Sun Hung Kai Credit Ltd v. Szeto Yuk Mei and Others
Read the full judgment text of DCCJ 3549/1985 on BabelCite. This District Court judgment was delivered on 14 June 1985.
1. On the 10th May 1984, the plaintiff commenced proceedings in the High Court against five defendants. The first three were persons who had entered into so-called "hire purchase agreements" with the plaintiff on different dates in 1981 and 1983. The fourth defendant ("the guarantor") was sued as guarantor' of the agreement between the Plaintiff and the first defendant ("the hirer"). The fifth defendant was the dealer who introduced the three hire purchase agreements to the plaintiff.
|
DCCJ003549/1985 HEADNOTE CONTRACT - hire purchase - guarantee signed by mistake - non eat factum - consideration - minimum payment clause -whether "Rule of 78" should be incorporated to avoid provision being held void for uncertainty. The plaintiff sued, inter alia, the defendant as guarantor of a "hire purchase agreement", dated 17th June, 1983 made between the plaintiff and the hirer in respect of a motor vehicle. The hirer paid the first two instalments, due on the 11th of July and August 1983, but no further instalments. On the 16th November 1983 the plaintiff accepted the hirer's repudiation, and claimed liquidated damages, under a provision of the "hire purchase agreement" ("The minimum payment clause") against the hirer and guarantor. The defendant contended that he was not liable under the guarantee (a) because he had signed it in the belief that it was a document of a wholly different character, and (b) because it was given for a past consideration, i.e. after the vehicle had been delivered to the hirer.
IN THE DISTRICT COURT OF HONG KONG HOLDEN AT KOWLOON CIVIL JURISDICTION ACTION NO.3549 OF 1985 BETWEEN
_________________________ Coram: His Honour Judge Downey Date: 14 June 1985 ---------------------- JUDGMENT ---------------------- 1. On the 10th May 1984, the plaintiff commenced proceedings in the High Court against five defendants. The first three were persons who had entered into so-called "hire purchase agreements" with the plaintiff on different dates in 1981 and 1983. The fourth defendant ("the guarantor") was sued as guarantor' of the agreement between the Plaintiff and the first defendant ("the hirer"). The fifth defendant was the dealer who introduced the three hire purchase agreements to the plaintiff. 2. The amounts claimed by the plaintiff against thehirer and the guarantor appeared to be within the financial limits of the District Court's jurisdiction. On the 7th June 1984, the guarantor sought to have both claims transferred to the District Court. On the 9th July 1984, only the claim against the guarantor was ordered to be transferred to the District Court. I have not been told why the claim against the hirer was not transferred. I can only speculate upon the possible reasons for this claim being kept in the High Court, I can only assume that the plaintiff has not yet obtained judgment against the hirer, since the plaintiff has not sought, at the trial before me, to prevent the guarantor from disputing the extent of his liability to the plaintiff by relying on clause 2 of the guarantee and indemnity, allegedly given by the guarantor on the 17th June 1983, which provides, inter alia, that:
3. It may be the case that this and possibly other significant points have been missed or overlooked by those who have appeared before me, as a result of their laudable attempts to shorten the trial by "agreeing" certain facts. For my own part, I confess that I am not entirely sure of the nature or extent of the concessions, if any, made on behalf of the guarantor at the trial. But, I am conscious of the possibility that, because I am not seised of the plaintiff's claim against the hirer, any conclusions which I may reach on the extent of the guarantor's liability to the plaintiff may differ from those which may be reached, or may already have been reached, by a master or judge of the High Court in respect of the plaintiff's claim against the hirer. The plaintiff's pleaded claim or prayer against the guarantor is the same as its claim against the hirer, with the pedantic exception that it also includes a claim for interest upon interest, already claimed pursuant to the terms of the hire purchase agreement and the statutory provisions which confer upon the court a discretion to award interest for any period between the accrual of the cause of action and the date of judgment. In essence, the plaintiff contends that the guarantor is liable to the plaintiff for no more and no less than the precise amount which it is entitled to recover from the hirer. 4. I should, perhaps, acknowledge that, although the plaintiff's pleading is mainly concerned with claiming specific or liquidated sums, allegedly due under specific provisions of the relevant contracts, it does extend to claiming, in the alternative, "such sum as the Court may assess as damages for repudiation or alternatively for breach of contract." Nevertheless, although this prayer for unliquidated damages exists on the pleadings, I consider that it has been abandoned. The plaintiff led no evidence in support of this alternative plea and it was not particularised in the body of the Statement of Claim. Instead, the plaintiff seeks to recover from the guarantor and the hirer the sums which it alleges it is entitled to under express provisions of the hire purchase agreement, which I set out later in the judgment. 5. Although the guarantor admits signing a document headed "Guarantee and Indemnity" (Exh. P.3) and receipt of a letter of demand dated the 9th April 1984, he denies that he is liable thereon on two grounds. Firstly, be contends that he did not understand the contents of the document and believed that it was a document required for the purpose of transferring ownership in the vehicle in question, which is a public light bus, registration number BE 5026. In short, he seeks to raise a plea of non est factum. Secondly, he contends that there was no consideration to support the alleged guarantee. On his behalf, Mr. Chan also submitted that the guarantor was not bound because there had been a material alteration in the identity of the parties to the alleged guarantee. This point is, in my view, not a separate ground, but merely part and parcel of the plea of non est factum. 6. The guarantor is aged 58 and works as a cashier in a restaurant. In 1983 he was the registered owner of four public light buses (including BE 5026) and a taxi, which he operated in partnership with a Mr. HUI, and which were the subject of hire purchase agreements, under which he was paying monthly instalments of about $3000 per vehicle. As the income from operating these vehicles was insufficient to meet the monthly instalments he decided to get rid of the vehicles. On or about the 9th May 1983 he agreed to sell them to Mr. WONG Chong-kei, the manager of Koon Wing Motors Ltd. for $7,000. Legally, of course, the guarantor was not in a position to "sell" these vehicles to anyone. By his dealings with Mr. Wong, he was, in effect, seeking to assign his supposed beneficial interest in the vehicles which he was hoping to acquire under the hire purchase agreements. This was evident from the terms of the memorandum or voucher (Exch. D.1), signed on that date, which provided:
7. Although this memorandum contemplated that Mr. Wong would assume responsibility for the instalments under the hire purchase agreements, I am satisfied that the guarantor also contemplated that Mr. Wong might find other "buyers" to take over these obligations. The guarantor was not really concerned with the identity of these "buyers"; his sole concern was to rid himself of the financial burdens associated with his original acquisition of these vehicles. 8. After entering into this agreement with Mr. Wong, the guarantor signed various documents at the request of Mr. Wong. He believed that these were for the purpose of transferring ownership. He could not remember when he signed the alleged guarantee (Exh P.3), and did not know that it was a guarantee. When he signed on the page which contains the English version of the Schedule, the rest of the spaces were blank. Although he can read Chinese characters, he did not read the Chinese version. He did not know the hirer, and never intended to guarantee any obligations she assumed to others. He agreed that whenever he signed documents at Mr. Wong's request he was in a hurry, and that he signed "assorted documents relating to finance companies" in respect of the five vehicles. After he received the plaintiff's written demand in this matter, he visited Mr. Wong and obtained from him a photocopy of a Sale and Purchase Agreement between Keen Wing Motors Ltd. and the hirer (Exh. D.2). 9. Although I am prepared to accept that, when he signed Exh. P.3, the guarantor did not realise that he was guaranteeing the due performance of the hirer's obligations under the hire purchase agreement between her and the plaintiff, I have no hesitation in finding that he has failed to establish his plea of non est factum. The principles of this "doctrine", or recognised legal exception to the general rule that a person is bound by his signature to a document, whether or not he reads or understands it, are well settled. Cf. Gallie v Lee [1971] A.C. 1004. The guarantor is not illiterate. Even if he can bring himself within the category of persons to whom this special plea is available on the basis that he was tricked into signing Exh. P.3 by Mr. Wong (of which I am not fully satisfied), he was, in my view, extremely careless in putting his signature on this document. He signed it in blank. He did not, cast even a cursory glance over the other pages of the document, which in, my view, would have alerted him to the fact that the document was not one solely concerned with transfer of ownership in the vehicle in question. In any event, he knew. or ought to have realised, that what he thought were documents relating to transfer of ownership, would be communicated by Mr. Wong to other persons, and, in particular, to finance companies. In my view, he is bound by the general rule. 10. The second ground for disputing liability, based on lack of consideration, is, in my view, more persuasive. The hire purchase agreement between the plaintiff and the hirer (Exh. P2) and the alleged guarantee (Exh. P3) are both dated the 17th June 1983. On the basis of the evidence before me, and, in particular, Exhibits Dl and D2, Mr. Chan submitted that I should infer that the vehicle in question was in fact, delivered to the hirer in May 1983, i.e. well before the date of the alleged guarantee. In support of his submission that consideration for the alleged guarantee was not sufficient because it was past consideration, Mr. Chan referred to the express terms of clause 1 of Exh. P3, which is as follows:
11. Mr. Kau submitted that there was no, or no sufficient, evidence to support the inference that the vehicle had been delivered to the hirer before the 17th June 1983. In particular, he relied on the last sentence of Exh. D2 in support of his submission that the only inference to be drawn was that the vehicle was delivered to the hirer on or after the date of the hire purchase agreement and guarantee. The last sentence of Exh. D2 stated:-
12. With respect, I do not think that this provision assists Mr. Kau, because it is apparent from the other provisions of Exh. D2 that the essential terms on which the plaintiff was to provide the balance of the purchase price were already known at the date of Exh. D2, i. e., 26th May 1983. Earlier in Exh. D2 it is stated:
13. These figures are precisely the same as those stipulated in the hire purchase agreement (Exh. P2). The only matter not mentioned was the date when payment of these instalments was to begin. Provided the hirer paid to Koon Wing Motors Ltd. the balance of the first instalment" on or before the 27th May 1983, she could reasonably be expected to receive immediate delivery of the vehicle from Koon Wing Motors Ltd. The plaintiff called no evidence to show when the vehicle was in fact delivered to the hirer by Koon Wing Motors Ltd. or by Wing On Motors Co, the dealer which supplied the same to the hirer. I do not know whether the dates on Exhibits P2 and P3 were inserted by the plaintiff or the dealer. 14. Although the evidence is scant, I think that it is sufficient to support the inference suggested by Mr. Chan. I consider that I can rely on my own experience of such transactions over more than 25 years, which leads me to conclude that hirers frequently, or invariably, the succeed in obtaining delivery of the goods before the date of the relevant agreement. In my experience, because of this well-known invariable practice or feature, finance companies frequently stipulate in their standard forms of guarantee or indemnity that they are given in consideration of the finance company entering into a hire purchase agreement with the hirer. 15. However, although I find, on the balance of probabilities, that the vehicle was delivered to the hirer in this case before the 17th June 1983, I do not consider that it follows that Exhibit P2 was given for a past consideration. On its proper construction, the guarantor's undertakings were given to the plaintiff in consideration for the plaintiff agreeing to deliver the vehicle to the hirer under the terms of a hire purchase agreement to be made between the plaintiff and the hirer. In my view, any delivery of the vehicle before the date of the plaintiff's execution of the hire purchase agreement must be regarded as having been made under a bailment at will between the dealer and the hirer. Normally, a dealer is not the agent of a finance company. No evidence was adduced before me to show that Koon Wing Motors Ltd. or Wing On Motors Company were the agents of, or clothed with any authority by, the plaintiff to agree to, or effect, delivery of the vehicle to the hirer under the terms of the hire purchase agreement. Accordingly, the fact that the vehicle was delivered to the hirer before the 17th June does not, in my view, render Exhibit P3 unenforceable for luck of sufficient consideration. 16. I turn now to the question of the extent of the guarantor's liability to the plaintiff for the default of the hirer. Although it is not disputed that the hirer repudiated the hire purchase agreement, by failing to pay three months' instalments due thereunder between September and November 1983, the plaintiff does not seek to recover from the guarantor unliquidated damages, assessed according to common law principles, on the basis that such repudiation was accepted by the plaintiff. Instead, the plaintiff seeks to recover various sums under clause 7(1) of the hire purchase agreement, on the basis that it is a genuine liquidated damages clause and not a penalty. Indeed, Mr. Chan did not seek to resist this aspect of the plaintiff's case on the basis that the clause was a penalty and, therefore, unenforceable. He confined himself to questioning the guarantor's liability to pay some of the individual sums claimed by the plaintiff. In general, he appeared to accept the figures set out in paragraph 10 of the Statement of Claim as correct quantifications of the individual sums clamed by the plaintiff under this clause, but I must confess that I am not entirely sure that, at the end of the day, he was conceding the accuracy of each and every item. In the course of Mr. Kau's opening address, it seemed to me that there was , for example, a patent error in the calculation of the net proceeds of sale of the vehicle, which Mr. Chan may have overlooked in the course of his "talks" with Mr. Kau before the case was called on. 17. Before I set out the full terms of clause 7 of the hire purchase agreement, and the sums claimed by the plaintiff thereunder, it may be useful to state the basic terms of the hire purchase agreement, and the extent of the hirer's observance thereof. The agreement is in standard form. The usual schedule dealing with payments is somewhat unusual, in that it does not specify the cash price of the vehicle, or the cost of accessories, insurance or registration, or the initial payment made by the hirer (notwithstanding that Exhibit D2 suggests that such payments amounted to $18,000!). It merely specified that the "Actual sum advanced" was $183,428.50 to which $10'7,844.50 was added as "Hire Charges" to produce a "Balance of Hire" of $291,273.00. The latter was to be repaid by seventy-nine monthly rentals of $3,687.00 commencing on the 11th July 1983. Although these and other features of the present case indicate, in my view, grounds for suspecting that the plaintiff was well aware that it was entering into a "re-financing" transaction in circumstances which, perhaps, called for more circumspect inquiries of those introducing the same, it has not been contended before me that the relevant instruments are unenforceable on the ground that they are unregistered bills of sale, or that they are "sham" agreements, brought into existence solely for the purposes of evading the provisions of the Bills of Sale Ordinance (Cap. 20) or the Money Lenders Ordinance (Cap. 163).
18. The hirer's repudiation was accepted by the plaintiff on the 16th November 1983. The hirer had paid the two instalments due on the 11th July and the 11th August 1983, but no more. The plaintiff is, therefore, entitled (under Condition 7(1)(a)) to three monthly instalments amounting to $11,061.00, claimed in paragraph 10(1) of the Statement of Claim. 19. In paragraph 10(2) the plaintiff claims an unspecified amount of interest at 2% per month on these arrears. Although Condition 2(2) provides that interest on overdue instalments is to accrue "after as well as before any judgment"; the amount recoverable under Condition 7(1)(a) is that which has accrued"up to the date of the Owner's acceptance of the Hirer's wrongful repudiation .... ". Unless the plaintiff reamends its Statement of Claim to specify the interest accrued up to the 16th November 1983, nothing can be awarded under this head. 20. In paragraph 10(3), (4) and (5), the plaintiff claims the costs of repossessing the vehicle $400), storage charges ($840) and fixed penalties. The first two items are clearly payable by the hirer under Condition 2(15), but I am of the view that the fixed penalties, amounting to $600.00, are not recoverable from the hirer by virtue of any provision of the hire purchase agreement. Mr. Kau submitted that they were recoverable under Condition 2(4) which provides, inter alia:
21. Apart from the fact that there is no evidence that these penalties have been paid by the plaintiff, I do not think that they are covered by Condition 2(4). This item is, therefore, disallowed. 22. Finally, under paragraph 10(6), the plaintiff claims $43,752.00 as "damages for repudiation". Strictly, it is the liquidated sum due under Condition 7(1)(e). It is arrived at by deducting from the "Balance of Hire" of $291,273.00 the aggregate of the following items:-
23. In the first place, the amount of item (iv) is in my view, clearly in - correct. The vehicle was re-sold to Kam Loong Motors for $145,000. (See Exhibit P1). From this sum, the plaintiff has deducted the repossession and storage charges and the fixed penalties. None of these amounts should be deducted. The first two are already claimed, and recoverable under Condition 7(1)(b) and (c); the third is, in my view, not recoverable under the hire purchase agreement as an expense properly incurred in the resale of the vehicle. 24. In the second place, the amount of item (iii) is, in my view, also incorrect. The only witness called by the plaintiff told me that it was computed in accordance with the ''Rule of 78" on the basis that eight instalments had been paid by the hirer. No explanation was given for making this calculation on the basis that seventy-one instalments were outstanding. But, assuming that to be the correct or fair basis, my own calculation, according to the "Rule of 78", results in a figure of $87,231.18! If the "Rule of 78" is to be applied, the rebate should be calculated on the basis that five of the seventy-nine instalments were paid or payable before the plaintiff accepted the hirer's repudiation. According to my calculation, that would result in a figure of $94,705.22 as the appropriate rebate. 25. Neither of the parties' legal representatives was able to assist me in this mathematical exercise at the trial. The plaintiff's witness was not asked to calculate a figure on the basis that five instalments were due before the accepted repudiation. There is accordingly, some technical merit in Mr. Chan's otherwise unhelpful response to my plea for assistance as to the correct solution to the supposed mathematical equation, namely: "This is for the plaintiff to prove!" Strictly speaking, the plaintiff has failed to prove what figure should be brought into the equation implicit in Condition 7(1)(e). 26. For my own part, and despite the lack of assistance from the bar table, I would have been prepared to reject this technical submission by substituting my own mathematical calculation, if only on the ground that it is more favourable to the party who is in breach. On my calculations, the hirer (and guarantor) would be liable to the plaintiff (under paragraph 10(6) of the Statement of Claim) in the sun of $33,132.78, instead of the sum of $43,752.00 claimed by the plaintiff. But, I do not propose to take that course because I consider that there are more formidable obstacles to giving legal effect to Condition 7(1) of the agreement. 27. In my view, Condition 7(1), or, at least, the equation contained in (e), may be void for uncertainty. The sum payable under Condition 7(l)(e) is stipulated to be the difference between two sums. The first sum is the aggregate of (a) the sum advanced by the Owner (as stated in the Schedule) and (b) Hire charges up to the termination hereof. The second sum is the aggregate of (c) all monthly rentals paid prior to the date of repossession, (d) sums recovered under Condition 7(1)(a), and (e) the best price obtainable for the vehicle. Reduced to simple mathematical terms, the formula for the difference is:- (a + b) -(c +d + e) 28. The agreement expressly provides for factors (a), (c) and (e). If one construes "recovered" in Condition 7(1)(e) as "recoverable", it also provides for factor (d). But, nowhere in the agreement is there any express provision for ascertaining factor (b). 29. Many of the hire purchase agreements which I have seen, at the bar and on the bench, expressly provide that a. rebate of hire charges will be allowed or granted, at the (absolute) discretion of the owner, in tile event of premature termination of the agreement, whether that occurs as a result of breach by the hirer or the exercise of his option to terminate the agreement or to purchase the hired goods. No doubt such express provisions have been inserted to recognise the fact that the owner, in such circumstances, receives an earlier return of his original capital outlay, and in the hope that "minimum payment" clauses in such agreements will not be struck down as being penalties. (See, however, Chartered Finance (Hong Kong) Ltd. v. Helen Fashions Garment Co. Ltd. [1978] D.C.L.R. 20 at 24.) Some agreements provide that such rebate or discount is to be calculated in accordance with tables or schedules currently used by the finance company at the relevant point in time. Such tables or schedules are revised from time to time to take account of well-known fluctuations in the cost of providing credit, and are, in practice, commonly resorted to for the purpose of quoting a "settlement figure" to a hirer, dealer, or other prospective purchaser who wishes to obtain a good title to the goods, freed of the superior rights or interest of the finance company. In some, albeit rare, instances, the agreement follows the precedent to be found in Goode: Hire-Purchase Law and Practice (2nd Ed. 1970)p by stipulating that such rebate is to be calculated according to the direct ratio method or the "Rule of 78". 30. Nothing resembling any of these express provisions is to be found in any of the provisions of the agreement now before me, possibly because it is not, in law or fact, a "hire-purchase agreement." The hirer has no right to terminate the agreement at any time during the hiring. The hirer has no right to become the owner of the goods during the hiring, even by tendering the unpaid "Balance of Hire." Even if the hirer does so, after committing some undiscovered breach of the agreement, according to condition 10, ownership of the goods is not automatically transferred to the hirer. Although Condition 1(1) speaks of "the option contained in condition 10 hereof, to purchase the vehicle," no such option is given by the plaintiff to the hirer under the agreement! Indeed, a strict construction of Condition 1(1) could lead to the conxlusion that the plaintiff has given no consideration, in the legal or contractual meaning of that word, for the hirer's numerous promises contained in the agreement, since it is not stated that the hirer is to enjoy the benefit of using the goods under the terms of a bailment or hiring in the meantime. In truth, and in law, the agreement between the plaintiff and the hirer is a conditional sale. 31. Although Mr. Chan has not raised these specific points, or sought to dersive any advantage for his client (the guarantor) from the fact that Exhibit P3 is expressed to be a guarantee of a "hire purchase agreement "instead of a conditional sale agreement between the plaintiff and the hirer I feel that I must take them into account when considering his general submission that the plaintiff is not entitled to the sums claimed under paragraph 10(6) of its statement of Claim. In my view, they are relevant to the basic question of the validity, and enforceability, of Condition 7(1)(e) of the agreement now before me. In this respect, I have referred to what is to be found, in my experience, in other similar agreements, solely to emphasise that, in this case, the plaintiff has failed to specify any agreed formula for calculating or determining the "Hire Charges upto the termination hereof". The agreement (Exhibit P2) is totally silent in this respect. 32. Mr. Kau invited me to fill this gap by suggesting that I should apply the "Rule of 78" on the ground that this method of calculating rebates is usually accepted by local courts and widely used in the trade. As to the latter reason, I have no evidence as to the extent of the use of the "Rule of 78" in the trade. But, even if I can take judicial notice of it as a common practice for calculating rebates upon premature termination of hire purchase, conditional, or credit sale agreements it is not necessarily or obviously a common method of calculating hire or credit charges. There are other methods, e.g. actuarial, constant ratio or straight line (tota charges divided by the number of instalments), or the "3-2-1" formula (period of credit divided into sections, with the lower amount coming at the end of the period). The straight tine method is perhaps the least realistic, since it does not recognise that hire or credit charges are generally higher at the beginning of the period of credit. But. whichever method is used. they offer no precise guide to the charges earned or accrued during the period before the premature termination. The total eventually arrived at may include fixed or variable charges to cover initial costs or expenses incurred in processing the application for credit (e.g., documentation, taking up references, or making other inquiries), all of which will have been earned immediately the agreement is entered into. 33. Although a court must endeavour to give meaning to vague or incomplete expressions, I do not think that Mr. Kau's second reason is sufficient to justify importing one out of may possible methods into the parties' agreement. Furthermore, when the court does find some device for saving the contract, or some provision therein, it usually does so on the basis that it more or less reflects what the parties would have expressed if they had given thought to the matter. It seems to me that the present agreement, containing detailed provisions on numerous matters, has been drafted by someone with a knowledge of the relevant law and other standard forms. In many respects it follows the precedent in Goode, op. cit. But it stops short of incorporating any reference to the ''Rule of 78", despite the learned author's footnote suggesting the positive advantages which might be gained from employing such a, provision. For all I know, the plaintiff may have special reasons for drafting the agreement in its present form. 34. As to the first reason, I do accept that the "Rule of 78" is frequently applied by the courts when assessing unliquidated damages, at common law, for a repudiatory breach. When required to assess damages which are at large, a court is concerned to arrive at a figure which can fairly be seen as compensating the plaintiff for its loss and doing justice between the parties. To this end, various pragmatic rules or criteria are applied. It would be idle to pretend that they are perfect or precise or afford absolute certainty. The use of "multipliers" in assessing general damages in actions for personal injuries is an obvious example. Even in the case of breaches of contract, where it may be easier to arrive at as precise or certain sum as representing the innocent party's financial loss, in certain situations, that sum will be reduced as a result of the application of the less precise rules surrounding the duty to mitigate. In the context of such claims arising out of hire purchase and similar agreements, it seems to me that the "Rule of 78" has been adopted and applied, with these broad objectives in view, and because it provides a fairer result than the more imprecise approach suggested in other decided cases. (cf. Overstone Ltd v Shipway [1962] 1 W. L.R. 117; Yeoman Credit Ltd v Mclean [1962] 1 W. L.R. 131. ) But, I am not aware of any authority (apart from legislation in other jurisdictions) where it has been used to give certainty to a contract, or a particular provision of a contract, which would be otherwise void on account of vagueness or incomplete agreement by the parties. 35. Indeed, in the present case, I do not consider that importing the "Rule of 78" would provide a satisfactory solution to the meaning of "Hire charges up to the termination hereof" in Condition 7(1)(e), except in the extremely unlikely event of the plaintiff accepting the hirer's repudiation at the first moment of measurable time on the day following the hirer's failure to pay the second of two successive instalments. On the facts of the present case, and assuming that the plaintiff had accepted the hirer's repudiation at the first available moment of the 12th November 1983, on the basis of the "Rule of 78",the rebate to be given to the hirer would be $94,705.22. In crude terms, that would mean that the "Hire charges up to termination" would be $13,139.28. If the plaintiff had waited until the 10th December 1983 before accepting the hirer's repudiation, it would still only be entitled to $13,139.28, although the hirer would have had the benefit of the best part of a month's additional credit. In all the circumstances, it is, in my view, wholly unrealistic to suppose that the plaintiff intended the "Rule of 78" to govern the meaning of the relevant words in Condition 7(1)(e) of its agreement. 36. At the end of the day, I am faced with the situation that the plaintiff has failed to make any express provision, in its own contractual document, for any definition of , or any formula or machinery for ascertaining, what it intended by certain express provisions, which, in my view, are clearly vague or incomplete. Although I accept that courts are prepared to make repairs to defects in commercial contracts by various accepted devices (e.g. implied terms, custom, frustration), I consider that it is still a basic principle of law that the courts will not make new bargains for the parties. In my view, importation of the "Rule of 78" into the present agreement would involve me in making a new contract for the parties, and, for the reasons I have already given, one which even the plaintiff, in all probability, never intended. 37. What, then, is the consequence of holding that part of condition 7 (1)(e) is void for uncertainty? It seems to me that there are three possibilities or options. To the extent that the provision which is found to be void or inoperable ("factor (b)" in my simple equation) forms an integral part of what was intended as an agreed liquidated damages clause, designed to avoid the uncertainties and difficulties inherent in assessing unliquidated damages upon a repudiatory breach, it could be contended that the entire provision (i.e. condition 7(1)) falls to the ground. The second possibility is that only Condition 7(1)(e) is rendered inoperative. These two possibilities lead, in general, to the same result. The plaintiff would merely be entitled to the sums itemised in paragraphs (a) to (d) of Condition 7(1), by virtue of other Conditions of the agreement (i.e., principally condition 2). In the present case, the only obstacle which might stand in the plaintiff's way is the fact that it has not pleaded these other provisions as the basis of its claim. The third possibility is to give effect to paragraph (e), with the exception of the defective part, namely, Hire charges up to the termination hereof" (or what I have described as "factor (b)"), on the basis that the plaintiff has disabled itself from proving this aspect of its case. 38. Although I consider that there is much to be said in favour of the first option, I consider that it would be wrong to exercise it in this ease, because it would be tantamount to declaring that Condition 7(1) is not a geniune attempt to pre-estimate damages flowing from a repudiatory breach, but a penalty clause. But, as the provision in question has not, somewhat surprisingly, been attacked on this basis, I consider that it would not be right for me to strike it down by choosing the first option. 39. Nor do I think that I should take the second option, because I consider that it is clear from Condition 7(2) that it was intended that, in the event of a repudiatory breach by the hirer, the plaintiff should receive something more than the sums due and payable under other provisions of the agreement. Accordingly, I propose to take the third option, having regard to the circumstances of the present case and the peculiar manner in which it has been presented to me. 40. For the aforesaid reasons, I consider that the plaintiff is entitled to enter judgment against the guarantor for the sum of $32,294.50, which is based on the following items of proved loss:-
41. Item (iii) has been arrived at by deducting from the "Actual sum advanced", i.e. $183,428.50, the aggregate of the following sums:-
42. I apologise for the length of this judgment, which is largely due to the fact that the present case, in my respectful view, poses far more questions than those which were positively canvassed before me at the trial, many of which may have been overlooked by the parties' legal advisors because of undue or solitary concentration on the essential question whether the guarantor was bound by his signature to Exhibit P.3. Apart from thinking that the standard form of agreement, used by the plaintiff in the present case, may be in need of drastic revision, I wish to hake it clear that nothing I have said should be regarded as indicating that Condition 7(1) is immune front attack on the ground that it is, or may be, a penalty.
Representation: Mr. K.W. Kau of Philip K.H. Wong & Co. for plaintiff Mr. Peter Chau of John Ku & Tam for defendant. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||