JIU WAH t/a WILLIAM TRADING CO v. KOWLOON-CANTON RAILWAY CORPORATION

DCCJ3054/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3054 OF 2002

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JUDGMENT

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Introduction

1. The Plaintiff, Mr. Jaw Siu Wah is a motor trader. He operates from two addresses at Mongkok buying and selling motor vehicles. On this occasion he decided to go into a completely new venture for him which was to bid at auction for 17 double-decker omnibuses owned and operated by the Defendants ('the KCRC') who, as is well known, is the railway company operating passenger services in Kowloon and the New Territories. These buses, manufactured in Yorkshire, had been purchased and used by the KCRC to provide feeder services for its passengers free of charge. As will become more clear presently buses of this type offering passenger services to the public either free of charge, as in this case, or for fare paying passengers need to be licenced to do so by the Transport Department ('the TD').

2. The auction was held on 5 December 1995 at 1, Lyndhurst Terrace, Central which are the premises of the auctioneers, Hong Kong Auctioneers & Estate Agency Limited. Mr. Jaw attended the auction and his bid of $600,000 was the successful one. He duly paid the money and then went along to the TD to register himself as the owner as he had done so often in the past with vehicles that he purchases in the course of his business. According to him he was told by a counter clerk, to whom he had addressed himself, that his application could not be entertained because these buses had certain conditions attaching to them the most significant of which was they could only be used and operated for the purpose of carrying passengers from one KCRC station to another and that no fare could be charged for that purpose. The clerk told him that because he could not possibly comply with those conditions his application to register ownership into his name would have to be refused.

3. Once he was told that he approached the KCRC and the auctioneers with a view to having his money returned to him. This was refused. Eventually the KCRC and Mr. Jaw agreed to have the buses sold as scrap at what was agreed to be the best price then obtainable which was $300,000 - this sale being entirely without prejudice to each sides contentions as to the merits of their respective cases on the dispute. Once judgment has been delivered this amount will be paid to Mr. Jaw subject to any further sums that may be due to him or, due from him, to the KCRC having regard to the outcome of the counterclaim by the KCRC which relates to the cost of storage of the 17 double-deckers following Mr. Jaw's refusal to accept delivery once he had allegedly been told that he would not be registered as owner by the TD. This being for the period before the parties agreed to have the buses scrapped for $300,000. In the course of this introduction I have referred to the TD's alleged refusal to register Mr. Jaw as the owner of the buses because the KCRC do not accept that this could possibly have been the case on a true construction of the Ordinance and Regulations which regulate such matters and also because there has been no evidence called by Mr. Jaw from the TD to confirm what he has told me.

The Auction and its Terms

4. The 'Conditions of Sale' for the auction are at page 83 of the Bundle. Mr. Andrew Wu, who conducted the auction, has told me that these are his company's standard terms irrespective of what is being auctioned, be it a piece of antique furniture or, as in this case, double-decker omnibuses, which for his company was also a first - they had never auctioned buses before; as the KCRC which also had never attempted to sell its old stock by auction before. The material terms of the conditions of sale to which reference has been made in the trial appear at para. 4 which is as follows:-

"The Vendor is selling as Registered Owner and the vehicle are being sold in the condition and location in which they are being found and no undertaking as to title and no warranties as to condition or fitness are given, save and except that no encumbrances have been created by the Vendor. The vehicle are to be sold in their present condition and at the Purchaser's risk immediately after the fall of the hammer."

and para. 7, which Mr. Szeto for the Plaintiff has sought to place some reliance, which is in these terms:-

"The Purchaser shall liable for any fees whatever nature may become payable upon the purchase and transfer of the vehicle."

5. Prior to the auction potential bidders were permitted to view the 17 buses which were parked at premises in the New Territories which had been rented by the KCRC. Mr. Jaw viewed the buses himself on 1st December, five days before the auction. There are photographs of some of the buses in the Bundle starting at page 109. There can be no doubt whatsoever that anybody seeing these vehicles would immediately know that they are buses designed to carry passengers, and for a Hong Kong resident such as Mr. Jaw, that they were for use by the then owners, the KCRC, to carry passengers. The buses are done up in the KCRC livery and bear route numbers prominently displayed at the front, as do such buses not only in Hong Kong, but all over the world where buses of this sort are used to move people from place to place. I draw attention to this, although it may appear rather obvious, because Mr. Jaw appeared rather non-committal if not 'cagey' when he was questioned about what he thought these buses were used for, suggesting, amongst other things, that because he did not see a coin-box for fares positioned by the driver's seat he could not be sure whether the buses might have been used to transport only the KCRC's staff rather than its passengers and therefore he could be possibly have been aware that these vehicles came with any restrictions or licensing conditions that might prohibit their ownership being transferred to him. It should be observed, and I accept this evidence, that each bus at the time of inspection by Mr. Jaw had affixed to the windscreens its respective Passenger Service Licence Certificate, Motor Vehicle Licence and Road Permit. These are at pages 136 to 138 of the Bundle. Each document on its face refers to the respective terms which apply to its issue. I am satisfied that Mr. Jaw must have been aware from his inspection of the buses that these vehicles came with a particular TD registration which reflected their use as passenger carrying vehicles. On 5th December he made his successful bid at the auction.

The Plaintiff's pleaded case

6. Having, according to him, purchased useless vehicles because he could not register them into his own name Mr. Jaw sought to have his money back. Having failed to persuade the KCRC to do that, he now by this action seeks to achieve that purpose. Paragraph 8 of the Statement of Claim pleads certain express conditions of the sale being clauses 4 and 7 of the Auctioneers' Conditions of Sale which I have already recited. Paragraph 4 of the Statement of Claim pleads certain "bus conditions" imposed by the TD in respect of the KCRC's ownership of them, namely:-

"4. At all material items, the said buses were registered by the Defendant with the Transport Department as 'Public Omnibus' and their use and operation were further subject to, inter alia, the following express conditions:-

(a) That the said buses were only to be used and operated for the purpose of carrying passengers from one KCR Railway Station to another KCR Railway Station;

(b) That the operator of the said buses could not charge fare for the use and operation of the said buses."

In paragraph 5 it is averred that these conditions must have been known to the KCRC. Paragraph 9 pleads that:-

"At no time had any of the said bus conditions ever disclosed by the Defendant to the Defendant's agents or to any intended bidders at the public auction"

Paragraph 10 pleads the following express or implied representation by the KCRC:-

"10. In the premises aforesaid, prior to the sale of the said buses, the Defendant expressly or impliedly warranted or represented to, inter alia, the intended bidders and the Plaintiff at the Public auction that:-

(a) The Defendant would be in a position to effect the transfer of ownership of the said buses to any successful bidder;

(b) The Defendant knew of no circumstances that would prevent, hinder or prohibit the transfer of ownership of the sid buses with the Transport Department to any successful bidder;

(c) There was no circumstances which would prevent, hinder or prohibit the transfer of ownership of the said buses by registering ownership with any successful bidder."

Then, inter alia, the following allegations are relied on:-

"11. Acting upon the truth and faith of the aforesaid representations and/or warranties and induced thereby, on 5th December 1995, the Plaintiff offered the highest bid to purchase the said buses and the same was accepted by the said auctioneer and which precipitated in a sale and purchase agreement between the Plaintiff, as the buyer, and the Defendant, as the seller, of the said buses under which the Defendant agreed to sell and the Plaintiff agreed to purchase the said buses for $600,000.

13. The Defendant has since discovered that the said representations and/or warranties were, and each of them was, false and untrue in that:-

(a) At all material times, the Defendant knew well that, by virtue of the said bus conditions, no one except itself was in a position to be registered as owner of the said buses.

(b) At all material times, the Defendant knew well that, by virtue of the said bus conditions, their ownership could not be registered in the name of any successful bidder and/or the Plaintiff.

(c) By virtue of the said bus conditions no one except the Defendant was capable of being registered as an owner thereof.

(d) By virtue of the said bus conditions, the Defendant was unable to cause or effect the transfer ownership of and in the said buses to the successful bidder and/or the Plaintiff.

14. Despite various attempts made by the Plaintiff, the Transport Department failed or refused to register the Plaintiff as owner of the said buses by virtue of the said bus conditions attached to them.

15. The Defendant made the aforesaid representations and/or warranties fraudulently, in that the Defendant knew that they were false or make it recklessly, nor caring whether they were true or false. Alternatively, the aforesaid representations and/or warranties were made negligently.

16. Upon discovery of the misrepresentations and/or breach of warranties aforesaid on 22nd December 1995, the Plaintiff, though its solicitors, duly rescinded the said agreement and demanded the Defendant to refund the said sum of $600,000.

18. Further, or in the alternative, the said sale and purchase agreement was subject to a conditions subsequent, namely that the Defendant would be able to effect the transfer of ownership of the said buses to the Plaintiff and that the latter would be able to be registered as owner of the said buses.

19. The condition subsequent referred to in Paragraph 18 above has failed by reason of the facts and matters referred to in Paragraph 13 and 14 above.

20. Upon failure to satisfy the said condition subsequent, there was total failure of consideration for payment of the said sum of $600,000 and the same is repayable to the Plaintiff."

The prayer then seeks the return of the $600,000.

The Defendant's pleaded case

7. The essence of the Defence is to rely on the exemption clause incorporated in Clause 4 of the conditions of Sale (see above), and at paragraph 8 of the Defence to aver the effect of Mr. Jaw's inspection of the buses on the 1st December, to which I have already made reference. The case is put in this way:-

"Paragraph 9, 10 and 11 of the Statement of Claim are denied and the Plaintiff is put to proof thereof. Further, it is averred that:-

(i) the Plaintiff inspected, or alternatively had the opportunity to inspect and elected not to do so, the buses. It was, or alternatively would have been, reasonably apparent from such, or alternatively any such, inspection that the buses were public buses and required licences. The Defendant will rely in support of this averment upon the display of the passenger service licence certificates and motor vehicle licences on the windscreens of each of the buses at the relevant time prior to sale; and/or

(ii) the Plaintiff knew, or alternatively ought reasonably to have know, that as a matter of law of the licences were not transferable; and/or

(iii) title to the buses was validly transferred from the Defendant to the Plaintiff, by the said sale and purchase agreement;

(iv) the buses were described in the auction particulars as "9.7M 2 AXLED MCW MARK 1 METROBUSES", "DOUBLE DECKER MCW MARK 1 METROBUSES" and "9.7M 2-axled MCW Mark 1 Double Decker Metrobus".

The Evidence

8. This can be summarised by reference to its essential elements. Mr. Jaw has said that he considered that any successful bidder at the auction would be able to have the vehicle registered into his name just as one might do upon purchasing a previously registered private car. He does this everyday in his work as a motor trader and then has no difficulty selling on (hopefully at a profit) and having the vehicle registered by the new owner into the new owner's name with the same facility. Had he been aware that these buses came with these conditions which amounted to insuperable impediments to having change of ownership registered he would not have considered bidding at the auction. It is submitted on his behalf that it was incumbent on the KCRC to draw these conditions imposed by the TD to the attention of any interested bidder. Mr. Jaw has called Mr. Wu, the auctioneer to give evidence for him. He says that the KCRC did not inform him that the buses were registered as Public Buses, and that they could only be operated in restricted circumstances. He suggests that had he known that the ownership could not be transferred he would never have suggested that they would fetch as much as $500,000 which is what he advised the KCRC was a proper expected selling price. Because these conditions and licencing restrictions were not drawn to his attention he described the lot as "Buses" without disclosing that they were "Public Buses" not providing their licensing restrictions. In cross-examination he told me that had he known of the licencing restrictions he would have acted differently but, notwithstanding that evidence, he also indicated that had he been told that these buses were public service vehicles he would not have changed the terms of his conditions of sale (page 83).

9. An important part of Mr. Jaw's evidence which needs to be specifically referred to is that he says that he went to the TD on a number of occasions to see whether he could transfer the name of the registered owner into his name and on each occasion was told that this was not possible due to the licensing restrictions and conditions attaching to the vehicles.

10. The KCRC's witnesses have not really advanced the enquiry as to the issue that I will ultimately have to resolve. Mr. Kan and Mr. Tse who have given evidence on their behalf accept that the licensing conditions were not spelt out specifically as to chapter and verse but reliance has been placed on the fact that the existence of such conditions must have been obvious to any serious potential bidder from a most cursory inspection of the vehicles with all three TD licences affixed to their windscreens.

The Respective Arguments

11. Mr. Patrick Szeto for Mr. Jaw has invited me to look at the reality of this matter as he would describe it. These vehicles were not just buses - driveable large vehicles which could be passed on from one owner to the next like a second hand motor car. These were Public Buses which came with conditions attached to them restricting their use and transferability from owner to owner. He starts with the observation that they were not described as Public Buses for the purposes of the auction. Because they were Public Buses the essence of the Contract of the Sale was not just the transfer of the physical bus itself but also the ability to use the vehicle. He describes it as not just the capacity to make physical delivery of the vehicle but also of the right to use it. He goes as far as to submit that this means the ability to use the vehicle on the road to carry passengers. He submits that because of the bus conditions, to use that expression compendiously, the KCRC was unable to transfer ownership. Even if he is wrong about that he says the transfer of ownership, if that passed and assuming Mr. Jaw could get himself registered as the new owner, would be incomplete because he could not use the buses having regard to the fact that the vehicles could only be used by the KCRC for the limited purposes which they could put the vehicles to use as appears in their respective licensing conditions. He submits that these conditions are 'encumbrances' as referred to in Clause 4 (page 83) for which there is a warranty that no encumbrances have been created by the KCRC as vendor.

12. These submissions have required a fairly detailed consideration of the Road Traffic Ordinance upon which both sides have relied to support what are diametrically opposed submissions as to the nature and effect of the relevant provisions of the Ordinance and its regulations. I must now draw attention to these provisions. All references to the Ordinance are to the Road Traffic Ordinance and unless otherwise indicated the regulations relate to the Road Traffic (Public Service Vehicles Regulations).

13. Mr. Szeto places particular reliance on S. 24 (2):-

"The Commissioner may refuse to register a motor vehicle in the class specified in the application for its registration if he considers that by reason of its design or construction or otherwise (my emphasis) the vehicle is not suitable for registration in that class."

What he gets from these provisions is that by reference to the words or otherwise what the counter clerks at the TD were in fact telling Mr. Jaw was that because he was not able to comply with the KCRC's conditions for the use of these buses the Commissioner would refuse to register his ownership of them.

14. Mr. Bernard Man, who appears for the KCRC, has sought to demonstrate the true effect of this legislation, which he says on this occasion imposed, and in general imposes, no impediment to registration of ownership by Mr. Jaw. He submits that ownership, registration of ownership and licensing are three quite distinct concepts which need to be borne clearly in mind and that if properly understood and applied provide the correct answer to this case.

15. S. 22 (1) provides the general requirement that every vehicle of a class specified in Schedule 1 (which includes a private or public bus) which is used on any road shall be licensed. S. 22 (2) contains the pre-requisite that a vehicle shall not be licensed unless it is registered. S. 22 (3) requires the 'Commissioner for Transport' ("the Commissioner") to register a vehicle in accordance with the Ordinance subject to S.S. 23, 24 and 26 provided the application for registration is made to him in the prescribed manner. S. 23, 24 and 26 relate to the Commissioner's general power to regulate the number of vehicles which shall be registered, which has no application in this matter; the power to refuse registration on certain specified grounds which also have no application here, save for subsection (2) which Mr. Szeto relies on and which I have already set out and lastly, his powers relating to trailers and rickshaws to which no further reference need to be made.

16. S. 22 (4) provides that, subject to S. 25 and 26, the Commissioner shall license a registered vehicle in accordance with the Ordinance on application made in the prescribed manner. S. 25 contains the power to refuse or cancel licences for the various reasons appearing in the section including under subsection (1) (vii) in the case, inter alia, of a public bus because no public service licence is in force.

17. Reference should also be made to the Road Traffic (Registration and Licencing of Vehicles) Regulations where under Regulation 17 (2) there is detailed provision for the registration of ownership. This Regulation requires that within 72 hours of the transfer of ownership of a registered motor vehicle both the registered owner and the new owner are obliged to perform certain duties specified in the Regulation for the purpose of registering the new owner as the registered owner. Under Regulation 17 (3) the Commissioner is required to register the new owner as the owner of the vehicle provided, for present purposes, the requirements of Regulation 17 (2) are met.

18. Having regard to the provisions which I have so far referred to Mr. Man draws attention to two very important consequences of the legislation which is that ownership of a vehicle is not dependant on being registered as owner. The legislation in fact contemplates a short period of 72 hours when the new owner will remain the unregistered owner until he and the 'outgoing' registered owner make the appropriate application to register the change of ownership. Secondly, he points to the Commissioner's duty to effect registration of new ownership subject to S. 23, 24 and 26 which have no application to the facts or to the issues raised in this case, provided the 'paperwork' and the fees required of the parties by Regulation 17 (2) is in order and have been paid.

19. Following his analysis of the issue of Registration Mr. Man has sought to analyse the 'bus conditions'. Under S. 25 (1) (vii) the Commissioner may refuse to license or cancel the licence of, inter alia, a public bus if no passenger service licence is in force in respect of the vehicle. S. 27 confers on the Commissioner the power to issue a passenger service licence to authorise the holder to operate, inter alia, a public bus service. Under S. 27 (7) a passenger service licence is not transferable. By Regulation 4 of the Regulation a person proposing to operate a public bus service within the meaning of S. 27 may apply for a passenger service licence. Under S. 29 the Commissioner may issue a passenger service licence subject to such conditions as he may specify, which under Regulation 7 (f) will need to be specified in the passenger vehicle licence itself. All of this is clearly illustrated in the passenger vehicle licence issued to the KCRC in this case for the 17 buses that are the subject matter of this action.

20. From these provisions Mr. Man submits that a passenger vehicle licence is personal to the holder and cannot be transferred and that any conditions imposed with the licence are only referable to that particular licence and licence holder. Further, that the Commissioner has the power to refuse to licence a bus if there is no passenger vehicle licence in force but, notwithstanding which, the Commissioner remains obliged to register the bus in the new owner's name provided the conditions for registration are met.

21. I am entirely satisfied that Mr. Man's analysis of the statutory regime is correct. This also means that Mr. Szeto's suggestion that under S. 24 (2) the expression 'or otherwise' is wide enough to encompass the fact that Mr. Jaw could not comply with the KCRC's bus conditions as justification for the Commissioner's refusal to register these vehicles must be rejected. In my judgment the expression 'or otherwise' must be construed as referring to aspects touching upon 'design or construction' as a reason for a refusal to register in the class applied for. The bus conditions only come into play in relation to the application for a passenger service licence and for nothing else. The two matters are quite separate. The one relates to the vehicle itself and the other, personally, to the applicant for the passenger service licence and the terms of the licence which is to be issued to him.

22. From that construction I am perfectly satisfied that there would have been no impediment to Mr. Jaw becoming the new registered owner. As to whether he wished to have the vehicles licensed and as to whether he could or would have wished to apply for or could have obtained a passenger service licence is a quite separate matter.

23. This then leads me to reject his account that the counter clerk had told him that he could not be registered as the owner because he could not comply with the KCRC bus conditions. Even if I am wrong in coming to that conclusion and he had indeed been told such a thing then I am satisfied that what he had been told was, as a matter of law, wrong.

Conclusion

24. I have no doubt that the KCRC was capable of passing ownership of these buses to Mr. Jaw and that it did so on the fall of the auctioneers hammer and the payment of the $600,000 by him. Further that he was also capable, as a matter of law, on a true construction of the provisions of the Ordinance which I have referred to, of becoming the new registered owner of these vehicles.

25. The next question to consider is whether the contract imported any requirement on the KCRC to say anything more about the licensing conditions or to draw attention to the fact that these vehicles were licensed as public buses. I am entirely satisfied that all of this would have been blindingly obvious to Mr. Jaw when he saw these vehicles on 1st December. They had "public bus" stamped all over them - from their construction, their appearance and from the three documents affixed to their windscreens. I find as a fact that from all of these features Mr. Jaw knew precisely what sort of vehicle he was bidding for. Once he saw what he was purchasing, it was up to him to enquire from the TD what was required of him to have the buses licensed. As a trader he would merely wish to be registered as owner in order to sell on to an interested purchaser who, as end-user, would be interested to obtain ownership from Mr. Jaw and then in turn to register his ownership and, if he wished to operate the buses on the roads of Hong Kong, to get the appropriate licences, one for the vehicles themselves and another (a personal one) for the use to which the vehicles were to be put.

26. I reject Mr. Szeto's brave attempt to import an additional term to ownership of the vehicles which is the ability to use those vehicles, either as a condition precedent or as a condition subsequent as he would put it. For that to occur the clearest language would have been required as a term in the contract. This was merely a contract to sell (by auction) these buses as they stood. The KCRC warranted that they were the owners, which they were, they accordingly passed title and were in a position to do their part to have Mr. Jaw registered as the new owner. It was as simple as that. Mr. Jaw, for reasons best known to himself decided that it was inconvenient to him to pursue the question of registration and licensing and attempted to pull out by refusing to take delivery and demanding his money back.

27. He has failed to show any justification for such a course by him. There is nothing in the submission that the licensing conditions attaching to the buses in the hands of the KCRC amount to an encumbrance within the meaning of that expression as employed in Clause 4 (page 83). The encumbrances referred to there would relate to a charge over the buses, or a hire purchase agreement or something of that sort.

28. The claim therefore must stand dismissed. The KCRC has performed all of its obligations under the contract. It was entitled to be paid the price. Accordingly, there must be judgment to the Defendants (the KCRC) on the claim.

The Counterclaim

29. Mr. Jaw having failed to take delivery of the buses the provisions of S. 39 of the Sale of Goods Ordinance came into effect. Its terms are these:-

"When the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any loss occasion by his neglect all refusal to take delivery, and also for a reasonable charge for the care and cast of the goods......"

30. These buses were stored by the KCRC at two premises rented by them for a period of 188 days. Mr. Man has called a Chartered Surveyor, Mr. Alexander-Webber to provide a series of calculations as to storage charges based on the area occupied by these buses and the prevailing market rental level at the storage facility. This would amount to $130 per day per vehicle for 188 days which would produce a figure of $415,480 as the KCRC's 'reasonable charge' under S. 39. I don't accept that this is the correct approach to take in this case. The KCRC are not in the business of running a car parking service. These calculations may be appropriate to that sort of situation but not here. I prefer Mr. Szeto's approach which is to take the rental at $5.2 per sq. m., multiply that by 7 months, as close as one gets to 188 days, and multiply that by the area occupied by the buses which produces a figure of $69,106. That is the correct approach to take in order to compensate the KCRC. This amounts, in my judgment, to a reasonable charge. It compensates them for the loss of the space which they had to pay rent for but could not use while they stored these buses.

The Result

31. The claim will stand dismissed with costs. The counterclaim succeeds and is quantified at $69,106 with interest thereon at half the judgment rate from the date of the counterclaim until judgment and thereafter at the judgment rate until payment. The Defendant must also have the costs of the counterclaim. This order for costs will be order nisi in the usual way.

32. As to the amount of $300,000 being held pending the outcome of the trial the amount of the counterclaim must be paid out of that. As to the balance, that must be paid into court to await taxation of the Defendant's costs. I see no reason why they should not have the security of at least that amount pending taxation of costs which I am sure will exceed the resulting balance left over. This order will also be an order nisi as I have not given Mr. Szeto an opportunity to be heard before making it.