SECRETARY FOR JUSTICE v. YAU ON PAWN SHOP LTD AND ANOTHER

DCMP 625/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 625 OF 2010

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BETWEEN

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J U D G M E N T

1.  In 2009, 2 gold necklaces were stolen from one of the jewellery shops of Chow Sang Sang, the 2^nd Claimant, and pawned at Yau On, the 1^st Claimant, a pawnbroker.  The theft was discovered and the necklaces were seized from Yau On for police investigation.  Eventually the crime was solved.  The question now is whether the necklaces ought to be returned to either of the 2 Claimants.  The Commissioner of Police, appearing by the Secretary for Justice, therefore interpleaded.

Background

2.  Chow Sang Sang, a well known jewellery shop, has more than 30 branches in Hong Kong.  On 20 June 2009, it was discovered that 2 gold necklace weighing 3.081 and 2.118 tael respectively were missing from its Tai Po branch.  They were valued at HK$29,400 and HK$20,274 respectively.  Report was made to the police.

3.  Investigation revealed that the necklaces were stolen by Lee from the Tai Po branch, when he was working as a salesperson there.  Lee had stolen the necklaces from the safe of the branch and substituted them by fakes.  Lee then pawned the stolen necklaces at Yau On on 5 June and 19 June respectively and for HK$23,500 and HK$16,000 respectively.  Yau On also carries on business in Tai Po.

4.  Lee was charged with and convicted of theft; and was sentenced to 4 months’ imprisonment.  Upon the conclusion of the criminal proceedings, the Commissioner of Police was faced with adverse claims from Chow Sang Sang and Yau On for ownership of the necklaces.  The Commissioner asks for relief by way of interpleader pursuant to O.17 of the Rules of the District Court.

5.  This matter came before this court on 21 April 2010.  I adjourned the matter for argument in respect of the following issues:

(1) Whether an order should be made pursuant to section 23(2) of the Pawnbrokers Ordinance and, if yes, on what terms.

(2) For the purpose of determining (1) above, whether Chow Sang Sang or Yau On was at fault or careless in causing or contributing to the unlawful pawning of the necklaces under section 23(3) of the Ordinance.

6.  I gave directions for the filing of further affidavit evidence.  During this hearing, I also gave leave to the parties to cross examine the deponents of the affidavits.

Section 23 of the Pawnbrokers Ordinance

7.  According to Section 23 of the Pawnbrokers Ordinance:

“(1) Where in any proceedings before a court or magistrate –

(a) it appears that any goods have been unlawfully pawned with a pawnbroker......the court or magistrate shall dispose of the goods in the manner provided by this section.

......

(2) The court or magistrate may, in respect of any goods to which subsection (1) applies, of its or his own motion or upon application –

(a) on proof of ownership of the goods, make, subject to subsection (3), an order for the delivery or non-delivery thereof to the owner:

(i) on payment to the pawnbroker of the amount of the loan advanced by him thereon and the interest due; or

(ii) on payment to the pawnbroker of any part of such loan or interest; or

(iii) without payment to the pawnbroker of any part of such loan or interest,

as may seem just in all the circumstances

(3) In the making of an order under subsection (1)(a), the court or magistrate shall take into account the conduct of the owner and of the pawnbroker and consider whether the fault or carelessness of either party has caused or contributed to the unlawful pawning of the goods and shall as regards the apportionment between them of any loss or damage:

(a) in the case where the court or magistrate finds –

(i) that no fault or carelessness in their conduct; or

(ii) that equal fault or carelessness in their conduct,

has caused or contributed to the unlawful pawning of the goods; apportion the loss or damage in equal shares;

(b) in the case where the court or magistrate finds that the fault or carelessness in the conduct of the owner or of the pawnbroker, as the case may be, has caused or contributed to the unlawful pawning of the goods in the whole or in the greater part, apportion the loss or damage in such whole or greater part, having regard to their respective shares in the responsibility for such unlawful pawning.

(5)          Any order made by the court or magistrate under subsection (2) shall bar any civil remedy which the owner or any other person would have had for the recovery of the goods, and the owner shall not be entitled to claim the return of the goods except under the terms of such order.”

8.  Counsel referred to the case of Legrand Jewellery (MFG) Ltd v Wo Fung Pawnshop (a firm) & Ors [1988] 2 HKLR 326.  There the culprit was believed to have entered the gem-matcher’s employment with the intention to steal.  He stole diamonds from his employer on 21 occasions and pawned them at 7 different pawnbrokers.  The culprit was able to escape detection by falsifying the records in the course of his duty.  The crime came to light only 3 months later.

9.  The court of appeal set out the following approach in construing “fault and carelessness” under the provisions (at 330D-G):

(1) Section 23(3) imports an obligation akin to contributory negligence, a duty on the owner to take reasonable care of his own.  Failing that amounts to carelessness for the purpose of the subsection.

(2) The court has to consider both causal potency and blameworthiness.

(3) Only if causation is established in relation to pawning, not the theft, do the respective shares in the responsibility for such unlawful pawning have to be considered.

(4) What has to be considered is the fault or carelessness of the owner qua owner and the pawnbroker qua pawnbroker.  Each must be separately judged by the standard of the hypothetical reasonable owner or pawnbroker, as the case may be.

10.  In respect of (4) above, the court had the following elaboration (at 330H-331D):

(1) Every pawnbroker is always on the risk of being offered stolen goods.  It is a risk which arises daily and must therefore constantly be in the forefront of his mind.  The legislative must have expected pawnbrokers to take serious and effective steps to reduce this risk, if they were not to be held to be the sole effective cause of an unlawful pawning.

(2) The position of owners is very different.  They are not conducting a risky business or constantly on risk.  The hypothetical reasonable owner does not have, or need to have, security at the front of his mind.  The legislature was not expecting owners to be judged by the standard of a perfectionist or with wisdom of hindsight; but rather by the standard of the reasonably sensible owner.  “Careless” should be construed as relating to failure to take what any owner would regard as an obvious precaution, the sort of failure that might be described as gross.

Discussion

Chow Sang Sang

11.  Lam, the manager of the branch from where the necklaces were stolen, made an affirmation and gave evidence in court.  According to him, the two necklaces in question were stored in the safe at the warehouse situated at the back of the branch.  They had not been put on display at the shop front.

12.  This is the normal procedure of the branch to carry out stock check two times a day.  He instructed his colleague to carry out such stock check in the evening of 19 June 2009.  It happened that a colleague of another branch enquired with his branch on the following day whether his branch housed stock bearing the design of one of stolen necklaces.  It was upon checking the stock was it discovered that the necklaces were missing.

13.  Lam believed that the reason Zhou did not detect that the necklaces were missing during the daily stock check on 19 June 2009 was because of the substitution of the necklaces by fakes by Lee.

14.  By his further affirmation, Lam explained the security and stock check system at his branch.  According to him, record showed that there were 5,600 pieces of jewellery at the shop at about the material time.  Each piece, except for the really large items, was attached with a tag with a computerised bar-code.  The tag would not be removed until the piece was sold; and could not be removed unless by destroying it.  During business hours, the items in the safe would be retrieved for customers’ viewing from time to time.  Due to the frequency, the items inside the safe would be grouped into categories but there was no fixed place for each item.

15.  All branches carry out standard seasonal, daily and random check.  Seasonal stock check is carried out very June and December.  This would be a detailed check involving actual scanning of the tags and weighing of the items.  Because of the manpower involved, seasonal stock check takes about 30 days to complete.  The seasonal stock check in June 2009 was scheduled to take place on 20 June.

16.  Daily stock check of the display items is carried out both before and after business hours.  The items stored in the safe are checked once in the afternoon daily.  In view of the number of items, daily stock check could not entail the detailed procedure of a seasonal stock check.  The staff only check whether the number of the items in stock correspond with the record.  The process takes at least 45 minutes.

17.  Random stock check is carried out once a month.  During the process, at least one piece of each category of jewellery items inside the safe will be checked in the detailed manner as a seasonal stock check.

18.  Results of the stock check will be double checked.  According to Zhou’s statement to the police on 21 June 2009, what she did in the evening of 19 June 2009 was to double check the results of the stock check already carried out by another colleague.

19.  Staff access to the safe is restricted and regulated.  Only when there is need to retrieve jewellery items from the safe for customers’ viewing may the staff seek access to the safe.  The staff having access to the safe must go in pairs.  The key to the safe is kept by the cashier who will record the time, the staff, the details of the item retrieved and whether it is returned.  As branch manager, Lam would check the record regularly.  According to him in court, circumstances that might catch his attention include repeated search for the same type of items or unreasonably frequent visits to the safe.  In such cases, he would enquire into those visits.

20.  As to the CCTV system, the recording function and the angles of the cameras would be reviewed once a week.  The cameras at each branch monitor the movement around the safe.  According to his statement to the police on 21 June 2009, his company had viewed the CCTV recording but suspected no staff.  According to his further affirmation, after viewing the CCTV recording again and interrogating the branch staff afterwards, the management and he concluded that Lee was suspect.  The police was informed.  Following Lee’s arrest, the fake necklaces used to swap with the stolen necklaces were also discovered at an out-of-sight location in the garret of the shop.

21.  By 20 June 2009, Lee had joined Chow Sang Sang for about 3 months and was still on probation.  As far as Lam can tell, theft by staff from branches was unheard of throughout his 20 years of service at Chow Sang Sang.

22.  It was argued on behalf of Yau On that it was Chow Sang Sang that had failed to detect the missing necklaces and to report to the police that enabled Lee to pawn the necklaces at Yau On.  The necklaces were first discovered to be missing on 20 June 2009.  By then, the necklaces had already been pawned.  Yau On had no way of knowing about the theft until they received the information from the police on 13 August 2009.  This was more than 2 months since the pawning of the first stolen necklace on 5 June 2009.

23.  Notwithstanding the control over the access to the safe, the theft was not detected.  The daily stock check at the branch was said to be deficient because this tells only the number of items present.  There was no detailed check unless this was a seasonal stock check; but that took place twice a year.  As Lam admitted in court, had it not been the enquiry by the staff of another branch on 20 June 2009, the missing necklaces would have remained undetected perhaps until the next seasonal stock check.

24.  However, one should not forget about the reminder by the court of appeal in Legrand Jewellery (at 331G-H).  Many systems, which many reasonable employers would regard as adequate until after such experience, would suffer the same fate.  The court should hesitate before condemning any employer’s system without first investigating and understanding the system, and secondly having evidence as to how and why a different system would have operated, and should have been installed by a hypothetical reasonable employer in that line of business.

25.  Lee obviously set out to take his chance and to take advantage of the possible “blind spot” in the system by putting the fakes in place to conceal the theft.  Lam confirmed in court that the fakes that were found later actually carried tags similar to the genuine ones.  For premeditated theft from a branch like that, this was first of its kind as far as Lam could tell.

26.  What Chow Sang Sang is being criticised for is not merely its inability to detect that the necklaces had been taken away from the safe, but also its inability to detect that the two present in the safe during the material time were fakes.  Discovering the fakes was not possible unless the items were checked.  This would happen, if the staff happened to handle the fakes in the course of the business or carried out a stock check as detailed as a seasonal check during the material time.

27.  In view of the time and effort entailed in checking the number of items in detail at the branch, it does not sounds practicable to me that stock check as detailed as a seasonal check could be conducted very frequently without disrupting the ordinary course of business.  This would be more than what reasonableness requires.  There is also no evidence of an alternative security or stock check system that was or should have been put in place in similar line of business.

Yau On

28.  Hung, the general manager of Yau On, made an affirmation and gave evidence in court.  The pawnshop was opened by his father.  Hung himself has 20 years of experience working there from the lowest level up to his present position.

29.  Hung explained the normal practice of his pawnshop.  All customers pawning at Yau On are required to register their personal particulars pursuant to the Ordinance; and a ticket will be issued to each customer in the form prescribed by the regulations.  On a daily basis, the police would come to collect the form filled with the information about all the pawning transactions.  The police would also provide a list of reported missing properties enabling his shop to check if a property being pawned matches any of the items on the list.  If any property already pawned is later listed, the police would be informed and the police would come to seize it.

30.  The personal information of the customer who pawns are also recorded in the shop’s registry for reference.  They include his name, identity card number and address.  Besides refusing to accept a pawn known to be a missing property, Yau On would also refuse to accept a pawn from a customer who is suspicious.  Hung gave examples of a teenager seeking to pawn an expensive gold watch; and a Philippino domestic helper seeking to pawn very valuable items.  The customers would be asked whether the property being pawned belongs to him or her and for how long.  If necessary, the customer would be asked to provide an authorisation from the owner.  The shop would also exercise extra caution by making further enquiry if a customer has attended the shop frequently in a short period of time.

31.  It was Hung’s father who attended Lee when he came to pawn the necklaces on those two days in June 2009.  According to Hung, his father followed the normal practice explained above in handling those two transactions.  Entries were made in the registry that recorded the name, the identity card number and the address of Lee as well as the particulars of the necklaces.  Copies of the relevant parts of the registry were produced as exhibits.

32.  Further, the necklaces did not match any item on the list of missing properties supplied by the police by then.  The record of the necklaces pawned was also supplied to the police.  But it was on 13 August 2009 when the police came to Yau On, informing them that the necklaces were reported and identified as missing properties.  The police also seized the necklaces for further investigation.

33.  It was argued on behalf of Chow Sang Sang that Yau On should have been more vigilant in scrutinising Lee’s pawn.  It was suggested that like the pawnbrokers in Legrand Jewellery, Yau On took its risk and did nothing more than the bare minimum under the statute.

34.  In Legrand Jewellery, the court found that the pawnbrokers had turned a blind eye.  But there were reasons for such conclusion.  In that case, what the culprit sought to pawn were substantial quantities of diamonds and the types pawned could prima facie only be associated with a trader.  Yet no pawnbroker asked the 25-year-old man a single question about his trade, name, address, position and whether he was the owner or employee.  Trade pawns of this nature were actually unusual.  And there were 21 occasions of pawning to 7 different pawnbrokers.

35.  The pawns by Lee in the present case could not be said to be of unusual nature.  According to Hung, many indigenous residents in the neighbourhood would visit pawn shops to pawn their gold ornaments and jewellery.  It is not uncommon that those gold ornaments have not been worn much and would be quite new when pawned.

36.  Query was raised as to how Hung’s father dealt with Lee on the two occasions when the necklaces were pawned.  What Hung said in this regard is hearsay.  However, the account of how Zhou carried out the daily stock check on 19 June 2009 was likewise hearsay.  The fact that Zhou’s statement to the police was produced does not materially change that.

37.  Suggestion was made as to whether Yau On ought to have asked Lee to produce documents like receipts to show his ownership of the necklaces, as this was unusual for Lee to come to pawn twice in 2 weeks.  But I wonder whether such documents are readily available at the time of pawning in the normal course of events.  The owner may not have acquired the property by way of purchase.

38.  Further, there is now in place the system of daily report of pawning transaction details to the police and the daily list of reported missing properties supplied by the police.  This system is obviously put in place to enable the police to have a tighter control against unlawful pawning.  The list also assists the pawnbrokers in avoiding taking unlawful pawns and avoiding handling stolen goods.  It is unknown where such a system was already in place at the time when the theft was committed in the 1988 case of Legrand Jewellery.

39.  It is reasonable for pawnbrokers to rely on such information from the police.  On top of that, pawnbrokers should be alert.  They should also ask the appropriate questions if they have doubt about a particular pawn.  But at the end of the day, it will be for them to assess the answers that the people putting up the pawns choose to give.  The fact that the pawnbrokers have accepted the pawns that turned out to be stolen goods, notwithstanding the exercise of such care, does not connote fault or carelessness qua pawnbrokers.

Conclusion

40.  All these drive me to one conclusion.  Considering the duty of care of Chow Sang Sang qua owner and that of Yau On qua pawnbroker, I think that the present mutual criticism of the parties does not justify the finding of fault or carelessness on their parts in causing and contributing to the unlawful pawning; or that in any event, it cannot be said that one was more blameworthy than the other.

41.  Section 23(3)(a) of the Ordinance provides that in case of no or equal fault on the part of the parties in causing or contributing to the unlawful pawning, the loss and damage shall be apportioned between them in equal shares.  The loss and damage in the present case was effectively the pawn amount of HK$39,500 upon the unlawful pawning.  For Chow Sang Sang to have the return of the necklaces, they have to pay Yau On half of that amount.

Order

42.  I order that upon the payment by Chow Sang Sang to Yau On of a sum of HK$19,750; and the payment by Chow Sang Sang and Yau On of the costs of the Commissioner of Police previously assessed at HK$5,114 in equal shares (i.e., HK$2,557 each), within 7 days from today, the two necklaces in question be returned by the Commissioner of Police to Chow Sang Sang.

43.  Both parties had their respective cause for asking the dispute to be determined by the court.  Both are victims of the premeditated theft.  It is fair that each party should bear its own costs of these proceedings, including any costs reserved.  I so order; the costs order being nisi and shall become absolute in the absence of application within 14 days to vary.