WONG CHOW HOI SZE ELSIE v. CROWN WINE CELLARS LTD

HCA 43/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 43 OF 2014

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D E C I S I O N

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Background

1.  This is an appeal from the decision of Master C Chow dated 10 June 2015, in which final judgment was entered against the defendant upon application for summary judgment under Order 14, rule 1, Order 14A and Order 18, rule 19 of the Rules of the High Court and the court’s inherent jurisdiction.

2.  This appeal by Crown Wine Cellars, as bailee of a quantity of fine wine (“the Wine”), seeks to persuade the court that it has a “real or bona fide defence” to its continuing failure to deliver up the Wine to the plaintiff, as bailor, when demanded to do so in 2006 and thereafter.

3.  The proceeds of sale of part of the Wine and the remainder of the Wine less charges, interest and costs were eventually delivered to the plaintiff by reason of a Consent Order made in Inter Pleader proceedings dated 11 November 2014. 

4.  In the application for summary judgment, the plaintiff sought and was granted, a declaration that the defendant “was and is not entitled to any lien over the wine stock” at the material time, which was between the 1 November 2006 and the date of sale of the majority of the Wine in 2013. As a consequence thereof, the defendant was ordered to pay the full proceeds of sale of that part of the wine that had been sold in 2013, plus interest thereon less the cost of storage of the Wine up to 31 October 2006 and the monies already paid to the plaintiff following the Consent Order under the Inter Pleader proceedings.

The factual background

5.  The plaintiff is the wife of Wong Tze Cheong Eric (“the husband”).  She maintains that in March 2004, she purchased the Wine from her husband at market value for the sum of HK$520,000, which was paid by way of cheque on 24 March 2004 to All Full Investment Limited. That company was operating La Ba Hotpot Restaurant, which was a business enterprise of her husband’s.

6.  In June 2004, her husband opened an account with the defendant.  In July 2005, the plaintiff opened her own account with the defendant and on 5 September 2005 her husband transferred his account to her.

7.  On 20 September 2005, the husband was served with a statutory demand which gave rise to a Bankruptcy Order.  The petition was presented on 1 November 2005.  He was made bankrupt on 22 February 2006 and discharged on 22 February 2014. 

8.  The third party in these proceedings are the trustees in bankruptcy of the estate of the plaintiff’s husband.  They were appointed on 12 April 2006.  They asserted title over the account held by the plaintiff with the defendant under sections 49 and 51 of the Bankruptcy Ordinance, Cap 6, on the basis that the transfer to the plaintiff of the Wine held to her husband’s account was either a transaction at under value, gift or payment without legitimate reason.

9.  The plaintiff maintains that in the latter part of 2006, she made repeated requests to the defendant to release the Wine to her, which the defendant refused to do. 

10.  On 1 November 2006, the defendant sought to exercise its lien over the Wine pursuant to paragraph 6 of the Conditions of Service owing to arrears of charges which had accrued up to 31 October 2006.  There followed a flurry of correspondence and various threats of legal proceedings by the plaintiff and the trustees in bankruptcy, which stretched into 2009.

11.  On 28 November 2012, the defendant notified both parties that arrears due as at 31 October 2012 were HK$857,023.99 and it therefore intended to exercise its lien over the Wine and sell it if neither party was prepared to settle the arrears and undertake to pay future charges.

12.  By October 2013, the Wine had been consigned to America by the defendant and 739 bottles had been sold with three bottles consumed as samples and 55 bottles remaining.  The net sale proceeds were HK$1,321,801.18.  The defendant then sought to set off all charges and legal expenses with a net figure of HK$ 221,656.59 remaining.

13.  On 3 January 2014, the plaintiff commenced proceedings against the defendant, which prompted the Inter Pleader proceedings taken out on 28 March 2004 and ultimately the Consent Order of 11 November 2004 referred to above.  The summons which is the subject of these proceedings, and forming the basis of the summary judgment, was taken out on the 17 December 2014.

Order 14

14.  This is an appeal from the master’s decision to grant summary judgment to the plaintiff.  As such, it is a hearing de novo.  An application for summary judgment under Order 14 or 14A is for clear cases in which there is no material factual dispute or where there is a definable legal issue as easily resolved summarily as in trial.  As Lindley LJ said in Codd v Delap (1905) 92 LT 510, unless it is obvious that the defence put forward by the defendant is “frivolous and practically moonshine”, Order 14 ought not to be applied.

15.  In Man Earn Limited v Wing Ting Fong [1996] 1 HKC 225,Godfrey JA pointed out that unless the jurisdiction available under Order 14 was used in clear and obvious cases only, it is the plaintiff who is the ultimate loser as he will necessarily be kept out of his judgment longer than he would otherwise be if he had proceeded to trial.  That was the case in Man Earn and I fear that it is the case here.

16.  By their summons dated 17 December 2014, the plaintiff sought and obtained summary judgment in the following terms:

(1) Final judgment in this action against the defendant for the following relief as prayed in the Statement of Claim herein:

(i) A declaration that the defendant was and is not entitled to any lien on the wine stock.

(ii) Payment to the plaintiff of the net proceeds of HK$1,335,728.06 with interest thereon less the sum of HK$227,783.47 already aid to the plaintiff under HCMP 730/2014 and the sum of HK$70,608.78 being the storage charge as of 31 October 2006.

…”

17.  The issues which will fall to be decided in this action are as follows:

(i) Was the plaintiff a bailor of the goods in the circumstances of this case in the sense that the legal title to the goods lay with her?

(ii) If so, was the defendant, as bailee, required to deliver up those goods on demand under the terms of the bailment as evidenced by the account?

(iii) Were there any conditions under which the bailee was entitled to refuse to deliver up, eg the existence of a lien over the goods?

(iv) If so, did the defendant have such a lien and was it validly exercised, such that it was entitled to refuse to deliver up the goods and thereafter charge for the storage facilities provided plus interest and costs.

18.  But the issue that falls for me to decide in this rehearing is in fact far more simple.  Has the defendant satisfied the court that there is an issue or question in dispute that ought to be tried?  In the words of Ackner LJ in Banque de Paris et des pays‑bas (Suisse) SA v Costa de Naray [1984] 1 Lloyds Rep 21 at 23, the defendant has to satisfy the court that he has a “real or bona fide defence” or, per Ma CJHC, as he then was, in Toy Major Trading Co Ltd v Plastic Toys Ltd [2007] 3 HKLRD 345, “a fair probability or reasonable grounds that a bona fide defence exists.”

19.  Accordingly, it is for the court to decide whether the defendant has satisfied the court that it has an arguable defence on the non delivery of the goods prima facie bailed to him by the plaintiff and/or, if a valid bailor/bailee relationship existed, does it have an arguable defence on whether it was entitled to a lien over the goods in November 2006 or subsequently.

The plaintiff’s case

20.  The plaintiff maintains that she purchased the Wine at arm’s length and at market value and that she had good title to the Wine.  Accordingly, when the Wine was transferred to her account with the defendant, she was the bailor of those goods and they should have been delivered up to her on demand.  She made that demand on several occasions during 2006 and thereafter but the defendant refused to deliver up the goods as he was obliged to do and he cannot in law deny her title: Biddle v Bond (1865) 6 B&S 225; 122 ER per Blackburn J:

“We do not question the rule that one who has received property from another as his bailee or agent or servant must restore or account for that property to him from whom he received it.”

21.  The plaintiff accepts that the defendant could refuse to deliver up the goods if it had a valid lien over them for non payment of charges but, in the circumstances of this case, that is not available to the defendant because the lien arose as a result of a wrongful act of the defendant.

22.  The plaintiff maintains that there was a system in place for the deduction of charges from her credit card and that it was open to the defendant to deduct such charges up to 31 October 2006.  It did not do so.  Further, the charges which accrued after 31 October 2006 arose as a result of wrongful non delivery and cannot be laid at the door of the plaintiff as she had constantly demanded production of the Wine.

23.  The plaintiff maintains that in the event of competing claims upon the Wine, it was incumbent upon the defendant to take out inter pleader proceedings to resolve that dispute.  By not doing so, the defendant had taken the risk entirely upon itself for the consequences of its lack of action.  There was, the plaintiff says, no good reason at all for failing to do so given that she was at all times contactable by email even if the defendant was not aware of her address.

The defendant’s case

24.  The defendant maintains that there is a serious dispute as to whether the plaintiff has title at all as evidenced by the correspondence from the trustees in bankruptcy on the issue of whether there was ever a purchase of the Wine in March 2004 given that the receipt of monies cannot be traced to All Full Investment Limited and that part at least of the Wine said to have been purchased in March 2004 was actually purchased by the husband after the date at which it was supposedly sold to the wife.  That should be sufficient without more, on the defendant’s submission, but in addition, the sale should be set against the background of the various proceedings taken out against the husband in 2005 which indicates that the Wine was disposed of in a deliberate and fraudulent attempt to evade its recovery by the trustees in bankruptcy.

25.  Further, even if there had been a valid sale and purchase, such sale was made in anticipation of bankruptcy proceedings and was voidable on the application by the trustees.  In such a situation the plaintiff held the wine on trust for the estate of her husband.

26.  In any event, says the defendant, even if the plaintiff had good title, there were arrears of storage charges as at November 2006 which triggered paragraph 6 of the Conditions of Service and thereby the defendant was entitled to exercise a lien over the goods for payment of those charges.  When they remained unpaid, it was entitled to demand storage at a commercial rate thereafter, with interest.

27.  The defendant maintains that there is no duty upon the defendant to interplead in the event of competing claims and that both parties were constantly threatening legal action, which, if acted upon, would have resolved the issue.  In any event, the plaintiff had deliberately evaded service by living at an unknown address in China.

The law

28.  This is not a mini trial: Man Earn, at 229G per Litton VP.  I have to decide on the papers whether the defendant has satisfied the court that it has a real or bona fide defence and I am so satisfied.  This is not a proper case for summary judgment.  The plaintiff has failed to satisfy the court that the defendant has no defence to the action.

29.  The outline given above indicates that there is evidence from which it is open to a trial judge to conclude that the plaintiff is not the legal owner of the goods and that she came by them fraudulently.

30.  There is evidence that the lien was triggered and that the defendant was entitled to payment at least up to 31 October 2006 as was found by the master.

31.  There is also a substantial factual and legal argument about who bears the responsibility for the delay thereafter in the face of both the plaintiff and the trustees in bankruptcy regularly threatening to sue the defendant and/or take out other ancillary proceedings, which may have resolved the issue.

32.  The defendant, of course, is not without blame, but it is for a trial judge to decide the true course of events and where the onus to proceed truly lay and who should bear responsibility for that.  In the end, the defendant may find itself in the same position as it does now but these are not simple issues and in my view quite inappropriate to be determined on the basis of competing, untested, affirmations in summary judgment proceedings where the full facts are not available. 

Conclusion

33.  Accordingly I conclude that this appeal against the decision of Master C Chow granting summary judgment must be allowed.  The defendant has unconditional leave to defend and the matter must proceed to trial.

34.  There will be an order nisi that costs on the application for summary judgment be the defendant’s costs in the cause.