SECURITY PACIFIC CREDIT (HONG KONG) LTD v. LO CHU KAN AND ANOTHER

1983 No. 14875

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGE

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1. The plaintiff is a finance company. The second defendant is a firm carried on by a Mr Ng which deals in the sale of taxis and taxi licences. The 1st defendant, against whom the plaintiff has obtained judgment by default at some date earlier to this hearing, entered into a Hire Purchase Agreement with the plaintiff for the hire purchase of a taxi and the taxi licence. The total hire purchase cost was $313,450.00. Originally the taxi and taxi licence had been the property of the second defendant and the Hire Purchase Agreement came about through the familiar tripartite arrangement involving the  finance company, the dealer and the hirer.

2. The first defendant defaulted under the terms of the Hire Purchase Agreement. The second defendant was sued under the terms of a Master Agreement dated the 31st July 1975. By consent interlocutory judgment was entered against the 2nd defendant on the 25th June 1984. At the hearing of the assessment of damages Miss Liu and Mr Tong agreed that the rebate figure shown in an affidavit of Chiu Ni Yan, sworn on the 23rd May 1984, should be increased from $47,222.00 to $71,392.00. This was to have the figures comply with the re-called "Rule of 78".

3. At the hearing the only issue in dispute between the parties was whether or not the plaintiff had taken reasonable steps to mitigate its loss. The vehicle was repossessed on the 22nd of July 1983 and was sold (with the N.T. taxi licence) on the 10th of October to Kam Hong Motors.

4. The delay between repossession and sale, therefore, was a little under 3 months. As I understood Mr Kong, his complaint of failure to mitigate did not so much relate to the period between repossession and sale but to the delay in repossessing. Indeed, evidence adduced by the plaintiff showed only a small devaluation in N.T. taxis licences occurred during that period. The main thrust of Mr Kong's argument was the failure of the plaintiff to exercise its rights under the Hire Purchase Agreement to repossess at the earliest possible time amounted to a failure to mitigate.

5. On the evidence it is clear that defaults in payment went back to December of 1981. Mr Chiu the manager of the plaintiff's Hire Purchase Department gave evidence of the various defaults. It was clear from this evidence that from December 1981 onward the 1st defendant was constantly in arrears to varying degrees. In July of 1982 the situation had gotten so bad the vehicle was repossessed. However, payments for 3 months were received from the 1st defendant and the vehicle was returned. This meant instalments were only 2 in arrears. This was on the basis that the 1st defendant would pay the monthly instalments plus $1000 p.m. off arrears. Following this partial payments were received until June/July 1983 when payments ceased altogether. The vehicle was then repossessed for the final time.

6. Mr Chiu stated that this obvious leniency shown to the 1st defendant had been at the request of the 2nd defendant. He said that the 2nd defendant requested forbearance on the part of the plaintiff because of the amount of money the 2nd defendant stood to lose if repossession had been effected at the 1st default. The reason for such loss is obvious, it arose out of the decline in the value of New Territories taxi licences. Mr Chiu said the 2nd defendant requested him to collect as much as possible from the 1st defendant. There were conversations relating to this in early 1982 and later more generalised discussions relating to a number of cases with similar circumstances. Mr Chiu was subjected to vigourous cross examination on this point but was not shaken as to the essentials and I accept his evidence. I am satisfied that because of a relatively lengthy business relationship between the plaintiff and the second defendant the plaintiff did indeed acede to the 2nd defendant's request. As a result they were more lenient than would perhaps normally be the case.

7. The second defendant adduced evidence from Mr Lo of F.N.C.B. Finance Ltd. From his records he was able to show the value of New Territories taxi licences during the relevant period. His detailed evidence charted the fluctuations in value from January 1982 up until the vehicle and the licence were finally disposed of. This was of importance in the assessment if I upheld Mr Tong's submissions.

8. Mr Tong submitted that the plaintiff had failed to mitigate by two delays. The first, and the one he stressed the most was the delay in repossessing following default on the part of the 1st defendant. After all, said Mr Tong, the 2nd defendant's liability arose 14 days after the default because of the terms of the master agreement. The second delay was that between repossession and sale.

9. The onus of proof on the issue of mitigation is on the defendant:-Roper Johnson (1873) LR 8CP 167; Garnac Grain Co. v. Faure & Fairclough [1968] AC 1130.

10. In relation to the first delay complained of I have already held that the 2nd defendant requested the plaintiff to collect as much as possible from the 1st defendant. In the light of this finding the question is whether the plaintiff acted reasonably in not repossessing until July 1983. The plaintiff must act with the defendant's as well as with his own interests in mind : Smailes v. Hans Dessen (1905) 94 L.T.; Darbishire v. Warren [1963] 1 WLR. However, he is only required to act reasonably and the standard of reasonableness is not high in view of the fact that the defendant is the admitted wrongdoer : Banco de Portugal v. Waterlow [1932] A.C. 452. Further more I can find no authority to support the proposition that a plaintiff has failed to act reasonably towards one defendant in failing to exercise his legal rights under a contract against another defendant at the earliest possible moment. Indeed in the course of argument neither party cited any authority to me other than a recent decision of Master Betts which dealt only with delay between repossession and sale.

11. I am satisfied the plaintiff has acted reasonably in relation to the first period of delay complained of and cannot be said to have failed to mitigate damages.

12. The vehicle was repossessed on the 22nd of July 1983. Tenders were called for and the vehicle was sold on the 6th October 1983. Perhaps this process could have been speeded up although it was not a matter touched upon by Mr Tong in cross-examination. Furthermore there was little movement in the value of New Territories taxi licences during this period. Mr Tong referred me to Master Betts decision in Security Pacific Credit (Hong Kong) Ltd. v. Wong Kwong Shing and Tai Wo Motor Cars Storage Battery Company HCA 5868/82. In that case Master Betts expressed the view that the vehicle should have been put on the market within a month. Apparently Master Betts heard evidence on behalf of the defendant that this was the normal practice in the trade. No such evidence was adduced in front of me. In those circumstances I am satisfied that the delay was not unreasonable.

13. The plaintiff has suffered loss and has taken reasonable steps to mitigate this loss. Allowing for an agreed amendment of the rebate and the deletion of commission this loss is $114,954 and I award this sum.

14. There will be costs to the plaintiff to be taxed failing agreement.