Quarry Bay Developments Ltd v. The Chartered Bank and Others

CACV000148/1983

Landlord and tenant - distress for rent - goods previously seized by receivers appointed under power in a debenture - shop locked by receivers - notice of receivers' possession given to bailiff - by virtue of debenture, receivers "deemed to be" agents of tenant - goods not in "apparent possession" of tenant - other goods locked in the shop by receivers, but not claimed by them, still in "apparent possession" of tenant.

Receiver - although receivers had been appointed otherwise than by court and, by debenture, receivers deemed to be agents of tenant, receivers took possession in their own right as receivers and, because bailiff had notice of such possession and their possession was apparent from the locking of the shop, goods seized by receivers were not distrainable.

BETWEEN

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Coram: Sir Alan Huggins, V.-P., Yang & Barker, JJ.A.

Date of Judgment: 2nd April 1984

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JUDGMENT

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Sir Alan Huggins, V.-P.:

1. Once again the court has to decide between competing claims by a distraining landlord and a debenture holder. There were claims to other property by two further claimants. The District Judge gave judgment against the landlord, who now appeals.

2. The Tenant is a company registered under the Companies Ordinance. It fell into arrears with the rent and the Landlord obtained a warrant of distress. The bailiff attended at the premises but found them locked and was unable to gain access. Prior to the issue of the distress warrant the first claimant ("the Bank") had appointed receivers under the provisions of a debenture and the Receivers had taken possession of the goods claimed by the Bank. The Receivers chained and locked the premises. After learning of the abortive attempt, by the bailiff to distrain, the Bank's solicitors wrote to the Bailiffs' Office to give notice of the appointment of the Receivers and of the Receivers' having taken possession. The bailiff nevertheless made a second abortive attempt to distrain. Thereafter the bailiff learned that the Receivers were going to remove the goods claimed by the Bank and he again attended at the premises. Having watched the Receivers representative open up the premises, the bailiff entered, identified himself and proceeded to distrain upon all the goods in the premises in spite of opposition from the Receivers' representative. At this stage a petition was filed for the winding up of the tenant company. Interpleader summonses were then taken out.

3. It is not in dispute that the ultimate question which the judge had to decide was whether the goods claimed by the three claimants were "in the apparent possession of" the Tenant: see s. 87 of the Landlord and Tenant (Consolidation) Ordinance. The judge cited Hongkong Land Investment & Agency Co., Ltd. v Athena Studio (1933) 26 H.K.L.R. 39, 41 where Mr. Justice Lindsell stated the correct text as follows:

"The only test in such a case of this is on entry did the bailiff believe the disputed goods to be in the tenant's possession, and, if so, had he reasonable grounds for that belief' ?"

Thus, on the one hand, the mere fact that goods are upon the demised premises does not necessarily lead to the conclusion that they are in the apparent possession of the tenant and, on the other hand, the mere fact that the bailiff is aware of an adverse claim to possession does not mean that they are not in the apparent possession of the tenant. In Hongkong Fire Insurance Co. Ltd. v KAN Chak (1938) H.K.L.R. 37 Mr. Justice Lindsell had to apply his test to a case where part of the demised premises had been sublet. He said at P. 39 :

"To make goods distrainable in Hong Kong two conditions must be satisfied, they must be found (i) on the premises; and (ii) in the apparent possession of the debtor. This seems to suggest by implication that there may be goods on the premises which are not in the apparent possession of the debtor and consequently are not distrainable.

In my judgment where a bailiff goes into a house and finds cubicles, which, from the evidence of his eyes or from statements made to him, he has every reason to believe are sublet, the goods in such cubicles cannot be said to be in the apparent possession of the debtor. To take an extreme case, if a cubicle bears the name of John Smith it seems to me that the goods therein are not in any sense of the word in the apparent possession of William Brown, the debtor."

In YIP Lam-shi v CHAN Hung-hau (1936) 38 H.K.L.R. 26 Mr. Justice Hayden held that goods stored in the demised premises on behalf of a third party were nevertheless in the apparent possession of the tenant.

4. The District Judge summed up his approach like this:

"The bailiff clearly has to have regard not only to what he sees when he enters but also to the knowledge that he has relating to the goods and to all what have been described as the overt signs existing in the particular circumstances of the case he is dealing with."

5. Mrs. Kaplan, on behalf of the Bank, submits that. the judge was clearly right when he held that the goods were not in the apparent possession of the Tenant and were, therefore, not subject to distress. Disregarding for the moment any question of agency, I think that that must be right. This was not a case where the bailiff was faced with an unsubstantiated claim by a third party as he was executing the warrant: he had been sent details of the Bank's claim, had been told of the Receivers taking possession and, finally, had found the Receivers manifestly purporting to exercise rights of possession at the premises. In his evidence the bailiff said that he was aware of the letter from the Bank's solicitors and had asked for advice from the Assistant Chief Bailiff, who, he said, had told him to proceed with the distress. He was, indeed, sent to the premises for the express purpose of preventing the Receivers from removing the goods. That advice could only be justified if it was right to regard the Receivers as the agents of the Tenant: the appearances must have suggested that the Receivers were in possession, and, if they were claiming possession in right of themselves, the apparent possession was not that of the Tenant. The judge had serious doubts whether the bailiff did, as he testified, have a belief that the goods were in the apparent possession of the Tenant and was satisfied that, if he did have such a belief, it was unreasonable: the judge was clearly of the view that the bailiff was relying more upon the advice of the Assistant Chief Bailiff than upon his own appreciation of the situation. The Assistant Chief Bailiff may have based his advice upon the proposition that the Receivers were the agents of the Tenant - we do not know - but he gave his advice before the bailiff went to the premises for the third time and certainly did not base it upon a consideration of all the relevant facts.

6. So far I accept Mrs. Kaplan's submission without hesitation. However, I cannot agree that it was enough to show apparent possession in the Receiver and that it was immaterial whether the Receivers were agents of the Tenant: the possession of an agent may be the possession of the principal. The Assistant Chief Bailiff may have formed the view that the Receivers were in possession on behalf of the Tenant and given his advice on that basis, whether or not the bailiff so understood; and, if that view was correct, I think that the bailiff would be entitled to say that the apparent possession of the Receivers was the apparent possession of the Tenant.

7. The Deed of Charge in favour of the Bank was duly registered. It originally created a floating charge but was subsequently converted into a specific charge on the goods itemized in a Schedule. The deed gave the Bank power to appoint receivers and managers of the assets charged, and that power was exercised. Condition 4 of the Deed provides:

"A receiver and manager or receivers and managers so appointed shall be deemed to be the agent of the Company and the Company shall be solely responsible for his acts or defaults and for his remuneration......"

At first sight that seems to make it clear that the Receivers were in truth the agents of the Tenant, but it now becomes necessary to consider more closely the nature of a receivership.

8. At the outset one must distinguish between the position of a receiver appointed under powers contained in an instrument and that of a receiver appointed by the court. A receiver of the former class "is an agent and has such powers, duties and liabilities as are defined by the instrument... under which he is appointed and derive from the general law of agency": 39 Halsbury Laws of England (4th Ed.) 403 (801). The Receivers in our case were "deemed" to be the agent of the Tenant. The word "deemed" is most commonly used where a fact is to be counted as true which would otherwise not be true. In the context of this deed of charge I think it was used to indicate that the Receivers were to be the agents of the Tenant in circumstances where, if the deed was silent as to who was to be the principal, the Bank might have been the principal by virtue of its having made the appointment. That being so, the phrase "shall be deemed to be the agent" produces precisely the same result as would the phrase "shall be the agent".

9. The question then arises whether a receiver appointed under powers contained in an instrument incurs any personal liability so long as he is acting within his authority and does not expressly assume liability. Section 369(2) of the English Companies Act, 1948 provides that a receiver or manager of the property of a company appointed under powers contained in any instrument shall, to the same extent as if he had been appointed by order of a court, be personally liable on any contract entered into by him in the performance of his functions except in so far as the contract otherwise provides. In the absence of that provision he would not be so liable. There is at present no equivalent provision in the legislation of Hong Kong, although by s. 210 of the Companies (Amendment) Bill 1983 it is proposed to include one.

10. We were, however, referred to Meigh v Wickenden 1942 2 Q.B. 160, which appears to be in conflict with the general rule that an agent cannot be held personally liable for acts done within his authority. That was a case where the receiver was appointed without the aid of the court and it was concerned with criminal liability under the Factory Act, 1937. The receiver was charged with being the occupier of a factory in which there had been' a contravention of the provisions of the Act relating to the guarding of machinery. He contended that he could only be liable if he had connived at an offence by the company, because he had not been appointed by the court and the principle stated by the House of Lords in Moss Steamship Co. Ltd. v Whinney 1912 A.C. 254 had no application. The Divisional Court did not find it necessary to decide that issue It said that the most favourable way in which his case could be put on behalf of the receiver was that the company was still the occupier and that he was merely in the shoes of the directors: such a view was not acceptable, because by the terms of the deed he was appointed to take possession of the company's assets, which was something different from the function of the directors. Viscount Caldecote, C.J. said at p.168/9:

"He had absolute and complete power to manage the property of which he took possession, including the factory, with a possible view to its realization, if necessary, in order to secure the debt owed to the debenture holder. As between the appellant and the company, therefore, I think the appellant was the person in possession and it follows, in my judgment that he was properly convicted as occupier."

11. As I see it, that decision justifies the argument of counsel who appeared for the prosecutor that the receiver was "not an agent in any true sense" in relation to the occupancy of the factory, whatever he might be in relation to contracts entered into by him. The power of a receiver to take possession of property and to oust his "principal" from possession places him in a unique position among agents. The whole foundation of a receivership under a debenture is that the receiver shall act for the benefit of the debenture holder, even though that be to the detriment of the receiver's "principal". For that purpose he is authorized to take possession of property and to hold it in his right as receiver even though that be against the present will of his "principal".

12. If that be right - as I think it is - it is not open to the Landlord here to distrain upon the goods of the Tenant which were in the possession of the Receivers, because such goods were in the apparent possession of the Receiver in their own right and not in right of the Tenant. I would therefore dismiss the appeal against the judge's decision relating to the Bank's goods.

13. That leaves the claims of the other two claimants, who have not appeared upon the appeal. The judge seems to have accepted the bailiff's evidence that he acted in the belief that all the stock in trade in the premises were in the apparent possession of the Tenant. As I understood him, the judge's view was that the bailiff thought the Receivers were claiming all those goods, because he had not seen the inventory attached to the Notice of Specific Charge, and it was on that basis that the judge held that none of the goods was distrainable. In truth the Receivers were claiming only part of the goods but by chaining the premises after driving the Tenant's employee from the premises, they had also apparently ousted the Tenant from possession of the property of the 2nd and 3rd Claimants and of other property of the Tenant which was not the subject matter of any claim. So far as the bailiff was concerned all the overt signs of which he was conscious pointed to possession's being in the Receivers. In truth the Receivers had not taken possession of any goods other than those claimed by the Bank, and, had the bailiff been aware of that, he might properly have seized them unless there were signs that someone else had ousted the Tenant from possession.

14. The 2nd Claimant claims two component parts of what I think may fairly be described as a public address system, other parts not in fact having been seized by the bailiff. The main item bore a label with the name "Reditune" on it. That was, as I understand it, a label affixed at the time of manufacture and would not alert the bailiff to any claim by the 2nd Claimant. If these goods were not in the apparent possession of the Receivers, I think the bailiff would reasonably conclude that they were in the apparent possession of the Tenant. It would be a strange result if goods which otherwise would have been distrainable were privileged from seizure because the Receivers had locked the premises although they did not claim those goods. Accordingly I would allow the appeal in so far as it relates to the goods of the 2nd Claimant.

15. The same consideration applies to the goods of the 3rd Claimant. In relation to it there was a further argument that, by reason of the allocation to the 3rd Claimant of a portion of the premises, the goods in that portion were in the apparent possession of the 3rd Claimant and not in the apparent possession of the Tenant. The judge expressed his view on this aspect of the case, although it was not necessary for him to do so, and he found that the goods of the 3rd Claimant were not "so clearly distinguishable inside the premises that the bailiff could not have believed them to be in the apparent possession of the [Tenant]". However, he said he would have held that those goods were protected from distress as being goods in the hands of a commission agent. He based this conclusion on Findon v McLaren (1845) 6 Q.B. 892. With respect to him I do not think that that case was in point. From the evidence the 3rd Claimant was not a commission agent and could not bring itself within s.88 of the landlord and Tenant (Consolidation) Ordinance, which reads in part :

" A bailiff shall not seize -
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Ever if the correct interpretation of the evidence is that the goods were delivered to the Tenant for sale (which is open to doubt) it was clearly done as a result of a private treaty between the tenant and the 3rd Claimant and there was no evidence that the Tenant held itself out generally as accepting for sale the goods of any person who chose to avail himself of that service. Accordingly the Tenant was not "exercising a public trade": see Muspratt v Gregory (1836) 1 M. & W. 163. In my view the goods of the 3rd Claimant were in the apparent possession of the Tenant, as found by the judge, and were not privileged from distress. I would allow the appeal in so far as it relates to the 3rd Claimant also.

Yang, J.A.:

16. I have had the advantage of reading my lord the Vice President's judgment in draft, and I respectfully agree with his conclusions and the reasons he gave therefor.

Barker, J.A.:

17. I agree entirely.

2nd April 1984