Uni Fabric Industries Ltd v. Han Hiu Sun t/a Shun Tai Textile Co

HCA001768/1981

-----------------

Coram: Liu, J. in Chambers.

Date of Judgment: 11th June, 1981

-----------------

JUDGMENT

-----------------

1. This is the simplest action of its kind, whereby the plaintiff claimed against the defendant for the return of machineries together with consequential relief.

2. The matter arose from a written agreement for the hiring of machineries dated the 30th May 1978, by which Tai Yuen Textile Co. Ltd. let certain machineries to the defendant for a period of 3 years commencing from 10th December 1977 expiring on 9th December 1980 for $12,000 per month. The machineries were then charged to a bank under a debenture for a sum of $270,000. The Bank was joined in as a necessary party to this agreement in 1978. A deposit of $24,000 paid under that agreement was held by the Bank.

3. After the expiration of that agreement, the machineries were agreed to be sold to the plaintiff by an Agreement for Sale dated 14th January 1981. The sale was completed by a Deed dated the 13th March 1981. It was not in dispute that the plaintiff is now, on paper, the owner of the machineries, but it was challenged that the sale to the plaintiff was a valid sale. Further, it was contended that the plaintiff had no immediate right to possession of the machineries to found their claim in detinue. In other words, it was argued that the plaintiff had no title and alternatively had no right to sue.

4. From the affirmations filed on behalf of the defendant, his allegations are that prior to the letting of the machineries by "Tai Yuen" to the defendant, "Tai Yuen" was in financial difficulty. The defendant, being an alleged major creditor of "Tai Yuen", claimed to have agreed to withhold taking steps to wind up "Tai Yuen" as a limited company in consideration of "Tai Yuen" agreeing to hire out its machineries to the defendant.

5. It was hoped that "Tai Yuen" might be revived by the collection of rental or hire money.

6. It was further alleged that at or about the time of the expiration of the said hiring agreement dated 30th May 1978, negotiation was conducted between Messrs. Wong and Lai purportedly acting for the Bank debenture-holder, the Managing Director of "Tai Yuen" and the sole proprietor of the defendant with a view to letting the machineries to one Jonder Textile Co. Ltd. for a period commensurate with the remainder of "Onder's" unexpired tenancy term of its factory premises.

7. Suffice it for me to say that the alleged oral agreement, even if negotiated, never became effective. It would seem to be an incontestable fact that a firm of solicitors, Messrs. Patrick Chan & Co., did send over to the solicitors for the defendant a draft hiring agreement in favour of Jonder Textile Co. Ltd. But it was common ground that whatever the circumstances relating to the alleged oral agreement might be, neither the Bank nor "Tai Yuen" were ultimately willing and ready to sign or complete it. Nor in fact did "Jonder" sign the hiring agreement itself or seek a specific performance thereof. Correct it is to say that hiring of machineries need not be evidenced in writing, but the parties did envisage the deal to be sealed by the signing of an agreement. Non-completion of formalities was an indicium of absence of consensus. The inaction of "Jonder" confirmed its acceptance of the position that there was no or no concluded agreement. It was unclear precisely when the Bank ceased to be a debenture-holder, but as the Bank was included in the draft prepared by solicitors, it was prima facie a necessary party. There would appear to be no binding agreement without the participation of the Bank. In the draft hiring agreement, a deposit of $60,000 was stipulated for. That was not and has never been paid; not is there any evidence of "Jonder" attempting to effect payment of such a deposit. Two cheques for $20,000 were tendered by the defendant in purported payment of rent. They were returned after some two months, but they were returned, and there liaison ended. Further, the defendant's allegations were fraught with contradictions: In the correspondence exchanged between the plaintiff and the defendant, at one time it was claimed that there was a month-to-month letting to the defendant upon the expiration of "Tai Yuen's" 1978 agreement. In the subsequent affirmation of the defendant it was corrected to an alleged oral agreement for letting the machineries to "Jonder", not on a month-to-month basis but for a fixed term now said to expire at the end of November 1981.

8. It was further charged that at the time of the sale to the plaintiff, no debt was outstanding in favour of Wintex Enterprise Co. and that therefore the $150,000 stipulated to be handed over to Wintex by the plaintiff in the said sale agreement dated the 14th January 1981, if paid, was an unnecessary payment. It was a payment which should not have been made. Hence, so ran Counsel's argument, the sale to the plaintiff was a sale at an undervalue and could thus be challenged as a fraudulent transfer or fraudulent preference. Counsel readily conceded that there was no direct evidence of the plaintiff knowing the financial involvement between "Tai Yuen" and "Wintex". It was suggested that by reason of the plaintiff's personal relationship with "Wintex", the similar nature of trade in which the plaintiff was engaging and the circumstances in which the sale was transacted, the plaintiff must have been aware that "Tai Yuen" was not indebted to "Wintex" at the material time. In my view, these matters do not warrant the inference which Counsel sought to draw.

9. The legal position is tolerably clear. I will deal with the two contentions of Mr. Woo's, Counsel for the defendant, separately. It was said that the plaintiff had no locus standi in the face of the hiring agreement to "Jonder". In my analysis of the circumstances, there was no concluded or effective hiring agreement in favour of "Jonder". I do not propose to repeat what I have said save that "Jonder" has not applied to be joined as a party to these proceedings nor filed any affirmation to assert its interests. The defendant's business had allegedly been taken over by "Jonder" prior to the expiration of his 1978 hiring agreement. The defendant gains nothing from the rental and has allegedly no possession or control. The bare assertion was that the relief sought should not, for these submissions, made against the defendant. "Jonder" has shown no real interest although it was suggested that "Jonder" could, if necessary, come in, but "Jonder" never did. It is abundantly clear that there was no concluded or effective agreement for the alleged hiring of the machineries in question to "Jonder" by "Tai Yuen". On that conclusion which I have reached, the first contention of Mr. Woo's may be disposed of.

10. The basic rule that a claim in detinue must be supported by a right to immediate possession is not in issue, but "Jonder" has never enjoyed any concluded or effective agreement for the hiring of machineries to itself. Hence, the plaintiff is entitled to institute these proceedings against the defendant.

11. On "fraudulent transfer" or "fraudulent preference", it was contended that much had to be investigated, but with that contention, I diagree. In the circumstances, the only possible disputed lay in the $150,000 allegedly paid by the plaintiff on behalf of "Tai Yuen" to "Wintex" under the agreement dated 14th January 1981. There was no evidence of the sale being effected at an undervalue. Nor was there evidence of had faith in the sale transaction. All the plaintiff and "Tai Yuen" did in the circumstances, was to convert the machineries into money. Asset in the machineries remained intact after realisation, and there had been no diminution of the sale proceeds available. As for the sale to the plaintiff by "Tai Yuen", there was no evidence to suggest that the same was otherwise than an outright sale. Capital was sought to be made of the previous deposit of $24,000 which had not been refunded to the defendant, but that could be only a matter of speculation. Criticism, if at all justified, might possibly be levelled at the payment through the plaintiff to "Wintex" on behalf of "Tai Yuen". At best, it was a case of misappropriation of part of the proceeds of the machineries in realization. Even if such payment had been mishandled in any way, the defendant as a creditor of "Tai Yuen" enjoys the same remedy today as he did at the time of the parting with the $150,000 to "Wintex".

12. The claim against the defendant is, in the circumstances, unanswerable. I would accede to the application of the plaintiff by granting leave to sign final judgment against the defendant. I would give judgment in favour of the plaintiff against the defendant in terms of one, two, three and four of the summons with damages to be assessed by the Registrar unless the parties otherwise agree.

Representation:

Mr. Ronny Tong instructed by Messrs. Chan & Cheng for Plaintiff.

Mr. K.H. Woo instructed by Messrs. K.Y. Woo for Defendant.