ENTERTAINMENT CITY LTD v. EVER SHARP ASIA LTD

DCDT 5323/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 5323 OF 2008

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BETWEEN

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REASONS FOR DECISION

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1.  This is the hearing of an interpleader summons relating to goods seized by the Bailiff in distraint proceedings.  A number of goods were seized at the Defendant’s rented premises on 10^th February 2009.  Upon the request of the Claimant, the Claimant was allowed to inspect the seized goods on 14^th February 2009, and claimed that it was the owner of the majority of the seized goods.  As such, the Claimant sought to have the goods earmarked during the said inspection returned to it on the basis that it is the actual owner of such goods. 

2.  At the end of the hearing, I ruled that the Claimant is not entitled to the release of any of the goods claimed.  I indicated that I shall deliver reasons of ruling which I hereby do. 

The Claimant's case

3.  The Claimant claimed that it is the owner of all the sales merchandise seized at the premises.  In putting forward such a claim, the Claimant submitted that all the sales merchandise were placed at the premises on a consignment basis.    The Claimant purported to support the consignment arrangement by producing several invoices for those sales merchandise, issued by the Claimant to the Defendant.  However, upon perusal of the original invoices, such an arrangement was not apparent on the terms or conditions on the invoices. The transactions evidenced by the invoices were no different from ordinary out and out sales.  Mr. Lee Sip Hop Andrew (“Mr. Lee”), the authorized representative of the Claimant, sought to supplement the Claimant's proposition by further explanation that the sales merchandise were rotated on a weekly basis, upon the request of the Defendant’s salespersons.  But then that was more akin to a sale-or-return arrangement.  Such an arrangement appeared to be at odds with a consignment in the ordinary sense of the word. 

4.  Besides the sales merchandise, the Claimant also claimed that it is the owner of the computer (including a LCD monitor, one keyboard, one mouse, one tower case, one receipt issuer and one copier).  He submitted that the computer was connected directly to the Claimant’s system for the purpose of stock verification and that the computer contained data of the Claimant’s company.  However, notwithstanding the above submissions, Mr. Lee agreed that such goods, and all the sales merchandise seized, were in the apparent possession of the Defendant. 

The Law

5.  In Xipho Development Company Limited v CHM Holdings Company Limited, unrep., CACV 112/1996, Litton VP, Mayo & Ching JJA, 13 November, 1996, the Court of Appeal stated that if the goods are in the apparent possession of the tenant, those goods are liable to be seized in distraint proceedings.  Although the Court has a discretion to return the goods to their truthful owners, ownership is only one of the factors that should be considered by the Court.  Further, the Court stressed that if the goods were lawfully distrained, “the stranger’s redress, if he had any, was not against the distraining landlord but against the tenant who, by his conduct, had caused the goods to be distrained.” (paragraph 15). 

Analysis

6.  In the present case, I am satisfied that the goods seized were in the apparent possession of the Defendant. The Bailiff considered that all goods seized were in the apparent possession of the Defendant, and there was no evidence to indicate otherwise.  The Claimant did not contend that there was any wrongful distress.  Before considering whether the Court should exercise its discretion to release the goods claimed to the Claimant, I had considered whether it was possible for the computer and it’s peripherals to be sold separately from the other seized items (so that the Claimant can bid them at the auction) thereby allowing the Claimant to retrieve its data from the computer.  However, after enquiring with the Bailiff on the timing, logistics and costs necessary to effect such an arrangement, I found such an option impractical. 

7.  In considering whether to exercise the Court’s discretion, I noted acceptance by Mr. Lee of the following facts highlighted by the Plaintiff:

1. Lok Chit Sang is the only shareholder of the Claimant and the Defendant;

2. Lok Chit Sang is the only director of the Claimant and one of the directors of the Defendant;

3. The Claimant and the Defendant have the same address as their registered office;

4. He himself is closely related to the Defendant:-

a. he is the secretary of the Defendant;

b. his residential address is the same as that of Lee Choi Hop John, a director of the Defendant.

8.  The Claimant and the Defendant are essentially owned by the same individual. The Claimant practically ran a business at the premises rented by the Defendant assisted by salespersons hired by the Defendant. The close relationship between the Claimant and the Defendant suggests that the distinction between the Claimant and the Defendant is illusory, or at the least that the Claimant could hardly be considered as a stranger vis-à-vis the Defendant.

9.  Taking the Claimant’s submissions at its highest, namely that it is the truthful owner of the goods claimed, the Claimant still failed to raise other issue or point to any circumstances warranting the Court’s exercise of discretion in its favour.  Looking at the evidence in the round, I did not consider it fair to order the release of the goods claimed to the Claimant.  As such the Claimant’s claim was dismissed.

Costs

10.  For this hearing, affirmations exhibiting all the relevant company search records and helpful written submissions were filed by the Plaintiff’s solicitors.  I failed to see why the Plaintiff should be prejudiced in costs by the unmeritorious claim of the Claimant in the circumstances.  I ordered that the Plaintiff’s costs of this summons be borne by the Claimant, on a common fund basis, to be taxed if not agreed.  The extra guard fees in the sum of $7392, being the fees for 11 days from 18 February 2009 to 28 February 2009 (the day of the auction) are to be borne by the Claimant.