Far East Structural Steelwork Engineering Ltd (in Liquidation) v. Bank of China (Hong Kong) Ltd
Read the full judgment text of CACV 348/2004 on BabelCite. This Court of Appeal judgment was delivered on 15 June 2006.
1. This is an appeal from the order dated 27 October 2004 of Kwan J made in an application by the liquidators of Far East Structural Steelwork Engineering Ltd (“the company”) against the Bank of China (Hong Kong) Ltd (“the bank”) as the successor corporation of the Kincheng Banking Corporation (“Kincheng”) under section 182 of the Companies Ordinance. The liquidators successfully sought a declaration that certain debits made from the company’s account held with Kincheng between 20 April 2001 an
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cacv 348/2004 in the high court of the hong kong special administrative region court of appeal civil appeal no. 348 of 2004 (on appeal from HCCW NO. 354 of 2001)
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Before: Hon Le Pichon, Cheung and Yuen JJA in Court Date of Hearing: 23 - 24 March 2006 Date of Handing Down Judgment: 15 June 2006 ______________________ J U D G M E N T ______________________ Hon Le Pichon JA: 1.This is an appeal from the order dated 27 October 2004 of Kwan J made in an application by the liquidators of Far East Structural Steelwork Engineering Ltd (“the company”) against the Bank of China (Hong Kong) Ltd (“the bank”) as the successor corporation of the Kincheng Banking Corporation (“Kincheng”) under section 182 of the Companies Ordinance. The liquidators successfully sought a declaration that certain debits made from the company’s account held with Kincheng between 20 April 2001 and 21 July 2001 in the total sum of $656,043.01 constituted a disposition of property within section 182 and obtained an order for repayment. Background 2.The company had been a customer of Kincheng since November 1985. It opened a bills account with Kincheng and, inter alia, signed a General Letter of Hypothecation and an Agreement on 25 November 1985. The General Letter of Hypothecation was in the following terms:
3.Some years later, on 17 February 1993, the company signed a Running Trust Receipt Agreement in favour of Kincheng which, in pertinent part, read:
4.The underlying transactions were advances made by Kincheng to the company under two local letters of credit. As a full set of documentation was before the court in respect of the second letter of credit, I propose to set out the procedure adopted by reference to that letter of credit. 5.On 14 October 2000, the company applied to Kincheng for a letter of credit in favour of KYH Steel Co. Ltd in the sum of $514,325.24 for the supply of assorted steel materials to be delivered locally no later than 28 October 2000. The documents stipulated in the application to be presented comprised a signed commercial invoice in triplicate and a cargo receipt. On the following day, 15 October, the company signed a trust receipt in favour of Kincheng. It read as follows:
It is to be observed that no particulars of the goods were given other than a reference to the letter of credit which was issued on the same day. 6.On 16 October 2000, the company signed a cargo receipt in favour of KYH Steel Co Ltd. The operative part read:
7.On 19 October 2000, the negotiating bank presented to Kincheng a draft, a cargo receipt signed by the company and an invoice signed by KYH Steel Co. Ltd. Kincheng issued an inward bill advice to the company on 24 October 2000 and effected payment of the letter of credit on the same day. 8.The first local letter of credit followed a similar pattern save that the trust receipt was issued on the same day as the day of application, the amount was different and the goods concerned were brass sheets. 9.A petition to wind up the company was presented on 17 April 2001. A winding up order made several months later. The seven debits which were the subject of the section 182 application were made as follows:
The first three debits were made on the verbal instructions and authorisation of an officer of the company. The aggregate amount debited represented a loan and interest under the first letter of credit and the loan was accordingly retired on 4 May 2001. The remaining four debits were again made on the verbal instructions and authorisation of an officer of the company. 10.Whilst the trust receipt referred to the possible existence of a “General Commercial Agreement”, none has been produced. Given the terms of the trust receipt, it is possible that the company never signed such an agreement. In any event, for present purposes, its existence is purely speculative. This appeal 11.In the court below, the two issues the judge was asked to determine were, first, the nature of the security purported to have been created in favour of Kincheng under the letters of credit transactions; and second, if a security was created in favour of Kincheng, whether it was valid against the liquidators. The judge ruled that there was no valid pledge; that the security created was an equitable charge; that the trust receipts and the cargo receipts constituted a bill of sale and were not within the statutory exception. 12.Section 80(1)(c) of the Company’s Ordinance requires the registration of a charge created by a company if it is created by an instrument which, if executed by an individual, would require registration as a bill of sale. Since the trust receipt and the cargo receipt would have been registrable as a bill of sale under the Ordinance had they been executed by an individual, the judge held that equitable charge created in favour of Kincheng void for non-registration. 13.Mr Yu SC who appeared for the bank submitted that the trust receipt and the cargo receipt fell within the statutory exception such that the equitable charge so created did not constitute a bill of sale; and, second, there was, in any event, a valid pledge. I propose to deal with these in turn. The Bills of Sale Ordinance (“the Ordinance”) 14.The statutory definition of a bill of sale is to be found in section 2 of the Ordinance:
It will be seen that certain documents are excluded from being bills of sale. 15.The parties accept the judge’s finding that the trust receipt and the cargo receipt created an equitable charge. Prima facie, that is within the definition of the “the bill of sale” for the purposes of the Ordinance unless the statutory exception applied. The issue therefore was whether those documents were “any other documents used in the ordinary course of business as proof of the possession or control of goods used in the ordinary course of business as proof of the possession or control of goods”.
16.Mr Yu SC submitted that the documents in question fell within that part of the statutory exception. The affirmation of Ho Kwok Tai, the manager of a branch of the bank dealt with the general practice in the handling of local letters of credit transactions. In pertinent part, it read:
17.As the judge noted, Mr Ho deposed to the cargo receipts being treated as documents of title. At the hearing below, Mr Kerr who was the bank’s counsel had submitted that in addition to the cargo receipts, the trust receipts were also documents of title. The judge rejected those submissions and before this court Mr Yu accepted that neither the cargo receipts nor the trust receipts were documents of title. He relied solely on paragraph 25 of Mr Ho’s affirmation, in particular the last sentence, as evidence of the ordinary course of business of local banks. He jettisoned the document of title submission and, in particular, disavowed any reliance on paragraph 27 where Mr Ho deposed to there being an established local custom of treating cargo receipts as documents of title. 18.The part of the statutory exception under consideration has two aspects to it: first, the relevant document has to be used “in the ordinary course of business”; second, it must be so used “as proof of the possession or control of goods”. It is to be observed that in relation to the first aspect, it is the general practice of the relevant trading activity that is relevant and not merely the business practice of the particular debtor. See Gough, Company Charges, 2nd edition at 672. Whilst the evidence on the first aspect was hardly over whelming, it is to be noted that there was no evidence to the contrary. The real challenge related to whether the relevant documents were “used as proof of possession or control” and it is this aspect that requires attention. 19.The bank placed considerable reliance on the decision of the English Court of Appeal in In re Hamilton Young & Co. [1905] 2 KB 772. In that case, advances were made by the bank to the firm to enable it to purchase goods for shipment to the East. The firm purchased goods and had them prepared and packed in England before being shipped to Calcutta. The goods when purchased were sent to bleachers to be bleached and afterwards they were returned to the firm or sent to packers to be packed for shipment. As security for the advances, the firm gave the bank “letters of lien” in these terms:
Ten days before the firm’s failure, the bank wrote to the bleachers whose receipts it held requesting them to hold the goods to the bank’s order. All the letters of acknowledgement from the bleachers to the bank were dated prior to 24 July, except one, which was dated subsequently. The bank claimed the goods which just before the failure of the firm could be divided into three categories: (1) goods, the subject of letters of lien, which were then lying at the bleachers; (2) goods, the subject of letters of lien, which were not in the hands of the bleachers but which could be traced as being then in the hands of the firm; and (3) goods, not the subject of any letters of lien which, on 24 July, were in the hands of the bleachers or of the firm or at the packers or at the docks. The Court of Appeal answered all three questions in favour of the bank. 20.Vaughan Williams LJ was of the view that the letters of lien with the accompanying receipts were not bills of sale because they came within the exception. He considered that the documents were records of the bargain creating a lien or charge in favour of the bank and that the bank had control despite the fact that the firm could deal freely with goods in preparation for shipment to Calcutta. He reasoned that on the strength of those documents, the bank would at any time have been entitled to an injunction restraining the firm from dealing with them for a purpose other than that of preparation for shipment to Calcutta. Stirling LJ doubted whether the letters of lien came within the exception but was not prepared to differ from his brethren who agreed with the view taken by Bigham J. At page 790 of the report, Cozens-Hardy LJ remarked that the arrangement contemplated by the parties was one which would result in the handing over of bills of lading when the goods were ready for shipment to Calcutta. He was of the opinion that any dealing with the goods by the firm inconsistent with that arrangement would be restrained by injunction and that was sufficient to give the bank the requisite “control” of the goods. 21.It is to be observed that a lien as commonly understood is a security based on possession. Whatever the effect of the letters of lien in Hamilton Young, they never conferred possession on the bank. As the judge correctly noted at paragraph 31 of her judgment, the documents described as letters of lien in that case was a ‘misnomer’, for the bank had neither goods nor documents of title. See Paget’s Law of Banking, 12th edition, para 31.14. The letters of lien could not have created anything other than an equitable charge. 22.Mr Yu relied on Hamilton Young as authority for the proposition that a document (whether called letter of hypothecation, trust receipt or letter of lien) which creates an equitable pledge or charge over goods is the document used as proof of possession or control and, if used in the ordinary course of business, is excepted from the definition of “bill of sale” and does not require registration. Assuming, without deciding, that Hamilton Young was correctly decided, in my view, there are significant differences which distinguish the present case from Hamilton Young. For one thing, as noted in the judgment of Cozens-Hardy LJ, the arrangement between the parties in Hamilton Young would result in the handing over of bills of lading when the goods were ready for shipment to Calcutta. The intervention of the court by injunction would have served to preserve that arrangement which, ultimately, would have vested possession of and title to the goods in the bank through the bills of lading. In the present case, not only were there no such arrangement, it is not at all evident what the company was to do with the brass sheets and the assorted steel materials purchased through the advances made under the local letters of credit or how the advances were to be repaid. This was not the case of an onward sale. There was no evidence of any contemplated use to which the goods in question would be put. Nor would it appear that the company was obliged to deal with the goods in a particular manner other than to hold them on trust for the bank. The last thing one would have thought the bank would have wanted would have been the goods themselves. It is difficult to envisage the circumstances that would ground an application for an injunction by Kincheng and the nature of any such dealings with the goods by the company that could properly be restrained. Unlike Hamilton Young, where there was an arrangement as to what was to be done with the goods, here there was none. There was no evidence to suggest that the company would not have been at liberty to sell the goods. To the contrary, the Running Trust Receipt Agreement contemplates a sale although not to any specific buyer. I do not consider that in the present case control via the courts as in Hamilton Young could have availed Kincheng because there was nothing to restrain. For these reasons, I do not consider that the trust receipt and/or cargo receipt could be proof of possession or control for the purposes of the statutory exception. 23.It should be mentioned that although Hamilton Young was applied by Bucknill CJ in In re Winklemann & Lubking Ltd [1915] 14 SSLR 19 and by Li J in UDI (HK) Ltd v Fantana Ltd, CWU No. 19 of 1976 (unreported), those decisions do not add anything to Hamilton Young. Was there a valid pledge? 24.Mr Yu submitted that, in any event, a valid pledge had been created. At common law a pledge is created by delivery, actual or constructive, of the collateral to the pledgee. In the present case, it was common ground that there had been no transfer of physical possession of the goods to the bank. The question therefore was whether there had been constructive delivery. The giving of documents of title to Kincheng would have constituted constructive possession. However, it was accepted that the trust receipt and the cargo receipt were not “documents of title” and that it was necessary for the bank to establish that they had been an attornment which would have effected constructive possession. 25.The classic exposition of a pledge is to be found in the speech of Lord Wright in Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53 at 58 to 59:
26.The exception referred to were bills of lading which have a special position in the law merchant. Lord Wright went on to observe that:
27.The present case did not concern goods held in the custody of a third party which formed much of the discussion in Lord Wright’s speech quoted above. As I understand it, Mr Yu’sargument was that the trust receipt and the cargo receipt together effected a change of possession required to constitute constructive delivery and amounted to an attornment by the company as owner in possession to the bank. Mr Yu drew attention to the speech of Lord Parker in Dublin City Distillery Ltd v Doherty [1914] AC 823 at 852 where he said:
In that case, D had advanced monies to a distillery company on the security of manufactured whisky stored in a warehouse. On the occasion of each advance, the company delivered to D an invoice and a warrant which described the particulars of the whisky and stated that it was deliverable to D or his assigns. Lord Parker remarked that the terms of the warrant were somewhat ambiguous. He opined that if the true meaning of the warrant was that it was intended to be an acknowledgement by the distillery company that it held the goods referred to as bailee for D or his assigns by indorsement,
28.In both transactions under consideration in the present case, the company did not have possession of the goods in question at the time it signed the trust receipt in favour of the bank. There could not have been any attornment at that point because of the lack of actual possession. If anything, the trust receipt could be said to be an agreement for a pledge which, of course, does not of itself constitute a pledge. Subsequent to signing the trust receipt, the company signed the cargo receipt. The terms of the cargo receipt which have been set out in paragraph 6 above made it abundantly clear that the goods described in the invoices were received by the company “upon trust for and/or on behalf of Kincheng”. Given the sequence of events and the terms of the cargo receipt, arguably, the company’s possession of the goods was never as beneficial owner but as trustee only. If that analysis is correct, there could not have been any attornment to constitute constructive delivery. If, however, there was a scintilla of time during which the company assumed possession as beneficial owner, no attornment would have been effected by the signing of the cargo receipt for the simple reason that the attornment or acknowledgement was not made to the bank but the seller. 29.Reliance appears to be placed on the presentation of the cargo receipt by the negotiating bank to Kincheng. The delivery of the cargo receipt was said to have ‘perfected’ the security. Pausing here, it is to be noted that there was an interval of four days between the giving of the trust receipt by the company and the presentation of the cargo receipt to Kincheng by the seller’s negotiating bank in the transaction considered at paragraphs 5 to 7 above and seven days in the other transaction. On the bank’s analysis, the relevant pledge was an exercise that stretched over a period of four to seven days. For my part, I would be reluctant to resort to such artificiality in order to arrive at the conclusion that there had been delivery of constructive possession. Given that an attornment is an immediate transfer of constructive possession to the creditor which forthwith divests the debtor of the right to use or deal with the asset except as authorised by the creditor (see Goode, Commercial Law, 3rd edition, page 649), the bank’s submission must be rejected. Moreover, as the judge correctly stated (at paragraph 17 of her judgment), there are only 4 types of consensual security known to the law: the pledge, the contractual lien, the mortgage and the charge. The trust is not an independent security device. What has been suggested in this case as constituting a pledge is in substance nothing more than a trust. To uphold the submission would effectively elevate the trust to an independent security device. 30.Even if, contrary to my view, a pledge arose, it would still not avail the bank. In the Dublin City case, possession necessary to constitute a pledge could be established, if at all, only by means of an attornment in writing which in that case was the warrant. The fact that the pledge could not be established without reference to the document rendered that document a bill of sale. See Lord Parker (with whom Lord Halsbury agreed) at pages 854 to 855; and Gough, op cit, at pages 659 and 665. As I have already come to the view that the exception to the Ordinance does not apply to the trust receipt and cargo receipt, it follows that the pledge sought to be created is a registrable pledge security and is void for want of registration. Entitlement to the proceeds of sale 31.If, contrary to my view, the equitable charge created was not a bill of sale, the question that would remain in that event is whether the bank has established that the debits in question did not constitute a disposition of property within section 182 of the Companies Ordinance. As the judge correctly held, an equitable charge entitles the creditor to have a designated asset of the debtor appropriated to the discharge of the indebtedness. Where the designated asset has been disposed of or no longer exists, the creditor has a tracing remedy and may satisfy his right out of the proceeds of sale of the designated asset. That issue did not arise for decision by the judge in view of her holding that the equitable charge created was void for non-registration. 32.Approaching the matter as one of first principles, the burden of proof that monies paid into the company’s bank account represented the proceeds of sale of goods covered by the relevant letters of credit must fall on the party asserting entitlement to such monies standing to the credit of the debtor. The only evidence below were the bank statements showing deposits and withdrawals for the period commencing with the presentation of the petition on 17 April 2001 and continuing through to 31 August 2001. As far as I am aware, there was no evidence to explain the nature of the deposits paid into the account during that period. As the intermingling point had been taken by counsel for the liquidators below in the context of whether any effective trust had been created over the proceeds of sale of the goods, I agree with Cheung JA that the matter was squarely before the judge although it did not arise for determination given the judge’s views on the other issues. Had the issue been relevant at the hearing below, I cannot see that there was any other alternative open to the judge but to dismiss the bank’s claim. On that basis, I cannot see that the bank can be in a better position on appeal. I further agree with Cheung JA that the so-called concession is not fatal to the liquidators’ case and, further, that as the matter had been argued before this court, were a respondent’s notice necessary, I would allow it to be issued. In short, even if there had been an equitable charge to which the Ordinance did not apply because of the statutory exception and/or a valid pledge at common law, the appeal must fail. 33.For these reasons, I would dismiss the bank’s appeal. I would also make an order nisi of costs in favour of the company. Hon Cheung JA: The issues as framed 34.The issues as framed by the liquidators before the judge were
35.I would say at this stage that it is apparent that the liquidators had also raised a factual issue on the proceeds of sale which I will deal with later on. BOC’s case before the judge 36.The case of BOC before the judge was that the Cargo Receipts and Trusts Receipts were documents of title for the purpose of creating a security in the form of a trust over the goods. Further by the Trust Receipts the Company received the goods and held the goods on trust for Kincheng and also held the proceeds of sale of the goods on trust for Kincheng. The decision 37.This was rejected by the judge who held that the Trust Receipts and Cargo Receipts were not documents of title; a trust was not a recognized form of consensual security known to the law and the following were the only four types that were recognized : 1) a pledge, 2) a contractual lien, 3) a mortgage, and 4) a charge 38.Instead the judge held that an equitable charge was created by the delivery of the Trust Receipts and Cargo Receipts to Kincheng. She held that
39.However, the judge further held that the Trust Receipts and Cargo Receipts came within the definition of a bill of sale under section 2 of the Bills of Sale Ordinance (‘BOSO’) (Cap. 20) and was void for lack of registration. She further held these documents did not come within the statutory exceptions of a bill of sale. BOC’s case before this Court 40.Mr. Benjamin Yu S.C. and Mr. Godfrey Lam who now act for the BOC but did not do so before the judge, accept the decision of the judge that the Trust Receipts and Cargo Receipts were not documents of title, that an equitable charge had been created in favour of the BOC by the Trust Receipts and Cargo Receipts and these documents were at first sight in the nature of a bill of sale but they challenge the judge’s decision that they do not come within the exception of bill of sale. The equitable charge 41.The Company had acknowledged in the Cargo Receipts that the goods were held upon trust for Kincheng. It had also acknowledged by the Trust Receipts and the terms of the Running Trust Receipt Agreement that it held the goods on trust for Kincheng. The documents had clearly created an equitable charge. In Goode’s Legal Problems of Credit and Security 3rd Ed, paragraph 1-53, it was stated that
42.Lord Wright in Official Assignee of Madras v. Mercantile Bank of India Ltd [1935] AC 53 at page 67 held that,
43.The documents that were relied upon in that case were railway receipts. Bills of Sale Ordinance 44.Section 2 of the BOSO does not define a bill of sale as such but rather include a number of documents. It then goes on to provide some exceptions. The documents were bill of sales 45.The Trust Receipts and Cargo Receipts in this case at first sight clearly come within the ambit of a bill of sale as being one or more of these documents 1) a declaration of trust without transfer 2) an assurance of personal chattels 3) an authority or licence to take possession of personal security for a debt 4) an agreement by which a right in equity to any personal chattels or to any charge or security thereon is conferred. The exception 46.The real question in this appeal is whether these documents came within the statutory exception as being ‘ documents used in the ordinary course of business as proof of the possession or control of the goods ’. 47.Despite the judge’s view that it had not been proved that these documents were used in the ordinary course of business, BOC had clearly stated in its evidence that the method of creating security by the Trust Receipt and Cargo Receipt for an advance in respect of a local letter of credit is widespread in the community in Hong Kong. There is no contrary evidence adduced in this case. Ordinary course of business 48.Ms Linda Chan, counsel for the liquidators, argued that ‘ordinary course of business’ should be in the nature of trade customs and relied on what Lord Devlin said in Kum and Another v. Wah Tat Bank Ltd and Another [1971] 1 Ll. R. 439 at pages 442 and 444 on the proof of customs :
The difference 49.A litigant who relies either on ‘ordinary course of business’ or ‘ custom’ must of course prove them as a matter of fact. But clearly by their nature there must be a difference between these two concepts. As Lord Devlin observed in Kum a good and established custom obtains the force of law and is in effect the common law within that place to which its extends. A custom must by its nature assumes a higher status than the concept of ‘ordinary course of business’, which apart from affecting a particular trade, will also include the dealings between two traders whose trading activities may come within the ambit of ‘ordinary course of business’. Hence I do not accept Ms Chan’s argument on this issue. Proof of possession and control 50.The next question is whether the Trust Receipts and Cargo Receipts are used ‘as proof of the possession or control of the goods’. Bearing in mind the wording of the Trust Receipts, the Running Trust Receipt Agreement and Cargo Receipt, in my view the Trust Receipts and Cargo Receipts clearly were used for the purpose of proof of possession and control of the goods. The Running Trust Receipt Agreement needed to be acted upon and the Trust Receipts and Cargo Receipts were proofs that possession or control of the goods had been given to Kincheng. After all the goods were not in the physical possession of Kincheng and the terms of these documents, clearly showed that Kincheng ultimately retained control over the goods. The Company acknowledged that it was holding the goods and the proceeds thereof as trustee and agent for Kincheng. Kincheng was further acknowledged to be owner of the goods. It and its agents were entitled to ‘inspect’, ‘take possession’, ‘remove’ and ‘dispose’ of them. This must be the clearest form of proof that Kincheng has possession and control of the goods. At the very least these documents must be proof that Kincheng had control over the goods. The matter can be dealt with simply on first principles. In my view the fact that the Trust Receipts and Cargo Receipts were not documents of title does not mean that they cannot fall within the statutory exception. Section 2 of BOSO 51.Ms Chan relied on the proviso (b) of section 2 of BOSO which excludes ‘an instrument charging or creating any security on or declaring trusts of imported goods given or executed at any time prior to their deposit in a warehouse, godown, factory or store, or to their being re-shipped for export, or delivered to a purchaser not being the person giving or executing such instrument’ from being deemed a bill of sale. 52.If I understand the argument, Ms Chan’s point was that if this type of document is excluded then the legislation could not have intended to cover a similar types of document under the ‘ordinary course of business’ category in the statutory exemption. I do not regard this to be necessary so. One must ultimately look at the facts to see whether a particular document fits into the exempted category. Section 3 of BOSO 53.Ms Chan also relied on section 3 of BOSO which provides that
54.The argument is that documents will come within the definition of a bill of sale if the holder is entitled to take possession of personal chattels, hence the Trust Receipts and Cargo Receipts which entitled Kincheng to take possession of goods are bill of sales. 55.In my view, again one has to look at the wording of the exemptions : if documents fall within the ‘ordinary course of business’ category then they are exempted notwithstanding that these documents do give the holder the right to take possession of the goods. ‘As of the same kind’ argument 56.Ms Chan further argued that the ‘ordinary course of business’ document must be as of the same kind of documents listed in the exemption. There is no authority in support of this proposition. In Ian Chisholm Textiles Ltd v. Griffiths [1994] 2 BCLC 291 the judge said that ‘the ordinary course of business’ exception has to be read in the context of the preceding words, i.e. ‘bills of lading, India warrants etc.’. I do not read this to mean that one must adopt the ‘as of the same kind’ method of construction. 57.On the contrary, the intention of the legislation can be seen from the speech of Lord Sumner in Dublin City Distillery, Limited v. Doherty [1914] A.C. 823 :
The rationale of BOSO 58.Ms Chan also invited us to consider the rationale of the BOSO which is to prevent fraud on the creditors by secret dispositions of personal chattels which were retained in the seller’s or chargor’s possession and that the court should be slow to rule that a document which on the face is a bill of sale falls within the exemption. 59.But as Betty Ho observed in her work entitled ‘Security for Credit’,
60.Further as observed by Goode on ‘Legal Problems of Credit and Security’ para. 1-59
61.It is equally important to bear in mind the words of Cozens-Hardy LJ in In re Hamilton Young & Co., Ex parte Carter [1905] 2 K.B. 772 that
In re Hamilton Young & Co. 62.That case was also an illustration of a document coming within the ambit of the ‘ordinary course of business’ exemption. The head note of the case stated bankers from time to time made advances to traders to enable them to purchase goods for shipment to the East. The course of business was for the traders to send the goods to bleachers to be bleached, and afterwards they were returned to the traders or sent to packers to be packed for shipment; and on the occasion of each advance the traders sent the bank a letter of lien accompanied by the bleachers’ receipts for the goods. The letter, which was in printed form, was in these terms: “We beg to advise having drawn a cheque on you for £——, which amount please place to the debit of our loan account, as a loan on the security of goods in course of preparation for shipment to the East. As security for this advance we hold on your account and under lien to you the under-mentioned goods in the hands of [here followed list of goods and names of bleachers] as per their receipt inclosed. These goods when ready will be shipped to Calcutta, and the bills of lading duly indorsed will be handed to you, and we then undertake to repay the above advance.” 63.The English Court of Appeal held
64.Vaughan Williams L.J. held that the letters of lien with the accompanying receipts of the persons in actual possession were documents used in the ordinary course of business. They were also ‘used as proof of the possession or control of goods’ within the exception because the goods while held by the trader or their bailees were to be dealt with by the trader at its discretion. Nonetheless the bank had control of the goods all along because the bank would, on the strength of these documents, at any time have been entitled to an injunction restraining Hamilton Young & Co., if they had attempted to take the goods out of the control of the bank by dealing with them for a purpose other than that of preparation for shipment, and shipment to the East. In re David Allester, Limited 65.That case was applied in In re David Allester, Limited [1922] Ch. 211. A limited company pledged bills of lading with a bank to secure an overdraft. When it was time to sell the goods, the company in accordance with the well established mercantile practice obtained the bills of lading from the bank for realization on the terms stated in the usual letter of trust given by the company to the bank, namely that the company received the bills of lading in trust on the bank’s account and undertook to hold the goods when received and the proceeds when sold as the bank’s trustees and to remit the entire net proceeds as realized. 66.It was held that as the letter of trust merely recorded the terms on which the company was authorized to realize the goods on the bank’s behalf, and did not really create any charge at all, it did not require registration under section 93, sub-section 1(c), (e), of the Companies (Consolidation) Act, 1908, either as a bill of sale within clause (c) or a charge on book debts within clause (e). In the first place it was not a bill of sale at all within the definition of section 4 of the Bills of Sale Act, 1878, and if it had been so, it would on the evidence have been a document “used in the ordinary course of business” within the exception in that definition. U.D.I (H.K.) Limited 67.Hamilton Young & Co. was applied in Hong Kong in U.D.I. (H.K.) Limited v. Fantana Limited (Companies Winding up No. 19 of 1976). From time to time U.D.I.advanced to Fantana whenever Fantana ordered jewellery from Italy. The advance was made to the value of the goods as stated in the invoice in return for trust receipt to be executed by Fantana. Li J held that
In the matter of Winklemann& Lubking Limited 68.Hamilton Young & Co. was also applied in Singapore in In the Matter of Winklemann & Lubking Limited (1915) 14 SSLR 19 where a trading company addressed to their bankers letters of lien in the following terms :—“We herewith beg to certify “that the undermentioned goods fully insured against fire are “kept on lien to your bank in our godown Saiboo Street 7 “against our overdraft with your bank” (a list of the goods being appended). 69.It was held, that such letters of lien were not void as being bills of sale not in the prescribed form nor registered under the Bills of Sale Ordinance, 1886, but were “documents used in “the ordinary course of business as proof of the possession or “control of goods” within the exception in section 5 of that Ordinance. The judge’s view 70.Of the In re Hamilton Young Limited line of cases, the judge held that :
71.While I agree that it is a question of fact whether a document falls within the ‘ordinary course of business’ category, I do not share the view of the current editor of Paget’s Law of Banking 12th Ed Para. 31.14 on the use of these cases. The wording of the document creating the charge will, of course, be different but if their meaning is to confer possession and control on the chargee, then provided there is evidence on the ‘ordinary course of business’ the document will fall within the exception. 72.According to the diligent research carried out by Mr. Yu and Mr. Lam the previous editors of Paget prior to the 10th Edition did not share the same view as the current one. The view of the current editor is also not shared by other works on this topic :
73.Hence on this part of the issue, my view is that the judge was wrong to conclude that the security i.e. the charge created by the Trust Receipts and Cargo Receipts was ineffective because it was not registered as a bill of sale and that they did not come within the exception. Proceeds of sale 74.Ms Chan finally argued that under section 182 of the Companies Ordinance, BOC must justify the debit. Since the security of Kincheng was only in respect of the proceeds of sale of the goods charged, it must show that the sums it had deducted were the proceeds of sale. 75.Although the two issues framed by the judge were based on two issues formulated by Ms Chan in her written submission (paragraph 8) at the hearing, Ms Chan had also in the same submission (paragraph 23) expressly challenged the idea that any effective trust had been created over the proceeds of sale of the goods. She had argued before the judge as she did before us that
76.The previous counsel for BOC had also dealt with the issue in the following way :
77.Hence although the issue concerning the proceeds of sale was not stated by the judge to be one of the issues framed, in substance and in fact it was squarely before the judge. The judge had not made a finding on it. 78.At paragraph 3 of the judgment, the judge stated that
This is in fact a repeat of part of paragraph 10 of Ms Chan’s written submission before the judge, namely,
79.In my view the so-called concession made in paragraph 10 of the written submission, must be read, like the position concerning the framing of issues in paragraph 8 thereof, subject to the express challenge by Ms Chan on the factual issues. Hence paragraph 10 is not fatal to the liquidators’ case. 80.Although the liquidators have not issued a respondent’s notice on this issue, as the matter was one that had been argued before us, for my part I would allow a respondent’s notice to be issued if it was at all necessary. 81.The only answer by Mr. Yu to this point is to rely on In re Tilley’s Will Trusts Burgin v. Croad and Another [1967] 1 Ch. 1179, where it was held :
82.In my view this is not a sufficient answer. Before one can say that the funds had been mixed with both the trust funds (i.e. the proceeds of sale) and other funds of the Company, it is necessary to identify that trust funds had in fact been put into the Company’s bank account. BOC has not adduced any evidence on this. Apart from a general statement that the sums debited were in respect of the letters of credit transactions, there is no evidence adduced that the debited sums were in fact proceeds of sale. This is important because Kincheng would only be able to debit them if they were the subject matter of the charge which was originally secured on the goods. This particular challenge had been squarely raised by the liquidators in the evidence filed in response to the Company’s claim that it had a security over the goods. BOC had not met this challenge. 83.In my view BOC’s case fails on this ground. I would add that BOC is not being put into an impossible position because Clause 5 of the Running Trust Receipt Agreement expressly provides that the Company was required to keep ‘this transaction separate from all other transactions’. Kincheng could have insisted that a separate account should be maintained by the Company for the letter of credit transactions. It certainly had not adduced evidence on why this had not happened. Pledge 84.This is sufficient to dispose of the appeal, but Mr. Yu also argued that in any event a valid pledge has been created by the Trust Receipts and Cargo Receipts. 85.But even if there was a valid pledge, BOC’s case will still fail on the ground that it has not shown that the sums debited represented the proceeds of sale of the goods. 86.In deference to the efforts of counsel, I will set out the arguments of Mr. Yu :
87.Mr. Yu further argued if a pledge subsists, then the Trust Receipts and Cargo Receipts although, at first sight, are bills of sale, nonetheless come within the exceptions. 88.The judge rejected attornment had happened and cited the absence of evidence of physical possession by the Company and any direction by the Company to persons in actual possession to hold the goods for Kincheng. She also said there was insufficient evidence that a change of possession of the goods had taken place. 89.In my view the arguments by Mr. Yu on the pledge by reason of attornment are valid arguments and the doubts of the judge had been answered. However, since I am dismissing the appeal on another ground, I do not wish to make a conclusive decision on the question of pledge by attornment. Conclusion 90.I will also dismiss the appeal in accordance with the terms proposed by Le Pichon JA. Hon Yuen JA: 1st issue 91.The first issue formulated by the judge was: what is the nature of the security purported to have been created in favour of the Bank under the two local Letter of Credit transactions? A valid security was essential because sums were debited by the Bank after the presentation of a petition to wind up the Company. 92.The judge found, and it is accepted by both parties (by the Bank, in the alternative) that the trust receipts and cargo receipts created equitable charges. With respect, I do not think that was the intention of the parties as shown in the relevant documents. In an equitable charge, it is intended that the borrower holds on to the security, and it is only when he fails to repay that the lender would exercise his power to sell the security. That was not the agreement of the parties in these local L/C transactions, because it was always intended that the borrower would ‘deliver the said goods to buyers and to pay [the Bank] the proceeds of sale ...’ (see the Running Trust Receipt Agreement para. (1)). 93.I take the view, for reasons which I shall discuss, that a pledge over the goods the subject of the local L/Cs had been created by the general letter of hypothecation and cargo receipts, with the trust receipts (incorporating the Running Trust Receipt Agreement) imposing a trust on the proceeds of sale of those goods in favour of the Bank. 2nd issue 94.The second issue stems from the judge’s finding that the equitable charges required registration as bills of sale, because she found that they had not been proved to be ‘documents used in the ordinary course of business as proof of the possession or control of goods’ such as to exempt them from registration under s.2 of the Bills of Sale Ordinance. 95.With respect to the judge, I agree with Cheung JA that there has been sufficient evidence to prove that the cargo receipts and trust receipts which are widely used for local L/C transactions, were ‘documents used in the ordinary course of business as proof of the possession or control of goods’. 3rd matter 96.The third matter, which could have been an issue, but which was not, stems from the apparent lack of evidence linking the sums debited by the Bank with the proceeds of sale of the goods the subject-matter of the trust receipts. 97.In this respect, the liquidators have made a concession which vitiates the need for relevant evidence, as I shall discuss later. 98.I will first set out my understanding of local L/C transactions and the intention of the parties as expressed in the documents. Common commercial practice 99.A common commercial practice as I understand it in both England and Hong Kong can be illustrated in the following basic example. Say a businessman wishes to buy certain goods but does not have the necessary funds. He approaches a bank for facilities. The bank is prepared to lend him the money on the security of the goods to be acquired. The businessman signs a letter of hypothecation under which he pledges those goods to the bank as security for the loan. On that basis, the bank lends the money to the businessman and he buys the goods. 100.The goods should be delivered into the bank’s possession because the goods are the bank’s security. Delivery can be actual (i.e. physical) but, as will be discussed later, possession of the goods can be given to the bank constructively by an attornment, i.e. an acknowledgment by a person in possession of goods (be it the borrower or his bailee) that he holds those goods for someone else (the bank). 101.As the intention of both the bank and the businessman is that the businessman would sell the goods, the bank releases the goods back to the businessman so that he can sell them. This is on terms – set out in a trust receipt – that a trust is imposed on the proceeds of sale, from which the businessman repays the sum owed to the bank and the transaction is concluded. 102.The bank gets security over the goods by way of the pledge, but because a pledge depends for its efficacy on possession, the trust receipts are the instruments that “preserve the efficacy of the pledge after the pledgee has parted with possession” (Halsbury’s Laws of England, 4th ed. 2001 re-issue, Vol. 4(1) Bills of Sale, para. 661). In any event, even if the businessman parts with possession and sells the goods without the bank’s consent, the holder of a security is automatically entitled to the ‘fruits’ (accretions, substitutions, proceeds) of the secured property (Buhr v Barclays Bank PLC [2001] EWCA Civ 1223, para. 40). 103.It has been generally accepted in English law that trust receipts of the kind taken by a bank as a condition of releasing secured goods are sui generis – in this context, the ‘trust’ denoted is not a trust in the normal equity sense, but a trust agency by which a pledgor holds the legal title to the goods as fiduciary agent for sale (Halsbury’s Laws, Bills of Sale, para. 661). Local Letter of Credit transactions 104.Where goods are supplied from overseas, the bank obtains possession of them by means of the bills of lading. Bills of lading are of course documents of title, but a change in legal ownership is not necessary to complete a pledge. A pledge is completed simply by delivery of possession. As a carrier is obliged to deliver possession of the goods to whoever presents the bills of lading, delivery of the bills of lading gives the bank as pledgee the right to possess the goods. When the businessman wishes to sell the goods, he delivers a trust receipt to the bank and the bank would release the bills of lading to him. 105.In Hong Kong, in situations where the goods are supplied locally, the practice has grown of ‘local Letters of Credit’, under which a cargo receipt is given to the bank in place of the bills of lading in an overseas L/C transaction. When the businessman takes delivery of the goods from the supplier locally, he gives the supplier a cargo receipt which:
In my view that is an attornment, as it is an acknowledgment by the businessman that he has taken possession of the goods, not for himself, but for the bank. The bank gets the cargo receipt from the supplier, who needs to present it to the bank to get payment under the L/C. 106.Where the businessman has signed only a general letter of hypothecation, it is necessary to specifically appropriate goods so as to perfect the attornment (Halsbury’s Laws of England, 4th ed. 2005 re-issue, Vol. 3(1) Bailment, para. 84). The cargo receipt serves that purpose as, by incorporating details of the invoice and L/C, it specifies the goods pledged. By that attornment, the businessman acknowledges that he has taken possession of those specified goods for the bank. 107.Of course the intention of both the bank and the businessman is that the businessman is to sell the goods. Consequently, after the constructive delivery of the goods from the businessman to the bank by the businessman’s attornment in the cargo receipt, there is a re-delivery of the goods back from the bank to the businessman, with the bank’s interests protected by the trust receipt (see Dublin City Distillery, which is discussed later). Nature of cargo receipts 108.Before the judge, the Bank sought to establish that a cargo receipt was a document of title. In my view that only served to confuse the matter. Mr Yu SC and Mr Lam (who did not appear below) are no longer pursuing that line and I would therefore only say a few words about that argument. 109.I have sought to explain why for goods supplied from overseas, bills of lading are customarily given to the bank, not so as to give the bank title, but because possession of the goods shipped would be delivered by the carrier to whoever presents the bills of lading. In cases where the goods are supplied locally and there are no bills of lading, the cargo receipt evidences the businessman’s attornment that he holds those goods for the bank under the pledge in the letter of hypothecation. A pledge over goods and trust over proceeds 110.So analysed, it is clear in my view that in local L/C transactions such as the ones in this appeal, a pledge is created by the letter of hypothecation and cargo receipt, and a trust is imposed on the proceeds of sale by the trust receipt. That conclusion is supported by a number of cases. Hamilton Young 111.First, in In re Hamilton Young, ex parte Carter the borrower had given to the bank letters of lien (an alternative term for letters of hypothecation) over certain goods. The bank was never in actual physical possession of the goods which were being processed before shipment. In fact the bank had no information as to the movements of the goods (p776 of the Court of Appeal report),but it was nevertheless held that pursuant to the letters of lien, the possession of the bleachers - themselves bailees of the borrower - was the possession of the bank, and not that of the borrower (at p389, per Bigham J). Indeed whilst Bigham J considered that the letters of lien were intended both as proof of the bank’s possession and proof of its control, Vaughan Williams LJ “preferred to take the simpler case of whether they are used as proof of the possession of the goods” (at p788, emphasis added) and concluded that the documents were intended as proof of possession or control within the meaning of the Bills of Sale Act. 112.The significance of the letters of lien was shown in the fact that for the one batch of goods not covered by the letters of lien, the Court of Appeal held that a purported attornment by the bleacher, after the date of the act of bankruptcy, did not give the bank any security in that batch of goods. 113.In my view, the fact that the goods after bleaching and packing would be shipped, and the bills of lading would then be delivered to the bank, was relevant only in showing that the bank had whatever documents were necessary at any point in time to prove that they had the right to possess the goods - consistently with a pledge arrangement and consistently with the present case. Dublin City Distillery 114.The House of Lords rejected the pledge argument in Dublin City Distillery Ltd v Doherty, but only because the evidence was insufficient to prove a pledge. First, the cursory language of the ‘warrants’ issued by the distillery company to the plaintiff (p826) - which simply said that the whisky was ‘deliverable’ - was held to be insufficient to show that a pledge had been created because the goods could have been ‘deliverable’ under all sorts of other circumstances, not necessarily under a pledge (p849). There was “no antecedent agreement as to the nature of the security intended to be created” (pp851-2, 860). The lack of an agreement may be contrasted with the present case where the intention to pledge was clearly spelt out in the general letter of hypothecation. 115.Nor, in Dublin City Distillery, was there delivery of the whisky so as to complete the pledge. The delivery and receipt of the ‘warrants’ (the equivocal terms of which I have mentioned) did not per se amount to a delivery and receipt of the goods (p848). There was no attornment or agreement that the distillery company held the whisky as agent for the plaintiff (pp847-8). And no pledge could be inferred from the conduct of the distillery company either, because the evidence left it uncertain “whether the company did not, in their dealings with the whisky in the first instance, practically ignore the alleged pledge, and treat the whisky as their own” (p849). 116.There was insufficient documentary and oral evidence in the distillery case to prove the intention to create a pledge as well as its completion by constructive delivery, but what is significant is that the House of Lords accepted that, had the facts been otherwise, a pledge would have been validly created. The position is most clearly stated in Lord Parker’s speech (p852):
David Allester 117.In In re David Allester, a company would deposit with the bank the bills of lading for goods as security for loans, and when it (the company) was in a position to sell the goods, it would retrieve the bills of lading and give the bank trust receipts called ‘letters of trust’. 118.The liquidators argued that the letters of trust were ‘declarations of trust without transfer’ and were therefore required to be registered as bills of sale. Astbury J disagreed, holding (p216):
119.The only part of that passage about which I have reservations is where the judge refers to the bank having the right to realize the goods from time to time as pledgee and allowing the realization to be done by the company as experts. This is because in reality, it was always the parties’ intention that the goods would be sold by the company in the course of its own business, rather than at the bank’s instigation to realize its security. But once the goods are sold, a trust attaches to the proceeds as a normal trust (Halsbury’s Laws, Bills of Sale para. 661 fn. 8). Official Assignee of Madras 120.In any event, the decision in David Allester that the bank did not part with possession of the goods by releasing them to the borrower for a limited purpose was accepted by the Privy Council in Official Assignee of Madras v Mercantile Bank of India (p64). This case 121.In the present case, the creation of a pledge over the goods and trust over their proceeds was clearly within the intention of the Company and the Bank as expressed in the letter of hypothecation, cargo receipts and trust receipts, the terms of which have been set out in the judge’s judgment and which I shall not reproduce here. Valid and effective security 122.However the judge found, and both parties are content to accept (in the Bank’s case, in the alternative), that the cargo receipts and trust receipts may be regarded as creating an equitable charge, which does not depend for its efficacy on possession. Cargo Receipts and Trust Receipts used in ordinary course of business as documents proving control of goods 123.Be that as it may, the second issue is: were they required to be registered under the Bills of Sale Ordinance? They would not be required to be registered if they are “used in the ordinary course of business as proof of the possession or control of goods”. These words are straightforward. Of course where “ordinary course of business” is referred to, evidence of prevailing business practice should be adduced (Ian Chisholm Textiles Ltd v Griffiths, p302), but it is not necessary to prove it as a ‘custom’ for which the law makes higher demands because an established custom obtains the force of law (Kum v Wah Tat Bank, p444). 124.The judge took the view that it was “not proved by evidence” that the trust receipts were documents used in the ordinary course of business (para. 44). Although there was some confusion in parts of the evidence because of the various ways in which the case was run below (including the argument that cargo receipts were documents of title), there was in my view sufficiently clear evidence from the Bank that the use of the cargo receipts and trust receipts used in the present case to assert control over the goods which were security for money advanced for their purchase was common and widespread throughout the commercial community in Hong Kong (Ho Kwok Tai I, paras. 25-28). 125.In this respect, I would also note that it had been decided in the Hong Kong High Court in UDI v Fantana Ltd nearly 30 years ago that trust receipts were documents used in the ordinary course of business as proof of possession and control of goods. This finding has not been questioned in any cases in Hong Kong since then, nor is it disputed by the liquidators that trust receipts have been commonly used in Hong Kong since then. 126.As for the evidence from the liquidators, Jackson Ip in fact confirmed in para. 3 of his 1st affirmation that “if the bank accepted anything less (such as in this case – a cargo receipt), it holds documentation which merely evidences title and/or possession to the goods”. Other parts of his affirmation seeking to challenge the Bank’s evidence was unattributed hearsay and hardly confident in its terms (Ip I, paras. 20-22). 127.Given the lack of any serious dispute that the cargo receipts and trust receipts used in the present case are used regularly and frequently in local L/C transactions in Hong Kong as proof of a bank’s right to possess or control the goods identified therein and their proceeds, I take the view that they fall within the exemption from registration under the Bills of Sale Ordinance. It has long been recognized that the general policy of the Bills of Sale Act (on which the Ordinance is based) is “not to interfere with ordinary business transactions” (Hamilton Young, p789). 128.I can see no difference between the transactions in the present case and that in Hamilton Young where it was held by the Court of Appeal that the letters of lien gave the bank “a right to an injunction restraining the borrowers from doing anything inconsistent with their holding the goods on account of the bank and under lien to the bank” (pp784-5) and that the letters of lien, with the receipts from the bleachers who were in actual possession, were documents used in the ordinary course of business as proof of possession or control of the goods (p785). The bank had control even though the goods were held by the borrower or their bailees to be dealt with at the borrower’s discretion in preparation for shipment (p785). 129.In In the Matter of Winkelmann & Lubking Ltd, the court followed the decision in Hamilton Young and further held that it did not matter whether the bank held the bleachers’ receipts, and that “the bank was entitled to their lien on any of the goods mentioned in the letters of lien, whether they were in fact in the trader’s hand or at the trader’s warehouses or at the dyers or at the docks” (p24). No floating charge 130.As for Miss Chan’s alternative argument that the documents created a floating charge, with respect I cannot agree. A floating charge is a charge on a class of assets the constituent items of which are constantly changing. The goods the subject of the local L/C, the cargo receipts and the trust receipts are specific goods, identified by reference to the invoices. They were not changing items in a class of assets over which one charge was created. No charge over book debt 131.Finally, I would mention Mis Chan’s further alternative argument that the charge created was a charge over book debts, an argument which was accepted by the judge (para. 47). Again, with respect, I do not consider that there was any charge over a book debt. A book debt is a sum owing by the businessman’s customers to him. When the pledge and trust were created, the security was valid whether the borrower eventually managed to find a buyer for his goods or not. The security was a pledge over the goods themselves and a trust over their proceeds if and when they were sold. 132.In Ladenburg & Co v Goodwin Ferreira & Co Ltd [1912] 3 KB 275, the goods had already been shipped and sold to the customers f.o.b. before the charge was created. The goods no longer belonged to the borrower, so no pledge or charge over the goods themselves could have been created, and the only asset that the borrower intended to charge must have been the sum already then owing by the customers, which constituted a book debt. This was emphasized by Astbury J in David Allester when he rejected the liquidators’ argument that there was a charge over book debts. Liquidators’ concession that Bank entitled to debit if valid security created 133.As for the third matter, once the goods specified in trust receipts are sold, a trust attaches to the proceeds of sale. Therefore, if it can be shown that the sums debited by the bank were the proceeds of sale of the goods specified in the trust receipts, the Bank would be entitled to debit those sums. 134.In the present case, there was no evidence of what had become of the goods the subject of the trust receipts. The officers of the Company, who would have known what had happened to the goods or their proceeds of sale, did not give evidence for either party. 135.Given the nature of the proceedings before the judge, the burden was of course on the Bank to show that the goods were represented by the sums paid into the Company’s bank account which it debited. Absent evidence to that effect, the Bank’s action taken after the presentation of the petition would have been a disposition of the Company’s property which was void under s.182 Companies Ordinance unless the court gave leave. 136.If the matter had rested there, I would have dismissed the appeal as there was no evidence that the debited sums were the proceeds of sale. However the liquidators had conceded before the judge, as was recorded in para. 3 of the judgment, that:
Consequently, the question whether the debited sums were the proceeds of sale was not in issue before the judge, as demonstrated in para. 15 of the judgment. The judge did not say that she did not find it necessary to deal with the third matter because of her decision on the Bills of Sale point, as one would expect her to do if that had been the case. 137.The concession has not been withdrawn by the liquidators. There is no respondent’s notice from the liquidators supporting the judge’s order on the ground that the Bank was not entitled to debit the sums from the Company’s account because it has not shown that those were the proceeds of sale of the goods the subject of the trust receipts. 138.Presumably the liquidators would not have made the concession recorded in Kwan J’s judgment without fully investigating the Company’s affairs with its officers. In this connection, I note the Bank’s unchallenged evidence that the debits had been authorized by officers of the Company, who would presumably have known what had become of the goods and whether the debited items were the proceeds of sale. 139.Whilst trust moneys should be kept separate, that is essentially an obligation of the trustee (the Company). I do not see why the beneficiary (the Bank) should be penalized so long as the trustee was able to identify which sums paid in had been impressed with the trust. There was exhibited a letter from the Bank’s solicitors to the liquidators dated 19 January 2004 (referred to in Kwan J’s judgment, para. 13) in which it was asserted that after the sale of the goods covered by the documents, the Company paid the proceeds of sale into their account and that certain specified items (referred to in documents not before this court) represented those proceeds. Presumably the liquidators had investigated these assertions before making the concession recorded in para. 3 of the judgment. 140.In those circumstances, since it was undisputed that the debited items were the proceeds of sale of the goods, the Bank was entitled in my view to carry out the debits in this case. Order 141.For these reasons I would allow the appeal with costs to the appellant (the Bank). Hon Le Pichon JA: 142.There will therefore be an order that the bank’s appeal be dismissed with an order nisi for costs in favour of the company.
Ms Linda Chan, instructed by Messrs Stephenson Harwood & Lo, for the Applicant/Respondent Mr Benjamin Yu SC & Mr Godfrey Lam, instructed by Messrs K.W. Ng & Co., for the Respondent/Appellant |
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