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HCA007017/2000
HCA7017/2000
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO.7017 OF 2000
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TSUN FAT FINANCE COMPANY LIMITED |
Plaintiff |
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COMMISSIONER OF POLICE |
Defendant |
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Coram: Deputy High Court Judge Fung in Court
Dates of Hearing: 6-7, 10-12 June 2002
Date of Judgment: 15 July 2002
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J U D G M E N T
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1. The plaintiff issued the writ on 13 July 2000 against the defendant for the possession of and damages for conversion in respect of 50 packets of diamonds seized by the defendant from the plaintiff under a search warrant on 13 March 1998. The plaintiff alleged that the defendant should have returned the diamonds to it within reasonable time upon demand after the Department of Justice ("DOJ") advised on 1 February 1999 that no criminal prosecution was to be instituted, and that the defendant had wrongfully detained the diamonds in order to ascertain whether there were other claimants making adverse claims.
2. On 10 August 2000, the defendant issued an interpleader summons naming 12 claimants. On 31 October 2000, the 1st claimant withdrew its claim. On 8 March 2001, the interpleader summons was heard before Yeung J (as he then was). The 2nd to 12th claimants also withdrew their claims. The defendant undertook to return the diamonds to the plaintiff within three days. The summons was dismissed with no order as to costs against the 12 claimants. Costs between the plaintiff and the defendant on the interpleader summons was made costs in the cause of the action herein. The plaintiff perused the claim on damages for conversion.
I. LIABILITY
The facts
3. The following facts are not in dispute. The plaintiff is a licenced money lender. It is in the business of, inter alia, lending money to diamond traders on the pledge of diamonds.
4. Between January and May 1997, 18 diamond merchants including the 12 claimants had sold diamonds worth over $15 million to Chan Cheung Chun ("Chan") representing Walco Development Co. Ltd ("Walco"). Chan further sold the diamonds to one Mrs Lin.
5. On 16 February and March 1997, Mrs Lin's husband Lin Han Hung ("Lin") entered into four loan agreements with the plaintiff to borrow $1 million, $1 million, $1.1 million and $1.25 million respectively totalling $4.35 million and pledged four lots of diamonds with declared values of $1 million, $1 million, $1.1 million and $1.25 million respectively as security. The four loan agreements were identical in terms. The repayment date under the first two loan agreements was 16 August 1997, and the repayment date under the last two loan agreements was 11 September 1997. The diamonds were in 50 packets with over 25,000 pieces weighing 938.7 carats.
6. Clause 5 of the loan agreements provides that :
"In the event of default of repayment by the Customer, whether in whole or in part of the said loan, the Company (without prejudice to its other rights under common law or any legislation then in force) is and will be entitled to sell or otherwise dispose of the said Diamonds or any part or parts thereof in such way or ways as the Company may see fit and without any court order or any prior notice (whether oral or written) to the Customer and to reimburse itself (i.e. the Company) the said loan and interest thereon together with all the costs and expenses incurred in such a sale or disposition. Any surplus arising from such sale or disposition (after deducting all the costs and expenses to incurred) will be refunded to the Customer within 30 working days (Saturday and Sunday excluded) after the completion of such sale or disposition without interest."
7. Between 6 and 11 June 1997, the 18 diamond merchants reported to the police that Chan had failed to pay them for the diamonds. The claimants stated the purpose for making the report as follows :
(1) The 2nd, 8th, 9th, and 10th claimants stated that they would like to either get the money or the diamonds back.
(2) The 3rd, 4th, 5th, 6th, 11th and 12th claimants stated that they would like to get the money back.
(3) The 1st claimant said the payment of the price was not yet due and did not state any purpose.
(4) The 7th claimant did not state any purpose.
8. On 15 August 1997, 16 diamond merchants including the 2nd to 12th claimants commenced proceedings in HCA 8575/1997 against Walco for the price of the diamonds. On 10 September 1997, default judgment against Walco was obtained.
9. On 16 August and 11 September 1997, payment under the four loan agreements fell due and remained unpaid.
10. On 23 February 1998, officers of the defendant executed a search warrant on the plaintiff's office and seized the four loan agreements.
11. On 12 March 1998, the plaintiff wrote to Lin giving notice that unless $4.35 million were repaid within three days, it would sell the mortgaged diamonds for the recovery of the arrears under the loans.
12. In the Affirmation of Sgt Chan Kin Ki dated 10 August 2000 on behalf of the defendant in support of the interpleader summons, it was stated that as Lin could not repay the money to the plaintiff in August and September 1997, the plaintiff had forfeited the diamonds.
13. On 13 March 1998, officers of the defendant executed another search warrant and seized the diamonds pledged by Lin under the four loan agreements.
14. Between 5 and 12 May 1998, officers of the defendant invited the diamonds merchants to inspect the seized diamonds and the following claimants had made positive identification :
(1) The 2nd claimant stated that to the best of its understanding, part of the diamonds in seven packets were of the same quality, size and colour as sold by it and it still had to collect payment from Chan.
(2) The 3rd claimant stated that to its understanding, part of the diamonds in one packet were similar in size, colour and quality to those sold by him and stated that up to then, it had not received payment from Walco or Chan and it wanted the money back.
(3) The 4th claimant stated part of the diamonds in three packets were probably the goods sold by it and stated it still had to collect payment from Chan.
(4) The 1st claimant stated that one whole packet of diamonds matched the quality, colour and size of goods sold by it and it still had to collect payment of the above goods from Chan.
15. Both the 2nd and 4th claimants identified three packets in common. In the case of 2nd, 3rd and 4th claimants, the identified and unidentified portions of the diamonds were not separated but remained mixed in the same packet.
16. On 1 February 1999, the Prosecutions Division of the DOJ advised that no criminal proceedings should be taken against Chan, and advice should be sought from the Civil Division as to disposal of the diamonds.
17. On 17 February 1999, the officer in charge of the case sought advice from the Civil Division, DOJ.
18. On 12 March 1999, the Civil Division advised as follows :
"2. You seek our advice on the proper disposal of property, namely packets of diamonds, seized by police during investigation of a suspected case of obtaining property by deception.
3. I have referred the file to our Civil Litigation Unit with instructions to institute interpleader proceedings to determine the proper disposal of the seized property among the parties concerned."
19. On 24 April 1999, the plaintiff wrote to the defendant stating that as it learnt that criminal investigation had concluded, it had contacted the officer in charge many times but the officer delayed in returning the exhibit and it was suffering huge loss of interest. The plaintiff had referred the matter to their solicitors and it would hold the defendant liable for its loss.
20. On 20 May 1999, the defendant wrote back to the plaintiff informing it that no prosecution would be undertaken and added that :
" With regard to ownership of diamonds connected with case, further advice is being sought from Civil Litigation Unit of the Department of Justice relating to disposal of the diamonds. At present, the case is still under review by this department. Upon receipt of their recommendations all parties claiming ownership of the diamonds will be contacted with a view to settling the matter."
21. On 25 May 1999, the plaintiff wrote to the defendant :
" We regret that the diamonds taken away from our company cannot be returned to us even there is no prosecution action to be undertaken. We hold a different view that the matter of ownership has no concern with the Civil Litigation Unit of the Department of Justice. The subject article was taken away from our company and it should be returned to us. Any dispute in the ownership of the said articles should be decided by the Court of Justice but not from the said Department. We demand for the return of the said article forthwith."
22. On 22 June 1999, the defendant sent a sample letter to the diamond merchants ("1st sample letter") :
" We have during the investigation of the captioned case taken possession of certain diamonds from a company to whom the diamonds were said to be pledged.
We have finished our investigation of the captioned case and no prosecution action is taken.
As it is expected that there are a number of potential claimants to the diamonds and our investigation has revealed you might be a potential claimant of the diamonds, we are considering instituting interpleader proceedings to seek the court's order as to how the diamonds are to be disposed of.
Before we proceed to institute interpleader proceedings, please confirm in writing within 14 days from the date of this letter whether you wish to claim the diamonds. If in the affirmative and more than 1 claimant claims the diamonds, you will be named as one of the Claimants in the interpleader proceedings and you will be asked to appear (or represented by your legal representatives) in court at the hearing of the interpleader proceedings to pursue your claim. You may wish to note that in the interpleader proceedings the unsuccessful Claimant(s) may be liable to pay our costs and the costs of the successful Claimant(s) of the proceedings. If we do not receive your confirmation by such time, we will assume that you do not claim the diamonds."
23. The letter was also sent to the plaintiff. On 20 July 1999, the plaintiff wrote to the defendant stating that it did not see that interpleader proceedings were required and demanded the return of the diamonds.
24. Between 21 July and 3 September 1999, all the 12 claimants replied to the defendant. Their indications were as follows :
(1) The 1st, 3rd, 4th, 5th, 6th claimants confirmed that they would make claims on the diamonds;
(2) Other claimants sent an identical letter as follows :
" Contents have been noted, however we feel it is very unfortunate that we have been put in a position were (sic.) we are expected to pay for the court proceedings, in case we are unsuccessful.
As far as we are concerned, we would like to see that the property seized is sold, and the proceeds thereof split between the claimants. This is the only way that we feel it would be fair to all parties.
We took a writ out against Walco Development Co Ltd in 1997, copies of which are with the Police Department. There were in total 16 plaintiffs, as such we feel that any property that belonged to Charles Chan (directly or indirectly) should fairly be distributed.
The company that the goods were seized from, should have no legal claim against the goods, as the goods were part of ill-gotten gains."
25. On 6 November 1999, the defendant sent another sample letter to those claimants suggesting the splitting of the proceeds of sale on the diamonds ("2nd Sample letter") :
" As there are a number of claimants who have indicated that they will claim the diamonds, we will take out interpleader proceedings for the court to decide the appropriate way of disposing of the diamonds. Please clarify and confirm in writing within 14 days from the date of this letter whether you wish to claim the diamonds... If we do not receive your confirmation by such time, the aforesaid letter of you will be taken as that you wish to claim the diamonds and you will be named as a Claimant in the interpleader proceedings."
26. In the meantime, the defendant wrote to various claimants verifying their capacity and/or appropriate addresses for service in preparation of the interpleader summons.
27. On the other hand, the plaintiff's solicitors wrote to the defendant demanding the return of the diamonds, and complaining, without prejudice that interpleader proceedings were inappropriate, the delay in issuing such summons.
28. On 20 May 2000, the plaintiff applied for leave for judicial review of the defendant's decision in refusing to return the diamonds. Leave was refused.
29. On 13 July 2000, the writ herein was issued and served. On 10 August 2000, the defendant took out the interpleader summons.
The plaintiff's case
30. The plaintiff accepted that the initial seizure of the diamonds under the search warrant was lawful. However, upon the decision of no prosecution on 1 February 1999, and allowing for reasonable time to take proper legal advice, the diamonds should then be returned to the plaintiff. Failure to do so upon demand amounted to conversion and/or trespass to goods.
31. Mr Law, counsel for the plaintiff, submitted that at all material times, the defendant could not expect to be sued for or in respect of the diamonds by anyone except the plaintiff, and taking out the interpleader summons did not provide a defence to conversion.
32. Mr Law submitted that as at 12 March 1999 when legal advice was given, there was no basis for any interpleader proceedings :
(1) Only the 1st, 2nd, 3rd and 4th claimants had made positive identification of the diamonds but they said they still had to collect payment of the diamonds;
(2) The 8th, 9th and 10th claimants said they either wanted payment or the diamonds but they had not identified any diamonds.
33. It is common ground that at all material times, the defendant has never received any threats or intimation of legal action by any claimant. Mr Law submitted that as there was no claim on the diamonds by those who had made identification, and those making claims could not point to any specific goods, the defendant could not expect to be sued for or in respect of the diamonds by anyone except the plaintiff at that stage. The advice on 12 March 1999 to take out interpleader summons was misconceived.
34. Mr Law further submitted that while as at 22 June 1999 there was no or no valid claimants on the diamonds, the act of sending out the 1st sample letter was to invite claims on the diamonds. Mr Law also submitted that the wording of the letter was misleading :
(1) "Our investigation has revealed you might be a potential claimant of the diamonds" might have given the claimants a hope that they had a proprietary claim over the diamonds notwithstanding that they had already obtained default judgment on the price of the goods;
(2) "If we do not receive your confirmation by such time, we will assume that you do not claim the diamonds" might also have encouraged them to make a claim.
Mr Law submitted the 1st, 3rd, 4th, 5th and 6th claimants were invited by the defendant to claim for the diamonds.
35. The 2nd sample letter went even further in deeming the remaining claimants as making a claim on the diamonds. By then, the claimants had provided copies of the writ in HCA 8575/1997 to the defendant. If the defendant had been careful in their investigations, it ought to have known that the claimants had sued for the price of the goods, and judgment had been obtained, and the claimants had no proprietary claim on the diamonds. Any fear of being sued by the claimants was without real foundation. The interpleader summons was misconceived.
36. Mr Law submitted that a party, whom by his own act, is placed in a situation to be sued, cannot call on the Court to substitute another defendant under the interpleader act (Belcher & ors, Assignees of Maberly, a Bankrupt v. John Smith (1832) 9 Bing. 81).
37. Mr Law submitted that if the interpleader summons were misconceived, there would be no other justification or defence to conversion as it was not the duty of the police to investigate into civil claims between private citizens.
38. Alternatively, Mr Law submitted that even if the defendant were justified in taking out the interpleader summons at the later stage :
(1) They should have detained, at the most the nine packets wholly or partly identified by the claimants and returned the remaining 41 unidentified packets;
(2) They should not have delayed for 17 months from March 1999 to August 2002 in taking out the interpleader summons.
39. Mr Law complained that the plaintiff did not know that only nine out of 50 packets had been identified by four claimants until Sgt Chan Kin Ki filed an affirmation on 10 August 2000 in support of the interpleader summons, and further, it did not know that all the 11 remaining claimants had obtained judgment against Walco for the price of the goods until the affirmations of the claimants were filed in December 2000. Had the matter come to a head earlier, the inevitability of the claimants withdrawing the claims could have taken place before the long gestation period.
40. It was submitted that the delay in itself was inconsistent with the plaintiff's ownership of the diamonds and amounted to conversion for the period between 12 March 1999 and 10 August 2000.
The defence case
41. Mr Kwok for the defence did not argue that the claimants could have any proprietary interest in the diamonds because they had obtained judgment for the price in September 1997.
42. Mr Kwok submitted that there was no conversion because :
(1) The police did expect to be sued by the claimants and was therefore entitled to interpleader relief;
(2) Even if the interpleader proceedings were misconceived, the refusal to return the diamonds to the plaintiff was otherwise conditional, qualified and justifiable.
43. The defendant did expect to be sued by the claimants because :
(1) According to the cautioned statement of Chan, he had sold the diamonds to Mrs Lin;
(2) Chan said Lin told him he had either sold or mortgaged the diamonds in Taiwan or Hong Kong and, inter alia, mortgaging some diamonds to the plaintiff;
(3) The claimants were unpaid by Chan;
(4) The claimants were making rival claims on the diamonds.
44. Alternatively, it was submitted that the defendant was entitled to take out the interpleader summons because it had bona fide doubt as to the ownership of the diamonds.
45. It was submitted that all 50 packets of diamonds were detained because there was prima facie evidence that the diamonds could be traced to Chan and in turn the 18 merchants.
46. Mr Kwok submitted that even if the interpleader summons were misconceived, it would only go to the consideration on costs thereof, and would not affect the defence to conversion. The refusal to return the diamonds was otherwise conditional, qualified and justifiable :
(1) From the result of the investigation, the defendant did have a bona fide doubt as to the title to the diamonds and expected there were potential claimants;
(2) The police has a duty to return the goods to the rightful owner;
(3) The defendant should be allowed reasonable time to clear up the doubt and ascertain the true ownership to the diamonds;
(4) Reasonable time has not elapsed until the determination of the interpleader summons by the court;
(5) The defendant never asserted the right of any third party save that it wanted to ascertain all the rightful claimants;
(6) The defendant never intend to wilfully convert or wrongfully deal with the goods save that they wanted the protection of a court order as to the disposal of it;
(7) The defendant also intended to protect the plaintiff's interests by resorting to the court for an order;
(8) Even if the advice of DOJ to issue interpleader proceedings were wrong, it was duty bound and reasonable for the defendant to have sought it and to have acted upon it.
47. Mr Kwok submitted that there was no intentional delay in issuing the interpleader proceedings. It was reasonable for the defendant to identify all potential claimants and to clarify whether they really wanted to claim on the goods or only the proceeds. The 8th claimant was resident in Israel and the defendant also had to seek directions from the Director of Administration as to service outside jurisdiction.
48. It was submitted that no weight should be placed on to the replies of the 7th to 12th claimants to the 1st sample letter to infer that the defendant had knowledge of the writ in HCA 8575/1997 because on the documents before the court, there was no evidence that the defendant had actually considered the writ.
49. Even if the defendant were aware of the writ and/or the judgment, given the amount of the diamonds involved, it was reasonable for the defendant to make further enquires as to ownership after the conclusion of the criminal investigation.
Conversion
50. The law on conversion and detinue is to be found in the common law in Hong Kong. For the purpose of the present proceedings, no distinction is sought to be drawn between the two torts.
51. According to Clerk & Lindsell on Torts (18th Edition, 2000) at para.14-09 :
"Forms of conversion
... conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another's right whereby that other is deprived of the use and possession of it (Kuwait Airways v. Iraqi Airways [1999] CLC 31, per Mance J). To be liable the defendant need not intend to question or deny the claimant's right; it is enough that his conduct is inconsistent with those rights."
At para.14-10, the learned authors cited the wrongful retention of goods as a mode of conversion, and "wrongfully" for those purposes means without the actual permission of the owner.
And at para.14-27 :
"Refusal only evidence of a conversion
Refusal to deliver up on demand is not as such a conversion, but only evidence of it. It is necessary to consider whether the refusal is unconditional or not, and to decide whether in either case the refusal is justifiable. Upon unconditional refusal it is normal, however, to infer denial of the claimant's title."
And further at para.14-29 :
"Refusal must be unconditional
The refusal must also be unconditional. A person on whom a demand for goods is made may not have them immediately available even though they are under this control; he may be the agent of another, or he may be under the belief that he has himself some right or title to the property. In all these cases he cannot be required to act at a moment's notice, or r |