Security Pacific Credit (Hong Kong) Ltd v. Wong Kwong Shing and Another

HCA005868/1982

1982 No. 5868

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

BETWEEN

Coram: Master Betts in Chambers

Dates of Hearing: 30 November 1983, 20 January 1984 and 27 March 1984

Date handed down: 6 June 1984

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ASSESSMENT OF DAMAGES

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1. This is an assessment of damages pursuant to the judgment of Mantell J. delivered on 12 October 1983. For ease of reference I will set out in full the first two paragraphs:-

"The plaintiff is a finance company. The 2nd defendant is a firm carried on by a Mr Ng which deals in the sale of taxis and taxi licences. The 1st defendant, against whom the plaintiff has obtained judgment by default at some date earlier to his hearing, entered into a Hire Purchase Agreement with the plaintiff for the hire purchase of a taxi and the taxi licence. The total hire purchase cost was considerable, being just short of $500,000. Originally, the taxi and taxi licence had been the property of the 2nd defendant and the Hire Purchase Agreement came about through the familiar tripartite arrangement involving the finance company, the dealer and the hirer. In the course of that arrangement, the 2nd defendant had sold the taxi and licence to the plaintiff who, in turn, had let it on hire purchase terms to the 1st defendant. That agreement was entered into on 23rd July 1981. In due course, the hirer defaulted under the terms of his agreement with the plaintiff. The plaintiff, in due course, repossessed the vehicle and subsequently, as I have already mentioned, obtained judgment against the hirer which up to now remains unsatisfied.

In the present action against the 2nd defendant, the plaintiff claims under the terms of what is alleged to be a Master or Recourse Agreement with the 2nd defendant. it is that Master Agreement with which this action is chiefly concerned."

The relevant part of the Judgment subsequently entered reads:-

"It is adjudged that the Plaintiff recover against the 2nd Defendant such amount as shall be found due by a Master of the Supreme Court for damages for breach and repudiation of the agreement mentioned in the Statement of Claim."

2. This is ambiguous as the Statement of Claim mentions two agreements; the Hire Purchase Agreement and the Master Agreement. It does not allege repudiation of either. However, it is clear from the judgment itself that what has been in issue so far as the 2nd defendant is concerned is the Master Agreement, and it is under the provisions of that document damages are to be assessed.

3. The view of the plaintiff is simple and consistent as set out in the Statement, of Claim which says the agreement provides that:-

"2..........the 2nd Defendant indemnifys the plaintiff against all loss or damages which the Plaintiff may sustain under or as a result of entering into the Hire Purchase Agreement whether or not such loss or damages results from the commission of any breach by the 1st Defendant."

4. In other words the document is pleaded as a complete indemnity and leads on to the Particulars under paragraph 8 where calculations are shown giving a liquidated claim of $403,839.20 under the Hire Purchase Agreement against the 1st defendant.

5. The next paragraph recites default in payment of that sum by the 1st defendant and the last paragraph recites notice of such default to, and non-payment by, the 2nd defendant. The ensuing prayer simply claims that sum from both defendants. It is on that basis the plaintiff's evidence has been presented.

6. For the 2nd defendant Mr Ip argues that the Master Agreement is not, simply, an indemnity but goes on to provide in detail how the dealer's liability is to be computed in the event of default by the hirer. That computation, he says, may not and in this case does not, result in the dealer's liability equating with that of the hirer.

7. The Master Agreement has been produced. It is dated 31st July 1975 and signed by the 2nd defendant and an illegible signatory "For and on behalf of........." the plaintiff. I mention this last matter only because on the first page the agreement is expressed to be between Security Universe (Hong Kong) Ltd and the 2nd defendant.

8. The first half dozen clauses in the agreement are not relevant to this assessment.

9. Clause 7 (1) provides a full indemnity and it is clear that paragraph 2 of the Statement of Claim is based on it. Mr Ip does not seek to put any different interpretation upon it but moves on to clause 7(2) of which it is necessary to set out the main part.

"(2) For the purpose of this agreement the company's loss shall be deemed to have occurred as provided by Clause 6 hereof "........ which is not here relevant ......." or upon termination of the hire purchase agreement or of the hiring of the motor vehicle comprised in the agreement or upon the hirer making default for fourteen days in payment of any sum due under the agreement whichever of the above events shall first occur. Such loss shall be computed as

Provided that where the Company has repossessed and sold the motor vehicle credit shall be given for the net proceeds of sale (after deducting the costs of repossession, storage, insurance and sale) in computing the said loss."

10. Mr Pang seeks to distinguish clause 7(1) from 7(2) on the basis that 7(1) provides an indemnity for "loss or damage" suffered by the Company whereas 7(2) provides for the computation of it's "loss" without using the words "or damage". Looking at the agreement I cannot find that its draftsman was so meticulous as to distinguish between loss and damage.

11. Clause 7 must also be read in the context of clause 2(1). That deals with matters to be done by the dealer before submitting a proposal form. In part, clause 2(1) reads:-

"(1) procure the hirer's signature to the company's current form of hire purchase agreement ......." (my emphasis).

12. Thus it was envisaged, as is quite likely to happen, that the form of hire purchase agreement would be changed from time to time but that the Master Agreement would enure. It would continue whatever formula or provisions the hire purchase agreement might contain to ascertain the liability of a defaulting hirer and the formula in clause 7(2) for ascertaining the dealer's liability would likewise continue.

13. Thus, in spite of the clarity of clause 7(1) the quantum of the dealer's liability is found by reference to clause 7(2) and not simply by equating it with the hirer's liability under the hire purchase agreement.

14. The second main area of disagreement between the parties in the course of this assessment relates to the amount to be credited to the 2nd defendant from the sale of the vehicle after repossession by the plaintiff. In brief the 2nd defendant says the plaintiff delayed selling; the vehicle depreciated, and thus there was a failure properly to mitigate the plaintiff's loss. In turn the plaintiff, whilst not denying a duty to mitigate, denies any such failure.

15. In approaching this matter I reluctantly feel obliged to ignore a number of matters not argued between me and which appear to have been ignored throughout these proceedings. The reality of the transaction was that the greater part of the value was attached not to the chattel specified in the hire purchase agreement but to the taxi licence. Indeed at some stage the licence was transferred to a different vehicle and  agreement varying the hire purchase agreement correspondingly was made.

16. I shall treat it in the same way and (as both parties here) treat the licence as though it were an integral part of the substituted vehicle.

17. The chronology leading up to the repossession and sale of the vehicle is not in dispute.

18. The Hire Purchase Agreement was dated 23rd July 1981 and provided for the hirer to make 84 monthly payments of $4,854.00 with the first payment on 23rd August 1981.

19. He made that payment and the one due in September; but defaulted in November. The Hire Purchase Agreement provides for termination if (clause VI A (ii)) "the Hirer makes default in punctually paying .......any monthly Rent Instalment ......." "Punctually" is not defined but it will be recalled that clause 7(2) of the Master Agreement provides that the company's loss shall be deemed to have arisen, inter alia, upon the hirer defaulting in payment for fourteen days. Where payments are to be made monthly, "punctually" could to my mind well be considered in terms of days rather than weeks, but for present purposes I will take termination of the Hire Purchase Agreement to have taken place two weeks after 23 November 1981.

20. The plaintiff repossessed the vehicle on 17th March 1982. Mr Ip makes no complaint of delay up to that point. Indeed, both before and after repossession some payments were made by the 2nd defendant and I am satisfied efforts were being made to find a solution satisfactory to all parties.

21. The vehicle was not then sold.

22. The Writ in this action was issued in July.

23. The vehicle was sold in November by private tender, the purchaser being the 2nd defendant.

24. The 2nd defendant argues that the plaintiff should have sold the vehicle within a month or so of repossession. He called evidence from other finance companies as to the usual practice in the trade. He claimed that by November the vehicle itself had deteriorated in storage to such an extent that although his tender of $205,000 had been accepted the plaintiff accepted $190,000 which was little or nothing more than the then value of the licence. I accept his evidence that in March the vehicle itself was probably worth $15,000 and scrap value only by the following November. Indeed his evidence is supported by the acceptance of the lower figure by the Plaintiff; such acceptance not being otherwise explained.

25. The 2nd defendant gave evidence that from the moment it was repossessed he was urging the plaintiff to re-sell the vehicle. The plaintiff denies this and I heard evidence, which I found wholly unconvincing, purporting to explain away the delay both on the ground of a special business relationship between the plaintiff and the 2nd defendant and also on the ground that in March the market for taxi licences was low. As the Statement of Claim served in July, four months before the sale, the former is quite untenable and, on hearing the evidence the latter was clearly a case of what I believe in some circles is known as "backward broking". I do not believe, and there is no evidence to support, that in March 1982 the plaintiff made an appraisement of the taxi licence "market" and concluded that prices would significantly go up by the following November. If it did it was, as the evidence showed, wrong.

26. I find that there was unreasonable delay in re-selling and that the vehicle should have been put on the market either in April or, at the latest, in early May. As a result of that delay the vehicle itself depreciated by the following November to the extent of $15,000.

27. That, however, is not the end of the matter. I must take into account any difference in the value of the taxi licence between April/May and November 1982.

28. There is a market in such licences and assistance may be obtained from the tenders for new licences published in the Government Gazette. I had the advantage of hearing evidence from Mr Lo Chung Tim called by the 2nd defendant. Mr Lo is Marketing Manager of FNCB Finance Ltd where he has worked since 1969. He is experienced in this type of financing and keeps extensive records. He impressed me as a witness upon whose expertise I could rely. He told me that during 1981 the market price of taxi licences declined from a range in the first quarter of $250,000 to $270,000 down to a range in the last quarter of $190,000 to $195,000. In the first quarter of 1982 the range was from $185,000 to $190,000. In cross examination he was more specific giving a range in March, April and May 1982 from $190,000 to $195,000. For the purposes of this assessment I take a figure in the middle of the range for March to May, which is just $2,500 more than the Plaintiff obtained in November.

29. The plaintiff's delay in mitigating, therefor, resulted in $15,000 depreciation to the vehicle and $2,500 to the licence. That figure will be added to the re-sale price of the car in giving credit to the 2nd defendant under the proviso to clause 7(2) of the Master Agreement; so that figure becomes $190,000 + $15,000 + $2,500 = $207,500.

30. The next matter concerns the amount of discount or rebate to be allowed. There is no real dispute between the parties that such discount is allowable either under what is known as the "Rule of 78" or under clause 7(2) of the Master Agreement. There is dispute, however, as to the time at which that discount is to be computed. For the defendant Mr Ip takes the time to be in December 1981 when the dealer's liability arose under the Master Agreement. Mr Poon for the plaintiff puts the time either at the time the vehicle was resold or, by concession, two months earlier.

31. In view of my finding on the plaintiff's failure to mitigate I find myself in agreement with Mr Ip and assess the discount on the interest element of the outstanding hire purchase price at 95.32%.

32. Storage fees are also claimed at the rate of $35 per day. I allow them from the 17 March 1982, the date of repossession, to 17 May 1982 by which time I have held the vehilce should have been resold. The sum is $35 x 61 days = $2,135.

33. I allow in full the repossession charge of $400.

34. In Summary my assessment is as follows:-

35. There will be judgment for that sum but the plaintiff will give credit for deposits held to the total of $10,000.00

36. I make the usual provisional order that there be costs to the plaintiff with a certificate for counsel on the second and third days of the hearing.

Representation:

Miss Chan of Messrs Fairbairn & Kwok on first day for Plaintiff

Mr Pang instructed by Messrs Fairbairn & Kwok on second and third days for Plaintif

Mr Ip of Messrs John Ip & Co for 2nd Defendant