FULEEKOO CO. LTD. v. SPIRAL TUBES INTERNATIONAL LTD. AND OTHERS

IN THE COURT OF APPEAL

BETWEEN

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JUDGMENT

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Silke, J.A.:

1. Fuleekoo Company Limited - "the landlords" - are registered owners of premises at Lamma. Those premises are rented from them by Spiral Tubes International limited - "the tenant".

2. The tenant fell into arrears in its rent in the sum of $706,000.

3. The landlords, under the provisions of Part III of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 - "the Ordinance" - issued Distress out of the District Court and the bailiff seized on the 17th February 1986.

4. Interpleader proceedings commenced on the 7th March 1986, the claimants being, amount others, Nederhorst Foundation Engineering (HK) Limited, the 2nd claimant - "Nederhorst" and Gammon (Hong Kong) Limited, the 4th claimant - "Gammon".

5. On the 13th March the claims of the two claimants were refused and the summons was dismissed with costs by His Honour Judge Gall.

6. We do not have a full note of the reasons for his decision but it is common case that the order of the trial judge was based on a finding that the goods of neither claimant fell within the exception provided for in section 88(g) of the Ordinance in that the tenant was not carrying on a "public trade" in relation to those goods. We have been informed in the course of the hearing that he further expressed himself as having no discretion to return the goods to the claimants.

7. While the Notice of Appeal alleges error in the judge in his "public trade" finding this aspect was not pursued before us. The issue which was argued was whether or not the trial judge did have a discretion to return lawfully seized goods to their owner. Apparently in the District Court, it has been accepted for some time that no such discretion exists and this belief stems from decisions going as far back as 1926.

8. Miss Eu for the landlords does not seriously dispute the existence of a discretion but she does urge upon us that there is nothing on the record to show that the trial judge wrongly exercised any such discretion. It is her contention that in those circumstances, it being not apparent from the record whether or not the trial judge did consider himself to have a discretion, we should not interfere.  Alternatively, if we feel that he did have a discretion which he failed to exercise, or exercised wrongly in the sense that he did not think himself to have it at all, then we ourselves should deal with the matter all the facts being before us.

9. Mr. Barlow for both claimants urges us first: to hold positively that there is a discretion and second: having so held, to remit the matter to the judge for him to consider his exercise of it.

10. The factual background is that the tenants were manufacturers and producers of spiral tubes made from rolled steel coils and which were capable of being used in piling works.

11. Nederhorst and Gammon were customers. The tenant had contracted with Nederhorst on the 22nd May 1985 to supply them with manufactured pines. They were unable, through lack of funds, to buy the raw material - steel - to carry out this contract. Attempts were made to overcome the difficulties and eventually Nederhorst itself purchased the steel and supplied it to the tenant free of charge so that the work could proceed. Nederhorst was in urgent need of the piles to carry out its own contractual work. The steel was paid for by Nederhorst and was delivered by them to the tenant. The defendant failed to complete its contract and most of the steel remains unprocessed. That which remains was seized on site by the bailiff.

12. On the 3rd March 1986, a full and accurate inventory was carried out and the steel was identified and there is no dispute on this.

13. Gammon had contracted with the tenant on the 7th December 1984 for a supply of spiral corrugated tubes of their manufacturer. In accordance with contract, 40 such tubes were supplied on the 19th January 1985 at a total cost to Gammon of $252,000, which sum was paid. On completion of their own contractual works, Gammon had 23 left over. It was agreed between the tenant and Gammon that the tenant would collect these remaining tubes from Gammon's site at Junk Bay and would store them at Lamma holding them as bailee to Gammon's order. If the tenant could find a purchaser, which they did not think to be a likely event in view of the condition of the tubes, then they would be paid a commission by Gammon. On the 1st March 1986, these tubes were identified on site having been seized there by the bailiff.

14. At common law a landlord has a right to distrain for unpaid rent. Originally, this right was to distrain upon all goods on a tenant's premises which goods were then held until such time as there was payment of the arrears of rent. This right was limited as to the goods which could be seized in that nothing which could not be returned in specie, undamaged and in the same state as it was when taken was capable of being seized. That which was seized had to be identifiable. Subsequently under an Act of 1629 - 2 WILL & Mary c 5 - a right of sale was given to a landlord. This was, despite the clear provisions for sale contained in section 99 of the Ordinance, applied to Hong Kong by the application of English Law Ordinance Cap. 88 as was the Distress for Rent Act 1737-11 GEO. 2 c 19. Various exceptions as to goods that could be seized were embodied in subsequent statutory provisions such as the Law of Distress Amendment Act, 1888 and the Law of Distress Amendment Act, 1908. The reason for the exceptions was, at least partially, to protect the goods of innocent strangers. Such stranger has, if his goods are seized, a right generally to claim value back from the tenant. But this might well be of little use. Chattels received in the course of a particular trade to be "dealt with, wrought or managed in accordance with that trade" by a tenant of premises are exempted from distress. The general principle being that when a business cannot be carried on unless the chattels are privileged from distress then they are, even at common law, exempt.

15. In Hong Kong, there was enacted in 1883 an Ordinance entitled the "Distress for Rent Ordinance" (Volume I: Bell: Ordinances of Hong Kong 1844 1890). This states itself to be "An Ordinance to Consolidate and Amend the Laws Relating to Distrain for Rent". This has now become, with very minor amendments, sections 75 to 114 of Part III of the Ordinance.

16. In the course of this judgment we shall refer to that numerology, interposing, where necessary, those section numbers in the authorities which lie for our consideration.

17. We are concerned in particular with sections 93, 95, 96 and 97.

18. Section 93 provides that a debtor or any other person alleging himself to be the owner of any property seized in a distress may, at any time within 5 days from such seizure, apply to the Court (1) to discharge or suspend the warrant: (2) to release a restrained article. The court may discharge or suspend the warrant or release the article on such terms as it may think just.

19. Section 95 deals with the claim by a person not being the debtor and, upon such claim being made, allows for the issuance by the Registrar, on application by the bailiff, of a summons calling before the court for a hearing the claimant and the person who obtained the warrant. Section 96 requires that such claim shall be verified by affidavit and, in its subsection (2), provides that:

"When so verified the court shall adjudicate thereupon, and make such order between the parties in respect thereof, and of the costs of the proceedings, as it thinks fit."

20. The procedures under these two sections have become entwined over the years. Here the tenant first made a claim on behalf of the owners of the goods and then the Interpleader summons issued.

21. In Wilkie Lam, Attorney for the Wing On Company Limited v. W. R. Simpson In re Claim of Angela Simpson,⁽¹⁾ the Full Court had for consideration a section 93 claim. The matter had first come before a single judge, Wood J., who held that certain goods distrained upon belonged to the claimant Mrs. Simpson, the wife of the tenant, that she was entitled to them and that they be returned to her. This order was appealed from and argument was heard by the Full Court on one side only, there being no appearance for either the tenant or the claimant. Section 87 provides now, as it did then, that the bailiff is entitled to seize all movable property found upon premises "and in the apparent possession of the person from whom the rent is claimed". Sir Henry Gollan C.J. in delivering the judgment for the Court said, at page 20:

"In my opinion section (87) in its unqualified meaning directs the bailiff to distrain upon all movable property found in or upon the house or premises named in a warrant of distress which are in the apparent possession of the debtor or such part thereof as may in the bailiff's judgment be sufficient to cover the amount of the rent together with the costs of the distress. Subject, therefore, to the conditions therein specified, it would be the duty of the bailiff to seize the movable property irrespective of any consideration arising from the fact that the debtor was not the owner of the property but that somebody else actually was."

So far so good. The learned Chief Justice continued:

"         But the meaning of section (87) is not unqualified. Section (88) specifically mentions certain categories of property which are not to be seized by a bailiff under a warrant of distress, and it is clear that, if a distress were levied upon any such property, the owner would be entitled to apply for and obtain an order for its release under section (93).

 

        The property of the wife of a debtor, which does not fall within any of the provisions of section (88) of the Ordinance, is not protected from seizure under a distress warrant, and falls under the general rule of law contained in section (87) that all property found in or upon the house  or premises mentioned in the warrant and in the apparent possession of the debtor is subject to be distrained upon."

He held that the order of Wood J. directing the release of the goods should be set aside.  Wood J., who sat with the Chief Justice, agreed that he had been wrong. The proposition that there was a discretion does not seem to have been advanced to the Court and was not adverted to in the judgment.

22. In Yip Lam Shi by her Attorney Yip Chung Shi v. Chan Hung Hau, Li.Chee Ho - Claimant,⁽²⁾ a single judge held that, as the defendant was in exclusive occupation of the premises in question, the property was in the defendant's apparent   possession and liable to distraint. The claimant's application was dismissed. The only issue submitted on was that of the apparent possession" by the defendant. Again, the existence of a discretion was not considered.

23. The same applies to the Hong Kong Land Investment & Agency Co. Ltd. by its Attorney William Robert Wilkinson v. Athena Studio, the Eastern Bazaar - applicants,⁽³⁾ which made reference to the Wilkie Lam ⁽¹⁾ decision.

24. A much fuller consideration of the matter appears in a judgment of His Honour Judge Huggins (as he then was) in Lam Wai Fung v. Law Sai Man, Ho Yin Sheung - claimant. ⁽⁴⁾ There, and again the issue was "apparent possession", it was held that:

"Upon execution of a warrant of distress under the Distress for Rent Ordinance all goods in the apparent possession of the tenant are distrainable and may be sold (whether they are the property of the tenant or not) unless they are privileged by virtue of section (88)."

25. In the course of his judgment, the learned judge made reference to Hong Kong Land Investment & Agency Co. Ltd.,⁽³⁾ Wilkie Lam ⁽¹⁾and Yip Lam Shi.⁽²⁾ He felt himself to be bound by Yip Lam Shi. ⁽²⁾ He said of it, and of the other oases to which he made reference:

"......the decision turned upon the question whether the goods were (within the meaning of section (87)) in the apparent possession of the tenant and if they were in such apparent possession it was held that the goods were distrainable."

He felt that even if Yip's case was not binding on him as he had found it to be, he would be inclined to follow it. He thought the provisions of section 93 were in the nature of the remedy of replevin and that the release of goods was limited to those which either fell within the exceptions in section 88 or those upon which wrongful distress had been levied. He equated the two.

26. He was influenced to some extent by the heading which then appeared in that part of the Ordinance:

 

"Discharge of and compensation for wrongful distress"

under which heading appeared sections 93 to 98 inclusive. This heading no longer exists. It has been replaced by a heading reading "Discharge of warrant" in the existing legislation. He thought the words contained in section 93  "upon such terms as it may think just" to allow for the equivalent of a replevin bond.

27. He considered the remedy in section 95 to be more closely related to an injunction and one which was available in, but limited to, cases of wrongful distress. He concluded that portion of his judgment by saying:

"In none of the cases was it suggested that section 95 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 .....".

Earlier in his judgment, and for our purpose, this is the nub of the matter, at page 249 he stated:

"As I pointed out in Liu Chi Cheung v. Tsang Wai Choi [1958] D.C.L.R.165, the remedy of distress is a Common Law remedy, the exercise of which has to some extent been regulated by the Distress for Rent Ordinance." (Emphasis supplied)

28. It would seem therefore that the judge was taking the view that once there was a lawful distraint, then the property had to be sold.

29. For the sake of completeness, our attention has been drawn to a decision of His Honour Judge Downey in Wai Luen Investment Co. Ltd. by their  Attorney Jardin Tsui v. Mr. Yau Ping Chiu trading as  China Scene, Rank Xerox (Overseas) Ltd. - claimant.⁽⁵⁾

30. There it was conceded that the bailiff was entitled to seize a machine of the claimant let on hire purchase to the tenant - it being in the apparent possession of the tenant. It was not privileged under section 88. Nor was the distress excessive. The judge went on to consider an argument advanced to him that once the machine, though lawfully seized, was shown to be the property of the claimant and not that of the tenant that he should order its return in the exercise of the discretion conferred upon the Court by section 96. He did not think the previous authorities expressly dealt with that point. He went on to say at page 4:

"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."

He thought those decisions to be merely persuasive and went on to hold that he thought the discretion conferred by subsection (2) of section 96 was wider than the authorities suggested but refused to exercise his discretion in favour of the claimant, being of the view that to order the return of the machine to the claimant, merely upon proof of ownership, would involve a total disregard of the landlord's legal rights in respect thereof. He imposed terms.

31. In so far as Judge Huggins was of the mind that the Distress for Rent Ordinance "to some extent regulated" the exercise of the Common Law remedy, we are in respectful but nevertheless firm disagreement. We have formed the view that this Ordinance, which is an entirely a "homemade" effort, was intended to, and did, do that which its purpose stated itself to be: that is "to Consolidate and Amend the Laws relating to Distraint for Rent". We are confirmed in this view by section 4(1) of the 1883 Ordinance, now section 78(1), which provides that "no distress shall be levied for arrears of rent except under the provisions of this Ordinance". Many parts were, of course, drawn from the common law but not all, in particular for example, the provision as to "apparent" possession.

32. The wording of subsection (2) of section 96 can only be construed, with respect, as providing a clear and wide discretion. This appears nowhere in the English statutes nor is it part of the common law. We do not consider Yip Lam Shi ⁽²⁾ to be authority for anything further than that goods in the apparent possession of a tenant are liable, regardless of ownership, to be seized.

33. We accept that ownership of itself would not cause the discretion to be exercised in favour of a claimant. It is obviously a factor to be considered and must be weighed against the rights of the landlord. Indeed all the attendant circumstances should be considered by a judge before coming to his decision and it is to be noted that he can impose such terms as he thinks fit.

34. If, of course, the distraint is shown to be wrongful - for example that it is illegal, excessive or the goods are privileged - then different principles would apply but wrongful distress is not a pre-requisite for the return of the goods of a stranger.

35. Here, accepting that the trial judge did not think himself to have a discretion, because of prior authority and the practice in the District Court, he deprived himself of the opportunity to exercise it. We think he should be given that opportunity.

36. We allow the appeal and remit the matter to the trial judge.

(1)   [1926] H.K.L.R. 16

(2)    (1936) 28 H.K.L.R. 26

(3)    (1933) 26 H.K.L.R. 39

(4)   [1958] D.C.L.R. 247

(5)    Distraint No. 1067 of 1984