Secretary for Justice for and on behalf of the Commissioner of Police v. Chun Ngai Jewellery Design Co Ltd (in Compulsory Liquidation) and Others

HCMP 1362/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1362 OF 2015

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Before: Deputy High Court Judge Lee in Chambers

Date of Hearing: 11 April 2017

Date of Judgment: 26 April 2017

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JUDGMENT

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INTRODUCTION

1.This is an appeal by the 20^th Claimant (“the Pawnshop”) against the decision of Master Chow[1] who decided in an interpleader proceedings taken out by the Commission of Police that the subject diamond (“the Diamond”) was the property of the 22^nd Claimant (“EY”) and ordered that it be returned to EY.

2.There is no dispute that EY was the original owner of the Diamond which was subsequently seized by the Police from the Pawnshop.  The person who had pledged the Diamond was one surnamed Tsang who has now been declared a bankrupt and whose company, Chun Ngai Jewellery Design Co Ltd,[2] has now been in liquidation.

3.The contestants of the Diamond are the Pawnshop and EY.  The question for this court is whether the master was right that, as between the two of them, EY has a better claim to the Diamond than the Pawnshop.

CONTENTIONS OF THE PARTIES

4.EY’s case is that it had all along retained the property of the Diamond even after its possession was passed to their consignee IN Diamonds Ltd (“IN”).[3]  Since Tsang’s company[4] had obtained only possession of the Diamond from IN and then Tsang personally pledged it with the Pawnshop without EY’s knowledge and consent, neither Tsang’s company nor Tsang had property of the Diamond.  Therefore, as between EY and the Pawnshop, the former has a better claim to the Diamond than the latter whose title could be no better than Tsang’s.  This, it is submitted, is a clear application of the maxim “nemo quod non habet”.  As regards s 27(2) of the Sale of Goods Ordinance (“SOGO”) (Cap 26) and s 3(1) of the Factors Ordinance (“FO”) (Cap 48) (“the two provisions”), both of which are relied upon by the Pawnshop, EY submits that the party seeking to rely on the protection under the two provisions has to be the party taking under the deposition that is being challenged.  In the present case, it is the deposition to the Pawnshop that is being challenged and so that it is the fides of the Pawnshop that has to be considered.  It is further argued that the Pawnshop cannot rely on the two provisions as it had not acted in good faith and that was evidenced by the fact that the Diamond had been pledged to them grossly undervalued. Lastly, it is argued that Tsang’s company and Tsang were separate legal entities, so that any property which Tsang’s company may have in the Diamond had nothing to do with Tsang and that there is no evidence to show that Tsang was acting as the agent of his company when he pledged the Diamond with the Pawnshop.

5.The Pawnshop’s case consists of several alternative limbs.  Firstly, it is argued that although IN was not the owner when it sold the Diamond to Tsang’s company, there was evidence that IN subsequently obtained property of the Diamond from EY, so that Tsang’s company’s title in the Diamond became perfected through the doctrine of “title feeding”: Blundell-Leigh v Attenborough.[5]  As such, even though Tsang’s payment cheque to IN was subsequently dishonoured, IN’s remedy against Tsang’s company (and similarly EY’s remedy against IN) lied in damages only. Secondly, even assuming that IN had never had the property of the Diamond, it was a “buyer in possession” so that when it sold the Diamond to Tsang’s company, the effect of the two provisions was such that the latter obtained a good title to the Diamond.  Furthermore, there can be little doubt that Tsang, who was the sole shareholder and director of his company, was acting with the authority of his company when he entered into the Pawn Agreement with the Pawnshop and it matters not that the pledge was done in the name of Tsang rather than Tsang’s company.  This is because Tsang’s company was an undisclosed principal.  Therefore, when the Diamond was not redeemed within the time limit as stipulated in the Pawn Agreement[6], the Pawnshop was entitled to exercise its contractual right under to sell the Diamond to others in order to recover its loan advanced.  Thirdly, it is argued that if Tsang’s company was not the owner, it was a “buyer in possession” from IN so that the Pawnshop could still obtained the property of the Diamond by the operation of the two aforesaid provisions and by virtue of the Pawn Agreement.

6.Despite the Pawnshop’s expressed reliance on the Pawn Agreement and its various references in their affirmations filed for the purpose of the interpleader proceedings before the master, the same had never been exhibited.  Therefore, there is now an application by the Pawnshop to adduce the memorandum of the Pawn Agreement as fresh evidence for the purpose of this appeal.  The application is opposed by EY.

THE ISSUES

7.There is no dispute between the parties that, as the loan by the Pawnshop to Tsang was more than $100,000, the Pawnbrokers Ordinance, Cap 166, is not applicable to the present case.[7] It has been the expressed position of the Pawnshop that they rely on the terms of the Pawn Agreement rather than s 17 of that Ordinance.

8.In view of the contentions of the parties, the major issues in the present case are as follows:

(i) whether the memorandum of the Pawn Agreement should be admitted as fresh evidence for the purpose of this appeal;

(ii) whether the property of the Diamond had already been passed from EY to IN;

(iii) if not, for the purpose of this case whether it is relevant to consider if Tsang’s company had become the owner of the Diamond through its purchase from IN by operation of the two provisions;

(iv) if so, whether Tsang’s company had obtained a good title to the Diamond through its purchase from IN by operation of the two provisions; and

(v) if not, whether the Pawnshop had obtained a good title of the Diamond through its dealing with Tsang’s company or Tsang by operation of the two provisions.

GENERAL LEGAL PRINCIPLES

9.It is well‑established that the present appeal is by way of an actual rehearing and I should treat the matter as though it came before me for the first time.  I will give the weight it deserves to the previous decision of the master but I am in no way fettered by the previous exercise of her discretion: see §58/1/2, Hong Kong Civil Procedure 2017 (“HKCP”).

THE FACTS

10.The following facts, which are not in dispute, are adapted from the written submission of Mr Yau (and with him Mr Bache Sit), counsel for the Pawnshop:

(a) The Diamond (with the GIA certificate) was consigned by EY Diamonds to IN on an unknown date.[8]

(b) Later on 22 May 2012, IN consigned the same to Tsang’s company. [9]

(c) On 23 May 2012, Tsang pledged the Diamond with the Pawnshop for HK$450,000.[10]

(d) On 11 June 2012, Tsang on behalf of his company agreed to purchase the Diamond from IN. Tsang’s company paid the price by way of a cheque post‑dated to 28.06.2012 of HK$834,940.[11]

(e) After securing the sale to Tsang’s company, IN agreed to purchase the Diamond from EY Diamonds at US$102,340 (approximately HK$798,252).[12]  The agreement was evidenced by an invoice dated 18 June 2012 (“the Invoice”) issued by EY Diamonds.[13]  The important part of the Invoice, which was expressed in somewhat ungrammatical language, is as follows:

“The goods described and valued below are delivered to you for examination and inspection and are the property of Eliyahu Yona Diamonds Ltd. And subject to their order and shall be returned to them on demand. Such merchandise until returned to them and actually received, are at your risk from all hazards. No right or power is given to you to sell, Pledge, Hypothecate of otherwise dispose of this merchandise regardless of prior transactions. A sell [sic] of this merchandise can only be effected and title will pass only, if as and when the said Eliyahu Yona Diamonds Ltd. Shall agree to such sale and a bill of sale returned therefore.”

(f) The cheque from Tsang for the price of the Diamond was dishonoured.

(g) Tsang was arrested on 31 July 2012 and 658 items of jewelleries were seized by the police.  Among them, 17 were from the Pawnshop, including the Diamond.[14]

(h) Tsang subsequently went bankrupt and his company went into liquidation.[15]

(i) On 9 May 2013, after police’s investigation Tsang was released unconditionally.[16]

(j) On 13 August 2013, EY Diamonds entered into an agreement titled “Supplementary” with IN (“the Supplementary Agreement”).[17]  In essence, the Supplementary Agreement:

(1) referred to the purchase of the Diamond by IN on 18 June 2012;

(2) stated that IN undertook and committed to return the Diamond to EY; and

(3) provided that EY would give IN as much time as needed to recover the Diamond by way of legal proceedings and that they would not have any further request to IN until the latter obtained final judgment against Tsang’s company and the Pawnshop regarding the Diamond.[18]

CONSIDERATION

As to (i): fresh evidence

11.As regards the test to be applied for admission of fresh evidence, there is no dispute that the considerations listed in Ladd v Marshall[19] are pertinent, although I also accept Mr Yau’s submission that in proceedings like the present one the test would require some modifications and would be not applied as stringently as in case of an appeal from a trial: see Langdale v Danby[20] and generally the commentary at §58/1/3, Hong Kong Civil Procedure 2017.

12.In his written submission, Mr Yau succinctly puts the ground of his application for adducing fresh evidence as follows:

“The additional evidence sought to be adduced, namely the memorandum, contains the terms of the pawn agreement. … Under the memorandum, the Pawnshop would forfeit the right of redemption after a lapse of 4 months. The memorandum was not produced earlier as the person in charge of the pawning records was on leave at the time when affirmation was due to be filed and EY Diamonds did not take issue on that until a few days ahead of the hearing before Master Chow [C6-7; §§3-5, Tang]. We respectfully submit that special ground does exist for such additional evidence to be adduced.”

13.However, having considered Mr Yau’s submission and all the relevant evidence, I am not persuaded that it is appropriate to admit the memorandum under consideration as fresh evidence.  My reasons are as follows:

(i) The Pawnshop’s reason for not having produced the memorandum before, namely the employee in charge was on leave for holiday, is neither cogent nor realistic.  I note that the first reference to the Pawn Agreement was made in their first affirmation filed for these proceedings dated 29 October 2015[21] which was almost a year before the hearing before the master on 12 October 2016.  Further references to the Pawn Agreement were made in their second and third affirmations dated 16 November 2015[22] and 3 February2016.[23]  It is also noted that apart from the Pawn Agreement relating to the Diamond, references were also made in those affirmations to  other pawn agreements they had with Tsang relating to other claimants regarding other jewelleries.[24]  In asserting their claims to the Diamond and the jewelleries, the Pawnshop deposed that they relied on those pawn agreements.  Therefore, I can see no valid excuse for the Pawnshop not exhibiting any memoranda of the pawn agreements to their previous affirmations.  In my view, even taken into account the summary nature of the interpleader proceedings, the Pawnshop had failed to exercise reasonable diligence by not exhibiting the Pawn Agreement before the master in circumstances when they had plenty of opportunities to do so.

(ii) Despite EY’s criticism about the Pawnshop’s failure to exhibit the Pawn Agreement, the master did not make any adverse findings against the latter on this point.  The master said,[25]

“70. Mr Hughes also criticized the deliberate choice of the defendant in not putting the terms of the pawn agreement before the court. Mr Sit opined that so long as the existence of a pawn agreement has been established, even though the pawn agreement itself was not produced by the defendant and there is an evidential lacuna in respect of the terms of this agreement, the defendant would still be able to rely on a common law right under the pawn agreement to sell the Diamond upon default in payment. This, he said, would be the case even in the absence of any express provisions to that effect in the pawn agreement.

71. In light of my finding above, there is no further need to examine the terms of the agreement between Tsang and the defendant, and the effect or enforceability of such agreement, under the MLO or otherwise. I will not therefore deal with the submissions of counsel on these points.”

(iii) Having considered of the memorandum of the Pawn Agreement de bene esse, I am of the view that its admission would be of much assistance to the Pawnshop.  The existence of the memorandum and the right of the Pawnshop to sell the Diamond upon default had already been referred to in their 1^st to the 3^rd affirmations and there was evidence to the contrary.  Therefore, the state of evidence is such that there is simply no reason for me to disbelieve what the Pawnshop had deposed about the existence and the terms of the Pawn Agreement.  Moreover, as can be seen in the later discussion, the resolution of the present appeal does not really depend on the admission of the memorandum.

14.In view of the above, I dismiss the Pawnshop’s application to adduce fresh evidence.

As to (ii): the dealings between EY and IN

15.While Mr Hughes criticises the Pawnshop for having failed to exhibit the Pawn Agreement, the way in which EY had prepared their affirmation evidence was hardly any better.  In particular, I note that:

(a) apart from saying that the Diamond was provided to IN “on consignment”, EY had failed to adduce any evidence as to when and on what terms that was done;

(b) despite the terms of EY’s Supplementary Agreement with IN, no explanation was given as to why it was EY which entered into the contest, rather than IN taking out legal proceedings to seek the recovery of the Diamond; and

(c) there was a conspicuous absence of any affirmation from IN as to its dealings with Tsang and therefore apart from what Tsang had told the Police under caution and the post‑dated cheque, there was no evidence as to the terms of the sale agreement between IN and Tsang’s company.

When assessing the evidence, I would bear the above in mind.

16.Mr Yau’s argument that property had already been passed from EY to IN consists of two limbs: 

(a) the terms of the Invoice do not support EY’s case that the property of the Diamond remained theirs unless and until full payment; and

(b) on a fair reading of the terms of the Supplementary Agreement, it was IN which was made the new owner of the Diamond by EY.

References are also made to ss 19 and 20, SOGO which provide for rules to ascertain the intention of the parties as to the time at which the property in the goods is to pass to the buyer.[26]

17.In my judgment, in construing the terms of the Invoice and the Supplementary Agreement, it is important to note that those two documents clearly are not prepared by lawyers.  Secondly, although the Supplementary Agreement said, “On 18^th June 2012 [IN] make a purchase of [the Diamond] in value of $102,340 USD from [EY]”, that sentence should not be taken literally but has to be understood in its proper context and background so as to ascertain the real intention of the parties: Chartbrook Ltd and Anor v Persimmon Homes Ltd & Anor, applied in Champion Concord Ltd & Anor v Lau Koon Foo & Anor.[27]  Thirdly, it is clear that the Supplementary Agreement was not the sale agreement between EY and IN. Rather, it was more of the nature of a memorandum of settlement prepared afterwards recording the agreement on IN’s part to assist in the recovery the Diamond by legal proceedings and on EY’s part to allow time for that to happen.

18.Having studied the Invoice carefully, I agree with the master’s reasoning that despite the various ways in which its subject matter was described in that document, they all referred to the Diamond.  It is clear to me that what the Invoice did was only to record the price of the Diamond at which EY would agree to sell.  However, I agree with the master that neither the Invoice nor the later Supplementary Agreement was “a bill of sale” referred to in the former.  Lastly, I also agree with the master that, despite the layman’s terms in which the two documents were expressed, there was a clear common intention between EY and IN the Diamond should remain the property of the former; otherwise, there would not be any reason for EY to be concerned with the attempts of IN to get back the Diamond from the Pawnshop.[28]

19.Therefore, I reject Mr Yau’s submission that IN had at any stage obtained the property of the Diamond from EY and his submission that Tsang’s company had obtained the property of the Diamond through “title feeding”.

As to (iii): the relevancy of the position of Tsang’s company

20.It would be convenient for me to set out the relevant provisions.  In s 27(2), SOGO, it is provided that:

“(2) Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith[29] and without notice of any lien or other right of the original seller in respect of the goods, shall have the same effect as if the person making the delivery or transfer were a mercantile agent[30] in possession of the goods or documents of title with the consent of the owner.”

21.In s 3, FO, it is provided that:

“(1) Where a mercantile agent[31] is, with the consent of the owner, in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this Ordinance, be as valid as if he were expressly authorized by the owner of the goods to make the same:

Provided that the person taking under the disposition acts in good faith, and has not, at the time of the disposition, notice that the person making the disposition has not authority to make the same.”

22.With respect, I am unable to accept the submission of Mr Hughes, which had found favour with the master, that the party seeking to reply on the protection under the above two provisions “has to be” the party taking under the disposition that is being challenged and “it is also the fides of this party that has to be considered”,[32] so that the Pawnshop cannot as a matter of law rely on any title which Tsang’s company had obtained as a disponee of IN in reply to the claim of EY.  My reasons are as follows:

(a) Mr Hughes’ submission is neither supported by the nature and plain reading of the two provisions nor by any case authorities;

(b) the joint effect of the two provisions is such that provided that their requirements are fulfilled, a purchaser from the “buyer in possession” will normally acquire a good title to the goods purchased.  However, Mr Hughes’ submission, if correct, would lead to the anomaly that whilst the purchaser would be so protected, his successor-in-title may not; and

(c) the above anomaly would also undermine the value of the protection intended to be given to the purchaser in that he would not be able to confer his good title as he wishes.

23.Based on the above, in my view in deciding the claim of the Pawnshop, it is necessary also to consider whether Tsang’s company had obtained a good title to the Diamond through its dealing with IN.

As to (iv): IN as “buyer in possession”

24.In order for the Pawnshop to succeed under this limb, there are two hurdles for them to overcome, namely that:

(i) IN was a “buyer in possession” for the purpose of s 27(2), SOGO; and

(ii) Tsang’s company/Tsang had acted in good faith in the purchase from IN.  Mr Yau fairly accepts that the burden of proving this rests with the Pawnshop and he refers to Benjamin’s Sale of Goods, 9^th edition, at §7‑045. 

I note that there is nothing to suggest that Tsang had any knowledge of the right of EY in relation to the Diamond.

25.As regards (i), Mr Yau submits that even if IN had not been a “buyer in possession” before 22 May 2012 when it left the Diamond with Tsang’s company, it had become “a buyer in possession” on 11 June 2012 at the latest when it sold the Diamond to Tsang’s company.  It is submitted that IN had by such sale adopted its transaction with EY within the meaning of Rule 4(a) of s 20, SOGO.  Mr Yau relies on London Jewellers Ltd v Attenborough.[33] 

26.With respect, I have difficulties accepting Mr Yau’s above submission.  My reasons are as follows:

(a) in London Jewellers Ltd v Attenborough, it was clear that the goods were given to the fraudster “on approbation”, so that the subsequent pledge by him of the goods was held to be an act adopting the transaction within the meaning of the English equivalent of our Rule 4(a). However, in the present case as aforesaid the evidence is unclear as to whether IN was just a gratuitous bailee or a “buyer on approval” when it was given the possession of the Diamond by EY.  What can be said with some confidence is just that EY, by delivering the Diamond to IN, clearly intended that IN should either purchase the Diamond or look for a purchaser; and

(b) in Benjamin’s Sale of Goods, at §7‑703, it is said,

“The wording of [the English equivalent of our s 27, SOGO], however, contemplates that the buyer must obtain possession of the goods or the documents of title after he has agreed to buy the goods. If, therefore, he first obtains possession of goods, e.g. as bailee, and subsequently agrees to purchase them, the subsection will not apply.”

Reference was made by the learned author to Fadallah v Pollak.[34]  In the present case, however, there is no simply evidence that IN had agreed to buy the Diamond before they obtained possession of it.  On the evidence, IN did not become a buyer until 11 June 2012 as shown by the Invoice.

In the circumstances, I am inclined to the view IN was not a “buyer in possession” for the purpose of s 27(2), SOGO and therefore the provision does not apply to deem IN an authorized mercantile agent of EY.

27.Independent of my view above, as regards (ii), whether IN was a “buyer for possession” for the purpose of s27(2), SOGO or just a “mercantile agent” of EY for the purpose of s 3, FO, in either case the burden is still on the Pawnshop to prove that Tsang’s company/Tsang had acted in “good faith” in taking under the disposition from IN.  In this regard, Mr Yau submits that Tsang would have acted honestly if his act was not dishonest.  Mr Yau further submits that the test for “dishonesty” for present purpose is akin to that of Ghosh,[35] namely that whether Tsang was aware that his act would be regarded as dishonest by the ordinary standards of reasonable and honest people.  Mr Yau relies on Twinsectra Ltd v Yardley & Ors[36] which was a case about an accessory’s liability for breach of trust.

28.Mr Yau relies on the following to show that Tsang’s company/Tsang had acted in “good faith”:

(a) there is no evidence showing that Tsang’s company acted otherwise than in good faith;

(b) Tsang explained to the police in his video-recorded interview why his company, in the business of gem trading, was unable to settle the purchase price due to IN and other suppliers of gems.  He said that he did try to obtain small and medium-sized enterprises loan from Chong Hing Bank and realize his landed property to raise monies for the suppliers.  However, such attempt failed as his assets were frozen by the Court upon the application of IN and other suppliers and as he was later arrested;[37] and

(c) Tsang has not been prosecuted.  There is no evidence he or his company wanted to obtain the Diamond without any genuine intention to pay the price.

29.With respect, I do not think that it is necessary to decide in the present case whether a test akin to Ghosh is the pertinent test for “good faith” (or the lack of it) for the purposes of the two provisions.  This is because there is evidence showing that Tsang had acted recklessly and irresponsibly when he took possession of the Diamond from IN and from this an inference could be drawn that he had also not acted honestly:

(a) Tsang admitted to the Police that he had been in financial difficulties, that he had owed as much as $10 million to one supplier (Blue Diamond), he obtained new loans by pledging to repay old ones and he had been trading at a loss for some time;[38]

(b) that Tsang was consistently short of cash is supported by the  computerised pawn records kept by the Pawnshop which shows a total of 214 entries relating to Tsang since March 2008;[39]

(c) contrary to what was deposed to by the Pawnshop that Tsang “always manages to redeem the pawned items”, the computerised pawning records show in fact that there were many occasions where Tsang had pawned items without redeeming them, and more frequently so since April 2012;[40]

(d) the fact that Tsang was in dire financial difficulties is further evidenced from the fact that he pawned the Diamond the day after he had obtained it from IN; and

(e) based on what Tsang had told the Police, between 26 April 2012 and 18 June 2012, he had a total of seven diamond transactions with IN.  However, he was eventually unable to pay for any of those.[41]

From the above, the ready and reasonable inference which I draw is that Tsang had already formed an intention to pawn the Diamond at the time he received it from IN, that he was aware that there was a serious risk that his post-dated payment cheque for the Diamond would bounce and also that he would not be able to redeem it from the Pawnshop.  In short, I found that Tsang had knowingly taken an unjustifiable financial risk to the prejudice of IN.

30.I bear in mind that Tsang has not been prosecuted for any offence.  However, the burden and standard of proof for a criminal case are different from those of the present case.  Therefore, the fact that the prosecution may feel unable to prove beyond reasonable doubt that Tsang had acted dishonestly does not necessarily mean that the Pawnshop can prove on balance of probabilities that he had acted honestly.

31.As regards Tsang’s assertion that he was unable to carry on his business because of the legal action taken by IN and other suppliers, he did not specify when the legal action had taken place and the parties were unable to advise the court on this.  In any event, it is improbable that any legal action would have taken before the bounce of the payment cheque on 28 June 2012. 

32.Having looked at all the relevant evidence in the round, in my assessment the Pawnshop has failed to discharge their burden of satisfying me that Tsang had acted in honestly or good faith in its dealing with IN under consideration.  It follows that Tsang’s company would not be able to obtain a good title to the Diamond under the two provisions and the Pawnshop, as the successor‑in‑title of the former, could not have a better title than the former.

As to (v): Tsang’s company/Tsang as “buyer in possession”

33.This is about Mr Yau’s contention that Tsang’s company was itself a “buyer in possession” of the Diamond and Tsang was pawning the Diamond either as a mercantile agent himself or as his company’s agent.  It matters not even if the consent of IN (the seller) for Tsang’s company to have possession of the Diamond was induced by false pretences.  It is submitted that it is in the ordinary course of business of a mercantile agent for him to pawn the goods which are in his possession with the consent of the owner: Oppenheimer v Attenborough.[42]  In which case, the fides of the Pawnshop would fall to be taken into consideration and it is submitted that the master was wrong to find that the Pawnshop had not acted in good faith.

34.I accept Mr Yau’s submission that the fact that the Diamond was pawned for a sum “substantially lower than” is not a sufficient basis to find that the Pawnshop had not acted in good faith.  As pointed out by Mr Yau, it was a pledge to secure credit and prudence in lending called for conservative valuation.  Moreover, the loan was not interest free and there could be reasons why Tsang would not ask for a loan to the highest amount possible.  Therefore, I respectfully differ from the view of the master in this regard.  I note that the master’s finding in this regard is based solely on affirmation evidence rather than any observation of the witnesses giving evidence in the witness box as no live evidence had been given.  Therefore, in the assessment of the evidence, the master did not enjoy any added advantage that this court does not have: Ting Kwok Keung v Tam Dick Yuen t/a Tam Dick Yuen Engineering & Ors.[43]

35.That said, I am unable to accept Mr Yau’s submission that the Pawnshop would be able to obtain a good title to the Diamond from Tsang’s company/Tsang by virtue of the two provisions.  My reasons are as follows:

(a) whilst Tsang’s company had the de facto consent of IN to be in possession of the Diamond, there was no such consent from EY and in my assessment no such consent can be inferred;

(b) as discussed above, there is no evidence to show that the property of the Diamond had passed from EY to IN.  In fact, the evidence showed the contrary that the property of the Diamond had never been passed from EY to IN, so that IN did not even have a voidable title;

(c) it has been well‑established that the phrase “the owner of the goods” referred to in the English equivalent of our s3(1), FO is the owner with whose consent the agent is in possession of them and that the provision cannot be read as having the effect of adversely affecting the title of any person, other than the person who had entrusted the goods or documents of title to the mercantile agents.  Furthermore, it is also well‑established that the provision must be read as providing that the delivery or transfer given by the intermediate transferor (in this case, Tsang’s company) shall have the same effect as if he was a mercantile agent in possession of the goods or documents of title with the consent of the owner who entrusted them to him (in this case, IN): see National Employers Mutual General Insurance Ltd v Jones;[44] and

(d) the present case is analogous to the situation in National Employers Mutual General Insurance Ltd v Jones.  Thus, the two provisions are only intended to divest the title of the seller (in this case, IN) but not the title of the original owner (in this case, EY) who had not given consent to Tsang’s company having possession.  It follows that whilst the Pawnshop may have a better claim to the Diamond than IN, the two provisions do not operate to give the Pawnshop a better title than that of EY.

36.Based on the above, I reject Mr Yau’s submission that the Pawnshop can rely on Tsang’s company being a “buyer in possession” to defeat the claim of EY.

CONCLUSION

37.Based on the above, I uphold the master’s decision that:

(a) the Diamond is the property of EY as against the Pawnshop; and

(b) the Diamond be returned to EY.

38.As regards costs, although EY is in the outcome the real winner of this appeal, many of the submissions by Mr Hughes have not been accepted by this court.  In fact, the decision is upheld for reasons different from those given by the master. In all the circumstances and having regard to the principles stated in Re Elgindata Ltd (No 2),[45] I make an order nisi that EY is to have half of its costs of this application, with certificate of counsel, to be taxed if not agreed.

Mr Sebastian Hughes, instructed by Munros & Co, for the 22^nd claimant (plaintiff)

Mr Albert K C Yau and Mr Bache Sit, instructed by Johnnie Yam, Jacky Lee & Co , for the 20th claimant (defendant)