THE BANK OF EAST ASIA, LTD v. WIN HING CIVIL ENGINEERING LTD AND ANOTHER

DCCJ1412/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1412 OF 2006

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Assessment of damages

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1.  On 28 September 2006, I granted summary judgment in favour of the Plaintiff against the 2nd Defendant, and this is the assessment of the damages of the Plaintiff’s claim.

2.  By 4 hire purchase agreements, the Plaintiff advanced 4 loans to the 1st Defendant to finance the purchase of various construction equipments and vehicles (“the Equipments”).  By the same hire purchase agreements, the 2nd Defendant, being a director and shareholder of the 1st Defendant, personally guaranteed the said 4 loans to the 1st Defendant.  As the 1st Defendant has defaulted in the repayment of the 4 loans since 8 January 2006, the Plaintiff accepted the 1st Defendant’s repudiation of the hire purchase agreements on 9 February 2006 and claimed for the outstanding loans and damages against both Defendants.

3.  It is common ground that the 1st Defendant is insolvent and is unable to repay the debt.  Provisional liquidators have been appointed to take over the control of the 1st Defendant.  In the hearing on 28 September 2006, I granted summary judgment against the 2nd Defendant with damages to be assessed.

4.  At the time when the 1st Defendant accepted the repudiation of the hire purchase agreements, the 4 Equipments were located in the construction site at Disneyland Resort, Penny’s Bay, Hong Kong in which Gammon Construction Limited (“Gammon”) was the main contractor.  The Plaintiff tried to repossess the 4 Equipments on 10 February 2006 but Gammon did not allow it to do so.  The Plaintiff eventually repossessed 3 Equipments on 24 May 2006 and the last Equipment on 24 June 2006, and sold them in public auctions.

5.  In Exhibit “WCF-48” attached to the witness statement of Mr Wong Chi-fai, who is the credit control manager of the Plaintiff, Mr Wong listed out the computation of the Plaintiff’s claim, giving due credit to the rebate of interest and the proceeds of sale of the 4 Equipments, the latter of which amounted to a total sum of $220,000.  In the hearing, Mr Liu, counsel for the 2nd Defendant, does not seek to challenge the accuracy of the computation.

6.  However, it is the 2nd Defendant’s case that one Mr Chan Chi-on actually offered to purchase the 4 Equipments in the total sum of $538,611 on 10 February 2006.  Had the Plaintiff taken legal action to recover the 4 Equipments at an earlier time, the Equipments could then have been sold at higher prices.  By failing to do so, the 2nd Defendant claims that the Plaintiff has failed to mitigate its loss.

7.  In determining the validity of the 2nd Defendant’s argument, I have to set out the background as to how the Plaintiff had repossessed the 4 Equipments. 

8.  It is common ground that the 1st Defendant has defaulted in the repayment of the loans in January 2006.  By that time, there was a dispute between the 2nd Defendant and another director of the 1st Defendant which affected the operation of the latter company.  According to the 2nd Defendant, one Mr Chan Chi-on offered to purchase the 4 Equipments at the total price of $538,611 on or about 8 February 2006.  By that time, Mr Wong of the Plaintiff agreed to that offer and arrangement was made for Mr Chan to obtain delivery of the Equipments on 10 February 2006.

9.  When Mr Wong, the Plaintiff’s surveyor, Mr Chan, and the 2nd Defendant arrived at the construction site on 10 February 2006, Gammon refused the parties to obtain delivery of the Equipments.  According to the staffs of Gammon, the 1st Defendant did not allow Gammon to release the Equipments to the Plaintiff and the 2nd Defendant, and that was why Gammon refused the Plaintiff’s request to obtain delivery of the Equipments on that day.  The staffs of Gammon also asked the Plaintiff to liaise the matter with Gammon’s legal department.  Later on 15 February 2006, the Plaintiff’s solicitors wrote to Gammon to demand for the delivery-up of the Equipments.  On 24 February 2006, Gammon replied and refused to do so because of the opposition of the 1st Defendant’s solicitors.  Gammon also asked the Plaintiff to contact the 1st Defendant’s solicitors who were Messrs C. L. Chow & Macksion Chan and Messrs Anthony Kwan & Co.

10.  The Plaintiff’s solicitors then sent a letter to the 1st Defendant on 28 February 2006 demanding for the delivery-up of the Equipments.  On 7 March 2006, solicitors of the 1st Defendant, Messrs C. L. Chow & Macksion Chan, replied and said they would take instruction from their client and would reply in due course.  After a further demand letter by the Plaintiff’s solicitors dated 8 March 2006, the said solicitors’ firm replied on 10 March 2006 stating that they had no instruction to act on behalf of the 1st Defendant.  The Plaintiff’s solicitors then sent a further letter to both Defendants on 17 March 2006 demanding for the outstanding loans and delivery of the Equipments.  After receiving no reply, the Plaintiff instituted the present proceedings against both Defendants on 21 March 2006.

11.  On 22 March 2006, Gammon sent a letter to the Plaintiff’s solicitors, stating that a petition had been presented by the 2nd Defendant’s solicitors for the winding-up of the 1st Defendant and a provisional liquidator had been appointed for the 1st Defendant.  On 24 March 2006, the Plaintiff’s solicitors wrote to the alleged provisional liquidator requesting for delivery-up of the Equipments.  On 29 March 2006, the Plaintiff’s solicitors received a letter from the 2nd Defendant’s solicitors, Messrs Susan Liang & Co.  According to such letter, no provisional liquidator had yet been appointed by the court for the 1st Defendant at that stage, and they also informed the Plaintiff that Messrs Anthony Kwan & Co. had been appointed to act for the other director of the 1st Defendant.  On 3 April 2006, the Plaintiff’s solicitors sent a letter to Messrs Anthony Kwan & Co. to demand for delivery-up of the Equipments.

12.  Later on 24 April 2006, after the deadline for the Defendants to file the acknowledgement of service of the writ of summons, the Plaintiff’s solicitors applied to enter judgment against both Defendants under Order 84A of the Rules of the District Court, Cap 336.  On 15 May 2006, the Plaintiff learnt from the 2nd Defendant’s solicitors that provisional liquidators had been appointed for the 1st Defendant.  On 15 May 2006, the Plaintiff sent a letter to such provisional liquidators to request for delivery-up of the Equipments to the Plaintiff.  After some correspondence, the provisional liquidators allowed the Plaintiff to repossess the Equipments on 24 May 2006.  However, one Equipment could not be identified on that occasion and that such last Equipment was only repossessed by the Plaintiff on 24 June 2006.

13.  The aforesaid chain of events are supported by the correspondence between the relevant parties and I accept them to be the truth.  Further, I am of the view that the Plaintiff has tried its best to repossess the Equipments to mitigate its loss.

14.  Mr Liu, counsel for the 2nd Defendant, argues that it was unlawful interference on the part of Gammon in refusing to release the Equipments to the Plaintiff, and to mitigate its loss, the Plaintiff should have instituted immediate legal proceedings to gain possession of the Equipments.

15.  In respect of the duty to mitigate the loss, the learned author of McGregor on Damages, 17th edition, said the following in paragraph 7-064:

“In mitigating his loss the claimant victim of a wrong is only required to act reasonably and the standard of reasonableness is not high in view of the fact that the Defendant is an admitted wrongdoer.  Lord MacMillan put this point well for contract in Banco de Portugal v Waterlow, his remarks apply equally to tort.  He said,

‘Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty.  It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well with those who have themselves created the emergency.  The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the costs of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.’

Whether the claimant has acted reasonably is in every case a question of fact, not of law.”

16.  In my judgment, it should not have required the Plaintiff to commence litigation against any third parties, whether it was Gammon or Wong Chung-yip who was the other director of the 1st Defendant, to recover possession of the Equipments, which might involve uncertain result and risk of further unrecoverable legal costs.  The Plaintiff through its solicitors has tried to resolve the matter by correspondence without any delay, and the Plaintiff was eventually able to gain possession of the Equipments without going through litigation.  In fact, I am impressed by the Plaintiff’s effort to gain possession of the Equipments, and in the circumstances of the case, taking about three months to do so was not a long period of time.  Hence, I am satisfied that the Plaintiff has discharged its duty to mitigate its loss.

17.  In his submission, Mr Liu for the 2nd Defendant makes lengthy submission on the law of unlawful interference with agreement by a third party.  With respect, Mr Liu is trying to complicate a very simple issue, i.e. whether the Plaintiff has taken reasonable steps to mitigate its loss, with such unnecessary argument.  Further, I am of the view that Gammon has all along been acting reasonably.  Prior to 10 February 2006, Gammon had allowed the 1st or the 2nd Defendant to remove some of the 1st Defendant’s equipments from the construction site.  Then there was a dispute between the 2nd Defendant and the other director of the 1st Defendant, and according to the letter by Gammon dated 24 February 2006, there were apparently two solicitors purportedly to act for the 1st Defendant by that time.  In my judgment, as Gammon owed a duty to the 1st Defendant for the safekeeping of the Equipments, it would have been reasonable for Gammon to ask the Plaintiff to clarify the matter with the 1st Defendant first, and the matter was eventually resolved without much delay.

18.  Further, I do not accept the 2nd Defendant’s evidence that Mr Chan Chi-on had made an offer to purchase the Equipments anytime in February 2006.  The 2nd Defendant has issued a subpoena to compel Mr Chan to testify at the trial.  However, Mr Chan does not appear in the hearing.  In the application for summary judgment, the 2nd Defendant has filed an affidavit by Mr Chan Chi-on to oppose the Plaintiff’s application.  However, without the benefit of cross-examining Mr Chan, his written affirmation carries very little weight in my assessment of the evidence.

19.  At the trial, the 2nd Defendant gives evidence to support the making of the offer by Mr Chan, but his evidence is strongly denied by Mr Wong of the Plaintiff.  After considering the evidence, I do not accept that such an offer was in fact made by Mr Chan.  Firstly, in order to offset the indebtedness due to the Plaintiff and to minimise its loss, it would have been in the interest of the Plaintiff to accept the highest price for the selling of the Equipments.  In such circumstances, there was no reason for the Plaintiff to refuse such an attractive offer by Mr Chan.

20.  Secondly, according to the 2nd Defendant, Mr Chan made an agreement with Mr Wong of the Plaintiff to purchase the Equipments on or about 8 February 2006, and that was why Mr Chan had brought all the transportation vehicles to tow away the Equipments on 10 February 2006.  However, there was no written agreement between Mr Wong and Mr Chan, and there was no evidence to suggest that Mr Chan would make any payment to the Plaintiff for the purchase of the Equipments on 10 February 2006.  In such case, how would Mr Wong have allowed Mr Chan to take away the Equipments on 10 February 2006 which were the most valuable securities under the hire purchase agreements?  This simply does not make sense.  Further, the Plaintiff’s surveyors attended the construction site to make a valuation of the Equipments on 10 February 2006.  Hence, in order to protect the interests of the Plaintiff, how would Mr Wong of the Plaintiff have agreed the purchase price of the Equipments with Mr Chan before the valuation of the same by the surveyors?

21.  Thirdly, the 2nd Defendant’s evidence about the making of the offer is contradicted by his own evidence.  According to the 2nd Defendant’s evidence, Mr Chan had already agreed with Mr Wong of the Plaintiff to purchase the Equipments on or about 8 February 2006.  If that was true, why did the 2nd Defendant write a letter to the other director of the 1st Defendant, Mr Wong Chun-yip, on 9 February 2006, offering Mr Wong an option to purchase the Equipments?

22.  Finally, if Mr Chan had made an agreement or offer to purchase the Equipments, why did the 2nd Defendant not follow up on the deal with Mr Chan or Mr Wong of the Plaintiff after the sale failed on 10 February 2006, when he was still very concerned about how the outstanding loans could be repaid?  In fact, Mr Chan’s offer was never mentioned in any of the correspondence by the solicitors of the 2nd Defendant.  Hence, I do not accept that Mr Chan did make an offer to purchase the Equipments.

23.  Based on the aforesaid findings, there is no merit in the 2nd Defendant’s contention that the Plaintiff has failed to mitigate its loss.  The Equipments were repossessed by the Plaintiff in May and June 2006 and were sold in public auctions.  Such auctions were conducted in a proper manner and three of the Equipments were sold at prices the same or higher than the assessed values of such Equipments made by the surveyor.  The last Equipment, the 1992 Caterpillar wheel-loader, was sold on 19 October 2006 at the price of $20,000 which was lower than the assessed value of $40,000 made on 29 May 2006.  Although the selling price was lower, the auction was conducted in a proper manner and I am satisfied that this was the best price that the Plaintiff could have obtained by that time.

24.  In the premises, I accept the Plaintiff’s computation of the loss as stated in Exhibit “WCF-48” attached to the witness statement of Mr Wong Chi-fai, and I therefore assess the Plaintiff’s damages accordingly.  As clause 18.1 of the hire purchase agreements allows the Plaintiff to recover contractual interest on outstanding sum for the period before and after judgment, I also allow the Plaintiff to claim for contractual rate on interest for the period after judgment.