HANG LUNG REAL ESTATE AGENCY LTD v. GLORY GOLD LTD

DCDT3179/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

DISTRAINT CASE NO. 3179 OF 2005

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DECISION

1. This is an interpleader summons taken out by the bailiff after the execution of a warrant of distress dated 26^th May 2005 (hereinafter called “the Warrant”).

2. The Plaintiff is the agent of the registered owner of the premises known as the whole of 2^nd Floor, Hollywood Plaza, No.610 Nathan Road, Kowloon (hereinafter called “the Premises”).  By a tenancy agreement dated 19^th November 2003 (hereinafter called “the Tenancy Agreement”), the Premises was let by the Plaintiff (as agent for and on behalf of the registered owner) to the Defendant trading as Kam Ho Seafood Restaurant for a term of 6 years commencing on 1^st July 2003 and at the monthly rental stipulated therein. 

3. The Defendant defaulted in payment of the said monthly rental and the Plaintiff applied for the Warrant.   The Warrant was executed by the bailiff on 23^rd and 25^th June 2005 and the bailiff has made an inventory and appraisement of the property seized, comprising 465 items (hereinafter called “the List”).  The property seized do not fall within the exceptions provided under section 88 of the Landlord and Tenant (Consolidation) Ordinance, Cap.7. 

4. There are 2 claimants in this case.  Initially, the 1^st Claimant asserted ownership on items 52-465 of the List.  However, the 1^st Claimant’s counsel has informed me at the hearing on 21^st July 2005 that the 1^st Defendant would abandon its claim on items 65-67, 441(a)-(c) and 464 of the List.  The 2^nd Claimant is asserting ownership on items 1-8, 10-13, 65-67, 441(a)-(c) and 2 bags of red jujube in item 464 of the List. 

5. After ascertaining that all parties have produced all relevant documentary evidence and that they are all ready, I proceed to determine the summons summarily pursuant to O.17, r.5(2).

The Relevant Law

6. Under section 87 of the said Ordinance, the bailiff shall seize the moveable property found in or upon the Premises and in the apparent possession of the Defendant in pursuance of the Warrant.  In Lai Sun Development Company Limited v. Linkfeel Limited, DCDT 584/2003, His Honour Judge Lok has summarized the approach of the court as follows:

“It is trite law that the court should approach the present application in the following manner.  Firstly, were the [property] in the apparent possession of the Defendant?  If the answer is no, the [property] should be released to their rightful owner. On the other hand, if the answer is yes, the bailiff was entitled to seize the [property].  However, even in the latter case, the court still retains a discretion to return the [property] to their rightful owner.  In exercising such discretion, ownership is only one of the factors to be considered, along with all other circumstances, including the rights of the landlord (see: Fuleekoo Co. Ltd. v. Spiral Tubes International Ltd. [1986] HKC 269, at 276 A-C).”

Whether the property was in the apparent possession of the Defendant

7. So, the first issue in this case is whether the property seized by the bailiff was in the apparent possession of the Defendant at the time of execution of the Warrant.

8. Miss Fung Pik Wah was the bailiff who executed the Warrant.  She had confirmed the name of the Defendant and the name of the restaurant before execution.  Although she had been informed of the fact that the Defendant had instituted separate legal proceeding against the Plaintiff, she confirmed that there had been no stay of execution of the Warrant.

9. Miss Fung had also been informed that most of the property at the Premises belonged to the 1^st Claimant and she had been shown a copy of a Chinese agreement signed on 15^th July 2003 (hereinafter called “Licence Agreement”).  It can be observed from the Licence Agreement that the agreement was apparently made between the 1^st Claimant as licensor and the Defendant as licensee and provided, inter alia, that the Defendant let from 1^st Claimant the general restaurant licence for the Premises and “all profit generating tools” (一切生財工具) for the purpose of carrying on the business of Kam Ho Seafood Restaurant for a period of 6 years from 1^st August 2003 and at a licence fee of $100,000 per month.

10. Miss Fung noted that according to the Tenancy Agreement, the Premises had been let to the Defendant and the Defendant had agreed not to assign, transfer, sublet or otherwise part with the possession of the Premises or any part thereof.  She demanded for more evidence to substantiate the 1^st Claimant claim but none was provided.  Miss Fung was not informed of the 2^nd Claimant’s claim at the time.  In the circumstances, she felt satisfied that the property at the Premises was in the apparent possession of the Defendant and proceeded with the execution of the Warrant. 

11. The Licence Agreement was simply drafted.  It is not at all clear on the face of the agreement what is meant by “all profit generating tools”.  No schedule of “profit generating tools” is attached to the agreement.

12. Under the Tenancy Agreement, the Premises had been let to the Defendant (and not the 1^st Claimant) for the purpose of carrying on the business of Kam Ho Seafood Restaurant.  Clause 4(v) of the Tenancy Agreement further provided that the Defendant might not:

“… assign transfer sublet or otherwise part with the possession of the Premises or any part thereof in any way whether by way of subletting lending sharing or other means whereby any person or persons not a party to [the Tenancy Agreement] obtains the use or possession of the Premises or any part thereof irrespective of whether any rental or other consideration is given for such use of possession …”

13. The bailiff has confirmed the name of the Defendant was correct and that the name of the restaurant, which was in business at the time, was the same as the one carried on by the Defendant at the Premises under the Tenancy Agreement.  In my view, the bailiff quite rightly felt concerned about the quality of the evidence and demanded more evidence there and then to substantiate the 1^st Claimant’s claim.  None, however, was provided to her.  The property seized is consistent with the business carried on by the Defendant at the Premises.  Based on the evidence then available to the bailiff, I am satisfied that the bailiff was entitled to treat the property seized in the apparent possession of the Defendant. 

The exercise of the discretion

14. The next issue is whether the court should exercise the discretion to release the property now claimed by the 1^st Claimant to the 1^st Claimant.

15. Mr. Poon Hin Ming, the manager of the 1^st Claimant, has filed an affirmation in support of the 1^st Claimant’s claim after the execution of the Warrant.  According to him, one Bestrade Investments Limited (hereinafter called “Bestrade”) had carried on the business of a Chinese restaurant known as Hon Po Restaurant (漢寶酒樓) at the Premises before 2003.  Due to insufficient number of customers, Bestrade ceased business in or about 2003.  Bestrade then entered into an agreement with the 1^st Claimant in or about June 2003 by which Bestrade agreed to transfer the general restaurant licence to the 1^st Claimant at a consideration of $80,000.  Bestrade further agreed that the 1^stClaimant should have the right to retain and use all of the furniture chattels and utensils situated at the Premises free of charge provided that the 1^st Claimant should be responsible for their maintenance and repair at its own cost.  In or about July 2003 and after the Premises had been let to the Defendant, the 1^st Claimant granted a licence to the Defendant for the use of those same chattels and general restaurant licence in terms of the Licence Agreement.  The Court of First Instance has since ordered Bestrade to be wound up.  Mr. Poon has produced the minutes of the meeting of the board of directors of Bestrade held on 24^th June 2003 approving the aforesaid transfer, the Licence Agreement, as well as the general restaurant licence of the 1^st Claimant in evidence.

16. In relation to the 1^st Claimant’s general restaurant licence, Mr. Poon has emphasized in his affirmation that under the terms of the said licence the licensee may not transfer his licence to any person except with the consent of the Director of Food and Environmental Hygiene.  This, however, must be viewed in the light of the 1^st Claimant’s own case that the 1^st Claimant has granted a licence to the Defendant for the Defendant to use the 1^st Claimant’s general restaurant licence to carry on the business of a restaurant at the Premises.

17. At the hearing, counsel for the 1^st Claimant has confirmed the 1^st Claimant’s case to be that the 1^st Claimant had become the owner of the property now claimed by it by reason of the aforesaid agreement between Bestrade and the 1^st Claimant, and the 1^st Claimant is not claiming the property for and of behalf of Bestrade.

18. To start with, I consider the alleged dealings between Bestrade and the 1^st Claimant and between the 1^st Claimant and the Defendant to be artificial.

19. The Defendant and the 1^st Claimant were incorporated on 13^th March 2003 and 24^th March 2003 respectively.  The Plaintiff and the Defendant reached the provisional agreement for the letting of the Premises (which was subsequently replaced by the Tenancy Agreement) on about 23^rd June 2003.  So, the 2 companies were set up one shortly after the other, and only a few months before the provisional tenancy agreement.  The Defendant and the 1^st Claimant share the same address as registered office at all material times.  The only 2 shareholders and directors of the 1^st Claimant (namely, Mr. Mak Wai Lun and Mr. Mak Shu Yam) are also shareholders of the Defendant.  Mr. Poon, the manager of the 1^st Claimant who has filed the affirmation in support of the 1^st Claimant’s claim, happens to be also a shareholder of the Defendant.  All these suggest that the Defendant and the 1^st Claimant are closely connected.

20. According to Bestrade’s board resolution, Bestrade’s directors have purportedly resolved on 24^th June 2003 to assign Bestrade’s general restaurant licence to the 1^st Claimant with immediate effect.  By then (i.e. 24^th June 2003), the Defendant was already in existence and had apparently entered into the provisional tenancy agreement with the Plaintiff.  So, what was the point of Bestrade transferring its general restaurant licence to the 1^st Claimant instead of the Defendant?  The 1^st Claimant’s case that it only subsequently granted a licence to the Defendant “in or about July 2003” does seem to me to be rather artificial in view of the close connection between the 1^st Claimant and the Defendant.

21. Secondly, the board resolution of Bestrade adduced in evidence by the 1^st Claimant only provided for the transfer of the general restaurant licence by Bestrade to the 1^st Claimant.  It is curiously silent concerning the furniture chattels and utensils situated at the Premises, which is central to the 1^st Claimant’s case.

22. Thirdly, as I have noted above, the Licence Agreement was simply drafted.  It did not elaborate on what “profit generating tools” have purportedly been licensed by the 1^st Claimant to the Defendant for use in the restaurant.  The Tenancy Agreement was entered into almost 2 years ago and it is save to assume that the Defendant’s restaurant must have been in business for quite some months.  How would the Defendant and the 1^st Claimant differentiate between those furniture chattels and utensils covered by the Licence Agreement and those furniture chattels and utensils subsequently acquired by the Defendant?  This is all the more so as the 1^st Claimant is presumably obliged to maintain and repair those furniture chattels and utensils covered by its agreement with Bestrade.

23. Fourthly, the Licence Agreement provided that a licence fee of $100,000 per calendar month should be paid yearly on the 1^st day of August of each year.  The Defendant should have already paid the licence fee for the first year (i.e. 1^st August 2003 to 31^st July 2004) totaling $1,200,000 on 1^st August 2004.  However, no evidence of payment of any licence fee is produced by the 1^st Claimant.

24. Fifthly, accordingly to Mr. Poon’s affirmation, all the property seized except items 1-51 of the List belong to the 1^st Claimant.  That is basically everything found on the Premises including furniture.  However, according to paragraph 14 of the Statement of Claim filed by the Defendant in HCA 1078/2005 against the Plaintiff, the Defendant incurred a total cost of about $7,300,000 in setting up the business at the Premises including $2,500,000 on furniture.  This apparent inconsistency is further highlighted by the duel role of Mr. Poon, both as a manager of the 1^st Claimant and a shareholder of the Defendant.

25. Sixthly, notwithstanding the concession made by the 1^st Claimant’s counsel at the hearing, the 1^st Claimant is still asserting ownership on food, drinks and consumables such as Items 53, 54, 60-64, 68, 303, 386-440 and 442-463.  These food, drinks and consumables can hardly be considered as “profit generating tools” under the Licence Agreement. 

26. All in all, I have grave doubt about the genuineness of the 1^st Claimant’s claim.  The whole arrangement alleged by the 1^st Claimant, even if true, appears to be a ploy to avoid the liability of the Defendant under the Tenancy Agreement and should not be condoned.  In the premises, I am not satisfied that the items now claimed by the 1^st Claimant belong to the 1^st Claimant and I refuse to exercise the discretion in favour of the 1^st Claimant.

27. The case of the 2^nd Claimant is much simpler.  According to a declaration made by Mr. Yeung Bo Kuen, the 2^nd Claimant has delivered dried seafood and miscellaneous goods (海味雜貨) to the Defendant and the Defendant has not yet paid for them.  The items now claimed by the 2^nd Claimant are mostly dried seafood and consumables (such as cashew, nuts and beans).  Mr. Yeung has elaborated on the arrangement between the Defendant and the 2^nd Claimant at the hearing.  He says that the 2^nd Claimant would from time to time deliver goods to the Defendant for the Defendant to use or sell.  The 2^nd Claimant would periodically ascertain the quantity of goods consumed or sold by the Defendant and bill the Defendant accordingly.

28. To start with, the 2^nd Claimant has produced no invoice, packing list, or delivery note to confirm that the items now claimed by it were indeed supplied by the 2^nd Claimant.  I consider it unbelievable that the parties have not kept any record of the goods allegedly supplied by the 2^nd Claimant to the Defendant.  Given the nature of the Defendant’s business, there should be a continuous need to consume or sell dried seafood and miscellaneous goods.  How would the parties differentiate between dried seafood and miscellaneous goods supplied by the 2^nd Claimant from those supplied by other suppliers?  Even assuming that the 2^nd Claimant is the only supplier, it would be impossible for the parties to ascertain the volume consumed or sold without knowing the volume supplied in the first place.

29. Secondly, I also find the alleged arrangement between the 2^nd Claimant and the Defendant highly unreal.  It would be very difficult, if not impossible, for the 2^nd Claimant to ascertain from time to time the volume consumed or sold given the nature of the goods.

30. All in all, I am not satisfied that the items now claimed by the 2^nd Claimant belong to the 2^nd Claimant and I refuse to exercise the discretion in favour of the 2^nd Claimant.

Conclusion and order

31. By reason of the aforesaid, I dismiss the claims of the 1^st Claimant and the 2^nd Claimant.  The bailiff may proceed with the sale of all the property seized.

32. The bailiff has informed me that the cost of security guard incurred up to and including 21^st July 2005 is $26,100 and is continuing at $900 per day.

33. I order that the cost of security guard up to and including the date of handing down of this decision be to the Plaintiff and borne by the 1^st Claimant and the 2^nd Claimant jointly and severally.

34. I further make a cost order nisi that the 1^st Claimant and the 2^nd Claimant do jointly and severally pay the Plaintiff’s costs of the interpleader summons, to be taxed if not agreed.  Unless an application has been made to vary that order, that order shall become absolute 14 days after the decision is handed down.