GOLDCREST MANAGEMENT HOLDINGS LTD v. GREAT WISH CORPORATION LTD

DCDT 307/2018

[2018] HKDC 416

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO 307 OF 2018

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DECISION

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Introduction

1.  This matter is an interpleader proceedings commenced by the bailiff office which has levied a distraint of goods and chattels for rent under a Warrant of Distress dated 15 February 2018.  The plaintiff was the landlord and the defendant was the tenant of two shops in Mongkok.  The shops were used by the defendant as a restaurant.  The rental arrears accrued since 15 December 2017 at HK$220,000 per month.  The plaintiff applied for the Warrant of Distress in January 2018.  Seizure was executed on 20 March 2018 at the shops whereby about 40 items were seized.  These were mainly furniture, tools and equipment of the restaurant.  Items 19 and 20 thereof were “two ASUS taps” and “one iPad (model unknown)”.

2.  The claimant was the sole shareholder of the defendant.  The directorship composition of the defendant and the claimant is identical. 

3.  On 23^rd March 2018, the claimant, through its solicitors, claimed ownership and return of 39 items, as a result of which the bailiff issued the interpleader summons dated 28 March 2018 pursuant to Section 95 of the Landlord and Tenant (Consolidation) Ordinance.  The interpleader summons was heard on 16 April 2018.  Decision was reserved.  I now give my decision with reasons.

Considerations applicable to Interpleader summons in tenancy context

4.  Consideration of the interpleader summons in tenancy context involves an exercise of discretion of the court, conferred by Section 96(2) of the Ordinance.  Such discretion is a wide one.[1] I believe that the issue of ownership of goods seized is inevitably an important starting point though I am mindful that ownership alone does not trump a landlord’s right to distrain.[2]  The claimant in this matter has not asserted wrongful distraint.  It only sought to put in evidence to substantiate its alleged ownership of the items.

5.  After reviewing the affirmations of the claimants[3] and having heard submissions by Counsel, I find that the claimant in this case has gone nowhere near establishing ownership.  The claimant has also demonstrated a lack of prospect of its doing so even an adjournment is given. 

6.  The claimant has filed three affirmations in support of its claim.  In summary, they did not only fail to present proper evidence, more fundamentally problematic was that the affirmations actually compelled a conclusion that the claimant was deliberately withholding evidence.

7.  The claimant’s evidence was itself woefully inadequate.  There was no argument over that, and the claimant’s counsel at the hearing therefore only sought extra time for the claimant to apply to its bank for bank records and cheque images to support that it has paid for the items and so owned them.  She sought 6 weeks suggesting that such delay would not cause prejudice and it was argued that the prejudice would be compensated by an offer of security of HK$50,000.

8.  As the plaintiff’s counsel, Mr Kevin Lau, rightly pointed out, the hearing then became one to consider whether to adjourn the hearing for 6 weeks to allow the claimant to apply to the bank, for cheque images and bank statements, and for the claimant to trace what items were paid for.

9.  I will go into the three main reasons for rejecting the claimant’s request for adjournment, and for dismissing the entire claim of the claimant.

Reason 1: Ownership not capable of being proved by documents sought to be adduced by claimant in time

10.  The documents needing time to seek were images of three cheques issued in 2015 and the bank statements of the claimant between 29 July 2015 to 30 March 2016.  The claimant did not submit that it needed to locate other documents. 

11.  In my view, such documents, even when they are available, cannot advance the claimant’s claim.  The claimant may be able to confirm to whom the three payments by cheques were paid, but still such cheque records would unlikely bear reference to which items were paid for.  It was not the claimant’s case that the cheques read on its back the items being paid for.  It is doubtful to me that even if time is given to the claimant, it could be able to trace what items they had paid for. 

12.  Furthermore, between the showing of payment of purchase prices and the proving of ownership, there is clearly a step apart.  Even if the claimant produces evidence of its payment of purchase price, it still has to go further to prove that the items they paid for belonged to it, not the defendant.  The claimant has not proposed to do anything else beyond getting bank records and analyzing them to trace what items were paid for.  There is no suggestion of putting in further evidence to explain on what basis the defendant came to use the equipment and tools.  Nor has the claimant suggested that accounts would be forthcoming to show that such equipment and tools were booked as the claimant’s property or the purchase money booked as a loan to the defendant.  Showing of purchases made by the claimant is inconclusive to the issue of ownership. There was no proposal at all from the claimant as to how the claimant planned to bridge the gap between showing of purchase payments and ownership.  It is clear to me that the claimant cannot bridge the gap even if given another 6 weeks.

Reason 2: Claimant’s evidence itself suggesting deliberate withholding of documents

13.  The claimant’s counsel tried to characterize the claimant as one keen to look for evidence and so need time for it.  But such characterization cannot hold water when the claimant’s evidence by way of the three affirmations already filed unfolded itself haphazardly.  The claimant’s evidence bears hallmarks of a litigant which did not know what it was doing.  It was only wanting to try its luck along the way.

14.  There are too many unsatisfactory features in the claimant’s evidence. I intend to only name the more troubling ones.

15.  First, the claimant suggested that it intended to use the coming 6 weeks to apply to the bank for past records.  For almost a month since first indicating the claim, it had not yet done so.  The claimant exhibited in an Affirmation of an account staff, Ms Wong, an unsigned application form to the bank.  Ms Wong deposed that she had to wait for her boss to sign the form.  At the hearing, the claimant’s counsel explained further that the application was not yet made because each document would cost $50 and then if the account staff applied for it, before the boss returned from Bangkok, the staff would have to bear such costs.

16.  There is also no proper explanation as to how the application could not be made earlier when the claimant’s solicitors was on board by 23 March 2018 and when the director was in Hong Kong.  The claimant’s counsel suggested that there were miscommunications internally, hence such delay.  She also explained that the claimant wanted to wait for the outcome of this hearing first before incurring such costs.

17.  To explain why the claimant could have lost documents of just two or three year old, its counsel suggested that they were not lost but just that the claimant merely “had no possession of them”.  Such a characterization speaks of the claimant’s being economical with the exact truth. 

18.  All the purported explanations for the claimant’s failure to present the needed evidence are very ill conceived.

19.  Secondly, the evidence of the claimant was very haphazardly presented. It is very hard for me to trust the claimant.  For example, just the day before this hearing, the claimant produced another bank application dated 4 April 2018 but they were apparently for some other cheque images.  There was no explanation what the claimant was trying to establish with this bank application.  Another deponent has also exhibited in her affirmation a first page of a current bank statement of the claimant, which seemed to me out of place, and is irrelevant.

20.  Thirdly, the affirmations of the claimant themselves are full of avowed mistakes.  For example, an affirmation stated that the claimant’s purchase was paid by a director’s personal credit card.  Then, in the next affirmation by another deponent, it was stated that the credit card used was of the company, not a personal card.  In connection with all these corrections one after another, the claimant avowed as innocent mistakes.  But to me, all these mistakes are quite systemic and are troubling.

21.  Fourthly, the claimant suggested in one affirmation that it has online statements as from April 2016 but has stopped short at producing them.  In another affirmation later, it exhibited one of the bank statement for the month of December 2016, trying to support its payment to a Trio Engineering Company. It shows that the claimant was not fully forthcoming in disclosure of documents.  For documents that it did have, it had hesitation in disclosing them.

22.  Lastly, even as to what the claimant wanted at this hearing, the claimant did not make out a request for adjournment until its counsel came in seeking an adjournment by way of her submissions.

23.  Given the severity of how the three affirmations already filed fell short of what the claimant needs to show to the court, I am certain that giving 6 more weeks to it will not help putting its case right.

24.  No unworthy time should be wasted, as will be explained below, when the plaintiff suffers prejudice if completion of distress proceedings is delayed. 

Reason 3: Defendant’s carrying business as usual using goods distrained

25.  As the claimant’s counsel told me, the defendant had been and will continue to operate the restaurant at the same shops all these times.  The defendant continued to use the same furniture, tools and equipment seized by bailiff, which was stored inside the shops.   The claimant did not see anything unjust in it, and suggested to this court that this bore no relevance to the question about the goods seized.  There was not any indication at all that the claimant intended to cease operation at the shops at any time of time.  (According to the plaintiff, it is common for the bailiff to just employ a security guard to ensure that the goods seized are not to be taken away.  It is too expensive to rent another place to store the goods seized, hence the defendant’s continued use of the goods inside the shops.)

26.  Giving the claimant six more weeks therefore guarantees business as usual for the defendant.  This cannot be right however one views the matter. Continued use of the goods seized defeated the distraint regime.

27.  The plaintiff has acted promptly in applying for distraint.  The plaintiff’s counsel submitted that there could not be concurrent distraint and application of possession order.  Mr Lau for the plaintiff helpfully refers me to Woodfall: Landlord & Tenant, 2014 ed at para 9.006 which states that distress required subsisting of tenancy and cannot take place after termination of the tenancy.  Accordingly, the plaintiff can take only one course a time, and it keenly seeks to complete distraint first, auctioning the items, before commencing application for possession.  Up to now, the defendant has defaulted payment of rent for over four months.  It is clear that delay in the distress proceedings will cost the plaintiff gravely, by being continuingly denied of the possession of the shops, and increasing the rental arrears.

28.  It was argued by the claimant’s counsel that the validity of a warrant of distress is assessed at the date of its issuance, such that action for possession can follow right after issuance of warrant and be concurrent.  She relied on Shui On Centre Co Ltd v BPB (HK) Ltd, CACV 246 of 2006, 13 October 2006.  In any event, I consider that there is much to be said for waiting for completion of distress before commencing possession action.

29.  The inherent unfairness in the defendant’s continued use of the distrained goods cries out for a speedy completion of the distraint proceedings without unnecessary delay.  

Items 19 and 20 – ipads and tabs

30.  In relation to items 19 and 20, ie the ipads and tabs, the claimant has produced an invoice showing that the claimant has purchased them in 2017. However, whilst the invoice records the reference numbers of the items so purchased, the claimant has failed to show the seized devices are the same so purchased.  As Mr Lau for the plaintiff has rightly pointed out, the claimant could have look for the reference number of the actual devices now inside the shops to link with those recorded in the invoice.  The failure to do so can only be deliberate, especially when the claimant’s counsel turned around and blamed the bailiff for failing to record the reference number in the inventory list.

31.  There is insufficient evidence before me to find that the devices that the claimant paid for are the ones seized.  The claimant has failed to establish ownership of these devices. 

Other considerations apart from ownership

32.  Mr Lau, for the plaintiff, drew my attention to what else to be considered apart from ownership.  He argued that even assuming that the claimant could establish ownership, the court needs also to consider the close connection between the claimant and the defendant, as weighing in favour of the landlord.  It was submitted by Mr Lau that the rationale is that goods may be provided by one of the connected parties to another “for the purpose of avoiding distraint proceedings and evading the Landlord’s entitlement to the distress remedy” (Dombas Estates Limited v Top Joint Investment Limited (unrep., DCDT 3959/2008, 16 December 2008) at para 8-9.)  A parent-subsidiary relationship is one such qualifying connection (Silver Nicety Company, at para 24).

33.  Mr Lau also argued that promptness of landlord’s action, lack of warning from persons on-site who may be taken to know of the real ownership and the fact of lawful destraint all point to confirm the landlord’s right.

34.  In this matter, however, I consider that these other factors need not play a significant role because the claimant’s case of ownership has not got off ground.

Costs

35.  I reject the claimant’s application for adjournment and dismiss its claim.  Costs should follow the event.  The claimant should pay the plaintiff’s costs of the summons forthwith a sum to be summarily assessed by disposal on papers.  The plaintiff is at liberty to file and serve a statement of costs within the next 5 days, and claimant is at liberty to file and serve a list of objection within the following 5 days.