The Yien Yieh Commercial Bank Ltd v. Kwai Chung Cold Storage Co Ltd

HCCL000005/1987

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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BETWEEN

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IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

_____________

BETWEEN

Coram: Deputy High Court Judge RODWAY, Q.C. in Court

Dates of hearing: 1st, 2nd, 5th - 7th, 9th, 12th - 16th & 19th - 21st October,1987

Date of judgment: 2nd November, 1987

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Judgment

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1. There are before this court two actions which by order of Deputy Judge Betts were consolidated on the 2nd day of October 1985. In each action the Plaintiff company ("the Plaintiffs") and the Defendant company ("the Defendants") are the same, and the only reason that there were originally two actions instead of one is that the transactions with which we are concerned arise out of dealings between the Defendants (which was essentially a warehouse) and two different third party companies, although each of the latter was itself in turn connected by its transactions with the Plaintiffs, which are as their name suggests, a bank.

2. One of these "third party" companies was called Wallace Investment Company Limited: the other was called Shun Lee Company.

3. Although the writs in the two actions were issued at different times (respectively on the 3rd of December 1982 and the 10th of February 1984) the facts upon which the Plaintiffs base their complaints are virtually identical, but throughout the hearing it has happened that the dealings respectively between the Plaintiffs and the Defendants on the one hand, and with Wallace Investment Company Limited ("Wallace") on the other hand, have assumed a greater prominence than the dealings between the Plaintiffs and the Defendants with Shun Lee - in some instances almost to the exclusion of reference to the latter. It is, however, agreed between counsel that the same principles apply to each of these "Third Parties" dealings both with the Plaintiffs and with the Defendants, and unless otherwise specified hereinafter, a reference in this judgment to Wallace includes a reference to Shun Lee.

4. The Plaintiffs were, as I say, a bank., and in this particular context, they were acting as financiers. The Defendants were a warehouse, specializing in cold storage. Wallace were merchants who dealt (possibly inter alia) in the purchase and re-sale of a variety frozen foodstuffs. In its most simple form, the transactions with which we are concerned deal with purchases by Wallace of numerous consignments of frozen foodstuffs - some of which were purchased directly from vendors who were beyond the seas, and some of whom were local (although even in this latter instance the goods had in fact come from abroad) which said foodstuffs were paid for entirely by means of financing by the Plaintiffs (by letter of credit). On arrival, they were stored in the Defendants' cold storage warehouse in Hong Kong.

5. Having financed each of those transactions, the Plaintiffs naturally wished to have a continuing interest in the consignments in question, and were desirous of having that interest recognised by all parties who had physical possession of them, from the time that those goods passed out of the possession of the vendors, until and including the time that they came to repose in the Defendants' warehouse.

6. This interest was accordingly recognised in a series of documents such as letters of credit, and bills of lading until such time as they came into the Defendants' possession, when that interest continued to be reflected in other documents as hereinafter set out.

7. I should add at this stage that although in these actions we are concerned only with goods which came to be stored from August 1980 (in the case of Wallace) and from April 1981 (in the case of Shun Lee), it is apparent that the Defendants had had similar dealings with Wallace and with Shun Lee before these dates, in none of which dealings (as far as I am aware) had there been any difficulties. There was some evidence to suggest that the dealings with Wallace went back well before August 1980: so far is Shun Lee is concerned, I only know that they preceded April 1981, that being the earliest date with which we are immediately concerned. Furthermore it is clear that the Plaintiffs were concerned in at least some of those earlier dealings as financiers.

8. A fair amount of time was understandably spent in scrutinising the circumstances whereby the goods in question came into the Defendants' warehouse, and what happened to them thereafter.

9. The Plaintiffs themselves called no evidence, but the Defendants called 5 witnesses, and in addition to various agreed documents supplied some documentary aids to the court. One of the latter was a chart, showing the working structure, as they said, of their company (Ex. D3)

10. From this, and from other uncontreverted evidence, the following appears:

11. Doing the best I can, however, with the rather sparse evidence before me, the following appear to be the roles the various personae dramatis played:

12. The Defendants seek by way of counter claim or set off sums including and reflecting coolie hire, but there is no contemporaneous document supporting this charge, or any charge, in respect of coolie hire, relating to wallace or Shun Lee, which has been produced in evidence.

13. Although in cross-examination, he admitted that for storage charges, customers could move from one category to another and agreed that during at least one period, the quantity of the goods stored by Wallace was such as to put them in a higher category, in re-examination he maintained that Wallace always remained in category III. He also maintained that they never had coolies. According to him, once the rate of storage charges and the question of possible coolie hire had been fixed, the information was passed on to the accounting department, and thereafter no longer concerned him, unless there was a change. The only change so far as Wallace were concerned, was that they came within the general ambit of change imposed at the end of March 1981 when category III was increased from 7 cents to 8 cents per lb.

14. It was clear that whatever agreement was arrived at with Wallace occurred sometime before the time with which we are particularly concerned. It was also clear that Lam had no recollection of any conversation with Wallace (and I assume with Shun Lee although he was not asked about them) at the inception of their business relationship, nor did he have any specific recall of a warning telephone conversation in or about March 1981, nor, did he produce a copy of any letter relating to an increase to either Wallace or Shun Lee of that time. He was unfamiliar with the acounting system, and said that the first he knew about Wallace being charged storage rates at 4½ or 5 cents per lb. was in late 1982. He had absolutely no idea when Wallace had first become a customer. He gave no evidence at all about coolie hire charges imposed on Shun Lee, nor did he suggest that Wallace were at any time informed about any change of rate for coolie hire charges, if indeed these were ever imposed on Wallace.

15. Apart from fixing the rates for coolie hire charges (if applicable) and storage charges, it was also Lam's task to go out and find business, and this kept him out of the office for about 50% of the time.

16. Hung Shui Yuen.  His post was that of godown superintendent, and he would therefore have presumably worked on the first and/or the fourth floor of the Defendants' premises. His evidence was of very brief compass. I assume (although he did not say so) that he was in charge of the physical operation of storing the goods. He told me that his salary was about $7,000 p.m. at the relevant time. He told us that he had been present at a meeting in June 1982 when Basco had made certain admissions. He himself had been with the company since its inception. He confirmed that he knew that at times some of the goods in his cold store were held to the order of various banks. He said that in such cases two signatures were required for the delivery orders by which such goods would be released; the signatures were that of the bank and that of the owner. Without both such signatures, the goods would not be released. When asked why that was so, he answered that it was one of the Defendants' Terms and Conditions, as set out on the back of their godown warrant, and, after inspecting the latter, he identified the particular clause as being clause 4. He was not cross-examined.

17. I formed the impression that in giving evidence as to this, he was merely reciting the rules, somewhat parrot-fashion, for it is clear from the evidence of other witnesses, to whom I will refer in due course, that although the Defendants may have had a system in this regard, by no means was it always adhered to for their own part.

18. Before dealing with other witnesses, I think it would be helpful if I set out some more of the background facts, in which I shall refer solely to Wallace although as is apparent, they include reference to Shun Lee.

19. For some time prior to the purchase of the goods with which we are concerned, it is clear that Wallace had been purchasing goods from vendors both foreign and local.

20. In order to do this, they had sometimes requested finance from the Plaintiffs and in such instances, a letter of credit had been opened by the Plaintiffs in favour of the vendor. An example of an application for an L/C by Wallace to the Plaintiffs in regard to a local purchase is set out at pages 1 and 2 of Bundle A - I, and an example of the L/C thereafter established is at page 3 of the same bundle. It is to be observed that one of the terms of that L/C (in common with all other such L/C's) was that the godown warrant (a document which would ultimately emanate from the Defendants when the goods came into their godown) was to be "made out to the order of the Yien Yieh Commercial Bank Ltd. Hong Kong, for the order of the drawee". Payment having thus been arranged, the goods were in due time delivered to the Defendants' premises, where they were stored. Within a day or so of their delivery, the Defendants issued a "go down warrant", of which an example is to be found at page 8 of Bundle A - I. A lot number was ascribed to those goods (in this instance. Lot No. 47884). The date on the go down warrant was the date of receipt of the goods although not necessarily the date of the issue of the Warrant. It is to be observed that even in this example of a "local" purchase i.e. a purchase from a local customer, the warrant includes the expression "Ex S.S. Asian Pearl", a fact which I mention because of a submission made by Mr. Litton with regard to the dubiety of Wallace ever "owning" the goods. Other information to be observed is that the warrant duly was (as specified in the L/C) made out to the account of Wallace but recited that the goods were to be "held to the order of" the Plaintiffs.

21. On the face of the document there was a statement which read "received the undernoted packages on storage subject to the terms and conditions specified overleaf". There then followed a description of the goods, the number of cartons containing them, and the average weight per carton.

22. On the back of the warrant were set out the terms and conditions, printed firstly in English and then in Chinese.

23. I find as a fact that all such go down warrants were sent directly to the Plaintiffs, in whose possession they remained thereafter.

24. Clause 4 of those terms reads "The company will delivery (sic) the goods only on surrender of this Go Down Warrant endorsed by the party who is for the time being registered in the Company's (defined as the Defendants') books as entitled to the goods or against a Delivery Order signed by the said party. Such endorsement or signatures must be written either in English or in Chinese characters by the party so registered as aforesaid or by a person or persons authorised to sign on behalf of the said party and impressed with the chop or stamp of the said party".

25. This document was the only document which came into the hands of the Plaintiffs in which their interest in the goods was  recorded, but internally, the Defendants made reference to this interest in a number of documents of their own viz:

26. The Plaintiffs regarded the goods as security for their loan, and the possession of the Go Down Warrant as a form of title to that security. Had the system laid down by the Defendants been followed by them, no difficulties would have arisen, but as was plain from the evidence, in the majority of instances when dealing with Wallace goods, they did not so adhere to their own system.

27. The Defendants kept a carbon copy of this Go Down Warrant, but whereas the top copy, sent to the Plaintiffs, was on paper of an ordinary thickness, the copy kept by the Defendants was on paper of a much stiffer quality: this was sensibly and apparently because of its more frequent use. An example of this is to be found (by way of sample) as the last document in the Bundle marked Exhibit Dl. On the back of the Defendants copy, instead of the terms and conditions, were columns of empty boxes in which were designed to be recorded any withdrawals from that particular consignment, or Lot No. Of all the Defendants documents produced in this case, this appears to be the one most meticulously kept, and it appears accurately to record the date, the number of packages withdrawn, and the balance left in each case.

28. From the above it will follow that, although in this instance the lot comprised 370 cartons originally, the cartons were withdrawn in smaller numbers, over a period of time, beginning in Sept 1980 and ending in June 1981. By way of example, these withdrawals are recorded on pages 23 to 27 inclusive of Exhibit P.A. - I.

29. Because the interest of the Plaintiffs was recorded in all the Defendants' relevant documents, had the system been followed properly (according to the witness Hung) the signature of the Plaintiffs would have been necessary, together with Wallace's signature, on any document authorizing a withdrawal.

30. These documents differed according to the circumstances. If it was a partial withdrawal, it would have been done by way of a "Delivery Order". An example of such appears at page 21 of Exhibit P.A. - 1. This particular example is however of little use to the Defendants because it was issued by the Plaintiffs - or at any rate signed and chopped by them - in November 1982 - long after all the goods in this lot had gone. But, as I understand it (and there was no very clear evidence of this, or indeed of much of the Defendants' system) this was what should have happened, save only that it should have borne Wallace's signature as well.

31. If the whole amount was withdrawn at one time, or if the remaining amount was withdrawn, then the Plaintiffs should have surrendered the Go Down Warrant endorsed by themselves, and, according to clause 4 (as set out above) endorsed also by Wallace.

32. It is apparent from the evidence, and to some extent was asserted by the Defendants in their pleadings, that what happened in fact was somewhat different. It would seem that during the period August 1980 to June 1982 the vast majority of the foodstuffs bought by Wallace was delivered out, either to Wallace themselves or to parties unknown, probably on the instructions of Wallace, and that such deliveries out were made without the knowledge or authorization of the Plaintiffs. This is to be deduced from the lack of any signature or chop of the Plaintiffs on any document relating to a withdrawal of goods the subject of this claim.

33. In that month of June 1982, it appears from hearsay evidence that Bosco went to see the chairman of the Defendants, and made certain admissions to him, as a result of which the chairman called a further meeting that afternoon. This was on Wednesday 16th June 1982. At the latter meeting, Albert Yeung (the assistant) John Yeung (his brother and a director) William Miao (the manager and a director) Hung (the godown superintendent) Lam Chung Sang and Bosco were present. The chairman was not present, nor was he called to give evidence. The meeting apparently went on for some 3 hours, and during it, Bosco confessed to the fact that he had been aiding and abetting his friend Lam Chung Sang the owner and sole director of Wallace Investment Co. Ltd. wrongfully to obtain possession of the majority of the goods stored by Wallace since August 1980. This had been achieved by overriding the Defendants' own rules as to documents and endorsements, most particularly through the agency of Hui and his "counter staff" (as it later transpired).

34. It would seem that reference was also made at this meeting to the wrongful delivery out of goods purchased by Shun Lee, but because of the comparative lesser importance (I assume of the quantity) of Shun Lee, the conversation centred much more around Wallace's goods. Bosco was asked for an explanation of his conduct: all I am told that he volunteered was that Lam Chung Sang was a friend of his, that the bank (the Plaintiffs) were refusing to lend him any more money, and that he wanted to help Lam Chung Sang. No excuse was proferred as to his involvement in disposing of Shun Lee's goods or at least none that was referred to in this court, and there was no evidence as to how many goods were wrongfully disposed of, when they were disposed of, to whom they were delivered, or on whose instructions they went out - although I assume from the documents that came to light that they all went out on Wallace's instructions.

35. The meeting finally broke up, and although Bosco telephoned twice the following day, he was never thereafter seen or heard of. In due course, the police were informed, and a few days later still, the Plaintiffs were informed. By then Bosco had disappeared: Lam Chung Sang had disappeared and I assume that there was no one in any position of responsibility left at Shun Lee's offices, wherever they may have been. At all events nobody has been charged with any criminal offence arising from these matters, largely, as I understand it, because nobody can be found to charge.

36. A few days after the 16th June (I think on the 19th) the Plaintiffs' directors caused a drawer in Bosco's desk to be forced open, and in that drawer were found a number of items viz:

37. These latter remain a complete mystery: why they were sent, whether an inspection did place, why nothing happened if there was no inspection - all those questions remain unanswered. It can only be assumed that Bosco managed somehow to avoid the issue, because by that time (Sept 1931) some at least of the goods had been misdelivered - see for example Lot No. 48654 referred to on page 20 in Exhibit DB, and again at p. 342 of Exhibit A3, which shows partial withdrawals of this Lot. No. starting on the 25th Oct 1980.

38. On the 21st June 1982 and on divers dates thereafter the Plaintiffs sent letters to the Defendants requesting inspection of the various goods held to their order, and on November 30th formal demand of the goods was made by 2 representatives of the Plaintiffs who bore a letter of authorization and Delivery Orders signed by them. It is to be observed that the Delivery Orders were not countersigned by Wallace, nor were the Go Down Warrants presented.

39. It is accepted by the Plaintiffs that the Go Down Warrants in their possesion were never countersigned by the Defendants.

40. How did it come about that despite the Defendants own Terms and Conditions, those goods came to be misdelivered to, or on the instructions of, Wallace without the Plaintiffs' knowledge or consent or authority? To answer this, we must go to Hui's evidence.

41. Hui, as will be recalled, was the "counter supervisor". He was called into the witness box at 2:30 p.m on the 14th October 1987, somewhat out of turn, according to Mr. Mills-Owens. He said that he no longer worked for the Defendants, but had worked for them from July 1972 until April 1986. Amongst other duties, he signed the receipts for goods when they came into store. He said it was Miao who signed the Go Down Warrants. He described the system for withdrawal of goods, which he said was this:

42. He was then referred to Exhibit DE pages 1 - 22 which he -identified as Delivery Orders by which a series of deliveries out to Wallace, properly endorsed by the Plaintiffs, between July 1980 and Sept 1981 had been authorised. By contrast, at page 23 et seq., he then identified a number of "Delivery orders" of goods belonging to Wallace which were to be delivered to third parties, where the Plaintiffs' countersignature and chop did not appear.

43. When asked how this had come about (knowing as he said he did that these goods were held to the order of the Plaintiffs) he told the court that, when the D.N.O.'s had been first presented to him, he had, according to his usual custom, telephoned Wallace to ascertain the situation with regard to the redemption of the pledge. To begin with, if the documents of redemption had not been provided to him already, he would nonetheless release them to Wallace, on Wallace's undertaking. At some stage however (and we do not know when this was) Wallace failed to honour their undertaking, so thereafter he refused to release them. According to his evidence, Wallace then spoke to Bosco, and Bosco came to Hui, and told him nonetheless to release the goods - not only Wallace's goods but also Shun Lee's and said that he, Bosco, would be responsible for "chasing" Wallace and Shun Lee for the bank release documents. He also told Hui that Hui need not refer such questions to him again in relation to Wallace or Shun Lee. Hui himself therefore passed this information on to his counter clerks telling them in addition that they should ask Bosco if they had any queries, with the result presumably thereafter that Wallace and Shun Lee had carte blanche to withdraw any goods, whether or not they were held to the order of the Plaintiffs, or any other Bank, for that matter.

44. It is therefore small wonder that when the Defendants and the Plaintiffs came finally to look into the cupboard, the cupboard was virtually bare. What did remain, was sold by agreement, between the Plaintiffs and the Defendants, by a company called Wing Cheung, on various dates between the 18th and the 26th August 1982. The goods fetched only a fraction of their cost price. The proceeds were kept by the Plaintiffs although the Defendants were unhappy about this.

45. So, it would seem that from some period unspecified, Bosco gave instructions that both Wallace's and Shun Lee's goods were to be releaser, either to the owner, or on the order of the owner to a third party, notwithstanding that in the Defendants' records the good were said to be held, to the order of the Plaintiffs, and that by their own rules, the Defendants were not meant to release them unless there was prior evidence as to the redemption of the pleuge to the Plaintiffs.

46. In cross-examination which began on the afternoon of October 14th, Hui was asked a number of questions about the (internal) Delivery Notes Out which have been copied in Exhibit PR - (i) and PR - (ii), and in particular about the signatures or initials appearing in the box readed "For office use only". I do not think much turns upon this, save to say that it was a further demonstration of the fact that the Defendants did not always abide by their own rules, even where those rules governed internal practices only.

47. The following morning, cross-examination resumed. I got the distinct impression on the 15th October that he was (in contrast to the previous day) a less helpful and straight forward witness.

48. The Defendants by their original defence had pleaded by paragraph 4 that Bosco was "generally the person in charge of the operation of....... the cold store". Mr. Litton had relied heavily upon this assertion - which he regarded as an admission - in his opening speech. On the third day of the hearing the Defendants applied to amend, and I gave leave for them to do so on certain undertakings, and after the filing of evidence in support of their application. The effect of this amendment was to delete the above assertion altogether. Hui was referred to this pleading in its unamended form, and asked to comment. I felt that he was prevaricating in his answers particularly when he affected not to know the demarcation areas of the responsibilities of the various non-directorate personnel who worker in the same office as he. On several occasions he said that William Miao should be the one to answer, and yet I have little doubt that he knew that Miao was in Australia and not going to be called as a witness. It was clear however that he regarded Bosco as in a position superior to his own. In the final analysis, however, I am left in a position of doubt as to how far beyond his immediate accounting duties Bosco's writ ran.

49. Finally, with reference to Bosco's overriding of the Defendants' rules so far as Shun Lee and Wallace were concerned, Hui was asked "Was this the proper procedure?" to which he answered "At that time, I would have thought so".

50. The implication of his answer was either that he would never question the propriety of Bosco's orders, or that the company's  rules were not much adhered to, or both.

51. In re-examination, he admitted that he did not now think that it was 'proper'.

52. The last witness called by the Defendants was Gilbert Chan, formerly an assistant accountant, presently the Defendants' chief accountant.

53. He, too, joined the Defendants at the time of their incorporation in 1972, and was with them for a period of nearly 7 years at that time, resigning in March 1979. During that period, he worker under, and assisted, Bosco. He rejoined the Defendants at Miao's behest in late 1982. He was therefore not employed at all during the period when Bosco was engaged in his criminal activities. Since late 1982 however he has had overall charge of the preparation of the Defendants' acounts, and by his own admission was in particular responsible for the preparation of the figures for the Defendants' counterclaim/set off in connection with storage charges.

54. On the resumption of his duties in September 1982, it was natural that he should be concerned with attempting to sort out the mess that Bosco had left behind. For this purpose he was given certain documents by Miao including bank statements, books of copy receipts, company ledgers, the log book, copies of DNO's, copy of Delivery Orders, and the documents found after Bosco's flight in his drawer.

55. In round terms, he originally assessed Wallace's storage charges from March 1980 until April 1982 at $740,000 less a credit for monies received in the sum of $46,000.

56. In the Shun Lee case, his original assessment (again in round figures) was for a sum of $1.5m from April 1981 until February 1984 less a credit for some $7,600.

57. By an amendment in February 1987 the Wallace figures were altered, as were the relevant dates. The latter were then asserted to be from August 1980 (and not March) until March 1982 (and not April). The gross sum was changed from $740,000 - odd to $731,000 - odd. The credit disappeared.

58. In Shun Lee's case, the dates were partially but substantially altered: they began in April 1981 (as before) but now ended in January 1982 (instead of February 1984). The figures, too, had altered. The gross figure of $1.5m had reduced to $126,000 - odd: the small credit had (again) disappeared.

59. The alteration of the dates is I believe explicable by the fact that - albeit very late in the day - the Defendants had recast their figures from the date of storage until the actual dates of delivery out rather than until the date of demand. This itself (although only one of the reasons for the change) would affect the figures - in Shun Lee's case, very substantially. It does not however explain the cancellation of the respective credits, nor was Mr. Chan, able to give any very credible reason for this himself.

60. At some stage, Mr. Chan compiled 2 documents which reflect the figures in the amended counterclaim.

61. The figures relevant to Wallace are set out in Exhibit D4, and those relating to Shun Lee are at p. 216A of Exhibit DA 2.

62. Mr. Chan said that he compiled those from the "record at the back of the stiff sheet of the Go Down Warrant". By this he refers to the last document in the bundle marked D1. This was of course not the only basis for these compilations, for they (Ex D4 and p. 216A of DA 2) also include the rate of the storage charges and the coolie hire, neither of which are set out on the back of any Go Down Warrant. These rates, he said, were 7 cents per lb. for storage charges until 31/3/81 and thereafter 8 cents per lb., and $100 per ton for coolie hire until 31/3/81 likewise, and thereafter $120 per ton.

63. It is fair to say that one would not have expected storage charges and coolie hire to be reflected on the back of the Go Down Warrant but one would have expected that these figures would themselves be found elsewhere from accounting documents.

64. On the very eve of the trial, the Defendants produced documents called "Ledger Sheets". These are apparently the primary accounting documents of the Defendants so far as their customers are concerned. Wallace's "customers' ledger" is Exhibit PN and Shun Lee's is Exhibit PO. Ex. PN covers the period 1/4/81 until 31/7/82. No explanation was given for the absence of these customer's ledger sheets for the earlier part of the relevant period namely from August 1980 until 31/3/81. Ex. PO covers an almost similar period namely 1/4/81 until 15/7/82, but again no explanation was offered for the absence of the sheets for the earlier period.

65. The Defendants say that these customers' ledgers sheets were compiled by Bosco and are false: notwithstanding this, their significance from the Plaintiffs' point of view was enormous, and how Mr. Chan, in whose custody they must have lain, came only to produce these to the Defendants' advisers on the eve of this trial, I cannot comprehend. In any event, they have been proved to be correct in some respects.

66. The plain fact is however that nowhere in PN or PO was there any reference to coolie hire being charged or applicable to Wallace or Shun Lee. Further, and more importantly, the rates for storage charges were quite different from those which the Defendants now seek to lay at the door of Wallace, Shun Lee or the Plaintiffs, as Mr. Litton was quite easily able to demonstrate in cross-examination. Mr. Chan said that he got his information about storage charges and coolie hire from Mr. Miao, but Mr. Miao has not been called and so we do not know where he in turn got his information from and I therefore place no reliance on that piece of evidence.

67. Since the Defendants are unable to produce any other documents to substantiate the imposition of any coolie hire on either Wallace or Shun Lee, nor the rate of storage charges applicable to either company, they can only fall back on the oral evidence of Mr. Lam Chan Fai, the business manager. I have already dealt with his evidence, and in the light of his complete absence of recollection of dealings with either company at the inception of their business relationship - which on his evidence, could have been the only time when rates or the provision of coolies were discussed - and in the light of his inability to produce any document from his own department, I find that the Defendants have not proved on a balance of probabilities in their counterclaim any claim for coolie hire, or any charge for storage beyond the rates which Mr. Litton demonstrated in cross-examination, to which I shall advert later.

68. Another mysterious feature about D4 (and therefore I assume about p. 216A of DA 2) is that Mr. Chan said that he compiled that document in Nov/Dec 1982. How, then, did come about that such incorrect figures were pleaded in the original Defences - which were filed in June 1983 and March 1984 respectively? and how did it come about that no amendment was made in either action until February 1987?

69. In chief, Mr. Chan said there would have been one other document from which one could have seen what storage rates, and coolie hire (if any), were charged, and that was from a debit note, issued monthly to the storer. He also said that such debit notes were sent out in duplicate, from which I understood him to mean that one copy was sent to the storer, and one was kept by the Defendants. No such copy debit notes had been produced at that stage, and Mr. Tong, who was examining him, left the matter there, other than to ascertain that the debit note would have looked like the customers' ledger sheet, with the exception of the deletion of the last 2 columns. It is fair to say that Mr. Albert Yeung had been asked extensively about those debit notes earlier in the hearing: I shall refer to that evidence in due course.

70. Almost at the end of his examination in chief, he produced another document (Ex D7) which he said was a recast and up to date version of the credits which should be allowed to Wallace and to Shun Lee. This had been compiled by him the night before, it later transpired.

71. In cross-examination, Mr. Chan was asked about the deletion of the credit for $7,600 in relation to the amendment in the Shun Lee counterclaim. At first, he said this was not a mistake: that it had been deleted because the previous calculations he had made had been wrong. Then, on being pressed further, he said that the amended sum (of some $126,000) had been forwarded without his knowledge and that "those concerned was not aware of the part payment for which credit should have been allowed".

72. Lastly he said that he had prepared the calculations in two lots - resumably one 'lot' was what shun Lee owed the Defendants: the other 'lot' was what the Defendants should give credit to Shun Lee for. The solicitors had only taken one lot.

73. I regret to say that I find his differing explanations for the deletion of that credit to Shun Lee difficult to believe. I am not, however, prepared to go so far as to say that I think was some kind of conspiracy. I think it arose from a purely negligent and inefficient preparation of the Defendants' case, of which this is only one manifestation. I am certainly not prepared to believe that the solicitors entered into any kind of conspiracy (nor indeed was this suggested): I can quite see that they would think that they could rely upon figures produced by their clients' own accountant, and I think it is with the latter that the fault lay. At the end of the day, it has been admitted that this credit of $7,600 should be allowed.

74. Mr. Chan's explanation for the deletion of the credit in the Wallace counterclaim in the sum of $46,000 was the same as his ultimate explanation in the Shun Lee case, namely that he had prepared two lots of calculations, but only one had been forwarded. I find this equally difficult to accept.

75. He was asked at some length about the Defendants' audited accounts for the financial year ended 31/3/83.

76. It is clear that reference should have been made in these accounts to debts alleged to be owing by then by Wallace (at that stage, on the basis of Ex D4 $730,000 - odd) and by Shun Lee (at that stage on the basis of p. 216A of Ex DA 2 $126,000 - odd). No reference is in fact made to either of those sums in the body of the accounts: reference is only made to one of them (Wallace) in a note to the accounts, and there is no reference, even by way of note, to the Shun Lee debt. Mr. Chan's explanation for this non-inclusion was we would have to make a provision which involved an enormous sum of money, nevertheless the provision did not much affect the net profit, so we did not reflect the unpaid storage charges". I do not believe this answer. I think he forgot altogether about Shun Lee, or thought it sufficient to include reference to Wallace (and only an approximate reference at that) merely by way of a note. He then tried to exculpate himself by blaming the decision not to include this in the accounts themselves on William Miao - a witness he certainly knew was not going to be called. Later on, he went further and said "I had put them in (the accounts) but Miao and the CPA took it out and put it into item of 'pending  litigation'". This answer was typical of the witness.

77. Again, Mr. Chan was asked about a receipt for the sum of $16,852.60 alleged to have been paid by Wallace. This did not  (strangely) appear in the Ex PN (the customers' ledgers for Wallace), but was discovered by Mr. Chan amongst the receipts books.

78. In a compilation of Mr. Chan Ex DB (a) this figure appears against the date 28/7/81 (under the heading "Date of Receipt") and also against the date 10/9/81 presumably the date of the "Pay-in slip and Bank-in-date". He admitted that the Defendants had known about his receipt for some time. When asked whose  decision it was not to reveal its existence, he answered "Miao's decision made at that time". By "that time" he meant Nov/Dec 1982. Again therefore he sought to exculpate himself as far as disclosure of this receipt was concerned. As he was the company accountant and responsible for the preparation of the figures for the Defendants' advisers through their several revisions, and particularly for the amendment made in February 1987, I cannot see how lie can now blame this on the absent Miao, who left the Defendants employment in 1985.

79. One of the suggestions made at the time of the final amendment to the Defendants' pleadings was that bank statements should be produced. Mr. Chan eventually produced such, as part of a Bundle, Exhibit D6.

80. The bank statements begin on the 30th June 1981 and end on the 30th Nov 1981. Missing from them are the statements for  August and October 1981. Mr. Chan's explanation for this was that he had only seen fit to produce the statements which had corresponding entries in the receipt books. These latter he had produced at an even later stage in the trial and whilst he was actually in the witness box. The bank statements produced cover the periods July, Sept and Nov 1981 - three months. We are concerned with any credits which should be given to Wallace or to Shun Lee within the period August 1980 - June 1982 inclusive - 23 months. The bank statements therefore avail the Defendants little in disproving Exhibits PN and PO. Even the receipt books which he produced are selective, and do not cover the whole of the period in question.

81. Altogether, I found Mr. Chan an unsatisfactory witness.

82. I must now turn to the non-production - indeed the suppression - of other documents, namely the debit notes rendered monthly to the customers.

83. Mr. Albert Yeung was asked about this extensively in  cross-examination. He agreed that the green form (to be found by way of sample as the penultimate document in Ex. Dl) was a copy of the document sent each month to the customer reflecting what the customer owed, and how the sum was made up. In particular, this document included a heading "Rate", which meant the rate per 1b. of storage charge. Had the Defendants had such a copy document showing the rate to be 7 later 8 cents per lb. storage charge for Shun Lee or Wallace, no doubt it would have been disclosed and discovered, with despatch: the truth however was, that although they possessed these copies on green forms, the figures reflected therein were apparently the same as on the ledger sheets, and were thus adverse to their case. Mr. Yeung's explanation was as follows "A discussion had been held between us and the solicitors in relation to go down charges. The rate contained in the green sheet is incorrect and if calculations were made based on these sheets the accounts would be false". He was then asked "Are you telling us that it was by a conscious decision taken by you and your solicitors that the (original) green documents were suppressed because the information was false?" to which he answered "We did not do that purposely". But, of course, like the information, that answer was false, and the inescapable conclusion is that these documents were deliberately suppressed. Again, however, I acquit the solicitors of any complicity in this, for my impression   elsewhere from Albert Yeung's evidence is that it was Miao, rather than he, who was dealing with the solicitors, and I suspect that reference to the solicitors was hearsay only, although undoubtedly Yeung was himself aware of this decision at the time (late 1982).

84. It was put to him that there had been several orders for Discovery against the Defendants, since that time, which placed a specific burden upon them to disclose such documents, but he affected to be unaware of them, and said those matters were handled by Miao and by Mr. Chan. I do not believe that as a director, and the assistant manager, of the Defendants he was wholly unaware of this duty, or the wrongfulness of the suppression of those documents, and I cannot deprecate too strongly his behaviour, and that of any others concerned in this decision. Whilst on this topic, I should say that it is my clear impression that the Plaintiffs have been severely hampered by late disclosure and discovery throughout the preparation of this case, and this must have added greatly to the time and cost involved.

85. Mr. Yeung expressly agreed that any rate shown in any copy of a completed green form which the Defendants might have produced would have been lower than the rate now sought to be levied against the Plaintiffs.

86. The question, therefore, now is what rate was charged to Wallace and Shun Lee?

87. In his cross-examination of Mr. Yeung, Mr. Litton got the witness to agree, based on the ledger sheets, that the following rates were the rates actually charged by invoice to Shun Lee and to Wallace:

88. In the light of Lam Chan Fai's absence of specific recollection of any agreement with Wallace or Shun Lee, in the absence of any document produced by the Defendants to show any different rates; and in the presence of the customers' ledger sheets (Exhibits PN and PO) I find that the above rates (4.5, 5.5 and 6.8 cents) are the highest rates which the Defendants could have charged Shun Lee or Wallace, and therefore are the highest rates which could be sought against the Plaintiffs. The figures in the counterclaim would therefore have to be worked out on this basis. Furthermore I take the view that in the absence of production by the Defendants of any primary accounting documents for the period prior to the 1st April 1981 (in Wallace case), the only period for which they could charge in either case is the period 1/4/81 - 31/8/82 the latter date being the date by which all the goods had been finally disposed of.

89. So far as credits are concerned:

90. Finally I should say that without prejudice to liability the Plaintiffs` claim in each action has been agreed respectively at $6,258,361.00 and $1,953,504.00.

91. I turn now to the law, but before doing so, apologise for having at some length with the facts and with the evidence. I took the view however, that in the event of this decision going further, my findings on the evidence, and my views on the facts, might be of assistance to another court.

92. It is the Plaintiffs' case that the goods which are the subject matter of these actions were attorned by the bailees (the Defendants) to the Plaintiffs by the issuance to the Plaintiffs of the go down warrants. Mr. Litton accepts that any such attornment was subject to the terms and conditions of the original bailment made by Wallace/Shun Lee to the Defendants, and says that if there was an attornment, the Plaintiffs would in effect become the bailors in place of Wallace/Shun Lee, and the Defendants would become their bailees. As bailees, the Defendants owed a fiduciary duty to the bailors, and if they breached that duty by (in particular) wrongfully disposing of the goods (even to the owner of those goods) then that was the tort of conversion. He said that if one traced the history of these goods from the time they left the possession of their original vendors, one could see that - whether they were purchased locally or from abroad - the goods never in fact came into the possession of Wallace/Shun Lee, until and unless they were wrongfully delivered out to them by the Defendants. He therefore cast some doubt upon the very status of Wallace/Shun Lee as owners. Whilst I agree that these goods never were in the constructive or actual possession of Wallace/Shun Lee before they entered the warehouse, I cannot accept that they were not at all material times owned by those companies. Possession itself is no title to ownership, nor is non-possession proof of non-ownership, and it very often happens that owners never possess the goods they own, in these kind of commercial transactions. All the necessary ingredients as between the original vendors and Wallace/Shun Lee were present by which ownership would pass-identification of the contracting parties, appropriation of the goods, payment for the goods etc: all these conditions were satisfied here, and I therefore hold that in law Wallace/Shun Lee were indeed the owners of these goods.

93. There is no controversy that the Plaintiffs paid for all the goods in question, and further that Wallace and Shun Lee purported to give security over all their goods whilst any debt was outstanding to the Plaintiffs. There was no doubt that Wallace owed the Plaintiffs considerable sums of money, sums in excess of the value of the goods in question. Turning to the Terms and Conditions ("the T & C") on the back of the go down warrant, Mr. Litton pointed out that there were differences - some of significance - between the terms written in the Chinese language and those written in English. It is right to point out however that in clause 13 (in the Chinese version only) English is said to be the version that shall prevail. Although I was originally unhappy about the facts that a) this appeared only in  the Chinese version and b) it was, as it were, tagged on at the end of a clause that dealt with other matters, I was eventually persuaded that it was the English version to which the court should refer in the event of ambiguity, and, as it happens, in the long run I do not think very much turns upon the language (English or Chinese) in which the T & C are to be construed.

94. Mr. Litton said that all the relevant shipping documents recited the fact that the goods were held to order of the Plaintiffs, and this was indeed so, but I do not think that the relationship between any other parties than the Plaintiffs, the Defendants and Wallace/Shun Lee are relevant to the matters that are in issue.

95. Later in his opening, Mr. Litton raised the question of the authorised signatories of the various parties concerned. It was common ground that the Defendants required specimen signatures from their customers i.e. their storers. It was also common ground that the Plaintiffs sent, from time to time, specimens of their own authorized signatures to the Defendants. The Defendants assert that they received those as an act of grace, and that no acknowledgement of title or interest was to be inferred therefrom. In the light of their own words on the go down warrant "held to the order of" and in the light of their requirements in clauses 4 and 5 of the T & C, I cannot see how they can maintain this stance, because, if they were concerned at all to abide by their own rules and Mr. Hung's evidence was correct, they needed to know what signatures of the Plaintiffs they should "pass" before properly delivering out any goods. I therefore accept the Plaintiffs' submissions with regard to the necessity for the Defendants to be given and to hold current versions of the Plaintiffs' authorised signatures.

96. In so far as the Defendants had originally asserted that Bosco was the person "generally in charge" of the godown, the Plaintiffs relied on the authority of Tesco v. Nattras [1972] AC p. 153 at p. 167. In the light of the subsequent amendment to the pleadings, and in the light of my being unsure as to how far Bosco's authority ran beyond his immediate duties as chief accountant, nothing now turns on this point.

97. The Plaintiffs challenged paragraph 1A (a) of the Defence, and did not see how that could be maintained whilst paragraph 4 of the Defence stood. The Plaintiffs' position is that they and they alone had a right to immediate possession, and delivery out to any other person (including the owner) without their authority amounted to a conversion. Proof of this assertion is clearly crucial to their case.

98. By their pleadings the Defendants make 2 points of prime importance:

99. Mr. Litton naturally in his opening dealt at length with the exclusion clauses, and referred the Court to the leading authorities in connection therewith: all this of course was predicated on the basis that there was no doubt about the Plaintiffs having the right to sue.

100. Before considering his elegant and skilful arguments on exemption clauses, both in opening and in closing, it seems to me that I should go directly to the Defendants' first point of attack, because if Mr. Mills-Owens is right about that, then the Plaintiffs have no right to sue; the rest of the case falls away, and the question of exemption clauses will not arise.

101. Mr. Mills-Owens contends that the matter hinges upon clauses 4 and 5 of the T & C. When Wallace/Shun Tee bailed those goods to the Defendants, they agreed to do so on the Defendants terms. Those terms included a term which defined the circumstances only in which the Defendants would release the goods. Clause 4 (which I have set out earlier) says, in effect, that there must be a Go Down Warrant or delivery order "endorsed by the party..... registered in the company's books as entitled to the goods ...".  I think there is no doubt that that "party" was in these circumstances Wallace or Shun Lee. The fact that other clauses talk about "the storer" (notably 7, 8, 12 and 13) rather than "the party .... entitled ..." causes no difficulty in construction, because I think it is clear from each clause what parties or persons are being referred to in the individual case. In all the Defendants' documents, Wallace or Shun Lee are consistently referred to in terms which could only be construed as the owners, or storers, or 'party entitled': they were indeed in those circumstances the Defendants' customers, whatever interest of the Plaintiffs might in addition have been noted and registered (as indeed that interest always was). But the Plaintiffs do not - and have not suggested that they - sue as owners: they sue under a possessory title only. That title comes from the go down warrant and is subject, by common consent, to the T and C set out on the back, which include, of course, clause 4.

102. It must therefore follow that Wallace/Shun Lee had limited their own right to possession at the time the bailment was created, and had they come along and demanded the goods from the Defendants without a properly endorsed go down warrant or delivery order (albeit one that needed only to be endorsed by  themselves), the Defendants would have been within their rights to refuse to deliver up the goods. If the go down warrant therefore gave possessory rights to the Plaintiffs, what precisely were those rights? The Defendants contend that those rights were no greater than those which by then Wallace/Shun Lee possessed i.e. a right subject to a condition precedent being fulfilled namely a proper endorsement by Wallace/Shun Lee on the go down warrant or delivery order which was at that time being surrendered or produced. In that instance, because of clause 5, and because of the "endorsement (by Wallace/Shun Lee) to a third party" (the Plaintiffs), the Defendants would recognise the Plaintiffs' right to possession when the go down warrant or delivery order was received by them. The Defendants contended that in order to get over the difficulty of this condition precedent, the Plaintiffs should have obtained the endorsement of Wallace/Shun Lee as soon as the go down warrant came into their hands, whereafter there could have been no dispute about their immediate right to possession.

103. Mr. Mills-Owens referred to a number of authorities on this "immediate right to possession".

104. In the case of Nippon Yusen Kaisha v. Ramjiban Serowgee [1938] AC p. 429 at p. 443, Lord Wright discusses the importance of the "right of immediate possession". In the circumstances of that case, he held that the vendors, having parted both with the property, and the actual possession, of the goods, had no "immediate right" and could not therefore sue in conversion. The question also arose (at p. 445) in that case of the value of a "mate's receipt", which Lord Wright held was "not a document of title" and did "not pass property in the goods" nor was "its possession equivalent to possession of the goods".

105. The Defendants submit that the same applies to the go down warrant in this case.

106. Lord Wright dealt again with the question of the mate's receipt on p.p. 448 and 449, and on the latter he also said "... it was properly conceded before their Lordships that only such a right (i.e. a right to immediate possession) would entitle the respondents to sue in conversion, and that a merely equitable right or contractual right or license would not do".

107. In Leigh and Sillavan Ltd. v. Aliakmon Shipping Co. Ltd. [1986] AC 785 at p. 809E Lord Brandon says "there is a long line of authority for a principle of law that, in order to claim in negligence for loss caused to him by reason of loss or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred ...". He then recited a line of authorities in support of this proposition. He repeated this proposition at p. 812 (letters C to E) and at p. 818 at letter E where he stated "But so long as the sellers remained the bailors, those terms only had effect as between the sellers and the shipowners. If the shipowners as bailees had ever attorned to the buyers, so that they became the bailors in place of the sellers, the terms of the bailment would them have taken effect as between the shipowners and the buyers".

108. Had this happened here? Mr. Litton says that the issuance of the go down warrant, couched in these particular terms, couldonly be construed to that effect. Mr. Mills-Owens said that because Wallace had not countersigned the warrant, the Plaintiffs right to immediate possession had not been effected, and therefore there was no attornment. It was for the Plaintiffs to prove their right to possession to the exclusion of Wallace before they could sue for conversion. They had not replaced Wallace because their interest was subject to clauses 4 and 5 of the T & C.

109. The Defendants also relied upon the somewhat ancient authority of Gordon v. Harper 1796 7 T.R. 10, where, at p. 829, Lord Kenyon C.J. said "The true question is, whether when a person has leased goods in a house to another for a certain time, whereby he parts with the right of possession during the term to the tenant, and has only a reversionary interest, he can notwithstanding recover the value of the whole property pending the existence of the term in an action of trover. The very statement of the proposition affords an answer to it". Later in  the same case, Grose J. said "... it is clear in this case that detinue would not lie, because the Plaintiff has no right to possession of the specific goods at the time". He also relied upon the dictum of Lord Goddard C.J. in a hire-purchase case where the hirer had defaulted in his payments where he said "The Plaintiff (the hirer) cannot succeed ... either on a claim in detinue or one in conversion ... The Plaintiff had no right to possession as default had been made in the payment of instalments ...": Carr v. Jones Broderick & Co. Ltd. [1942] 2 KB 275 at p. 278.

110. He further relied upon the case of Lord v. Price (1874) 9 L.R. Exch 54 where Bramwell B. at p.p. 55 - 56 said "... the action cannot be maintained without a right of present possession in the Plaintiff" and later "But it cannot be that two men can be entitled at the same time to maintain an action in trove for the same goods. It is therefore abundantly manifest that the vendor could, and that the Plaintiff cannot, maintain this action".

111. The Defendants' point, in reference to this case, was that Wallace would be the only party which could make a claim in the event of wrongful dealings in the goods until it had endorsed those goods over to the bank. If the contractual provisions which are in force do not give a right to possession then the Plaintiffs cannot sue detinue or conversion.

112. It was common ground that no such endorsement had taken place. On the same point, Mr. Mills-Owens cited and relied upon the cases of Bradley v. Copley (1845) 1 CB 685 at p.p. 697 and 699, Short v. City Bank of Sydney (1912) 15 C.L.R 148 at p. 156 and Kahler v. Midland Bank Ltd. [1950] AC 25 at p.p. 55 & 56.

113. The Defendants said that the court must look at the Plaintiffs' right to claim possession and whether by law or by contract there is an immediate right to possession. In effect, they submitted that there being no claim here by law, the right must lie in contract, but the terms of that contract having not been completely fulfilled, the Plaintiffs had no immediate right to possession.

114. Because of the admitted conduct of the Defendants' employee Bosco (and, possibly, Hui), Mr. Mills-Owens also cited the case of Miller v. Whitworth [1970) AC 583 where on p. 603 E Lord Reid said "I must say that I had thought it now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made". This citation, no doubt, was intended to cover the point that the Defendants' employees themselves appeared on occasions to have paid little regard to their employers' own terms and conditions.

115. In answer to the Plaintiffs' point as to constructive delivery by issuance of the go down warrants endorsed "to the order of the" Plaintiffs, the Defendants relied upon Godts v. Rose (1855) CB 229 at p. 1060 where a transfer order was given by the vendor's agent to the purchaser reciting the purchaser's interest in the way of "held to the order of" the purchaser. The purchaser declined to pay but the warehouse, despite express instructions to the contrary, delivered out the goods. It was held that the purchaser had "... neither the property nor the right to possession thereof ...". In the same vein, he relied upon Dublin City Distillers v. Doherty (1914] AC 823 at p. 837/8 and 839, in which the status of "delivery warrants" and endorsements thereon played a crucial part. At p. 847, Lord Atkinson said "The warehouseman holds the goods as the agent of the owner until he has attorned in some way to this person, and agreed to hold the goods for him: then and not until then is there a constructive delivery of the goods".

116. In reply to the above, the Plaintiffs contended that the Plaintiffs' right to possession arose when the Defendants attorned. That attornment took place when the Defendants endorsed the go down warrants "held to, the order of" the Plaintiffs and sent them to the Plaintiffs. The form of attornment was well known to, and used throughout, the commercial world. The attornment had to consist of an intention and an act. Both requirements here fulfilled here. Mr. Litton cited Laurie and Morewood v. Dudin & Sons [1926] 1 KB 223 at p. p. 236/7. He particularly relied upon the passage in Scrutton L.J. 's judgment when he said "I think myself that a very little will suffice to create an attornment". He submitted that the go down warrant operated as a symbol of the right to possession, like the key to a store. He suggested that the Defendants were plainly not holding these goods jointly to the order of the storers and the Plaintiffs. I agree with that submission, and of course it was not one made by the Defendants. He said that the importance of the possession of the warrant was emphasised in clause 4 of the T & C: again I agree, nor would the Defendants I think disagree - they would say it was important but not the end of the story. He suggested that in clause 4 "the party ---  entitled" must mean the party entitled to possession. Regretfully, I do not agree with this construction: I believe it means the owner, or apparent owner, who, as we have seen, is not always entitled to immediate possession (e.g. lessor/lessee). Mr. Litton said (and I agree) that there was little evidence about the proper method for delivery out of a partial number of goods. He suggested that, in order properly to effect this, there should have been both a presentation of a Delivery Order (signed by the storer as well as by the Plaintiffs) together with the Go Down Warrant, so that the balance of the goods left in store could be noted. It is fair to say that the warrant in the Plaintiffs' possession had some space on the face of it in which such withdrawals and balances could have been noted but there was no evidence that they were completed with this in mind. Again, it is a sympton of the Defendants laying down rules which they then themselves may have ignored.

117. Mr. Litton very fairly, placed no great reliance upon the sale of the balance of the goods, found finally in the Defendants possession after 16/6/82, without the storers' authority as being symptomatic of the general system. He furthermore accepts the authority propounded in Whitworth's case.

118. The Plaintiffs submit, and are fully supported in this by the Defendants, that one cannot look at clause 4 in vacuo: the Court must look at all the terms of the contract, and construe each in the light of the others.  I accept this. On the authority of Photo Production Ltd. v. Securicor [1980] AC 827 I also accept that:

119. I assure the parties that, upon their mutual urging, I have looked at all the clauses as a whole, as well as looking at them individually and I have found no difficulty in construing the individual clauses in relation to all their neighbours.

120. Mr. Litton suggested that an attornment acts as an estoppel, and, again, I agree with him. As between the bailee (the Defendants) and the Plaintiffs there can be no doubt that the bailees are recognizing an interest by the Plaintiffs in the goods which were in the Defendants' possession. The question is, how far does that interest extend?

121. Mr. Litton goes on to say that the Plaintiffs are a secured creditor (of Wallace), and that if there was a winding-up of Wallace then, if the construction put upon clause 4 of T and C by the Defendants is correct, sec. 182 of the Companies Ordinance would prelcude them from being preferred creditors, and would nullify their security. If Wallace had passed over to the Plaintiffs their rights to possession in the security, that would not be so, for the Plaintiffs would then stand in Wallace's shoes vis-a-vis the liquidator: the question is, did they do so?

122. The Plaintiffs say that the Defendants never had the right to possession in cases where the goods were purchased from overseas customers. That right passed from the vendor to the shipper to the bank to the warehouse. They say the same facts apply to local purchases. I regret that I do not agree. Whoever may have had the right to immediate possesion before the goods entered the Defendants' warehouse, I think at that latter moment, Wallace did have such a right, because the only party from whom the Defendants could have accepted instructions to attorn at all were Wallace. If Wallace never had a right to possession, there was nothing for the Defendants to attorn, because it has never been suggested that they were transferring ownership to the Plaintiffs, or any right possibly other than a right to possession. I therefore hold that they did - however briefly - have such a right.

123. Did they pass that right to possession over to the Plaintiffs by instructing the Defendants to hold the goods to the Plaintiffs' order?

124. I think that the answer must always come back to the terms of the original contract of bailment.

125. There can be no doubt that the go down warrant is the only basis for the Plaintiffs being enabled to claim an interest in the goods. Though they had paid for them, they were never the owners, and their claim could only rest upon a possessory title. The possession of the Go Down Warrant was itself an important part of their claim to possession, because without that, their claim never got off the ground. It was not however all important, because by the terms of the very document which could give them any right to a claim for possession, the possession and production of that warrant was limited by the words "endorsed by the party who is ... entitled". I have already held that that "party" was Wallace/Shun Lee, and I therefore accept the Defendants' argument that the Plaintiffs' right to  immediate possession would only have been perfected if and when the Plaintiffs had obtained that endorsement. It being common ground that no such endorsement ever having been obtained by the Plaintiffs, I must hold that they had no immediate right to possession, and therefore no right to sue.

126. I think that ultimately the test must be this. If the Plaintiffs had surrendered to the Defendants the go down warrants at a time when the Defendants still had the goods, but the Plaintiffs had obtained no endorsement from Wallace, the Defendants would have been fully entitled to deny delivery. Furthermore, it does not necessarily follow that the Plaintiffs would have obtained - or been able by right to obtain - Wallace's endorsement: Wallace might well have said at that stage "We have redeemed our pledge on these goods - or on all our goods: you are not entitled to possession". Thus they might well have deliberately preserved their own rights to possession or at least denied to the Plaintiffs such rights. If the Plaintiffs had therefore no such right to immediate possession, I am satisfied on the authorities that they cannot prosecute a claim in conversion.

127. It follows that the Plaintiffs claim must fail, and there must be judgment for the Defendants. I make an order that the Defendants do have their costs with a certificate for 2 counsel on the claim. After hearing argument on the question of costs on the counterclaim, and because of the poor view I have expressed of the Defendants' preparation of their figures in their counterclaim, the Defendants shall have only 50% of their costs on the counterclaim. The bond which the Defendants were obliged to put up at the time of the order 14 proceedings, and a payment into Court by them shall both be forthwith returned to the Plaintiffs' solicitors. All original exhibits shall be returned respectively to the parties' solicitors at the expiration of the time allowed for notice of appeal to be filed, or pending the outcome of any appeal as appropriate.

128. I would like to add a few further comments:

Representation: