Cit Financial (Hong Kong) Ltd. v. Far East (Wagner) Engineering Ltd. and Others

DCCJ015180/2000

FOR REFERENCE

HEADNOTE

Leasing agreement - not unconscionable or unfair - consideration - assignment of title in chattel - absence of writing - Control of Exemption Clauses Ordinance Cap. 71 - Summary judgment - small prints not unreasonable in commercial transaction.

DCCJ15180/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 15180 OF 2000

Coram: H H Judge Lam in Chambers

Date of Judgment: 17 May 2001

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J U D G M E N T

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1. The plaintiff is applying for summary judgment against the 3rd defendant. The plaintiff is the assignee of New Court Credit (Hong Kong) Limited, which provides leasing finance to the 1st defendant for the purchase of certain machinery and the financier, New Court Credit (Hong Kong) Limited has assigned its right to the plaintiff.

2. It is the plaintiff's case that the 1st defendant defaulted in payment under the leasing agreement and the plaintiff therefore terminated the same pursuant to the terms of the agreement. Also pursuant to the terms of the leasing agreement, the plaintiff as assignee of the rights of New Court Credit (Hong Kong) Limited is entitled to seek certain sum as termination payment. I understand there is no dispute as to the calculation of the figures. I will not deal with it at this stage.

3. The 3rd defendant is a guarantor. He guaranteed the performance of the obligations by the 1st defendant under the leasing agreement. There is no dispute that the 1st defendant did not make instalment payment as alleged by the plaintiff, but the 3rd defendant raised several defences.

4. The first point raised by Mr Pong, appearing today on behalf of the 3rd defendant, is that the terms of the leasing agreement is too vague and too uncertain to be enforceable. He said this in respect of the obligations of the parties upon the termination of the agreement, in particular under clause 11 of the leasing agreement.

5. According to clause 11 of the leasing agreement, upon expiration or termination of the agreement in situations other than default by the lessee, the lessee shall, as the agent of the lessor, sell the equipment to an independent purchaser, or failing which the lessee shall deliver the products to the lessor. In return, under clause 11.2, the lessor shall, on the sale of the equipment, pay to the lessee an amount equal to the rebate percentage of the proceeds of sale.

6. Mr Pong criticised this by saying that it is uncertain as to what is the amount to be paid back the by lessor to the lessee. This is actually incorrect because, as demonstrated by Mr Wong in his reply, according to the front page of the leasing agreement, the rebate percentage has been specified to be 95 per cent. So there is no uncertainty as to that.

7. Mr Pong also submitted that looking at the leasing agreement as a whole, it is unfair - and he used the word "unconscionable". Since this is not a consumer sale, the Unconscionable Contract Ordinance Cap. 458 has no application.

8. In substance, what Mr Pong submits is this, he says if one looks at the whole arrangement, the 1st defendant has to pay the initial deposit for the goods to the seller and then he has to pay the instalments under this leasing agreement. At the end of the day after all there have been paid, when the lease is terminated, he has to sell the equipment on behalf of the lessor and he gets nothing. This might tie up with an allegation in the defence where it is suggested that this agreement is not supported by consideration.

9. But there is a flaw in this argument. Certainly the 1st defendant had the use and possession of the equipment in the meantime. Also, at the end of the day, if there was no default on the part of the lessee, the 1st defendant would be paid a sum calculated by reference to the rebate percentage. So I see nothing unconscionable or unfair in this commercial arrangement between the parties.

10. On the point as to the absence of consideration, there is also a suggestion in the defence that because the assignor, that is New Court Credit (Hong Kong) Limited, had never been in possession of the equipment, coupled with the fact that there was no formal assignment of the title of the goods to New Court Credit (Hong Kong) Limited, it simply could not lease the equipment to the 1st defendant. Of course there is a distinction between possession and ownership and it is not disputed that all along the 1st defendant was in possession of the equipment. However, it must be implied from the leasing agreement that the title of the equipment was assigned to the lessor, i.e. New Court Credit (Hong Kong) Limited.

11. Mr Pong submitted that because it is an assignment of choses in action it has to be in writing. I disagree. Although the ownership was separated from possession, it does not mean that it is an ownership of choses in action, it is still ownership in chattels, so there is no legal requirement that the assignment of the title has to be in writing.

12. It has not been suggested to me that it is a case where the Bill of Sales Ordinance applies, so I do not need to consider that.

13. It must be implied from the terms set out in the leasing agreement that the title in the equipment was passed to New Court Credit (Hong Kong) Limited.

14. In coming to this conclusion I bear in mind what Mr Pong submitted with regard to clause 12 in the leasing agreement, where it is said that if the lessee has entered into a supply agreement, the lessee represents and warrants that title to the product has not passed to the lessee and, if required by the lessor, the lessee shall assign to the lessor his right under such supply agreement to purchase the products and to acquire any licence. Mr Pong relied on the words "shall assign" to submit that this indicated that the title has not been assigned. But if one reads clause 12 carefully, it is referring to the assignment of the right under the supply agreement rather than the assignment as to the title of the equipment. In any event, as I have mentioned, I hold that it is not necessary for the assignment of the title to be in writing.

15. Mr Pong also referred to the Control of Exemption Clauses Ordinance, Cap. 71 and said that certain clauses under the lease agreement cannot be enforced by reason of its being unreasonable. The clause he is referring to is clause 8.2.3 in the leasing agreement, by which the lessee waives all claims against the lessor to the extent permitted by law.

16. Before I deal with that one has to examine why this clause is relevant to the present case. The 3rd defendant seeks to resist the application by putting in some evidence to suggest that the equipment has been sent to the manufacturer for repair. And by reason of that the 3rd defendant submits that the goods were not merchantable and therefore the plaintiff, or rather the predecessor-in-title was in breach of his obligation under the leasing agreement.

17. One has to bear in mind under the leasing agreement clause 5.1, the obligation to repair and maintain the equipment is on the lessee, that is the 1st defendant. This clearly shows that as between New Court Credit (Hong Kong) Limited and therefore the plaintiff on the one part and the 1st defendant on the other part, under the contract between them, the obligation to maintain and repair is on the 1st defendant.

18. Further still, clause 8.1 in the leasing agreement provides that the lessee warrants that the products have been selected by the lessee and acknowledges that the lessor does not possess any particular skill or knowledge to advise on the condition, operation or fitness for any particular purpose of the products, and further warrants that it does not enter into this agreement in reliance on any representation made in respect of such matters by or on behalf of the lessor.

19. And in clause 8.2.2, the lessee acknowledges that the lessor has not made and does not give any representation, condition, guarantee or warranty in connection with the products, and any that would otherwise be implied by statute or at common law are hereby excluded to the extent permitted by law.

20. This was in fact a commercial transaction. Although in the form of a leasing agreement, in substance the predecessor of the plaintiff was providing financing facilities to the 1st defendant. The parties were free to agree in their contract as to their respective obligations under the contract and also the distribution of liabilities with regard to repair and maintenance of equipment. These would be governed by the terms they have agreed upon.

21. There is nothing inherently unfair or unreasonable with regard to this sort of arrangement. Mr Pong, however, wished to argue that it is unreasonable by referring to the fact these terms were contained in small print and he cited the case of Richardson Spence v Minnie Rowntree [1894] AC 217. If one examines the facts of that case one can see that it can readily be distinguished from the present situation. Firstly, that was not a commercial transaction. That was a case where there was a person buying a voyage ticket and it was on the ticket where there was small print. On the other hand, in the present case it is a commercial transaction, although the conditions to the leasing agreement are small print at the back of the agreement, there is no doubt that when the parties were signing the agreement it must be appreciated that there were terms and conditions.

22. Furthermore, there is evidence before me which shows that the person who signed the agreement is not an ignorant, poor lady. Rather he was a businessman well acquainted with these sort of transactions.

23. I therefore do not see how it can be said that these provisions in the leasing agreement shall not be applied by reason of the Control of Exemption Clauses Ordinance.

24. In any event, clause 5.1 which imposed the obligation to repair and maintain on the 1st defendant is not an exemption clause. If one examines the memos exhibited by the defendant to evidence defects in the goods, one only finds that it refers to the fact that the equipment has been sent for repair. There is no information as to what went wrong with the equipment. It could be minor repair, it could be major repair, we don't know. As Mr Wong submitted, in resisting an Order 14 application, the defendant has to condescend upon particulars.

25. Further, I note that the memos exhibited by the defendant only run up to 18 April 2000, whilst the affirmation was made on 7 April 2001. In the last memo sent by the 1st defendant to the manufacturer, it only recorded that there were repeated demands and requests for the delivery of the equipment back to the 1st defendant. We do not see anything further by way of documents to show what happened afterwards, although it is said in paragraph 16 of the affirmation of Wong Kai-kwong filed in these proceedings on 7 April 2001, that up to that moment the equipment had not been returned. In short, we do not know exactly what was happening.

26. Bearing in mind the obligation imposed on the 1st defendant as lessee under clause 5.1 of the leasing agreement, on these evidence I do not see any arguable defence to the plaintiff's claim. So in the circumstances I will grant judgment to the plaintiff.

(Discussion)

27. So I make an order in terms of paragraph 1 and 2 of the summons. As to paragraph 3, I have amended it to read as follows, "Costs of this action be borne by the 3rd defendant, to be taxed if not agreed, except the costs relating to the preparation of the affirmation of Poon King-hei of 12 March 2001 which shall be borne by the plaintiff."

Representation:

Present: Mr William M F Wong, instructed by Messrs Deacons, for the Plaintiff

Mr James Kenneth Pong, instructed by Robert C K Tsui & Co., for the 3rd Defendant