YINGGAO RESOURCES LTD v. ECO METAL (HONG KONG) LTD AND ANOTHER

CACV 219 & 223/2013
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 219 OF 2013

(ON APPEAL FROM HCA NO. 964 OF 2012)

________________________

________________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 223 OF 2013

(ON APPEAL FROM HCA NO. 964 OF 2012)

________________________

(Heard together)

________________________

J U D G M E N T

________________________

Hon Barma JA (giving the Judgment of the Court):

1. These were appeals against the decision of Poon J dated 16 July 2013 by which he granted interpleader relief to the 2^nd defendant, Citibank N.A. (“the Bank”) by ordering that two sums of money of HK$26 million and US$2.24 million standing to the credit of bank accounts of the 1^st defendant, Eco Metal (Hong Kong) Limited (“Eco”), with the Bank, which were the subject of claims by the plaintiff, Yinggao Resources Limited (“Yinggao”), and Eco respectively, should be paid into court (after deducting the Bank’s costs of the interpleader proceedings) pending the further order or direction of the court.

2. The application for interpleader relief was opposed by both Yinggao and Eco.  Dissatisfied with the Judge’s decision, each of them have appealed.  Before us, Yinggao (the appellant in CACV 219/2013) was represented by Mr Ronny Tong SC and Mr Jonathan Chang, Eco (the appellant in CACV 223/2013) by Ms Audrey Eu SC and Ms Tanie Toh, and the Bank (the respondent in both appeals) by Mr Anderson Chow SC.  At the outset of this appeal, we acceded to an application by Mr Chow for leave to file a respondent’s notice out of time, this not being opposed by either of the appellants.

3. The appeals raise the question of what constitute “adverse claims” for the purposes of an application for interpleader relief.  The difference between the parties is this: the appellants contend that for claims to be adverse for this purpose, the rival claims must call for different outcomes in relation to whom the money, or other property the subject of the application to interplead, should be paid or given; whereas the Bank suggests that even if both claimants seek the same outcome in terms of the ultimate destination of the money or property the subject of the claims, such claims are nonetheless adverse if they are advanced on inconsistent legal bases.

4. The background to the application and this appeal can be summarised as follows:-

(a) Yinggao agreed to buy 800 tons of copper scrap from Eco under an agreement dated 6 January 2012.  On 17 January 2012, Yinggao paid the two sums into the Eco’s accounts with the Bank as a prepayment for the goods.

(b) On about 18 January 2012, the Bank was notified by the Customs & Excise Department (“C&ED”) that it was conducting an investigation in relation to the two sums in Eco’s accounts.  On about 20 January 2012, C&ED directed the Bank not to deal with the two sums without its consent.

(c) Having become aware that the funds were in effect frozen, on 3 February 2012, Yinggao and Eco agreed that the agreement of 6 January 2012 should be terminated, and that the two sums should be repaid to Yinggao.  On 14 February 2012, Yinggao demanded that the Bank should pay the two sums to it, and on 24 May 2012, Yinggao told the Bank that the two sums were held on trust for it and asked the Bank to acknowledge that this was the case.  The Bank did not repay the two sums to Yinggao; nor did it acknowledge that the two sums were held on trust for Yinggao.

(d) On 6 June 2012, Yinggao commenced these proceedings against both defendants, seeking the return of the two sums.  By its defence filed on 3 September 2012, Eco pleaded that it had been agreed with Yinggao that the agreement between them should be terminated and that the two sums should be returned to Yinggao, but only as and when the sums were released by the Bank.  It was further pleaded that Eco had no objection to the two sums being remitted back to Yinggao by the Bank.

(e) On 10 October 2012, Eco’s solicitors wrote to the Bank’s solicitors, alleging that the Bank had been in breach of its duty to Eco to pay the two sums to Eco or to its order since 18 or 20 January 2012. The letter went on to state that Eco did not agree that the sums were held by it on trust for Yinggao, but that Eco nonetheless ordered and demanded that the Bank should pay the two sums to Yinggao.  Shortly afterwards, on 12 October 2012, Eco issued a contribution notice against the Bank in the proceedings, alleging that the Bank was in breach of its duty to repay the two sums to Eco or to its order, and claiming a declaration to the effect that the Bank was under such an obligation, damages for breach of that obligation, and an indemnity against any liability Eco might have to Yinggao in consequence of the Bank’s alleged breach of duty.

(f) On 5 April 2013, the Bank took out the interpleader summons, seeking an order that the two sums should be paid into court.  On 8 April 2013, Yinggao called on the Bank to withdraw the summons, pointing out that Eco had directed the Bank to pay the sums to Yinggao (by the letter of 10 October 2012), so that there were no adverse claims to the two sums.  The following day, 9 April 2013, Eco agreed with Yinggao’s position.

(g) On 3 June 2013, C&ED informed the Bank that it had no objection to the sums being dealt with as the court might think appropriate.  The interpleader summons was heard on 5 July 2013 by Poon J, who granted the relief sought by the Bank by his decision of 16 July 2013.

5. The court’s power to grant interpleader relief is governed by RHC Order 17 rule 1.  For present purposes, it is rule 1(a) that is relevant.  That provides:

“(1) Where –

(a) a person is under a liability in respect of a debt or in respect of any money, goods or chattels and he is, or expects to be, sued for in respect of that debt or money or those goods or chattels by two or more persons making adverse claims thereto …

…

the person under liability as mentioned in sub-paragraph (a) … may apply to the Court for relief by way of interpleader.”

6. Before Poon J., Eco and Yinggao contended (as they do before us) that notwithstanding that each of them had claimed (on different legal bases) to be entitled to give the Bank instructions to deal with the two sums, both were in agreement that the two sums should be paid to Yinggao.  There were therefore no adverse claims to the two sums such as would justify the grant of interpleader relief.

7. The Judge did not accept this submission.  He took the view (at paragraph 28 of his judgment) that given that Yinggao claimed that the sums were held by Eco on trust for it, a claim which Eco denied, the Bank could not deal with the sums in the absence of either “a proper instruction from [Eco] or … a court order”.  He considered that in demanding (by its letter of 10 October 2012) that the Bank pay the sums to Yinggao and then taking out its contribution notice, Eco was asserting that it was the beneficial owner of the two sums and as such entitled to give the Bank instructions how to deal with them, and that if the Bank were to comply with those instructions it would in effect be conceding that Eco was correct, thus leaving itself with no defence to Eco’s claim under the contribution notice, and possibly also leaving itself open to liability for costs to Yinggao if Eco turned out to be wrong.  He therefore thought that the Bank could not realistically be expected to comply with Eco’s instructions, and could only extricate itself from the proceedings by seeking interpleader relief.

8. Mr Tong (with whose submissions on this point Ms Eu agreed) submitted that the Judge was wrong to think that because Yinggao and Eco were contending that the two sums should be paid to Yinggao for different reasons, there were adverse claims to the two sums.  He contended that it was of the essence of the notion of adverse claims to money or property that the rival claimants should seek different outcomes as to which of them was entitled to the money or property in question.

9. Mr Chow, however, submitted that whether two claimants’ claims to particular property are “adverse” to each other should be determined by reference to the nature and substance of the claims.  He suggested that in this case, it was clear that Yinggao’s claim to the two sums was a proprietary claim, whereas Eco’s claim to be entitled to give instructions to deal with them was contractual, and Eco denied Yinggao’s claim to have a proprietary interest in the two sums.  He submitted that even if the two claimants sought the same outcome as to which of them should receive the money, the claims were nonetheless adverse as they put forward inconsistent legal bases for doing so.  In support of this proposition, he relied on Attenborough v The London & St Katherine’s Dock Co (1878) 3 CPD 450 and The Hong Kong & Kowloon Wharf & Godown Co Ltd v Universal lDevelopment Company Ltd  (1956) 40 HKLR 386.

10. Thus, he said, in the present case either Yinggao was right that the money was held on trust for it, or Eco was right that it was not, and it was important for the Bank to know which basis was correct, because if Yinggao was correct, Eco’s claim against the Bank under the contribution notice would be unfounded, whereas if Eco was correct, Yinggao’s claim against the Bank must fail.

11. In essence, Mr Chow’s submission was that as long as the bases on which the respective claims were such that they were inconsistent with one another, so that only one of the claimants could be right, the claims should be regarded as “adverse” for the purposes of Order 17.

12. So far as the involvement of C&ED was concerned, Mr Chow accepted that this was not relevant to the question of whether or not the Bank was able to interplead, and should just be regarded as part of the background against which the interpleader summons was taken out.

13. With respect, I am not able to accept Mr Chow’s submissions.  Given that both Yinggao and Eco are in agreement that the two sums should be paid to Yinggao, their claims in respect of the two sums cannot be said to be “adverse” to one another.  They seek the same, and not different outcomes, albeit for different reasons.  Although it is true that in the cases relied upon by Mr Chow the rival claimants to the goods put forward different bases for their claim (these being proprietary and contractual respectively), in each of those cases, the key consideration was that each of the claimants claimed the goods for themselves, to the exclusion of the other.  Mr Chow suggested in the course of argument that this was merely a factual difference between those cases and this one, which did not affect the question of principle as to what constitutes an “adverse” claim as between rival claimants to money or goods, but in my view, it is the critical factor.

14. That this is so is clear from the observations of Fung J in China Dragon International Ltd v Pang Hong [2007] 2 HKLRD 655 (at paragraph 29), in a passage approved by the Court of Appeal in DLA Piper Hong Kong v China Property Development (Holdings) Ltd [2010] 3 HKLRD 903 (per Tang VP (as he then was) at paragraph 22):

“Where 2 or more persons claim the same thing or fund, the holder of the thing or fund does not claim any interest in the property, and not knowing to which of the claimants he ought to deliver the property, and he is sued or fears that he may be sued by some of them, he may apply for interpleader relief against the claimants.”

15. Here, it cannot be said that the Bank does not know to which of Yinggao or Eco it should pay the two sums.  By 10 October 2012 at the latest[1], it was clear that it was being called upon by both to pay the two sums to Yinggao.  Where there is no dispute as to which of two parties should receive payment or delivery of the sums or goods held by a third party, there is no practical need for interpleader relief.

16. This can be illustrated as follows.  Having received the letter of 10 October 2012 (nearly six months before taking out its application for interpleader relief), the Bank could simply have paid the two sums to Yinggao, making it clear if it wished to that in doing so it was not acknowledging which of the two rival bases for making the payment was the correct one.  If it had done so, Yinggao would have obtained the relief it sought against the Bank, bringing its claim against the Bank to an end, save for the question of costs; and Eco would have no basis for complaining about the payment to Yinggao, since this was in accordance with its instructions. Even after Eco had issued its contribution notice against the Bank a few days later, this course could still have been taken – although in this situation the claim by Eco for alleged breach of the banker-customer contract and questions of costs would remain to be dealt with.  The granting of interpleader relief does not dispose of these outstanding issues – all the parties to this appeal acknowledged that they would still have to be dealt with if they could not be resolved by agreement between themselves.  Thus, permitting the Bank to interplead makes no practical difference.

17. The matter can also be tested in this way. Suppose the Bank had been faced with a demand from Yinggao for payment to it of the two sums on the basis that it was the beneficial owner thereof, and a demand from Eco that it should comply with Eco’s instructions, which were to pay the sums to Yinggao, before any proceedings had been commenced.  If the Bank had simply made payment to Yinggao at this stage, making it clear that it was not choosing between the rival contentions as to who was entitled to give instructions to make the payment, there could have been no claim against it by either Yinggao or Eco.  Having received payment, Yinggao could not bring any claim simply because it might be dissatisfied that the Bank had not acknowledged its right to demand payment – such a claim would be wholly academic, and would not be entertained.  Nor could there be any prospect of Eco claiming the funds in future – if it did, it would be met by the defence that it had itself instructed the payment to be made, so could not be heard to say that the payment was somehow in breach of mandate.  Nor could it bring a claim simply because the Bank had not acknowledged its right to give instructions – that would be just as academic as a claim by Yinggao of the sort just described.  This demonstrates, I think, that there is in fact no need for a party in the position of the Bank to interplead in such a situation.

18. If, however, having received the demand for payment from Yinggao, the Bank had not received instructions from Eco to pay Yinggao, but been told only that Eco disputed Yinggao’s claim to be the beneficial owner of the two sums, it would have been open to the Bank to interplead, as it would have been faced with claims that could properly be described as “adverse”.  But that was not the situation by the time that the Bank took out its interpleader summons in this case.  By then, the position was that (whatever might have been the position earlier) there were no longer “adverse” claims in respect of the two sums, as both Yinggao and Eco wanted them paid to Yinggao.

19. For the foregoing reasons, it seems to me that, with respect, the Judge was in error in thinking that the Bank could not have made the payments that both Yinggao and Eco were seeking without leaving itself in a position where it would have in effect admitted liability to one or other of them.  On the contrary, it could have done so without admitting liability to either, leaving those questions to be determined in the context of the remaining arguments as to costs and such liability as the Bank might have had to Eco for failing to comply with its instructions.  This was not, therefore, a reason for regarding the claims as “adverse” so as to justify granting interpleader relief.

20. Further, it will be apparent from the foregoing that I do not consider that it was necessary for the Bank to know which of the two bases for making the payments that both Yinggao and Eco desired it to make was the correct one in order to make those payments.

21. I am therefore of the view that there were not, in this case, adverse claims to the two sums such as would entitle the Bank to seek interpleader relief.  Accordingly, I would allow the appeal and set aside the order made below, making in its place an order dismissing the Bank’s interpleader summons.

22. So far as costs are concerned, I would make an order nisi that the costs of Yinggao and Eco, both in this court (including the application for leave to file the respondent’s notice out of time) and below should be paid by the Bank, to be taxed on the party and party basis, with certificate for two counsel.

Hon McWalters JA:

23. I agree with the judgment of Barma JA, and with the orders that he proposes.