Cook Islands Motor Centre Ltd v Mariki Associates Ltd [1988] CKHC 1; 031.1888 (12 October 1988)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)
PLAINT NO. 31/88

BETWEEN

COOK ISLANDS MOTOR CENTRE LIMITED
a duly incorporated company
having its registered office at Rarotonga
and carrying on business as motor vehicle and motor vehicle parts dealers
PLAINTIFF

AND

MARIKI ASSOCIATES LIMITED
a duly incorporated company
having its registered office at Rarotonga
and carrying on business as general merchants
DEFENDANT

Counsel: Mr BJ Gibson and C Whyte for Plaintiff
Mr HT Puna for Defendant

Hearing: 10 October 1988
Judgment: 12 October 1988

JUDGMENT OF ROPER CJ

On the 28^th May 1986 the Plaintiff and Defendant entered into a hire purchase agreement whereby the Defendant agreed to hire two new Honda City motor cars for a total price of $54,741.20. That sum was payable by 35 monthly payments of $1281.70 with a further sum of $1281.70 payable on the exercise of the Defendant’s option to purchase.

The Defendant defaulted in the payment of the monthly instalments whereupon the Plaintiff repossessed the vehicles. Plaintiff now claims the sum of $20,705.43, being the amount claimed to be still due and owing under the agreement, made up as follows:-

Balance due under the agreement plus	$27,505.43
Cost of remedying breaches of Agreement	200.00
Subtotal	$27,705.43
minus
Value of the goods upon sale pursuant to repossession	$7,000.00
Total	$20,705.43

The defence to the claim is that the Defendant’s default under the agreement which is admitted, was caused in whole or in part by the negligence of the Plaintiff. The defence is in truth a counter-claim and Counsel were content to deal with it on that basis.

There were three allegations of negligence and the first concerns the insurance cover arranged on the vehicles. Clause 10 of the Hire Purchase Agreement provides:-

"The Hirer will insure the said vehicles against loss or damage in the name of Cook Islands Motor Centre Ltd during the full term of this Agreement."

On the day the Hire Purchase Agreement was signed at the Plaintiff’s premises by Mr TA Henry and his wife Maria, as the Directors and shareholders of the Defendant, they also signed a National Insurance proposal form in respect of cover over both vehicles for a total sum of $36,450. At that time Mr Graham, the Plaintiff’s salesman, rang the National Insurance Company and ascertained that the premium would be $500 per annum for each vehicle. The sum of $3000 was then included in the Hire Purchase Agreement as part of the total sum due to cover insurance for the three year term of the Agreement. The Defendant intended to use the vehicles for rental purposes. This was known to Mr Graham and he passed that information to the National Insurance, when he inquired about the premium.

On or about the 25^th June 1986 the National Insurance issued a "Certificate of Endorsement". It is addressed to "Mariki Associates Limited, PO Box 43, Rarotonga, Cook Islands" (which is the Defendant company’s correct address) and Mrs Maria Pera, Manager of the National, confirmed that the Certificate of Endorsement was indeed sent to the Defendant company.

The Certificate contains this condition:-

"That the conditions of use be extended to cover the vehicles insured herein whilst being used for rental purposes subject to the following warranty. "That the vehicle be used strictly for tourist use only".

(The underlining is mine).

On the 28^th February 1987 one of the insured Hondas was involved in an accident while on hire to a local resident of Rarotonga. The vehicle was substantially damages but the National declined liability under the policy because the driver at the time of the accident was not a tourist. It appears that that decision has not been challenged.

The Defendant now claims that the Plaintiff was negligent in arranging insurance cover which did not meet the known needs of the Defendant, with the consequence that it could not meet its obligations under the Hire Purchase Agreement.

The restriction to "Tourist use only" had been applied by the National from early 1985 but there is no suggestion or allegation that anyone in the Plaintiff’s employ was aware of the restriction. Mr Graham, who dealt with the Henrys gave evidence that he had never heard of it, and his denial was not challenged. Mr Henry claimed that the Plaintiff, through Graham, had insisted on insurance cover being taken out with the National but in my opinion that overstates the position. Mr Graham said he could not recall any discussion about insurance and would have had no objection to the Defendant insuring with the Cook Islands Insurance Company, which, according to Mr Henry, has no tourist restriction. Furthermore, the Hire Purchase Agreement places the obligation on the hirer to insure so no objection could have been taken to the Defendant selecting the insurance company of its choice.

My conclusion is that if there was any negligence in this unfortunate sequence of events it was on the part of the Directors of the Defendant - Mr and Mrs Henry. In February 1985 Mrs Henry had taken out insurance cover with the National on a rental vehicle, although not one operated by the Defendant company, which contained the same "tourist" restriction; and I accept that the Certificate of Endorsement in the present case containing the restriction was sent to the Defendant. It may be that Mr Henry did not read it but it was there to be read.

The Defendant’s second allegation of negligence concerns the failure of the Plaintiff to get a better price for the repossessed undamaged Honda.

Section 28(6) of the Hire Purchase Act 1986 provides that on repossession "the sale may be by auction or public tender or a private sale but, in any case, the vendor shall ensure that every aspect of the sale, including the manner, time, place, and terms, is commercially reasonable and, in particular, shall use all reasonable efforts to obtain the best price."

In the present case the Plaintiff called for tenders for both the damaged and undamaged Hondas in the Cook Islands News. The advertisements, which are of reasonable size, appeared in five consecutive copies of the News commencing on the 17^th May 1988. (It appears that the delay in repossession and subsequent advertising arose because of the Defendant’s challenge in the Court to the repossession which was not resolved until the 8^th April 1988).

No tenders were received for either vehicle. The Plaintiff then purchased the undamaged Honda itself for a price of $7,000. How that price was arrived at I do not know. The only evidence before me was that it was fixed by the Managing Director of the Plaintiff. After spending $1245 on minor repairs and some new equipment the Plaintiff now has the vehicle advertised for sale for $12,500 on which turnover tax of $1389 would be payable. The question is whether the purchase by the Plaintiff was "commercially reasonable in terms of Section 28(6). An independent valuation would have been a prudent step. Having regard for the seemingly arbitrary way in which the price of $7000 was fixed, and the Plaintiff’s own estimation of the present market value of the vehicle I am satisfied that the purchase at $7000 was not reasonable. It is reasonable to infer that at the time the price was fixed it was known what would have to be expended by way of repairs, and what it might then fetch on the open market. Assuming a purchase price of $12500, repairs of $1245 and turnover tax of $1389 I believe a repossession figure of $8200 would be reasonable. The Plaintiff would still be left with more than $1600 to cover any necessary reduction in the $12500 price and incidental expenses.

The third allegation of negligence concerns the damaged Honda. This vehicle was a virtual write-off and would have taken at least $7000 to repair, if indeed it was worth repairing, which is doubtful. It appears that it is still lying at the Plaintiff’s yard. Its only use would be for spare parts but with so few Honda Citys on the island the demand is almost non existent.

The Defendant’s complaint concerning it is that following the accident, and when it finally came into the hands of the Plaintiff, it was left outside at the mercy of the weather, which diminished whatever value it may have had. I see no merit in this argument. Mr Henry himself left it outside at a panel beaters yard for some seven months, and I accept that when it finally went to the Plaintiff’s yard for an estimate of the cost of repair Mr Henry was told that it was there at his own risk. He could have taken steps himself to protect it from the weather.

For the reasons stated I conclude that the Defendant is entitled to relief in the further sum of $1200 on the repossession price; there will therefore be judgment for the Plaintiff for $19505.43 with costs, disbursements and witnesses expenses as fixed by the Registrar. There will be no order for costs on the counter claim.

ROPER CJ