IN THE HIGH COURT OF FIJI
AT LAUTOKA
[CIVIL JURISDICTION]

Action No. HBC 17 of 2009

BETWEEN:

CREDIT CORPORATION (FIJI) LIMITED
a limited liability company having its registered office at Credit House, 10 Gorrie Street, Suva in the Republic of the Fiji Islands.
PLAINTIFF

AND:

HIRALAL LAUNDRY NO. 1 LIMITED
a limited liability company having its registered office at 24 Namoli Avenue, Lautoka.
DEFENDANT

Before: Priyantha Nāwāna J.
Counsel: Plaintiff: Mr A. Patel
Defendant : Mr M Degei

Date of Trial : 19 November 2012
Date of Written Submissions : 27 November 2012
Date of Judgment : 28 November 2012

JUDGMENT

1.	The plaintiff, by its writ of summons dated 05 February 2009, instituted this action against the defendant seeking inter alia a judgment to recover a sum of $ 45,077 08 and costs.
 
2.	The action was founded on two Asset Purchase Agreement (APA)s. The first APA related to the hiring of a Burton brand Hi Washer and a steam-heated Passatt Tumbler Dryer, the total rental price of which was $ 69,888.00 payable in 48 monthly installments at $ 1,456.00 from 16 October 1997. The second APA related to the hiring of a Mitsubishi Pajero Jeep bearing Registration No. DH 154, the total rental price of which was $ 42,000.00 payable in 48 monthly installments at $ 875.00 from 18 August 1998. 

3.	The plaintiff pleaded that the two APAs were breached by the defendant by defaulting the payment of installments from August 2001 and July 2001 respectively. The plaintiff repossessed the two machines in August 2001, which was subsequently sold for a sum of $ 2,000.00. Similarly, the vehicle was repossessed in July 2001, which was sold at $ 21 363.64. 

4.	The plaintiff, on the basis of Account No. 54098 in relation to the first APA for the hiring of the two machines (PE-3), claimed a total sum of $ 30,237.86, which was alleged to have been made-up as follows:

Purchase Price 	$49,200.00	
Hire Charges (@10.5%)	 20,688.00	
Total Hire Purchase Price	$69,888.00	
		
Administration Charges	 10,847.52	
		
Less Payments	 48,497.66	
Sale /Market Value	 2,000.00	
Total Amount Due	$30,237.86	

5.	Similarly, on the basis of Account No 60640 (PE-4) in relation to the second APA for the hiring of the vehicle, the plaintiff claimed a total sum of $ 14,839.22, which was alleged to have been made-up as follows:

Purchase Price 	$30,000.00	
Hire Charges (@10.5%)	 12,000.00	
Total Hire Purchase Price	$42,000.00	
Administration Charges	14,464.82	
Less Payments	20,261.76	
Market Value/Sale	21,363.64	
Total Amount Due	$14,839.22	

6.	The defendant, in its amended statement of defence dated 15 April 2009, denied the breach of two agreements and stated that the plaintiff had made demands of the payment of installments unreasonably. The defendant further stated that at the time of the repossessing, the machines were in proper working condition and that they were damaged as a result of the forceful removal with a forklift by agents of the plaintiff. The defendant further pleaded that the machines were further damaged as they were carelessly transported and exposed to the environment without proper protection. The plaintiff furthermore said that the machines were grossly undervalued when they were sold at $ 2000.00 without a proper valuation.

7.	The plaintiff further pleaded that the vehicle, too, was repossessed contrary to the agreement and it was subsequently sold without a fair valuation. 

8.	The defendant, in the circumstances, pleaded that the amounts claimed on the basis of two APAs were unreasonable.

9.	At the trial, Mr Umesh Kumar, Senior Lending Officer, gave evidence and said that the two agreements had been entered into before he joined the plaintiff-company in 2004. The witness referred to the first APA marked PE-1 and said that the price of the two machines was only $ 49,200.00; and, the charges, being the interest at the rate of 10.5% per annum for a period of 48 months, was $ 20,688.00, the total of which made-up the entire hiring amount of $ 69, 888.00 for the two machines.

10.	The witness referred to the second APA marked PE-2 in relation to the Mitsubishi Pajero Jeep bearing No. DH 154 and said the price of the vehicle was only $ 30,000.00. The witness asserted that the charges, being the interest at the rate of 10.5% were $ 12,000.00, the total of which made-up the entire hiring amount of $ 42,000.00 for a period of 48 months.

11.	Testifying further, the witness said that the defendant had agreed to a penalty interest of 25% on arrears of payment of rentals. As the defendant defaulted the payments, the repossession of the assets took place after giving the defendant notice. The witness said that the plaintiff was claiming a sum of $ 45, 077.08 together with costs of the action on the basis of two APAs.

12.	Under cross-examination, the witness stated that the two machines were sold only for $ 2000.00. He said that he was unaware of the condition or the value of the machines at the time of their sale and admitted that the repossessed assets ought to have been sold at reasonable prices. The witness admitted that there was no tender process even though the assets were advertised before the sale took place. Answering further, the witness admitted that the vehicle, too, was sold following the same procedure without a tender process. The witness said that there were no details on calculation of the administration charges both for the machines and for the vehicle.

13.	The plaintiff closed its case with the evidence of the above witness; documents marked PE-1-PE-4 and relied on Document Nos. 7-12 in the Plaintiff's Bundle of Documents, which were the documents exchanged after the default of payment. 

14.	Mr Hasmukh Lal Chauhan, 65, Managing Director of the defendant-company, gave evidence on behalf of the defendant. Mr Chauhan did not dispute the two APAs marked PE-1 and PE-2 and the total rental prices. 

15.	Mr Chauhan stated that the financial facilities were obtained from the plaintiff to acquire the two used machines from Australia and the vehicle in issue. He said that that his laundry business had, however, faced a downturn after the coup in the year 2000 leading him to fall into arrears of rentals in 2001. He further said that his requests for time to settle the arrears were not heeded by the plaintiff. Instead, it hurriedly proceeded with the process of repossessing the assets unreasonably. 

16.	Mr Chauhan described that bailiff-Eparma, on behalf of the plaintiff, arrived at his laundry in 2001 and forcibly removed the machines causing damage to the equipment even without allowing the washing cycle on a machine to finish. Moreover, the witness relied on two letters marked DE-1 and DE-2, by which the plaintiff had admitted that the machines were damaged due to floods from continuous rains when the machines were being kept in the open air under a tarpaulin in the yard of the plaintiff. 

17.	I have considered the evidence on behalf of the plaintiff and the defendant in light of the respective pleadings of the parties in order to consider the claims of the plaintiff.

18.	Repossession is the mechanism that is found in a hire-purchase agreement to recover losses that may be incurred by an owner owing to the breach of the agreement by default or otherwise. The agreement is determined with the repossession of the assets. Therefore, the process of repossession has to be done scrupulously as the options for the owner to claim outstanding balance are bound to get restricted. 

19.	An owner, with the decision to repossess, is making a judgment that it is the best preferred option to recover the balance rather than pursuing the monetary balance overdue. This leads to a situation that the owner needs to have an on-site valuation so that it will know the exact value of the asset and the possibility of setting it off against the outstanding balance. The owner shall be entitled to a claim for the recovery of the outstanding sum, if any, after sale of the repossessed asset, if the value of the property has been lost due to the conduct of the hirer including wear and tear. The owner equally must take reasonable steps to get the best possible price and avoid negligent conduct, which would diminish the value of the repossessed asset. Equity will not allow an owner to recover an allegedly outstanding sum after the careless repossession and/or unaccountable disposal of the asset. 

20.	Halsbury Laws of England: 4th Ed. Vol. 22 at paragraph 276 states that where the agreement is a conditional sale agreement, the seller, by resuming possession, determines the original contract and, in the absence of express stipulation, is not thereafter entitled to sue for part of the purchase price, his proper remedy being to sue for damages for breach of contract.

21.	Clause 6 (ii) (b) (i) of the two APAs spells out that:

Upon the Hirer returning the goods to the Owner or upon the Owner being or coming into possession of the goods, the Owner shall sell the goods for the best price reasonably obtainable and the gross proceeds of sale actually received by the Owner less all costs and expenses of and incidental to such sale shall be set-off against the amount then due and payable by the Hirer to the Owner, if they exceed the amount then due and payable by the Hirer to the Owner the excess shall be paid to the Hirer and if the net proceed is less than the amount due and owing to the owner by the Hirer the Hirer shall pay the outstanding debt to the Owner immediately, failing which the Owner may take such action as it may consider appropriate.

22.	In Credit Corporation (Fiji) Ltd v Ratu [2009] FJHC 283, Inoke J. considered the aspect of sale after repossession, having adopted the principles laid down in Warner v Jacob (1882) 20 Ch. D 224, where it was held that:

 …[A] mortgagee is strictly speaking not a trustee of the power of sale. It is a power given to him for his own benefit, to enable him to better realize his debt. If he exercises it bona fide for that purpose without corruption or collusion with the purchaser, the court will not interfere even though the sale be very disadvantageous, unless the price is so low as in itself to be evidence of fraud.

23.	The above formulation was subsequently referred to as the 'good faith' standard (See Haddington Island Quarry Company Ltd v Hudson [1911] AC 727 at 729). 

24.	What is meant by bona fide or the standard of good faith was expounded in Pendlebury v Colonial Mutual Life Assurance Society Ltd [1912] HCA 9; (1912) 13 CLR 676 at 699-701, where it was held that: 

…It is not right, or proper, or legal for him, either fraudulently or willfully or recklessly to sacrifice the property of the mortgagor. Lord Herschell in the House of Lords ([1897] AC 180 at 185 said that was all included in good faith.

25.	The evidence of Mr Chauhan on behalf of the defendant-company is convincing that the two machines were forcefully removed without proper care causing damage. It is also the evidence of the defendant that after the removal, the machines were, admittedly, exposed to the environment without proper protection as a result of which further damage was caused. This evidence remains unchallenged.

26.	The plaintiff has not established reasons as to why the two machines, which were valued at 49,200.00 in 1997, were sold only at $ 2000.00 after their repossessing in July 2001. Moreover, the plaintiff, as admitted by its witness, did not particularize the administration charges for this court to be convinced that the plaintiff was contractually entitled to receive such quantum as administration charges. 

27.	Admittedly, the defendant had paid a sum of $ 48,497.66 under the first APA in relation to the two machines. Had the plaintiff taken appropriate steps for the sale of the machines without subjecting them to damages and the decay, it would certainly have been able to recover the outstanding balance of the hiring amount. Instead, as court is convinced, the plaintiff itself caused damages to the machines and exposed them to an inevitable decay after repossession. 

28.	There could not be any other claims in favour of the plaintiff independent of what is due under the agreements, according to the pleadings and the reliefs claimed. 

29.	Upon consideration of the principles set-out above, I hold that the plaintiff did not exercise its powers of repossession and sale in good faith so as to ensure the best price as expected by law. Instead, its actions were careless, irresponsible, irrational and; hence, unlawful on application of the above principles. I, accordingly, conclude that the plaintiff has not established that it (the plaintiff) was legitimately entitled to the sum of $ 30,237.86 in relation to the two machines under the first APA marked PE-1.

30.	As regards the vehicle, too, the plaintiff did not establish the particulars as to how a sum of $ 14,464.82 was recoverable as administration charges under the agreement. The plaintiff, admittedly, had paid a sum of $ 20,261.76 out of the hire purchase price of $ 42,000.00 within three years before he fell into arrears. The vehicle was sold at a price of $ 21,363.64 after repossessing, which meant that only a meager amount of $ 374.60 was left as outstanding. The plaintiff has not established that it had taken all rational steps to get the best possible price at the sale, which, if it had, could make it possible to recover the outstanding amount of $ 374.60 as well ($ 42,000.00-[$ 20261.76+ $ 21, 363.64]).

31.	I, accordingly, conclude that the plaintiff has not established that it (the plaintiff) was legitimately entitled to the sum of $ 14,839.22 in relation to the vehicle under the Asset Purchase Agreement PE-2.

32.	In the circumstances, I hold that the plaintiff's claims are bound to fail. The action by the plaintiff is, accordingly, dismissed. The plaintiff shall pay a sum of $ 1500.00, as costs summarily assessed, to the defendant.

33.	Orders, accordingly.

Priyantha Nāwāna
Judge
High Court
Lautoka
28 November 2012