LAPRAIRIE LTD v. GOLDEN DELIVERY LTD

DCDT 407/2023 & DCDT 1655/2023
(Heard Together)

[2023] HKDC 1428

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 407 OF 2023

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 1655 OF 2023

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DECISION

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1.  This is an application by way of summons dated 18 September 2023 by the claimants (“the Summons”) seeking for release of goods seized and restrained by the bailiff of the court on 12 September 2023 at 26/F, H Queen’s, 80 Queen’s Road, Central, Hong Kong (“the Premises”).

Background

2.  The plaintiff is the landlord of the Premises under a Tenancy Agreement between the plaintiff and the defendant dated 27 April 2022 (“the Tenancy Agreement”).

3.  The Premises was leased for the operation of the “Ecriture by Le Comptoir” being an upscale restaurant that has been awarded 2 Michelin stars.

4.  It is not in dispute that the defendant has been in default of payment of rent since 1 January 2023 despite reminders and attempted negotiation of payment schedule offered by the plaintiff.

5.  The plaintiff issued two Warrant of Distress for DCDT 407/2023 (“DCDT 407”) and DCDT 1655/2023 (“DCDT 1655”) on 13 February 2023 and 24 May 2023 respectively for distrain of arrears of rents for different periods (“the Warrants”).

6.  The claimants attempted twice to remove various items on 10 September 2023 but was prevented by the management of the plaintiff, which has called the police and subsequently made police reports. The plaintiff has also issued a warning letter and a follow-up letter to the defendant on 11 and 12 September 2023 respectively.

7.  On 12 September 2023, the bailiff of the court enforced the Warrants at the Premises and seized 178 items (Hearing Bundle for DCDT 407, page 402-418).

8.  The claimants alleged that they have laid claims on such items by various means during the seizure including:

a.  posting various labels and notices on various items;

b.  the solicitors for the claimants attending and declaring such claims to the bailiffs;

c.  showing 3 invoices in respect to 12 dining tables (allegedly belonging to the 1^st claimant), a painting (allegedly belonging to the 2^nd claimant) and the collection of old Michelin guides (“the Guide”, allegedly belonging to the 3^rd claimant);

9.  But despite these measures, the items were all seized.

10.  Since then, the claimants have also produced various invoices, a written loan agreement between the 1^st and 2^nd claimants in respect of various art collection, a written loan agreement between the 1^st and 3^rd Claimants in respect of the Guide etc. and have made the current application under Section 9(3) of the Landlord and Tenant (Consolidation) Ordinance (Cap 7) alleging themselves to be the owners of property seized and to seek the court to order to discharge or suspend the Warrants and to release such property to them.

Legal Principles

11.  The legal principles are trite and not in dispute: in the case of Wing Sau Industrial Co Ltd v AEP Tire Recycling Technology Ltd [2009] 1 HKLRD 291, under paragraph 36 of the Decision, HH Judge Marlene Ng stated:

“In considering the execution of the warrant, the initial question is whether the goods and chattels seized by the bailiff were in apparent possession of the defendant. If the answer is no, the goods and chattels should be released to the rightful owner. If the answer is yes, the bailiff was entitled to seize the goods and chattels. But the Court still has a discretion to return the goods and chattels to the rightful owner. Therefore, a question also arises as to whether the claimant has shown himself to be the rightful owner.”

12.  Thus, in order to secure the release of the claimed items, the claimants can challenge that the items seized have not been in apparent possession of the tenant, and if this challenge fails, can still seek the court to exercise a discretion in their favour.

Apparent Possession

13.  The case of Shun Ho Energy Development Company Limited v Smart Dragon Limited v 吳承志 provides a good precedent concerning the issue of apparent possession.

14.  In that case, the tenant also operated a restaurant business but a claimant produced a sale and purchase agreement (referred to in that Decision as “the SP agreement”) which purported to show that the tenant had sold all chattels and goods at the restaurant to the claimant.

15.  In the Decision, under paragraphs 47, 48, 53 and 56, HH Judge Marlene Ng held that:

“…what were the overt indications to the bailiff’s eyes? All the claimed goods were good and chattels consistent with a restaurant business. There was no indication of any occupier other than the defendant at the premises…This was consistent with the tenancy agreement that prohibited the defendant from subletting or assigning the premises or part thereof to any third party. Even if the SP agreement…were taken to its highest, it showed that the claimant agreed to lease back the…claimed goods…to the defendant for six months for a monthly fee of $10,000. In the circumstances, even according to the SP agreement, the claimed goods would still be in the possession of, and used by, the defendant…for the purpose of the business of the restaurant, and hence the claimed goods were necessarily in the apparent possession of the defendant.”

“…the goods upon which the distraints might be levied were all goods in the apparent possession of the tenant, and the ownership of the goods and the knowledge of the landlord as to ownership were immaterial.”

“…the goods on the premises were prima facie in the tenant’s possession for the purpose of section 87 of the Ordinance, but “apparent possession” must mean more than goods that were physically on the premises. The bailiff could not be expected to go into a detailed inquiry on the spot, and ownership of the goods was not determinative. All the circumstances must be taken into account.”

“…even if the bailiff is aware of a lease agreement between the third party owner and the tenant, …akin to…the SP agreement, it does not necessarily follow that the goods and chattels on the leased premises owned by a third party will be exempt from seizure under a warrant of distress. The key consideration is whether the seized goods and chattels were in the apparent possession of the tenant and the execution of the warrant of distress will be lawful if they are.”

16.  In Copthorne Holdings Corporation v Wealth Fair Technologies Limited and Hang Sang Bank Limited [2009] HKEC 1174, Deputy District Judge Osmond Lam stated, under paragraphs 18, 19 and 21 of that Reasons for Decision:

“…The Bailiff cannot be expected to go into detailed investigation on the spot of ownership claim and any claim of ownership of goods is not necessarily determinative but all the circumstances must be taken into account…”

“It must be common sense that when a Bailiff enters the premises of the debtor, he/she sees all these goods left on the premises as prima facie in the apparent possession of the debtor. He cannot be expected to make detailed analysis as to the ownership of the goods. Unless he/she sees the goods clearly labelled otherwise, locked or situated inside a sub-let room, or otherwise clearly points towards ownership and/or possession other than the debtor’s, and he /she has reasonable grounds to believe that is so, it cannot be expected the matter to be decided on the spot. That must be decided on the spot. That must be left to the Court to decide. In most situations, there would be some managers or staff…making claims of stock and trade of the Tenant. Such claims by their very nature…would be viewed with suspicion. Other claims by consignor may well have some merit. However, each case must be judged on their own particular facts and there is no hard and fast rule possible on all the circumstances.”

“…The principles of apparent possession…is there to prevent protracted and disputed claims of ownership on the spot…Nevertheless, when a genuine claim is repeatedly made, where detailed documentation have been disclosed and revealed to the Bailiff and other parties concerned, for the Bailiff to turn a blind eye to any such genuine claim, must be viewed as shirking the responsibility of that office.”

17.  In my reading of these precedents, there is clearly a sound policy reason for the test of “apparent possession” so that the bailiff would not be held on the spot to adjudicate on any disputed ownership. Instead, the bailiff’s job has to be made relatively simple and straightforward: to seize what is in apparent possession of the tenant with regard to all relevant circumstances of the rental background.

18.  Counsel for the Claimants, Mr. Fung, relied heavily on Deputy Judge Lam’s judgment regarding “goods clearly labelled” and argued that in the current case, many items were labelled with a notice “This is the property of Bunch of Art Limited and is on loan for the purpose of display only” (as shown in various photographs exhibited).

19.  However, I think this is just selective quoting of the said judgment.

20.  I cannot imagine that Deputy Judge Lam had meant that the mere act of slapping on some “ownership labels” on items would frustrate any distraint action: the learned judge went on to add the qualification: “or otherwise clearly points towards ownership and/or possession other than the debtor’s, and he /she has reasonable grounds to believe that is so…”

21.  Thus, I cannot see how mere “ownership labels” would be adequate “reasonable grounds” for the bailiff to believe in an ownership claim. There has to be other evidence, perhaps the most obvious one being whether those items in dispute were consistent with the tenant’s purpose of occupation under the tenancy agreement which, in this case, was the operation of a restaurant.

22.  In addition, the Copthorne case must be considered an exceptional case: the background was that the claimant, Hang Seng Bank Limited, had a Legal Charge over certain machineries in the premises and had registered the same with the Companies Registry. The claimant’s solicitors had also written to both the landlord’s solicitors and the bailiff’s office enclosing the Form M1.

23.  Nevertheless, I consider it rather harsh for Deputy Judge Lam to criticise the bailiff as “turning a blind eye to any such genuine claim” and “shirking the responsibility of that office”. I note that in the same Reasons for Decision, under paragraph 12, Deputy Judge Lam also stated that the landlord’s solicitors had written to the bailiff’s office as follows:

“Contrary to what was represented in the LKL letter, we wish to point out the important fact that Hang Seng Bank has not taken possession of the so called “Charge over Machinery”…Nothing in the materials as provided by…the LKL letter expressly stated that Hang Seng bank has the right to take or has taken possession of the said machineries.

As such, it is without legal basis that the said machineries…are not in the possession or apparent possession of…(the tenant)…”

24.  Thus, the landlord’s solicitors had raised a dispute and, in particular, a dispute in law. It was clearly not the role of the bailiff to adjudicate on the spot on any ownership dispute, let alone a dispute in law. Thus, I can understand why the bailiff would rather err on the side of caution to seize the machineries there and then, and let the court decide later. That was exactly what happened in that case.

25.  On the other hand, if Landlord’s solicitors had actually consented to the claimant’s claim, and if the bailiff nevertheless still proceed to seize the machineries, then I would think the bailiff might be more fairly be criticised as “turning a blind eye” and “shirking their responsibilities”.

26.  Similarly, I am of the view that the mere production of various invoices and / or representations made by the solicitors of the claimants would not be enough “reasonable grounds” to establish an ownership claim “on the spot”.

27.  It would be a ridiculous suggestion that the distraint action wold be frustrated if anyone can produce an invoice which could only show that, at some point in time, a particular item in the premises was purchased by a third person other than the tenant.

28.  It is not the role of the bailiff to investigate any invoices, documents or representations made by anyone on the spot: otherwise, the bailiff would be tasked with investigating the authenticity of documents, the identities of claimants (including his / her relationship and dealings with the tenant), hearing evidence from various parties including trying to ascertain whether there has been full disclosure of evidence (e.g. the claimant might have, after the purchase, sold or gifted the item to the tenant) etc.

29.  Investigating such matters would invariably involve taking evidence under oath and allowing submissions from all sides, thus turning the whole distraint action into a real time court hearing which would also require instant adjudication on every disputed item.

30.  This is not the role of the bailiff. It is clearly the role of the court at a later stage should any claim of ownership be properly raised.

31.  In any case, I also agree with Mr. Chen, counsel for the plaintiff, that the labels stating “This is the property of Bunch of Art Limited and is on loan for the purpose of display only” would actually support the bailiff’s conclusion that these items were in the “apparent possession” of the tenant:

“…“possession” connotes a right to possess…which, it is submitted, is a distinct and separate concept from “ownership”.” (Xipho Development Co Ltd v CHM Holdings Co Ltd [1997] HKLRD 36)

32.  Further, as in the Shun Ho case, taking the loan agreements to the highest, the items concerned would still be in the possession of the defendant / tenant hence necessarily in its “apparent possession”.

33.  The Claimants also referred to the business registration certificate bearing the name of the 1^st claimant and not the defendant’s as evidence to show that the goods and chattels in the Premises were not in the apparent possession of the defendant. However, this same argument has already been considered and firmly rejected by the court in Wharf Properties Limited v XS Fashion Limited v Mexwise Limited, unreported DCDT 4727/2002, 12 August 2002:

“…the mere production of the Business Registration Certificate was not cogent evidence that could displace the prima facie evidence under the naked eye of the bailiff suggesting that the premises as well as the goods and chattels on the same were in the apparent possession of the Defendant.”

34.  Mr. Fung also suggested that the claimants’ (failed) attempts to remove various items from the Premises on 10 September 2023 should somehow serve as evidence of ownership.

35.  I cannot see how that argument is sound: if there is, all along, a plan to escape liability under the Tenancy Agreement, this would be exactly what the claimants would try to do. On the other hand, if the claimants were confident of establishing their claims, there would be no need to try to “smuggle out” any items before the distraint action.

36.  In any case, if there was any complaint about the circumstances of how the claimants were prevented to take away various items, it is not the concern of this court. This incident happened days before the distraint action was executed by the bailiff.

37.  In short:

a.  the Tenancy Agreement was concerned with a lease to a restaurant business (with prohibitions against the tenant to “assign, underlet, part with possession of, or transfer the said premises or any part thereof…whereby any person who is not a party to this Agreement obtains the use, possession, occupation or enjoyment of the said premises or any part thereof…” (clause 2.33 of the Tenancy Agreement).

b.  As such, the bailiff’s role in the distraint action under the Tenancy Agreement was simply to enter the Premises on the specified date and seize any goods and chattels that were consistent with the operation of a restaurant business. This would constitute adequate overt indication that such goods and chattels in the Premises must be in “apparent possession” of the defendant / tenant under the Tenancy Agreement.

38.  Thus, I find that all the goods and chattels seized on 12 September 2023 were in apparent possession of the defendant.

Discretion of the court

39.  In the Shun Ho case, HH Judge Marlene Ng stated, under paragraph 74 of that Decision:

“…ownership of the goods and chattels seized, of itself, would not cause the discretion to be exercised in favour of the claimant. It is a factor to be considered and must be weighed against the rights of the landlord. All the attendant circumstances should be considered by the judge before coming to his discretion and he can impose such terms as he thinks fit.”

40.  The relevant factors in this case include the following:

a.  The restaurant bears the name of the 1^st claimant.

b.  It is not in dispute that starting from December 2020, well before the commencement of the current Tenancy Agreement, the rent of the Premises has all along been paid by the 1^st claimant.

c.  The revenue generated by the restaurant were credited to the account of the 1^st claimant and expenses were debited from the same account.

d.  Both the 3^rd claimant, Mr. Vivien Roussie (“Roussie”) and the 4^th claimant, Mr. Raphael Geismar, are directors of the 1^st claimant.

e.  Roussie and Mr. Mathew Saji (who is a director of the defendant / tenant) are both directors of the 2^nd claimant. In addition, Roussie is the sole shareholder of the 2^nd claimant.

f.  The 1^st and 2^nd claimants, and the defendant / tenant share the same address for their registered office and director’s correspondence address, and all three also appoint the same company secretary.

g.  In fact, the 1^st claimant was the tenant of the Premises from around 2016 to end of November 2020. Despite the non-alienation clause (as stated above), the 1^st claimant was substituted by the defendant in the Tenancy Agreement.

h.  Roussie is the contact person in the Tenancy Agreement.

i.  According to Roussie, the defendant / tenant has no income or assets.

j.  Further, Roussie now claimed that the 1^st claimant has all along been operating and running the restaurant. (paragraphs 5-14 of his Affirmation, Hearing Bundle DCDT 407, page 21-24).

41.  The inter-relationships of the claimants with the defendant / tenant (including the loan agreements as stated before) raise a suspicion that the defendant / tenant was used as a convenient vehicle to attempt to escape liability under the Tenancy Agreement.

42.  In any case, the Claimants were all involved, one way or another, in contributing to the operation of the restaurant business directly or indirectly by allegedly loaning various items to be displayed or used in the Premises. They must therefore be aware of the risk of distraint action should the defendant / tenant default.

43.  One further consideration was the period of rent arears which was from January to September 2023, i.e. some 8 or 9 months. The restaurant would have been operating during much of this time despite paying no rent and despite various demands and the rent repayment schedule offered by the Landlord. At some HK$320,570 monthly basic rent plus additional turnover rent and other charges, the sum owed would have been rather substantial.

44.  Upon considering all the circumstances and factors, I decline to exercise my discretion in favour of the Claimants.

45.  The Court of Appeal in the Xipho case state that:

“if the goods of a stranger were on the premises and lawful detained by the landlord for arears of rent, then the readdress of the owner of the goods was to seek reimbursement of the value from whom the rent was due.”

46.  I am of the view that this should also apply in the current case.

Order

47.  I would order that the Summons be dismissed and that the costs of and occasioned by the Summons, including the additional storage and security guard fees from 29 September 2023 to the date of this decision, be to the plaintiff to be taxed if not agreed.

48.  I have previously ordered that the auction of the seized goods previously scheduled for 29 September 2023 be suspended. I would now order that this suspension be lifted.