LEUNG HO YIU v. WINNER GODOWN LTD.

1992, No.A662

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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D E C I S I O N

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1. This is the aftermath of a determination on an interpleader issue between the plaintiff and the claimant.

2. The defendant is the owner and operator of the warehouse into which the claimant deposited the goods in dispute on 8th January 1992.

3. The defendant is now claiming the costs of these proceedings incurred by it as well as for the charges accrued for the handling and storage of the goods at its warehouse.

4. This action was started by writ whereby the plaintiff claimed against the defendant for, inter alia, the delivery up of the goods on the ground of conversion. On the same date of the issue of the writ, i.e., 27th January 1992, but prior thereto, the plaintiff obtained an interim injunction to restrain the defendant from parting with the goods.

5. On 13th March 1992, the defendant interpleaded. On 14th April 1992, Master Bokhary ordered that all further proceedings in this action against the defendant be stayed and that no action be brought by the plaintiff or by the claimant against the defendant to recover the goods or any damages or other relief for or in respect of the same, and that the defendant was to retain possession of the goods until further order. She further ordered the interpleader issue between the plaintiff and the claimant, namely whether the goods were the property of the plaintiff as against the claimant, to be tried before a judge in court. The defendant was excused from further attending court.

6. After a full trial before me, I determined the issue in favour of the plaintiff against the claimant. In my judgment dated 7th June 1993, I held that the goods belonged to the plaintiff, either because he had by 20th April 1992 at the latest avoided the contract of sale of the goods made between him and the claimant, or he never intended to pass the property in the goods to her until he was paid the price. The claimant had not paid him anything.

7. As the plaintiff was not the person who deposited the goods with the defendant, there was no privity of contract between them. Moreover, any right to lien which the defendant might have over the goods as against the claimant would not apply to the plaintiff. It is therefore not necessary for the purpose of this decision to determine whether the defendant has a lien over the goods vis-a-vis the claimant.

8. In interpleader proceedings, the court has power to make such order as to costs or any other matter as it thinks just: Order 17, rule 8 of the R.S.C. It is undisputed that the court has jurisdiction to make an order as to the charges (see De Rothschild Freres v. Morrison, Kekewich & Co. [1890] 24 QBD 750 @ 753). The powers of the court are wide and may be exercised notwithstanding that the order may interfere with property rights. In B.P.Benzin and Petroleum A.G. v. European American Banking Corp. [1978] 1 L1.Rep. 364, @ 366, Lord Denning, M.R. said:

"It seems to me under the inherent jurisdiction of the Court, when an interpleader is taken out, the Court can make such order as it thinks just in the matter even though it does interfere with the rights of the parties if that is the just solution of the case. ...

... I think the jurisdiction of the Court, whether put under the rules or under the inherent jurisdiction, is ample for the Court to do what is right and just."

9. As far as costs are concerned, although the proceedings were started by the plaintiff, in effect, the proceedings have been proceeded under Order 17, and the only substantive dispute that required the court's adjudication was one between the plaintiff and the claimant. Once the interpleader proceedings had commenced, the defendant was not concerned with who was the true owner of the goods, and the only interest it has had in the proceedings is to recover its own costs and the charges. Mr. Chan on behalf of the plaintiff submitted that the costs should be divided into two sets, one is those incurred before the defendant took out the summons under Order 17 to interplead, and the other set is the costs incurred in respect of the interpleader proceedings. In respect of the first set of costs, Mr. Chan argued that the plaintiff was the true owner of the goods (and he had been proven right by my judgment of 7th June 1993), and it was proper for him to sue the defendant for the return of the goods as it was liable for their conversion or wrongful detention. The plaintiff would have succeeded against the defendant but for the fact that on 14th April 1992 Master Bokhary made the said Order staying the proceedings and claims by the plaintiff against the defendant. It followed, so ran the argument, that the plaintiff should be entitled to the costs of the action up to 14th April 1992. Regarding the second set of costs, although Mr. Chan conceded that the defendant was protected by the said Order and by the interpleader proceedings, he argued that the protection should not be extended to the costs incurred prior to 14th April 1992.

10. Mr. Chan, however, did not argue or allege that the defendant delayed or acted wrongly in bringing the interpleader proceedings. The defendant has been extremely co-operative in these proceedings, consenting to the continuation of the injunction and then interpleaded. The defendant has not taken any improper step or acted improperly or wrongly so that it can be justifiably blamed in any way. On the other hand, there were at least three ways open to the plaintiff for him to redress the situation in which he found himself, namely, by suing the claimant, or the defendant, or both. He chose to sue the defendant thereby compelling the defendant to take out interpleader proceedings. Had the plaintiff sued the claimant for conversion of the goods and obtained an injunction against her and served the injunction on the defendant as a third party with notice to be affected, no doubt the defendant would have been covered by an undertaking from the plaintiff to indemnify it for the costs and expenses to be incurred for obeying the injunction.

11. On behalf of the defendant, Mr. Lo submitted that there has been a long established practice of the court under Order 17 or its predecessor enactment or rule with similar effect to order the payment of the costs and charges of a custodian of goods or a fund in dispute out of the goods or fund as a first charge. Here I use the neutral term "custodian", whether he be a bailee, warehouseman, auctioneer, or stakeholder, etc. Mr. Lo directed my attention to the cases cited in the White Book, starting from 1833 to as recently as 1983, namely, Cotter v. The Bank of England (1833) 2 Dowl. 728; Duear v. Mackintosh (1833) 2 Dowl. 730; Symes v. Magnay (1855) 20 Beav. 47; Attenborough v. London and St. Katharine's Dock Co. (1878) 3 CPD 450, at 466; and Elder Dempster Lines v. Zaki Ishag [1983] 2 LI. Rep. 548, @ 550. Despite attempts by Mr. Chan to explain and distinguish those cases, I accept that a practice has been well established in England that in interpleader proceedings, the custodian of a fund or goods who interpleads and who has acted fairly will normally have his costs and charges paid out of the fund or goods as a first charge. Although the reasons for this practice have not been expressly stated in the authorities, I am of the view that in normal circumstances, it is just that the position of the custodian should be protected in such a way. He is almost always an innocent party with whom one of the claimants has deposited the fund or goods. The only substantive dispute involving the fund or goods is one between rival claimants, and the custodian will upon interpleading simply abide by the decision of the court in the resolution of the dispute. He comes to the court for relief, so that he can take a neutral and fair stance regarding the fund or goods and he can seek protection from the court regarding his costs and charges. The other parties, namely, the claimants, or either of them, could always seek a reasonable disposal of the fund or goods (for example, by asking for a court order to sell perishable goods with proceeds to be paid into court, or to pay a fund into court, and to abide by the event of the determination of the dispute between the claimants) thereby avoiding expenses like storage charges from accruing further. In all these circumstances, it will be just that the custodian's costs and charges should be protected by the court. The dispute to be resolved by the court is one given rise by the rival claims, and cannot in any way be attributed as being caused by the custodian.

12. Now I turn to the circumstances of this case. There is no allegation made by Mr. Chan on behalf of the plaintiff that the defendant has acted wrongly or improperly in any way. As far as the charges are concerned, what is significant is that the plaintiff has obtained an interim injunction against the defendant from parting with the goods. That injunction carried with it an undertaking given by the plaintiff to pay damages to the defendant which in the opinion of the court the plaintiff ought to pay. The damage suffered by the defendant has resulted from the fact that the defendant was not allowed to part with the goods, and the charges were therefore incurred and have continued to accrue. The plaintiff has not even after the date of my judgment removed the goods from the defendant's warehouse, let alone making an application to the court to dispose of them prior to or at the trial of the issue. In evidence, the plaintiff told me that if he succeeded on the issue, he would like to sell the goods to the claimant because he did not know how to deal with the storage charges. If the plaintiff is now allowed to take away the goods without paying the charges, the defendant would only be able to recover the same from the claimant. On the other hand, if the plaintiff is ordered to pay the charges to the defendant, he would be able to recover the same from the claimant. The claimant is apparently quite impecunious, not only judging from the fact that she was granted legal aid in respect of the trial of the issue, but also based on the evidence given at the trial of the issue. The question to be decided is upon whom the burden of recovering the charges against the claimant should fall, bearing in mind that such recovering attempt might be entirely futile.

13. The defendant accepted the deposit of the goods at its godown by the claimant in the normal course of its business. Prior to that, the plaintiff intended to sell the goods to the claimant in the normal course of his business. The plaintiff delivered the goods to the claimant or on to lorries as arranged by the claimant who also arranged those lorries to deliver the goods to the defendant's godown. However, it was the failure of the plaintiff to obtain any payment from the claimant which gave rise to the dispute which had to be adjudicated by the court. It was natural for the defendant to accept deposit of goods without getting any payment from the depositor, because they could always maintain a claim for the charges under contract if the claimant as the depositor demanded the return of the goods. On the other hand, it was not normal, according to the evidence, for the plaintiff to fail to obtain a deposit payment from the claimant as an earnest for her allegedly intended purchase of the goods. Had the plaintiff not been deceived by the claimant, or had the plaintiff collected full payment from the claimant, the goods would no doubt have been removed by the claimant from the defendant's warehouse very soon after they had been stored there and the defendant would have been fully paid for the charges. On this basis alone, I would have thought that the misfortune in the shape of the present predicament should fall on the plaintiff and it is just right that the plaintiff, rather than the defendant, should have the responsibility of collecting the charges from the claimant. If such recovery should turn out to be futile, then it would be a loss that the plaintiff, and not the defendant, who has to suffer. Further, the plaintiff has not even removed the goods after my judgment. This might have been caused by his inability to raise funds to pay the charges. But whatever the reason, this cannot be considered as anything against the defendant.

14. In all the circumstances, I think it just for the defendant to have the charges as a charge on the goods. I do not think it proper that the plaintiff be ordered to pay the charges to the defendant before or upon his removal of the goods, as such might impose a heavy burden on him who might possibly be in financial difficulty. Nor is there an contractual basis for me to do so.

15. Again, as the defendant has not acted wrongly or improperly in these proceedings, I am of the view that the defendant's costs of this action and the interpleader proceedings (including this hearing) should also be a first charge on the goods. The making of this order does not mean that the plaintiff has not been successful against the claimant. But the plaintiffs success against the claimant has nothing to do with the defendant's position regarding its costs. Between the plaintiff and the defendant, I consider that the plaintiff is more to blame for the events leading to the suit against the defendant in this action (which was an election made by the plaintiff) and that the defendant acted properly in issuing the interpleader proceedings.

16. In the result, I order that all the costs, to be taxed if not agreed, and the charges of the defendant, i.e., $11,078 for handling charges, and $6,158.60 per month for storage from 8th January 1992, until the date of the disposal of the goods, be a first charge on the goods or proceeds of the same. As the plaintiff is legally aided, I also order that the plaintiff's own costs be taxed in accordance with the Legal Aid Regulations.

17. As between the plaintiff and the claimant, there can be no doubt that it was the claimant's wrongful acts that gave rise to this action and the interpleader proceedings. I order that the plaintiff be indemnified by the claimant as to the costs and the charges (which charges are limited to those incurred in the period between 8th January 1992 and 7th June 1993) that the defendant is able to recover by way of the first charge on the goods imposed by my above order.

18. I told counsel for the plaintiff and the defendant at the conclusion of the hearing that the proper form of order might be subject to further arguments. The question of whether a sale of the goods be ordered, and if so, in what manner, was also left open. If these two parties cannot agree to a form of order, a date should be fixed with my clerk in consultation with counsel's diaries so that they may return before me for further arguments. Although the claimant was absent during the hearing, a copy of this decision should be sent to her, so that she may apply to be heard. I give all the parties liberty to apply.