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Lost item sent through Royal Mail?

Hey, I sent a watch through Royal Mail 2nd class signed for and when the buyer recieved it apparently it's been stolen and all that he's got is the box. The sale was through eBay and payment protected by PAYPAL so I might have to refund. I have receipt that states item was sent and shows weight of package, which is considerably heavier than an empty box. Just wondering what action people would take if this happened to them? Thank you

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