The Hongkong and Shanghai Banking Corporation Ltd. v. Mita Ltd. and Another

HCA 10250/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10250 OF 2000

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ASSESSMENT OF DAMAGES

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1. D-1 was the hirer of 2 taxies. D-2 was the guarantor of D-1's payment obligations under 2 hire purchase agreements (hereinafter called "The Agreements").

2. The Agreements were entered into on 26 September 1997 between D-1 and Wayfoong Credit Limited (hereinafter called "Wayfoong"), the plaintiff's predecessor in title, for the hire by D-1 of 2 taxies at a hire-purchase price of HK$6,344,064 for each vehicle. The hiring was due to mature after 192 monthly payments of HK$33,042 per taxi; i.e. for a period of 16 years.

3. On the day of the signing of The Agreements, 2 deeds of guarantee were executed by D-2 to indemnify Waifoong against all damages Waifoong suffered in connection with the hire purchase financing made available to D-1.

4. D-1 ran into financial difficulty in mid-1998. On 22 February 1999 the parties agreed to re-schedule the payment terms (hereinafter called "The Supplemental Agreements). According to the re-scheduled terms D-1 was to pay reduced monthly instalments for the first 3 years, increased monthly sums in the subsequent 8 years and the same monthly payment of HK$33,042 for the remaining 4 years. In financial terms the plaintiff would be entitled to a greater yield of interest but at an initially reduced rate.

5. Despite of the change in payment terms, D-1 was unable to keep up his payments since 23 October 1999.

6. Notices of termination were sent to D-1 on 27 July 2000 for the termination of both hire-purchase agreements.

7. The plaintiff took physical possession of both vehicles on 1 August 2000 but was not able to sell the vehicles until the rights between the parties were adjudicated upon on 21 September 2001 when summary judgment was granted in favour of the plaintiff including the following terms:-

(a) the plaintiff was entitled to the possession, title and ownership of both taxies with the respective licences and permits;

(b) D-1 and D-2 do pay to the plaintiff:-

(i) the sum of HK$801,895.30;

(ii) interest on HK$640,092.00 at the rate of 2% per calendar month from 28th July 2000 until 21 September 2001 and thereafter at judgment rate until payment; and

(iii) further damages to be assessed.

8. After obtaining the court's order for possession the plaintiff advertised for the sale of the 2 taxies. On 4 December 2001 the plaintiff sold the 2 taxies to Tai Wo Motors Limited for HK$5,627,976 at HK$2,813,988 for each of the 2 taxies inclusive of the taxi licence. Surveyor reports prepared by Anderson & Ash Motor Survey and Adjusters Company confirmed the market value of the vehicles to be about HK$15,000 to HK$20,000 and the taxi licence was valued between HK$2,810,000 and HK$2,825,000 in May 2001. I accept the re-sale price fetched for both vehicles to be fair and reasonable.

9. The Supplemental Agreements provided the plaintiff would be at liberty to exercise its rights under the hire-purchase agreements should D-1 default in making payments in accordance with the new payment schedule.

10. Pursuant to clause 9.03 of The Agreements, the plaintiff was entitled to recover from the hirer costs incurred in repossessing, storing and selling of the vehicle together with general damages for breach of the agreement.

11. Pursuant to clause 9.05 of The Agreements, the plaintiff was entitled to, in addition to all amounts payable under clause 9.03, by way of agreed damages for wrongful repudiation, an amount equal to the balance of the hire-purchase price of the goods in respect of the unexpired term of the hiring period specified in the schedule, less

(i) the net proceeds of sale of the vehicle; and

(ii) a discount for the acceleration of payment of the outstanding balance of the hire purchase price calculated on the basis of the formula commonly known as "the Rule of 78" or the direct ratio method.

12. Clause B of The Supplemental Agreements provided:-

"In consideration of your allowing us to pay monthly instalments in the manner as aforesaid, we agree that in the event that the hiring of the Goods under the Hire Purchase Agreement is terminated due to any breach of the Hire Purchase Agreement on our part, we shall, upon a written notice given by you to that effect, pay to you a sum equal to 2.75% on the aggregate amount of all outstanding monthly instalments of the Hire Rent (before discount for the acceleration payment) as at the date of the said notice, in addition to the sum or sums payable by [the hirer] to [the plaintiff] under the Hire Purchase Agreement....."

13. Author of clause B sought to impose an additional interest payment on the outstanding monthly installments due and payable by D-1. Counsel on behalf of the plaintiff contended that the 2.75% additional interest should be calculated with reference to the balance of the installment payments for the full contract period of 16 years.

14. To resolve the issue, one would have to pose the question: what does the phrase 'the aggregate amount of all outstanding monthly installments of the Hire Rent (before discount for the acceleration payment) as at the date of the said notice' mean? What was outstanding at the date of the termination notice? "Outstanding monthly installments" was not defined in the Supplemental Agreements nor The Agreements. Ordinary English meaning of the words should apply. Installments would only be outstanding when due. Future installment payments beyond the date of termination were not yet due and were not outstanding at the date of the termination notice.

15. Would the balance of the hire purchase price fall due and payable at the date of determination by reason of contractual obligations? Clause 9.03 of the Agreements read

"In the event of termination of the hiring of the Goods upon the occurrence of any of the events referred to in Clause 9.01, the Hirer shall pay to the owner on demand ...... (the damages)."

Falling short of a proper demand for damages, the obligation to pay has not yet arisen. In the termination notice of 27 July 2000 the plaintiff wrote "As you have repeatedly breached the Hire Purchase Agreement and the letter agreement, we have exercised our right under the Hire Purchase Agreement to terminate the same with immediate effect. We shall commence legal proceedings against you in due course without further notice." No demand was made in respect of additional interest. Equally if the plaintiff were to seek refuge in clause 9.05 of the Agreements, one would still need to have the damages to be crystallised and assessed with reference to the re-sale price of the vehicle before the obligation to pay would arise.

16. Hence it can be seen that the balance of the contract sum would not be due and owing until the assessment of the damages was made. It was therefore not outstanding at the date of the termination of the agreement. The use of the phrase 'before discount for the acceleration of payment' only brings illusion and confuses the plain literal meaning of the term, as the said phrase has no practical meaning when it is construed in the context of the agreement.

17. As a conclusion, the additional 2.75% can only be calculated with reference to the outstanding monthly installments at the date of the termination of the agreement.

18. Ms Wong on behalf of the plaintiff testified on the calculation of the outstanding sums in respect of D-1's accounts.

19. I am satisfied the following represented a fair assessment of the plaintiff's further damages:-

20. Judgment is entered in favour of the plaintiff against both defendants in the sum of HK$429,625.65 representing the quantum of the plaintiff's further damages in addition to the judgment sums awarded on 21 September 2001. Judgment interest accrues from the date of judgment until payment.

21. I also award costs order nisi to the plaintiff with certificate for counsel for the assessment hearing.