Lo Chi Ming v. Shum Kin Yuen and Another

DCCJ003016/1968

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

Action No. 3016 of 1968

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Coram: Judge Yang.

Date of Judgment: 4 February 1969

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JUDGMENT

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1. In this action the plaintiff claims damages against the defendants for breach of contract.

2. The issues as pleaded may be thus briefly stated. The plaintiff in his Statement of Claim avers, inter alia, that in 1967 by a written agreement made between him and the first defendant, he purchased from the latter a public car registration No. AC 7447 which was then the subject matter of a hire-purchase agreement made in 1965. One of the terms of the 1967 agreement was that on the plaintiff's payments of the purchase price of $3,900- to the first defendant and also of the three outstanding instalments under the hire-purchase agreement totalling $1,077- the first defendant would "sign the necessary transfer form and complete all formalities for the transfer of the ownership of the said vehicle to the plaintiff, and assign all interest in the said vehicle to the plaintiff". After the purchase price had been paid, the vehicle in question was duly delivered to the plaintiff, and the plaintiff spent $1,800- for repairs thereto. The plaintiff having made all the payments mentioned above, the first defendant not only failed to execute the transfer of ownership, but on the 19th of December, 1967, "forcefully and without the permission of the plaintiff, took physical possession of the vehicle". The plaintiff holds the first and second defendants jointly liable for breach of contract and says in the alternative that the first defendant was the agent of the second defendant. The plaintiff's claim is for the repayment of the three sums of money referred to.

3. The substance of the somewhat lengthy Statement of Defence by the first defendant is that he has performed all that was required of him under the 1967 agreement by assigning his interests in the vehicle to the plaintiff, and he denies having taken possession of the vehicle from the plaintiff as alledged. The second defendant makes no admission to any of the matters pleaded in the Statement of Claim and denies that the first defendant was his agent.

4. For reasons which will become apparent below, it will not be necessary for me to state my finding of facts in extense. The second defendant was at all material times the sole proprietor of Wing Lok Tours & Travels Company, and as such was the holder of a number of public car licence but not being himself qualified for it, entered into an agreement with the second defendant with a view to hiring one such licence from him. In pursuance of the agreement (hereafter called "the 1965 agreement"), the first defendant purchased a vehicle and made part payments thereon totalling $3,660-The balance of the purchase price was paid by the first defendant by instalments in the name of Wing Lok Tours & Travels Company under a hire-purchase agreement entered into between the Company and Wayfoong Finance, Ltd. For a consideration of $2,100- the first defendant was then permitted to and in fact did hire the second defendant's public car licence No. AC 7447 for his vehicle for a period of five years from 3rd November, 1965 to 2nd November, 1970. At the expiration of this period, the public car licence would go back to the second defendant and the vehicle would be registered in the first defendant's name as a private car. As an attempt to comply with the Traffic regulations, the first defendant was also required to pay the second defendant a monthly rental for a garage space for this vehicle, though the space, if it was ever available, was never in fact used for that purpose. Furthermore, to give it the semblance of legality, the parties agreed that the second defendant should be the ostensible owner of the vehicle. The motor vehicle registration book therefore shows the second defendant as the registered owner of this vehicle, and the third party risks insurance policy shows Wing Lok Tours & Travels Company as the insured. In these circumstances the first defendant drove public car AC 7447 for hire from November 1965 until September 1967, retaining complete control over the vehicle and making all necessary payments including that of licence and insurance fees. Thus, while the second defendant remained the nominal owner, the first defendant was in reality the beneficial owner of the vehicle, the second defendant having parted with the possession and control of it under the 1965 agreement. It is therefore clear that the intention of both parties was that the vehicle should belong to the first defendant and be used by him on his own account.

5. In September 1967, the plaintiff, desirous of purchasing a vehicle with a public car licence, through the introduction of a mutual acquaintence entered into negotiations with the first defendant with that end in view. After one or two preliminary meetings, the plaintiff and the first defendant, on the 27th September, 1967, agreed on the terms of the purchase of vehicle AG 7447 (hereafter called "the first 1967 agreement") and the plaintiff paid a deposit of $1,500-. The first 1967 agreement took the form of this document:

6. At about the same time, there was yet another agreement (hereafter called the second 1967 agreement) between the three parties whereby the plaintiff was to step into the shoes of the first defendant vis a vis the second defendant who had given his consent to this innovation, for which purpose the plaintiff paid the second defendant a consideration of $200- and other small fees. The second defendant also undertook to execute a document to prove the plaintiff's title in the right to use the public car licence AG 7447, which was in fact never done. There is however no evidence to support the plaintiff's allegation that the first defendant at any time promised to sign any form for the transfer of ownership and interests in the vehicle, nor that the first defendant was at any time the second defendant's agent in either of the two 1967 agreements or in any matter connected with the present case. The balance of the purchase price of $2,400- was paid by the plaintiff to the first defendant on the 30th of September, 1968 and the car was duly handed over into the plaintiff's possession together with the car key, the 1965 hire-purchase agreement, the receipts of the previous instalment payments made thereunder, and also the insurance or etificate. The plaintiff then took the car away and effected certain repairs to render it fit for the annual inspection by the Traffic Office. The repairs cost the plaintiff $1,800-. As in the former instance, the plaintiff was now intended to be the beneficial owner of the vehicle with the second defendant as the nominal owner. The plaintiff then used vehicle AG 7447 for public hire until the 19th of December, 1967 when it was taken away by the second defendant with neither the plaintiff's consent nor the first defendant's knowledge, under the pretext that the plaintiff had failed to make all the necessary payments in relation to the vehicle and had contrary to traffic law used it as a taxi. None of these charges in fact have been proved. There were subsequent negotiations between the plaintiff and the defendants for the release of the vehicle but no satisfactory solution was found and it is still in the second defendant's possession.

7. The facts as I find them do not support the plaintiff's case as pleaded. On those facts, the first important question that comes to mind is whether any or all of the three agreements -- I.e., the 1965 agreement and the two 1967 agreements -- are illegal. Though illegality has not been pleaded, I regard it as my duty to take judicial notice of it if it is disclosed in the course of the evidence. For this reason I called for submissions on this point and the parties have raised no objection to it. In adopting this course, I follow the remarks of Devlin, J. in Edler v. Auerbach⁽¹⁾ when explaining the case of North-Western Salt Co., Ltd. v. Electrolytio Alkali Company⁽²⁾:

"That case, I think, authorizes four propositions; first, that, where a contract is ex facie illegal, the court will not enforce it whether the illegality is pleaded or not; secondly, that, where, as here, the contract is not ex facie illegal, evidence of extraneous circumstances tending to show that it has an illegal object should not be admitted unless the circumstances relied on are pleaded; thirdly, that, where unpleaded facts, which taken by themselves show an illegal object, have been revealed in evidence (because, perhaps, no objection was raised or because they were adduced for some other purpose), the court should not set on them unless it is satisfied that the whole of the relevant circumstances are before it; but, fourthly, that, where the court is satisfied that all the relevant facts are before it and it can see clearly from them that the contract had an illegal object, it may not enforce the contract, whether the facts were pleaded or not."

8. I will take the 1965 agreement first. This agreement is in my judgment one which is by necessary implication prohibited by the Road Traffic (Public Omnibus and Public Car) Regulations and the Road Traffic (Taxis, Public Omnibuses and Public Cars) Regulations, both of which owe their existence to the Road Traffic Ordinance, Cap.220. Regulation 8 of the first of the two sets of Regulations requires an operator to whom a franchise to operate and maintain a service of public cars has been granted, to keep a record, inter alia, of (a) the particulars of vehicles employed or available for employment by him in the operation of the franchise; (b) the number of daily journeys and mileage run by each vehicle; (c) the number of tickets issued on each vehicle in each journey; (d) the names of the drivers employed; and (e) details of receipts. By Regulation 5 of the second set of Regulations, the Licensing Authority shall not issue a vehicle licence in respect of a motor vehicle as a public car unless he is satisfied, inter alia, that (a) the construction and maintenance of the vehicle complies with the law; (b) suitable arrangements have been made for the maintenance of the vehicle; (c) suitable arrangements have been made for the accommodation of the vehicle; and (d) the intended licencee is of good business repute and has financial resources adequate for the purposes of maintaining the vehicle and of providing and maintaining an efficient public car service. Regulation 11 provides that on the transfer of ownership of the vehicle, the new owner shall satisfy all the requirements imposed on the previous licencee. Regulation 35(2) provides that the registered owner of the public car shall complete and sign 2 copies of a document containing certain particulars one of which shall be produced on demand made by any police officer within 3 months after the commencement of the hiring. Regulation 36 says that the registered owner shall not hire the vehicle to any person unless the person holds a driving licence and there is in force a third party risks insurance.

9. These regulations are but some of the examples cited to show that the Legislature contemplates that the licensee should also be the true owner of the vehicle for it is only when he remains in effective control of the vehicle that he is in a position to satisfy the statutory requirements. In the present situation, the second defendant the licensee was no longer in control and therefore not in a position to comply with any of the abovementioned provisions. The first defendant, who was not a licensee, was in effect operating the public car business but there was no way to enforce the regulations against him. It is abundantly clear that this agreement was made to perpetuate a deception against the Licensing Authority in order to do that which the Regulations prohibit, that is to say, to allow a person not qualified for a public car licence to have all the benefits of the licence: see Nash v. Stevenson Transport Ltd.⁽³⁾. To borrow the expression of Devlin, J. in the leading case of St. John Shipping Corporation v. Joseph Rank Ltd.⁽⁴⁾, the 1965 agreement had at its centre - filling the whole space within its circumference - the prohibited act. In his judgment in that case, the learned Judge explained fully the law on the subject. He said:

"...There are two general principles. The first is that a contract which is entered into with the object of committing an illegal act is unenforceable. The application of this principle depends upon proof of the intent, at the time the contract was made, to break the law; if the intent is mutual the contract is not enforceable at all, and, if unilateral, it is unenforceable at the suit of the party who is proved to have it. This principle is not involved here. Whether or not the overloading was deliberate when it was done, there is no proof that it was contemplated when the contract of carriage was made. The second principle is that the court will not enforce a contract which is expressly or impliedly prohibited by statute. If the contract is of this class it does not matter what the intent of the parties is; if the statute prohibits the contract, it is unenforceable whether the parties meant to break the law or not. A significant distinction between the two classes is this. In the former class you have only to look and see what acts the statute prohibits; it does not matter whether or not it prohibits a contract; if a contract is deliberately made to do a prohibited act, that contract will be unenforceable. In the latter class, you have to consider not what acts the statute prohibits, but what contracts it prohibits; but you are not concerned at all with the intent of the parties; if the parties enter into a prohibited contract, that contract is unenforceable."

And on another page:

10. This statement was applied by the Court of Appeal in Archbolds (Freightage) Ltd. v. Spanglett Ltd.⁽⁷⁾ Applying the test, the 1965 agreement can hardly be said to be a "collateral contract" in the sense used by Devlin, J. Indeed, the whole agreement goes against the root of the Regulations in that it was made to defeat those Regulations in toto.

11. For the same reasons, the second 1967 agreement is also illegal.

12. The first 1967 agreement for the purchase of the vehicle is, I think, ex facie lawful, for there is nothing in the Regulations which prohibit a sale, but this agreement is nevertheless unenforceable as being one intended for an unlawful purpose: Pearce v. Brooks⁽⁸⁾. It will be seen from the written document that the plaintiff wanted not only a motor vehicle but one with a public car licence, and he in his evidence candidly admitted that that was the intention. The sole purpose of the purchase being to run a public car business without a licence, the agreement is clearly illegal. Looking at the agreement from another viewpoint, it being so closely connected with the second 1967 agreement, it is also tainted with the latter's illegality.

13. As this action is brought on contract, the plaintiff must fail for illegality. I do not therefore have to decide the issues raised on the pleadings. Nor have I to consider whether the plaintiff might have succeeded if he had relied on trespass and detinue, except to say, en passant, that he might well have succeeded on the strength of Singh v. Ali⁽⁹⁾, since it was decided by the Judicial Committee in that case that notwithstanding that the contract for the sale of the lorry was unlawful, yet when in pursuance of the contract the lorry was sold and delivered to the plaintiff, the property in it passed to him; and thereby he derived the right to immediate possession of the lorry, which entitled him to sue the defendant in detinue. Further, the plaintiff had actual possession of the lorry at the time the defendant seized it and was entitled to sue in trespass.

14. Whilst the question of ownership of the vehicle is not strictly relevant in view of my judgment on illegality, as it has been argued with some emphasis I will state my opinion on it. It was said in Singh v. Ali (supra) ⁽¹⁰⁾ that:

"Their Lordships do not overlook the fact that the defendant remained registered as the owner of the lorry and that no permission was given for the sale: but this did not prevent the property in it passing to the plaintiff. The registration book is not in Malaya, any more then it is in England, a document of title. The title passed by the sale and delivery of the lorry to the plaintiff. The absence of registration would no doubt put the plaintiff in difficulty if he had to prove his title, but it would not invalidate it:..."

The same decision was reached in Central Newbury Car Auotions Ltd. v. Unity Finance Ltd.⁽¹¹⁾. There, the registration book of the vehicle bore these words: "Important. The person in whose name a vehicle is registered may or may not be the legal owner of the vehicle". As in that case, the registration book of AG 7447 contains the words: "Warning: The person in whose name a vehicle is registered may or may not be the legal owner. The vehicle prospective purchasers are warned, therefore, that this registration book is not proof of legal ownership." On the authorities, I would say that ownership had passed to the plaintiff notwithstanding the illegal agreements. In the present case, not only was the vehicle delivered to the plaintiff, all the documents and the car key, which are normally associated with ownership were also given to him. To all intents and purposes the plaintiff used the vehicle as his own.

15. Plaintiff's claim against both defendants dismissed with costs on Scale V.

16. Certificate for Counsel.

Certified true copy:

Representation:

Plaintiff in person.

patrick Woo (instructed by Tso & Co.) for 1st Defendant

Y.T. Chan (Philip K.H. Wong & Co.) for 2nd Defendant.

(1) (1950) 1 K.B.359, at 371

(2) (1914) A.C. 461

(3) ...(illegible)

(4) ...(illegible)

(6) At p.287

(7) (1961) 1 Q.B. 374

(8) (1866) L.R. 1 Ex. 213

(9) (1960) A.C. 167

(10) 1960 A.C. 167 at p.177

(11) (1960) A.E.R. 3 p.90 ...(illegible)