WAI LUEN INVESTMENT CO LTD v. YAU PING CHIU t/a CHINA SCENE AND ANOTHER

HEADNOTE

                When executing a distress warrant, the bailiff seized goods in the apparent possession of the tenant, who was in arrears of rent due to the plaintiff. The goods included a copying machine belonging to the claimant, which had let it on hire to the tenant under a lease agreement. The tenant owed the claimant various sums under the lease agreement.

                 The copying machine was withdrawn from auction at the request of the claimant, which sought an order for its return, under section 96 of cap.7. The proceeds of sale of the other goods were insufficient to satisfy the arrears of rent and expenses of the distress.

 

Held, although the discretion conferred upon the court by section 96(2) of cap. 7 is not limited to instances of wrongful distress, it would be wrong to exercise it in favour of the true owner of goods in a way which totally disregarded a landlord's legal rights to have goods, in the apparent possession of the tenant, seized and sold; LAM Wai-fong v HO Yin-sheung [1958] D.C.L.R. 247 considered;

 

Semble: the machinery provided by Part III for the sale of goods lawfully seized under a distress warrant is confined to goods belonging to the tenant; goods belonging to strangers should, perhaps, only be sold in accordance with the procedure contained in section 1 of the Distress for Rent Act 1689, i.e. after an appraisement by two sworn appraisers.

 

        Copying machine ordered to be returned to claimant on payment of the balance of the arrears of rent and expenses of the distress.

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

DISTRAINT NO. 1067 OF 1984

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REASONS FOR DECISION

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1. These proceedings arise out of the execution of a distress warrant, issued on the 16th July 1984 in accordance with the provisions of Part III of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7). The warrant was issued on the application of the plaintiff ("the Landlord") to recover arrears of rent amounting to $5,460. In accordance with the usual practice, the bailiff seized various movable items at the premises let to the tenant, and prepared an inventory thereof. He "valued" these items at $4,800. One of the items was a Xerox 2830 copying machine, which was "valued" at $1,500. It is not disputed that this copying machine was, at the material time, the property of the claimant, having been leased to the tenant under a Lease Agreement. At the hearing of an "interpleader" summons, issued on the 8th August 1984 in accordance with Section 95 of Cap. 7, I was informed that the claimant considered the copying machine to be worth some $15,000, although no evidence to that effect was adduced. For perfectly understandable reasons, the claimant sought to have the copying machine released from the seizure and its return.

2. The various items seized under the warrant, with the exception of the copying machine, were sold by auction on the 7th August 1984 for $6,400. After deducting advertising and travelling expenses and the auctioneer's commission of 5 per cent, the net proceeds amounted to $5,665. At that date the arrears of rent and expenses of the distress amounted to $7,442. Consequent upon the withdrawal of the copying machine from the auction, at the request of the claimant, further expenses in the form of storage charges were incurred. For perfectly understandable reasons, the claimant sought the return of its copying machine. Apart from being owed some $3,00O by the tenant for arrears of rental and other charges under the Leasing Agreement, there is a distinct possibility that it would receive nothing, or a sum substantially less than the true value of the machine, if it were subjected to a forced sale.

3. On behalf of the claimant, Mr. POON conceded that the bailiff was entitled to seize the copying machine, because it was in the apparent possession of the tenant at the material time. He did not contend that the machine was not liable to seizure under any of the privileged categories listed in Section 88 of Cap. 7, or that the distress was excessive. On the facts of the present case and decided cases in Hong Kong, these concessions were properly made, and, in my view, inevitable (Cf. Wilkie Lam v W.R. Simpson (1926) 21 H.K.L.R. 16 Hong Kong Land & Investment Agency Co. Ltd. v Athena Studio (1933) 26 H.K.L.R. 39; Lam Wai Fong v Ho Yin Sheung [1958] D.C.L.R. 247; Penta Continental Land Investment Co. Ltd. v Cheng Kwok Restaurant Ltd. [1967] D.C.L.R.22)

4. However, in the course of a very able and attractive argument, Mr. POON submitted that, once it was established that the copying machine, though lawfully seized, was the property of the claimant, and not that of the tenant, I should order its return to the claimant, in the exercise of the discretion conferred upon me by Section 96 of Cap. 7, which provides that when a claim is made under Section 95 of Cap. 7, "by any person not being the debtor", and such claim is verified by affidavit, "the court shall adjudicate thereupon, and make such order..... as it thinks fit." Mr. POON drew a distinction between the power to distrain and the power to sell goods seized under a warrant, and pointed out that Section 99(1) of Cap. 7, which provides for a sale in apparently mandatory terms, is expressly made subject to "any order to the contrary". In conclusion, he invited me to exercise my discretion under Section 96 in a manner which gave effect to the common law rules relating to distress, which did not give a landlord power to sell goods belonging to third parties, but merely a coercive right to hold them pending payment of the rent in arrears Mr. POON submitted that, by enacting Section 99 of Cap. 7, the legislature was trying to preserve these common law rules.

5. Although the authorities already mentioned are consistent in deciding that ownership is irrelevant to the question whether the goods in question are distrainable, it does not appear to me that they expressly deal with the point now before me, with the possible exception of a passage in the report of Lam Wai Fong v Ho Yin Sheung [1958] D.C.L.R. 247 at 249. In each case, the true owner's claim was dismissed because the goods were in the apparent possession of the tenant, and the claimant had failed to discharge the burden of showing that the bailiff was unreasonable in ascribing possession to the tenant. (see also Chan Mok-thaim v. Tao Tak-po [1965] D.C.L.R. 158) The question whether goods clearly belonging to a stranger could also be sold, does not appear to have been fully considered. The point seems to have been decided sub silentio against the third party claimant. Such decisions, even by the highest court, I conceive to be merely persuasive.

6. In Lam Wai Fong v Ho Yin Sheung, supra, Judge Huggins (as he then was), after referring to the position at common law, expressly drew attention to the change effected by the Distress for Rent Act 1689 (2 Wm. & M. s.1, c.5), which Blackburn J. described as "a very harsh and unjust law" in Lyons v Elliott (1876)1 Q.B.D. 21O at 213. However, it does not seem that he relied on this statute to justify his dismissal of the claim. On the contrary, the learned judge appears to have based his decision upon his view that sections 21 and 23 of the Distress for Rent Ordinance only empowered the Court to make orders in cases of wrongful distress. Having earlier (at 249) neatly summarised the various kinds of wrongful distress, the learned judge concluded his judgment in the following terms (at 252):-

"In none of the cases was it suggested that Section 23 limited the common law right of a landlord to distrain upon a third party's goods and for my part I would not be prepared to hold that that was the intention of the legislature unless such intention had been expressed in clear, unambiguous terms: .... Section 15 does, clearly, alter the common law rule in making goods distrainable only if they are in the apparent possession of the tenant. But Section 23 does no more than empower the Court to make such order between the parties in respect of the claim 'as it thinks fit'. In my view there is no clear expression of an intention that the Court, in deciding what order shall be made, shall be entitled to disregard the common law rule. "

7. In substance, Sections 15, 21 and 23 of the Distress for Rent Ordinance have been recently re-enacted as Sections 87, 93 and 95 of Cap. 7. The references to wrongful distress in the heading to Part III of the Distress for Rent Ordinance, upon which Judge Huggins appeared to place some reliance, are not to be found anywhere in Part III of the current version of Cap. 7. The marginal notes, upon which the learned judge also appears to have placed some reliance (at 250), have been retained (Cf. Section 95, 96 and 97 of Cap. 7). But, in my respectful view they have no bearing upon the proper construction of the words enacted by the legislature, (Cf. Section 18(3) of the Interpretation and General Clauses Ordinance (Cap. 1)). For my own part, I am unable to find any indication that the provisions of Part III of Cap. 7, other than these contained to Section 97, are limited to instances of a wrongful distress.

8. Although I consider that the discretion conferred by Section 96(2) of Cap. 7 is wider than these authorities appear to suggest, I am satisfied that it would be wrong to exercise it in the manner suggested by Mr. POON. I am deeply conscious of the injustice involved in property belonging to C being utilised to satisfy a debt owed by B to A. But, simply to order the return of the machine to the claimant, upon proof of its ownership, would involve a total disregard of the landlord's legal rights in respect thereof. The landlord would be deprived not only of its coercive power, at common law, to seize and retain movables found in the apparent possession of the tenant, but also of its statutory power to sell movables which have been lawfully distrained.

9. I must confess that I entertain some difficulty in identifying the precise source of the statutory power of sale is Hong Kong. I incline to the view that it is derived from the Distress for Rent Act 1689, which is now part of Hong Kong law by virtue of Section 4 of the Application of English Law Ordinance (Cap. 88). The apparently mandatory duty to sell, cast upon the bailiff by Section 99 of Cap. 7, and the machinery envisaged by Cap. 7 (cf section 89) are not easily reconcilable with the somewhat different procedure or machinery contained in the Act of William and Mary, which requires inter alia, that the distress be "appraized by two sworne appraizers". However, I do not think that the latter statute has been impliedly repealed by the recent re-enactment of Cap. 7. In substance, the latter has been in force since 1883, whereas the Act of 1689 has been part of the law of Hong Kong since 1844. Since the enactment of the Application of English Law Ordinance (Cap. 88), the legislature has expressed its intention to repeal ancient English statutes, set out in the Schedule, by clear and deliberate measures. Although distress can only be levied by an officer of the Court (cf section 78(2) of Cap. 7), it seems to me that there are two statutory sources, authorising a sale of property which has been lawfully seized. That contained in sections 99 and 100 of Cap. 7 is, perhaps, confined to property belonging to the tenant, since the mandatory direction that any surplus should be paid to the debtor (of section 99(2)) would constitute a monstrous injustice, if applied to property belonging to strangers. The machinery of Cap. 7 may be considered as a modification of that in the 1689 Act in relation to property belonging to the tenant, similar to the modification, introduced in England by section 5 of the Law of Distress Amendment Act 1888, which does not apply in Hong Kong. Where the distress is levied in respect of property belonging to strangers, it may be that it can only be sold if the provisions of the 1689 Act are complied with, e.g. appraisement by two sworn appraisors.

10. Although I consider that there is some confusion or uncertainty in the law of Hong Kong concerning the sale of property seized as distress, I am satisfied that a landlord in Hong Kong does enjoy the exceptional legal right of having his claim for rent satisfied by a sale of property belonging to strangers. That, and other rights, must be taken into account when exercising the apparently wide discretion conferred on the Court by section 96(2) of Cap. 7. However, simply to confirm the seizure, as was done in some of the cases referred to, might be unjust, in the sense of being detrimental to the residual interests of strangers. In the present case, I consider that it would be tantamount to piling an unnecessary and additional injustice upon the "harsh and unjust" provisions of the existing law, if I were to make an order, which compelled the claimant to stand by while its property is sold in the usual manner. Apart from the fact that a "forced" sale rarely produces proceeds equivalent to the real or true value of the property, the proceeds thereof would be reduced by the amount of the auctioneer's commission and expenses.

11. For these reasons, which I undertook to put into writing, I considered that the proper order to be made in the present case was that the copying machine should be returned to the claimant, upon payment by the claimant of the balance of the costs of the distress and the rent due under the warrant for distress. As the claimant had failed in its attempt to secure the release of the machine, free of the partially unsatisfied claims of the landlord, I considered that the claimant should also pay the costs of the present proceedings.

12. The injustice inevitably inflicted upon third parties by the present law relating to distress for rent has long been recognised. In England, it was partially acknowledged and remedied by the enactment of the Law of Distress Amendment Act 1908. In 1968, the law was described as a "harsh and unwelcome relic of more oppressive times. " (Cf. Hong Kong Rubber Manufactory Ltd. v. Great Eastern Cotton Merchants [1968] D.C.L.R. 8 at 13.) A muted plea for reform was uttered in 1976 (cf. (1976) H.K.L.J. 362-364), but appears to have passed the notice of the legislature. In 1984, when the Courts of Hong Kong are faced with many, and complicated, problems associated with the failure of business enterprises, it is surely desirable that they should be able to deal with these problems on a basis which does equal justice to all those who have given credit to the business enterprise, instead of giving preference to one such creditor, according to a law passed in England during the reign of the Emperor K'ang Hsi!