Copthorne Holdings Corporation v. Wealth Fair Technologies Ltd

DCDT 3144/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 3144 OF 2009

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Coram  :  Deputy Judge Osmond Lam in Chambers

Dates of hearing  :  16^th July, 2009

Date of handing down Reasons for Decision:  22^nd July, 2009

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Reasons for Decision

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Background

1.This is a dispute between the Landlord/Plaintiff (“the Landlord”) and the Hang Seng Bank Limited/Claimant (“the Claimant”) concerning certain assets of the Tenant/Defendant (“the Tenant”) being machineries located on the premises known as Units A, B, C and D, 2^nd Floor, Wah Shing Centre, 5, Fung Yip Street, Chai Wan, Hong Kong.

2.There is no question that the Tenant owed the Landlord arrears of rent and the Warrant of Distress was issued on 11^th June 2009.  There was some delay in execution of the Warrant in the sum of HK$966,420.00 being 6 months rent, as it is claimed by the Landlord that the Tenant had refused the Bailiff entry and the Bailiff could only actually seize all the goods and chattels, including the machineries in question on the premises on 24^th June 2009.  The Plaintiff says that the Tenant was acting in concert with the Claimant and was too cooperative with the Claimant.

3.There is also no dispute that the Claimant was the chargee of such assets being machineries left in the premises.  Such charge was set out in the Legal Charge dated 20^th September 2007 and was filed with the Companies Registry by way of Form M1 on 3^rd October 2007.

4.Further, there can be no question that the Landlord was notified of the Claimant’s claim on 18^th June 2009 at 16:26 via email even before the Landlord’s solicitors became involved together with Form M1.

5.On that day, the Claimant’s solicitors also wrote to the Plaintiff in no uncertain terms.

“The machineries as listed in the attached schedule were charged by the above company to our client by way of the first fixed charge under a Charge over Machinery dated 20^th September 2007, which has been registered in the Companies Registry.  Our client is now entitled to repossess the said machineries pursuant to the powers under the said Charge over Machineries.  The said machineries are located at the above premises.

 “We are instructed that you are the landlord of the above premises and have instituted legal proceedings against the above company, your tenant.  You have further suspended the service of the elevator to the 2^nd floor of the above building and blocked or locked the smoke lobby doors on the 2^nd floor.  In effect, you have prevented any access to the 2^nd floor of the above building.

 “Please note that our client is the lawful chargee of the said machineries and is entitled to the immediate possession of the said machineries.  Your said conducts amount to unlawful detention of the goods.  You are demanded to immediately allow the nominees of our client, including the purchaser of the said machineries and/or the moving workers, to gain access to and, if necessary, remove the said machineries.”

6.The Claimant’s solicitors further threatened legal action in the remainder of that letter.

7.The Landlord’s solicitors did reply on the following day and ask for proof of a number of matters and complained of “devoid of particulars and/or proof of your alleged entitlement to any machinery”.

8.When the Claimant’s solicitors replied, it also provided, inter alia, a copy of a letter signed by the Tenant dated 19^th June 2009 confirming its agreement for the Claimant to enter the above premises and dealing with the said machineries pursuant to the said Legal Charge and that the said machineries had been sold to another purchaser and the purchaser should take possession on 19^th June 2009.

9.Thus, there can also be no question that the Landlord and their Solicitor’s were clearly notified of the Claimant’s right as the chargee and also the fact that the machineries was said to have been repossessed by the Claimant pursuant to the Legal Charge on 23^rd June 2009 together with the Tenant’s agreement for the repossession of these machineries by the Claimant.

10.There was a letter of 23^rd June 2009 also needs be set out, as it is now claimed by the Landlord that the Claimant’s claim was not clear, in that, it only concerned ownership and not possession, or it lacked particularity.  It was written by the Claimant’s solicitors to the Landlord’s in the following manner:

“We act for Hang Seng Bank Limited and refer to our previous correspondence with you.  We understand you act for the plaintiff, Copthorne Holdings Corp., in the above distraint proceedings.

 “As pointed out repeatedly to you previously, the machineries now inside the above premises as listed in the enclosed Form M1 dated 3^rd October 2007 registered with the Companies Registry are all charged by Wealth Fair Technologies Limited to our client under the Charge Over Machinery dated 20^th September 2007.  The said machineries have been repossessed by our client pursuant to powers under the Charge Over Machinery.  In the circumstances, the said machineries are not in the possession or apparent possession of Wealth Fair Technologies Limited, and must not be seized in the above distraint action.

 “Please note that if the said machineries are unlawfully seized in the above distraint action, our client will hold the relevant party(ies) fully liable for all losses and damages suffered by our client.”

11.This letter was copied to the Chief Bailiff office and there is no dispute that the Bailiff office was notified of the existing claim of the Claimant.

12.Meanwhile, the Landlord solicitors wrote on 23^rd June 2009 to the Bailiff’s office and referring to the Claimant’s solicitors said letter in the following terms :

“Contrary to what was represented in the LKL letter, we wish to point out the important fact that Hang Seng Bank has not taken possession of the so called “Charge over Machinery” if they are indeed situated in the Premises.  Nothing in the materials as provided by and attached to the LKL letter expressly stated that Hang Seng Bank has the right to take or has taken possession of the said machineries. (Emphasis added)

 “As such, it is without legal basis to suggest that the said machineries (if they are indeed situated in the premises) are not in the possession or apparent possession of the Wealth Fair Technologies Limited, from whom the rent is claimed, or that they are not distrainable, simply based on the assertions of Hang Seng Bank’s legal representatives.  The mere fact that an adverse claim to possession of the said machineries, possible suggested by a registered charge, does not mean that they are not in the apparent possession of Defendant.

 “If any party purports to have any claim over any items seized in the Premises under the said warrant, they may choose to issue Interpleader Summons to substantiate their claim and the court shall determine accordingly.

 “In the circumstances, we would respectively take this opportunity to remind your officer to fully execute the said Warrant tomorrow, in proper discharge of your duties there under.”

13.This letter was for obvious reason not copied to the Claimant’s solicitors.  Unlike the Landlord, the latter had no opportunity to give their legal advice in reply, to the Bailiff’s office.

14.As a result, the Bailiff on 24^th June 2009 seized a large number of goods and chattels including some of the machineries claimed and the ones that the Claimant now laid claims on as documented at pages 216, 218 and 220 of the Hearing Bundle.

15.The question before me is simply whether in the light of all those circumstances as outlined above, the bailiff should have seized these machineries in question. Secondly, how should the discretion be exercised and to whom should these machineries be returned.

Apparent Possession

16.The immediate question must be whether these machineries were still in the apparent possession of the Tenant in the premises.

17.I have been referred to the relevant authorities by both sides in their cogent and concise submissions.  They are the following : Hong Kong Land Investment and Agency Co. Ltd. v Athena Studio & Eastern Bazaar [1933] HKLR 39 at 41; Hong Kong Fire Insurance Co. Ltd. v Kan Chak [1938] HKLR 37 at 39 Quarry Bay Developments Ltd. v The Chartered Bank CACV 148 of 1983 unreported; Fuleekoo Co. Ltd. v Spiral Tubes International Ltd. [1986] HKC 269 at 275I-276B; Lu Shang Chang v Kingroup Ltd. [1955] 3 HKC 709 at 718D-H; Xipho Development Co. Ltd. v CHM Holdings Co. Ltd. [1977] HKLRD 36 at 40J.

18.The law is quite settled.  It is said in The Hong Kong Land Investment case that “on entry did the bailiff believe the disputed goods to be in the tenant’s possession, and if so, had he reasonable grounds for that belief?”  Or in the words of Lindell J in the Hong Kong Fire Insurance Co. Ltd. case that the goods must be found on the premises and are in the apparent possession of the debtor.  The Bailiff cannot be expected to go into detailed investigation on the spot of ownership claim and any claim of ownership of goods is not necessarily determinative but all the circumstances must be taken into account. It goes without saying that any claim does not necessarily mean the goods are not in the apparent possession of the debtor. 

19.It must be common sense that when a Bailiff enters the premises of the debtor, he/she sees all these goods left on the premises as prima facie in the apparent possession of the debtor.  He cannot be expected to make detailed analysis as to the ownership of the goods.  Unless he/she sees the goods clearly labeled otherwise, locked or situated inside a sub-let room, or otherwise clearly points towards ownership and/or possession other than the debtor’s, and he/she has reasonable grounds to believe that is so, it cannot be expected the matter to be decided on the spot.  That must be left to the Court to decide.  In most situations, there would be some managers or staff or people apparently known to the debtor/tenant making claims of stock and trade of the Tenant.  Such claims by their very nature and/or by their timing would be viewed with suspicion.  Other claims by consignor may well have some merits.  However, each case must be judged on their own particular facts and there is no hard and fast rule possible in all the circumstances.  One must apply common sense.

20.Nonetheless, I do not agree with Mr. Lam for the Landlord that unless this case falls within the exceptions and examples of the authorities which are very strict, this court should not make any new exceptions. We should not be slaves towards precedent authorities. They are for guiding principles only. In any event, I do not think this court is making any new exceptions either, as each case must be judged on its own facts and merits.  On the contrary, what has been urged by the Claimant is simply looking at all the circumstances of this case and applying the well established legal principles as expounded by the authorities to decide whether, on 24^th June 2009, was it still reasonable for the Bailiff to act on the basis that the machineries were still in the apparent possession of the Tenant?

21.One must look at the reality of the situation.  The principles of apparent possession, as I see it, is there to prevent protracted and disputed claims of ownership on the spot, where there may well be some suspicious claims, to make the Bailiff’s task more difficult than it already is.  Nonetheless, when a genuine claim is repeatedly made, where detailed documentation have been disclosed and revealed to the Bailiff and other parties concerned, for the Bailiff to turn a blind eye to any such genuine claim, must be viewed as shirking the responsibility of that office. 

22.In fact and in reality, what more can be expected of the Claimant.  If this is an unsubstantiated claim, one may ask, what does a substantiated claim look like.  The Landlord complains of lack of particularity here. I entirely agree with the Claimant’s counsel Mr. Khaw, what more was there to be said which was not said and what more can be expected of the Claimant. The simple answer is none whatsoever.

23.The Landlord also complains that the Claimant did not give the details of the sale and purchase agreement. However, it was stated clearly in the 23^rd June letter that there was such an agreement, and it was said by an officer of the court representing a reputable bank.  If it turns out to be a bare face lie, there will be serious consequences for the parties concerned.  That being the case, and looking at the reality of the situation, even if such agreement was supplied, the Landlord might still be questioning the genuineness of such agreement.  If we are to go down such endless inquiries which are completely devoid of reality, there will be no end to it.

24.The Landlord also submits that all the documents and information taken as a whole only amounts to claims of ownership and not possession.  The apparent possession remains at the Tenant’s hand in the premises, which unlike in Quarry Bay case, where the receiver had already taken possession of the goods in question.

25.However, one cannot simply take advantage of a situation and then becomes the author of our own fortune.  Here the Claimant had every right to ask for the opening of the premises of the Tenant and could have taken possession of these machineries on or about 18^th June 2009. But for some reason, the whole of the 2^nd Floor was blocked and locked to prevent their access. Mr. Khaw is right that when the Landlord did complain, they did so only about the locked doors of the Tenant, not the whole of the 2^nd Floor was blockaded. When the Claimant went to repossess the said machineries, the transportation workers could not get anywhere near the 2^nd Floor. It must be no mere coincidence that Christine Ko of the Landlord also happened to be the chairperson of the Incorporated Owners of the said building.  Then, as the Landlord turns around and complains that the said machineries were still in the apparent possession in the premises and have not been repossessed by the Claimant, that offends the sense of justice of this Court. In fact, had the Claimant taken possession on or 18^th June 2009, which they could have properly done, there would not be this case at all.

26.Furthermore, in the letter mentioned hereinabove on 23^rd June 2009, the Landlord’s solicitors wrote to the Bailiff office stating that: “Contrary to what was represented in the LKL letter, we wish to point out the important fact that Hang Seng Bank has not taken possession of the so called “Charge over Machinery” if they are indeed situated in the Premises.” (Emphasis added) Of course, the Bailiff was swayed and the rest is history. 

27.One can see that the Landlord, knowing a genuine claim was made by the Claimant, sought to proceed as quickly as possible for the seizure of these machineries by the Bailiff.  Otherwise, perhaps the most valuable assets of the Tenant would have been taken away by the Claimant and the Landlord would be left with an empty judgment only. Thus, and I find, it is for such reason that the Landlord did blockade the whole of the 2^nd Floor to prevent access by anyone other than themselves or the Bailiff.

28.Thus, looking at all the circumstances of this case, knowing what the Bailiff knew on or before 24^th June 2009, I found it unreasonable and therefore unlawful for the Bailiff to seize those machineries together with their dismantled parts as claimed by the Claimant repeatedly.

Discretion

29.Even if I were wrong in holding that the Bailiff was acting unlawfully in seizing those machineries, I would have exercised the discretion rested upon this Court to return those machineries to the Claimant.  I do so for a number of reasons.

30.First of all, the Claimant would have repossessed the said machineries but for the blockade of the whole of the 2^nd Floor of the said premises.  I find that the Landlord must have deliberately prevented the entry by the Claimant’s representatives.  The fact remains that the Landlord would not now be in a better position when these machineries were seized by the Bailiff but for their own planned obstruction. They were the author of their own good fortune.

31.Secondly, the Landlord was clearly aware of the claims by the Claimant as early as 18^th June 2009 and I find they did deliberately turn a blind eye to their claims.  Moreover, they more or less told the Bailiff to act according to their interpretation of the law. Thus, they acted in total disregard of the legitimate claim by the Claimant.

32.Thirdly, if the parties were on level playing field, the Claimant would have a priority over the Landlord when the former was armed with the registered Legal Charge and having exercised that charge in repossession of the said machineries.  It would be unjust now to allow the Landlord to use such legal means to achieve what they were not entitled to in the first place.

33.Of course, I have to balance all of the above against the fact that the Landlord was as much entitled to the arrears of rent in the total sum of HK$966,420.00. It was not their fault that the Tenant defaulted and they had to protect their legal position.  However, that is the commercial risk in daily life and no doubt the Landlord ‘s losses are somewhat lessened by rental deposits kept.

34.As a result, I have no hesitation in returning those machineries claimed to the Claimant.

35.I have not been asked about any storage charges or charges for the security guard, but I understand that the Landlord had paid for security guard charges. If asked, I would have ordered the charges be borne by the Landlord. Since the said machineries should have been repossessed by the Claimant on or about 18^th June 2009.

36.In summary, I ruled that the execution of the Warrant of Distraint by the Bailiff on 24^th June 2009 unreasonable and unlawful. I further ordered return the said machineries to the Claimant. I order costs of the Claimant be borne by the Landlord with certificate for counsel. I also thank all counsels for their excellent and concise submissions.

The Plaintiff  : represented by Mr. Douglas Lam and Ms Rachel Lam instructed by Messrs. Hampton Winter and Glynn, Solicitors.

The Claimant  :   represented by Mr. Richard Khaw instructed by Messrs. Li, Kwok & Law, Solicitors.