WAYFOONG CREDIT LTD. v. CHEUNG WAI WAH SAMUEL

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. On the 15th April 1988 the Defendant entered into a Hire Purchase Guarantee and Indemnity with the Plaintiff in consideration of the Plaintiff agreeing to enter into a Hire Purchase Agreement with Jet Extend Limited (the Company).

2. The hire purchase agreement was in respect of a new Mazda T3500 Diesel Van. The net cost of the van, on the road, amounted to $134,722.00.

3. The company agreed to pay to the Plaintiff monthly instalments of $3,611.00 commencing 13th of May 1988. It paid the 3 instalments for May June and July 1988, ableit a little late, but thereafter defaulted.

4. On the 15th September 1988 the Plaintiff served a written notice on the company accepting the wrongful repudiation of the agreement and terminating the same forthwith.

5. The hired goods were repossessed on 17th September 1988 and subsequently sold on 7th October 1988 for $64,300.00, which the Plaintiff asserted was the the best price obtainable as defined in the agreement.

6. The Plaintiff calculated that it had suffered damages of $22,505.83, which, when added to the arrears of rental with interest, and the costs incurred in repossessing the hired goods, left the company, indebted to it in the sum of $31,258.89. The manner in which the said sum was calculated is to be found in paragraphs 10 and 11 of the Statement of Claim and I see no purpose in repeating the same in detail herein.

7. Unfortunately for the Defendant the company was wound up on the 9th November 1988 and accordingly the Plaintiff looked to the Defendant for payment of the said sum of $31,258.89 under the terms of his guarantee.

8. The Plaintiff issued a writ on the 17th of March 1989 and this matter first came before me on the 10th of July 1989 when the Plaintiff sought my leave to enter judgment against the Defendant for the sum claimed under O.84A r.3 of R.S.C.

9. The Defendant has taken no interest in the proceedings and did not attend on the 10th July or on any subsequent hearing date.

10. There is no doubt that the Plaintiff is entitled to enter judgment against the Defendant. The sole issue, which has occupied the time of the court is whether the Plaintiff has taken all reasonable steps to mitigate the loss which if had suffered consequent upon the company's failure to meet its obligations under the Hire Purchase Agreement and the Defendant's failure to honour the terms of his guarantee.

11. In determining whether or not the Plaintiff has acted reasonably in mitigating its loss it is necessary to consider the manner in which it disposed of the motor vehicle. However, before I examine the manner in which the Plaintiff disposed of the motor vehicle in this particular action, it may be helpful to say a little regarding the background to the same.

12. Regrettably, over any given 12 month period, there a considerable number of summonses relating to the failure of Defendants to honour their obligations under Hire Purchase Agreement and the subsequent claim for damages by Finance Companies. At one time or another all my brother Masters and I have expressed concern as to whether or not finance companies are properly and reasonably seeking to mitigate their losses or whether they are disposing of repossessed motor vehicles in a manner which is most convenient to them without having proper regard for their duty to mitigate their loss.

13. Hence, whilst the Defendant has taken no interest in the present proceedings, the Plaintiff is well aware that the present assessment is by way of being a "test case".

14. In the present action it will be noted that the Mazda Van cost $134,722.00 to put on the road on the 14th of April 1988. It was subsequently sold on the 7th October, i.e. a little under 6 months later, for $64,300.00, which is less than half the cost of the vehicle on the road.

15. The mode of sale adopted by the Plaintiff was to send a Proforma Letter of Invitation to tender to approximately 100 dealers in the motor vehicle trade with whom the Plaintiff does business. Miss Wong Po Sau, the Section Head of the Plaintiff's Arrears Section (P.W.1) explained that the Plaintiff bank only sent invitations to tender to dealers actually doing hire purchase business with the Plaintiff.

16. As a matter of policy the Plaintiff does not invite tenders from other motor vehicle dealers however reputable they may be. P.W.1 stated that the list of dealers, who are permitted to tender, is reviewed from time to time, but could not recall when this has happened during her 9 years with the Plaintiff. I suspect that the said list is rarely reviewed and is presently out of date. I say this because it was P.W.1's evidence that if the invitations to tender resulted in any response that response did not in her experience ever exceed eight in toto.

17. When asked by the court why the Plaintiff adopted this manner of disposal she relied initially upon Clause 13(A)(e)(ii) of the Hire Purchase Agreement which states:

                 "...... provided that the hirer expressly agrees that the owners in reselling the vehicle shall be obliged to offer the same only to persons whose business is that of dealing in motor vehicles and that the best offer received and accepted by the owners from such a dealer for the vehicle shall be agreed by the hirer in all the circumstances to be the best price obtainable ..." It will be noted that this clause does not restrict the invitation for tenders from the motor trade as a whole.

18. P.W.1 maintained that this clause prevented the sale of repossessed motor vehicles by way of public auction. However, she went on to say that in addition to the select group of dealers, who deal with the Plaintiff, members of the bank staff can purchase vehicles by tender and that occasionally, if there were no offers from dealers or bank staff, the Plaintiff sells vehicles by way of advertisement in newspapers.

19. With all due respect to P.W.1 she is a relatively junior member of the bank staff and accordingly the Plaintiff quite properly called to senior members of its management staff. Neither of these gentlemen took the point that it was precluded by the Hire Purchase Agreement from selling of vehicles by way of auction or a greatly extended tendering procedure. Instead Mr. Hamulton (P.W.3) the Deputy Managing Director of Plaintiff company sought to persuade me that, in effect, sales by auction are more trouble than they are worth.

20. I have to say that after careful consideration P.W.3's attempt to so persuade me has totally failed. The simple fact of the matter is that I am not satisfied that the Plaintiff has ever seriously considered this manner of sale, which would have the effect of making such vehicles available to a very much wider potential group of purchasers.

21. I accept that presently there are no specialised facilities in Hong Kong for the sale of vehicles by auction. However, I have no doubt at all that given the entrepreneurial flair of Hong Kong businessmen and the volume of vehicles which the Plaintiff can offer, it would be a simple enough matter for a specialised auction facility to be established for sale of motor vehicles. It follows that I do not accept P.W.3's assertion that, if the Plaintiff were to consider selling a vehicle by auction, auctioneers would sell them in the same way as they sell any other item, i.e. at their own convenience, and that the costs would more than offset the potential increase in the sale proceeds of the same.

22. Motor vehicle auctions are an established part of the trading in motor vehicles in other countries and very successful they are too.

23. The other reasons put forward by P.W.3 for the failure to adopt this manner of sale are as is trivial apparent from the record and are simply not sustainable.

24. In fairness to the Plaintiff I consider that it would be wrong of me to determine this assessment solely on the basis of my finding that it could dispose of motor vehicles by auction and indeed should investigate the possibility of so doing. What I am concerned to establish is whether or not the Plaintiff is taking reasonable steps to bring its repossessed motor vehicles to the attention of the widest possible audience and thereby obtain the best price as for the same. Clearly, sales by auction are but one approach to this problem. In an effort to be constructive I would see no objection to the Plaintiff advertising for tenders in the local newspapers. I am wholly unpersuaded that this would be an expensive way of disposing of motor vehicles at the best price.

25. There are other options open to the Plaintiff, such as sales by private treaty, although in this respect I can see that the administrative costs may well exceed any benefits to be derived from a higher price. One could go on, but it is not my task to speculate on the various courses of action open to the Plaintiff. Suffice it to say that there are a number of options, which could well result in the Plaintiff more advantageously disposing of repossessed motor vehicles than it does at present. Yet, on the evidence before me I am satisfied that the Plaintiff has not seriously addressed its mind to such options.

26. As must be clear by now, I do not consider its practice of generally disposing of motor vehicles to a chosen few namely the bank's own group of motor dealers or its staff, is good enough. It follows that I find that the Plaintiff has not taken a reasonable steps to mitigate its loss.

27. In my judgment, the Plaintiff has adopted a course of action to which involves it in the minimum effort without due regard to its obligations to its customers.

28. I think it right to add that in making this finding I would not wish it to be thought that I am in any way in impugning the integrity of any of the witnesses who gave evidence before me. I have no doubt that they are all honourable people and that all could be said against them, is that when viewed in the overall context of their many duties this one small aspect of the same has not received the attention which it deserves.

29. In finding that the Plaintiff cannot rely upon Clause 13(A)(e)(ii) and has not reasonably mitigated its loss, I am left with problem of assessing what its loss would have been if it had taken proper steps to mitigate the same.

30. On this point there is a dearth of evidence before me. I consider that as the Plaintiff did not lead any evidence to the contrary I am entitled to assume that the motor vehicle in question was in good condition. Further, I accept that the vehicle must have depreciated during the 6 months between its purchase and sale. The question is by just how much as it depreciated? In default of any direct evidence on the point, I propose to adopt the same formula as the Commissioner of Inland Revenue i.e. to calculate the depreciation at the rate of 55% per annum during the first 12 months. In practice this is a very generous rate of depreciation, because new vehicles seem to be escalating in cost all the time. However, if I am erring at all, it seems to me that I am erring in favour of the Plaintiff and accordingly I will adopt this approach. Thus, I calculate the Plaintiff's loss as follows: -

31. Finally, I consider that I can discount this figure by a further 20% to take account of the fact that this was a forced sale and that if a dealer had purchased it, which I accept that is strong possibility, it would have been at less than what he perceived to be the prevailing market price so that he could have his profit.

32. Hence, if the Plaintiff had been taken reasonable steps in seeking to mitigate its loss it should have obtained a price in the region of $81,600.00.

33. As the Plaintiff only sold the vehicle for $64,300.00 there is a short-fall of $17,300.00 between what he actually received and what he should have received. This figure will be deducted from the sum claimed leaving a balance of $13,958.89 for which I give a judgment together with costs to be taxed if not agreed.