SILVER NICETY CO LTD v. FORRETON MANAGEMENT LTD AND ANOTHER

DCDT963/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 963 OF 2013

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DECISION

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1.  There are altogether 3 summonses before me arising from 2 warrants of distress for distraint of goods for arrears of rent (“the Warrants”). The Respondent (“the Respondent Landlord”) in these applications is the owner of two properties, one on the 2^nd Floor and the other on the 3^rd Floor of Sunning Plaza in Causeway Bay Hong Kong (“the Properties or the 2^nd Floor and the 3^rd Floor” as appropriate). The Properties were leased to a Forrenton Management Limited (“the Defendant Tenant”) under 2 tenancy agreements each for one floor respectively (“the Tenancy Agreements”).  There was default in rent since January 2013 and the Respondent Landlord made ex parte applications for the Warrants concerning both floors respectively. Armed with the Warrants, 135 and 112 items of goods were seized on 15 and 16 April 2013 by the bailiff from the 2^nd and 3^rd Floors (“the Goods, the 2^nd Floor Items or the 3^rd Floor Items” as appropriate).

2.  The 3 summons before me were taken out by 2 claimants saying that the Warrants should be discharged or that the Goods should be returned to them as they are the true owners. There are 2 claimants in DCDT 963/2013claiming the 3^rd Floor Items, they shall be referred to as the 1^st and 2^nd Claimant. The 1^st Claimant is also the sole claimant making a claim under DCDT 964/2013 concerning the 2^nd Floor Items, who would still be referred to as the 1^st Claimant for convenience.

3.  The applications in the 3 summons are premised on the same grounds. They are:

(1) The Claimants are willing to pay for the Goods they now ask to be released and returned to them;

(2) The Warrants were irregularly obtained in the sense that Government rates had been included and that such Government rates had not been paid;

(3) There was material non-disclosure on the part of the Respondent Landlord when ex-parte applications  were made; and

(4) They are the respective owners of the Goods. 

Payment Proposed by Claimants

4.  Mr Ng on behalf of the two Claimants proposed to pay for the Goods at the price assessed by the Bailiff. He urged this court to take this into account when discretion is to be exercised. He said that this offer for payment not only would not cause any prejudice to the Respondent Landlord, this would be a strong support for good faith of the Claimants. The total offer under the 3 summonses amounts to $120,982.00

5.  This was opposed by the Respondent Landlord. Mr J Yeung acting for the Respondent Landlord categorically opposed the saying that such offer would show good faith of the Claimants. He brought the Transfer Agreement (more details about this Transfer Agreement will be set out in paragraph 20 below) to my attention that the value of the goods under the schedule therein was said to be good enough to discharge an indebtedness of $2.2m. The offer now made by the 1^st Claimant was $40,780.  Mr J Yeung said that it was junk value that they offered. Since there were items not listed in the schedule of the Transfer Agreement, the offer of $40,780 was meant to cover more items than those which had once been valued at $2.2m.  There were also discrepancies in price between the auditor’s report and the price now offered by the 2^nd Claimant. Further there was substantial difference in price as listed in the Confirmation and the Bailiff’s Lists of Inventory.

Irregularity of the Warrants

6.  Quoting Woodfall’s Law of Landlord and Tenant at §9.009 Mr Ng submitted on behalf of the Claimants that the Warrants obtained were bad for irregularities because they were obtained for the purpose of distraining goods and chattels for “the amount of two months’ rent and Government rates for the months of January and February 2013”.  In court, he went further to say that the Respondent Landlord could not rely on the Rating Ordinance because the subject Government rates had not been paid. In reply Mr J Yeung acting for the Respondent Landlord referred me to the Affirmation of Mr Siu of the Respondent Landlord saying that the Government Rates had been paid with receipts exhibited as Exhibit D. Mr Yeung apologized also for the oversight of not having had the receipts included in the hearing bundles. Mr Ng withdrew this argument but reserved the right of the Claimants to argue on costs if necessary.  In any event I am satisfied that there was no irregularity in the Warrants.

Material Non disclosure

7.  Mr Ng submitted that there was implied consent on the part of the Respondent Landlord for the 1^st Claimant to place its equipment and chattels in the Properties to facilitate the Defendant Tenant’s operation of business. As for the 2^nd Claimant, it was submitted that there was permission from the Defendant Tenant and implied consent for its shared use of the 3^rd Floor and its placing of its own equipment and chattels thereat for its own use.

8.  Mr Ng submitted that “consent or implied consent” is material facts that had to be disclosed because the Respondent Landlord could not now seize the Goods which were put in the Properties with its consent. Such assertion on consent was categorically denied by the Respondent Landlord. Mr Ng’s admitted at the hearing that there was no documentary proof supporting the Claimants’ assertion on consent. The contention on consent be it express or implied was premised on paragraph 7 of Mr Siu’s Second Affirmation filed on behalf of the Respondent Landlord where he said that :

“… However, from time to time, in commercial reality, a corporate talent will normally have affiliates or associates within the same group of companies or it may enter into co-operation … which result in the sharing of same office”

9.  In reply Mr J Yeung pointed out that as mentioned in the same passage quoted by Mr Ng and paragraphs 8 and 11 of the same affirmation of Mr Siu, there were only 2 Approved Occupiers whom the Respondent Landlord had granted express permission for them to share the use of the Properties with the Defendant Tenant.  Such permission granted, as explained by Mr Siu in his affirmations, was to balance the commercial practicality that a tenant might wish to share the use of the leased premises against the protection of the interest of the Respondent Landlord.  For this purpose permission for shared use of the Properties would only be granted upon execution of a Deed of Guarantee and Undertaking. Clause 3 therein is of particular relevance to demonstrate this (see paragraph 18 of Mr Siu’s Second Affirmation).  By virtue of clause 3, the Approved Occupiers acknowledged that all the goods at the Properties shall either belong to the Defendant Tenant or are deemed to be chattels in the apparent possession of the Defendant Tenant for the purpose of Part II of the Landlord and Tenant (Consolation) Ordinance and can be distressed or distrained by the Respondent Landlord for non-payment of rent.

10.  It was submitted by Mr J Yeung that with this background on how the express permission was granted for shared use of the Properties by Approved Occupiers, there was no place for argument on “implied consent” now ventured  by the Claimants. Further, the alleged permission granted by the Defendant Tenant to the 2^nd Claimant simply had no weight in support of the 2^nd Claimant presence on in the Properties.

11.  The Claimants also premised their contention on consent in reliance on signboards put up on the respective floors. Mr J Yeung referred me to the photos produced by the Claimants and submitted that none the signboards fixed on the respective floors nor the name plaques displayed at the entrance lobby of the building had borne the name of the Claimants.

12.  In short, Mr J Yeung submitted that first, the two Claimants were not any of the Approved Occupiers and secondly the signboards bore no relevance with any of the Claimants. There was virtually no proof to say that the Respondent Landlord was aware of the presence of the Claimants at the Properties not to mention giving them any express or implied consent.       

13.  Still on the point of material non-disclosure, Mr J Yeung further submitted that the material information required for an application for warrant of distress is set in Schedule 5 of the Landlord and Tenant (Consolidation) Ordinance (Cap 7) as Form 1. What is required of in an affidavit in support is basically the information of the identities of parties; the amount of the arrears of rent for the period to be specified and the address of the leased property.

14.  Having heard submissions, I am not satisfied that there was implied consent from the Respondent Landlord for the two Claimants to occupy the Properties or to put their belongings thereat. There was just no evidence put forth by the Claimants to proof the same. I do not accept the suggestion that what Mr Siu had said in his affirmation amounted to admission of having granted any consent to the two Claimants. To the contrary, it is sufficient to proof that any consent granted had to be supported by a Deed of Guarantee and Indemnity. To me, this made perfect commercial sense. Mr Ng has rightly and fairly pointed out that the two Claimants were no signatories to any of such Deeds of Guarantee and Indemnity. In the circumstances, I find on balance that there was no consent, implied or express, granted for shared use of the Properties by the two Claimants. The Claimants’ complaint on material non-disclosure must therefore fail.

Ownership of the Goods

15.  Both Claimants claim that they are the true legal and beneficial owners of the Goods. For clarity, the Goods would be referred to as the 2nd Floor Items and the 3rd Floor Items as appropriate.

2^nd Floor Items

16.  The 1st Claimant is the sole claimant to the 2nd Floor Items.  It is admitted that the Defendant Tenant and the 1^st Claimant belong to the same group of corporations together with the 2 Approved Occupiers[1], all except one of the 2 Approved Occupiers, Financial Technician Incorporation, were known to be wholly owned subsidiaries of the Incorporation Of Financial Technician Limited. The 5 companies shall be referred to as the FT Group.

17.  Mr Ng referred me to documents purported to prove ownership including the Confirmation prepared by the auditor of the FT Group, Registers of Assets prepared by the auditor and the 1^st Claimant. The claim covers the items on the entire Bailiff List of Inventory concerning the 2^nd Floor.

18.  In reply Mr Yeung said that there were discrepancies on description and number of items in the Register of Assets and the Bailiffs’ List of Inventory.

3^rd Floor Items

19.  There are two claimants claiming the 3rd Floor Items but there are no competing claims between them. Suffice it to say that their claims when put together covered each and every item on the Bailiffs’ List of Inventory concerning seizure on the 3^rd Floor.

20.  The 1^st Claimant’s case is that it is the true owner of part of the 3^rd Floor Items because they had been assigned those items by the Defendant Tenant on 31 December 2012 by way of the execution of the Transfer Agreement purporting to discharge an indebtedness of over $2.2m owed to the 1^st Claimant by the Defendant Tenant. Mr Ng submitted that companies in the FT Group had separate legal entities and therefore such transfer was valid and effective notwithstanding that it was a transfer within the FT Group. He further said that the Respondent Landlord was not entitled to lift the corporate veil to say that the Transfer Agreement was a sham device to facilitate avoidance of liability of the Defendant Tenant under the Tenancy Agreements and the Deed of Guarantee and Undertaking.

21.  Mr J Yeung in reply said that the Respondent Landlord had no intention to lift the corporate veil and it was not necessary to do so in the present case. He pointed out to this court that, Mr K L Yeung, being the signatory to almost all of the important and relevant documents for and on behalf of different companies within the FT Group including the affirmations filed for these applications, must have knowledge of the obligation of the Defendant Tenant under the Tenancy Agreement and the Deed of Guarantee and Indemnity.  He must be aware of the restriction on sub-letting under the Tenancy Agreements and that permission must have to be obtained from the Respondent Landlord for shared use of the Properties and such permission would be supported by a signed Deed of Guarantee and Indemnity. It is apparently suspicious in the present case because, on the one hand, applications had been made for two Approved Occupiers to share the use of the Properties but on the other hand arrangement was made for a substantial part of Good to be transferred to the 1^st Claimant who was not any of the Approved Occupiers just 1 day prior to the date the rent was due and went into arrears by default of payment. He said that this was sharp practice and a convenient scheme devised to avoid liability.   He further commented that there was no proof as to the existence of the “indebtedness” between the Defendant Tenant and the 1^st Claimant. 

22.  More importantly, he said, as far as the 1^st Claimant’s application was concerned, there were quite a substantive number of items which were not even listed in the schedule of the Transfer Agreement and therefore there was virtually no proof as to the 1^st Claimant’s ownership to those items except for the bare assertion of Mr K L Yeung made in his affirmations.

23.  As to the claim of the 2^nd Claimant, it is said that some of the Goods as particularized in its Summons belong to it. Ms Ng filed an affirmation saying that the 2^nd Claimant had been using the 3^rd Floor with the consent of the Defendant Tenant. The items now being claimed were brought into the Properties for the 2^nd Claimant’s own use. Invoices were produced in support. It is also said that the 2^nd Claimant was totally unrelated to the FT Group.    

24.  In reply, Mr J Yeung said there was still an intimate relationship between the 2^nd Claimant and the FT Group. Mr J Yeung referred this Court to the annual returns of relevant companies and concluded that from such annual returns, one could easily see, as was mentioned above, that the Incorporation of Financial Technicians Limited was the sole shareholder of (i) the Defendant Tenant; (ii) the 1^st Claimant; (iii) at least one of the Approved Occupiers while the shareholder of another Approved Occupiers could not be made known. Yet, the sole shareholder of the 2^nd Claimant is one “CGI (Offshore) Limited”, a company that shared a common listed address with a CGI (HK) Limited which in turn is a shareholder of the Incorporation of Financial Technicians Limited. Further there were discrepancies in the invoices produced to prove the items allegedly owned by the 2^nd Claimant.

25.  Finally, it was further submitted by Mr J Yeung that it is trite that a claim of ownership on the part of a claimant is not a sufficient answer to the seizure of goods under a warrant of distress. Fuleekoo co. Ltd v Spiral Tubes International Ltd [1986] HKC 269 at 275 and Dombas Estates Ltd v Top Joint Investment Ltd & Anor (unreported DCDT 3959/2008) were referred to. Mr. J Yeung further referred me to Lai Sun Development Company Limited v Linkfeel Limited & Anor (unreported DCDT 584/2003) in which H H Lok held that in the circumstances where a claimant agreed to obtain a license from the tenant to occupy the premises without informing the landlord, when eventually the tenant neglected the obligation to pay rent for the premises, there is no reason why the claimant should not bear with any consequences arising from the same. In any event, he was of the view that the claimant can always claim indemnity from the tenant for its loss.

26.  Having heard submissions and viewed the documents, I am not satisfied that the Claimants had proved their ownership of the respective part of the Goods as spelled out in the 3 Summonses.  I accept Mr J Yeung’s submission that there are discrepancies on the Claimants’ documents when compared with the Bailiff’s Lists of Inventory.  Further I find the Transfer Agreement executed on the eve of the eventual default payment in rent suspicious. I attach no weight to it when the issue of ownership is to be resolved. I am not satisfied that the Claimants have proved ownership to the Goods as claimed also for other reasons such as lack of supporting documents and discrepancies in description and numbers.

27.  I also accept Mr J Yeung’s submission that in the present case, with the intimate relationship between the Defendant Tenant and the Claimants, no discretion should be exercised in favour of the Claimants even if ownership is proved. I accept Mr Yeung’s submission that the Claimants, had they been the true owners of the Goods, could have their remedies redressed by the Defendant Tenant.   

Conclusion

28.  The two Claimants ask that discretion be exercised in their favour that the Warrants be discharged or that the Goods be return to them in respect of their claims. There was no argument taken by Mr Ng that the Goods were not in the apparent possession of the Defendant Tenant, what is left with me is to consider all the circumstances surrounding the case when exercising my discretion.  As I have found that there was no consent, implied or express, for the two Claimants to use the Properties, I accept Mr J Yeung’s submission that they were total strangers to the Respondent Landlord. From evidence before me, it is clear that there is close connection between the two Claimants with the Defendant Tenant; the Transfer Agreement was executed just 1 day prior to the event of the Defendant Tenant’s neglect of its obligation to pay rent and eventually caused the Warrants to be issued; there was no support for the alleged “indebtedness” which allegedly had led to the execution of the Transfer Agreement; the proof of ownership was unsatisfactory; and the offer to pay for return of the Goods was far below the booked value of the same.  In the circumstances, I refuse to exercise my discretion in favour of the Claimants. The 3 Summonses are therefore dismissed.

29.  I notice that there were 2 summonses taken out by the Chief Bailiff under s. 95 of the Landlord and Tenant (Consolidation) Ordinance, the Claimants claim have now been dismissed and the Chief Bailiff’s Summonses are now over taken by event and shall therefore be dismissed.

Costs

30.  Costs should follow the event. I make an order nisi that the Respondents’ costs in the 3 Summonses be borne by the respective Claimants with Counsel certificate.    This order nisi shall become absolute unless application to vary is made within the period prescribed by the Rules of the District Court Ord 42 r 5B(3).

31.  I consider summary assessment of costs to be suitable.  For that purpose:-

a) The Respondent is at liberty to lodge with court and serve a statement of costs within 21 days from the date of decision (which period has taken into account the 14 days prescribed by the Rules of the District Court Ord 42 r 5B(3));

b) The Claimants be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

[1] The Approved Occupier to share the use of the 3^rd Floor with the Defendant Tenant was Financial Technicians Inc which is a company registered in BVI; and the Approved Occupier to share the use of the 2^nd Floor was FT Securities Limited.