CHIU YIN MING v. LAM CHI SING AND OTHERS

DCCJ 15280/1996

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.15280 OF 1996

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JUDGMENT

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BACKGROUND:

[1] Mainland authorities usually grant an exclusive license to certain individuals to operate goods transport vehicles between Hong Kong and a designated city on the mainland. These rights are commonly referred to as a "line" and the holder of these rights is referred to as a "line owner". Anyone who wanted to participate in the transportation business between Hong Kong and the designated city must enter into an agreement with the line owner. This is referred to as "entering the line".

[2] To allow the participant's vehicle to be registered with mainland authorities, the vehicle must be registered in the name of the line owner.

[3] In 1991, the Plaintiff was one of these line owners and by an agreement dated 21/5/1991 (the "Agreement"), the 2nd Defendant agreed to enter into the Plaintiff's line. The 2nd Defendant paid the Plaintiff an initial fee of HK$40,000 together with a deposit of HK$10,000. The 2nd Defendant obtained a goods vehicle, registration number EV2337 (the "Vehicle"), by way of hire purchase with the Dah Sing Finance Limited.

[4] As required by mainland authorities, the Vehicle was registered in the name of the Plaintiff and all hire-purchase documents were also in the Plaintiff's name; however, all payments were made by the 1st and 2nd Defendants. Dah Sing Finance required the Plaintiff to sign a blank transfer application as part of their security for the hire-purchase arrangement. Additionally, Dah Sing Finance also knew of the arrangement between the Plaintiff and the 2nd Defendant and that the 1st and 2nd Defendants were the beneficial owners of the Vehicle.

[5] In or about February 1991, the 2nd Defendant intended to terminate the Agreement with the Plaintiff. As agreed with the Plaintiff, the Defendant introduced Mr. Law Chung as substitute participant and the Agreement was terminated. The deposit of HK$10,000 was not returned to the Plaintiff.

[6] On or about 10/6/1993, after the loan from the Dah Sing Finance had been fully repaid, the 1st and 2nd Defendants retrieved all documents from Dah Sing Finance, including the Plaintiff's pre-signed transfer document and transferred the Vehicle's registration to the 3rd Defendant, a limited company they had incorporated for that purpose.

[7] However, on or about 3/4/1993 while driving the Vehicle, the 1st Defendant had an accident with a bus owned by Associated Tours Limited ("ALT"). The 2nd Defendant stated that the Plaintiff was informed about the accident on 5/4/1993. The Plaintiff stated that he was never informed of the accident.

[8] The Defendants alleged that the 1st Defendant reported the accident to the Plaintiff, obtained an accident reporting form from the insurance company, filled-in all of the details, got the Plaintiff to sign on the report form and filled the same with the insurance company. The Plaintiff alleged that his signature on the accident report was a forgery. Either way, there was no disagreement that notice had been given to the insurance company.

[9] In paragraph 6 of the Statement of Claim, the Plaintiff pleaded:

"Pursuant to the Agreement, the 1st and 2nd Defendant should procure the Vehicle to be registered in the name of the Plaintiff as the owner of the Vehicle and the Plaintiff's address will be used. Wrongfully and in breach of the Agreement, the 1st and 2nd Defendant without the Plaintiff's consent, substituted their own address for the Plaintiff's address in registering the Vehicle in Plaintiff's name." (Emphasis added).

[10] However, according to the Plaintiff's testimony, he admitted that it was one of the other participants, and not the 1st or the 2nd Defendant, who changed his registered address with the Transport Department to: Flat 2, Block C, 13th Floor, New Kwai Fong Garden, Kwai Chung, Kwai Tsing District, New Territories, Hong Kong (the "New Kwai Fong address").

[11] The Plaintiff testified that around the end of 1993 or beginning of 1994, a participant in his line asked if the Plaintiff had an accident or not, because he was being sued. The Plaintiff contacted all of his participants, but all denied having any accident. The Plaintiff then changed the registered address from the New Kwai Fong Garden address to his business address in Fu Toy Lor.

[12] Although the Plaintiff stated that he did not remember when he changed the registered address from New Kwai Fong Garden to Fu Toy Lor, the Transport Department's record (page 83 of the Agreed Bundle of Documents) clearly indicated that the change of address occurred on 8/6/1993.

[13] On 24/9/1993, ALT commenced an action in the District Court to recover HK$46,341.50 for damages to their bus. The writ was served to the New Kwai Fong Garden address on 25/9/1993. The Plaintiff did not receive the writ and on 21/10/93 ALT obtained default judgment against the Plaintiff. On 20/1/95 ALT filed a Bankruptcy Petition against the Plaintiff.

[14] The Plaintiff stated that sometime in the middle of March 1995, the Official Receiver's Office contacted and advised him of the bankruptcy petition. The Plaintiff went to ALT's solicitors and was told to explain his story to the "judge" at the bankruptcy hearing. Irrespective of his explanation, a bankruptcy order was made against the Plaintiff on 22/3/1995.

[15] The Plaintiff was told by the Official Receiver's Office that unless he settled the claim by payment of HK$100,000 within 48 hours, the Official Receiver would take over all of his assets. The Plaintiff stated that he had no alternative but to pay the Official Receiver HK$100,000 together with an additional HK$3,958.27 for costs incurred, in order to discharge the bankruptcy order.

[16] The Plaintiff then brought this claim against the 1st and 2nd Defendants for recovery of the money he paid and a declaration against the 3rd Defendant for an equitable lien against the Vehicle for the sum of HK$103,958.27. Unfortunately, during trial, Ms. Chow, solicitor for the Plaintiff, did not make any submission about the Plaintiff's claim for equitable lien against the 3rd Defendant. In her final submission, Ms. Chow admitted that the claim against the 3rd Defendant was ill conceived. I therefore treated Ms. Chow's final submission as withdrawal of the claim for equitable lien against the 3rd Defendant.

[17] The Plaintiff's claim against the 1st and 2nd Defendants was based on four alternative grounds: (1) an indemnity from the 1st and 2nd Defendants, as trustee of the Vehicle; (2) as an expressed term of the Agreement; (3) a term under the Agreement implied either by custom and usage of the trade or required by business efficacy; and (4) the fact that the Plaintiff was compelled by law to pay a sum of money to the 1st and 2nd Defendant's use.

[18] In many ways these four alternative grounds were not mutually exclusive of each other. I'll deal with the claims based on contract first, as these can be dealt with relatively quickly.

Expressed term of the contract:

[19] The Plaintiff alleged that clause 8(3) of the Agreement stated that the 1st and 2nd Defendant were required to indemnify him of the payments made to the Official Receiver. Clause 8(3) stated as follows:

"(3) Party B (the 2nd Defendant) shall be responsible for the insurance, tax and other fees of the vehicles in China and Hong Kong."

[20] The Plaintiff argued that "and other fees of the vehicles" included all expenditures, inclusive of the payments he made to the Official Receiver. However, Mr. Siu, counsel for the Defendants, had correctly stated that under the "ejusdem generis" cannon of construction, where general words follow the enumeration of particular classes of things, the general words will be constructed as applying only to things of the same general class as those enumerated. Accordingly, the words "and other fees of the vehicles" only included those normal expenditures and outgoings, similar to "insurance" and "taxes" that are required for the normal day-to-day operations of the Vehicle and could not have included an indemnity for the payments made by the Plaintiff to the Official Receiver's Office.

Implied terms of the contract:

[21] Although the implied term was pleaded as either by way of custom of the trade or business efficacy, the Plaintiff presented no evidence on custom or usage of the trade.

[22] The Concise Dictionary of Law, Oxford University Press, 1986, defined a custom as:

"A practice that has been followed in a particular locality in such circumstances that it is to be accepted as part of the law of that locality. It must have been followed continuously, and as if it were a right, since the beginning of legal memory. Legal memory began in 1189, but proof that a practice has been followed within living memory raises a presumption that it began before that date."

[23] Clearly, there is no custom recognized in law in respect of the Plaintiff's business. Usage, on the other hand need not be long established or strictly uniform. The learned author of Philson on Evidence, 15ed. Sweet & Maxwell, stated in paragraph 6-25:

"A business usage, as distinguished from a common law custom, need not be long established, or strictly uniform; it is sufficient if it be reasonably certain, and so notorious and generally acquiesced in that it may be presumed to have formed an ingredient of the contract."

[24] Evidence of the usage's certainty, notoriousness and general acquiesce are all required to proof that there was such a usage. As no evidence was presented by the Plaintiff, the claim of an implied term by usage must fail.

[25] As to business efficacy, the general principle of the law, as stated by Bowen L.J. in The Moorcock, (1889) 14 P.D. 64, was as follows:

"Now, an implied warranty, or as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is all cases founded upon the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe if one were to take all the cases, and there are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have."

[26] Accordingly, the goal was to find the intention of the parties at the time of contract. In this case, the intention of the parties was clear, the Plaintiff was a trustee holding bare title, with the 1st and 2nd Defendants being the beneficiaries, retaining control of the day-to-day operation of the Vehicle. If there was an accident, it was cleared that the intention of the parties was the 1st and 2nd Defendants would be liable for any damages caused to a third-party. However, the circumstances leading to the ALT default judgment and the Plaintiff's payment of the judgment sum could not have been contemplated by the parties, at the time of contract. Business efficacy could not stretch the parties' intention beyond an agreement that each party would adhere to the benefits and obligations of a trustee and a beneficiary under the circumstance. The implied term could have been no more then what the law had already imposed on the parties under the general law of trust.

Indemnity as trustee of the Vehicle:

[27] Paragraph 7 of the Statement of Claim stated this ground of claim as follows:

"In the premises, the Plaintiff as the registered owner of the Vehicle was at all material times a trustee of the Vehicle for the benefit of 1st and 2nd Defendant and are entitled to be indemnified by the 1st and 2nd Defendant for all the incidences and liabilities of the said trusteeship."

[28] The learned author of Parker and Mellows: The Modern Law of Trusts, 7ed. Sweet & Maxwell, 1998, stated a trustee's right to seek indemnity of expenses incurred as follows:

"...a trustee is not entitled to be paid for his services. He is, however, entitled to be reimbursed for his expenses which have been properly incurred (however, he is not normally entitled to interest thereon). This right of reimbursement is in respect both of money actually spent by the trustee and of liabilities which he has incurred.... However, it does not follow that a trustee will be allowed all his expenses; they must be reasonable and proper in all the circumstances.

...

A trustee is obviously entitled to be reimbursed the expenses of properly making or defending legal proceedings on behalf of the trust in the same way as other expenses. But before taking or defending proceedings a trustee can apply to the court for its approval; therefore if he does not do so the proceedings are unsuccessful, it will be up to him to prove that he had reasonable grounds for taking or defending proceedings. If he cannot prove this, he will be deprived of his costs." (Emphasis added)

[29] Similarly, Danckwerts J. in Re Grimthrorpe, [1958] Ch 615 at 623, stated:

"It is a commonplace that persons who take the onerous and sometimes dangerous duty of being a trustees are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out." (Emphasis added)

[30] Therefore the issue was: Whether the Plaintiff's payment to the Official Receiver was "costs and expenses properly incurred"?

[31] Based on the Plaintiff's own testimony, as early as June 1993, he learned from one of his participants that there was a potential claim. There was no evidence on how this participant learned of the ALT claim, but it is reasonable to assume that he received a pre-action demand letter from ALT's solicitors. It is also reasonable to assume that this letter was either shown to the Plaintiff or it would have been shown to the Plaintiff, if he had asked for it. Either way, the Plaintiff could have easily found out which vehicle was involved in the accident. If the Plaintiff had retained legal representation in defending the ALT claim, the Plaintiff was well within his right to seek indemnity from the 1st and 2nd Defendants for all legal expenses and payments incurred. However, the Plaintiff did not do so, but decided to ignore the warning.

[32] Even if the Plaintiff did not have knowledge of the ALT claim until March 1995, when he received the telephone call from the Official Receiver's Office, it would have been reasonable and logical for the Plaintiff to seek legal advice right away. Any competent solicitor would have immediately noticed that the ALT writ was issued on 24/9/1993 and served to the New Kwai Fong Garden address on 25/9/1993. Whilst, the Transport Department's record showed that the Plaintiff had changed his address to Fu Toy Lor on 8/6/1993.

[33] Irrespective of when the Plaintiff had warning of the ALT claim, one thing is certain, the Plaintiff did not have notice of the ALT writ until 1995. In Cosec Nominees Limited, Kwong Kwok Hei v. Lau Hon Mong Alan, HCA 9775/2000, Deputy High Court Judge Poon described service of the writ by means other then personal service as follows:

"On a true construction of (Order 10) rule 1(2), service was duly effective when the proceedings were brought to the notice of a defendant and not on merely delivery of the writ to his last known address: Forward v West Sussex County Council & Others [1995] 1WLR 1496, followed in Desirable International Fashions Ltd v Chiang Shi Chau [1997] 3 HKC 170; Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378, CA; Redland Concrete Ltd v Hing Lee Construction Co Ltd & Others, HCA 8140 of a997, unreported, (25June 1999); Kwan Kam Wah v Chan Wai Ming [2000] 2 HKC 378. This proposition is different from the view expressed by the Court of Appeal in Honour Finance Co Ltd v Chui Mei Mei [1989] 2 HKLR 146. There, the emphasis of the Court was apparently placed on the delivery of the original process rather than notice of that; see pp 149-150. But after Chu Kam Lun, which is the latest judgment of the Court of Appeal reported on this subject matter, it would appear that this view is no longer preferred."

[34] Although the Plaintiff's setting aside application would have happened in 1995, long before Deputy High Court Judge Poon's decision, but in Forward v. West Sussex County Council [1995] 1 WLR 1469 and Fok Chun Hung v. Lo Yuk Shi [1995] 2 HKC 688, it had been held that service was effective when the proceedings were brought to the notice of the defendant and not on mere delivery of the writ to the last known address of the defendant.

[35] Furthermore, in Chu Kam Lun, Leong J.A. (as he then was), stated that even under Honour Finance Co. Ltd. "...the victim of an irregular judgment enjoys a confident expectation that it will be set aside...".

[36] Service of the ALT writ was clearly irregular and the default judgment was liable to being set aside. If this fact was make known to the judicial officer at the bankruptcy hearing, at worst, the Plaintiff would have been required to pay the judgment sum into court as security, pending the Plaintiff's application to set aside the default judgment. Once the judgment was set aside, notice could be given to the insurance company and payment of the ALT claim would then be covered by the insurance policy, subject only to the excess.

[37] Although the Plaintiff testified that he did discuss the ALT claim and the pending bankruptcy hearing with a lawyer, the Plaintiff alleged that the only thing the lawyer suggested was for the Plaintiff to talk to ALT's solicitors. The lawyer never contacted ATL's solicitors himself and did not accompany the Plaintiff to the bankruptcy hearing. One wonders under what circumstances was this so called legal advice obtained and whether full information was disclosed to this lawyer. As I cannot imagine any solicitor or counsel giving such dreadfully careless advice to their client, the only conclusion I could draw was that the Plaintiff never properly retained legal representation in dealing with the ALT claim. If proper legal advice was obtained, the Plaintiff would not have been required to pay the Official Receiver HK$103,958.27. Accordingly, I have no alternative but to conclude that the money paid were not expenses properly incurred.

[38] Since the 1st and 2nd Defendant would have to pay for the excess under their insurance policy in any event, it would seem fair if the Plaintiff was allowed to recover that sum from the 1st and 2nd Defendants; however, none of the Plaintiff's alternative grounds of claim touched on this issue, I will have to leave this to be determined in the future.

The Plaintiff was compelled by law to pay a sum of money to the 1st and 2nd Defendant's use:

[39] Paragraph 13 of the Statement of Claim stated:

"Further or in the alternative, in the premises, the Plaintiff was compelled by law to pay the said sum and the said sum was money paid by the Plaintiff to the 1st and 2nd Defendants' use."

[40] As stated above, the Plaintiff was not compelled by law to pay the sum of money. It was the Plaintiff's own failure to obtain proper legal advice and his failure to take proper steps to set aside the default judgment, which caused him to pay the sum of money to the Official Receiver. The Plaintiff's claim under this ground must also fail.

[41] Finally, one of the most disturbing aspect of this case was the fact that this claim was filed on 1/7/96 and after several changes of solicitors, from 9/6/1999 conduct of the Plaintiff's case was squarely with the Plaintiff's present solicitors. Yet, except filing a Notice of Intention to proceed, nothing further happened for one whole year. On 6/7/2000 another Notice of Intention to Proceed was filed. Again nothing was done for another year and three months. It was not until 19/9/2000, 2 years and 3 months after they commenced acting for the Plaintiff, that the solicitors finally filed their first substantial document, the Plaintiff's List of Documents. Thereafter other pre-trial procedures were slowly completed, leading to this trial.

[42] The delay was unexplained by the Plaintiff's solicitors and I am not aware of any justification for such a long delay, but this and similar cases cry out for active case management from the judiciary. If the profession cannot govern itself, those of us on the bench will have no alternative but to intervene. Hopefully with determination and vigorous application of Rule 23A of the new District Court Rules, this kind of lengthy delays will be relegated to the annuals of historical curiosity.

Judgment:

(1) The Plaintiff's claim is dismissed.

(2) Costs, including all costs reserved, are to the Defendants, to be taxed on party/party basis, if not agreed. There shall be certificate for counsel.