DOMBAS ESTATES LTD v. TOP JOINT INVESTMENT LTD AND ANOTHER

  DCDT 3959/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 3959 OF 2008

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AND

  DCDT 3960/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 3960 OF 2008

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BETWEEN

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 (heard together)

REASONS FOR DECISION

1.  This is an interpleader summons taken out by the bailiff after execution of 2 warrants of distress issued on 9 October 2008. 

2.  The Plaintiffs are the Landlords, and the Defendant is the Tenant of Nos. 1-3, Ground Floor, No.1 Minden Avenue, Tsimshatsui in Kowloon.  The Tenant operates the "Giardino" restaurant ("Restaurant") at the address.  The bailiff executed the warrants of distress on 23 October 2008, when property was seized from the Restaurant. Triumph Master Development Ltd. ("Triumph") now claims to be the true owner of the goods seized.

3.  At a hearing before me on 5 December 2008, the parties agreed to treat the matter as the substantive trial of the claims made by the Landlord and Triumph on the affidavits filed.

4.  Triumph does not dispute that the property seized were in the apparent possession of the Tenant, and that the bailiff is hence entitled to seize such property.  Triumph relies on a Chinese document dated 1 August 2008 ("Agreement"), and claims that it is in fact the true owner of the property by virtue of the Agreement, and hence entitled to the return of the goods.

5.  The Agreement was signed by Paul Yuen on behalf of the Tenant and Carefeel Yuen on behalf of Triumph.  It recites that the Tenant faces operation difficulties in relation to the Restaurant, and provides that Triumph agrees to extend a loan of $78,026 to the Tenant for its payment of rent to the Landlords.  It also provides that the Tenant agrees to employ as security all the property at the Restaurant, including the interior decoration, kitchen and restaurant tools and all stock-in-trade (which were listed in detail and attached to the Agreement).  The Agreement goes on to provide that the Tenant would make a monthly payment of $2,500 to Triumph by way of rental for the use of the property.  The Agreement further says that if the Tenant should wish to buy back the property, it has to pay $90,000.

6.  On the face of the Agreement, the property at the Restaurant were offered by the Tenant as security (“抵押”) for the loan made by Triumph.  In my judgment, the Agreement is a registrable charge under section 80 of the Companies Ordinance.  It is not disputed, and as evidenced by the Annual Return filed on behalf of the Tenant, the Agreement was not registered at the Companies Registry.  The purported charge in favor of Triumph is accordingly void against creditors of the Tenant, such as the Landlords.

7.  Even if it is true that the Agreement is a genuine sale by the Tenant and purchase by Triumph of the property listed in the Agreement and seized by the bailiff (and this is disputed by the Landlord), it is clear that this is not a sufficient answer to the seizure of the goods under the warrant of distress.  In Fuleekoo Company Ltd. v. Spiral Tubes International Ltd. [1986] HKC 269, it was held that ownership of the goods and chattels seized of itself would not cause the discretion of the court under section 96(2) of the Landlord and Tenant (Consolidation) Ordinance ("Ordinance") to be exercised in favor of the Claimant.  Ownership is only one factor to be considered by the court and to be weighed against the rights of the landlord under the distraint.

8.  In this case, the Landlords claim that the Agreement is a sham.  It relies on the fact that the Agreement was made between the Tenant and a connected party.  As evidenced by the Annual Returns, the Tenant and Triumph have many things in common.  They share a common director, Madam Poon Yi Ling.  Madam Poon holds 50% of the shares in Triumph and one out of 10,000 shares of the Tenant.  The other 50% shareholder of Triumph is Carefeel Yuen, and the majority shareholder of the Tenant is Paul Yuen.  Carefeel Yuen and Paul Yuen are directors respectively of Triumph and the Tenant.  Madam Poon, Carefeel Yuen and Paul Yuen all have the same residential address.  Carefeel Yuen and Paul Yuen were the persons who signed the Agreement.

9.  The Landlord submits that the Agreement was entered into between the connected parties, i.e. the Tenant and the Claimant, for the purpose of avoiding distraint proceedings and evading the Landlord's entitlement to the distress remedy.  I agree that, from all the available evidence, the connections between the Tenant and the Claimant must be more than coincidental.

10.  Whether the Agreement is a registrable and unregistered charge on the chattels of the Tenant, or a sale and purchase of such chattels as claimed, I am not satisfied in all the circumstances of the case that the discretion of the court should be exercised in favor of the Claimant.   If the goods of a stranger are on the premises, in the apparent possession of the tenant, and lawfully distrained by the landlord for the rent due, then the redress of the owner of the goods must be to seek reimbursement of the value of the goods from the person from whom the rent was due.

11.  The Claimant's claim was accordingly dismissed, with costs.