CHUN SANG PLASTICS CO LTD v. COMMISSIONER OF POLICE AND ANOTHER

HCA 2278/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2278 OF 2008

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BETWEEN

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JUDGMENT

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I. INTRODUCTION

1.  These are interpleader proceedings issued pursuant to Order 17 rules 3 and 7 of the Rules of the High Court to resolve the two conflicting claims to 6 containers of plastic raw materials in the custody of the 1^st Defendant, the Commissioner of Police.  The parties asserting entitlement to or rights of ownership over the containers are respectively the Chun Sang Plastics Company Limited (the Plaintiff) and Y. T. Cheng (Ching Tai) Limited (the Claimant).

2.  Neither the Commissioner of Police, the issuer of these proceedings and the defendant in this action brought against him by the Plaintiff, nor the Secretary for Justice, the 2^nd Defendant participated at the hearing of this summons.

II. The circumstances giving rise to the claims

3.  A brief synopsis of the background suffices.

4.  On 9 October 2008, the Claimant reported to the Police that 6 containers of plastic raw materials allegedly belonging to it were found in the custody of Cheong Wing Container Company Ltd.  The police then entered the premises of this company and seized the containers in question.  Several other containers were also seized from the same location and elsewhere and detained, but they fall without the ambit of the present summons.  In all, the police seized 17 containers, eventually releasing 3 of them to the Plaintiff.  The remaining 14 containers formed the subject matter of the Plaintiff’s suit against the police in these proceedings.

iii. The claims

5.  In broad outline, the Plaintiff claims to have purchased the 6 containers of raw plastic materials from its supplier, East Profit Development Company Ltd (East Profit) bona fide in the normal course of trading for good consideration and with no knowledge of the alleged rights, interest or title over and in the goods now asserted by the Claimant.

6.  For its part, the Claimant says it sold the goods to Playbox Ltd (Playbox), the order having been placed by Playbox’s employee, Howard Au Yeung (Au Yeung).  Playbox has denied entering into or authorizing such a purchase and has not paid the contract price.  The goods having been duly delivered, Au Yeung using East Profit (of which he was a director) sold the goods at below market price to the Plaintiff.  The Claimant avers that the Plaintiff could not have been a genuine bona fide purchaser and it is therefore entitled to the return of the goods.

iV. The evidence

7.  The following facts may be gleaned from the evidence.  There appears to be no real controversy about them.

8.  The Plaintiff, Claimant, Playbox and East Profit were at all material times traders in plastic raw materials.  Since March 2006, the Plaintiff and East Profit had traded with each other successfully on numerous occasions.  According to PW1, Lam Kwan Ming (Lam), the business passing between the two companies was of the order of $100 million.  She knew Au Yeung to be a self-employed trader.  Au Yeung, a director of East Profit and Lam were well-known to each other through their business dealings.

9.  Trading between the Claimant, a substantial player in the market, and Playbox began in December 2007.  In all, there were about 50 successful transactions between them and Playbox has not been known to default on payment.  Au Yeung, an employee of Playbox was the person responsible for negotiating and placing orders on behalf of his employer with the Claimant.  He would deal directly with Chan Shu Kai (Chan), a sales account executive of the Claimant.  Chan has since resigned from the Claimant after his trustworthiness was called into question following the events that gave rise to the present proceedings.  He did not appear as a witness.

10.  The disputed goods, plastic raw materials type PP B330F were purchased from a Korean Supplier, SK Energy Company Ltd by the Claimant on 4 September 2008.  In all, 540 metric tonnes of the material at a cost of USD901,800 were ordered by the Claimant.  Payment was by letter of credit at sight.  The disputed 6 containers were but a portion of the goods to be shipped to Hong Kong by the Korean supplier.

11.  On 2 and 3 September 2008, the Claimant contracted to sell the 6 containers of plastic materials to Playbox.  On 17 and 18 September 2008, containers of the plastic materials in the Claimant’s possession were in a deliverable state.  The Claimant then assigned the 6 containers with identification numbers CRXU1288348, HALU3213931, HALU3219668, HALU3711981, HALU3740526 and HALU3744584 for delivery to Playbox under invoices #105270, #105271, #105284 and #105285. Delivery of the containers was effected on the same two days by delivery of the relevant release orders to the office of Playbox. The contract for sale stipulated that the payment term was “7 DAYS BY CHEQUE” as was evident from the relevant invoices.

12.  In the circumstances now established, I agree with Mr. Leung, counsel for the Plaintiff that property in the goods have indeed passed to Playbox and all that remained to be performed under the contract of sale was payment by Playbox on or about 24 or 25 September 2008.  That must have been the plain intentions of the contracting parties.  The goods however remained unpaid.

13.  There can be no dispute that following delivery of the relevant release orders to Playbox, the Claimant had parted possession with the goods.  Its unpaid seller’s lien over the goods had ceased to exist as it was no longer in possession of them.  There was no evidence of any reservation of right of disposal by the Claimant.

14.  The Plaintiff purchased the same goods from East Profit on 17 and 18 September 2008 at the price of USD1,500 per metric tonne or HK$210,600 per container.  The transaction in question was conducted between Au Yeung using his company East Point and Lam of the Plaintiff.  The contract was properly evidenced by relevant invoices, delivery orders and deposit slips proving payment for the goods sold by East Point and delivered to the Plaintiff.  As Lam said in evidence, it was effectively a normal sale and purchase activity with a seller that the Plaintiff has dealt with with no problems in the past.  It was she said a normal trading transaction in the ordinary course of business.

15.  The Claimant through its witness Lo Tak Chi (CW1) (Lo) contended that the sale price of USD1,500 per metric tonne was about 8.5% below the then market price of HK$14,000 per metric tonne.  Lo asserted that the Plaintiff had acquired the goods from East Profit outside the +/-USD20 range from Ezplas’ quotation on Everjar 3015 at a price below that attainable in the market at the time.

16.  Lam explained in evidence that Everjar 3015 was a highly sought after product whereas PPB 330F was less so.  She added that there was a significant difference in price between the two plastic materials and with a falling market, the difference was not surprisingly further heightened.  It is plain on the evidence that the sale to the Plaintiff occurred against the aftermath of the financial tsunami that affected all commercial activities in the fall of 2008.

17.  Counsel for the Claimant, Mr Chu submitted that the low purchase price coupled with the rushed after banking hours payment for the goods by Lam all pointed to a highly suspect purchase by the Plaintiff.  Indeed he went so far as to submit that Au Yeung and the Plaintiff must have colluded to defraud the Claimant.

18.  I have no doubt that Au Yeung was the rogue in the piece but the evidence goes no way to establishing that the Plaintiff was acting in concert with him, knew or even suspected the subterfuge that Au Yeung was about.  Lam has provided cogent and believable evidence that the Plaintiff had bought the goods from East Profit in the normal course of trading.  A proper contract was entered into and the goods were duly paid for at a price not so exceptionally low as to render the transaction questionable.  It was a genuine contract for sale and purchase. The Plaintiff had acquired possession of the goods for valuable consideration. It must follow that the Plaintiff should be entitled to retain them as against the Claimant.  I so order.

VI. costs

19.  The Plaintiff shall be entitled to its costs of the application together with the costs reserved in respect thereof against the Claimant with certificate for counsel to be taxed absent agreement.  The costs order is nisi with liberty to apply within 14 days hereof.