LUI CHI YUEN v. KINGSWAY CARS SERVICE LTD

DCCJ 5066/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5066 OF 2007

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REASONS FOR DECISION

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1.  This is an application by the Plaintiff for a determination by the court on questions of law pursuant to O. 14A of the Rules of the District Court, Cap. 336.  In the hearing on 23 April 2008, I dismissed the application and made an order for speedy trial of this action.  I now give my reasons.

Background of the application

2.  The parties have no serious dispute about the basic facts of this case.  At all material time, the Plaintiff is and was the registered owner of a Lotus Exige private car bearing the registration number ME3935 (“the Car”), and the Defendant is and was the sole agent for the Lotus brand vehicles in Hong Kong responsible for the after-sales services including repair and maintenance services.

3.  Some time in July 2006, the Car was involved in an accident, and upon the request of one Mr. David Lee (“Mr. Lee”), the Car was towed to the Defendant’s workshop for repair.  The repair work took some time.  On or about 3 May 2007, Mr. Lee drew and handed a cheque in the sum of $122,138 to the Defendant (“the Cheque”) in purported payment of the repair costs of the Car, and the Defendant delivered the Car to Mr. Lee upon the receipt of the Cheque.  However, the amount in words on the Cheque did not correspond with the amount in figure, and so the Defendant was not able to obtain payment under the Cheque.  On or about 17 May 2007, the Plaintiff returned the Car to the Defendant for repairing the air-condition ventilation of the Car.  The Defendant claims that it had informed the Plaintiff about the non-payment of the earlier repair costs, but the Plaintiff nevertheless handed the Car to the Defendant for the additional repair work.  As such work could not be completed within a short period of time, the Plaintiff, on or about 24 May 2007, requested the Defendant to return the Car to him, but the Defendant refused to do so unless the Plaintiff paid for the costs of the earlier repair work.  Unfortunately, the parties failed to settle their dispute, and the Car has been retained by the Defendant until now.

4.  The Defendant parted possession with the Car in May 2007, but it later regained possession of the same.  The central issue in the present case is, therefore, whether the Defendant could, under such circumstances, exercise the right of lien over the Car in respect of the earlier unpaid repair work requested by Mr. Lee.

5.  In this application, the Plaintiff lists out the following questions for determination by the court:

“(a) Whether the Defendant’s lien on the [Car] was extinguished by parting with possession, if a third party obtained the Car from the Defendant with a dishonoured cheque; and

(b)  Whether the Defendant was entitled to resurrect the lien when the Plaintiff returned the Car to the Defendant to remedy certain defects.”

The Plaintiff also asks the court to grant final judgment against the Defendant for delivery of the Car and damages for conversion if the court answers the question in (a) in the affirmative and the question in (b) in the negative.

The law

6.  Before I proceed to deal with this application, one must understand that there are 2 kinds of legal lien: general lien and particular lien.  A general lien entitles a person in possession of chattels to retain them until all claims or accounts of the person in possession against the owner of the chattel are satisfied.  It can only exist: (i) as a common law right arising from general usage; or (ii) by express agreement.  General liens are discouraged because they give special privileges as against other creditors and tend to upset the equitable distribution of assets on bankruptcy.  On the other hand, a particular lien at common law is the right to retain goods for which charges have been incurred until those charges have been paid.  If the owner of the goods is willing to pay those charges, the goods may not be retained until payment of any general balance due to the person having the particular lien.  Being consistent with the principle of natural equity, particular liens are favoured by the law, which is construed liberally in such cases (see: Halsbury’s Law of England, 4 ed., vol. 28, paras. 716 to 717).  Whilst general lien has been established in favour of solicitors, bankers or stockbrokers, it is clear that the lien enjoyed by car repairer is one of particular lien (see: Halsbury’s Law of England, ibid., para. 740), and hence we are dealing with particular lien in the present case.

7.  The right of lien can extinct by the loss of possession of the relevant chattel.  It is the Plaintiff’s case that the Defendant had lost the right of particular lien in respect of the earlier repair costs when the Defendant handed the Car back to Mr. Lee, and the subsequent repossession of the Car did not revive the lien.  As the Plaintiff believes that such conclusion of the law is sufficient to dispose of the present claim, he makes the present application with a view to obtain final judgment against the Defendant.

8.  There are not many modern authorities on lien, in particular about the loss of the right after parting with possession of the chattel, and so one has to go back to Halsbury’s Law of England, ibid., for the basic propositions of law:

“A legal lien is lost if possession is lost, so that redelivery of goods to owner or his agent destroys the lien, and when once made cannot be recalled, even if made by mistake.  However, if the delivery is induced by fraud or is otherwise wrongfully obtained, the lien revives if possession is recovered, even though the recovery is effected by stratagem.”  (4 ed., vol. 28, at para. 753, emphasis added)

9.  The last sentence in the cited passage now becomes the crux of this case.  It is the Defendant’s contention that Mr. Lee had all along been the Plaintiff’s agent in his dealing with the Defendant.  Since Mr. Lee fraudulently presented the Cheque in purported payment of the earlier repair costs, he had obtained possession of the Car by wrongful means.  In such circumstances, the lien revived when the Defendant subsequently regained possession of the Car.

10.  A few authorities, including Earl of Bristol v Wilsmore (1823) 1 B & C 514, Hawse v Crowe (1826) Ry & M 414 and Wallace v Woodgate (1824) Ry & M 193, had been cited in Halsbury’s Law of England in support of the proposition that a bailee claiming a right of lien does not lose such right if he was induced to part with possession of the chattel by fraudulent means.  Although there is some doubt as to whether these cases do support such a proposition, I find it to be a sound proposition of law.  In my judgment, if fraud was involved in inducing a bailee to part with possession of the chattel, it would only be right that he retains the right of lien if he subsequently regains possession of the chattel.  To hold otherwise would mean that the owner of the chattel can benefit from his wrongful conduct, which would not be fair on the bailee.

11.  The next issue is, therefore, whether fraud was involved in the present case.  The Defendant had not included the allegation of fraud in the existing pleading.  However in opposing the present O. 14A application, the Defendant relies on such allegation and contends that there should be a full trial to investigate the circumstances under which the Defendant parted with the possession of the Car.  In this respect, I agree.  As this application is not a mini-trial, the court cannot just simply ignore the Defendant’s allegation at this stage.  As fraud is very much a fact-sensitive issue which should be explored at the trial, it is not appropriate for the court to dispose of this case by way of O. 14A application.

12.  Mr. Yue, counsel for the Plaintiff, tries to resist the Defendant’s argument by 2 lines of authorities.   The first one is Pennington v Reliance Motors Works, Limited [1923] 1 KB 127.  In that case, the plaintiff arranged with one Eley that the latter would rebuild his motor-car.  Eley, without the plaintiff’s knowledge, sub-contracted the work to the defendants.  The defendants, believing that Eley would in due course be paid by the plaintiff, redelivered the car to Eley.  The plaintiff paid Eley, who did not pay the defendants.  Some time later, the plaintiff, in ignorance of the above facts, delivered the car to the defendants to carry out other repair work and the defendants claimed a lien thereon for the work done for Eley.  It was held by McCardie J that the defendants did not allow Eley to take possession of the car for any limited purposes, but in the belief that they would get payment from the plaintiff.  In such circumstances, the defendants had lost the right of lien by voluntarily giving up possession of the car to Eley. 

13.  However, I am of the view that this case only supports the following 2 prepositions: (i) a bailee loses the right of lien if he voluntarily surrenders possession of the chattel; but (ii) the bailee retains such right if he only redelivers the chattel to the owner for a limited purpose.  As McCardie J did not need to deal with the issue of fraud, that is a very important distinction which restricts the application of the ratio in that particular case.  Further, the owner in that case was not aware of the fact that the costs of the earlier repair work had not been paid.  Whereas in our present case, the Plaintiff, according to the Defendant, was aware of the earlier unpaid repair costs, and yet he allowed the Defendant to regain possession of the Car.  In such circumstances, the Defendant herein has a much better case to argue for its retention of the right of lien.

14.  The second line of authorities relied on by Mr. Yue relate to seller’s lien.  Under the sale of goods statutes in most common law jurisdictions, for example s. 41 of the Sales of Goods Ordinance in Hong Kong (Cap. 26), a seller has a lien on the unpaid goods or right to retain them for the price while he is in possession of them.  In Jeffcott v Andrew Motors Ltd. [1960] NZLR 721, Newtons of Wembley Ltd. v Williams [1965] 1 QB 560 and United Plastics Ltd. (in liquidation) v Reliance Electric (NZ) Ltd. [1977] 2 NZLR 125, the sellers parted possession with the chattels upon the presentation of a valueless cheque, and the courts held that the sellers had lost the right of seller’s lien under such circumstances.  Mr. Yue argues that the right of seller’s lien is the same as that of a repairer’s lien.  As the Defendant parted possession with the Car upon the presentation of the valueless Cheque, the Defendant had likewise lost the right of lien, and the same could not be revived upon the subsequent repossession of the Car.

15.  However, the issues before the courts in those cases are quite different from that in the present case.  In Jeffcott and Newtons of Wembley Ltd., the sellers sold the cars to the purchasers.  After receiving the cheques later found to be valueless, the sellers passed the possession of the cars to the purchasers, who eventually sold the same to other bona fide sub-purchasers without notice.  In deciding whether the sellers or the sub-purchasers had better titles to the cars, the courts had to determine whether the cars were in the possession of the purchasers “with the consent of the sellers” for the purpose of statutory provisions such as the Factors Act in England.

16.  In United Plastics Ltd., the seller sold certain good to the purchaser.  More than 30 days after delivery, but without making payment, the purchaser returned the good to the seller for repairs.  Whilst it was still in the seller’s possession, the purchaser went into liquidation.  The liquidator sought the return of the good but the seller claimed the right of unpaid vendor’s lien.  The Supreme Court in Auckland of New Zealand held that the delivery of the good to the purchaser was not a conditional appropriation for the purposes of the provisions in the Sale of Goods Act, and the liquidator was therefore entitled to claim back the possession of the good.

17.  In these cases, the courts were either asked to determine issues such as passing of property right in a sale of goods transaction, or whether the purchaser had the right to dispose of the goods so that the sub-purchaser acquired a better title than that of the seller.  In none of these cases were the courts asked to determine the right of repairer’s lien.  Indeed, the considerations for seller’s lien and repair’s lien are very different, and so I do not find that these cases on seller’s lien can benefit the Plaintiff’s case.  In addition, theses cases were very much about the interpretation of the provisions in statutes such as the Sales of Goods Act and the Factors Act, and they are therefore not relevant for the court in determining the common law right of repairer’s lien.

18.  In the absence of authorities which suggest the contrary, I accept the said principles set out in Halsbury’s Law of England as sound  propositions of law.  In such circumstances, the Defendant might not have lost the right of lien if its representative was induced to part with possession of the Car by fraud on the part of Mr. Lee.  Obviously, tendering a valueless cheque by itself might not have amounted to fraud, but there should still be a trial to investigate such matter.  As the issue of fraud and the alleged agency relationship between the Plaintiff and Mr. Lee are fact-sensitive issues, I do not accept that it is appropriate to dispose of this case by way of an O. 14A application.  I therefore made an order dismissing the Plaintiff’s summons.

Costs and other related issues 

19.  The Defendant has retained the Car for about 1 year.  Undoubtedly, the value of Car depreciates quickly with the passage of time, and so the present action should be heard as soon as possible to avoid any further loss to the parties.  In fact, they welcome an order for speedy trial and I made the order accordingly.  After consultation with counsel’s diary, the trial date is fixed in August this year.

20.  So far as the issue of costs is concerned, it is clear that the Defendant has not raised the allegation of fraud in the pleading.  In such circumstances, there is some justification for the Plaintiff to take out the present summons with a view to seek a speedy disposal of this case after the determination of the legal principles involved.  In particular, the Car has been kept by the Defendant for quite some time.  It is only in the hearing that the Defendant now seeks to rely on the allegation of fraud to justify the exercise of the right of lien.  As I see it, the present situation is very much similar to a plaintiff making an O. 14 application, genuinely believing that there is no reasonable defence to the claim.  Hence, I am of the view that the most appropriate costs order for this application should be one for costs in the cause of the Plaintiff’s claim.  I therefore made such costs order in the hearing.