HOONG CHIU KAI v. WAI YIP DISPENSARY LTD.

HCA 3225/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3225 OF 2002

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D E C I S I O N

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Introduction

1. The Applicant obtained an ex parte injunction from Deputy High Court Judge A. Cheung on 6 February 2003 restraining the Chief Bailiff until the return day from releasing to the Applicant's former employer's landlord ("the Plaintiff") the sum of $130,100 being proceeds of sales of non-poison stock seized by the bailiff under a writ of possession and fieri facias ("fi fa") combined on the ground that the drugs seized were held under a constructive trust by the Chief Bailiff for paying employees' wages. On the return day, the Applicant sought (1) a declaration that he had a beneficial interest over the proceeds of sales now held by the Chief Bailiff and (2) a declaration that he had a beneficial interest in the poison stock seized by the Chief Bailiff but then transferred to the custody of the Director of Health. The Plaintiff landlord opposed to the application. The position of the Chief Bailiff and the Director of Health is neutral. The Defendant was absent.

The Facts

2. The Plaintiff is the landlord of a shop premises ("the Shop") used by the Defendant as a dispensary. The Applicant was at the material time an employee of the Defendant. The Defendant fell into arrears with rent. On 23 August 2002, the Plaintiff issued a Writ of Summons claiming, inter alia, vacant possession of the Shop, arrears of rent and management fee in the sum of $166,788. A consent judgment for vacant possession of the Shop and the amount of $166,788 was obtained on 26 October 2002 and filed on 1 November 2002. Neither was vacant possession delivered nor was the sum of $166,788 paid by the Defendant. The Defendant continued his business in the Shop. On 18 December 2002, the Plaintiff issued a writ of possession and fi fa combined.

3. On 3 January 2003, the writ was executed. The Applicant refused to leave the Shop as he was the licensed pharmacist in charge of the poison stock stored in the Shop. Police had to be called. It was not until the Chief Pharmacist of the Department of Health assured him that he was relieved of his obligation in respect of the poison stock under the Pharmacy and Poisons Ordinance, Chapter 138, that the Applicant agreed to leave. The bailiff seized a quantity of non-poison stock and a quantity of poison stock.

4. On 24 January 2003, the non-poison stock was sold by public auction for the sum of $130,100. The poison stock could not be lawfully sold at the auction and was transferred to the custody of the Director of Health on 28 January 2003. On 6 February 2003, the Applicant obtained judgment by default against the Defendant for arrears of wages etc in the amount of $184,232.60.

Constructive trust

5. The Applicant claimed that he and other employees were entitled to the stocks of drugs seized under a constructive trust. He referred to the dicta of V. Bokhary J in Wong Ho Wing v Wong Ho Kwan, HCA 4823 of 2001 and argued that a constructive trust over the proceeds of sales of the non-poison stock and over the poison stock was created as a result of the unconscionable conduct of the Plaintiff. He said by calling in the police and threatening to arrest him for obstructing the due execution of the bailiff's duty constituted unconscionable conduct. He said he had to wait for replies from the Chief Pharmacist of the Department of Health concerning his obligation under the Pharmacy and Poisons Ordinance in relation to the poison stock kept in the Shop. He said the Plaintiff's oppressive conduct forced his employer, the Defendant, to abandon the Shop and to open a new one in the vicinity. He said he was the largest creditor and yet the Plaintiff's solicitor refused his request to appear at a creditor's meeting convened by him.

6. I think the Applicant's submission is based on a total misunderstanding of the law. A trust is the relationship which arises wherever a person (called the trustee) is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title for the benefit of some person (of whom he may be one and who are termed beneficiaries) or for some objects permitted by law, in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries or other objects of the trust (see: Sheridan and Keeton's, The Law of Trusts 12th ed (1993) at p. 3). A trust may be created as a result of the express declaration or presumed intention of the owner of the property (called the settlor). These are respectively called express trust and implied trust. A trust may also be imposed by equity, irrespective of the intention of the owner of the property when it would be an abuse of confidence for him to hold the property for his own benefit. This is called a constructive trust. The trust is imposed because of the unconscionable conduct of a person which makes it unconscionable for that person to hold the property otherwise than as a trustee. The unconscionable conduct must be in relation to the property such that "equity operates on the conscience of the owner of the legal interest...", and "the conscience of the legal owner requires him to carry out the purposes ... which the law imposes on him by reason of his unconscionable conduct ...": per Lord Browne-Wilkinson in Westdeutsche Bank v Islington LBC [1996] AC 669 at 705.

7. Here, the property in question are the stocks of poison and non-poison drugs kept in the Shop. They belonged to the Defendant and formed his stock in trade. They were the only assets of the Defendant and at the time the Defendant owed employees wages and owed the Plaintiff rent. The employees never paid for the drugs. The Defendant never offered the stocks of drugs to the employees in payment of their wages. The stocks of drugs never belonged to the employees. Thus, when the bailiff walked into the Shop on 3 January 2003, the stocks of drugs belonged to the Defendant, both in law and in equity. The employees had no interest over the drugs at all.

8. The allegation of unconscionable conduct is without substance. The Plaintiff was entitled to have vacant possession of the Shop and obtained the issue of a writ of possession and fi fa combined. The writ was delivered to the bailiff, whose duty was to execute the writ. The Applicant refused to vacate the Shop and thus prevented the bailiff from securing vacant possession for delivery to the Plaintiff. Calling of the police was to ensure that the bailiff could execute his duties. In view of the Applicant's refusal to leave the Shop, this was necessary and could hardly be described as an unconscionable conduct. In any event, the unconscionable conduct had to be in relation to the stocks of drugs if a trust in respect of the stocks of drugs were to be implied by law. Even if by evicting the Applicant from the Shop, the Applicant was deprived of his de facto control over the stocks of drugs, his control was on behalf of the Defendant and not in his own right. As the Defendant had no right over the stocks as against the bailiff, the conduct complained of had no effect on the Applicant's right over the stocks of drugs as he had no right or interest over them at all.

9. Seizing of the stocks is prejudicial to the employees as the stocks will not be available to them for the purpose of satisfying their claim for arrears of wages. But the conduct of the bailiff in seizing the stocks in the lawful execution of the writ of possession and fi fa combined could not be described as unconscionable at all. The employees had no proprietary right over the stocks of drugs. As at the time when the bailiff executed the writ on the Shop, the Applicant had not even obtained judgment in respect of his claim for arrears of wages. On the contrary, the Plaintiff had started legal proceedings for almost six months, had obtained judgment and obtained leave to issue a writ of possession and fi fa combined. A judgment creditor is prima facie entitled to obtain the fruits of his judgment by means of execution. Priority must be determined on a first-come-first-served basis. Of course, hardship will be caused to any creditors who levy execution subsequently as the asset available to them may have been reduced by those who executed first. The Applicant's position as an employee is no different from that of any creditor, though it would be in the case of winding up of the Defendant company. The Plaintiff has prosecuted his claim with due diligence, while the Applicant merely slept on his rights and has neither obtained judgment against the Defendant in respect of arrears of wages nor started winding up proceedings. In other words, no right of his has ever crystallised over the asset of the Defendant. The Plaintiff was entitled to seize the stocks of drugs to satisfy his judgment debt.

10. As the Defendant company was not in the course of winding up, the Plaintiff as judgment creditor who has executed the writ on the Defendant company has no obligation to attend any creditor's meeting or to deliver up any goods seized by him as required by section 269 of the Companies Ordinance, Chapter 32.

11. Thus, the Applicant has no interest over the stocks of drugs. In seizing the stocks, the bailiff's conscience could not be bound in any way as to compel him to hold the stocks for the benefit of the employees or the Applicant. No trust could ever have arisen over those stocks. This is sufficient for me to dispose of the Applicant's summons. There is no need for me to consider his position as against the Director of Health who is now in physical custody of the poison stock. The Applicant's summons is therefore dismissed and the ex parte injunction order granted by Deputy High Court Judge A. Cheung is discharged.

Costs

12. The Applicant has no reasonable grounds at all to seek the ex parte injunction and the orders he asked for. This is a case where costs must follow the event. Accordingly, I order that the Plaintiff shall have his costs against the Applicant. Such costs are to be taxed if not agreed. I make no order as to the costs of the Chief Bailiff and the Director of Health.