XCHRX FAMOUS ZONE ELECTRONICS LTD. v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD. and DATRONTECH HONG KONG LTD. (Claimant)

HCA No. A10349/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an appeal from the order of Master Jones made on 11th February 1998 dismissing the Defendant's application for interpleader relief.

2. The relevant facts that emerge from the affidavits and affirmations are as follows.

3. On 27th June 1997 the Plaintiff and the Claimant entered into a contract contained in a purchase order whereby the Plaintiff sold to the Claimant certain goods, namely computer chips for the total sum of US$58,500.00. That purchase order was faxed by the Claimant to the Plaintiff with the delivery date appearing thereon "ASAP before 12.30 June 27th, 1997". Both the Plaintiff and the Claimant maintained bank accounts with the Defendant at its head office but the Claimant did its banking primarily at the Defendant's Mongkok branch which was close to its place of business. It was agreed that the Claimant would arrange for the sum of US$58,500.00 to be paid into the Plaintiff's bank account with the Defendant for payment of the purchase order. The Claimant sent a messenger to the Defendant's Mongkok branch with written instructions to transfer the funds to the Plaintiff's account but whilst he was waiting there certain things transpired. The Plaintiff and the Claimant each alleged against the other that it was in breach of contract. Each of them alleged against the other that it was entitled to and did accept the other's wrongful repudiation of the contract. The purchase order was marked 'cancelled' and the cancellation was faxed by the Claimant to the Plaintiff. This took place at 1:09p.m. on the same day. The Claimant, however, omitted or neglected to call back its messenger who was waiting at the Defendant's branch to process the instructions to transfer the funds to the Plaintiff's account.

4. The Defendant duly carried out the instructions to transfer the funds and at 1:30.57 p.m., it debited US$58,500.00 from the Claimant's account and at 1:31p.m. it credited US$58,500.00 to the Plaintiff's account and issued debit and credit advices showing these times. These were given to the Plaintiff and it was expected by the Defendant that the credit advice would be forwarded to the Plaintiff by the Claimant. At 1:44p.m., a staff of the Claimant sent by fax the credit advice to the Plaintiff showing the credit of the funds to its account. Mr. Ngan of the Plaintiff thought that the Claimant wanted to withdraw the cancellation of the purchase order and wanted to proceed with the contract. At 2:00p.m. pursuant to Mr. Ngan's request a staff of the Plaintiff telephoned the Defendant's branch and it was confirmed to her that the said funds had been credited to the Plaintiff's account. This has not been denied by the Defendant. Before 2:00 p.m., however, upon hearing from its staff that the transfer of funds to the Plaintiff had been carried out, Mr. Lau of the Claimant telephoned the Defendant's said branch at 1:45 p.m. to request cancellation of the funds transfer and was told by Ms. Lau that she would need to consult her superior. At 1:55 p.m. she called back Mr. Lau indicating that the cancellation instructions could be carried out and asked for written instructions from the Claimant and the return of the credit and debit vouchers. These instructions and the vouchers were provided to the Defendant's branch at 2:10 p.m. and at 2.19 p.m. the Defendant debited the Plaintiff's account and credited the Claimant's account with the sum of US$58,500.00 thereby re-transferring the sum back to the Claimant's account.

5. Not surprisingly, when the Plaintiff found out about this it demanded the return of the funds taken out of its account and the Defendant tried to get the Claimant's consent to the release of the sum from its account. This was not forthcoming and the Plaintiff threatened legal proceedings against the Defendant. Then, later on in August 1997 the Defendant froze the sum of US$58,500.00 in the Claimant's account and by so doing, took possession of that sum. The Defendant applied for interpleader relief after proceedings were commenced by the Plaintiff against the Defendant for the sum of US$58,500.00 which it alleged was wrongfully re-transferred from its account to the Claimant's account. The Plaintiff also brought Order 14 proceedings against the Defendant.

6. The Defendant alleged that the freezing of the Claimant's account was with the Claimant's consent but this is strenuously denied by the Claimant. On 25th May 1998 the Claimant also issued a writ with a Statement of Claim against the Defendant alleging that the freezing of its account in August 1997 was wrongful and without the Claimant's authority or consent with a claim for the release of the said sum and damages.

7. As the Defendant has no interest in the said sum of US$58,500.00 and is facing adverse claims by the Plaintiff and the Claimant, Mr. Ng for the Defendant submitted that the Court should grant interpleader relief to the Defendant. The Plaintiff both in the Court below and before me took a neutral stand on the application but the application has been opposed by the Claimant.

8. Mr. Reyes submitted that it was not appropriate to grant interpleader relief to the Defendant. It placed itself into difficulty and was seeking to extricate itself from the difficulty by making the parties litigate a different question from that applying to it. The Defendant, it was submitted, incurred a potential liability to the Plaintiff by debiting the said sum from its account without authority or consent of the Plaintiff and also incurred a potential liability to the Claimant by freezing its account without authority or consent of the Claimant. Mr. Reyes submitted this was akin to the situation where A takes property in B's possession without B's permission and gives that property to C but when B complains about A's behaviour, A takes back the property from C without C's permission and comes to Court seeking interpleader relief and asks the Court to decide to whom A should restore the property. He submitted that this was not a proper case for interpleader relief.

9. In my judgment, it is clear from the provisions of Order 17, Rule 3(4) of the Rules of the High Court, that an applicant for interpleader relief must satisfy the court by evidence that he (a) claims no interest in the subject matter in dispute other than for charges or costs, (b) does not collude with any of the claimants to the subject matter and (c) is willing to pay or transfer that subject matter into Court or dispose of it as the Court may direct. These are conditions precedent to interpleader relief (para. 1017 Vol. 25 Halsbury's 'Laws of England' 4th Ed.). In this case, there is no difficulty in the Defendant establishing (a) that it claims no interest in the said sum and (c) that it is willing to pay that sum into Court or dispose of it as the Court may direct. However, (b), namely, absence of collusion poses a problem for the Defendant.

10. It is plain that collusion as used in Order 17 does not necessarily connote anything sinister on the part of the applicant. In Murietta and others v. the South American Etc. Co. (Ltd.) [1893] 62 LJ QB 396 it was held that collusion in the sense in which it is used in the order does not necessarily involve anything morally wrong. As Wills J. said at p.397:

"Colluding may be said to be an equivalent for playing the same game."

Wills J. also observed that one of the things intended when the rules were drawn up was that the stakeholder seeking relief should be in a real position of impartiality between the parties.

11. I derive assistance also from what Williams J. said in Thompson v. Wright [1884] 13 Q.B.D. 632 of the rule requiring an absence of collusion on the part of the applicant. Williams J. said at 634:

"The rule is intended to provide that a person professing to be impartial, and a mere stakeholder having placed himself in a difficulty as regards one party, through having made an admission, or entered into a contract, or otherwise hampered his position, should not get himself out of the difficulty by asking the Court to help him to make the parties litigate a different question to that applying to him". (Emphasis added)

12. As I have been informed by Mr. Reyes that the facts are in dispute I shall refrain from making findings on disputed facts. But it seems to me that on the facts as I have set them out above the Defendant has placed itself into two difficulties. First, by debiting US$58,500.00 from the Plaintiff's account at 2.19 p.m. on 27th June 1997 without the Plaintiff's authority or consent. By that time, that sum had already gone into the Plaintiff's account and the Defendant had already acknowledged the debt to the Plaintiff. By debiting the sum from the Plaintiff's account the Defendant incurred a potential liability to the Plaintiff. Secondly, by freezing US$58,500.00 in the Claimant's account in August 1997 without its authority or consent it has incurred a potential liability to the Claimant.

13. Although it appears to me that as a matter of banking law the Plaintiff has a formidable claim against the Defendant, I do not think that I should say any more than that at this stage on the Plaintiff's claim against the Defendant. That is the very issue which is the subject matter of the Order 14 proceedings brought on by the Plaintiff against the Defendant and it has yet to be decided. I think Mr. Reyes is right when he says that the Defendant has a potential liability to the Plaintiff and the Claimant as was the case in Victor Söhne v. British and African Steam Navigation Co. Ltd. [1888] WN 84 where there were two bills of lading issued for the same set of goods and it was contended that the captain of the vessel might well have rendered his owners liable to the holders of both sets of bills of lading and interpleader relief was refused.

14. Furthermore, the Defendant by freezing the Claimant's account when threatened with proceedings has hampered the Claimant's position as it has been unable to use the frozen funds. As an observation, it could be said that the Defendant had earlier played the Claimant's game by debiting the Plaintiff's account with the said sum on the instructions of the Claimant but Mr. Reyes has very fairly and properly said that on the authority of Thompson v. Wright (supra) he could not take that point and I have not taken this into account. Mr. Reyes was content to rely on the freezing of the Claimant's account by the Defendant when threatened with proceedings by the Plaintiff as collusion on the part of the Defendant. In my judgment, Mr. Reyes is correct.

15. In the circumstances, the Defendant has failed to satisfy me that it has not colluded with any of the claimants. That in my view is sufficient to dispose of this appeal.

16. I should mention that I also accept Mr. Reyes' submission that on 27th June 1998 the Defendant acknowledged a debt to the Claimant by re-transferring the sum to its account. As Mr. Ng correctly pointed out the acknowledgement cannot be a conclusive acknowledgement of a debt but in my judgment it was a prima facie acknowledgement. The position was not reversed either immediately or even soon after. It was only in August 1997 that the Defendant froze the said sum in the Claimant's account. The Defendant did not reverse the entry in the Claimant's account nor did it correct an error. It seems to me that the Defendant wanted to get back possession of the funds so that it would be in a position to come to court to apply for interpleader relief. It is a pre-requisite for relief that the applicant must be in possession of the subject matter in dispute (para. 1008 vol. 25 Halsbury's 'Laws of England' 4th Ed.). It is, as Mr. Reyes put it, akin to the situation where A takes property in B's possession without B's permission and gives that property to C, but when B complains about A's behaviour, A takes back the property from C without C's permission. He then comes to court and says "I have the property in my possession. Give me interpleader relief". In the exercise of my discretion, I am not prepared to grant interpleader relief to the Defendant in the circumstances of this case.

17. The appeal is dismissed. I make an order nisi that the Defendant do pay the Claimant its costs of the appeal and that there be no order as to costs between the Plaintiff and the Defendant.