Hang Seng Finance Ltd. v. Liu Kwok Man
Read the full judgment text of DCCJ 8750/1991 on BabelCite. This District Court judgment was delivered on 3 October 1991.
1. This is an assessment of damages pursuant to an interlocutory judgment entered in default of defence.
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DCCJ008750/1991 Hire Purchase - Punctual payment of instalment made essence of contract - Default by hirer of 2 instalments - Repudiation - Acceptance by owner - Recovery of damages other than arrears of instalments. IN THE DISTRICT COURT OF HONG KONG CIVIL JURISDICTION CASE NO. 8750 OF 1991 ---------------------------- BETWEEN
--------------------- Coram: H.H. Judge Cheung in Chambers Date of Hearing: 4 September 1991 and 3 October 1991 Date of Judgment: 3 October 1991 ------------------------- J U D G M E N T ------------------------- 1. This is an assessment of damages pursuant to an interlocutory judgment entered in default of defence. 2. The Plaintiff is a finance company. By an Agreement dated 12th June 1990 ("the Agreement") the Plaintiff and the Defendant entered into a hire purchase agreement of a Mazda 121 motor vehicle. Under the Schedule of the Agreement, the Defendant agreed to make an initial payment of $29,825 on the making of the agreement and to pay 36 monthly instalments of $2,973.00 each payable on the 12th day of each succeeding month beginning on the 12th July 1990. 3. The Defendant paid the initial payment of $29,825.00 and one instalment in the sum of $2,973.00 but had failed to make further payment under the Agreement. 4. By a letter dated 14th September 1990, the Plaintiff informed the Defendant that as he had failed to pay two instalments under the Agreement, he had repudiated the Agreement and the repudiation was accepted by the Plaintiff. 5. The vehicle was repossessed and on 5th January 1991 the Plaintiff sold the vehicle at the sum of $44,500.00 6. The Plaintiff is seeking damages set out as fellows :
7. The principle governing damages for hire purchase agreements is that when an owner determines a hire-purchase agreement in exercise of a power so to do given him by the agreement on non-payment of instalments, in the absence of repudiation he can recover damages for any breaches up to the date of termination but not thereafter and a 'minimum payment' clause which purports to oblige the hirer to pay larger sums than this is unenforceable as a penalty (Financings Ltd v. Baldock [1963] 2 Q.B. 104. Ordinarily, a mere failure to pay one or two instalments, even after receiving a reminder or warning letter, would not amount to repudiation by the hirer (United Merchant Finance Limited v. Tang Woon Wing [1980] D.C.L.R. 53. 8. Mr. Kwok, solicitor for the Plaintiff, in a thorough and well reasoned submission, argued that the punctual payment of the instalments was treated as essence of the agreement by the provisions of Clause 1. The failure to do so by the Defendant amounted to repudiation which entitled the Plaintiff to recover, apart from the arrears of instalments up to the time of the termination of agreement, damages. 9. I will set out some of the relevant clauses of the Agreement : 10. Clause 1. The Hirer shall pay to the Owners (a) on the signing hereof the sum shown as Initial Payment set out in the Schedule and (b) thereafter the hire rent as specified in the Schedule promptly so long as this Agreement shall continue notwithstanding that no demand therefor shall have been made by the Owner. Punctual payment of each and every amount of hire rent shall be the essence of this Agreement (emphasis added). Any payment sent by post shall be at the Hirer's risk. In default of punctual payment (but without prejudice to the Owners' rights hereunder) the Hirer shall pay interest on any overdue rent or other payments at the rate of 2% per calender month from the due date thereof to the date of actual payment (whether before or after judgment). The Hirer hereby expressly agrees that any sums received from the Hirer may be appropriated by the Owners for the payment of any money due by the Hirer to the Owners hereunder whether as hire rental, as interest or for reimbursement of any payments made by the Owners under this Agreement or otherwise howsoever. 11. Clause 13(a). If the Hirer (i) shall make default in payment of any of the sums payable hereunder, .......... the owner may, without prejudice to any pre-existing liability of the Hirer to the Owners, by notice in writing to the Hirer determine this Agreement and thereupon this Agreement and the hiring thereby constituted shall for all purposes be determined (emphasis added) and thereafter the Hirer shall no longer be in possession of the goods with the Owners' consent and subject to the provisions of Clause 16 hereinafter and any pre-existing liabilities as aforesaid neither party shall have any rights against the other. 12. Clause 16. Upon the termination of this Agreement as provided in Clause 12(a), 13, 14 and 15 of this Agreement, the Owners shall be entitled to repossess themselves of and remove the Vehicle whereupon the Hirer shall deliver up to the Owners the licence, certificate of insurance and all other documents in relation to the Vehicle and the Hirer shall pay to the Owners :
13. In Lombard North Central plc v. Butterworth [1987] 1 All E.R. 267, the plaintiffs, a finance company, leased a computer to the defendant for a period of 5 years on payment of an initial sum and 19 subsequent quarterly instalments. Clause 2(a) of the hiring agreement made punctual payment of each instalment of the essence of the agreement and under Clause 5 failure to make due and punctual payment entitled the plaintiffs to terminate the agreement. By Clause 6, the plaintiffs were entitled on termination to all arrears of instalments and all future instalments which would have fallen due had the agreement not be terminated. Although the defendant paid the first two instalments promptly, the next three were paid very belatedly, and on four occasions payment made by direct debit was recalled by the bank. When the sixth instalment was six weeks overdue the plaintiffs wrote to the defendant terminating the agreement. Subsequently the plaintiffs recovered possession of the computer and sold it, the plaintiffs brought an action against the defendant claiming the amount of the unpaid sixth instalment and the 13 future instalments or alternatively, damages for breach of contract. 14. The Court of Appeal held that, in the absence of a repudiatory breach, Clause 6 created a penalty and was unenforceable in so far as it purported to require the defendant to make payment in respect of rental instalments which had not accrued at the date of termination regardless of the seriousness or triviality of the breach which resulted in the plaintiffs terminating the agreement. Furthermore, the repeated failure of the defendant to pay the instalments punctually did not justify the court drawing the inference that he had thereby evinced an intention not to adhere to his obligation under the agreement to make punctual payment and therefore, even bearing in mind the commercial objective of the agreement so far as it concerned the plaintiffs, the defendant's conduct in failing to make punctual payment did not amount to a repudiation by him of the agreement. 15. The Court of Appeal, however, accepted the Plaintiff's submission that time having been made of the essence by the agreement, it was opened to the plaintiffs, once default in payment of any one instalment on the due date had occurred, to treat the agreement as having been repudiated by the defendant, and claim damages for loss of the whole transaction, even though in the absence of this provision such a default would not have had that consequence. Nicholls L.J. held that,
16. It is to be noted that the Court of Appeal reached this conclusion with considerable dissatisfaction. Nicholls L.J. said that the difference between an agreement which entitles an owner to terminate the agreement on non-payment of instalments and one which made time to be essence is of drafting form and wholly without substance. He said that,
17. In the present case, Clauses 1, 13(a) and 16 are similarly to the clauses construed by Nicholls L.J.. Clause 1 made punctual payment of the instalments to be the essence of the Agreement and the effect of non payment would entitle the Plaintiff to terminate the Agreement and recover possession of the vehicle pursuant to Clause 13(a). Upon termination of the Agreement the Plaintiff was entitled under Clause 16 to recover damages therein stated. Clause 16 of the Agreement, in the absence of any repudiatory breach, was obviously a penalty clause. It required the Defendant to pay substantial sums of money, some of which were not due at the time of the termination of the Agreement, irrespective of the nature of the breach. However, applying the reasoning of Nicholls L.J., the combined effect of Clauses 1, 13(a) and 16 would have the effect of treating the failure by the Defendant to pay two instalments as a breach which went to the root of the Agreement and which would entitled the Plaintiff to recover the damages as claimed. This is indeed what the Plaintiff had done in the present case. It had accepted the repudiation of the Defendant who had failed to pay two instalments under the Agreement. 18. I find that the Plaintiff is entitled to the sum of $57,953.18 as damages. Interest at 10% per annum is awarded on this sum from 10th July 1991, which was the date of the service of writ, to date and thereafter at judgment rate until payment. The Plaintiff is further awarded costs of the assessment. Dated the 3rd day of October 1991.
Representation: Mr. K.Y. Kwok of C.Y. Kwan & Co. for the Plaintiff. Defendant absent. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||