LEUNG CHOR KONG v. LIBERTY INTERNATIONAL INSURANCE LTD.

DCCJ 13694/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.13694 OF 2000

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JUDGMENT

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Background:

[1] The Plaintiff is in the business of purchasing damaged vehicles, repairing it and selling it for a profit. The Defendant is an insurer of motor vehicles.

[2] In or about December 1998, a 1994 Mercedes Benz model SL 280, registration number BZ 160 (the "vehicle"), was damaged in an accident and after a survey report was completed on 5/2/1999 (the "First Report"), the Defendant determined that it was a "total loss" vehicle. The Defendant decided to pay the vehicle owner its replacement value instead of repairing the vehicle. To recover the residual value of the vehicle, the Defendant invited several known dealers, the Plaintiff being one, to bid for the vehicle.

[3] A Letter of Authorization dated 2/4/1999 (the "First Authorization Letter") was issued by the Defendant to the Plaintiff, to enable the Plaintiff to inspect the vehicle at Zung Fu Company Ltd. ("Zung Fu"). The First Authorization Letter described the vehicle as follows:

"BZ160
Model:	M. Benz SL280
Engine:	10494322 002851
Chassis:	WDB1290582/F106271"

[4] On 5/2/1999 the Plaintiff placed a bid of HK$112,000 for the vehicle. The Plaintiff's offer was the highest and was accepted by the Defendant.

[5] On 9/2/1999, the Defendant gave the Plaintiff a second authorization letter (the "Second Authorization Letter") to allow the Plaintiff to tow the vehicle to the Plaintiff's storage area. The Second Authorization Letter described the vehicle as:

"Your Ref.	: ---------------
Our Ref.	: C98VK00359
Vehicle No.	: BZ160
Chassis No.	: WDB1290582/F106271
Make & Model	: M.Benz SL280"

[6] Although the registration number of the vehicle was described as BZ160, it was common ground that on 9/2/1999 the vehicle's prior owner had transferred the registration number BZ160 to another vehicle and a new registration number HZ6413 was assigned to the vehicle.

[7] On 27/2/1999, the Plaintiff paid the Defendant the purchase price of the vehicle in the sum of HK$112,000.00 and the Defendant delivered the Vehicle Registration Document and a Notice of Transfer of Ownership, signed by the vehicle's prior owner and endorsed in blank, to the Plaintiff.

[8] Initially the Plaintiff tried to resell the vehicle as it was, but he was unable to find a buyer. Then the Plaintiff decided to repair the damages and re-certify the vehicle for road use before resale. However, around the end of March 1999, the Plaintiff had noticed that there was something wrong with the chassis number of the vehicle and complained to Ms. Chau of the Defendant. The parties disagreed on what happened next.

[9] The Plaintiff's case was that the Defendant sent someone to inspect the vehicle around the end of March 1999. The Plaintiff was not around during the second inspection, but he heard nothing further from the Defendant on the second inspection. The Plaintiff then asked Ms. Chau for a reduction of the purchase price by HK$ 32,000.00 and the Defendant refused.

[10] The Defendant's case was that the surveyor, Mr. Sunny Yau, ("Mr. Yau") met the Plaintiff on the day of the second inspection. After the second inspection, Mr. Yau told the Plaintiff that the chassis number had indeed been tampered with. Mr. Yau also reported to Ms. Chau, who again verbally confirmed the result to the Plaintiff. When the Plaintiff asked for the price reduction, the Defendant's management decided to refuse the request because the vehicle had already been in the Plaintiff's custody for sometime and it was uncertain whether the tampering occurred before or after the vehicle was in the Plaintiff's custody.

[11] Irrespective of which version of facts was correct, the Plaintiff decided to repair the vehicle for resale. After amendments to the Statement of Claim, the Plaintiff alleged that he spent the following amounts in repairing the vehicle:

(i)	Repair by Man Hing Motor Company	HK$115,050.00
(ii)	Purchase of additional parts	15,000.00
(iii)	Zung Fu Garages Ltd. Checking fees	3,182.00
(iv)	Government Vehicle Examination fees	530.00
(v)	Towing Charges	300.00

[12] On or about 4/10/1999, the Plaintiff sent the vehicle to the Transport Department for examination with the view of re-certifying it for road use. However, the Transport Department inspector noticed that the chassis number may have been tampered with and the vehicle was impounded by the police for investigation. The vehicle was examined by the Government Laboratory on 7/10/1999 and it was determined that the vehicle's chassis number had been altered. The Transport Department refused to certify the vehicle, unless there was satisfactory explanation on why the chassis number was altered and payment of first registration tax for the vehicle. The Plaintiff was of course not in a position to give any answer the Transport Department. The Plaintiff had been unable to resell the vehicle and brought this action to recover the following:

(a)	Purchase price of the vehicle	HK$112,000.00
(b)	Total repair costs	134,062.00
(c)	Loss of profit	98,938.00
(d)	Storage fees at HK$700.00 per month from 1/11/1999 to 30/9/2001	16,100.00
	Total:	HK$361,100.00

[13] The Plaintiff's case was one of breach of implied terms of the sale of the vehicle: First, the vehicle should correspond with the description; namely, it should have chassis number WDB1290582/F106271. Second, the vehicle should be reasonably fit for the purpose that the Plaintiff had purchased it for; namely for repair, re-certification and re-sale at a profit.

[14] Mr. Tam, counsel for the Plaintiff, stated that both the First Authorization Letter and the Second Authorization Letter contained detailed descriptions of the vehicle including the vehicle chassis number WDB1290582/F106271. On the other hand, Mr. Chiu, counsel for the Defendant argued that the parties had agreed that the sale was on an "as is" basis. The chassis number on both authorization letters were merely for identification purposes only. Their sole purpose were to enable the Plaintiff to locate the vehicle from a number of vehicles stored at Zung Fu.

[15] I am afraid I cannot agree with Mr. Chiu's interpretation of the authorization letters. The Defendant was not selling a mere collection of vehicle parts to the Plaintiff. The subject matter of the contract was a registered vehicle. In Hong Kong, a registered vehicle has an independent identity beyond the sum of its parts.

[16] Before a motor vehicle can be registered for use in Hong Kong, a first registration tax must be paid under the Motor Vehicle (First Registration Tax) Ordinance, Cap. 330 (the "First Registration Ordinance"). Section 2 of the First Registration Ordinance defined a "motor vehicle" as:

"... (A)ny mechanically propelled vehicle intended or adapted for use on roads and includes the chassis of such a vehicle, ...". (Chinese characters omitted) (Emphasis added)

[17] Thus a vehicle chassis is given special status under the First Registration Ordinance and the Transport Department uses the chassis number to identify a vehicle. In Hong Kong, the registration number of a vehicle can be varied at anytime, the engine can be changed, the colour can be altered, the chassis however, cannot be substituted because that is what the Transport Department uses to determine whether first registration tax has been paid on a vehicle. The chassis number differentiates one vehicle of the same make and model from another vehicle of the same make and model. Accordingly, in Hong Kong, the chassis number is the primary identification of a vehicle. Contrary to Mr. Chiu's submission, I found that the chassis number stated in the First Authorization Letter and the Second Authorization Letter were more than mere identification, it was part of the vehicle's description.

[18] As to the allegation that the parties had agreed to complete the sale transaction on an "as is" basis. I found this merely referred to the mechanical conditions of the vehicle. For example, if the Plaintiff purchased the vehicle thinking that the transmission was in good condition but it was later found to have latent defects, there was no cause for any complaints. But when the Plaintiff thought he was purchasing vehicle A, with a reasonable implied term that all first registration tax had been paid, but in fact it was vehicle B, without payment of first registration tax, that was delivered by the Defendant, the Defendant would have been clearly in breach of contract.

[19] Now that I have determined the vehicle actually transferred was wholly different from the vehicle the Defendant intended to sell and the Plaintiff intended to purchase. In fact the vehicle bearing chassis number WDB1290582/F106271 had ceased to exist at the time of the contract. In other words, both parties were mistaken as to the identity of the subject matter of their contract.

[20] In common law, there are three particular classifications on mistakes on the subject matter of a contract. In The Law of Contract in Canada, 2nd Ed., Professor Friedman wrote:

"On the one hand, there are those in which the parties have been contracting about two different objects, that is, there is no concordance in respect of the offer and acceptance. On the other, there are those in which there was no mistake about or lack of correspondence in respect of the subject-matter of the contract, but the parties have different beliefs about such subject-matter, and, consequently, different reasons or motives for entering into the contract. There is a third possibility; the parties may intend to contract about the same subject-matter, but they are both mistaken as to its existence...."

The third situation is applicable to the facts of this case.

[21] An example of treating this type of situation as a Mistake of the subject matter was illustrated in Courturier v. Hastis (1856), 5 H.L. Cas.678. In Courturier, there was a sale of a cargo of corn believe to be en route to London. Unknown to the parties it had become overheated on the voyage and to prevent total loss it had been sold by the ship's captain. The House of Lords held that there was no sale; therefore, there could be no liability for the price of the goods.

[22] An alternative view of the situation is by way of an Implied Condition Precedent. Lord Denning in Solle v. Butcher [1950] 1 K.B. 671, at p. 691, explained:

"The cases where goods have perished at the time of sale... are really contracts which are not void for mistake but are void for reason of an implied condition precedent because the contract proceeded on the basic assumption that it was possible of performance."

[23] A third alternative is provided by the Sale of Goods Ordinance, Cap 26. Section 8 of the Sale of Goods Ordinance also rendered the sale contract between the parties void. Section 8 states as follows:

"Where there is a contract for the sale of specific goods, and the goods, without the knowledge of the seller, have perished at the time when the contract is made, the contract is void."

[24] Whether viewed as a Mistake of the subject matter, failure of an Implied Condition Precedent or under section 8 of the Sale of Goods Ordinance, the contract between the Plaintiff and the Defendant was void. The purchase price of the vehicle and the storage charges are clearly recoverable by the Plaintiff. In Goff & Jones, The Law of Restitution, 5th Ed., page 603, the learned author stated:

"There are a number of cases in which it had been held that a price paid for goods, which unknown to either party did not in fact exist at the same condition as they were in when sold, or which did not correspond with their description in a contract for the sale of goods of that description, could be recovered as having been paid for a consideration which has wholly failed. It is not always clear whether this failure of consideration is due to the contract being void, or to the seller being in breach in failing to deliver the goods which he has contracted to deliver. The distinction is not important, for in either event the buyer is entitled to recover his money."

[25] Since the Plaintiff's case was pleaded solely on breach of contract, once I found that the contract was void, there could be no recovery for the repair costs and loss of profit; however, for completeness, I will also consider the Plaintiff's claim for repair costs on unjust enrichment basis.

[26] Before we can proceed, it was necessary for me to determine whether the chassis number was altered by either of the parties and when the Plaintiff had definitive knowledge of the chassis number alteration.

[27] The Plaintiff's evidence was that he never altered the chassis number and the evidence supports his allegation. Mr. Yau inspected the vehicle on 29/3/1999 and determined that the chassis number had been altered. This meant that the alternation must have occurred before that day. The Plaintiff had not yet repaired the vehicle and there was no possible financial gain for the Plaintiff to alter the chassis number at that time. Adding the fact that it was the Plaintiff who called Ms. Chau and reported the chassis number alternation, the chassis number must have been altered prior to the Plaintiff receiving the vehicle from the Defendant. The Defendant could not have gained any benefit from the alteration and I also found that it was done without the Defendant's knowledge.

[28] As to when the Plaintiff knew that the chassis number had been altered, I found Mr. Yau's testimony more reliable than the Plaintiff's. First, Mr. Yau was an independent third-party to the dispute. Although there was allegation from Mr. Chiu that Mr. Yau may be trying to cover mistakes he made in the initial inspection, I am of the view that lying about whether the Plaintiff was present on the second inspection would bring no benefit to Mr. Yau.

[29] Secondly, it was simply not reasonable for the Plaintiff not to have made inquiries about the results of the second inspection. Any reasonable person would have wanted confirmation on the chassis number before commencing on any expensive repair works to the vehicle.

[30] Finally, the Plaintiff had at first tried to resell the vehicle without repair. It was not until June 1999, some four to five months after the Plaintiff took possession on the vehicle, that the repair works commenced. These facts indicated that soon after payment, the Plaintiff must have realized that the chassis number of the vehicle had been altered and tried to dispose of the vehicle. After the attempted resale failed, the Plaintiff complained to the Defendant and tried to get a reduction on the sale price. When that also failed, to recover his investment on the vehicle, the Plaintiff decided to complete the repair and tried to get the vehicle pass the Transport Department inspection. I am of the view that the Plaintiff had proceeded with the repairs to the vehicle with full knowledge that the chassis number had been altered.

[31] One of the bars to a claim for restitution due to unjust enrichment is when the claimant had acted as a mere volunteer. The learned authors of Goff & Jones, in page 63, explained:

"Judges and jurists have sought to express this limiting principle in a number of different ways. Other statements of the same principle are: recovery will be denied if the plaintiff was officious; or if he thrust himself on the defendant; or if he intervened without 'adequate justification'.

Such expressions as 'officiousness', 'mere volunteer' or 'thrust himself on another' are simply a 'form of short hand' which conceals the conclusion that a defendant should not be required to pay for benefits which the plaintiff knows that the defendant neither solicit nor desires. He takes the risk that the defendant will pay him for the benefit which he conferred on him. The risk is on his head. He has no cause to complain if his hope is disappointed. Consequently, it is irrelevant whether or not the defendant has gained an incontrovertible benefit."

[32] As I have found that the Plaintiff knew the chassis number had been altered when he commenced repairs to the vehicle, he acted as a "mere volunteer" and is not entitled to recover any sums for repair works from the Defendant.

[33] This leaves the Plaintiff in a particular difficult position, he had spent HK$134,062.00 on repairs to the vehicle, for which I have held that he was not entitled to recover from the Defendant. But to recover the purchase price in the sum of HK$112,000.00, he must return the vehicle to the Defendant. These unfortunately for the Plaintiff are the only choice he has.

Order:

(1) The Plaintiff shall have 30 days from the date of this judgment to deliver the vehicle to the Defendant.

(2) Upon delivery of the vehicle, the Defendant is to pay the Plaintiff the sum of HK$112,000.00, together with storage fees in the sum of HK$16,100.00 for the period from 1/11/1999 to 30/9/2001 and further storage fees at the rate of HK$700.00 per month for the period from 1/10/2001 until the date of delivery.

(3) Upon delivery of the vehicle, the Plaintiff shall be entitled to interest on HK$112,000.00 from the 27/2/1999 and on HK$24,500.00 from date of writ, both until the date of delivery of the vehicle, calculated at the judgment rate.

(4) Costs of this action, together with all costs reserved, shall be to the Plaintiff, to be taxed on Party/Party basis, if not agreed.

(5) There shall be certificate for counsel.