Wayfoong Credit Ltd v. Ho Fai
Read the full judgment text of DCCJ 8264/1975 on BabelCite. This District Court judgment.
1. In this matter the Plaintiff Co. claims damages for repudiation of a hire purchase agreement. (Ex. 1) The Plaintiff Co. claimed either liquidated damages as provided for in Clause 9 of that agreement or alternatively unliquidated damages flowing from the repudiation. The Defendant failed to file any defence and the matter was set down for assessment of damages. It was conceded at the outset that Clause 9 provided for a penalty and that the Plaintiff Co. could not succeed in its claim under th
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DCCJ008264/1975 IN THE DISTRICT COURT OF HONG KONG HOLDEN AT KOWLOON CIVIL JURISDICTION ACTION NO. 8264 OF 1975 -----------------
----------------- Coram: Judge Power in Court Date of Judgment: 8th October 1975 ----------------- JUDGMENT ----------------- 1. In this matter the Plaintiff Co. claims damages for repudiation of a hire purchase agreement. (Ex. 1) The Plaintiff Co. claimed either liquidated damages as provided for in Clause 9 of that agreement or alternatively unliquidated damages flowing from the repudiation. The Defendant failed to file any defence and the matter was set down for assessment of damages. It was conceded at the outset that Clause 9 provided for a penalty and that the Plaintiff Co. could not succeed in its claim under that clause. However the Plaintiff Co. pressed for the Court to assess the damages to which it would be entitled by reason of the repudiation of the contract by the Defendant. The claim for unliquidated damages was not particularized as such but in para. 12 of the Particulars of Claim the particulars in paras. 10 (b) (i) and 11 relating to the claim for liquidated damages were adopted and applied to the claim for unliquidated damages. The only facts pleaded to establish the repudiation by the Defendant were that he failed to make the 2 payments due between 3rd February 1975 and 12th April 1975 - the date of seizure. Upon a contested claim it might be difficult to establish, on those facts alone, that there had been a repudiation. Indeed upon this point the pleading of the Plaintiff are somewhat difficult to follow as he is both pleading a repudiation by the hirer which he accepted and a right to recover damages under Clause 9. This Clause purports to operate where the hirer elects to terminate the agreement under Clause 8 or where the owner terminates the hiring by repossessing under Clause 7 after the hirer has breached the agreement by making default in punctual payment of an instalment. An owner who pursues a claim under Clause 9 after a repudiation by a hirer indicates that he does not accept the repudiation but wishes the contract to stand so that he can enforce his rights under it. A similar position was dealt with by Lord Denning M.R. in United Dominions Trust Ltd. v. Eunis (1967) 2 all E.R. 345 at 349 where he said :
2. However in the present case, as I have already indicated, the Plaintiff did plead that the Defendant had repudiated and that he had repossessed the vehicle thereby accepting the repudiation. As no defence was entered this was never denied and a judgment for the Plaintiff was entered on those pleadings. In those circumstances I consider that the proper course in this assessment is to proceed upon the basis that there had been a repudiation which was accepted by the Plaintiff. 3. However before leaving this aspect of the matter I think it proper to point out that it is of considerable importance, in cases such as this, to establish whether the Plaintiff is suing (a) after a repudiation, (b) after a simple breach or (c) after an election by the hirer to return the vehicle in accordance with the stipulations of the Hire Purchase Agreement. 4. In the case of (a) the Plaintiff must establish that there has in fact been a repudiation by the hirer and an acceptance of it by him. A repudiation may take place by words or conduct or by both. A common form of repudiation in the present economic climate in Hong Kong is where the hirer simply fails to make payments as they fall due and abandons the vehicle. When an owner accepts a repudiation, and he must make it clear that he has done so (as is made clear is the passage from the United Dominions Trust Case set out above) he is then entitled to sue for damages on repudiation. He will of course fail if in so doing he endeavours to rely upon a penalty clause but he may in such case sue for and recover unliquidated damages along the lines which I will set out hereafter. It is much less clear cut where the hirer fails to make a payment or payments as they fall due but retains the vehicle. He may well in such a case be only committing a breach and not repudiating the contract. This would certainly be so if he made it clear that he wished to keep the vehicle and would pay up the arrears as soon as he was financially able to do so. 5. This is a case where (b) applies and if the owner repossesses the vehicle upon such a breach then he can claim damages not as upon a repudiation but only for breach of contract. He will, of course, again fail if he seeks to rely on a penalty clause and he is not entitled to the wider damages he might seek upon a repudiation but is limited to the narrower damages as set out in Financing Ltd. v. Baldock (1963) 1 all E.R. 443 which are only the amount of instalments in arrears at the date of determination of the agreement. 6. As regards (c) one view is that the hirer is, in the case of his own election, bound by the terms of the clause which upon a repudiation or breach would be held to be unenforceable as a penalty. The other view, and the one with which I would respectfully agree, is that adopted by Lord Denning and Lord Devlin in Campbell Discount Co. Ltd. v. Bridge (1962) A.C. 600 which is that a clause which contains a penalty is unenforceable in any event and that the damages to be awarded against the hirer will have to be assessed as on a repudiation which has been accepted by the owner. 7. The facts in the present case were that on 18th October 1974 the Plaintiff and the Defendant entered into a hire purchase agreement whereby the Defendant agreed to hire a new Opel Ascona 4-door sedan from the Plaintiff. This agreement (Ex. 1) contained a clause (Clause 10) that provided that upon all the instalments being paid the vehicle became the property of the Defendant. The cash price of the vehicle was $21,750.00 and the registration was $760 which made the total price $22,510. The Defendant made what the Hire Purchase Agreement calls an "Initial Payment" comprised of cash $760 and a trade-in allowance of $5,750 giving him a total "Initial Payment" of $6,510. This left a balance of $16,000 owing on the "Cash Price". This is the only figure that the Hire Purchase agreement does not see fit to dignify with a name but it is, from the point of view of these proceeding, the most important figure in the whole document as it is the amount of cash which the Plaintiff Co. actually advanced to the Defendant. The "Hire charges", which are really the interest the Plaintiff Co. charges for lending out the money, were set at $5,528. This interest figure is I understand from Mr. Chang, arrived at by charging interest upon the whole amount of $16,000 for the whole period at a rate of approximately 11.5%. Happily for the Plaintiff it does not fall upon me in this matter to comment upon this rate of interest which, upon any real assessment, would have to be looked at in the light of the fact that the capital amount is not $16,000 for the whole period but is a steadily decreasing amount. The Plaintiff Co. by its agreement adds the "Hire Charges" of $5,528.00 to the amount advanced, $16,000, and arrives at a figure of $21,528.00 which they term the "Balance of Hire". This was then to be paid by 36 "monthly rentals" of $598.00 the first of which was to be paid on 3rd November 1974. The agreement also set out what it terms a "Hire Purchase Price" of $28,038.00. The Defendant paid his instalments until 3rd February 1975 i.e. four instalments totalling $2,392. 8. If the instalments are broken down along the lines suggested by the Plaintiff Co., and I think this is the correct approach, it can be seen that the Defendant was each month paying $444.44 off the $16,000, the amount advanced, and $153.55 towards the assessed hire charges of $5,528.00. The Defendant had therefore as at 3rd February 1975 paid $1777.76 off the balance of the cash price and $614.20 towards the hire charges. On 12th April 1975 the Plaintiff Co., by its agent Repodel Ltd. who are repossession agents, repossessed the vehicle. As at the date of repossession then 2 further monthly instalments totalling $1,196 were owing. 9. The Plaintiff now claims 2 months overdue rentals, repossession expenses of $392.50 and unliquidated damages. The Plaintiff urged me when approaching the claim for unliquidated damages to be guided by the method of assessment used in Clause 9 of the Hire Purchase Agreement and particularized in para. 11 of the Particulars of Claim and, as I have already pointed out, these were the particulars adopted and applied by the Plaintiff Co. to its claim for unliquidated damages by paragraph 12 of the pleadings. I am satisfied that Clause 9 is penal and unenforceable and that it contains many objectionable features and I am quite satisfied it would not be proper to be guided by it in any way in assessing damages. A guide to the proper method of assessment is to be found in the judgment, which I found generally of great assistance, of Lord Denning in Campbell Discount v. Bridge (1962) A.C. 601 at 632 where he said:
In simple terms what this approach does is to treat the Hire Purchase Co. as though it were the lender of the amount advanced. This aspect of such an agreement is dealt with by Lord Radcliffe in the Campbell Discount Case at p.623 where he says:
The above words, which were used by the learned Lord when discussing the intention behind the insertion of the penalty clause, in my respectful view, very clearly and simply set out the real nature of a hire-purchase transaction. This being to the breach by the hirer must be treated as a breach of a contract to pay money due and the measure of damages in such a case must be limited to the amount of the debt due together with interest. Upon the vehicle being repossessed after repudiation by the hirer then the Hire Purchase Co. must get the money lent back with reasonable interest for the period the hirer had use of it, in this case 6 months, less any amount paid off the sum lent by the hirer. However where the Hire Purchase Co. has the car a further credit of the reasonable value of the car must also be given to the hirer. 10. While I do not intend to be guided by the particulars in para. 11 I must advert to them as the claim for unliquidated damages rests upon them. I will therefore set them out hereunder:
Particulars Total sum which would have paid had the agreement run its full period
11. Leaving aside repossession expenses I intend to assess the damages, as I have indicated above along the lines suggested by Lord Denning. This will involve consideration of 3 matters:
12. The assessments of each these figures present considerable difficulties. 13. As to (1) the money advanced is not the "Hire Purchase Price" of $28,038.00, nor is it the "Balance of Hire" of $21,528.00. It is, as I have already pointed out, the unamed, as far as the Hire Purchase Agreement (Ex. 1) is concerned, figure of $16,000. This then is the figure which must be returned to the Plaintiff Co. with interest at a reasonable rate. As the parties themselves agreed to an interest figure of 11.5% and as this is a reasonable figure, in itself, in relation to a commercial transaction such as this I am prepared to adopt it as a reasonable rate. However I am not prepared to adopt the Plaintiff Co. 's method of application of this interest rate, i.e. to the whole amount for the whole period. The interest to be awarded to the Plaintiff Co. will be assessed, using this figure, upon the amount actually owing to the Plaintiff Co. at any given time. The "Delivery Receipt" printed at the foot of Ex. 1 indicates that delivery of the vehicle was made on 8/10/74 which is the date of the Hire Purchase agreement. The $16,000 must then be taken to have been advanced by the Plaintiff Co. to the dealer on this day. The Plaintiff is therefore entitled to interest at 11.5% on $16,000 from 8/10/74 to the time of the first rental payment. There was no specific evidence as to the date on which this was received. The Hirer's Record Card (Ex. 2) appears to indicate that the payment was received on 10th November and a receipt was issued relating thereto on 13th November although this is not altogether clear. However there being no specific evidence in this regard I intend to treat the monthly rentals as having been paid at monthly intervals and indeed from Ex. 2 this appears to have been approximately so. The Plaintiff Co. is therefore entitled to interest on $16,000 for 1 month at 11.5% p.a. The amount upon which interest must be calculated for the second month must be $16,000 less the amount it has been reduced by the first rental payment. This is not the full $598 paid by Defendant, as $153.55 of that related to interest and only $444.44 was a repayment of capital. Interest for the second month then running from November to December must be calculated upon a figure of $15,555.56; and for the third month running from December to January on a figure of $15,111.12; and for the fourth month running from January to February upon a figure of $14,666.68. The last payment was made in February reducing the figure upon which interest is to be paid to $14,222.24. The Plaintiff is then entitled to interest on this figure until the time when the hiring was terminated. In circumstances such as the present one where there has been a repudiation of the agreement and a repossession I consider that the date of repossession must be treated as the time when the hiring was terminated. As the date of repossession was 12th April, approximately 2 months after the last payment I consider that the Co. is entitled to 2 months interest on the amount of $14,222.24. The interest to which the Plaintiff Co. is entitled upon these amounts (each of which has been rounded off to the dollar) is therefore as follows:
Under (1) then the Plaintiff Co. is entitled to $16,860.54. 14. Under 2(a) the amount of the instalments already paid must be deducted. This must, of course, refer to the whole of the monthly rentals i.e. both to the $444.44 that related to repayment of capital advanced and to the $153.55 interest repayment. This full credit must be given to the Defendant as to the payments of $444.44 off the capital as these payments were actually made by the Defendant and as the Plaintiff Co. has already been adjudged entitled to the return of the full $16,000 and as to the interest payments of $153.55 as these also were actually made and as the Plaintiff Co. has already, as far as the award of damages is concerned, been awarded interest as set out above. 15. I turn now to assess the amount of the deduction that must be allowed under 2(b). 16. The Defendant is entitled to a deduction of an amount equivalent to the sum which the car might reasonably be expected to realize at the time when it was repossessed. i.e. the fair market value of the vehicle less any deductions that might properly have to be incurred in selling the vehicle at that value. 17. This does not mean that a Plaintiff is under an obligation to see that the vehicle is sold at the fair market value after repossession. Indeed he may do what he likes with the vehicle as it is then his property. A Plaintiff would for instance, be quite entitled to use the vehicle thereafter in his business; or to sell it at a substantially discounted price to one of his employees; or to cannibalize the vehicle for parts to be used in other vehicles he owned; or to put it to any other use he might wish. When, however, it comes to the assessment of damages by the Court, regardless of what a Plaintiff may or may not have done with a vehicle he has repossessed, the Court, in order to determine the amount it will order the Defendant to pay to the Plaintiff, must assess the fair market value of the vehicle at the time of seizure so that it will be in a position to give a proper deduction in that regard to the Defendant. Mr. Chang repeatedly urged me that there is no legal obligation on the Plaintiff in the present case to set up a proper system of marketing of seized vehicles or to take any particular care with regard to the sale thereof. Mr. Chang is quite right in this contention for the Court is not really concerned with the fate of the vehicle itself. As I have already indicated a Plaintiff can do what he likes with such a vehicle. However if a Plaintiff decides to sell the vehicle and fails to realize its fair market value then he will have to hear this loss in so far as the amount which he receives from the sale is less that the deduction based upon the fair market value which the Court will allow to the Defendant. The Plaintiff has urged me to accept as the fair market value of the vehicle either the figure of $8,000, that being the amount paid to the Plaintiff by Triangle Motors Ltd., when they repurchased the vehicle or $8,500, that being the amount for which Triangle Motors Ltd. later sold the vehicle. 18. After repossession on 12th April the vehicle was placed in the compound of Repodel Ltd. at Kwai Chung and on 18th April the Plaintiff wrote a letter (Ex. 9) to Triangle Motors Ltd., the original dealer, asking them to make an offer to purchase the vehicle and the dealer made an offer of $8,000. I was not told whether any recourse agreement existed between the Plaintiff and the dealer however the terms of the Plaintiff's letter of acceptance of this offer (Ex. 10) would indicate the likelihood of the existence of some such type of agreement for the letter states "we would advise you that we (the Plaintiff) have debited your account with the Hong Kong & Shanghai Banking Corporation with the sum of $8,000 being settlement of the above agreement." If there was such a recourse agreement the Court should certainly have been told of its existence. Be that as it may it was quite apparent from the evidence of Mr. Ng Kwok-kwong, the manager of the used car section of Triangle Motors Ltd. that his company bought the vehicle back because that felt themselves under some sort of obligation to do so. Mr. Ng said "We are the agent and it is us who hand the hire-purchase agreement to Wayfoong - morally speaking we should buy the vehicle." It is equally clear from the tenor of his evidence that if they had not felt themselves to be under an obligation it is most unlikely that they would have repurchased the vehicle at all. Suggestions were made during the evidence that vehicles in the pound are offered to the public between 2 p.m. and 5 p.m. on a Saturday afternoon. This may be so but I find it difficult, having considered all of the evidence, to conceive of circumstances of sale less likely to produce a fair market price - only 3 hours a week are set aside for inspection by the public; no adequate inspection is possible because there are no keys for the vehicles; there is no advertisement of the specific vehicles for sale. It is also perhaps worthy of remark that although 3 persons were called by the Plaintiff, one being a supervisor in the Hire Purchase Section of the Plaintiff company, one being the Office Manager of the repossession agent, and the other being the used car manager of Triangle Motors, not one was able to supply the Court with the actual address of the vehicle pound. However I do not intend to canvass this matter any further as, although sale to the public was mentioned by the witnesses, there was no evidence that the vehicle in question had ever been offered for sale to the public, Indeed from the evidence it seems 19. That the only offer to sell was that made to Triangle Motors Ltd. Is it likely that, where the offer accepted has been made reluctantly by a person who feels himself under an obligation to do so, there has been a sale at a fair market value? I consider it is most unlikely and that it did not, in fact, in this case, produce the fair market value. Commonsense tells one that what a businessman will offer in such circumstances is the lowest price, within reason, that the other side might accept. I cannot accede to the suggestion I should accept $8,000 as the fair market value of the vehicle. 20. The Plaintiff urges also that $8,500 be accepted as the proper value. The circumstances of this sale must also be carefully examined. This sale was made to a Mr. Fook-lam on 12th May, 1975 a few days after Triangle Motors Ltd. had received the vehicle back from the compound at Kwai Chung. It seems that the vehicle was not sold in the normal way which is to repair the body work and to put the vehicle in showroom condition and then to exhibit it, with a set price upon it, on the showroom floor. From evidence of Mr. Ng it appears that the vehicle had not done many miles and that mechanically the vehicle needed only an oil change and lubrication. Mr. Ng said that $800 to $1,000 would have had to have been spent to put the body in showroom condition. Although the vehicle was, in the words of Mr. Ng, "Not ready for sale yet" somehow Mr. So Fook-lam, the purchaser, was able to assess $8,500 as being a proper figure to offer, to make the offer and to have it accepted. Neither the salesman nor Mr. So were called to give evidence and so there was no direct evidence as to the circumstances of this sale. The attitude of Triangle Motor Ltd. to this sale is indicated by the evidence of Mr. Ng who said, "We felt that the market at that time was extremely poor. If we did not have to incur a large sum of money then that was the best price. It was the best price available." The evidence of Mr. Ng overall made it quite clear that Triangle Motors Ltd. entered into this repurchase because they felt under an obligation to do so and that having entered into it, their main concern was not to sell the vehicle at its fair market value but to get out of the transaction as quickly as possible without loss. I appreciate that market conditions for second hand vehicles were not good at the time but the attitude of Triangle Motors Ltd. was not that they would try to do the best they could in a poor market but that they would be satisfied if they could sell the vehicle without loss and this is what they did. Given the circumstances surrounding the repurchase at $8,000 and the facts of the resale at $8,500 I do not consider that the latter figure represents the fair market value of the vehicle. I appreciate that Mr. Ng in his evidence when referring to the figures of $8,000 and $8,500 spoke of "a fair price", "the best obtainable price" and "the best price available". If he meant by such statements that either figure represented the fair market price of the vehicle, rather that the figure acceptable to his company in the circumstances, then I reject his evidence in this regard. 21. It is for this Court to now assess the fair market value of the vehicle. In so doing the Court must, insofar as it is able, take into account all of the factors which would surround such a sale including, of course, prevailing market conditions, and the Court must, of course, before arriving at the final figure, make appropriate deductions with regard to proper expenses that would be incurred in the making of such a sale. Unfortunately in Hong Kong there are no dealer's used car handbooks. These handbooks do exist in other jurisdictions and they set out used car prices for all makes of vehicles according to their age and condition. While they are by no means infallable and must, unless the parties agree otherwise, be supported by expert evidence they are nonetheless a helpful general guide both to the Courts and to the public as to used car prices. Indeed in United Dominions Trust Ltd. v. Ennis (1967) 2 All E.R. 345 Lord Denning, at 349, referred to "the figures in Glass's guide" and spoke of them as being "good evidence of the sum which it might reasonably be expected to realize". Nor in Hong Kong are there, as far as I am aware, any public used car auctions open to all bidders. Such auctions are held regularly in many cities and the prices paid thereat do provide a reliable guide to the fair market values of used cars. 22. A person, such as the present Plaintiff, wishing to effect the sale of a repossessed vehicle might adopt any one of a number of courses e.g. direct advertizing; placing in the hands of an individual salesman on commission; placing in the hands of a used car marketing organization on commission; calling for tenders. Any of these methods might, but not necessarily must, produce a sale at a fair market price. Whatever method was adopted the Court would nonetheless have to assess the fair market price and use that price in its calculations. It might, of course, be that the method of sale adopted and carried out was such as to satisfy the Court that it did produce the fair market price. In that case the price for which the vehicle was actually sold would be the figure used by the Court in assessing damages. This would not, of course, be because the vehicle was sold for that figure but because that figure represented the fair market price. The cash price of the vehicle in question was $21,750. Mr. Ng gave evidence that after the issue of a vehicle licence the depreciation in that first year was 35% of the cash price. This vehicle was delivered to the Defendant on 8th October 1974 and repossessed on 12th April, 1975. It was then almost exactly 6 months old. It had not done many miles and the engine was in need of no attention other than lubrication. The body, according to Mr. Ng, when he saw it about a week after seizure had "dents all over". However these cannot have been of any very great consequence as he said that the vehicle was only "slightly below standard" and could be put in acceptable showroom condition with the expenditure of $800 to $1,000. There was no evidence of the condition of the vehicle at the time of seizure, which is the relevant time, but I will accept Mr. Ng's evidence in this regard, he having seen the car shortly thereafter, as showing that condition. 23. If the denting of the body work was repaired and the car put into showroom condition the Plaintiff company would then have had a second hand vehicle, 6 months old, having done very little mileage. Such a vehicle would, I have no doubt, be classified as being in, to use a term of the used car trade, "immaculate" condition. In such circumstances I think it fair to apply the lower of the two depreciation figures given by Mr. Ng i.e. 35%. The proper value of the vehicle would then be $14,137.50. It may be appropriate at this stage to make it clear that I do not accept Mr. Ng's evidence that the proper price at which to offer this vehicle for resale would have been $10,500. It seems to me clear that that figure was based upon the fact that Triangle Motors Ltd. had paid $8,000 to repurchase the vehicle and not upon any considerations governed by fair market value. To realize a sale at a fair market value a seller would undoubtedly have to incur expenses of some sort, such as advertizing charges, commission etc., whatever method of sale be adopted. In this regard I have to do the best I can with the evidence available. Mr. Ng said that the commission to a salesman would be 5% and he indicated that his company would normally look for a profit of from $500 to $1,000. It seems to me to be fair to allow an amount equal to 10% of the sale price to cover commission to an agent upon such a sale. I must also bear in mind Mr. Ng's evidence that the market at the time was extremely poor and that a seller might well have to give a discount to effect a sale. Mr. Ng said "A prospective buyer would not pay the list price," but he did not, unfortunately, go on to say what sort of discount he would expect to have to give. In such circumstances I consider a discount of between $500 and $1,000 would be fair and reasonable and I will take the middle course and fix the discount a seller would have to give at $750. In this regard I have again had to do the best I can with the evidence available. However I consider that it does not lie in the mouth of the Plaintiff to complain in circumstances where he has made a claim for damages upon repudiation and seizure but has failed to prove the fair market value of the vehicle, and has thereby left the Court in this position. 24. I arrive at the fair market value of the vehicle as follows:
25. As to the cost of Repairs, which of course must be deducted, I have taken the middle figure between the $800 to $1,000 calculated by Mr. Ng. 26. Before making the final assessment of damages to be awarded to the Plaintiff I feel I should indicate the view I take of the final deductions claimed by the Plaintiff in paragraph 11 of the claim. This was a deduction of $1,196.00 being a figure representing "Overdue Rental". 27. The Plaintiff company had claimed this amount as a separate head of damages. It might be contended that he must be allowed overdue rental in any case as that is an amount that has accrued due to him under the contract. This is not my view. Once the Plaintiff company accepts the repudiation of the contract then its damages must be assessed on the lines indicated by Lord Denning and in my view the only proper way to deal with "Overdue Rentals", given that they are made up partly of capital repayments and partly of interest payments, is as I have dealt with them above. The capital repayments are taken into account insofar as the Court orders the repayment of the $16.000 less proper deductions, and the interest payments are taken into account insofar as the Court grants interest at rate of 11.5% on the capital sum outstanding at all relevant times. 28. The Plaintiff is entitled to :
29. There will be judgment for Plaintiff in sum of $3,712.20. Plaintiff is to have interest upon that sum at 8% from 12th April, 1975.
Representation: Denis Chang instructed by Johnson, Stokes and Master for Plaintiff. Defendant absent. |