of goods as they were bought and delivered to the plaintiff.

63. He relates the change in insurer from Aon Risk Services (formerly Inchcape Insurance Brokers (HK) Ltd) to Anglo East Surety Ltd through the introduction of Mr Denis Chan, and the fact that upon entry into such insurance he had shown Mr Chan “all accounting papers, invoices and other documents”, and that before the new insurance policy had been issued in October 1998 certain staff had visited the company and had suggested “certain alterations to our security system” particularly in terms of change to electronic from manual.

64. Mr Chiang observed that the first policy was issued on 18 October 1999, and that Anglo East Surety Ltd had renewed it, as far as he was aware, under the like terms and conditions as the initial policy.

65. The events of 28 March 2000 were described in detail by Mr Chiang. 

66. He said that he had left the Keng Fai office at about 1.50pm with some diamonds worth about HK$3 million in his waist bag and had visited two regular customers: the first being Tai Cheong Jewellery Company, at about 3 pm, where he had left diamonds worth some $80,000 “for viewing”, and thereafter, at about 4.45pm, he had arrived at Tai Fook Jewellery Company in Tuen Mun, where he successfully sold one diamond for HK$24,000 and also had left 15 diamond pieces, totalling about 8 carats and worth about HK$140,000, for their boss to view; also on that visit he had had returned to him by Tai Fook a bag of diamonds he had earlier left for inspection, but in which they were not interested.

67. Third, and finally on this particular selling trip to clients, Mr Chiang said that at about 6pm he had arrived at another branch of Tai Fook Jewellery in Tuen Mun, where he was able to sell two pieces of diamond for “about $50,000”, and further took back a bag of diamonds which he earlier had left for viewing.

68. At about 6.30pm Mr Chiang said that he left Tuen Mun for Sheung Wan by bus, and had arrived back at his office at about 7.30 pm.  He said that he had entered the main entrance of the building at about 7.40 pm; he had had to use the side door because the steel shutter had been pulled down over the front entrance.  He saw that the Pakistani watchman was in, and he proceeded up in the lift to his office on the 5^th floor.

69. He said that as he was opening the glass front door of his office “suddenly three men from behind appeared” wearing black stocking masks over their heads, and that “one of them used a gun-like object pointing to my lower back” whilst “another man pointed to my left lower back with a knife.”

70. What then happened, Mr Chiang said, was that one of the men pointed with his finger at the security system, in his words “I was frightened and then pressed the code to release the system and opened the steel door behind the glass door with a key”, thereby entering the office followed by the three men.

71. He said that he was pushed and that the first man “pointed to the alarm with his finger”, and that under pressure from a gun and a knife he felt that he had no alternative but to follow their instructions: “I therefore pressed the alarm code to release the alarm and opened the safe”.

72. Mr Chiang described how he was pushed to the floor by two of the men, who seized the bag of diamonds from his waist bag, whilst one of these two men took his Rolex watch and used “white plastic tape” to tie up his hands and legs and used adhesive tape to stick over his mouth.  Then, says Mr Chiang, “I could see the third man went before the safe and took all the contents inside and left with the two others.”

73. Mr Chiang said that after the robbers had left he struggled with his bonds, managing to release his hands, and had pressed the alarm button and reported to the police by telephone.  He said that about one minute after pressing the alarm button the security company had rung him, and he confirmed to them that there had been a robbery. 

74. Thereafter, “about 10 minutes later” the police arrived and took statements from him.

75. After in-house calculation, Mr Chiang said that he had lost goods totalling HK$6,199,343.00, the details of which he set out in schedules annexed to his witness statement.

76. The same night on which he had given a statement to the police, Mr Chiang had reported the robbery to Mr Denis Chan of Anglo East Surety, and their staff came later on that night in order to secure all the property remaining in the office, and that the next day “three of their staff came and took an inventory of the lost goods from the plaintiff”, and in the process took away “all the invoices, accounting papers of the plaintiff”.

77. He recounted how on 31 March 2000 and 5 September 2000 the insurance company had instructed loss adjusters Crawford (Hong Kong) Limited to take a statement, and how, on 22 March 2001, he had learned, via his former solicitors, Messrs Anthony Chiang & Co, that the insurance company had refused to compensate him for his loss, which refusal extends until the present.  Accordingly, the present proceedings had been initiated.

78. The foregoing relatively simple account of that which had transpired in the early evening of 28 March 2000 was subjected to a ferociously detailed cross-examination of Mr Chiang by Mr McLeish, on behalf of the defendant underwriter.

79. A review of the transcript of the hearing has served to remind and emphasise just how detailed was this questioning, which, as earlier observed, lasted well over 2 hearing days, and which covered all relevant areas from the forced ingress of the robbers into the Keng Fai office, to the disabling of the alarm system and the opening of Mr Chiang’s safe, to the manner in which Mr Chiang had been able to free himself upon the robbers’ departure.

80. In his final submission to this court upon the issue of whether there had been a robbery carried out in the manner as described by Mr Chiang, Mr McLeish submitted that his account of that which had occurred was “incredible”, and that Mr Chiang Keng Fai was “utterly lacking in credibility as a witness.”

81. Mr McLeish argued that in the circumstances as described that there had been “too much insider knowledge required”, and that a robbery such as this could have been carried out only by persons with an intimate knowledge of the plaintiff’s security systems and the layout of the plaintiff’s premises, including Mr Chiang’s inability to open his brother’s safe, the breaching of which apparently was not even requested by the robbers.

82. He suggested that on the basis of Mr Chiang’s own account of these events that the alleged robbers obviously knew a great deal, indeed “far too much”, in particular the fact that the office premises would be empty upon Mr Chiang’s return from his sales trip, that the CCTV system in the building was out of order, that the main alarm system had to be disarmed within 45 seconds of the opening of the outer glass door using a key pad in the internal area of the ‘man trap’ between the outer glass and inner metal doors, that an alarm would be set off if the metal bolt at the top of the wooden cabinet surrounding Mr Chiang’s safe was opened without disarming the safe’s own duress alarm (which was controlled by an electronic key pad on the adjacent wall), and last but not least how the robbers knew how to open both the glass door and the metal door of the front entrance ‘man trap’ at the same time in order to make good their escape.

83. Mr McLeish noted that this plaintiff was, and is, a family company, with all five family members as employees, and that all five knew of the security system, and that although it is said that such knowledge never was disclosed to outsiders, the fact was that at 22.30 hours on the following day, 29 March 2000, Mr Chiang had told the police that there was one outsider with sufficient knowledge of the plaintiff’s security systems to carry out the robbery, namely one Tsang Wai Keung (alias ‘Fei Choy’), whom Mr Chiang thought he had recognized despite this robber wearing a black stocking over his head, and whom he thought might have had the necessary inside knowledge gathered during prior dealings with Mr Chiang at the plaintiff’s premises. 

84. However, said Mr McLeish, nothing that Mr Chiang had said to the police, or to the loss adjusters, could explain how this Mr Tsang could have come to know the family’s ‘open sesame’ secret in terms of getting through the office front entrance ‘man trap’ without either having assistance from someone inside the office or knowing the combination of the glass door – and in any event, the police had followed this supposed ‘lead’ to Mr Tsang Wai Keung and had concluded that there was nothing of substance in it.

85. In his final submission Mr McLeish also made a good deal of the fact that this was a “non violent armed robbery”, wherein no significant force was used to subdue a substantially uninjured Mr Chiang, who during this whole episode apparently had alternated, as Mr McLeish put it, between “blind obedience” and “acts of foolhardy bravery”, on the one hand apparently meekly complying with every instruction given to him by the robbers and, on the other, allegedly entering the incorrect code into the duress safe alarm and embarking when bound upon what was described as a ‘snake crawl’ out of his inner office in order to check whether the robbers had left.

86. During his cross-examination Mr McLeish also pressed Mr Chiang on how the robbers allegedly had removed his waist bag containing diamonds – which was obscured, as Mr Chiang was lying on his front – when at the same time they apparently ignored his easily-accessible wallet, and submitted that this was inherently improbable : equally improbable, he suggested, was how and why Mr Chiang was able to give an account of the movement of the robbers about the office when he was said to be lying on the ground and facing the rear wall of the office.

87. Mr McLeish was scornful of Mr Chiang’s alleged ‘Houdini escape act’, submitting that the account of the manner in which Mr Chiang had escaped the plastic ties on this wrists was “unbelievable”, and further suggested the unlikelihood of Mr Chiang waiting for the police to arrive with his hands freed, but with the plastic ties remaining in place about his ankles.

88. Mr McLeish argued that the motive for fabricating this story of this robbery was that at that time Hong Kong had been experiencing a severe economic recession, and that, at least on the records available, the plaintiff clearly was insolvent, or very near to it, notwithstanding that Mr Chiang, although himself in debt (apparently to the tune of about HK$1.9 million) in fact had denied any financial difficulties during his police interviews.

89. He also relied on the fact that Mr Chiang had accepted that he was in the habit of smuggling jewellery goods across the border in order not to pay Mainland customs duty; nor, said Mr McLeish, had Mr Chiang been able to give a satisfactory explanation as to inconsistencies between his oral testimony at trial and his various earlier statements.

90. For the plaintiff, Mr Acton-Bond sought to place the accusations as now launched against his client into broader perspective.

91. He submitted that, in effect, this whole exercise was a ‘fishing expedition’ by an underwriter which had no positive evidence whatever to the contrary, but which clearly was intent upon non-payment of an entirely valid claim by an insured. 

92. Notwithstanding a thorough investigation by the police of this robbery, the police never at any time having suggested that this event was a ‘put up job’, and also an extensive inquiry by the insurer’s loss-adjusters, Mr Acton-Bond observed that it was now apparently seriously suggested that Mr Chiang Keng Fai nevertheless had chosen to pursue this ‘false’ story throughout the years of this long drawn-out litigation, in the process thereof also having had to provide the sum of HK$1.5 million in security for costs – together, no doubt, with significant own solicitor and client costs – and that on this hypothesis he had braved the possibility throughout that a co-conspirator in this whole affair at some point might ‘let the cat out of the bag’.

93. Mr Acton-Bond suggested that this scenario was risible, and that the allegation now being pursued to the effect that this was a “determined fraud” on the part of the plaintiff and Mr Chiang Keng Fai was an unfounded allegation on the part of the defendant which smartly should be dispatched to the boundary.

94. In the course of his final address counsel reviewed in some detail the history of events as recounted by his client, and noted also that at the time when this insurance was taken out that the insured had been full and frank in the insurance proposal about two past insurance claims some years before consequent upon previous episodes of robbery and theft, so that viewed in this context, it was hardly surprising that Mr Chiang should have been as frightened as he had said he had been at this repetition of events but two years after his last unfortunate experience.

95. Nor, said Mr Acton-Bond, was it an unusual phenomenon for victims of crime, and in particular of threatened violent crime, to act in a certain way in the stress of the moment, actions which, in the harsh atmosphere of the courtroom and under the stress of cross-examination, can be made to seem improbable or even unwise; moreover, he said, no one person is likely to give an identical account of what had happened to successive interlocutors, particularly if such interviews had occurred over a period of time.

96. Further, he submitted, inconsistencies in estimated heights and in other physical characteristics of individuals is another accepted phenomenon on the part of victims/witnesses, which is a reason why identification evidence in criminal cases is fraught with difficulty and doubt, so that once again evidential impressions given by a victim of violent or potentially violent crime cannot and should not be castigated as untrue simply by reason of inconsistencies and assertions which, with the benefit of analytical hindsight, might be characterized by a skilful advocate as untrue or intrinsically improbable.

97. Mr Acton-Bond thus invited the court to consider the evidence of Mr Chiang within these broad parameters, and to conclude that, in light of the direct evidence, on the balance of probabilities it would be difficult for the court to find that there had not been the robbery which his client firmly contended had taken place.

Decision upon the ‘robbery issue’

98. Having reviewed all the evidence before this court, I should make it clear immediately that I have no intention of accepting the contention that a robbery did not take place; to the contrary, I find as a fact that such a robbery at the plaintiff’s premises indeed did occur in the early evening of 20 March 2000.

99. Looking at the matter in the round, and the manner in which this case has developed, I am surprised that the defendant saw fit to pursue this line with the element of vigour which ultimately was adopted.

100. As indicated at the outset, this was not merely a case of the defendant being ‘put to proof’ on this issue, albeit initially this had been the signalled approach.  The manner in which this case developed ultimately involved counsel on behalf of the defendant ‘putting’ to Mr Chiang a positive case that the robbery forming the basis of the plaintiff’s claim had not occurred, absent hard evidence to support that which effectively amounted to an unpleaded allegation of fraud which itself now had blossomed into implicit allegations of perjury and attempt to pervert the course of justice.

101. I do not lose sight of the fact that at the end of the day the legal burden is on the plaintiff to establish its claim on the balance of probabilities; however, in so far as the defendant has moved from a passive ‘put to proof’ stance to the positive position that no robbery in fact took place, it seems to me that the defendant thus necessarily assumed an evidential burden to establish that this story is nothing more than a blatant lie– and it is clear that in such circumstances this burden is a heavy one: see, for example, the observations of Lord Nicholls in Re H [1996] AC 563(HL).

102. That Mr McLeish felt able to conduct the case in the manner that he did no doubt reflected the opinion he had formed of Mr Chiang as a witness, and of the way in which Mr Chiang variously had responded to his cross-examination.

103. For my part I did not and do not share this view, nor do I consider that as a witness Mr Chiang was “utterly lacking in credibility”, as Mr McLeish has suggested.

104. Having watched Mr Chiang carefully in the period of well over two days he was before the court in the witness box, I formed the view that Mr Chiang neither was dissembler nor fraudster nor perjurer, and that fundamentally he was telling the truth.  If he was acting, in my view this would have been a performance worthy of ‘Oscar’ recognition.

105. As a person Mr Chiang Keng Fai struck me as a stolid – and in the circumstances of this trial most certainly a stoic – character, who must have been bewildered at the minute forensic examination to which he was subjected, which extended to precisely what he had done, when, and why on a night almost 8 years previously, in circumstances when he had been placed under conditions of severe stress as a result of this unfortunate and frightening personal experience.

106. For my part I should have been astonished if in these circumstances there had not arisen factual inconsistencies of detail and unanswered queries arising within his contemporary statements as made to various parties, and wherein, also, such earlier statements are compared and contested with his viva voce evidence in this court.

107. In my view, in matters such as this absolute consistency is, or at the least can be, as much a hallmark of dishonesty as honesty – assuming always that such inconsistency as is prayed in aid is not of a fundamental nature, which in my view it was not in this case.

108. It is well-known and generally appreciated that victims of, and witnesses to, crime tend to play and to replay in their minds the events as witnessed, and that as time passes perceptions themselves imperceptibly tend to change and are, or may be, influenced by subsequent thoughts, and that such persons often may react in a manner that can be made to appear unlikely or improbable in the cold post facto analysis of a court room during cross examination by a skilled advocate intent upon destroying a particular version of events; it is also appreciated that in the process of recollection mistakes of detail often be made, that silly (and occasionally unwise and incorrect) things may be said in the heat of the cross-examining moment, and that such responses then will be marshalled by the advocate in an attempt cumulatively to establish –solely as a matter of inference, given the absence of any direct evidence – that in terms of the occurrence of the primary event that the witness is both fraudster and perjurer.

109. At bottom, however, and putting inconsistencies and unanswered queries to one side, the court squarely has to grasp the credibility nettle and to determine whether this witness giving extended evidence before it is, or is not, lying about the fundamental issue of whether such a robbery occurred, and whether the robbers, if such they be, had made off with a substantial amount of jewellery falling within the cover prima facie afforded by the insurance policy against which the plaintiff’s claim for indemnity now is pursued.

110. In my judgment, and notwithstanding the forensic mileage Mr McLeish has sought to obtain from his searching cross-examination, culminating in his forceful final submissions upon Mr Chiang’s credibility, I have concluded that upon the ‘robbery issue’ that Mr Chiang is to be believed, and that on the balance of probabilities it is established that such robbery took place in the manner asserted, when he was assailed from behind as he was opening the door to his office by three robbers wearing black hose on their heads, one armed with what appeared to be a gun, and the other with a knife, who pushed Mr Chiang into his office and thereafter tied him up after ransacking his safe which he was forced to open.

111. I am unsurprised that unanswered questions remain, and which are relied upon in the main planks of the submission of Mr McLeish: for example, it is not easy at this stage, some 8 years later, confidently to state or to appreciate precisely how these three robbers suddenly appeared, and how they were, or at the least seemed, so secure in their knowledge of the environs of the 5^th floor and of the plaintiff’s office, how they were able to manipulate the ‘man trap’ to effect their escape, and why they did, or did not, steal certain items.

112. In any situation such as this there will inevitably be a myriad of details to which perfect responses are unavailable – indeed in certain instances I fail to see how or why Mr Chiang could have been expected to have known all the answers to all the questions as were posed to him – and as earlier observed inconsistency and/or omission of precise explanation are not in themselves reliable indicators of guilt, nor should they permit the drawing of inferences which necessarily point to the guilt and/or complicity of the victim.

113. In my judgment, notwithstanding Mr McLeish’s detailed probing, and his final submissions mounted consequent thereon, the defendant has not succeeded in rendering improbable the plaintiff’s primary case that there was a robbery at these premises, which in the event I consider that Mr Chiang has established to the requisite standard.

114. I also decline to accede to the submission made on behalf of the defendant that adverse inferences should be drawn from the fact that only Mr Chiang Keng Fai gave evidence as to the robbery and the surrounding circumstances.

115. In this regard Mr McLeish cited dicta of the Full Court of Victoria in O’Donnell v. Reichard [1975] VR 916, wherein the justices in that court had commented upon the fact that in the case then before them witnesses had not been called whom reasonably might be expected to have been called, and thus that the jury might draw inferences against the party in question in deciding whether to accept such evidence as had been given – counsel further drawing the attention of the court to the fact that this approach had been followed in England in Cavendish Funding Ltd v. Henry Spencer & Sons Ltd [1998] 2006 EG 146, and also in Hong Kong in the Court of Appeal in Li Sau Keung v. Maxcredit Eng Ltd [2004] 1 HKC 434, at 443G-444B, wherein Le Pichon JA had noted with approval the existence of the principle, and in her judgment reproduced the following extract from O’Donnell v. Reichard, op cit.:

“It is sufficient to say that in our opinion for the purposes of the present case the law may be stated to be what where a person without explanation fails to call as a witness a person whom he might reasonably might be expected to call, if that person’s evidence would be favourable to him, then, although the jury may not treat as evidence what they may as a matter of speculation think that that person would have said if he had been called as a witness, nevertheless it is open to the jury to infer that that person’s evidence would not have helped that party’s case; if the jury draw that inference then they may properly take it into account against the party in question for two purposes, namely:

(a)   in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person called as a witness could have spoken;…”

116. Clearly the occasions for application of this approach are peculiarly ‘fact-sensitive’, and will vary widely from case to case (Li Sau Keung, op cit., for example, was a personal injuries claim involving a construction worker who had fallen from a height, wherein there was disputed evidence as to the cause of the accident, and wherein there had been no mention whatever of a fall in the initial accident report), and for my part I see no reason, as the tribunal of fact hearing the present case, to draw inferences adverse to the plaintiff and to Mr Chiang from the mere fact that Mr Chiang’s wife (who actually did give evidence, although by consent this was restricted purely to quantum issues) and his elder brother were not called as to the circumstances of the robbery. 

117. In this case it was Mr Chiang Keng Fai who was claiming to have been robbed in the manner as to which he now has given direct evidence – clearly he is the sole witness able to do so – and this court has chosen, after seeing and hearing this witness, to accept that he was a witness of truth, notwithstanding that upon occasion he was severely pressed in cross-examination, and on occasion produced answers and inconsistencies considered unsatisfactory by the defendant. 

118. For my own part, on this vital core issue of the factum of the robbery, I cannot think that any other member of his family could have assisted the court in any sufficiently material way, such that not calling his sister or brother would or should enable the drawing of such adverse inference(s): in short, in the present case either the court was disposed to believe Mr Chiang, the victim, or it was not, and in the event the court has not been prepared to accept the defendant’s submission that Mr Chiang’s story of the robbery at his premises in the early evening of 28 March 2000 constituted no more than a sinister and venal pack of lies. 

119. To the contrary, this court is satisfied, on the basis of his evidence, and notwithstanding the myriad criticisms as have been advanced by Mr McLeish, that this robbery took place in the manner described by Mr Chiang – and has so held.

120. This finding of fact as to the truth of the incident underpinning the present indemnity claim thereby opens the door to consideration of the various other issues raised in this case, each of which is contingent upon such primary factual determination.

Issue 2: was there a breach of warranty by the plaintiff precluding inception of the policy?

121. This is an aspect of the case in which the defendant, which alleges breach of warranty, bears the legal burden.

122. The defendant’s primary case is that the plaintiff/claimant was in breach of warranty, as a condition precedent to liability, arising, it is said, by reason of a ‘basis’ clause in the Proposal Form and the first Policy Recital.

123. It is said that warranties arise with respect to the keeping of proper records of sales, purchases and other transactions; in this context the defendant further prays in aid the fact that claims ought to have been made on the basis of actual stock cost, that the average value and composition of its stock in the 12 months preceding completion of the Proposal Form was misstated, and that safe keys had not been removed from the plaintiff’s premises during business hours.

124. It is in this area that expert evidence was called on both sides: for the defendant, that of Mr Simon Blade, who made two reports, dated 18 November 2005 and 9 November 2007, and for the plaintiff that of Mr Bernard Ng, whose report was dated 4 April 2007.

125. Mr Blade’s evidence was that it was only after further discovery by the plaintiff, the service of Mr Ng’s report, and the explanations given at a meeting in August 2007 with Madam Lee Wai Man (Madam Chiang Keng Fai), the plaintiff’s bookkeeper, that the plaintiff’s inventory control system could be comprehended, and that after such understanding of the system was gained, Mr Blade was of the view that “in particular areas” the system was not “sufficiently robust” in order to be able to provide a true and fair view of the company’s stock position at any particular time.

126. The flaws in the plaintiff’s record-keeping system focused upon the lack of a system properly to record the stock taken out and returned to the plaintiff’s premises on a daily basis by Mr Chiang Keng Fai, Mr Cheng Fong Fai, Mr Chiang’s elder brother, and Ms Cheang Kit Peng, (the brothers’ older sister), as the firm’s sales persons doing the rounds of outside retail jewellers/customers, and also the element of missing purchase and sale invoices, plus the lack of any system to relate the ‘jade component’ within ‘made up’ pieces of jewellery back to the original purchase invoice, even on a batch basis.

127. The importance of this, said Mr McLeish, lay in the fact that the plaintiff’s alleged loss could be ascertained only by deducting from the stock lists of the stock that should have been on the plaintiff’s premises immediately before the alleged robbery the actual stock as was found on the premises immediately after such robbery.

128. Moreover, said Mr McLeish, the absence of such precise records meant that the defendant was being asked to enter the ‘circle of trust’ under which the family members operated in terms of their removal and return of stock, and that this was unreasonable.

129. The evidence was that the tracking of consignment goods by the plaintiff was done by placing consignment notes in box files, one for consignment ‘in’ and one for consignment in one for consignment ‘out’, and there was no ‘consignment day book’, so that the ‘tracking system’ employed by the plaintiff would be able to provide a complete history of the movement of consignment goods if, and only if, all consignment notes were retained – although, Mr McLeish noted, Mr Bernard Ng in fact accepted that this had not been done.

130. In terms of missing purchase invoices, Mr McLeish was equally critical: although Mr Ng had accepted that there might not always be a supplier’s invoice, as occurred when sales were made to the plaintiff by ‘freelancers’, nevertheless Mr Ng claimed that he could trace this back to source by the use of general ledger and bank book, albeit the final count of missing sales invoices, after a two year ‘tracing exercise’ performed at the defendant’s instigation, indicated a number of missing invoices with each representing a possible unexplained transaction, and thus the claim schedules which had been put forward by the plaintiff could have been flawed.

131. As to these ‘missing invoices’, several explanations were proffered – some were used as consignment notes and destroyed, some were given to the customer for ‘tax purposes’, and others were given to wholesale customers so that they could issue retail invoices, although, submitted Mr McLeish, it was noteworthy that the plaintiff’s own accountancy expert, Mr Ng, had agreed that a third party, such as the defendant, was being invited to take ‘on trust’ that the missing invoices had been used in the manner as claimed.

132. A further significant problem, counsel submitted, was that the plaintiff had failed to make a claim on a ‘cost basis’ for its own stock and also in terms of the consignment price for consignment goods, nor was there any stock list for ‘unset’ jade.

133. As to the defendant’s complaint that there had been a breach of warranty in terms of the composition of its stock over the previous 12 months – wherein in answer to question 5(i) of the Proposal Form the plaintiff had warranted that the composition of its stock was 50% fine gold and 50% jewellery – Mr McLeish pointed out that Mr Blade had been able to arrive at a definitive composition of the plaintiff’s stock only as at the date of the most recent annual stock take, 31 March 1999, and that based upon the auditors working papers for that exercise Mr Blade had concluded that the plaintiff’s stock on that date comprised, by value, 44% jade and/or diamond jewellery, 41% gold jewellery (21K), and 15% precious stones (unset diamonds and jade), and even accepting the contention that in the trade diamonds and jade were not considered ‘precious stones’, the composition of the plaintiff’s stock as at 31 March 1999 was 59% ‘jewellery’ and 41% fine gold.

134. This should be compared, said Mr McLeish, with the evidence as to the composition of the stock as at the date of the alleged robbery, wherein Mr Chiang Keng Fai had stated to the loss adjusters two days later that the value of the plaintiff’s stock at that time was about HK$9.45 million, of which only about 5% was attributable to fine gold, and thus it simply was not possible for the plaintiff’s average stock composition in the preceding 12 months prior to 6 October 1999 (when the Proposal Form was signed) to have been 50% fine gold and 50% jewellery, even on the plaintiff’s own interpretation of ‘jewellery’ as including unset diamonds and jade.

135. As to the issue of the keys being kept on the premises, Mr McLeish referred to contradictory statements on this issue made by Mr Chiang, and invited the court to conclude that there had been a breach of warranty on this basis as well.

136. In response, Mr Acton-Bond observed by way of introduction that in construing the meaning and effect of the terms of an insurance policy such as the present there must be sensible regard to the relevant factual matrix, which in the instant case necessarily meant consideration of a small business dealing with very many tiny or very small items of stock, for example, diamond chips and small pieces of jade ‘slivers’ which are purchased in bulk and thereafter made up into finished pieces of jewellery.

137. Accordingly, he said, there was no way in which detailed and precise records of the clarity of diamond fragments could be kept, as indeed Mr Bernard Ng had accepted when questioned on this aspect by the court.

138. As to the complaint about the lack of detailed records, he noted that the ‘detailed records’ requirement expressly is stated to be a condition and not a warranty, and that the reply to question (b) preceding Question 18 in the Proposal Form referred only to ‘proper records’, and as such he relied upon the conclusion of the plaintiff’s accountancy expert, Mr Bernard Ng, to the effect that the stock records as kept and disclosed indeed did constitute ‘proper records’ of all sales purchases and transactions.

139. He further submitted that the word ‘proper’ has the implication of ‘appropriate to the circumstances’ rather than totally and precisely exact, the more so in considering the particular nature of the business and of the stock involved.

140. Mr Acton-Bond noted that whilst the defence had concentrated upon Mr Blade’s inquiries into the stock records during the period October 1998 to October 1999, which, it was argued, was the warranty period, his own expert, Mr Ng, rather more sensibly had looked in detail at the 3 months leading up to the robbery, and had concentrated upon the most financially significant items, namely the diamond fragments.  Accordingly he had been able to explain the essentials of the system, and from these inquiries had had no reason to think that the situation as to earlier record keeping was not thus reflected; in fact, the system of the ‘striking through’ of items when sold was of considerable probative value as to what had been occurring within the warranty year itself.

141. In terms of the alleged breach of warranty in terms of stock to be settled on the ‘cost’ basis’, Mr Acton-Bond argued that this basis of settlement was not a matter which would give a right to a claim that the contract was void from inception, whilst as to the issue of the safe keys to be removed from the office premises outside business hours, he noted that this was a pure question of fact, and that Mr Chiang Keng Fai had said that this condition invariably was complied with.

142. Regarding the issue of the average make-up of stock in the preceding 12 months, counsel submitted first, that this could not be a warranty or condition precedent, and second, that as a matter of common sense it would be impossible for any business such as that of his client to give an exact average over the previous 12 months, or that the proportions of different materials would be in precisely quantifiable percentages.

143. Mr Acton-Bond argued that the working papers of the plaintiff’s accountants dated 31 March 1999 supported a breakdown of HK$2, 271,065 for gold and HK$3, 324, 814 for “diamond and jade raw” at the close of the 1998-99 tax year, which was a 41:59 % split, which given the nature of this business was not a material difference at the time. 

144. The evidence was that the plaintiff had begun to change the nature of its business in April 1998, to de-emphasise the ‘gold element’ within the stock, and, said Mr Acton-Bond, and whilst in April 1999 the proportion of gold was around 41%, at the time of the robbery (assuming a reduction on a straight line basis) it would have been around 5%.

145. On any basis this was not a breach of warranty, he said, and that if this was incorrect, it was clear on the evidence that Mr Chan, the insurance agent with Ango East Surety Ltd, with whom Mr Chiang Keng Fai throughout had dealt, and to whom he had pointed out ongoing change in his stock ratios, had said at the time of taking out of the second policy that the present situation was satisfactory, and that the insurance coverage could be placed for the second year on the like terms and conditions as the first absent the necessity for any change.

Decision upon the ‘warranty issue’

146. It is common ground between counsel that the defence bears the burden of proof in terms of the breach of warranty allegations, and that it is also accepted that in insurance terms any true breach of warranty gives the insurers a right to treat the contract as void from inception – hence the counterclaim in the present case to the effect that this policy never did incept in terms of the insurers being on risk as at the date of this loss.

147. Let me say at the outset that I fail to appreciate how the nature of any of the matters now prayed in aid by the defendant can properly be said to have prevented this policy from incepting. 

148. The particular answers in the Proposal Form dated 6 October 1999 which are cumulatively relied upon by the defendant are: ‘answer (b)’ under the (unnumbered) heading of ‘Stock Records’, wherein the plaintiff has responded that he retained proper records of ‘all sales purchased (sic) and transactions’; Answer 4, which is the valuation basis upon which claims are to be settled, and to which the response was “Own Stock: Cost as entered into stock record.  Memo Goods: Memo price.  Precious Metal: Replacement cost”; Answer 5(i), to the effect that the average composition of the plaintiff’s stock in the preceding 12 months was ‘50% fine gold, 50% jewellery’; and Answer 16, to the effect that all keys (including the alarm, safe and strong room keys) were removed from the premises outside business hours.

149. Undoubtedly the principal focus of the breach of warranty argument relied upon by the defendant lies in the flaws alleged to be present in terms of the aspect of keeping ‘proper records’, which in turn involves consideration of stock flows in and out of the premises and the question of the so-called ‘missing invoices’.

150. In this context Mr Acton-Bond disputed that this is a warranty in the accepted sense since the ‘detailed records’ requirement is specified, at Condition 1, to be a condition and not a warranty, and further maintained that in the circumstances of this small family jewellery business that the records as kept indeed could be classified as ‘proper’, and that what was happening in this case is that the defendant underwriters have fastened onto the fact that these records admittedly were less than perfect, and thus have claimed breach of warranty in an attempt to avoid a liability for risk that clearly had incepted.

151. Mr McLeish, of course, adopted the directly contrary position, and makes much of the perceived defects in the records, and in the manner of recording stock flows.

152. At the end of the day the court has to take a view, and to come to a conclusion upon all the evidence before it, which upon this aspect is effectively the evidence of the two experts, Mr Ng and Mr Blade, together with the evidence of Mr Chiang and that of the plaintiff’s bookkeeper, Madam Lee Wai Man, Mr Chiang’s wife, who was pressed into ‘eleventh hour’ service and gave evidence when the other of the plaintiff’s experts did not appear and was not called to give evidence, notwithstanding that a report earlier had been furnished.

153. Having reflected on the issue of the ‘properness’ of the records, I do not conclude that any breach of warranty has been established by the defendant.  In this context I accept Mr Acton-Bond’s argument disputing that this is a warranty properly so-called, and if and in so far as this is incorrect, in the event I do not consider that a case of breach has been made out by the insurers.

154. It strikes me that the approach adopted by underwriters represents a post facto counsel of perfection, and that in determining a question such as this that the court can and should take into account the circumstances and relative size and operation of the business in question.

155. I accept the evidence of Mr Bernard Ng on the point, and I also agree with Mr Acton-Bonds’ submissions that the word ‘proper’, as contained with the reply to Question 17(b) of the Proposal Form, imports a meaning of ‘appropriate to the prevailing circumstances’, particularly considering the fragmentary nature of much of the stock involved, such as the jade slivers and diamond chips.

156. True it is that difficulties have been identified within the record-keeping system adopted by this small family business, but in my view this element of the matter has been considerably exaggerated, and that, within the context of the plaintiff’s business, the record keeping cannot be castigated as constituting a breach of warranty, thereby justifying avoidance of the policy.

157. In this regard, therefore, not only have I have accepted the conclusion on this issue of Mr Bernard Ng, who has opined that the records kept by this small business indeed were appropriate and ‘proper’ in these circumstances, but also the evidence of Madam Lee, who did her best to explain the system adopted within this firm. 

158. It also seems to me that in so far as deficiencies within the record-keeping system existed – and the system certainly was far from perfect – such deficiencies are more properly reflected in terms of the appropriate assessment of quantum.

159. A like conclusion informs the argument that claims should be made on a ‘cost basis’.  I fail to see how, if there is any difficulty with an amount claimed, or the basis therefore, that this gives a right to claim that an insurance policy is void from inception.  Any problem in this regard must sound to quantum, and not to any breach of warranty argument.

160. As to the argument that the average value and composition of the stock within the 12 months preceding completion of the second Proposal Form was misstated in that proposal at Question 5 thereof), two points arise from this submission.

161. First, I accept the proposition that this is not a ‘warranty’ or a condition precedent to liability, and second, that in any event the factual basis of the plea has not been established.

162. I agree with Mr Acton-Bond’s submission that, placing this insurance contract in its factual context, it is difficult to see in what way this could become a contractual term the breach of which would entitle an insurer to rescind, not least since it would be extremely difficult for any business to provide an exact average over the preceding 12 months; and that further and in any event the working papers of the plaintiff’s accountants dated 31 March 1999 support a breakdown of $2.271 million for gold and $3.324 million for “diamond and jade raw” at the close of the 1998-99 tax year, which given the nature of the business was a very small differential.

163. Mr Acton-Bond further pointed out that the evidence is that the plaintiff began to change the nature of its business in April 1998, (prior thereto it was almost entirely a gold trader), and that stock and stock records were checked at the end of the tax year 1998-99, so that assuming a straight line reduction the average for that year would have been 45%, which is “remarkably close” to the figure of 50% for the year 1998-99, which figure was that in the Proposal (see Question 5 thereof, which related to the previous 12 months) and which Mr Chiang had testified was “a good general average”.

164. I further accept Mr Chiang’s evidence as to the ongoing proportionate change between gold and jewellery stock, and of the fact that he specifically had told Mr Chan, the insurance agent, about this, albeit this did not affect the alleged ‘warranty year’ of October 1998 to October 1999.

165. On the basis of the accountants’ working paper of 31 March 1999, Mr Blade, the defendant’s expert, gave evidence of the apportionment at 44% jewellery, 41% gold and 15% precious stones, which, as Mr Acton-Bond pointed out, is virtually the same as the proportions attributed by the plaintiff’s accountants if precious stones are included with the category of jewellery (albeit jade generally is accepted within the trade as a ‘semi-precious’ stone).

166. At the end of the day, therefore, in my judgment the plea of breach of warranty under this head fails also.

167. This then leaves the issue of breach of the terms of the policy with regard to the safe-keys, which is dealt with in the Proposal Form (at Question 16) and also is the subject-matter of Condition 3 of the Jewellers’ Block Certificate which reads: “It is a condition that all keys and duplicate keys, capable of operating the alarms (if any) and all keys and duplicate keys of safes and strongrooms are removed from the premises when the said premises are not open for business.”

168. Whether there is any breach thereof is a question of fact for the court.

169. Mr Chiang was strongly pressed in cross-examination about the issue of the keys both to his own safe and that of his brother’s safe, and in particular was strongly questioned about apparent inconsistencies between his statement at the time of the robbery to the effect that he had had no key to his brother’s safe, and his evidence at trial, which indicated that he did; in the event he responded, and I am minded to accept, that “the issue of the spare key came up recently”, and that at the time that he had given his original statement “probably” the issue of spare keys was not raised.

170. Looking at the evidence in the round, I have decided that there is insufficient evidence to invite the conclusion that there was a breach of condition regarding the keys.

171. Accordingly, it follows from the foregoing that on this second principal issue as to breach of warranty, I find in favour of the plaintiff and against the defendant.

The ‘waiver’ sub-issue

172. However, before leaving this element of the case, it is necessary to allude to the evidence of Mr Chan, the insurance agent.

173. On the basis of my findings, this evidence fades into insignificance, but if and in so far as I be held to be wrong on any of the foregoing matters, and thus if the evidence of this gentleman becomes germane, I ought to state, putting it at its lowest, that I was wholly unimpressed with this witness; in particular, I considered risible his refusal to acknowledge the role of commission in his remuneration. 

174. In blunt terms, having observed him in the witness box, and having heard his responses to questions, I did not believe a word that he said upon any material issue.

175. Thus, if and in so far as this may be relevant, in terms of the account of Mr Chiang on his dealings with Mr Chan, I find that Mr Chiang’s version of events is true and correct, and I disbelieve any evidence of Mr Chan to the contrary.

176. In particular, I find that Mr Chan inspected the accounting papers, invoices and other documents of the plaintiffs before the first policy of insurance was taken out, and I also find that that he had indicated to Mr Chiang that this was a satisfactory system for the insurance cover proposed, thus stimulating the plaintiff to take out the initial policy.

177. I further find that prior to the second (and relevant) policy being taken out, there was a conversation between Mr Chiang and Mr Chan in which, having learned that the same system was in operation as was the situation at the time of entering into the first policy the previous year, that Mr Chan had said that this was satisfactory.

178. Although the line taken by Mr Chan in evidence was that he could not remember his conversations with Mr Chiang, but that in any event he would not have advised or reassured his potential customers as to the adequacy of their records, having seen and heard this gentleman I have no doubt whatever that this person would have said whatever it took to persuade potential policy holders to obtain their business, and thus afford him the chance to increase his commission income; indeed, the evidence was that whilst he was at it he also had persuaded Mr Chiang to put in a security alarm of another manufacturer for whom Mr Chan also acted.

179. Accordingly, if it had been necessary so to find, I should have found that any flaw/defect in the records/recording system of the plaintiff thus had been waived by Mr Chan on behalf of the defendant at the time of entering into the relevant insurance contract. 

180. On the facts, Anglo-East was the firm on which the defendant’s relied for all information as to the insurance they were taking out, the insurance contract was executed in Hong Kong, and the evidence before the court is that all decisions were made in Hong Kong with the authority of Anglo-East, and were not referred back to London.  As a relatively small business, the plaintiff, in the person of Mr Chiang, in my judgment was vulnerable to statements/blandishments regarding the suitability/acceptability of his records, not least because, as in this case, Mr Chiang’s knowledge of English was, and is, less than totally fluent.

Issue 3: Quantum

181. As pleaded, the plaintiff’s claim is in the sum of HK$6,199,343.00, being made up of first, 18K jade and diamond ornaments: HK$1,558,168; and second: HK$4,641,175 in diamonds.

182. A concession has been made at trial, within the evidence of Madam Li, in that this total sum has been reduced by HK$53,000, so that the sum which the plaintiff now seeks is HK$6,146,343, together with interest thereon.

183. For the defendant Mr McLeish noted that the main oral evidence in terms of quantum had come from Madam Li, who was an ‘eleventh hour’ replacement for the plaintiff’s erstwhile expert on quantum, Mr Simon Chiu; as earlier noted, in the event this gentleman was not called, the court having been informed by counsel that Mr Chiu apparently had no recollection of this case.

184. Mr McLeish submitted that this lady, the wife of Mr Chiang, had an obvious personal interest in the outcome of this case, and that in giving her evidence Madam Li had ‘tailored’ such evidence; for example, there appeared to be a contradiction between her earlier assertion to the loss adjusters that a record was not kept of goods taken out of the premises and her subsequent assertion in evidence to this court that there was such a record.

185. In her witness statement as to the valuation of the loss arising from this robbery, Madam Li noted that the plaintiff had submitted a ‘Claim Summary’ for the loss of loose diamonds, jade and diamond ornaments, but Mr McLeish complains that what is missing from her evidence is any proof of the cost of the allegedly stolen items by way of reference to underlying invoices or consignment notes.

186. In this context he emphasized that this was necessary because within Answer 4 of the Proposal Form dated 28 September 1999 the basis of which claims were required to be settled was at cost in relation to own stock, consignment goods and replacement cost for precious metal, and that for claims in relation to ‘own stock’ this must mean ‘actual cost’ and not ‘replacement cost’, since this was reserved for claims relating to precious metal.

187. Thus, Mr McLeish concluded, in order to establish the quantum of its claim the plaintiff had to prove, in relation to its own stock the actual cost, and in relation to consignment goods the price agreed with the consignee, and that this had not been achieved, given that the material upon which Madam Li relied represented simply handwritten versions of the parts (A) to (G) of the schedules which had been compiled after the alleged robbery, and did not contain cross-references to underlying suppliers’ invoices (other than workshop invoices for making up pieces) or consignment notes.

188. Accordingly, counsel’s submission was that the plaintiff’s claim should be rejected in its entirety as unproven, but that in any event for items 1-10 in the Summary of loss as prepared must be rejected in the terms as claimed, in relation to items 1-3 in so far as the claim related to diamond components, and in relation to items 4-10 in so far as the claim related to jade components.

189. Mr McLeish also pointed to the fact that, on Madam Li’s own evidence, the diamond costs of jewellery under items 1-3 of the summary were based not on the diamonds allegedly lost, but instead on the cost of the most recent purchase by the plaintiff of diamonds of the relevant type (eg., fragment, 10 point, 15 point); not only were the costs adopted not actual costs, he said, but as Madam Li admitted in cross-examination, they had no regard to quality. 

190. As to Madam Li having volunteered in her evidence that she had done a ‘recalculation’ of the alleged actual cost that had come to about HK$53,000 less than had been claimed with regard to items 1-3 in the plaintiff’s Summary, Mr McLeish observed that this contradicted the now-abandoned report of the plaintiff’s erstwhile expert on quantum, Mr Simon Chiu, who had said (at paragraph 20 of that report) that the reason why diamonds in the jewellery had been costed on the basis of the cost of the most recent purchases of diamonds of the relevant size was because in terms of these diamonds the supplier’s invoices could not be found.

191. In terms of the jade component in items 4-10 of the Summary of claim, said Mr McLeish, it appeared from Madam Li’s own statement to the loss adjusters at the time of the robbery that no record of unset jade was entered in the plaintiff’s books, and absent a movement record of the type used for loose diamonds – and there was none – it was not possible for the value of the jade as used in jewellery to be ascertained, far less traced back to the relevant invoices.

192. He further pointed out that Mr Chiang Keng Fai himself had said in evidence that when he purchased raw jade, “it was bag by bag” and that the cost of each sliver of jade within each bag was averaged out by dividing the number of slivers therein against the cost of that particular bag, which in itself was not objectionable, save that the cost of a particular jade item could not be traced back to the cost of the particular batch of jade from which the item had been taken – and he repeated that the plaintiff required claims in respect of jewellery pieces containing jade to be settled on the basis of actual cost, which in this instance could not precisely be achieved.

193. For the plaintiff it is fair to say that Mr Acton-Bond did not have a great deal to say in detail on the issue of quantum, not least, I suspect, because since he had been let down by his designated expert at the last minute, thus he had had to rush Madam Li into hasty substitute service.

194. In his final closing submission he observed – correctly – that this court is not an Official Referee, and further noted that there were “alternative approaches” on the issue of damages if and in so far as the court were to conclude that “so far as loss was concerned that the plaintiffs had failed to prove on the balance of probabilities each and every item of loss summarized”, although equally, he suggested, the court might conclude that the part of the claim relating to the loose diamonds had been made out following the plaintiff’s accountant’s examination of the material; at the same time he opaquely alluded to alternatives which “would, possibly, have to be explored more fully” in light of this court’s findings of fact.

195. With respect, I do not know to what this latter observation is intended to convey – this has not been a ‘split’ trial of liability and quantum, and there is, for example, no question of adjourning the issue of quantum to a Master (which would strike me as the forensic equivalent of a ‘hospital pass’) with the result that this court is left somewhat in a dilemma in terms of quantum.

Decision on Quantum

196. I have not found this an issue fairly to resolve.

197. On the one hand the court has found as a fact that there was a robbery resulting in the theft of a considerable amount of jewellery, and that, having found no breach of warranty which would serve to have prevented the policy from incepting, it follows that the plaintiff clearly has suffered a not insubstantial loss which properly is the subject-matter of indemnity under the relevant policy; on the other hand, there is no doubt but that Mr McLeish’s detailed criticisms of various aspects of quantum claim as now advanced have some resonance, and cannot simply be brushed aside.

198. For my own part I am unable to agree with and to accept the submission of Mr McLeish that in light of the defects that he has outlined that this Commercial Court simply now should wash its hands of this claim as wholly unproven, which represented the fall-back position most favourable to his clients in light of this court’s findings both of the fact of the robbery and rejection of the underwriter’s assertion as to breach of warranty; as indicated, the court has taken the view there most certainly has been a loss to which the plaintiff is prima facie entitled to indemnification. 

199. The only question is, therefore, how much?

200. I have taken the opportunity to review in some detail the documentary and oral evidence, although I confess that I have found this of limited assistance in terms of arriving at an exact figure which may be justified down to the last dollar and cent; thus the court simply has do the best that it can in order to come to a conclusion which is just – or, at the least, not unjust – to this plaintiff and to this defendant.

201. In my judgment the amount of the now-revised claim of HK$6,146,343 (after taking into account Madam Li’s concession at trial in the amount of HK$53,000), has not been proved in full, although in my view Madam Li gave her evidence, which notwithstanding the criticisms thereof I broadly accepted, as honestly and objectively as possible. 

202. In my view, however, it remains open to the Commercial Court to review the entirety of the material before it, and to make the best judgment upon quantum as it is able.

203. The starting point must be the differing heads of claim set out within the Summary of Loss (prepared by the plaintiff at Appendix 1) [see B6, 614], which is headed “Summary of Claim for the loss of loose diamond, jade and diamond ornaments”.

204. This is broken down into 11 items in the following groupings:

Items 1 – 3: 18K gold and diamond rings, gold and diamond pendants and gold and diamond earrings – subtotalling
HK$427,193.00

Items 4 – 10: 18K jade and diamond rings, 18K jade and diamond pendants, 18K diamond bracelets with A jade, 18K diamond earrings with A jade – subtotalling HK$942,730.00

Item 11: Loose diamonds (819.34 carats) – subtotalling HK$4,641,175 (in substitution of the original figure of HK$4,653,553)

Total: HK$6,011,098, as revised

To this total a further concession of HK$53,000 which Madam Li volunteered with regard to Items 1-3, which on its face thus further reduces the plaintiff’s claim to:

HK$5,958,098

205. In light of the criticisms of the deficiencies of underlying documentation and the methodology in compilation of these base figures, albeit having rejected the defendant’s contention that the claim must be dismissed in toto as being unproved, in my view the only way in which broad quantum justice can be done is to take each of these subtotals, and to make as estimated percentage deduction therefrom to take account of the criticisms to which the defendants have drawn attention.

206. Having reflected on the situation, in my judgment there should be a deduction of 15% from Items 1-3, a deduction of 25% from Items 4-10, and a 20% deduction from Item 11.  There is no magic in these percentages as chosen; they simply reflect this court’s best efforts after considering all the evidence before it.

207. This then provides the following figures (rounded to the nearest dollar):

          Items 1-3: HK$427,193 – HK$53,000 (as conceded) times 85% = HK$318,064

          Items 4-10: HK$942,730 times 75% = HK$707,047.00

          Item 11:  HK$4,641,175 times 80% = HK$3,712,940

          Total: HK$4,738,051

208. The foregoing represents the best estimate the court is able to make in the circumstances of a case which cannot be characterised as straightforward.  In my judgment, however, this estimate provides substantial justice in this dispute between insurer and insured.

Order

209. In light of the foregoing, therefore, the Order of this court is that:

i. judgment be entered for the plaintiff against the defendant in the sum of HK$4,738,051.00;

ii. there be an order nisi that there be interest upon the said sum calculated at the rate of 1% over Hong Kong dollar prime from time to time prevailing in the period from the date of the writ in these proceedings until the date of judgment herein;

iii.  there be an order nisi that the costs of this action be paid by the defendant to the plaintiff, such costs to be taxed if not agreed.

iv.  there be an order nisi that the monies paid into court by the plaintiff as security for costs be paid out to the plaintiff, together with such interest as has accrued thereon.

210. The orders nisi at (ii), (iii) and (iv) above are to become absolute unless application be made so to vary the same within 21 days of the date of judgment herein.