FANLIN INVESTMENTS LTD. v. HANG SENG FINANCE LTD. AND ANOTHER and SUN LING MOTORS CO. LTD. (Third Party) and Another

1991, NO.A1372

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H E A D N O T E

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HIRE-PURCHASE OF STOLEN CAR - CAR STOLEN BY AGENT OF TRUE OWNER - "SHAM" HIRE-PURCHASE BY FRAUDULENT AGENT TO RAISE LOAN OVER THE STOLEN CAR FROM FINANCE COMPANY - FORGERY OF SIGNATURE AND COMPANY CHOP BY FRAUDULENT AGENT ON VEHICLE REGISTRATION DOCUMENT AND TRANSFER FORM - FRAUDULENT AGENT NOT A MERCANTILE AGENT IN THE SECONDHAND CAR TRADE - FRAUDULENT AGENT NOT AN AGENT IN POSSESSION OF THE VEHICLE OR ITS VEHICLE REGISTRATION DOCUMENT WITH THE CONSENT OF THE TRUE OWNER - VEHICLE REGISTRATION DOCUMENT NOT DOCUMENT OF TITLE - NO DUTY OF CARE BY AN OWNER OF CAR TOWARDS AN INNOCENT PURCHASER BUYING THE CAR FROM A THIEF WHO MADE FRAUDULENT USE OF THE VEHICLE REGISTRATION DOCUMENT WITHOUT THE CONSENT OR KNOWLEDGE OF THE OWNER - NO PROXIMITY OF RELATIONSHIP EXISTED TO FOUND A DUTY OF CARE BY THE OWNER TO KEEP SAFE CUSTODY OF HIS VEHICLE REGISTRATION DOCUMENT

1991, No.A1372

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiff is a limited company that was set up by its beneficial owner, one Norman Wright, to be his service company. Secretarial service to the plaintiff is provided by Nelson Wheeler, a firm of certified public accountants. Mr. Wright was at all material times in full control of the plaintiff. In 1988, Mr. Wright purchased a Lancia Thema 6V motor vehicle, registration mark DW8331, from its sole agent Italian Motors (Sales and Services) Limited. The sale was transacted through one Poon Tsze Man, a deputy sales manager of Italian Motors ("Poon"). In April 1988 upon being notified by Poon that the car had arrived, Mr. Wright caused to be settled the balance of the total purchase price of $239,185.00. At the time of settling the purchase price for the car, a cheque in the sum of $11,340.00 payable to Poon personally was issued to defray the costs of insurance coverage. Receipt of the 2 cheques, one to Italian Motors the other to Poon, was acknowledged by a showroom assistant of Italian Motors. Mr. Wright had entrusted the task of arranging for insurance coverage for the car to Poon because he found him to be very helpful and efficient. Nelson Wheeler received a receipt issued by a Camlex Motors Ltd. for the payment covering insurance. As it was the first time Mr. Wright bought a car in Hong Kong, and he travelled a lot, he left all necessary documentation in respect of the purchase to he handled between Nelson Wheeler and Italian Motors.

2. When the car was ready for delivery Poon volunteered to deliver it to Mr. Wright. Thus Mr. Wright informed him of the details of the designated parking space at Exchange Square for the car. The car was driven to the said carport by Poon where Mr. Wright took delivery of the same. As far as Mr. Wright was concerned, everything went smoothly and efficiently. The first registration was to be handled by the sole agent as is normally the case. Mr. Wright assumed the vehicle registration document (VRD) would be delivered to Nelson Wheeler who would keep it on the file for the plaintiff. However, to the ignorance of Mr. Wright, the VRD was never delivered to Nelson Wheeler or the plaintiff and was apparently kept by Poon.

3. In mid-May 1988 when Mr. Wright was either in Singapore or Jakarta, his secretary called and told him that Poon asked if he could see the car for the purpose of examining the engine number. He was told that there appeared to be a query concerning the engine number of a number of cars Italian Motors had sold. Mr. Wright failed to see the reason for such examination and instructed his secretary that if Poon called again he should contact him direct. Poon never called again. Mr. Wright kept the only keys to the car at all times, even when he was not in Hong Kong. While be was away, the car would be parked at the carport at Exchange Square and would not be used by anyone else.

4. In mid-March 1989, Mr. Wright again entrusted the renewal of the registration and insurance for the car to Poon. Poon later advised Nelson Wheeler that the sum required could be reduced as the car would not need to be insured to cover the full purchase price due to depreciation. At the same time the task of installing an audio system was entrusted to Poon as well. Again 2 official receipts from the said Camlex Motors Ltd. were received by Nelson Wheeler for payments made to Poon for arranging the same.

5. There was no trouble until February 1990 when Mr. Wright returned from a trip one day to find his car missing from the carport. He reported the theft to the police and was later informed that the car was repossessed by the 1st defendant, a finance company, for failure to pay the hire charges on the car. The dishonesty of Poon was then unfolded. It appears that after Poon caused the car to be registered in the name of the plaintiff on 26th April 1988 he had kept the VRD instead of returning it to Nelson Wheeler for custody. Neither did Nelson Wheeler make any attempt to ask him for possession of the same. About fortnight later, on 11th May 1988, Poon registered himself as the new owner of the car and obtained a new VRD. It was alleged that he had forged the signature of the plaintiff on the old VRD and the transfer forms to effect the new registration. It is not the practice for the Transport Department to seek verification of the signature of the old owner on the transfer form. As he had possession of the old VRD and was able to put any signature he liked on it as the signature for the plaintiff, the fraudulent transfer could easily be effected.

6. On 12th May 1988, a day after obtaining the new registration, Poon approached the 2nd defendant, a car dealer, for arranging hire purchase on the car. On the following day, Poon was allegedly able to produce the car and the new VRD to the 2nd defendant for examination. After allegedly counter- checking the particulars of the engine and chassis numbers of the car against the new VRD and the insurance policy, the 2nd defendant agreed to purchase the car from Poon and to arrange for him to buy back the same from the 1 st defendant under a hire purchase. Upon receiving oral confirmation from the 1 st defendant the 2nd defendant paid the agreed purchase price of $180,000.00 to Poon after he signed all necessary documents for the sale and hire purchase. Though the 1 st defendant's practice was to entrust the 2nd defendant with screening of the proposed hirer, it subsequently arranged for a physical inspection of the car by one of its own staff. This took place on 18th May at the carport at Exchange Square. However, Poon was unable to produce the key to the car, giving the lame excuse that the car was bought for his wife who was still on a trip outside Hong Kong. Surprisingly, the staff of the 1 st defendant did not find it suspicious and left after taking a few photographs of the appearance of the car. In fact the proposal for the hire purchase was already accepted by the 1 st defendant one day before such inspection, on 17th May, when it paid the 2nd defendant the sum of $196,224.00 being the purchase price for the car and commission for arranging the hire purchase. Thus, in reality the 1st defendant's inspection of the car was to take photographs of the condition of the car, rather than for verification of particulars of ownership of the car itself which it had entrusted to the 2nd defendant.

7. It is not an uncommon practice for a car owner to raise finance on his car by arranging for a sale to a secondhand car dealer and to have it sold by that dealer to a finance company so that the owner can then buy it back from that finance company under a hire purchase. It would probably have put a prudent car dealer or finance company on suspicion when a new owner who had apparently managed to settle the full purchase price to the previous owner of the car on 11th April 1988 to obtain the new registration in his own name, would then suddenly need to arrange finance on it a fortnight later. Such a car dealer or finance company may also wonder if finance is required on the purchase by the new owner, why did he not arrange for the same at the time when he purchased the car from the previous owner, i.e. a fortnight ago. Or, if he had not yet settled the purchase price for the car, how was he able to obtain a transfer of ownership from the previous owner? The new VRD produced by Poon to the defendants clearly contained the dates of first registration and of the subsequent transfer of the registration of ownership to Poon a fortnight later. And it is the evidence of Lee Kwai Luen, the staff of the 2nd defendant who transacted the sale and allegedly examined the car, that though he knew Poon was in the car trade he knew that it was not a sale by Poon on behalf of his customers but that it was held out to be Poon's own car. Lee was, however, not queried as to his failure to make enquiries of the above unusual features; or why Poon, being a man in the car trade himself, would need to arrange for finance on the car through another car dealer ?

8. It is the evidence of the staff of the 1st defendant that often they would orally approve the hire purchase on the same day the proposal came into existence. Time is of the essence to provide the most efficient customer service in view of the very keen competition in this trade. They entrusted the car dealers with the task of vetting the customers. In any event the 1st defendant can always fall back on its recourse against the car dealer, in case of trouble, on the warranties and representations made by such a dealer in the proposal form and the hire purchase agreement as well as his general obligation to pass a good title. Thus, it is perhaps not surprising to note that the 1 st defendant was not itself unduly anxious to have the legal ownership of the car verified.

9. I do not feel at ease at all with the evidence of Lee Kwai Luen and of the way secondhand car dealers and finance companies transacted "sham" sales in the manner they did, instead of having the car pledged as security for a proper loan in the normal manner in a direct loan application between the borrower and the lender. The intervention of a secondhand car dealer as the intermediary that necessitated the creation of a "sham" sale appears to me to serve no useful purpose apart from making it possible for the finance companies to attempt to rely on legal exceptions to the well established nemo dat rule. Is there any good sensible commercial need for a finance company like the 1st defendant to give up immediately almost 22% of what it could earn over a 48 month period (i.e. $16,224.00 from a hire charge of $73,824.00) to an intermediary whose only contribution was to introduce and vet a borrower? The vetting could easily be performed by its own staff that went to photograph the car, or the staff who would be receiving the borrower direct if there was no such intermediary. And the introduction of the borrower by the secondhand car dealer would not have been necessary but for the existence of this self-imposed practice of requiring the borrower to go first to such a dealer for a sham sale. Had there not been such an otiose requirement of the trade, the borrower would have gone to the finance companies direct in the same manner as any other borrowers and customers. In any event, if it be thought that there is a sincere legitimate reason or desirability to involve a secondhand car dealer in such a financing exercise, then the payment of a commission for the introduction and vetting of customers would be all that is really required. I fail to see any legitimate justification for further creating a sham sale to the secondhand car dealer rather than to have the customer directed to deal with the finance companies directly after the initial introduction and vetting. The true reason for the intervention of this sham sale is thus all too obvious.

10. Further, it would appear that the 2nd defendant had knowingly forwarded a proposal form that contained false information as to the alleged sale of the car. In the proposal form, it was falsely alleged that the purchase price of the car was $239,185.00 and that a sum of $59,185.00 cash initial payment had been made, or that a trade-in value in the same sum had been received (as both items had been filled in with the same amount, it is not clear which one applied); leaving the actual sum to be advanced to be $180,000.00. The car was also inaccurately alleged to be a new car and not a secondhand one.

11. However, as the plaintiff had for the purpose of these proceedings conceded the bona fides of the defendants in the said transactions, there is no need for me to concern myself with the above circumstances of the said transactions in the context of the bona fides of the defendants save to register my disquiet about them.

12. To prevent the 1st defendant's threatened sale of the car and in order to effect a transfer of the registration of the car back into its own name, the plaintiff paid a sum of $154,577.83 to the 1st defendant on a without prejudice basis and recovered possession of the car. The plaintiff brought these proceedings against both defendants for conversion of the car. Both defendants originally raised in their respective defence various issues based on the Sale of Goods Ordinance Cap. 26, the Factors Ordinance Cap. 48 as well as estoppel by negligence. However, during the course of submissions, the defendants have every sensibly trimmed their defence down to a more reasonable level. The 1st defendant is solely relying on the provisions of s.23(1) of the Sale of Goods Ordinance and the related doctrine of estoppel by negligence. The 2nd defendant adopts the 1st defendant's defence, and further relies on the Factors Ordinance as well as contending that the plaintiff had failed to prove that the VRD in the name of Poon was obtained by him by forgery.

13. The 1st defendant took out third party proceedings against the 2nd defendant, and one Hung Chi Chiu who was the indemnifier pursuant to a "Hire Purchase Indemnity and Undertaking" given under the hire purchase, for an indemnity in respect of the plaintiff's claim and costs. As no defence was served by Hung Chi Chiu (the 2nd third party), and there being no objection from him, an order for judgment was obtained against him in the third party proceedings at the commencement of the hearing. It was agreed between the defendants that in the event of the plaintiff entering judgment against the 1st defendant, the 1st defendant is entitled to enter judgment against the 2nd defendant in the third party proceedings.

14. I shall deal with the additional issues raised by the 2nd defendant first before I deal with the common defence of both defendants. I accept the evidence of the plaintiff that the documentation for obtaining the first registration of the car was entrusted to Poon. That subsequently Poon failed to deliver the first VRD to Nelson Wheeler or the plaintiff as he ought to have done. The proper inference to draw from the evidence is that the plaintiff had only signed the application form for the first registration and no other documents relating to registration for the car. Further, as the first VRD was never given to the plaintiff or Nelson Wheeler, it would not be possible for the plaintiff to have affixed its chop or signature on the first VRD at all. In the premises, the blank space for the registered owner's signature on that document must have been signed and chopped, or caused to be so signed and chopped by Poon. As Poon is neither an authorised signatory of the plaintiff nor could he be in possession of its company chop, the purported signature and chop that were affixed to the first VRD and the transfer documents presented to the Transport Department by Poon to obtain the new VRD in his own name must have been a forgery. Poon was at no time authorised by the plaintiff or Nelson Wheeler to do what he did. It was unquestionably a wholly fraudulent act on the part of Poon.

15. The 2nd defendant also submitted that Poon was a mercantile agent in possession of the car or the document of title to it with the consent of the plaintiff who had sold it to the 2nd defendant in the ordinary course of his business of a mercantile agent within the meaning of s.3 of the Factors Ordinance Cap. 48. Such a disposition would be as valid as if Poon had been expressly authorised by the plaintiff if the 2nd defendant took the car in good faith and without notice of his lack of authority. The 2nd defendant's reliance on the ordinance is wholly unsustainable. In the first place, as the evidence of his witness, Lee Kwai Luen, is that Poon never said he was selling the car on behalf of any customer of his or for others, he could not have been selling the car in any capacity of a mercantile agent acting on behalf of the owner in the ordinary course of his business as such an agent. As the VRD was in Poon's own name and he was seeking for hire purchase in his own name, it could not have been otherwise than a dealing by him for himself as principal. In any event, the evidence merely shows that he was the deputy sales manager of Italian Motors. He was not operating any car business on his own. There is no evidence he was in fact a mercantile agent selling secondhand cars as such. The above would effectively dispose of any attempt to rely on that ordinance.

16. Furthermore, no reliance could be placed on possession of the car with the consent of the plaintiff as the evidence clearly established that the plaintiff never consented to Poon having possession of the car at any time subsequent to the delivery of the same to the plaintiff on 27th April 1988. Neither can the 2nd defendant rely on Poon's possession of the first VRD. The evidence clearly established that the plaintiff has never consented to Poon retaining possession of the VRD. It and its agent were merely guilty of a careless oversight that had made it possible for Poon to retain possession of the same. In view of the evidence, the presumption in s.3(4) cannot be of any assistance to the 2nd defendant.

17. Much had been said by the 2nd defendant to submit that the VRD is a document of title within the meaning of the ordinance, thus I should deal with that issue specifically though it is not really necessary to do so in view of the findings I have already made. A document of title has been defined in s.2(1) as :

"includes any bill of lading, dock warrant, warehouse keeper's certificate, and warrant or order for the delivery of goods, and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by indorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented"

It is to be noted immediately that the definition is intended to be an inclusive one rather than an exhaustive one. Reliance has been placed by the 2nd defendant on the reference to "any other document" in the definition. These are documents "used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented". The plaintiff contends that the ejusdem generis rules would defeat any reference to any document that is not of the same class as bills of lading, delivery warrants or orders. That has been held to be the proper way to construe a similar section in the English Act (see Joblin v. Watkins, infra). Furthermore, the VRD is not a document used in the ordinary course of business as proof of any right or interest of the "possessor" of such document. It might have been regarded as some form of evidence of certain relationship between the car and the registered owner named therein. But it has never been suggested that if the possessor of the VRD is not the registered owner named therein; the VRD per se, without an accompanying blank transfer form properly executed by the registered owner, would be accepted by the trade or anyone at all as proof of any right or authority of the possessor of the VRD to dispose of the car in any way.

18. A VRD is a document created by statute, the Road Traffic Ordinance Cap. 374, and is issued by the Transport Department pursuant to the requirements of the Road Traffic (Registration and Licensing of Vehicles) Regulations. The ordinance was enacted "to provide for the regulation of road traffic and the use of vehicles and roads (including private roads) and for other purposes connected thereto" as suggested by the preamble. It is not, and has never been intended to provide a government-run central registry for legal ownership of vehicles. It provides for the registration of vehicles, and a register containing particulars relating to the registered vehicles that is opened to the public. One of the particulars to be registered against the vehicle is the ownership of the same.

'Owner' is defined in s.2 of the ordinance as :

"in relation to a vehicle, includes the person in whose name the vehicle is registered or a village vehicle permit is issued, and the person by whom a vehicle is kept and used and, in relation to a vehicle which is the subject of a hiring agreement or hire purchase agreement, means the person in possession of the vehicle under the agreement"

Pursuant to s.22 of the ordinance every vehicle specified in Schedule I, for the present purpose all private cars, must be licensed. And before a licence can be issued for a vehicle, it must first be registered. Pursuant to reg. 5 of the relevant regulations, any owner can apply for the registration of the vehicle. Upon such registration, a registration mark will be assigned to the vehicle and a VRD would be issued to the registered owner. The register kept by the Commissioner contains no less than 18 items of particulars relating to the vehicle on which the public can obtain information. The name of the registered owner is but one of such particulars. The VRD also contains not only the name and identity card number of the registered owner, it also contains a large number of particulars relating to the identity, description and history of the vehicle as well as the conditions of licence.

19. I do not accept the submission by Mr. Wong for the 1st defendant that only the legal owner can apply for the registration of the vehicle. It has been submitted that the 'owner' applying for the first registration must be the true legal owner as the invoice of purchase would have to be submitted. But there is nothing to stop a true owner from naming his nominee in the invoice as the purchaser and have him, or more often perhaps, her registered as the first registered owner. There could also have been a trust. There is no requirement for proof of the nature of interest or rights the applicant for registration of a transfer may have in respect of the car in any subsequent transfers of its ownership. Reliance was also placed on the form of the declarations in the transfer forms. The declarations were by the owners, old and new, of their "ownership". I do not accept that such references to "ownership" are necessarily references to title to the vehicle only. The declarations should be construed with reference to the 'owner' as defined in the ordinance itself, which is not necessarily the one having legal or beneficial title to the vehicle. A person who had the right to keep and use of a vehicle does not make a false declaration if he signs the printed declaration as contained in the statutory form declaring his interest as 'owner'. Neither do I find the argument that if owner does not mean the true legal owner then the requirement for registering a transfer would work hardship and brought about absurd consequences in case of a person being allowed to have the temporary use of the car. I do not believe that such a temporary parting with the possession and use of the vehicle to another person by a registered owner would bring about a need for him to transfer the registration of the vehicle. He does not in such circumstances relinquish his rights to the vehicle and is still in law constructively via his agent or servant keeping or using the vehicle (if he is not the true legal owner). He does not cease to be the 'owner' within the meaning of the ordinance, though the other person may also temporarily become an 'owner' at the same time. If he is the true legal owner, then his ownership cannot obviously be affected by such a temporary loan of the vehicle to others. He remains an 'owner' though the borrower or actual user of the vehicle also, again, becomes an 'owner' as well.

20. Lee Kwai Luen of the 2nd defendant said himself that the VRD itself is not enough to prove ownership of the vehicle. It is the consensus of all defence witnesses that no sale of the vehicle will be accepted if the proposed vendor can only produce a VRD but not also the vehicle itself. Leung Tat Yan, the former deputy head of the hire purchase department of the 1st defendant, said that he was not aware of the warning contained in the transfer form that "the registered owner of a vehicle may not necessarily be the real owner". He said were he aware of such a warning he would have changed his view on any reliance on the VRD. However, he said he could not think of any effective alternate measure one can take to check the true ownership of a car within the time available before he must make a decision on the proposal. He agreed that fast service is of the essence in this trade in view of keen competition. He said this is a business risk he would be prepared to accept. It is clear that there is no accepted trade custom or practice to treat the VRD as a document of title. In view of the pressure of time, the trade is prepared to assume the commercial risk and accept this document as some form of prima facie evidence of legal ownership. Perhaps in many cases this would be the only documentary evidence available that can establish a relationship between the named registered owner and the car in question, though not necessarily legal ownership. But to say that the VRD should then be regarded as a document of title is to give it a status that is neither warranted nor justified. One may ask the rhetorical question : why should vehicles enjoy a special status in law from other chattels? A purchaser of jewels, which are often more expensive and perhaps of more common occurrence than vehicles, is not able to fall back on any documentary evidence of title. Purchasers of chattels of such nature could not treat any sales invoice containing the name and description of the vendor as any document of title.

21. The government expressly warned the public that a registered owner is not necessarily the legal owner in the transfer form that the seller of a car must sign and give to the purchaser to enable the car to be registered in the purchaser's name. This warning is given in view of the wide definition of owner in the ordinance. The signed transfer form is thus a document that would invariably accompany the VRD in any sale. Such warning would thus come to the notice of all purchasers of cars though it is not contained in the VRD itself. With knowledge of such a warning, can the public legitimately force upon the VRD a legal quality or status that the transfer form warns it has not? The purposes for which the statute brought such a document into being are not relevant to facilitating commercial transactions involving the sale and purchase of vehicles. Thus, the government is not really concerned with, nor did it ever hold itself out to be concerned with, verification of legal ownership of the cars when dealing and processing registrations. That is evident from the warning given on the transfer forms to transferees. Therefore, should anyone relying on such document for proof of legal ownership not take it at his own risk?

22. Though the current English statute contains a different, and narrower, definition of owner that puts it beyond doubt that the registration document of vehicles in England has nothing to do with legal ownership, the position under the former legislation was slightly closer to our own. However, even in the pre-amendment days, as can be seen from the facts of the English cases, the registration book in England was still different from our VRD in that it contained a specific warning in itself that the registered person was the keeper of the vehicle and that he might or might not be the legal owner. With the differences between the statutes and the registration documents in mind, the logic and reasoning in the English cases are still of immense assistance to the understanding of the issue in question. In England, the logbook has never been accepted by the courts as a document of title. In Joblin v. Watkins and Roseveare (Motors) Ltd (1949) 64 TLR 464, a pre-1975 amendment to the English Act decision, it was held that the registration book to a vehicle was not a document of title within the meaning of the equivalent English Factors Act 1941. Mr. Justice Croom-Johnson held :

"I must construe 'any other document' as ejusdem generis with the documents there mentioned. No doubt, when anyone in the trade is going to sell a motor vehicle, a wise purchaser asks, as evidence of bona fides, that the registration book may be handed over too, not to show the title to the motor-vehicle, but in order (i) to indicate what right the seller has to be dealing with that motor-vehicle; (ii) to show when its licence fell due and what the position is, generally, about it; and (iii) to show that it is a registered vehicle, because to put a vehicle on the road which is not registered is, generally speaking, a criminal offence. That being so, I do not think that the registration book was a document of title within the definition in section 1 (4)."

The closest the English authorities give the registration document any recognisable legal status are the dissenting judgments of Lord Denning, e.g. in Beverley Acceptance Ltd v. Motors Auctions Ltd [1977] RTR 417. However, Lord Denning was not prepared to recognise it as a document of title per se, he merely held that the current registration document is the best evidence of title and where coupled with possession of the car it is within the definition of document of title of the Act. It is difficult to understand how a document which on its own cannot be a document of title. can somehow alter its legal nature and becomes one when it is taken together with the car. As with all other chattels, normally the sale is completed and title in the chattel passes with possession effected by delivery. The purpose of a document of title is to enable the passing of title without delivery of the chattel itself. Thus, if the VRD can only become a document of title when delivered together with the car itself, then what use is it as a 'document of title'? Upon viewing the English authorities, it is clear that they were mostly concerned with the absence of the registration document/logbook that ought to put the intended purchaser on enquiry as to the irregularity. That has always been the significance of the registration document/logbook to a dispute over title, apart from the cases involving the Factors Act when the majority decision has always refused to accept it as a document of title. I agree with the reasoning expounded in the English cases and am of the view that they are equally applicable to the local situation. I do not accept that a VRD is a document of title within the meaning of the Factors Ordinance.

23. Of the remaining two common and related issues left in the defendants' defence, I shall deal with estoppel by negligence first. It is the contention of the plaintiff that no duty is owed by a true owner of a car not to be negligent with his own property in such a way that would make it possible for a rogue to fraudulently dispose of his car to a bona fide purchaser. It is the plaintiff's submission that negligence about one's custody of goods or documents of title, however gross, does not give rise to estoppel.

24. The defendants submit that the plaintiff did owe a duty of care to the public in general in the circumstances of the present case. They contend that the plaintiff ought to have foreseen that without asking Poon back for the VRD, and leaving the same unsigned and unchopped by the plaintiff, it would be extremely easy for Poon to fill in the document and perpetrate whatever fraud he wishes with the document. The plaintiff ought to be able to foresee the possible consequence of its negligence because it knew Poon was aware of where the car would be kept and he is a staff of the sole agent of the car who might have access to a duplicate key to the car, or might possess the skill to break into the car. These are the circumstances the defendants submit would give rise to a duty of care on the part of the plaintiff.

25. I should perhaps slightly digress here to mention the observations made in Central Newbury Car Auctions Ltd v. Unity Finance [1957] 1 QB 371, though the defendants have not relied on estoppel by representation at all. In that case the defendants (a finance company ) alleged that the plaintiffs (a car dealer). by their conduct, were estopped from denying the authority of their customer, who turned out to be a rogue, to sell the car in question, because they permitted the customer, a stranger to them, to take possession of the car and its registration book without having made any or sufficient inquiries about him and before he was accepted as a client by the hire purchase company. The majority of the Court of Appeal, with Lord Denning dissenting, held that by entrusting the car to the stranger together with a document which clearly stated that it did not prove legal ownership, the plaintiffs were not making any representation that the stranger was entitled to deal with the car as his own, so as to estop them from asserting their own title. The only issue fell to be decided in that case was one of the nature of representation, if any, made by the true owner by giving possession of the car and the registration book to a stranger. The question of estoppel by negligence was specifically ruled by the court not to be the issue to be determined. Hodson L.J. delivering the majority judgment said at page 390 :

"In my judgment the case fell to be decided not upon a consideration of negligence but upon what is the nature of the representation made by the delivery of the registration book. The book itself is not a document of title; its terms negative ownership and it contains no representation by the plaintiffs or anyone else that the thief was entitled to deal with the car as his own. I think (counsel for plaintiffs) was right in saying that while a person in possession of a chattel may reasonably be thought to be the owner when he offers it for sale, the case of a person in possession of a motor-car does not differ in kind although the absence of the registration book detracts from the signification of possession."

26. Benjamin on The Sale of Goods, 4th edition, at paragraph 7-012 provides a handy summary of the law of estoppel by negligence :

"The true owner of goods may by his conduct be 'precluded from denying the seller's authority to sell' within section 21(1) of the Act where he has been negligent in allowing the seller to create an appearance of ownership of the goods. But the circumstances in which negligence on the part of the true owner can raise such an estoppel are narrowly circumscribed. It is necessary for the buyer to show, first, that the true owner owed him a duty to be careful; secondly, that in breach of that duty the true owner was negligent; and, thirdly, that this negligence was the proximate or real cause of the buyer being induced to buy the goods and part with the purchase price to the seller. The requirement of a duty of care is essential to this type of estoppel. In the absence of such a duty, the true owner will not be prejudiced or affected by his carelessness in relation to the goods, however gross this may have been. Thus a failure on his part to take normal precautions to prevent his goods being stolen by a thief or to report the theft to the police, a careless loss of the goods, a culpable credulity in entrusting possession of goods, or of the documents of title to goods, to another, or a careless failure to register in a central register his interest in a vehicle let by him on hire purchase, will not of itself preclude him from recovering the goods from a person who has bought them from a seller without title. even though it could be said that it was the carelessness of the true owner which enabled the seller to pass the goods off as his own. The mere neglect of what would be prudent conduct in respect of the true owner himself is insufficient. It has, however, been cogently said that 'the principal task is to find what situations or relationships may give rise to the duty to be careful,' and on this point decided cases provide no reliable affirmative guidance. The mere fact that the true owner could reasonably foresee that his carelessness would lead the buyer to believe that the seller was the owner of the goods, or that the true owner had no interest in the goods, does not in itself impose such a duty; the circumstances must be such that a legal duty of care is owed to the buyer."

I do not propose to refer to the vast number of cases that can be found in the footnote to that quoted paragraph in support of the summary on the law expounded there. I accept the above to be a correct and concise statement of the law. The case of Mercantile Credit Co. Ltd. v. Hamblin [1965] 2 QB 242 is materially different from the present in that the true owner had signed blank hire purchase documents addressed to the finance company without reading them. It was thus held by the Court of Appeal that it created a sufficient relationship of proximity between the true owner and the finance company to give rise to a duty of care. As the documents were addressed specifically to a finance company the reliance by that company on the documents for the very purpose for which it required them from the customer ought to be known to the true owner when she signed the same if she had bother to read them. If further authorities are needed, J Sargent (Garages) Ltd v Motor Auctions (West Brmwich) Ltd and anr. [1977] RTR 121 is another case where the Court of Appeal held that it was well established that the logbook was not a document of title and the fact that the true owners parted with possession of the car and the logbook did not preclude them under s.21(1) of the Sale of Goods Act from denying the rogue's authority to sell. It was held further that even had there been negligence, which on the facts the court held there was not, the true owner owed no duty to the public in general, including any innocent purchaser.

27. In the present case, in view of the purposes for which the VRD came into existence as is apparent from the ordinance and the specific warning in the transfer form, it could not be said that a reasonable man in the position of a true owner ought necessarily have been able to foresee that such unwarranted reliance would be placed by an intended purchaser. Thus there could exist no duty of care by an owner of car towards an innocent purchaser who buys the car from a person who made use of the VRD fraudulently without the consent or knowledge of that owner.

28. Despite the unique circumstances that exist in the present case, I do not find taking all circumstances into account would be sufficient to bring about a relationship of proximity to give rise to a duty of care on the plaintiff that could not be imposed on a car owner in general. There is no evidence to suggest that Poon could have access to any duplicate key to the car or possessed any special skill to break into the car. In fact, the evidence is otherwise. He was not able to open the door of the car when the staff of the 1st defendant came to inspect the car at the Exchange Square carport at his request. It is apparent he was not able to gain access to the inside of the car or to drive it anywhere on that day. Lee Kwai Luen's contention that Poon was mysteriously able to drive the car to his company for him to carry out an inspection prior to the sale must be viewed with suspicion. It is apparent to anyone that without the ability to produce the car and the key to it, mere possession of a VRD would not be sufficient to bring about any disposal of the car. Even a pledge would in all likelihood entail an inspection of the car by the lender. No duty of care could be owed by the plaintiff to the defendants in respect of the VRD.

29. The evidence of Leung Tat Yan of the 1st defendant already referred to supra indicating his willingness to assume commercial risks to accept proposals without allowing sufficient time for himself to really check the position of legal ownership, and the evidence of other defence witnesses taken as a whole, would preclude the existence of any genuine honest reliance on the document. It rather suggests a case of the trade closing a blind eye to the government warning and risks for purely commercial reasons. It is the evidence of defence witnesses that without producing the car itself for examination and verification, no purchase of the car would be approved. There can be no sale of a car by a rogue who has been given possession of the VRD by the true owner if he cannot produce the car itself for inspection. Thus, it is apparent that the carelessness in not asking Poon to hand back the VRD and failing to affix the chop and signature of the plaintiff on it is not per se proximate enough to have caused the loss. The immediate cause is naturally the fraud of Poon. The defendants' own wilful blindness and eagerness to assume commercial risks no doubt made it easier for the rogue to carry out his fraudulent acts.

30. In the premises, I do not find there is any duty owed by the plaintiff to keep safe custody of his VRD. I further find that if such a duty does exist, there is no causal link between the carelessness of the plaintiff and the resultant loss to the defendants.

31. There is no reliance by the defendants on any alleged negligence in failing to maintain safe custody of the car itself. The absence of any such reliance at the trial is understandable in view of the cogent evidence of Mr. Wright as to sole possession of the only keys to the car by him alone, even when he is abroad; and that the car was always parked in a secured carport at Exchange Square attended by security guards posted at the entrance and exit to the carpark.

32. Section 23(1) of Sale of Goods Ordinance Cap. 26 provides :

"Subject to the provisions of this Ordinance, where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell."

The defendants are relying on the same allegations against the plaintiff as in their plea of estoppel by negligence to submit that there exists conduct precluding the plaintiff from denying Poon's authority to sell the car. The rationale in J Sargent (Garages) Ltd v Motor Auctions (West Bromwich) Ltd and Another, supra, applies against any suggestion that carelessness in parting with possession of the logbook, even coupled with the possession of the car, is conduct that would preclude the owner from denying the rogue's authority to sell. In most cases it is difficult to see a distinction of substance between a case of estoppel by negligence and a s.23 defence. In the present case, there is no valid or effective distinction. The plaintiff has also not misled the defendants by any unwarranted representation via the VRD. Again the rationale of Central Newbury Car Auctions Ltd.v. Unity Finance, supra, should apply despite the distinction between our VRD and the English logbook. Furthermore, neither would the equity of the circumstances justify depriving the owner of its rightful property. The conduct complained of fell far short of the kind of conduct that would justify penalising the owner. The defence based on s.23 of the Ordinance must also fail.

33. In the premises, judgment is given for the plaintiff against the defendants as claimed in the sum of $155,435.18 being the sum paid by the plaintiff to the 1st defendant to recover possession of its car. Interest on the judgment sum is to be at the rate of 1% over the prevailing prime rate from 26th March 1990, the date of payment of the said sum to the 1st defendant, to the date of judgment and thereafter at the judgment rate until payment. Judgment is for the 1st defendant against the 2nd defendant, which is the 2nd third party, in the third party proceedings for an indemnity against all loss and damage suffered by the 1st defendant as a result of the plaintiff's claim, and costs of the action. There is to be an order nisi for costs of the action in favour of the plaintiff against the defendants, and for costs of the third party proceedings in favour of the 1st defendant against the 2nd defendant.