Kant Sk Yeoh t/a Major Mercantile Co v. The New Zealand Insurance Co Ltd
Read the full judgment text of HCA 205/1968 on BabelCite. This High Court CFI judgment was delivered on 5 September 1969.
1. On 5th August, 1967, the plaintiff and defendants entered into two contracts of insurance. By policy no. 1184960 the defendants agreed that, if during the period 5th August, 1967/4th August, 1968, the plaintiff's machinery, furniture fittings and fixtures, and stock-in-trade at his factory at flats 11 and 13 on the 10th floor of the On Lung Industrial Building, Luk Hop Street, San Po Kong, Kowloon, were destroyed or damaged by fire, they would pay or make good to the plaintiff the value of th
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HCA000205/1968 IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 205 OF 1968 -----------------
Coram: Blair-Kerr, J. in Court. Date of Judgment: 5 September 1969 ----------------- JUDGMENT ----------------- 1. On 5th August, 1967, the plaintiff and defendants entered into two contracts of insurance. By policy no. 1184960 the defendants agreed that, if during the period 5th August, 1967/4th August, 1968, the plaintiff's machinery, furniture fittings and fixtures, and stock-in-trade at his factory at flats 11 and 13 on the 10th floor of the On Lung Industrial Building, Luk Hop Street, San Po Kong, Kowloon, were destroyed or damaged by fire, they would pay or make good to the plaintiff the value of the property insured up to the following maximum figures:-
By policy no.1184961 the defendants agreed that, in the event of the premises being destroyed or damaged by fire, they would re-imburse him for loss of profits up to a maximum of $300,000 together with standing charges. 2. In the early hours of 2nd September, 1967, the knitwear section of the factory was damaged by fire. On the 12th September, 1967, the plaintiff lodged his claim under policy no.1184960, as follows:-
Under policy no.1184961 the plaintiff also claimed for loss of profits and standing charges. Both claims were rejected on 7th November, 1967. 3. In O.J. Action 205 of 1968 the plaintiff claims $906,431.82 under policy no.1184960. Particulars of the claim as set out in the document lodged with the defendants on 12th September, 1967 (Ex. A5) are as follows:-
In O.J. 211 of 1968, the plaintiff claims $614,418.44. Policy no.1184961 is not before this court; but, according to the statement of claim, standing charges were insured up to a maximum of $314,600; and the total amount claimed by the plaintiff under this heading is $314,418.44. So far as loss of profits is concerned, the statement of claim reads as follows:- "Loss of profits (on goods in stock at time of the fire but excluding prospective business):
========================== The statement of claim continues thus:-
Clearly the three articles mentioned under loss of profits are the three major items in the claim in O.J. 205, namely, DB603, 910 and 808; and the "loss" which the plaintiff claims is the profit which he alleges that he could have made on the sale price of these three items if they had not been destroyed in the fire; and he appears to be alleging that he anticipated making a profit of approximately 47% on the sale of DB603, 910 and 808. 4. By a consent order dated 3rd July, 1968, the two actions were consolidated. However, when the trial commenced on the 28th May, Mr. Swaine, counsel for the plaintiff, informed me that, having studied policy no.1184961, his view was that the claim, as framed, in O.J. 211 was misconceived; and he submitted that I should proceed with the trial of O.J. 205 and adjourn O.J. 211 sine die. Mr. Zimmern, for the defendants, saw no objection to the court trying O.J. 205, but he took the view that the claim in O.J. 211 should either be withdrawn or dismissed. It was finally agreed that I should try O.J. 205 and postpone a decision as to what should be done about O.J. 211 until after the trial of the issues in O.J. 205. 5. Major Mercantile Company was registered by the plaintiff under the Business Registration Regulations on 6th August, 1959. Business appears to have been carried on at a number of addresses; and in 1965 the plaintiff moved into the premises in On Lung Industrial Building. Under a sale and purchase agreement dated 6th October, 1965, he agreed to purchase the premises for $387,016. A deposit of $40,000 was paid upon the signing of the agreement; and the balance of $347,016 was to be paid by 60 equal instalments of $5,783.60. The plaintiff paid some 13 instalments up to November, 1966; but no further instalments were paid after that date. 6. On 27th July, 1967, he was served with a writ of summons in which the vendors claimed $12,400 on two cheques dated respectively 10th June and 20th June, 1967, drawn by him on the Bank of India, which cheques were dishonoured upon presentation. The vendors subsequently obtained judgment against him. 7. The vendors took out a further writ of summons against the plaintiff on 26th September, 1967. The claim in that case was for $57,836 - being 10 instalments of the purchase price of the factory for the period December, 1966 to September, 1967. The writ was served on the plaintiff on 27th September, 1967. 8. In June, 1968, a company named Lark International Limited took out a writ against the plaintiff. The claim in that case was for the sum of $28,778.50 for the price of goods sold and delivered to the plaintiff on various dates between March and June, 1966. There was an order for substituted service; but it is not know whether the action ever went to trial. 9. The plaintiff said in evidence that he and two of his employees were the last to leave the factory at On Lung Industrial Building about 8 p.m. on the evening of 1st September. He said that he was told about the fire in the early hours of 2nd September and that he went to the factory immediately; that he was allowed into the premises by officers of the Fire Brigade; and that, while he was examining the damage, he slipped and fell. 10. In opening the case, his counsel said that the plaintiff broke his leg. In fact, he did not break his leg. The plaintiff said in evidence that after examining the damage to the factory premises he walked downstairs, but that his ankle became painful next day. However, he remained at home for the next two weeks; and when any person connected with the defendants, or their agents, called to see him, he appeared to be confined to bed. One witness said that when he saw him on the 8th September the plaintiff had a bandage round his head; but when he saw him on 13th September, the bandage had been removed; and there was no sign of any injury to his head. 11. The plaintiff called no evidence to support his allegation that he injured his ankle on 2nd September; and, having seen the plaintiff and having heard him testify, I do not believe that any injury he may have sustained was such as to necessitate his remaining at home, much less to cause hime to be confined to bed for the two weeks succeeding the factory fire. 12. It appears that the fire was reported to the defendants immediately and they instructed Paulsen and Bayes-Davy Ltd., a firm of fire loss assessors and adjusters, to investigate. However, the defendants' agents experienced some difficulty in obtaining access to the premises. There were two keys to the door of the premises. One was kept by the plaintiff himself and the other by a member of his staff. It was not until the 6th September that Captain Gardner and Mr. Ozorio of Paulsen & Bayes-Davy were admitted to the factory by the plaintiff's sister, Rosamund Yiu, and a man named Lam Chi Yan who described himself as the foreman of the knitwear section of the factory. There is no doubt that this man is a senior member of the plaintiff's staff. In conversation with Ozorio, the plaintiff himself referred to Lam as his foreman. 13. The plaintiff's factory was divided into two sections. The front section facing Luk Hop Street had been used for the manufacture of wigs; but production had ceased for some time prior to the fire. This section was not damaged by the fire. It was the rear section of the premises, the knitwear section, which had been extensively damaged. 14. From a sketch plan (Ex. F.7) it appears that there is a store in the knitwear section; but no offices. The factory offices are in the wig section. There is a general office next to the toilet; and next to it is the plaintiff's own office and next to that office there is a room described in the sketch as a sampling room. 15. The cause of the fire has never been satisfactorily established. A rice cooker was found on a table near the store-room in the knitwear section; it was attached to an electric socket; the electricity was passing through it; the bottom of the cooker had been burnt through; and it is thought that this may have caused the fire. At any rate, whatever the cause, the fire seems to have spread in a rather peculiar way. The door of the store-room bad been burned down; but there was little damage to the contents of the store. On the shelves there was woollen yarn, sweaters and other garments. Certain machines near the store-room were damaged; but it is not clear to what extent this was due to the fire. Nevertheless the fire had spread to the rear of the building and heaps of garments lying on tables were reduced to ashes. Some knitting machines at the north-east corner of the premises were extensively damaged. The fire also appears to have affected the south side of the knitwear section. Mr. Ozorio said that near the tables he found a pile of cartons, not made up as such, but lying in a pile one on top of the other and that the outer edges of the cartons were charred, but the remainder of the cartons were not affected by the fire. To the right of the store there was a counter. Mr. Ozorio said that he saw nothing on the top of this counter. He said that on the 3-tier rack behind the counter he found cardigans, hanks of wool and bobbins of thread, and that these articles had been damaged by fire to the extent of about 50%. He said that there was a steel desk between the counter and the 3-tier rack; that he saw some books and papers on the floor between the counter and the rack and some papers in the drawers of the desk; that he and a colleague removed these documents and placed them on a table in the wig section and that he told Lam, the foreman, to look after them as they would be required later. No inventory was made of these books and papers. 16. Ozorio said in evidence that to the right of the counter, he found about 80 cartons of finished goods (cardigans) in a stack about 6' x 8' x 10'; that all the cartons bore the mark DB602 although about 90% of the cardigans had been destroyed; that there was a woven label in the cardigans which read "DB602 lot E.S.M.L." and "100% virgin acrylic fully fashioned"; and that the bottom layer of cartons were not damaged at all. 17. In the sketch(Ex.F.7) appear the words "corrugated cardboard sheets". Ozorio said that they were not destroyed, but merely charred on the outside. This witness went on to say that between the tables and the looping machines at the north-west corner of the premises he found some semi-finished goods (fronts, backs and sleeves of garments) bundled into lots, and that they were only 10% - 15% burnt. Then, he said that between the looping machines and a heap of waste lying on the floor of the factory he found some cardigans, some of which were beaded, and that the cardigans were not burnt at all. 18. Between the heap of waste and the store-room, Ozorio found 4 gunny sacks filled with human hair and he said that although the sacks and hair had suffered water damage they were not damaged in any way by fire. 19. Finally, Ozorio said that between the looping machines and the gunny sacks of human hair, he saw about 150 dozen garments on the floor. He said they appeared to be odd job lots; that there were some embroidered garments; and that the lots looked like an accumulation of extras from previous shipments. Apart from that, he saw no embroidered goods and he saw no hand-crocheted goods anywhere in the factory. 20. The defendants enlisted the services of another firm of insurance loss adjusters, Toplis and Harding (Far East) Inc., and a member of this firm, Patrick Donald Wood, called at the factory on 8th September. Ozorio and Captain Gardner were present. Wood's main concern at that stage was to minimise loss of profits as a result of the factory not operating; and, to this end, he told the plaintiff that it was desirable that the factory should be put back into operation at the earliest possible date. In fact, on 8th September, Gardner handed the plaintiff a note which read in part:-
In evidence the plaintiff laid great stress on this note, and said he regarded it as a 'direction' to remove this debris. I do not believe that the plaintiff took this as a 'direction'. He was perfectly well aware that the insurance company wished to minimise loss of profits so far as practicable. In fact, on 9th September, Paulsen & Bayes-Davy received a telephone message to the effect that the plaintiff wished the removal of the debris to be postponed till 11th September to enable Lam to prepare the insurance claim. This request was acceded to. Removal of the debris commenced on 12th and was completed on 13th September. 21. Wood spoke to Lam at the factory on the 8th September and Lam gave him verbally a list of the stock which he alleged was in the knitwear section at the time of the fire. Wood jotted this down; and then he went to see the plaintiff. He told the plaintiff what Lam had said. The plaintiff agreed that Lam's list was correct; but he said that at the time of the fire there was also 11 dozen gross pairs of eyelashes in cardboard cartons under a pile of human hair near the store-room. 22. Wood then questioned the plaintiff concerning the whereabouts of his books of account. The plaintiff said that just prior to the fire he had been using the firm's books of account on the counter and that after work on 1st September he had placed the books of account in drawers underneath the counter. 23. It was at this stage that Wood began to be suspicious. He said in evidence that he thought it very odd that anyone would wish to do book work near noisy knitting machines rather than in the comparative quietness of the accounts office. 24. Wood returned to the factory; and from 2.30 p.m. till darkness fell he carried out a detailed investigation. He found no books of any kind in the drawers of the counter. He said that the counter had been charred, but that the drawers could be pulled out and that any books which had been placed in those drawers would not have been burned. The plaintiff had said that the firm's books were bound heavy-covered books. Wood said that he found no trace of such documents anywhere on, in or around the counter, not even metal screws such as are used to hold loose leaf ledgers together. 25. He then visited the 3 offices in the wig section. In the accounts office, he found some account books relating to 1965 and 1966, but no general account book for 1967. However, he found a small soft-covered book in a drawer in a desk in the plaintiff's office (Ex. FFF). This book was not produced in evidence until a very late stage in the trial. It had been in the hands of the plaintiff's solicitors and it was described as a petty cash book. However, upon production, I caused parts of it to be translated; and it is clearly far more than a petty cash book. There are entries relating to the drawing of fairly large sums from the Chase Manhattan Bank and the Hong Kong Industrial & Commercial Bank, and entries relating to the payment of wages to factory workers. 26. Wood said that he then searched the debris thoroughly and found no traces of eyelashes or the cartons in which they were alleged to have been packed. He said that he searched not only through and under the pile of human hair but that there was nothing within a radius of 10 feet of the human hair which resembled eyelashes or cartons. 27. In cross-examination Wood admitted that at this stage he did not regard the question of eyelashes as being very important because the plaintiff had said that he only had 11 dozens gross. Ozorio said that it was not till the 13th September that the plaintiff alleged to him that eyelashes packed in cartons had formed part of the stock on the premises but Ozorio said that he had heard Wood discuss the plaintiff's allegations regarding eyelashes with a colleague in the office of Messrs. Paulsen's prior to 13th September. 28. Wood said he saw the plaintiff on 13th September; that he told him that no books of account could be found; and that the plaintiff's reaction to this statement was that they must have been stolen. Wood then asked him whether he employed a firm of accountants as auditors; and the plaintiff said he did not do so. Wood then asked him whether he employed bookkeepers in the factory; and the plaintiff said that he employed two bookkeepers. Wood asked him to supply the names of these bookkeepers. The plaintiff replied that he was unable to supply the names because he did not know their names. However, he added that the bookkeepers would be communicating with him by telephone. At the trial of this action the plaintiff did not call any person who had been concerned in the writing up of his books of account. His story was that they had left his employment and that he didn't know where they lived. 29. At this interview on 13th September Wood told the plaintiff that he had examined the hair piece by piece but that there was no trace of the eyelashes. The plaintiff's reaction to this statement was that the eyelashes must have been stolen. 30. Wood then asked the plaintiff for copies of returns made during the previous two years to the Inland Revenue Department for purposes of business profits tax. The plaintiff replied that the firm had made a loss during the previous two years and that no returns had been made. 31. Wood then asked the plaintiff if he would accompany him to the factory and point out exactly where he alleged the eyelashes had been just prior to the fire. The plaintiff declined on the ground that he had twisted his ankle. Wood and Ozorio returned to the factory alone and searched again for the alleged eyelashes, but found no trace of them. 32. Wood saw the plaintiff on the 15th September. The claim had been submitted on 12th September and Wood was now aware that the plaintiff was claiming for the alleged loss of 1173 gross pairs of eyelashes. He asked the plaintiff why he had changed the figure from 11 dozens gross to 1173 gross pairs. The plaintiff replied that on 8th September he had said that there were 11,000 pairs of eyelashes and that Wood must have misunderstood him. In evidence Wood said that there was no question of his misunderstanding the plaintiff who spoke perfectly good English. 33. It was put to Ozorio and Wood in cross-examination that the floor of this factory was water-logged till after 8th September. Ozorio said that there was water on the floor and that it varied in depth from 2" to 6". Wood said this was an exaggeration; that when he saw the factory on 8th September, the floor was wet; that the water may possibly have been as deep as 2" in parts, but that there was no question of the water being 6" deep. Ozorio said that on 9th September he and his colleagues removed bundles of yarn to enable the water to run off; that the water was mostly near the counter and the door of the factory and that bamboo brushes were used to sweep the water into the toilet. 34. The suggestion made on the plaintiff's behalf was that Ozorio and Wood did not carry out a very careful search on 8th September; that by the 13th September the eyelashes became a matter of greater importance; but that some of the debris had disappeared either as a result of its draining away in the water or as a result of it being removed; and that any traces of the eyelashes may have disappeared forever. 35. The plaintiff said in evidence that the way in which the eyelashes had been packed was this: one gross pairs were put into a polythene bag; ten polythene bags were packed in one small box; and ten such boxes were packed in each carton and that there were eleven cartons. He said that each carton was 11" x 19" x 26". Counsel calculated that the space occupied by eleven such cartons would be 60,000 cubic inches. Wood was asked whether he would have expected to see some trace of such a pile of cartons and he said emphatically that he would have expected to see traces; that he would have expected to see traces not only of the cardboard but that the nylon and polythene would have "gelled" with the heat and that there would have been unmistakable traces. 36. On 15th September Wood pressed the plaintiff to supply him with particulars of any future orders for goods to be manufactured. He said that it was necessary that he should have this information to enable him to advise the defendants whether to re-equip the factory. In response to this request the plaintiff produced a letter dated 28th August, 1967, from John E. Harrison Ltd., Glasgow (Ex. F.6(a)) which read in part:-
37. This letter was received by the plaintiff about 3rd September. In opening the plaintiff's case, his counsel said that this letter clearly referred to Messrs. Harrison's order for 50 dozen of styles 3217 and 3211 which are the first two items in the plaintiff's claim. The plaintiff said that when he handed the letter to Wood he did not notice whether the letter referred to "50 dozens" or "500 dozens". Wood's evidence was that this letter was not handed to him in the context of any discussion relating to the first two items of the plaintiff's claim, but in response to Wood's question as to what future orders the plaintiff had, that is to say goods to be manufactured; and that, apart from handing over this letter, the plaintiff had also said at the time that he had this order for 500 dozens each of styles 3217 and 3211 to be manufactured. 38. I accept Wood's evidence. One glance at the original letter (Ex. F.6(a)) would convince anyone that the last digit of the "500" has not been typed; it seems to have been written in; and in my view the letter was altered by the plaintiff (or with his knowledge) with the intention of misleading the defendants. It is now admitted that the plaintiff, in fact, had no future orders of any kind. 39. It is clear from the correspondence produced in evidence that by the middle of September, 1967, the defendants were becoming very suspicious of the plaintiff's claim. An examination of the debris had disclosed the presence of some substance called celluloid thinners; and on 15th September they communicated with the Commercial Crime Division of the Royal Hong Kong Police. Their letter reads in part:-
On 14th September, the defendants' solicitors wrote to the plaintiff thus:-
The letter requested the plaintiff to instruct his accountants, H.S. CHENG & CO., to produce all books of account etc., to produce all orders received for work yet to be completed, and a letter authorising the loss assessors to inspect the plaintiff's bank records. 40. On 15th September the plaintiff replied enclosing a letter of authority for the inspection of his bank account with the Hong Kong Industrial and Commercial Bank, and also enclosing what he termed, "our books of Daily Production, Finished Goods Stock and Raw Material Stock Accounts which we left with our accountants, H.S. CHENG & CO." This book was produced as Ex. L; and in opening his case, counsel for the plaintiff relied heavily upon it. 41. Wood said that on the 15th September the plaintiff gave him two United Kingdom Commonwealth Preference Certificates of Origin (forms E.120). One related to the alleged export to the United Kingdom of 500 dozen embroidered cardigans, style DB603. The manufacturer's certificate was dated 9th September, 1967, and was signed by the plaintiff. The certificate by the approved accountants, H.S. CHENG & CO., was also dated 9th September, 1967. On the reverse side of the form the certificate by the exporter was signed by the plaintiff and was dated 8th September, 1967. This certificate states:
The other form E.120 related to the export of 1100 gross pairs of nylon eyelashes line No.808. The manufacturer's certificate and the certificate of the approved accountants are each dated 9th September, 1967, and the certificate by the exporter is dated 8th September. In this latter certificate the plaintiff alleges that the eyelashes "are consigned ........ to Messrs. John E. Harrison Ltd., 49-57, Grosvenor Street, Glasgow". 42. It is not surprising that the plaintiff's letter of 15th September failed to satisfy the defendants. They replied on the 16th September demanding the production of all books of account including the firm's ledger, cash book, stock books, production records and vouchers, including those relating to the purchase of raw materials, particularly the voucher relating to the purchase of material alleged to have been used in the manufacture of eyelashes; and on 19th September Paulsen & Bayes-Davy Ltd. wrote to the plaintiff requesting his confirmation that he had no bank accounts other than the account with the Hong Kong Industrial and Commercial Bank. 43. The plaintiff now instructed his solicitors who wrote to the defendants on 9th October stating, inter alia, that all the plaintiff's books and records were destroyed by the fire; that there was no outstanding orders for work to be performed; that all outstanding orders had been performed and that the goods were in the factory awaiting shipment, and that all records relating to such goods had been destroyed. The letter went on to state that the delivery date for the 2 lots of sweaters 3217 and 3211 which had been ordered by John E. Harrison Ltd. was September, 1967, and that the two lots of woollen shifts (1201 and 1203 in the claim) had been ordered by Matheson and Co., Ltd., London for delivery in September, 1967. 44. On the same day (9th Oct.) the plaintiff's solicitors also wrote to Paulsen & Bayes-Davy Ltd. as follows:-
The letter gave a list of 13 banks at which the plaintiff had maintained accounts. 45. On 13th October, 1967, the defendants wrote to the plaintiff's solicitors asking them to obtain from the plaintiff letters authorising all these banks to release to the defendants details of the plaintiff's accounts. The letter concluded:-
46. Wood did not speak to the plaintiff after 15th September. About this time he made a note in his records which read:-
On 29th September, 1967, Wood wrote an interim report to the defendants in which he said that in his view the defendants were in a strong position to repudiate the claim on the ground that it was fraudulent. 47. At this stage, it is desirable to set out the position as disclosed in the various statements supplied by the banks. On 22nd May, 1967, the balance of the plaintiff's account with the Bank of India was $73.28; and on 29th August, 1967, it was $18.18. Between these dates the credit balance never exceeded $1,147.88. He had no facilities to overdraw; and he must have known full well when he drew the two cheques dated 10th and 20th June, 1967, in payment of the instalments on the purchase price of the factory that the cheques would be dishonoured. 48. As regards the Chase Manhattan Bank, the account shows a considerable number of transactions in 1965. In fact deposits, mostly the proceeds of Letters of Credit, totalled about one million dollars. But it is clear from an examination of the account that this bank was financing the manufacture of the goods exported by the grant of what is known in Hong Kong as "packing loans"; and that as soon as the proceeds of the L/C were credited to the plaintiff's account, the bank recouped themselves for the amount advanced. By the 9th October, 1965, his credit balance had dropped to $1,592. From November, 1965 to May, 1966, the account was overdrawn. On the 10th May, 1966, his sister, Rosamund, guaranteed him to the extent of $100,000 and his wife guaranteed him to the extent of $200,000 (Exs. S and T). On 21st May, 1966, he executed a bill of sale pledging all the machinery in the factory by way of security for facilities up to $100,000. Yet, there were practically no transactions passing through the account between September, 1966 and April, 1967. On 13th February, 1967, the bank wrote to the plaintiff returning the two guarantees by his sister and wife as he had "liquidated all his commercial obligations towards" the bank. The balance of the account on 20th June, 1967, was $95.05. No transactions took place till 2nd August; and the balance of the account on 31st August, 1967, was $318.13. 49. As regards the Hong Kong & Shanghai Bank (Mongkok Branch), there had been no transactions in that account between 9th January and the end of August, 1967; and the balance of the plaintiff's account on 31st August, 1967, was $20.01. 50. As regards the Overseas Trust Bank, the plaintiff's credit balance on 1st March, 1967, was $3,068.05; by the 4th May, 1967, it had dropped to $25.04 and on 23rd September it was $48.22. 51. As regards the Chartered Bank, the balance of the plaintiff's account as at 31st August, 1967, was $43.42. The account had been dormant for a number of years. 52. As regards the Hong Kong & Shanghai Bank (1, Queen's Road), the account had been practically dormant throughout 1967; and on 19th April, 1967, the balance was $33.82. 53. As regards the account with the Hua Chiao Commercial Bank, no transactions had taken place since September, 1966, when the balance was $44.47. 54. During 1967, most of the plaintiff's banking business was transacted through the Hong Kong Industrial & Commercial Bank. From January to August sums totalling $604,000, mostly the proceeds of letters of credit were credited to his account. But this does not reflect the true position. The plaintiff was not in a strong financial position by any means. He admitted in cross-examination (and, indeed, it is evident from a perusal of the records of his account with the Hong Kong Industrial and Commercial Bank (HH20-HH25 and HH12-13) that his business was being financed by "packing loans" from the bank and facilities under a Running Trust Receipt Agreement. Under the system of trust receipts, as I understood the evidence, the bank paid the manufacturers for the raw materials used in the manufacture of the goods and the plaintiff, when executing the trust receipt, agreed to hold the goods in trust for the bank and undertook to repay the bank within a certain period. As soon as the proceeds of the letter of credit were credited to the plaintiff's account, the bank recouped themselves for the amount owing to them. For example, on 23rd August, 1967, he shipped a quantity of sweaters style DB602 from Hong Kong to New York. This bank negotiated his export bills (vide Ex. YY, which is the original of Ex. BB). On 23rd August the proceeds of L/C C-13177 (namely $70,512.35) was credited to the plaintiff's account; but it is clear from the account that the bank immediately appropriated nearly all this money to repay themselves for advances on the Running Trust Receipt Agreement. On 2nd September, 1967, the balance to the credit of the plaintiff's current account was $2.29; and at the end of August, 1967, the plaintiff was indebted to the bank on the balance of the Running Trust Receipt Agreement to the extent of $63,800 (vide Ex. H13). Actually the bank issued a writ against him for this sum in January, 1968 (Ex. AA). 55. Records which Ozorio found in the region of the counter were eventually removed from the factory and taken to the offices of Paulsen & Bayes-Davy and eventually found their way to the offices of the defendants' solicitors, Deacons. There is no evidence as to who handled these records during this process. The records remained at Deacons until shortly before the trial commenced when they were given to the plaintiff's solicitors. The solicitors sorted out what they thought was relevant to this trial and made copies for the use of the court. But all the documents salvaged were not produced at the commencement of the trial. 56. Ozorio was asked to state what he found in the factory and he said that, so far as he could recollect, he found three small ledgers. The plaintiff's solicitors then produced two small ledgers. One (Ex. CCC) was not damaged at all. The other (Ex. BBB) was somewhat damaged by water and the edges of the pages are charred. Ex. BBB contains very few entries. Both are written in Chinese and appear to be stock books of some sort; but they both refer to the years 1965 and 1966. 57. Ozorio then said that he remembered that the third ledger contained an entry "relating to monofilament". This is the substance of which nylon eyelashes are made. Ex. L contains an entry relating to the purchase of nylon monofilament. Ozorio's attention was not drawn to that entry; but he was handed Ex. L and asked if that was the book he was referring to. He immediately said that it was. 58. The evidence was that Ex. L was in the hands of H.S. CHENG & CO. at this time. The plaintiff forwarded it to the defendants' solicitors on 15th September. How Ozorio came to see it is not clear; but I am sure that he had seen Ex. L in 1967, or at least a book identical in appearance to Ex. L. 59. However, I doubt whether he saw three ledgers in the area of the counter. Ozorio was obviously an honest witness who was trying his best to recall events of two years ago. But, in matters of detail, his recollection was sometimes a little hazy. It is regrettable that he did not make out an inventory of what he found and even more regrettable that he gave the records to Lam, the foreman. It will be seen presently that one pad of original vouchers (nos. 1800-1899) are missing from a series of pads salvaged by Ozorio. In the light of certain evidence given by a witness named Siu, this may be of some significance. 60. As I have said, Ozorio was an honest witness; and I formed the same view of Wood. There are discrepancies in the evidence of each; but I accepted their evidence generally. 61. From a perusal of the original records salvaged, it appears that the plaintiff sold a good deal of his products through a firm of buying agents called Lion Rock Trading Co., Ltd. Between 22nd March and 23rd June, 1967, this company ordered a number of different styles of garments. Their orders bear numbers such as S.T./250/67, S.T./251/67, S.T./260/67. A file dealing with a number of these Lion Rock Trading Co. orders was salvaged by the defendants. The translation is marked Ex. BB. The documents on the file are called "specifications for production". Each document contains a sketch of the garment to be produced and details as to size and colour. Each document bears a "goods number" which, as I understood the evidence, was the style number of the garment, and that number was frequently allocated by the customer. But the importance of this file lies in the fact that each document on it was given a serial number by the plaintiff. Starting from 22nd March, 1967, the numbers run consecutively from 6702 to 6719; but numbers 6713-6717 are missing from the file. 62. The plaintiff was unable to give any explanation as to why sheets bearing these numbers should be missing from this file which apparently dealt with Lion Rock Trading Co., Ltd. orders. However, from a perusal of the production records salvaged, it is evident that:
There were three types of production records salvaged:-
63. As regards the "semi-finished products returning vouchers" (Ex. O), with the exception of the first pad (nos. 1301-1400) which appears to have been used for about 11 months, opening and closing dates on each of the other pads suggest that one pad only was in use at any given time. Despite the missing pad (1801-1900) pad 1901-1999 appears to have been put into use as soon as the pages in pad 1701-1799 had all been used up. 64. The manufacturing orders (Ex. N) are the documents which indicate that on a particular day so much wool was given to a named worker, and that he or she was told to make so many garments of a particular style by a certain date. The semi-finished products returning vouchers (Ex. O) show that on a particular day a named worker handed back to the factory so many garments of a particular style pursuant to a particular manufacturing order and the amount of yarn used in the process is stated on the form. The forms entitled "Knitting Machine for Receiving and Despatching Record List" (Ex. P) appear to be summaries of the information contained in the other two more basic records. 65. From a perusal of Exs. N, P and O, it is evident that during the period April/August, 1967, work was progressing steadily in fulfilment of orders covered by the plaintiff's serial numbers 6702-6719. 66. Amongst the salvaged documents there is a small file of orders for wool from a firm named Fibres and Fabrics Industries (Wool) Ltd. No one was called from this firm to say how much wool, if any, was delivered to the plaintiff; and it is difficult to say from the few orders on the file what was the position. The plaintiff was not cross-examined on it and the file was not marked as an exhibit. However, it is of interest to note that on one order for 90 lbs. of wool appear the words "777 and 778 for embroidery use". From a perusal of manufacturing orders 0807-0843, it appears that a certain amount of embroidery work was done on styles 777 and 778 between 11th and 22nd July, 1967; and from a perusal of semi-finished products returning vouchers in the series 1301-1400 (Ex. JJ) one Siu Leung Ming appears to have been one of the workers engaged in this work. 67. From the documents (Exs. N, P and O) counsel abstracted all documents relating to four particular lines or styles of goods, namely DB603, DB602, 1201 and 1203. The production records relating to DB602 were marked Ex. I; production records relating to DB603 were marked Ex. J; and production records relating to 1201 and 1203 were marked Ex. K. 68. At the commencement of the trial the defendants made it clear that they were not attacking the accuracy of the claim in respect of machinery and utensils and furniture fixtures and fittings. They concentrated their attack on the three large items in the claim, viz. DB603, 910 and 808. The sums claimed in respect of the alleged loss of these three items amount to 82% of the total claim for stock-in-trade. The defendants say: the plaintiff was running his business "on a shoe-string"; that he never had the money to manufacture these three large items; that there was some nylon monofilament found in the wig section, but that no eyelashes had ever been manufactured; that DB603 was, in fact, manufactured, but that no embroidery work had been done on it; that it was one of the Lion Rock Trading Co. orders; that it had been, or was in process of being, exported to the United States; and that the manufacture of style 910 was a figment of the plaintiff's imagination. 69. The defendants do not rule out the possibility of arson; but, in any event, they say that the claim in regard to these three large items is fraudulent; that the claim as a whole is fraudulent; that there has been a breach of condition 13 of the policy; that under the terms of the policy the due observance and fulfilment of the terms and conditions are conditions precedent to any liability of the defendants to make any payment under the policy; and that all benefit under policy no.1184960 is therefore forfeited. 70. The plaintiff says that all the goods enumerated in his claim were in the factory at the time of the fire; and that all records of every sort (other than what the defendants were able to salvage) were completely destroyed in the fire leaving no trace whatsoever. He says that all items of finished goods enumerated in the olaim (other than DB602 which was being exported to the United States) were about to be exported to the United Kingdom; that he therefore was in communication with H.S. CHENG & CO., a firm of accountants who are on the list of approved accountants for the purpose of the Exportation (Certificates of Origin and Commonwealth Preference Certificates) Regulations 1961 with a view to obtaining Commonwealth Preference Certificates for DB603, 910 and 808; that for this purpose it was necessary to have a special book (Ex. L) containing particulars of daily production, finished goods in stock, and stock of raw materials relating only to styles for which Commonwealth Preference Certificates (C.P.C.) were required; that his own bookkeepers, therefore, extracted particulars from the ordinary account books of his company and that he submitted this book to the approved accountants together with the ordinary account books (which included the general ledger and stock books) all vouchers relating to the purchase of raw materials and all the production records, including the wages cards on which were endorsed from time to time the amount of work done by the workers and the amount of money paid to the workers. According to the plaintiff, practically every record in the company had been submitted to the approved accountants to enable them to satisfy themselves that it was proper for them to sign the appropriate certificates in relation to the plaintiff's applications for C.P.C. 71. The Commerce & Industry Department forms of application for C.P.C. bear the number 185A. The plaintiff says that he submitted three such applications to the Department on 24th or 25th August, 1967. They all purport to have been signed by him on 24th August and the plaintiff said that he remembered seeing the Commerce & Industry Department receipts on 25th August. Copies of these alleged applications were produced in evidence as Exs. B1, B6 and B11. According to the plaintiff, the alleged receipts together with all the books of the company and the book Ex. L were taken to the approved accountants shortly after the 25th August. 72. In the process of applying for C.P.C. the next document which has to be submitted to the Commerce & Industry Department is the United Kingdom form E.120. The plaintiff said in evidence that he attended at the office of the approved accountants on or about 29th August, and that he signed three forms E.120 the dates of which were left blank. He produced in evidence copies of the three forms E.120 (Exs. B3, B8 and B.13). These documents purport to relate to the export of styles DB603, 910 and 808. The two documents handed to Wood by the plaintiff on 15th September, 1967, were copies of B3 and B13; and, as already stated, the dates on these two certificates are the 8th and 9th September. The date on the third certificate in respect of style 910 (Ex. B8) is 29th August, 1967. 73. A junior clerk from the office of the approved accountants (Chan Kung Wai) said in evidence that the plaintiff asked him to submit the forms E.120 to the Commerce & Industry Department after the accounts had been checked; and that he (Chan Kung Wai) sent an office boy to the Department to deliver the forms; that the form for style 910 was delivered first, and that the other two forms were delivered later; that he received receipts from the office boy and that he returned the receipts to the plaintiff. These receipts, if they ever existed, were not produced in evidence. 74. The plaintiff went on to say that as it was the end of the month, he required all his books of account returned to him because he found it necessary to take stock and he also said that he required all the books to enable him to pay his workers; that all books of account, vouchers, production records and workers' wage cards were returned to him at the end of August; that the books and the other records were not kept in the accounts office but were placed on the counter or in the drawers of the counter in the knitwear section and that they all went up in smoke in the early hours of 2nd September. However, the one book which was not returned to the plaintiff at the end of August was the book alleged to contain extracts from the original books of account (Ex. L). 75. In opening the case for the plaintiff, counsel placed great reliance on two documents prepared in the office of the approved accountants for submission to the Commonwealth Preference Section of H.M. Customs & Excise Office in London. They were produced as Exs. B25 and B26. During the trial the approved accountants produced a file of documents relating to applications for C.P.C. said to have been made on behalf of the plaintiff. The documents on this file had not been paginated at all. The file was admitted in evidence as Ex. GG; and the pages were numbered for convenience by my court staff. B25 and B26 appear to be copies of Ex. GG18 and Ex. GG17 respectively. 76. The letter forwarding these documents to H.M. Customs & Excise is dated 8th September, 1967 (Exs. GG15 and GG16). It was signed by H.S. Cheng himself, the senior member of this firm of accountants; and it reads:-
Part of the certificates signed by the approved accountants on the two forms E.120 on 9th September in respect of DB603 and 808 (Exs. B3 and B13) read:-
77. Ex. B25 purports to be a statement in respect of the period 1st April/31st July, 1967, showing, as a percentage, the cost of factory overheads and "non-productive factory labour" in relation to the cost of direct labour. The cost of direct labour is given as $709,107, i.e. it is alleged that during this period $175,000 per month was paid in wages to the factory workers by the plaintiff. 78. B26 purports to state in detail the cost of the various manufacturing processes involved in the production of DB603 and 808. The figures are given in terms of unit cost per dozen cardigans (DB603) and unit cost per one gross eyelashes (808). What H.M. Customs & Excise are concerned with in granting Commonwealth Preference is the relation of "Commonwealth content" to that portion of the cost of production attributable to non-Commonwealth cost, i.e. raw materials used. The principal item of Commonwealth cost is labour; and B26 shows the Commonwealth and non-Commonwealth cost. 79. As regards DB603, the acrylic yarn used is shown in the non-Commonwealth cost column and the cost of labour involved in the various processes of manufacture are shown in the Commonwealth cost column. One observes such modest items as Yarn-winding $3.15 per dozen and Machine knitting $21.00 per dozen. There then appears what can only be described as an astounding item - $444.00 per dozen for Hand embroidery! i.e. $37.00 per garment or 93% of the total cost of labour involved! Even after adding on the cost of raw materials ($74.24) and the percentage cost of factory overheads $33.66), the cost of the alleged embroidery is 75% of the total cost of production! 80. In dealing with the approved accountants, the plaintiff admitted that he did not communicate with H.S. CHENG or any professional member of the firm, but with the junior unqualified clerk, Chan Kung Wai. This man gave evidence. He alleged that the plaintiff's books of account and other records were delivered to him some time after 20th August. He said that he checked all the wage cards, ascertained that they were all signed by the workers concerned and that the cards were all genuine. He said that he then prepared B25 and B26 and that he then passed the documents to a more senior member of the staff, Pang Wai Fun. He went on to say that it was he who returned all the original books and records to the plaintiff. 81. This witness was asked whether he knew the meaning of various words appearing on B25 such as "Inward and Outward checker", "technician" etc.; and from his answers it was clear to me that he had little or no idea what these words meant. He then said that B25 and B26 were prepared by him and his "assistant" who knew more English than he did. The assistant, whoever he was, was not called to testify. But it was obvious to me that Chan Kung Wai had little knowledge of accountancy and he did not appear to know the purpose for which the documents were to be used. 82. Although the defendants' case is that no original books of account were ever submitted to H.S. CHENG & CO., it is agreed that the plaintiff did submit to them a series of documents called unit cost statements. Such statements purport to be based on figures in the original books of account; but they are no more original documents than Ex. L; and comparing B26 with the two unit cost statements (HH11 and HH12), the figures in the former document appear to be a direct copy of the figures in the latter. 83. There was no discovery before trial of the documents said to be on the file of the approved accountants. This is perhaps understandable as H.S. CHENG & CO. were not parties to this action. All previous applications for C.P.C. by the plaintiff had been dealt with by this firm. The plaintiff became their client in June, 1966; and during the six months June/December, 1966, there had been 11 previous applications for C.P.C. There was one further application in May 1967. The average value of all previous shipments was about $10,000. The file contains a copy of a statement drawn up on the lines of B26 showing Commonwealth and non-Commonwealth costs of production in respect of styles 1211, 1212, 5711, 6712, 6723 and 7040 during the period 1st/31st May, 1966, which was submitted to H.M. Customs and Excise in June, 1966. The costs of production appear to be very modest. In particular, none of the articles were embroidered. The cost of knitting in the previous schedule (Exs. GG33 and GG40; Exs. M7 and M8 are copies) varies between $18 per dozen and $68 per dozen. Whether such knitting was all done by machine is not known; but there is no suggestion that any of the above six garments were hand-crocheted. 84. As regards the alleged applications for C.P.C. in respect of DB603, 910 and 808, the file Ex. GG contains further elaborate schedules of figures which have been extracted, translated and exhibited as Exs. M1 & M2.These schedules are said to have been prepared by another junior clerk in the firm of H.S. CHENG & CO. - Tong Hon Chung. Ex.M1 purports to give labour costs relating to the production of DB603 and 808. Taking 808 on the left of the document, the figures at the top of Ex.M1 purport to be calculations based upon the figures submitted by the plaintiff in his unit cost statements (Ex. HH) and the figures in Ex. L. The figures in the middle of Ex.M1 purport to be the monthly totals of the sums shown in the wage cards; and, by way of a double check, the figures under the word 'ledger' at the left of Ex.M1 purport to be figures extracted from some account in the general ledger of the firm. No evidence was given as to the form in which this ledger account had been kept. I have never heard of a firm maintaining a ledger in which there are a series of separate accounts showing wages paid to workers engaged on each kind of article produced by the firm! 85. In opening the plaintiff's case, counsel said that the object of this elaborate checking and cross-checking was that if the totals of the figures as per the wage cards and as per the ledger exceeded the figures submitted by the plaintiff in his unit cost statements and Ex. L, then the accountants would feel free to accept the latter. In this case the figures for the latter purport to be $190,788.45. The figures for the former purport to be $191,406 and $195,225.20; and so, it is said, H.S. CHENG & CO. felt safe in accepting the plaintiff's figures and signed the certificate on Ex. B3 on 9th September, 1967. 86. According to the plaintiff, Ex. M2 shows the labour costs attributable to the production of all goods produced by him during the several months prior to the fire. This document purports to be a break-down of the labour costs month by month in respect of the production of DB603, 910, 3217, 911, 1203, 3211, 1201 and 808. As regards 808 the figures appear in the centre of the page and are complete in themselves, purporting as they do to be taken from the wage cards. As regards the various kinds of knitwear, for reasons which were not explained either by the plaintiff or any member of the staff of H.S. CHENG & CO., it was necessary to have one set of figures on the top half of the page and another set at the bottom of the page. Both sets of figures are alleged to have been extracted from the wage cards, although no evidence was given as to how it came about that wage cards were kept in such a way as to necessitate compiling a complicated document like Ex. M2. Of course, tucked away among a mass of relatively small figures appear the two large figures to which the defendants take exception, viz. the alleged cost of hand-embroidering the DB603 ($224,664) and the alleged cost of hand-crocheting style 910 during June, July and August. The latter figures ($45,699.50 $71,683 and $20,020) at the top of the page are not even added up separately. They are bracketed together with the other relatively small items such as seaming, washing and ironing, packing, etc. The impression I get from looking at this document Ex.M2 is that it was drawn up by someone who thought he could blind the overage person by a mass of figures. 87. On the bottom right of Ex. M2 there is another column headed 'ledger'. The suggestion is that the accountants looked at the ledger said to have been submitted to them and found the appropriate wages account dealing with these particular items of knitwear; that the totals of such an account came to slightly more than the wage cards; and so the accountants felt sure that the plaintiff's figures were genuine! 88. In cross-examination Tong said he had no idea when he prepared Exs. M1 and M2. He said that he passed the documents to Pang. Pang said that he "checked" the wage cards and ledger and that he made a series of "ticks" on these documents to show that he had checked Tong's work. On the bottom of Ex.M2 he even wrote the words:-
89. The plaintiff called the two professional members of the firm of H.S. CHENG & CO. The first of these two was Mr. H.S. Cheng. He signed the letter of 8th September, 1967, to H.M. Customs & Excise. I think he found himself in a most embarrassing position. I do not think that he had seen any original books of account, wage cards or any other original documents. Pang drafted the letter of 8th September; and, in my view, Mr. Cheng simply signed it. 90. The last witness called from the firm of H.S. CHENG & CO. was Mr. Gilbert Cheng. He signed the certificates on the forms E.120; but he had no recollection of having signed them. It seemed clear to me that the certificates were simply presented to him for his signature and he signed them. His evidence did not advance the case for the plaintiff in the slightest. 91. In opening the plaintiff's case, counsel laid great stress on the fact that the original production records which had been salvaged by the defendants showed clearly that 503 dozen cardigans DB603 had been manufactured during the period April/July, 1967, and it was emphasised that the garments referred to in the sheets marked "Knitting machines for receiving & despatching record list" forming part of Ex. J, were the garments for which the plaintiff had applied for C.P.C. with a view to exporting them to the United Kingdom, which garments were consumed in the fire. As the case progressed it became clear that the defendants were not denying that 503 dozen cardigans style DB603 had been manufactured by the plaintiff. What they were denying was that DB603 was ever intended for export to the United Kingdom; and they were denying that the cardigans were embroidered. 92. One line of cross-examination was aimed at showing that, on the plaintiff's own original records, 500 dozen cardigans DB603 could not possibly have been embroidered by 31st July, 1967, as alleged on the first four pages of Ex. L. (The actual figure in Ex. L is 504.2/12 dozen.) The plaintiff said that it would take a worker about 1 1/2 days to embroider one cardigan DB603. I should have thought that $37.00 worth of embroidery would have taken longer! Be that as it may, the bulk of the 503 dozen cardigans DB603 were knitted during the latter part of June and in July, 1967. This is clear from the vouchers in Ex. J. showing when the garments were returned in a semi-finished state prior to the alleged embroidery. On the plaintiff's own estimate, the 503 dozen cardigans could not have been embroidered before the middle of September. Yet in Ex. L there is a nicely tailored account purporting to show that all work on these garments was completed on 31st July, 1967. Either Ex. L was false or the original records (Ex. J) were false. Both could not be correct. 93. Clearly Ex. J is correct; and Ex. L, in my view, is a false document. The first two columns of pages 1-4 of the so-called "Daily Production Book" forming part of Ex. L give two lists of dates. Presumably the dates in the first column purport to be the dates on which the manufacturing orders were made out to particular workers and the dates in the second column purport to be the dates on which the semi-finished garments were returned to the factory by these workers Both columns are nicely "tailored". All workers appear to have taken exactly the same time to deliver varying numbers of garments! And the number of garments received on any particular day are all multiples of 10. Furthermore the column indicating quantity of acrylic yarn consumed in the process of production appears to have been invariably 10.5 lbs. per dozen. 94. Turning to the Receiving and Despatching Record List (Ex. J) it is impossible to reconcile the entries in Ex. J. with the entries on the first four pages of Ex. L. Firstly, the weight of wool consumed varies considerably - sometimes 9 lbs. 8 ozs., sometimes 10 lbs. 4 ozs. etc. It is impossible to reconcile the numbers of garments shown in Ex. J as having been returned on any given day with the corresponding figures in Ex. L. For example take 22nd June, 1967. In Ex. J a worker named Chan Sum is shown as having returned 12 dozen on 22nd June. In Ex. L, 40 garments (3.4/12 doz.) are shown as having been returned. If the dates in the first column purport to show the dates when the garments were knitted (but not finished), the results are equally baffling. The two documents (Exs. J and L) can not be reconciled. 95. Eventually in cross-examination the plaintiff was forced to admit that both DB602 and DB603 were destined for the United States, and that orders for both styles had been received from the United States at the same time. But he said that the United States lot of DB603 had been shipped in July and that the garments had not been embroidered. For the first time, he then said that the DB603 which he alleged was destroyed in the fire was a different 503 dozen cardigans and that the records salvaged were incomplete! This was a complete change of face as compared with his earlier evidence and with statements made by his counsel in opening his case! 96. The plaintiff called the manager of the Hong Kong Industrial & Commercial Bank. My note of this witness's evidence reads:-
I do not think that this evidence advances the plaintiff's case materially. I was hoping that the manager would be able to produce the documents relating to the financial arrangements for the export of the 503 dozen DB603 to the United States in July, because the plaintiff had said that the L/C had been negotiated through the Hong Kong Industrial & Commercial Bank. However, the manager seemed to be very reluctant to produce anything. He did eventually produce certain documents (Ex. ZZ); but, according to him, the bank does not retain documents such as bills of lading; and such documents as there are on the file Ex. ZZ contain no references to the export of DB603 to the United States. But details such as an exporter's or purchaser's style number are not normally endorsed on documents of this kind; and I do not consider that the absence of the letters and figures "DB603" on such documents is any indication that some goods of this style had not been shipped to the United States before the fire, as the plaintiff eventually admitted. Besides, for all I know, the file Ex. ZZ may well be incomplete. The bank manager did not personally look through the bank's records. It was obvious to me that he did not wish to get entangled in this litigation and did not wish to say anything which was likely to harm the plaintiff. 97. He was asked about the endorsement on Ex. YY relating to the export by the plaintiff of DB602 to the United States. He gave his evidence on 23rd July; and he said:-
The defendants do not suggest that this information is inaccurate; but it is not without significance that, as the hearing of this case was approaching, the plaintiff should have thought fit to have those words endorsed on a document in the possession of the bank. 98. The plaintiff called Siu Leung Ming. He said that he was sitting in a barber's shop on 1st July, 1969, and that he happened to pick up a newspaper and that he saw an advertisement by the plaintiff to the effect that he had something of importance to discuss; that the plaintiff owed him money for certain work he had done two years ago; and that he therefore brought along his "semi-finished products returning vouchers". He produced two bundles of vouchers. One bundle (Ex. QQ) appear to be quite genuine. They are 2nd or 3rd copies of the vouchers in the series 1301-1400 which form part of Ex. O - original records salvaged by the defendants. The defendants do not dispute that the vouchers (Ex. QQ) are in respect of work actually done by Siu. 99. The other bundle of vouchers (Ex. PP) have numbers which occur in the series 1801-1899. They purport to show that Siu embroidered a number of garments DB603 and hand-crocheted a number of dresses 910. The pad bearing these numbers was not amongst the salvaged documents - at least it was not produced in court; and I have no reason to think that it was salvaged. Why then should documents from this series suddenly appear in the middle of this long case? Bearing in mind the consecutive dates on the other pads which were salvaged, one naturally asks oneself: was a pad with numbers 1801-1899 really in use by the factory during the period May/July, 1967? 100. In cross-examination Siu said that in 1967 the plaintiff used to ring him up whenever he wished to urge him to hurry up with the work on which he happened to be engaged. Clearly, the plaintiff knew perfectly well where Siu lived and could have contacted him before trial. It is not suggested that the plaintiff did not put an advertisement in the paper on 1st July, 1969 - during the course of this trial; but there seems to have been no need for such a manoeuvre. Furthermore, by 1st July he had already given his evidence; and counsel for the defendants had no opportunity of cross-examining him on this aspect of the case. 101. Counsel for the defendants suggested that the vouchers (Ex. PP) were specially prepared for this case. All I can say is that nothing Siu said induced me to think that he embroidered any cardigans style DB603 or crocheted any dresses style 910; and, in the light of all the other evidence, including the fact that I saw the plaintiff give evidence, I regard the vouchers (Ex. PP) with the utmost suspicion; and I shall put no weight on them at all. 102. The plaintiff then called a Mrs. Kee who said that she lived in Western District but that she used to go over to San Po Kong to the plaintiff's factory and that she "collected embroidery and crochet work from the plaintiff". But in cross-examination she said that during the riots in May/July, 1967, she was frightened and never went out at all. This was the period when the plaintiff alleged that his DB603 had been embroidered. In his final address counsel for the plaintiff said he was not asking the court to give any credence to the evidence of this old lady. 103. In support of his allegation that he manufactured eyelashes, the plaintiff called two witnesses. The first was a young man named Yeung Chun Wah. He said that he worked as a foreman for the plaintiff for 5 months in 1967; and he said:
Counsel for the plaintiff made no reference to the evidence of this witness in his opening address. 104. On 11th July, 1969, Yeung Chun Wah phoned the defendants' office and spoke to the claims supervisor, Yung Sze Wing, saying that he was in a position to give evidence concerning the plaintiff's fire claim. Yung arranged to meet him next day. However, Yung reported the matter to his manager who got in touch with a firm of private investigators - Fidelity Inspection Service; and it was arranged that a member of this firm (Ng Ka Ping) should be present with Yung when they interviewed Yeung. My note of Ng's evidence reads:
105. There were a number of discrepancies in the evidence of Yung and Ng. But I accept their story that Yeung Chun Wah approached them with a proposition of this kind. He was virtually trying to extract money from both sides. I put no weight on the evidence of this young man. 106. Then Lam Chi Yan was called. He said that he was a close personal friend of the plaintiff. He described himself as a broker; and he said that he worked for the plaintiff for 5 months; that he was in charge of the packing section; and that he packed 11 cartons of eyelashes. He went on to say that the cartons were in the store; but that 3 or 4 days before the fire he saw "the boss" move the 11 cartons out of the store; that he asked him what he was doing and that the plaintiff said he was checking goods for the purpose of making a return. 107. This witness went on to say that he had purchased the handbag handles on the plaintiff's behalf in 1966; that the plaintiff asked him to approach the firm from whom he had obtained the handles to find out whether they had a copy of the sales voucher; that he approached Kun Hing, 588 Queen's Road West; that this firm produced a copy of their original sales voucher to him and that he made a Xerox copy of that copy which he produced as Ex. WW. 108. The telephone number printed on this document originally was 452054. This number had been crossed out and a new number (462056) written on the document. Counsel for the defendants called an official from the Hong Kong Telephone Co. who said that 452054 was changed to 462056 on 15th December, 1968. Ex. WW is dated 29th September, 1966, and purports to show that on that date $5,910 worth of handbag handles were purchased by Major Mercantile Co. In September, 1966, no one could possibly have known that the telephone number of Kun Hing would be changed in December, 1968. The document produced in court was clearly not an original voucher. It had been made out on some date after 15th December, 1968, presumably for the purpose of this case. 109. I put no weight on the evidence of Lam Chi Yan. Apart altogether from the fact that he produced a false voucher in relation to the handbag handles, in my view he was lying in relation to the alleged eyelashes. 110. The plaintiff had done no business with Medeastern Trading Co., Ltd. since 1964. He said that one of their directors had visited Hong Kong in 1965; and he received a letter from this firm in December, 1965. But there had been no correspondence with Medeastern Trading Co. in regard to the sale of the cardigans DB603 and dresses 910. This firm knew nothing at all about these alleged consignments. In fact, by January, 1966, Medeastern Trading Co., Ltd. were in liquidation (Exs. KK and LL). The plaintiff said he knew nothing about the liquidation; and his explanation for having inserted the name Medeastern Trading Co. in his applications for Commonwealth Preference Certificates was that he thought he should have some United Kingdom firm who would see to it that the goods would be passed by the Customs authorities; that, after shipment, he intended to write to Medeastern Trading Co.; that he intended to proceed to the United Kingdom himself and endeavour to sell the cardigans and dresses in the United Kingdom with such help as he could obtain from firms with whom he had had dealings. 111. In regard to the eyelashes (808), he said that he had never manufactured eyelashes before; that he had not contracted to sell any eyelashes to John E. Harrison Ltd. of Glasgow; and that they knew nothing about the eyelashes he intended to ship to them; that although the "Benlomond" (the ship on which he said the goods had been booked) did not sail to Glasgow, he intended to arrange somehow for the goods to go by rail to Glasgow. Then he said:-
112. At one stage in his cross-examination the plaintiff was asked how he expected to be able to repay to the Hong Kong Industrial and Commercial Bank the $63,000 which he owed them at the end of August, 1967. The record of this part of his cross-examination reads:-
113. Of course, the plaintiff's last answer sounded ridiculous; and it did not tally with the bank managers evidence. Nevertheless, the plaintiff appeared to appreciate that the success of his case depended to some extent upon his satisfying the court that he was in a position financially to manufacture all the goods which he alleged were lost in the fire. He well knew that his bank statements gave no ground for the belief that he was in such a position. When it was put to him that he never was in a position to manufacture the goods his answer was that his sister had managed to raise US$75,000 (i.e. HK$450,000) in Thailand, and that she had made five remittances of US$15,000 each from Thailand to Hong Kong through some underground organisation. 114. His sister, Rosamund, gave evidence. She told a cock-and-bull story about how she visited Thailand in May, 1967; that before she left Hong Kong the plaintiff asked her to raise a loan for him in Bangkok; that she had some jewellery which she had brought with her to Hong Kong from Swatow 10 years ago; that she intended to sell this jewellery in Bangkok and invest the proceeds in a foam-rubber factory; that soon after her arrival in Bangkok she heard about the riots in Hong Kong and she refrained from asking anyone for a loan for her brother; that she then decided to sell the jewellery and give her brother the proceeds; that some friend of hers in Bangkok sold the jewellery for her and handed her US$79,000; that she handed this friend US$75,000 and asked her to remit to the plaintiff US$15,000 on five separate occasions. She said that the plaintiff had not repaid any part of the HK$450,000 (U.S.$75,000). 115. There is no doubt that during the riots in Hong Kong she visited Bangkok from 7th May till the latter part of June. She produced her travel documents in support of that fact. But I did not believe a word of her story about remitting US$75,000 to Hong Kong from Bangkok during this period. 116. The plaintiff had not prepared any balance sheets or profit and loss accounts prior to the fire - at least not in respect of the years immediately preceding the fire. After the fire, it appears that he made up certain balance sheets and profit and loss accounts (Ex. B38) for the information of the Commissioner of Inland Revenue. He said he prepared these documents "from memory". On the assets side of the balance sheet under "stock-in-hand" he put down the figure which he had inserted in his claim, viz. $797,904.80. Of course, this huge figure had to be balanced somehow on the liabilities side; and the main item on that side of the balance sheet is $550,000 said to be the balance of a "loans account". In support this loans account, he prepared a "shedule of information" (Ex. B40) in which he wrote down:-
Yiu So Tsing is said to be his sister in the United States. Neither she nor Chan Ching Chu gave evidence. Yiu So Chung is Rosamund, the sister who did testify. When the plaintiff gave evidence he appears to have forgotten that the above balance sheet purports to show that the loan allegedly arranged by his sister in Bangkok was for the sum of $300,000 - not $450,000! 117. The plaintiff described how he prepared his claim. According to him, the approved accountants did not know anything about the fire until he rang up Chan Kung Wai, the junior clerk in that firm, on 11th September to ask him for information to enable him to prepare the claim. The plaintiff said that by referring to the stock account in Ex. L and the unit cost statements (Exs.HH10-12) which he had previously submitted to H.S. CHENG & CO., Chan Kung Wai was able to give him particulars over the telephone which enabled him to insert the figures for DB603, 910 and 808 in his claim. He said that he did not include in his cost of production any figure in respect of factory overheads because he thought that overheads should be claimed under the loss of profits policy. His counsel submitted that this was a point in the plaintiff's favour because it tended to negative the suggestion of fraudulent intent. Counsel for the defendants submitted that what the plaintiff was concerned with was getting his claim for stock-in-trade as near as possible to the $800,000 mark; that the plaintiff was so concerned with juggling his figures, bogus and otherwise, to achieve that result, that it mattered not to him what figures he inserted; and that, inthis juggling process, he forgot to insert a perfectly genuine item, namely, the damage caused by water to the large pile of human hair. 118. As regards styles 3217, 3211, 1201 and 1203, the plaintiff said that he did not have the time and energy to work out the cost of production, and that he inserted the prices at which he had contracted to sell the goods. As regards DB602, he admitted that he simply hazarded a guess at what was in stock and the cost price per dozen. Of course, we know that on 23rd August (10 days before the fire) he shipped 540 dozen sweaters DB602 to the United States. The bank documents (Ex. YY) indicate that the L/C was for $70,512.35, i.e. $131.46 per dozen. The plaintiff could easily have ascertained the quantity shipped and the price by communicating with the bank. He did not choose to do so. His mistake in inserting 140 dozen instead of 215 dozen is perhaps understandable if he did not have his books of account in front of him. On the other hand, I find it incredible that a manufacturer of woollen garments who had been in this business for 10 years could have imagined that the cost price of those sweaters was $240 per dozen and not $131 per dozen. Businessmen do not make mistakes of that nature. Of course if, as the defendants say, his books were available to him but he did not choose to look at them and that he simply juggled with figures so as to get the total claim to as near $800,000 as possible, then the insertion of any sort of round figures as regards both quantity and price is understandable. 119. As regards 7040, he had shipped a quantity of this style to the United Kingdom in 1966; and in June, 1966, Chan Kung Wai had prepared a cost statement (Ex. M8) for submission to H.M. Customs & Excise indicating that the cost of production on that occasion was $196.23 per dozen. The plaintiff said in evidence that when he was talking to Chan Kung Wai by telephone on 11th September, this style was not mentioned. However, when asked where he got the quantity from, he said Chan Kung Wai had told him. 120. As regards style 6712, he said that Chan told him that the quantity in stock was 9 1/3 dozen. Ex. L indicates that there were two dozen garments of this style in stock. His explanation was that perhaps he misheard Chan on the telephone. As regards the cost per dozen, he said he simply guessed that the cost of this style and styles 5711 and 6723 was $240 per dozen. In fact he had shipped a quantity of 6712 to the United Kingdom in 1966 and Chan Kung Wai's cost statement (Ex. M8) shows that the cost of production in 1966 was $162.01. In other words he over-estimated by 50%. 121. Of course, the sums involved in several items in the claim are small; but the manner in which the plaintiff admits that he prepared the claim is relevant in assessing whether his claim is bona fide or fraudulent. 122. As regards style 5667, he said that Chan gave him the quantity (11 dozen); but he had no idea how he arrived at the figure $200 for cost of production. 123. As regards style 911, he said Chan told him the quantity and price. But if Chan was referring to Ex. L, the quantity of 911 shown in that document as being in stock is 10 dozen; and Chan did not say in evidence how he worked out the figure $336.60. So far as the evidence goes, the plaintiff had not submitted any unit cost statement for this style to H.S. CHENG & CO. 124. As regards style 1202, the plaintiff said that Chan told him that the stock in hand was 18 dozen. Ex. L shows 10 8/12 dozen. The plaintiff says he must have misheard Chan. He also said that Chan told him the cost price was $386.21. This figure appears in a cost statement prepared by H.S. CHENG & CO. in April, 1967, for submission to the Commerce & Industry Department. A copy appears on the file Ex. GG (GG39) (Ex. M14 is a copy of Ex. GG39). If the plaintiff did speak to Chan on the telephone, this would indicate that Chan had referred to the file Ex. GG to answer the plaintiff's questions. If that is so, one wonders why Chan did not refer to folio 93 of that file (Ex. M8 is a copy) for the 1966 cost of production in respect of style 7040. 125. As regards 5711, the plaintiff said that Chan told him the quantity in stock. How Chan knew that is not clear. There is no reference to the stock position of this style in Ex. L, nor is there any reference to existing stock in the file Ex. GG. This style was included in the cost statement prepared by Chan in 1966; but, according to the plaintiff, he did not mention the cost of production to Chan and simply put down $240 per dozen. The same applies to style 6723. This style is not mentioned in Ex. L; and it is not clear where the figure 10 1/2 dozen came from. 126. The plaintiff says that style 6712 was erroneously entered up twice in the claim. 127. As regards the 2860 handbag handles, the plaintiff said that he rang up Lam Chi Yan and asked him to obtain details of the quantity purchased and the price. As I have already said, Lam produced a false voucher to this court in respect of this item. 128. As regards the 2/20 mm wool yarn, the plaintiff said Chan told him that there was 1,700 lbs. in stock according to Ex. L. The plaintiff said that he estimated that since Ex. L had been prepared, some 200 lbs. of wool had been issued to workers, and he estimated that 1,500 lbs. of wool was in stock. As regards the 2/24 mm acrylic yarn, the plaintiff said that Chan told him there was over 800 lbs. in stock as per Ex. L; and he estimated that at the date of the fire there would have been about 500 lbs. in stock. 129. What has struck me very forcibly in this case is the fact that the plaintiff has not produced one original document to support his case. As regards the nylon monofilament alleged to have been used for the manufacture of eyelashes, Ex. L (Ex. B79 is a copy of the relevant folio in Ex. L) purports to show that it was purchased from Tak Hing Trading Co. The plaintiff said in evidence that he "tried to trace this company but could not find it". Two large bundles of invoices (Exs. DDD and EEE) were found by the defendants' agents in the accounts office. There are 5 invoices in these bundles apparently issued by a firm named Tak Hing Thread Factory in respect of purchases of small quantities of coloured thread. There is no invoice of any kind bearing the name Tak Hing Trading Company. The plaintiff, of course, says that the invoice for the purchase of nylon monofilament was burnt, presumably, because it had been placed at the counter near the knitting machines instead of on a file in the accounts office in the wig section. 130. According to Ex. L, the wool and acrylic yarn used in the manufacture of knitwear were purchased from King Wai Woollen Factory. But no attempt was made to obtain a duplicate sales voucher from this firm, or if the plaintiff made any such attempt, no voucher was produced in evidence. On the other hand, he thought it desirable to ask Lam to obtain a duplicate sales voucher showing the alleged purchase of the handbag handles; and Lam produced what was clearly a false voucher (Ex. WW). 131. As regards the alleged wages cards, no evidence was given as to where these cards were normally kept. If they were kept in the factory and used in lieu of a daily journal, surely a stock of such cards would have been found somewhere in the accounts office in the wig section. If I had been given a blank card, it might have been possible to say that the accountants' apparently extraordinary method of recording on Ex.M2 the information alleged to have been recorded on these wage cards, was a reasonable one. But throughout the entire case, whenever the plaintiff was asked for any original document of any kind he sheltered behind the allegation that everything of any value had been burnt. 132. The entries in the book Ex. L (which were relied upon so heavily by counsel for the plaintiff) are really not worth the paper they are written on. The book is not an original book of account kept in the normal course of business. Clearly all the entries in it were written by the same hand at the same time. Anyone could prepare a book of this kind and put down any figures that came into his head. Besides, I received no satisfactory explanation as to why the public accountants required a book of this kind. If, as they maintained, they checked every entry in the wage cards, stock books and ledgers and also checked all relevant vouchers, what was the necessity for such a book as Ex. L And if the checking of all original books of account had been completed before 31st August, 1967, why was Ex. L not returned to the plaintiff together with the original books of account? 133. I do not accept the plaintiff's evidence that he required to have all his books delivered to him at the end of August for the purpose of stock-taking and paying wages. He had not prepared any balance sheets in the years immediately preceding the fire. There was no evidence that his financial year ended on 31st August. No reason was given for his sudden desire to take stock. As regards the payment of wages, the evidence was that workers were paid twice monthly - on 7th and 22nd of the month. Why the sudden desire to have all wage cards back from the accountants by the 1st September? 134. It seems to me to be highly likely that his only contacts with H.S. CHENG & CO. had been through Chan Kung Wai; that Chan never received any original books of account; and that the only documents Chan received were Ex. L and the unit cost statements - all prepared by the plaintiff or members of his staff. 135. The elaborate set of figures on Exs. M1 and M2, do not fool me. Anyone can prepare sets of figures of this nature and make a series of ticks in red ink. If there had been elaborate working papers on the file Ex. GG indicating that figures from numerous wage cards and ledgers had been extracted and added up, this might have given some semblance of truth the witnesses' allegations. But on the bare word of the members of H.S. CHENG & CO. and the plaintiff, I am not prepared to say that any member of H.S. CHENG & CO. ever saw a single wage card or original ledger or account book of any kind. It may well be, as the defendants allege, that Exs. M1 and M2 were concocted by the plaintiff and Chan Kung Wai after the fire. 136. In my view, the plaintiff's account books and records were not destroyed by fire. If they had been in the drawers of the counter they would not have been damaged; and if they had been on the counter or between the counter and the steel desk behind the counter and the 3-tier rack, they would probably have been in the same condition as the records which were found by the defendants. At any rate there would have been debris to indicate their presence. I did not accept the plaintiff's evidence that all his account books and records and all the workers' wage cards were left on, in or near the counter. 137. As regards the applications for C.P.C., it is very doubtful in deed whether any applications ever reached the Commerce and Industry Department. An Assistant Trade Officer for that Department (a Mr. Poon) said that all such documents are destroyed after 18 months; and he was unable to produce any record from his Department to corroborate the allegation that three applications in respect of DB603, 910 and 808 had ever been submitted to his Department. The forms E. 120 produced in evidence purport to have been stamped with two Commerce and Industry Department stamps; but Mr. Poon did not say whether they were genuine or not. He was not even asked whether he could recognise the initials or signatures on the stamps. 138. The reputation of H.S. CHENG & CO. is, unfortunately, at stake as a result of these proceedings; and it is perhaps not surprising that the members of that firm have all come forward to swear that they saw wage cards, ledgers, stock books and vouchers. I regret having to say that, in my view, these witnesses were not telling the truth. The two professional members of the firm simply did what many other professional men do; they trusted their staff. They could not be expected to check everything; and in my view they simply signed such documents as were put before them Exs. B25 and B26, at first glance, might well have appeared quite genuine documents. 139. It seems probable that the following items were in the plaintiff's factory at the time of the fire:-
The plaintiff had manufactured 503 dozen of DB603 which had been ordered by a customer for export to the United States. He said that this consignment had been shipped in July. There were no documents to support this allegation; and I put no weight on anything said by the plaintiff unless it was corroborated. It may well be that some garments of style DB603 were in the factory at the time of the fire. But two things are clear: (1) during the period in question the plaintiff manufactured only one lot of DB603 - approximately 500 dozen and (2) no embroidery work of any kind was done on these garments. In asserting that he spent $224,664 on embroidery work in respect of DB603, the plaintiff was lying. 140. I do not believe that the plaintiff manufactured any eyelashes or any women's dresses style 910. 141. As regards the remaining items in the claim for loss of stock-in-trade, there is no reliable evidence to corroborate the plaintiff's allegations; and, as I have said, I did not accept anything this man said without the fullest corroboration. The other items may or may not have been in the factory at the time of the fire; but as a result of their successful attack on the three main items in the claim for loss of stock-in-trade the defendants have shown that the plaintiff's claim is a fraudulent claim. 142. Mr. Swaine submitted that even if I found that the claim in respect of the stock-in-trade was fraudulent, it was open to the court to give judgment to the plaintiff in respect of his claim for machinery and furniture fittings and fixtures. I am unable to agree with this submission. Condition 13 of the policy reads:-
The fact that the plaintiff's claim is divided into three parts for the sake of convenience makes no difference. The claim must be looked at as a whole; and the fact that he has deliberately endeavoured to deceive the insurance company into believing that he had manufactured eyelashes, that he had spent vast sums in embroidering the DB603 cardigans, and that he had manufactured hand-crocheted ladies dresses style 910, renders his entire claim a fraudulent claim. 143. Mr. Swaine submitted, in the alternative, that even if it was held that the entire claim was fraudulent, the defendants had waived their right to avoid the policy. The foundation of this submission was the fact that on the 13th October, 1967, the defendants wrote to the plaintiff's solicitors asking them to supply letters of authority from the plaintiff to the various banks authorising the banks to release to the defendants details of the plaintiff's accounts. Mr. Swaine submitted that by 9th October Mr. Wood had made his recommendation to the defendants; that the defendants had all the information necessary to enable them to make a decision whether to avoid the policy; that in demanding letters of authorisation to inspect the plaintiff's bank accounts they were invoking condition 11 of the policy, part of which reads:-
Mr. Swaine submitted that as the defendants could only have demanded letters of authorisation to inspect the plaintiff's bank accounts by virtue of this provision in the policy, they must be deemed to be upholding the policy and to have waived the condition in the policy giving them the right to avoid the policy. 144. In support of this submission, Mr. Swaine cited Donnison v. The Employers Accident and Live Stock Insurance Co.(1) In that case a condition precedent to recovery under the policy was that the insured should give notice to the insurance company within 14 days of the accident. It was further provided that, in the case of death, the insured's personal representative should agree to a post-mortem examination if required by the insurers. The insured was injured and died one month later. Three days before his death, notice of the accident was given to the insurance company. After the insured's death, the insurance company demanded a post-mortem examination but did not inform the executrix (widow) that they intended to reserve their objection on the ground that no notice of the accident had been received within 14 days. In an action on the policy by the widow, it was held that the insurance company, by demanding a post-mortem examination, had waived the defence of want of timeous notice. 145. With respect I do not think that that case assists the plaintiff. In Donnison's case there was no doubt at all that the insured had broken a condition of the policy by failing to give the requisite notice; but the insurance company nevertheless invoked the policy without reserving their rights in respect of the insured's failure to give the requisite notice. 146. In this case, at no time prior to the 13th October, 1967, did the plaintiff admit that his claim was fraudulent. The company suspected fraud during the few weeks subsequent to the fire and their suspicions were first aroused by the plaintiff's failure to supply documents and information properly sought by the defendants in accordance with condition 11. In deciding whether to reject the claim, a most important question was whether the plaintiff was in a position financially to manufacture the three large items of stock alleged to have been destroyed in the fire; and the defendants were entitled to investigate this aspect of the case by calling for letters of authority to inspect every bank account in the name of the plaintiff. I do not agree that on 13th October, 1967, the defendants were in a position to make a decision as to whether to reject the claim. 147. For the above reasons there will be judgment for the defendants. Representation: J. Swaine (H.H. Lau & Co.) for Plaintiff. A. Zimmern (Deacons) for Defendant. (1) (1897) 24 R. (Court of Session) 681. |