Glofcheski, R

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Title Debt Collection MalpracticeAuthor(s) Glofcheski, RCitation Hong Kong Law Journal, 2001, v. 31 n. 1, p. 1-4Issued Date 2001URL http://hdl.handle.net/10722/74784Rights Creative Commons: Attribution 3.0 Hong Kong LicenseDEBT COLLECTION MALPRACTICEThe problem of dubious and heavy-handed debt collection practices has beenthe subject of public concern in Hong Kong for some time. The use of suchpractices has escalated since the Asian financial crisis in 1997, after whichtime the number of complaints of criminal conduct in relation to debt collec-tion increased from 447 in 1997 to 1,672 in 1998, and to 3,323 in 1999.' Thegravity of the problem was acknowledged when, in 1998, the Chief Justiceand the Secretary for Justice referred the matter to the Law Reform Commis-sion, which in turn appointed the Sub-committee on Regulation of DebtCollection Practices (the "Sub-committee"). The major recommendationsin the Sub-committee's consultation paper include the creation of a specificdebt collection criminal offence of harassment of debtors, the establishmentof a compulsory licensing system for debt collection agencies and their indi-vidual debt collection employees, and a code of practice, a breach of whichmay result in the suspension or revocation of a debt collector's licence.Laudable as these recommendations are, they do not address what is inmany cases the crux of the problem. Those unscrupulous elements of societyprepared to engage in criminal conduct for profit in collecting the debts ofothers are unlikely to be discouraged by such measures. After all, there al-ready exist ample criminal law offences prohibiting such conduct. The criminallaw of assault, intimidation, blackmail, and criminal damage already providesample sanctions, which, as the statistics show, have had minimal effect onthe practice of criminal debt-collection tactics. At any rate, the actual perpe-trators of such crimes are rarely apprehended and made answerable, whetherunder the civil or criminal law. Moreover, they are unlikely to be able tomake good on any judgment entered against them. So why would these crimi-nal elements be discouraged in their apparently profitable debt collectionpractices by the Sub-committee's recommendations?The solution must lie with the creditors. For many creditors, the tempta-tion to engage result-oriented but criminal-minded, debt collectors to collecttheir debts is just too great. So long as there exists a class of anxious creditorsdesperate to collect their debts, debt collection malpractice is likely to con-tinue. The Sub-committee did, of course, discuss and consider the role ofcreditors in the debt collection process. However, it appears not to have fullyappreciated their role - in particular their potential for a solution to the prob-lem of debt collection malpractice by creating incentives for creditors to exertI Consultation Paper, Law Reform Commission of Hong Kong Debt Collection Sub-committee, 2000.Available at www.info.gov.hk/hkreform.HeinOnline -- 31 Hong Kong L.J. 1 2001pressure on their debt collectors to ensure that civility and fair play are ad-hered to in the collection process.The crux of the problem was exposed in recent Hong Kong case law suchas Wong Wai Hing and Another v Hui Wei Lee,2 and Li Wai Ying and Lee Sin Tatv West Global Limited and Others,3 which were both decisions of the Court ofFirst Instance. In these cases, the creditors engaged the debt collectors onterms whereby the debt collectors were expressly instructed to use "only law-ful means". This is a nifty tactic on the part of creditors prepared to turn ablind eye, and one that, in these cases, the courts were prepared to respect.The courts came to the same conclusion in each case: the creditors were notliable as principals for the torts committed by the debt-collectors becausethey did not authorise or ratify the torts.Moreover, vicarious liability cannot be imposed on the creditors in suchcases, in the absence of a master / servant relationship, which is, in any case,not the basis on which creditors engage debt collectors. Lastly, lacking thenecessary mens rea or conspiracy (always difficult to prove) or participation inthe criminal activities, no criminal liability will attach either.It is interesting to note that the Sub-committee's recommendations stoppedshort of addressing the role of creditors. Yet it is with the creditor that thegreatest potential for an effective deterrent resides. After all, by definitionthe creditor is motivated by purely financial incentives, and if he is made topay compensation for torts committed by his agent, then the civil law mayoffer the most effective solution to the problem.The very recent Court of Appeal decision in Wong Wai Hing and Anotherv Hui Wei Lee' is therefore to be welcomed. In this case, the defendant was aHong Kong medical practitioner seeking the return of her investment in arestaurant venture she had entered into with the plaintiffs and had since cometo regret. The debt collection agency she retained in an attempt to recoverthe amount of her investment engaged in a range of tortious and criminalconduct directed at the plaintiffs and their staff, including threats of physicalviolence made by telephone and in repeated visits to the plaintiffs' businesspremises and the spraying of red paint outside the premises. In its decision,the Court of Appeal did what the Sub-committee failed to do: impose civilliability on the creditor as principal for the torts of her agent / debt collector.The decision is a creative one: it departs from the traditional view that, ab-sent fraud, or specific authorisation for the torts, principals are not liable for2 (2000) HCA 2901/1998.3 (2001) HCA 1810/2000.4 (2001) CACV 136/2000.2 Rick Glofcheski (2001) HKLJHeinOnline -- 31 Hong Kong L.J. 2 2001the torts of their agents. In a unanimous decision, the Court proceeded byanalogy with the law of master / servant, and cited the proposition from Co-lonial Mutual Life Assurance Society Limited v The Producers and CitizensCo-operative Assurance Company of Australia Limited' that:"one is liable for another's tortious act 'if he expressly directs him to do it,or if he employs that other person as his agent and the act complained ofis within the scope of the agent's authority'. It is not necessary that theparticular act should have been authorised: it is enough that the agentshould have been put in a position to do the class of acts complained of(Barwick v English Joint Stock Bank; Lloyd v Grace Smith & Co)."6Rogers V-P concluded that as the debt collectors were representing thedefendant when the plaintiffs were approached and repayment demanded,the debt collectors were doing that which the creditor asked them to do,"namely, to use colloquial terms, make such a nuisance of themselves that thefirst plaintiff would pay [the debt collector], who would receive the money onbehalf of the defendant." Moreover, the express instructions that only legalmeans were to be used did not take the debt collectors' conduct outside of thescope of their engagement. These instructions did not limit the sphere of theemployment, only the mode of its being carried out.Le Pichon JA went further and imposed liability on the additional basis ofnegligence in that the defendant failed to take reasonable care in the selec-tion and instruction of the debt collector in circumstances where harm to theplaintiff was plainly foreseeable.This decision represents a natural and essential development in the law ofagency, in a context that clearly cries out for such a development. Of course,this decision does not in itself solve the problem of debt collection malprac-tice. In particular, it does nothing to dissuade creditors from the practice ofassigning their debts at a discount to enterprising and unscrupulous elementsundeterred by the general law or the Sub-committee's recommendations. Itdoes, however, create a financial incentive for creditors to avoid the use ofdebt collectors prepared to engage in dubious debt collection practices, bypiercing the veil behind which the creditor / principal could formerly hide.Does the decision in Wong Wai Hing and Another v Hui Wei Lee go too far,in imposing civil liability on unsuspecting creditors who, by virtue of thedecision, may unwittingly become victims of over-zealous debt collectors?5 (1931) 46 CLR 41.6 Ibid. at 46-47. Barwick v English joint Stock Bank is reported at (1867) LR 2 Ex 259; Lloyd v GraceSmith & Co is reported at (1912) AC 716.Vol 31 Part 1I Debt Collection Malpractice 3HeinOnline -- 31 Hong Kong L.J. 3 2001This concern can be addressed by tightening the Sub-committee's licensingproposal. The law can be improved by imposing on creditors a legal obliga-tion (with criminal sanctions attached) to engage only those debt collectorswho are licensed under the Sub-committee's proposed licensing scheme. Atpresent, the Sub-committee's consultation paper does not include such a rec-ommendation. Certainly, creditors employing only licensed debt collectorscan easily rebut any charges of negligence in the selection of their debt col-lectors, and such a proposal will also serve to discourage those desperatecreditors who may still be tempted to resort to dubious or criminal elementsto make good on their loans.Rick Glofcheski** Associate Professor, Faculty of Law, University of Hong Kong.4 Rick Glofcheski (2001) HKLJHeinOnline -- 31 Hong Kong L.J. 4 2001

Debt Collection Malpractice

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