LAI SUN DEVELOPMENT CO. LTD. v. LINKFEEL LTD.

DCDT 584/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 584 OF 2003

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REASONS FOR DECISION

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1. This is an interpleader summons taken out by the bailiff after the execution of a warrant of distress dated 21 January 2003 ("the Warrant of Distress").

2. By a tenancy agreement dated 16 October 2001 ("the Tenancy Agreement"), the Plaintiff let the premises known as Unit 1102, 11th Floor, Tower II Cheung Sha Wan Plaza, No. 833 Cheung Sha Wan Road, Kowloon ("the Premises") to the Defendant for a term of 2 years commencing on 19 October 2001 at a monthly rent of $25,320. As the Defendant has not paid the rent of the Premises for the months of November and December 2002 and January 2003, the Plaintiff applied for the Warrant of Distress which was subsequently executed by the bailiff on 22 January 2003. During the execution of the said Warrant, the Claimant claimed that it was the owner of the furniture and the chattels seized by the bailiff ("the Chattels"), and so the latter took out the present interpleader summons.

3. In the hearing on 24 February 2003, I dismissed the Claimant's claim for the return of the Chattels and I now give my reasons for such decision.

The Claimant's case and the evidence

4. It is the Claimant's case that it is the true owner of the Chattels. By a licence agreement dated 18 October 2001 made between the Defendant as the licensor and the Claimant as the licensee ("the Licence Agreement"), the former granted to the Claimant a licence to use and occupy the Premises, with the amount of the monthly licence fee the same as that of the monthly rent under the Tenancy Agreement. The Chattels had been purchased by the Claimant for its use as an office in the Premises, and so it claims for the return of the Chattels.

5. According to the records in the Companies Registry, the directors of the Defendant are Mr. Law Kar Po ("Mr. Law") and Mr. Wong Hing Sun, with each of them holding 50% of the shares of the Defendant. On the other hand, the directors of the Claimant are the same Mr. Law and one Mr. Choi Pak Shun, with the former holding 70% of the shares and the latter the remaining 30%.

6. According to the evidence of Mr. Chiu Chun Ho, the bailiff who attended the execution of the Warrant, the Defendant was named as the tenant of the Premises in the respective directories in the main lift lobby and the lift lobby on the 11th floor of the Building. However, when he entered the Premises, he found that the names of the Claimant and one "Lobo Investments Ltd." (which was a company also controlled by Mr. Law) appeared in a nameplate near the entrance. After Mr. Chiu entered the Premises, he was told by a staff therein known as Ms. Chan that the Premises had been sublet to the Claimant, and this information was confirmed by one Mr. Wong over the phone. But when Mr. Chiu asked for the relevant supporting documents, none was supplied to him. The staffs in the Premises did not even show Mr. Chiu any business registration documents relating to the business operated in the Premises. Mr. Chiu therefore proceeded with the execution and seized the Chattels.

Were the Chattels in the apparent possession of the Defendant?

7. It is trite law that the court should approach the present application in the following manner. Firstly, were the Chattels in the apparent possession of the Defendant? If the answer is no, the Chattels should be released to their rightful owner. On the other hand, if the answer is yes, the bailiff was entitled to seize the Chattels. However, even in the latter case, the court still retains a discretion to return the Chattels to their rightful owner. In exercising such discretion, ownership is only one of the factors to be considered, along with all other circumstances, including the rights of the landlord (see: Fuleekoo Co. Ltd. v. Spiral Tubes International Ltd. [1986] HKC 269, at 276 A-C).

8. The first issue is therefore whether the Chattels were in the apparent possession of the Defendant at the time of the execution. In my judgment, the answer is yes. The Premises had been let to the Defendant for commercial and office use, and the Tenancy Agreement also provided that the Defendant could not part with possession of the same. In such circumstances, the Defendant was prima facie in occupation of the Premises. As the Chattels were ordinary furniture and chattels which were commonly found in commercial offices, the bailiff, in adopting the "evidence of his own eyes" test, was entitled to treat the Chattels in the apparent possession of the Defendant.

9. In support of its claim, the Claimant relies very heavily on the fact that it was the name of the Claimant, and not that of the Defendant, which appeared in the nameplate near the entrance of the Premises. However, I am of the view that this does not assist the Claimant's case. Firstly, it is quite common in Hong Kong for a company to let others to use its office as a correspondence address or to share the use of its office. Hence, even if the names of other companies appear in the nameplate, this does not necessarily mean that the tenant is not carrying on any business at the premises concerned.

10. Secondly, the name of the Defendant was listed as the tenant of the Premises in all the directories in the Building. Although it was the management company, which might be associated with the Plaintiff, which put down the name of the Defendant in these directories, the Claimant, in not informing the Plaintiff or the management company about the Licence Agreement or instructing them to change the name of the tenant in the directories, had led others to believe that the Defendant was the occupier of the Premises at the relevant time.

11. Thirdly, Mr. Chiu, quite rightly, did ask the staffs in the Premises to produce evidence to show that the true occupier of the Premises was the Claimant. However, none was produced to the bailiff by that time. Even if the staffs could not produce the Licence Agreement right on the spot, they could at least produce some documents, such as business registration certificate or other business correspondence, to prove that the Claimant was the company which operated at the Premises. In the absence of such supporting documents, the bailiff was entitled to treat the Chattels in the apparent possession of the Defendant who, under the Tenancy Agreement, was the ultimate tenant of the Premises.

Exercise of discretion

12. The next issue is therefore whether the court should exercise the discretion to release the Chattels back to the Claimant. As I have mentioned above, ownership of the Chattels is only one of the factors to be taken into account, and the court needs to balance such factor with the legitimate interest of the landlord.

13. In my judgment, the discretion should not be exercised in favour of the Claimant in the present case. Firstly, according to its evidence, the Claimant has paid the licence fee to the Defendant up to month of November 2002. No evidence has been produced to show that there were any other subsequent payments. Strange enough, Mr. Law, who was the authorized signatory of the bank account of the Defendant and the director and shareholder of both the Defendant and the Claimant, did not pay any rent to the Plaintiff for that month. This certainly cries out for an explanation by Mr. Law, who made the Affirmations in support of the Claimant's claim in the present proceedings, and yet none is available. If that is an attempt by the Defendant and the Claimant to deny the Plaintiff of the security for the payment of rent, the same should not be sanctioned by the court.

14. In any event, the Claimant has not paid the licence fee for the months of December 2002 and January 2003. If it has done so, the Plaintiff might not have instituted the distraint proceedings in the first place. As the proceedings may be the result of its own neglect to pay the licence fee, the Claimant should bear with the consequences. Indeed, according to the Claimant, the Defendant is only a nominal party and the Claimant is the true occupier of the Premises. In such circumstances, if it does not pay the licence fee for the occupation of the Premises, why should it enjoy the protection which is not otherwise available to the Defendant? In my judgment, the Claimant's position should be the same as that of the Defendant, and it should not enjoy the status of a de facto tenant without subject to the risk of distraint proceedings. If the court allows the Claimant to get back the Chattels, there is a real danger that such kind of arrangement would be adopted by other parties in the future with a view to defeat any distraint proceedings by the landlords.

15. Secondly, one of the directors of the Claimant, Mr. Law, knew that the Defendant could not part with possession of the Premises. Nevertheless, the Claimant agreed to obtain a license from the Defendant to occupy the Premises without informing the Plaintiff. Under such circumstances, if the Defendant 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, the Claimant can always claim indemnity from the Defendant for its loss.

16. By reason of the aforesaid, I dismissed the Claimant's claim for the return of the Chattels.

17. Finally, I must express my gratitude to the legal representatives of both parties for their able submissions and the assistance that they have provided to this court.